<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 27, 1998
REGISTRATION NO. 333-64679
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
HARBORSIDE HEALTHCARE CORPORATION
AND OTHER REGISTRANTS*
(Exact name of registrant as specified in its charter)
DELAWARE 8051 04-3307188
(State or other (Primary Standard (IRS Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
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470 ATLANTIC AVENUE
BOSTON, MASSACHUSETTS 02210
(617) 556-1515
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
STEPHEN L. GUILLARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HARBORSIDE HEALTHCARE CORPORATION
470 ATLANTIC AVENUE
BOSTON, MASSACHUSETTS 02210
(617) 556-1515
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
WITH COPIES TO:
E. MICHAEL GREANEY, ESQ.
GIBSON, DUNN & CRUTCHER LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
11% Senior Subordinated
Discount Notes due
2008................... $170,000,000 59.586% $101,296,200 $29,882(2)
Guarantees of the
Notes.................. $170,000,000 (3) (3) (3)
13 1/2% Exchangeable
Preferred Stock
Mandatorily Redeemable
2010 ("New Preferred
Stock")................ 41,365 $1,000 $41,365,000 $12,179(4)
13 1/2% Subordinated
Exchange Debentures due
2010(5)................ (6) (3) (3) (3)
</TABLE>
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(1) Estimated pursuant to Rule 457(f)(2) solely for purposes of calculating
the registration fee, based on the book value of the Old Securities as of
September 29, 1998.
(2) Previously paid.
(3) No separate consideration will be received for the Guarantees or the
Exchange Debentures and, pursuant to Rule 457(i) and 457(n), no further
fee is payable with respect thereto.
(4) A fee of $11,800 for 40,000 shares was previously paid. The balance of
$379 is being paid herewith.
(5) Issuable at the Registrant's option in exchange for the New Preferred
Stock.
(6) An amount equal to the aggregate liquidation preference of, and
accumulated but unpaid dividends on, the New Preferred Stock outstanding
at the time of the exchange, including New Preferred Stock issued in
payment of dividends.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
--------------
*The exact names of each of the other registrants as specified in their
charters, their states of incorporation or organization and their I.R.S.
employer identification numbers are as follows: Harborside Healthcare Limited
Partnership (MA, 04-2985687), Belmont Nursing Center Corp. (MA, 04-3072217),
Orchard Ridge Nursing Center Corp. (MA, 04-3072231), Oakhurst Manor Nursing
Center Corp. (MA, 04-3072232), Riverside Retirement Limited Partnership (MA,
04-2991629), Harborside Toledo Limited Partnership (MA, 04-3260170),
Harborside Connecticut Limited Partnership (MA, 06-1496629), Harborside of
Florida Limited Partnership (FL, 04-3239093), Harborside of Ohio Limited
Partnership (MA, 04-3189435), Harborside Healthcare Baltimore Limited
Partnership (MA, 52-2013622), Harborside of Cleveland Limited Partnership (MA,
04-3313798), Harborside of Dayton Limited Partnership (MA, 31-1546651),
Harborside Massachusetts Limited Partnership (MA, 04-3364219), Harborside
Rhode Island Limited Partnership (MA, 05-0495209), Harborside North Toledo
Limited Partnership (MA, 34-1855902), Harborside Healthcare Advisors Limited
Partnership (MA, 04-2985690), Harborside Toledo Corporation (MA, 04-3274482),
KHI Corporation (DE, 51-0304577), Harborside Danbury Limited Partnership
(f/k/a Harborside Acquisition Limited Partnership IV) (MA, 06-1528119),
Harborside Acquisition Limited Partnership V (MA, None), Harborside
Acquisition Limited Partnership VI (MA, None), Harborside Acquisition Limited
Partnership VII (MA, None), Harborside Acquisition Limited Partnership VIII
(MA, None), Harborside Acquisition Limited Partnership IX (MA, None),
Harborside Acquisition Limited Partnership X (MA, None), Sailors, Inc. (DE,
None), New Jersey Harborside Corporation (MA, 04-3285183), Bridgewater
Assisted Living Limited Partnership (NJ, 04-3331905), Maryland Harborside
Corporation (MA, 04-3168713), Harborside Homecare Limited Partnership (MA, 04-
3276939), Harborside Rehabilitation Limited Partnership (MA, 04-3209245),
Harborside Healthcare Network Limited Partnership (FL, 04-3310886), and
Harborside Health I Corporation (DE, 51-0304578). The primary standard
industrial classification code number for each of these other registrants is
8051.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+ REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+ SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+ OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+ BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+ THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+ SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+ UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER , 1998
PROSPECTUS
OFFER FOR ALL OUTSTANDING 11% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2008
IN EXCHANGE FOR
NEW 11% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AND FOR ALL OUTSTANDING SHARES OF 13 1/2% EXCHANGEABLE PREFERRED STOCK
MANDATORILY REDEEMABLE 2010
IN EXCHANGE FOR
NEW SHARES OF 13 1/2% EXCHANGEABLE PREFERRED STOCK MANDATORILY REDEEMABLE 2010
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, OF
[LOGO]
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON NOVEMBER 30, 1998, UNLESS EXTENDED
----------
Harborside Healthcare Corporation (the "Issuer") hereby offers to exchange (i)
up to an aggregate principal amount of $170,000,000 of its new 11% Senior
Subordinated Discount Notes due 2008 which have been registered under the
Securities Act of 1933, as amended (the "New Notes"), for a like principal
amount of its 11% Senior Subordinated Discount Notes due 2008 outstanding on
the date hereof (the "Old Notes"), and (ii) up to 41,365 new shares of its 13
1/2% Exchangeable Preferred Stock Mandatorily Redeemable 2010 which have been
registered under the Securities Act of 1933, as amended (the "New Preferred
Stock," and together with the New Notes, the "New Securities"), for a like
number of shares of its 13 1/2% Exchangeable Preferred Stock Mandatorily
Redeemable 2010 outstanding on the date hereof or to be paid as dividends on
such outstanding shares on November 1, 1998 (the "Old Preferred Stock," and
together with the Old Notes, the "Old Securities"), upon the terms and subject
to the conditions set forth in this Prospectus and in the accompanying Letter
of Transmittal (which together constitute the "Exchange Offer"). The New Notes
and the Old Notes are referred to collectively herein as the "Notes." The New
Preferred Stock and the Old Preferred Stock are referred to collectively herein
as the "Exchangeable Preferred Stock." The New Securities and the Old
Securities are referred to collectively herein as the "Securities."
The terms of the New Securities are identical in all material respects to those
of the Old Securities, except for certain transfer restrictions, registration
rights and special mandatory redemption provisions relating to the Old
Securities. The New Notes will be issued pursuant to, and entitled to the
benefits of, the Indenture (as defined) governing the Old Notes. The New
Preferred Stock will be issued pursuant to, and entitled to the benefits of,
the Certificate of Designation governing the Old Preferred Stock. The New
Notes, like the Old Notes, will be guaranteed (the "Note Guarantees") on an
unsecured senior subordinated basis by certain subsidiaries of the Issuer (the
"Guarantors").
The New Securities are being offered hereunder in order to satisfy certain
obligations of the Issuer contained in the Registration Rights Agreements dated
July 31, 1998 (the "Registration Rights Agreements"), among the Issuer, the
Guarantors and the Placement Agents (as defined), with respect to the initial
sale of the Old Notes and the Old Preferred Stock. Neither the Issuer nor the
Guarantors will receive any proceeds from the Exchange Offer. The Issuer will
pay all the expenses incident to the Exchange Offer. Tenders of Old Securities
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date (as defined) for the Exchange Offer. In the event the Issuer
terminates the Exchange Offer and does not accept for exchange any Old
Securities with respect to the Exchange Offer, the Issuer will promptly return
such Old Securities to the holders thereof. See "The Exchange Offer."
Each broker-dealer that receives New Securities for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Securities. The Letter of Transmittal
states that by so acknowledging and by delivery of a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Securities received in
exchange for Old Securities where such Old Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Issuer has agreed that, for a period of 90 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
(Cover continued on next page)
SEE "RISK FACTORS" COMMENCING ON PAGE 24 FOR A DISCUSSION OF CERTAIN FACTORS
THAT HOLDERS OF OLD SECURITIES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE
OFFER.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October 28, 1998.
<PAGE>
(Continuation of cover page)
Prior to the Exchange Offer, there has been no public market for the Old
Securities. If a market for the New Securities should develop, such New
Securities could trade at a discount from their Accreted Value (as defined) or
liquidation preference, as applicable. The Issuer currently does not intend to
list the New Securities on any securities exchange or to seek approval for
quotation through any automated quotation system and no active public market
for the New Securities is currently anticipated.
The Exchange Offer is not conditioned upon any minimum principal amount of Old
Securities being tendered for exchange pursuant to the Exchange Offer.
The New Notes and Note Guarantees, like the Old Notes and the guarantees of
the Old Notes, will be unsecured senior subordinated obligations of the Issuer
and the Guarantors, will be subordinated in right of payment to all existing
and future Senior Debt, will rank pari passu in right of payment with all Pari
Passu Debt and will be senior in right of payment to all Subordinated Debt. In
addition, the New Notes will be effectively subordinated to all liabilities
(including trade payables) of the subsidiaries of the Issuer that are not
Guarantors. At June 30, 1998, after giving pro forma effect to the merger and
related financings described herein, the Issuer and the Guarantors would have
had approximately $61.5 million of Senior Debt and no Pari Passu Debt or
Subordinated Debt outstanding, and the subsidiaries that are not Guarantors
would have had approximately $29.5 million of liabilities (excluding amounts
owed to the Issuer or any Guarantor), including $16.4 million of indebtedness.
In addition, all borrowings under the Issuer's new $250.0 million credit
facility (which is guaranteed by the Guarantors) will constitute Senior Debt.
The New Notes, like the Old Notes, will each have a principal amount at
maturity of $1,000. Each Old Note had an original issue price of $585.25 and
the Accreted Value (as defined in the Indenture) of each Old Note accretes
from the date of its issuance. The Accreted Value of each New Note will
accrete from the date of issuance, at which time its Accreted Value will equal
the Accreted Value of each Old Note. Cash interest will not accrue on the New
Notes until August 1, 2003. Thereafter, interest on the New Notes will be paid
in cash on each February 1 and August 1, commencing February 1, 2004. The New
Notes will be redeemable, in whole or in part, at the option of the Issuer, at
any time on or after August 1, 2003, at the redemption prices set forth
herein.
Dividends on the New Preferred Stock, like in the case of the Old Preferred
Stock, will be cumulative from the date of issuance and are payable quarterly
in cash or, on or prior to August 1, 2003, at the option of the Issuer, in
additional shares of Exchangeable Preferred Stock, on each February 1, May 1,
August 1 and November 1, commencing on the first such date after the issuance
of the New Preferred Stock. The Issuer is required to redeem the New Preferred
Stock out of funds legally available therefor (if any) at the liquidation
preference of $1,000 per share, plus accumulated and unpaid dividends, on
August 1, 2010. The New Preferred Stock will be redeemable, in whole or in
part, at the option of the Issuer, at any time on or after August 1, 2003, at
the redemption prices set forth herein. The New Preferred Stock will be
exchangeable, in whole but not in part, at the option of the Issuer, subject
to certain conditions, into 13 1/2% Subordinated Exchange Debentures due 2010
of the Issuer (the "Exchange Debentures"). If issued, the Exchange Debentures
will be redeemable, in whole or in part, at the option of the Issuer, at any
time on or after August 1, 2003, at the redemption prices set forth herein.
In addition, at any time, or from time to time, on or prior to August 1, 2001,
up to 35% of the New Notes and up to 35% of the Exchangeable Preferred Stock
or Exchange Debentures will be redeemable at the option of the Issuer, from
the net cash proceeds of one or more public offerings of common stock of the
Issuer at 111% of their Accreted Value, 113.5% of their liquidation preference
or 113.5% of their principal amount, as the case may be, plus any accrued and
unpaid interest or dividends, as the case may be. In addition, the New Notes,
the New Preferred Stock and the Exchange Debentures will be redeemable on the
terms provided herein upon a Change of Control.
2
<PAGE>
AVAILABLE INFORMATION
The Issuer and the Guarantors have filed with the Securities and Exchange
Commission (the "Commission") a registration statement relating to the New
Securities offered hereby (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") under the Securities Act. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby
made to the Registration Statement. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to such exhibit for a more complete description thereof, and each such
statement shall be deemed qualified in its entirety by such reference.
Upon effectiveness of the Registration Statement, the Issuer and the
Guarantors will be subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith must file periodic reports and other information with the
Commission.
The Registration Statement and the exhibits and schedules thereto and any
periodic reports or other information filed pursuant to the Exchange Act may
be inspected without charge and copied at prescribed rates at the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at 7 World
Trade Center, Suite 1300, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
Commission maintains a website that contains reports, proxy and information
statements and other information filed electronically with the Commission at
http://www.sec.gov.
Pursuant to the indenture pursuant to which the Old Notes have been issued
and the New Notes will be issued (the "Indenture") and the certificate of
designation pursuant to which Old Preferred Stock has been issued and the New
Preferred Stock will be issued (the "Certificate of Designation"), the Issuer
and the Guarantors have agreed to file with the Securities and Exchange
Commission (the "Commission"), to the extent permitted by the Exchange Act,
and provide to the holders of the Securities, annual reports and the
information, documents and other reports (including quarterly reports) that
are specified in Sections 13 and 15(d) of the Exchange Act. The Issuer intends
to file a letter with the Commission requesting that the Guarantors not be
required to comply separately with the reporting requirements specified in
Sections 13 and 15(d) of the Exchange Act. If this request is granted, the
Issuer will comply with such reporting requirements and will include in its
reports information with respect to the Guarantors on a consolidated basis.
3
<PAGE>
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). ALL STATEMENTS REGARDING THE
COMPANY'S EXPECTED FINANCIAL POSITION, BUSINESS AND FINANCING PLANS ARE
FORWARD-LOOKING STATEMENTS. THE COMPANY BELIEVES THAT THE EXPECTATIONS
REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS, AND THE ESTIMATES AND
ASSUMPTIONS ON WHICH THEY ARE BASED, ARE REASONABLE. HOWEVER, ESTIMATES AND
ASSUMPTIONS ARE INHERENTLY UNCERTAIN, AND NO ASSURANCE CAN BE GIVEN THAT THEY
WILL PROVE TO BE CORRECT OR THAT EXPECTATIONS BASED UPON THEM WILL BE
REALIZED. THE COMPANY THEREFORE CANNOT AND DOES NOT WARRANT THAT THE RESULTS
CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS WILL BE ACHIEVED, AND IT IS
LIKELY THAT ACTUAL RESULTS WILL DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY
SUCH FORWARD-LOOKING STATEMENTS. ACCORDINGLY, UNDUE RELIANCE SHOULD NOT BE
PLACED UPON SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE EXPECTATIONS REFLECTED IN
SUCH FORWARD-LOOKING STATEMENTS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN
THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, IN CONJUNCTION WITH THE
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND UNDER "RISK
FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE ISSUER, ITS AFFILIATES OR PERSONS ACTING ON ITS BEHALF ARE
EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS DISCLOSED
IN THIS PROSPECTUS.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION.................................................... 3
FORWARD LOOKING STATEMENTS............................................... 4
SUMMARY.................................................................. 6
RISK FACTORS............................................................. 25
USE OF PROCEEDS.......................................................... 38
THE EXCHANGE OFFER....................................................... 39
CAPITALIZATION........................................................... 49
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION................... 50
SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING DATA............ 65
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................... 67
BUSINESS................................................................. 78
MANAGEMENT............................................................... 99
PRINCIPAL SHAREHOLDERS................................................... 105
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 108
THE TRANSACTIONS......................................................... 110
DESCRIPTION OF CAPITAL STOCK............................................. 113
DESCRIPTION OF THE NEW CREDIT FACILITY................................... 114
DESCRIPTION OF THE NEW NOTES............................................. 117
DESCRIPTION OF THE NEW PREFERRED STOCK................................... 154
DESCRIPTION OF THE EXCHANGE DEBENTURES................................... 170
U.S. FEDERAL INCOME TAX CONSEQUENCES..................................... 204
PLAN OF DISTRIBUTION..................................................... 209
LEGAL MATTERS............................................................ 210
EXPERTS.................................................................. 210
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................... F-1
</TABLE>
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER CHAPTER 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY
SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A
SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY
WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO,
ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE
MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
5
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless the
context requires otherwise, all references in this Prospectus to the "Issuer"
mean Harborside Healthcare Corporation, a Delaware corporation, its
subsidiaries and their predecessors, or any of them, depending on the context,
after consummation of the merger of Harborside with and into HH Acquisition
Corp. (the "Merger") pursuant to the Agreement and Plan of Merger dated as of
April 15, 1998, and all references to "Harborside" or the "Company" mean
Harborside Healthcare Corporation, a Delaware corporation, its subsidiaries and
their predecessors, or any of them, depending on the context, whether before or
after consummation of the Merger. All references in this Prospectus to the Old
Securities, the New Securities or the Securities include the Exchange
Debentures if issued or if otherwise appropriate in the context. All references
in this Prospectus to "Recent Acquisitions" mean the acquisitions completed by
the Issuer in 1997 and 1998. See "Business--Recent Acquisitions."
THE COMPANY
Harborside is a leading provider of high-quality long-term care and specialty
medical services in the Eastern United States. The Company has focused on
establishing strong local market positions with high-quality facilities in five
principal regions: the Midwest (Ohio and Indiana), New England (Massachusetts
and New Hampshire), the Northeast (Connecticut and Rhode Island), the Southeast
(Florida) and the Mid-Atlantic (New Jersey and Maryland). As of June 30, 1998,
the Company operated 49 long-term care facilities with 5,983 licensed beds. The
Company provides a broad continuum of medical services including: (i)
traditional skilled nursing care; and (ii) specialty medical services,
including a variety of subacute care programs such as orthopedic
rehabilitation, cerebrovascular accident ("CVA")/stroke care, cardiac recovery,
pulmonary rehabilitation and wound care, as well as distinct programs for the
provision of care to Alzheimer's and hospice patients. As part of its subacute
services, the Company provides physical, occupational and speech rehabilitation
therapy services, both at Company-operated and non-affiliated facilities,
through its wholly-owned subsidiary, Theracor.
Since commencing operations in 1988, the Company has successfully grown its
revenues and earnings primarily through: (i) strategic acquisitions in states
which it believes possess favorable demographic and regulatory environments
through which it believes it has achieved a strong regional presence; (ii) the
expansion of the specialty medical services provided at its long-term care
facilities; and (iii) the creation of marketing programs to strengthen
relationships with patient referral sources and payors, including those in the
growing managed care sector. In addition, the Company believes that the demand
for its services has also benefited from favorable industry dynamics and
demographic trends, while the supply of new licensed beds continues to be
restricted by various state regulations. As a result, the Company has achieved
high occupancy rates, a favorable quality mix (non-Medicaid revenues as a
percentage of total net revenues) and consistent, strong growth in total net
revenues and profitability. During the three years ended December 31, 1997, the
Company's total net revenues grew at a compound annual rate of 36.9%, from
$86.4 million in 1994 to $221.8 million in 1997. During the same period, the
Company's EBITDAR (as defined) grew at a compound annual rate of 38.1%, from
$12.8 million in 1994 to $33.7 million in 1997.
INDUSTRY BACKGROUND
The U.S. long-term care industry encompasses a broad range of healthcare
services provided in skilled nursing facilities, including traditional skilled
nursing care and specialty medical services. Revenues generated by the long-
term care industry, which were $87 billion in 1996, have grown at a compound
annual rate of over 10% since 1980. The long-term care industry currently
consists of
6
<PAGE>
approximately 17,000 free-standing and hospital-based skilled nursing
facilities and remains highly fragmented, with the fifteen largest publicly-
traded long-term care companies controlling less than 20% of all facilities.
The Company believes that the demand for long-term care will continue to
increase primarily due to: (i) lengthened average life expectancies, which have
increased the number and medical needs of elderly individuals requiring
specialized care; (ii) social changes, including the prevalence of two-income
households and increased disposable income, which have increased the need and
ability to pay for elderly care outside of the home; (iii) payor-driven cost
containment initiatives, which have encouraged shorter stays in acute care
settings and have led to increased admissions to long-term care facilities
which provide subacute care; and (iv) improvements in medical technology, which
have increased the range and cost effectiveness of subacute care services that
long-term care providers can offer. The long-term care industry is also
undergoing considerable consolidation due to its fragmented nature, the
benefits of scale when dealing with patient referral sources and payors and in
generating cost efficiencies, the inability of smaller, less sophisticated
operators to effectively treat higher acuity patients and adapt to the
increasing complexity of the reimbursement and regulatory environment, and
constraints on the supply of new licensed beds. The Company believes that these
and other factors which are driving consolidation will provide the Company with
opportunities for continued growth through acquisitions.
COMPANY STRENGTHS
Portfolio of High-Quality Long-Term Care Facilities. The quality of the
Company's portfolio of facilities is evidenced by the Company's strong
historical operating performance and the high percentage of its facilities that
are accredited by the Joint Commission on Accreditation of Healthcare
Organizations ("JCAHO"), a nationally-recognized accreditation agency for
hospitals, skilled nursing facilities and other healthcare organizations. As of
June 30, 1998, 63% of Harborside's long-term care facilities were accredited by
JCAHO, with 35% of the Company's facilities accredited "with Commendation,"
compared to only 13% and 3%, respectively, for the industry as a whole in 1997.
The Company has scheduled accreditation reviews for an additional 16% of its
facilities during the remainder of 1998 and intends to seek accreditation for
substantially all of its remaining non-accredited facilities in the near
future. The Company believes that such recognition not only further improves
its reputation with payors and patient referral sources, but also provides it
with a distinct competitive advantage in securing an increasing number of
managed care and commercial insurance contracts.
Strong Regional Presence in Attractive Markets. The Company has focused its
operations in states that it believes possess favorable demographic and
regulatory environments. All but one of the states in which the Company
operates facilities currently have Certificate of Need ("CON") or other
regulations which restrict the addition of new licensed beds, which the Company
believes provide it with a more favorable competitive environment. Within its
five existing principal regions, the Company has further focused on increasing
its presence in distinct local markets. This regional and local focus has
enabled the Company to establish strong market positions and develop strong
relationships with patient referral sources, including regional managed care
organizations. In addition, the Company believes that its regional
concentrations provide it with significant opportunities to achieve operational
efficiencies through economies of scale, greater leverage of corporate
overhead, more effective regional management and marketing efficiencies. The
Company has made significant investments in developing regional overhead
structures that can support significant additional facilities in a given region
with minimal incremental costs.
Ability to Provide Cost-Effective, High-Quality and High Acuity Care. The
Company believes that its strong operating performance has been attributable
to, among other things, its ability to provide a broad range of high-quality
specialty medical services, which typically generate higher revenues and
profits per patient day than traditional skilled nursing care. In particular,
the Company believes that it
7
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can provide subacute care services for substantially less than the cost of such
services when provided by acute care hospitals. Subacute care is comprehensive
care for individuals who have had an acute illness, injury or exacerbation of a
disease process and is typically rendered immediately after, or instead of,
acute hospitalization. The Company provides subacute care services in such
areas as complex medical care, cardiac recovery, digestive care, immuno-
suppressed disease care, post-surgical recovery, wound care, CVA/stroke care,
hemodialysis, infusion therapy, diabetes management and pain management. The
Company has also designed specific proprietary clinical pathways and protocols
in the areas of orthopedic rehabilitation, CVA/stroke recovery, cardiac
recovery, pulmonary rehabilitation and wound care to achieve measurable
outcomes in an efficient, cost-effective and patient-friendly manner. The
Company believes that its subacute care programs and its clinical pathways and
protocols are highly attractive to its patient referral sources, including
commercial insurance and managed care organizations.
Ability to Successfully Evaluate and Integrate Long-Term Care Facility
Acquisitions. The Company has a dedicated acquisition team of six experienced
professionals who work closely with corporate and regional operating management
in the evaluation of acquisition opportunities. The Company believes that the
close working relationship between operating management and its acquisition
team in the evaluation of acquisition opportunities results in better
acquisition decisions and a more effective and timely acquisition integration
process. Prior to the actual acquisition date, the Company begins employee
training regarding the Company's practices and procedures. After an acquisition
is consummated, the acquired facilities are converted to the Company's
financial information systems platform with minimal disruption to facility
operations, and management works closely and immediately with employees at the
new facility to generate operating improvements. Over time, operating
improvements are generated through, among other things, an expanded scope of
higher acuity specialty medical services, enhanced marketing programs and
improved rehabilitation services. Since the beginning of 1996, the Company has
expanded its number of licensed beds by over 140% through the completion of
eight acquisitions representing a total of 29 long-term care facilities with
3,512 licensed beds.
Strong Management Team with Significant Ownership. The Company's senior
management team, led by Stephen L. Guillard, Chairman, CEO and President, has
an average of over 15 years experience in the long-term care sector. In
addition, most of the members of senior management have worked together for the
past ten years. Senior management is highly committed to the growth of the
Company, having reinvested, upon consummation of the Merger, an aggregate value
of $5.6 million of their existing common stock and having retained stock
options which would have had a net value of $1.3 million had such options been
converted into cash in connection with the Merger. In addition, a new stock
option plan was created for senior management and other employees. Assuming the
exercise of all options available under such plan, senior management and other
employees of the Company would own approximately 14% of the Company.
BUSINESS STRATEGY
Selectively Acquire Additional Long-Term Care Facilities. The Company
believes that it will continue to have numerous acquisition opportunities due
primarily to the highly fragmented nature of the long-term care industry and
the inability of smaller, less sophisticated operators to effectively treat
higher acuity patients and adapt to the increasing complexity of the
reimbursement and regulatory environment. The Company will continue to focus
primarily on acquiring facilities in its existing regions where it has
established strong market positions. The Company will also selectively evaluate
new geographic markets possessing favorable demographic and regulatory
environments where it can establish strong market positions. The Company
believes that concentrating its long-term care facilities within selected
geographic regions provides it with greater local market share and more
effective relationships with patient referral sources, as well as the ability
to achieve operational efficiencies
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<PAGE>
through economies of scale, greater leverage of corporate overhead, more
effective regional management and marketing efficiencies. The Company's
acquisition strategy is particularly focused on states with CON programs or
similar regulations limiting the supply of new licensed beds.
Expand High Acuity Specialty Medical Services. The provision of high acuity
specialty medical services allows the Company to better serve its patient
referral sources along a broader continuum of care and take advantage of the
continued increased flow of high acuity patients from hospital settings. The
provision of such services also typically generates higher revenues and profits
per patient day than traditional skilled nursing care services. The Company
expects to continue to expand the range of specialty medical services provided
at both its existing and acquired facilities, with an emphasis on expanding the
number of its specialized subacute programs. Within its specialized subacute
programs, the Company will continue to design and implement clinical pathways
and protocols for its high acuity services. The Company also plans to continue
to develop specialty medical programs for patients with Alzheimer's disease and
hospice units for patients with terminal illnesses.
Expand Ancillary and Other Businesses. The Company intends to seek contracts
for the provision of its physical, occupational and speech rehabilitation
therapy services with additional non-affiliated facilities. The Company is also
evaluating opportunities to acquire additional ancillary businesses (such as
institutional pharmacy and infusion therapy) which would allow the Company to
provide these ancillary services directly to patients at its facilities and
which the Company believes would allow it to reduce its facility operating
costs. Additionally, these ancillary services could be provided to non-
affiliated facilities. The Company will also selectively evaluate opportunities
to acquire assisted living facilities and home health agencies in markets where
it operates facilities. The Company believes that these opportunities would
allow it to provide a broader continuum of care while leveraging its existing
general and administrative expenses.
Continue to Achieve High Occupancy Rates and a Strong Quality Mix. The
Company seeks to continue to achieve high occupancy rates primarily by
continuing to develop new and existing patient referral sources, enhance its
marketing programs and closely monitor census information and other patient
data at the corporate, regional and facility levels. In addition, the Company
seeks to continue to achieve a strong quality mix primarily by continuing to
expand the breadth and improve the quality of its specialty medical services.
An integral part of the Company's acquisition strategy has been to acquire
high-quality facilities from smaller, less sophisticated operators whose
facilities tend to offer lower acuity services than those offered by the
Company, thereby initially diluting the Company's quality mix. The Company
subsequently implements an expanded range of specialty medical services at
these facilities which typically improves its quality mix. For the year ended
December 31, 1997 and six months ended June 30, 1998, the Company's occupancy
rate was 92.3% and 92.6%, respectively, and its quality mix was 60.0% and
58.0%, respectively.
Implement Cost Control Initiatives in Response to Medicare Prospective
Payment System. Beginning January 1, 1999, the Company will be reimbursed for
services it provides to Medicare patients under the Medicare Prospective
Payment System ("Medicare PPS"), which will be phased in over a period of four
years. Medicare PPS will result in the Company being reimbursed under an
acuity-based per diem rate system rather than under the current cost-based
reimbursement system. The Company believes that implementing cost control
initiatives will enable it to maximize its profitability under Medicare PPS.
Accordingly, the Company has identified and intends to implement, among other
things, programs designed to reduce its costs of providing nursing and therapy
services while maintaining quality and outcomes. The Company already has
significant experience providing quality, cost-effective services under acuity-
based prospective payment systems, as 54% of its existing licensed beds are
located in states with acuity-based Medicaid systems.
9
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THE TRANSACTIONS
THE RECAPITALIZATION
On April 15, 1998, Harborside entered into an Agreement and Plan of Merger
(the "Merger Agreement") with HH Acquisition Corp. ("MergerCo"), a Delaware
corporation organized on behalf of INVESTCORP S.A. ("Investcorp"), certain
affiliates of Investcorp and other international investors (such affiliates and
other international investors are collectively referred to herein as the "New
Investors") for the sole purpose of effecting the merger of MergerCo with and
into Harborside, with Harborside continuing as the surviving corporation (the
"Merger"). On August 11, 1998 (the "Closing Date"), pursuant to the Merger
Agreement, MergerCo was merged with and into Harborside. As a result of the
Merger:
. The New Investors became the owners of approximately 91% of the post-
Merger common stock of Harborside.
. Certain Harborside stockholders, including certain members of senior
management, retained shares representing approximately 9% of the post-
Merger common stock of Harborside.
. Each other share of Harborside common stock was converted into $25.00 in
cash, representing an aggregate of approximately $183.9 million in cash
payments to Harborside stockholders.
. In general, holders of outstanding Harborside stock options had the
right to retain their options or to have their options converted into
cash at $25.00 per underlying share less the applicable option exercise
price and withholding taxes. Certain members of Harborside senior
management retained a portion of their stock options, representing
options to purchase 109,994 shares in the aggregate. All other options
were converted into cash, resulting in an aggregate of approximately
$7.9 million in cash payments to holders of outstanding Harborside stock
options.
Financing for the Merger, as well as for the repayment of certain existing
indebtedness and the exercise of certain existing purchase options for leased
facilities, was provided by: (i) approximately $139.5 million from the proceeds
of the offering of the Old Securities by MergerCo (the "Old Securities
Offering"); and (ii) cash common equity contributions to MergerCo by the New
Investors of $165.0 million. See "The Transactions." In addition, Harborside
entered into a new $250.0 million senior secured credit facility (the "New
Credit Facility") at the effective time of the Merger. The New Credit Facility,
the Old Securities Offering and the common equity contributions to MergerCo by
the New Investors are collectively referred to herein as the "Recapitalization
Financings." The Recapitalization Financings and the Merger are collectively
referred to herein as the "Recapitalization." As a result of the Merger, the
Issuer succeeded to all obligations of MergerCo with respect to the Old
Securities.
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THE EXCHANGE OFFER
Issuer...................... Harborside Healthcare Corporation
Securities Offered..........
Up to an aggregate principal amount of
$170,000,000 of its 11% Senior Subordinated
Discount Notes due 2008 (the "New Notes"), and up
to 41,365 shares of its 13 1/2% Exchangeable
Preferred Stock Mandatorily Redeemable 2010 (the
"New Preferred Stock," and together with the New
Notes, the "New Securities"). The terms of the
New Securities and Old Securities are identical
in all material respects, except for certain
transfer restrictions, registration rights and
special mandatory redemption provisions relating
to the Old Securities.
The Exchange Offer..........
The New Notes are being offered in exchange for a
like principal amount of Old Notes, and the New
Preferred Stock is being offered in exchange for
a like number of shares of Old Preferred Stock
(consisting of the shares initially issued and
shares to be issued on November 1, 1998 in
payment of the first dividend payable thereon).
Old Notes may be exchanged only in integral
multiples of $1,000. The issuance of the New
Securities is intended to satisfy obligations of
the Issuer contained in the Registration Rights
Agreements.
Expiration Date; Withdrawal
of Tender..................
The Exchange Offer will expire at 5:00 p.m., New
York City time, on November 30, 1998, or such
later date and time to which it is extended by
the Issuer. The tender of Old Securities pursuant
to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date. Any Old
Securities not accepted for exchange for any
reason will be returned without expense to the
tendering holder thereof as promptly as
practicable after the expiration or termination
of the Exchange Offer.
Certain Conditions to the
Exchange Offer............. The Issuer's obligation to accept for exchange,
or to issue New Securities in exchange for, any
Old Securities is subject to certain customary
conditions relating to compliance with any
applicable law, order of any governmental agency
or any applicable interpretation by any staff of
the Commission, which may be waived by the Issuer
in its reasonable discretion. The Issuer
currently expects that each of the conditions
will be satisfied and that no waivers will be
necessary. See "The Exchange Offer--Certain
Conditions to the Exchange Offer."
Procedures for Tendering Each holder of Old Securities wishing to accept
Old Securities........ the Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver
11
<PAGE>
such Letter of Transmittal, or such facsimile,
together with the certificates representing such
Old Securities or a Book-Entry Confirmation (as
defined) and any other required documentation, to
the Exchange Agent (as defined) at the address
set forth herein. See "The Exchange Offer--
Procedures for Tendering Old Securities."
Use of Proceeds............. There will be no use of proceeds to the Issuer
from the exchange of Securities pursuant to the
Exchange Offer.
Exchange Agent.............. United States Trust Company of New York is
serving as the Exchange Agent in connection with
the Exchange Offer.
Federal Income Tax
Consequences............... The exchange of Securities pursuant to the
Exchange Offer will not be a taxable event for
federal income tax purposes. See "U.S. Federal
Income Tax Consequences."
CONSEQUENCES OF EXCHANGING OLD SECURITIES PURSUANT TO THE EXCHANGE OFFER
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, holders of Old Securities (other
than any holder who is an "affiliate" of the Issuer within the meaning of Rule
405 under the Securities Act) who exchange their Old Securities for New
Securities pursuant to the Exchange Offer generally may offer such New
Securities for resale, resell such New Securities, and otherwise transfer such
New Securities without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided such New Securities are acquired in
the ordinary course of the holder's business and such holders have no
arrangement or understanding with any person to participate in a distribution
of such New Securities. Each broker-dealer that receives New Securities for its
own account in exchange for Old Securities, where such Old Securities were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Securities. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Securities may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Issuer has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the New Securities for
offer and sale under the securities or blue sky laws of such jurisdictions as
any holder of the Securities reasonably requests in writing. If a holder of Old
Securities does not exchange such Old Securities for New Securities pursuant to
the Exchange Offer, such Old Securities will continue to be subject to the
restrictions on transfer contained in the legend thereon. In general, the Old
Securities may not be offered or sold unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. See "The Exchange
Offer--Consequences of Failure to Exchange; Resales of New Securities."
The Old Securities are currently eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market.
Following commencement of the Exchange Offer but prior to its consummation, the
Old Securities may continue to be traded in the PORTAL market. Following
consummation of the Exchange Offer, the New Securities will not be eligible for
PORTAL trading.
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<PAGE>
THE NEW SECURITIES
The terms of the New Securities are identical in all material respect to the
Old Securities, except for certain transfer restrictions, registration rights
and special mandatory redemption provisions relating to the Old Securities. For
purposes of this Prospectus, the term "Notes" shall refer collectively to the
New Notes and the Old Notes, the term "Exchangeable Preferred Stock" shall
refer collectively to the New Preferred Stock and the Old Preferred Stock and
the term "Securities" shall refer collectively to the New Securities and the
Old Securities.
THE NEW NOTES
Issuer...................... Harborside Healthcare Corporation.
Aggregate Amount............
$170,000,000 principal amount at maturity of 11%
Senior Subordinated Discount Notes.
Maturity.................... August 1, 2008.
Yield and Interest.......... The Old Notes were sold at a substantial discount
from their principal amount at maturity. For a
discussion of the federal income tax treatment of
the Notes and the original issue discount rules,
see "U.S. Federal Income Tax Consequences." The
Notes will fully accrete to face value on August
1, 2003. From and after August 1, 2003, the Notes
will bear interest, which will be payable in
cash, on each February 1 and August 1, commencing
February 1, 2004.
Note Guarantees............. The Issuer's payment obligations under the Notes
are guaranteed on an unsecured senior
subordinated basis (the "Note Guarantees") by
certain of the subsidiaries of the Issuer (the
"Guarantors"). The Note Guarantees are
subordinate in right of payment to all Senior
Debt of the Guarantors, rank pari passu with any
Pari Passu Debt of the Guarantors and are senior
in right of payment to all Subordinated Debt of
the Guarantors. The Guarantors and certain other
subsidiaries of the Issuer are also jointly and
severally liable for all obligations under the
New Credit Facility, which are Senior Debt. See
Note G to the unaudited Condensed Consolidated
Financial Statements of the Issuer as of and for
the six month periods ended June 30, 1998 and
1997 and Note U to the Consolidated Financial
Statements of the Issuer as of and for the years
ended December 31, 1997, 1996 and 1995 for
certain financial information relating to the
Guarantors.
Optional Redemption......... On or after August 1, 2003, the Notes are
redeemable at the option of the Issuer, in whole
or in part, at the redemption prices set forth
herein, plus accrued interest, if any, to the
date of redemption.
Optional Redemption Upon
Public Offering............ At any time, or from time to time, prior to
August 1, 2001, the Issuer may redeem up to 35%
of the aggregate principal amount at maturity of
the Notes with the proceeds of one or
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<PAGE>
more public offerings of common stock of the
Issuer, at 111% of their Accreted Value on the
redemption date, plus accrued and unpaid
interest, if any, to the date of redemption;
provided that after any such redemption at least
65% of the aggregate principal amount at maturity
of Notes remains outstanding. See "Description of
the New Notes--Optional Redemption."
Change of Control........... Upon the occurrence of a Change of Control (as
defined), (i) the Issuer will have the option, at
any time on or prior to August 1, 2003, to redeem
the Notes in whole, but not in part, at a
redemption price equal to 100% of the Accreted
Value of the Notes on the date of redemption plus
the Applicable Premium (as defined), and (ii) if
the Issuer does not so redeem the Notes, or if a
Change of Control occurs after August 1, 2003 and
the Issuer does not redeem the Notes as permitted
at any time after such date, each holder of Notes
will have the right to require the Issuer to
repurchase all or any part of such holder's Notes
at a price equal to 101% of the aggregate
principal amount at maturity thereof plus accrued
and unpaid interest, if any, to the date of
purchase (or if such Change of Control occurs
prior to August 1, 2003, at 101% of the Accreted
Value thereof on the date of purchase). There can
be no assurance that the Issuer will have
sufficient funds available at the time of any
Change of Control to make any required debt
repayment (including repurchases of the Notes).
See "Description of the New Notes--Optional
Redemption" and "--Repurchase at the Option of
Holders--Change of Control."
Ranking..................... The Notes and Note Guarantees are general
unsecured obligations of the Issuer and the
Guarantors, respectively, that are subordinated
in right of payment to all existing and future
Senior Debt, including Debt under the New Credit
Facility. The Notes and Note Guarantees rank pari
passu in right of payment with all Pari Passu
Debt and senior in right of payment to all
Subordinated Debt, including any Exchange
Debentures. The Issuer conducts substantially all
of its operations through subsidiaries. The Notes
are effectively subordinated to all liabilities
(including trade payables) of the Subsidiaries of
the Issuer that are not Guarantors (collectively,
the "Subsidiary Non-Guarantors"). At June 30,
1998, after giving pro forma effect to the
Recapitalization, the outstanding Senior Debt of
the Issuer and the Guarantors would have been
$61.5 million, all of which would have been
Secured Debt (as defined), (ii) the Issuer and
Guarantors would have had no Pari Passu Debt or
Subordinated Debt outstanding, and (iii) the
total liabilities of the Subsidiary Non-
Guarantors (including trade payables and deferred
taxes but excluding amounts owed to the Issuer or
any Guarantor) would have been $29.5 million,
including $16.4 million of indebtedness. After
giving pro forma effect to the Recapitalization,
the Issuer
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<PAGE>
and its Subsidiaries would have had $177.4
million of consolidated Debt. In addition, all
borrowings under the $250.0 million New Credit
Facility will be Senior Debt. See "Description of
the New Notes--Subordination."
Certain Covenants........... The Indenture contains certain covenants which,
among other things, restrict the ability of the
Issuer and its Restricted Subsidiaries to incur
additional Debt; create liens; pay dividends or
make distributions in respect of their capital
stock; make investments and other restricted
payments; sell assets; create restrictions on the
ability of Restricted Subsidiaries to make
certain payments; enter into transactions with
affiliates; incur Debt which is subordinate to
any Senior Debt and senior to the Notes; and
consolidate, merge or sell all or substantially
all of its assets. However, such covenants are
subject to a number of important qualifications
and exceptions. See "Description of the New
Notes--Certain Covenants" and "--Note
Guarantees."
Absence of a Public Market
for the New Notes.......... The New Notes are new securities and there is
currently no established market for the New
Notes. Accordingly, there can be no assurance as
to the development or liquidity of any market for
the New Notes. The Company does not intend to
apply for listing of the New Notes on a
securities exchange.
THE NEW PREFERRED STOCK
Issuer...................... Harborside Healthcare Corporation.
The New Preferred Stock.....
41,365 shares of 13 1/2% Exchangeable Preferred
Stock.
Mandatory Redemption........ The Issuer is required to redeem the Exchangeable
Preferred Stock on August 1, 2010 (subject to the
legal availability of funds therefor) at a
redemption price equal to the liquidation
preference, plus accumulated and unpaid dividends
to the redemption date. See "Description of the
New Preferred Stock--Mandatory Redemption."
Dividends...................
Cumulative at 13 1/2% per annum. Dividends on the
New Preferred Stock, as on the Old Preferred
Stock, are payable quarterly in cash or, on or
prior to August 1, 2003, at the sole option of
the Issuer, in additional shares of Exchangeable
Preferred Stock, on February 1, May 1, August 1
and November 1 of each year, commencing on the
first such date after issuance. The Indenture
restricts, and the Issuer does not expect to
make, payment of dividends in cash prior to
August 1, 2003. See "Description of the New
Notes--Certain Covenants--Restricted Payments."
Dividends on the Exchangeable Preferred Stock
accrue and are cumulative from the date of
issuance. For federal income tax purposes,
distributions with respect to the Exchangeable
Preferred Stock, whether paid in cash or in
additional shares of
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<PAGE>
Exchangeable Preferred Stock, will qualify as
dividends to the extent made out of earnings and
profits of the Issuer as determined under
applicable federal income tax principles. See
"U.S. Federal Income Tax Consequences--The
Exchangeable Preferred Stock--Distributions on
Exchangeable Preferred Stock" and "Risk Factors--
Certain Tax Consequences for Holders of
Exchangeable Preferred Stock."
Liquidation Preference...... $1,000 per share, plus accumulated and unpaid
dividends.
Voting......................
Holders of the Exchangeable Preferred Stock have
no voting rights except as provided by law and as
provided in the Certificate of Designation of the
Issuer with respect to the Exchangeable Preferred
Stock (the "Certificate of Designation"). In the
event that dividends are not paid for any six
quarterly periods, whether or not consecutive, or
upon certain other events (including failure to
comply with covenants and failure to pay the
mandatory redemption price when due), then the
number of directors constituting the Issuer's
Board of Directors will be adjusted to permit the
holders of the majority of the then outstanding
Exchangeable Preferred Stock, voting separately
as a class, to elect two directors. See
"Description of the New Preferred Stock--Voting
Rights."
Optional Redemption......... On or after August 1, 2003, the Exchangeable
Preferred Stock is redeemable, at the option of
the Issuer, in whole or in part, at the
redemption prices set forth herein, plus
accumulated and unpaid dividends to the
redemption date. See "Description of the New
Preferred Stock--Optional Redemption."
Optional Redemption Upon
Public Offering............. At any time, or from time to time, prior to
August 1, 2001, the Issuer may, at its option,
redeem up to 35% of the Exchangeable Preferred
Stock at a redemption price equal to 113.5% of
the liquidation preference thereof, plus
accumulated and unpaid dividends to the
redemption date, with the proceeds of one or more
public offerings of common stock of the Issuer.
See "Description of the New Preferred Stock--
Optional Redemption."
Change of Control........... Upon the occurrence of a Change of Control, (i)
the Issuer will have the option, at any time on
or prior to August 1, 2003, to redeem the
Exchangeable Preferred Stock in whole but not in
part, at a redemption price equal to 100% of the
liquidation preference thereof plus the
Applicable Premium, together with accumulated and
unpaid dividends, if any, to the date of
redemption, and (ii) if the Issuer does not so
redeem the Exchangeable Preferred Stock, or if a
Change of Control occurs after August 1, 2003 and
the Issuer does not redeem the Exchangeable
Preferred Stock as permitted at any time after
such date, each holder of Exchangeable Preferred
Stock
16
<PAGE>
will have the right to require the Issuer to
repurchase all or any part of such holder's
Exchangeable Preferred Stock at a price equal to
101% of the liquidation preference thereof,
together with accumulated and unpaid dividends,
if any, to the date of purchase. There can be no
assurance that the Issuer will have sufficient
funds available at the time of any Change of
Control to make any required repurchases of the
Exchangeable Preferred Stock. See "Description of
the New Preferred Stock--Repurchase at the Option
of Exchangeable Preferred Stock Holders upon
Change of Control."
Ranking..................... The Exchangeable Preferred Stock ranks (i) senior
to all other classes of capital stock of the
Issuer established after the Issue Date which do
not expressly provide that it ranks on a parity
with the Exchangeable Preferred Stock as to
dividends and as to distributions upon the
liquidation, winding-up and dissolution of the
Issuer; and (ii) on a parity with each series of
preferred stock of the Issuer established after
the Issue Date which expressly provides that such
class or series will rank on a parity with the
Exchangeable Preferred Stock as to dividends and
as to distributions upon the liquidation,
winding-up and dissolution of the Issuer.
Creditors of the Issuer and creditors and
stockholders of the Issuer's subsidiaries will
have priority over the holders of the
Exchangeable Preferred Stock with respect to
claims on the assets of the Issuer and its
Subsidiaries. See "Description of the New
Preferred Stock--Ranking."
Optional Exchange Feature... The Exchangeable Preferred Stock is exchangeable
into Exchange Debentures at the option of the
Issuer, in whole but not in part, subject to such
exchange being permitted by the terms of the
Indenture and the New Credit Facility. See
"Description of the New Preferred Stock--
Exchange."
Certain Covenants........... The Certificate of Designation contains certain
covenants which, among other things, restrict the
ability of the Issuer and its Restricted
Subsidiaries to incur additional Debt; pay
dividends or make distributions in respect of
Junior Equity Interests or Equity Interests of
any Restricted Subsidiary; make investments and
other restricted payments; enter into
transactions with affiliates; and, with respect
to the Issuer, consolidate, merge or sell all or
substantially all of its assets. However, such
covenants are subject to a number of important
qualifications and exceptions. See "Description
of the New Preferred Stock--Certain Covenants."
Absence of a Public Market
for the New Preferred The shares of New Preferred Stock are new
Stock....................... securities and there is currently no established
market for the New Preferred Stock. Accordingly,
there can be no assurance as to the development
or liquidity of any market for the New Preferred
Stock. The Company does not intend to apply for
listing of the New Preferred Stock on a
securities exchange.
17
<PAGE>
THE EXCHANGE DEBENTURES
Issuer...................... Harborside Healthcare Corporation.
Exchange Debentures......... 13 1/2% Subordinated Exchange Debentures due 2010
in an aggregate principal amount equal to the
aggregate liquidation preference of, and
accumulated but unpaid dividends on, the
Exchangeable Preferred Stock outstanding on the
Exchange Date.
Interest Payment Dates...... February 1 and August 1 of each year, commencing
with the first of such dates to occur after the
Exchange Date. On or prior to August 1, 2003, the
Issuer may pay interest on the Exchange
Debentures by issuing additional Exchange
Debentures.
Optional Redemption......... On or after August 1, 2003, the Exchange
Debentures are redeemable, at the option of the
Issuer, in whole or in part, at the redemption
prices set forth herein, plus accrued and unpaid
interest to the redemption date. See "Description
of the Exchange Debentures--Optional Redemption."
Optional Redemption Upon
Public Offering............. At any time, or from time to time, prior to
August 1, 2001, the Issuer may, at its option,
redeem up to 35% of the Exchange Debentures at a
redemption price equal to 113.5% of the principal
amount thereof, plus accrued and unpaid interest
to the redemption date, with the proceeds of one
or more public offerings of common stock of the
Issuer. See "Description of the Exchange
Debentures--Optional Redemption."
Change of Control........... Upon the occurrence of a Change of Control, (i)
the Issuer will have the option, at any time on
or prior to August 1, 2003, to redeem the
Exchange Debentures in whole, but not in part, at
a redemption price equal to 100% of the principal
amount of the Exchange Debentures on the date of
redemption plus the Applicable Premium, and (ii)
if the Issuer does not so redeem the Exchange
Debentures, or if a Change of Control occurs
after August 1, 2003 and the Issuer does not
redeem the Exchange Debentures as permitted at
any time after such date, each holder of Exchange
Debentures will have the right to require the
Issuer to repurchase all or any part of such
holder's Exchange Debentures at a price equal to
101% of the aggregate principal amount thereof
plus accrued and unpaid interest, if any, to the
date of purchase. There can be no assurance that
the Issuer will have sufficient funds available
at the time of any Change of Control to make any
required debt repayment (including repurchases of
the Exchange Debentures). See "Description of the
Exchange Debentures--Repurchase at the Option of
Holders--Change of Control."
Ranking..................... The Exchange Debentures will be unsecured and
will be subordinated in right of payment to all
existing and future Senior Debt (as defined in
"Description of the Exchange
18
<PAGE>
Debentures") of the Issuer, including Debt under
the New Credit Facility and the Notes. The
Exchange Debentures will not be guaranteed and
therefore will be effectively subordinated to all
obligations of the subsidiaries of the Issuer. At
June 30, 1998, after giving pro forma effect to
the Recapitalization, (i) the outstanding Senior
Debt of the Issuer would have been $103.6
million, $4.1 million of which would have been
Secured Debt and $99.5 million which would have
been Debt represented by the Notes, and (ii) the
total liabilities (including trade payables) of
the subsidiaries of the Issuer would have been
$107.2 million (excluding amounts owed to the
Issuer). After giving pro forma effect to the
Recapitalization, the Issuer and its subsidiaries
would have had $177.4 million of consolidated
Debt. See "Description of the Exchange
Debentures--Subordination."
Certain Covenants...........
The indenture pursuant to which the Exchange
Debentures will be issued, if they are issued
(the "Exchange Debenture Indenture"), will
contain certain covenants which, among other
things, will restrict the ability of the Issuer
and its Restricted Subsidiaries to incur
additional Debt; create liens; pay dividends or
make distributions in respect of their capital
stock; make investments and other restricted
payments; sell assets; create restrictions on the
ability of Restricted Subsidiaries to make
certain payments; enter into transactions with
affiliates; incur Debt which is subordinate to
any Senior Debt (as defined in "Description of
the Exchange Debentures") and senior to the
Exchange Debentures; and, with respect to the
Issuer, consolidate, merge or sell all or
substantially all of its assets. However, such
covenants are subject to a number of important
qualifications and exceptions. See "Description
of the Exchange Debentures--Certain Covenants."
Registration Requirements... The Exchange Debentures may not be issued unless
such issuance is registered under the Securities
Act or is exempt from registration.
RISK FACTORS
Before making an investment, prospective purchasers of the Securities should
consider carefully all of the information set forth in this Prospectus and, in
particular, the information set forth under "Risk Factors."
----------------
The Issuer is a Delaware corporation. Its principal offices are located at
470 Atlantic Avenue, Boston, Massachusetts 02210, and its telephone number at
that address is (617) 556-1515.
19
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth summary unaudited pro forma consolidated
financial and operating data of the Company as of and for the year ended
December 31, 1997 and as of and for the twelve months ended June 30, 1998. The
pro forma summary statement of operations data reflects adjustments to the
summary historical financial data of the Company to illustrate the effects of
the following, as if each had occurred on January 1, 1997: (i) the "Completed
1997 Acquisitions" which refers, collectively, to the asset acquisition of
Access Rehabilitation, Inc. ("Access Rehabilitation"), the acquisition of four
facilities in Massachusetts (the "Massachusetts Facilities"), the acquisition
of three facilities in Dayton, Ohio (the "Dayton Facilities") and the
acquisition of five facilities in Connecticut (the "Connecticut Facilities"),
all of which were completed during 1997; (ii) the "Completed 1998 Acquisitions"
which refers, collectively, to the acquisition of two facilities in Ohio (the
"Briarfield Facilities") on April 1, 1998 and the acquisition of two facilities
in Rhode Island (the "Rhode Island Facilities") on May 8, 1998; and (iii) the
Recapitalization; and excludes nonrecurring items directly attributable to the
Recapitalization. The pro forma balance sheet data as of June 30, 1998 have
been prepared as if the Recapitalization had occurred on that date. The pro
forma adjustments are based upon available information and certain assumptions
that the Company believes are reasonable. The pro forma statement of operations
data do not purport to present what the Company's results of operations would
actually have been had the Recapitalization, the Completed 1997 Acquisitions
and the Completed 1998 Acquisitions in fact occurred on January 1, 1997, or to
project the Company's results of operations for any future period. The pro
forma balance sheet data do not purport to present what the Company's financial
position actually would have been had the Recapitalization in fact occurred on
June 30, 1998, or to project the Company's financial position at any future
date. The summary unaudited pro forma consolidated financial data set forth
below should be read in conjunction with, and are qualified in their entirety
by, the information set forth in "Unaudited Pro Forma Consolidated Financial
Information," "The Transactions," "Capitalization," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements of the Company and notes thereto included
elsewhere in this Prospectus. The Issuer expects that the Recapitalization will
be treated as a recapitalization for financial accounting purposes.
Accordingly, no pro forma adjustments were made to the historical basis of the
Company's assets and liabilities.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
YEAR ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total net revenues...................... $ 305,365 $ 311,988
Facility operating costs................ 242,864 246,473
Management fees......................... 3,137 2,422
General and administrative expense...... 11,332 13,759
Service charges paid to affiliates (1).. 1,908 2,182
Depreciation and amortization........... 6,541 6,672
Facility rent........................... 19,718 19,998
Net interest expense (2)................ 18,063 18,566
Income before income taxes.............. 221 368
Net income.............................. 136 227
BALANCE SHEET DATA (AS OF PERIOD END):
Cash and cash equivalents............... $ 3,028
Note receivable......................... 7,487
Working capital......................... 21,933
Total assets............................ 254,537
Total debt, including capital lease
obligation (9)......................... 177,386
Net debt (10)........................... 169,899
Exchangeable preferred stock,
redeemable............................. 40,000
Stockholders' equity.................... 3,659
OTHER FINANCIAL DATA:
EBITDA.................................. $ 27,606 $ 28,354
Adjusted EBITDA (3)..................... 31,335 31,117
Adjusted EBITDAR (3).................... 51,053 51,115
Adjusted EBITDAR margin................. 16.7% 16.4%
Net cash interest expense (4)........... $ 3,866 $ 3,637
Ratio of Adjusted EBITDA to net interest
expense................................ 1.7x 1.7x
Ratio of Adjusted EBITDA to net cash
interest expense....................... 8.1x 8.6x
Ratio of net debt to Adjusted EBITDA.... 5.4x 5.5x
Ratio of earnings to combined fixed
charges and preferred stock dividends
(5).................................... -- --
OPERATING DATA (AS OF PERIOD END):
Facilities operated (6)................. 49 49
Licensed beds (6)....................... 5,983 5,983
Average occupancy rate (7).............. 92.8% 92.9%
Patient days............................ 1,905,185 1,920,217
Percentage of total net revenues derived
from:
Private and other (8)................... 33.2% 32.4%
Medicare................................ 24.6% 25.0%
Medicaid................................ 42.2% 42.6%
</TABLE>
(footnotes on next page)
20
<PAGE>
- --------
(1) Includes $1.2 million of non-cash charges representing the amortization of
prepaid management fees to Investcorp International Inc. ("III"), an
affiliate of the Issuer and of Investcorp.
(2) Represents "Interest expense, net" less amortization of debt issuance
costs of $1,392 and $1,348 for the pro forma year ended December 31, 1997
and the pro forma twelve months ended June 30, 1998, respectively.
(3) EBITDA represents earnings before interest, taxes, depreciation and
amortization (including amortization of $1.2 million of prepaid management
fees paid to III for the pro forma year ended December 31, 1997 and the
pro forma twelve months ended June 30, 1998) and loss on investment in
limited partnership.
The following table presents a reconciliation of EBITDA to Adjusted EBITDA:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
YEAR ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------------
<S> <C> <C>
EBITDA............................. $27,606 $28,354
Elimination of consulting contract
(i)............................... 160 --
Elimination of related party
management fees (ii).............. 3,137 2,422
Addition to general and
administrative expense (iii)...... (913) (417)
Other adjustments (iv)............. 1,345 758
------- -------
Adjusted EBITDA.................... $31,335 $31,117
======= =======
</TABLE>
--------
(i) Reflects the effect of the elimination of a consulting contract
terminated as a condition to closing the Company's acquisition of
Access Rehabilitation, assuming such acquisition had occurred on
January 1, 1997.
(ii) Reflects the effects of the elimination of historical management
fees paid under contracts with related parties that were terminated
as a condition to closing the Company's acquisition of the Dayton,
Connecticut, Briarfield and Rhode Island Facilities, assuming such
acquisitions had occurred on January 1, 1997. Subsequent to the
dates of such acquisitions, no services were provided to the Company
by these related parties.
(iii) Reflects the effect of the addition of general and administrative
expenses that the Company expects it would have incurred had the
Company's acquisition of the Dayton, Connecticut, Briarfield and
Rhode Island Facilities occurred on January 1, 1997.
(iv) Reflects other expected effects of bed occupancy for new
construction, ancillary service and Medicare classification
reimbursement changes for the Connecticut, Briarfield and Rhode
Island acquired businesses, assuming such acquisitions had occurred
on January 1, 1997.
EBITDA is presented because it is commonly used by certain investors to
analyze and determine a company's ability to service and/or incur debt.
Adjusted EBITDA is presented because it gives the Holders of the Notes the
ability to better understand the Company's compliance with certain of the
covenants under the New Credit Facility (because of cross default
provisions, defaults under the New Credit Facility that result in
acceleration of in excess of $15.0 million of indebtedness under the New
Credit Facility are also defaults under the Indenture). These covenants are
based on defined terms that incorporate adjustments based in part on the
reconciling items listed above. Additionally, these type of adjustments
will be applied to all future acquisitions in determining
21
<PAGE>
compliance with applicable covenants. As such, management of the Company
believes that the Adjusted EBITDA measure provides relevant and useful
information to investors. However, EBITDA and Adjusted EBITDA should not be
considered in isolation or as a substitute for net income, cash flows or
other income or cash flows data prepared in accordance with generally
accepted accounting principles or as a measure of a company's profitability
or liquidity. In addition, EBITDA and Adjusted EBITDA are not standardized
measurements and may be calculated in various ways. Accordingly, the EBITDA
and Adjusted EBITDA information contained herein may not be comparable to
EBITDA and Adjusted EBITDA information provided by other companies.
Adjusted EBITDAR represents Adjusted EBITDA plus facility rent expense.
(4) "Net cash interest expense" represents net interest expense less the
accretion of interest expense associated with the Notes and the capital
lease obligation.
(5) For purposes of this calculation, "earnings" consist of income before
income taxes and extraordinary loss and fixed charges, and "combined fixed
charges and preferred stock dividends" consist of interest, amortization
of debt issuance costs, the component of facility rent expense believed by
management to be representative of the interest factor thereon and the
amount of pre-tax earnings required to cover accretion on preferred stock
dividends. Earnings for the pro forma year ended December 31, 1997 and for
the pro forma twelve months ended June 30, 1998 would have been inadequate
to cover combined fixed charges and preferred stock dividends for such
periods. The coverage deficiency for such periods would have been $9,089
and $9,284, respectively.
(6) "Facilities operated" and "Licensed beds" include two managed facilities
with 178 total licensed beds.
(7) "Average occupancy rate" excludes managed facilities, and is computed by
dividing the number of billed licensed bed days by the total number of
available bed days during each of the periods indicated.
(8) "Private and other" excludes managed facilities and consists primarily of
total net revenues derived from private pay individuals, managed care
organizations, HMOs, hospice programs, commercial insurers, management
fees from managed facilities, and rehabilitation service therapy revenues
from non-affiliated facilities.
(9) As of June 30, 1998, the Company had $59.3 million of outstanding
obligations drawn under it synthetic lease facility. Pro forma for the
Recapitalization, the Company will have no such outstanding obligations.
(10) Net debt represents total debt, including capital lease obligations, less
the note receivable associated with the Company's acquisition of the
Connecticut Facilities. In connection with this acquisition on December 1,
1997, the Company made a collateralized loan to the seller of the
Connecticut Facilities of approximately $7.5 million. The Company financed
such loan with borrowings under the Existing Credit Facility.
22
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING DATA
The following table presents summary consolidated historical financial and
operating data of the Company for the periods indicated. The summary
consolidated historical financial data as of and for the years ended December
31, 1993, 1994, 1995, 1996 and 1997 have been derived from the audited
consolidated financial statements of the Company, including the related notes
thereto. The summary consolidated historical financial data as of and for the
six months ended June 30, 1997 and June 30, 1998 were derived from the
unaudited consolidated financial statements of the Company which, in the
opinion of management, include all adjustments (consisting only of normal,
recurring adjustments) necessary for a fair presentation of the Company's
consolidated results of operations and financial condition for such periods.
The operating results for the respective six month periods ended June 30, 1997
and June 30, 1998 are not necessarily indicative of results to be expected for
the full fiscal year. The summary historical consolidated financial data set
forth below should be read in conjunction with, and are qualified in their
entirety by, the information set forth in "Selected Consolidated Historical
Financial and Operating Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of the Company and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- -------- --------- --------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA (1):
Total net revenues..... $75,101 $86,376 $109,425 $ 165,412 $ 221,777 $97,676 $148,640
Facility operating
costs................. 57,412 68,951 89,378 132,207 176,404 77,517 117,030
General and administra-
tive expense.......... 3,092 3,859 5,076 7,811 10,953 4,723 7,475
Service charges paid to
affiliate............. 746 759 700 700 708 354 628
Special compensation
and other............. -- -- -- 1,716 -- -- --
Depreciation and amor-
tization.............. 4,304 4,311 4,385 3,029 4,074 1,882 2,263
Facility rent.......... 525 1,037 1,907 10,223 12,446 5,309 11,621
Interest expense, net.. 4,740 4,609 5,107 4,634 5,853 2,756 3,202
Income before income
taxes
and extraordinary
loss.................. 1,985 374 1,234 4,829 11,150 5,074 6,349
Net income............. 1,211 228 753 2,712 6,803 3,095 3,873
BALANCE SHEET DATA (AS OF PERIOD END) (1):
Cash and cash equiva-
lents................. $10,214 $14,013 $ 40,157 $ 9,722 $ 8,747 $10,694 $ 3,028
Working capital........ 6,511 13,915 10,735 16,826 22,554 21,114 22,275
Total assets........... 85,472 93,876 92,632 141,799 168,562 148,751 181,523
Total debt, including
capital lease
obligation............ 40,708 53,296 43,496 75,485 89,927 77,155 92,346
Stockholders' equity... 4,918 2,866 4,130 44,880 51,783 47,975 55,685
OTHER FINANCIAL DATA:
Cash flow provided by
operations............ $10,521 $ 4,939 $ 1,886 $ 1,405 $ 5,621 $ 1,597 $ 1,658
Cash flow (used in)
provided by
investing............. (142) (6,078) 36,818 (4,050) (19,487) (876) (10,228)
Cash flow (used in)
provided by
financing............. (6,100) 4,938 (12,560) (27,790) 12,891 251 2,851
EBITDA (2)............. 13,326 11,770 12,364 14,471 21,266 9,773 11,886
EBITDAR (2)............ 13,851 12,807 14,271 24,694 33,712 15,082 23,507
EBITDAR margin......... 18.4% 14.8% 13.0% 14.9% 15.2% 15.4% 15.8%
Capital expenditures... $ 1,205 $ 2,585 $ 3,081 $ 5,104 $ 5,274 $ 812 $ 7,071
Ratio of earnings to
fixed charges (3)..... 1.4x 1.1x 1.2x 1.5x 2.0x 2.0x 1.7x
OPERATING DATA (AS OF PERIOD END):
Facilities operated
(4)................... 17 19 20 30 45 31 49
Licensed beds (4)...... 2,149 2,365 2,471 3,700 5,468 3,864 5,983
Average occupancy rate
(5)................... 93.7% 92.6% 92.5% 92.6% 92.3% 91.9% 92.6%
Patient days........... 693,819 739,305 788,920 1,096,814 1,366,811 613,494 921,253
Percentage of total net
revenues derived from:
Private and other (6).. 39.9% 37.4% 35.1% 35.5% 34.1% 33.5% 31.8%
Medicare............... 21.2% 24.8% 31.7% 26.3% 25.9% 28.7% 26.2%
Medicaid............... 38.9% 37.8% 33.2% 38.2% 40.0% 37.8% 42.0%
</TABLE>
(footnotes on next page)
23
<PAGE>
- --------
(1) In 1993, 1994 and 1995, financial and operating data combine the historical
results of the Predecessor Entities (as defined herein) that became
subsidiaries of the Company through the IPO Reorganization (as defined
herein) that occurred immediately prior to the Company's initial public
offering on June 14, 1996. Prior to the IPO Reorganization, the Predecessor
Entities (primarily partnerships and subchapter S corporations) were not
directly subject to federal or state income taxation. In calculating net
income, a pro forma income tax expense of 39% has been reflected for
periods prior to the IPO Reorganization as if the Company had always owned
the Predecessor Entities.
(2) EBITDA represents earnings before interest, taxes, depreciation and
amortization, and loss on investment in limited partnership and also
excludes for the years prior to 1997 any gain on sale of facilities, loss
on refinancing of debt, minority interest, extraordinary losses and special
compensation associated with the Company's 1996 IPO. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows or
other income or cash flows data prepared in accordance with generally
accepted accounting principles or as a measure of a Company's profitability
or liquidity. In addition, EBITDA is not a standardized measurement and may
be calculated in various ways. Accordingly, the EBITDA information
contained herein may not be comparable to EBITDA information provided by
other companies. EBITDA is included herein because it is commonly used by
certain investors to analyze and determine a company's ability to service
and/or incur debt. EBITDAR represents EBITDA plus facility rent expense.
(3) For purposes of this calculation, "earnings" consist of income before
income taxes and extraordinary loss and fixed charges, and "fixed charges"
consist of interest, amortization of debt issuance costs and the component
of facility rent expense believed by management to be representative of the
interest factor thereon.
(4) "Facilities operated" and "Licensed beds" include two managed facilities
with 178 total licensed beds.
(5) "Average occupancy rate" excludes managed facilities, and is computed by
dividing the number of billed licensed bed days by the total number of
available licensed bed days during each of the periods indicated.
(6) "Private and other" excludes managed facilities and consists primarily of
total net revenues derived from private pay individuals, managed care
organizations, HMOs, hospice programs, commercial insurers, management fees
from managed facilities, and rehabilitation service therapy revenues from
non-affiliated facilities.
24
<PAGE>
RISK FACTORS
Prospective purchasers of the Securities should consider carefully the
following risk factors, as well as the other information set forth elsewhere
in this Prospectus. This Prospectus contains, in addition to historical
information, certain forward-looking statements that are subject to risks and
other uncertainties. The Issuer's actual results may differ materially from
those anticipated in these forward-looking statements. Factors that might
cause such a difference include those discussed below, as well as general
economic and business conditions, competition and other factors discussed
elsewhere in this Prospectus. All forward-looking statements attributable to
the Issuer or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements set forth herein.
CONSEQUENCES OF A FAILURE TO EXCHANGE OLD SECURITIES
The Old Securities have not been registered under the Securities Act or any
state securities laws and therefore may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case
in compliance with certain other conditions and restrictions. Old Securities
that remain outstanding after consummation of the Exchange Offer will continue
to be subject to, and to bear a legend reflecting, such restrictions on
transfer. In addition, upon consummation of the Exchange Offer, holders of Old
Securities that remain outstanding will not be entitled to any rights to have
such Old Securities registered under the Securities Act, except under certain
limited circumstances. The Issuer does not intend to register under the
Securities Act any Old Securities that remain outstanding after consummation
of the Exchange Offer. To the extent that Old Securities are not tendered and
accepted in the Exchange Offer, a holder's ability to sell such Old Securities
could be adversely affected.
FAILURE TO COMPLY WITH EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer and avoid the restrictions on transfer
of the Old Securities, holders of Old Securities must transmit a properly
completed Letter of Transmittal, including all other documents required by
such Letter of Transmittal, to the Exchange Agent at one of the addresses set
forth below under "The Exchange Offer--Exchange Agent" on or prior to the
Expiration Date. In addition, either (i) certificates for such Old Securities
must be received by the Exchange Agent along with the Letter of Transmittal or
(ii) a timely confirmation of a book-entry transfer of such Old Securities, if
such procedure is available, into the Exchange Agent's account at the Book-
Entry Transfer Facility (as defined) pursuant to the procedure for book-entry
transfer described herein, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described herein and in the Letter of Transmittal. The method of
delivery of the Old Securities and the Letter of Transmittal and all other
required documents to the Exchange Agent is at the election and risk of the
holder. Holders of Old Securities desiring to tender such Old Securities in
exchange for New Securities should allow sufficient time to ensure timely
delivery. The Issuer and the Exchange Agent are under no duty to give
notification of defects or irregularities with respect to tenders of Old
Securities for exchange. See "The Exchange Offer."
LACK OF PUBLIC MARKET
The New Securities are new securities for which there currently is no
market. Although the Placement Agents have informed the Issuer that they
currently intend to make a market in the New Securities, they are not
obligated to do so and any such market making may be discontinued at any time
without notice. In addition, such market making activity may be limited during
the pendency of this Exchange Offer. Accordingly, there can be no assurance as
to the development or liquidity of any market for the New Securities. The
Issuer does not intend to apply for listing of the New Securities on any
securities exchange or for quotation through the Nasdaq National Market.
The Old Securities are eligible for trading in the PORTAL market. The Old
Securities have not been registered under the Securities Act, however, and
will continue to be subject to restrictions on
25
<PAGE>
transferability to the extent they are not exchanged for New Securities.
Following consummation of the Exchange Offer, the New Securities will not be
eligible for PORTAL trading.
The Exchange Offer is not conditioned upon any minimum or maximum aggregate
principal amount of Old Securities being tendered for exchange. No assurance
can be given as to the liquidity of the trading market for the New Securities,
or, in the case of non-tendering holders of Old Securities, the trading market
for the Old Securities following the Exchange Offer.
The liquidity of, and trading market for, the Securities also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of the financial performance of, and prospects for, the Issuer.
SUBSTANTIAL LEVERAGE; DEBT SERVICE OBLIGATIONS
As a result of the Recapitalization, the Issuer is highly leveraged. On a
pro forma basis, as of June 30, 1998, the Issuer would have had $177.4 million
of consolidated indebtedness, including the Notes. In addition, the aggregate
liquidation preference of the Exchangeable Preferred Stock (which is
exchangeable at the Issuer's option, subject to certain conditions, for
Exchange Debentures) would have been $40.0 million. In comparison,
Harborside's outstanding consolidated indebtedness as of June 30, 1998 was
$92.3 million. As of June 30, 1998, Harborside also had $59.3 million of
outstanding obligations drawn under its previously existing synthetic lease
facility. On a pro forma basis, the Issuer would have had no such outstanding
obligations. In addition, the Issuer expects to incur material additional
indebtedness in connection with its acquisition strategy and the Indenture
permits the incurrence of substantial amounts of additional indebtedness. See
"Description of the New Notes--Certain Covenants--Incurrence of Debt and
Issuance of Preferred Stock." Earnings for the year ended December 31, 1997
and for the twelve months ended June 30, 1998 would have been inadequate to
cover combined fixed charges and preferred stock dividends for such periods by
$9.1 million and $9.3 million, respectively, on a pro forma basis. See
"Unaudited Pro Forma Consolidated Financial Information."
The Issuer's principal sources of funds are cash flow from operations and
borrowings under the New Credit Facility. These funds are being used to
finance working capital, meet debt service and capital expenditure
requirements and for general corporate purposes. It is anticipated that these
funds will also be used to finance acquisitions and lease real estate.
However, the Issuer could be required to obtain other debt and/or equity
financing to finance any significant acquisitions or real estate/construction
projects in the future.
Although the Issuer is not required to pay cash interest or dividends for
five years with respect to the Securities, the Issuer's high degree of
leverage may have important consequences for the Issuer, including the
following: (i) the Issuer's ability to obtain additional financing for
acquisitions, working capital, capital expenditures or other purposes may be
impaired or any such financing may not be on terms favorable to the Issuer;
(ii) interest expense may reduce the funds that would otherwise be available
to the Issuer for its operations and business opportunities; (iii) a
substantial decrease in net operating cash flows or an increase in expenses of
the Issuer could make it difficult for the Issuer to meet its debt service
requirements or force it to modify its operations; (iv) substantial leverage
may place the Issuer at a competitive disadvantage and may make it more
vulnerable to a downturn in its business; (v) certain indebtedness of the
Issuer is at variable rates of interest, which causes the Issuer to be
vulnerable to increases in interest rates; (vi) a substantial portion of the
assets of the Issuer is pledged to secure its indebtedness, reducing its
ability to obtain additional financing; (vii) the Issuer may be hindered in
its ability to adjust to rapidly changing market conditions; and (viii) the
New Credit Facility, the Indenture, the Certificate of Designation and other
agreements governing the Issuer's long-term indebtedness contain certain
restrictive financial and operating covenants. In addition, the degree to
which the Issuer is leveraged could prevent it from repurchasing Securities
tendered to it upon the occurrence of a Change of Control.
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The Issuer's ability to pay principal of and interest on the Notes and
dividends on the Exchangeable Preferred Stock (after the initial five year
period during which it is anticipated that no cash interest or dividends will
be paid thereon) and to satisfy its other debt obligations will depend upon
its future operating performance, which will be affected by financial,
business and other factors, certain of which are beyond its control, as well
as the availability of borrowings under the New Credit Facility or a successor
facility. The Issuer anticipates that its operating cash flow, together with
borrowings under the New Credit Facility, will be sufficient to meet its
operating expenses and capital expenditures and to service its debt
requirements as they become due. However, there can be no assurance that the
Issuer's cash flow, availability under the New Credit Facility and other
capital resources will be sufficient for the payment of principal of and
interest on its indebtedness, including the Notes, for the payment of periodic
cash dividends on the Exchangeable Preferred Stock, for any redemption of the
Exchangeable Preferred Stock for cash or, if the Exchange Debentures have been
issued, for the payment of principal of or cash interest on the Exchange
Debentures. If the Issuer's cash flow, availability under the New Credit
Facility and other capital resources are insufficient to fund the Issuer's
debt service obligations, the Issuer may be forced to reduce or delay capital
expenditures, to sell assets, to restructure or refinance its indebtedness or
to seek additional equity capital. There can be no assurance that any of such
measures could be implemented on satisfactory terms or, if implemented, would
be successful or would permit the Issuer to meet its debt service obligations.
HOLDING COMPANY STRUCTURE; SUBORDINATION OF SECURITIES
The Issuer conducts substantially all of its operations through its
subsidiaries. As a result, the Issuer is required to rely upon its
subsidiaries for the funds necessary to meet its obligations, including the
payment of interest on and principal of the Notes, dividends on the
Exchangeable Preferred Stock and, if issued, interest on and principal of the
Exchange Debentures. The ability of the subsidiaries to make such payments
will be subject to, among other things, applicable state laws. Although the
Note Guarantees provide the holders of the Notes with a direct claim against
the assets of the Guarantors, the Subsidiary Non-Guarantors have not
guaranteed the obligations under the Securities. Claims of creditors of the
Subsidiary Non-Guarantors (including trade creditors) and claims of holders of
preferred stock of such subsidiaries, if any, generally will have priority
with respect to the assets and earnings of such subsidiaries over the claims
of creditors of the Issuer (including holders of the Securities). In addition,
enforcement of the Note Guarantees against any Guarantor may be subject to
legal challenge in a bankruptcy or reorganization case or a lawsuit by or on
behalf of creditors of such Guarantor and would be subject to certain defenses
available to guarantors generally. See "-- Fraudulent Conveyance
Considerations." Although the Indenture contains waivers of most guarantor
defenses, certain of those waivers may not be enforced by a court in a
particular case. To the extent that the Note Guarantees are not enforceable,
the Notes would be effectively subordinated to all liabilities of the
Guarantors, including trade payables of such Guarantors, whether or not such
liabilities constitute Senior Debt under the Indenture.
The Notes and Note Guarantees are general unsecured obligations of the
Issuer and Guarantors that are subordinated in right of payment to all Senior
Debt of the Issuer and Guarantors, including Debt under the New Credit
Facility. Further, the Notes and Note Guarantees are effectively subordinated
to all Secured Debt, to the extent of the collateral securing such Debt, and
to the claims of creditors (including trade creditors) of the Subsidiary Non-
Guarantors. The Notes and Note Guarantees rank pari passu in right of payment
with all Pari Passu Debt and senior in right of payment to all Subordinated
Debt, including any Exchange Debentures. The indebtedness outstanding under
the New Credit Facility is collateralized by liens on a substantial portion of
the assets of the Issuer and its subsidiaries. At June 30, 1998, after giving
pro forma effect to the Recapitalization, (i) the outstanding Senior Debt of
the Issuer and the Guarantors would have been $61.5 million, all of which
would have been Secured Debt, (ii) the Issuer and the Guarantors would have
had no Pari Passu Debt or Subordinated Debt outstanding and (iii) the total
liabilities of the Subsidiary Non-Guarantors
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(including trade payables but excluding amounts owed to the Issuer or any
Guarantor) would have been $29.5 million, including $16.4 million of
indebtedness. The Indenture permits the Issuer and the Restricted Subsidiaries
to incur a substantial amount of additional indebtedness, all of which may be
Senior Debt. See "Description of the New Notes."
The Issuer and the Guarantors may not pay principal of, premium on, or
interest or Liquidated Damages on, the Notes or Note Guarantees, make any
deposit pursuant to defeasance provisions or repurchase or redeem or otherwise
retire any Notes or Note Guarantees (i) if any Designated Senior Debt (as
defined) is not paid when due or any other default on Designated Senior Debt
occurs and the maturity of such Designated Senior Debt is accelerated in
accordance with its terms or (ii) if any other default on Designated Senior
Debt occurs that permits the holders of such Designated Senior Debt to
accelerate the maturity of such Senior Debt in accordance with its terms and
the Trustee receives notice of such default, unless, in either case, the
default has been cured or waived, any such acceleration has been rescinded or
such Senior Debt has been paid in full or, in the case of any non-payment
default, 179 days have passed since the default notice was given. Upon any
payment or distribution to creditors in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Issuer or any
Guarantor or its property, the holders of Senior Debt will be entitled to
receive payment in full in cash or Cash Equivalents (as defined) before the
holders of the Notes or any Note Guarantee will be entitled to receive any
payment (other than in the form of Permitted Junior Securities (as defined)).
See "Description of the New Notes--Subordination."
The Exchangeable Preferred Stock ranks junior in right of payment to all
existing and future indebtedness and other obligations of the Issuer and its
subsidiaries, including the New Credit Facility and the Notes, but not
including common stock and any future class of capital stock which by its
terms provides that it ranks on a parity with or junior to the Exchangeable
Preferred Stock. The Exchange Debentures, if issued, will be general unsecured
obligations of the Issuer and will be subordinated in right of payment to all
existing and future Senior Debt (as defined in "Description of the Exchange
Debentures"), including the New Credit Facility and the Notes. Consequently,
in certain circumstances, including upon the bankruptcy, liquidation or
reorganization of the Issuer, payments may be made with respect to the
Exchangeable Preferred Stock only after the assets of the Issuer have been
used to satisfy all of its obligations to its creditors (including the Notes),
and payments may be made with respect to the Exchange Debentures only after
all of the Senior Debt (as defined in "Description of the Exchange
Debentures"), including the Notes, has been paid in full. See "--Substantial
Leverage; Debt Service Obligations" above, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources," "Description of the New Credit Facility," "Description of
the New Notes," "Description of the New Preferred Stock" and "Description of
the Exchange Debentures."
RESTRICTIVE LOAN COVENANTS
The New Credit Facility includes certain covenants that, among other things,
restrict: (i) the making of investments (including acquisitions), loans and
advances and the paying of dividends and other restricted payments; (ii) the
incurrence of additional indebtedness; (iii) the granting of liens, other than
certain permitted liens; (iv) mergers, consolidations and sales of all or a
substantial part of the Issuer's business or property; (v) the sale of assets;
and (vi) the making of capital expenditures. The Issuer is also required to
maintain certain financial ratios, including cash interest and facility rent
coverage and leverage ratios. All of these restrictive covenants may restrict
the Issuer's ability to expand or to pursue its business strategies. The
ability of the Issuer to comply with these and other provisions of the New
Credit Facility may be affected by changes in business conditions or results
of operations, adverse regulatory developments or other events beyond the
Issuer's control. The breach of any of these covenants could result in a
default under the New Credit Facility, in which case such lenders could elect
to declare all amounts borrowed under the New Credit Facility, together with
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accrued interest, to be due and payable, and the Issuer could be prohibited
from making payments with respect to other indebtedness until the default is
cured or all indebtedness under the New Credit Facility is paid or satisfied
in full. If the Issuer were unable to repay such borrowings, such lenders
could proceed against their collateral. If the indebtedness under the New
Credit Facility were to be accelerated, there can be no assurance that the
assets of the Issuer would be sufficient to repay in full such indebtedness
and the other indebtedness of the Issuer.
ENCUMBRANCES ON ASSETS
In addition to being subordinated to all existing and future Senior Debt of
the Issuer (and with respect to the Exchangeable Preferred Stock, all other
liabilities of the Issuer), the Securities will not be secured by any of the
Issuer's or its subsidiaries' assets. The Issuer's obligations under the New
Credit Facility are collateralized by first or second priority security
interests in all of the capital stock of certain of the Issuer's subsidiaries
and a substantial portion of the personal and real property of the Issuer and
certain of its subsidiaries, in each case with certain exceptions (including
an exception for stock or assets prohibited by other financing arrangements
from such collateralization). In addition, the Issuer's obligations under
certain mortgage loans and lease agreements are collateralized by security
interests in certain real property and other assets of the Issuer. If the
Issuer becomes insolvent or is liquidated, or if payment under the New Credit
Facility or of other secured obligations is accelerated, the lenders under the
New Credit Facility or the obligors with respect to the other secured
obligations will be entitled to exercise the remedies available to a secured
lender under applicable law and the applicable agreements and instruments.
Accordingly, such lenders will have a prior claim with respect to such assets
and there may not be sufficient assets remaining to pay amounts due on the
Securities then outstanding. See "Description of the New Credit Facility" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIVIDEND AND REDEMPTION RESTRICTIONS ON EXCHANGEABLE PREFERRED STOCK
The ability of the Issuer to pay cash dividends on the Exchangeable
Preferred Stock after August 1, 2003, or to redeem, purchase or otherwise
acquire the Exchangeable Preferred Stock, will be subject to the terms of the
Indenture and the New Credit Facility. In addition, its ability to pay any
dividends will be subject to applicable provisions of Delaware state law. The
terms of the Indenture and the New Credit Facility permit the Issuer to pay
cash dividends on the Exchangeable Preferred Stock after August 1, 2003 in the
absence of any default under the Indenture or the New Credit Facility. There
can be no assurance that the Issuer's operating performance or any future
financings will permit the Issuer to pay cash dividends on the Exchangeable
Preferred Stock. The terms of the Indenture and the New Credit Facility also
restrict the ability of the Issuer to redeem, purchase or otherwise acquire
the Exchangeable Preferred Stock for cash. Moreover, under Delaware law, a
dividend may be paid only out of the Issuer's surplus or net profits for the
fiscal year in which the dividend is declared and/or the preceding year,
provided the board of directors approves the payment of such dividend.
Similarly, under Delaware law, there are certain restrictions with respect to
the redemption of Exchangeable Preferred Stock. There can be no assurance that
the Issuer will be able to generate a surplus or net profits from which to pay
dividends on or redeem the Exchangeable Preferred Stock.
FRAUDULENT CONVEYANCE CONSIDERATIONS
The incurrence by Harborside or a Guarantor of indebtedness, such as the
Notes, the Exchange Debentures or the Note Guarantee, as the case may be, may
be subject to review under federal bankruptcy law or relevant state fraudulent
conveyance laws if a bankruptcy case or lawsuit is commenced by or on behalf
of unpaid creditors of Harborside or a Guarantor. Under these laws, if, in a
bankruptcy or reorganization case or a lawsuit by or on behalf of unpaid
creditors of Harborside or a Guarantor, a court were to find that, at the time
Harborside or the Guarantor incurred indebtedness,
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including the Notes, the Exchange Debentures, or the Note Guarantee, as the
case may be, (i) Harborside or such Guarantor incurred such indebtedness with
the intent of hindering, delaying or defrauding current or future creditors or
(ii) (a) Harborside or such Guarantor received less than reasonably equivalent
value or fair consideration for incurring such indebtedness and (b) Harborside
or such Guarantor (1) was insolvent or was rendered insolvent by reason of the
transactions constituting the Recapitalization, or in the case of the Exchange
Debentures, upon the exchange of the Exchangeable Preferred Stock into the
Exchange Debentures, (2) was engaged, or about to engage, in a business or
transactions for which its assets constituted unreasonably small capital, or
(3) intended to incur, or believed that it would incur, debts beyond its
ability to pay as such debts matured (as all of the foregoing terms are
defined in or interpreted under the relevant fraudulent transfer or conveyance
statutes), then such court could avoid or subordinate the amounts owing under
the Notes, the Exchange Debentures, or the Note Guarantee, as the case may be,
to presently existing and future indebtedness of Harborside or such Guarantor,
as the case may be, and take other actions detrimental to the holders of the
Notes, the Exchange Debentures or the Note Guarantee, as the case may be.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is being applied in any
such proceeding. Generally, however, a company will be considered insolvent
if, at the time it incurred the indebtedness, either (i) the sum of its debts
(including contingent liabilities) is greater than its assets, at a fair
valuation, or (ii) the present fair sale value of its assets is less than the
amount required to pay the probable liability on its total existing debts and
liabilities (including contingent liabilities) as they become absolute and
matured. There can be no assurance as to what standards a court would use to
determine whether Harborside or the Guarantors were solvent at the relevant
time, or whether, whatever standard was used, the Notes, the Exchange
Debentures, or the Note Guarantee, as the case may be, would not be avoided or
further subordinated on another of the grounds set forth above. In rendering
their opinions in connection with the borrowings under the New Credit Facility
and the issuance of the Notes, none of the counsel for Harborside, MergerCo,
the lenders or the Placement Agents expressed any opinion as to the
applicability of federal or state fraudulent transfer and conveyance laws.
Harborside believes that at the time the obligations constituting the Notes
and the Note Guarantees were initially incurred, Harborside and each Guarantor
were each (a) neither insolvent nor rendered insolvent thereby, (b) in
possession of sufficient capital to run its businesses effectively and (c)
incurring debts within its ability to pay as the same mature or become due. In
reaching the foregoing conclusions, Harborside has relied upon its analyses of
internal cash flow projections and estimated values of assets and liabilities
of Harborside. As a condition to Harborside's obligations under the Merger
Agreement, Harborside received an opinion of a firm expert in such matters
confirming the solvency of Harborside after giving effect to the
Recapitalization. There can be no assurance, however, that a court passing on
such questions would reach the same conclusions.
ABILITY TO COMPLETE ACQUISITIONS AND INTEGRATE ACQUIRED OPERATIONS
A principal element of the Issuer's post-Merger business strategy will be to
grow by acquiring additional long-term care facilities. The Issuer is subject
to the risks that the facilities acquired in acquisitions will not perform as
expected and that the returns from such facilities will not support the
indebtedness incurred to acquire, or the capital expenditures needed to
integrate and develop, such facilities. In addition, the expansion of the
Issuer's operations may place a significant strain on the Issuer's management,
financial and other resources and may limit the time available to the Issuer's
management to attend to other operational, financial and strategic issues. The
Issuer's ability to manage future growth will depend upon its ability to
monitor operations, control costs, maintain effective quality controls and
expand the Issuer's systems capabilities, all of which will result in higher
operating expenses. Any failure to expand these areas and to implement and
improve such systems,
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procedures and controls in an efficient manner at a pace consistent with the
growth of the Issuer's business could have a material adverse effect on the
Issuer's business, financial condition and results of operations. In addition,
the integration of acquired facilities with existing operations may entail
considerable expenses in advance of anticipated revenues and may cause
substantial fluctuations in the Issuer's operating results. This integration
may involve, among other things, integration of billing, accounting, quality
control, management, personnel, payroll, clinical, regulatory compliance and
other systems and operating hardware and software, some or all of which may be
incompatible with the Issuer's existing systems. The failure to effectively
integrate acquired facilities could have a material adverse effect on the
Issuer's financial condition and results of operations and ability to pay
interest and dividends on the Securities.
The Issuer faces competition for the acquisition of long-term care
facilities, and may be required to offer relatively higher prices for acquired
facilities than it has in the past. In addition, due to the continuing
consolidation of the long-term care industry and the acquisition by the Issuer
and other long-term care providers of existing long-term care facilities,
there may be in the future fewer existing long-term care facilities available
for acquisition. There can be no assurance that the Issuer will be able to
find acceptable acquisition candidates or, if such candidates are identified,
that acquisitions can be consummated on terms acceptable to the Issuer.
GOVERNMENTAL REGULATION
The federal government and all the states in which the Issuer operates
regulate various aspects of the Issuer's business. In addition to the
regulation of Medicare and Medicaid reimbursement rates, the development and
operation of long-term care facilities and the provision of long-term care
services are subject to federal, state and local licensure and certification
laws that regulate, among other matters, the number of licensed beds, the
provision of services, the distribution of pharmaceuticals, equipment,
staffing (including professional licensing), operating policies and
procedures, fire prevention measures, environmental matters and compliance
with building and safety codes. The failure to maintain or renew any required
regulatory approvals or licenses could materially adversely affect the
Issuer's ability to provide its services and receive reimbursement of its
expenses. There can be no assurance that federal, state or local governments
will not impose additional restrictions on the Issuer's activities which could
materially adversely affect the Issuer.
Long-term care facilities are subject to periodic inspection by governmental
authorities to assure compliance with the standards established for continued
licensing under state law and for certification under the Medicare or Medicaid
programs, including a review of billing practices and policies. Failure to
comply with these standards could result in the denial of reimbursement, the
imposition of fines, temporary suspension of admission of new patients,
suspension or decertification from the Medicare or Medicaid programs,
restrictions on the Issuer's ability to acquire new facilities or expand
existing facilities and, in extreme cases, the revocation of a facility's
license or closure of a facility. In certain instances, facilities of the
Issuer have been inspected and have received statements of deficiencies, which
the Issuer believes have been corrected. However, there can be no assurance
that the facilities currently owned or leased by the Issuer will continue to
meet the requirements for state licensure or participation in the Medicare or
Medicaid programs nor can there be any assurance that the facilities acquired
or developed by the Issuer in the future will initially meet or continue to
meet these requirements.
Many states, including each state in which the Issuer currently operates
long-term care facilities except Indiana, control the supply of licensed long-
term care beds through CON programs, which require approval for the
construction of new long-term care facilities, the addition of licensed beds
and certain capital expenditures at such facilities. Indiana's CON program
expired on June 30, 1998. To the extent that a CON or other similar approval
is required for the acquisition or construction of new
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facilities or the expansion of the number of licensed beds, services or
existing facilities, the Issuer could be adversely affected by the failure or
inability to obtain such approval, changes in the standards applicable for
such approval and possible delays and expenses associated with obtaining such
approval. Several of the states in which the Issuer operates have imposed
moratoriums on the issuance of CONs for new skilled nursing facility beds.
Connecticut has imposed a moratorium on the addition of any new skilled
nursing facility beds, including chronic and convalescent nursing facility
beds and rest home beds with nursing supervision, until the year 2002.
Massachusetts has imposed a moratorium on the addition of any new skilled
nursing facility beds until the year 2000, except that an existing facility
can add up to 12 beds without being subject to CON review. New Hampshire has
imposed a moratorium on the addition of any new beds to skilled nursing
facilities, intermediate care homes and rehabilitation homes until December
31, 1998. Legislation has been introduced in New Hampshire to extend this
moratorium until the year 2001, or in the alternative until the year 2003.
Ohio has imposed a moratorium until June 30, 1999 on the addition of any new
skilled nursing facility beds. Rhode Island has imposed a moratorium on the
issuance of any new initial licenses for skilled nursing facilities and on the
increase in the licensed bed capacity of any existing licensed skilled nursing
facility until July 1, 1999, except that an existing facility may increase its
licensed bed capacity to the greater of 10 beds or 10% of the facility's
licensed bed capacity. The other states in which the Issuer conducts business
do not currently have a moratorium on new skilled nursing facility beds in
effect. Although New Jersey does not have a "moratorium" on new skilled
nursing facility beds, with the exception of the Add-a-bed program (in which a
facility may request approval from the state licensure agency to increase
total licensed skilled nursing beds, including hospital based subacute care
beds, by no more than 10 beds or 10% of its licensed bed capacity, whichever
is less, without obtaining CON approval), New Jersey only accepts applications
for a CON for additional skilled nursing facility beds when the state CON
agency issues a call for beds. There is presently no call for additional beds,
and no call is expected to be made until the beginning of 1999 at the
earliest. These actions will restrict the Issuer's ability, and that of its
competitors, to expand its existing facilities or construct new facilities in
these states. In addition, in most states the reduction of the number of
licensed beds or the closure of a facility requires the approval of the
appropriate state regulatory agency and, if the Issuer were to seek to reduce
the number of licensed beds at a facility or to close a facility, the Issuer
could be adversely affected by a failure to obtain or a delay in obtaining
such approval.
The Issuer is also subject to federal and state laws that govern financial
and other arrangements between healthcare providers. Federal laws, as well as
the laws of certain states, prohibit direct or indirect payments or fee
splitting arrangements between healthcare providers that are designed to
induce or encourage the referral of patients to, or the recommendation of, a
particular provider for medical products and services. These laws include the
federal "anti-kickback law" which prohibits, among other things, the offer,
payment, solicitation or receipt of any form of remuneration in return for the
referral of Medicare and Medicaid patients. A wide array of relationships and
arrangements among healthcare providers, including ownership interests in a
company by persons in a position to refer patients and personal service
agreements have, under certain circumstances, been alleged to violate these
provisions. A violation of the federal anti-kickback law could result in the
loss of eligibility to participate in the Medicare or Medicaid programs, or in
civil or criminal penalties for individuals or entities. Violation of state
anti-kickback laws could lead to loss of licensure, significant fines and
other penalties for individuals or entities.
Federal and state authorities are devoting increased attention and resources
to anti-fraud initiatives against healthcare providers. The Balanced Budget
Act (the "BBA") and the Healthcare Insurance Portability and Accountability
Act of 1996 expanded the penalties for healthcare fraud, including broader
provisions for the exclusion of healthcare providers from the Medicare and
Medicaid programs. Further, under Operation Restore Trust, a major anti-fraud
initiative of the Office of the Inspector General (the "OIG") of the U.S.
Department of Health and Human Services, the OIG has focused on detecting
fraudulent billing practices committed by home health agencies, durable
medical
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equipment suppliers, hospice programs and skilled nursing facilities in
certain states participating in a demonstration project. The initial outcomes
of Operation Restore Trust have led the OIG to expand the demonstration
project to additional states. Currently, the Issuer has operations in three of
the states participating in this project: Massachusetts, New Jersey and Ohio.
While the Issuer believes that the Issuer's billing practices are consistent
with the requirements of the Medicare and Medicaid programs, those criteria
are subject to interpretation. There can be no assurance that such anti-fraud
initiatives will not adversely affect the Issuer.
RISK OF ADVERSE EFFECT OF HEALTHCARE REFORM
The Issuer is subject to extensive governmental healthcare regulation. In
addition, there are generally numerous legislative and executive initiatives
at the federal and state levels for comprehensive reforms affecting the
payment for and availability of healthcare services. Changes in laws, new
interpretations of existing laws or changes in reimbursement methodologies
could have a significant effect on certain or all of the Issuer's services
which are eligible for reimbursement, the costs of providing such services and
the amounts of reimbursement provided for the delivery of eligible services.
It is not clear at this time which legislative proposals, if any, will be
adopted or, if adopted, what effect such proposals would have on the Issuer's
business. There can be no assurance that future changes in enacted legislation
or the administrative practices required to interpret or administer
governmental healthcare programs will not have a material adverse affect on
the Issuer. See "Business--Sources of Revenues" and "--Governmental
Regulation."
REIMBURSEMENT BY THIRD-PARTY PAYORS
The Issuer received approximately 25.9%, 40.0% and 34.1% of its total net
revenues from Medicare patients, Medicaid patients, and private and other
patients, respectively, for the year ended December 31, 1997. The Issuer
typically receives higher payment rates for services provided to private pay
and Medicare patients than for equivalent services provided to patients
eligible for Medicaid. Any material decline in the number of private or
Medicare patients or increases in the number of Medicaid patients could
materially adversely affect the Issuer.
Both governmental and other third-party payors, such as commercial insurers,
managed care organizations, HMOs and PPOs, have employed cost containment
measures designed to limit payments made to healthcare providers such as the
Issuer. These measures include the adoption of initial and continuing
recipient eligibility criteria, the adoption of coverage criteria and the
establishment of payment ceilings. Furthermore, governmental reimbursement
programs are subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings and government funding restrictions. There
can be no assurance that payments under state or federal governmental programs
will remain at levels comparable to present levels or will be sufficient to
cover the costs allocable to patients eligible for reimbursement pursuant to
such programs. In addition, there can be no assurance that the Issuer's
facilities or the services provided by the Issuer will continue to meet the
requirements for participation in such programs or that the states in which
the Issuer operates will continue to meet their Medicaid reimbursement
obligations on a timely basis, if at all. Any of the foregoing could
materially adversely affect the Issuer.
The BBA was enacted in August 1997 and significantly amends the
reimbursement methodology of the Medicare program. In addition to offering new
Medicare health plan options and increasing the penalties related to
healthcare fraud and abuse, the BBA provides for a prospective payment system
for skilled nursing facilities to be implemented for cost report periods
beginning on or after July 1, 1998. (See "Business--Governmental Regulation"
for more information about the prospective payment system for skilled nursing
facilities.) The BBA also provides new limits for the reimbursement of Part B
therapy services and requires skilled nursing facilities to institute
"consolidated billing." Regulations regarding the prospective payment system
were published on May 12, 1998. In addition, subsequent
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to issuance of the regulations, HCFA has issued Program Memoranda impacting
the implementation of PPS, affecting mainly the "consolidated billing"
provisions for Part B. As the regulations were published recently and HCFA
Program Memoranda continue to be issued regarding implementation of PPS, the
Issuer has not been able to fully assess and quantify the potential impact of
the regulations on the Issuer's consolidated financial position, results of
operations or liquidity. Based on a preliminary assessment, the Issuer
believes that the new regulations will result in a reduction of the Issuer's
average Medicare per diem reimbursement rate, which the Issuer expects to be
able to substantially offset primarily through reductions in facility
operating costs. However, no assurance can be given that the Issuer will be
able to reduce such costs.
The Issuer is subject to periodic audits by the Medicare and Medicaid
programs, and the paying agencies for these programs have various rights and
remedies against the Issuer if they assert that the Issuer has overcharged the
programs or failed to comply with program requirements. Such paying agencies
could seek to require the Issuer to repay any overcharges or amounts billed in
violation of program requirements, or could make deductions from future
amounts due to the Issuer. Such agencies could also impose fines, criminal
penalties or program exclusions. Any such action could materially adversely
affect the Issuer. See "Business--Sources of Revenues" and "--Governmental
Regulation."
GEOGRAPHIC CONCENTRATION
The Issuer's long-term care facilities are located in Ohio, Indiana,
Massachusetts, New Hampshire, New Jersey, Connecticut, Florida, Rhode Island
and Maryland. A substantial portion of the Issuer's total net revenues are
derived from its operations in Ohio, Florida and Connecticut. On a pro forma
basis, after giving effect to the Completed 1997 Acquisitions, the Completed
1998 Acquisitions (as such terms are defined under "Selected Consolidated
Historical Financial and Operating Data") and the Recapitalization, the Issuer
derived 32.1%, 17.3% and 15.4%, respectively, of its net patient service
revenues from these three states for the year ended December 31, 1997. Any
adverse changes in the regulatory environment or to the reimbursement rates
paid in the states in which the Issuer operates, particularly in Ohio, Florida
and Connecticut, could have a material adverse effect on the Issuer. See
"Business--Sources of Revenues."
STAFFING AND LABOR COSTS
Staffing and labor costs represent the Issuer's largest expense. The Issuer
competes with other healthcare providers in attracting and retaining qualified
or skilled personnel. The long-term care industry in general, and the Issuer
in particular, have, at times, experienced shortages of qualified personnel.
In addition, the long-term care industry typically experiences high turnover
of less skilled employees. A shortage of nurses or other trained personnel or
general economic inflationary pressures may require the Issuer to enhance its
wage and benefits package in order to compete with other employers. There can
be no assurance that the Issuer's labor costs will not increase or, if they
do, that they can be matched by corresponding increases in reimbursement.
Failure by the Issuer to attract and retain qualified employees, to control
its labor costs or to match increases in its labor expenses with corresponding
increases in revenues could have a material adverse effect on the Issuer.
Approximately 450 employees at five of the Issuer's facilities are covered by
collective bargaining agreements. Although the Issuer believes that it
maintains good working relationships with its employees and the unions that
represent certain of its employees, it cannot predict the impact of continued
or increased union representation or organizational activities on its future
operations. See "Business--Employees."
COMPETITION
The long-term care industry is highly competitive. The Issuer competes with
other providers of long-term care on the basis of the scope and quality of
services offered, the rate of positive medical
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outcomes, cost-effectiveness and the reputation and appearance of its long-
term care facilities. The Issuer also competes in recruiting qualified
healthcare personnel, in acquiring and developing additional facilities and in
obtaining CONs. The Issuer's current and potential competitors include
national, regional and local long-term care providers, some of whom have
substantially greater financial and other resources and may be more
established in their communities than the Issuer. The Issuer also faces
competition from assisted living facility operators as well as providers of
home healthcare. Certain competitors are operated by not-for-profit
organizations and similar businesses which can finance capital expenditures
and acquisitions on a tax-exempt basis or receive charitable contributions
unavailable to the Issuer. In addition, consolidation in the long-term care
industry has resulted in the Issuer being faced with larger competitors, many
of whom have significant financial and other resources. The Issuer expects
that competition for the acquisition of long-term care facilities may increase
in the future as the demand for long-term care increases and as the industry
trend of consolidation of providers continues.
Construction of new (or the expansion of existing) long-term care facilities
near the Issuer's facilities could adversely affect the Issuer's business.
State regulations, however, generally require a CON before a new long-term
care facility can be constructed or additional licensed beds can be added to
existing facilities. CON legislation is in place in all states in which the
Issuer operates or expects to operate, with the exception of Indiana where the
CON program expired as of June 30, 1998. The Issuer believes that these
regulations reduce the possibility of overbuilding and promote higher
utilization of existing facilities. However, a relaxation of CON requirements
could lead to an increase in competition. In addition, as cost containment
measures have reduced occupancy rates at acute care hospitals, a number of
these hospitals have converted portions of their facilities into subacute
units. In the states in which the Issuer currently operates, except Indiana,
these conversions are subject to state CON regulations. The Issuer believes
that the application of the new Medicare prospective payment system rules will
make such conversions less desirable. New Jersey recently enacted legislation
permitting acute care hospitals to offer subacute care services under their
existing hospital licenses upon obtaining CON approval pursuant to an
expedited CON review process. Ohio has imposed a moratorium on the conversion
of acute care hospital beds into long-term care beds through June 30, 1999.
See "Business--Governmental Regulation" and "--Competition."
CONTROL OF THE ISSUER BY INVESTCORP
Approximately 91% of the outstanding shares of voting common stock of the
Issuer are held by a subsidiary of Investcorp and ten entities which have
entered into revocable management services or similar agreements with an
affiliate of Investcorp, pursuant to which such affiliate has the authority to
direct the voting of such shares for as long as such agreements are in effect.
Accordingly, for so long as such agreements remain in effect, Investcorp and
its affiliates will indirectly control the power to elect all of the Issuer's
directors, to appoint new management and to approve any action requiring the
approval of the holders of the Issuer's capital stock voting as a single
class, including adopting most amendments to the Issuer's certificate of
incorporation and approving mergers or sales of substantially all of the
Issuer's assets. The directors so elected will have the authority to effect
decisions affecting the capital structure of the Issuer, including but not
limited to the issuance of additional capital stock, the implementation of
stock repurchase programs and the declaration of dividends.
LIABILITY, INSURANCE AND LEGAL PROCEEDINGS
The Issuer's business entails an inherent risk of liability. In recent
years, participants in the long-term care industry have been subject to
lawsuits alleging malpractice or related legal theories, many of which involve
large claims and significant legal costs. The Issuer expects that from time to
time it may be subject to such suits as a result of the nature of its
business. The Issuer currently maintains insurance policies in amounts and
with coverage and deductibles it deems appropriate, based on the nature and
risks of its business, historical experience and industry standards. There can
be no
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assurance, however, that claims in excess of the Issuer's insurance coverage
or claims not covered by insurance will not arise. A successful claim against
the Issuer not covered by, or in excess of, its insurance coverage could have
a material adverse effect on the Issuer. Claims against the Issuer, regardless
of their merit or eventual outcome, may also have a material adverse effect on
the Issuer's business and reputation, may lead to increased insurance premiums
and may require the Issuer's management to devote time and attention to
matters unrelated to the Issuer's business. In addition, the Issuer's
liability insurance policy will be due for renewal in September 2001. There
can be no assurance that the Issuer will be able to obtain liability insurance
coverage in the future on acceptable terms. The Issuer is self-insured
(subject to contributions by covered employees) with respect to most of the
healthcare benefits and workers' compensation benefits available to its
employees. The Issuer believes that it has adequate resources to cover any
self-insured claims and the Issuer maintains excess liability coverage to
protect it against unusual claims in these areas. However, there can be no
assurance that the Issuer will continue to have such resources available to it
or that substantial claims will not be made against the Issuer. See
"Business--Legal Proceedings."
ENVIRONMENTAL AND OCCUPATIONAL HEALTH AND SAFETY MATTERS
The Issuer is subject to a wide variety of federal, state and local
environmental and occupational health and safety laws and regulations. Among
the types of regulatory requirements faced by healthcare providers such as the
Issuer are: air and water quality control requirements, occupational health
and safety requirements, waste management requirements, specific regulatory
requirements applicable to asbestos, polychlorinated biphenyls and radioactive
substances, requirements for providing notice to employees and members of the
public about hazardous materials and wastes and certain other requirements. In
its role as owner and/or operator of properties or facilities, the Issuer may
be subject to liability for investigating and remediating any hazardous
substances that have come to be located on the property, or such substances
that may have migrated off of, or been emitted, discharged, leaked, escaped or
transported from, the property. The Issuer's operations may involve the
handling, use, storage, transportation, disposal and/or discharge of
hazardous, infectious, toxic, radioactive, flammable and other hazardous
materials, wastes, pollutants or contaminants. Such activities may harm
individuals, property or the environment; may interrupt operations and/or
increase their costs; may result in legal liability, damages, injunctions or
fines; may result in investigations, administrative proceedings, penalties or
other governmental agency actions; and may not be covered by insurance. The
cost of any required remediation or removal of hazardous or toxic substances
could be substantial and the liability of an owner or operator for any
property is generally not limited under applicable laws and could exceed the
property's value. Although the Issuer is not aware of any material liability
of the Issuer under any environmental or occupational health and safety laws,
there can be no assurance that the Issuer will not encounter such liabilities
in the future, which could have a material adverse effect on the Issuer. See
"--Governmental Regulation."
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Notes were issued at a substantial discount from their principal amount.
Consequently, the purchasers of the Notes generally will be required to
include amounts in gross income for U.S. federal income tax purposes in
advance of receipt of any cash payment on the Notes to which the income is
attributable. See "U.S. Federal Income Tax Consequences--The Notes and the
Exchange Debentures" for a more detailed discussion of the federal income tax
consequences to the holders of the Notes with respect to the purchase,
ownership and disposition of the Notes.
If a bankruptcy case is commenced by or against the Company under the United
States Bankruptcy Code (the "Bankruptcy Code") prior to the Full Accretion
Date, the claim of a holder of Notes with respect to the principal amount
thereof will likely be limited to an amount equal to the Accreted Value as of
the commencement of such case.
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CERTAIN TAX CONSEQUENCES FOR HOLDERS OF EXCHANGEABLE PREFERRED STOCK
If shares of Exchangeable Preferred Stock are exchanged for Exchange
Debentures and the stated redemption price at maturity of such Exchange
Debentures exceeds their issue price by more than a de minimis amount, the
Exchange Debentures will be treated as having original issue discount ("OID")
equal to the entire amount of such excess. Exchange Debentures issued on or
before August 1, 2003, when the Company has the option to pay interest on the
Exchange Debentures in additional Exchange Debentures, will likely have OID.
Each holder of Exchange Debentures with OID will be required to include
amounts in gross income in advance of receipt of cash with respect to such
OID. See "U.S. Federal Income Tax Consequences--The Exchangeable Preferred
Stock" and "U.S. Federal Income Tax Consequences--The Notes and the Exchange
Debentures."
IMPACT OF YEAR 2000 ISSUE
The Year 2000 issue arises as the result of computer programs having been
written, and systems having been designed, using two digits rather than four
to define the applicable year. Consequently, such software has the potential
to recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to process
transactions, send bills for services or engage in similar normal business
activities. The Issuer is preparing all of its software products and internal
computer systems to be Year 2000 compliant. The Issuer has replaced its
financial reporting and payroll systems with systems that are Year 2000
compliant. The Issuer is in the process of evaluating several clinical
information software products, including one which has been installed in 13 of
its facilities, with the expectation that it will identify a Year 2000
compliant standard clinical information and patient billing system which will
be implemented at each of the Issuer's facilities. The Issuer currently
estimates that it will complete the selection of the standard clinical
information and patient billing software during 1998 and finalize the
conversion of its existing systems to the new platform during 1999. Although
the Issuer does not expect the cost of the conversion of its clinical and
patient billing systems to have a material adverse effect on its business or
future results of operations, there can be no assurance that the Issuer will
not be required to incur significant unanticipated costs in relation to its
compliance obligations. The Issuer currently estimates that full compliance
will be achieved during 1999; however, there can be no assurance that the
Issuer will be able to complete the conversion in a timely manner or that
third party software suppliers will be able to provide Year 2000 compliant
products for the Issuer to install. If the systems of the Issuer, businesses
acquired by the Issuer in the future or other companies on whose services the
Issuer depends or with whom the Issuer's systems interface are not Year 2000
compliant, there could be a material adverse effect on the Issuer's financial
condition or results of operations.
POTENTIAL INABILITY TO FUND A CHANGE OF CONTROL OFFER
A Change of Control would require the Issuer to refinance substantial
amounts of indebtedness. Upon the occurrence of a Change of Control, (i) the
Issuer will have the option, at any time on or prior to August 1, 2003, to
redeem the Notes, the Exchangeable Preferred Stock or the Exchange Debentures,
in each case in whole, but not in part, on the terms provided in this
Prospectus, and (ii) if the Issuer does not so redeem the Notes, the
Exchangeable Preferred Stock or the Exchange Debentures, or if a Change of
Control occurs after August 1, 2003 and the Issuer does not redeem the Notes,
Exchangeable Preferred Stock or Exchange Debentures, as the case may be, as
permitted at any time after such date, each holder of Notes, Exchangeable
Preferred Stock or Exchange Debenture, as the case may be, will have the right
to require the Issuer to repurchase all or any part of such holder's Notes,
Exchangeable Preferred Stock or Exchange Debentures, as the case may be, at
the prices described in this Prospectus. However, the New Credit Facility
prohibits the purchase of the Securities by the Issuer in the event of a
Change of Control, unless and until such time as the
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indebtedness under the New Credit Facility is repaid in full. The Issuer's
failure to purchase the Securities would result in a default under the
Indenture, the Certificate of Designation and the New Credit Facility. The
inability to repay the indebtedness under the New Credit Facility, if
accelerated, would also constitute a default under the Indenture and a Voting
Rights Triggering Event (as defined in the Certificate of Designation), which
could have adverse consequences to the Issuer and the holders of the
Securities. In the event of a Change of Control, there can be no assurance that
the Issuer would have sufficient funds to satisfy all of its obligations under
the New Credit Facility, the Indenture and the Certificate of Designation.
USE OF PROCEEDS
There will be no proceeds to the Issuer or any of the Guarantors from the
exchange of Securities pursuant to the Exchange Offer.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Exchange Offer is designed to provide holders of Old Securities with an
opportunity to acquire New Securities which, unlike the Old Securities, will
be freely tradable at all times, subject to any restrictions on transfer
imposed by state "blue sky" laws and provided that (i) the holder is not an
affiliate of the Company within the meaning of the Securities Act, and (ii)
the holder represents that the New Securities are being acquired in the
ordinary course of such holder's business and the holder is not engaged in,
and does not intend to engage in, a distribution of the New Securities. The
outstanding Old Notes in the aggregate principal amount at maturity of $170.0
million and the 40,000 outstanding shares of Old Preferred Stock were
originally issued and sold on July 31, 1998 (the "Original Issue Date") in
order to provide financing in connection with the Recapitalization. The
original sale of the Old Notes and 40,000 shares of Old Preferred Stock to
Morgan Stanley & Co. Incorporated, Chase Securities Inc. and BT Alex. Brown
Incorporated (the "Placement Agents") was not registered under the Securities
Act in reliance upon the exemption provided by Section 4(2) of the Securities
Act and the concurrent resale of such Old Securities to investors was not
registered under the Securities Act in reliance upon the exemptions provided
by Rule 144A. The issuance of an additional 1,365 shares of Old Preferred
Stock in payment of dividends on the original 40,000 shares, and resales of
such dividend shares, are also not being registered under the Securities Act
of 1933 in reliance upon such exemptions. The Old Securities may not be
reoffered, resold or transferred other than pursuant to a registration
statement filed pursuant to the Securities Act or unless an exemption from the
registration requirements of the Securities Act is available. Pursuant to Rule
144, Old Securities may generally be resold (a) commencing one year after the
Original Issue Date, in an amount up to, for any three-month period, the
greater of 1% of the Old Notes or Old Preferred Stock, as the case may be,
then outstanding or the average weekly trading volume of the Old Notes or Old
Preferred Stock, as the case may be, during the four calendar weeks
immediately preceding the filing of the required notice of sale with the
Commission and (b) commencing two years after the Original Issue Date, in any
amount and otherwise without restriction by a holder who is not, and has not
been for the preceding 90 days, an affiliate of the Issuer. The Old Securities
are eligible for trading in the PORTAL Market, and may be resold to certain
Qualified Institutional Buyers pursuant to Rule 144A and to certain non-U.S.
persons pursuant to Regulation S. Certain other exemptions may also be
available under other provisions of the federal securities laws for the resale
of the Old Securities.
In connection with the original issue and sale of the Old Notes and the Old
Preferred Stock, the Issuer and the Guarantors entered into Registration
Rights Agreements, pursuant to which they agreed to file with the Commission a
registration statement covering the exchange by the Issuer of the New
Securities for the Old Securities (the "Exchange Offer Registration
Statement"). The Registration Rights Agreements provide that, unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
(i) the Issuer will file the Exchange Offer Registration Statement with the
Commission on or prior to 90 days after the Original Issue Date, (ii) the
Issuer will use its reasonable best efforts to have the Exchange Offer
Registration Statement declared effective by the Commission on or prior to 180
days after the Original Issue Date, (iii) the Issuer will commence the
Exchange Offer and use its reasonable best efforts to issue on or prior to 30
business days after the date on which the Exchange Offer Registration
Statement is declared effective by the Commission, New Securities in exchange
for all Old Securities tendered prior thereto in the Exchange Offer, and (iv)
if obligated by the Registration Rights Agreements to file a shelf
registration statement covering the Old Securities (a "Shelf Registration
Statement"), the Issuer will use its reasonable best efforts to file the Shelf
Registration Statement with the Commission on or prior to 90 days after such
filing obligation arises, to cause the Shelf Registration Statement to be
declared effective by the Commission on or prior to 135 days after such
obligation arises and, with certain exceptions, to cause such Shelf
Registration Statement to remain effective and usable for a period of two
years following the initial effectiveness thereof. If (a) the Issuer fails to
file any of the registration statements required by the Registration
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Rights Agreements on or before the date specified for such filing, (b) any of
such registration statements is not declared effective by the Commission on or
prior to the date specified for such effectiveness, (c) unless the Exchange
Offer would not be permitted by applicable law or Commission policy or the
Issuer is otherwise not required to do so, the Issuer fails to consummate the
Exchange Offer within 30 business days after the date specified for
effectiveness of the Exchange Offer Registration Statement, or (d) the Shelf
Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted Securities (as defined below)
during the periods specified in the Registration Rights Agreements (each such
event referred to in clauses (a) through (d) above a "Registration Default"),
the Issuer and the Guarantors will pay liquidated damages ("Liquidated
Damages") to each holder of Transfer Restricted Securities (as defined), with
respect to the first 90-day period immediately following the occurrence of
such Registration Default in an amount equal to $.05 per week per $1,000
principal amount, in the case of the Old Notes, or $1,000 liquidation
preference, in the case of the Old Preferred Stock, of Transfer Restricted
Securities held by such person. The amount of the Liquidated Damages will
increase by an additional $.05 per week per $1,000 principal amount or
liquidation preference of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured up to
a maximum amount of Liquidated Damages of $.20 per week per $1,000 principal
amount or liquidation preference of Transfer Restricted Securities (regardless
of whether one or more than one Registration Default is outstanding).
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease. For purposes of the foregoing, "Transfer Restricted
Securities" means each Old Note, in the case of a Registration Default with
respect to the Old Notes, or each share of Old Preferred Stock, in the case of
a Registration Default with respect to the Old Preferred Stock, until (i) the
date on which such Old Security has been exchanged by a person other than a
broker-dealer for a New Security in the Exchange Offer, (ii) the date on which
such Old Security has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement, (iii) the
date on which such Old Security is distributed to the public pursuant to Rule
144 under the Securities Act, or (iv) following the exchange by a broker-
dealer in the Exchange Offer of an Old Security for a New Security, the date
on which such New Security is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of a prospectus
meeting the requirements of the Securities Act in connection with resales of
securities received by the broker-dealer in any such exchange.
The staff of the Commission has issued certain interpretive letters that
concluded, in circumstances similar to those contemplated by the Exchange
Offer, that new securities issued in a registered exchange for outstanding
securities, which new securities are intended to be substantially identical to
the securities for which they are exchanged, may be offered for resale, resold
and otherwise transferred by a holder thereof (other than (i) a broker-dealer
who purchases such securities from the issuer to resell pursuant to Rule 144A
or any other available exemption under the Securities Act or (ii) a person who
is an affiliate of the issuer within the meaning of Rule 405 under the
Securities Act or (iii) a person participating in the distribution of the
securities without compliance with the registration and prospectus delivery
provisions of the Securities Act), provided that the new securities are
acquired in the ordinary course of such holder's business and such holder has
no arrangement or understanding with any person to participate in the
distribution of the new securities. However, a broker-dealer who holds
outstanding securities that were acquired for its own account as a result of
market-making or other trading activities may be deemed to be an "underwriter"
within the meaning of the Securities Act and must, therefore, deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resales of the new securities received by the broker-dealer in any such
exchange. See "--Consequences of Failure to Exchange; Resales of New
Securities." The Issuer has not requested or obtained an interpretive letter
from the Commission staff with respect to this Exchange Offer, and the Issuer
and the holders are not entitled to rely on interpretive advice provided by
the staff to other persons, which advice was based on the facts and conditions
represented in such
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letters. However, the Exchange Offer is being conducted in a manner intended
to be consistent with the facts and conditions represented in such letters. If
any holder has any arrangement or understanding with respect to the
distribution of the New Securities to be acquired pursuant to the Exchange
Offer, such holder (i) could not rely on the applicable interpretations of the
staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. In addition, each broker-dealer that receives New
Securities for its own account in exchange for the Old Securities, where such
Old Securities were acquired by such broker-dealers as a result of market-
making activities or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such New Securities. See
"Plan of Distribution." By delivering the Letter of Transmittal, a holder
tendering Old Securities for exchange will represent and warrant to the Issuer
that the holder is acquiring the New Securities in the ordinary course of its
business and that the holder is not engaged in, and does not intend to engage
in, a distribution of the New Securities. Any holder using the Exchange Offer
to participate in a distribution of the New Securities to be acquired in the
Exchange Offer must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Holders who do not exchange their Old Securities pursuant to this
Exchange Offer will continue to hold Old Securities that are subject to
restrictions on transfer.
It is expected that the New Securities will be freely transferable by the
holders thereof, subject to the limitations described in the immediately
preceding paragraph and in "--Consequences of Failure to Exchange; Resales of
New Securities." Sales of New Securities acquired in the Exchange Offer by
holders who are "affiliates" of the Issuer within the meaning of the
Securities Act will be subject to certain limitations on resale under Rule 144
of the Securities Act. Such persons will only be entitled to sell New
Securities in compliance with the volume limitations set forth in Rule 144,
and sales of New Securities by affiliates will be subject to certain Rule 144
requirements as to the manner of sale, notice and the availability of current
public information regarding the Issuer. The foregoing is a summary only of
Rule 144 as it may apply to affiliates of the Issuer. Any such persons must
consult their own legal counsel for advice as to any restrictions that might
apply to the resale of their New Securities.
The terms of the New Securities will not include registration rights
(because the New Securities will be registered) or restrictions on transfer
(because the New Securities are expected to be freely transferable, subject to
certain limitations as referred to above). The terms of the New Securities
will also not include the special mandatory redemption provisions included in
the terms of the Old Securities, because those provisions provide for
redemption of the Old Securities if the Merger does not occur by a specified
date, and the Merger in fact did occur by the specified date. The New
Securities otherwise will be substantially identical in all material respects
(including interest or dividend rate, maturity or redemption date, security
and restrictive covenants) to the Old Securities for which they may be
exchanged pursuant to this Exchange Offer. See "Description of the New Notes"
and "Description of the New Preferred Stock."
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD SECURITIES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Issuer will accept for exchange Old Securities which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on November 30, 1998; provided, however, that if the
Issuer has extended the period of time for which the Exchange Offer is open,
the term "Expiration Date" means the latest time and date to which the
Exchange Offer is extended.
As of the date of this Prospectus, $170.0 million aggregate principal amount
at maturity of the Old Notes and 40,000 shares of Old Preferred Stock are
outstanding. On November 1, 1998, 1,365
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additional shares of Old Preferred Stock will be issued in payment of
dividends on the 40,000 previously issued shares of Old Preferred Stock. This
Prospectus, together with the Letter of Transmittal, is first being sent on or
about October 28, 1998, to all holders of Old Securities known to the Issuer.
The Issuer's obligation to accept Old Securities for exchange pursuant to the
Exchange Offer is subject to certain conditions as set forth under "--Certain
Conditions to the Exchange Offer" below.
The Issuer expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Securities, by giving notice
of such extension to the holders thereof. During any such extension, all Old
Securities previously tendered will remain subject to the Exchange Offer and
may be accepted for exchange by the Issuer. Any Old Securities not accepted
for exchange for any reason will be returned without expense to the tendering
holder thereof as promptly as practicable after the expiration or termination
of the Exchange Offer.
The Issuer expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Securities not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified below under "--Certain Conditions to the Exchange
Offer." The Issuer will give notice of any extension, amendment, non-
acceptance or termination to the holders of the Old Securities as promptly as
practicable, such notice in the case of any extension to be issued no later
than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Securities being tendered for exchange. The Company reserves the
right in its sole discretion to purchase or make offers for any Old Securities
that remain outstanding after the Expiration Date or, as set forth under "--
Certain Conditions to the Exchange Offer," to terminate the Exchange Offer and
to the extent permitted by applicable law, purchase Old Securities in the open
market, in privately negotiated transactions or otherwise. The terms of any
such purchases or offers could differ from the terms of the Exchange Offer.
Holders of Old Securities do not have any appraisal or dissenters' rights in
connection with the Exchange Offer. Old Securities that are not tendered, or
are tendered but not accepted, in connection with the Exchange Offer will
remain outstanding and continue to accrue interest or dividends in accordance
with their terms. See "Risk Factors--Consequences of a Failure to Exchange Old
Securities."
THE BOARD OF DIRECTORS OF THE COMPANY MAKES NO RECOMMENDATION TO HOLDERS OF
OLD SECURITIES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY
PORTION OF THEIR OLD SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION,
NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD
SECURITIES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD SECURITIES TO TENDER,
AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING
WITH THEIR ADVISERS, IF ANY, BASED ON THEIR FINANCIAL POSITION AND
REQUIREMENTS.
PROCEDURES FOR TENDERING OLD SECURITIES
The tender to the Issuer of Old Securities by a holder thereof as set forth
below and the acceptance thereof by the Issuer will constitute a binding
agreement between the tendering holder and the Issuer upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to
tender Old Securities for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to
United States Trust Company of New York (the "Exchange Agent") at one of the
addresses set forth
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below under "Exchange Agent" on or prior to the Expiration Date. In addition,
either (i) certificates for such Old Securities must be received by the
Exchange Agent along with the Letter of Transmittal, or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such
Old Securities, if such procedure is available, into the Exchange Agent's
account at The Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date, or (iii) the
holder must comply with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF OLD SECURITIES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD
SECURITIES SHOULD BE SENT TO THE ISSUER. THE ISSUER IS NOT ASKING HOLDERS OF
OLD SECURITIES FOR A PROXY AND HOLDERS OF OLD SECURITIES ARE REQUESTED NOT TO
SEND THE ISSUER A PROXY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Securities surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Securities
who has not completed the box entitled "Special Issuance Instruction" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantees must be by a firm which
is a member of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or by a commercial bank or
trust company having an office or correspondent in the United States
(collectively, "Eligible Institutions"). If Old Securities are registered in
the name of a person other than a signer of the Letter of Transmittal, the Old
Securities surrendered for exchange must be endorsed by, or be accompanied by
a written instrument or instruments of transfer or exchange, in satisfactory
form as determined by the Issuer in its sole discretion, duly executed by the
registered holder with the signature thereon guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Securities tendered for exchange will be
determined by the Issuer in its sole discretion, which determination shall be
final and binding. The Issuer reserves the absolute right to reject any and
all tenders of any particular Old Securities not properly tendered or to not
accept any particular Old Securities which acceptance might, in the judgment
of the Issuer or its counsel, be unlawful. The Issuer also reserves the
absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Old Securities either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Old Securities in the Exchange Offer). The interpretation
of the terms and conditions of the Exchange Offer as to any particular Old
Securities either before or after the Expiration Date (including the Letter of
Transmittal and the instructions thereto) by the Issuer shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Securities for exchange must be cured within
such reasonable period of time as the Issuer shall determine. Neither the
Issuer, the Exchange Agent nor any other person shall be under any duty to
give notification of any defect or irregularity with respect to any tender of
Old Securities for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Old Securities, such Old Securities must be
endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names of the registered holder or holders appear
on the Old Securities.
If the Letter of Transmittal or any Old Securities or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Issuer, proper evidence satisfactory to the Issuer of their authority to
so act must be submitted.
43
<PAGE>
Any beneficial owner of Old Securities that are held by or registered in the
name of a broker, dealer, commercial bank, trust company or other nominee or
custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
By tendering, each broker-dealer holder will represent to the Issuer that,
among other things, the New Securities acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of business of the holder and any
beneficial holder, that neither the holder nor any such beneficial holder has
an arrangement or understanding with any person to participate in the
distribution of such New Securities and that neither the holder nor any such
other person is an "affiliate," as defined under Rule 405 of the Securities
Act, of the Issuer. If the holder is not a broker-dealer, the holder must
represent that it is not engaged in nor does it intend to engage in a
distribution of the New Securities.
ACCEPTANCE OF OLD SECURITIES FOR EXCHANGE; DELIVERY OF NEW SECURITIES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Issuer will accept, promptly after the Expiration Date, all Old Securities
properly tendered and will issue the New Securities promptly after acceptance
of the Old Securities. See "--Certain Conditions to the Exchange Offer" below.
For purposes of the Exchange Offer, the Issuer shall be deemed to have
accepted properly tendered Old Securities for exchange when, as and if the
Issuer has given written notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. For each share of Old Preferred Stock accepted for exchange, the
holder of such share will receive a share of New Preferred Stock.
In all cases, issuance of New Securities for Old Securities that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Old Securities
or a timely Book-Entry Confirmation of such Old Securities into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal and all other required documents. If any
tendered Old Securities are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Old Securities are submitted for a
greater principal amount or number of shares than the holder desires to
exchange, such unaccepted or non-exchanged Old Securities will be returned
without expense to the tendering holder thereof (or, in the case of Old
Securities tendered by book-entry transfer into the Exchange Agent's account
at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described below, such non-exchanged Old Securities will be credited
to an account maintained with such Book-Entry Transfer Facility) as promptly
as practicable after the expiration of the Exchange Offer.
BOOK-ENTRY TRANSFER
Any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Securities by causing
the Book-Entry Transfer Facility to transfer such Old Securities into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance
with such Book-Entry Transfer Facility's procedures for transfer. However,
although delivery of Old Securities may be effected through book-entry
transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or
facsimile thereof with any required signature guarantees and any other
required documents must, in any case, be transmitted to and received by the
Exchange Agent at one of the addresses set forth below under "Exchange Agent"
on or prior to the Expiration Date or the guaranteed delivery procedures
described below must be complied with.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Securities desires to tender such Old
Securities and the Old Securities are not immediately available, or time will
not permit such holder's Old Securities or other
44
<PAGE>
required documents to reach the Exchange Agent before the Expiration Date, or
the procedure for book-entry transfer cannot be completed on a timely basis, a
tender may be effected if (i) the tender is made through an Eligible
Institution, (ii) prior to the Expiration Date, the Exchange Agent receives
from such Eligible Institution a Notice of Guaranteed Delivery, substantially
in the form provided by the Issuer (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth the name and address of
the holder of Old Securities and the amount of Old Securities tendered,
stating that the tender is being made thereby and guaranteeing that within
five New York Stock Exchange ("NYSE") trading days after the date of execution
of the Notice of Guaranteed Delivery, a properly completed and duly executed
Letter of Transmittal (or a facsimile thereof), together with the certificates
for all physically tendered Old Securities, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and any other documents required
by the Letter of Transmittal, will be deposited by the Eligible Institution
with the Exchange Agent, and (iii) such properly completed and duly executed
Letter of Transmittal (or a facsimile thereof), as well as the certificates
for all physically tendered Old Securities, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other documents required
by the Letter of Transmittal, are received by the Exchange Agent within five
NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Securities may be withdrawn at any time prior to the
Expiration Date. For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent at one of the addresses set
forth below under "Exchange Agent." Any such notice of withdrawal must specify
the name of the person having tendered the Old Securities to be withdrawn,
identify the Old Securities to be withdrawn (including the principal amount or
number of shares of such Old Securities), and (where certificates for Old
Securities have been transmitted) specify the name in which such Old
Securities are registered, if different from that of the withdrawing holder.
If certificates for Old Securities have been delivered or otherwise identified
to the Exchange Agent, then, prior to the release of such certificates the
withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an Eligible Institution unless such holder is an Eligible
Institution. If Old Securities have been tendered pursuant to the procedure
for book-entry transfer described above, any notice of withdrawal must specify
the name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Securities and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Issuer, whose determination shall be final and binding on all parties. Any
Old Securities so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Securities that have
been tendered for exchange but that are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Securities tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described above, such Old Securities will be credited to
an account maintained with such Book-Entry Transfer Facility for the Old
Securities) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Securities may be
retendered by following one of the procedures described under "-- Procedures
for Tendering Old Securities" above at any time on or prior to the Expiration
Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Issuer shall
not be required to accept for exchange, or to issue New Securities in exchange
for, any Old Securities and may terminate or amend the Exchange Offer if at
any time before the acceptance of such Old Securities for exchange or the
exchange of the New Securities for such Old Securities, the Issuer determines
that the Exchange Offer violates applicable law, any applicable interpretation
of the staff of the Commission or any order of any governmental agency or
court of competent jurisdiction.
45
<PAGE>
The foregoing conditions are for the sole benefit of the Issuer and may be
asserted by the Issuer regardless of the circumstances giving rise to any such
condition or may be waived by the Issuer in whole or in part at any time and
from time to time in its reasonable discretion. The failure by the Issuer at
any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right and each such right shall be deemed an ongoing right which
may be asserted at any time and from time to time.
In addition, the Issuer will not accept for exchange any Old Securities
tendered, and no New Securities will be issued in exchange for any such Old
Securities, if at such time any stop order shall be threatened or in effect
with respect to the Registration Statement of which this Prospectus constitutes
a part or the qualification of the Indenture under the Trust Indenture Act of
1939 (the "TIA"). In any such event, the Issuer is required to use every
reasonable effort to obtain the withdrawal of any stop order at the earliest
possible time.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
BY FACSIMILE BY HAND BEFORE 4:30 P.M.
(212) 780-0592 United States Trust Company of New York
Attention: Customer Service 111 Broadway
Confirm by telephone: New York, New York 10006
(800) 548-6565 Attention: Lower Level Corporate
Trust Window
BY MAIL
United States Trust Company of BY OVERNIGHT COURIER AND BY HAND AFTER
New York 4:30 P.M. ON THE EXPIRATION DATE ONLY
P.O. Box 843 United States Trust Company of New York
Cooper Station 770 Broadway, 13th Floor
New York, New York 10276 New York, New York 10003
Attention: Corporate Trust
Services
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The Issuer will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Issuer.
The Issuer will pay the reasonable and customary expenses to be incurred in
connection with the Exchange Offer, which includes fees and expenses of the
Exchange Agent and of the trustee under the Indenture, accounting, legal,
printing and related fees and expenses.
ACCOUNTING TREATMENT
The New Securities will be recorded at the same carrying value as the Old
Securities, which, in the case of the Old Notes, is the principal amount less
the unamortized original issue discount as
46
<PAGE>
reflected in the Issuer's accounting records on the date of the exchange, and
in the case of the Old Preferred Stock, is their liquidation preference.
Accordingly, no gain or loss for accounting purposes will be recognized. The
expenses of the Exchange Offer will be capitalized for accounting purposes.
TRANSFER TAXES
Holders who tender their Old Securities for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct the Issuer to register New Securities in the name of, or request that
Old Securities not tendered or not accepted in the Exchange Offer be returned
to, a person other than the registered tendering holder will be responsible
for the payment of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW SECURITIES
Holders of Old Securities who do not exchange their Old Securities for New
Securities pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Securities as set forth in the legend
thereon as a consequence of the issuance of the Old Securities pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. Old
Securities not exchanged pursuant to the Exchange Offer will continue to
accrete interest or accrue dividends and will otherwise remain outstanding in
accordance with their terms. In general, the Old Securities may not be offered
or sold unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Issuer does not currently anticipate
that it will register the Old Securities under the Securities Act. However, if
(i) the Issuer is not required to file the Exchange Offer Registration
Statement or permitted to consummate the Exchange Offer, (ii) any Old
Securities validly tendered pursuant to the Exchange Offer are not exchanged
for new Securities within 180 days after the Closing Date, or (iii) any holder
of Transfer Restricted Securities notifies the Issuer prior to the 20th day
following consummation of the Exchange Offer that (A) it is prohibited by law
or Commission policy from participating in the Exchange Offer, (B) it may not
resell the New Securities acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales,
(C) it is a Placement Agent and the Transfer Restricted Securities that it
holds are not eligible to be exchanged for New Securities, or (D) it is a
broker-dealer and owns Old Securities acquired directly from the Issuer or an
affiliate of the Issuer, the Issuer is obligated under the Registration Rights
Agreements to file a shelf registration statement on the appropriate form
under the Securities Act relating to the Old Securities held by such persons.
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, New Securities issued pursuant to
the Exchange Offer may be offered for resale, resold or otherwise transferred
by holders thereof (other than (i) any such holder which is an "affiliate" of
the Issuer within the meaning of Rule 405 under the Securities Act or (ii) any
broker-dealer that purchases Securities from the Issuer to resell pursuant to
Rule 144A or any other available exemption) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such New Securities are acquired in the ordinary course of such
holders' business and such holders have no arrangement or understanding with
any person to participate in the distribution of such New Securities. If any
holder has any arrangement or understanding with respect to the distribution
of the New Securities to be acquired pursuant to the Exchange Offer, such
holder (i) could not rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. A broker-dealer who holds Old Securities that were
acquired for its own account as a result of market-making or other trading
activities may be deemed to be an "underwriter" within the meaning of the
Securities Act and must, therefore, deliver a prospectus
47
<PAGE>
meeting the requirements of the Securities Act in connection with any resale
of New Securities. Each such broker-dealer who receives New Securities for its
own account in exchange for Old Securities, where such Old Securities were
acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge in the Letter of Transmittal that
it will deliver a prospectus in connection with any resale of such New
Securities. See "Plan of Distribution." While the Issuer has an obligation
under the Registration Rights Agreements, subject to certain exceptions, to
update this Prospectus by amendment or supplement for a period of 90 days
following consummation of the Exchange Offer in order to permit this
Prospectus to be used by such broker-dealers, the Issuer has no obligation
thereafter to update this Prospectus and, therefore, holders required to
deliver a prospectus may not thereafter be able to resell because they may be
unable to comply with the prospectus delivery requirements described above.
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Securities may not be offered or sold unless they have
been registered or qualified for sale in such jurisdiction or an exemption
from registration or qualification is available and is complied with. The
Issuer has agreed, pursuant to the Registration Rights Agreement and subject
to certain specified limitations therein, to register or qualify the New
Securities for offer or sale under the securities or blue sky laws of such
jurisdictions as any holder of the Securities reasonably requests in writing.
48
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of June 30, 1998 and (ii) the capitalization of the Company as of June 30,
1998 after giving pro forma effect to the Recapitalization as if it had
occurred on June 30, 1998. This table should be read in conjunction with
"Selected Consolidated Historical Financial and Operating Data," "Unaudited
Pro Forma Consolidated Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the unaudited
consolidated financial statements and the related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30,
1998
------------------
ACTUAL PRO FORMA
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 3,028 $ 3,028
======== ========
Current portion of long-term debt........................... 202 202
Current portion of capital lease obligation................. 4,204 4,204
-------- --------
Total current portion of long-term debt and capital lease
obligation............................................... $ 4,406 $ 4,406
======== ========
Long-term debt (net of current portion):
Mortgage loans ........................................... 17,746 17,746
Previously existing credit facility ...................... 18,600 --
New Credit Facility (1)................................... -- 4,147
Long-term portion of capital lease obligation ............ 51,594 51,594
11% Senior Subordinated Discount Notes due 2008........... -- 99,493
-------- --------
Total long-term debt and capital lease obligation (2)... 87,940 172,980
-------- --------
13 1/2% Exchangeable Preferred Stock........................ -- 40,000
Stockholders' equity:
Common stock.............................................. 80 146
Additional paid-in capital................................ 48,469 213,403
Treasury stock............................................ -- (183,881)
Retained earnings......................................... 7,136 (26,009)
-------- --------
Total stockholders' equity (3).......................... 55,685 3,659
-------- --------
Total capitalization.................................. $143,625 $216,639
======== ========
</TABLE>
- --------
(1) As part of the Recapitalization, the Company entered into the $250.0
million New Credit Facility. See "Description of the New Credit Facility."
(2) As of June 30, 1998, the Company had $59.3 million of outstanding
obligations drawn under its existing synthetic lease facility (which are
not included in the amount shown in the table above). Pro forma for the
Recapitalization, the Company will have no such outstanding obligations.
(3) As part of the Recapitalization, the New Investors made a cash equity
investment of $165.0 million, representing approximately 91% of the
outstanding common stock and voting power of Harborside upon consummation
of the Merger. Following the Recapitalization, certain pre-Merger
stockholders continued to own approximately 9% of the outstanding common
stock of Harborside, representing a total value of approximately $16.5
million, based on the price paid by the New Investors.
49
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information (the
"Unaudited Pro Forma Consolidated Financial Information") is based on the
audited historical consolidated financial statements of the Company and the
unaudited historical financial statements of Access Rehabilitation, the
Massachusetts Facilities, the Dayton Facilities, the Connecticut Facilities,
the Briarfield Facilities and the Rhode Island Facilities. The Pro Forma
Financial Information and accompanying notes should be read in conjunction
with the historical financial statements included elsewhere herein pertaining
to the Company, the Massachusetts Facilities and the Dayton Facilities, in
addition to the other financial information included under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The unaudited pro forma consolidated statements of operations for the year
ended December 31, 1997 and the six months and the twelve months ended June
30, 1998 have been prepared to give effect to: (i) the Completed 1997
Acquisitions; (ii) the Completed 1998 Acquisitions; and (iii) the
Recapitalization, as if each had occurred on January 1, 1997; and exclude non-
recurring items directly attributable to the Recapitalization. The unaudited
pro forma balance sheet as of June 30, 1998 has been prepared as if the
Recapitalization had occurred on that date.
The unaudited pro forma adjustments are based upon available information and
certain assumptions that the Company believes are reasonable. The pro forma
statements of operations do not purport to present what the Company's results
of operations would actually have been had the Recapitalization, the Completed
1997 Acquisitions and the Completed 1998 Acquisitions in fact occurred on
January 1, 1997, or to project the Company's results of operations for any
future period. The pro forma balance sheet data do not purport to present what
the Company's financial position actually would have been had the
Recapitalization in fact occurred on June 30, 1998, or to project the
Company's financial position at any future date. The Unaudited Pro Forma
Consolidated Financial Information set forth below should be read in
conjunction with, and are qualified in their entirety by, the information set
forth in "The Transactions," "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements of the Company and notes thereto included
elsewhere in this Prospectus. The Company expects that the Recapitalization
will be treated as a recapitalization for financial accounting purposes.
Accordingly, no pro forma adjustments were made to the historical basis of the
Company's assets and liabilities.
For the purpose of presenting the unaudited pro forma consolidated
statements of operations, "Completed 1997 Acquisitions Combined" refers to the
historical results of operations of the entities acquired as part of the
Completed 1997 Acquisitions, as adjusted, and "Completed 1998 Acquisitions
Combined" refers to the historical results of operations of the entities
acquired as part of the Completed 1998 Acquisitions, as adjusted.
As used in the Unaudited Pro Forma Consolidated Financial Information, (i)
"Pro Forma Before Completed 1998 Acquisitions" gives pro forma effect to the
Completed 1997 Acquisitions, (ii) "Pro Forma Before Recapitalization" gives
pro forma effect to the Completed 1997 Acquisitions and the Completed 1998
Acquisitions and (iii) "Pro Forma" gives pro forma effect to each of the
foregoing acquisitions and the Recapitalization.
50
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------------------------------------------
PRO FORMA
HARBORSIDE COMPLETED BEFORE COMPLETED
HEALTHCARE 1997 COMPLETED 1998 RECAPITALIZATION
CORPORATION ACQUISITIONS 1998 ACQUISITIONS PRO FORMA BEFORE ADJUSTMENTS PRO FORMA
(A) COMBINED (B) ACQUISITIONS COMBINED (C) RECAPITALIZATION (D) (Q)
----------- ------------ ------------ ------------ ---------------- ---------------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Total net revenues........... $ 221,777 $63,684 $285,461 $19,873 $ 305,334 $ 31 (E) $ 305,365
Expenses:
Facility operating.......... 176,404 51,155 227,559 15,305 242,864 -- 242,864
Management fees............. -- 1,384 1,384 1,753 3,137 -- 3,137
General and administrative.. 10,953 379 11,332 -- 11,332 -- 11,332
Service charges paid to
affiliates................. 708 -- 708 -- 708 1,200 (F) 1,908
Depreciation and
amortization............... 4,074 -- 4,074 -- 4,074 2,467 (G) 6,541
Synthetic lease rent........ 511 1,173 1,684 2,602 4,286 (4,286)(H) --
Facility rent............... 11,935 7,783 19,718 -- 19,718 -- 19,718
--------- ------- -------- ------- --------- -------- ----------
Total expenses.............. 204,585 61,874 266,459 19,660 286,119 (619) 285,500
--------- ------- -------- ------- --------- -------- ----------
Income from operations...... 17,192 1,810 19,002 213 19,215 650 19,865
Other:
Interest expense, net...... (5,853) -- (5,853) -- (5,853) (13,602)(I) (19,455)
Loss on investment in
limited partnership....... (189) -- (189) -- (189) -- (189)
--------- ------- -------- ------- --------- -------- ----------
Income before income taxes.. 11,150 1,810 12,960 213 13,173 (12,952) 221
Income taxes................ (4,347) (706) (5,053) (83) (5,136) 5,051 (J) (85)
--------- ------- -------- ------- --------- -------- ----------
Net income.................. $ 6,803 $ 1,104 $ 7,907 $ 130 $ 8,037 $ (7,901) $ 136
========= ======= ======== ======= ========= ======== ==========
Net income.................. $ 6,803 $ 8,037 $ 136
Preferred dividends......... -- -- (5,680)(K)
--------- --------- ----------
Net income (loss) available
(attributable) to common
stockholders............... $ 6,803 $ 8,037 $ (5,544)
========= ========= ==========
Net income (loss) available
(attributable) to common
stockholders per share:
Basic..................... $ .85 $ 1.00 $ (.76)
========= ========= ==========
Diluted................... $ .84 $ .99 $ (.76)
========= ========= ==========
Weighted average number of
common shares used in per
share computations:
Basic..................... 8,037,026 8,037,026 7,261,332
Diluted................... 8,138,793 8,138,793 7,261,332
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations
51
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1998
--------------------------------------------------------------------
HARBORSIDE COMPLETED
HEALTHCARE 1998 RECAPITALIZATION
CORPORATION ACQUISITIONS PRO FORMA BEFORE ADJUSTMENTS PRO FORMA
(L) COMBINED (M) RECAPITALIZATION (D) (Q)
----------- ------------ ---------------- ---------------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Total net revenues...... $ 148,640 $5,693 $ 154,333 $ 16 (E) $ 154,349
Expenses:
Facility operating.... 117,030 4,504 121,534 -- 121,534
Management fees....... -- 446 446 -- 446
General and
administrative....... 7,475 -- 7,475 -- 7,475
Service charges paid
to affiliates........ 628 -- 628 600 (F) 1,228
Depreciation and
amortization......... 2,263 -- 2,263 984 (G) 3,247
Synthetic lease rent.. 1,501 761 2,262 (2,262)(H) --
Facility rent......... 10,120 -- 10,120 -- 10,120
--------- ------ --------- ------- ---------
Total expenses...... 139,017 5,711 144,728 (678) 144,050
--------- ------ --------- ------- ---------
Income from operations.. 9,623 (18) 9,605 694 10,299
Other:
Interest expense,
net.................. (3,202) -- (3,202) (6,873)(I) (10,075)
Loss on investment in
limited partnership.. (72) -- (72) -- (72)
--------- ------ --------- ------- ---------
Income before income
taxes.................. 6,349 (18) 6,331 (6,179) 152
Income taxes............ (2,476) 7 (2,469) 2,410 (J) (59)
--------- ------ --------- ------- ---------
Net income.............. $ 3,873 $ (11) $ 3,862 $(3,769) $ 93
========= ====== ========= ======= =========
Net income.............. $ 3,873 $ 3,862 $ 93
Preferred dividends..... -- -- (3,135)(K)
--------- --------- ---------
Net income (loss)
available
(attributable) to
common stockholders.... $ 3,873 $ 3,862 $ (3,042)
========= ========= =========
Net income (loss)
available
(attributable) to
common stockholders per
share:
Basic................. $ .48 $ .48 $ (.42)
========= ========= =========
Diluted............... $ .47 $ .46 $ (.42)
========= ========= =========
Weighted average number
of common shares used
in per share
computations:
Basic................. 8,061,329 8,061,329 7,261,332
Diluted............... 8,327,525 8,327,525 7,261,332
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations
52
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED JUNE 30, 1998
--------------------------------------------------------------------------------------------------
PRO FORMA
HARBORSIDE COMPLETED BEFORE COMPLETED
HEALTHCARE 1997 COMPLETED 1998 RECAPITALIZATION
CORPORATION ACQUISITIONS 1998 ACQUISITIONS PRO FORMA BEFORE ADJUSTMENTS PRO FORMA
(N) COMBINED (O) ACQUISITIONS COMBINED (P) RECAPITALIZATION (D) (Q)
----------- ------------ ------------ ------------ ---------------- ---------------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Total net revenues........... $ 272,741 $23,473 $296,214 $15,743 $ 311,957 $ 31 (E) $ 311,988
Expenses:
Facility operating.......... 215,917 18,604 234,521 11,952 246,473 -- 246,473
Management fees............. -- 610 610 1,812 2,422 -- 2,422
General and administrative.. 13,705 54 13,759 -- 13,759 -- 13,759
Service charges paid to
affiliates................. 982 -- 982 -- 982 1,200 (F) 2,182
Depreciation and
amortization............... 4,455 -- 4,455 -- 4,455 2,217 (G) 6,672
Synthetic lease rent........ 2,012 293 2,305 2,062 4,367 (4,367)(H) --
Facility rent............... 16,746 3,252 19,998 -- 19,998 -- 19,998
--------- ------- -------- ------- --------- -------- ---------
Total expenses............. 253,817 22,813 276,630 15,826 292,456 (950) 291,506
--------- ------- -------- ------- --------- -------- ---------
Income from operations...... 18,924 660 19,584 (83) 19,501 981 20,482
Other:
Interest expense, net...... (6,299) -- (6,299) -- (6,299) (13,615)(I) (19,914)
Loss on investment in
limited partnership....... (200) -- (200) -- (200) -- (200)
--------- ------- -------- ------- --------- -------- ---------
Income before income taxes.. 12,425 660 13,085 (83) 13,002 (12,634) 368
Income taxes................ (4,844) (257) (5,101) 33 (5,068) 4,927 (J) (141)
--------- ------- -------- ------- --------- -------- ---------
Net income.................. $ 7,581 $ 403 $ 7,984 $ (50) $ 7,934 $ (7,707) $ 227
========= ======= ======== ======= ========= ======== =========
Net income.................. $ 7,581 $ 7,934 $ 227
Preferred dividends......... -- -- (6,069)(K)
--------- --------- ---------
Net income (loss) available
(attributable) to common
stockholders.............. $ 7,581 $ 7,934 $ (5,842)
========= ========= =========
Net income (loss) available
(attributable) to common
stockholders per share:
Basic..................... $ .94 $ .99 $ (.80)
========= ========= =========
Diluted................... $ .92 $ .96 $ (.80)
========= ========= =========
Weighted average number of
common shares used in per
share computations:
Basic.................... 8,054,199 8,054,199 7,261,332
Diluted.................. 8,279,921 8,279,921 7,261,332
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations
53
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(A) Represents the historical audited consolidated statement of operations of
the Company for the year ended December 31, 1997.
(B) During 1997, the Company acquired the Massachusetts Facilities, the Dayton
Facilities and the Connecticut Facilities by entering into operating
leases for those facilities, and acquired the assets of Access
Rehabilitation. To reflect the pro forma effect of these acquisitions on
the Company's operations, the schedule below presents the unaudited
historical combined results of operations of the acquired businesses for
the period from January 1, 1997 until their respective acquisitions by the
Company. Specifically, Access Rehabilitation, the Massachusetts
Facilities, the Dayton Facilities and the Connecticut Facilities were
acquired on July 1, August 1, September 1 and December 1, 1997,
respectively.
<TABLE>
<CAPTION>
ACCESS MASSACHUSETTS DAYTON FACILITIES CONNECTICUT
REHABILITATION FOR FACILITIES FOR FOR THE FACILITIES FOR THE COMPLETED
THE SIX MONTHS THE SEVEN MONTHS EIGHT MONTHS ELEVEN MONTHS 1997
ENDED ENDED ENDED AUGUST 31, ENDED PRO FORMA ACQUISITIONS
JUNE 30, 1997 JULY 31, 1997 1997 NOVEMBER 30, 1997 ADJUSTMENTS COMBINED
------------------ ---------------- ----------------- ------------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total net revenues.... $4,310 $11,102 $8,600 $39,507 $ 165 (1) $63,684
Expenses:
Facility operating... 4,232 9,122 6,921 30,880 -- 51,155
Management fees...... -- -- 432 952 -- 1,384
General and
administrative...... -- 379 -- -- -- 379
Depreciation and
amortization........ 8 172 361 831 (1,372)(2) --
Synthetic lease
rent................ -- -- -- -- 1,173 (2) 1,173
Facility rent........ 8 -- -- 5,316 2,459 (2) 7,783
------ ------- ------ ------- ------- -------
Total expenses....... 4,248 9,673 7,714 37,979 2,260 61,874
------ ------- ------ ------- ------- -------
Income from
operations........... 62 1,429 886 1,528 (2,095) 1,810
Other:
Interest expense,
net................. (16) (68) (544) (1,057) 1,685 (2) --
------ ------- ------ ------- ------- -------
Income before income
taxes................ 46 1,361 342 471 (410) 1,810
Income taxes.......... -- -- -- -- (706)(3) (706)
------ ------- ------ ------- ------- -------
Net income............ $ 46 $ 1,361 $ 342 $ 471 $(1,116) $ 1,104
====== ======= ====== ======= ======= =======
</TABLE>
--------
(1) In Ohio, a portion of a facility's Medicaid reimbursement rate is
related to the capital costs incurred to finance the facility. As
facility financing changes as the result of an acquisition, the
reimbursement of such capital costs (and accordingly, a facility's net
revenues) is affected as well. This adjustment represents the aggregate
increase in revenue that is directly attributable to the Company's
acquisition of the Dayton Facilities and the related financing. The
adjustment, which can occur upon a change of facility ownership, is
computed in accordance with the state Medicaid program cost reporting
rules and regulations by substituting the effects of the Company's
financing for the amounts included in the historical Medicaid cost
reports.
(2) Reflects the following adjustments: (a) the elimination of historical
combined amounts recorded by the acquired businesses for depreciation
and amortization expense which had been recorded as a result of the
ownership of the underlying assets; (b) the elimination of historical
combined amounts recorded by the acquired businesses for interest
expense as the Company did not assume the related indebtedness; (c) the
elimination of historical facility rent
54
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS--
(CONTINUED)
expense of Access Rehabilitation and the Connecticut Facilities; and (d)
the synthetic lease and facility rent expense that the Company would
have incurred had the Completed 1997 Acquisitions occurred on January 1,
1997.
(3) Reflects the adjustment to the provision for federal and state income
taxes which the Company would have recorded (based on the Company's
historical effective tax rate of 39%) had the Completed 1997
Acquisitions occurred on January 1, 1997.
(C) During 1998, the Company acquired the Briarfield and Rhode Island
Facilities through synthetic lease financings. To reflect the pro forma
effect of these acquisitions on the Company's operations, the schedule
below presents the unaudited historical statements of operations of the
Briarfield and Rhode Island Facilities, which were acquired on April 1,
1998 and May 8, 1998, respectively, for the period from January 1, 1997
through December 31, 1997.
<TABLE>
<CAPTION>
COMPLETED
RHODE ISLAND 1998
BRIARFIELD FACILITIES PRO FORMA ACQUISITIONS
FACILITIES (1) (2) ADJUSTMENTS COMBINED
-------------- ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Total net revenues...... $9,290 $10,105 $ 478 (3) $19,873
Expenses:
Facility operating.... 7,095 8,210 -- 15,305
Management fees....... 986 767 -- 1,753
Depreciation and
amortization......... 335 177 (512)(4) --
Synthetic lease rent.. -- -- 2,602 (4) 2,602
------ ------- ------- -------
Total expenses...... 8,416 9,154 2,090 19,660
------ ------- ------- -------
Income from operations.. 874 951 (1,612) 213
Other:
Interest expense,
net.................. (618) (88) 706 (4) --
------ ------- ------- -------
Income before income
taxes.................. 256 863 (906) 213
Income taxes............ -- -- (83)(5) (83)
------ ------- ------- -------
Net income.............. $ 256 $ 863 $ (989) $ 130
====== ======= ======= =======
</TABLE>
--------
(1) Reflects the unaudited historical results of operations of the
Briarfield Facilities for the year ended December 31, 1997.
(2) Reflects the unaudited historical results of operations of the Rhode
Island Facilities for the year ended December 31, 1997.
(3) In Ohio and Rhode Island, a portion of a facility's Medicaid
reimbursement rate is related to the capital costs incurred to finance
the facility. As facility financing changes as a result of an
acquisition, the reimbursement of such capital costs (and accordingly,
a facility's net revenues) is affected as well. This adjustment
represents the aggregate increase in revenue that is directly
attributable to the Company's acquisition of the Briarfield and Rhode
Island Facilities and the related financings. The adjustment, which can
occur upon a change of facility ownership, is computed in accordance
with the state Medicaid program cost reporting rules and regulations by
substituting the effects of the Company's financing for the amounts
included in the historical Medicaid cost reports.
(4) Reflects the following adjustments: (a) the elimination of historical
combined amounts recorded by the Briarfield and Rhode Island Facilities
for depreciation and amortization
55
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS--
(CONTINUED)
expense which had been recorded as a result of the ownership of the
underlying assets; (b) the elimination of historical combined amounts
recorded by the Briarfield and Rhode Island Facilities for interest
expense as the Company did not assume the related indebtedness; and (c)
the synthetic lease rent expense that the Company would have incurred
had the Completed 1998 Acquisitions occurred on January 1, 1997.
(5) Reflects the adjustment to the provision for federal and state income
taxes which the Company would have recorded (based on the Company's
historical effective tax rate of 39%) had the Completed 1998
Acquisitions occurred on January 1, 1997.
(D) The Recapitalization adjustments give effect to the Merger and the
Recapitalization Financings which occurred in connection with the Merger.
The Recapitalization Financings included (but were not limited to) the
following: (i) the receipt of cash equity contributions of $165.0 million;
(ii) the issuance of $40.0 million of Exchangeable Preferred Stock; and
(iii) the issuance of the Notes, yielding gross proceeds of approximately
$99.5 million.
A portion of the net proceeds of the Offering were used to refinance all
borrowings under the Company's previously existing credit facility and to
finance the purchase of the Company's facilities described in note (E)
below, which prior to the Merger were leased through the Company's
previously existing synthetic lease facility.
The unaudited pro forma consolidated statements of operations exclude the
following non-recurring items that are directly attributable to the
Recapitalization: (i) $31.2 million of fees and expenses that were incurred
by the Company in connection with the Recapitalization, and a related income
tax benefit of $3.4 million; (ii) the write-off of $.9 million of debt
issuance costs related to existing debt retired in connection with the
Recapitalization, and a related income tax benefit of $.3 million; and (iii)
a $7.9 million compensation charge resulting from the conversion of
outstanding stock options in connection with the Recapitalization, and a
related income tax benefit of $3.1 million.
(E) In connection with the Recapitalization, the previously existing synthetic
lease financings related to the Dayton Facilities, the Briarfield
Facilities and the Rhode Island Facilities were eliminated and the Company
purchased these facilities through the exercise of existing purchase
options using cash available to the Company through the Recapitalization
Financings. In Ohio and Rhode Island, a portion of a facility's Medicaid
reimbursement rate is related to the capital costs incurred to finance the
facility. As facility financing changes as a result of an acquisition, the
reimbursement of such capital costs (and accordingly, a facility's net
revenue) is affected as well. This adjustment represents the following
aggregate increases (decreases) in total net revenues that are directly
attributable to the acquisition and related refinancing of the following
facilities at the time of the Recapitalization:
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998 JUNE 30, 1998
----------------- ---------------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Dayton Facilities....... $ 88 $ 44 $ 88
Briarfield Facilities... (87) (43) (87)
Rhode Island
Facilities............. 30 15 30
---- ---- ----
$ 31 $ 16 $ 31
==== ==== ====
</TABLE>
56
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS--
(CONTINUED)
(F) Reflects the amortization of prepaid management advisory and consulting
services fees to be paid to Investcorp International Inc.
(G) Depreciation expense related to the purchase of the Dayton Facilities, the
Briarfield Facilities and the Rhode Island Facilities is estimated using
the straight-line method. Had the Dayton Facilities, the Briarfield
Facilities and the Rhode Island Facilities been acquired on January 1,
1997, the resulting depreciation and amortization would have been
approximately $1,967, $984 and $1,967 for the year ended December 31,
1997, the six months ended June 30, 1998 and the twelve months ended June
30, 1998, respectively. In addition, in conjunction with the
Recapitalization, the two principal beneficial stockholders of the Company
prior to the Merger entered into one-year non-compete agreements with the
Company. To reflect the one-year term, amortization of the related $500
non-compete payments has been fully reflected for the year ended December
31, 1997 while only $250 of such amortization is reflected for the twelve
months ended June 30, 1998.
(H) Reflects the elimination of synthetic lease rent expense as a result of
the elimination of the existing synthetic lease financings for the Dayton
Facilities, the Briarfield Facilities and the Rhode Island Facilities. In
connection with the Merger, the Company purchased these facilities for
$59,250 through the exercise of existing purchase options. See note (E)
above.
(I) In connection with the recapitalization, the Company's borrowings under
its existing credit facility were refinanced using a portion of the
proceeds of the Recapitalization Financings. The adjustments to the
Company's interest expense, net, to reflect the refinancing of this debt
as of January 1, 1997 are as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998 JUNE 30, 1998
----------------- ---------------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Elimination of the
historical interest
expense related to the
existing credit
facility and the
historical amortization
of debt issuance costs
related to the
Company's debt and
synthetic lease
arrangements that were
retired in connection
with the
Recapitalization....... $ (420) $ (606) $(1,026)
Interest expense related
to the $250.0 million
New Credit Facility
with an assumed
interest rate of LIBOR
(5.65%) plus 2.25%
(7.90%) (1)............ 1,557 778 1,557
Interest expense
resulting from $99.5
million gross proceeds
of the Notes, at an
interest rate of
11.00%................. 11,245 6,091 11,864
Amortization of debt
issuance costs of $8.5
million associated with
the Recapitalization
Financings over the
respective terms of
indebtedness........... 1,220 610 1,220
------- ------ -------
$13,602 $6,873 $13,615
======= ====== =======
</TABLE>
--------
(1) Interest expense is calculated assuming $4.1 million outstanding under
the New Credit Facility and a .5% fee on the unused portion.
57
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS--
(CONTINUED)
(J) Reflects the adjustment to the provision for federal and state income
taxes which the Company would have recorded (based on the Company's
historical effective tax rate of 39%) had the matters described in notes
(E) through (I) occurred at January 1, 1997.
(K) Dividends on the Exchangeable Preferred Stock will accrue quarterly over
the first five years (i.e., dividends will not be paid in cash during this
period) at an annual rate of 13.50%.
(L) Represents the historical unaudited consolidated statement of operations
of the Company for the six months ended June 30, 1998.
(M) During 1998, the Company acquired the Briarfield and Rhode Island
Facilities through synthetic lease financings. To reflect the pro forma
effect of these acquisitions on the Company's operations, the schedule
below presents the unaudited historical statements of operations of the
Briarfield and Rhode Island Facilities, which were acquired on April 1,
1998 and May 8, 1998, respectively, for the period from January 1, 1998
through their respective acquisition dates.
<TABLE>
<CAPTION>
BRIARFIELD RHODE ISLAND
FACILITIES FACILITIES
FOR THE FOR THE
THREE MONTHS FOUR MONTHS COMPLETED
ENDED ENDED 1998
MARCH 31, APRIL 30, PRO FORMA ACQUISITIONS
1998 1998 ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Total net revenues...... $2,296 $3,261 $ 136 (1) $5,693
Expenses:
Facility operating.... 1,786 2,718 -- 4,504
Management fees....... 166 280 -- 446
Depreciation and amor-
tization............. 87 56 (143)(2) --
Synthetic lease rent.. -- -- 761 (2) 761
------ ------ ----- ------
Total expenses...... 2,039 3,054 618 5,711
------ ------ ----- ------
Income from operations.. 257 207 (482) (18)
Other:
Interest expense,
net.................. (166) (27) 193 (2) --
------ ------ ----- ------
Income before income
taxes.................. 91 180 (289) (18)
Income taxes............ -- -- 7 (3) 7
------ ------ ----- ------
Net income.............. $ 91 $ 180 $(282) $ (11)
====== ====== ===== ======
</TABLE>
--------
(1) In Ohio and Rhode Island, a portion of a facility's Medicaid
reimbursement rate is related to the capital costs incurred to finance
the facility. As facility financing changes as a result of an
acquisition, the reimbursement of such capital costs (and accordingly,
a facility's net revenues) is affected as well. This adjustment
represents the aggregate increase in revenue that is directly
attributable to the Company's acquisition of the Briarfield and Rhode
Island Facilities and the related financings. The adjustment, which can
occur upon a change of facility ownership, is computed in accordance
with the state Medicaid program cost reporting rules and regulations by
substituting the effects of the Company's financing for the amounts
included in the historical Medicaid cost reports.
(2) Reflects the following adjustments: (a) the elimination of historical
combined amounts recorded by the Briarfield and Rhode Island Facilities
for depreciation and amortization expense which had been recorded as a
result of the ownership of the underlying assets;
58
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS --
(CONTINUED)
(b) the elimination of historical combined amounts recorded by the
Briarfield and Rhode Island Facilities for interest expense as the
Company did not assume the related indebtedness; and (c) the synthetic
lease rent expense that the Company would have incurred had the
Completed 1998 Acquisitions occurred on January 1, 1997.
(3) Reflects the adjustment to the provision for federal and state income
taxes which the Company would have recorded (based on the Company's
historical effective tax rate of 39%) had the Completed 1998
Acquisitions occurred on January 1, 1997.
(N) Represents the historical results of operations of the Company for the
twelve months ended June 30, 1998.
(O) During the last six months of 1997, the Company acquired the Massachusetts
Facilities, the Dayton Facilities and the Connecticut Facilities by
entering into operating leases for those facilities. To reflect the pro
forma effect of these acquisitions on the Company's operations, the
schedule below presents the unaudited historical combined results of
operations of the acquired businesses for the period from July 1, 1997
until their respective acquisitions by the Company. Specifically, the
Massachusetts Facilities, the Dayton Facilities and the Connecticut
Facilities were acquired on August 1, September 1, and December 1, 1997,
respectively.
<TABLE>
<CAPTION>
MASSACHUSETTS
FACILITIES
FOR DAYTON FACILITIES CONNECTICUT COMPLETED
THE ONE MONTH FOR THE FACILITIES FOR THE 1997
ENDED TWO MONTHS ENDED FIVE MONTHS ENDED PRO FORMA ACQUISITIONS
JULY 31, 1997 AUGUST 31, 1997 NOVEMBER 30, 1997 ADJUSTMENTS COMBINED
------------- ----------------- ------------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total net revenues...... $1,562 $2,150 $19,733 $ 28 (1) $23,473
Expenses:
Facility operating..... 1,359 1,730 15,515 -- 18,604
Management fees........ -- 108 502 -- 610
General and
administrative........ 54 -- -- -- 54
Depreciation and
amortization.......... 25 90 473 (588)(2) --
Synthetic lease rent... -- -- -- 293 (2) 293
Facility rent.......... -- -- 2,636 616 (2) 3,252
------ ------ ------- ---- -------
Total expenses....... 1,438 1,928 19,126 321 22,813
------ ------ ------- ---- -------
Income from operations.. 124 222 607 (293) 660
Other:
Interest expense,
net................... -- (136) (854) 990 (2) --
------ ------ ------- ---- -------
Income before income
taxes.................. 124 86 (247) 697 660
Income taxes............ -- -- -- (257)(3) (257)
------ ------ ------- ---- -------
Net income.............. $ 124 $ 86 $ (247) $440 $ 403
====== ====== ======= ==== =======
</TABLE>
--------
(1) In Ohio, a portion of a facility's Medicaid reimbursement rate is
related to the capital costs incurred to finance the facility. As
facility financing changes as the result of an acquisition, the
reimbursement of such capital costs (and accordingly a facility's net
revenues) is affected as well. This adjustment represents the aggregate
increase in revenue that is directly attributable to the Company's
acquisition of the Dayton Facilities and the related financing. The
adjustment, which can occur upon a change of facility ownership, is
computed in accordance with the state Medicaid program cost reporting
rules and regulations by substituting the effects of the Company's
financing for the amounts included in the historical Medicaid cost
reports.
59
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS --
(CONTINUED)
(2) Reflects the following adjustments: (a) the elimination of historical
combined amounts recorded by the acquired businesses for depreciation
and amortization expense which had been recorded as a result of the
ownership of the underlying assets; (b) the elimination of historical
combined amounts recorded by the acquired businesses for interest
expense as the Company did not assume the related indebtedness; (c) the
elimination of historical facility rent expense of the Connecticut
Facilities; and (d) the synthetic lease and facility rent expense that
the Company would have incurred had the Completed 1997 Acquisitions
occurred on January 1, 1997.
(3) Reflects the adjustment to the provision for federal and state income
taxes which the Company would have recorded (based on the Company's
historical effective tax rate of 39%) had the Completed 1997
Acquisitions occurred on January 1, 1997.
(P) During 1998, the Company acquired the Briarfield and Rhode Island
Facilities through synthetic lease financings. To reflect the pro forma
effect of these acquisitions on the Company's operations, the schedule
below presents the unaudited historical results of operations of the
Briarfield and Rhode Island Facilities, which were acquired on April 1,
1998 and May 8, 1998, respectively, for the period from July 1, 1997
through their respective acquisition dates.
<TABLE>
<CAPTION>
BRIARFIELD RHODE ISLAND
FACILITIES FACILITIES
FOR THE FOR THE COMPLETED
NINE MONTHS TEN MONTHS 1998
ENDED ENDED PRO FORMA ACQUISITIONS
MARCH 31, 1998 APRIL 30, 1998 ADJUSTMENTS COMBINED
--------------- -------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Total net revenues...... $6,945 $8,423 $ 375 (1) $15,743
Expenses:
Facility operating.... 5,424 6,528 -- 11,952
Management fees....... 765 1,047 -- 1,812
Depreciation and
amortization......... 259 145 (404)(2) --
Synthetic lease rent.. -- -- 2,062 (2) 2,062
------ ------ ------ -------
Total expenses...... 6,448 7,720 1,658 (15,826)
------ ------ ------ -------
Income from operations.. 497 703 (1,283) (83)
Other:
Interest expense,
net.................. (464) (70) 534 (2) --
------ ------ ------ -------
Income before income
taxes.................. 33 633 (749) (83)
Income taxes............ -- -- 33 (3) 33
------ ------ ------ -------
Net income.............. $ 33 $ 633 $ (716) $ (50)
====== ====== ====== =======
</TABLE>
--------
(1) In Ohio and Rhode Island, a portion of a facility's Medicaid
reimbursement rate is related to the capital costs incurred to finance
the facility. As facility financing changes as a result of an
acquisition, the reimbursement of such capital costs (and accordingly,
a facility's net revenues) is affected as well. This adjustment
represents the aggregate increase in revenue that is directly
attributable to the Company's acquisition of the Briarfield and Rhode
Island Facilities and the related financings. The adjustment, which can
occur upon a change of facility ownership, is computed in accordance
with the state Medicaid program cost reporting rules and regulations by
substituting the effects of the Company's financing for the amounts
included in the historical Medicaid cost reports.
(2) Reflects the following adjustments: (a) the elimination of historical
combined amounts recorded by the Briarfield and Rhode Island Facilities
for depreciation and amortization
60
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS--
(CONTINUED)
expense which had been recorded as a result of the ownership of the
underlying assets; (b) the elimination of historical combined amounts
recorded by the Briarfield and Rhode Island Facilities for interest
expense as the Company did not assume the related indebtedness; and (c)
the synthetic lease rent expense that the Company would have incurred
had the Completed 1998 Acquisitions occurred on January 1, 1997.
(3) Reflects the adjustment to the provision for federal and state income
taxes which the Company would have recorded (based on the Company's
historical effective tax rate of 39%) had the Completed 1998
Acquisitions occurred on January 1, 1997.
(Q) The pro forma financial results exclude the effects of the elimination of
certain contracts terminated as a condition to closing certain of the
Completed 1997 Acquisitions and the Completed 1998 Acquisitions. On a pro
forma basis, the Company would have realized net cost reductions of
$2,384, $446 and $2,005 for the year ended December 31, 1997, the six
months ended June 30, 1998 and the twelve months ended June 30, 1998,
respectively, as a result of the elimination of these historical
contracts. On a pro forma basis, assuming the elimination of these
contracts in connection with such acquisitions on January 1, 1997, the
facility operating, management fees and general and administrative
expenses would have been as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR ENDED SIX MONTHS TWELVE MONTHS
DECEMBER 31, 1997 ENDED JUNE 30, 1998 ENDED JUNE 30, 1998
----------------- ------------------- -------------------
<S> <C> <C> <C>
Facility operating (1).......... $242,704 $121,534 $246,473
Management fees (2)............. -- -- --
General and administrative (3).. 12,245 7,475 14,176
</TABLE>
--------
(1) Reflects the $160 effect, for the year ended December 31, 1997, of the
elimination of a consulting contract terminated as a condition to
closing the Company's acquisition of Access Rehabilitation, assuming
such acquisition had occurred on January 1, 1997.
(2) Reflects the $3,137, $446 and $2,422 effects for the year ended
December 31, 1997, the six months ended June 30, 1998, and the twelve
months ended June 30, 1998, respectively, of the elimination of
historical management fees paid under contracts with related parties
that were terminated as a condition to closing the Company's
acquisition of the Dayton, Connecticut, Briarfield and Rhode Island
Facilities, assuming such acquisitions had occurred on January 1, 1997.
Subsequent to the dates of such acquisitions, no services were provided
to the Company by these related parties.
(3) Reflects the $913 and $417 effects for the year ended December 31, 1997
and the twelve months ended June 30, 1998, respectively, of the
addition of general and administrative expenses that the Company
expects it would have incurred had the Company's acquisition of the
Dayton, Connecticut, Briarfield and Rhode Island Facilities occurred on
January 1, 1997.
61
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
HARBORSIDE
HEALTHCARE
CORPORATION RECAPITALIZATION
(A) ADJUSTMENTS PRO FORMA
----------- ---------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 3,028 $ -- (B) $ 3,028
Accounts receivable, net.............. 41,484 -- 41,484
Prepaid expenses and other............ 8,466 (342)(C) 8,124
Deferred income taxes................. 2,150 -- 2,150
-------- -------- --------
Total current assets................ 55,128 (342) 54,786
Restricted cash......................... 7,116 -- 7,116
Property and equipment, net............. 102,048 59,250 (D) 161,298
Intangible assets, net.................. 9,673 14,106 (E) 23,779
Note receivable......................... 7,487 -- 7,487
Deferred income taxes................... 71 -- 71
-------- -------- --------
Total assets........................ $181,523 $ 73,014 $254,537
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.. $ 202 -- $ 202
Current portion of capital lease
obligation........................... 4,204 -- 4,204
Accounts payable...................... 7,963 -- 7,963
Employee compensation and benefits.... 13,696 -- 13,696
Other accrued liabilities............. 5,786 -- 5,786
Accrued interest...................... 199 -- 199
Current portion of deferred income.... 803 -- 803
-------- -------- --------
Total current liabilities........... 32,853 -- 32,853
Long-term portion of deferred income.... 5,045 -- 5,045
Long-term debt.......................... 36,346 85,040 (F) 121,386
Long-term portion of capital lease
obligation............................. 51,594 -- 51,594
-------- -------- --------
Total liabilities................... 125,838 85,040 210,878
======== ======== ========
Exchangeable preferred stock,
redeemable............................. -- 40,000 (G) 40,000
Stockholders' Equity
Common stock.......................... 80 66 (H) 146
Additional paid-in capital............ 48,469 164,934 (H) 213,403
Treasury stock, at cost............... -- (183,881)(H) (183,881)
Retained earnings..................... 7,136 (33,145)(H) (26,009)
======== ======== ========
Total stockholders' equity.......... 55,685 (52,026) 3,659
======== ======== ========
Total liabilities and
stockholders' equity............. $181,523 $ 73,014 $254,537
======== ======== ========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet
62
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(A) Represents the historical unaudited consolidated balance sheet of the
Company as of June 30, 1998.
(B) Reflects the following sources and uses of funds in connection with the
Recapitalization:
<TABLE>
<S> <C>
Total sources:
Gross proceeds from the issuance of the Notes................... $ 99,493
Proceeds from the issuance of 6,600,000 shares of common stock
at $25.00 per share(1)......................................... 165,000
Gross proceeds from the issuance of the Exchangeable Preferred
Stock.......................................................... 40,000
Borrowings under the New Credit Facility........................ 4,147
--------
$308,640
========
Total uses:
Redemption of existing 7,355,245 shares of Harborside Common
Stock at $25.00 per share...................................... $183,881
Conversion to cash of 648,923 options at a weighted average
exercise price of $12.87....................................... 7,871
Exercise of existing purchase options for leased facilities..... 59,250
Refinancing of existing credit facility......................... 18,600
Transaction fees and expenses of the Recapitalization(2)........ 39,038
--------
$308,640
========
</TABLE>
--------
(1) These shares consist of 5,940,000 shares of Harborside Class B Common
Stock, 640,000 shares of Harborside Class C Common Stock and 20,000
shares of Harborside Class D Common Stock to be exchanged on a one-
for-one basis in the Merger for shares of Class B Stock, Class C Stock,
and Class D Stock, respectively, of the Issuer. Shares of Harborside
Class B Common Stock and Harborside Class C Common Stock are non-
voting, while the shares of Harborside Class D Common Stock have 330
votes per share.
(2) The $39.0 million of fees and expenses includes: $8.5 million of debt
issuance costs associated with the Recapitalization Financings, $6.0
million of management fees prepaid to III, a $.5 million payment
related to the Non-Compete Agreements and $30.8 million of other fees
and expenses to be paid in connection with the Recapitalization, less
$6.8 million related to the income tax benefits related to certain of
such fees and expenses, conversion of options, and the write-off of
deferred issuance costs associated with retired debt. The $30.8 million
of fees and expenses paid in connection with the Recapitalization
include standby commitment fees, legal and accounting fees, and
compensation and other charges associated with the recapitalization.
(C) Reflects forgiveness of loans associated with the change of control.
(D) Reflects the exercise of existing purchase options for the Dayton
Facilities, the Briarfield Facilities and the Rhode Island Facilities.
(E) Reflects the following:
<TABLE>
<S> <C>
Debt issuance costs related to the Recapitalization Financings..... $ 8,503
Management fees prepaid to Investcorp International Inc............ 6,000
Payments related to the Non-Compete Agreement...................... 500
Elimination of debt issuance costs related to retired debt......... (897)
-------
$14,106
=======
</TABLE>
63
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET--(CONTINUED)
(F) Reflects the following:
<TABLE>
<S> <C>
Refinancing of existing credit facility........................... $(18,600)
Borrowings under the New Credit Facility.......................... 4,147
Gross proceeds from the issuance of the Notes..................... 99,493
--------
$ 85,040
========
</TABLE>
(G) Reflects the issuance of the Exchangeable Preferred Stock.
(H) Reflects the following:
<TABLE>
<S> <C>
Issuance of 6,600,000 shares of common stock par value $.01..... $ 66
Issuance of 6,600,000 shares of common stock at $25.00 per
share, additional paid-in-capital.............................. 164,934
Redemption of existing 7,355,245 shares of Harborside Common
Stock at $25.00 per share...................................... (183,881)
Conversion to cash of 648,923 options at a weighted average
exercise price of $12.87....................................... (7,871)
Certain fees and expenses incurred by the Company in connection
with the Recapitalization(1)................................... (32,129)
Tax benefit of management transaction bonuses, standby
commitment fees, conversion of options, and write-off of
deferred issuance costs associated with retired debt........... 6,855
---------
$ (52,026)
=========
</TABLE>
--------
(1) Represents $30.8 million in fees and expenses paid in connection with
the Recapitalization, a $.4 million non-cash charge related to the
forgiveness of employee loans, and a $.9 million non-cash charge
associated with the elimination of deferred financing costs related to
retired debt.
64
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING DATA
The selected consolidated historical financial data set forth below were
derived from the consolidated historical financial statements of the Company.
The selected consolidated historical financial data of the Company as of and
for the years ended December 31, 1993, 1994, 1995, 1996 and 1997 have been
derived from the consolidated historical financial statements of the Company,
including the notes thereto, which have been audited by PricewaterhouseCoopers
LLP, independent certified public accountants. The selected consolidated
historical financial data as of and for the six months ended June 30, 1997 and
June 30, 1998 were derived from the unaudited consolidated financial
statements of the Company which, in the opinion of management, include all
adjustments (consisting only of normal, recurring adjustments) necessary for a
fair presentation of the Company's consolidated results of operations and
financial condition for such periods. The operating results for the respective
six month periods ended June 30, 1997 and June 30, 1998 are not necessarily
indicative of results to be expected for the full fiscal year. The selected
historical consolidated financial data set forth below should be read in
conjunction with, and are qualified in their entirety by, the information set
forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements of the
Company and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30
---------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- ---------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA (1):
Total net revenues..... $ 75,101 $ 86,376 $109,425 $ 165,412 $ 221,777 $ 97,676 $148,640
Facility operating
costs................. 57,412 68,951 89,378 132,207 176,404 77,517 117,030
General and adminis-
trative expense....... 3,092 3,859 5,076 7,811 10,953 4,723 7,475
Service charges paid
to affiliate.......... 746 759 700 700 708 354 628
Special compensation
and other............. -- -- -- 1,716 -- -- --
Depreciation and amor-
tization.............. 4,304 4,311 4,385 3,029 4,074 1,882 2,263
Facility rent.......... 525 1,037 1,907 10,223 12,446 5,309 11,621
Interest expense,
net................... 4,740 4,609 5,107 4,634 5,853 2,756 3,202
Income before income
taxes
and extraordinary
loss.................. 1,985 374 1,234 4,829 11,150 5,074 6,349
Net income............. 1,211 228 753 2,712 6,803 3,095 3,873
BALANCE SHEET DATA (AS OF PERIOD END) (1):
Cash and cash equiva-
lents................. $ 10,214 $ 14,013 $ 40,157 $ 9,722 $ 8,747 $ 10,694 $ 3,028
Working capital........ 6,511 13,915 10,735 16,826 22,554 21,114 22,275
Total assets........... 85,472 93,876 92,632 141,799 168,562 148,751 181,523
Total debt, including
capital lease
obligation............ 40,708 53,296 43,496 75,485 89,927 77,155 92,346
Stockholders' equity... 4,918 2,866 4,130 44,880 51,783 47,975 55,685
OTHER FINANCIAL DATA:
Cash flow provided by
operations............ $ 10,521 $ 4,939 $ 1,886 $ 1,405 $ 5,621 $ 1,597 $ 1,658
Cash flow (used in)
provided by
investing............. (142) (6,078) 36,818 (4,050) (19,487) (876) (10,228)
Cash flow (used in)
provided by
financing............. (6,100) 4,938 (12,560) (27,790) 12,891 251 2,851
EBITDA (2)............. 13,326 11,770 12,364 14,471 21,266 9,773 11,886
EBITDAR (2)............ 13,851 12,807 14,271 24,694 33,712 15,082 23,507
EBITDAR margin......... 18.4% 14.8% 13.0% 14.9% 15.2% 15.4% 15.8%
Capital expenditures... $ 1,205 $ 2,585 $ 3,081 $ 5,104 $ 5,274 $ 812 $ 7,071
Ratio of earnings to
fixed charges (3)..... 1.4x 1.1x 1.2x 1.5x 2.0x 2.0x 1.7x
OPERATING DATA (AS OF PERIOD END):
Facilities operated
(4)................... 17 19 20 30 45 31 49
Licensed beds (4)...... 2,149 2,365 2,471 3,700 5,468 3,864 5,983
Average occupancy rate
(5)................... 93.7% 92.6% 92.5% 92.6% 92.3% 91.9% 92.6%
Patient days........... 693,819 739,305 788,920 1,096,814 1,366,811 613,494 921,253
Percentage of total
net revenues derived
from:
Private and other
(6)................. 39.9% 37.4% 35.1% 35.5% 34.1% 33.5% 31.8%
Medicare............. 21.2% 24.8% 31.7% 26.3% 25.9% 28.7% 26.2%
Medicaid............. 38.9% 37.8% 33.2% 38.2% 40.0% 37.8% 42.0%
</TABLE>
(footnotes on next page)
65
<PAGE>
- --------
(1) In 1993, 1994 and 1995, financial and operating data combine the
historical results of the Predecessor Entities (as defined herein) that
became subsidiaries of the Company through the IPO Reorganization (as
defined herein) that occurred immediately prior to the Company's initial
public offering on June 14, 1996. Prior to the IPO Reorganization, the
Predecessor Entities (primarily partnerships and subchapter S
corporations) were not directly subject to federal or state income
taxation. In calculating net income, a pro forma income tax expense of 39%
has been reflected for periods prior to the IPO Reorganization as if the
Company had always owned the Predecessor Entities.
(2) EBITDA represents earnings before interest, taxes, depreciation and
amortization, and loss on investment in limited partnership and also
excludes for the years prior to 1997 any gain on sale of facilities, loss
on refinancing of debt, minority interest, extraordinary losses and
special compensation associated with the Company's 1996 IPO. EBITDA should
not be considered in isolation or as a substitute for net income, cash
flows or other income or cash flows data prepared in accordance with
generally accepted accounting principles or as a measure of a Company's
profitability or liquidity. In addition, EBITDA is not a standardized
measurement and may be calculated in various ways. Accordingly, the EBITDA
information contained herein may not be comparable to EBITDA information
provided by other companies. EBITDA is included herein because it is
commonly used by certain investors to analyze and determine a company's
ability to service and/or incur debt. EBITDAR represents EBITDA plus
facility rent expense.
(3) For purposes of this calculation, "earnings" consist of income before
income taxes and extraordinary loss and fixed charges, and "fixed charges"
consist of interest, amortization of debt issuance costs and the component
of facility rent expense believed by management to be representative of
the interest factor thereon.
(4) "Facilities operated" and "Licensed beds" include two managed facilities
with 178 total licensed beds.
(5) "Average occupancy rate" excludes managed facilities, and is computed by
dividing the number of billed licensed bed days by the total number of
available licensed bed days during each of the periods indicated.
(6) "Private and other" excludes managed facilities and consists primarily of
total net revenues derived from private pay individuals, managed care
organizations, HMOs, hospice programs, commercial insurers, management
fees from managed facilities, and rehabilitation service therapy revenues
from non-affiliated facilities.
66
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Consolidated Historical Financial and Operating Data," "Unaudited Pro Forma
Consolidated Financial Information" and the Consolidated Financial Statements
of Harborside and the notes thereto included elsewhere in this Prospectus.
This Prospectus contains, in addition to historical information, forward-
looking statements that are subject to risks and other uncertainties.
Harborside's actual results may differ materially from those anticipated in
these forward-looking statements.
OVERVIEW
General
Harborside is a leading provider of high-quality long-term care and
specialty medical services in the Eastern United States. Harborside has
focused on establishing strong local market positions with high quality
facilities in five principal regions: the Midwest (Ohio and Indiana), New
England (Massachusetts and New Hampshire), the Northeast (Connecticut and
Rhode Island), the Southeast (Florida) and the Mid-Atlantic (New Jersey and
Maryland). As of June 30, 1998, Harborside operated 49 long-term care
facilities with 5,983 licensed beds. Harborside provides a broad continuum of
medical services including: (i) traditional skilled nursing care; and (ii)
specialty medical services, including a variety of subacute care programs such
as orthopedic rehabilitation, CVA/stroke care, cardiac recovery, pulmonary
rehabilitation and wound care, as well as distinct programs for the provision
of care to Alzheimer's and hospice patients. As part of its subacute services,
Harborside provides physical, occupational and speech rehabilitation therapy
services, both at Company-operated and non-affiliated facilities, through its
wholly-owned subsidiary, Theracor.
Harborside was created in March 1996, in anticipation of an initial public
offering (the "IPO"), in order to combine under its control the operations of
various long-term care facilities and ancillary businesses (the "Predecessor
Entities") which had conducted operations since 1988. Harborside completed the
IPO on June 14, 1996 and issued 3.6 million shares of common stock at $11.75
per share. The owners of the Predecessor Entities contributed their interests
in such Predecessor Entities to Harborside and received in return an aggregate
of 4.4 million shares of Harborside's common stock (the "IPO Reorganization").
Harborside's financial statements for periods prior to the IPO have been
prepared by combining the historical financial statements of the Predecessor
Entities, similar to a pooling of interests presentation. Harborside's
financial statements for periods prior to the date of the IPO 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. Harborside's financial statements
for periods prior to the date of the IPO do include a pro forma income tax
expense for each period presented, as if Harborside had always owned the
Predecessor Entities. See Note L to the audited consolidated financial
statements of Harborside included elsewhere in this Prospectus.
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. Harborside held a 5% interest in KYP
while the remaining 95% was owned by the limited partners of KYP (the
"Unitholders"). As described in Note P to the audited consolidated financial
statements of Harborside included elsewhere in this Prospectus, effective
December 31, 1995, KYP sold the Seven Facilities and a subsidiary of
Harborside began leasing the facilities from the buyer. Prior to December 31,
1995, the accounts of KYP were included in Harborside's combined financial
statements and the interest of the Unitholders was reflected as minority
interest. The net gain of $4.9 million recognized
67
<PAGE>
by KYP in connection with the sale of the Seven Facilities was allocated to
the KYP Unitholders and is reflected in "minority interest in net income." In
March 1996, a liquidating distribution was paid to the Unitholders.
As described in Note D to the audited consolidated financial statements of
Harborside included elsewhere in this Prospectus, Harborside accounts for its
investment in one of its owned facilities using the equity method.
Revenues
Harborside'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. Harborside derives its net patient
service revenues primarily from private pay sources, the federal Medicare
program for certain elderly and disabled patients and state Medicaid programs
for indigent patients. Harborside's total net revenues are influenced by a
number of factors, including: (i) the licensed bed capacity of its facilities;
(ii) the occupancy rates of its facilities; (iii) the payor mix of its
facilities and the rates of reimbursement among payor categories (private and
other, Medicare and Medicaid); and (iv) the extent to which subacute and other
specialty medical and ancillary services are utilized by patients and paid for
by the respective payment sources. 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. Harborside employs specialists
to monitor reimbursement rules, policies and related developments in order to
comply with all reporting requirements and to assist Harborside in receiving
reimbursements. Harborside's rehabilitation service revenues are received
directly from non-affiliated long-term care facilities, which in turn are
reimbursed by Medicare or other payors.
The table set forth below identifies the percentage of Harborside's total
net revenues attributable to each of its payor sources for each of the periods
indicated. The increase in Medicaid revenues as a percentage of total net
revenues during the periods indicated has resulted primarily from the
acquisition of new facilities with a higher percentage of their net revenues
derived from the Medicaid program. An integral part of Harborside's
acquisition strategy has been to acquire high-quality facilities from smaller,
less sophisticated operators whose facilities tend to offer lower acuity
services than those offered by Harborside, thereby initially diluting
Harborside's quality mix. Harborside subsequently implements an expanded range
of specialty medical services at these facilities which typically leads to an
improved quality mix. Harborside believes that, over time, its facilities have
generally experienced stable to increasing percentages of revenues derived
from payor sources other than Medicaid following their acquisition by
Harborside.
TOTAL NET REVENUES (1)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ------------
1995 1996 1997 1997 1998
------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Private and other...................... 35.1% 35.5% 34.1% 33.5% 31.8%
Medicare............................... 31.7 26.3 25.9 28.7 26.2
Medicaid............................... 33.2 38.2 40.0 37.8 42.0
------- ------- ------- ----- -----
Total................................ 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ===== =====
</TABLE>
- --------
(1) Total net revenues exclude net revenues of the Larkin Chase Center which
is owned by Bowie Center Limited Partnership ("Bowie L.P."). Harborside
owns a 75% partnership interest in Bowie L.P. but records its investment
in Bowie L.P. using the equity method. See Note D to Harborside's
consolidated financial statements included elsewhere in this Prospectus.
68
<PAGE>
Operating Expenses
Harborside'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. Harborside's facility operating expenses also
include the general and administrative costs associated with the operation of
Harborside's rehabilitation therapy business. Harborside's general and
administrative expenses include all costs associated with its regional and
corporate operations.
Potential Impact of Medicare PPS
Regulations regarding the Medicare prospective payment system were published
on May 12, 1998. (See "Business -- Governmental Regulation" for more
information about the prospective payment system for skilled nursing
facilities.) As the regulations were published recently, Harborside has not
been able to fully assess and quantify the potential impact of the regulations
on Harborside's consolidated financial position, results of operations or
liquidity. Based on a preliminary assessment, Harborside believes that the new
regulations will result in a reduction of Harborside's average Medicare per
diem reimbursement rate, which Harborside expects to be able to substantially
offset primarily through reductions in facility operating costs. However, no
assurance can be given that Harborside will be able to reduce such costs.
RESULTS OF OPERATIONS
The following table sets forth for the fiscal periods indicated the
percentage of total net revenues represented by certain items reflected in
Harborside's consolidated statements of operations:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ------------
1995 1996 1997 1997 1998
------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Total net revenues................... 100.0% 100.0% 100.0% 100.0% 100.0%
Expenses:
Facility operating costs........... 81.7 79.9 79.5 79.4 78.7
General and administrative ex-
pense............................. 4.6 4.7 4.9 4.8 5.0
Service charges paid to affiliate.. .6 .4 .3 .4 .4
Special compensation and other..... -- 1.0 -- -- --
Depreciation and amortization...... 4.0 1.8 1.8 1.9 1.5
Facility rent...................... 1.7 6.2 5.6 5.4 7.8
Interest expense, net.............. 4.7 2.8 2.6 2.8 2.2
Income before income taxes and ex-
traordinary loss.................... 1.1 2.9 5.0 5.2 4.3
Net income........................... 1.1 1.6 3.1 3.2 2.6
EBITDAR (1).......................... 13.0 14.9 15.2 15.4 15.8
</TABLE>
- --------
(1) See note 2 under "Selected Consolidated Historical Financial and Operating
Data" for the definition of EBITDAR.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1998
Total Net Revenues. Total net revenues increased by $50.9 million, or 52.1%,
from $97.7 million in the first half of 1997 to $148.6 million in the first
half of 1998. This increase resulted primarily from the acquisition of four
Massachusetts facilities on August 1, 1997, three Dayton, Ohio facilities on
September 1, 1997, five Connecticut facilities on December 1, 1997, two North
Toledo, Ohio facilities on April 1, 1998 and two Rhode Island facilities on
May 8, 1998. In addition, revenue increased as the
69
<PAGE>
result of the generation of additional revenue from rehabilitation therapy
services provided to additional non-affiliated long-term care facilities and
increased net patient service revenues per patient day at Harborside's "same
store" facilities. Of such increase, $9.4 million, or 18.5% of the increase,
resulted from the operation of the Massachusetts facilities, $7.6 million, or
14.9% of the increase, resulted from the operation of the Dayton, Ohio
facilities, $23.0 million, or 45.2% of the increase, resulted from the
operation of the Connecticut facilities, $2.8 million, 5.5% of the increase,
resulted from the operation of the North Toledo facilities and $1.7 million,
or 3.3% of the increase, resulted from the operation of the Rhode Island
facilities. Revenues generated by providing rehabilitation therapy services at
non-affiliated long-term care facilities increased by $1.6 million, or 21.9%,
from $7.3 million in the first half of 1997 to $8.9 million in the first half
of 1998. The remaining $4.8 million, or 9.4% of such increase, is largely
attributable to higher average net patient service revenues per patient day at
Harborside's "same store" facilities and primarily due to increased levels of
care provided to patients with medically complex conditions. Average net
patient service revenues per patient day at "same store" facilities increased
from $147.46 during the first half of 1997 to $151.84 during the first half of
1998. The average occupancy rate at all of Harborside's facilities increased
from 91.9% during the first half of 1997 to 92.6% during the first half of
1998. Harborside's quality mix of private, Medicare and insurance revenues was
62.2% for the six months ended June 30, 1997 as compared to 58.0% in the same
period of 1998. The decrease in quality mix was primarily attributable to
dilution resulting from the acquisition of new facilities that generated a
lower quality mix.
Facility Operating Expenses. Facility operating expenses increased by $39.5
million, or 51.0%, from $77.5 million for the first half of 1997 to $117.0
million for the first half of 1998. The operation of the Massachusetts
facilities accounted for $7.8 million, or 19.7% of this increase, the
operation of the Dayton, Ohio facilities accounted for $5.9 million, or 14.9%
of this increase, the operation of the Connecticut facilities accounted for
$18.5 million, or 46.8% of this increase, the operation of the North Toledo
facilities accounted for $1.9 million, or 4.8%, and the operation of the Rhode
Island facilities accounted for $1.0 million, or 2.5% of this increase.
Operating expenses associated with additional non-affiliate therapy contracts
increased $.9 million, or 2.3%. The remainder of the increase in facility
operating expenses, $3.5 million, or 8.9%, is primarily 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 $2.8 million, or 59.6%, from $4.7 million
for the first half of 1997 to $7.5 million for the first half of 1998. As a
percentage of total revenues, general and administrative expenses increased
from 4.8% in the first half of 1997 to 5.0% in the first half of 1998. This
increase resulted from the acquisition of new facilities resulting in the
expansion of regional and corporate support, and additional travel, consulting
and systems development expenses associated with Harborside's growth.
Harborside 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 Harborside. During the first half of 1997,
such reimbursements totaled $.4 million compared to $.6 million in 1998.
Depreciation and Amortization. Depreciation and amortization increased from
$1.9 million for the first half of 1997 to $2.3 million for the first half of
1998 primarily as a result of building improvements and investment in new
computers and software.
Facility Rent. Facility rent expense for the first half increased by $6.3
million from $5.3 million in 1997 to $11.6 million in 1998. The increase in
rent expense is due to the acquisition of new facilities in 1997 and 1998.
Interest Expense, net. Interest expense, net, increased from $2.8 million
for the first half of 1997 to $3.2 million for the first half of 1998. This
net increase is primarily due to additional interest expense resulting from
the acquisition of new facilities in 1997 and 1998.
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Income Tax. Income tax expense increase from $2.0 million in the first half
of 1997 to $2.5 million in the first half of 1998.
Net Income. Net income was $3.1 million for the first half of 1997 as
compared to $3.9 million for the first half of 1998.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Total Net Revenues. Total net revenues increased by $56.4 million, or 34.1%,
from $165.4 million in 1996 to $221.8 million in 1997. This increase resulted
primarily from the acquisition of four facilities in Ohio (the "1996 Ohio
Facilities") on July 1, 1996, the Harford Gardens facility on March 1, 1997,
the Massachusetts Facilities on August 1, 1997, the Dayton Facilities on
September 1, 1997, and the Connecticut Facilities on December 1, 1997.
Additionally, total net revenues increased as a result of the generation of
additional revenues from rehabilitation therapy services provided to non-
affiliated long-term care facilities and increased net patient service
revenues per patient day at Harborside's "same store" facilities. Of such
increase, $19.1 million, or 34.0% of the increase, resulted from the operation
of the 1996 Ohio Facilities for a full year in 1997; $6.2 million, or 11.1% of
the increase, resulted from the operation of the Harford Gardens facility;
$8.1 million, or 14.3% of the increase, resulted from the operation of the
Massachusetts Facilities; $4.5 million, or 8.1% of the increase, resulted from
the operation of the Dayton Facilities, and $3.9 million, or 6.9% of the
increase, resulted from the operation of the Connecticut Facilities. Revenues
generated by providing rehabilitation therapy services to non-affiliated long-
term care facilities increased by $7.4 million, from $10.3 million in 1996 to
$17.7 million in 1997. The remaining $7.2 million, or 12.7% of such increase,
was largely attributable to higher average net patient service revenues per
patient day at Harborside'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 7.0%, from $138.31 in 1996 to $147.96 in 1997.
Partially offsetting the increase in total net revenues was a reduction in
occupancy at "same store" facilities from 92.6% in 1996 to 91.7% in 1997. The
average occupancy rate at all of Harborside's facilities decreased from 92.6%
in 1996 to 92.3% in 1997. Harborside's quality mix was 61.8% for the year
ended December 31, 1996 as compared to 60.0% for the year ended December 31,
1997. The decrease in quality mix was primarily attributable to dilution
resulting from the acquisition of new facilities that generated a lower
quality mix.
Facility Operating Expenses. Facility operating expenses increased by $44.2
million, or 33.4%, from $132.2 million in 1996 to $176.4 million in 1997. The
operation of the 1996 Ohio Facilities for a full year in 1997 accounted for
$13.5 million, or 30.5% of this increase; the operation of the Harford Gardens
facility accounted for $4.7 million, or 10.7% of this increase; the operation
of the Massachusetts Facilities accounted for $6.0 million, or 13.7% of this
increase; the operation of the Dayton Facilities accounted for $3.4 million,
or 7.8% of this increase; and the operation of the Connecticut Facilities
accounted for $3.1 million, or 7.0% of this increase. Operating expenses
associated with rehabilitation therapy services provided to non-affiliated
long-term care facilities increased as a result of additional therapy
contracts. Operating expenses associated with these contracts accounted for
$6.4 million, or 14.5%, of the total increase in facility operating expenses.
The remaining $7.1 million of the increase in facility operating expenses was
primarily 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 $3.2 million, or 40.2%, from $7.8 million
in 1996 to $11.0 million in 1997. As a percentage of total net revenues,
general and administrative expenses increased from 4.7% in 1996 to 4.9% in
1997. This increase resulted from the acquisition of new facilities that
resulted in an increase in regional and corporate support, and additional
travel, consulting and systems development
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expenses. Harborside 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 Harborside. Such reimbursements were
not materially different in 1997 as compared with those in 1996.
Special Compensation and Other. In connection with the IPO and IPO
Reorganization, Harborside recorded $1.7 million of non-recurring charges in
1996. Of this amount, $1.5 million consisted of compensation earned by key
members of management as a result of the successful IPO and the IPO
Reorganization.
Depreciation and Amortization. Depreciation and amortization increased by
$1.1 million from $3.0 million in 1996 to $4.1 million in 1997. The increase
in depreciation and amortization was primarily due to the acquisition of the
1996 Ohio Facilities on July 1, 1996.
Facility Rent. Facility rent expense increased by $2.2 million, from $10.2
million in 1996 to $12.4 million in 1997. The increase in facility rent
expense was primarily due to the acquisition of new facilities.
Interest Expense, Net. Interest expense, net, increased by $1.3 million,
from $4.6 million in 1996 to $5.9 million in 1997. This increase was primarily
due to additional interest expense resulting from the acquisition of the 1996
Ohio Facilities.
Loss on Investment in Limited Partnership. Harborside accounts for its
investment in the Larkin Chase Center using the equity method. Harborside
recorded a loss of $.3 million in 1996 as compared to a loss of $.2 million in
1997 in connection with this investment.
Extraordinary Loss on Early Retirement of Debt. During the second quarter
of 1996, Harborside repaid $25.0 million of long-term debt using proceeds from
the IPO. In connection with this early repayment, Harborside recorded an
extraordinary loss of $2.2 million ($1.3 million, net of the related tax
benefit) as the result of a prepayment penalty paid to the lender and the
write-off of deferred financing costs.
Income Taxes. Income tax expense increased by $3.5 million, from $.8 million
in 1996 to $4.3 million in 1997. Prior to the date of the IPO, Harborside's
financial statements did not include a provision for federal or state income
taxes because the Predecessor Entities were not directly subject to federal or
state income taxation. The provision for income taxes in 1996 consisted of a
provision for income taxes for the period after the IPO less a tax benefit
resulting from book-tax differences inherited as part of the IPO
Reorganization.
Net Income. Net income increased by $4.1 million, from $2.7 million in 1996
to $6.8 million in 1997.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Total Net Revenues. Total net revenues increased by $56.0 million, or 51.2%,
from $109.4 million in 1995 to $165.4 million in 1996. This increase resulted
primarily from the acquisition of six New Hampshire facilities (the "New
Hampshire Facilities") on January 1, 1996 and the 1996 Ohio Facilities on July
1, 1996, the generation of increased revenues from rehabilitation therapy
services provided under contracts to additional non-affiliated long-term care
facilities and increased net patient service revenues per patient day at
Harborside's "same store" facilities.
Of the $56.0 million increase in total net revenues, $23.2 million, or 41.5%
of the increase, resulted from the operation of the New Hampshire Facilities,
and $17.5 million, or 31.2% of the increase, resulted from the operation of
the 1996 Ohio Facilities. Revenues generated from rehabilitation therapy
services provided to non-affiliated long-term care facilities increased by
$7.3
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million, from $3.0 million in 1995 to $10.3 million in 1996, resulting
primarily from additional therapy contracts. The remaining $8.0 million, or
14.3% of the increase in total net revenues, was attributable to higher
average net patient service revenues per patient day at Harborside's "same
store" facilities, primarily resulting from increased levels of care provided
to patients with higher acuity conditions. Average net patient service
revenues per patient day at "same store" facilities increased by 4.0%, from
$132.99 in 1995 to $138.31 in 1996. The average occupancy rate at all of
Harborside's facilities increased from 92.5% in 1995 to 92.6% in 1996, also
contributing to the increase in total net revenues. Harborside's quality mix
was 66.8% for the year ended December 31, 1995 as compared to 61.8% for the
year ended December 31, 1996. The decrease in the quality mix percentage was
primarily due to the acquisition of the New Hampshire Facilities, which at the
time of their acquisition by Harborside did not participate in the Medicare
program.
Facility Operating Expenses. Facility operating expenses increased by $42.8
million, or 47.9%, from $89.4 million in 1995 to $132.2 million in 1996.
Facility operating expenses as a percentage of total net revenues decreased
from 81.7% in 1995 to 79.9% in 1996. The acquisition of the New Hampshire
facilities accounted for $17.9 million, or 41.8% of the increase in facility
operating expenses while the 1996 Ohio Facilities accounted for $13.7 million,
or 32.0% of this increase. Operating expenses associated with rehabilitation
therapy services provided to non-affiliated long-term care facilities
increased as a result of additional therapy contracts. Operating expenses
associated with these contracts accounted for $4.9 million, or 11.5% of the
total increase in facility operating expenses. The remaining $6.3 million of
the increase in facility operating expenses was 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 $2.7 million, or 53.9%, from $5.1 million
in 1995 to $7.8 million in 1996. As a percentage of total net revenues,
general and administrative expenses increased from 4.6% in 1995 to 4.7% in
1996. Approximately $.8 million of this increase resulted from the acquisition
of the New Hampshire Facilities, and $.3 million resulted from the acquisition
of the 1996 Ohio Facilities. Most of the remainder of this increase was
associated with the expansion of regional and corporate support, increases in
salaries, and additional travel and consulting expenses associated with
Harborside's growth. Harborside 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 Harborside. In 1995 and
1996, such reimbursements totaled $.7 million.
Special Compensation and Other. In connection with the IPO and IPO
Reorganization, Harborside recorded $1.7 million of non-recurring charges in
1996. Of this amount, $1.5 million consisted of compensation earned by key
members of management as a result of the successful IPO and the IPO
Reorganization.
Depreciation and Amortization. Depreciation and amortization decreased by
$1.4 million, from $4.4 million in 1995 to $3.0 million in 1996. This decrease
in depreciation and amortization was primarily due to the sale and subsequent
leaseback of the Seven Facilities effective December 31, 1995 and the
acquisition of the 1996 Ohio Facilities on July 1, 1996, which is accounted
for as a capital lease.
Facility Rent. Facility rent expense increased by $8.3 million, from $1.9
million in 1995 to $10.2 million in 1996. The increase in facility rent
expense was primarily due to the sale and subsequent leaseback of the Seven
Facilities and the acquisition of the New Hampshire Facilities pursuant to an
operating lease financing.
Interest Expense, Net. Interest expense, net, decreased by $.5 million, from
$5.1 million in 1995 to $4.6 million in 1996. This decrease was primarily due
to the pay down of debt associated with the Seven Facilities and the repayment
of $25.0 million of long-term debt using proceeds from the IPO, partially
offset by additional interest expense resulting from the acquisition of the
1996 Ohio Facilities.
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Loss on Investment in Limited Partnership. Harborside accounts for its
investment in the Larkin Chase Center using the equity method. Harborside
recorded a loss of $.1 million in 1995 as compared to a loss of $.3 million
during 1996 in connection with this investment.
Extraordinary Loss on Early Retirement of Debt. During the second quarter of
1996, Harborside repaid $25.0 million of long-term debt using proceeds from
the IPO. In connection with this early repayment, Harborside recorded an
extraordinary loss of $2.2 million ($1.3 million net of the related tax
benefit) as the result of a prepayment penalty paid to the lender and the
write-off of deferred financing costs.
Income Taxes. Prior to the date of the IPO, Harborside's financial
statements did not include a provision for income taxes because the
Predecessor Entities were not directly subject to federal or state income
taxation. The provision for income taxes in 1996 was $.8 million and consisted
of a provision for income taxes for the period after the IPO less a tax
benefit resulting from book-tax differences inherited as part of the IPO
Reorganization.
Net Income. Net income increased by $1.5 million, from $1.2 million in 1995
to $2.7 million in 1996. This increase in net income was primarily due to
increased operating income in 1996 and the elimination of the minority
interest charge resulting from the liquidation of KYP.
LIQUIDITY AND CAPITAL RESOURCES
Harborside's primary cash needs are for acquisitions, capital expenditures,
working capital, debt service and general corporate purposes. Harborside has
historically financed these requirements primarily through a combination of
internally generated cash flow, mortgage financing and operating leases, in
addition to funds borrowed under the previously existing credit facility.
Harborside's leased facilities are currently leased from either the owner of
the facilities or from a real estate investment trust which has purchased the
facilities from the owner, though prior to the Merger some facilities had been
leased through a trust established in conjunction with Harborside's previously
existing synthetic lease facility that was entered into in September 1997. In
addition, in 1996 Harborside financed the acquisition of the 1996 Ohio
Facilities from the owner by means of a lease which is accounted for as a
capital lease for financial reporting purposes. Harborside'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. Harborside generally negotiates leases which provide for
extensions beyond the initial lease term and an option to purchase the leased
facility. In some cases, the option to purchase the leased facility is
exercisable at a price based on the fair market value of the facility at the
time the option is exercised. In other cases, the lease for the facility sets
forth a fixed option purchase price which Harborside believes is equal to the
fair market value of the facility at the inception date of such lease, thus
allowing Harborside to realize the value appreciation, if any, of the facility
while maintaining financial flexibility.
Harborside's operating activities during the first half of 1997 generated
net cash of $1.6 million as compared to $1.7 million during the same period in
1998. Harborside's operating activities in 1996 generated net cash of $1.4
million as compared to $5.6 million in 1997, an increase of $4.2 million. Most
of the increase in cash provided by operations was the result of increased net
income.
Net cash used by investing activities was $.9 million during the first half
of 1997 as compared to $10.2 million used during the same period in 1998. The
primary use of cash for investing purposes during these periods related to
additions to property and equipment ($.8 million in 1997 compared to $7.1
million in 1998), additions to intangible assets ($1.4 million in 1997
compared to $1.6 million in 1998) and transfers to restricted cash ($.1
million in 1997 compared to $1.6 million 1998.) Most of the additions to
property and equipment are related to the Massachusetts facilities and a sixty
bed addition to the Ocala, Florida facility which opened in September 1998.
Net cash used by investing activities
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was $4.1 million during 1996 as compared to $19.5 million used in 1997. The
primary use of invested cash during these periods related to additions to
property and equipment ($5.1 million in 1996 compared to $5.3 million in
1997), additions to intangible assets ($1.0 million in 1996 compared to $6.3
million in 1997) and a collateralized loan to the seller of $7.5 million in
connection with the acquisition of the Connecticut Facilities on December 1,
1997.
Net cash provided by financing activities during the first half of 1997 was
$.3 million as compared to $2.9 million provided during the same period in
1998. The primary source of cash provided by financing activities was related
to the borrowing of $3.0 million under the previously existing credit facility
to finance the Ocala building expansion and the receipt of lease inducements.
Net cash used by financing activities was $27.8 million in 1996 as compared to
$12.9 million provided in 1997. The early retirement of debt and the
incurrence of a related prepayment penalty required the use of $26.5 million
in 1996. During 1996, Harborside received $37.2 million in net proceeds from
the IPO and a cash payment of $3.7 million from the landlord of the New
Hampshire Facilities in connection with the leasing of such Facilities. During
1996, Harborside also received $.8 million from the sale of equity interests
to an officer and a director of Harborside. In March of 1996 a liquidating
distribution of $33.7 million was paid to the KYP Unitholders. During 1997,
Harborside borrowed $15.6 million under the previously existing credit
facility. Such borrowings were primarily used to finance part of the
acquisition of the Connecticut Facilities, as well as the asset acquisition of
Access Rehabilitation, a therapy services company. In addition, during 1997
Harborside made principal payments of $3.9 million on its capital lease
obligation and received cash payments totaling $1.3 million from its landlords
in connection with the lease of the Massachusetts Facilities and the Dayton
Facilities.
At June 30, 1998, Harborside had two mortgage loans outstanding in the
aggregate amount of $18.0 million, in addition to $18.6 million in advances
outstanding under the previously existing credit facility and $55.8 million of
capital lease obligations. One of Harborside's mortgage loans had an
outstanding principal balance of $16.4 million, of which $15.1 million is due
at maturity in 2004. This loan bears interest at an annual rate of 10.65% plus
additional interest equal to .3% of the difference between the annual
operating revenues of the four mortgaged facilities and the actual revenues of
the four mortgaged facilities during the twelve-month base period.
Harborside's other mortgage loan, which encumbers a single facility, had an
outstanding principal balance of $1.6 million, of which $1.3 million is due in
2010. During the second quarter of 1998, Harborside increased the funds
committed by a bank group through its synthetic leasing facility to $59.3
million. Harborside used this increased commitment to fund the acquisition of
two long-term care facilities (248 licensed beds) in Toledo, Ohio and two
long-term care facilities (267 licensed beds) in Warwick, Rhode Island. The
aggregate purchase price of these two acquisitions was approximately $33.7
million. In May 1998, Harborside also increased funds available from the bank
group through its previously existing credit facility to $40.0 million.
At June 30, 1998, pro forma for the Recapitalization, Harborside would have
had approximately $177.4 million of consolidated indebtedness outstanding,
consisting of $99.5 million of Notes, $55.8 million of capital lease
obligations and $18.0 million of mortgage loans, and $4.1 million of
borrowings outstanding under the New Credit Facility. In addition, Harborside
would have had $40.0 million of Exchangeable Preferred Stock outstanding.
While Harborside has $250.0 million available under the New Credit Facility
(exclusive of outstanding letters of credit), borrowings under it are
restricted by covenants related to maximum senior and total leverage and
minimum EBITDAR coverage of cash interest expense plus facility rent expense.
The New Credit Facility will mature in August 2004 and has no scheduled
interim amortization. For a description of the New Credit Facility, see
"Description of the New Credit Facility." Cash interest will not accrue on the
Notes until August 1, 2003, and dividends on the Exchangeable Preferred Stock
are payable, at the option of Harborside, in additional shares of Exchangeable
Preferred Stock during the same period.
Harborside expects that its capital expenditures for 1998, excluding
acquisitions of new long-term care facilities, will aggregate approximately
$10.0 million, $7.1 million of which had already been
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invested through June 30, 1998. Harborside expects that its capital
expenditures for 1999, excluding acquisitions of new long-term care
facilities, will also aggregate approximately $10.0 million. Harborside's
expected capital expenditures will relate to, among other things, maintenance
capital expenditures, systems enhancements, special construction projects and
other capital improvements. After the Merger, Harborside expects that the
majority of its facility acquisitions will be financed with borrowings under
the New Credit Facility. However, Harborside may be required to assume debt or
to obtain other debt and/or equity financing to finance any significant
acquisitions or real estate/construction projects in the future.
Harborside's principal sources of funds are cash flow from operations and
borrowings under the New Credit Facility. These funds are being used to
finance working capital, meet debt service and capital expenditure
requirements, and for general corporate purposes. It is anticipated that these
funds will also be used to finance acquisitions and lease real estate. In
addition, a portion of the funds committed under the New Credit Facility is
available for the issuance of letters of credit. Harborside believes that
operating cash flow and availability under the New Credit Facility will be
adequate to meet its liquidity needs for the foreseeable future, although no
assurance can be given in this regard.
In connection with the Recapitalization, Harborside incurred certain
significant nonrecurring expenses (See "Unaudited Pro Forma Consolidated
Financial Information"). Harborside incurred approximately $30.8 million in
transaction fees and expenses as a result of the Recapitalization, a $.4
million non-cash charge related to the forgiveness of employee loans, and a
$.9 million non-cash charge associated with the elimination of deferred
financing costs related to retired debt. Harborside also incurred a
compensation charge of approximately $7.9 million relating to the conversion
into cash of 648,923 stock options.
SEASONALITY
Harborside's earnings generally fluctuate from quarter to quarter. This
seasonality is related to a combination of factors which include, among other
things, the timing of Medicaid rate increases, seasonal census cycles and the
number of calendar days in a given quarter.
INFLATION
The healthcare industry is labor intensive. Wages and other labor related
costs are especially sensitive to inflation. In addition, suppliers pass along
rising costs to Harborside in the form of higher prices. When faced with
increases in operating costs, Harborside has generally increased its charges
for services. Harborside's operations could be adversely affected if it is
unable to recover future cost increases or if Harborside experiences
significant delays in Medicaid and Medicare revenue sources increasing their
rates of reimbursement.
YEAR 2000 DISCLOSURE
Harborside is preparing all of its software products and internal computer
systems to be Year 2000 compliant. Harborside has replaced its financial
reporting and payroll systems with systems that are Year 2000 compliant.
Harborside is in the process of evaluating several clinical information
software products, including one which has been installed in 13 of its
facilities, with the expectation that it will identify a Year 2000 compliant
standard clinical information and patient billing system which will be
implemented at each of Harborside's facilities. Harborside currently estimates
that it will complete the selection of the standard clinical information and
patient billing software during 1998 and finalize the conversion of its
existing systems to the new platform during 1999. Although Harborside does not
expect the cost of the conversion of its clinical and patient billing systems
to have a material adverse effect on its business or future results of
operations, there can be no assurance that Harborside will not be required to
incur significant unanticipated costs in relation to its compliance
obligations.
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Harborside currently estimates that compliance will be achieved during 1999;
however, there can be no assurance that Harborside will be able to complete
the conversion in a timely manner or that third party software suppliers will
be able to provide Year 2000 compliant products for Harborside to install.
Harborside currently estimates the cost of replacing the clinical and billing
systems at its existing facilities to be approximately $1.0 million.
Harborside will fund the costs associated with these system conversions
through cash flows from operations or borrowings under the New Credit
Facility. Harborside's ongoing facility acquisition strategy will require it
to evaluate acquisition candidates for Year 2000 compliance. See "Risk
Factors -- Impact of Year 2000 Issue."
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
the retained earnings and additional paid-in equity section of a statement of
financial position. Additionally, in June 1997, the FASB Issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
requires that an enterprise (a) report financial and descriptive information
about its reportable operating segments, (b) report a measure of segment
profit or loss, certain specific revenue and expense items, and segment assets
with reconciliations of such amounts to the enterprise's financial statements
and (c) report information about revenues derived from Harborside's products
or services and information about major customers. Additionally, in February
1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement," which requires that an enterprise (a) revise and
standardize certain footnote disclosure requirements for employers' pensions
and other retiree benefits and (b) reduces the disclosure requirements for
nonpublic entities and participants in multiemployer plans. These
pronouncements are effective for financial statement periods beginning after
December 15, 1997. Harborside does not believe that these new pronouncements
will have a material effect on its financial position or results of
operations.
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BUSINESS
OVERVIEW
Harborside is a leading provider of high-quality long-term care and
specialty medical services in the Eastern United States. The Company has
focused on establishing strong local market positions with high-quality
facilities in five principal regions: the Midwest (Ohio and Indiana), New
England (Massachusetts and New Hampshire), the Northeast (Connecticut and
Rhode Island), the Southeast (Florida) and the Mid-Atlantic (New Jersey and
Maryland). As of June 30, 1998, the Company operated 49 long-term care
facilities with 5,983 licensed beds. The Company provides a broad continuum of
medical services including: (i) traditional skilled nursing care; and (ii)
specialty medical services, including a variety of subacute care programs such
as orthopedic rehabilitation, CVA/stroke care, cardiac recovery, pulmonary
rehabilitation and wound care, and distinct programs for the provision of care
to Alzheimer's and hospice patients. As part of its subacute services, the
Company provides physical, occupational and speech rehabilitation therapy
services, both at Company-operated and non-affiliated facilities, through its
wholly-owned subsidiary, Theracor.
Since commencing operations in 1988, the Company has successfully grown its
revenues and earnings primarily through (i) strategic acquisitions in states
which it believes possess favorable demographic and regulatory environments
through which it believes it has achieved a strong regional presence: (ii) the
expansion of the specialty medical services provided at its long-term care
facilities; and (iii) the creation of marketing programs to strengthen
relationships with patient referral sources and payors, including those in the
growing managed care sector. In addition, the Company believes that the demand
for its services has also benefited from favorable industry dynamics and
demographic trends, while the supply of new licensed beds continues to be
restricted by various state regulations. As a result, the Company has achieved
high occupancy rates, a favorable quality mix (non-Medicaid revenues as a
percentage of total net revenues) and consistent, strong growth in total net
revenues and profitability. During the three years ended December 31, 1997,
the Company's total net revenues grew at a compound annual rate of 36.9%, from
$86.4 million in 1994 to $221.8 million in 1997. During the same period, the
Company's EBITDAR grew at a compound annual rate of 38.1%, from $12.8 million
in 1994 to $33.7 million in 1997.
INDUSTRY BACKGROUND
The U.S. long-term care industry encompasses a broad range of healthcare
services provided in skilled nursing facilities, including traditional skilled
nursing care and specialty medical services. Revenues generated by the long-
term care industry, which were $87 billion in 1996, have grown at a compound
annual rate of over 10% since 1980. The long-term care industry currently
consists of approximately 17,000 free-standing and hospital-based skilled
nursing facilities and remains highly fragmented, with the fifteen largest
publicly-traded long-term care companies controlling less than 20% of all
facilities. The Company believes that the demand for long-term care will
continue to increase primarily due to demographic trends, social changes,
emphasis on healthcare cost containment and improvements in medical
technology.
Demographic Trends. Advances in medical technology have lengthened average
life expectancies, thereby increasing the number and medical needs of elderly
individuals requiring specialized care and supervision. According to the U.S.
Bureau of the Census, the number of people age 65 and over in the U.S. has
grown from approximately 25.6 million in 1980, or 11.3% of the population, to
approximately 31.1 million in 1990, or 12.5% of the population, and is
projected to grow to 40.1 million, or 13.3% of the population, by the year
2010. In addition, people age 85 and older represent one of the fastest
growing segments of the elderly population and are expected to approximately
double in number between 1990 and 2010. This population segment of people age
85 and older comprises the largest number of consumers of long-term care
services as 42% of skilled nursing facility residents are aged 85 or older and
approximately 25% of the population over the age of 85 currently live in a
nursing home.
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Social Changes. The increased number of two-income households has made it
more difficult for families to care for elderly parents. Accordingly, the
Company expects the demand for long-term care facilities to increase as these
families seek alternatives to care in the home. In addition, the increase in
overall disposable family income in recent years has generally increased the
ability of families to pay for long-term care.
Emphasis on Healthcare Cost Containment. In response to rapidly rising
healthcare costs, governmental and other payor sources have adopted cost
containment measures that have encouraged shorter stays in acute care
hospitals. As a result, average hospital stays have been shortened, with many
patients being discharged into more cost-effective care settings, leading to
increased admissions into long-term care facilities which provide subacute
care. Long-term care facility admissions have increased from approximately
300,000 in 1983, when Medicare implemented a prospective payment system for
hospitals, to approximately 1.6 million in 1995, representing a compound
annual growth rate of almost 15%. In general, long-term care facilities, such
as those operated by the Company, are able to provide many subacute care
services at substantially lower costs than the cost of such services when
provided by acute care hospitals because of their lower capital costs,
overhead and salary levels.
Improvements in Medical Technology. In addition to lengthening life
expectancies, technological advances have also made long-term care facilities
a more attractive alternative to acute care or rehabilitation hospitals by
enabling them to offer, on a more cost-effective basis, services traditionally
provided by acute care hospitals. This technology, in addition to cost
containment pressures, has led to a growing number of higher acuity patients
with specialized needs being treated in long-term care facilities.
INDUSTRY CONSOLIDATION
The long-term care industry is undergoing considerable consolidation due to
(i) its fragmented nature; (ii) the benefits of scale on a regional basis when
dealing with patient referral sources and payors and in generating cost
efficiencies; (iii) the inability of smaller, less sophisticated operators to
effectively treat higher acuity patients and adapt to the increasing
complexity of the reimbursement and regulatory environment; and (iv)
constraints on the supply of new licensed beds.
Highly Fragmented Industry. The long-term care industry is highly
fragmented. There are approximately 17,000 long-term care facilities serving
1.8 million people in the United States. The fifteen largest publicly-traded
long-term care companies control less than 20% of the industry's total
facilities, with the vast majority of the industry comprised of small chains
and individual facilities.
Benefits of Scale on a Regional Basis. The Company believes that long-term
care providers with large regional market positions are increasingly
attractive to patient referral sources and payors due to their clinical
expertise and their ability to provide a comprehensive range of long-term care
services at multiple locations within a region. In addition, larger long-term
care providers are able to reduce operating costs by leveraging their regional
and corporate overhead.
Pressures on Smaller, Less Sophisticated Operators. Recently, the long-term
care industry has been subject to changes in government reimbursement and the
increased influence of managed care plans. In addition, other alternative care
settings, such as assisted living facilities and home health care, are
increasing the level of competition for lower acuity patients. The increasing
complexity of medical services being provided by the larger, long-term care
facility operators, growing regulatory and compliance requirements and
increasingly complicated reimbursement systems have resulted in the
consolidation of operators that lack sophisticated management information
systems, operating efficiencies and financial resources to compete
effectively.
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Constraints on Supply. Currently, 43 states, including all but one of the
states in which the Company operates, have CON programs or similar legislation
which act to restrict the supply of long-term care services. These laws
generally limit the construction of long-term care facilities and the addition
of beds or services in existing facilities. High construction costs and
limitations on government reimbursement of costs of construction and start-up
expenses also act to constrain growth in the number of facilities. As a
result, the Company believes that the supply of long-term care facilities may
not be able to keep up with the demand for such facilities. Based on industry
data, the number of nursing beds per thousand for the population over 85 is
expected to decrease to approximately 350 in 2000 from 500 in 1990.
Limitations on the construction of long-term care facilities may force many
companies to generate facility growth through acquisitions versus development.
COMPANY STRENGTHS
Portfolio of High-Quality Long-Term Care Facilities. The quality of the
Company's portfolio of facilities is evidenced by the Company's strong
historical operating performance and the high percentage of its facilities
that are accredited by JCAHO, a nationally-recognized accreditation agency for
hospitals, skilled nursing facilities and other healthcare organizations. As
of June 30, 1998, 63% of Harborside's long-term care facilities were
accredited by JCAHO, with 35% of the Company's facilities accredited "with
Commendation," compared to only 13% and 3%, respectively, for the industry as
a whole in 1997. The Company has scheduled accreditation reviews for an
additional 16% of its facilities during the remainder of 1998 and intends to
seek accreditation for substantially all of its remaining non-accredited
facilities in the near future. The Company believes that such recognition not
only further improves its reputation with payors and patient referral sources,
but also provides it with a distinct competitive advantage in securing an
increasing number of managed care and commercial insurance contracts.
Strong Regional Presence in Attractive Markets. The Company has focused its
operations in nine states that it believes possess favorable demographic and
regulatory environments. All but one of the states in which the Company
operates facilities currently have CON or other regulations which restrict the
addition of new licensed beds, which the Company believes provide it with a
more favorable competitive environment. Within its five existing principal
regions, the Company has further focused on increasing its presence in
distinct local markets. This regional and local focus has enabled the Company
to establish strong market positions and to develop strong relationships with
patient referral sources, including regional managed care organizations. In
addition, the Company believes that its regional concentrations provide it
with significant opportunities to achieve operational efficiencies through
economies of scale, greater leverage of corporate overhead, more effective
regional management and marketing efficiencies. The Company has made
significant investments in developing regional overhead structures that can
support significant additional facilities in a given region with minimal
incremental costs.
Ability to Provide Cost-Effective, High-Quality and High Acuity Care. The
Company believes that its strong operating performance has been attributable
to, among other things, its ability to provide a broad range of high-quality
specialty medical services, which typically generate higher revenues and
profits per patient day than traditional skilled nursing care. In particular,
the Company believes that it can provide subacute care services for
substantially less than the cost of such services when provided by acute care
hospitals. Subacute care is comprehensive care for individuals who have had an
acute illness, injury or exacerbation of a disease process and is typically
rendered immediately after, or instead of, acute care hospitalization. The
Company provides subacute care services in such areas as complex medical care,
cardiac recovery, digestive care, immuno-suppressed disease care, post-
surgical recovery, wound care, CVA/stroke care, hemodialysis, infusion
therapy, diabetes management and pain management. The Company has also
designed specific proprietary clinical pathways and protocols in the areas of
orthopedic rehabilitation, CVA/stroke recovery, cardiac recovery, pulmonary
rehabilitation and wound care to achieve measurable outcomes in an efficient,
cost-effective and
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patient-friendly manner. The Company believes that its subacute care programs
and its clinical pathways and protocols are highly attractive to its patient
referral sources, including commercial insurance and managed care
organizations.
Ability to Successfully Evaluate and Integrate Long-Term Care Facility
Acquisitions. The Company has a dedicated acquisition team of six experienced
professionals who work closely with corporate and regional operating
management in the evaluation of acquisition opportunities. The Company
believes that the close working relationship between operating management and
its acquisition team in the evaluation of acquisition opportunities results in
better acquisition decisions and a more effective and timely acquisition
integration process. Prior to the actual acquisition date, the Company begins
employee training regarding the Company's practices and procedures. After an
acquisition is consummated, the acquired facilities are converted to the
Company's financial information systems platform with minimal disruption to
facility operations, and management works closely and immediately with
employees at the new facility to generate operating improvements. Over time,
operating improvements are generated through, among other things, an expanded
scope of higher acuity specialty medical services, enhanced marketing programs
and improved rehabilitation services. Since the beginning of 1996, the Company
has expanded its number of licensed beds by over 140% through the completion
of eight acquisitions representing a total of 29 long-term care facilities
with 3,512 licensed beds.
Strong Management Team with Significant Ownership. The Company's senior
management team, led by Stephen L. Guillard, Chairman, CEO and President, has
an average of over 15 years experience in the long-term care sector. In
addition, most of the members of senior management have worked together for
the past ten years. Senior management is highly committed to the growth of the
Company, having agreed to reinvest, upon consummation of the Merger, an
aggregate value of $5.6 million of their existing common stock and retain
stock options which would have had a net value of $1.3 million had such
options been converted into cash in connection with the Merger. In addition, a
new stock option plan will be created for senior management and other
employees. Assuming the exercise of all options available under such plan,
senior management and other employees of the Company would own approximately
14% of the Company.
BUSINESS STRATEGY
Selectively Acquire Additional Long-Term Care Facilities. The Company
believes that it will continue to have numerous acquisition opportunities due
primarily to the highly fragmented nature of the long-term care industry and
the inability of smaller, less sophisticated operators to effectively treat
higher acuity patients and adapt to the increasing complexity of the
reimbursement and regulatory environment. The Company will continue to focus
primarily on acquiring facilities in its existing regions where it has
established strong market positions. The Company will also selectively
evaluate new geographic markets possessing favorable demographic and
regulatory environments where it can establish strong market positions. The
Company believes that concentrating its long-term care facilities within
selected geographic regions provides it with greater local market share and
more effective relationships with patient referral sources, as well as the
ability to achieve operational efficiencies through economies of scale,
greater leverage of corporate overhead, more effective regional management and
marketing efficiencies. The Company's acquisition strategy is particularly
focused on states with CON programs or similar regulations limiting the supply
of new licensed beds.
Expand High Acuity Specialty Medical Services. The provision of high acuity
specialty medical services allows the Company to better serve its patient
referral sources along a broader continuum of care and take advantage of the
continued increased flow of high acuity patients from hospital settings. The
provision of such services also typically generates higher revenues and
profits per patient day than traditional skilled nursing care services. The
Company expects to continue to expand the range of specialty medical services
provided at both its existing and acquired facilities, with an emphasis on
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expanding the number of its specialized subacute programs. Within its
specialized subacute programs, the Company will continue to design and
implement clinical pathways and protocols for its high acuity services. The
Company also plans to continue to develop specialty medical programs for
patients with Alzheimer's disease and hospice units for patients with terminal
illnesses.
Expand Ancillary and Other Businesses. The Issuer intends to seek contracts
for the provision of its physical, occupational and speech rehabilitation
therapy services with additional non-affiliated facilities. The Company is
also evaluating opportunities to acquire additional ancillary businesses (such
as institutional pharmacy and infusion therapy) which would allow the Company
to provide these ancillary services directly to patients at its facilities and
which the Company believes would allow it to reduce its facility operating
costs. Additionally, these ancillary services could be provided to non-
affiliated facilities. The Company will also selectively evaluate
opportunities to acquire assisted living facilities and home health agencies
in markets where it operates facilities. The Company believes that these
opportunities would allow it to provide a broader continuum of care while
leveraging its existing general and administrative expenses.
Continue to Achieve High Occupancy Rates and a Strong Quality Mix. The
Company seeks to continue to achieve high occupancy rates primarily by
continuing to develop new and existing patient referral sources, enhance its
marketing programs and closely monitor census information and other patient
data at the corporate, regional and facility levels. In addition, the Company
seeks to continue to achieve a strong quality mix primarily by continuing to
expand the breadth and improve the quality of its specialty medical services.
An integral part of the Company's acquisition strategy has been to acquire
high-quality facilities from smaller, less sophisticated operators whose
facilities tend to offer lower acuity services than those offered by the
Company, thereby initially diluting the Company's quality mix. The Company
subsequently implements an expanded range of specialty medical services at
these facilities which typically improves its quality mix. For the year ended
December 31, 1997 and six months ended June 30, 1998, the Company's occupancy
rate was 92.3% and 92.6% respectively, and its quality mix was 60.0% and 58.0%
respectively.
Implement Cost Control Initiatives in Response to Medicare Prospective
Payment System. Beginning January 1, 1999, the Company will be reimbursed for
services it provides to Medicare patients under Medicare PPS, which will be
phased in over a period of four years. Medicare PPS will result in the Company
being reimbursed under an acuity-based per diem rate system rather than under
the current cost-based reimbursement system. The Company believes that
implementing cost control initiatives will enable it to maximize its
profitability under Medicare PPS. Accordingly the Company has identified and
intends to implement, among other things, programs designed to reduce its
costs of providing nursing and therapy services while maintaining quality and
outcomes. The Company already has significant experience providing quality,
cost-effective services under acuity-based prospective payment systems, as 54%
of its existing licensed beds are located in states with acuity-based Medicaid
systems.
RECENT ACQUISITIONS
During 1997 and 1998, the Company acquired 16 skilled nursing facilities
with a total of 1,989 beds (including six assisted living beds), an assisted
living facility with 115 beds and a rehabilitation services company. In
particular, the acquisitions in 1997 consisted of five skilled nursing
facilities in Connecticut with a total of 684 beds, four skilled nursing
facilities in Massachusetts with a total of 401 beds, two skilled nursing
facilities in Ohio with a total of 226 beds (including six assisted living
beds), an assisted living facility in Ohio with 115 beds, one skilled nursing
facility in Maryland with 163 beds and a rehabilitation services company. In
addition, in 1997 the Company entered into contracts to manage two skilled
nursing facilities in Massachusetts with a total of 178 beds. In 1998, the
Company acquired two skilled nursing facilities in Rhode Island with a total
of 267 beds and two skilled nursing facilities in Ohio with a total of 248
beds.
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PATIENT SERVICES
Traditional Skilled Nursing Care
Traditional skilled nursing care is typically provided to elderly patients
in long-term care facilities to assist with the activities of daily living and
to provide general medical care. The Company provides 24-hour skilled nursing
care by registered nurses, licensed practical nurses and certified nursing
aides in all of its facilities. Each facility is managed by an on-site
licensed administrator who is responsible for the overall operation of the
facility, including the quality of care provided. The medical needs of
patients are supervised by a medical director, who is a licensed physician.
Although treatment of patients is the responsibility of their own attending
physicians, who are not employed by the Company, the medical director for the
facility monitors all aspects of delivery of care. The Company also provides
support services, including dietary services, therapeutic recreational
activities, social services, housekeeping and laundry services, pharmaceutical
and medical supplies and routine rehabilitation therapy.
Each facility offers a number of individualized therapeutic activities
designed to enhance the quality of life of its patients. These activities
include entertainment events, musical productions, trips, arts and crafts and
volunteer and other programs that encourage community interaction.
Specialty Medical Services
Specialty medical services are those services provided to patients with
medically complex needs, who generally require more extensive treatment and a
higher level of skilled nursing care. These services typically generate higher
revenues per patient day than traditional skilled nursing care as a result of
increased levels of care and the provision of ancillary services.
Subacute Care. Subacute care is goal-oriented, comprehensive care designed
for an individual who has had an acute illness, injury, or exacerbation of a
disease process. Subacute care is typically rendered immediately after, or
instead of, acute hospitalization in order to treat one or more specific,
active, complex medical conditions or in order to administer one or more
technically complex treatments. The Company provides subacute care services at
all but two of its existing facilities in such areas as complex medical care,
cardiac recovery, digestive care, immuno-suppressed disease care, post-
surgical recovery, wound care, CVA/stroke care, hemodialysis, infusion
therapy, diabetes management and pain management.
In facilities that have shown strong demand for subacute services, the
Company has developed distinct subacute programs marketed under the name
"COMprehensive Patient Active Subacute System" or "COMPASS." COMPASS programs
are specially staffed and equipped for the delivery of subacute care. COMPASS
patients typically range in age from late teens to the elderly, and typically
require high levels of nursing care and the services of physicians,
therapists, dietitians, clinical pharmacists, clinical psychologists or social
workers. Certain patients may also require life support or monitoring
equipment. Because patient goals are generally rehabilitation-oriented,
lengths of stay for COMPASS programs are generally expected to be less than 30
days each.
The Company has designed clinical pathways for these COMPASS programs in the
areas of orthopedic rehabilitation, CVA/stroke recovery, cardiac recovery,
pulmonary rehabilitation and wound care management. These clinical pathways
are designed to achieve specified measurable outcomes in an efficient, cost-
effective and patient-friendly manner. The Company's COMPASS programs and the
clinical pathways used by these programs are designed to attract commercial
insurance and managed care organizations, such as HMOs and PPOs. The Company
has personnel dedicated to actively marketing its COMPASS programs to
commercial insurers and managed care organizations. The Company will continue
to develop additional clinical pathways based on market opportunities.
Alzheimer's and Hospice Care. The Company has also developed distinct units
that provide care for patients with Alzheimer's disease and hospice units for
patients with terminal illnesses. As of
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June 30, 1998, the Company operated dedicated Alzheimer's units at eight
facilities. The Company also operates distinct hospice units at three of its
facilities, where it provides care to terminally ill patients and counseling
to their families.
Rehabilitation Therapy Services
The Company currently provides in-house rehabilitation services, including
physical, occupational and speech therapy, at most of the Company's facilities
through the Company's wholly-owned subsidiary, Theracor. As of June 30, 1998,
Theracor also had contracted to provide rehabilitation services to 53 non-
affiliated facilities. The Company also seeks to offer its rehabilitation
therapy services through Theracor at newly acquired facilities.
OPERATIONS
Facility Operations. Each of the Company's facilities is supervised by a
licensed facility administrator who is responsible for all aspects of the
facility's operations. The facility administrator oversees (i) a director of
nursing who supervises a staff of registered nurses, licensed practical nurses
and certified nursing aides, (ii) a director of admissions who is responsible
for developing local marketing strategies and programs, and (iii) various
other departmental supervisors. The Company also contracts with one or more
licensed physicians at each facility to serve as medical directors for the
purpose of supervising the medical management of patients. Facilities with
subacute or specialty medical units or programs may also contract with
physician specialists to serve as rehabilitation or specialty program medical
directors in areas such as physiatry (physical medicine), neurology or gero-
psychology. Facilities may also employ or contract for additional clinical
staff such as case managers, therapists and program directors. Department
supervisors at each of the Company's facilities oversee personnel who provide
dietary, maintenance, laundry, housekeeping, therapy and social services. In
addition, a business office staff at each facility routinely performs
administrative functions, including billing, payroll and accounts payable
processing. The Company's corporate and regional staff provide support
services such as quality assurance, management training, clinical consultation
and support, management information systems, risk management, human resource
policies and procedures, operational support, accounting and reimbursement
expertise.
Regional Operations. The Company seeks to cluster its long-term care
facilities and therapy services in selected geographic regions to establish a
strong competitive position as well as to position the Company as a healthcare
provider of choice to managed care and private payors in these markets. The
Company's facilities currently serve five principal geographic regions: the
Midwest (Ohio and Indiana), New England (Massachusetts and New Hampshire),
Northeast (Connecticut and Rhode Island), the Southeast (Florida) and the Mid-
Atlantic (New Jersey and Maryland). The Company maintains regional operating
offices in Clearwater, Florida; Indianapolis, Indiana; Topsfield,
Massachusetts; West Hartford, Connecticut; and Peterborough, New Hampshire.
Each region is supervised by a regional director of operations who directs the
efforts of a team of professional support staff in the areas of clinical
services, marketing, bookkeeping, human resources and engineering. Other
Company staff, who are principally based in Boston and the above-mentioned
regions, provide support and assistance to all of the Company's facilities in
the areas of subacute services, managed care contracting, reimbursement
services, risk management, data processing and training. Financial control is
maintained through financial and accounting policies established at the
corporate level for use at each facility. The Company has standardized
operating policies and procedures and continually monitors operating
performance to assure consistency and quality of operations. Theracor
maintains offices in Palm Harbor, Florida and Framingham, Massachusetts.
Continuous Quality Improvement Program. The Company has developed a
continuous quality improvement program which is designed to monitor, evaluate
and improve the delivery of patient care. The program is supervised by the
Company's Vice President of Professional Services and consists of
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the standardization of policies and procedures, routine site visits and
assessments and a quality control system for patient care and physical plant
compliance. Pursuant to its quality control system, the Company routinely
collects information from patients, family members, referral sources,
employees and state survey agencies which is then compiled, analyzed and
distributed throughout the Company in order to monitor the quality of care and
services provided.
The Company's continuous quality improvement program is modeled after
guidelines for long-term care and subacute care facilities promulgated by
JCAHO. The Company believes that JCAHO accreditation is an important factor in
gaining provider contracts from managed care and commercial insurance
companies. Accordingly, in late 1995 the Company began a program to seek
accreditation from JCAHO for the Company's facilities. As of June 30, 1998,
63% of the Company's facilities had received accreditation, and of these 35%
had received accreditation "with Commendation." The Company has scheduled
accreditation reviews for an additional 16% of its facilities during the
remainder of 1998 and intends to seek accreditation for substantially all of
its remaining non-accredited facilities in the near future.
MARKETING
The Company's marketing program is designed to attract patients who will
have a favorable impact on the Company's profits and quality mix. The Company
establishes monthly occupancy and revenue goals for each of its facilities and
maintains marketing objectives to be met by each facility. The Company's Vice
President of Marketing is principally responsible for the development and
implementation of the Company's marketing program. Regional marketing
directors provide routine support to the facility-based admissions directors
through the development of facility-based marketing strategies, competitive
assessments and routine visits.
The Company uses a decentralized marketing approach in order to capitalize
on each facility's strengths and reputation in the community it serves.
Admissions staff at each facility are primarily responsible for marketing
traditional skilled nursing care and developing semi-annual marketing plans in
consultation with the Company's regional marketing and operations staff.
Traditional skilled nursing care is marketed to area physicians, hospital
discharge planning personnel, individual patients and their families and
community referral sources. Facility personnel also market the Company's
specialty medical services to these sources. Corporate and regional personnel
who specialize in subacute care, managed care and reimbursement also assist in
the marketing of specialty medical services.
The Company believes that its occupancy rates and quality mix demonstrate
the effectiveness of its marketing programs. The Company's quality mix was
60.0% for the fiscal year ended December 31, 1997. The Company's average
annual occupancy rates for the fiscal years ended December 31, 1995, 1996 and
1997 were 92.5%, 92.6% and 92.3%, respectively. In comparison, a study of
approximately 1,500 nursing facilities conducted by the U.S. Department of
Health and Human Services found that in 1995 nursing facilities operated at
approximately 87% of capacity. Since June 1994, the Company has maintained a
dedicated managed care marketing group, led by the Senior Vice President of
Marketing and Managed Care, whose primary purpose is to solicit managed care
and commercial insurance contracts. The Company's regional and corporate staff
attend trade shows and events for managed care, commercial insurance companies
and case managers in order to broaden the Company's overall presence and
recognition with these groups.
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PROPERTIES
The following table summarizes certain information regarding the Issuer's
existing facilities as of June 30, 1998. For a description of the lease and
other financing arrangements regarding the Company's facilities, see Notes D,
H, I, J and T of the notes to the audited consolidated financial statements of
the Company included elsewhere in this Prospectus. The following table also
summarizes certain information regarding facilities in Attleboro and Newton
Upper Falls, Massachusetts that are managed by the Company.
SUMMARY OF FACILITIES
<TABLE>
<CAPTION>
OWNED/ PURCHASE
YEAR LEASED/ OPTION LICENSED
LICENSED FACILITY LOCATION ACQUIRED MANAGED PRICE (1) BEDS
- ----------------- ------------------ -------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
MIDWEST REGION
OHIO
Beachwood............. Beachwood 1996 Owned(2) Fixed 274
Broadview Heights..... Broadview Heights 1996 Owned(2) Fixed 159
Dayton................ Dayton 1997 Owned -- 100
Defiance.............. Defiance 1993 Leased Fixed 100
Laurelwood............ Dayton 1997 Owned -- 115(3)
New Lebanon........... New Lebanon 1997 Owned -- 126(3)
Northwestern Ohio..... Bryan 1993 Leased Fixed 189
Perrysburg............ Perrysburg 1990 Owned -- 100
Point Place........... Toledo 1998 Owned -- 98
Swanton............... Swanton 1995 Leased Market 100
Sylvania.............. Sylvania 1998 Owned -- 150
Troy.................. Troy 1989 Leased Market 195
Westlake I............ Westlake 1996 Owned(2) Fixed 153
Westlake II........... Westlake 1996 Owned(2) Fixed 106
INDIANA
Decatur............... Indianapolis 1988 Owned -- 88
Indianapolis.......... Indianapolis 1988 Leased Market 104
New Haven............. New Haven 1990 Leased Market 120
Terre Haute........... Terre Haute 1990 Owned -- 120
-----
2,397
=====
NEW ENGLAND REGION
NEW HAMPSHIRE
Applewood............. Winchester 1996 Leased Market 70
Crestwood............. Milford 1996 Leased Market 82
Milford............... Milford 1996 Leased Market 52
Northwood............. Bedford 1996 Leased Market 147
Pheasant Wood......... Peterborough 1996 Leased Market 99
Westwood.............. Keene 1996 Leased Market 87
MASSACHUSETTS
Amesbury.............. Amesbury 1997 Leased Market 120
Bristol Nursing Home.. Attleboro 1997 Managed -- 72
Cedar Glen............ Danvers 1997 Leased Market 100
Danvers-Twin Oaks..... Danvers 1997 Leased Market 101
North Shore........... Saugus 1997 Leased Market 80
The Stone Institute... Newton Upper Falls 1997 Managed -- 106
-----
1,116
=====
</TABLE>
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<TABLE>
<CAPTION>
OWNED/ PURCHASE
YEAR LEASED/ OPTION LICENSED
LICENSED FACILITY LOCATION ACQUIRED MANAGED PRICE (1) BEDS
- ----------------- --------------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
NORTHEAST REGION
CONNECTICUT
Arden House........... Hamden 1997 Leased Fixed 360
Governor's House...... Simsbury 1997 Leased Fixed 73
Madison House......... Madison 1997 Leased Fixed 90
The Reservoir......... West Hartford 1997 Leased Fixed 75
Willows............... Woodbridge 1997 Leased Fixed 86
RHODE ISLAND
Greenwood............. Warwick 1998 Owned -- 136
Pawtuxet Village...... Warwick 1998 Owned -- 131
-----
951
=====
SOUTHEAST REGION
FLORIDA
Brevard............... Rockledge 1994 Leased Market 100
Clearwater............ Clearwater 1990 Owned -- 120
Gulf Coast............ New Port Richey 1990 Owned -- 120
Naples................ Naples 1989 Leased Market 120
Ocala................. Ocala 1990 Owned -- 120(4)
Palm Harbor........... Palm Harbor 1990 Owned -- 120
Pinebrook............. Venice 1989 Leased Market 120
Sarasota.............. Sarasota 1990 Leased Market 120
Tampa Bay............. Oldsmar 1990 Owned -- 120
-----
1,060
=====
MID ATLANTIC REGION
MARYLAND
Harford Gardens....... Baltimore 1997 Leased Fixed 163
Larkin Chase Center... Bowie 1994 Owned (5) -- 120
NEW JERSEY
Woods Edge............ Bridgewater 1988 Leased Market 176
-----
459
TOTAL............... 5,983
=====
</TABLE>
- --------
(1) Indicates, for each leased facility, if the Company's option price to
acquire the facility is stated as a fixed amount in the lease ("Fixed") or
is based on the fair market value of the facility at the option exercise
date, which may be subject to a minimum price ("Market"). With regard to
leases with a fixed purchase option price, the Company believes that the
purchase option price stated in the lease is, in each case, equal to the
fair market value of the facility at the inception date of such lease.
(2) Indicates an owned facility the acquisition of which has been accounted
for as a capital lease.
(3) Includes 115 and 6 beds licensed for assisted living for the Laurelwood
and New Lebanon facilities, respectively.
(4) Does not include a 60 bed addition at this facility, which opened in
September 1998.
(5) Owned by Bowie L.P., in which the Company owns a 75% interest. The
Company's interest in Bowie L.P. is pledged to the facility's mortgage
lender. The Company has guaranteed the indebtedness of Bowie L.P.
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The Company's corporate offices in Boston are subleased from an affiliate of
one of its current principal stockholders. The Company has entered into a
lease for new office space with an unaffiliated third party and expects to
relocate its offices during the third or fourth quarter of 1998. In connection
with such relocation, the Company is considering subleasing excess space at
its new headquarters to an existing affiliate on a short-term basis. The
Company also leases regional offices in Clearwater, Florida, Topsfield,
Massachusetts, and Indianapolis, Indiana, and owns a regional office in
Peterborough, New Hampshire. The Company's regional office in West Hartford,
Connecticut is located in The Reservoir, a skilled nursing facility listed in
the table above. Theracor leases offices in Palm Harbor, Florida and
Framingham, Massachusetts. The Company considers its properties to be in good
operating condition.
SOURCES OF REVENUES
The Company derives its net patient service revenues primarily from private
pay sources, the federal Medicare program for certain elderly and disabled
patients and state Medicaid programs for indigent patients. The Company's
revenues are influenced by a number of factors, including: (i) the licensed
bed capacity of its facilities; (ii) the occupancy rates of its facilities;
(iii) the payor mix of its facilities and the rates of reimbursement among
payor categories (private and other, Medicare and Medicaid); and (iv) the
extent to which subacute and other specialty medical and ancillary services
are utilized by patients and paid for by the respective payment sources. The
Company employs specialists to monitor reimbursement rules, policies and
related developments in order to comply with all reporting requirements and to
assist the Company in receiving reimbursements.
The table set forth below identifies the percentage of the Company's total
net revenues attributable to each of its payor sources for each of the periods
indicated. The increase in Medicaid revenues as a percentage of total net
revenues during the periods indicated has resulted primarily from the
acquisition of new facilities with a higher percentage of their net revenues
derived from the Medicaid program. An integral part of the Company's
acquisition strategy has been to acquire high-quality facilities from smaller,
less sophisticated operators whose facilities tend to offer lower acuity
services than those offered by the Company, thereby initially diluting the
Company's quality mix. The Company subsequently implements an expanded range
of specialty medical services at these facilities which typically leads to an
improved quality mix. The Company believes that, over time, its facilities
have generally experienced stable to increasing percentages of revenues
derived from payor sources other than Medicaid following their acquisition by
the Company.
TOTAL NET REVENUES (1)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------- ------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Private and other............................ 35.1% 35.5% 34.1% 33.5% 31.8%
Medicare..................................... 31.7 26.3 25.9 28.7 26.2
Medicaid..................................... 33.2 38.2 40.0 37.8 42.0
----- ----- ----- ----- -----
Total...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
- --------
(1) Total net revenues exclude net revenues of the Larkin Chase Center which
is owned by Bowie L.P. The Company owns a 75% partnership interest in
Bowie L.P. but records its investment in Bowie L.P. using the equity
method. See Note D to the Company's consolidated financial statements
included elsewhere in this Prospectus.
Private and Other. Private and other net revenues include payments from
individuals who pay directly for services without governmental assistance and
payments from commercial insurers, HMOs,
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PPOs, Blue Cross organizations, workers' compensation programs, hospice
programs and other similar payment sources. The Company's rates for private
pay patients are typically higher than rates for patients eligible for
assistance under state Medicaid programs. The Company's private pay rates vary
from facility to facility and are influenced primarily by the rates charged by
other providers in the local market and by the Company's ability to
distinguish its services from those provided by its competitors. Although
private pay rates are generally established on a facility-specific fee
schedule, rates charged for individual cases may vary widely because, in the
case of managed care, they are either negotiated on a case-by-case basis with
the payor or are fixed by contract. Rates charged to private pay patients are
not subject to regulatory control in any of the states in which the Company
operates.
Medicare. All but two of the Company's facilities are certified Medicare
providers. The Company does not expect to seek Medicare certification for
these two uncertified facilities because all of the patients currently at
these facilities are private pay patients. Medicare is a federally funded and
administered health insurance program primarily designed for individuals who
are age 65 or over and are entitled to receive Social Security benefits. The
Medicare program consists of two parts. The first part, Part A, covers
inpatient hospital services and certain services furnished by other
institutional healthcare providers, such as long-term care facilities. The
second part, Part B, covers the services of doctors, suppliers of medical
items and services and various types of outpatient services. Part B services
include physical, speech and occupational therapy and durable medical
equipment and other ancillary services of the type provided by long-term care
or acute care facilities. Part A coverage, as applied to services delivered in
a long-term care facility, is limited to skilled nursing and rehabilitative
care related to a recent hospitalization and is limited to a specified term
(generally 100 days per calendar year), requires beneficiaries to share some
of the cost of covered services through the payment of a deductible and a co-
insurance payment and requires beneficiaries to meet certain qualifying
criteria. There are no limits on duration of coverage for Part B services, but
there is a co-insurance requirement for most services covered by Part B.
The method used in determining Medicare reimbursement for rehabilitation
therapy services furnished in the Company's facilities currently depends on
the type of therapy provided. The Medicare program currently applies salary
equivalency guidelines to determine the reasonable cost of physical therapy
services and respiratory therapy services provided on a contract basis, which
is the cost that would be incurred if the therapist were employed at the
facility, plus an amount designed to compensate the provider for certain
general and administrative overhead costs. With respect to occupational
therapy and speech language pathology, Medicare currently provides
reimbursement for services on a reasonable cost basis, subject to the so-
called "prudent buyer" rule for evaluating the reasonableness of the costs.
During the first quarter of 1997, the Health Care Financing Administration
("HCFA") proposed rules which would establish new guidelines for reimbursement
for rehabilitation therapy services provided at skilled nursing facilities.
These new guidelines would revise the existing salary equivalency rules for
physical and respiratory therapies and extend the salary equivalency
methodology to speech and occupational therapy services as well. The Company
does not believe that the proposed rules will have a material adverse effect
on its operations. Further, the salary equivalency guidelines will not apply
to skilled nursing facilities when the provisions of the BBA become effective.
See "--Governmental Regulation."
Under the Medicare Part A program, the Company is reimbursed under the
existing cost-based reimbursement system for its allowable direct costs (which
consist of routine, ancillary and capital expenses) plus an allocation of
allowable indirect costs. The total of routine costs and the respective
allocated overhead is subject to a regional routine cost limit. As the Company
expands its subacute care and other specialty medical services, the costs of
care for these patients have exceeded and are expected to continue to exceed
the regional reimbursement routine cost limits. In order to recover these
costs, the Company is required to submit routine cost limit exception requests
to recover the excess costs from the Medicare program. There can be no
assurance that the Company will be able
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<PAGE>
to recover such excess costs under any pending or future requests. The failure
to recover these excess costs in the future could materially adversely affect
the Company. Under current regulations, new long-term care facilities are, in
certain limited circumstances, able to apply for a three year exemption from
routine cost limits. The Company has applied for, been denied and is now
appealing such exemptions for two of its facilities. Unless and until such
exemptions are granted, these facilities can only recover excess costs through
routine cost limit exception requests. The BBA substantially amends the
current Medicare reimbursement methodology and eliminates the process of
applying for and receiving routine cost limit exceptions and exemptions.
The BBA was enacted in August 1997 and significantly amends the
reimbursement methodology of the Medicare program. In addition to offering new
Medicare health plan options and increasing the penalties related to
healthcare fraud and abuse, the BBA provides for a prospective payment system
for skilled nursing facilities to be implemented for cost report periods
beginning on or after July 1, 1998. The BBA also mandates a 10% reduction in
Part B therapy costs for the period January 1, 1998 through July 1, 1998.
Subsequent to July 1, 1998, skilled nursing facilities will be reimbursed for
Part B therapy services which will be determined through fee schedules
established by HCFA. The BBA further limits reimbursement for Part B therapy
services by establishing annual limitations on Part B therapy charges per
beneficiary.
Since the Medicare prospective payment system will be all inclusive, the BBA
requires skilled nursing facilities to institute "consolidated billing" for a
variety of services and supplies. Under consolidated billing, the skilled
nursing facility must submit all Medicare claims for virtually all the
services and supplies that its residents receive (both Part A and Part B),
with the exception of mainly physicians' services. Payments for these services
and supplies billed on a consolidated basis will be made directly to the
skilled nursing facility, whether or not the services are provided directly by
the skilled nursing facility or by others under a contractual arrangement.
Among the services and goods which the skilled nursing facility will be
responsible for billing are: physical therapy, occupational therapy, speech
therapy, laboratory services, diagnostic x-rays, medical supplies, surgical
dressings, prosthetic devices/ostomy, colostomy, enteral/parenteral nutrition,
orthotics, limbs, etc., EKGs, vaccines, certain ambulance services and
psychological services by a social worker. Examples of Part B services and
goods which will not be billed by skilled nursing facilities are physicians'
services, physician assistants under physician supervision, nurse
practitioners, certified nurse-midwives, qualified psychologists, certified
registered nurses, anesthetists, home dialysis supplies and equipment, self-
care home dialysis support services and institutional dialysis services and
supplies, erythropoietin for certain dialysis patients, hospice care related
to a beneficiary's terminal illness, an ambulance trip to the skilled nursing
facility from the initial admission or from the skilled nursing facility
following a final discharge and transportation costs of electrocardiogram
equipment (for 1998 only).
In mid-April, 1998, HCFA issued a Program Memorandum to Medicare
Intermediaries and Carriers with detailed instructions concerning consolidated
billing. Under the Program Memorandum, skilled nursing facilities have the
option of utilizing a transition period from July 1, 1998 through December 31,
1998 in cases where the skilled nursing facility will not have the systems and
billing capability to submit claims to the intermediary for services and
supplies rendered on or after July 1, 1998. Intermediaries are to use this
transition period to educate providers regarding these new requirements
through December 31, 1998. For those skilled nursing facilities utilizing the
transition period, all claims for all services and supplies rendered on or
after January 1, 1999 must be billed to the intermediary. There will be no
extension of the transition period beyond January 1, 1999. Subsequent to the
Program Memorandum of mid-April, 1998, HCFA has issued additional Program
Memoranda concerning the implementation of PPS, affecting mainly the
"consolidated billing" provisions. In July, 1998, HCFA instructed Medicare
program intermediaries and carriers that, due to systems modification delays
in implementing skilled nursing facility consolidated billing, the
instructions in the mid-April 1998 Program Memorandum, as they apply to
services and supplies rendered to residents in a Part A stay in a skilled
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<PAGE>
nursing facility not yet on PPS, and to the Part B stay (i.e., Part A benefits
exhausted, post-hospital or level of care requirements not met), are delayed
until further notice. On August 1, 1998, HCFA issued an additional Program
Memorandum asking carriers to refrain from implementing the professional
component/technical component indicator rules previously issued by HCFA. The
delay is effective until an indicator is developed so that carriers can
identify which skilled nursing facilities have converted to PPS.
Alternatively, the delay can be lifted whenever all skilled nursing facilities
have converted.
Regulations regarding Medicare PPS were published on May 12, 1998. The
regulations include (i) the unadjusted federal per diem rates to be applied to
days of covered skilled nursing facility services furnished during the fiscal
year, (ii) the case mix classification system to be applied with respect to
such services during the fiscal year and (iii) the factors to be applied in
making area wage adjustments with respect to such services. The regulations
also contain provisions for skilled nursing facility consolidated billing of
Medicare Part A and certain services and items furnished to residents of the
skilled nursing facility under Part B. (See the discussion below under
"Government Regulation" for more information about the prospective payment
system for skilled nursing facilities, including delays in implementing
consolidated billing for Part B services). As the regulations were published
recently and HCFA Program Memoranda continue to be issued regarding
implementation of PPS, the Company has not been able to fully assess and
quantify the potential impact of the regulations on the Company's consolidated
financial position, results of operations or liquidity. Based on a preliminary
assessment, the Company believes that the new regulations will result in a
reduction of the Company's average Medicare per diem reimbursement rate, which
the Company expects to be able to substantially offset primarily through
reductions in facility operating costs. However, no assurance can be given
that the Company will be able to reduce such costs. See "--Business Strategy."
Medicaid. The Medicaid program includes the various state-administered
reimbursement programs for indigent patients created by federal law. Although
Medicaid programs vary from state to state, they are partially subsidized by
federal funds, provided that the state has submitted an acceptable state plan
for medical assistance. Although reimbursement rates are determined by the
state, the federal government retains the right to approve or disapprove
individual state plans. For Medicaid recipients, providers must accept
reimbursement from Medicaid as payment in full for the services rendered,
because the provider may not bill the patient for more than the amount of the
allowable Medicaid payment. All but two of the Company's facilities
participate in the Medicaid program of the states in which they are located.
These two non-participating facilities are currently occupied solely by
private pay patients.
Under the Boren Amendment, a federal Medicaid statute, and related
regulations, state Medicaid programs were required to provide reimbursement
rates that were reasonable and adequate to cover the costs that would be
incurred by efficiently and economically operated facilities while providing
services in conformity with state and federal laws, regulations and quality
and safety standards. Furthermore, payments were required to be sufficient to
enlist enough providers so that services under a state's Medicaid plan were
available to recipients at least to the extent that those services are
available to the general population. In the past, several states' healthcare
provider organizations and providers have initiated litigation challenging the
Medicaid reimbursement methodologies employed in such states, asserting that
reimbursement payments are not adequate to reimburse an efficiently operated
facility for the costs of providing Medicaid covered services. The BBA
repealed the Boren Amendment effective October 1, 1997 and allows the states
to develop their own standards for determining Medicaid payment rates. The BBA
provides certain procedural restrictions on the states' ability to amend state
Medicaid programs by requiring that the states use a public process to
establish payment methodologies including a public comment and review process.
The repeal of the Boren Amendment provides states with greater flexibility to
amend individual state programs and potentially reduce state Medicaid payments
to skilled nursing facilities.
The Medicaid programs in the states in which the Company operates pay a per
diem rate for providing services to Medicaid patients based on the facility's
reasonable allowable costs incurred in
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<PAGE>
providing services, subject to cost ceilings applicable to patient care, other
operating and capital costs. Some state Medicaid programs in states in which
the Company currently operates currently include incentive allowances for
providers whose costs are less than certain ceilings and who meet other
requirements.
There are generally two types of Medicaid reimbursement rates: retrospective
and prospective, although many states have adopted plans that have both
retrospective and prospective features. A retrospective rate is determined
after completion of a cost report by the service provider and is designed to
reimburse expenses. Typically, an interim rate, based upon historical cost
factors and inflation is paid by the state during the cost reporting period
and a cost settlement is made following an audit of the filed cost report.
Such adjustments may result in additional payments being made to the Company
or in recoupments from the Company, depending on actual performance and the
limitations within an individual state plan.
The more prevalent type of Medicaid reimbursement rate is the prospective
rate. Under a prospective plan, the state sets its rate of payment for the
period before services are rendered. Actual costs incurred by operators during
a period are used by the state to establish the prospective rate for
subsequent periods. The provider must accept the prospective rate as payment
in full for all services rendered. Although there is usually no settlement
based upon actual costs incurred subsequent to the cost report filing,
subsequent audits may provide a basis for the state program to retroactively
recoup monies.
To date, adjustments from Medicaid audits have not had a material adverse
effect on the Company. Although there can be no assurance that future
adjustments will not have a material adverse effect on the Company, the
Company believes that it has properly applied the various payment formulas and
that it is not likely that audit adjustments would have a material adverse
effect on the Company.
Therapy Services to Non-Affiliates. The Company generates revenues through
its rehabilitation therapy business by providing rehabilitation therapy
services to patients at non-affiliated long-term care facilities. In general,
payments for these services are received directly from the non-affiliated
long-term care facilities, which in turn are reimbursed by the Medicare
program or other payors. The revenues that the Company derives for these
services are typically subject to adjustment in the event the facility is
denied reimbursement by the Medicare program or any other applicable payor on
the basis that the services provided by the Company were not medically
necessary.
MANAGEMENT INFORMATION SYSTEMS
With the exception of the Connecticut Facilities, which were acquired by the
Company in December 1997, all of the Company's facilities are supported by a
centralized, integrated financial reporting system which processes financial
transactions and which enables Company personnel to monitor and respond on a
timely basis to key operating and financial data and budget variances. The
Company expects all newly acquired facilities to utilize the centralized
financial reporting system beginning with, or shortly after, their date of
acquisition. Additionally, the Company utilizes a payroll processing service
company to process payroll for all of its facilities with the exception of the
recently acquired Connecticut facilities. The Company intends to convert the
Connecticut Facilities to the Company's standard financial reporting and
payroll systems during 1998. The Company's financial reporting and payroll
systems are Year 2000 compliant.
The Company's facilities utilize various clinical information and patient
billing software packages, some of which are not Year 2000 compliant. The
Company is in the process of evaluating several clinical information software
products, including one which is being installed in 13 of its facilities, with
the expectation that it will identify a Year 2000 compliant standard clinical
information and patient billing system which will be implemented at each of
the Company's facilities. The Issuer currently estimates that it will complete
the selection of the standard clinical information and patient billing
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<PAGE>
software during 1998 and finalize the conversion of its existing systems to
the new platform during 1999. Although the conversion of the clinical
information and patient billing systems is in some cases driven by the need
for all of its systems to be Year 2000 compliant, the Company believes that
the implementation of the Company-wide standard clinical information and
patient billing system will offer significant advantages by facilitating the
adherence to Company billing standards and by providing a consolidated
database from which it can extract valuable clinical information. There can be
no assurance that the Company will be able to complete this conversion in a
timely manner. See "Risk Factors--Impact of Year 2000 Issue."
GOVERNMENTAL REGULATION
The federal government and all states in which the Company operates regulate
various aspects of the Company's business. In addition to the regulation of
payment rates by governmental payor sources, the development and operation of
long-term care facilities and the provision of long-term care services are
subject to federal, state and local licensure and certification laws which
regulate with respect to a facility, among other matters, the number of beds,
the services provided, the distribution of pharmaceuticals, equipment,
staffing requirements, patients' rights, operating policies and procedures,
fire prevention measures, environmental matters and compliance with building
and safety codes. There can be no assurance that federal, state or local
governmental regulations will not change or be subjected to new
interpretations that impose additional restrictions which might adversely
affect the Company's business.
All of the facilities operated by the Company are licensed under applicable
state laws and possess the required CONs from responsible state authorities.
As previously noted, all but two of the Company's facilities are certified or
approved as providers under the Medicaid and Medicare programs. Both the
initial and continuing qualification of a long-term care facility to
participate in such programs depend upon many factors, including
accommodations, equipment, services, non-discrimination policies against
indigent patients, patient care, quality of life, patients' rights, safety,
personnel, physical environment and adequacy of policies, procedures and
controls. Licensing, certification and other applicable standards vary from
jurisdiction to jurisdiction and are revised periodically. State agencies
survey or inspect all long-term care facilities on a regular basis to
determine whether such facilities are in compliance with the requirements for
participation in government-sponsored third-party payor programs. In some
cases, or upon repeat violations, the reviewing agency has the authority to
take various adverse actions against a facility, including the imposition of
fines, temporary suspension of admission of new patients to the facility,
suspension or decertification from participation in the state Medicaid program
or the Medicare program, offset of amounts due against future billings to the
Medicare or Medicaid programs, denial of payments under the state Medicaid
program for new admissions, reduction of payments, restrictions on the ability
to acquire new facilities and, in extreme circumstances, revocation of a
facility's license or closure of a facility.
The Company believes that its facilities are in substantial compliance with
all statutes, regulations, standards and requirements applicable to its
business, including applicable Medicaid and Medicare regulatory requirements.
However, in the ordinary course of its business, the Company from time to time
receives notices of deficiencies for failure to comply with various regulatory
requirements. In most cases, the Company and the reviewing agency will agree
upon corrective measures to be taken to bring the facility into compliance.
Although the Company has been subject to some fines, statements of deficiency
and other corrective actions have not had a material adverse effect on the
Company. There can be no assurance that future agency inspections and the
actions taken by the reviewing agency based upon such inspections will not
have a material adverse effect on the Company.
Certificates of Need. All but one of the states in which the Company
operates have adopted CON or similar laws that generally require that a state
agency determine that a need exists prior to the construction of new
facilities, the addition or reduction of licensed beds or services, the
implementation of other changes, the incurrence of certain capital
expenditures, and, in certain states,
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<PAGE>
the approval of certain acquisitions and changes in ownership or the closure
of a facility. Indiana's CON program expired as of June 30, 1998. State CON
approval is generally issued for a specific project or number of beds,
specifies a maximum expenditure, is sometimes subject to an inflation
adjustment, and requires implementation of the proposal within a specified
period of time. Failure to obtain the necessary state approval can result in
the inability of the facility to provide the service, operate the facility or
complete the acquisition, addition or other change and can also result in
adverse reimbursement action or the imposition of sanctions or other adverse
action on the facility's license.
Medicare and Medicaid. The BBA was enacted in August 1997 and significantly
amends the reimbursement methodology of the Medicare program. In addition to
offering new Medicare health plan options and increasing the penalties related
to healthcare fraud and abuse, the BBA provides for a prospective payment
system for skilled nursing facilities to be implemented for cost report
periods beginning on or after July 1, 1998. The BBA also mandates a 10%
reduction in Part B therapy costs for the period January 1, 1998 through July
1, 1998. Subsequent to July 1, 1998, skilled nursing facilities will be
reimbursed for Part B therapy services through fee schedules established by
HCFA. The BBA also requires uniform coding specified by HCFA for skilled
nursing facility Part B bills. The BBA further limits reimbursement for Part B
therapy services by establishing annual limitations on Part B therapy charges
per beneficiary.
The BBA also requires skilled nursing facilities to institute "consolidated
billing" for a variety of services and supplies. Under consolidated billing,
the skilled nursing facility must submit all Medicare claims for all the
services and supplies that its residents receive (both Part A and Part B
services), with the exception of mainly physicians' services. Payments for
these services and supplies billed on a consolidated basis will be made
directly to the skilled nursing facility, whether or not the services were
provided directly by the skilled nursing facility or by others under a
contractual arrangement. The skilled nursing facility will be responsible for
paying the provider of the services or the supplier. The payment to the
skilled nursing facility for these services and supplies will be based upon
the amounts allowable to the skilled nursing facility based on the Medicare
PPS law and regulations. However, subsequent developments have delayed the
implementation of "consolidated billing" for Part B services.
Medicare PPS will be phased in over a period of four years, beginning with
skilled nursing facility cost reporting periods ending on or after July 1,
1998. "New facilities," which first received Medicare payment on or after
October 1, 1995, move to the federal per diem rate effective with the cost
report periods beginning on or before July 1, 1998 and do not have a
transitional period. All other facilities will be "phased-in" by a formula
effective with the cost report period beginning on or after July 1, 1998 and
through which Medicare PPS will blend together facility-specific rates and
federal industry per diems according to the following schedule: Year One --
75% facility-specific, 25% federal per diem; Year Two -- 50% each; Year
Three -- 25% facility-specific, 75% federal per diem; Year Four -- 100%
federal per diem. As a result of Medicare PPS being effective for cost reports
beginning on or after July 1, 1998, Medicare PPS will not directly impact the
Company's Medicare reimbursement until the fiscal year beginning January 1,
1999. When fully implemented, Medicare PPS will result in each skilled nursing
facility being reimbursed on a per diem rate basis with acuity-based per diem
rates being established as applicable to all Medicare Part A beneficiaries who
are residents of the skilled nursing facility. The per diem rates will be all-
inclusive rates through which the skilled nursing facility is reimbursed for
its routine, ancillary and capital costs. During the transition period, the
per diem rates for each facility will consist of a blending of facility-
specific costs and federal per diem rates. The unadjusted federal per diem
rates to be applied to days of covered skilled nursing facility services
furnished during the first year, the case mix classification system to be
applied with respect to such services, and the factors to be applied in making
area wage adjustments with respect to such services, are included in the
Medicare PPS regulations. The federal Medicare PPS rates were developed by
HCFA based on a blend of allowable costs from hospital-based and freestanding
skilled nursing facility cost reports for reporting periods beginning in
Federal Fiscal Year 1995 (i.e., October 1, 1994 --
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<PAGE>
September 30, 1995). The data used in developing the federal rates incorporate
an estimate of the amounts payable under Part B for covered skilled nursing
facility services furnished during Federal Fiscal Year 1995 to individuals who
were residents of a facility and receiving Part A covered services. HCFA
updated costs to the first year of Medicare PPS using a skilled nursing
facility market basket index standardized for facility differences in case-mix
and for geographic variations in wages. Providers that received "new provider"
exemptions from the routine cost limits were excluded from the database used
to compute the federal payment rates. In addition, costs related to payments
for exceptions to the routine cost limits are excluded from the database used
to compute the federal payment rates. The facility-specific portion will be
based on each facility's Medicare cost report for cost reporting periods
beginning in Federal Fiscal Year 1995, including routine cost limit exception
and exemption payments up to 150% of the routine cost limit, the allowable
costs to be updated under Medicare PPS for the skilled nursing facility market
basket minus 1% through 1999 and the full skilled nursing facility market
basket after 1999. A variety of other adjustments will be made in developing
the Medicare PPS rates pursuant to the BBA and the regulations. As noted,
except in the case of "new facilities," in the first year of the transition to
Medicare PPS, the per diem rates will consist of a blend of 25% federal per
diem rates and 75% facility-specific costs. Thereafter, the facility-specific
cost portion will decrease by 25% per year until in the fourth year, the rate
will be 100% federal per diem rates. "New facilities" will be on 100% federal
per diem rates for cost reporting periods beginning on or after July 1, 1998.
Details of the Medicare PPS, including the unadjusted federal per diem
rates, were published in the Federal Register on May 12, 1998. As the
regulations were published recently and HCFA Program Memoranda continue to be
issued regarding implementation of PPS, the Company has not been able to fully
assess and quantify the potential impact of the regulations on the Company's
consolidated financial position, results of operations or liquidity. Based on
a preliminary assessment, the Company believes that the new regulations will
result in a reduction of the Company's average Medicare per diem reimbursement
rate, which the Company expects to be able to substantially offset primarily
through reductions in facility operating costs. However, no assurance can be
given that the Company will be able to reduce such costs.
Fee Splitting and Referrals. The Company is also subject to federal and
state laws that govern financial and other arrangements between healthcare
providers. Federal laws, as well as the laws of certain states, prohibit
direct or indirect payments or fee splitting arrangements between healthcare
providers that are designed to induce or encourage the referral of patients
to, or the recommendation of, a particular provider for medical products and
services. These laws include the federal "anti-kickback law" which prohibits,
among other things, the offer, payment, solicitation or receipt of any form of
remuneration in return for the referral of Medicare and Medicaid patients. A
wide array of relationships and arrangements, including ownership interests in
a company by persons in a position to refer patients and personal service
agreements have, under certain circumstances, been alleged to violate these
provisions. Certain discount arrangements may also violate these laws. Because
of the broad reach of these laws, the federal government has published certain
"safe harbors," which set forth the requirements under which certain
relationships will not be considered to violate such laws. A violation of the
federal anti-kickback law could result in the loss of eligibility to
participate in Medicare or Medicaid, or in criminal penalties. Violation of
state anti-kickback laws could lead to loss of licensure, significant fines
and other penalties.
Various federal and state laws regulate the relationship between healthcare
providers and physicians, including employment or service contracts and
investment relationships. These laws include the broadly worded fraud and
abuse provisions of the Medicaid and Medicare statutes, which prohibit various
transactions involving Medicaid or Medicare covered patients or services. In
particular, the Omnibus Budget Reconciliation Act of 1993 ("OBRA 93") contains
provisions which greatly expand the federal prohibition on physician referrals
to entities with which they have a financial relationship. Effective January
1, 1995, OBRA 93 prohibits any physician with a financial relationship
(defined as a direct or indirect ownership or investment interest or
compensation arrangement) with an entity from
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making a referral for "designated health services" to that entity and
prohibits that entity from billing for such services. "Designated health
services" do not include skilled nursing services but do include many services
which long-term care facilities provide to their patients, including physical
therapy, occupational therapy, infusion therapy and enteral and parenteral
nutrition. Various exceptions to the application of this law exist, including
one which protects the payment of fair market compensation for the provision
of personal services, so long as various requirements are met. Violations of
these provisions may result in civil or criminal penalties for individuals or
entities and/or exclusion from participation in the Medicaid and Medicare
programs. Various state laws contain analogous provisions, exceptions and
penalties. The Company believes that in the past it has been, and in the
future it will be, able to arrange its business relationships so as to comply
with these provisions.
Each of the Company's long-term care facilities has at least one medical
director that is a licensed physician. The medical directors may from time to
time refer their patients to the Company's facilities in their independent
professional judgment. The physician anti-referral restrictions and
prohibitions could, among other things, require the Company to modify its
contractual arrangements with its medical directors or prohibit its medical
directors from referring patients to the Company. From time to time, the
Company has sought guidance as to the interpretation of these laws. However,
there can be no assurance that such laws will ultimately be interpreted in a
manner consistent with the practices of the Company.
Potential Healthcare Reform. In addition to extensive existing governmental
healthcare regulation, there are numerous legislative and executive
initiatives at the federal and state levels for comprehensive reforms
affecting the payment for and availability of healthcare services. It is not
clear at this time what proposals, if any, will be adopted or, if adopted,
what effect such proposals would have on the Company's business. Aspects of
certain of these proposals, such as reductions in funding of the Medicare and
Medicaid programs, interim measures to contain healthcare costs such as a
short-term freeze on prices charged by healthcare providers or changes in the
administration of Medicaid at the state level, could materially adversely
affect the Company. Additionally, the BBA repealed the Boren Amendment
effective October 1, 1997 and allows the states to develop their own standards
for determining Medicaid payment rates. The BBA provides certain procedural
restrictions on the states' ability to amend state Medicaid programs by
requiring that the states use a public process to establish payment
methodologies including a public comment and review process. The repeal of the
Boren Amendment provides states with greater flexibility to amend individual
state programs and potentially reduce state Medicaid payments to skilled
nursing facilities. There can be no assurance that currently proposed or
future healthcare legislation or other changes in the administration or
interpretation of governmental healthcare programs will not have an adverse
effect on the Company.
COMPETITION
The long-term care industry is highly competitive. The Company competes with
other providers of long-term care on the basis of the scope and quality of
services offered, the rate of positive medical outcomes, cost-effectiveness
and the reputation and appearance of its long-term care facilities. The
Company also competes in recruiting qualified healthcare personnel, in
acquiring and developing additional facilities and in obtaining CONs. The
Company's current and potential competitors include national, regional and
local long-term care providers, some of whom have substantially greater
financial and other resources and may be more established in their communities
than the Company. The Company also faces competition from assisted living
facility operators as well as providers of home healthcare. In addition,
certain competitors are operated by not-for-profit organizations and similar
businesses which can finance capital expenditures and acquisitions on a tax-
exempt basis or receive charitable contributions unavailable to the Company.
In general, consolidation in the long-term care industry has resulted in the
Company being faced with larger competitors, many of whom have significant
financial and other resources. The Company expects that this continuing
consolidation may increase the competition for the acquisition of long-term
care facilities.
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The Company believes that state regulations which require a CON before a new
long-term care facility can be constructed or additional licensed beds can be
added to existing facilities reduce the possibility of overbuilding and
promote higher utilization of existing facilities. CON legislation is
currently in place in all states in which the Company operates or expects to
operate with the exception of Indiana where the CON program expired as of June
30, 1998. Several of the states in which the Company operates have imposed
moratoriums on the issuance of CONs for new skilled nursing facility beds.
Connecticut has imposed a moratorium on the addition of any new skilled
nursing facility beds, including chronic and convalescent nursing facility
beds and rest home beds with nursing supervision, until the year 2002.
Massachusetts has imposed a moratorium on the addition of any new skilled
nursing facility beds until the year 2000, except that an existing facility
can add up to 12 beds without being subject to CON review. New Hampshire has
imposed a moratorium on the addition of any new beds to skilled nursing
facilities, intermediate care homes and rehabilitation homes until December
31, 1998. Legislation has been introduced in New Hampshire to extend this
moratorium until the year 2001, or in the alternative until the year 2003.
Ohio has imposed a moratorium until June 30, 1999 on the addition of any new
skilled nursing facility beds. Rhode Island has imposed a moratorium on the
issuance of any new initial licenses for skilled nursing facilities and on the
increase in the licensed bed capacity of any existing licensed skilled nursing
facility until July 1, 1999, except that an existing facility may increase its
licensed bed capacity to the greater of 10 beds or 10% of the facility's
licensed bed capacity. The other states in which the Company conducts business
do not currently have a moratorium on new skilled nursing facility beds in
effect. Although New Jersey does not have a "moratorium" on new skilled
nursing facility beds, with the exception of the Add-a-bed program (in which a
facility may request approval from the state licensure agency to increase
total licensed skilled nursing beds, including hospital based subacute care
beds, by no more than 10 beds or 10% of its licensed bed capacity, whichever
is less, without obtaining CON approval), New Jersey only accepts applications
for a CON for additional skilled nursing facility beds when the state CON
agency issues a call for beds. There is presently no call for additional beds,
and no call is expected to be made until the beginning of 1999 at the
earliest. A relaxation of CON requirements could lead to an increase in
competition. In addition, as cost containment measures have reduced occupancy
rates at acute care hospitals, a number of these hospitals have converted
portions of their facilities into subacute units. In the states in which the
Company currently operates, these conversions are subject to state CON
regulations. The Company believes that the application of the new Medicare PPS
rules will make such conversions less desirable. New Jersey recently enacted
legislation permitting acute care hospitals to offer subacute care services
under their existing hospital licenses, subject to first obtaining CON
approval pursuant to an expedited CON review process. Ohio has imposed a
moratorium on the conversion of acute care hospital beds into long-term care
beds through June 30, 1999. See "-- Governmental Regulation."
EMPLOYEES
As of June 30, 1998, the Company employed approximately 9,000 facility-based
personnel on a full and part-time basis. The Company's corporate and regional
staff consisted of approximately 100 persons as of such date. Approximately
450 employees at five of the Company's facilities are covered by collective
bargaining agreements. The Company believes that it maintains good
relationships with its employees and the unions that represent certain of its
employees.
The Company believes that the attraction and retention of dedicated, skilled
and experienced nursing and other professional staff has been and will
continue to be a critical factor in the successful growth of the Company. The
Company believes that its wage rates and benefit packages for nursing and
other professional staff are commensurate with market rates and practices.
The Company competes with other healthcare providers in attracting and
retaining qualified or skilled personnel. The long-term care industry in
general, and the Company in particular, have, at times, experienced shortages
of qualified personnel. In addition, the long-term care industry typically
experiences high turnover of less skilled employees. A shortage of nurses or
other trained personnel
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or general economic inflationary pressures may require the Company to enhance
its wage and benefits package in order to compete with other employers. There
can be no assurance that the Company's labor costs will not increase or, if
they do, that they can be matched by corresponding increases in reimbursement.
Failure by the Company to attract and retain qualified employees, to control
its labor costs or to match increases in its labor expenses with corresponding
increases in revenues could have a material adverse effect on the Company. See
"Risk Factors -- Staffing and Labor Costs."
LEGAL PROCEEDINGS
The Company is a party to claims and legal actions arising in the ordinary
course of business. The Company does not believe that unfavorable outcomes in
any such matters, individually or in the aggregate, would have a material
adverse effect on the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER
The following table sets forth certain information regarding the current
directors and executive officers of the Issuer:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Stephen L. Guillard..... 49 Chairman, President, Chief Executive Officer and Director
Damian N. Dell'Anno..... 39 Executive Vice President of Operations and Director
William H. Stephan...... 42 Senior Vice President and Chief Financial Officer and Director
Bruce J. Beardsley...... 35 Senior Vice President of Acquisitions
Michael E. Gomez,
R.P.T. ................ 36 Senior Vice President of Rehabilitation Services
Steven V. Raso.......... 33 Senior Vice President of Operations
Savio W. Tung........... 47 Director
Christopher J. O'Brien.. 40 Director
Charles J. Philippin.... 48 Director
Christopher J. Stadler.. 34 Director
</TABLE>
Stephen L. Guillard has served as President and Chief Executive Officer of
Harborside since May 1988 and as a Director and Chairman of the Board of
Harborside since March 1996. Mr. Guillard previously served as Chairman,
President and Chief Executive Officer of Diversified Health Services ("DHS"),
a long-term care company which Mr. Guillard co-founded in 1982. DHS operated
approximately 7,500 long-term care and assisted living beds in five states.
Mr. Guillard has a total of 26 years of experience in the long-term care
industry and is a licensed Nursing Home Administrator.
Damian N. Dell'Anno has served as Executive Vice President of Operations of
Harborside since 1994. From 1993 to 1994, he served as the head of the
specialty services group for Harborside and was instrumental in developing
Harborside's rehabilitation therapy business. From 1989 to 1993, Mr. Dell'Anno
was Vice President of Reimbursement for Harborside. From 1988 to 1989, Mr.
Dell'Anno served as Director of Budget, Reimbursement and Cash Management for
Mediplex, an operator of skilled nursing facilities. Mr. Dell'Anno has a total
of 16 years of experience in the long-term care industry.
William H. Stephan has served as Senior Vice President and Chief Financial
Officer of Harborside since 1994. From 1986 to 1994, Mr. Stephan was a Manager
in the health care practice of Coopers & Lybrand L.L.P. In such position, his
clients included operators of long-term care facilities, continuing care
retirement centers, physician practices and acute care hospitals. Mr. Stephan
is a Certified Public Accountant and a member of the Healthcare Financial
Management Association.
Bruce J. Beardsley has served as Senior Vice President of Acquisitions of
Harborside since 1994. From 1992 to 1994, he was Vice President of Planning
and Development of Harborside with responsibility for the development of
specialized services, planning and engineering. From 1990 to 1992, he was an
Assistant Vice President of Harborside responsible for risk management and
administrative services. From 1988 to 1990, Mr. Beardsley served as Special
Projects Manager of Harborside. Prior to joining Harborside in 1988, Mr.
Beardsley was a commercial and residential real estate appraiser.
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<PAGE>
Michael E. Gomez, R.P.T. has served as Senior Vice President of
Rehabilitation Services of Harborside since 1994. From 1993 to 1994, Mr. Gomez
served as Director of Therapy Services of Harborside with responsibility for
overseeing the coordination and direction of physical, occupational and speech
therapy services. From 1991 to 1993, Mr. Gomez was Director of Rehabilitation
Services at Mary Washington Hospital in Fredericksburg, Virginia. From 1988 to
1990, he was Physical Therapy State Manager for Pro-Rehab, a contract therapy
company based in Boone, North Carolina. Mr. Gomez is a licensed physical
therapist.
Steven V. Raso has served as Senior Vice President of Operations since
September 1, 1998. He served as Senior Vice President of Reimbursement for
Harborside from 1997 to 1998, Vice President of Reimbursement from 1994 to
1997 and Director of Reimbursement and Budgets from 1989 to 1994. In these
capacities, Mr. Raso has been responsible for the Medicare and Medicaid
reimbursement cost reporting functions, including audits, appeals, licensing
and rate determinations. Mr. Raso also oversees the budgeting, accounts
receivable and compliance departments within Harborside.
Savio W. Tung has been an executive of Investcorp, its predecessor or one of
its wholly-owned subsidiaries since September 1984. He is a director of Werner
Holding Co. (DE), Inc., CSK Auto Corporation, Simmons Holdings, Inc. and Star
Markets Holdings, Inc.
Christopher J. O'Brien has been an executive of Investcorp, its predecessor
or one or more of its wholly-owned subsidiaries since December 1993. Prior to
joining Investcorp, he was a Managing Director of Mancuso & Company, a private
New York-based merchant bank. He is a director of Falcon Building Products,
Inc., Simmons Holdings, Inc., Star Markets Holdings, Inc., CSK Auto
Corporation and The William Carter Company.
Charles J. Philippin has been an executive of Investcorp, its predecessor or
one or more of its wholly-owned subsidiaries since July 1994. Prior to joining
Investcorp, he was a partner of Coopers & Lybrand L.L.P., an accounting firm.
He is a director of Falcon Building Products, Inc., Werner Holding Co. (DE),
Inc., Saks Incorporated, CSK Auto Corporation, Simmons Holdings, Inc., Star
Markets Holdings, Inc. and The William Carter Company.
Christopher J. Stadler has been an executive of Investcorp, its predecessor
or one or more of its wholly-owned subsidiaries since April 1996. Prior to
joining Investcorp, he was employed by BT Securities Corporation, an
investment banking firm, in various capacities, including Managing Director;
the Davis Companies, a merchant bank, as a Managing Director; and CS First
Boston Corporation, an investment banking firm, as a Director. He is a
director of Falcon Building Products, Inc., Werner Holding Co. (DE), Inc., CSK
Auto Corporation and The William Carter Company.
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<PAGE>
EXECUTIVE COMPENSATION
The following tables set forth information for the year ended December 31,
1997 about the compensation of the chief executive officer and the four
executive officers of the Issuer who received the highest compensation for
such year:
EXECUTIVE COMPENSATION SUMMARY TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------- -------------------------------
AWARDS PAYOUTS
----------------------- -------
OTHER SECURITIES ALL
ANNUAL RESTRICTED UNDERLYING OTHER
NAME AND SALARY BONUS COMPEN- STOCK AWARDS OPTIONS/ LTIP COMPEN-
PRINCIPAL POSITION YEAR ($) ($) (/1/) SATION ($) ($) SARS (#) PAYOUTS SATION($)(/2/)
------------------ ---- ------- --------- ---------- ------------ ---------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stephen L. Guillard,........ 1997 300,300 232,500 -- -- 55,000 -- 16,250
Chairman, President 1996 310,802 548,000 -- -- 80,000 -- 15,927
and Chief Executive Officer 1995 267,800 80,000 -- -- -- -- 4,063
Damian N. Dell'Anno,........ 1997 192,115 117,000 -- -- 27,000 -- 7,578
Executive Vice President 1996 176,371 266,000 -- -- 50,000 -- 5,152
of Operations 1995 159,326 32,000 -- -- -- -- 1,573
Bruce J. Beardsley,......... 1997 151,153 70,000 -- -- 17,000 -- 8,178
Senior Vice 1996 131,905 237,333 -- -- 40,000 -- 7,385
President of Acquisitions 1995 117,192 37,306 -- -- -- -- 3,191
William H. Stephan, ........ 1997 146,154 60,000 -- -- 16,000 -- 7,346
Senior Vice President 1996 127,605 180,250 -- -- 40,000 -- 6,423
and Chief Financial Officer 1995 120,000 24,000 -- -- -- -- 5,954
Steven V. Raso,............. 1997 111,153 35,000 -- -- 18,000 -- 5,923
Senior Vice President 1996 93,187 95,000 -- -- 20,000 -- 5,648
of Operations 1995 77,980 12,000 -- -- -- -- 750
</TABLE>
- --------
(1) 1996 amounts include special bonuses related to the IPO and other payments
paid to Messrs. Guillard, Dell'Anno, Beardsley, Stephan and Raso of
$438,000, $212,000, $185,250, $150,250 and $75,000, respectively.
(2) Includes matching contributions made by Harborside under its Supplemental
Executive Retirement Plan and 401(k) Plan.
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<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------
NUMBER OF PERCENT OF TOTAL GRANT
SECURITIES OPTIONS/SARS DATE
UNDERLYING GRANTED TO EXERCISE OR PRESENT
OPTION/SARS EMPLOYEES IN BASE PRICE EXPIRATION VALUE
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE ($)(/3/)
---- ----------- ---------------- ----------- ----------------- --------
<S> <C> <C> <C> <C> <C>
Stephen L.
Guillard(/1/).......... 55,000 25.8 12.00 February 12, 2007 294,250
Damian N. Dell'Anno(/1/)
....................... 27,000 12.7 12.00 February 12, 2007 144,450
Bruce J. Beards-
ley(/1/)............... 17,000 8.0 12.00 February 12, 2007 90,950
William H. Ste-
phan(/1/).............. 16,000 7.5 12.00 February 12, 2007 85,600
Steven V.
Raso(/1/)(/2/)......... 14,000 6.6 12.00 February 12, 2007 74,900
4,000 1.9 18.69 November 14, 2007 32,840
</TABLE>
- --------
(1) Messrs. Guillard, Dell'Anno, Beardsley, Stephan and Raso received options
to purchase shares of Harborside Common Stock on February 12, 1997. One
third of these options become exercisable on the first, second and third
anniversary of their date of grant. The options terminate (with certain
exceptions) on the tenth anniversary of their date of grant.
(2) Mr. Raso received additional options to purchase shares of Harborside
Common Stock on November 14, 1997. These options become exercisable and
terminate on the same terms as the options granted on February 12, 1997.
(3) The fair value of each stock option is estimated on the date of grant
using the Black-Scholes pricing model with the following weighted-average
assumptions: an expected life of five years, expected volatility of 40%,
no dividend yield and a risk-free interest rate of 6.2%, except that the
assumed risk-free interest rate for Mr. Raso's options granted on November
14, 1997 is 5.8%.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR END FISCAL YEAR END ($)
--------------- -------------------
SHARES
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------ --------------- -------------------
<S> <C> <C> <C> <C>
Stephen L. Guillard..... -- -- 26,667/108,333 213,336/852,914
Damian N. Dell'Anno..... -- -- 16,667/60,333 133,336/475,914
Bruce J. Beardsley...... -- -- 13,333/43,667 154,663/441,087
William H. Stephan...... -- -- 13,333/42,667 154,663/433,337
Steven V. Raso.......... -- -- 6,667/31,333 53,336/219,404
</TABLE>
COMPOSITION OF THE BOARD OF DIRECTORS
The Board of Directors of the Issuer consists of seven members, including
four directors from III. Directors of the Issuer are elected annually by the
stockholders to serve during the ensuing year or until their respective
successors are duly elected and qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
The Issuer has an Audit Committee and a Compensation Committee. The duties
of the Audit Committee include recommending to the Board of Directors the
selection of independent accountants, reviewing the activities and reports of
the Issuer's independent accountants and reviewing the internal accounting
controls of the Issuer. The duties of the Compensation Committee include
establishing salaries, incentives and other forms of compensation for the
Issuer's directors and officers and recommending policies relating to the
Issuer's benefit plans.
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<PAGE>
COMPENSATION OF DIRECTORS
The Issuer does not pay any compensation to its directors for their service
to the Issuer in such capacity.
LIMITATION ON DIRECTORS' LIABILITY
The Issuer has included in its Certificate of Incorporation provisions to
eliminate the rights of the Issuer and its stockholders (through stockholders'
derivative suits on behalf of the Issuer) to recover monetary damages from a
director resulting from breaches of fiduciary duty (including breaches
resulting from grossly negligent behavior). However, this provision does not
eliminate liability for breaches of the duty of loyalty, acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, violations under Section 174 of the Delaware General Corporation Law
(the "DGCL") concerning the unlawful payment of dividends or stock redemptions
or repurchases or for any transaction from which the director derived an
improper personal benefit. These provisions will also not limit the liability
of the Issuer's directors under federal securities laws. The Issuer believes
that these provisions are necessary to attract and retain qualified persons as
directors and officers.
EMPLOYMENT AGREEMENTS
The Issuer has entered into employment agreements with Messrs. Guillard,
Dell'Anno, Stephan, Beardsley and Raso (collectively, the "Employment
Agreements"). Under the terms of the Employment Agreements, Mr. Guillard
serves as President and Chief Executive Officer of the Issuer and receives a
minimum base salary payable at an annual rate of $345,000, Mr. Dell'Anno
serves as Executive Vice President and Chief Operating Officer of the Issuer
and receives a minimum base salary payable at an annual rate of $225,000, Mr.
Stephan serves as Senior Vice President and Chief Financial Officer of the
Issuer and receives a minimum base salary payable at an annual rate of
$190,000, Mr. Beardsley serves as Senior Vice President of Acquisitions of the
Issuer and receives a minimum base salary payable at an annual rate of
$200,000 and Mr. Raso serves as Senior Vice President of Operations of the
Issuer and receives a minimum base salary payable at an annual rate of
$140,000. The salaries of Messrs. Guillard, Dell'Anno, Stephan, Beardsley and
Raso will be increased to $375,000, $240,000, $200,000, $215,000 and $150,000,
respectively, effective April 1, 1999. Under the terms of these Employment
Agreements, the salaries of each officer will be subject to further adjustment
at the discretion of the Compensation Committee of the Board of Directors of
the Issuer.
The Employment Agreements also provide (i) for an annual bonus to be paid to
Messrs. Guillard, Dell'Anno, Stephan, Beardsley and Raso, part of which will
be based upon achievement of specific performance targets and part of which
will be discretionary, in maximum amounts of 120% of base salary in the case
of Mr. Guillard, 96% of base salary in the case of Mr. Dell'Anno and 78% of
base salary in the cases of Messrs. Stephan, Beardsley and Raso, and (ii) that
upon termination of employment prior to an initial public offering, the Issuer
will have certain rights to call from such officers shares of Harborside
Common Stock owned by such officers (including shares underlying then-
exercisable stock options), and such officers will have certain rights to put
such shares to an affiliate of Investcorp (subject to a right of first refusal
in favor of the Issuer).
Each officer has the right to terminate his Employment Agreement on 30 days
notice. The Issuer has the right to terminate an Employment Agreement without
obligation for severance only for Good Cause (as defined in the Employment
Agreements). The Employment Agreements provide for severance benefits to be
paid in the event an officer's employment is terminated if such termination
is, in the case of termination by the Issuer, without Good Cause, or, in the
case of termination by an officer, for Good Reason (as defined in the
Employment Agreements). If the Issuer terminates the employment of an officer
without Good Cause or the officer terminates his employment for Good
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Reason, the officer will be entitled to receive severance benefits which will
include (i) the vesting of the pro rata portion of stock options subject to
vesting in the then current year attributable to the part of the year that the
officer was employed, if the applicable performance targets are met, (ii) the
ability to exercise vested stock options for the period ending on the earlier
of the date that is 180 days from the date his employment is terminated or the
specific expiration date stated in the options, and (iii) in the case of Mr.
Guillard, for the period ending 24 months after termination, and in the cases
of Messrs. Dell'Anno, Stephan, Beardsley and Raso, for the period ending 12
months after termination, payment of the officer's compensation at the rate
most recently in effect; subject to such officer's compliance with
noncompetition and nonsolicitation covenants for such 12 or 24 month period,
as applicable.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective September 15, 1995, Harborside established a Supplemental
Executive Retirement Plan ("SERP") to provide benefits for key employees of
Harborside. Participants may defer up to 25% of their salary and bonus
compensation by making contributions to the SERP. Amounts deferred by the
participant are credited to his or her account and are always fully vested.
Harborside matches 50% of amounts contributed until 10% of base salary has
been contributed. Matching contributions made by Harborside become vested as
of January 1 of the second year following the end of the plan year for which
contributions were credited, provided the employee is still employed with
Harborside on that date. In addition, participants will be fully vested in
such matching contribution amounts in the case of death or permanent
disability or at the discretion of Harborside. Participants are eligible to
receive benefits distributions upon retirement or in certain pre-designated
years. Participants may not receive distributions prior to a pre-designated
year, except in the case of termination, death or disability or demonstrated
financial hardship. Only amounts contributed by the employee may be
distributed because of financial hardship. Although amounts deferred and
Company matching contributions are deposited in a "rabbi trust," they are
subject to risk of loss. If Harborside becomes insolvent, the rights of
participants in the SERP would be those of an unsecured general creditor of
Harborside.
STOCK INCENTIVE PLAN
Immediately following the effective time of the Merger (the "Effective
Time"), the Issuer adopted the Harborside Healthcare Corporation Stock
Incentive Plan (the "Stock Option Plan"). 806,815 shares were initially made
available to be awarded under the Stock Option Plan, representing
approximately 10% of the shares of common stock of Harborside outstanding
immediately after the Effective Time, determined after giving effect to the
exercise of the options issued or issuable under the Stock Option Plan.
Options to purchase approximately 7.7% of such shares (determined on such
basis) were granted to members of the Issuer's management upon consummation of
the Merger. Options for the remaining approximately 2.3% of the shares of
capital stock of the Issuer (determined on such basis) have been reserved for
grant to current or future officers and employees of the Issuer. Messrs.
Guillard, Dell'Anno, Stephan, Beardsley and Raso received seven-year options
to purchase 2.06%, 1.34%, .93%, .93% and .65%, respectively, of the shares of
common stock of the Issuer outstanding immediately after the Effective Time,
determined after giving effect to the exercise of the options issued or
issuable under the Stock Option Plan, at a price of $25.00 per share.
The Stock Option Plan is administered by the Issuer's Board of Directors.
The Board designates which employees of the Issuer are eligible to receive
awards under the Stock Option Plan, and the amount, timing and other terms and
conditions applicable to such awards. Future options will be exercisable in
accordance with the terms established by the Board and will expire on the date
determined by the Board, which will not be later than 30 days after the
seventh anniversary of the grant date. An optionee will have certain rights to
put to the Issuer, and the Issuer will have certain rights to call from the
optionee, vested stock options issued to the optionee under the Stock Option
Plan upon termination of the optionee's employment with the Issuer prior to an
initial public offering.
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PRINCIPAL SHAREHOLDERS
The Issuer is authorized to issue shares of five classes of common stock,
each with a par value of $0.01 (these five classes are sometimes referred to
collectively as the "Harborside Stock"), consisting of Class A Common Stock
("Harborside Class A Common Stock"), Class B Common Stock ("Harborside Class B
Common Stock"), Class C Common Stock ("Harborside Class C Common Stock"),
Class D Common Stock ("Harborside Class D Common Stock") and Common Stock
("Common Stock"). Harborside Class A Common Stock, Harborside Class D Common
Stock and Common Stock are the only classes of the Issuer's common stock that
have the power to vote. Holders of Harborside Class B Common Stock and
Harborside Class C Common Stock do not have any voting rights, except that the
holders of Harborside Class B Common Stock and Harborside Class C Common Stock
have the right to vote as a class to the extent required under the laws of the
State of Delaware.
As of September 1, 1998, there were 661,332 shares of Harborside Class A
Common Stock, 20,000 shares of Harborside Class D Common Stock and no shares
of "Common Stock" outstanding. Holders of shares of Harborside Class A Common
Stock and Common Stock of the Issuer are entitled to one vote per share on all
matters as to which stockholders may be entitled to vote pursuant to the DGCL.
Holders of Harborside Class D Common Stock as of the Effective Time are
entitled to 330 votes per share on all matters as to which stockholders may be
entitled to vote pursuant to the DGCL.
As a result of the consummation of the Merger, the New Investors
beneficially own all of the outstanding Harborside Class D Common Stock,
constituting approximately 91% of the outstanding voting stock of the Issuer,
and pre-Merger stockholders, including certain members of management,
beneficially own all of the outstanding Harborside Class A Common Stock,
constituting approximately 9% of the outstanding voting stock of the Issuer.
In addition, the New Investors own 5,940,000 shares of Harborside Class B
Common Stock and 640,000 shares of Harborside Class C Common Stock. See
"Description of Capital Stock."
105
<PAGE>
The following table sets forth certain information regarding the beneficial
ownership of the voting stock of the Issuer as of September 1, 1998. The table
sets forth, as of that date, (i) each person known by the Issuer to be the
beneficial owner of more than 5% of any class of voting stock of the Issuer,
(ii) each person who was a director of the Issuer or a named executive officer
of the Issuer who beneficially owned shares of voting stock of the Issuer and
(iii) all directors of the Issuer and executive officers of the Issuer as a
group. None of the Issuer's directors or officers own shares of Harborside
Class D Common Stock. Unless otherwise indicated, each of the stockholders
shown in the table below has sole voting and investment power with respect to
the shares beneficially owned.
HARBORSIDE CLASS A COMMON STOCK
(9% OF VOTING POWER)
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES(2) OPTIONS(3) TOTAL CLASS(4)
- --------------------------------------- --------- ---------- ------- ----------
<S> <C> <C> <C> <C>
George Krupp (5)....................... 194,162 -- 194,162 29.4
Douglas Krupp (5)...................... 194,163 -- 194,163 29.4
Stephen L. Guillard.................... 177,688 -- 177,688 26.9
Damian N. Dell'Anno.................... 47,563 10,560 58,123 8.7
Bruce J. Beardsley..................... -- 39,162 39,162 5.6
William H. Stephan..................... 400 38,332 38,732 5.5
Steven V. Raso......................... -- 21,940 21,940 3.2
All directors and executive officers as
a group, including certain of the
persons named above (10 persons)...... 225,561 109,994 335,555 43.5
</TABLE>
HARBORSIDE CLASS D COMMON STOCK
(91% OF VOTING POWER)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES (2) CLASS
- ------------------------------------ ---------- ----------
<S> <C> <C>
INVESTCORP S.A. (6)(7).................................... 20,000 100.0
SIPCO Limited (8)......................................... 20,000 100.0
CIP Limited (9)(10)....................................... 18,400 92.0
Ballet Limited (9)(10).................................... 1,840 9.2
Denary Limited (9)(10).................................... 1,840 9.2
Gleam Limited (9)(10)..................................... 1,840 9.2
Highlands Limited (9)(10)................................. 1,840 9.2
Nobel Limited (9)(10)..................................... 1,840 9.2
Outrigger Limited (9)(10)................................. 1,840 9.2
Quill Limited (9)(10)..................................... 1,840 9.2
Radial Limited (9)(10).................................... 1,840 9.2
Shoreline Limited (9)(10)................................. 1,840 9.2
Zinnia Limited (9)(10).................................... 1,840 9.2
INVESTCORP Investment Equity Limited (7).................. 1,600 8.0
</TABLE>
- --------
(1) The address of each person listed in the table as a holder of Harborside
Class A Common Stock is c/o Harborside Healthcare Corporation, 470
Atlantic Avenue, Boston, Massachusetts 02210.
(2) As used in the table above, a beneficial owner of a security includes any
person who, directly or indirectly, through contract, arrangement,
understanding, relationship, or otherwise has or shares (i) the power to
vote, or direct the voting of, such security or (ii) investment power
which includes the power to dispose, or to direct the disposition of,
such security.
106
<PAGE>
(3) Includes shares of stock that are subject to options exercisable within
60 days of September 1, 1998. The options granted upon consummation of
the Merger pursuant to the Issuer's new Stock Option Plan are not
included in this table because they are not exercisable within 60 days of
September 1, 1998.
(4) Reflects the percentage such shares and options represent of the number
of outstanding shares of such class of the Issuer's common stock after
giving effect to the exercise of options owned by such person or persons.
(5) The shares beneficially owned by George Krupp are owned of record by The
George Krupp 1994 Family Trust ("GKFT"). The shares beneficially owned by
Douglas Krupp are owned of record by The Douglas Krupp 1994 Family Trust
("DKFT"). The trustees of both GKFT and DKFT are Lawrence I. Silverstein,
Paul Krupp and M. Gordon Ehrlich (the "Trustees"). The Trustees share
control over the power to dispose of the assets of GKFT and DKFT and thus
each may be deemed to beneficially own the shares held by GKFT and DKFT;
however, each of the Trustees disclaims beneficial ownership of all of
such shares.
(6) Investcorp does not directly own any stock in the Issuer. The number of
shares shown as owned by Investcorp includes all of the shares owned by
INVESTCORP Investment Equity Limited (see note (7) below). Investcorp
owns no stock in Ballet Limited, Denary Limited, Gleam Limited, Highlands
Limited, Noble Limited, Outrigger Limited, Quill Limited, Radial Limited,
Shoreline Limited, Zinnia Limited, or in the beneficial owners of these
entities (see note (10) below). Investcorp may be deemed to share
beneficial ownership of the shares of voting stock held by these entities
because the entities have entered into revocable management services or
similar agreements with an affiliate of Investcorp, pursuant to which
each such entities has granted such affiliate the authority to direct the
voting and disposition of the Issuer voting stock owned by such entity
for so long as such agreement is in effect. Investcorp is a Luxembourg
corporation with its address at 37 rue Notre-Dame, Luxembourg.
(7) INVESTCORP Investment Equity Limited is a Cayman Islands corporation, and
a wholly-owned subsidiary of Investcorp, with its address at P.O. Box
1111, West Wind Building, George Town, Grand Cayman, Cayman Islands.
(8) SIPCO Limited may be deemed to control Investcorp through its ownership
of a majority of a company's stock that indirectly owns a majority of
Investcorp's shares. SIPCO Limited's address is P.O. Box 1111, West Wind
Building, George Town, Grand Cayman, Cayman Islands.
(9) CIP Limited ("CIP") owns no stock in the Issuer. CIP indirectly owns less
than 0.1% of the stock in each of Ballet Limited, Denary Limited, Gleam
Limited, Highlands Limited, Noble Limited, Outrigger Limited, Quill
Limited, Radial Limited, Shoreline Limited and Zinnia Limited (see note
(10) below). CIP may be deemed to share beneficial ownership of the
shares of voting stock of the Issuer held by such entities because CIP
acts as a director of such entities and the ultimate beneficial
stockholders of each of those entities have granted to CIP revocable
proxies in companies that own those entities' stock. None of the ultimate
beneficial owners of such entities beneficially owns individually more
than 5% of the Issuer's voting stock.
(10) Each of CIP Limited, Ballet Limited, Denary Limited, Gleam Limited,
Highlands Limited, Noble Limited, Outrigger Limited, Quill Limited,
Radial Limited, Shoreline Limited and Zinnia Limited is a Cayman Islands
corporation with its address at P.O. Box 2197, West Wind Building, George
Town, Grand Cayman, Cayman Islands.
107
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At the Effective Time, the Issuer received $165.0 million of common equity
capital provided by the New Investors. An affiliate of Investcorp was paid by
the Issuer a fee of $6.5 million for services rendered outside of the United
States in connection with the raising of the equity capital from the
international investors. In connection with the Merger, the Issuer paid III,
an affiliate of the Issuer and of Investcorp, a loan finance advisory fee of
$4.0 million and Invifin S.A., an affiliate of Investcorp, a fee of $1.5
million for providing a standby commitment to fund the $99.5 million of Old
Notes. In connection with the closing of the Merger, the Issuer entered into
an agreement for management advisory and consulting services for a five-year
term with III, pursuant to which the Issuer prepaid III $6.0 million upon such
closing.
Pursuant to the Merger Agreement, at the Effective Time the Issuer entered
into a master rights agreement for the benefit of The Berkshire Companies
Limited Partnership, a Massachusetts limited partnership that was affiliated
with Harborside prior to the Effective Time ("BCLP"), certain of its
affiliates (BCLP and such affiliates collectively, the "Berkshire
Stockholders") and the New Investors, which agreement provides, among other
things, for the following: (i) the New Investors have demand and "piggyback"
registration rights; (ii) the Berkshire Stockholders have "piggyback"
registration rights entitling them (subject to certain limitations) to
participate pro rata in Company registration statements filed with the
Commission; (iii) unless otherwise agreed by the New Investors holding voting
common stock and the Berkshire Stockholders, if any new equity securities
(subject to certain exceptions) are to be issued by the Issuer prior to an
initial public offering by the Issuer at a price below fair market value, as
determined in good faith by the Board of Directors of the Issuer, the Issuer
will give all holders of the then outstanding common stock (not including
stock options) the right to participate pro rata in such equity financing; and
(iv) the Berkshire Stockholders are entitled to receive periodic information
concerning the Issuer (subject to certain limitations). The terms of the
master rights agreement may be modified or terminated by agreement of the
Issuer, the New Investors and the Berkshire Stockholders.
Pursuant to the Merger Agreement, the Issuer has agreed that for six years
after the Effective Time, it will indemnify all current and former directors,
officers, employees and agents of the Issuer and its subsidiaries and will,
subject to certain limitations, maintain for six years a directors' and
officers' insurance and indemnification policy containing terms and conditions
which are not less advantageous than the policy in effect as of the date of
the Merger Agreement.
Harborside entered into a Non-Compete Agreement, dated as of April 15, 1998,
with each of Douglas Krupp, a director of Harborside prior to the Merger and a
beneficial stockholder of the Issuer, and George Krupp, a beneficial
stockholder of the Issuer, pursuant to which each such individual has agreed
for a one-year period commencing at the Effective Time not to engage in
certain business activities or to own certain equity interests in any person
or entity that engages in such business activities. Pursuant to such
agreements, Harborside paid $250,000 to each of such individuals at the
Effective Time.
In 1995, Mr. Guillard subscribed for equity interests in certain of
Harborside's predecessors. The aggregate subscription price of $438,000, equal
to the fair market value of such equity interests as of December 31, 1995, was
paid by Mr. Guillard in 1996 with the proceeds of a special bonus equal to
such purchase price. To pay taxes due with respect to the purchase of equity
interests and this bonus, Mr. Guillard received a loan from Harborside,
evidenced by a note maturing April 15, 2001, and bearing interest at 7.0% per
annum. In connection with the IPO Reorganization, such equity interests and
Messrs. Guillard's and Dell'Anno's interests in Harborside Healthcare Limited
Partnership were exchanged for an aggregate of 307,724 shares of Harborside
Common Stock. Under his prior employment agreement, Mr. Dell'Anno also
received an additional 18,037 shares of Harborside
108
<PAGE>
Common Stock pursuant to a bonus payment in connection with the IPO (with a
value of $212,000). Mr. Dell'Anno also received a loan from Harborside at an
interest rate of prime plus 1% to pay income tax liabilities that resulted
from such bonus payment.
In connection with the IPO, Harborside entered into a Reorganization
Agreement (the "Reorganization Agreement") with certain individuals, including
but not limited to Messrs. Guillard and Dell'Anno (the "Contributors"),
pursuant to which the Contributors received 4,400,000 shares of Harborside
Common Stock in exchange for their ownership interests in Harborside's
predecessors. The reorganization contemplated by the Reorganization Agreement
was completed immediately prior to completion of the IPO.
Harborside adopted an Executive Long-Term Incentive Plan (the "Executive
Plan") effective July 1, 1995. Eligible participants, consisting of
Harborside's department heads and regional directors, were entitled to receive
payment upon an initial public offering or sale of Harborside above a baseline
valuation of $23,000,000 within two years of the effective date of the plan.
The Executive Plan terminated upon completion of the IPO. The payments to
Messrs. Beardsley, Stephan and Raso totaled $185,250, $150,250 and $75,000,
respectively.
Pursuant to certain Change In Control Agreements dated as of January 15,
1998 between Harborside and each of Messrs. Guillard, Dell'Anno, Stephan,
Beardsley and Raso, which were entered into prior to the execution of the
Merger Agreement, at the Effective Time, each of such officers received a
payment equal to his annual salary, except for Mr. Guillard who received a
payment equal to 1.5 times his annual salary. The amounts of such payments
were as follows: Mr. Guillard, $517,500; Mr. Dell'Anno, $225,000; Mr. Stephan,
$190,000; Mr. Beardsley, $200,000; and Mr. Raso, $140,000. In addition,
pursuant to these agreements, all outstanding loans made by Harborside to such
officers for the purchase of stock were forgiven as of the Effective Time. The
forgiven loans were to Messrs. Guillard and Dell'Anno and had a remaining
balance of $229,350 and $112,520, respectively, as of the Effective Time. The
purpose of the Change In Control Agreements was to induce such officers to
remain in the employ of Harborside and to assure them of fair severance should
their employment terminate in specified circumstances following a change in
control of Harborside. Such officers were entitled to the payments and loan
forgiveness described above because the Merger constituted a "change in
control" under the terms of the Change In Control Agreements. The Change In
Control Agreements also provided for certain payments if the employment with
Harborside of any of such officers is terminated by Harborside for any reason
other than cause within 12 months following a change in control. The Change In
Control Agreements were terminated by mutual agreement of the parties as of
the Effective Time, except that Harborside complied with its obligations under
the provisions described in the first sentence of this paragraph.
109
<PAGE>
THE TRANSACTIONS
OVERVIEW
On April 15, 1998, Harborside entered into the Merger Agreement with
MergerCo, an entity organized for the sole purpose of effecting the Merger on
behalf of Investcorp and the New Investors. On August 11, 1998, pursuant to
the Merger Agreement, MergerCo was merged with and into Harborside, with
Harborside as the surviving corporation. As a result of the Merger:
. The New Investors became the owners of approximately 91% of the post-
Merger common stock of Harborside.
. Certain Harborside stockholders, including certain members of senior
management, retained shares representing approximately 9% of the post-
Merger common stock of Harborside.
. Each other share of Harborside common stock was converted into $25.00 in
cash, representing an aggregate of approximately $183.9 million in cash
payments to Harborside stockholders.
. In general, holders of outstanding Harborside stock options had the
right to retain their options or to have their options converted into
cash at $25.00 per underlying share less the applicable option exercise
price and withholding taxes. Certain members of Harborside senior
management retained a portion of their stock options, representing
options to purchase 109,994 shares in the aggregate. All other options
were converted into cash, resulting in an aggregate of approximately
$7.9 million in cash payments to holders of outstanding Harborside stock
options.
THE MERGER
On August 11, 1998, pursuant to the terms of the Merger Agreement, each
outstanding share of Harborside's common stock, par value $.01 per share (the
"Harborside Common Stock"), was converted, at the election of the holder
thereof, into either (a) the right to receive $25.00 in cash or (b) the right
to retain one share (a "Non-cash Election Share") of Harborside Common Stock
which, upon consummation of the Merger, was denominated as Harborside Class A
Common Stock and has rights, powers, privileges and restrictions which differ
in some respects from those of the pre-Merger Harborside Common Stock, except
that (i) as described in greater detail below, all stockholders who elected to
retain Harborside Common Stock experienced proration of such shares, resulting
in their retaining only a portion of the shares of Harborside Common Stock
they elected to retain and receiving $25.00 per share in cash for each of
their other shares of Harborside Common Stock, (ii) 177,688, 47,563 and 400
shares of Harborside Common Stock held by Messrs. Stephen L. Guillard, Damian
Dell'Anno and William H. Stephan (collectively, the "Senior Management
Stockholders"), respectively, were not subject to the election described above
and instead were converted into the right to retain the same number of shares
of Harborside Common Stock (the "Management Rollover Shares") which, upon
consummation of the Merger, was denominated as Harborside Class A Common
Stock, (iii) each other share of Harborside Common Stock held by the Senior
Management Stockholders, constituting an aggregate of 106,663 shares of
Harborside Common Stock, and each share of Harborside Common Stock held by
certain other specified officers of Harborside, constituting an aggregate of
3,846 shares of Harborside Common Stock, was not subject to the election
described above and instead was converted into the right to receive $25.00 in
cash (which was equal to $2.1 million for Mr. Guillard, $.5 million for Mr.
Dell'Anno, $.1 million for Mr. Stephan and $.1 million for such other
specified officers in the aggregate), and (iv) shares of Harborside Common
Stock held by Harborside, its subsidiaries, MergerCo or any of its affiliates
were canceled and retired. No holders of shares of Harborside Common Stock
perfected appraisal rights in accordance with Delaware law in connection with
the Merger.
110
<PAGE>
In addition, pursuant to the terms of the Merger Agreement, as of the
Effective Time, the shares of MergerCo's Class B Stock, Class C Stock and
Class D Stock issued and outstanding immediately prior to the Effective Time,
all of which were owned by the New Investors, were converted into an equal
number of shares of Harborside Class B Common Stock, Harborside Class C Common
Stock and Harborside Class D Common Stock, respectively.
Pursuant to the terms of the Merger Agreement, the number of shares of
Harborside Common Stock (other than Management Rollover Shares) retained by
pre-Merger stockholders of Harborside was required to be 435,681 (the "Non-
cash Election Number"), which represented 6% of the total number of shares of
all classes of the Issuer's common stock issued and outstanding immediately
after giving effect to the Merger. Because the Berkshire Stockholders
committed prior to the Merger to elect to retain a number of shares of
Harborside Common Stock equal to the Non-cash Election Number, all other
stockholders who did not elect to retain Harborside Common Stock received
$25.00 in cash for each share held by such stockholders, and all stockholders
who elected to retain Harborside Common Stock experienced proration of such
shares, resulting in their retaining only a portion of the shares of
Harborside Common Stock they elected to retain and receiving $25.00 per share
in cash for each of their other shares of Harborside Common Stock. The shares
of Harborside Common Stock retained by pre-Merger Harborside stockholders
(including the Management Rollover Shares) constituted approximately 9% of the
outstanding common stock and approximately 9% of the voting power of the
Issuer immediately following the Merger. The shares of Harborside Stock owned
by the New Investors immediately following the Merger constituted the
remaining approximately 91% of the outstanding common stock and approximately
91% of the voting power of the Issuer immediately following the Merger.
In addition, pursuant to the Merger Agreement, each option to purchase
shares of Harborside Common Stock (each such option, a "Company Stock Option"
and, collectively, the "Company Stock Options") issued and outstanding
immediately prior to the Effective Time (whether or not then vested or
exercisable) was converted, at the election of the holder thereof and subject
to the terms and conditions described in the Merger Agreement, into (i) the
right to retain a fully vested and immediately exercisable option for all or
any portion (the "Elected Portion") of the number of shares of Harborside
Common Stock subject to such Company Stock Option immediately prior to the
Effective Time at an exercise price per share equal to the exercise price of
such Company Stock Option immediately prior to the Effective Time and/or (ii)
the right to receive an amount in cash equal to (a) the excess, if any, of
$25.00 over the per share exercise price of such Company Stock Option,
multiplied by (b) the number of shares of Harborside Common Stock which were
subject to such Company Stock Option immediately prior to the Effective Time
but which were not part of the Elected Portion thereof (if any), reduced by
(c) any applicable withholding taxes. The cash amounts that Messrs. Guillard,
Dell'Anno, Beardsley, Stephan and Raso elected to receive in respect of their
Company Stock Options, after retaining certain numbers of Company Stock
Options upon which the grant to them of new options under the Stock Option
Plan was contingent, were $1.9 million, $.9 million, $.4 million, $.4 million
and $.3 million, respectively.
RECAPITALIZATION FINANCINGS
Prior to the Effective Time, MergerCo received common equity contributions
of $165.0 million from the New Investors at a price of $25.00 per share, and
issued $99.5 million in gross proceeds of Old Notes and $40.0 million in gross
proceeds of Old Preferred Stock. At the Effective Time, the Issuer succeeded
to the obligations of MergerCo with respect to the Old Notes, the Old
Preferred Stock was converted from shares of Preferred Stock of MergerCo into
an equal number of shares of Preferred Stock of the Issuer, and the Issuer
entered into the $250.0 million New Credit Facility. These financing
arrangements are in addition to Harborside's capital lease obligations and
mortgage loans which existed prior to the Merger. See "Management's Discussion
and Analysis of Financial Condition and
111
<PAGE>
Results of Operations--Liquidity and Capital Resources." The proceeds of the
offering of Old Notes and Old Preferred Stock and of the new common stock
issuances were used to finance the conversion into cash, in the Merger, of
approximately 91% of the Harborside Common Stock outstanding prior to the
Merger, to refinance certain existing indebtedness of Harborside and to pay
the fees and expenses associated with the Recapitalization. Funds available
under the New Credit Facility, together with cash flow from operations, are
being used to finance working capital, meet debt service and capital
expenditure requirements and for general corporate purposes. It is anticipated
that these funds will also be used to finance acquisitions and lease real
estate. In connection with the Merger, Harborside received an opinion of a
reputable expert firm confirming the solvency of Harborside (after giving
effect to the Recapitalization).
112
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Issuer is authorized to issue 500,000 shares of preferred stock with a
par value of $.01 per share (the "Preferred Stock") and 19,000,000 shares
comprised of five classes of common stock, each with a par value of $.01 per
share (these five classes of common stock are sometimes referred to
collectively as the "Harborside Stock"). The Harborside Stock consists of
Harborside Class A Common Stock, Harborside Class B Common Stock, Harborside
Class C Common Stock, Harborside Class D Common Stock and Common Stock.
The shares of Old Preferred Stock issued in the Old Securities Offering are
the only shares of Preferred Stock that are outstanding. The Board of
Directors of the Issuer is authorized, without further action by the
stockholders, but subject to the limitations set forth in the Certificate of
Designation, to provide for the issue of additional shares of Preferred Stock,
in one or more series, and to fix for each such series such voting powers,
full or limited, and such designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof as shall be stated and expressed in the
resolution or resolutions adopted by the Board of Directors of the Issuer
providing for the issue of such series and as may be permitted by the DGCL.
The numbers of authorized and outstanding shares for each of the five
classes of Harborside Stock are as follows:
<TABLE>
<CAPTION>
AUTHORIZED OUTSTANDING
TITLE SHARES SHARES
----- ---------- -----------
<S> <C> <C>
Harborside Class A Common Stock.......................... 1,200,000 661,332
Harborside Class B Common Stock.......................... 6,700,000 5,940,000
Harborside Class C Common Stock.......................... 1,580,000 640,000
Harborside Class D Common Stock.......................... 20,000 20,000
Common Stock............................................. 9,500,000 --
---------- ---------
Total.................................................. 19,000,000 7,261,332
========== =========
</TABLE>
Holders of shares of Harborside Class A Common Stock and Common Stock are
entitled to one vote per share on all matters as to which stockholders may be
entitled to vote pursuant to the DGCL. Holders of shares of Harborside Class D
Common Stock are entitled to 330 votes per share on all matters as to which
stockholders may be entitled to vote pursuant to the DGCL. This number of
votes per share results in holders of Harborside Class D Common Stock being
entitled in the aggregate to a number of votes equal to the total number of
outstanding shares of Harborside Class B Common Stock, Harborside Class C
Common Stock and Harborside Class D Common Stock. Holders of Harborside Class
B Common Stock or Harborside Class C Common Stock do not have any voting
rights, except that the holders of the Harborside Class B Common Stock and
Harborside Class C Common Stock have the right to vote as a class to the
extent required under the laws of the State of Delaware.
Upon the occurrence at any future date of a sale of 100% of the outstanding
equity securities or substantially all of the assets of the Issuer, a merger
as a result of which the ownership of the Harborside Stock is changed to the
extent of 100% or a public offering of any equity securities of the Issuer,
each share of Harborside Class A Common Stock, Harborside Class B Common
Stock, Harborside Class C Common Stock and Harborside Class D Common Stock
will convert into one share of Common Stock of the Issuer.
113
<PAGE>
DESCRIPTION OF THE NEW CREDIT FACILITY
GENERAL
As part of the Recapitalization, immediately following the Effective Time,
the Issuer and certain of its subsidiaries, including all of the Guarantors
and certain of the Subsidiary Non-Guarantors (collectively the "Borrowers"),
entered into the New Credit Facility. The New Credit Facility is in an
aggregate principal amount of $250.0 million, available as follows: (i)
approximately $75.0 million available for the term of the facility on a
revolving basis; and (ii) approximately $175.0 million available initially on
a revolving basis, but under which loans outstanding on each anniversary of
the closing are converted to term loans. In addition, during the first four
years of the New Credit Facility, any or all of the full $250.0 million of
availability under the New Credit Facility may be used for synthetic lease
financings ("Synthetic Lease Financings"). The following is a summary
description of the principal terms of the New Credit Facility and is qualified
in its entirety by reference to the definitive agreements.
The obligations of the Borrowers under the New Credit Facility are joint and
several. Indebtedness under the New Credit Facility is collateralized by first
or second priority security interests in all of the capital stock of certain
of the Issuer's subsidiaries and a substantial portion of the personal and
real property of the Issuer and certain of its subsidiaries, in each case with
certain exceptions. One exception is that subsidiaries of the Issuer were not
required to grant such security interests if they were prohibited from doing
so by other financial arrangements. Such subsidiaries, together with any
subsidiaries that are not Borrowers, are restricted in certain respects,
including restrictions on the amount of intercompany loans to and investments
in such subsidiaries.
USE OF PROCEEDS
Provided that the Issuer and its subsidiaries meet certain financial tests
and comply with certain collateral requirements, proceeds of loans under the
New Credit Facility (the "Loans") may be used for acquisitions, for working
capital purposes, for capital expenditures and for general corporate purposes.
SYNTHETIC LEASE FINANCINGS
The New Credit Facility permits certain real property subject to a Synthetic
Lease Financing (including property acquired and constructed within four years
of the Closing Date, each a "Property") to be owned by HHC 1998-1 Trust, a
Delaware business trust (the "Lessor") established for the benefit of BTD
Harborside Inc., Morgan Stanley Senior Funding, Inc. and CSL Leasing, Inc.
(the "Investors"). Currently, there are no Properties subject to Synthetic
Lease Financing.
Pursuant to a master lease (the "Lease"), the Lessor will lease the
Properties to Harborside of Dayton Limited Partnership, a subsidiary of the
Issuer (the "Lessee"). The Lease is a triple net lease, and rent includes
basic rent payments sufficient to pay interest on the Loans outstanding to the
Lessor under the Synthetic Lease Financing (the "Synthetic Lease Loans") plus
an investor yield. The Lease terminates on the sixth anniversary of the
Closing Date (the "Maturity Date"). On the Maturity Date, the Lessee must pay,
as supplemental rent, for any Property consisting of improvements, an amount
equal to the maximum amount under SFAS No. 13 which permits the Lessee to
account for the Lease as an operating lease and, for any Property consisting
of land, 97% of the Property Cost (as defined below) for such Property (such
aggregate payment, the "Maximum Residual Guarantee Amount"). Prior to the
Maturity Date and provided no default exists, the Lessee will be able to
purchase any Property for the amount of Synthetic Lease Loans and other
amounts due under the operative agreements allocable to such Property (such
amount, the "Termination Value"). By written notice 12 months prior to the
Maturity Date, the Lessee will have the option (and, if the Termination Value
of all Properties at such time is less than 75% of the highest Termination
Value of all Properties at any prior time, will have the obligation) to
purchase all (but not less than all) of the Properties on the Maturity
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Date. If the Lessee does not exercise the option to purchase the Properties,
it will be required to use its best efforts to market the Properties and to
consummate a sale of all Properties on or prior to the Maturity Date.
The Lessor is able to incur Synthetic Lease Loans consisting of loans from
the lenders under the New Credit Facility, in the amount of 95.25% of the
Property Cost. The remaining 4.75% of Property Costs are funded by
contributions from the Investors ("Investor Contributions"). Proceeds of the
Synthetic Lease Loans (other than Investor Contributions) are to be used to
finance a maximum of 95.25% of the Property Cost of each Property. These
Synthetic Lease Loans (excluding the Investor Contribution) will consist of
Tranche A Loans equal to the Maximum Residual Guarantee Amount (not to be less
than 87.66% of the aggregate Synthetic Lease Loan amount), with the remaining
loan amount consisting of Tranche B Loans. At the time the Synthetic Lease
Loans are incurred, the Investors are required to advance the Investor
Contribution equal to 4.75% of the Property Cost. Property Cost means the
costs and expenses (including ordinary and reasonable "hard" and "soft" costs)
incurred to acquire a Property and construct improvements on it. The Issuer
and certain of its subsidiaries guarantee all amounts owed by the Lessor with
respect to Tranche A Loans. If a default exists, this guaranty will also apply
to the amount of Tranche B Loans and Investor Contributions.
CONVERSION OF REVOLVING LOANS
The New Credit Facility consists of commitments of up to an aggregate of
$250.0 million, any of which may be used for Synthetic Lease Financings. On
each anniversary of the closing date of the New Credit Facility, all
outstanding Loans (other than those that have already been converted as
described in this paragraph on a previous anniversary) in excess of $75.0
million will be converted into term loans. This conversion to term loans will
be made first to any Synthetic Lease Loans, and then to any Loans otherwise
made under the New Credit Facility. All Loans so converted will mature on the
sixth anniversary of the closing date of the New Credit Facility.
INTEREST RATES
Interest accrues quarterly on the Loans with reference to the base rate (the
"Base Rate") plus the applicable interest margin. The Issuer may elect that
all or a portion of the Loans other than swing line loans (loans available on
same day notice) bear interest at the eurodollar rate (the "Eurodollar Rate")
plus the applicable interest margin. The Base Rate is defined as the higher of
(i) the federal funds rate, as published by the Federal Reserve Bank of New
York, plus .5%, (ii) the secondary market rate for three-month certificates of
deposit of money center banks, and (iii) the prime commercial lending rate of
The Chase Manhattan Bank ("Chase"). The Eurodollar Rate is defined as the rate
at which eurodollar deposits for one, two, three or six months or (if and when
available to all of the relevant lenders) nine or 12 months are offered to
Chase in the interbank eurodollar market. The applicable interest margin for
Base Rate Loans is initially 1.25% per quarter, and the applicable interest
margin for Eurodollar Loans is initially 2.25% per quarter. Overdue principal,
interest, fees and other amounts owing under the New Credit Facility bear
interest at a rate 2% over the rate otherwise applicable thereto. The interest
margins for the Loans will be subject to reduction from and after the date on
which financial statements are delivered in respect of the first four full
fiscal quarters after the Closing Date based on the leverage ratio of the
Issuer and its Consolidated Subsidiaries, provided that no default or event of
default exists.
MANDATORY AND OPTIONAL PREPAYMENT
Loans outstanding under the New Credit Facility are required to be prepaid,
subject to certain conditions and exceptions, with (i) 100% of the net
proceeds of any incurrence of indebtedness, subject to certain exceptions, by
the Issuer or its subsidiaries, (ii) 100% of the net proceeds of certain asset
dispositions, subject to certain re-investment rights, (iii) 50% of the net
proceeds from certain
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equity issuances by the Issuer and its subsidiaries, subject to certain
exceptions and redemption rights, and (iv) commencing with the year ending
December 31, 1999, 50% of the excess cash flow (as such term is defined in the
New Credit Facility) of the Issuer and its subsidiaries on a consolidated
basis. The foregoing mandatory prepayments will be applied to the permanent
reduction of the commitments and outstanding amounts under the New Credit
Facility and/or, at the Issuer's option, to cash collateralize obligations
relating to Synthetic Lease Financings and/or repurchase Properties.
The New Credit Facility provides that the Issuer may optionally prepay Loans
in whole or in part without penalty, subject to minimum prepayments and
reimbursement of the lenders' breakage and redeployment costs in the case of
prepayment of Eurodollar Rate Loans.
FEES
The Issuer is required to pay the lenders, on a quarterly basis, a
commitment fee of .5% per annum on the average daily unused portion of the New
Credit Facility, payable quarterly in arrears. This commitment fee is subject
to reduction from and after the date on which financial statements are
delivered in respect of the first four fiscal quarters after the Closing Date
based on the leverage ratio of the Issuer and its Consolidated Subsidiaries,
provided that no default or event of default exists. The Issuer is also
required to pay a letter of credit fee in a percentage per annum equal to the
interest margin for Eurodollar Loans on the daily average amount available to
be drawn under each standby letter of credit and on the maximum face amount of
each commercial letter of credit.
COVENANTS
The New Credit Facility contains certain covenants and other requirements of
the Issuer and its subsidiaries. The affirmative covenants provide for, among
other things, mandatory reporting by the Issuer of financial and other
information to the agent and notice by the Issuer to the agent upon the
occurrence of certain events. The affirmative covenants also include standard
covenants requiring the Issuer to operate its business in an orderly manner
and consistent with past practice.
The New Credit Facility also contains certain negative covenants and
restrictions on actions by the Issuer including, without limitation,
restrictions on indebtedness, liens, guarantee obligations, mergers, asset
dispositions not in the ordinary course of business, investments, loans,
advances and acquisitions, dividends and other restricted junior payments,
transactions with affiliates, change in business conducted and prepayment and
amendments of subordinated indebtedness. The New Credit Facility requires the
Issuer to meet certain financial covenants including cash interest and
facility rent coverage ratios and maximum leverage ratios.
EVENTS OF DEFAULT
The New Credit Facility specifies certain customary events of default
including, without limitation, non-payment of principal, interest or fees,
violation of covenants, inaccuracy of representations and warranties in any
material respect, cross default to certain other indebtedness and agreements,
bankruptcy and insolvency events, material judgments and liabilities, ERISA
violations and change of control transactions.
The description of the New Credit Facility set forth above does not purport
to be complete and is qualified in its entirety by reference to the complete
text of the documents entered into in connection therewith.
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DESCRIPTION OF THE NEW NOTES
GENERAL
The New Notes will be issued pursuant to the Indenture dated as of July 31,
1998 by and between the Issuer (as successor to MergerCo) and United States
Trust Company of New York, as trustee (the "Trustee"), as amended and
supplemented by the First Supplemental Indenture dated as of August 11, 1998
by and among the Issuer, the Guarantors and the Trustee (the "Indenture"). The
Old Notes were issued pursuant to the same Indenture (prior to execution of
the First Supplemental Indenture). The terms of the New Notes include those
stated in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
New Notes are subject to all such terms, and Holders of New Notes are referred
to the Indenture and the Trust Indenture Act for a statement thereof. The
following summary of the material provisions of the Indenture does not purport
to be complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below. Copies of the
Indenture and of the Registration Rights Agreement that relates to the Notes
are available as set forth below under "--Additional Information." The
definitions of certain terms used in the following summary are set forth below
under "--Certain Definitions." All references in this Description of the New
Notes to the "Issuer" are limited to Harborside Healthcare Corporation and do
not include any of the Issuer's Subsidiaries.
The Indenture provides for the issuance of additional Notes having identical
terms and conditions to the New Notes offered hereby (the "Additional Notes"),
subject to compliance with the covenants contained in the Indenture. Any
Additional Notes will be part of the same issue as the New Notes offered
hereby and will vote on all matters with the New Notes offered hereby. For
purposes of this "Description of the New Notes," reference to the Notes
(including the New Notes) does not include Additional Notes.
All of the Issuer's Subsidiaries are Restricted Subsidiaries. However, under
certain circumstances, the Issuer will be able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not
be subject to the restrictive covenants set forth in the Indenture.
PRINCIPAL AND MATURITY OF AND INTEREST ON THE NEW NOTES
The New Notes will be general unsecured senior subordinated obligations of
the Issuer and will mature on August 1, 2008. The Old Notes were offered at a
substantial discount from their principal amount at maturity and the Accreted
Value of the Old Notes accretes from the Issue Date. See "Risk Factors--
Original Issue Discount Consequences" and "U.S. Federal Income Tax
Consequences." No interest will accrue on the New Notes until August 1, 2003
(the "Full Accretion Date"), but the Accreted Value will accrete (representing
the amortization of original issue discount), between the date of original
issuance and such date, on a semi-annual bond equivalent basis using a 360-day
year comprised of twelve 30-day months such that the Accreted Value shall be
equal to the full principal amount of the New Notes on the Full Accretion
Date. The initial Accreted Value per $1,000 principal amount of Old Notes was
$585.25 (representing the original purchase price for the Old Notes) and on
the date of issuance of the New Notes, the Accreted Value of the New Notes
will equal the Accreted Value of the Old Notes on such date. Beginning on
August 1, 2003, interest on the New Notes will accrue at the rate of 11% per
annum and will be payable in cash semi-annually, in arrears, on February 1 and
August 1, commencing on February 1, 2004, to holders of record on the
immediately preceding January 15 and July 15. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. Principal, premium,
if any, and interest on the New Notes will be payable at the office or agency
of the Issuer maintained for such purpose within the City and State of New
York or, at the option of the Issuer, payment of interest may be made by check
mailed to the Holders of the New Notes at their respective addresses set forth
in the register of Holders of Notes; provided that all payments of principal,
premium, if any, and interest with respect to any New Notes, the Holders of
which have given wire transfer instructions to the Issuer, will be required to
be made by wire transfer
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of immediately available funds to the accounts specified by the Holders
thereof. Until otherwise designated by the Issuer, the Issuer's office or
agency in New York will be the office of the Trustee maintained for such
purpose. The New Notes will be issued in denominations of $1,000 of principal
amount and integral multiples thereof.
SUBORDINATION
The Debt evidenced by the New Notes will be unsecured, will be subordinated
in right of payment, as set forth in the Indenture, to all existing and future
Senior Debt of the Issuer, will rank pari passu in right of payment with all
existing and future Pari Passu Debt of the Issuer and will be senior in right
of payment to all existing and future Subordinated Debt of the Issuer. The New
Notes will also be effectively subordinated to any Secured Debt of the Issuer
to the extent of the value of the assets securing such Debt. However, payment
from the money or the proceeds of Government Notes held in any defeasance
trust described under "--Legal Defeasance and Covenant Defeasance" below is
not subordinated to any Senior Debt or subject to the restrictions described
herein, so long as the payments into the defeasance trust were not prohibited
pursuant to the subordination provisions hereinafter described at the time
when so paid.
The indebtedness evidenced by a Note Guarantee will be unsecured, will be
subordinate in right of payment, as set forth in the Indenture, to all
existing and future Senior Debt of the applicable Guarantor, will rank pari
passu in right of payment with all existing and future Pari Passu Debt of such
Guarantor and will be senior in right of payment to all existing and future
Subordinated Debt of such Guarantor. Each Note Guarantee will also be
effectively subordinated to any Secured Debt of the applicable Guarantor to
the extent of the value of the assets securing such Debt.
At June 30, 1998, after giving pro forma effect to the Recapitalization (i)
the outstanding Senior Debt of the Issuer and the Guarantors would have been
$61.5 million, all of which would have been Secured Debt, (ii) the Issuer and
the Guarantors would have had no Pari Passu Debt or Subordinated Debt
outstanding, (iii) the total liabilities of the Subsidiaries of the Issuer
that are not Guarantors (collectively, the "Subsidiary Non-Guarantors")
(including trade payables and deferred taxes but excluding amounts owed to the
Issuer or any Guarantor) would have been $29.5 million and (iv) the Issuer and
its Subsidiaries would have had $177.4 million of consolidated Debt.
The Issuer conducts substantially all of its operations through its
Subsidiaries and consequently derives substantially all of its income through
its Subsidiaries. Claims of creditors of the Subsidiary Non-Guarantors,
including trade creditors, generally will have priority with respect to the
assets and earnings of such Subsidiary Non-Guarantors over the claims of
creditors of the Issuer, including the holders of the New Notes. The New
Notes, therefore, will be effectively subordinated to creditors (including
trade creditors) of the Subsidiary Non-Guarantors.
Upon any payment or distribution to creditors of the Issuer in a liquidation
or dissolution of the Issuer or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Issuer or its property, an
assignment for the benefit of creditors or any marshaling of the Issuer's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full, in cash or Cash Equivalents, of all Obligations due in
respect of such Senior Debt (including interest after the commencement of any
such proceeding at the rate specified in the applicable Senior Debt, whether
or not allowed or allowable in such proceeding) before the Holders of New
Notes will be entitled to receive any payment with respect to the New Notes,
and until all Obligations with respect to Senior Debt are paid in full, in
cash or Cash Equivalents, any payment or distribution to which the Holders of
New Notes would be entitled shall be made to the holders of Senior Debt
(except that Holders of New Notes may receive and retain (i) Permitted Junior
Securities and (ii) payments made from the trust described under "--Legal
Defeasance and Covenant Defeasance" so long as, on the date or dates the
respective amounts were paid into the trust, such payments were made with
respect to the New Notes without violating the subordination provisions
described herein). The term "payment" means,
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with respect to the New Notes, any payment, whether in cash or other assets or
property, of interest, principal (including redemption price and purchase
price), premium or any other amount on, of or in respect of the New Notes, any
other acquisition of New Notes and any deposit into the trust described under
"--Legal Defeasance and Covenant Defeasance" below. The verb "pay" has a
correlative meaning.
The Issuer also may not make any payment or distribution upon or in respect
of the New Notes (except from the trust described under "--Legal Defeasance
and Covenant Defeasance") if (i) a default in the payment of any Obligations
with respect to Designated Senior Debt occurs and is continuing (a "payment
default"), or any other default on Designated Senior Debt occurs and the
maturity of such Designated Senior Debt is accelerated in accordance with its
terms, or (ii) a default, other than a payment default, occurs and is
continuing with respect to Designated Senior Debt that permits holders of the
Designated Senior Debt as to which such default relates to accelerate its
maturity (a "non-payment default"), and, in the case of this clause (ii) only,
the Trustee receives a notice of such default (a "Payment Blockage Notice")
from the Issuer, a Representative for, or the holders of a majority of the
outstanding principal amount of, any issue of Designated Senior Debt. Payments
on the New Notes may and shall be resumed (a) in the case of a payment
default, upon the date on which such default is cured or waived and, in the
case of Designated Senior Debt that has been accelerated, such acceleration
has been rescinded, and (b) in the case of a non-payment default, the earlier
of the date on which such non-payment default is cured or waived or 179 days
after the date on which the applicable Payment Blockage Notice is received,
unless the maturity of any Designated Senior Debt has been accelerated. No new
period of payment blockage may be commenced on account of any non-payment
default unless and until 360 days have elapsed since the initial effectiveness
of the immediately prior Payment Blockage Notice. No non-payment default that
existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee, shall be, or be made, the basis for a subsequent
Payment Blockage Notice unless such default shall have been cured or waived
for a period of not less than 90 days. Notwithstanding any other provision
hereof, during any 365 day period, there must be at least 180 days where there
is no Payment Blockage Notice in effect.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of New Notes may recover less ratably
than other creditors of the Issuer including holders of Senior Debt and trade
creditors. The Indenture limits, subject to certain financial tests and
exceptions, the amount of additional Debt, including Senior Debt, that the
Issuer and its Subsidiaries can incur. See "--Certain Covenants--Incurrence of
Debt and Issuance of Preferred Stock."
The Note Guarantees are subordinated on a similar basis. See "--Note
Guarantees."
NOTE GUARANTEES
The Issuer's payment obligations under each of the New Notes will be jointly
and severally guaranteed by the Guarantors. See Note G to Condensed
Consolidated Financial Statements for the six months ended June 30, 1998 for
certain financial information relating to the Guarantors. The Note Guarantee
of each Guarantor will be subordinated to the prior payment in full of all
Senior Debt of such Guarantor on substantially the same terms as the New Notes
are subordinated to Senior Debt of the Issuer. Each Note Guarantee will be
limited to an amount not to exceed the maximum amount that can be Guaranteed
by that Subsidiary without rendering the Note Guarantee, as it relates to such
Subsidiary, voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors
generally. In addition, the Indenture provides that the Note Guarantee by HRI
will be limited to an amount not to exceed, together with any Debt outstanding
under the New Credit Facility, 80% of the aggregate purchase price paid by HRI
(which purchase price was approximately $17 million) for the Harborside
Healthcare-Pawtuxet Village Nursing and Rehabilitation Center and the
Harborside Healthcare-Greenwood Nursing and Rehabilitation Center.
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The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person) another Person
(other than the Issuer or another Guarantor) unless (i) subject to the
provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor), assumes all the
obligations of such Guarantor under the Notes and the Indenture pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee; and (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists. Notwithstanding the foregoing clause (ii),
(a) any Restricted Subsidiary may consolidate with, merge into or transfer all
or part of its properties and assets to any Guarantor and (b) any Guarantor
may merge with an Affiliate incorporated solely for the purpose of
reincorporating such Guarantor in another jurisdiction.
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the Capital Stock of any
Guarantor then held by the Issuer and its Restricted Subsidiaries, then such
Guarantor will be released and relieved of any obligations under its Note
Guarantee; provided that the Net Proceeds of such sale or other disposition
are applied in accordance with the applicable provisions of the Indenture, to
the extent required thereby. See "--Asset Sales." In addition, the Indenture
provides that any Guarantor that is designated as an Unrestricted Subsidiary
in accordance with the provisions of the Indenture will be released from its
Note Guarantee upon effectiveness of such designation.
OPTIONAL REDEMPTION
Except as described in the following paragraphs, the New Notes will not be
redeemable at the Issuer's option prior to August 1, 2003. Thereafter, the New
Notes will be subject to redemption at any time at the option of the Issuer,
in whole or in part, upon not less than 30 nor more than 60 days' notice, at
the redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest thereon, if any, to the applicable
redemption date (subject to the right of Holders on the relevant record date
to receive interest due on the relevant interest payment date), if redeemed
during the twelve-month period beginning on August 1 of the years indicated
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003............................................. 105.500%
2004............................................. 103.667
2005............................................. 101.833
2006 and thereafter.............................. 100.000
</TABLE>
In addition, at any time and from time to time, prior to August 1, 2001, the
Issuer may redeem up to 35% of the sum of (i) the aggregate principal amount
at maturity of Notes and (ii) the aggregate principal amount at maturity of
any Additional Notes at a redemption price of 111% of the Accreted Value
thereof (determined at the redemption date) to the redemption date, with the
net cash proceeds received by the Issuer of a public offering of common stock
of the Issuer, provided that at least 65% of the sum of (i) the aggregate
principal amount at maturity of Notes and (ii) the aggregate principal amount
at maturity of any Additional Notes remains outstanding immediately after the
occurrence of such redemption; and provided, further, that such redemption
shall occur within 60 days of the date of the closing of such public offering.
At any time on or prior to August 1, 2003, the New Notes may be redeemed as
a whole but not in part at the option of the Issuer upon the occurrence of a
Change of Control, upon not less than 30 nor more than 60 days' prior notice
(but in no event may any such redemption occur more than 90 days after the
occurrence of such Change of Control) mailed by first-class mail to each
Holder's registered address, at a redemption price equal to 100% of the
Accreted Value thereof (determined at the
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redemption date) plus the Applicable Premium to the redemption date (subject
to the right of Holders on the relevant record date to receive interest due on
the relevant interest payment date).
"Applicable Premium" means, with respect to a New Note at any redemption
date prior to August 1, 2003, the greater of (i) 1.0% of the Accreted Value of
such New Note or (ii) the excess of (A) the present value at such time of the
redemption price of such New Note at August 1, 2003 (such redemption price
being set forth in the table above), computed using a discount rate equal to
the Treasury Rate plus 50 basis points, over (B) the Accreted Value of such
New Note on the redemption date.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H. 15(519)
which has become publicly available at least two Business Days prior to the
redemption date (or, if such Statistical Release is no longer published, any
publicly available source or similar market data)) most nearly equal to the
period from the redemption date to August 1, 2003, provided, however, that if
the period from the redemption date to August 1, 2003 is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such
yields are given, except that if the period from the redemption date to August
1, 2003 is less than one year, the weekly average yield on actually traded
United States Treasury securities adjusted to a constant maturity of one year
shall be used.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis
(among the Notes and any Additional Notes as one class), by lot or by such
method as the Trustee shall deem fair and appropriate; provided that no Notes
in a principal amount at maturity of $1,000 or less shall be redeemed in part.
Notices of redemption shall be mailed by first class mail at least 30 days,
but not more than 60 days before the redemption date to each Holder of Notes
to be redeemed at its registered address. Notices of redemption may not be
conditional. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in a principal amount at maturity
equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Note. Notes called for
redemption will become due on the date fixed for redemption. On and after the
redemption date, interest will cease to accrue on Notes or portions of them
called for redemption (or, if such redemption date is prior to the Full
Accretion Date, Accreted Value of the Notes will cease to accrete).
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, unless all Notes have been
called for redemption pursuant to the provisions described above under the
caption "--Optional Redemption," each Holder of Notes will have the right to
require the Issuer to repurchase all or any part (equal to a principal amount
at maturity of $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to an offer described more fully in the Indenture (the "Change of
Control Offer") at an offer price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest thereon to the date
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of purchase (or, if such Change of Control Offer occurs prior to the Full
Accretion Date, 101% of the Accreted Value thereof on the date of repurchase).
The Indenture provides that, prior to complying with the provisions of this
covenant, but in any event within 90 days following a Change of Control, the
Issuer will either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of Notes required by this covenant, unless notice of
redemption of all Notes has then been given pursuant to the provisions
described under the caption "--Optional Redemption" above, and such redemption
is permitted by the terms of outstanding Senior Debt. The Issuer will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the date that payment is made pursuant to the Change of
Control Offer (the "Change of Control Payment Date").
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Issuer
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction. The Change of Control purchase feature is a result of
negotiations between the Issuer and the Placement Agents. Management has no
present intention to engage in a transaction involving a Change of Control,
although it is possible that the Issuer would decide to do so in the future.
Subject to the limitations discussed below, the Issuer could, in the future,
enter into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of Debt outstanding at such time
or otherwise affect the Issuer's capital structure or credit ratings.
The New Credit Facility prohibits the Issuer from purchasing any Notes, and
also provides that certain change of control events with respect to the Issuer
will constitute a default thereunder. Any future credit agreements or other
agreements relating to Senior Debt to which the Issuer becomes a party or that
may be entered into by Subsidiaries of the Issuer may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when the Issuer is prohibited from purchasing Notes, the Issuer could seek the
consent of its lenders to the purchase of Notes or could attempt to refinance
the borrowings that contain such prohibition. If the Issuer does not obtain
such a consent or repay such borrowings, the Issuer will remain prohibited
from purchasing Notes. In such case, the Issuer's failure to purchase tendered
Notes would constitute an Event of Default under the Indenture which would, in
turn, constitute a default under the New Credit Facility or any such future
credit or other agreement. In such circumstances, the subordination provisions
in the Indenture would restrict payments to the Holders of Notes.
The Issuer will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes and consummates a Change of Control
Offer.
"Change of Control" means the occurrence of any of the following events:
(i) prior to the first public offering of Voting Stock of the Issuer, the
Initial Control Group ceases to be the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than
50% of the total voting power of the Voting Stock of the Issuer, whether as a
result of the issuance of securities of the Issuer, any merger, consolidation,
liquidation or dissolution of the Issuer, any direct or indirect transfer of
securities by the Initial Control Group or otherwise (for purposes of this
clause (i), the Initial Control Group shall be deemed to beneficially own all
Voting Stock of an entity (the "specified entity") held by any other entity
(the "parent entity") so long as the Initial Control Group beneficially owns
(as so defined),
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directly or indirectly, in the aggregate a majority of the voting power of
the Voting Stock of the parent entity);
(ii) following the first public offering of Voting Stock of the Issuer
(A) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more members of the Initial Control Group,
is or becomes the beneficial owner (as defined in clause (i) above),
directly or indirectly, of more than 40% of the total voting power of the
Voting Stock of the Issuer and (B) the Initial Control Group "beneficially
owns" (as defined in clause (i) above), directly or indirectly, in the
aggregate a lesser percentage of the total voting power of the Voting Stock
of the Issuer, than such other person and does not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of the Issuer (for purposes
of this clause (ii), such other person shall be deemed to beneficially own
all Voting Stock of a specified entity held by a parent entity, if such
other person "beneficially owns" (as defined in clause (i) above), directly
or indirectly, in the aggregate more than 40% of the voting power of the
Voting Stock of such parent entity and the Initial Control Group
"beneficially owns" (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the voting power of the
Voting Stock of such parent entity and does not have the right or ability
by voting power, contract or otherwise to elect or designate for election a
majority of the board of directors of such parent entity); or
(iii) at any time after the first public offering of common stock of the
Issuer, any person other than the Initial Control Group (or their
designated board members), (A)(I) nominates one or more individuals for
election to the Board of Directors of the Issuer and (II) solicits proxies,
authorizations or consents in connection therewith and (B) such number of
nominees elected to serve on the Board of Directors in such election and
all previous elections after the Closing Date represents a majority of the
Board of Directors of the Issuer following such election.
"Initial Control Group" means Investcorp, its Affiliates, any Person acting
in the capacity of an underwriter or initial purchaser in connection with a
public or private offering of the Issuer's Capital Stock, any employee benefit
plan of the Issuer or any of its Subsidiaries or any participant therein, a
trustee or other fiduciary holding securities under any such employee benefit
plan or any Permitted Transferee of any of the foregoing Persons.
"Permitted Transferee" means, with respect to any Person, (i) any other
Person, directly or indirectly, controlling or controlled by or under direct
or indirect common control with such specified Person, (ii) the spouse, former
spouse, lineal descendants, heirs, executors, administrators, testamentary
trustees, legatees or beneficiaries of any such Person, (iii) a trust, the
beneficiaries of which, or a corporation or partnership or limited liability
company, the stockholders, general or limited partners or members of which,
include only such Person or his or her spouse, lineal descendants or heirs, in
each case to whom such Person has transferred, or through which it holds, the
beneficial ownership of any securities of the Issuer and (iv) any investment
fund or investment entity that is a subsidiary of such Person or a Permitted
Transferee of such Person.
ASSET SALES
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Issuer
(or the Restricted Subsidiary, as the case may be) receives consideration at
the time of such Asset Sale at least equal to the fair market value of the
assets or Equity Interests issued or sold or otherwise disposed of and (ii) at
least 75% of the consideration therefor received by the Issuer or such
Restricted Subsidiary is in the form of cash or Cash Equivalents; provided
that the amount of (x) any liabilities (as shown on the Issuer's or such
Restricted Subsidiary's most recent balance sheet), of the Issuer or any
Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Notes or, in the case of liabilities of a
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Guarantor, the Note Guarantee of such Guarantor) that are assumed by the
transferee of any such assets, or from which the Issuer and its Restricted
Subsidiaries are released in writing by the creditor with respect thereto, and
(y) any securities, notes or other obligations received by the Issuer or any
such Restricted Subsidiary from such transferee that are converted by the
Issuer or such Restricted Subsidiary into cash (to the extent of the cash
received) within 180 days after receipt shall be deemed, in each case, to be
cash for purposes of this provision; provided, further, however, that this
clause (ii) shall not apply to any sale of Equity Interests of or other
Investments in Unrestricted Subsidiaries.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Issuer may apply such Net Proceeds, at its option, (a) to repay Senior
Debt, Debt of any Restricted Subsidiary or Pari Passu Debt (other than Debt
owed to the Issuer or a Subsidiary of the Issuer, and provided that if the
Issuer shall so reduce Pari Passu Debt, it will equally and ratably make an
Asset Sale Offer (in accordance with the procedures set forth below for an
Asset Sale Offer) to all Holders), (b) to invest in properties and assets that
will be used or useful in the business of the Issuer or any of its
Subsidiaries, or (c) to the acquisition of a controlling interest in another
business, the making of a capital expenditure or the acquisition of other
assets, in each case, that will be used or useful in the business of the
Issuer or any of its Restricted Subsidiaries; provided that if during such 360
day period the Issuer or a Restricted Subsidiary enters into a definitive
agreement committing it to apply such Net Proceeds in accordance with the
requirements of clause (b) or (c), such 360 day period will be extended for a
period not to exceed 180 days with respect to the amount of Net Proceeds so
committed until required to be paid in accordance with such agreement (or, if
earlier, until termination of such agreement). Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of
this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10 million, the Indenture
provides that the Issuer will (i) make an offer to all Holders of Notes, and
(ii) prepay, purchase or redeem (or make an offer to do so) any other Pari
Passu Debt of the Issuer in accordance with provisions requiring the Issuer to
prepay, purchase or redeem such Debt with the proceeds from any Asset Sales
(or offer to do so), pro rata in proportion to the respective principal
amounts (or accreted value, as applicable) of the Notes and such other Debt
required to be prepaid, purchased or redeemed or tendered for, in the case of
the Notes pursuant to such offer (an "Asset Sale Offer"), to purchase the
maximum principal amount of Notes that may be purchased out of such pro rata
portion of the Excess Proceeds, at an offer price in cash in an amount equal
to 100% of their principal amount plus accrued and unpaid interest (or, if
prior to the Full Accretion Date, 100% of the Accreted Value thereof on the
date of purchase, subject to the right of Holders of record on a record date
to receive interest on the relevant interest payment date, in accordance with
the procedures set forth in the Indenture). To the extent that the aggregate
principal amount (or, if prior to the Full Accretion Date, the aggregate
Accreted Value) of Notes and Pari Passu Debt tendered pursuant to an Asset
Sale Offer or other offer is less than the Excess Proceeds, the Issuer may use
any remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount (or Accreted Value, as the case may be) of Notes surrendered
by Holders thereof exceeds the pro rata portion of such Excess Proceeds to be
used to purchase Notes, the Trustee shall select the Notes to be purchased on
a pro rata basis. Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset at zero.
The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the
repurchase of the Notes pursuant to an Asset Sale Offer. To the extent that
the provisions of any applicable securities laws or regulations conflict with
the provisions of the Indenture, the Issuer will comply with such securities
laws and regulations and shall not be deemed to have breached its obligations
described in the Indenture by virtue thereof.
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CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any other distribution (including
any payment in connection with any merger or consolidation) on account of
the Issuer's or any of its Restricted Subsidiaries' Equity Interests (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) and dividends payable to the Issuer or any Restricted
Subsidiary);
(ii) purchase, redeem or otherwise acquire or retire for value (including
in connection with any merger or consolidation) any Equity Interests of the
Issuer (or any Restricted Subsidiary held by Persons other than the Issuer
or any Restricted Subsidiary);
(iii) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value, any Subordinated Debt of
the Issuer, except (A) a payment of interest, principal or other related
Obligations at Stated Maturity and (B) the purchase, repurchase or other
acquisition or retirement of Subordinated Debt of the Issuer in
anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of
purchase, repurchase or other acquisition or retirement; or
(iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv)
above being collectively referred to as "Restricted Payments"), unless, at
the time of, and after giving effect to, such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Issuer would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Debt pursuant to the
Consolidated Coverage Ratio test set forth in the first paragraph of the
covenant described below under the caption "--Incurrence of Debt and
Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with (without duplication) the
aggregate amount of all other Restricted Payments made by the Issuer and
its Restricted Subsidiaries after the Issue Date (excluding Restricted
Payments permitted by clauses (ii), (iii)(A), (iv), (v), (vi)(A) and
(vii) of the next succeeding paragraph, but including all other
Restricted Payments permitted by the next succeeding paragraph), is less
than the sum (without duplication) of
(i) 50% of the Consolidated Net Income of the Issuer for the period
(taken as one accounting period) from the beginning of the fiscal
quarter during which the Issue Date occurs to the end of the Issuer's
most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Issuer
from the issue or sale (other than to a Subsidiary) of, or from capital
contributions with respect to, Equity Interests of the Issuer (other
than Disqualified Stock), in either case after the Issue Date, plus
(iii) the aggregate principal amount (or accreted value, if less) of
Debt or Disqualified Stock of the Issuer or any Restricted Subsidiary
issued since the Issue Date (other than to a Restricted Subsidiary)
that has been converted into Equity Interests (other than Disqualified
Stock) of the Issuer, plus
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(iv) 100% of the aggregate net cash received by the Issuer or a
Restricted Subsidiary of the Issuer since the Issue Date from (A)
Restricted Investments, whether through interest payments, principal
payments, dividends or other distributions or payments, or the sale or
other disposition (other than to the Issuer or a Restricted Subsidiary)
thereof made by the Issuer and its Restricted Subsidiaries and (B) a
cash dividend from, or the sale (other than to the Issuer or a
Restricted Subsidiary) of the stock of, an Unrestricted Subsidiary,
plus
(v) upon the redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the fair market value of the Investments of the
Issuer and its Restricted Subsidiaries (other than such Subsidiary) in
such Subsidiary.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would have
complied with the provisions of the Indenture;
(ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Equity Interests or Subordinated Debt in exchange for,
or out of the net cash proceeds of the substantially concurrent sale (other
than to a Restricted Subsidiary of the Issuer) of, other Equity Interests
(other than any Disqualified Stock) of, or a capital contribution to, the
Issuer; provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or
other acquisition shall be excluded from clause (c) (ii) of the preceding
paragraph;
(iii) the redemption, repurchase, retirement, defeasance or other
acquisition of (A) Subordinated Debt made by an exchange for, or with the
net cash proceeds from an incurrence of, Permitted Refinancing Debt or (B)
Subordinated Debt (including Exchange Debentures) or Preferred Equity
Interests (other than Subordinated Debt or Preferred Equity Interests held
by Affiliates of the Issuer) upon a Change of Control or Asset Sale to the
extent required by the agreement governing such Subordinated Debt or the
certificate of designation governing such Preferred Equity Interests, as
the case may be, but only (x) if the Issuer shall have complied with the
covenant described under the caption "--Repurchase at the Option of
Holders--Change of Control" or "--Asset Sales", as the case may be, and
repurchased all Notes tendered pursuant to the offer required by such
covenants prior to purchasing or repaying such Subordinated Debt or
Preferred Equity Interests, as the case may be, (y) in the case of an Asset
Sale, to the extent of the remaining Excess Proceeds offered to Holders
pursuant to the Asset Sale Offer and (z) within six months after the date
such offer is consummated;
(iv) the payment of any dividend by a Restricted Subsidiary of the Issuer
to the holders of its common Equity Interests on a pro rata basis;
(v) to the extent constituting Restricted Payments, the Specified
Affiliate Payments;
(vi) (A) the payment of any regular quarterly dividends in respect of the
Exchangeable Preferred Stock in the form of additional shares of
Exchangeable Preferred Stock having the terms and conditions set forth in
the Certificate of Designation for the Exchangeable Preferred Stock as in
effect on the Issue Date; and (B) commencing November 1, 2003, the payment
of regular quarterly cash dividends (in the amount no greater than that
provided for in the Certificate of Designation for the Exchangeable
Preferred Stock as in effect on the Issue Date), out of funds legally
available therefor, on any of the shares of Exchangeable Preferred Stock
issued on the Issue Date or subsequently issued in payment of dividends in
respect of such shares of Exchangeable Preferred Stock issued on the Issue
Date, provided that, at the time of and immediately after giving effect to
the payment of such cash dividend, no Default or Event of Default shall
have occurred and be continuing;
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(vii) the exchange of Exchangeable Preferred Stock for Exchange
Debentures in accordance with the terms of the Certificate of Designation
for such Exchangeable Preferred Stock as in effect on the Issue Date,
provided that such exchange is permitted by the "Incurrence of Debt and
Issuance of Preferred Stock" covenant; and
(viii) Restricted Payments in an aggregate amount not to exceed $10.0
million.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Issuer and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated, to the extent they do not constitute
Permitted Investments at the time such Subsidiary became an Unrestricted
Subsidiary, will be deemed to be Restricted Payments made at the time of such
designation. The amount of such outstanding Investments will be equal to the
portion of the fair market value of the net assets of any Subsidiary of the
Issuer at the time that such Subsidiary is designated an Unrestricted
Subsidiary that is represented by the interest of the Issuer and its
Restricted Subsidiaries in such Subsidiary, in each case as determined in good
faith by the Board of Directors of the Issuer. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if
such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Issuer or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined
in good faith by the Board of Directors of the Issuer.
In making the computations required by this covenant, (i) the Issuer or the
relevant Restricted Subsidiary may use audited financial statements for the
portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other current financial data based on the books and records of the Issuer for
the remaining portion of such period and (ii) the Issuer or the relevant
Restricted Subsidiary will be permitted to rely in good faith on the financial
statements and other financial data derived from the books and records of the
Issuer and the Restricted Subsidiary that are available on the date of
determination. If the Issuer makes a Restricted Payment that, at the time of
the making of such Restricted Payment, would in the good faith determination
of the Issuer or any Restricted Subsidiary be permitted under the requirements
of the Indenture, such Restricted Payment will be deemed to have been made in
compliance with the Indenture notwithstanding any subsequent adjustments made
in good faith to the Issuer's or any Restricted Subsidiary's financial
statements affecting Consolidated Net Income of the Issuer for any period.
For the avoidance of doubt, it is expressly agreed that no payment or other
transaction permitted by clauses (3), (4) and (5), of the covenant described
under "--Transactions with Affiliates" shall be considered a Restricted
Payment for purposes of, or otherwise restricted by, the Indenture.
Incurrence of Debt and Issuance of Preferred Stock
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any Debt
and that the Issuer and Guarantors will not issue any Disqualified Stock and
will not permit any of its Restricted Subsidiaries that are not Guarantors to
issue any shares of Preferred Stock; provided, however, that the Issuer and
its Restricted Subsidiaries may incur Debt or issue shares of Disqualified
Stock, if the Consolidated Coverage Ratio for the Issuer's most recently ended
four full fiscal quarters
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for which internal financial statements are available immediately preceding
the date on which such additional Debt is incurred or such Disqualified Stock
is issued would have been at least 1.75 to 1.00 if such four-quarter period
ends on or prior to the second anniversary of the Issue Date and 2.00 to 1.00
if it ends thereafter, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Debt had been
incurred, or the Disqualified Stock had been issued, as the case may be, at
the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Debt (collectively, "Permitted
Debt"):
(i) the incurrence of term and revolving Debt, letters of credit (with
letters of credit being deemed to have a principal amount equal to the
undrawn face amount thereof) and other Debt under Credit Facilities
(including Guarantees by the Issuer or any of its Subsidiaries of synthetic
lease drawings and other loans under the New Credit Facility or of other
Debt under Credit Facilities); provided that the aggregate principal amount
of such Debt outstanding pursuant to this clause (i) does not exceed an
amount equal to $250.0 million;
(ii) the incurrence by the Issuer and its Restricted Subsidiaries of
Existing Debt;
(iii) the incurrence by the Issuer of Debt represented by the Notes and
by the Guarantors of Debt represented by the Note Guarantees;
(iv) the incurrence by the Issuer or any of its Restricted Subsidiaries
of Acquired Debt;
(v) the incurrence by the Issuer or any of its Restricted Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to refund, refinance or replace Debt (other than intercompany
Debt) that was permitted by the Indenture to be incurred;
(vi) the incurrence by the Issuer or any of its Restricted Subsidiaries
of intercompany Debt or Preferred Stock owed or issued to and held by the
Issuer and any of its Restricted Subsidiaries, provided, however, that (X)
any such Debt of the Issuer shall be subordinated and junior in right of
payment to the Notes and (Y)(A) any subsequent issuance or transfer of
Equity Interests or other action that results in any such Debt or Preferred
Stock being held by a Person other than the Issuer or a Restricted
Subsidiary and (B) any sale or other transfer of any such Debt or Preferred
Stock to a Person that is not either the Issuer or a Restricted Subsidiary
shall be deemed, in each case, to constitute an incurrence of such Debt or
issuance of such Preferred Stock by the Issuer or such Restricted
Subsidiary, as the case may be, that was not permitted by this clause (vi);
(vii) the incurrence by the Issuer or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred (A) principally for the purpose of
fixing or hedging interest rate risk with respect to any floating rate Debt
that is permitted by the terms of the Indenture to be outstanding or (B)
principally for the purpose of fixing or hedging currency exchange rate
risk or commodity price risk incurred in the ordinary course of business;
(viii) the guarantee by the Issuer or any Guarantor of Debt of the Issuer
or a Restricted Subsidiary of the Issuer that was permitted to be incurred
by another provision of this covenant;
(ix) Debt of the Issuer in respect of Exchange Debentures issued as
payment in kind interest on Exchange Debentures issued upon the exchange of
Exchangeable Preferred Stock, to the extent such interest payments are made
pursuant to the terms of the Exchange Debenture Indenture; provided the
issuance of the Exchange Debentures upon such exchange was permitted by
this covenant at the time of such exchange; and
(x) the incurrence by the Issuer or any of its Restricted Subsidiaries of
additional Debt (which may comprise Debt under the New Credit Facility) in
an aggregate principal amount (or accreted
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value, as applicable) at any time outstanding pursuant to this clause (x)
not to exceed an amount equal to $20.0 million.
For purposes of determining compliance with this covenant, in the event that
an item of Debt meets the criteria of more than one of the categories of
Permitted Debt described in clauses (i) through (x) above or is entitled to be
incurred pursuant to the first paragraph of this covenant, the Issuer shall,
in its sole discretion, classify such item of Debt in any manner that complies
with this covenant and such item of Debt will be treated as having been
incurred pursuant to only one of such clauses or pursuant to the first
paragraph hereof; provided that all outstanding Debt under the New Credit
Facility immediately following the Recapitalization shall be deemed to have
been incurred pursuant to clause (i) of the definition of Permitted Debt.
Accrual of interest and the accretion of accreted value will be deemed not to
be an incurrence of Debt for purposes of this covenant.
Liens
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, create, incur, assume or otherwise cause or
suffer to exist or become effective any Lien of any kind securing Debt or
trade payables (other than Permitted Liens) upon any of their property or
assets, now owned or hereafter acquired, unless all payments due under the
Indenture and the Notes are secured on an equal and ratable basis with the
obligations so secured until such time as such obligations are no longer
secured by a Lien; provided that (i) if such other Debt constitutes
Subordinated Debt or is otherwise subordinate or junior in right of payment to
the Obligations under the Indenture, the Notes or any Note Guarantee, as the
case may be, such Lien is expressly made prior and senior in priority to the
Lien securing such other Debt, or (ii) in any other case, such Lien ranks
equally and ratably with or prior to, the Lien securing the other Debt or
obligations so secured.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary to (i)(a) pay
dividends or make any other distributions to the Issuer or any of its
Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits, or (b) pay
any indebtedness owed to the Issuer or any of its Restricted Subsidiaries,
(ii) make loans or advances to the Issuer or any of its Restricted
Subsidiaries or (iii) transfer any of its properties or assets to the Issuer
or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of:
(a) Existing Debt,
(b) the Indenture, the Notes, the Additional Notes, the Exchangeable
Preferred Stock and any Additional Exchangeable Preferred Stock, the
Exchange Debentures or the Exchange Debenture Indenture and any other
agreement entered into after the Issue Date, provided that the encumbrances
or restrictions in such agreements are not materially more restrictive than
those contained in the foregoing agreements,
(c) any agreement or other instrument of a Person acquired by the Issuer
or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (but not created in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired,
(d) purchase money obligations (including Capital Lease Obligations) for
property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property
so acquired,
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(e) in the case of clause (iii), any encumbrance or restriction (1) that
restricts in a customary manner the subletting, assignment, or transfer of
any property or asset that is subject to a lease, license or similar
contract, (2) by virtue of any transfer of, agreement to transfer, option
or right with respect to, or Lien on, any property or assets of the Issuer
or any Restricted Subsidiary not otherwise prohibited by the Indenture or
(3) contained in security agreements or mortgages securing Debt to the
extent such encumbrance or restriction restricts the transfer of the
property subject to such security agreements or mortgages,
(f) contracts for the sale of assets, including any restriction with
respect to a Restricted Subsidiary imposed pursuant to an agreement entered
into for the sale or disposition of all or substantially all of the Capital
Stock or assets of such Restricted Subsidiary pending the closing of such
sale or disposition,
(g) contractual encumbrances or restrictions in effect on the Closing
Date, including pursuant to the New Credit Facility and its related
documentation,
(h) restrictions on cash or other deposits or net worth imposed by
leases, credit agreements or other agreements entered into in the ordinary
course of business,
(i) customary provisions in joint venture agreements and other similar
agreements,
(j) any encumbrances or restrictions created with respect to (i) Debt of
Guarantors permitted to be incurred subsequent to the Issue Date pursuant
to the provisions of the covenant described under the caption "--Incurrence
of Debt and Issuance of Preferred Stock" and (ii) Debt of Subsidiary Non-
Guarantors permitted to be incurred subsequent to the Issue Date pursuant
to the provisions of the covenant described under the caption "--Incurrence
of Debt and Issuance of Preferred Stock" or operating leases, provided that
in the case of this clause (ii) the Board of Directors of the Issuer
determines (as evidenced by a resolution of the Board of Directors) in good
faith at the time such encumbrances or restrictions are created that such
encumbrances or restrictions would not reasonably be expected to impair the
ability of the Issuer to make payments of interest and scheduled payments
of principal on the Notes, in each case as and when due; and
(k) any encumbrances or restrictions of the type referred to in clauses
(i), (ii) and (iii) imposed by any amendments, modifications, restatements,
renewals, increases, supplements, refundings,
replacements or refinancings of the contracts, instruments or obligations
referred to in clauses (a) through (j), provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings, taken as a whole, are, in the good faith
judgment of the Issuer, not materially more restrictive with respect to
such encumbrances or restrictions than those contained in the contracts,
instruments or obligations prior to such amendment, modification,
restatement, renewal, increase, supplement, refunding, replacement or
refinancing.
Merger, Consolidation or Sale of all or Substantially all Assets
The Indenture provides that the Issuer may not consolidate or merge with or
into (whether or not the Issuer is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to
another Person unless:
(i) the Issuer is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Issuer) or to
which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia;
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(ii) the Person formed by or surviving any such consolidation or merger
(if other than the Issuer) or the Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made
assumes all the obligations of the Issuer under the Notes and the Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory to
the Trustee;
(iii) immediately after such transaction no Default or Event of Default
exists; and
(iv) except in the case of a merger of the Issuer with or into a Wholly
Owned Restricted Subsidiary of the Issuer, the Issuer or the Person formed
by or surviving any such consolidation or merger (if other than the
Issuer), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made will, at the time of such
transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter
period, either (x) be permitted to incur at least $1.00 of additional Debt
pursuant to the Consolidated Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "--Incurrence
of Debt and Issuance of Preferred Stock" or (y) have a Consolidated
Coverage Ratio at least equal to the Consolidated Coverage Ratio of the
Issuer for such four-quarter reference period.
Notwithstanding the foregoing clauses (iii) and (iv), (a) any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Issuer and (b) the Issuer may merge with an
Affiliate incorporated solely for the purpose of reincorporating the Issuer in
another jurisdiction.
Transactions with Affiliates
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless:
(i) such Affiliate Transaction is on terms that, taken as a whole, are no
less favorable to the Issuer or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction by the
Issuer or such Restricted Subsidiary with an unrelated Person; and
(ii) the Issuer delivers to the Trustee (a) with respect to any Affiliate
Transaction entered into after the Issue Date involving aggregate
consideration in excess of $3.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such
Affiliate Transaction has been approved by a majority of the members of the
Board of Directors and (b) with respect to any Affiliate Transaction
involving aggregate consideration in excess of $10.0 million, an opinion as
to the fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an investment banking, appraisal or
accounting firm of national standing.
Notwithstanding the foregoing, the following will not be deemed to be
Affiliate Transactions:
(1) transactions between or among the Issuer and/or its Restricted
Subsidiaries;
(2) Permitted Investments and Restricted Payments that are permitted by
the provisions of the Indenture described above under the caption "--
Restricted Payments;"
(3) employment agreements, employee benefit plans and related
arrangements entered into in the ordinary course of business and all
payments and other transactions contemplated thereby;
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(4) any payments to Investcorp and its Affiliates (whether or not such
Persons are Affiliates of the Issuer) (A) for any financial advisory,
financing, underwriting or placement services or in respect of other
investment banking activities, including in connection with acquisitions
or divestitures, which payments are approved by the Board of Directors of
the Issuer in good faith and (B) of annual management, consulting and
advisory fees and related expenses;
(5) any agreement in effect on the Closing Date (including the
Recapitalization Agreement, the Services Agreement (as amended on April
15, 1998) between the Berkshire Companies Limited Partnership and the
Issuer and the Brevard lease agreement) or any amendment thereto (so long
as any such amendment is not disadvantageous to the Holders in any
material respect) or any payment or other transaction contemplated by any
of the foregoing; and
(6) Debt permitted by paragraph (x) of the covenant described under the
caption "--Incurrence of Debt and Issuance of Preferred Stock" to the
extent such Debt is on terms that, taken as a whole, are no less
favorable to the Issuer or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction with an
unrelated Person.
Restriction on Senior Subordinated Debt
The Indenture provides that (i) the Issuer will not incur any Debt that is
expressly subordinate in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes and (ii) no Guarantor will incur any
Debt that is expressly subordinate in right of payment to any Senior Debt and
senior in any respect in right of payment to the Note Guarantee of such
Guarantor.
Additional Note Guarantees
The Indenture provides that all future Subsidiaries of the Issuer who
guarantee any Debt of the Issuer under the New Credit Facility, other than
Subsidiaries that have been properly designated as Unrestricted Subsidiaries
in accordance with the Indenture for so long as they continue to constitute
Unrestricted Subsidiaries, will be Guarantors in accordance with the terms of
the Indenture until released from such guarantee of the New Credit Facility.
Each future Note Guarantee will be limited to an amount not to exceed the
maximum amount that can be Guaranteed by that Subsidiary without rendering the
Note Guarantee, as it relates to such Subsidiary, voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. Each future Note Guarantee will
be subordinated to Senior Debt of the respective Guarantor on the same basis and
to the same extent as the Notes are subordinated to Senior Debt of the Issuer.
See "--Subordination."
Reports
Notwithstanding that the Issuer may not be required to remain subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, to the
extent permitted by the Exchange Act, the Issuer will file with the Securities
and Exchange Commission (the "Commission"), and provide within 15 days after
the Issuer is required to file the same with the Commission, the Trustee and
the Holders with the annual reports and the information, documents and other
reports that are specified in Sections 13 and 15(d) of the Exchange Act. In
the event the Issuer is not permitted to file such reports, documents and
information with the Commission, the Issuer will provide substantially similar
information to the Trustee and the Holders, as if the Issuer were subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act.
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EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default with respect to the New Notes:
(i) default for 30 days in the payment when due of interest on the Notes
(whether or not prohibited by the subordination provisions of the
Indenture);
(ii) default in payment when due of the principal of or premium, if any,
on the Notes (whether or not prohibited by the subordination provisions of
the Indenture);
(iii) failure by the Issuer for 30 days after receipt of a notice
specifying such failure to comply with the provisions described under the
captions "--Repurchase at Option of Holders--Change of Control,"
"Repurchase at the Option of Holders--Asset Sales," "--Certain Covenants--
Restricted Payments," "--Certain Covenants--Incurrence of Debt and Issuance
of Preferred Stock" or "--Certain Covenants--Merger, Consolidation or Sale
of all or Substantially all Assets;"
(iv) failure by the Issuer for 60 days after receipt of a notice
specifying such failure to comply with any of its other agreements in the
Indenture or the Notes;
(v) the failure by the Issuer or any Restricted Subsidiary that is a
Significant Subsidiary to pay any Debt within any applicable grace period
after final maturity or acceleration by the holders thereof because of a
default if the total amount of such Debt unpaid or accelerated at the time
exceeds $15.0 million;
(vi) any judgment or decree for the payment of money in excess of $15.0
million (net of any insurance or indemnity payments actually received in
respect thereof prior to or within 90 days from the entry thereof, or to be
received in respect thereof in the event any appeal thereof shall be
unsuccessful) is entered against the Issuer or any Significant Subsidiary
that is a Restricted Subsidiary and is not discharged, waived or stayed and
either (A) an enforcement proceeding has been commenced by any creditor
upon such judgment or decree or (B) there is a period of 90 days following
the entry of such judgment or decree during which such judgment or decree
is not discharged, waived or the execution thereof stayed;
(vii) except as permitted by the Indenture, any Note Guarantee by a
Guarantor that is a Significant Subsidiary shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to
be in full force and effect or any Guarantor, or any Person acting on
behalf of any Guarantor, shall deny or disaffirm its obligations under its
Note Guarantee; and
(viii) certain events of bankruptcy or insolvency with respect to the
Issuer or any of its Restricted Subsidiaries that is a Significant
Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable. Upon such a declaration, such amounts
shall be due and payable immediately; provided, however, that if upon such
declaration there are any amounts outstanding under the New Credit Facility
and the amounts thereunder have not been accelerated, such amounts shall be
due and payable upon the earlier of the time such amounts are accelerated or
five Business Days after receipt by the Issuer and the Representative of the
lenders under the New Credit Facility of such declaration. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Issuer, all outstanding Notes
will become due and payable without further action or notice. Subject to
certain limitations, Holders of a majority in principal amount at maturity of
the then outstanding Notes may direct the Trustee in its exercise of any trust
or power.
The Holders of a majority in aggregate principal amount at maturity of the
Notes then outstanding by notice to the Trustee may on behalf of the Holders
of all of the Notes waive any existing Default or
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Event of Default and its consequences under the Indenture except a continuing
Default or Event of Default in the payment of interest on, or the principal
of, the Notes.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such
Holders have offered to the Trustee reasonable indemnity or security against
any loss, liability or expense. Except to enforce the right to receive payment
of principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing,
(ii) Holders of at least 25% in principal amount at maturity of the
outstanding Notes have requested the Trustee to pursue the remedy, (iii) such
Holders have offered the Trustee reasonable security or indemnity against any
loss, liability or expense, (iv) the Trustee has not complied with such
request within 60 days after the receipt of the request and the offer of
security or indemnity, and (v) the Holders of a majority in principal amount
at maturity of the outstanding Notes have not given the Trustee a direction
inconsistent with such request within such 60-day period. Subject to certain
restrictions, the Holders of a majority in principal amount at maturity of the
outstanding Notes are given the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee.
The Trustee, however, may refuse to follow any direction that conflicts with
law or the Indenture or that the Trustee determines is unduly prejudicial to
the rights of any other Holder or that would involve the Trustee in personal
liability. Prior to taking any action under the Indenture, the Trustee will be
entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the
Default within the earlier of 90 days after it occurs or 30 days after it is
known to a trust officer or written notice of it is received by the Trustee.
Except in the case of a Default in the payment of principal of, premium (if
any) or interest on any Note, the Trustee may withhold notice if and so long
as a committee of its trust officers in good faith determines that withholding
notice is in the interests of Noteholders. In addition, the Issuer is required
to deliver to the Trustee, within 120 days after the end of each fiscal year,
a certificate indicating whether the signers thereof actually know of any
Default that occurred during the previous year. The Issuer also is required to
deliver to the Trustee, forthwith upon any Senior Officer obtaining actual
knowledge of any such Default, written notice of any event which would
constitute certain Defaults, their status and what action the Issuer is taking
or proposes to take in respect thereof.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder or Affiliate of
the Issuer, as such, shall have any liability for any obligations of the
Issuer under the Notes, the Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. No director, officer,
employee, incorporator or stockholder or Affiliate of any of the Guarantors,
as such, shall have any liability for any obligations of the Guarantors under
the Note Guarantees, the Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each holder of New Notes
and Note Guarantees with respect thereto by accepting a New Note and a Note
Guarantee waives and releases all such liabilities. The waiver and release are
part of the consideration for issuance of the New Notes and the Note
Guarantees with respect thereto. Such waiver may not be effective to waive
liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
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SATISFACTION AND DISCHARGE
Upon the request of the Issuer, the Indenture will cease to be of further
effect (except as to surviving rights of registration of transfer or exchange
of the Notes, as expressly provided for in the Indenture) and the Trustee, at
the expense of the Issuer, will execute proper instruments acknowledging
satisfaction and discharge of the Indenture, any security agreements relating
thereto, the Notes and the Note Guarantees when (a) either (i) all the Notes
theretofore authenticated and delivered (other than destroyed, lost or stolen
Notes that have been replaced or paid and Notes that have been subject to
defeasance under "--Legal Defeasance and Covenant Defeasance") have been
delivered to the Trustee for cancellation or (ii) all Notes not theretofore
delivered to the Trustee for cancellation (A) have become due and payable, (B)
will become due and payable at maturity within one year or (C) are to be
called for redemption within one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in the name, and
the expense, of the Issuer, and the Issuer has irrevocably deposited or caused
to be deposited with the Trustee funds in trust for the purpose in an amount
sufficient to pay and discharge the entire Debt on such Notes not theretofore
delivered to the Trustee for cancellation, for principal (and premium, if any,
on) and interest on the Notes to the date of such deposit (in case of Notes
that have become due and payable) or to the Stated Maturity or redemption
date, as the case may be; (b) the Issuer has paid or caused to be paid all
sums payable under the Indenture by the Issuer; or (c) the Issuer has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that all conditions precedent provided in the Indenture relating
to the satisfaction and discharge of the Indenture, the security agreements
relating thereto, the Notes and the Note Guarantees have been complied with.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuer may, at its option and at any time, elect to have all of its and
any Guarantor's obligations discharged with respect to the outstanding Notes
and any Note Guarantees, as the case may be ("Legal Defeasance") and cure all
then existing Events of Default, except for (i) the rights of Holders of
outstanding Notes to receive payments in respect of the principal of, premium,
if any, and interest on such Notes when such payments are due from the trust
referred to below, (ii) the Issuer's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for Note payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and the Issuer's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the
Indenture. In addition, the Issuer may, at its option and at any time, elect
to have the obligations of the Issuer and the Guarantors released with respect
to certain covenants that are described in the Indenture and the Note
Guarantees ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with
respect to the Notes and the Note Guarantees. In the event Covenant Defeasance
occurs, certain events (not including non-payment, and, solely with respect to
the Issuer, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Notes and the Note Guarantees.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Issuer or the Guarantors must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Notes, cash in U.S. dollars, non-
callable Government Notes, or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest on
the outstanding Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Issuer and the Guarantors must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Issuer or the Guarantors shall
have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, (A) the Issuer and the Guarantors have received
from, or
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there has been published by, the Internal Revenue Service a ruling or (B)
since the Issue Date, there has been a change in the applicable federal income
tax law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, subject to customary assumptions and exclusions,
the Holders of the outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and will
be subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Issuer or the
Guarantors shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming that, subject to
customary assumptions and exclusions, the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred; (iv) no Default or
Event of Default shall have occurred and be continuing on the date of such
deposit (other than a Default or Event of Default resulting from the borrowing
of funds to be applied to such deposit and the grant of any Lien securing such
borrowing) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after
the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Issuer or any
of its Subsidiaries is a party or by which the Issuer or any of its
Subsidiaries is bound; (vi) the Issuer or the Guarantors must have delivered
to the Trustee an opinion of counsel, subject to customary assumptions and
exclusions, to the effect that after the 91st day following the deposit, the
trust funds will not be part of any "estate" formed by the bankruptcy or
reorganization of the Issuer or subject to the "automatic stay" under the
Bankruptcy Code or, in the case of Covenant Defeasance, will be subject to a
first priority Lien in favor of the Trustee for the benefit of the Holders;
(vii) the Issuer or the Guarantors must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Issuer or the
Guarantors with the intent of preferring the Holders of Notes over the other
creditors of the Issuer or the Guarantors, as applicable, with the intent of
defeating, hindering, delaying or defrauding creditors of the Issuer or the
Guarantors, as applicable, or others; and (viii) the Issuer must deliver to
the Trustee an Officers' Certificate and an opinion of counsel (which opinion
of counsel may be subject to customary assumptions and exclusions), each
stating that all conditions precedent relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange New Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuer may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuer is not required to transfer or exchange
any Note selected for redemption or repurchase. Also, the Issuer is not required
to transfer or exchange any Note for a period of 15 days before a selection of
Notes to be redeemed or before any repurchase offer.
The New Notes will be issued in registered form and the registered Holder of
a Note will be treated as the owner of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, the
Notes and the Note Guarantees may be amended or supplemented with the consent
of the Holders of at least a majority in principal amount at maturity of the
Notes then outstanding (including consents obtained in connection with a
purchase of, or tender offer or exchange offer for, Notes), and any existing
default or compliance with any provision of the Indenture or the Notes may be
waived with the consent of the
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Holders of a majority in principal amount at maturity of the then outstanding
Notes (including consents obtained in connection with a tender offer or
exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder):
(i) reduce the principal amount at maturity of Notes whose Holders must
consent to an amendment, supplement or waiver,
(ii) reduce the principal of any Note, change the fixed maturity of any
Note, reduce any premium payable upon optional redemption of the Notes or
otherwise alter the provisions with respect to the redemption or repurchase
of the Notes (other than provisions relating to the covenants described
above under the caption "--Repurchase at the Option of Holders"),
(iii) reduce the rate of or change the time for payment of interest on
any Note, or reduce the rate of accretion on the Accreted Value or extend
the period during which no interest accrues on the Notes,
(iv) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment default
that resulted from such acceleration),
(v) make any Note payable in money other than that stated in the Notes,
or
(vi) impair the rights of Holders of the Notes to receive payments of
principal of or premium, if any, on the Notes, or
(vii) make any change in the foregoing amendment and waiver provisions,
or
(viii) except as permitted by the Indenture, release any Note Guarantee.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Issuer and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes (provided that the
uncertificated Notes are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated Notes are
described in Section 163(f)(2)(B) of the Code), to provide for the assumption
of the Issuer's obligations to Holders of Notes in the case of a merger,
consolidation or sale of assets, to release any Note Guarantee or collateral
in accordance with the provisions of the Indenture, to provide for additional
Guarantors, to make any change that would provide any additional rights or
benefits to the Holders of Notes or that, as determined by the Board of
Directors in good faith, does not have a material adverse effect on the legal
rights under the
Indenture of any such Holder, or to comply with requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should the Trustee become a creditor of the Issuer, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; however, if the Trustee acquires any conflicting
interest the Trustee must eliminate such conflict within 90 days, apply to the
Commission for permission to continue or resign.
The Indenture provides that in case an Event of Default shall occur (which
shall not be cured), the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs.
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ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreements without charge by writing to the Issuer at the
following address: Harborside Healthcare Corporation, 470 Atlantic Avenue,
Boston, Massachusetts 02110.
BOOK-ENTRY; DELIVERY AND FORM
Global Note
Except as set forth below, the New Notes will initially be issued in the
form of one or more permanent global Notes in fully registered form without
interest coupons (each, a "Global Note"). Upon issuance, each Global Note will
be deposited with the Trustee as custodian for, and registered in the name of,
a nominee of The Depository Trust Company ("DTC").
If a holder tendering Old Notes so requests, such holder's New Notes will be
issued as described below under "--Certificated Securities" in registered form
without coupons (the "Certificated Securities").
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected
only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or Holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or Holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
Indenture.
Payments of the principal of, premium, if any, and interest, on a Global
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. Neither the Issuer, the Trustee nor any Paying Agent will have
any responsibility or liability for any aspects of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Issuer expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, and interest in respect of a Global Note, will
credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the
principal amount of such Global Note as shown on the records of DTC or its
nominee. The Issuer also expects that payments by participants to owners of
beneficial interests in such Global Note held through such participants will
be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers registered in the
names of nominees for such customers. Such payments will be the responsibility
of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
The Issuer expects that DTC will take any action permitted to be taken by a
Holder of a Note only at the direction of one or more participants to whose
account the DTC interests in a Global Note is credited and only in respect of
such portion of the aggregate principal amount of a Note as to which such
participant or participants has or have given direction. However, if there is
an Event of Default
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under the Notes, DTC will exchange the Global Note for Certificated Notes
which it will distribute to its participants.
DTC has advised the Issuer that it is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its
participants and to facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical
movement of certificates. Indirect access to the DTC system is available to
others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in a Global Note among participants of DTC,
it is under no obligation to perform or continue to perform such procedures,
and such procedures may be discontinued at any time. Neither the Issuer nor
the Trustee will have any responsibility for the performance by DTC or its
respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Certificated Securities
If (i) the Issuer notifies the Trustee in writing that DTC is no longer
willing or able to act as a depository and the Issuer is unable to locate a
qualified successor within 90 days or (ii) the Issuer, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture, then, upon surrender by DTC of its Global
Note, Certificated Securities will be issued to each person that DTC
identifies as the beneficial owner of the New Notes represented by the Global
Note. In addition, any person having a beneficial interest in a Global Note or
any holder of Old Notes whose Old Notes have been accepted for exchange may,
upon request to the Trustee or the Exchange Agent, as the case may be,
exchange such beneficial interest or Old Notes for Certificated Securities.
Upon any such issuance, the Trustee is required to register such
Certificated Securities in the name of such person or persons (or the nominee
of any thereof), and cause the same to be delivered thereto.
Neither the Issuer nor the Trustee shall be liable for any delay by DTC or
any participant or indirect participant in identifying the beneficial owners
of the related New Notes and each such person may conclusively rely on, and
shall be protected in relying on, instructions from DTC for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of the New Notes to be issued).
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Accreted Value" means, for any date, the amount calculated pursuant to
clauses (i), (ii), (iii) or (iv) for each $1,000 principal amount at maturity
of Notes:
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(i) if the date occurs on one of the following dates (each a "Semi-Annual
Accrual Date"), the Accreted Value will equal the amount set forth below
for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
ACCRETED
SEMI-ANNUAL ACCRUAL DATE VALUE
------------------------ ---------
<S> <C>
February 1, 1999.................................. $ 617.62
August 1, 1999.................................... $ 651.59
February 1, 2000.................................. $ 687.43
August 1, 2000.................................... $ 725.24
February 1, 2001.................................. $ 765.13
August 1, 2001.................................... $ 807.21
February 1, 2002.................................. $ 851.61
August 1, 2002.................................... $ 898.45
February 1, 2003.................................. $ 947.86
August 1, 2003.................................... $1,000.00
</TABLE>
(ii) if the date occurs before the first Semi-Annual Accrual Date, the
Accreted Value will equal the sum of (a) the original issue price of the
Old Notes per $1,000 principal amount and (b) an amount equal to the
product of (1) the Accreted Value for the Semi-Annual Accrual Date less the
original issue price multiplied by (2) a fraction, the numerator of which
is the number of days from the Issue Date to the date, using a 360-day year
of twelve 30-day months, and the denominator of which is the number of days
from the Issue Date to the first Semi-Annual Accrual Date, using a 360-day
year of twelve 30-day months;
(iii) if the date occurs between two Semi-Annual Accrual Dates, the
Accreted Value will equal the sum of (a) the Accreted Value for the Semi-
Annual Accrual Date immediately preceding such date and (b) an amount equal
to the product of (1) Accreted Value for the immediately following Semi-
Annual Accrual Date less the Accreted Value for the immediately preceding
Semi-Annual Accrual Date multiplied by (2) a fraction, the numerator of
which is the number of days from the immediately preceding Semi-Annual
Accrual Date to the date, using a 360-day year of twelve 30-day months, and
the denominator of which is 180; or
(iv) if the date occurs after the last Semi-Annual Accrual Date, the
Accreted Value will equal $1,000.
"Acquired Debt" means, with respect to any specified Person, (i) Debt of any
other Person existing at the time such other Person is merged with or into or
became a Restricted Subsidiary of such specified Person, (ii) Debt incurred by
such specified Person, its Restricted Subsidiaries or such other Person for
the purpose of financing the acquisition of such other Person or its assets
(provided that such other Person becomes or, in the case of an asset purchase,
the person acquiring such assets is, a Restricted Subsidiary and (iii) Debt
secured by a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person, (ii) any other Person that owns, directly
or indirectly, 5% or more of such specified Person's Voting Stock or (iii) any
Person who is a director or officer (a) of such Person, (b) of any Subsidiary
of such Person or (c) of any Person described in clause (i) or (ii) above. For
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlling," "controlled by" and "under common control with"), as
used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities,
by agreement or otherwise.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including by way of a sale and leaseback) (provided that
the sale, lease, conveyance or other
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disposition of all or substantially all of the assets of the Issuer will be
governed by the provisions of the Indenture described above under the caption
"--Certain Covenants--Merger, Consolidation or Sale of all or Substantially
all Assets" and not by the provisions of the Asset Sale covenant), and (ii)
the issue or sale by the Issuer or any of its Restricted Subsidiaries of
Equity Interests of any of the Issuer's Subsidiaries (other than director's
qualifying shares), in the case of either clause (i) or (ii), whether in a
single transaction or a series of related transactions (a) that have a fair
market value in excess of 2.5% of Total Assets or (b) for net proceeds in
excess of 2.5% of Total Assets. Notwithstanding the foregoing, the following
will not be Asset Sales: (i) a transfer of assets by the Issuer to a
Restricted Subsidiary or by a Restricted Subsidiary to the Issuer or to
another Restricted Subsidiary, (ii) an issuance of Equity Interests by a
Restricted Subsidiary to the Issuer or to another Restricted Subsidiary, (iii)
a Restricted Payment or Permitted Investment that is permitted by the covenant
described above under the caption "--Certain Covenants--Restricted Payments"
(including any formation of or contribution of assets to a Subsidiary or joint
venture), (iv) leases or subleases, in the ordinary course of business, to
third parties of real property owned in fee or leased by the Issuer
or its Subsidiaries, (v) a disposition, in the ordinary course of business, of
a lease of real property, (vi) any disposition of property of the Issuer or
any of its Subsidiaries that, in the reasonable judgment of the Issuer, has
become uneconomic, obsolete or worn out, (vii) any disposition of property or
assets (including any disposition of inventory, accounts receivable and any
licensing agreements) in the ordinary course of business, (viii) the sale of
Cash Equivalents and Investment Grade Securities or any disposition of cash,
(ix) any exchange of property or assets by the Issuer or a Restricted
Subsidiary in exchange for cash or Cash Equivalents or property or assets that
will be used or useful in the business conducted by the Issuer or any of its
Restricted Subsidiaries, provided any such cash and Cash Equivalents are
applied as if they were Net Proceeds of an Asset Sale, and (x) the sale or
factoring of receivables on customary market terms pursuant to Credit
Facilities but only if the proceeds thereof received by the Issuer and its
Restricted Subsidiaries represent the fair market value of such receivables.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person, or any authorized committee of the Board of
Directors of such Person.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any similar participation in profits and losses or equity of a Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any commercial bank or trust
company having capital and surplus in excess of $300.0 million, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above, (v) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings
Services, a division of the McGraw-Hill Companies, Inc. ("S&P") and in each
case maturing within one year after the date of acquisition, (vi) investment
funds investing 95% of their assets in securities of the types described in
clauses (ii)-(v) above, (vii) readily marketable direct obligations issued by
any state of the United States
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of America or any political subdivision thereof having one of the two highest
rating categories obtainable from either Moody's or S&P and (viii) Debt with a
rating of "A" or higher from S&P or "A2" or higher from Moody's and having a
maturity of not more than one year from the date of acquisition.
"Closing Date" means August 11, 1998, the date on which HH Acquisition Corp.
was merged with and into the Issuer.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodity Hedging Agreements" means any futures contract or other similar
agreement or arrangement designed to protect the Issuer or any Restricted
Subsidiary against fluctuations in commodities prices.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period (A) plus (without
duplication), to the extent deducted in computing such Consolidated Net Income,
(i) Consolidated Interest Expense and the amortization of debt issuance costs,
commissions, fees and expenses of such Person and its Restricted Subsidiaries
for such period, (ii) provision for taxes based on income or profits (including
franchise taxes) of such Person and its Restricted Subsidiaries for such period,
(iii) depreciation and amortization expense, including amortization of inventory
write-up under APB 16, amortization of intangibles (including goodwill and the
non-cash costs of Interest Rate Agreements, Commodity Hedging Agreements or
Currency Agreements, license agreements and non-competition agreements), non-
cash amortization of Capital Lease Obligations, and organization costs, (iv)
non-cash expenses related to the amortization of management fees paid on or
prior to the Closing Date, (v) expenses and charges related to any equity
offering or incurrence of Debt permitted to be incurred by the Indenture
(including any such expenses or charges relating to the Recapitalization), (vi)
the amount of any restructuring charge or reserve, (vii) unrealized gains and
losses from hedging, foreign currency or commodities translations and
transactions, (viii) expenses consisting of internal software development costs
that are expensed during the period but could have been capitalized in
accordance with GAAP, (ix) any write-downs, write-offs, and other non-cash
charges, items and expenses, (x) the amount of expense relating to any minority
interest in a Restricted Subsidiary, and (xi) costs of surety bonds in
connection with financing activities, and (B) minus any cash payment for which a
reserve or charge of the kind described in clauses (vi), (ix) or (x) of
subclause (A) above was taken previously during such period.
"Consolidated Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Consolidated Interest Expense
of such Person and its Restricted Subsidiaries for such period. In the event
that the Issuer or any of its Restricted Subsidiaries incurs, assumes,
Guarantees, redeems or repays any Debt (other than revolving credit
borrowings) or issues or redeems Preferred Stock subsequent to the
commencement of the period for which the Consolidated Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation
of the Consolidated Coverage Ratio is made (the "Calculation Date"), then the
Consolidated Coverage Ratio shall be calculated giving pro forma effect to
such incurrence, assumption, Guarantee, redemption or repayment of Debt, or
such issuance or redemption of Preferred Stock, as if the same had occurred at
the beginning of the applicable four-quarter reference period. For purposes of
making the computation referred to above, Investments, acquisitions,
dispositions, mergers and consolidations that have been made by the Issuer or
any of its Restricted Subsidiaries during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date,
and discontinued operations determined in accordance with GAAP on or prior to
the Calculation Date, shall be given effect on a pro forma basis assuming that
all such Investments, acquisitions, dispositions, mergers and consolidations
or discontinued operations (and the reduction or increase of any associated
Consolidated Interest Expense, and the change in Consolidated Cash Flow,
resulting therefrom, including because of reasonably anticipated cost savings)
had occurred on the first day of the four-
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quarter reference period. If since the beginning of such period any Person
(that subsequently became a Restricted Subsidiary or was merged with or into
the Issuer or any Restricted Subsidiary since the beginning of such period)
shall have made any Investment, acquisition, disposition, merger or
consolidation or determined a discontinued operation, that would have required
adjustment pursuant to this definition, then the Consolidated Coverage Ratio
shall be calculated giving pro forma effect thereto for such period as if such
Investment, acquisition, disposition, merger or consolidation or discontinued
operations had occurred at the beginning of the applicable four-quarter
period. For purposes of this definition, whenever pro forma effect is to be
given to a transaction, the pro forma calculations shall be made in good faith
by a financial or accounting officer of the Issuer. If any Debt to which pro
forma effect is given bears interest at a floating rate, the interest expense
on such Debt shall be calculated as if the rate in effect on the Calculation
Date had been the applicable interest rate for the entire period (taking into
account any Interest Rate Agreement in effect on the Calculation Date).
Interest on a Capital Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined by a responsible financial or accounting
officer of the Issuer to be the rate of interest implicit in such Capital Lease
Obligation in accordance with GAAP. Interest on Debt that may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rate, shall be deemed to have been
based upon the rate actually chosen, or, if none, then based upon such optional
rate chosen as the Issuer may designate.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated net interest
expense of such Person and its Restricted Subsidiaries for such period,
whether paid or accrued (including amortization of original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, commissions, discounts and other fees and charges incurred
in respect of letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations relating to Interest Rate
Agreements or Currency Agreements with respect to Debt, excluding, however,
(A) amortization of debt issuance costs, commissions, fees and expenses, (B)
customary commitment, administrative and transaction fees and charges and (C)
expenses attributable to letters of credit or similar arrangements supporting
insurance certificates issued to customers in the ordinary course of
business), (ii) any interest expense on Debt of another Person that is
Guaranteed by or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (but only to the extent such Guarantee or Lien has
then been called upon), and (iii) cash dividends paid in respect of any
Preferred Stock of such Person or any Restricted Subsidiary of such Person
held by Persons other than the Issuer or a Subsidiary, in each case, on a
consolidated basis and in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall
be included only to the extent of the amount of dividends or distributions
paid in cash to the referent Person or a Restricted Subsidiary of such Person,
(ii) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, prohibited by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders unless such restriction with respect to the
payment of dividends has been permanently waived, (iii) except for purposes of
calculating "Consolidated Cash Flow," the Net Income of any Person acquired in
a pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded (effected either through cumulative
effect adjustment or a retroactive application, in each case, in accordance
with GAAP), (v)
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to the extent deducted in determining Net Income, the fees, expenses and other
costs incurred in connection with the Recapitalization, including payments to
management contemplated by the Recapitalization Agreement, shall be excluded,
and (vi) to the extent deducted in determining Net Income, any non-cash
charges resulting from any write-up, write-down or write-off of assets, of the
Issuer and its Restricted Subsidiaries in connection with the
Recapitalization, shall be excluded.
"Credit Facilities" means, with respect to the Issuer, one or more debt
facilities (including the New Credit Facility) or commercial paper facilities
with banks, insurance companies or other institutional lenders providing for
revolving credit loans, term loans, synthetic lease financing, notes,
receivables factoring or other financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow
from or issue securities to such lenders against such receivables) or letters
of credit or other credit facilities, in each case, as amended, restated,
modified, renewed, refunded, replaced or refinanced in whole or in part from
time to time.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement to which the Issuer or any
Restricted Subsidiary is a party or of which it is a beneficiary.
"Debt" means, with respect to any Person (without duplication), (i) any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property, which purchase price is due
more than six months after the date of placing such property in final service
or taking final delivery thereof, or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, (ii) all indebtedness
under clause (i) of other Persons secured by a Lien on any asset of such
Person (whether or not such indebtedness is assumed by such Person) provided
that the amount of indebtedness of such Person shall be the lesser of (A) the
fair market value of such asset at such date of determination and (B) the
amount of such indebtedness of such other Persons, and (iii) to the extent not
otherwise included, the Guarantee by such Person of any Debt under clause (i)
of any other Person; provided, however, that Debt shall not include (a)
obligations of the Issuer or any of its Restricted Subsidiaries arising from
agreements of the Issuer or a Restricted Subsidiary providing for
indemnification, adjustment of purchase price or similar obligations, in each
case, incurred or assumed in connection with the disposition of any business,
assets or a Subsidiary, other than guarantees of Debt incurred by any Person
acquiring all or any portion of such business, assets or a Subsidiary for the
purpose of financing such acquisition; provided, however, that (x) such
obligations are not reflected on the balance sheet of the Issuer or any
Restricted Subsidiary (contingent obligations referred to in a footnote to
financial statements and not otherwise reflected on the balance sheet will not
be deemed to be reflected on such balance sheet for purposes of this clause
(x)) and (y) the maximum assumable liability in respect of all such
obligations shall at no time exceed the gross proceeds including noncash
proceeds (the fair market value of such noncash proceeds being measured at the
time received and without giving effect to any subsequent changes in value)
actually received by the Issuer and its Restricted Subsidiaries in connection
with such disposition, (b) (A) obligations under (or constituting
reimbursement obligations with respect to) letters of credit, performance
bonds, surety bonds, appeal bonds, completion guarantees or similar
instruments issued in connection with the ordinary course of business
conducted by the Issuer, including letters of credit in respect of workers'
compensation claims, security or lease deposits and self-insurance, provided,
however, that upon the drawing of such letters of credit or other instrument,
such obligations are reimbursed within 30 days following such drawing, and (B)
obligations arising from the honoring by a bank or other financial institution
of a check, draft or similar instrument inadvertently (except in the case of
day-light overdrafts) drawn
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against insufficient funds in the ordinary course of business; provided,
however, that such obligations are extinguished within three business days of
incurrence, or (c) retentions in connection with purchasing assets in the
ordinary course of business of the Issuer and its Restricted Subsidiaries. The
amount of any Debt outstanding as of any date shall be the lesser of (i) the
accreted value thereof, and (ii) the principal amount thereof, provided that
the amount of Permitted Debt under clause (i) or (x) of the definition
thereof, at the Issuer's election, but without duplication, may be reduced by
the principal amount (not to exceed $7.5 million) of the note receivable
issued to the Issuer before the Issue Date in connection with the leasing of
certain nursing home facilities in the State of Connecticut.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) any Debt outstanding under the New Credit
Facility and (ii) any other Senior Debt permitted under the Indenture the
principal amount of which is $25.0 million or more and that has been
designated by the Issuer as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event (other than as a result of a
Change of Control), matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the
Holder thereof, in whole or in part, on or prior to the date on which the
Notes mature; provided, however, that if such Capital Stock is issued to any
plan for the benefit of employees of the Issuer or its Subsidiaries or by any
such plan to such employees, such Capital Stock shall not constitute
Disqualified Stock solely because it may be required to be repurchased by the
Issuer in order to satisfy applicable statutory or regulatory obligations. For
the avoidance of doubt, Exchangeable Preferred Stock shall not be considered
"Disqualified Stock".
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Debentures" means the 13 1/2% Subordinated Exchange Debentures of
the Issuer due 2010 issuable in exchange for the Exchangeable Preferred Stock
and any Exchange Debentures issued as payments in kind interest thereon.
"Exchange Debenture Indenture" means the indenture pursuant to which the
Exchange Debentures are to be issued as it may from time to time be amended or
supplemented.
"Exchangeable Preferred Stock" means the Old Preferred Stock, the New
Preferred Stock and any 13 1/2% Exchangeable Preferred Stock of the Issuer
issued as payment of dividends thereon.
"Existing Debt" means Debt of the Issuer and its Restricted Subsidiaries
(other than Debt under the New Credit Facility) in existence on the Issue
Date, until such amounts are repaid.
"Foreign Subsidiary" means any Subsidiary of the Issuer formed under the
laws of any jurisdiction other than the United States or any political
subdivision thereof substantially all of the assets of which are located
outside of the United States or that conducts substantially all of its
business outside of the United States.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
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other entity as have been approved by a significant segment of the accounting
profession. All ratios and computations based on GAAP contained in the
Indenture shall be computed in conformity with GAAP as in effect as of the
Issue Date.
"Government Notes" means non-callable direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including letters of credit and reimbursement
agreements in respect thereof), of all or any part of any Debt.
"Guarantors" means, at any time after the Closing Date, (i) each of the
Issuer's Subsidiaries on the Closing Date, other than the Subsidiary Non-
Guarantors on such date, and (ii) each Restricted Subsidiary that executes and
delivers a Note Guarantee after the Closing Date, and their respective
successors and assigns, in each case until released from its Note Guarantee in
accordance with the terms of the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under Interest Rate Agreements, Currency Agreements or Commodity
Hedging Agreements.
"Holder" means a Person in whose a name a Note is registered in the register
for the Notes.
"HRI" means Harborside Rhode Island Limited Partnership, a Massachusetts
limited partnership.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement, repurchase agreement, futures contract or other financial
agreement or arrangement designed to protect the Issuer or any Restricted
Subsidiary against fluctuations in interest rates.
"Investcorp" means Investcorp S.A. and certain affiliates thereof.
"Investment Grade Securities" means (i) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents) having maturities of not
more than one year from the date of acquisition, (ii) debt securities or debt
instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization, or, if
no rating of S&P or Moody's then exists, the equivalent of such rating by any
other nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the Issuer and
its Subsidiaries having maturities of not more than one year from the date of
acquisition, and (iii) investments in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii), which fund may also
hold immaterial amounts of cash pending investment and/or distribution.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Debt or other obligations, but
excluding advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person), advances
or capital contributions (excluding commission, travel, payroll,
entertainment, relocation and similar advances to officers and employees made
in the ordinary course of business), purchases or other acquisitions for
consideration of Debt, Equity Interests or other securities. If the Issuer or
any Restricted Subsidiary of the Issuer sells or otherwise disposes of any
Equity Interests of any direct or indirect Subsidiary of the Issuer such that,
after giving effect to any such sale or disposition, such Person is no longer
a Subsidiary of the Issuer, the Issuer shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Subsidiary not
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sold or disposed of in an amount determined as provided in the third to last
paragraph of the covenant described above under the caption "--Restricted
Payments."
"Issue Date" means the date on which the Old Notes and the Old Preferred
Stock were issued.
"Issuer" means Harborside Healthcare Corporation.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement or any lease in the
nature thereof); provided that in no event shall an operating lease be deemed
to constitute a Lien.
"Net Income" means, with respect to any Person and any period, the net
income (or loss) of such Person for such period, determined in accordance with
GAAP and before any reduction in respect of Preferred Stock dividends,
excluding, however, (i) any extraordinary or non-recurring gains or losses or
charges and gains or losses or charges from the sale of assets outside the
ordinary course of business, together with any related provision for taxes on
such gain or loss or charges and (ii) deferred financing costs written off in
connection with the early extinguishment of Debt; provided, however, that Net
Income shall be deemed to include any increases during such period to
shareholder's equity of such Person attributable to tax benefits from net
operating losses and the exercise of stock options that are not otherwise
included in Net Income for such period.
"Net Proceeds" means the aggregate cash proceeds received by the Issuer or
any of its Restricted Subsidiaries in respect of any Asset Sale (including any
cash received upon the sale or other disposition of any non-cash consideration
received in any Asset Sale), net of the direct costs relating to such Asset
Sale (including legal, accounting and investment banking fees, and brokerage
and sales commissions) and any relocation, redundancy and closing costs
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax
sharing arrangements), amounts applied to the repayment of principal, premium
(if any) and interest on Debt that is not subordinated to the Notes required
(other than required by clause (a) of the second paragraph of "--Repurchase at
the Option of Holders--Asset Sales") to be paid as a result of such
transaction, all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of
such Asset Sale, and any deduction of appropriate amounts to be provided by
the Issuer as a reserve in accordance with GAAP against any liabilities
associated with the asset disposed of in such transaction and retained by the
Issuer after such sale or other disposition thereof, including pension and
other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated
with such transaction.
"New Credit Facility" means the collective reference to the Credit
Agreement, dated as of August 11, 1998, among the Issuer and certain
Subsidiaries of the Issuer named therein and the financial institutions named
therein, any Credit Documents (as defined therein) and any related notes,
collateral documents, letters of credit, participation agreements, guarantees,
and other documents part of or relating to the Synthetic Lease Facility (as
defined in the Credit Agreement), including any appendices, exhibits or
schedules to any of the foregoing (as the same may be in effect from time to
time), in each case, as such agreements may be amended, modified, supplemented
or restated from time to time, or refunded, refinanced, restructured,
replaced, renewed, repaid or extended from time to time (whether with the
original agents and lenders or other agents or lenders or otherwise, and
whether provided under the original credit agreement or other credit
agreements or otherwise).
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"Note Guarantee" means the Guarantee by each Guarantor of the Issuer's
Obligations under the Notes.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages, guarantees and other liabilities
payable under the documentation governing any Debt, in each case whether now
or hereafter existing, renewed or restructured, whether or not from time to
time decreased or extinguished and later increased, created or incurred,
whether or not arising on or after the commencement of a proceeding under
Title 11, U.S. Code or any similar federal or state law for the relief of
debtors (including post-petition interest) and whether or not allowed or
allowable as a claim in any such proceeding.
"Officers" means any of the following: Chairman, President, Chief Executive
Officer, Treasurer, Chief Financial Officer, Executive Vice President, Senior
Vice President, Vice President, Assistant Vice President, Secretary, Assistant
Secretary or any other officer reasonably acceptable to the Trustee.
"Officers' Certificate" means a certificate signed by two Officers.
"Pari Passu Debt" means any Debt of the Issuer or any Guarantor that ranks
pari passu with the Notes or the relevant Note Guarantee.
"Permitted Investments" means (a) any Investment in the Issuer or in a
Restricted Subsidiary (including in any Equity Interests of a Restricted
Subsidiary); (b) any Investment in cash, Cash Equivalents or Investment Grade
Securities; (c) any Investment by the Issuer or any Restricted Subsidiary of
the Issuer in a Person, if as a result of such Investment (i) such Person
becomes a Restricted Subsidiary or (ii) such Person, in one transaction or a
series of substantially concurrent related transactions, is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Issuer or a
Restricted Subsidiary; (d) any securities or other assets received or other
Investments made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "--Repurchase at the Option of Holders--
Asset Sales" or in connection with any other disposition of assets not
constituting an Asset Sale; (e) any acquisition of assets solely in exchange
for the issuance of Equity Interests (other than Disqualified Stock) of the
Issuer; (f) loans or advances to employees (or guarantees of third party loans
to employees) in the ordinary course of business; (g) stock, obligations or
securities received in satisfaction of judgments, foreclosure of liens or
settlement of debts (whether pursuant to a plan of reorganization or similar
arrangement); (h) receivables owing to the Issuer or any Restricted
Subsidiary, if created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms (including
such concessionary terms as the Issuer or such Restricted Subsidiary deems
reasonable); (i) any Investment existing on the Issue Date or made pursuant to
legally binding written commitments in existence on the Issue Date; (j)
Investments in Interest Rate Agreements, Currency Agreements and Commodity
Hedging Agreements otherwise permitted under the Indenture; and (k) additional
Investments having an aggregate fair market value, taken together with all
other Investments made pursuant to this clause (k) that are at that time
outstanding, not to exceed 15.0% of Total Assets at the time of such
Investment (with the fair market value of each Investment being measured at
the time made and without giving effect to subsequent changes in value).
"Permitted Junior Securities" shall mean debt or equity securities of the
Issuer or any successor corporation issued pursuant to a plan of
reorganization or readjustment of the Issuer that are subordinated to the
payment of all Senior Debt at least to the same extent that the Notes are
subordinated to the payment of all Senior Debt on the Issue Date, so long as
(i) the effect of the use of this defined term in the subordination provisions
described under the caption "--Subordination" is not to cause the Notes to be
treated as part of (a) the same class of claims as the Senior Debt or (b) any
class of claims pari passu with, or senior to, the Senior Debt for any payment
or distribution in any
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case or proceeding or similar event relating to the liquidation, insolvency,
bankruptcy, dissolution, winding up or reorganization of the Issuer and (ii)
to the extent that any Senior Debt outstanding on the date of consummation of
any such plan of reorganization or readjustment is not paid in full in cash
on such date, either (a) the holders of any such Senior Debt not so paid in
full in cash have consented to the terms of such plan of reorganization or
readjustment or (b) such holders receive securities which constitute Senior
Debt and which have been determined by the relevant court to constitute
satisfaction in full in money or money's worth of any Senior Debt not paid in
full in cash.
"Permitted Liens" means (i) Liens securing Senior Debt of the Issuer and
Guarantors and unsubordinated Debt of a Subsidiary Non-Guarantor (in each case
including related Obligations) that was permitted by the terms of the
Indenture to be incurred; (ii) Liens in favor of the Issuer or any Restricted
Subsidiary; (iii) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Issuer or any Restricted
Subsidiary of the Issuer; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Issuer or a Restricted Subsidiary, as the case may be; (iv) Liens on property
existing at the time of acquisition thereof by the Issuer or any Restricted
Subsidiary of the Issuer, provided that such Liens were in existence prior to
the contemplation of such acquisition and do not extend to any assets other
than those acquired; (v) banker's Liens, rights of setoff and Liens to secure
the performance of bids, tenders, trade or government contracts (other than
for borrowed money), leases, licenses, statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) without limitation of clause (i), Liens to
secure Acquired Debt; (vii) Liens existing on the Closing Date; (viii) Liens
for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate
proceedings, provided that any reserve or other appropriate provision as shall
be required in conformity with GAAP shall have been made therefor; (ix) Liens
incurred in the ordinary course of business of the Issuer or any Restricted
Subsidiary of the Issuer with respect to obligations that do not exceed $5.0
million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Issuer or such
Restricted Subsidiary; (x) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other like Liens arising in the ordinary course
of business in respect of obligations that are not yet due or that are bonded
or that are being contested in good faith and by appropriate proceedings if
adequate reserves with respect thereto are maintained on the books of the
Issuer or such Restricted Subsidiary, as the case may be, in accordance with
GAAP; (xi) pledges or deposits in connection with workmen's compensation,
unemployment insurance and other social security legislation; (xii) easements
(including reciprocal easement agreements), rights-of-way, building, zoning
and similar restrictions, utility agreements, covenants, reservations,
restrictions, encroachments, changes, and other similar encumbrances or title
defects incurred, or leases or subleases granted to others, in the ordinary
course of business, that do not in the aggregate materially detract from the
aggregate value of the properties of the Issuer and its Subsidiaries, taken as
a whole, or in the aggregate materially interfere with or adversely affect in
any material respect the ordinary conduct of the business of the Issuer and
its Subsidiaries on the properties subject thereto, taken as a whole; (xiii)
Liens on goods (and the proceeds thereof) and documents of title and the
property covered thereby securing Debt in respect of commercial letters of
credit; (xiv) (A) mortgages, Liens, security interests, restrictions,
encumbrances or any other matters of record that have been placed by any
developer, landlord or other third party on property over which the Issuer or
any Restricted Subsidiary of the Issuer has easement rights or on any real
property leased by the Issuer or any Restricted Subsidiary on the Issue Date
and subordination or similar agreements relating thereto and (B) any
condemnation or eminent domain proceedings affecting any real property; (xv)
leases or subleases to third parties; (xvi) Liens in connection with workmen's
compensation obligations and general liability exposure of the Issuer and its
Restricted Subsidiaries;
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(xvii) Liens arising by reason of a judgment, decree or court order, to the
extent not otherwise resulting in an Event of Default; (xviii) Liens securing
Hedging Obligations entered into in the ordinary course of business; (xix)
without limitation of clause (i), Liens securing Permitted Refinancing Debt
permitted to
be incurred under the Indenture or amendments or renewals of Liens that were
permitted to be incurred, provided, in each case, that (A) such Liens do not
extend to an additional property or asset of the Issuer or a Restricted
Subsidiary and (B) such Liens do not secure Debt in excess of the amount of
Permitted Refinancing Debt permitted to be incurred under the Indenture or the
principal amount of (or accreted value, if applicable), plus accrued interest
on, the Debt (plus the amount of reasonable premium and fees and expenses
incurred in connection therewith) secured by the Lien being amended or
renewed, as the case may be; (xx) Liens that secure Debt of a Person existing
at the time such Person becomes a Restricted Subsidiary of the Issuer,
provided that such Liens do not extend to any assets other than those of the
Person that became a Restricted Subsidiary of the Issuer, and (xxi) any
provision for the retention of title to an asset by the vendor or transferor
of such asset which asset is acquired by the Issuer or any Restricted
Subsidiary in a transaction entered into in the ordinary course of business of
the issuer or such Restricted Subsidiary and for which kind of transaction it
is normal market practice for such retention of title provision to be
included.
"Permitted Refinancing Debt" means any Debt of the Issuer or any of its
Restricted Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other Debt of
the Issuer or any of its Restricted Subsidiaries incurred in compliance with
the Indenture; provided that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Debt does not exceed the principal
amount of (or accreted value, if applicable), plus accrued interest on, the
Debt so extended, refinanced, renewed, replaced, defeased or refunded (plus
the amount of reasonable premium and fees and expenses incurred in connection
therewith); (ii) in the case of term Debt, (1) principal payments required
under such Permitted Refinancing Debt have a Stated Maturity no earlier than
the earlier of (A) the Stated Maturity of those under the Debt being
refinanced and (B) the maturity date of the Notes and (2) such Permitted
Refinancing Debt has a Weighted Average Life to Maturity equal to or greater
than the lesser of the Weighted Average Life to Maturity of the Debt being
extended, refinanced, renewed, replaced, defeased or refunded and the Weighted
Average Life to Maturity of the Notes; (iii) if the Debt being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right
of payment to the Notes, such Permitted Refinancing Debt has a final maturity
date later than the final maturity date of, and is subordinated in right of
payment to, the Notes on terms at least as favorable to the Holders of Notes
as those contained in the documentation governing the Debt being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Debt is
incurred either by the Issuer or by its Restricted Subsidiary who is the
obligor on the Debt being extended, refinanced, renewed, replaced, defeased or
refunded. The Issuer may Incur Permitted Refinancing Debt not more than six
months prior to the application of the proceeds thereof to repay the Debt to
be refinanced; provided that upon the Incurrence of such Permitted Refinancing
Debt, the Issuer shall provide written notice thereof to the Trustee,
specifically identifying the Debt to be refinanced with Permitted Refinancing
Debt.
"Preferred Stock" means, with respect to any Person, any Capital Stock of
such Person (however designated) that is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over
shares of Capital Stock of any other class of such Person. With respect to the
Issuer, "Preferred Stock" includes the Exchangeable Preferred Stock.
"Preferred Equity Interests" means Preferred Stock and all warrants, options
or other rights to acquire Preferred Stock (but excluding any debt security
that is convertible into, or exchangeable for, Preferred Stock).
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"Recapitalization" means the recapitalization of Harborside Healthcare
Corporation pursuant to which HH Acquisition Corp. was merged with and into
the Issuer and the financing transactions related thereto.
"Recapitalization Agreement" means the Agreement and Plan of Merger dated as
of April 15, 1998 by and between HH Acquisition Corp. and Harborside
Healthcare Corporation, as amended through the Closing Date.
"Representative" means any agent or representative in respect of any
Designated Senior Debt; provided that if, and for so long as, any Designated
Senior Debt lacks such a representative, then the Representative for such
Designated Senior Debt shall at all times constitute the holders of a majority
in outstanding principal amount of such Designated Senior Debt.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Secured Debt" means any Debt of the Issuer or any Subsidiary secured by a
Lien.
"Senior Debt" means (i) all Debt of the Issuer or any Guarantor outstanding
under the New Credit Facility and all Hedging Obligations with respect
thereto, (ii) any other Debt (including Acquired Debt) permitted to be
incurred by the Issuer or any Guarantor under the terms of the Indenture,
unless the instrument under which such Debt is incurred expressly provides
that it is on a parity with or subordinated in right of payment to the Notes
or the relevant Note Guarantee and (iii) all Obligations with respect to the
foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Debt will not include (v) any liability for federal, state, local or other
taxes owed or owing by the Issuer, (w) any Debt of the Issuer or any Guarantor
to any of its Subsidiaries, officers, employees or other Affiliates (other
than Debt under any Credit Facility to any such Affiliate), (x) any trade
payables, (y) that portion of Debt incurred in violation of the covenant
described above under "Incurrence of Debt and Preferred Stock" (but as to any
such Debt under any Credit Facility, such violation shall be deemed not to
exist for purposes of this clause (y) if the lenders have obtained a
representation from a Senior Officer of the Issuer to the effect that the
issuance of such Debt does not violate such covenant) or (z) any Debt or
obligation of the Issuer or any Guarantor which is expressly subordinated in
right of payment to any other Debt or obligation of the Issuer or such
Guarantor, as applicable, including any Subordinated Debt of the Issuer.
"Senior Officer" means the Chief Executive Officer or the Chief Financial
Officer of the Issuer.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such regulation is in effect on the Issue
Date.
"Specified Affiliate Payments" means:
(i) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Issuer or any Restricted Subsidiary of
the Issuer held by any future, present or former employee, director,
officer or consultant of the Issuer (or any of its Restricted Subsidiaries)
pursuant to any management equity subscription agreement, stock option
agreement, put agreement, stockholder agreement or similar agreement that
may be in effect from time to time; provided that the aggregate price paid
for all such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed $3.0 million in any calendar year (with unused amounts in
any calendar year being carried over to succeeding calendar years subject
to a maximum amount of repurchases, redemptions or other acquisitions
pursuant to this clause (i) (without giving effect to
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the immediately following proviso) of $10.0 million in any calendar year)
and no payment default on Senior Debt or the Notes shall have occurred and
be continuing; provided further that such amount in any calendar year may
be increased by an amount not to exceed (A) the cash proceeds received by
the Issuer (including by way of capital contribution) since the Issue Date
from the sale of Equity Interests of the Issuer to employees, directors,
officers or consultants of the Issuer or its Subsidiaries that occurs in
such calendar year (it being understood that such cash proceeds shall be
excluded from clause (c)(ii) of the first paragraph under the covenant
described under the caption "--Certain Covenants--Restricted Payments")
plus (B) the cash proceeds from key man life insurance policies received by
the Issuer and its Restricted Subsidiaries in such calendar year (including
proceeds from the sale of such policies to the person insured thereby); and
provided, further, that cancellation of Debt owing to the Issuer from
employees, directors, officers or consultants of the Issuer or any of its
Subsidiaries in connection with a repurchase of Equity Interests of the
Issuer will not be deemed to constitute a Restricted Payment for purposes
of the Indenture;
(ii) repurchases of Equity Interests deemed to occur upon exercise of
stock options or warrants as a result of the payment of all or a portion of
the exercise price of such options or warrants with Equity Interests;
(iii) payments by the Issuer to shareholders or members of management of
the Issuer and its Subsidiaries in connection with the Recapitalization;
and
(iv) payments or transactions permitted under clause (5) of the second
paragraph of the covenant described under "--Certain Covenants--Transaction
with Affiliates;
"Stated Maturity" means, with respect to any installment of interest on or
principal of, or any other amount payable in respect of, any series of Debt,
the date on which such interest, principal or other amount was scheduled to be
paid in the documentation governing such Debt, and shall not include any
contingent obligations to repay, redeem or repurchase any such interest,
principal or other amount prior to the date scheduled for the payment thereof.
"Subordinated Debt" means any Debt of the Issuer or any Guarantor (whether
outstanding on the Issue Date or thereafter incurred) that is subordinate or
junior in right of payment to the Notes or the applicable Note Guarantee
pursuant to written agreement.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof). Unless the context otherwise requires, "Subsidiary" refers to a
Subsidiary of the Issuer.
"Subsidiary Non-Guarantors" means (i) each of the Subsidiaries of the Issuer
on the Closing Date that do not issue or are released from a Note Guarantee,
(ii) each Unrestricted Subsidiary, and (iii) each Restricted Subsidiary formed
or acquired after the Closing Date that does not execute and deliver or is
released from a Note Guarantee.
"Total Assets" means, at any time, the total consolidated assets of the
Issuer and its Restricted Subsidiaries at such time.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, and (ii) any Subsidiary of an
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Unrestricted Subsidiary; but in the case of any Subsidiary referred to in
clause (i) (or any Subsidiary of any such Subsidiary) only to the extent that
such Subsidiary: (a) is not party to any agreement, contract, arrangement or
understanding with the Issuer or any Restricted Subsidiary of the Issuer
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Issuer or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Issuer; and (b) except in the case of a Foreign Subsidiary, is a Person with
respect to which neither the Issuer nor any of its Restricted Subsidiaries has
any direct or indirect obligation (x) to subscribe for additional Equity
Interests or (y) to maintain or preserve such Person's financial condition or
to cause such Person to achieve any specified levels of operating results. Any
such designation by the Board of Directors shall be evidenced to the Trustee
by filing with the Trustee a certified copy of the Board Resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "--Certain Covenants--Restricted
Payments." If, at any time, any Unrestricted Subsidiary referred to in clause
(ii) of the first sentence of this definition (or any Subsidiary thereof)
would fail to meet the foregoing requirements as an Unrestricted Subsidiary,
it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Debt of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of the Issuer as of such date (and, if such Debt is not
permitted to be incurred as of such date under the covenant described under
the caption "--Certain Covenants--Incurrence of Debt and Issuance of Preferred
Stock," the Issuer shall be in default of such covenant). The Board of
Directors of the Issuer may at any time designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that such designation shall be deemed
to be an incurrence of Debt by a Restricted Subsidiary of the Issuer of any
outstanding Debt of such Unrestricted Subsidiary and such designation shall
only be permitted if (i) such Debt is permitted under the covenant described
under the caption "--Certain Covenants--Incurrence of Debt and Issuance of
Preferred Stock," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period, and (ii) no
Default or Event of Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person, excluding, however, Exchangeable Preferred Stock.
"Weighted Average Life to Maturity" means, when applied to any Debt at any
date, the number of years obtained by dividing (i) the sum of the products
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof, by (b) the number of
years (calculated to the nearest one-twelfth) that will elapse between such
date and the making of such payment, by (ii) the then outstanding principal
amount of such Debt.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
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DESCRIPTION OF THE NEW PREFERRED STOCK
GENERAL
The New Preferred Stock will be issued by the Issuer pursuant to the
Certificate of Designation. The Old Preferred Stock was issued pursuant to the
same Certificate of Designation. The summary contained herein of certain
provisions of the New Preferred Stock does not purport to be complete and is
qualified in its entirety by reference to the provisions of the Certificate of
Designation. Copies of the Certificate of Designation may be obtained from the
Secretary of State of Delaware or as set forth in "Available Information"
above. Definitions of certain capitalized terms used in the Certificate of
Designation and in the following summary are set forth below under
"Description of Exchange Debentures--Certain Definitions."
The Issuer is authorized to issue 500,000 shares of Preferred Stock, of
which the Certificate of Designation designates as 13 1/2% Exchangeable
Preferred Stock the 40,000 shares of Old Preferred Stock issued in the Old
Securities Offering, plus up to 40,000 additional shares of New Preferred
Stock which may be issued hereby in exchange for the shares of Old Preferred
Stock initially issued, plus up to 40,000 additional shares of Preferred Stock
which, among other things, may be used to pay certain dividends on the Old
Preferred Stock or the New Preferred Stock at the election of the Issuer. Up
to 1,365 shares of New Preferred Stock are being offered hereby in exchange
for the 1,365 shares of Old Preferred Stock that will be used to pay the
dividend payable on the outstanding shares of Old Preferred Stock on November
1, 1998.
In addition, the Certificate of Designation provides for the issuance
(subject to a maximum of 250,000 shares, including the 120,000 shares
described above) of additional shares of Preferred Stock having identical
terms and conditions to the initial 120,000 shares of Exchangeable Preferred
Stock (the "Additional Exchangeable Preferred Stock"). Any shares of
Additional Exchangeable Preferred Stock will be part of the same issue as the
initial 120,000 shares of Exchangeable Preferred Stock and will vote as one
class with such Exchangeable Preferred Stock on all matters subject to a vote
by the Holders thereof. All references in this Description of the Exchangeable
Preferred Stock to "Exchangeable Preferred Stock" include any Additional
Exchangeable Preferred Stock and any references to "Exchange Debentures"
include any Exchange Debentures issued in exchange for Additional Exchangeable
Preferred Stock, unless the context otherwise requires.
Subject to certain conditions, the New Preferred Stock will be exchangeable
for Exchange Debentures at the option of the Issuer on any dividend payment
date. The New Preferred Stock, when issued in exchange for Old Preferred
Stock, will be fully paid and non-assessable, and the Holders thereof will not
have any subscription or preemptive rights related thereto. United States
Trust Company of New York will be the transfer agent and registrar for the New
Preferred Stock.
RANKING
The New Preferred Stock will, with respect to dividends and as to
distributions upon the liquidation, winding-up and dissolution of the Issuer,
rank (i) senior to all other classes of Capital Stock of the Issuer
established after July 29, 1998 by the Board of Directors of the Issuer the
terms of which do not expressly provide that it ranks on a parity with the
Exchangeable Preferred Stock as to dividends and as to distributions upon the
liquidation, winding-up and dissolution of the Issuer (collectively referred
to with the common stock of the Issuer as "Junior Securities"); and (ii) on a
parity with each series of Preferred Stock established after July 29, 1998 by
the Board of Directors of the Issuer, the terms of which expressly provide
that such class will rank on a parity with the Exchangeable Preferred Stock as
to dividends and as to distributions upon the liquidation, winding-up and
dissolution of the Issuer (collectively referred to as "Parity Securities").
Creditors of the Issuer will have priority over the Holders of the New
Preferred Stock with respect to claims on the assets of the Issuer. In
addition, creditors and stockholders of the Issuer's Subsidiaries will have
priority over the New Preferred Stock with respect to claims on the assets of
such Subsidiaries.
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DIVIDENDS
New Preferred Stock Holders will be entitled to receive, when, as and if
declared by the Board of Directors of the Issuer, out of funds legally
available therefor, dividends on the New Preferred Stock at a rate per annum
equal to 13 1/2% of the liquidation preference per share of New Preferred
Stock. All dividends on the New Preferred Stock, as on the Old Preferred
Stock, will be cumulative, whether or not earned or declared, on a daily basis
from the date of issuance and will be payable quarterly in arrears on February
1, May 1, August 1, and November 1 of each year, commencing on the first such
date after issuance. On or before August 1, 2003, the Issuer may, at its
option, pay dividends in cash or in additional fully paid and non-assessable
shares of Exchangeable Preferred Stock ("Dividend Shares") having an aggregate
liquidation preference equal to the amount of such dividends. After August 1,
2003, dividends may be paid only in cash. It is not expected that the Issuer
will pay any dividends in cash for any period ending on or prior to August 1,
2003. The terms of certain debt instruments of the Issuer, including the New
Credit Facility and the Notes, contain restrictions on the Issuer's ability to
pay cash dividends and future agreements may contain similar restrictions. See
"Risk Factors--Substantial Leverage; Debt Service Obligations," "Risk
Factors--Restrictive Covenants," "Description of the New Notes," and
"Description of the New Credit Facility."
In the event that dividends with respect to the New Preferred Stock are paid
in Dividend Shares, and U.S. federal withholding tax or backup withholding is
due with respect to such dividends, the Issuer or the withholding agent, as
the case may be, may retain all or a portion of the Dividend Shares until such
time as such shares have been reduced to cash sufficient to satisfy the
requisite withholding tax or backup withholding obligations on such Dividend
Shares. See "Certain U.S. Federal Income Tax Consequences."
No dividends may be declared or paid (whether in cash, additional Parity
Securities or otherwise) or funds set apart for the payment of dividends on
any Parity Securities for any period unless full cumulative dividends shall
have been or contemporaneously are declared and paid in full or declared and,
if payable in cash, a sum in cash is set apart for such payment on the
Exchangeable Preferred Stock. If full dividends are not so declared, paid or
funds therefor set aside, as the case may be, the Exchangeable Preferred Stock
will share dividends pro rata with the Parity Securities. No dividends may be
paid or set apart for such payment on Junior Securities (except dividends on
Junior Securities in additional shares of Junior Securities) and no Junior
Securities or Parity Securities may be repurchased, redeemed or otherwise
retired nor may funds be set apart for payment with respect thereto, if full
cumulative dividends have not been paid on the Exchangeable Preferred Stock.
Preferred Stock Holders will not be entitled to any dividends, whether payable
in cash, in additional Exchangeable Preferred Stock, property or stock, in
excess of the full cumulative dividends as herein described.
OPTIONAL REDEMPTION
The New Preferred Stock may be redeemed for cash (subject to contractual and
other restrictions with respect thereto and to the legal availability of funds
therefor) at any time on or after August 1, 2003, in whole or in part, at the
option of the Issuer, at the following redemption prices (expressed as
percentages of the liquidation preference thereof) if redeemed during the 12-
month period beginning August 1 of each of the years set forth below, in each
case together with an amount in cash equal to all accumulated and unpaid
dividends, if any (including an amount in cash equal to a prorated dividend
for the period from the dividend payment date immediately prior to the
redemption date to the redemption date):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003............................................. 106.750%
2004............................................. 104.500
2005............................................. 102.250
2006 and thereafter.............................. 100.000
</TABLE>
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In addition, at any time and from time to time prior to August 1, 2001, the
Issuer may redeem up to 35% of the Exchangeable Preferred Stock, at the option
of the Issuer, at a redemption price equal to 113.5% of the liquidation
preference thereof, plus an amount in cash equal to all accumulated and unpaid
dividends thereon, if any, to the redemption date (including an amount in cash
equal to a prorated dividend for the period from the dividend payment date
immediately prior to the redemption date to the redemption date), with the net
cash proceeds received by the Issuer of a public offering of common stock of
the Issuer, provided that such redemption shall occur within 60 days of the
date of the closing of such public offering.
At any time on or prior to August 1, 2003, the Exchangeable Preferred Stock
may be redeemed as a whole but not in part at the option of the Issuer upon
the occurrence of a Change of Control, upon not less than 30 nor more than 60
days' prior notice (but in no event may any such redemption occur more than 90
days after the occurrence of such Change of Control) mailed by first-class
mail to each Holder's registered address, at a redemption price equal to 100%
of the liquidation preference thereof, if any, to the redemption date, plus an
amount in cash equal to all accumulated and unpaid dividends thereon
(including an amount in cash equal to a prorated dividend for the period from
the dividend payment date immediately prior to the redemption date to the
redemption date) plus the Applicable Premium.
"Applicable Premium" means, with respect to a share of Exchangeable
Preferred Stock at any redemption date, the greater of (i) 1.0% of the
liquidation preference thereof or (ii) the excess of (A) the present value at
such time of the redemption price of such share of Exchangeable Preferred
Stock at August 1, 2003 (such redemption price being set forth in the table
above), computed using a discount rate equal to the Treasury Rate plus 50
basis points, over (B) the liquidation preference of such Exchangeable
Preferred Stock, if greater.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H. 15(519)
which has become publicly available at least two Business Days prior to the
redemption date (or, if such Statistical Release is no longer published, any
publicly available source or similar market data)) most nearly equal to the
period from the redemption date to August 1, 2003, provided, however, that if
the period from the redemption date to August 1, 2003 is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such
yields are given, except that if the period from the redemption date to August
1, 2003 is less than one year, the weekly average yield on actually traded
United States Treasury securities adjusted to a constant maturity of one year
shall be used.
No optional redemption may be authorized or made unless prior thereto or
contemporaneously therewith full unpaid cumulative dividends shall have been
paid or a sum shall have been set apart for such payment on the Exchangeable
Preferred Stock.
In the event of partial redemptions of Exchangeable Preferred Stock, the
shares to be redeemed will be determined pro rata or by lot, as determined by
the Issuer, except that the Issuer may redeem such shares held by any Holders
of fewer than 100 shares (or shares held by Holders who would hold less than
100 shares as a result of such redemption), without regard to any pro rata
redemption requirement. The terms of certain debt instruments of the Issuer,
including the New Credit Facility and the Notes, restrict, directly or
indirectly, the ability of the Issuer to redeem the Exchangeable Preferred
Stock, and future agreements to which the Issuer or its subsidiaries are
parties may contain similar restrictions. See "Description of the New Notes--
Certain Covenants" and "Description of the New Credit Facility."
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MANDATORY REDEMPTION
On August 1, 2010, the Issuer will be required to redeem (subject to the
legal availability of funds therefor) all outstanding shares of Exchangeable
Preferred Stock at a price equal to the then effective liquidation preference
thereof, plus an amount in cash equal to all accumulated and unpaid dividends
thereon. The Issuer will not be required to make sinking fund payments with
respect to the Exchangeable Preferred Stock.
PROCEDURES FOR REDEMPTIONS
On and after a redemption date, unless the Issuer defaults in the payment of
the applicable redemption price, dividends will cease to accrue on shares of
Exchangeable Preferred Stock called for redemption and all rights of Holders
of such shares will terminate except for the right to receive the redemption
price plus accumulated and unpaid dividends thereon, but without interest. The
Issuer will send a written notice of redemption by first class mail to each
Holder of record of shares of Exchangeable Preferred Stock, not fewer than 30
days nor more than 60 days prior to the date fixed for such redemption.
Shares of Exchangeable Preferred Stock issued and reacquired will, upon
compliance with the applicable requirements of Delaware law, have the status
of authorized but unissued shares of Preferred Stock of the Issuer
undesignated as to series, and may with any and all other authorized but
unissued shares of Preferred Stock of the Issuer be designated or redesignated
and issued or reissued, as the case may be, as part of any series of Preferred
Stock of the Issuer, except that any issuance or reissuance of shares of
Exchangeable Preferred Stock must be in compliance with the Certificate of
Designation.
REPURCHASE AT THE OPTION OF EXCHANGEABLE PREFERRED STOCK HOLDERS UPON CHANGE
OF CONTROL
Upon the occurrence of a Change of Control, unless all Exchangeable
Preferred Stock has been called for redemption pursuant to the provisions
described above under the caption "--Optional Redemption," each Exchangeable
Preferred Stock Holder will have the right to require the Issuer to repurchase
all or any part of such Holder's Exchangeable Preferred Stock pursuant to the
offer described more fully in the Certificate of Designation (the
"Exchangeable Preferred Change of Control Offer") at an offer price in cash
(the "Exchangeable Preferred Change of Control Payment") equal to 101% of the
aggregate liquidation preference thereof plus an amount in cash equal to all
accumulated and unpaid dividends per share (including an amount in cash equal
to a prorated dividend for the period from the dividend payment date
immediately prior to the repurchase date to the repurchase date), if any, to
the date of repurchase.
The Certificate of Designation provides that, prior to complying with the
provisions of this covenant, but in any event within 90 days following a
Change of Control, the Issuer will either repay all outstanding Senior Debt or
obtain the requisite consents, if any, under all agreements governing
outstanding Senior Debt to permit the repurchase of Exchangeable Preferred
Stock required by this covenant, unless notice of redemption of all
Exchangeable Preferred Stock has then been given pursuant to the provisions
described under the caption "--Optional Redemption" above and such redemption
is permitted by the terms of outstanding Senior Debt. The Issuer will publicly
announce the results of the Exchangeable Preferred Change of Control Offer on
or as soon as practicable after the date that payment is made pursuant to the
Exchangeable Preferred Change of Control Offer (the "Exchangeable Preferred
Change of Control Payment Date").
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Certificate of Designation are applicable.
Except as described above with respect to a Change of Control, the Certificate
of Designation does not contain provisions that permit the
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Exchangeable Preferred Stock Holders to require that the Issuer repurchase or
redeem the Exchangeable Preferred Stock in the event of a takeover,
recapitalization or similar transaction. The Change of Control purchase
feature is a result of negotiations between the Issuer and the Placement
Agents. Management has no present intention to engage in a transaction
involving a Change of Control, although it is possible that the Issuer would
decide to do so in the future. Subject to the limitations discussed below, the
Issuer could, in the future, enter into certain transactions, including
acquisitions, refinancings or other recapitalizations, that would not
constitute a Change of Control under the Certificate of Designation, but that
could increase the amount of indebtedness or Junior Securities or Parity
Securities outstanding at such time or otherwise affect the Issuer's capital
structure or credit ratings.
The New Credit Facility prohibits the Issuer from purchasing any
Exchangeable Preferred Stock and also provides that certain change of control
events with respect to the Issuer will constitute a default thereunder. The
Indenture requires an offer to be made to repurchase all outstanding Notes
upon a Change of Control, unless all Notes have then been called for
redemption, and restricts the ability of the Issuer to purchase Exchangeable
Preferred Stock until such offer has been made or no Notes remain outstanding.
See "Description of the New Notes--Repurchase at the Option of Holders--Change
of Control" and "--Certain Covenants--Restricted Payments." Any future credit
agreements or other agreements relating to Senior Debt to which the Issuer
becomes a party or that may be entered into by Subsidiaries of the Issuer may
contain similar restrictions and provisions. In the event a Change of Control
occurs at a time when the Issuer is prohibited from purchasing Exchangeable
Preferred Stock, the Issuer could seek the consent of its lenders and Holders
of the Notes to the purchase of Exchangeable Preferred Stock or could attempt
to refinance the borrowings that contain such prohibition. If the Issuer does
not obtain such a consent or repay such borrowings, the Issuer will remain
prohibited from purchasing the Exchangeable Preferred Stock. In such case, the
Issuer's failure to purchase tendered Exchangeable Preferred Stock would
constitute a Voting Rights Triggering Event under the Certificate of
Designation which would, in turn, constitute a default under the New Credit
Facility or any such future credit or other agreement. In any event, the
ability of the Issuer to purchase all Notes tendered upon a Change of Control
or repay any such other borrowings will be limited by the Issuer's financial
resources. See "Risk Factors--Potential Inability to Fund a Change of Control
Offer."
The Issuer will not be required to make an Exchangeable Preferred Change of
Control Offer upon a Change of Control if a third party makes and consummates
an Exchangeable Preferred Change of Control Offer.
"Change of Control" means the occurrence of any of the following events:
(i) prior to the first public offering of Voting Stock of the Issuer, the
Initial Control Group ceases to be the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of
more than 50% of the total voting power of the Voting Stock of the Issuer,
whether as a result of the issuance of securities of the Issuer, any
merger, consolidation, liquidation or dissolution of the Issuer, any direct
or indirect transfer of securities by the Initial Control Group or
otherwise (for purposes of this clause (i), the Initial Control Group shall
be deemed to beneficially own all Voting Stock of an entity (the "specified
entity") held by any other entity (the "parent entity") so long as the
Initial Control Group beneficially owns (as so defined), directly or
indirectly, in the aggregate a majority of the voting power of the Voting
Stock of the parent entity);
(ii) following the first public offering of Voting Stock of the Issuer
(A) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more members of the Initial Control Group,
is or becomes the beneficial owner (as defined in clause (i) above),
directly or indirectly, of more than 40% of the total voting power of the
Voting Stock of the Issuer
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and (B) the Initial Control Group "beneficially owns" (as defined in clause
(i) above), directly or indirectly, in the aggregate a lesser percentage of
the total voting power of the Voting Stock of the Issuer, than such other
person and does not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors of the Issuer (for purposes of this clause (ii), such other
person shall be deemed to beneficially own all Voting Stock of a specified
entity held by a parent entity, if such other person "beneficially owns"
(as defined in clause (i) above), directly or indirectly, in the aggregate
more than 40% of the voting power of the Voting Stock of such parent entity
and the Initial Control Group "beneficially owns" (as defined in clause (i)
above), directly or indirectly, in the aggregate a lesser percentage of the
voting power of the Voting Stock of such parent entity and does not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of such parent
entity); or
(iii) at any time after the first public offering of common stock of the
Issuer, any person other than the Initial Control Group (or their
designated board members), (A)(I) nominates one or more individuals for
election to the Board of Directors of the Issuer and (II) solicits proxies,
authorizations or consents in connection therewith and (B) such number of
nominees elected to serve on the Board of Directors in such election and
all previous elections after the Closing Date represents a majority of the
Board of Directors of the Issuer following such election.
"Initial Control Group" means Investcorp, its Affiliates, any Person acting
in the capacity of an underwriter or initial purchaser in connection with a
public or private offering of the Issuer's Capital Stock, any employee benefit
plan of the Issuer or any of its Subsidiaries or any participant therein, a
trustee or other fiduciary holding securities under any such employee benefit
plan or any Permitted Transferee of any of the foregoing Persons.
"Permitted Transferee" means, with respect to any Person, (i) any other
Person, directly or indirectly, controlling or controlled by or under direct
or indirect common control with such specified Person, (ii) the spouse, former
spouse, lineal descendants, heirs, executors, administrators, testamentary
trustees, legatees or beneficiaries of any such Person, (iii) a trust, the
beneficiaries of which, or a corporation or partnership or limited liability
company, the stockholders, general or limited partners or members of which,
include only such Person or his or her spouse, lineal descendants or heirs, in
each case to whom such Person has transferred, or through which it holds, the
beneficial ownership of any securities of the Issuer and (iv) any investment
fund or investment entity that is a subsidiary of such Person or a Permitted
Transferee of such Person.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Issuer, Holders of Exchangeable Preferred Stock will be entitled to be
paid, out of the assets of the Issuer available for distribution, the
liquidation preference per share, plus an amount in cash equal to all
accumulated and unpaid dividends thereon to the date fixed for liquidation,
dissolution or winding-up (including an amount equal to a prorated dividend
for the period from the last dividend payment date to the date fixed for
liquidation, dissolution or winding-up), before any distribution is made on
any Junior Securities, including, without limitation, common stock of the
Issuer. If, upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Issuer, the amounts payable with respect to the Exchangeable
Preferred Stock and all other Parity Securities are not paid in full, the
Holders of the Exchangeable Preferred Stock and the Parity Securities will
share equally and ratably in any distribution of assets of the Issuer in
proportion to the full liquidation preference and accumulated and unpaid
dividends to which each is entitled. After payment of the full amount of the
liquidation preferences and accumulated and unpaid dividends to which they are
entitled, the Holders of shares of Exchangeable Preferred Stock will not be
entitled to any further participation in any distribution of assets of the
Issuer. However, neither the sale, conveyance, exchange or transfer (for cash,
shares of
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stock, securities or other consideration) of all or substantially all of the
property or assets of the Issuer nor the consolidation or merger of the Issuer
with or into one or more corporations will be deemed to be a liquidation,
dissolution or winding-up of the Issuer.
The Certificate of Designation does not contain any provision requiring
funds to be set aside to protect the liquidation preference of the
Exchangeable Preferred Stock, although such liquidation preference will be
substantially in excess of the par value of such shares of Exchangeable
Preferred Stock. In addition, the Issuer is not aware of any provision of
Delaware law or any controlling decision of the courts of the State of
Delaware (the state of incorporation of the Issuer) that requires a
restriction upon any surplus of the Issuer solely because the liquidation
preference of the Exchangeable Preferred Stock will exceed its par value.
Consequently, there will be no restriction upon any surplus of the Issuer
solely because the liquidation preference of the Exchangeable Preferred Stock
will exceed the par value and there will be no remedies available to Holders
of the Exchangeable Preferred Stock before or after the payment of any
dividend, other than in connection with the liquidation of the Issuer, solely
by reason of the fact that such dividend would reduce the surplus of the
Issuer to an amount less than the difference between the liquidation
preference of the Exchangeable Preferred Stock and its par value.
VOTING RIGHTS
Exchangeable Preferred Stock Holders will have no voting rights with respect
to any matters except as provided by law or as set forth in the Certificate of
Designation. The Certificate of Designation provides that if (i) dividends on
the Exchangeable Preferred Stock are in arrears and unpaid (or, in the case of
dividends payable after August 1, 2003, are not paid in cash) for six
quarterly periods (whether or not consecutive), (ii) the Issuer fails to
discharge any redemption obligation with respect to the Exchangeable Preferred
Stock (whether or not such redemption is prohibited by the terms of the New
Credit Facility, the Notes or any other obligation of the Issuer), (iii) the
Issuer fails to redeem or make an offer to purchase all of the outstanding
shares of Exchangeable Preferred Stock following a Change of Control (whether
or not the Issuer is permitted to do so by the terms of the New Credit
Facility, the Notes or any other obligation of the Issuer) or fails to
purchase shares of Exchangeable Preferred Stock from Holders who elect to have
such shares purchased pursuant to the Exchangeable Preferred Change of Control
Offer, (iv) a breach or violation of the provisions described under the
caption "--Certain Covenants" occurs and the breach or violation continues for
a period of 90 days or more after the Issuer receives notice thereof
specifying the default from Holders of at least 25% of the Exchangeable
Preferred Stock then outstanding, or (v) the Issuer or any Significant
Subsidiary fails to pay any Debt within any applicable grace period after
final maturity (a "Payment Default"), or the acceleration of any such Debt by
the holders thereof because of a default, so long as the total amount of such
Debt unpaid or accelerated exceeds $15 million or its foreign currency
equivalent, then the number of directors constituting the Board of Directors
of the Issuer will be adjusted to permit the Holders of the majority of the
then outstanding Exchangeable Preferred Stock, voting separately as a class,
to elect two directors. Each such event described in clauses (i) through (v)
above is referred to herein as a "Voting Rights Triggering Event." Voting
rights arising as a result of a Voting Rights Triggering Event will continue
until (1) in the case of any Voting Rights Triggering Event under clause (i)
of the definition thereof, such time as all dividends in arrears on the
Exchangeable Preferred Stock are paid in full (and after August 1, 2003, are
paid in cash) and (2) in all other cases, any failure, breach or default
giving rise to such voting rights is remedied or waived by the Holders of at
least a majority of the shares of Exchangeable Preferred Stock then
outstanding (and, in the case of any acceleration referred to in clause (v) of
the definition of "Voting Rights Triggering Event," such acceleration has been
rescinded), at which time the term of the directors elected pursuant to the
provisions of this paragraph shall terminate automatically.
In addition, the Certificate of Designation provides that the Issuer may not
amend the Certificate of Designation so as to affect adversely the special
rights, powers, preferences, privileges or voting rights of Holders of the
Exchangeable Preferred Stock, without the affirmative vote or consent of the
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Holders of in excess of 50% of the then outstanding shares of Exchangeable
Preferred Stock, voting or consenting, as the case may be, as one class;
provided that (a) the creation, authorization or issuance of any shares of
Junior Securities or any Parity Securities, (b) the decrease in the amount of
authorized Capital Stock of any class, including any Exchangeable Preferred
Stock, or (c) the increase in the amount of authorized Capital Stock of any
class of Junior Securities or Parity Securities (including Exchangeable
Preferred Stock) shall not require the consent of the Holders of Exchangeable
Preferred Stock and shall not be deemed to affect adversely the special
rights, powers, preferences, privileges or voting rights of Holders of shares
of Exchangeable Preferred Stock. The Holders of at least a majority of the
outstanding shares of Exchangeable Preferred Stock, voting or consenting, as
the case may be, as one class, may also waive compliance with any provision of
the Certificate of Designation.
Under Delaware law, Holders of Exchangeable Preferred Stock will be entitled
to vote as a class upon a proposed amendment to the Certificate of
Incorporation, whether or not entitled to vote thereon by the Certificate of
Incorporation, if the amendment would increase or decrease the aggregate
number of authorized shares of such class, increase or decrease the par value
of the shares of such class, or alter or change the special rights, powers,
preferences or privileges of the shares of such class so as to affect them
adversely. Notwithstanding the foregoing, without the consent of any Holder of
Exchangeable Preferred Stock, the Issuer may amend or supplement the
Certificate of Designation to (i) cure any ambiguity, defect or inconsistency
in the Certificate of Designation or (ii) make any change that, as determined
by the Board of Directors in good faith, does not have a material adverse
effect on the legal rights under the Certificate of Designation of any such
Holder.
CERTAIN COVENANTS
The sole remedy to Holders of Exchangeable Preferred Stock in the event of
the Issuer's failure to comply with any of the covenants described below and
the sole consequence of any such failure will be the voting rights described
above.
Restricted Payments
The Certificate of Designation provides that the Issuer will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any other distribution (including
any payment in connection with any merger or consolidation) on account of
any Junior Equity Interests of the Issuer or Equity Interests of any
Restricted Subsidiary (other than dividends or distributions payable in
Junior Equity Interests of the Issuer or Equity Interests of any Restricted
Subsidiary (other than Disqualified Stock) and dividends payable to the
Issuer or any Restricted Subsidiary);
(ii) purchase, redeem or otherwise acquire or retire for value (including
in connection with any merger or consolidation) any Junior Equity Interests
of the Issuer or any Equity Interests of any Restricted Subsidiary held by
Persons other than the Issuer or any Restricted Subsidiary; or
(iii) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iii)
above being collectively referred to as "Restricted Payments"), unless, at
the time of, and after giving effect to, such Restricted Payment:
(a) no Voting Rights Triggering Event shall have occurred and be
continuing or would occur as a consequence thereof;
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(b) the Issuer would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Debt pursuant to the
Consolidated Coverage Ratio test set forth in the first paragraph of the
covenant described below under the caption "--Incurrence of Debt and
Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with (without duplication) the
aggregate amount of all other Restricted Payments made by the Issuer and
its Restricted Subsidiaries after the Issue Date (excluding Restricted
Payments permitted by clauses (ii), (iv) and (v) of the next succeeding
paragraph, but including all other Restricted Payments permitted by the
next succeeding paragraph), is less than the sum (without duplication) of
(i) 50% of the Consolidated Net Income of the Issuer for the period
(taken as one accounting period) from the beginning of the fiscal
quarter during which the Issue Date occurs to the end of the Issuer's
most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Issuer
from the issue or sale (other than to a Subsidiary) of, or from capital
contributions with respect to, Junior Equity Interests of the Issuer
(other than Disqualified Stock), in either case after the Issue Date,
plus
(iii) the aggregate principal amount (or accreted value, if less) of
Debt, Disqualified Stock or Equity Interests (other than Junior Equity
Interests) of the Issuer or any Restricted Subsidiary issued since the
Issue Date (other than to a Restricted Subsidiary) that has been
converted into Junior Equity Interests (other than Disqualified Stock)
of the Issuer, plus
(iv) 100% of the aggregate net cash received by the Issuer or a
Restricted Subsidiary of the Issuer since the Issue Date from (A)
Restricted Investments, whether through interest payments, principal
payments, dividends or other distributions or payments, or the sale or
other disposition (other than to the Issuer or a Restricted Subsidiary)
thereof made by the Issuer and its Restricted Subsidiaries, and (B) a
cash dividend from, or the sale (other than to the Issuer or a
Restricted Subsidiary) of the stock of, an Unrestricted Subsidiary,
plus
(v) upon the redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the fair market value of the Investments of the
Issuer and its Restricted Subsidiaries (other than such Subsidiary) in
such Subsidiary.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would have
complied with the provisions of the Certificate of Designation;
(ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Junior Equity Interests of the Issuer or Equity
Interests of any Restricted Subsidiary in exchange for, or out of the net
cash proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary of the Issuer) of other Junior Equity Interests of
the Issuer or Equity Interests of any Restricted Subsidiary, or a capital
contribution with respect to Junior Equity Interests of the Issuer (other
than, in each case, any sale of or capital contribution in respect of
Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (c) (ii) of
the preceding paragraph;
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(iii) the redemption, repurchase, retirement, defeasance or other
acquisition of Junior Equity Interests upon a Change of Control to the
extent required by the agreement or certificate of designation governing
such Junior Equity Interests, but only (x) if the Issuer shall have
complied with the covenant described under the caption "Repurchases at the
Option of Holders Upon Change of Control" and repurchased all Exchangeable
Preferred Stock tendered pursuant to the offer required by such covenant
prior to purchasing or repaying such Junior Equity Interests, and (y)
within six months after the date such offer is consummated;
(iv) the payment of any dividend by a Restricted Subsidiary of the Issuer
to the holders of its common Equity Interests on a pro rata basis;
(v) to the extent constituting Restricted Payments, the Specified
Affiliate Payments; and
(vi) Restricted Payments in an aggregate amount not to exceed $10
million.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Voting Rights
Triggering Event. For purposes of making such determination, all outstanding
Investments by the Issuer and its Restricted Subsidiaries (except to the
extent repaid in cash) in the Subsidiary so designated, to the extent they do
not constitute Permitted Investments at the time such Subsidiary became an
Unrestricted Subsidiary, will be deemed to be Restricted Payments made at the
time of such designation. The amount of such outstanding Investments will be
equal to the portion of the fair market value of the net assets of any
Subsidiary of the Issuer at the time that such Subsidiary is designated an
Unrestricted Subsidiary that is represented by the interest of the Issuer and
its Restricted Subsidiaries in such Subsidiary, in each case as determined in
good faith by the Board of Directors of the Issuer. Such designation will only
be permitted if such Restricted Payment would be permitted at such time and if
such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Issuer or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined
in good faith by the Board of Directors of the Issuer.
In making the computations required by this covenant, (i) the Issuer or the
relevant Restricted Subsidiary may use audited financial statements for the
portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial
statements and other current financial data based on the books and records of
the Issuer for the remaining portion of such period and (ii) the Issuer or the
relevant Restricted Subsidiary will be permitted to rely in good faith on the
financial statements and other financial data derived from the books and
records of the Issuer and the Restricted Subsidiary that are available on the
date of determination. If the Issuer makes a Restricted Payment that, at the
time of the making of such Restricted Payment, would in the good faith
determination of the Issuer or any Restricted Subsidiary be permitted under
the requirements of the Certificate of Designation, such Restricted Payment
will be deemed to have been made in compliance with the Certificate of
Designation notwithstanding any subsequent adjustments made in good faith to
the Issuer's or any Restricted Subsidiary's financial statements, affecting
Consolidated Net Income of the Issuer for any period.
For the avoidance of doubt, it is expressly agreed that no payment or other
transaction permitted by clauses (3), (4) and (5) of the covenant described
under "Certain Covenants--Transactions with Affiliates" shall be considered a
Restricted Payment for purposes of, or otherwise restricted by, the
Certificate of Designation.
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Incurrence of Debt and Issuance of Preferred Stock
The Certificate of Designation provides that the Issuer will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any Debt and that the Issuer will not issue any Disqualified Stock
and will not permit any of its Restricted Subsidiaries to issue any shares of
Preferred Stock; provided, however, that the Issuer and its Restricted
Subsidiaries may incur Debt or issue shares of Disqualified Stock and the
Issuer's Restricted Subsidiaries may issue Preferred Stock, if the
Consolidated Coverage Ratio for the Issuer's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Debt is incurred or
such Disqualified Stock or Preferred Stock is issued would have been at least
1.75 to 1.00 if such four-quarter period ends on or prior to the second
anniversary of the Issue Date and 2.00 to 1.00 if it ends thereafter,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Debt had been incurred, or the
Disqualified Stock or Preferred Stock had been issued, as the case may be, at
the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Debt (collectively, "Permitted
Debt"):
(i) the incurrence of term and revolving Debt, letters of credit (with
letters of credit being deemed to have a principal amount equal to the
undrawn face amount thereof) and other Debt under Credit Facilities
(including Guarantees by the Issuer or any of its Subsidiaries of synthetic
lease drawings and other loans under the New Credit Facility or of other
Debt under Credit Facilities); provided that the aggregate principal amount
of such Debt outstanding pursuant to this clause (i) does not exceed an
amount equal to $250.0 million;
(ii) the incurrence by the Issuer and its Restricted Subsidiaries of
Existing Debt;
(iii) the incurrence by (A) the Issuer of Debt represented by the Notes
and the Exchange Debentures and (B) the Guarantors of Debt represented by
the Note Guarantees;
(iv) the incurrence by the Issuer or any of its Restricted Subsidiaries
of Acquired Debt;
(v) the incurrence by the Issuer or any of its Restricted Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to refund, refinance or replace Debt (other than intercompany
Debt) that was permitted by the Certificate of Designation to be incurred;
(vi) the incurrence by the Issuer or any of its Restricted Subsidiaries
of intercompany Debt or Preferred Stock owed or issued to and held by the
Issuer and any of its Restricted Subsidiaries, provided, however, that (A)
any subsequent issuance or transfer of Equity Interests or other action
that results in any such Debt or Preferred Stock being held by a Person
other than the Issuer or a Restricted Subsidiary and (B) any sale or other
transfer of any such Debt or Preferred Stock to a Person that is not either
the Issuer or a Restricted Subsidiary shall be deemed, in each case, to
constitute an incurrence of such Debt or issuance of such Preferred Stock
by the Issuer or such Restricted Subsidiary, as the case may be, that was
not permitted by this clause (vi);
(vii) the incurrence by the Issuer or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred (A) principally for the purpose of
fixing or hedging interest rate risk with respect to any floating rate Debt
that is permitted by the terms of the Certificate of Designation to be
outstanding or (B) principally for the purpose of fixing or hedging
currency exchange rate risk or commodity price risk incurred in the
ordinary course of business;
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(viii) the guarantee by the Issuer or any Restricted Subsidiary of Debt
of the Issuer or a Restricted Subsidiary of the Issuer that was permitted
to be incurred by another provision of this covenant; and
(ix) the incurrence by the Issuer or any of its Restricted Subsidiaries
of additional Debt (which may comprise Debt under the New Credit Facility)
in an aggregate principal amount (or accreted value, as applicable) at any
time outstanding pursuant to this clause (ix) not to exceed an amount equal
to $20.0 million.
For purposes of determining compliance with this covenant, in the event that
an item of Debt meets the criteria of more than one of the categories of
Permitted Debt described in clauses (i) through (ix) above or is entitled to
be incurred pursuant to the first paragraph of this covenant, the Issuer
shall, in its sole discretion, classify such item of Debt in any manner that
complies with this covenant and such item of Debt will be treated as having
been incurred pursuant to only one of such clauses or pursuant to the first
paragraph hereof; provided that all outstanding Debt under the New Credit
Facility immediately following the Recapitalization shall be deemed to have
been incurred pursuant to clause (i) of the definition of Permitted Debt.
Accrual of interest and the accretion of accreted value will be deemed not to
be an incurrence of Debt for purposes of this covenant.
Merger, Consolidation or Sale of all or Substantially all Assets
The Certificate of Designation provides that the Issuer may not consolidate
or merge with or into (whether or not the Issuer is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets in one or more related
transactions, to another Person unless:
(i) the Issuer is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Issuer) or to
which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia;
(ii) the Exchangeable Preferred Stock shall be converted into or
exchanged for and shall become shares of the surviving entity having in
respect of such surviving entity substantially the same rights and
privileges that the Exchangeable Preferred Stock had immediately prior to
such transaction with respect to the Issuer and shall not be subordinated
to any Preferred Stock of the surviving entity;
(iii) immediately after such transaction no Voting Rights Triggering
Event shall exist; and
(iv) except in the case of a merger of the Issuer with or into a Wholly
Owned Restricted Subsidiary of the Issuer, the Issuer or the Person formed
by or surviving any such consolidation or merger (if other than the
Issuer), or to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made will, at the time of such
transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter
period, either (x) be permitted to incur at least $1.00 of additional Debt
pursuant to the Consolidated Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "--Incurrence
of Debt and Issuance of Preferred Stock" or (y) have a Consolidated
Coverage Ratio at least equal to the Consolidated Coverage Ratio of the
Issuer for such four-quarter reference period;
Notwithstanding the foregoing clauses (iii) and (iv), (a) any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Issuer and (b) the Issuer may merge with an
Affiliate incorporated solely for the purpose of reincorporating the Issuer in
another jurisdiction.
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Transactions with Affiliates
The Certificate of Designation provides that the Issuer will not, and will
not permit any of its Restricted Subsidiaries to, make any payment to, or
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make or amend
any transaction, contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each of the foregoing,
an "Affiliate Transaction"), unless:
(i) such Affiliate Transaction is on terms that, taken as a whole, are no
less favorable to the Issuer or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction by the
Issuer or such Restricted Subsidiary with an unrelated Person; and
(ii) the Issuer delivers to the transfer agent (a) with respect to any
Affiliate Transaction entered into after the Issue Date involving aggregate
consideration in excess of $3.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such
Affiliate Transaction has been approved by a majority of the members of the
Board of Directors and (b) with respect to any Affiliate Transaction
involving aggregate consideration in excess of $10.0 million, an opinion as
to the fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an investment banking, appraisal or
accounting firm of national standing.
Notwithstanding the foregoing, the following will not be deemed to be
Affiliate Transactions:
(1) transactions between or among the Issuer and/or its Restricted
Subsidiaries;
(2) Permitted Investments and Restricted Payments that are permitted by
the provisions of the Certificate of Designation described above under the
caption "--Restricted Payments;"
(3) employment agreements, employee benefit plans and related
arrangements entered into in the ordinary course of business and all
payments and other transactions contemplated thereby;
(4) any payments to Investcorp and its Affiliates (whether or not such
Persons are Affiliates of the Issuer) (A) for any financial advisory,
financing, underwriting or placement services or in respect of other
investment banking activities, including in connection with acquisitions or
divestitures, which payments are approved by the Board of Directors of the
Issuer in good faith and (B) of annual management, consulting and advisory
fees and related expenses;
(5) any agreement in effect on the Closing Date (including the
Recapitalization Agreement, the Services Agreement (as amended on April 15,
1998) between the Berkshire Companies Limited Partnership and the Issuer
and the Brevard lease agreement) or any amendment thereto (so long as any
such amendment is not disadvantageous to the Holders in any material
respect) or any payment or other transaction contemplated by any of the
foregoing; and
(6) Debt permitted by paragraph (ix) of the covenant described under the
caption "--Incurrence of Debt and Issuance of Preferred Stock" to the
extent such Debt is on terms that, taken as a whole, are no less favorable
to the Issuer or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction with an unrelated Person.
Reports
Notwithstanding that the Issuer may not be required to remain subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, to the
extent permitted by the Exchange Act, the Issuer will file with the
Commission, and provide, within 15 days after the Issuer is required to file
the same with the Commission, the Trustee and the Holders with the annual
reports and the information, documents and other reports that are specified in
Sections 13 and 15(d) of the Exchange Act. In the event the Issuer is not
permitted to file such reports, documents and information with the Commission,
the Issuer will provide substantially similar information to the Trustee and
the Holders, as if the Issuer were subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act.
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EXCHANGE
The Issuer may at its option exchange all, but not less than all, of the
then outstanding shares of Exchangeable Preferred Stock into Exchange
Debentures on any dividend payment date, provided that on the date of such
exchange such exchange is permitted by the terms of the indenture pursuant to
which the Notes are issued and the New Credit Facility. The Issuer shall send
a written notice of exchange by mail to each Holder of shares of Exchangeable
Preferred Stock, which notice shall state, among other things, (i) that the
Issuer is exercising its option to exchange the Exchangeable Preferred Stock
for Exchange Debentures pursuant to the Certificate of Designation and (ii)
the date of exchange (the "Exchange Date"), which date shall not be less than
30 days nor more than 60 days following the date on which such notice is
mailed. On the Exchange Date, Holders of outstanding shares of Exchangeable
Preferred Stock will be entitled to receive a principal amount of Exchange
Debentures equal to the liquidation preference per share, plus an amount in
cash (or, on or prior to August 1, 2003, in principal amount of Exchange
Debentures) equal to all accumulated and unpaid dividends (including an amount
equal to a prorated dividend for the period from the dividend payment date
immediately prior to the Exchange Date to the Exchange Date), as provided
below.
The Exchange Debentures will be issued in registered form, without coupons.
Exchange Debentures issued in exchange for Exchangeable Preferred Stock will
be issued in principal amounts of $1,000 and integral multiples thereof to the
extent possible, and will also be issued in principal amounts less than $1,000
so that each Holder of Exchangeable Preferred Stock will receive certificates
representing the entire amount of Exchange Debentures to which his or her
shares of Exchangeable Preferred Stock entitle him or her, provided that the
Issuer may, at its option, pay cash in lieu of issuing an Exchange Debenture
in a principal amount less than $1,000. On and after the Exchange Date,
dividends will cease to accumulate on the outstanding shares of Exchangeable
Preferred Stock, and all rights of the Holders of Exchangeable Preferred Stock
(except the right to receive the Exchange Debentures, an amount in cash equal
to the accumulated and unpaid dividends to the Exchange Date (or, on or prior
to August 1, 2003, in principal amount of Exchange Debentures) and if the
Issuer so elects, cash in lieu of any Exchange Debenture that is in an amount
that is not an integral multiple of $1,000) will terminate. The person
entitled to receive the Exchange Debentures issuable upon such exchange will
be treated for any purposes as the registered Holder of such Exchange
Debentures.
The New Credit Facility and the Indenture contain limitations with respect
to the Issuer's ability to issue the Exchange Debentures, and any future
credit agreements or other agreements relating to indebtedness to which the
Issuer or any of its Subsidiaries become a party may contain similar
limitations. See "Description of the New Notes--Certain Covenants" and
"Description of the New Credit Facility."
The Issuer intends to comply with the provisions of Rule 13e-4 promulgated
pursuant to the Exchange Act in connection with any exchange, to the extent
applicable.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The New Preferred Stock will be subject to provisions regarding legal and
covenant defeasance which are substantially the same as those with respect to
the New Notes set forth under "Description of the New Notes--Legal Defeasance
and Covenant Defeasance."
TRANSFER AGENT AND REGISTRAR
United States Trust Company of New York will be the transfer agent and
registrar for the New Preferred Stock.
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BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the New Preferred Stock will initially be issued
in the form of one or more permanent global Preferred Stock certificates in
fully registered form (each, a "Global Preferred Stock Certificate"). Upon
issuance, each Global Preferred Stock Certificate will be deposited with the
Trustee as custodian for, and registered in the name of, a nominee of The
Depository Trust Company ("DTC").
Owners of beneficial interests in a Global Preferred Stock Certificate will
generally not be entitled to receive physical delivery of a physical
certificate for their New Preferred Stock (Certificated Preferred Stock). The
New Preferred Stock is not issuable in bearer form.
Upon the issuance of any Global Preferred Stock Certificates, DTC or its
custodian will credit, on its internal system, the respective liquidation
preference of the individual beneficial interests represented by such Global
Preferred Stock Certificates, to the accounts of persons who have accounts
with such depositary. Such accounts initially will be designated by or on
behalf of the Exchange Agent. Ownership of beneficial interests in a Global
Preferred Stock Certificate will be limited to persons who have accounts with
DTC ("participants") or persons who hold interests through participants.
Ownership of beneficial interests in a Global Preferred Stock Certificate will
be shown on, and the transfer of that ownership will be effected only through,
records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Beneficial owners may hold their interests
in a Global Preferred Stock Certificate directly through DTC if they are
participants in such system, or indirectly through organizations which are
participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Preferred Stock Certificate, DTC or such nominee, as the case may be,
will be considered the sole owner or holder of the Exchangeable Preferred
Stock represented by such Global Preferred Stock Certificate for all purposes
under the Certificate of Designation and the Exchangeable Preferred Stock. No
beneficial owner of an interest in a Global Preferred Stock Certificate will
be able to transfer that interest except in accordance with DTC's applicable
procedures, in addition to those provided for under the Certificate of
Designation.
Payments made with respect to the Global Preferred Stock Certificates will
be made to DTC or its nominee, as the case may be, as the registered owner
thereof. The Issuer will not have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in a Global Preferred Stock Certificate or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The Issuer expects that DTC or its nominee, upon receipt of any payments
made with respect to the Global Preferred Stock Certificates, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the amount of such Global Preferred Stock
Certificates as shown on the records of DTC or its nominee. The Issuer also
expects that payments by participants to owners of beneficial interests in
such Global Preferred Stock Certificates held through such participants will
be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers registered in the
names of nominees for such customers. Such payments will be the responsibility
of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
The Issuer expects that DTC will take any action permitted to be taken by a
holder of Exchangeable Preferred Stock (including the presentation of
Exchangeable Preferred Stock for
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exchange as described below) only at the direction of one or more participants
to whose account the DTC interests in a Global Preferred Stock Certificate is
credited and only in respect of such portion of the aggregate liquidation
preference of Exchangeable Preferred Stock as to which such participant or
participants has or have given such direction.
The Issuer understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical
movement of certificates. Indirect access to the DTC system is available to
others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in Global Preferred Stock Certificates among
participants of DTC, it is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
The Issuer will not have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Preferred Stock Certificates and a successor depositary is not
appointed by the Issuer within 90 days, the Issuer will issue Certificated
Preferred Stock in exchange for the Global Preferred Stock Certificates.
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DESCRIPTION OF THE EXCHANGE DEBENTURES
GENERAL
The Exchange Debentures, if issued, will be issued pursuant to an indenture
(the "Exchange Debenture Indenture") that will be entered into by and between
the Issuer and United States Trust Company of New York, as trustee (the
"Exchange Debenture Trustee"). The Certificate of Designation provides that
the terms of the Exchange Debentures will be as set forth in the Offering
Memorandum dated July 29, 1998 pursuant to which the Old Notes and the Old
Preferred Stock were issued. These terms will be contained in the Exchange
Debenture Indenture. Set forth below in this Description of the Exchange
Debentures is substantially the same description of the terms of the Exchange
Debentures as is set forth in such Offering Memorandum. The terms of the
Exchange Debentures will also include those that will be made part of the
Exchange Debenture Indenture by reference to the Trust Indenture Act of 1939,
as amended (the "Trust Indenture Act"). Holders of Exchange Debentures are
referred to the Trust Indenture Act for a statement of such terms. Whenever
this Description of Exchange Debentures refers to procedures or other terms to
be set forth in the Exchange Debenture Indenture, it is anticipated that such
procedures or other terms will be substantially similar to those set forth in
the Indenture. The definitions of certain terms used in the following summary
are set forth below under "--Certain Definitions." All references in this
Description of Exchange Debentures to the "Issuer" are limited to Harborside
Healthcare Corporation and do not include any of the Issuer's Subsidiaries.
All of the Issuer's Subsidiaries are Restricted Subsidiaries on the date
hereof. However, under certain circumstances, the Issuer will be able to
designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to the restrictive covenants to
be set forth in the Exchange Debenture Indenture.
The Exchange Debentures, if issued, will be general unsecured obligations of
the Issuer, subordinated to all existing and future Senior Debt (including the
Notes and the New Credit Facility). The Exchange Debentures will also be
effectively subordinated to all existing and future Debt of the
Issuer's Subsidiaries. The Exchange Debentures will be issued in fully
registered form only in denominations of $1,000 and integral multiples thereof
(other than as described in "Description of Exchangeable Preferred Stock--
Exchange" or with respect to additional Exchange Debentures issued in lieu of
cash interest as described herein).
PRINCIPAL AND MATURITY OF AND INTEREST ON THE EXCHANGE DEBENTURES
The Exchange Debentures will mature on August 1, 2010, and will be limited
in aggregate principal amount to the liquidation preference of the
Exchangeable Preferred Stock (including any Additional Exchangeable Preferred
Stock), plus without duplication, accumulated and unpaid dividends on the
Exchange Date (plus any additional Exchange Debentures issued in lieu of cash
interest as described herein). Interest on the Exchange Debentures will accrue
at a rate of 13 1/2% per annum from the Exchange Date or from the most recent
interest payment date to which interest has been paid or provided for.
Interest will be payable semi-annually in cash (or, on or prior to August 1,
2003, in additional Exchange Debentures, at the option of the Issuer) in
arrears on February 1 and August 1 of each year, commencing with the first
such date after the Exchange Date, to Exchange Debenture Holders of record on
the immediately preceding January 15 and July 15. Interest on the Exchange
Debentures will be computed on the basis of a 360-day year comprised of twelve
30-day months. Principal, premium, if any and interest on the Exchange
Debentures will be payable at the office or agency of the Issuer maintained
for such purpose within the City and State of New York or, at the option of
the Issuer, payment of interest may be made by check mailed to the Holders of
the Exchange Debentures at their respective addresses set forth in the
register of Holders of Exchange Debentures; provided that all payments of
principal, premium, if any and interest with respect to any Exchange
Debentures the Holders of which have given wire transfer instructions to the
Issuer will be required to be made by wire transfer of immediately available
funds to the accounts specified by the Holders thereof. Until otherwise
designated by the Issuer, the Issuer's office or agency in New York will be
the office of the Exchange Debenture Trustee maintained for such purpose.
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SUBORDINATION
The Debt evidenced by the Exchange Debentures will be unsecured, will be
subordinated in right of payment to all existing and future Senior Debt of the
Issuer (including the Issuer's Obligations under the Notes and the New Credit
Facility), will rank pari passu in right of payment with all existing and
future Pari Passu Debt of the Issuer and will be senior in right of payment to
all existing and future Subordinated Debt of the Issuer. The Exchange
Debentures will also be effectively subordinated to any Secured Debt of the
Issuer to the extent of the value of the assets securing such Debt and to all
liabilities of its Subsidiaries. However, payment from the money or the
proceeds of Government Notes held in any defeasance trust described under "--
Legal Defeasance and Covenant Defeasance" below is not subordinated to any
Senior Debt or subject to the restrictions described herein, so long as the
payments into the defeasance trust were not prohibited pursuant to the
subordination provisions hereinafter described at the time when so paid.
The Issuer conducts substantially all of its operations through its
Subsidiaries and consequently derives substantially all of its income through
its Subsidiaries. Claims of creditors of such Subsidiaries of the Issuer,
including trade creditors of such Subsidiaries, generally will have priority
with respect to the assets and earnings of such Subsidiaries over the claims
of creditors of the Issuer, including the Holders of the Exchange Debentures.
The Exchange Debentures, therefore, will be effectively subordinated to
creditors (including trade creditors) of such Subsidiaries.
At June 30, 1998, after giving pro forma effect to the Recapitalization (i)
the outstanding Senior Debt of the Issuer would have been $103.6 million, $4.1
million of which would have been Secured Debt and $99.5 million of which would
have been Debt represented by the Notes, (ii) the total liabilities of the
Subsidiaries of the Issuer (including trade payables) would have been $107.2
million (excluding amounts owed to the Issuer) and (iii) the Issuer and its
Subsidiaries would have had $177.4 million of consolidated Debt. Although the
Exchange Debenture Indenture will contain limitations on the amount of
additional Debt which the Issuer and the Restricted Subsidiaries may incur,
under certain circumstances the amount of such Debt could be substantial, such
Debt may be Senior Debt and such Debt may be incurred by Subsidiaries. The
Exchange Debenture Indenture will provide that the Issuer and the Restricted
Subsidiaries may not incur or otherwise become liable for any Debt that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Exchange Debentures. Unsecured Debt is not
deemed to be subordinate or junior to secured Debt merely because it is
unsecured.
Upon any payment or distribution to creditors of the Issuer in a liquidation
or dissolution of the Issuer or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Issuer or its property, an
assignment for the benefit of creditors or any marshaling of the Issuer's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full, in cash or Cash Equivalents, of all Obligations due in
respect of such Senior Debt (including interest after the commencement of any
such proceeding at the rate specified in the applicable Senior Debt, whether
or not allowed or allowable in such proceeding) before the Holders of Exchange
Debentures will be entitled to receive any payment with respect to the
Exchange Debentures, and until all Obligations with respect to Senior Debt are
paid in full, in cash or Cash Equivalents, any payment or distribution to
which the Holders of Exchange Debentures would be entitled shall be made to
the holders of Senior Debt (except that Holders of Exchange Debentures may
receive and retain (i) Permitted Junior Securities and (ii) payments made from
the trust described under "--Legal Defeasance and Covenant Defeasance" so long
as, on the date or dates the respective amounts were paid into the trust, such
payments were made with respect to the Exchange Debentures without violating
the subordination provisions described herein). The term "payment" means, with
respect to the Exchange Debentures, any payment, whether in cash, other assets
or property, or additional Exchange Debentures, of interest, principal
(including redemption price and purchase price), premium or any other amount
on, of or in respect of the Exchange Debentures, any other acquisition of
Exchange Debentures and any deposit into the trust described under "--Legal
Defeasance and Covenant Defeasance" below. The verb "pay" has a correlative
meaning.
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The Issuer also may not make any payment or distribution upon or in respect
of the Exchange Debentures (except from the trust described under "--Legal
Defeasance and Covenant Defeasance") if (i) a default in the payment of any
Obligations with respect to Designated Senior Debt occurs and is continuing (a
"payment default") or any other default on Designated Senior Debt occurs and
the maturity of such Designated Senior Debt is accelerated in accordance with
its terms or (ii) a default, other than a payment default, occurs and is
continuing with respect to Designated Senior Debt that permits holders of the
Designated Senior Debt as to which such default relates to accelerate its
maturity (a "non-payment default") and, in the case of this clause (ii) only,
the Exchange Debenture Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Issuer, a Representative for, or the holders of a
majority of the outstanding principal amount of, any issue of Designated
Senior Debt. Payments on the Exchange Debentures may and shall be resumed (a)
in the case of a payment default, upon the date on which such default is cured
or waived and, in the case of Designated Senior Debt that has been
accelerated, such acceleration has been rescinded, and (b) in case of a non-
payment default, the earlier of the date on which such non-payment default is
cured or waived or 179 days after the date on which the applicable Payment
Blockage Notice is received, unless the maturity of any Designated Senior Debt
has been accelerated. No new period of payment blockage may be commenced on
account of any non-payment default unless and until 360 days have elapsed
since the initial effectiveness of the immediately prior Payment Blockage
Notice. No non-payment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Exchange Debenture Trustee
shall be, or be made, the basis for a subsequent Payment Blockage Notice
unless such default shall have been cured or waived for a period of not less
than 90
days. Notwithstanding any other provision hereof, during any 365 day period,
there must be at least 180 days where there is no Payment Blockage Notice in
effect.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Exchange Debentures may recover less
ratably than other creditors of the Issuer including holders of Senior Debt
(including holders of the Notes) and trade creditors. The Exchange Debenture
Indenture will limit, subject to certain financial tests and exceptions, the
amount of additional Debt, including Senior Debt, that the Issuer and its
Subsidiaries can incur. See "--Certain Covenants--Incurrence of Debt and
Issuance of Preferred Stock."
OPTIONAL REDEMPTION
Except as described in the following paragraphs, the Exchange Debentures
will not be redeemable at the Issuer's option prior to August 1, 2003.
Thereafter, the Exchange Debentures will be subject to redemption at any time
at the option of the Issuer, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed as percentages
of principal amount) set forth below plus accrued and unpaid interest to the
applicable redemption date (subject to the right of Holders on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the twelve-month period beginning on August 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003............................................. 106.750%
2004............................................. 104.500
2005............................................. 102.250
2006 and thereafter.............................. 100.000
</TABLE>
In addition, at any time and from time to time, prior to August 1, 2001, the
Issuer may redeem up to 35% of the Exchange Debentures, at a redemption price
of 113.5% of the principal amount thereof plus accrued and unpaid interest to
the redemption date, with the net cash proceeds received by the Issuer of a
public offering of common stock of the Issuer provided that such redemption
shall occur within 60 days of the date of the closing of such public offering.
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At any time on or prior to August 1, 2003, the Exchange Debentures may be
redeemed as a whole but not in part at the option of the Issuer upon the
occurrence of a Change of Control, upon not less than 30 nor more than 60
days' prior notice (but in no event may any such redemption occur more than 90
days after the occurrence of such Change of Control) mailed by first-class
mail to each Holder's registered address, at a redemption price equal to 100%
of the principal amount thereof plus the Applicable Premium as of, and accrued
but unpaid interest to, the redemption date (subject to the right of Holders
on the relevant record date to receive interest due on the relevant interest
payment date).
"Applicable Premium" means, with respect to an Exchange Debenture at any
redemption date, the greater of (i) 1.0% of the principal amount of such
Exchange Debenture or (ii) the excess of (A) the present value at such time of
(1) the redemption price of such Exchange Debenture at August 1, 2003 (such
redemption price being set forth in the table above) plus (2) all required
interest payments due on such Exchange Debenture through August 1, 2003
(whether in cash or additional Exchange Debentures, but excluding accrued but
unpaid interest, if any, on the redemption date), computed using a discount
rate equal to the Treasury Rate plus 50 basis points, over (B) the principal
amount of such Exchange Debenture, if greater, on the redemption date.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H. 15(519)
which has become publicly available at least two Business Days prior
to the redemption date (or, if such Statistical Release is no longer
published, any publicly available source or similar market data)) most nearly
equal to the period from the redemption date to August 1, 2003, provided,
however, that if the period from the redemption date to August 1, 2003 is not
equal to the constant maturity of a United States Treasury security for which
a weekly average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such
yields are given, except that if the period from the redemption date to August
1, 2003 is less than one year, the weekly average yield on actually traded
United States Treasury securities adjusted to a constant maturity of one year
shall be used.
SELECTION AND NOTICE
If less than all of the Exchange Debentures are to be redeemed at any time,
selection of Exchange Debentures for redemption will be made by the Exchange
Debenture Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Exchange Debentures are
listed, or, if the Exchange Debentures are not so listed, on a pro rata basis,
by lot or by such method as the Exchange Debenture Trustee shall deem fair and
appropriate; provided that no Exchange Debentures of $1,000 or less shall be
redeemed in part. Notices of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each Holder
of Exchange Debentures to be redeemed at its registered address. Notices of
redemption may not be conditional. If any Exchange Debenture is to be redeemed
in part only, the notice of redemption that relates to such Exchange Debenture
shall state the portion of the principal amount thereof to be redeemed. A new
Exchange Debenture in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Exchange Debenture. Exchange Debentures called for redemption
become due on the date fixed for redemption. On and after the redemption date,
interest ceases to accrue on Exchange Debentures or portions of them called
for redemption.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, unless all Exchange Debentures
have been called for redemption pursuant to the provisions described above
under the caption "--Optional
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Redemption," each Holder of Exchange Debentures will have the right to require
the Issuer to repurchase all or any part (equal to a principal amount of
$1,000 or an integral multiple thereof) of such Holder's Exchange Debentures
pursuant to an offer to be described more fully in the Exchange Debenture
Indenture (the "Exchange Debenture Change of Control Offer") at an offer price
in cash equal to 101% of the aggregate principal amount thereof plus accrued
and unpaid interest to the date of purchase.
The Exchange Debenture Indenture will provide that, prior to complying with
the provisions of this covenant, but in any event within 90 days following a
Change of Control, the Issuer will either repay all outstanding Senior Debt or
obtain the requisite consents, if any, under all agreements governing
outstanding Senior Debt to permit the repurchase of Exchange Debentures
required by this covenant, unless notice of redemption of all Exchange
Debentures has then been given pursuant to the provisions described under the
caption "--Optional Redemption" above and such redemption is permitted by the
terms of outstanding Senior Debt. The Issuer will publicly announce the
results of the Exchange Debenture Change of Control Offer on or as soon as
practicable after the date that payment is made pursuant to the Change of
Control Offer (the "Exchange Debenture Change of Control Payment Date").
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Exchange Debenture Indenture are
applicable. Except as described above with respect to a Change of Control, the
Exchange Debenture Indenture will not contain provisions that permit the Holders
of the Exchange Debentures to require that the Issuer repurchase or redeem the
Exchange Debentures in the event of a takeover, recapitalization or similar
transaction. The Change of Control purchase feature is a result of negotiations
between the Issuer and the Placement Agents. Management has no present intention
to engage in a transaction involving a Change of Control, although it is
possible that the Issuer would decide to do so in the future. Subject to the
limitations discussed below, the Issuer could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Exchange Debenture
Indenture, but that could increase the amount of Debt outstanding at such time
or otherwise affect the Issuer's capital structure or credit ratings.
The New Credit Facility and the Indenture prohibit the Issuer from
purchasing any Exchange Debentures, and the New Credit Facility also provides
that certain change of control events with respect to the Issuer will
constitute a default thereunder. The Indenture requires an offer be made to
repurchase all outstanding Notes upon a Change of Control, unless all Notes
have then been called for redemption, and restricts the ability of the Issuer
to purchase Exchangeable Preferred Stock until such offer has been made or no
Notes remain outstanding. See "Description of the New Notes--Repurchase at the
Option of Holders--Change of Control" and "--Certain Covenants--Restricted
Payments." Any future credit agreements or other agreements relating to Senior
Debt to which the Issuer becomes a party or that may be entered into by
Subsidiaries of the Issuer may contain similar restrictions and provisions. In
the event a Change of Control occurs at a time when the Issuer is prohibited
from purchasing Exchange Debentures, the Issuer could seek the consent of its
lenders and the holders of the Notes to the purchase of Exchange Debentures or
could attempt to refinance the borrowings that contain such prohibition. If
the Issuer does not obtain such a consent or repay such borrowings, the Issuer
will remain prohibited from purchasing Exchange Debentures. In such case, the
Issuer's failure to purchase tendered Exchange Debentures would constitute an
Event of Default under the Exchange Debenture Indenture which would, in turn,
constitute a default under the New Credit Facility or any such future credit
or other agreement. In such circumstances, the subordination provisions to be
contained in the Exchange Debenture Indenture would restrict payments to the
Holders of Exchange Debentures. In any event, the ability of the Issuer to
purchase all Notes tendered upon a Change of Control or repay any such other
borrowings will be limited by the Issuer's financial resources. See "Risk
Factors--Potential Inability to Fund a Change of Control Offer."
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The Issuer will not be required to make an Exchange Debenture Change of
Control Offer upon a Change of Control if a third party makes and consummates
an Exchange Debenture Change of Control Offer.
"Change of Control" means the occurrence of any of the following events:
(i) prior to the first public offering of Voting Stock of the Issuer, the
Initial Control Group ceases to be the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of
more than 50% of the total voting power of the Voting Stock of the Issuer,
whether as a result of the issuance of securities of the Issuer, any
merger, consolidation, liquidation or dissolution of the Issuer, any direct
or indirect transfer of securities by the Initial Control Group or
otherwise (for purposes of this clause (i), the Initial Control Group shall
be deemed to beneficially own all Voting Stock of an entity (the "specified
entity") held by any other entity (the "parent entity") so long as the
Initial Control Group beneficially owns (as so defined), directly or
indirectly, in the aggregate a majority of the voting power of the Voting
Stock of the parent entity);
(ii) following the first public offering of Voting Stock of the Issuer
(A) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more members of the Initial Control Group,
is or becomes the beneficial owner (as defined in clause (i) above),
directly or indirectly, of more than 40% of the total voting power of the
Voting Stock of the Issuer and (B) the Initial Control Group "beneficially
owns" (as defined in clause (i) above), directly or indirectly, in the
aggregate a lesser percentage of the total voting power of the Voting Stock
of the Issuer, than such other person and does not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of the Issuer (for purposes
of this clause (ii), such other person shall be deemed to beneficially own
all Voting Stock of a specified entity held by a parent entity, if such
other person "beneficially owns" (as defined in clause (i) above), directly
or indirectly, in the aggregate more than 40% of the voting power of the
Voting Stock of such parent entity and the Initial Control Group
"beneficially owns" (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the voting power of the
Voting Stock of such parent entity and does not have the right or ability
by voting power, contract or otherwise to elect or designate for election a
majority of the board of directors of such parent entity); or
(iii) at any time after the first public offering of common stock of the
Issuer, any person other than the Initial Control Group (or their
designated board members), (A)(I) nominates one or more individuals for
election to the Board of Directors of the Issuer and (II) solicits proxies,
authorizations or consents in connection therewith and (B) such number of
nominees elected to serve on the Board of Directors in such election and
all previous elections after the Closing Date represents a majority of the
Board of Directors of the Issuer following such election.
"Initial Control Group" means Investcorp, its Affiliates, any Person acting
in the capacity of an underwriter or initial purchaser in connection with a
public or private offering of the Issuer's Capital Stock, any employee benefit
plan of the Issuer or any of its Subsidiaries or any participant therein, a
trustee or other fiduciary holding securities under any such employee benefit
plan or any Permitted Transferee of any of the foregoing Persons.
"Permitted Transferee" means, with respect to any Person, (i) any other
Person, directly or indirectly, controlling or controlled by or under direct
or indirect common control with such specified Person, (ii) the spouse, former
spouse, lineal descendants, heirs, executors, administrators, testamentary
trustees, legatees or beneficiaries of any such Person, (iii) a trust, the
beneficiaries of which, or a corporation or partnership or limited liability
company, the stockholders, general or limited partners or members of which,
include only such Person or his or her spouse, lineal descendants or heirs, in
each case to whom such Person has transferred, or through which it holds, the
beneficial
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ownership of any securities of the Issuer and (iv) any investment fund or
investment entity that is a subsidiary of such Person or a Permitted
Transferee of such Person.
ASSET SALES
The Exchange Debenture Indenture will provide that the Issuer will not, and
will not permit any of its Restricted Subsidiaries to, consummate an Asset
Sale unless (i) the Issuer (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Issuer or such Restricted Subsidiary is in the form of cash or
Cash Equivalents; provided that the amount of (x) any liabilities (as shown on
the Issuer's or such Restricted Subsidiary's most recent balance sheet), of
the Issuer or any Restricted Subsidiary (other than liabilities that are by
their terms subordinated to the Exchange Debentures) that are assumed by the
transferee of any such assets, or from which the Issuer and its Restricted
Subsidiaries are released in writing by the creditor with respect thereto, and
(y) any securities, notes or other obligations received by the Issuer or any
such Restricted Subsidiary from such transferee that are converted by the
Issuer or such Restricted Subsidiary into cash (to the extent of the cash
received) within 180 days after receipt, shall be deemed, in each case, to be
cash for purposes of this provision; provided, further, however, that this
clause (ii) shall not apply to any sale of Equity Interests of or other
Investments in Unrestricted Subsidiaries.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Issuer may apply such Net Proceeds, at its option, (a) to repay Senior
Debt, Debt of any Restricted Subsidiary or Pari Passu Debt (other than Debt
owed to the Issuer or a Subsidiary of the Issuer, and provided that if the
Issuer shall so reduce Pari Passu Debt, it will equally and ratably make an
Asset Sale Offer (in accordance with the procedures set forth below for an
Asset Sale Offer) to all Holders), (b) to invest in properties and assets that
will be used or useful in the business of the Issuer or any of its
Subsidiaries, or (c) to the acquisition of a controlling interest in another
business, the making of a capital expenditure or the acquisition of other
assets, in each case, that will be used or useful in the business of the
Issuer or any of its Restricted Subsidiaries; provided that if during such 360
day period the Issuer or a Restricted Subsidiary enters into a definitive
agreement committing it to apply such Net Proceeds in accordance with the
requirements of clause (b) or (c), such 360 day period will be extended for a
period not to exceed 180 days with respect to the amount of Net Proceeds so
committed until required to be paid in accordance with such agreement (or, if
earlier, until termination of such agreement). Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of
this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10.0 million, the Exchange
Debenture Indenture will provide that the Issuer will (i) make an offer to all
Holders of Exchange Debentures, and (ii) prepay, purchase or redeem (or make
an offer to do so) any other Pari Passu Debt of the Issuer in accordance with
provisions requiring the Issuer to prepay, purchase or redeem such Debt with
the proceeds from any Asset Sales (or offer to do so), pro rata in proportion
to the respective principal amounts (or accreted value, as applicable) of the
Exchange Debentures and such other Debt required to be prepaid, purchased or
redeemed or tendered for, in the case of the Exchange Debentures pursuant to
such offer (an "Asset Sale Offer") to purchase the maximum principal amount of
Exchange Debentures that may be purchased out of such pro rata portion of the
Excess Proceeds, at an offer price in cash in an amount equal to 100% of their
principal amount plus accrued and unpaid interest (subject to the right of
Holders of record on a record date to receive interest on the relevant
interest payment date, in accordance with the procedures to be set forth in
the Exchange Debenture Indenture). To the extent that the aggregate principal
amount of Exchange Debentures and Pari Passu Debt tendered pursuant to an
Asset Sale Offer or other offer is less than the Excess Proceeds, the Issuer
may use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Exchange Debentures surrendered by Holders
thereof exceeds the pro rata portion of such Excess Proceeds to be used to
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purchase Exchange Debentures, the Exchange Debenture Trustee shall select the
Exchange Debentures to be purchased on a pro rata basis. Upon completion of
such offer to purchase, the amount of Excess Proceeds shall be reset at zero.
The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the
repurchase of the Exchange Debentures pursuant to an Asset Sale Offer. To the
extent that the provisions of any applicable securities laws or regulations
conflict with the provisions of the Exchange Debenture Indenture, the Issuer
will comply with such securities laws and regulations and shall not be deemed
to have breached its obligations described in the Exchange Debenture Indenture
by virtue thereof.
CERTAIN COVENANTS
Restricted Payments
The Exchange Debenture Indenture will provide that the Issuer will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any other distribution (including
any payment in connection with any merger or consolidation) on account of
the Issuer's or any of its Restricted Subsidiaries' Equity Interests (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) and dividends payable to the Issuer or any Restricted
Subsidiary);
(ii) purchase, redeem or otherwise acquire or retire for value (including
in connection with any merger or consolidation) any Equity Interests of the
Issuer (or any Equity Interests of any Restricted Subsidiary held by
Persons other than the Issuer or any Restricted Subsidiary);
(iii) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value, any Subordinated Debt of
the Issuer, except (A) a payment of interest, principal or other related
Obligations at Stated Maturity and (B) the purchase, repurchase or other
acquisition or retirement of Subordinated Debt of the Issuer in
anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of
purchase, repurchase or other acquisition or retirement; or
(iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv)
above being collectively referred to as "Restricted Payments"), unless, at
the time of, and after giving effect to, such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Issuer would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Debt pursuant to the
Consolidated Coverage Ratio test set forth in the first paragraph of the
covenant described below under the caption "--Incurrence of Debt and
Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with (without duplication) the
aggregate amount of all other Restricted Payments made by the Issuer and
its Restricted Subsidiaries after the Issue Date (excluding Restricted
Payments permitted by clauses (ii), (iii)(A), (iv), (v), (vi)(A) and
(vii) of the next succeeding paragraph, but including all other
Restricted Payments permitted by the next succeeding paragraph), is less
than the sum (without duplication) of
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(i) 50% of the Consolidated Net Income of the Issuer for the period
(taken as one accounting period) from the beginning of the fiscal
quarter during which the Issue Date occurs to the end of the Issuer's
most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Issuer
from the issue or sale (other than to a Subsidiary) of, or from capital
contributions with respect to, Equity Interests of the Issuer (other
than Disqualified Stock), in either case after the Issue Date, plus
(iii) the aggregate principal amount (or accreted value, if less) of
Debt or Disqualified Stock of the Issuer or any Restricted Subsidiary
issued since the Issue Date (other than to a Restricted Subsidiary)
that has been converted into Equity Interests (other than Disqualified
Stock) of the Issuer, plus
(iv) 100% of the aggregate net cash received by the Issuer or a
Restricted Subsidiary of the Issuer since the Issue Date from (A)
Restricted Investments, whether through interest payments, principal
payments, dividends or other distributions or payments, or the sale or
other disposition (other than to the Issuer or a Restricted Subsidiary)
thereof made by the Issuer and its Restricted Subsidiaries and (B) a
cash dividend from, or the sale (other than to the Issuer or a
Restricted Subsidiary) of the stock of, an Unrestricted Subsidiary,
plus
(v) upon the redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the fair market value of the Investments of the
Issuer and its Restricted Subsidiaries (other than such Subsidiary) in
such Subsidiary.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would have
complied with the provisions of the Exchange Debenture Indenture;
(ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Equity Interests or Subordinated Debt in exchange for,
or out of the net cash proceeds of the substantially concurrent sale (other
than to a Restricted Subsidiary of the Issuer) of, other Equity Interests
(other than any Disqualified Stock) of, or a capital contribution to, the
Issuer; provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or
other acquisition shall be excluded from clause (c) (ii) of the preceding
paragraph;
(iii) the redemption, repurchase, retirement, defeasance or other
acquisition of (A) Subordinated Debt made by an exchange for, or with the
net cash proceeds from an incurrence of, Permitted Refinancing Debt or (B)
Subordinated Debt or Preferred Equity Interests (other than Subordinated
Debt or Preferred Equity Interests held by Affiliates of the Issuer) upon a
Change of Control or Asset Sale to the extent required by the agreement
governing such Subordinated Debt or the certificate of designation
governing such Preferred Equity Interests, as the case may be, but only (x)
if the Issuer shall have complied with the covenant described under the
caption "Repurchases at the Option of Holders--Change of Control" or "--
Asset Sales", as the case may be, and repurchased all Exchange Debentures
tendered pursuant to the offer required by such covenants prior to
purchasing or repaying such Subordinated Debt or Preferred Equity
Interests, as the case may be, (y) in the case of an Asset Sale, to the
extent of the remaining Excess Proceeds offered to Holders pursuant to the
Asset Sale Offer and (z) within six months after the date such offer is
consummated;
(iv) the payment of any dividend by a Restricted Subsidiary of the Issuer
to the holders of its common Equity Interests on a pro rata basis;
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(v) to the extent constituting Restricted Payments, the Specified
Affiliate Payments;
(vi) (A) the payment of any regular quarterly dividends in respect of the
Exchangeable Preferred Stock in the form of additional shares of
Exchangeable Preferred Stock having the terms and conditions set forth in
the Certificate of Designation for the Exchangeable Preferred Stock as in
effect on the Issue Date; and (B) commencing August 1, 2003, the payment of
regular quarterly cash dividends (in the amount no greater than that
provided for in the Certificate of Designation for the Exchangeable
Preferred Stock as in effect on the Issue Date), out of funds legally
available therefor, on any of the shares of Exchangeable Preferred Stock
issued on the Issue Date or subsequently issued in payment of dividends in
respect of such shares of Exchangeable Preferred Stock issued on the Issue
Date, provided that, at the time of and immediately after giving effect to
the payment of such cash dividend, no Default or Event of Default shall
have occurred and be continuing;
(vii) the exchange of Exchangeable Preferred Stock for Exchange
Debentures in accordance with the terms of the Certificate of Designation
for such Exchangeable Preferred Stock as in effect on the Issue Date; and
(viii) Restricted Payments in an aggregate amount not to exceed $10
million.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Issuer and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated, to the extent they do not constitute
Permitted Investments at the time such Subsidiary became an Unrestricted
Subsidiary, will be deemed to be Restricted Payments made at the time of such
designation. The amount of such outstanding Investments will be
equal to the portion of the fair market value of the net assets of any
Subsidiary of the Issuer at the time that such Subsidiary is designated an
Unrestricted Subsidiary that is represented by the interest of the Issuer and
its Restricted Subsidiaries in such Subsidiary, in each case as determined in
good faith by the Board of Directors of the Issuer. Such designation will only
be permitted if such Restricted Payment would be permitted at such time and if
such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Issuer or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined
in good faith by the Board of Directors of the Issuer.
In making the computations required by this covenant, (i) the Issuer or the
relevant Restricted Subsidiary may use audited financial statements for the
portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other current financial data based on the books and records of the Issuer for
the remaining portion of such period and (ii) the Issuer or the relevant
Restricted Subsidiary will be permitted to rely in good faith on the financial
statements and other financial data derived from the books and records of the
Issuer and the Restricted Subsidiary that are available on the date of
determination. If the Issuer makes a Restricted Payment that, at the time of
the making of such Restricted Payment, would in the good faith determination
of the Issuer or any Restricted Subsidiary be permitted under the requirements
of the Exchange Debenture Indenture, such Restricted Payment will be deemed to
have been made in compliance with the Exchange Debenture Indenture
notwithstanding any subsequent adjustments made in good faith to the Issuer's
or any Restricted Subsidiary's financial statements, affecting Consolidated
Net Income of the Issuer for any period.
For the avoidance of doubt, it is expressly agreed that no payment or other
transaction permitted by clauses (3), (4) and (5) of the covenant described
under "Certain Covenants--Transactions with
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Affiliates" shall be considered a Restricted Payment for purposes of, or
otherwise restricted by, the Exchange Debenture Indenture.
Incurrence of Debt and Issuance of Preferred Stock
The Exchange Debenture Indenture will provide that the Issuer will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any Debt and that the Issuer will not issue any Disqualified Stock
and will not permit any of its Restricted Subsidiaries to issue any shares of
Preferred Stock; provided, however, that the Issuer and its Restricted
Subsidiaries may incur Debt or issue shares of Disqualified Stock and the
Issuer's Restricted Subsidiaries may issue Preferred Stock, if the
Consolidated Coverage Ratio for the Issuer's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Debt is incurred or
such Disqualified Stock or Preferred Stock is issued would have been at least
1.75 to 1.00 if such four quarter period ends on or prior to the second
anniversary of the Issue Date and 2.00 to 1.00 if it ends thereafter,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Debt had been incurred, or the
Disqualified Stock or Preferred Stock had been issued, as the case may be, at
the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Debt (collectively, "Permitted
Debt"):
(i) the incurrence of term and revolving Debt, letters of credit (with
letters of credit being deemed to have a principal amount equal to the
undrawn face amount thereof) and other Debt under Credit Facilities
(including Guarantees by the Issuer or any of its Subsidiaries of synthetic
lease drawings and other loans under the New Credit Facility or of other
Debt under Credit Facilities); provided that the aggregate principal amount
of such Debt outstanding pursuant to this clause (i) does not exceed an
amount equal to $250.0 million;
(ii) the incurrence by the Issuer and its Restricted Subsidiaries of
Existing Debt and Debt outstanding on the Exchange Date that was permitted
to be incurred by the Certificate of Designation;
(iii) the incurrence by the Issuer of Debt represented by Notes, the Note
Guarantees, and the Exchange Debentures issued upon the exchange of the
Exchangeable Preferred Stock or issued thereafter in payment of interest on
the Exchange Debentures, to the extent such interest payments are made
pursuant to the terms of the Exchange Debenture Indenture;
(iv) the incurrence by the Issuer or any of its Restricted Subsidiaries of
Acquired Debt;
(v) the incurrence by the Issuer or any of its Restricted Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to refund, refinance or replace Debt (other than intercompany
Debt) that was permitted by the Exchange Debenture Indenture to be
incurred;
(vi) the incurrence by the Issuer or any of its Restricted Subsidiaries of
intercompany Debt or Preferred Stock owed or issued to and held by the
Issuer and any of its Restricted Subsidiaries, provided, however, that (X)
any such Debt of the Issuer shall be subordinated and junior in right of
payment to the Exchange Debentures and (Y)(A) any subsequent issuance or
transfer of Equity Interests or other action that results in any such Debt
or Preferred Stock being held by a Person other than the Issuer or a
Restricted Subsidiary and (B) any sale or other transfer of any such Debt
or Preferred Stock to a Person that is not either the Issuer or a
Restricted Subsidiary shall be deemed, in each case, to constitute an
incurrence of such Debt or issuance of such Preferred Stock by the Issuer
or such Restricted Subsidiary, as the case may be, that was not permitted
by this clause (vi);
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(vii) the incurrence by the Issuer or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred (A) principally for the purpose of
fixing or hedging interest rate risk with respect to any floating rate Debt
that is permitted by the terms of the Exchange Debenture Indenture to be
outstanding or (B) principally for the purpose of fixing or hedging
currency exchange rate risk or commodity price risk incurred in the
ordinary course of business;
(viii) the guarantee by the Issuer or any Restricted Subsidiary of Debt of
the Issuer or a Restricted Subsidiary of the Issuer that was permitted to
be incurred by another provision of this covenant; and
(ix) the incurrence by the Issuer or any of its Restricted Subsidiaries of
additional Debt (which may comprise Debt under the New Credit Facility) in
an aggregate principal amount (or accreted value, as applicable) at any
time outstanding, pursuant to this clause (ix) not to exceed an amount
equal to $20.0 million.
For purposes of determining compliance with this covenant, in the event that
an item of Debt meets the criteria of more than one of the categories of
Permitted Debt described in clauses (i) through (ix) above or is entitled to
be incurred pursuant to the first paragraph of this covenant, the Issuer
shall, in its sole discretion, classify such item of Debt in any manner that
complies with this covenant and such item of Debt will be treated as having
been incurred pursuant to only one of such clauses or pursuant to the first
paragraph hereof; provided that all outstanding Debt under the New Credit
Facility immediately following the Recapitalization shall be deemed to have
been incurred pursuant to clause (i) of the definition of Permitted Debt.
Accrual of interest and the accretion of accreted value will be deemed not to
be an incurrence of Debt for purposes of this covenant.
Liens
The Exchange Debenture Indenture will provide that the Issuer will not, and
will not permit any of its Restricted Subsidiaries to, create, incur, assume
or otherwise cause or suffer to exist or become effective any Lien of any kind
securing Debt or trade payables (other than Permitted Liens) upon any of their
property or assets, now owned or hereafter acquired, unless all payments due
under the Exchange Debenture Indenture and the Exchange Debentures are secured
on an equal and ratable basis with the obligations so secured until such time
as such obligations are no longer secured by a Lien; provided that (i) if such
other Debt constitutes Subordinated Debt or is otherwise subordinate or junior
in right of payment to the Obligations under the Exchange Debenture Indenture
or the Exchange Debentures, as the case may be, such Lien is expressly made
prior and senior in priority to the Lien securing such other Debt, or (ii) in
any other case, such Lien ranks equally and ratably with or prior to the Lien
securing the other Debt or obligations so secured.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Exchange Debenture Indenture will provide that the Issuer will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i)(a) pay dividends or make any other distributions to the
Issuer or any of its Restricted Subsidiaries (1) on its Capital Stock or (2)
with respect to any other interest or participation in, or measured by, its
profits, or (b) pay any indebtedness owed to the Issuer or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Issuer or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets
to the Issuer or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of:
(a) Existing Debt and Debt outstanding on the Exchange Date that was
permitted to be incurred by the Certificate of Designation;
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(b) the Exchange Debenture Indenture, the Exchange Debentures, the
Indenture, the Notes and any Additional Notes, the Certificate of
Designation, the Exchangeable Preferred Stock and any other agreement
entered into after the Issue Date, provided that the encumbrances or
restrictions in such agreements are not materially more restrictive than
those contained in the foregoing agreements;
(c) any agreement or other instrument of a Person acquired by the Issuer
or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (but not created in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired;
(d) purchase money obligations (including Capital Lease Obligations) for
property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property
so acquired;
(e) in the case of clause (iii), any encumbrance or restriction (1) that
restricts in a customary manner the subletting, assignment, or transfer of
any property or asset that is subject to a lease, license or similar
contract, (2) by virtue of any transfer of, agreement to transfer, option
or right with respect to, or Lien on, any property or assets of the Issuer
or any Restricted Subsidiary not otherwise prohibited by the Exchange
Debenture Indenture or (3) contained in security agreements or mortgages
securing Debt to the extent such encumbrance or restriction restricts the
transfer of the property subject to such security agreements or mortgages;
(f) contracts for the sale of assets, including any restriction with
respect to a Restricted Subsidiary imposed pursuant to an agreement entered
into for the sale or disposition of all or substantially all of the Capital
Stock or assets of such Restricted Subsidiary pending the closing of such
sale or disposition;
(g) contractual encumbrances or restrictions in effect on the Closing
Date, including pursuant to the New Credit Facility and its related
documentation;
(h) restrictions on cash or other deposits or net worth imposed by
leases, credit agreements or other agreements entered into in the ordinary
course of business;
(i) customary provisions in joint venture agreements and other similar
agreements;
(j) any encumbrances or restrictions created with respect to Debt of
Restricted Subsidiaries permitted to be incurred subsequent to the Issue
Date pursuant to the provisions of the covenant described under the caption
"--Incurrence of Debt and Issuance of Preferred Stock" or operating leases,
provided that the Board of Directors of the Issuer determines (as evidenced
by a resolution of the Board of Directors) in good faith at the time such
encumbrances or restrictions are created that such encumbrances or
restrictions would not reasonably be expected to impair the ability of the
Issuer to make payments of interest and scheduled payments of principal on
the Exchange Debentures, in each case as and when due; and
(k) any encumbrances or restrictions of the type referred to in clauses
(i), (ii) and (iii) imposed by any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
of the contracts, instruments or obligations referred to in clauses (a)
through (j), provided that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings,
taken as a whole, are, in the good faith judgment of the Issuer, not
materially more restrictive with respect to such encumbrances or
restrictions than those contained in the contracts, instruments or
obligations prior to such amendment, modification, restatement, renewal,
increase, supplement, refunding, replacement or refinancing.
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Merger, Consolidation or Sale of all or Substantially all Assets
The Exchange Debenture Indenture will provide that the Issuer may not
consolidate or merge with or into (whether or not the Issuer is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets in one or more related
transactions, to another Person unless:
(i) the Issuer is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Issuer) or to
which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia;
(ii) the Person formed by or surviving any such consolidation or merger
(if other than the Issuer) or the Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made
assumes all the obligations of the Issuer under the Exchange Debentures and
the Exchange Debenture Indenture pursuant to a supplemental indenture in a
form reasonably satisfactory to the Exchange Debenture Trustee;
(iii) immediately after such transaction no Default or Event of Default
exists; and
(iv) except in the case of a merger of the Issuer with or into a Wholly
Owned Restricted Subsidiary of the Issuer, the Issuer or the Person formed
by or surviving any such consolidation or merger (if other than the
Issuer), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made will, at the time of such
transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter
period, either (x) be permitted to incur at least $1.00 of additional Debt
pursuant to the Consolidated Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "--Incurrence
of Debt and Issuance of Preferred Stock" or (y) have a Consolidated
Coverage Ratio at least equal to the Consolidated Coverage Ratio of the
Issuer for such four-quarter reference period.
Notwithstanding the foregoing clauses (iii) and (iv), (a) any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Issuer and (b) the Issuer may merge with an
Affiliate incorporated solely for the purpose of reincorporating the Issuer in
another jurisdiction.
Transactions with Affiliates
The Exchange Debenture Indenture will provide that the Issuer will not, and
will not permit any of its Restricted Subsidiaries to, make any payment to, or
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make or amend
any transaction, contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each of the foregoing,
an "Affiliate Transaction"), unless:
(i) such Affiliate Transaction is on terms that, taken as a whole, are no
less favorable to the Issuer or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction by the
Issuer or such Restricted Subsidiary with an unrelated Person; and
(ii) the Issuer delivers to the Exchange Debenture Trustee (a) with
respect to any Affiliate Transaction entered into after the Issue Date
involving aggregate consideration in excess of $3.0 million, a resolution
of the Board of Directors set forth in an Officers' Certificate certifying
that such Affiliate Transaction complies with clause (i) above and that
such Affiliate Transaction has been approved by a majority of the members
of the Board of Directors and (b) with respect to any Affiliate Transaction
involving aggregate consideration in excess of $10.0 million, an opinion as
to the fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an investment banking, appraisal or
accounting firm of national standing.
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Notwithstanding the foregoing, the following will not be deemed to be
Affiliate Transactions:
(1) transactions between or among the Issuer and/or its Restricted
Subsidiaries;
(2) Permitted Investments and Restricted Payments that are permitted by
the provisions of the Exchange Debenture Indenture described above under
the caption "-- Restricted Payments;"
(3) employment agreements, employee benefit plans and related
arrangements entered into in the ordinary course of business and all
payments and other transactions contemplated thereby;
(4) any payments to Investcorp and its Affiliates (whether or not such
Persons are Affiliates of the Issuer) (A) for any financial advisory,
financing, underwriting or placement services or in respect of other
investment banking activities, including in connection with acquisitions or
divestitures, which payments are approved by the Board of Directors of the
Issuer in good faith and (B) of annual management, consulting and advisory
fees and related expenses;
(5) any agreement in effect on the Closing Date (including the
Recapitalization Agreement, the Services Agreement (as amended on April 15,
1998) between the Berkshire Companies Limited Partnership and the Issuer
and the Brevard lease agreement) or any amendment thereto (so long as any
such amendment is not disadvantageous to the Holders in any material
respect) or any payment or other transaction contemplated by any of the
foregoing; and
(6) Debt permitted by paragraph (ix) of the covenant described under the
caption "--Incurrence of Debt and Issuance of Preferred Stock" to the
extent such Debt is on terms that, taken as a whole, are no less favorable
to the Issuer or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction with an unrelated Person.
Restriction on Senior Subordinated Debt
The Exchange Debenture Indenture will provide that the Issuer will not incur
any Debt that is expressly subordinate in right of payment to any Senior Debt
and senior in any respect in right of payment to the Exchange Debentures.
Reports
Notwithstanding that the Issuer may not be required to remain subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, to the
extent permitted by the Exchange Act, the Issuer will file with the
Commission, and provide, within 15 days after the Issuer is required to file
the same with the Commission, the Exchange Debenture Trustee and the Holders
with the annual reports and the information, documents and other reports that
are specified in Sections 13 and 15(d) of the Exchange Act. In the event the
Issuer is not permitted to file such reports, documents and information with
the Commission, the Issuer will provide substantially similar information to
the Exchange Debenture Trustee and the Holders, as if the Issuer were subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act.
EVENTS OF DEFAULT AND REMEDIES
The Exchange Debenture Indenture will provide that each of the following
constitutes an Event of Default with respect to the Exchange Debentures:
(i) default for 30 days in the payment when due of interest on the
Exchange Debentures (whether or not prohibited by the subordination
provisions of the Exchange Debenture Indenture);
(ii) default in payment when due of the principal of or premium, if any,
on the Exchange Debentures (whether or not prohibited by the subordination
provisions of the Exchange Debenture Indenture);
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(iii) failure by the Issuer for 30 days after receipt of a notice
specifying such failure to comply with the provisions described under the
captions "--Repurchase at the Option of Holders--Change of Control,"
"--Repurchase at the Option of Holders--Asset Sales," "--Certain Covenants--
Restricted Payments," "--Certain Covenants--Incurrence of Debt and Issuance
of Preferred Stock" or "--Certain Covenants--Merger, Consolidation or Sale
of all or Substantially all Assets;"
(iv) failure by the Issuer for 60 days after receipt of a notice
specifying such failure to comply with any of its other agreements in the
Exchange Debenture Indenture or the Exchange Debentures;
(v) the failure by the Issuer or any Restricted Subsidiary that is a
Significant Subsidiary to pay any Debt within any applicable grace period
after final maturity or acceleration by the holders thereof because of a
default if the total amount of such Debt unpaid or accelerated at the time
exceeds $15.0 million;
(vi) any judgment or decree for the payment of money in excess of $15.0
million (net of any insurance or indemnity payments actually received in
respect thereof prior to or within 90 days from the entry thereof, or to be
received in respect thereof in the event any appeal thereof shall be
unsuccessful) is entered against the Issuer or any Significant Subsidiary
that is a Restricted Subsidiary and is not discharged, waived or stayed and
either (A) an enforcement proceeding has been commenced by any creditor
upon such judgment or decree or (B) there is a period of 90 days following
the entry of such judgment or decree during which such judgment or decree
is not discharged, waived or the execution thereof stayed; and
(vii) certain events of bankruptcy or insolvency with respect to the
Issuer or any of its Restricted Subsidiaries that is a Significant
Subsidiary.
If any Event of Default occurs and is continuing, the Exchange Debenture
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Exchange Debentures may declare all the Exchange Debentures to be
due and payable. Upon such a declaration, such amounts shall be due and
payable immediately; provided, however, that if upon such declaration there
are any amounts outstanding under the New Credit Facility and the amounts
thereunder have not been accelerated, such amounts shall be due and payable
upon the earlier of the time such amounts are accelerated or five Business
Days after receipt by the Issuer and the Representative of the lenders under
the New Credit Facility of such declaration. Notwithstanding the foregoing, in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to the Issuer, all outstanding Exchange Debentures
will become due and payable without further action or notice. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Exchange Debentures may direct the Exchange Debenture Trustee in
its exercise of any trust or power.
The Holders of a majority in aggregate principal amount of the Exchange
Debentures then outstanding by notice to the Exchange Debenture Trustee may on
behalf of the Holders of all of the Exchange Debentures waive any existing
Default or Event of Default and its consequences under the Exchange Debenture
Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Exchange Debentures.
Subject to the provisions of the Exchange Debenture Indenture relating to
the duties of the Exchange Debenture Trustee, in case an Event of Default
occurs and is continuing, the Exchange Debenture Trustee will be under no
obligation to exercise any of the rights or powers under the Exchange
Debenture Indenture at the request or direction of any of the Holders unless
such Holders have offered to the Exchange Debenture Trustee reasonable
indemnity or security against any loss, liability or expense. Except to
enforce the right to receive payment of principal, premium (if any), interest
when due, no Holder may pursue any remedy with respect to the Exchange
Debenture Indenture or the Exchange Debentures unless (i) such Holder has
previously given the Exchange Debenture Trustee notice that an Event of
Default is continuing, (ii) Holders of at least 25% in principal
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amount of the outstanding Exchange Debentures have requested the Exchange
Debenture Trustee to pursue the remedy, (iii) such Holders have offered the
Exchange Debenture Trustee reasonable security or indemnity against any loss,
liability or expense, (iv) the Exchange Debenture Trustee has not complied
with such request within 60 days after the receipt of the request and the
offer of security or indemnity, and (v) the Holders of a majority in principal
amount of the outstanding Exchange Debentures have not given the Exchange
Debenture Trustee a direction inconsistent with such request within such 60-
day period. Subject to certain restrictions, the Holders of a majority in
principal amount of the outstanding Exchange Debentures are given the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Exchange Debenture Trustee or of exercising any trust or
power conferred on the Exchange Debenture Trustee.
The Exchange Debenture Trustee, however, may refuse to follow any direction
that conflicts with law or the Exchange Debenture Indenture or that the
Exchange Debenture Trustee determines is
unduly prejudicial to the rights of any other Holder or that would involve the
Exchange Debenture Trustee in personal liability. Prior to taking any action
under the Exchange Debenture Indenture, the Exchange Debenture Trustee will be
entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking such action.
The Exchange Debenture Indenture will provide that if a Default occurs and
is continuing and is known to the Exchange Debenture Trustee, the Exchange
Debenture Trustee must mail to each Holder notice of the Default within the
earlier of 90 days after it occurs or 30 days after it is known to a trust
officer or written notice of it is received by the Exchange Debenture Trustee.
Except in the case of a Default in the payment of principal of, premium (if
any), interest on any Exchange Debenture, the Exchange Debenture Trustee may
withhold notice if and so long as a committee of its trust officers in good
faith determines that withholding notice is in the interests of holders of
Exchange Debentures. In addition, the Issuer is required to deliver to the
Exchange Debenture Trustee, within 120 days after the end of each fiscal year,
a certificate indicating whether the signers thereof actually know of any
Default that occurred during the previous year. The Issuer also is required to
deliver to the Exchange Debenture Trustee, forthwith upon any Senior Officer
obtaining actual knowledge of any such Default, written notice of any event
which would constitute certain Defaults, their status and what action the
Issuer is taking or proposes to take in respect thereof.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder or Affiliate of
the Issuer, as such, shall have any liability for any obligations of the
Issuer under the Exchange Debentures, the Exchange Debenture Indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Exchange Debentures by accepting an Exchange
Debenture waives and releases all such liabilities. The waiver and release are
part of the consideration for issuance of the Exchange Debentures. Such waiver
may not be effective to waive liabilities under the federal securities laws
and it is the view of the Commission that such a waiver is against public
policy.
SATISFACTION AND DISCHARGE
Upon the request of the Issuer, the Exchange Debenture Indenture will cease
to be of further effect (except as to surviving rights of registration of
transfer or exchange of the Exchange Debentures, as expressly provided for in
the Exchange Debenture Indenture) and the Exchange Debenture Trustee, at the
expense of the Issuer, will execute proper instruments acknowledging
satisfaction and discharge of the Exchange Debenture Indenture, any security
agreements relating thereto and the Exchange Debentures when (a) either (i)
all the Exchange Debentures theretofore authenticated and delivered (other
than destroyed, lost or stolen Exchange Debentures that have been replaced or
paid and Exchange Debentures that have been subject to defeasance under
"--Legal Defeasance and Covenant Defeasance") have been delivered to the
Exchange Debenture Trustee for cancellation or
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(ii) all Exchange Debentures not theretofore delivered to the Exchange
Debenture Trustee for cancellation (A) have become due and payable, (B) will
become due and payable at maturity within one year or (C) are to be called for
redemption within one year under arrangements satisfactory to the Exchange
Debenture Trustee for the giving of notice of redemption by the Exchange
Debenture Trustee in the name, and the expense, of the Issuer, and the Issuer
has irrevocably deposited or caused to be deposited with the Exchange
Debenture Trustee funds in trust for the purpose in an amount sufficient to
pay and discharge the entire Debt on such Exchange Debentures not theretofore
delivered to the Exchange Debenture Trustee for cancellation, for principal
(and premium, if any, on) and interest on the Exchange Debentures to the date
of such deposit (in case of Exchange Debentures that have become due and
payable) or to the Stated Maturity or redemption date, as the case may be; (b)
the Issuer has paid or caused to be paid all sums payable under the Exchange
Debenture Indenture by the Issuer; or (c) the Issuer has delivered to the
Exchange Debenture Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided in the Exchange Debenture Indenture relating to the
satisfaction and discharge of the Exchange Debenture Indenture, the security
agreements relating thereto and the Exchange Debentures have been complied
with.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuer may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Exchange Debentures
("Legal Defeasance") and cure all then existing Events of Default, except for
(i) the rights of Holders of outstanding Exchange Debentures to receive
payments in respect of the principal of, premium, if any, and interest on such
Exchange Debentures when such payments are due from the trust referred to
below, (ii) the Issuer's obligations with respect to the Exchange Debentures
concerning issuing temporary Exchange Debentures, registration of Exchange
Debentures, mutilated, destroyed, lost or stolen Exchange Debentures and the
maintenance of an office or agency for payment and money for Exchange
Debenture payments held in trust, (iii) the rights, powers, trusts, duties and
immunities of the Exchange Debenture Trustee, and the Issuer's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Exchange
Debenture Indenture. In addition, the Issuer may, at its option and at any
time, elect to have the obligations of the Issuer released with respect to
certain covenants to be described in the Exchange Debenture Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Exchange Debentures. In the event Covenant Defeasance occurs, certain
events (not including non-payment, and, solely with respect to the Issuer,
bankruptcy, receivership, rehabilitation and insolvency events) described
under "Events of Default" will no longer constitute an Event of Default with
respect to the Exchange Debentures.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Issuer must irrevocably deposit with the Exchange Debenture Trustee, in trust,
for the benefit of the Holders of the Exchange Debentures cash in U.S.
dollars, non-callable Government Notes, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay the principal of, premium, if any,
and interest on the outstanding Exchange Debentures on the stated maturity or
on the applicable redemption date, as the case may be, and the Issuer must
specify whether the Exchange Debentures are being defeased to maturity or to a
particular redemption date; (ii) in the case of Legal Defeasance, the Issuer
shall have delivered to the Exchange Debenture Trustee an opinion of counsel
in the United States reasonably acceptable to the Exchange Debenture Trustee
confirming that, subject to customary assumptions and exclusions, (A) the
Issuer has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the Issue Date, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, subject to customary
assumptions and exclusions, the Holders of the outstanding Exchange Debentures
will not recognize
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income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance,
the Issuer shall have delivered to the Exchange Debenture Trustee an opinion
of counsel in the United States reasonably acceptable to the Exchange
Debenture Trustee confirming that, subject to customary assumptions and
exclusions, the Holders of the outstanding Exchange Debentures will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of
funds to be applied to such deposit and the grant of any Lien securing such
borrowing) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute
a default under any material agreement or instrument (other than the Exchange
Debenture Indenture) to which the Issuer or any of its Subsidiaries is a party
or by which the Issuer or any of its Subsidiaries is bound; (vi) the Issuer
must have delivered to the Exchange Debenture Trustee an opinion of counsel,
subject to customary assumptions and exclusions, to the effect that after the
91st day following the deposit, the trust funds will not be part of any
"estate" formed by the bankruptcy or reorganization of the Issuer or subject
to the "automatic stay" under the Bankruptcy Code or, in the case of Covenant
Defeasance, will be subject to a first priority Lien in favor of the Exchange
Debenture Trustee for the benefit of the Holders; (vii) the Issuer must
deliver to the Exchange Debenture Trustee an Officers' Certificate stating
that the deposit was not made by the Issuer with the intent of preferring the
Holders of Exchange Debentures over the other creditors of the Issuer with the
intent of defeating, hindering, delaying or defrauding creditors of the Issuer
or others; and (viii) the Issuer must deliver to the Exchange Debenture
Trustee an Officers' Certificate and an opinion of counsel (which opinion of
counsel may be subject to customary assumptions and exclusions), each stating
that all conditions precedent relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Exchange Debentures in accordance with the
Exchange Debenture Indenture. The Registrar and the Exchange Debenture Trustee
may require a Holder, among other things, to furnish appropriate endorsements
and transfer documents and the Issuer may require a Holder to pay any taxes
and fees required by law or permitted by the Exchange Debenture Indenture. The
Issuer is not required to transfer or exchange any Exchange Debenture selected
for redemption or repurchase. Also, the Issuer is not required to transfer or
exchange any Exchange Debenture for a period of 15 days before a selection of
Exchange Debentures to be redeemed or before any repurchase offer.
The Exchange Debentures will be issued in registered form and the registered
Holder of an Exchange Debenture will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Exchange
Debenture Indenture or the Exchange Debentures may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the Exchange Debentures then outstanding (including consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Exchange
Debentures), and any existing default or compliance with any provision of the
Exchange Debenture Indenture or the Exchange Debentures may be waived with the
consent of the Holders of a majority in principal amount of the then
outstanding Exchange Debentures (including consents obtained in connection
with a tender offer or exchange offer for Exchange Debentures).
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Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Exchange Debentures held by a non-consenting Holder):
(i) reduce the principal amount of Exchange Debentures whose Holders must
consent to an amendment, supplement or waiver;
(ii) reduce the principal of, change the fixed maturity of any Exchange
Debenture, reduce any premium payable upon optional redemption of the
Exchange Debentures or otherwise alter the provisions with respect to the
redemption or repurchase of the Exchange Debentures (other than provisions
relating to the covenants described above under the caption "--Repurchase
at the Option of Holders");
(iii) reduce the rate of, or change the time for payment of, interest on
any Exchange Debenture;
(iv) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Exchange Debentures (except a
rescission of acceleration of the Exchange Debentures by the Holders of at
least a majority in aggregate principal amount of the Exchange Debentures
and a waiver of the payment default that resulted from such acceleration);
(v) make any Exchange Debenture payable in money other than that stated
in the Exchange Debentures;
(vi) impair the rights of Holders of Exchange Debentures to receive
payments of principal of or premium, if any, or interest on the Exchange
Debentures; or
(vii) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Exchange
Debentures, the Issuer and the Exchange Debenture Trustee may amend or
supplement the Exchange Debenture Indenture or the Exchange Debentures to cure
any ambiguity, defect or inconsistency, to provide for uncertificated Exchange
Debentures in addition to or in place of certificated Exchange Debentures
(provided that the uncertificated Exchange Debentures are issued in registered
form for purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Exchange Debentures are described in Section 163(f)(2)(B) of
the Code), to provide for the assumption of the Issuer's obligations to
Holders of Exchange Debentures in the case of a merger, consolidation or sale
of assets, to make any change that would provide any additional rights or
benefits to the Holders of Exchange Debentures or that, as determined by the
Board of Directors in good faith, does not have a material adverse effect on
the legal rights under the Exchange Debenture Indenture of any such Holder, or
to comply with requirements of the Commission in order to effect or maintain
the qualification of the Exchange Debenture Indenture under the Trust
Indenture Act.
CONCERNING THE EXCHANGE DEBENTURE TRUSTEE
The Exchange Debenture Indenture will contain certain limitations on the
rights of the Exchange Debenture Trustee, should the Exchange Debenture
Trustee become a creditor of the Issuer, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Exchange Debenture Trustee will be
permitted to engage in other transactions; however, if the Exchange Debenture
Trustee acquires any conflicting interest the Exchange Debenture Trustee must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Exchange Debenture Indenture will provide that in case an Event of
Default shall occur (which shall not be cured), the Exchange Debenture Trustee
will be required, in the exercise of its power, to use the degree of care of a
prudent man in the conduct of his own affairs.
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BOOK-ENTRY; DELIVERY AND FORM
It is expected that the Exchange Debentures will have provisions relating to
book-entry, delivery and form that are substantially the same as those with
respect to the Notes set forth under "Description of the New Notes--Book-
Entry; Delivery and Form."
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Certificate of
Designation and to be used in the Exchange Debenture Indenture.
"Acquired Debt" means, with respect to any specified Person, (i) Debt of any
other Person existing at the time such other Person is merged with or into or
became a Restricted Subsidiary of such specified Person, (ii) Debt incurred by
such specified Person, its Restricted Subsidiaries or such other Person for
the purpose of financing the acquisition of such other Person or its assets
(provided that such other Person becomes or, in the case of an asset purchase,
the person acquiring such assets is, a Restricted Subsidiary and (iii) Debt
secured by a Lien encumbering any asset acquired by such specified Person.
"Additional Notes" means any additional notes that may be issued under the
Indenture.
"Affiliate" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person, (ii) any other Person that owns, directly
or indirectly, 5% or more of such specified Person's Voting Stock or (iii) any
Person who is a director or officer (a) of such Person, (b) of any Subsidiary
of such Person or (c) of any Person described in clause (i) or (ii) above. For
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlling," "controlled by" and "under common control with"), as
used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities,
by agreement or otherwise.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including by way of a sale and leaseback) (provided that
the sale, lease, conveyance or other disposition of all or substantially all
of the assets of the Issuer will be governed by the provisions of the Exchange
Debenture Indenture described above under the caption "--Certain Covenants--
Merger, Consolidation or Sale of all or Substantially all Assets" and not by
the provisions of the Asset Sale covenant), and (ii) the issue or sale by the
Issuer or any of its Restricted Subsidiaries of Equity Interests of any of the
Issuer's Subsidiaries (other than director's qualifying shares), in the case
of either clause (i) or (ii), whether in a single transaction or a series of
related transactions (a) that have a fair market value in excess of 2.5% of
Total Assets or (b) for net proceeds in excess of 2.5% of Total Assets.
Notwithstanding the foregoing, the following will not be Asset Sales: (i) a
transfer of assets by the Issuer to a Restricted Subsidiary or by a Restricted
Subsidiary to the Issuer or to another Restricted Subsidiary, (ii) an issuance
of Equity Interests by a Restricted Subsidiary to the Issuer or to another
Restricted Subsidiary, (iii) a Restricted Payment or Permitted Investment that
is permitted by the covenant described above under the caption "--Certain
Covenants--Restricted Payments" (including any formation of or contribution of
assets to a Subsidiary or joint venture), (iv) leases or subleases, in the
ordinary course of business, to third parties of real property owned in fee or
leased by the Issuer or its Subsidiaries, (v) a disposition, in the ordinary
course of business, of a lease of real property, (vi) any disposition of
property of the Issuer or any of its Subsidiaries that, in the reasonable
judgment of the Issuer, has become uneconomic, obsolete or worn out, (vii) any
disposition of property or assets (including any disposition of inventory,
accounts receivable and any licensing agreements) in the ordinary course of
business, (viii) the sale of Cash Equivalents and Investment Grade Securities
or any disposition of cash, (ix) any exchange of property or assets by the
Issuer or a Restricted Subsidiary in exchange for cash or Cash Equivalents or
property or assets that will be used or useful
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in the business conducted by the Issuer or any of its Restricted Subsidiaries,
provided any such cash and Cash Equivalents are applied as if they were Net
Proceeds of an Asset Sale, and (x) the sale or factoring of receivables on
customary market terms pursuant to Credit Facilities but only if the proceeds
thereof received by the Issuer and its Restricted Subsidiaries represent the
fair market value of such receivables.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person, or any authorized committee of the Board of
Directors of such Person.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any similar participation in profits and losses or equity of a Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any commercial bank or trust
company having capital and surplus in excess of $300.0 million, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above, (v) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings
Services, a division of the McGraw-Hill Companies, Inc. ("S&P") and in each
case maturing within one year after the date of acquisition, (vi) investment
funds investing 95% of their assets in securities of the types described in
clauses (ii)-(v) above, (vii) readily marketable direct obligations issued by
any state of the United States of America or any political subdivision thereof
having one of the two highest rating categories obtainable from either Moody's
or S&P and (viii) Debt with a rating of "A" or higher from S&P or "A2" or
higher from Moody's and having a maturity of not more than one year from the
date of acquisition.
"Closing Date" means August 11, 1998, the date on which HH Acquisition Corp.
was merged with and into the Issuer.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodity Hedging Agreements" means any futures contract or other similar
agreement or arrangement designed to protect the Issuer or any Restricted
Subsidiary against fluctuations in commodities prices.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period (A) plus (without
duplication), to the extent deducted in computing such Consolidated Net
Income, (i) Consolidated Interest Expense and the amortization of debt
issuance costs, commissions, fees and expenses of such Person and its
Restricted Subsidiaries for such period, (ii) provision for taxes based on
income or profits (including franchise taxes) of such Person and its
Restricted Subsidiaries for such period, (iii) depreciation and amortization
expense, including amortization of inventory write-up under APB 16,
amortization of intangibles (including goodwill and the non-cash costs of
Interest Rate Agreements, Commodity Hedging Agreements or Currency Agreements,
license agreements and non-competition agreements), non-cash amortization of
Capital Lease Obligations, and organization costs, (iv) non-cash expenses
related to the
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amortization of management fees paid on or prior to the Closing Date, (v)
expenses and charges related to any equity offering or incurrence of Debt
permitted to be incurred by the Exchange Debenture Indenture (including any
such expenses or charges relating to the Recapitalization), (vi) the amount of
any restructuring charge or reserve, (vii) unrealized gains and losses from
hedging, foreign currency or commodities translations and transactions, (viii)
expenses consisting of internal software development costs that are expensed
during the period but could have been capitalized in accordance with GAAP,
(ix) any write-downs, write-offs, and other non-cash charges, items and
expenses, (x) the amount of expense relating to any minority interest in a
Restricted Subsidiary, and (xi) costs of surety bonds in connection with
financing activities, and (B) minus any cash payment for which a reserve or
charge of the kind described in clauses (vi), (ix) or (x) of subclause (A)
above was taken previously during such period.
"Consolidated Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Consolidated Interest Expense
of such Person and its Restricted Subsidiaries for such period. In the event
that the Issuer or any of its Restricted Subsidiaries incurs, assumes,
Guarantees, redeems or repays any Debt (other than revolving credit
borrowings) or issues or redeems Preferred Stock
subsequent to the commencement of the period for which the Consolidated
Coverage Ratio is being calculated but prior to the date on which the event
for which the calculation of the Consolidated Coverage Ratio is made (the
"Calculation Date"), then the Consolidated Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee, redemption
or repayment of Debt, or such issuance or redemption of Preferred Stock, as if
the same had occurred at the beginning of the applicable four-quarter
reference period. For purposes of making the computation referred to above,
Investments, acquisitions, dispositions, mergers and consolidations that have
been made by the Issuer or any of its Restricted Subsidiaries during the four-
quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date, and discontinued operations determined in
accordance with GAAP on or prior to the Calculation Date, shall be given
effect on a pro forma basis assuming that all such Investments, acquisitions,
dispositions, mergers and consolidations or discontinued operations (and the
reduction or increase of any associated Consolidated Interest Expense and the
change in Consolidated Cash Flow resulting therefrom, including because of
reasonably anticipated cost savings) had occurred on the first day of the
four-quarter reference period. If since the beginning of such period any
Person (that subsequently became a Restricted Subsidiary or was merged with or
into the Issuer or any Restricted Subsidiary since the beginning of such
period) shall have made any Investment, acquisition, disposition, merger or
consolidation or determined a discontinued operation, that would have required
adjustment pursuant to this definition, then the Consolidated Coverage Ratio
shall be calculated giving pro forma effect thereto for such period as if such
Investment, acquisition, disposition, merger or consolidation or discontinued
operations had occurred at the beginning of the applicable four-quarter
period. For purposes of this definition, whenever pro forma effect is to be
given to a transaction, the pro forma calculations shall be made in good faith
by a financial or accounting officer of the Issuer. If any Debt to which pro
forma effect is given bears interest at a floating rate, the interest expense
on such Debt shall be calculated as if the rate in effect on the Calculation
Date had been the applicable interest rate for the entire period (taking into
account any Interest Rate Agreement in effect on the Calculation Date).
Interest on a Capital Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined by a responsible financial or accounting
officer of the Issuer to be the rate of interest implicit in such Capital
Lease Obligation in accordance with GAAP. Interest on Debt that may optionally
be determined at an interest rate based upon a factor of a prime or similar
rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to
have been based upon the rate actually chosen, or, if none, then based upon
such optional rate chosen as the Issuer may designate.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated net interest
expense of such Person and its Restricted Subsidiaries for such period,
whether paid or accrued (including amortization of original issue discount,
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non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, commissions, discounts and other fees and charges incurred
in respect of letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations relating to Interest Rate
Agreements or Currency Agreements with respect to Debt, excluding, however,
(A) amortization of debt issuance costs, commissions, fees and expenses, (B)
customary commitment, administrative and transaction fees and charges and (C)
expenses attributable to letters of credit or similar arrangements supporting
insurance certificates issued to customers in the ordinary course of
business), (ii) any interest expense on Debt of another Person that is
Guaranteed by or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (but only to the extent such Guarantee or Lien has
then been called upon), and (iii) cash dividends paid in respect of any
Preferred Stock of such Person or any Restricted Subsidiary of such Person
held by Persons other than the Issuer or a Subsidiary, in each case, on a
consolidated basis and in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated
basis, determined in accordance with GAAP; provided that (i) the Net Income of
any Person that is not a Restricted Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid in cash to the referent Person or a
Restricted Subsidiary of such Person, (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
prohibited by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders unless such
restriction with respect to the payment of dividends has been permanently
waived, (iii) except for purposes of calculating "Consolidated Cash Flow," the
Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded
(effected either through cumulative effect adjustment or a retroactive
application, in each case, in accordance with GAAP), (v) to the extent
deducted in determining Net Income, the fees, expenses and other costs
incurred in connection with the Recapitalization, including payments to
management contemplated by the Recapitalization Agreement, shall be excluded,
and (vi) to the extent deducted in determining Net Income, any non-cash
charges resulting from any write-up, write-down or write-off of assets, of the
Issuer and its Restricted Subsidiaries in connection with the
Recapitalization, shall be excluded.
"Credit Facilities" means, with respect to the Issuer, one or more debt
facilities (including the New Credit Facility) or commercial paper facilities
with banks, insurance companies or other institutional lenders providing for
revolving credit loans, term loans, synthetic lease financing, notes,
receivables factoring or other financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow
from or issue securities to such lenders against such receivables) or letters
of credit or other credit facilities, in each case, as amended, restated,
modified, renewed, refunded, replaced or refinanced in whole or in part from
time to time.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement to which the Issuer or any
Restricted Subsidiary is a party or of which it is a beneficiary.
"Debt" means, with respect to any Person (without duplication), (i) any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property, which purchase price is due
more than six months after the date of placing such property in final service
or taking final delivery thereof, or representing any Hedging
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Obligations, except any such balance that constitutes an accrued expense or
trade payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as a liability
upon a balance sheet of such Person prepared in accordance with GAAP, (ii) all
indebtedness under clause (i) of other Persons secured by a Lien on any asset
of such Person (whether or not such indebtedness is assumed by such Person)
provided that the amount of indebtedness of such Person shall be the lesser of
(A) the fair market value of such asset at such date of determination and (B)
the amount of such indebtedness of such other Persons, and (iii) to the extent
not otherwise included, the Guarantee by such Person of any Debt under clause
(i) of any other Person; provided, however, that Debt shall not include (a)
obligations of the Issuer or any of its Restricted Subsidiaries arising from
agreements of the Issuer or a Restricted Subsidiary providing for
indemnification, adjustment of purchase price or similar obligations, in each
case, incurred or assumed in connection with the disposition of any business,
assets or a Subsidiary, other than guarantees of Debt incurred by any Person
acquiring all or any portion of such business, assets or a Subsidiary for the
purpose of financing such acquisition; provided, however, that (x) such
obligations are not reflected
on the balance sheet of the Issuer or any Restricted Subsidiary (contingent
obligations referred to in a footnote to financial statements and not
otherwise reflected on the balance sheet will not be deemed to be reflected on
such balance sheet for purposes of this clause (x)) and (y) the maximum
assumable liability in respect of all such obligations shall at no time exceed
the gross proceeds including noncash proceeds (the fair market value of such
noncash proceeds being measured at the time received and without giving effect
to any subsequent changes in value) actually received by the Issuer and its
Restricted Subsidiaries in connection with such disposition, (b) (A)
obligations under (or constituting reimbursement obligations with respect to)
letters of credit, performance bonds, surety bonds, appeal bonds, completion
guarantees or similar instruments issued in connection with the ordinary
course of business conducted by the Issuer, including letters of credit in
respect of workers' compensation claims, security or lease deposits and self-
insurance, provided, however, that upon the drawing of such letters of credit
or other instrument, such obligations are reimbursed within 30 days following
such drawing, and (B) obligations arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of day-light overdrafts) drawn against insufficient funds
in the ordinary course of business; provided, however, that such obligations
are extinguished within three business days of incurrence, or (c) retentions
in connection with purchasing assets in the ordinary course of business of the
Issuer and its Restricted Subsidiaries. The amount of any Debt outstanding as
of any date shall be the lesser of (i) the accreted value thereof and (ii) the
principal amount thereof, provided that the amount of Permitted Debt under
clause (i) or (ix) of the definition thereof, at the Issuer's election, but
without duplication, may be reduced by the principal amount (not to exceed
$7.5 million) of the note receivable issued to the Issuer before the Issue
Date in connection with the leasing of certain nursing home facilities in the
State of Connecticut.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) any Debt outstanding under the New Credit
Facility, (ii) the Notes (including any Additional Notes) and the Note
Guarantees and (iii) any other Senior Debt permitted under the Exchange
Debenture Indenture the principal amount of which is $25.0 million or more and
that has been designated by the Issuer as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event (other than as a result of a
Change of Control), matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the
Holder thereof, in whole or in part, on or prior to the date on which the
Exchangeable Preferred Stock is subject to mandatory redemption as described
in "Description of the Exchangeable Preferred Stock--Mandatory Redemption";
provided, however, that if such Capital Stock is issued to any plan for the
benefit of employees of the Issuer or its Subsidiaries or by any such plan to
such employees, such Capital Stock shall not constitute
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Disqualified Stock solely because it may be required to be repurchased by the
Issuer in order to satisfy applicable statutory or regulatory obligations. For
the avoidance of doubt, Exchangeable Preferred Stock shall not be considered
"Disqualified Stock."
"Exchange Date" means the date on which the Exchangeable Preferred Stock is
exchanged for Exchange Debentures.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Debentures" means the 13 1/2% Subordinated Exchange Debentures of
the Issuer due 2010 issuable in exchange for the Exchangeable Preferred Stock
and any Exchange Debentures issued as payments in kind interest thereon.
"Exchange Debenture Holder" means the Person in whose name an Exchange
Debenture is registered.
"Exchange Debenture Indenture" means the indenture pursuant to which the
Exchange Debentures are to be issued as it may from time to time be amended or
supplemented.
"Exchangeable Preferred Stock" means the Old Preferred Stock, the New
Preferred Stock and any 13 1/2% Exchangeable Preferred Stock of the Issuer
issued as payment of dividends thereon.
"Exchangeable Preferred Stock Holder" means the Person in whose name a share
of Exchangeable Preferred Stock is registered.
"Existing Debt" means Debt of the Issuer and its Restricted Subsidiaries
(other than Debt under the New Credit Facility) in existence on the Issue
Date, until such amounts are repaid.
"Foreign Subsidiary" means any Subsidiary of the Issuer formed under the
laws of any jurisdiction other than the United States or any political
subdivision thereof substantially all of the assets of which are located
outside of the United States or that conducts substantially all of its
business outside of the United States.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession. All ratios and computations based on GAAP contained in the
Exchange Debenture Indenture shall be computed in conformity with GAAP as in
effect as of the Issue Date.
"Government Notes" means non-callable direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including letters of credit and reimbursement
agreements in respect thereof), of all or any part of any Debt.
"Guarantors" means, at any time after the Closing Date, (i) each of the
Issuer's Subsidiaries on the Closing Date, other than the Subsidiary Non-
Guarantors on such date, and (ii) each Restricted Subsidiary that executes and
delivers a Note Guarantee after the Closing Date, and their respective
successors and assigns, in each case until released from its Note Guarantee in
accordance with the terms of the Indenture.
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"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under Interest Rate Agreements, Currency Agreements or Commodity
Hedging Agreements.
"Holder" means (i) with respect to any share of Exchangeable Preferred
Stock, a Person in whose name such share of Exchangeable Preferred Stock is
registered in the register for the Exchangeable Preferred Stock, and (ii) with
respect to any Exchange Debenture, a Person in whose name such Exchange
Debenture is registered in the register for the Exchange Debentures.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement, repurchase agreement, futures contract or other financial
agreement or arrangement designed to protect the Issuer or any Restricted
Subsidiary against fluctuations in interest rates.
"Investcorp" means Investcorp S.A. and certain affiliates thereof.
"Investment Grade Securities" means (i) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents) having maturities of not
more than one year from the date of acquisition, (ii) debt securities or debt
instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization, or, if
no rating of S&P or Moody's then exists, the equivalent of such rating by any
other nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the Issuer and
its Subsidiaries having maturities of not more than one year from the date of
acquisition, and (iii) investments in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii), which fund may also
hold immaterial amounts of cash pending investment and/or distribution.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Debt or other obligations, but
excluding advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person), advances
or capital contributions (excluding commission, travel, payroll,
entertainment, relocation and similar advances to officers and employees made
in the ordinary course of business), purchases or other acquisitions for
consideration of Debt, Equity Interests or other securities. If the Issuer or
any Restricted Subsidiary of the Issuer sells or otherwise disposes of any
Equity Interests of any direct or indirect Subsidiary of the Issuer such that,
after giving effect to any such sale or disposition, such Person is no longer
a Subsidiary of the Issuer, the Issuer shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Subsidiary not sold or disposed
of in an amount determined as provided in the third to last paragraph of the
covenant described above under the caption "--Restricted Payments."
"Issue Date" means July 29, 1998, the date on which the Old Preferred Stock
and the Old Notes were issued.
"Issuer" means Harborside Healthcare Corporation.
"Junior Equity Interests" means Junior Securities or warrants, options or
other rights to acquire Junior Securities (but excluding any debt security
that is convertible into, or exchangeable for, Junior Securities).
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement or any lease in the
nature thereof); provided that in no event shall an operating lease be deemed
to constitute a Lien.
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"Net Income" means, with respect to any Person and any period, the net
income (or loss) of such Person for such period, determined in accordance with
GAAP and before any reduction in respect of Preferred Stock dividends,
excluding, however, (i) any extraordinary or non-recurring gains or losses or
charges and gains or losses or charges from the sale of assets outside the
ordinary course of business, together with any related provision for taxes on
such gain or loss or charges and (ii) deferred financing costs written off in
connection with the early extinguishment of Debt; provided, however, that Net
Income shall be deemed to include any increases during such period to
shareholder's equity of such Person attributable to tax benefits from net
operating losses and the exercise of stock options that are not otherwise
included in Net Income for such period.
"Net Proceeds" means the aggregate cash proceeds received by the Issuer or
any of its Restricted Subsidiaries in respect of any Asset Sale (including any
cash received upon the sale or
other disposition of any non-cash consideration received in any Asset Sale),
net of the direct costs relating to such Asset Sale (including legal,
accounting and investment banking fees, and brokerage and sales commissions)
and any relocation, redundancy and closing costs incurred as a result thereof,
taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), amounts
applied to the repayment of principal, premium (if any) and interest on Debt
that is not subordinated to the Exchange Debentures required (other than
required by clause (a) of the second paragraph of "--Repurchase at the Option
of Holders--Asset Sales") to be paid as a result of such transaction, all
distributions and other payments required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Sale, and
any deduction of appropriate amounts to be provided by the Issuer as a reserve
in accordance with GAAP against any liabilities associated with the asset
disposed of in such transaction and retained by the Issuer after such sale or
other disposition thereof, including pension and other post-employment benefit
liabilities and liabilities related to environmental matters or against any
indemnification obligations associated with such transaction.
"New Credit Facility" means the collective reference to the Credit
Agreement, dated as of August 11, 1998, among the Issuer and certain
Subsidiaries of the Issuer named therein and the financial institutions named
therein, any Credit Documents (as defined therein) and any related notes,
collateral documents, letters of credit, participation agreements, guarantees,
and other documents part of or relating to the Synthetic Lease Facility (as
defined in the Credit Agreement), including any appendices, exhibits or
schedules to any of the foregoing (as the same may be in effect from time to
time), in each case, as such agreements may be amended, modified, supplemented
or restated from time to time, or refunded, refinanced, restructured,
replaced, renewed, repaid or extended from time to time (whether with the
original agents and lenders or other agents or lenders or otherwise, and
whether provided under the original credit agreement or other credit
agreements or otherwise).
"Note Guarantee" means the Guarantee by each Guarantor of the Issuer's
Obligations under the New Notes, the Old Notes or both the New Notes and the
Old Notes, as the context may require.
"Notes" means the New Notes and the Old Notes.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages, guarantees and other liabilities
payable under the documentation governing any Debt, in each case whether now
or hereafter existing, renewed or restructured, whether or not from time to
time decreased or extinguished and later increased, created or incurred,
whether or not arising on or after the commencement of a proceeding under
Title 11, U.S. Code or any similar federal or state law for the relief of
debtors (including post-petition interest) and whether or not allowed or
allowable as a claim in any such proceeding.
"Officers" means any of the following: Chairman, President, Chief Executive
Officer, Treasurer, Chief Financial Officer, Executive Vice President, Senior
Vice President, Vice President, Assistant Vice President, Secretary, Assistant
Secretary or any other officer reasonably acceptable to the Exchange Debenture
Trustee.
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"Officers' Certificate" means a certificate signed by two Officers.
"Pari Passu Debt" means any Debt of the Issuer other than Subordinated Debt
and Senior Debt.
"Permitted Investments" means (a) any Investment in the Issuer or in a
Restricted Subsidiary (including in any Equity Interests of a Restricted
Subsidiary); (b) any Investment in cash, Cash Equivalents or Investment Grade
Securities; (c) any Investment by the Issuer or any Restricted Subsidiary of
the Issuer in a Person, if as a result of such Investment (i) such Person
becomes a Restricted Subsidiary or (ii) such Person, in one transaction or a
series of substantially concurrent
related transactions, is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated
into, the Issuer or a Restricted Subsidiary; (d) any securities or other
assets received or other Investments made as a result of the receipt of non-
cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--Repurchase
at the Option of Holders--Asset Sales" or in connection with any other
disposition of assets not constituting an Asset Sale; (e) any acquisition of
assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Issuer; (f) loans or advances to employees (or
guarantees of third party loans to employees) in the ordinary course of
business; (g) stock, obligations or securities received in satisfaction of
judgments, foreclosure of liens or settlement of debts (whether pursuant to a
plan of reorganization or similar arrangement); (h) receivables owing to the
Issuer or any Restricted Subsidiary, if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with customary
trade terms (including such concessionary terms as the Issuer or such
Restricted Subsidiary deems reasonable); (i) any Investment existing on the
Issue Date or made pursuant to legally binding written commitments in
existence on the Issue Date; (j) Investments in Interest Rate Agreements,
Currency Agreements and Commodity Hedging Agreements otherwise permitted under
the Exchange Debenture Indenture; and (k) additional Investments having an
aggregate fair market value, taken together with all other Investments made
pursuant to this clause (k) that are at that time outstanding, not to exceed
15.0% of Total Assets at the time of such Investment (with the fair market
value of each Investment being measured at the time made and without giving
effect to subsequent changes in value).
"Permitted Junior Securities" shall mean debt or equity securities of the
Issuer or any successor corporation issued pursuant to a plan of
reorganization or readjustment of the Issuer that are subordinated to the
payment of all Senior Debt at least to the same extent that the Exchange
Debentures are subordinated to the payment of all Senior Debt on the Exchange
Date, so long as (i) the effect of the use of this defined term in the
subordination provisions described under the caption "Subordination" is not to
cause the Exchange Debentures to be treated as part of (a) the same class of
claims as the Senior Debt or (b) any class of claims pari passu with, or
senior to, the Senior Debt for any payment or distribution in any case or
proceeding or similar event relating to the liquidation, insolvency,
bankruptcy, dissolution, winding up or reorganization of the Issuer and (ii)
to the extent that any Senior Debt outstanding on the date of consummation of
any such plan of reorganization or readjustment is not paid in full in cash on
such date, either (a) the holders of any such Senior Debt not so paid in full
in cash have consented to the terms of such plan of reorganization or
readjustment or (b) such holders receive securities which constitute Senior
Debt and which have been determined by the relevant court to constitute
satisfaction in full in money or money's worth of any Senior Debt not paid in
full in cash.
"Permitted Liens" means (i) Liens securing Senior Debt of the Issuer or
unsubordinated Debt of a Restricted Subsidiary (in each case including related
Obligations) that was permitted by the terms of the Exchange Debenture
Indenture to be incurred; (ii) Liens in favor of the Issuer or any Restricted
Subsidiary; (iii) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Issuer or any Restricted
Subsidiary of the Issuer; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets
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other than those of the Person merged into or consolidated with the Issuer or
a Restricted Subsidiary, as the case may be; (iv) Liens on property existing
at the time of acquisition thereof by the Issuer or any Restricted Subsidiary
of the Issuer, provided that such Liens were in existence prior to the
contemplation of such acquisition and do not extend to any assets other than
those acquired; (v) banker's Liens, rights of setoff and Liens to secure the
performance of bids, tenders, trade or government contracts (other than for
borrowed money), leases, licenses, statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) without limitation of clause (i), Liens to
secure Acquired Debt; (vii) Liens existing on the Closing Date; (viii) Liens
for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings, provided that any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have been made
therefor; (ix) Liens incurred in the ordinary course of business of the Issuer
or any Restricted Subsidiary of the Issuer with respect to obligations that do
not exceed $5.0 million at any one time outstanding and that (a) are not
incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than trade credit in the ordinary course of
business) and (b) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof in the operation of business
by the Issuer or such Restricted Subsidiary; (x) carriers', warehousemen's,
mechanics', landlords', materialmen's, repairmen's or other like Liens arising
in the ordinary course of business in respect of obligations that are not yet
due or that are bonded or that are being contested in good faith and by
appropriate proceedings if adequate reserves with respect thereto are
maintained on the books of the Issuer or such Restricted Subsidiary, as the
case may be, in accordance with GAAP; (xi) pledges or deposits in connection
with workmen's compensation, unemployment insurance and other social security
legislation; (xii) easements (including reciprocal easement agreements),
rights-of-way, building, zoning and similar restrictions, utility agreements,
covenants, reservations, restrictions, encroachments, changes, and other
similar encumbrances or title defects incurred, or leases or subleases granted
to others, in the ordinary course of business, that do not in the aggregate
materially detract from the aggregate value of the properties of the Issuer
and its Subsidiaries, taken as a whole, or in the aggregate materially
interfere with or adversely affect in any material respect the ordinary
conduct of the business of the Issuer and its Subsidiaries on the properties
subject thereto, taken as a whole; (xiii) Liens on goods (and the proceeds
thereof) and documents of title and the property covered thereby securing Debt
in respect of commercial letters of credit; (xiv) (A) mortgages, Liens,
security interests, restrictions, encumbrances or any other matters of record
that have been placed by any developer, landlord or other third party on
property over which the Issuer or any Restricted Subsidiary of the Issuer has
easement rights or on any real property leased by the Issuer or any Restricted
Subsidiary on the Issue Date and subordination or similar agreements relating
thereto and (B) any condemnation or eminent domain proceedings affecting any
real property; (xv) leases or subleases to third parties; (xvi) Liens in
connection with workmen's compensation obligations and general liability
exposure of the Issuer and its Restricted Subsidiaries; (xvii) Liens arising
by reason of a judgment, decree or court order, to the extent not otherwise
resulting in an Event of Default; (xviii) Liens securing Hedging Obligations
entered into in the ordinary course of business; (xix) without limitation of
clause (i), Liens securing Permitted Refinancing Debt permitted to be incurred
under the Exchange Debenture Indenture or amendments or renewals of Liens that
were permitted to be incurred, provided, in each case, that (A) such Liens do
not extend to an additional property or asset of the Issuer or a Restricted
Subsidiary and (B) such Liens do not secure Debt in excess of the amount of
Permitted Refinancing Debt permitted to be incurred under the Exchange
Debenture Indenture or the principal amount of (or accreted value, if
applicable), plus accrued interest on, the Debt (plus the amount of reasonable
premium and fees and expenses incurred in connection therewith) secured by the
Lien being amended or renewed, as the case may be; (xx) Liens that secure Debt
of a Person existing at the time such Person becomes a Restricted Subsidiary
of the Issuer, provided that such Liens do not extend to any assets other than
those of the Person that became a Restricted Subsidiary of the Issuer, and
(xxi) any provision for the retention of title to an asset by the vendor or
transferor of such asset which asset is acquired by the Issuer or any
Restricted Subsidiary
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in a transaction entered into in the ordinary course of business of the issuer
or such Restricted Subsidiary and for which kind of transaction it is normal
market practice for such retention of title provision to be included.
"Permitted Refinancing Debt" means any Debt of the Issuer or any of its
Restricted Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other Debt of
the Issuer or any of its Restricted Subsidiaries incurred in compliance with
the Exchange Debenture Indenture; provided that: (i) the principal amount (or
accreted value, if applicable) of such Permitted Refinancing Debt does not
exceed the principal amount of (or accreted
value, if applicable), plus accrued interest on, the Debt so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable premium and fees and expenses incurred in connection therewith);
(ii) in the case of term Debt, (1) principal payments required under such
Permitted Refinancing Debt have a Stated Maturity no earlier than the earlier
of (A) the Stated Maturity of those under the Debt being refinanced and (B)
the maturity date of the Exchange Debentures and (2) such Permitted
Refinancing Debt has a Weighted Average Life to Maturity equal to or greater
than the lesser of the Weighted Average Life to Maturity of the Debt being
extended, refinanced, renewed, replaced, defeased or refunded and the Weighted
Average Life to Maturity of the Exchange Debentures; (iii) if the Debt being
extended, refinanced, renewed, replaced, defeased or refunded is subordinated
in right of payment to the Exchange Debentures, such Permitted Refinancing
Debt has a final maturity date later than the final maturity date of, and is
subordinated in right of payment to, the Exchange Debentures on terms at least
as favorable to the Holders of Exchange Debentures as those contained in the
documentation governing the Debt being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Debt is incurred either by the
Issuer or by its Restricted Subsidiary who is the obligor on the Debt being
extended, refinanced, renewed, replaced, defeased or refunded. The Issuer may
Incur Permitted Refinancing Debt not more than six months prior to the
application of the proceeds thereof to repay the Debt to be refinanced;
provided that upon the Incurrence of such Permitted Refinancing Debt, the
Issuer shall provide written notice thereof to the Exchange Debenture Trustee,
specifically identifying the Debt to be refinanced with Permitted Refinancing
Debt.
"Preferred Stock" means, with respect to any Person, any Capital Stock of
such Person (however designated) that is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over
shares of Capital Stock of any other class of such Person. With respect to the
Issuer, "Preferred Stock" includes the Exchangeable Preferred Stock.
"Preferred Equity Interests" means Preferred Stock and all warrants, options
or other rights to acquire Preferred Stock (but excluding any debt security
that is convertible into, or exchangeable for, Preferred Stock).
"Recapitalization" means the recapitalization of Harborside Healthcare
Corporation pursuant to which HH Acquisition Corp. was merged with and into
the Issuer and the financing transactions related thereto.
"Recapitalization Agreement" means the Agreement and Plan of Merger dated as
of April 15, 1998 by and between HH Acquisition Corp. and Harborside
Healthcare Corporation, as amended through the Closing Date.
"Representative" means any agent or representative in respect of any
Designated Senior Debt; provided that if, and for so long as, any Designated
Senior Debt lacks such a representative, then the Representative for such
Designated Senior Debt shall at all times constitute the holders of a majority
in outstanding principal amount of such Designated Senior Debt.
"Restricted Investment" means an Investment other than a Permitted
Investment.
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"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Secured Debt" means any Debt of the Issuer or any Subsidiary secured by a
Lien.
"Senior Debt" means (i) all Debt of the Issuer outstanding under the New
Credit Facility and all Hedging Obligations with respect thereto, (ii) all
Debt represented by the Notes (including any Additional Notes), (iii) any
other Debt (including Acquired Debt) permitted to be incurred by the Issuer
under the terms of the Exchange Debenture Indenture, unless the instrument
under which such Debt is incurred expressly provides that it is on a parity
with or subordinated in right of payment to the Exchange Debentures, and (iv)
all Obligations with respect to the foregoing. Notwithstanding anything to the
contrary in the foregoing, Senior Debt will not include (v) any liability for
federal, state, local or other taxes owed or owing by the Issuer, (w) any Debt
of the Issuer to any of its Subsidiaries, officers, employees or other
Affiliates (other than Debt under any Credit Facility to any such Affiliate),
(x) any trade payables, (y) that portion of Debt incurred in violation of the
covenant described above under "Incurrence of Debt and Preferred Stock" (but
as to any such Debt under any Credit Facility, such violation shall be deemed
not to exist for purposes of this clause (y) if the lenders have obtained a
representation from a Senior Officer of the Issuer to the effect that the
issuance of such Debt does not violate such covenant) or (z) any Debt or
obligation of the Issuer which is expressly subordinated in right of payment
to any other Debt or obligation of the Issuer including any Subordinated Debt
of the Issuer.
"Senior Officer" means the Chief Executive Officer or the Chief Financial
Officer of the Issuer.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such regulation is in effect on the Issue
Date.
"Specified Affiliate Payments" means:
(i) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Issuer or any Restricted Subsidiary of
the Issuer, held by any future, present or former employee, director,
officer or consultant of the Issuer (or any of its Restricted Subsidiaries)
pursuant to any management equity subscription agreement, stock option
agreement, put agreement, stockholder agreement or similar agreement that
may be in effect from time to time; provided that the aggregate price paid
for all such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed $3.0 million in any calendar year (with unused amounts in
any calendar year being carried over to succeeding calendar years subject
to a maximum amount of repurchases, redemptions or other acquisitions
pursuant to this clause (i) (without giving effect to the immediately
following proviso) of $10.0 million in any calendar year) and no payment
default on Senior Debt or the Exchange Debentures shall have occurred and
be continuing; provided further that such amount in any calendar year may
be increased by an amount not to exceed (A) the cash proceeds received by
the Issuer (including by way of capital contribution) since the Issue Date
from the sale of Equity Interests of the Issuer to employees, directors,
officers or consultants of the Issuer or its Subsidiaries that occurs in
such calendar year (it being understood that such cash proceeds shall be
excluded from clause (c)(ii) of the first paragraph under the covenant
described under the caption "--Certain Covenants--Restricted Payments")
plus (B) the cash proceeds from key man life insurance policies received by
the Issuer and its Restricted Subsidiaries in such calendar year (including
proceeds from the sale of such policies to the person insured thereby); and
provided, further, that cancellation of Debt owing to the Issuer from
employees, directors, officers or consultants of the Issuer or any of its
Subsidiaries in connection with a repurchase of Equity Interests of the
Issuer will not be deemed to constitute a Restricted Payment for purposes
of the Exchange Debenture Indenture;
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(ii) repurchases of Equity Interests deemed to occur upon exercise of
stock options or warrants as a result of the payment of all or a portion of
the exercise price of such options or warrants with Equity Interests;
(iii) payments by the Issuer to shareholders or members of management of
the Issuer and its Subsidiaries in connection with the Recapitalization;
and
(iv) payments or transactions permitted under clause (5) of the second
paragraph of the covenant described under "--Certain Covenants--Transaction
with Affiliates."
"Stated Maturity" means, with respect to any installment of interest on or
principal of, or any other amount payable in respect of, any series of Debt,
the date on which such interest, principal or other amount was scheduled to be
paid in the documentation governing such Debt, and shall not include any
contingent obligations to repay, redeem or repurchase any such interest,
principal or other amount prior to the date scheduled for the payment thereof.
"Subordinated Debt" means any Debt of the Issuer (whether outstanding on the
Issue Date or thereafter incurred) that is subordinate or junior in right of
payment to the Exchange Debentures pursuant to written agreement.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof). Unless the context otherwise requires, "Subsidiary" refers to a
Subsidiary of the Issuer.
"Subsidiary Non-Guarantors" means (i) each of the Subsidiaries of the Issuer
on the Closing Date that do not issue or are released from a Note Guarantee,
(ii) each Unrestricted Subsidiary, and (iii) each Restricted Subsidiary formed
or acquired after the Closing Date that does not execute and deliver or is
released from a Note Guarantee.
"Total Assets" means, at any time, the total consolidated assets of the
Issuer and its Restricted Subsidiaries at such time.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, and (ii) any Subsidiary of an Unrestricted Subsidiary; but in the
case of any Subsidiary referred to in clause (i) (or any Subsidiary of any
such Subsidiary) only to the extent that such Subsidiary: (a) is not party to
any agreement, contract, arrangement or understanding with the Issuer or any
Restricted Subsidiary of the Issuer unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Issuer or
such Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Issuer; and (b) except in the case of a
Foreign Subsidiary, is a Person with respect to which neither the Issuer nor
any of its Restricted Subsidiaries has any direct or indirect obligation (x)
to subscribe for additional Equity Interests or (y) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results. Any such designation by the Board of
Directors shall be evidenced to the Exchange Debenture Trustee by filing with
the Exchange Debenture Trustee a certified copy of the Board Resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "--Certain Covenants--Restricted
Payments." If, at any time, any Unrestricted Subsidiary referred to in clause
(ii) of the first sentence of this definition (or any Subsidiary thereof)
would fail to meet the foregoing
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requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Exchange Debenture Indenture and
any Debt of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Issuer as of such date (and, if such Debt is not permitted
to be incurred as of such date under the covenant described under the caption
"--Certain Covenants--Incurrence of Debt and Issuance of Preferred Stock," the
Issuer shall be in default of such covenant). The Board of Directors of the
Issuer may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation shall be deemed to be an
incurrence of Debt by a Restricted Subsidiary of the Issuer of any outstanding
Debt of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Debt is permitted under the covenant described under the
caption "--Certain Covenants--Incurrence of Debt and Issuance of Preferred
Stock," calculated on a pro forma basis as if such designation had occurred at
the beginning of the four-quarter reference period, and (ii) no Default or
Event of Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person, excluding, however, Exchangeable Preferred Stock.
"Weighted Average Life to Maturity" means, when applied to any Debt at any
date, the number of years obtained by dividing (i) the sum of the products
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof, by (b) the number of
years (calculated to the nearest one-twelfth) that will elapse between such
date and the making of such payment, by (ii) the then outstanding principal
amount of such Debt.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
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U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal income tax
consequences of the acquisition, ownership and disposition of the Notes and
the Exchangeable Preferred Stock, and the ownership and disposition of the
Exchange Debentures. It is based on provisions of the U.S. Internal Revenue
Code of 1986, as amended (the "Code"), existing and proposed Treasury
regulations promulgated thereunder (the "Treasury Regulations") and
administrative and judicial interpretations thereof, all as of the date hereof
and all of which are subject to change, possibly on a retroactive basis. The
following relates only to Old Securities, and New Securities received
therefor, that are held by holders (each, a "Holder") who hold the Securities
as capital assets. This summary does not address all of the tax consequences
that may be relevant to particular Holders in light of their personal
circumstances, or to certain types of Holders (such as banks and other
financial institutions, real estate investment trusts, regulated investment
companies, insurance companies, foreign persons, tax-exempt organizations,
dealers in securities, persons who have hedged the interest rate on the Notes
or the dividend rate on the Exchangeable Preferred Stock, persons whose
functional currency is not the U.S. dollar or persons who hold the Notes, the
Exchangeable Preferred Stock or the Exchange Debentures as part of a
"straddle," "hedge" or "conversion transaction"). In addition, this summary
does not include any description of the tax laws of any state, local or non-
U.S. government that may be applicable to a particular Holder.
INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES TO THEM OF THE ACQUISITION,
OWNERSHIP AND DISPOSITION OF THE NOTES, THE EXCHANGEABLE PREFERRED STOCK AND
THE EXCHANGE DEBENTURES, AS WELL AS THE TAX CONSEQUENCES UNDER STATE, LOCAL,
NON-U.S. AND OTHER U.S. FEDERAL TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN TAX LAWS BEFORE DETERMINING WHETHER TO PARTICIPATE IN THE EXCHANGE OFFER.
THE EXCHANGE OFFER
The exchange of Old Securities for New Securities pursuant to the Exchange
Offer will not constitute a material modification of the terms of the
Securities and, accordingly, such exchange will not constitute an exchange for
federal income tax purposes. Accordingly, such exchange will have no federal
income tax consequences to holders of Securities, either those who exchange or
those who do not.
THE NOTES AND THE EXCHANGE DEBENTURES
Accrual of Original Issue Discount. The Notes were issued at a substantial
discount from their principal amount and, further, cash interest will not
begin to accrue on the Notes until August 1, 2003. Accordingly, Holders of the
Notes will be required to include stated interest and original issue discount
("OID") on the Notes in gross income in accordance with the OID provisions of
the Code discussed below, and will be required to include amounts in income
with respect to such Notes prior to the receipt of cash payments attributable
to such income, without regard to whether the Holder is a cash or accrual
method taxpayer. Exchange Debentures issued on or before August 1, 2003 will
likely be treated as having been issued with OID. Exchange Debentures issued
after August 1, 2003 will not be issued with OID unless, generally, their
stated redemption price at maturity exceeds their issue price by more than a
specified de minimis amount. The issue price of an Exchange Debenture will
depend upon whether the Exchange Debenture, or the Exchangeable Preferred
Stock exchanged therefor, is "publicly traded" within a specified time period
following the exchange, or, if not so traded, whether the Exchange Debenture
bears "adequate stated interest. An additional Exchange Debenture (a
"Secondary Debenture") issued in payment of interest with respect to an
initially issued Exchange Debenture (an "Initial Debenture") will not be
considered as payment made on the Initial Debenture and will be aggregated
with the Initial Debenture for purposes of computing the amount and accrual of
OID on the Initial Debenture. Similar treatment will be applied when
additional Exchange Debentures are issued on Secondary Debentures.
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Holders of the Notes and the Exchange Debentures will be required to accrue
OID on the Notes or the Exchange Debentures, as the case may be, in income for
federal income tax purposes on a constant yield basis, which ordinarily will
result in the inclusion of increasing amounts of OID in income in successive
accrual periods.
A subsequent purchaser of a Note or an Exchange Debenture issued with OID
will be required to include annual accruals of OID in gross income in
accordance with the rules described above, but the amount of OID includable in
gross income may vary depending upon the price paid for the Note or the
Exchange Debenture by such subsequent purchaser. If a subsequent purchaser
purchases a Note or an Exchange Debenture at a cost that is less than its
stated redemption amount at maturity but that is in excess of its adjusted
issue price (i.e., its issue price increased by OID previously includable in
gross income of prior holders and decreased by cash payments), the includable
OID will be reduced by an amount equal to the OID multiplied by a fraction the
numerator of which is such excess and the denominator of which is the amount
of OID for the period remaining after the subsequent purchaser's purchase
until maturity.
The Company will furnish annually to the Internal Revenue Service ("IRS")
and to Holders (other than with respect to certain exempt Holders, including,
in particular, corporations) information with respect to the OID accruing
while the Notes or Exchange Debentures are held by such Holders.
Market Discount. A Holder that purchases a Note or an Exchange Debenture at
a discount (the "Market Discount") from its adjusted issue price that exceeds
a specified de minimis amount may be subject to the "market discount" rules of
Sections 1276 through 1278 of the Code. These rules provide, in part, that
gain on the sale or other disposition of a debt instrument and partial
payments on a debt instrument are treated as ordinary income to the extent of
accrued Market Discount. Unless the Holder elects to include Market Discount
in income on a constant yield basis, the accrued Market Discount at any time
generally would be the amount calculated by multiplying the Market Discount by
a fraction, the numerator of which is the number of days the obligation has
been held by the Holder and the denominator of which is the number of days
after the Holder's acquisition of the obligation up to and including its
maturity date. As an alternative to the inclusion of Market Discount on the
foregoing basis, the Holder may elect to include Market Discount in income
currently as it accrues on all Market Discount instruments acquired by such
Holder in that taxable year or thereafter, in which case the deferred interest
rule described below will not apply. This election will apply to all Market
Discount obligations acquired by the electing Holder on or after the first day
of the first taxable year to which the election applies. The election may be
revoked only with the consent of the IRS. Purchasers that acquire a Note or an
Exchange Debenture with Market Discount should consult their tax advisors
regarding the manner in which accrued Market Discount is calculated and the
election to include such Market Discount in income currently.
The Market Discount rules also provide for the deferral of interest
deductions with respect to debt incurred to purchase or carry a debt
instrument that has Market Discount in excess of the aggregate amount of
interest (including OID) includable in such holder's gross income for the
taxable year with respect to such debt instrument.
Bond Premium on Exchange Debentures. If Exchangeable Preferred Stock is
exchanged for Exchange Debentures that have an issue price in excess of their
stated redemption price at maturity (or earlier call date, if applicable), the
Exchange Debenture will be considered to have been issued at a "premium."
Special rules apply in the case of an Exchange Debenture acquired prior to any
optional redemption date. The Holder of such Exchange Debenture may deduct
such premium as amortizable bond premium over the term of the Exchange
Debentures (taking into account earlier call dates, as appropriate) under a
yield-to-maturity formula as such Holder takes interest into income under its
method of accounting, but only if an election by the Holder under Section 171
of the Code is made or is already in effect. An election under Section 171 is
available only if the Exchange Debentures are
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held as capital assets, is revocable only with the consent of the IRS and
applies to all obligations owned or subsequently acquired by the Holder. If a
Holder acquires an Exchange Debenture at a premium and does not elect to
amortize such premium, the Holder will be required to report the full amount
of stated interest and OID on the Exchange Debenture as ordinary income, even
though the Holder may be required to recognize a capital loss (which may not
be available to offset ordinary income) on a sale or other disposition of the
Exchange Debenture.
Sale, Exchange or Retirement of the Notes and the Exchange Debentures. Upon
the sale, exchange, redemption, retirement at maturity or other disposition of
a Note or an Exchange Debenture, a Holder will generally recognize taxable
gain or loss equal to the difference between the sum of the cash and the fair
market value of all other property received on such disposition and such
Holder's adjusted federal income tax basis in the Note or Exchange Debenture.
The adjusted basis of the Note or the Exchange Debenture generally will equal
the Holder's cost, increased by any OID or market discount includable in
income by the Holder with respect to such Note or Exchange Debenture, and
reduced by the payments previously received by the Holder (other than
qualified stated interest) and any premium amortized by such Holder with
respect to the instrument. Any such gain or loss will, subject to the
preceding discussion of the market discount rules, be capital gain or loss,
and will be long-term capital gain or loss if, at the time of such
disposition, the Holder's holding period for the Note or Exchange Debenture
for more than one year. In the case of noncorporate persons, the maximum
federal income tax rate that would apply to such capital gain is 20% if the
Holder's holding period for the Note or the Exchange Debenture is more than
twelve months at the time of disposition. The deductibility of capital losses
is subject to limitations as described in the Code.
Applicable High Yield Discount Obligations. The Notes are applicable high
yield discount obligations ("AHYDOs"). Accordingly, the Company will be
allowed to deduct the OID on the Notes only when it is paid. In the event the
Exchange Debentures constitute AHYDOs, a portion of the OID accruing on the
Exchange Debentures may be treated as a dividend generally eligible for the
dividends-received deduction in the case of corporate Holders, and the Company
would not be entitled to deduct the "disqualified portion" of the OID accruing
on the Exchange Debentures and would be allowed to deduct the remainder of the
OID only when paid in cash. Because the amount of OID, if any, attributable to
the Exchange Debentures will be determined at the time such Exchange
Debentures are issued, it is impossible currently to determine whether
Exchange Debentures will be treated as AHYDOs.
Backup Withholding and Information Reporting. In general, a Holder of a Note
will be subject to backup withholding at the rate of 31% with respect to
interest, OID, principal and premium, if any, paid on a Note, and the proceeds
of a sale of a Note, unless such Holder (a) is an entity that is exempt from
withholding (including corporations, tax-exempt organizations and certain
qualified nominees) and, when required, demonstrates this fact, or (b)
provides the payor with its taxpayer identification number ("TIN") (which for
an individual would be the Holder's social security number), certifies that
the TIN provided to the payor is correct and that the Holder has not been
notified by the IRS that it is subject to backup withholding due to
underreporting of interest or dividends, and otherwise complies with
applicable requirements of the backup withholding rules. In addition, such
payments of principal, OID, premium and interest to, and the proceeds of, a
sale of a Note by Holders that are not exempt entities will generally be
subject to information reporting requirements. A Holder who does not provide
the payor with his correct TIN may be subject to penalties imposed by the IRS.
The Company will report to Holders and to the IRS the amount of any
"reportable payments" (including any interest paid) and any amounts withheld
with respect to the Notes during the calendar year. The amount of any backup
withholding from a payment to a Holder will be allowed as a credit against
such Holder's U.S. federal income tax liability and may entitle such Holder to
a refund, provided that the required information is furnished to the IRS.
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THE EXCHANGEABLE PREFERRED STOCK
Classification of Exchangeable Preferred Stock and Exchange Debentures. The
Company intends to treat the Exchangeable Preferred Stock as equity of the
Company and the Exchange Debentures as indebtedness of the Company for U.S.
federal income tax purposes, and this discussion is based on the assumption
that such treatment will be respected. The Company's treatment is not binding
on the IRS or the courts and there can be no assurance that the IRS will not
take a different position concerning the tax consequences of the purchase,
ownership or disposition of the Exchangeable Preferred Stock or Exchange
Debentures than that described herein.
Distributions on Exchangeable Preferred Stock. Distributions on the
Exchangeable Preferred Stock that are paid from the Company's current or
accumulated earnings and profits, as determined under U.S. federal income tax
principles, whether paid in cash or in additional shares of Exchangeable
Preferred Stock ("Dividend Shares") will be taxable to a Holder as ordinary
dividend income in an amount equal to such cash or the fair market value of
such Dividend Shares on the date of distribution. To the extent, if any, that
the amount of any such distribution is not made out of the Company's current
or accumulated earnings and profits, as determined under U.S. federal income
tax principles, such distribution will first reduce the Holder's adjusted tax
basis in the Exchangeable Preferred Stock and, to the extent such distribution
exceeds such adjusted tax basis, will be treated as capital gain. In the case
of a distribution of Dividend Shares, such basis reduction should be offset on
an overall standpoint by a corresponding amount of tax basis for a Holder in
such Dividend Shares. A Holder's initial tax basis in any Dividend Shares
distributed by the Company generally will equal the fair market value of such
Dividend Shares on the date of their distribution. The holding period for such
Dividend Shares will commence with their distribution, and will not include
the Holder's holding period for outstanding shares of Exchangeable Preferred
Stock with respect to which such Dividend Shares were distributed. There can
be no assurance that the Company will have sufficient earnings and profits (as
determined for U.S. federal income tax purposes) to cause all distributions on
the Exchangeable Preferred Stock to be treated as dividends for U.S. federal
income tax purposes. For purposes of the remainder of this discussion, the
term "dividend" refers to a distribution paid out of allocable earnings and
profits, unless the context indicates otherwise.
Dividends received by corporate Holders generally will be eligible for the
70% dividends received deduction under Section 243 of the Code. There are,
however, many exceptions and restrictions relating to the availability of the
dividends received deduction including restrictions relating to the holding
period of the stock under Section 246(c) of the Code and debt-financed
portfolio stock under Section 246A of the Code.
Under Section 1059 of the Code, the tax basis of any shares of Exchangeable
Preferred Stock held by a corporate Holder for two years or less (ending on
the earliest of the date on which the Company declares, announces or agrees to
the payment of an actual or constructive dividend) is reduced (but not below
zero) by the non-taxed portion of an "extraordinary dividend" for which a
dividends received deduction is allowed. Special rules under Section 1059
exist with respect to extraordinary dividends for "qualified preferred
dividends." Corporate Holders are urged to consult their tax advisors
regarding the extent, if any, to which the exceptions and restrictions and
rules under Section 1059 of the Code apply to the purchase, ownership and
disposition of the Exchangeable Preferred Stock.
Preferred Stock Discount. Pursuant to Section 305(c) of the Code, Holders of
Exchangeable Preferred Stock received as Dividend Shares may be required to
treat the difference between the redemption price and issue price (likely, the
fair market value) of Exchangeable Preferred Stock as constructive
distributions that are includable in income on an economic accrual basis.
Dividend Shares received by Holders of the Exchangeable Preferred Stock may
bear Preferred Stock Discount depending upon the issue price of such Dividend
Shares. If shares of Exchangeable
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Preferred Stock (including Dividend Shares) bear Preferred Stock Discount,
such shares generally will have different tax characteristics from other
shares of Exchangeable Preferred Stock and might trade separately, which might
adversely affect the liquidity of such shares.
Holders should consult their tax advisors regarding the extent, if any, to
which Section 305 will apply to Dividend Shares.
Redemption, Sale or Exchange of Exchangeable Preferred Stock. A redemption
of shares of Exchangeable Preferred Stock for cash generally will be treated
as a sale or exchange of such shares if the Holder does not own, actually or
constructively, any stock of the Company other than the redeemed Exchangeable
Preferred Stock. If the Holder does own, actually or constructively, such
other Company stock (including Exchangeable Preferred Stock or other stock of
the Company not so redeemed), a redemption of the Exchangeable Preferred Stock
may be treated as a dividend to the extent of the Company's current and
accumulated earnings and profits (as determined for U.S. federal income tax
purposes). Such dividend treatment would not apply if the redemption is
"substantially disproportionate" with respect to the Holder under Section
302(b)(2) of the Code or is "not essentially equivalent to a dividend" with
respect to such Holder under Section 302(b)(1) of the Code.
If the redemption of the Exchangeable Preferred Stock for cash is treated as
a sale or exchange, the Holder would recognize capital gain or loss in an
amount equal to the difference between the amount of cash received on such
redemption (except to the extent the redemption price of the Exchangeable
Preferred Stock is attributable to dividends declared by the Board of
Directors of the Company prior to the redemption, which generally will be
taxable as ordinary income) and such Holder's adjusted tax basis in the
Exchangeable Preferred Stock.
Similarly, gain or loss realized by a Holder on the sale of Exchangeable
Preferred Stock will be subject to U.S. federal income tax as capital gain or
loss in an amount equal to the difference between the sum of the amount of
cash and the fair market value of other property received and the Holder's
adjusted basis in the Exchangeable Preferred Stock.
Gain or loss realized by a Holder on the exchange of Exchangeable Preferred
Stock for Exchange Debentures will be subject to the same general rules as a
redemption for cash, except that the Holder would realize capital gain or loss
in an amount equal to the difference between the issue price of the Exchange
Debentures received (as determined for purposes of computing the OID on such
Exchange Debentures) and such Holder's adjusted tax basis in the Exchangeable
Preferred Stock. See "--The Notes and the Exchange Debentures--Accrual of
Original Issue Discount."
If a redemption or exchange of Exchangeable Preferred Stock is treated as a
distribution that is taxable as a dividend, the amount of the distribution
will be measured by the amount of cash or the issue price of the Exchange
Debentures, as the case may be, received by the Holder. The Holder's adjusted
tax basis in the redeemed Exchangeable Preferred Stock will be transferred to
any remaining stock holdings in the Company. If the Holder does not retain any
actual stock ownership in the Company (having only a constructive stock
interest), the Holder may lose such basis entirely. In addition, in the event
of dividend treatment, a corporate Holder, under certain circumstances, may be
required to reduce its basis in its remaining shares of stock of the Company
(and possibly recognize gain) under the "extraordinary dividend" provision of
Section 1059 of the Code.
Backup Withholding and Information Reporting. In general, a Holder will be
subject to backup withholding at the rate of 31% with respect to dividends on
the Exchangeable Preferred Stock and principal, interest, OID and premium on
the Exchange Debentures, in the same manner as are the Holders of Notes, as
described more fully above under " --The Notes and the Exchange Debentures--
Backup Withholding and Information Reporting."
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Securities for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Securities. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Securities received in exchange for Old
Securities where such Old Securities were acquired as a result of market-
making activities or other trading activities. The Issuer has agreed that for
a period of 90 days after the Expiration Date, it will make this Prospectus,
as amended or supplemented, available to any broker-dealer for use in
connection with any such resale. In addition, until January 26, 1999 (90 days
after the date of this Prospectus), all dealers effecting transactions in the
New Securities may be required to deliver a prospectus.
Neither the Issuer nor any of the Guarantors will receive any proceeds from
any sale of New Securities by broker-dealers. New Securities received by
broker-dealers for their own account pursuant to the Exchange Offer may be
sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the New
Securities or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such New Securities. Any broker-dealer that resells New
Securities that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Securities may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of New Securities and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The New Securities will constitute a new issue of securities with no
established trading market. The Issuer does not intend to list the New
Securities on any national securities exchange or to seek approval for
quotation through any automated quotation system. The Issuer has been advised
by the Placement Agents that following completion of the Exchange Offer, the
Placement Agents intend to make a market in the New Securities. However, the
Placement Agents are not obligated to do so and any market-making activities
with respect to the New Securities may be discontinued at any time without
notice. Accordingly, no assurance can be given that an active public or other
market will develop for the New Securities or as to the liquidity of or the
trading market for the New Securities. If a trading market does not develop or
is not maintained, holders of the New Securities may experience difficulty in
reselling the New Securities or may be unable to sell them at all. If a market
for the New Securities develops, any such market may cease at any time. If a
public trading market develops for the New Securities, future trading prices
of the New Securities will depend on many factors, including, among other
things, prevailing interest rates, the market for similar securities, the
financial conditions and results of operations of the Issuer and other factors
beyond the control of the Issuer, including general economic conditions.
Notwithstanding the registration of the New Securities in the Exchange Offer,
holders who are "affiliates" of the Issuer (within the meaning of Rule 405
under the Securities Act) may publicly offer for sale or resell the New
Securities only in compliance with the provisions of Rule 144 under the
Securities Act or any other available exemptions under the Securities Act.
For a period of 90 days after the Expiration Date, the Issuer will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the
Letter of Transmittal. The Issuer has agreed to pay all expenses incident to
the Exchange Offer (including the expenses of one counsel for the holders of
the Old Securities), other than commissions or concessions of any brokers or
dealers, and will indemnify the
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holders of the Old Securities (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters relating to the New Securities will be passed upon for
the Company by Gibson, Dunn & Crutcher LLP, New York, New York. In addition,
certain legal matters under Massachusetts and Florida law relating to the Note
Guarantees and the New Notes will be passed upon for the Company by McDermott,
Will & Emery, Boston, Massachusetts and Miami, Florida, and certain legal
matters under New Jersey law relating to the Note Guarantees and the New Notes
will be passed upon for the Company by the Cherry Hill, New Jersey office of
Blank Rome Comisky & McCauley LLP, a Pennsylvania limited liability
partnership.
EXPERTS
The consolidated financial statements of Harborside Healthcare Corporation
as of December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997, included in this Prospectus, have been audited by
PricewaterhouseCoopers LLP, independent accountants, as indicated in their
report with respect thereto included herein.
The combined financial statements of Cushman Management Associates, Inc. and
Affiliates as of December 31, 1995 and 1996 and for each of the two years in
the period ended December 31, 1996, included in this Prospectus, have been
audited by Landa & Altsher, P.C., independent accountants, as indicated in
their report with respect thereto included herein.
The financial statements of Canterbury Care Center, Inc. and Related
Companies as of December 31, 1995 and December 31, 1996 and for each of the
two years in the period ended December 31, 1996, included in this Prospectus,
have been audited by Cummins, Krasik & Hohl Co., independent accountants, as
indicated in their report with respect thereto included herein.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES:
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997............ F-3
Consolidated Statements of Operations for the years ended December 31,
1995, 1996 and 1997.................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1995, 1996 and 1997................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997.................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Condensed Consolidated Balance Sheet as of June 30, 1998 (unaudited).... F-34
Condensed Consolidated Statements of Operations for the three months and
six months ended June 30, 1997 and 1998 (unaudited).................... F-35
Condensed Consolidated Statement of Changes in Stockholders' Equity for
the six months ended June 30, 1998 (unaudited)......................... F-36
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 1997 and 1998 (unaudited)..................................... F-37
Notes to Condensed Consolidated Financial Statements (unaudited)........ F-38
THE MASSACHUSETTS FACILITIES:
CUSHMAN MANAGEMENT ASSOCIATES, INC. AND AFFILIATES:
Independent Auditors' Report............................................ F-47
Combined Balance Sheet at December 31, 1995 and 1996.................... F-48
Combined Statements of Operations and Owners' Equity for the years ended
December 31, 1995 and 1996............................................. F-49
Combined Statement of Cash Flows for the years ended December 31, 1995
and 1996............................................................... F-50
Notes to Combined Financial Statements.................................. F-51
THE DAYTON FACILITIES:
CANTERBURY CARE CENTER, INC. AND RELATED COMPANIES:
Independent Auditors' Report............................................ F-57
Combined Balance Sheets at December 31, 1995 and 1996................... F-58
Combined Statements of Operations and Accumulated Deficit for the years
ended December 31, 1995 and 1996....................................... F-60
Combined Statements of Cash Flows for the years ended December 31, 1995
and 1996............................................................... F-61
Notes to Combined Financial Statements.................................. F-62
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Harborside Healthcare Corporation:
We have audited the accompanying consolidated balance sheets of Harborside
Healthcare Corporation and its subsidiaries (the "Company") as of December 31,
1996 and 1997 and the related consolidated statements of operations, changes
in stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Harborside
Healthcare Corporation and subsidiaries as of December 31, 1996 and 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 13, 1998
F-2
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
AS OF DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 9,722 $ 8,747
Accounts receivable, net of allowances for doubtful ac-
counts of $1,860 and $1,871, respectively............... 22,984 32,416
Prepaid expenses and other............................... 3,570 6,644
Demand note due from limited partnership (Note D)........ 1,369 --
Deferred income taxes (Note L)........................... 1,580 2,150
-------- --------
Total current assets................................... 39,225 49,957
Restricted cash (Note C)................................... 3,751 5,545
Investment in limited partnership (Note D)................. 256 67
Property and equipment, net (Note E)....................... 95,187 96,872
Intangible assets, net (Note F)............................ 3,004 8,563
Note receivable (Note G)................................... -- 7,487
Deferred income taxes (Note L)............................. 376 71
-------- --------
Total assets........................................... $141,799 $168,562
======== ========
LIABILITIES
Current liabilities:
Current maturities of long-term debt (Note I)............ 169 186
Current portion of capital lease obligation (Note J)..... 3,744 3,924
Accounts payable......................................... 6,011 7,275
Employee compensation and benefits....................... 8,639 10,741
Other accrued liabilities................................ 2,177 4,417
Accrued interest......................................... 19 251
Current portion of deferred income....................... 368 609
Income taxes payable (Note L)............................ 1,272 --
-------- --------
Total current liabilities.............................. 22,399 27,403
Long-term portion of deferred income (Note H).............. 2,948 3,559
Long-term debt (Note I).................................... 18,039 33,456
Long-term portion of capital lease obligation (Note J)..... 53,533 52,361
-------- --------
Total liabilities...................................... 96,919 116,779
-------- --------
Commitments and contingencies (Notes D, H and N)
STOCKHOLDERS' EQUITY (NOTE M)
Common stock, $.01 par value, 30,000,000 shares authorized,
8,000,000 and 8,008,665 shares issued and outstanding..... 80 80
Additional paid-in capital................................. 48,340 48,440
Retained earnings (deficit)................................ (3,540) 3,263
-------- --------
Total stockholders' equity............................. 44,880 51,783
-------- --------
Total liabilities and stockholders' equity........... $141,799 $168,562
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Total net revenues........................ $ 109,425 $ 165,412 $ 221,777
---------- ---------- ----------
Expenses:
Facility operating...................... 89,378 132,207 176,404
General and administrative.............. 5,076 7,811 10,953
Service charges paid to affiliate (Note
Q)..................................... 700 700 708
Special compensation and other (Note
M)..................................... -- 1,716 --
Depreciation and amortization........... 4,385 3,029 4,074
Facility rent........................... 1,907 10,223 12,446
---------- ---------- ----------
Total expenses........................ 101,446 155,686 204,585
---------- ---------- ----------
Income from operations.................... 7,979 9,726 17,192
Other:
Interest expense, net................... (5,107) (4,634) (5,853)
Loss on investment in limited partner-
ship (Note D).......................... (114) (263) (189)
Gain on sale of facilities, net (Note
P)..................................... 4,869 -- --
Minority interest in net income (Notes B
and P)................................. (6,393) -- --
---------- ---------- ----------
Income before income taxes and extraordi-
nary loss................................ 1,234 4,829 11,150
Income taxes (Note L)..................... -- (809) (4,347)
---------- ---------- ----------
Income before extraordinary loss.......... 1,234 4,020 6,803
Extraordinary loss on early retirement of
debt, net of taxes of $843 (Note I)...... -- (1,318) --
---------- ---------- ----------
Net income................................ $ 1,234 $ 2,702 $ 6,803
========== ========== ==========
Net income per share--basic............... $ .85
==========
Net income per share--diluted............. $ .84
==========
Pro forma data (unaudited--Notes B and L):
Historical income before income taxes
and extraordinary loss................. 1,234 4,829
Pro forma income taxes.................. (481) (799)
---------- ----------
Pro forma income before extraordinary
loss..................................... 753 4,030
Extraordinary loss, net................. -- (1,318)
---------- ----------
Pro forma net income...................... $ 753 $ 2,712
========== ==========
Pro forma net income per share (basic and
diluted):
Pro forma income before extraordinary
loss................................... $ 0.17 $ 0.63
Extraordinary loss, net................. -- 0.21
---------- ----------
Pro forma net income.................... $ 0.17 $ 0.42
========== ==========
Weighted average number of common shares
used in per share computations:
Basic................................... 4,425,000 6,396,142 8,037,026
Diluted................................. 4,425,000 6,396,142 8,138,793
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
------ ---------- --------- -------
<S> <C> <C> <C> <C>
Stockholders' equity, December 31, 1994... $44 $10,298 $(7,476) $ 2,866
Net income for the year ended December
31, 1995............................... -- -- 1,234 1,234
Contributions........................... -- 30 -- 30
--- ------- ------- -------
Stockholders' equity, December 31, 1995... 44 10,328 (6,242) 4,130
Net income for the year ended December
31, 1996............................... -- -- 2,702 2,702
Purchase of equity interests............ -- 1,028 -- 1,028
Distributions........................... -- (140) -- (140)
Proceeds of initial public offering,
net.................................... 36 37,124 -- 37,160
--- ------- ------- -------
Stockholders' equity, December 31, 1996... 80 48,340 (3,540) 44,880
Net income for the year ended December
31, 1997............................... -- -- 6,803 6,803
Exercise of options..................... -- 100 -- 100
--- ------- ------- -------
Stockholders' equity, December 31, 1997... $80 $48,440 $ 3,263 $51,783
=== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income..................................... $ 1,234 $ 2,702 $ 6,803
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest............................ 6,393 234 --
Gain on sale of facilities, net.............. (4,869) -- --
Loss on refinancing of debt.................. -- 1,318 --
Depreciation of property and equipment....... 3,924 2,681 3,589
Amortization of intangible assets............ 461 348 485
Amortization of deferred income.............. -- (369) (449)
Loss from investment in limited partnership.. 114 263 189
Amortization of loan costs and fees.......... 109 103 257
Accretion of interest on capital lease obli-
gation...................................... -- 1,419 2,952
Deferred interest............................ -- (114) --
Common stock grant........................... -- 225 --
Other........................................ 14 -- --
-------- -------- --------
7,380 8,810 13,826
Changes in operating assets and liabilities:
(Increase) in accounts receivable............ (7,573) (13,017) (9,432)
(Increase) in prepaid expenses and other..... (456) (1,780) (3,074)
(Increase) in deferred income taxes.......... -- (1,956) (265)
Increase in accounts payable................. 1,345 1,977 1,264
Increase in employee compensation and bene-
fits........................................ 1,385 4,144 2,102
Increase (decrease) in accrued interest...... (490) (6) 232
Increase in other accrued liabilities........ 295 1,118 2,240
Increase (decrease) in income taxes payable.. -- 2,115 (1,272)
-------- -------- --------
Net cash provided by operating activities...... 1,886 1,405 5,621
-------- -------- --------
Investing activities:
Additions to property and equipment............ (3,081) (5,104) (5,274)
Facility acquisition deposits.................. (3,000) 3,000 --
Additions to intangibles....................... (1,202) (950) (6,301)
Transfers to restricted cash, net.............. (760) (996) (1,794)
Receipt of note receivable..................... -- -- (7,487)
Repayment of demand note from limited partner-
ship.......................................... -- -- 1,369
Issuance of Demand note from limited partner-
ship.......................................... (1,255) -- --
Payment of costs related to sale of facili-
ties.......................................... (884) -- --
Proceeds from sale of facilities............... 47,000 -- --
-------- -------- --------
Net cash provided (used) by investing activi-
ties.......................................... 36,818 (4,050) (19,487)
-------- -------- --------
Financing activities:
Borrowings under revolving line of credit...... -- -- 15,600
Payment of long-term debt...................... (9,800) (25,288) (166)
Principal payments of capital lease obliga-
tion.......................................... -- (6,766) (3,944)
Debt prepayment penalty........................ (1,154) (1,517) --
Note payable to an affiliate................... 2,000 (2,000) --
Receipt of cash in connection with lease....... -- 3,685 1,301
Dividend distribution.......................... -- (140) --
Distributions to minority interest............. (3,636) (33,727) --
Purchase of equity interests and other contri-
butions....................................... 30 803 --
Exercise of stock options...................... -- -- 100
Proceeds from sale of common stock............. -- 37,160 --
-------- -------- --------
Net cash provided (used) by financing activi-
ties.......................................... (12,560) (27,790) 12,891
-------- -------- --------
Net increase (decrease) in cash and cash equiva-
lents.......................................... 26,144 (30,435) (975)
Cash and cash equivalents, beginning of year.... 14,013 40,157 9,722
-------- -------- --------
Cash and cash equivalents, end of year.......... $ 40,157 $ 9,722 $ 8,747
======== ======== ========
Supplemental Disclosure:
Interest paid.................................. 6,208 4,060 3,371
Income taxes paid.............................. -- 760 5,783
Noncash investing and financing activities:
Property and equipment additions by capital
lease......................................... -- 57,625 --
Capital lease obligation incurred.............. -- 57,625 --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. NATURE OF BUSINESS:
Harborside Healthcare Corporation and its subsidiaries (the "Company")
operate long-term care facilities and provide rehabilitation therapy services.
As of December 31, 1997, the Company owned thirteen facilities, operated
thirty additional facilities under various leases and owned a rehabilitation
therapy services company. The Company accounts for its investment in one of
its owned facilities using the equity method (see Note D).
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 in exchange for 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. 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 approximately $37,160,000. A portion of the proceeds was
used to repay some of the Company's long-term debt (see Note I).
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
combined financial statements and the interest of the Unitholders was
reflected as minority interest. In March 1996, a liquidating distribution was
paid to the Unitholders (see Notes H and P).
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 combined
financial statements include a pro forma income tax provision for each period
presented, as if the Company had always owned the Predecessor Entities (see
Note L).
C. SIGNIFICANT ACCOUNTING POLICIES:
The Company uses the following accounting policies for financial reporting
purposes:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements (combined prior to June 14, 1996)
include the accounts of the Company and its subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
TOTAL NET REVENUES
Total net revenues include net patient service revenues, rehabilitation
therapy service revenues from contracts to provide services to non-affiliated
long-term care facilities and management fees from the facility owned by Bowie
L.P. (see Note D) and two additional facilities (See Note H).
F-7
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net patient service revenues payable by patients at the Company's facilities
are recorded at established billing rates. Net patient service revenues to be
reimbursed by contracts with third-party payors, primarily the Medicare and
Medicaid programs, are recorded at the amount estimated to be realized under
these contractual arrangements. Revenues from Medicare and Medicaid are
generally based on reimbursement of the reasonable direct and indirect costs
of providing services to program participants or a prospective payment system.
The Company separately estimates revenues due from each third party with which
it has a contractual arrangement and records anticipated settlements with
these parties in the contractual period during which services were rendered.
The amounts actually reimbursable under Medicare and Medicaid are determined
by filing cost reports which are then audited and generally retroactively
adjusted by the payor. Legislative changes to state or Federal reimbursement
systems may also retroactively affect recorded revenues. Changes in estimated
revenues due in connection with Medicare and Medicaid may be recorded by the
Company subsequent to the year of origination and prior to final settlement
based on improved estimates. Such adjustments and final settlements with third
party payors, which could materially and adversely affect the Company, are
reflected in operations at the time of the adjustment or settlement. Accounts
receivable, net, at December 31, 1996 and 1997 includes $10,667,000 and
$8,296,000, respectively, of estimated settlements due from third party payors
and $5,194,000 and $6,115,000, respectively, of estimated settlements due to
third party payors.
In addition, direct and allocated indirect costs reimbursed under the
Medicare program are subject to regional limits. The Company's costs generally
exceed these limits and accordingly, the Company is required to submit
exception requests to recover such excess costs. The Company has recorded
approximately $8,229,000 in accounts receivable as of December 31, 1997,
related to these exception requests. The Company believes it will be
successful in collecting these receivables; however, the failure to recover
these costs in the future could materially and adversely affect the Company.
Beginning in 1995, total net revenues includes revenues recorded by the
Company's rehabilitation therapy subsidiary (which does business under the
name "Theracor") for therapy services provided to non-affiliated long-term
care facilities.
CONCENTRATIONS
A significant portion of the Company's revenues are derived from the
Medicare and Medicaid programs. There have been, and the Company expects that
there will continue to be, a number of proposals to limit reimbursement
allowable to long-term care facilities under these programs. On August 5,
1997, the Balanced Budget Act of 1997 (the "Balanced Budget Act") was signed
into law. This act is effective for cost reporting periods beginning after
July 1, 1998 and as such will not affect the Company until January 1, 1999.
The Balanced Budget Act amends Medicare reimbursement methodology, converting
it from a cost-based system to a prospective payment system. Approximately
65%, 65%, and 66% of the Company's net revenues in the years ended December
31, 1995, 1996 and 1997, respectively, are from the Company's participation in
the Medicare and Medicaid programs. As of December 31, 1996 and 1997,
$17,560,000 and $20,936,000, respectively, of net accounts receivable were due
from the Medicare and Medicaid programs.
FACILITY OPERATING EXPENSES
Facility operating expenses include expenses associated with the normal
operations of a long-term care facility. The majority of these costs consist
of payroll and employee benefits related to nursing, housekeeping and dietary
services provided to patients, as well as maintenance and
F-8
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
administration of the facilities. Other significant facility operating
expenses include: the cost of rehabilitation therapies, medical and pharmacy
supplies, food and utilities. Beginning in 1995, facility operating expenses
include expenses associated with services rendered by Theracor to non-
affiliated facilities.
PROVISION FOR DOUBTFUL ACCOUNTS
Provisions for uncollectible accounts receivable of $1,240,000, $1,116,000
and $1,188,000 are included in facility operating expenses for the years ended
December 31, 1995, 1996 and 1997, respectively. Individual patient accounts
deemed to be uncollectible are written off against the allowance for doubtful
accounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the period reported. Actual
results could differ from those estimates. Estimates are used when accounting
for the collectibility of receivables, depreciation and amortization, employee
benefit plans, taxes and contingencies.
NET INCOME (PRO FORMA NET INCOME) PER SHARE
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share", which revised the methodology of calculating net income per share.
The Company adopted SFAS No. 128 in the fourth quarter of 1997. All net income
per share and pro forma net income per share amounts for all periods have been
presented in accordance with, and where appropriate have been restated to
conform with, the requirements of SFAS No. 128.
Basic net income per share is computed by dividing net income by the
weighted average number of common shares outstanding during 1997. The
computation of diluted net income per share is similar to that of basic net
income per share except that the number of shares is increased to reflect the
number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued. Dilutive potential common
shares for the Company consist of shares issuable upon exercise of the
Company's stock options. Pro forma net income per share for the years ended
December 31, 1995 and 1996 is calculated based upon the common shares of the
Company (4,400,000) issued in accordance with the Reorganization Agreement.
Pursuant to Securities and Exchange Commission staff requirements, stock
options issued within one year of an initial public offering, calculated using
the treasury stock method and the initial public offering price of $11.75 per
share, have been included in the calculation of pro forma net income per
common share as if they were outstanding for all periods presented.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures that extend the
lives of affected assets are capitalized, while maintenance and repairs are
charged to expense as incurred. Upon the retirement or sale of an asset, the
cost of the asset and any related accumulated depreciation are removed from
the balance sheet, and any resulting gain or loss is included in net income.
F-9
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation expense includes the amortization of capital assets and is
estimated using the straight-line method. These estimates are calculated using
the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements 31.5 to 40 years
Furniture and equipment 5 to 10 years
Leasehold improvements over the life of the lease
Land improvements 8 to 40 years
</TABLE>
INTANGIBLE ASSETS
Intangible assets consist of amounts identified in connection with certain
facility acquisitions accounted for under the purchase method and certain
deferred costs which were incurred in connection with various financings (see
Notes F and I).
In connection with each of its acquisitions, the Company reviewed the assets
of the acquired facility and assessed its relative fair value in comparison to
the purchase price. Certain acquisitions resulted in the allocation of a
portion of the purchase price to the value associated with the existence of a
workforce in place, residents in place at the date of acquisition and
covenants with sellers which limit their ability to engage in future
competition with the Company's facilities. The assets recognized from an
assembled workforce and residents in place are amortized using the straight-
line method over the estimated periods (from three to seven years) during
which the respective benefits would be in place. Covenants not-to-compete are
being amortized using the straight-line method over the period during which
competition is restricted.
Goodwill resulted from the acquisition of certain assets for which the
negotiated purchase prices exceeded the allocations of the fair market value
of identifiable assets. The Company's policy is to evaluate each acquisition
separately and identify an appropriate amortization period for goodwill based
on the acquired property's characteristics. Goodwill is being amortized using
the straight-line method over a 20 to 40 year period.
Costs incurred in obtaining financing (including loans, letters of credit
and facility leases) are amortized as interest expense using the straight-line
method (which approximates the interest method) over the term of the related
financial obligation.
ASSESSMENT OF LONG-LIVED ASSETS
The Company periodically reviews the carrying value of its long-lived assets
(primarily property and equipment and intangible assets) to assess the
recoverability of these assets; any impairments would be recognized in
operating results if a diminution in value considered to be other than
temporary were to occur. As part of this assessment, the Company reviews the
expected future net operating cash flows from its facilities, as well as the
values included in appraisals of its facilities, which have periodically been
obtained in connection with various financial arrangements. The Company has
not recognized any adjustments as a result of these assessments.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments with
maturities of three months or less at the date of their acquisition by the
Company.
RESTRICTED CASH
Restricted cash consists of cash set aside in escrow accounts as required by
several of the Company's leases and other financing arrangements.
F-10
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." These pronouncements are effective for financial statement
periods beginning after December 15, 1997. The Company does not believe that
these new pronouncements will have material effect on its future financial
statements.
D. INVESTMENT IN LIMITED PARTNERSHIP:
In April 1993, a subsidiary of the Company acquired a 75% partnership
interest in Bowie L.P., which developed a 120-bed long-term care facility in
Maryland that commenced operations on May 1, 1994. The remaining 25% interest
in Bowie L.P. is owned by a non-affiliated party. The Company records its
investment in Bowie L.P. using the equity method. Although the Company owns a
majority interest in Bowie L.P., the Company only maintains a 50% voting
interest and accordingly does not exercise control over the operations of
Bowie L.P. In addition, the non-affiliated party has the option to purchase
the Company's partnership interest during the sixty-day period prior to the
seventh anniversary of the facility's opening and each subsequent anniversary
thereafter. If the option is exercised, the purchase price would be equal to
the fair market value of the Company's interest at the date on which the
option is exercised. The Company is entitled to 75% of the facility's net
income and manages this facility in return for a fee equal to 5.5% of the
facility's net revenues (effective September 1995). Prior to this date, the
management fee approximated $10,000 per month. The Company recorded $234,000,
$445,000 and $445,000 in management fees from this management contract for the
years ended December 31, 1995, 1996 and 1997, respectively.
Bowie L.P. obtained a $4,377,000 construction loan from a bank to finance
the construction of the facility. Bowie L.P. also obtained a $1,000,000 line
of credit from the bank to finance pre-opening costs and working capital
requirements. On July 31, 1995, the line of credit converted to a term loan.
In March of 1997, the entire loan was repaid with the proceeds of a $6,400,000
note from another bank. As of December 31, 1996 and 1997, Bowie L.P. owed
$4,964,000 and $6,300,000, respectively, on these loans. Interest on the loan
is payable monthly at the bank's prime rate or a LIBOR rate plus 1.5%. This
loan limits Bowie L.P.'s ability to borrow additional funds and to make
acquisitions, dispositions and distributions. Additionally, the loan contains
covenants with respect to maintenance of specified levels of net worth,
working capital and debt service coverage.
The loan is collateralized by each partner's partnership interest as well as
all of the assets of Bowie L.P. The loan is also guaranteed by the Company and
additional collateral pledged by the non-affiliated partner. The Bowie L.P.
partnership agreement states that each partner will contribute an amount in
respect of any liability incurred by a partner in connection with a guarantee
of the partnership's debt, so that the partners each bear their proportionate
share of the liability based on their percentage ownership of the partnership.
The results of operations of Bowie L.P. are summarized below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net operating revenues..................... $7,595,000 $8,104,000 $8,311,000
Net operating expenses..................... 7,236,000 7,758,000 8,052,000
Net loss................................... (152,000) (351,000) (252,000)
</TABLE>
F-11
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The financial position of Bowie L.P. was as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Current assets........................................... $2,511,000 $2,275,000
Non-current assets....................................... 4,882,000 4,695,000
Current liabilities...................................... 2,335,000 722,000
Non-current liabilities.................................. 4,716,000 6,158,000
Partners' equity......................................... 342,000 90,000
</TABLE>
On December 28, 1995, the Company advanced $1,255,000 to Bowie L.P. to
support additional facility working capital requirements by means of a demand
note bearing interest at 9.0% per annum. This advance was repaid by Bowie L.P.
during 1997.
E. PROPERTY AND EQUIPMENT:
The Company's property and equipment are stated at cost and consist of the
following as of December 31:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Land................................................. $ 2,994,000 $ 3,270,000
Land improvements.................................... 3,077,000 3,387,000
Leasehold improvements............................... 2,371,000 3,157,000
Buildings and improvements........................... 28,764,000 30,529,000
Equipment, furnishings and fixtures.................. 7,835,000 9,565,000
Assets under capital lease........................... 63,125,000 63,532,000
------------ ------------
108,166,000 113,440,000
Less accumulated depreciation........................ 12,979,000 16,568,000
------------ ------------
$ 95,187,000 $ 96,872,000
============ ============
F. INTANGIBLE ASSETS:
Intangible assets are stated at cost and consist of the following as of
December 31:
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Patient lists........................................ $ 1,459,000 $ 1,459,000
Assembled workforce.................................. 930,000 930,000
Covenant not to compete.............................. 1,838,000 1,838,000
Organization costs................................... 256,000 380,000
Goodwill............................................. -- 2,166,000
Deferred financing costs............................. 2,563,000 6,574,000
------------ ------------
7,046,000 13,347,000
Less accumulated amortization........................ 4,042,000 4,784,000
------------ ------------
$ 3,004,000 $ 8,563,000
============ ============
</TABLE>
G. NOTE RECEIVABLE:
In connection with the acquisition of the five Connecticut facilities on
December 1, 1997, the Company received a note receivable from the owner in the
amount of $7,487,000. Interest is earned at the rate of 9% per annum, and
payments are due monthly, in arrears, commencing January 1, 1998
F-12
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and continuing until November 30, 2010, at which time the entire principal
balance is due. The proceeds of the note were used to repay certain
indebtedness. The note is collateralized by various mortgage interests and
other collateral.
H. OPERATING LEASES:
In March 1993, a subsidiary of the Company entered into an agreement with a
non-affiliated entity to lease two long-term care facilities in Ohio with 289
beds for a period of ten years. The lease agreement, which became effective in
June 1993, provides for fixed annual rental payments of $900,000. At the end
of the ten-year period, the Company has the option to acquire the facilities
for $8,500,000, or to pay a $500,000 termination fee and relinquish the
operation of the facilities to the lessor. On the effective date of the lease,
the subsidiary paid $1,200,000 to the lessor for a covenant not-to-compete
which remains in force through June 2003.
Effective October 1, 1994, a subsidiary of the Company entered into an
agreement with a related party to lease a 100 bed long-term care facility in
Florida for a period of ten years. The lease agreement provides for annual
rental payments of $551,250 in the initial twelve-month period and annual
increases of 2% thereafter. The Company has the option to exercise two
consecutive five-year lease renewals. The Company also has the right to
purchase the facility at fair market value at any time after the fifth
anniversary of the commencement of the lease. The lease agreement also
required the Company to escrow funds equal to three months' base rent.
Effective April 1, 1995, a subsidiary of the Company entered into an
agreement with Meditrust to lease a 100-bed long-term care facility in Ohio
for a period of ten years. The lease agreement provides for annual rental
payments of $698,400 in the initial twelve-month period. The Company is also
required to make additional rental payments beginning April 1, 1996 in an
amount equal to 5.0% of the difference between the facility's operating
revenues in each applicable year and the operating revenues in the twelve-
month base period which commenced on April 1, 1995. The annual additional rent
payment will not exceed $14,650. At the end of the initial lease period, the
Company has the option to exercise two consecutive five-year lease renewals.
The lease agreement also required the Company to escrow funds equal to three
months base rent. The Company's obligations under the lease are collateralized
by, among other things, an interest in any property improvements made by the
Company and by a second position on the facility's accounts receivable. The
Company also has the right to purchase the facility at its fair market value
on the eighth and tenth anniversary dates of the commencement of the lease and
at the conclusion of each lease renewal.
Effective January 1, 1996, a subsidiary of the Company entered into an
agreement with Meditrust to lease the Seven Facilities formerly owned by KYP
(see Note P). The lease agreement provides for annual rental payments of
$4,582,500 in the initial twelve-month period and annual increases based on
changes in the consumer price index thereafter. The lease has an initial term
of ten years with two consecutive five-year renewal terms exercisable at the
Company's option. The lease agreement also required the Company to escrow
funds in an amount equal to three months base rent. The Company's obligations
under the lease are collateralized by, among other things, an interest in any
property improvements made by the Company and by a second position on the
related facilities' accounts receivable. In conjunction with the lease, the
Company was granted a right of first refusal and an option to purchase the
facilities as a group, which option is exercisable at the end of the eighth
year of the initial term and at the conclusion of each renewal term. The
purchase option is exercisable at the greater of the fair market value of the
facilities at the time of exercise or Meditrust's original investment.
F-13
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective January 1, 1996, a subsidiary of the Company entered into an
agreement with Meditrust to lease six long-term care facilities with a total
of 537 licensed beds in New Hampshire. The lease agreement provides for annual
rental payments of $2,324,000 in the initial twelve-month period and annual
rental increases based on changes in the consumer price index thereafter. The
lease has an initial term of ten years with two consecutive five-year renewal
terms exercisable at the Company's option. The lease agreement also required
the Company to escrow funds in an amount equal to three months base rent. In
addition, the lease agreement required the Company to establish a renovation
escrow account in the amount of $560,000 to fund facility renovations
identified in the agreement. The renovation escrow funds are released upon
completion of the required renovations. As of December 31, 1997, $325,000 of
these funds remained in escrow pending completion of the specified
renovations. The Company's obligations under the lease are collateralized by,
among other things, an interest in any property improvements made by the
Company and by a second position on the related facilities' accounts
receivable. In conjunction with the lease, the Company was granted a right of
first refusal and an option to purchase the facilities as a group, which is
exercisable at the end of the eighth year of the initial term and at the
conclusion of each renewal term. The purchase option is exercisable at the
greater of 90% of the fair market value of the facilities at the time of
exercise or Meditrust's original investment. In connection with this lease,
the Company received a cash payment of $3,685,000 from Meditrust which was
recorded as deferred income and is being amortized over the ten-year initial
lease term as a reduction of rental expense.
The Meditrust leases contain cross-default and cross-collateralization
provisions. A default by the Company under one of these leases could adversely
affect a significant number of the Company's properties and result in a loss
to the Company of such properties. In addition, the leases permit Meditrust to
require the Company to purchase the facilities upon the occurrence of a
default.
Effective March 1, 1997, the Company entered into an agreement with a non-
affiliated party to lease one long-term care facility with 163 beds in
Baltimore, Maryland for a period of ten years. The lease agreement provides
for fixed annual rental payments of $900,000 for the first three years and
annual increases based on changes in the consumer price index thereafter. From
July 1, 1999 through August 28, 2000, the Company has the option to acquire
the facility for $10,000,000. After August 28, 2000, the purchase price
escalates in accordance with a schedule. On the effective date of the lease,
the Company paid $1,000,000 to the lessor in exchange for the purchase option.
This option payment is being amortized over the life of the lease.
As of August 1, 1997, the Company acquired four long-term care facilities
with 401 beds in Massachusetts. The Company financed this acquisition through
an operating lease with a real estate investment trust (the "REIT"). The lease
provides for annual rental payments of $1,576,000 in the initial twelve-month
period and annual increases based on changes in the consumer price index
thereafter. The lease has an initial term of ten years with, at the Company's
option, eight consecutive five-year renewal terms. In conjunction with the
lease, the Company was granted a right of first refusal and an option to
purchase the facilities as a group, which option is exercisable at the end of
the initial lease term and at the conclusion of each renewal term. The
purchase option is exercisable at the fair market value of the facilities at
the time of exercise.
On August 28, 1997, the Company obtained a five-year $25,000,000 synthetic
leasing facility (the "Leasing Facility") from the same group of banks that
provided the "Credit Facility" (see Note I). The Company used $23,600,000 of
the funds available through the Leasing Facility to lease the Dayton, Ohio
facilities from a master trust in September 1997. The master trust, which was
capitalized by investors with a 3% equity interest and 97% debt, acquired the
Dayton, Ohio facilities from their
F-14
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
previous owner and leases the facilities to the Company. The equity
contributions to the master trust remains at risk for the duration of the
lease term. Acquisitions made through the Leasing Facility are accounted for
financial reporting purposes as operating leases with an initial lease term,
which expires at the expiration date of the Leasing Facility in August 2002.
The Company's rental payments to the Master Trust are determined based on the
purchase price and an interest factor which is based on LIBOR (or at the
Company's option, the agent bank's prime rate) and which varies with the
Company's leverage ratio (as defined). As of December 31, 1997 the interest
rate for amounts outstanding under this facility was approximately 7.5%. The
Company has the right to purchase facilities acquired through the Leasing
Facility for an amount equal to the purchase price at the date of acquisition.
The Company's obligations under the lease are collateralized by a collateral
pool which also collateralizes the Company's borrowings under its Credit
Facility.
Under the terms of each of the facility leases described above, the Company
is responsible for the payment of all real estate and personal property taxes,
as well as other reasonable costs required to operate, maintain, insure and
repair the facilities.
Future minimum rent commitments under the Company's non-cancelable operating
leases as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998......................................................... $ 19,423,000
1999......................................................... 19,617,000
2000......................................................... 19,811,000
2001......................................................... 20,005,000
2002......................................................... 20,199,000
Thereafter................................................... 76,545,000
------------
$175,600,000
============
</TABLE>
I. LONG-TERM DEBT:
In October 1994, certain of the Predecessor Entities refinanced $29,189,000
of the then outstanding bank debt, and as a result, recorded a loss of
$453,000. This loss included a payment of $384,000 upon the termination of a
related interest rate protection agreement, which was required pursuant to the
terms of the bank debt in order to effectively fix the interest rate on such
debt. The retirement of this debt was financed by the concurrent borrowing of
$42,300,000 from Meditrust. Using proceeds from the Offering, on June 14, 1996
the Company repaid $25,000,000 of this 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 this early retirement of debt totaled
$2,161,000 and is presented as an extraordinary loss in the Statement of
Operations for the year ended December 31, 1996 net of the related estimated
income tax benefit of $843,000. The Meditrust debt was collateralized by the
assets of certain of the Predecessor Entities (the "Seven S Corporations"),
and subsequent to the debt paydown, the remaining debt is cross-collateralized
by the assets of four facilities (the "Four Facilities"). The Meditrust debt
bears interest at the annual rate of 10.65%. Additional interest payments are
also required commencing on January 1, 1997 in an amount equal to 0.3% of the
difference between the operating revenues of the Four Facilities in each
applicable year and the operating revenues of the Four Facilities during a
twelve-month base period which commenced October 1, 1995. The Meditrust debt
is cross-collateralized by the assets of each of the Four Facilities. The loan
agreement with Meditrust places certain restrictions on the Four Facilities;
among them, the agreement restricts their ability to incur additional debt or
to make significant dispositions of assets. The Four Facilities are also
required to maintain a debt service coverage ratio of at least 1.2 to 1.0 (as
defined in the loan
F-15
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
agreement) and a current ratio of at least 1.0 to 1.0. The Meditrust loan
agreement contains a prepayment penalty, which decreases from 1.5% of the then
outstanding balance in the sixth year to none in the ninth year.
A subsidiary of the Company assumed a first mortgage note (the "Note") with
a remaining balance of $1,775,000 as part of the acquisition of a long-term
care facility in 1988. The Note requires the annual retirement of principal in
the amount of $20,000. The Company pays interest monthly at the rate of 14%
per annum on the outstanding principal amount until maturity in October 2010,
when the remaining unpaid principal balance of $1,338,000 is due. The Note is
collateralized by the property and equipment of the facility.
In April of 1997, the Company obtained a three-year $25,000,000 revolving
credit facility (the "Credit Facility") from a commercial bank. On August 28,
1997, the Company amended the Credit Facility to add three additional banks as
parties to the Credit Facility, extended the maturity to five years and made
certain additional amendments to the terms of the agreement. Borrowings under
this facility are collateralized by patient accounts receivable and certain
real estate. The assets which collateralize the Credit Facility also
collateralize the Company's obligation under the Leasing Facility. The Credit
Facility matures in September 2002 and provides for prime and LIBOR interest
rate options, which vary with the Company's leverage ratio (as defined). As of
December 31, 1997, the interest rate for amounts outstanding under this
facility was approximately 7.3%. The Credit Facility contains covenants which,
among other things, impose certain limitations or prohibitions on the
Company's ability to incur indebtedness, pay dividends, make investments or
dispose of assets. The Credit Facility requires the Company to maintain a debt
service coverage ratio (as defined) of at least 1.25 and a maximum leverage
ratio (as defined) of 5.0. As of December 31, 1997, $15,600,000 was
outstanding on the Credit Facility and $9,400,000 remained available. During
1997, the maximum balance borrowed under this facility was $15,600,000. A
commitment fee of 0.20% to 0.50% on unused availability is charged depending
on the Company's leverage ratio.
Interest expense charged to operations for the years ended December 31,
1995, 1996 and 1997 was $5,830,000, $5,576,000, and $6,681,000, respectively.
As of December 31, 1997, future long-term debt maturities associated with
the Company's debt are as follows:
<TABLE>
<S> <C>
1998.......................................................... $ 186,000
1999.......................................................... 205,000
2000.......................................................... 226,000
2001.......................................................... 248,000
2002.......................................................... 15,874,000
Thereafter.................................................... 16,903,000
-----------
$33,642,000
===========
</TABLE>
Substantially all of the Company's assets are subject to liens under long-
term debt or operating lease agreements.
J. CAPITAL LEASE OBLIGATION:
On July 1, 1996, a subsidiary of the Company began leasing four long-term
care facilities in Ohio (the "Ohio Facilities"). This transaction is being
accounted for as a capital lease as a result of a
F-16
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
bargain purchase option exercisable 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 Ohio 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 these facilities. Of this amount, $5,000,000 was paid prior
to 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 is a schedule of future minimum lease payments
required by this lease together with the present value of the minimum lease
payments:
<TABLE>
<S> <C>
1998........................................................ $ 5,000,000
1999........................................................ 5,000,000
2000........................................................ 5,000,000
2001........................................................ 57,625,000
------------
72,625,000
Less amount representing interest........................... (16,340,000)
------------
56,285,000
Less current portion........................................ (3,924,000)
------------
Long-term portion of capital lease obligation............... $ 52,361,000
============
</TABLE>
K. RETIREMENT PLANS:
The Company maintains an employee 401(k) defined contribution plan. All
employees who have worked at least one thousand hours and have completed one
year of continuous service are eligible to participate in the plan. The plan
is subject to the provisions of the Employee Retirement Income Security Act of
1974. Employee contributions to this plan may be matched at the discretion of
the Company. The Company contributed $120,000, $180,000 and $365,000 to the
plan in 1995, 1996 and 1997, respectively.
During September 1995, the Company established a Supplemental Executive
Retirement Plan (the "SERP") to provide benefits to key employees.
Participants may defer up to 25% of their compensation which is matched by the
Company at a rate of 50% (up to 10% of base salary). Vesting in the matching
portion occurs in January of the second year following the plan year in which
contributions were made.
L. INCOME TAXES:
PRO FORMA INCOME TAXES (UNAUDITED)
The financial statements of the Company for the periods prior to the
Reorganization do not include a provision for income taxes because the
Predecessor Entities (primarily partnerships and subchapter S corporations)
were not directly subject to Federal or state taxation. For financial
reporting purposes, for the years ended December 31, 1995 and 1996, a pro
forma provision for income taxes has been reflected in the accompanying
statements of operations based on taxable income for financial statement
purposes and an estimated effective Federal and state income tax rate of 39%
which would have resulted if the Predecessor Entities had filed corporate
income tax returns during those years.
F-17
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective with the Reorganization described in Note B, the Company became
subject to Federal and state income taxes. The historical provision for income
taxes for the year ended December 31, 1996 reflects the recording of a one-
time Federal and state income tax benefit of $1,400,000 upon the change in the
tax status of the entity as required by SFAS No. 109, "Accounting for Income
Taxes."
Significant components of the Company's deferred tax assets as of December
31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
Reserves................................................ $1,144,000 $1,755,000
Rental payments......................................... 358,000 79,000
Interest payments....................................... 376,000 376,000
Other................................................... 78,000 11,000
---------- ----------
Total deferred tax assets.............................. $1,956,000 $2,221,000
========== ==========
</TABLE>
Significant components of the provision for income taxes for the years ended
December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- ----------
<S> <C> <C>
Current:
Federal............................................... $ 2,229,000 $3,893,000
State................................................. 536,000 719,000
----------- ----------
Total current........................................ $ 2,765,000 $4,612,000
=========== ==========
Deferred:
Federal............................................... (1,648,000) (223,000)
State................................................. (308,000) (42,000)
----------- ----------
Total deferred....................................... (1,956,000) (265,000)
----------- ----------
Total income tax expense............................. $ 809,000 $4,347,000
=========== ==========
</TABLE>
The reconciliation of income tax computed at statutory rates to income tax
expense for the years ended December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
------------------ ---------------
<S> <C> <C> <C> <C>
Statutory rate........................... $ 1,699,000 35.0% $3,903,000 35.0%
State income tax, net of federal bene-
fit..................................... 148,000 3.1 440,000 3.9
Permanent differences.................... 100,000 2.1 4,000 0.1
Deferred tax asset resulting from change
in tax status........................... (1,256,000) (25.9) -- --
Other.................................... 118,000 2.4 -- --
----------- ----- ---------- ----
$ 809,000 16.7% $4,347,000 39.0%
=========== ===== ========== ====
</TABLE>
M. CAPITAL STOCK:
COMMON STOCK
On June 14, 1996, the Company completed its initial public offering (the
"Offering"). Through the Offering the Company issued 3,600,000 shares at
$11.75 per share resulting in net proceeds to the Company (after deducting
underwriters' commissions and other offering expenses) of approximately
$37,160,000. A portion of the proceeds was used to repay some of the Company's
long-term debt (see Note I) and the remainder to fund acquisitions.
F-18
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's Board of Directors is authorized to issue up to 1,000,000
shares of Preferred Stock in one or more series with such dividend rates,
number of votes, conversion rights, preferences or such other terms or
conditions as are permitted under the laws of the State of Delaware.
SPECIAL COMPENSATION
The Predecessor Entities maintained an executive long-term incentive plan
(the "Executive Plan") which granted an economic interest in the appreciation
of the Predecessor Entities above a baseline valuation of $23,000,000 to
certain senior level management personnel upon the successful completion of an
initial public offering at a minimum retained equity valuation above
$43,000,000. A pool of three percent of the retained equity above $23,000,000
was reserved and allocated to the eligible recipients. In June, 1996,
subsequent to the Offering, payments totaling $861,000 were made to the
personnel who participated in the Executive Plan and that plan was terminated.
Additionally, the Company made a bonus payment in the form of common stock
valued at $225,000 to an officer of the Company in connection with his
employment agreement. These expenses are included in the Statement of
Operations for the year ended December 31, 1996, in the line "Special
Compensation and Other."
On December 31, 1995, certain of the Predecessor Entities (the "S
Corporations") issued a 6% equity interest in the S Corporations to the
president of the Company amounting to $438,000 and a 5% equity interest in the
S Corporations to the president of an affiliate amounting to $365,000. The
issuance amounts represented the fair market value of these interests at the
date of issuance based on an independent appraisal obtained by the Company.
Payment for the issuance of these shares was due within 90 days; and
accordingly, the amounts receivable from these individuals were reflected as a
contra-equity subscription receivable with no net increase to stockholders'
equity at December 31, 1995. Subsequent to year-end and in connection with the
execution of the 1996 employment agreement of the Company's president, the
Company granted a special bonus to the president equal to the cost of the
shares issued. This expense is included in the Statement of Operations for the
year ended December 31, 1996 in the line "Special Compensation and Other."
In February 1996, one of the Predecessor Entities, Harborside Healthcare
Limited Partnership ("HHLP"), granted an option to purchase a 1.36% limited
partnership interest in HHLP to each of two members of senior management. The
exercise price per percentage limited partnership interest under each such
option was $239,525 per percentage interest, which represented the fair market
value of a 1% limited partnership interest in HHLP at the date of grant based
on an independent appraisal obtained by the Company. The options vested in
equal one-third portions on each anniversary of the date of grant over a
three-year period and expired ten years from the date of grant. With the
completion of the Offering, the option grants in HHLP were converted on a pro
rata basis to options to acquire shares of the Company's common stock.
STOCK OPTION PLANS
During 1996, the Company established two stock option plans, the 1996 Stock
Option Plan for Non-employee Directors (the "Director Plan") and the 1996
Long-Term Stock Incentive Plan (the "Stock Plan"). Directors of the Company
who are not employees, or affiliates of the Company, are eligible to
participate in the Director Plan. On the date of the Offering, each of the
four non-employee directors was granted options to acquire 15,000 shares of
the Company's common stock at the Offering price. On January 1 of each year,
each non-employee director will receive an additional grant for 3,500 shares
at the fair market value on the date of grant. Options issued under the
Director Plan become exercisable on the first anniversary of the date of grant
and terminate upon the earlier of ten
F-19
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
years from date of grant or one year from date of termination as a director.
Through the Directors Retainer Fee Plan, non-employee directors of the Company
may also elect to receive all or a portion of their director fees in shares of
the Company's common stock. The Stock Plan is administered by the Stock Plan
Committee of the Board of Directors which is composed of outside directors who
are not eligible to participate in this plan. The Stock Plan authorizes the
issuance of non-qualified stock options, incentive stock options, stock
appreciation rights, restricted stock and other stock-based awards. Options
granted during the years ended December 31, 1996 and 1997, were granted with
exercise prices equal to or greater than the fair market value of the stock on
the date of grant. Options granted under the stock plan during 1996 and 1997
vest over a three-year period and have a maximum term of ten years. A maximum
of 800,000 shares of common stock have been reserved for issuance in
connection with these plans. Information with respect to options granted under
these stock option plans is as follows:
OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF EXERCISE PRICE AVERAGE
SHARES PER SHARE EXERCISE PRICE
--------- -------------- --------------
<S> <C> <C> <C>
Balance at December 31, 1995
Granted............................... 523,000 $ 8.15-11.75 $11.16
Cancelled............................. (24,000) $ 11.75 $11.75
------- ------------
Balance at December 31, 1996............ 499,000 $ 8.15-11.75 $11.14
Granted............................... 227,500 $11.69-18.69 $12.66
Exercised............................. (8,665) $ 11.75 $11.75
Cancelled............................. (52,334) $11.75-12.00 $11.80
------- ------------
Balance at December 31, 1997............ 665,501 $ 8.15-18.69 $11.59
======= ============
</TABLE>
As of December 31, 1996 no options to purchase shares of the Company's
common stock were exercisable. As of December 31, 1997 there were 187,000
exercisable options at a weighted-average exercise price of $11.20.
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 requires that companies either recognize
compensation expense for grants of stock, stock options, and other equity
instruments based on fair value, or provide pro forma disclosure of net income
and earnings per share in the notes to the financial statements. The Company
has adopted the disclosure provisions of SFAS No. 123, and has applied
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value at the
grant dates as calculated in accordance with SFAS No. 123, the Company's
unaudited pro forma net income and pro forma net income per share for the
years ended December 31, 1996 and 1997, would have been reduced to the amounts
indicated below:
<TABLE>
<CAPTION>
1996
1996 PRO FORMA 1997
PRO FORMA NET INCOME 1997 NET INCOME
NET INCOME PER SHARE DILUTED NET INCOME PER SHARE DILUTED
---------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C>
As reported $2,712,000 $0.42 $6,803,000 $0.84
Pro forma $2,372,000 $0.37 $5,733,000 $0.70
</TABLE>
F-20
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The weighted average fair value of options granted was $4.72 and $5.63
during 1996 and 1997, respectively. The fair value for each stock option is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions: an expected life of five
years, expected volatility of 40%, no dividend yield, and a risk-free interest
rate of 6.5% and 6.2% for 1996 and 1997, respectively.
The following table sets forth the computation of basic and diluted net
income per share for the year ended December 31, 1997:
<TABLE>
<S> <C>
Numerator:
Numerator for basic and diluted net income per share............... $6,803,000
Denominator:
Denominator for basic net income per share--weighted average
shares............................................................ 8,037,026
Effect of dilutive securities--employee stock options............... 101,767
Denominator for diluted net income per share--adjusted weighted-av-
erage shares and assumed conversions............................... 8,138,793
Basic net income per common share................................... $ 0.85
Diluted net income per common share................................. $ 0.84
</TABLE>
The denominator for basic net income per share includes 25,000, 19,093 and
34,574 shares for the years ended December 31, 1995, 1996 and 1997,
respectively, resulting from stock options issued within one year of the
Company's initial public offering. In addition to the dilutive securities
listed above, stock options for an additional 23,000 shares, that are anti-
dilutive at December 31, 1997, could potentially dilute earnings per share in
future periods.
N. CONTINGENCIES:
The Company is involved in legal actions and claims in the ordinary course
of its business. It is the opinion of management, based on the advice of legal
counsel, that such litigation and claims will be resolved without material
effect on the Company's consolidated financial position, results of operations
or liquidity.
Beginning in 1994, the Company self-insures for health benefits provided to
a majority of its employees. The Company maintains stop-loss insurance such
that the Company's liability for losses is limited. The Company recognizes an
expense for estimated health benefit claims incurred but not reported at the
end of each year.
Beginning in 1995, the Company self-insures for most workers' compensation
claims. The Company maintains stop-loss insurance such that the Company's
liability for losses is limited. The Company accrues for estimated workers'
compensation claims incurred but not reported at the end of each year.
O. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The methods and assumptions used to estimate the fair value of each class of
financial instruments, for those instruments for which it is practicable to
estimate that value, and the estimated fair values of the financial
instruments are as follows:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short effective
maturity of these instruments.
F-21
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE RECEIVABLE
The carrying value of the note receivable approximates its fair value at
December 31, 1997 based on the yield of the note and the present value of
expected cash flows.
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated based on the
current rates offered to the Company for similar debt. The carrying value of
the Company's long-term debt approximates its fair value as of December 31,
1996 and 1997.
P. GAIN ON SALE OF FACILITIES, NET:
As discussed in Note B, in December 1995, KYP sold seven facilities to
Meditrust (the "Sale") for $47,000,000. The Sale was effective December 31,
1995, and a net gain of $4,869,000 was recorded.
A portion of the proceeds of the Sale was used by KYP to repay the
outstanding balance of its Medium-Term Notes ($9,409,000), a related
prepayment penalty ($1,154,000) and transaction costs ($884,000). The original
principal amount of the Medium-Term Notes was $6,000,000 and interest on this
obligation accrued at 10.55% per annum through June 30, 1993. Commencing
December 31, 1993, KYP began making semiannual interest payments on the
original principal and the accrued interest. The principal and all deferred
interest were scheduled to be repaid in June 1998. As a result of the early
retirement of this debt, the Company recorded a loss of $1,502,000, which was
netted against the gain on the sale of the KYP facilities. The terms of the
KYP partnership agreement specified that one of the Predecessor Entities which
served as KYP's general partner would not share in the gain associated with
the sale of the facilities; as such, the entire amount of the net gain was
allocated to the Unitholders, and was included in the minority interest
reflected in the Statement of Operations for the year ended December 31, 1995.
The determination of the net gain included the recognition of an estimated
liability of approximately $3,000,000 to Medicare and certain states' Medicaid
programs. This amount is included with other estimated settlements due to/from
third-party payors as a component of accounts receivable. Under existing
regulations, KYP is required to repay these programs for certain depreciation
expense recorded by the KYP facilities and for which they received
reimbursement prior to the sale. Any payments assessed by these programs to
settle these obligations in excess of the funds withheld from the proceeds of
the sale of the facilities will be the responsibility of the Company without
any recourse to the Unitholders. However, if the ultimate settlement of these
obligations results in a net amount due to KYP, this amount would be
distributed to the Unitholders.
The Sale provided for the dissolution of KYP and the distribution of the net
proceeds of the Sale to the Unitholders, which occurred in March 1996. The
Company's balance sheet as of December 31, 1995 included the cash to be
distributed to the Unitholders as well as the related distribution payable of
$33,493,000.
Q. RELATED PARTY TRANSACTIONS:
An affiliate of the Company provides office space, legal, tax, data
processing and other administrative services to the Company in return for a
monthly fee. Total service charges under this arrangement were $700,000,
$700,000 and $708,000 for the years ended December 31, 1995, 1996 and 1997,
respectively.
F-22
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
R. RECENT ACQUISITIONS (UNAUDITED):
The following unaudited pro forma financial information gives effect to the
acquisition of the Ohio facilities, the Connecticut facilities, the Dayton
facilities, the Massachusetts facilities and a therapy services company, as if
they had occurred on January 1, 1996. The pro forma financial results are not
necessarily indicative of the actual results of operations which might have
occurred or of the results of operations which may occur in the future.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1996 1997
------------ ------------
<S> <C> <C>
Total net revenues................................... $262,043,000 $285,061,000
Income before income taxes and extraordinary loss.... 5,132,000 11,971,000
Income before extraordinary loss..................... 4,215,000 7,304,000
Net income........................................... 2,897,000 7,304,000
Net income per common share using 6,396,142 and
8,138,793 common and common equivalent shares, re-
spectively.......................................... $ 0.45 $ 0.90
</TABLE>
F-23
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
S. SUMMARY QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The Company's unaudited quarterly financial information follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total net revenues............. $47,384,000 $50,292,000 $57,964,000 $66,137,000
Income from operations......... 3,822,000 4,069,000 4,455,000 4,846,000
Income before income taxes..... 2,461,000 2,613,000 2,773,000 3,303,000
Income taxes................... 959,000 1,020,000 1,081,000 1,287,000
Net income..................... 1,502,000 1,593,000 1,692,000 2,016,000
Net income per share
Basic......................... $ 0.19 $ 0.20 $ 0.21 $ 0.25
Diluted....................... 0.19 0.20 0.21 0.24
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total net revenues......... $34,931,000 $36,872,000 $45,903,000 $47,706,000
Income from operations..... 1,307,000 846,000 (1) 3,655,000 3,918,000
Income (loss) before income
taxes and extraordinary
loss...................... 205,000 (229,000) 2,312,000 2,541,000
Income taxes (benefit)..... -- (400,000) 902,000 307,000
Income before extraordinary
loss...................... 205,000 171,000 1,410,000 2,234,000
Extraordinary loss......... -- (1,318,000)(2) -- --
Net income (loss).......... 205,000 (1,147,000) 1,410,000 2,234,000
Net income per share--di-
luted..................... -- -- $ 0.18 $ 0.28
Pro forma income taxes
(benefit)................. 80,000 (489,000)
Pro forma income before
extraordinary loss........ 125,000 260,000
Pro forma net income
(loss).................... 125,000 (1,058,000)
Pro forma income before ex-
traordinary loss per
share--basic and diluted.. $ 0.03 $ 0.05
Pro forma net income (loss)
per share--basic and
diluted................... $ 0.03 $ (0.21)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total net revenues........... $23,777,000 $26,737,000 $28,515,000 $30,396,000
Income from operations....... 1,290,000 1,671,000 2,123,000 2,895,000
Net income (loss)............ (240,000) 253,000 297,000 924,000
Pro forma income taxes (bene-
fit)........................ (94,000) 99,000 116,000 360,000
Pro forma net income (loss).. (146,000) 154,000 181,000 564,000
Pro forma net income (loss)
per share--basic and
diluted..................... $ (0.03) $ 0.03 $ 0.04 $ 0.13
</TABLE>
- --------
(1) Includes $1,716,000 of special compensation and other expenses incurred
primarily as a result of the Offering (see Note M).
(2) A portion of the proceeds of the Offering was used to repay long-term debt
in June 1996. The resulting loss on early retirement of debt is presented
as an extraordinary loss net of related tax benefit (see Note I).
F-24
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
T. PENDING ACQUISITIONS:
During 1997, the Company entered into separate agreements to acquire two
long-term care facilities in Ohio and two long-term care facilities in Rhode
Island. The aggregate purchase price of these two acquisitions is
approximately $33,700,000, and the Company expects to finance them through an
expansion of funds committed to its existing Leasing Facility (see Note H).
The Company is currently awaiting regulatory approval for each of these
acquisitions and expects each transaction to be completed during the second
quarter of 1998.
U. CONDENSED CONSOLIDATING FINANCIAL INFORMATION:
Certain of the Company's subsidiaries are precluded from guaranteeing the
debt of the parent company (the "Non-Guarantors"), based on current agreements
in effect. The Company's remaining subsidiaries (the "Guarantors") are not
restricted from serving as guarantors of the parent company debt. The
Guarantors are comprised of Harborside Healthcare Limited Partnership, Belmont
Nursing Center Corp., Orchard Ridge Nursing Center Corp., Oakhurst Manor
Nursing Center Corp., Riverside Retirement Limited Partnership, Harborside
Toledo Limited Partnership, Harborside Connecticut Limited Partnership,
Harborside of Florida Limited Partnership, Harborside of Ohio Limited
Partnership, Harborside Healthcare Baltimore Limited Partnership, Harborside
of Cleveland Limited Partnership, Harborside of Dayton Limited Partnership,
Harborside Massachusetts Limited Partnership, Harborside of Rhode Island
Limited Partnership, Harborside North Toledo Limited Partnership, Harborside
Healthcare Advisors Limited Partnership, Harborside Toledo Corp., KHI
Corporation, Harborside Acquisition Limited Partnership IV, Harborside
Acquisition Limited Partnership V, Harborside Acquisition Limited Partnership
VI, Harborside Acquisition Limited Partnership VII, Harborside Acquisition
Limited Partnership VIII, Harborside Acquisition Limited Partnership IX,
Harborside Acquisition Limited Partnership X, Sailors, Inc., New Jersey
Harborside Corp., Bridgewater Assisted Living Limited Partnership, Maryland
Harborside Corp., Harborside Homecare Limited Partnership, Harborside
Rehabilitation Limited Partnership, Harborside Healthcare Network Limited
Partnership and Harborside Health I Corporation.
The information which follows presents the condensed consolidating financial
position as of December 31, 1996 and 1997 and the condensed consolidating
results of operations and cash flows for each of the fiscal years in the
three-year period ended December 31, 1997 of (a) the parent company only ("the
Parent"), (b) the combined Guarantors, (c) the combined Non-Guarantors, (d)
eliminating entries and (e) the Company on a consolidated basis.
F-25
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1996
------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equiva-
lents................ $ 463 $ 2,482 $ 6,727 $ 50 $ 9,722
Receivables, net of
allowance............ -- 14,241 10,368 (1,625) 22,984
Intercompany receiv-
able................. 36,735 -- -- (36,735) --
Prepaid expenses and
other................ -- 2,308 1,185 77 3,570
Demand note payable... -- 1,369 -- -- 1,369
Deferred income tax-
es................... -- 837 743 -- 1,580
------- -------- ------- --------- ---------
Total current as-
sets............... 37,198 21,237 19,023 (38,233) 39,225
Restricted cash......... -- 786 2,967 (2) 3,751
Investment in limited
partnership............ 11,034 26,006 4,114 (40,898) 256
Property and equipment,
net.................... -- 78,375 16,812 -- 95,187
Intangible assets, net.. -- 982 2,078 (56) 3,004
Deferred income taxes... -- 199 177 -- 376
------- -------- ------- --------- ---------
Total assets........ $48,232 $127,585 $45,171 $ (79,189) $ 141,799
======= ======== ======= ========= =========
LIABILITIES
Current liabilities:
Current maturities of
long-term debt....... -- 22 157 (10) 169
Current portion of
capital lease
obligation........... -- 3,744 -- -- 3,744
Accounts payable...... 47 2,836 3,156 (28) 6,011
Intercompany payable.. -- 33,248 8,399 (41,647) --
Employee compensation
and benefits......... -- 4,994 3,657 (12) 8,639
Other accrued liabili-
ties................. -- 2,108 1,751 (1,682) 2,177
Accrued interest...... -- 19 -- -- 19
Current portion of
deferred income...... -- -- 368 -- 368
Income taxes payable.. -- 678 594 -- 1,272
------- -------- ------- --------- ---------
Total current lia-
bilities........... 47 47,649 18,082 (43,379) 22,399
Long-term portion of
deferred income........ -- -- 2,948 -- 2,948
Long-term debt.......... -- 1,576 16,453 10 18,039
Long-term portion of
capital lease
obligation............. -- 53,533 -- -- 53,533
------- -------- ------- --------- ---------
Total liabilities... 47 102,758 37,483 (43,369) 96,919
------- -------- ------- --------- ---------
STOCKHOLDERS' EQUITY
Common stock, $.01 par
value, 30,000,000
shares authorized,
8,000,000 shares issued
and outstanding........ 80 2,569 3,885 (6,454) 80
Additional paid-in capi-
tal.................... 48,112 -- -- 228 48,340
Retained earnings (defi-
cit)................... (7) (1,957) (3,271) 1,695 (3,540)
Partners' equity........ -- 24,215 7,074 (31,289) --
------- -------- ------- --------- ---------
Total stockholders'
equity............. 48,185 24,827 7,688 (35,820) 44,880
------- -------- ------- --------- ---------
Total liabilities &
stockholders'
equity............. $48,232 $127,585 $45,171 $ (79,189) $$141,799
======= ======== ======= ========= =========
</TABLE>
F-26
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1997
------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equiva-
lents................ $ 698 $ 4,383 $ 3,666 $ -- $ 8,747
Receivables, net of
allowance............ -- 24,845 9,321 (1,750) 32,416
Intercompany receiv-
able................. 31,289 -- -- (31,289) --
Prepaid expenses and
other................ 4,875 4,604 1,761 (4,596) 6,644
Deferred income tax-
es................... -- 1,847 303 -- 2,150
------- -------- ------- --------- --------
Total current as-
sets............... 36,862 35,679 15,051 (37,635) 49,957
Restricted cash......... -- 2,374 3,001 170 5,545
Investment in limited
partnership............ 11,032 28,335 4,046 (43,346) 67
Property and equipment,
net.................... -- 79,529 17,343 -- 96,872
Intangible assets, net.. 271 6,409 1,883 -- 8,563
Note receivable......... -- 7,487 -- -- 7,487
Deferred income taxes... 71 -- -- -- 71
------- -------- ------- --------- --------
Total assets........ $48,236 $159,813 $41,324 $ (80,811) $168,562
======= ======== ======= ========= ========
LIABILITIES
Current liabilities:
Current maturities of
long-term debt....... -- 20 166 -- 186
Current portion of
capital lease
obligation........... -- 3,924 -- -- 3,924
Accounts payable...... -- 6,209 3,176 (2,110) 7,275
Intercompany payable.. -- 38,424 4,630 (43,054) --
Employee compensation
and benefits......... 280 7,075 3,386 -- 10,741
Other accrued liabili-
ties................. -- 2,216 2,024 177 4,417
Accrued interest...... -- 251 -- -- 251
Current portion of
deferred income...... -- 240 369 -- 609
------- -------- ------- --------- --------
Total current lia-
bilities........... 280 58,359 13,751 (44,987) 27,403
Long-term portion of de-
ferred income.......... -- 980 2,579 -- 3,559
Long-term debt.......... -- 17,162 16,294 -- 33,456
Long-term portion of
capital lease
obligation............. -- 52,353 8 -- 52,361
------- -------- ------- --------- --------
Total liabilities... 280 128,854 32,632 (44,987) 116,779
------- -------- ------- --------- --------
STOCKHOLDERS' EQUITY
Common stock, $.01 par
value, 30,000,000
shares authorized,
8,008,665 shares issued
and outstanding........ 80 2,569 3,885 (6,454) 80
Additional paid-in capi-
tal.................... 48,213 -- -- 227 48,440
Retained earnings (defi-
cit)................... (337) 4,175 (2,267) 1,692 3,263
Partners' equity........ -- 24,215 7,074 (31,289) --
------- -------- ------- --------- --------
Total stockholders'
equity............. 47,956 30,959 8,692 (35,824) 51,783
------- -------- ------- --------- --------
Total liabilities &
stockholders'
equity............. $48,236 $159,813 $41,324 $ (80,811) $168,562
======= ======== ======= ========= ========
</TABLE>
F-27
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total net revenues...... $-- $51,308 $68,706 $(10,589) $109,425
---- ------- ------- -------- --------
Expenses:
Facility operating.... -- 39,003 55,971 (5,596) 89,378
General and
administrative....... -- 3,590 1,486 -- 5,076
Service charges paid
to affiliate......... -- 700 -- -- 700
Depreciation and
amortization......... -- 1,084 3,301 -- 4,385
Facility rent......... -- 1,454 453 -- 1,907
Management fees to
paid affiliates...... -- 2,411 2,582 (4,993) --
---- ------- ------- -------- --------
Total expenses...... -- 48,242 63,793 (10,589) 101,446
---- ------- ------- -------- --------
Income from operations.. -- 3,066 4,913 -- 7,979
Other:
Interest expense,
net.................. -- (1,729) (3,329) (49) (5,107)
Loss on investment in
limited partnership.. -- 543 71 (728) (114)
Minority interest in
net income........... -- -- -- (6,393) (6,393)
Gain on sale of
facilities, net...... -- -- 4,869 -- 4,869
---- ------- ------- -------- --------
Income before income
taxes.................. -- 1,880 6,524 (7,170) 1,234
---- ------- ------- -------- --------
Income taxes............ -- -- -- -- --
---- ------- ------- -------- --------
Net income.............. $-- $ 1,880 $ 6,524 $ (7,170) $ 1,234
==== ======= ======= ======== ========
</TABLE>
F-28
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total net revenues...... $ -- $88,822 $96,664 $(20,074) $165,412
----- ------- ------- -------- --------
Expenses:
Facility operating.... -- 65,593 77,851 (11,237) 132,207
General and
administrative....... 123 7,665 23 -- 7,811
Service charges paid
to affiliate......... -- 700 -- -- 700
Special compensation
and other............ -- 1,716 -- -- 1,716
Depreciation and
amortization......... -- 1,784 1,245 -- 3,029
Facility rent......... -- 1,637 8,586 -- 10,223
Management fees to
paid affiliates...... -- 3,156 5,764 (8,920) --
----- ------- ------- -------- --------
Total expenses...... 123 82,251 93,469 (20,157) 155,686
----- ------- ------- -------- --------
Income (loss) from oper-
ations................. (123) 6,571 3,195 83 9,726
Other:
Interest expense,
net.................. 116 (3,558) (783) (409) (4,634)
Loss on investment in
limited
partnership.......... -- (263) -- -- (263)
----- ------- ------- -------- --------
Income (loss) before
income taxes and
extraordinary loss..... (7) 2,750 2,412 (326) 4,829
Income taxes............ 1 (461) (404) 55 (809)
----- ------- ------- -------- --------
Income before extraordi-
nary loss.............. (6) 2,289 2,008 (271) 4,020
Extraordinary loss,
net.................... -- (834) (1,227) 743 (1,318)
----- ------- ------- -------- --------
Net income (loss)....... $ (6) $ 1,455 $ 781 $ 472 $ 2,702
===== ======= ======= ======== ========
</TABLE>
F-29
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total net revenues...... $ -- $152,476 $101,480 $ (32,179) $221,777
------ -------- -------- --------- --------
Expenses:
Facility operating.... -- 113,686 83,595 (20,877) 176,404
General and
administrative....... 612 9,499 37 805 10,953
Service charges paid
to affiliate......... -- 708 -- -- 708
Depreciation and
amortization......... 70 2,599 1,405 -- 4,074
Facility rent......... -- 4,209 8,237 -- 12,446
Management fees to
paid affiliates...... -- 6,039 6,085 (12,124) --
------ -------- -------- --------- --------
Total expenses...... 682 136,740 99,359 (32,196) 204,585
------ -------- -------- --------- --------
Income (loss) from
operations............. (682) 15,736 2,121 17 17,192
Other:
Interest expense,
net.................. 108 (5,488) (473) -- (5,853)
Loss on investment in
limited partnership.. -- (189) -- -- (189)
------ -------- -------- --------- --------
Income (loss) before
income taxes........... (574) 10,059 1,648 17 11,150
Income taxes............ 224 (3,927) (644) -- (4,347)
------ -------- -------- --------- --------
Net income (loss)....... $ (350) $ 6,132 $ 1,004 $ 17 $ 6,803
====== ======== ======== ========= ========
</TABLE>
F-30
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net cash provided
(used) by operating
activities......... $ -- $(5,390) $ 3,359 $3,917 $ 1,886
----- ------- ------- ------ -------
Investing activities:
Additions to property
and equipment........ -- (1,122) (1,959) -- (3,081)
Additions to
intangibles.......... -- (31) (1,171) -- (1,202)
Facility acquisition
deposits............. -- (3,000) -- -- (3,000)
Transfers to
restricted cash,
net.................. -- (815) 55 -- (760)
Payment of costs
related to sale of
facilities........... -- -- (884) -- (884)
Proceeds from sale of
facilities........... -- -- 47,000 -- 47,000
Issuance of demand
note from limited
partnership.......... -- (1,255) -- -- (1,255)
----- ------- ------- ------ -------
Net cash provided
(used) by investing
activities......... -- (6,223) 43,041 -- 36,818
----- ------- ------- ------ -------
Financing activities:
Partners' contribution
(distribution)....... -- 7,196 (3,279) (3,917) --
Payment of long-term
debt................. -- (223) (9,577) -- (9,800)
Debt prepayment
penalty.............. -- -- (1,154) -- (1,154)
Note Payable to an
affiliate............ -- 2,000 -- -- 2,000
Distributions to
minority interest.... -- -- (3,636) -- (3,636)
Purchase of equity
interests and other
contributions........ -- 30 -- -- 30
----- ------- ------- ------ -------
Net cash provided
(used) by financing
activities......... -- 9,003 (17,646) (3,917) (12,560)
----- ------- ------- ------ -------
Net increase (decrease)
in cash and cash equiv-
alents................. -- (2,610) 28,754 -- 26,144
Cash and cash
equivalents, beginning
of year................ -- 7,543 6,470 -- 14,013
----- ------- ------- ------ -------
Cash and cash
equivalents, end of
year................... $ -- $ 4,933 $35,224 $ -- $40,157
===== ======= ======= ====== =======
Supplemental Disclosure:
Interest paid......... $ -- $ 2,122 $ 4,086 $ -- $ 6,208
</TABLE>
F-31
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net cash provided
(used) by operating
activities......... $(47,503) $25,546 $12,758 $10,604 $ 1,405
-------- ------- ------- ------- -------
Investing activities:
Additions to property
and equipment........ -- (2,193) (2,911) -- (5,104)
Additions to intangi-
bles................. -- (400) (606) 56 (950)
Facility acquisition
deposits............. -- 3,000 -- -- 3,000
Transfers to
restricted cash,
net.................. -- 29 (1,027) 2 (996)
-------- ------- ------- ------- -------
Net cash provided
(used) by investing
activities......... -- 436 (4,544) 58 (4,050)
-------- ------- ------- ------- -------
Financing activities:
Purchase of equity in-
terests.............. 10,003 170 (33,288) 23,115 --
Payment of long-term
debt................. -- (19,771) (5,517) -- (25,288)
Principal payments of
capital lease
obligation........... -- (6,766) -- -- (6,766)
Debt prepayment penal-
ty................... -- (1,517) -- -- (1,517)
Note payable to an af-
filiate.............. -- (2,000) -- -- (2,000)
Receipt of cash in
connection with
lease................ -- 3,685 -- -- 3,685
Dividend distribu-
tion................. -- (140) -- -- (140)
Distributions to
minority interest.... -- -- -- (33,727) (33,727)
Purchase of equity
interests and other
contributions........ 803 -- -- -- 803
Proceeds from sale of
common stock......... 37,160 -- -- -- 37,160
-------- ------- ------- ------- -------
Net cash provided
(used) by financing
activities......... 47,966 (26,339) (38,805) (10,612) (27,790)
-------- ------- ------- ------- -------
Net increase (decrease)
in cash and cash
equivalents............ 463 (357) (30,591) 50 (30,435)
Cash and cash
equivalents, beginning
of year................ -- 4,960 35,197 -- 40,157
-------- ------- ------- ------- -------
Cash and cash
equivalents, end of
year................... $ 463 $ 4,603 $ 4,606 $ 50 $ 9,722
======== ======= ======= ======= =======
Supplemental Disclosure:
Interest paid........... $ -- $ 3,328 $ 732 $ -- $ 4,060
Income taxes paid....... $ 760 $ -- $ -- $ -- $ 760
Noncash investing and
financing activities:
Property and equipment
additions by capital
lease.................. $ -- $57,625 $ -- $ -- $57,625
Capital lease obligation
incurred............... $ -- $57,625 $ -- $ -- $57,625
</TABLE>
F-32
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net cash provided
(used) by operating
activities......... $ 455 $ 6,102 $(1,135) $ 199 $ 5,621
------ -------- ------- ----- --------
Investing activities:
Additions to property
and equipment........ -- (3,543) (1,731) -- (5,274)
Additions to
intangibles.......... (341) (5,884) (20) (56) (6,301)
Receipt of note
receivable........... -- (7,487) -- -- (7,487)
Transfers to
restricted cash,
net.................. -- (1,588) (34) (172) (1,794)
Repayment of demand
note from limited
partnership.......... -- 1,369 -- -- 1,369
------ -------- ------- ----- --------
Net cash (used) by
investing
activities......... (341) (17,133) (1,785) (228) (19,487)
------ -------- ------- ----- --------
Financing activities:
Borrowings under the
revolving line of
credit............... -- 15,600 -- -- 15,600
Payment of long-term
debt................. -- (22) (144) -- (166)
Principal payments of
capital lease
obligation........... -- (3,952) 8 -- (3,944)
Receipt of cash in
connection with
lease................ -- 1,301 -- -- 1,301
Exercise of stock
options.............. 100 -- -- -- 100
Other................. 21 -- -- (21) --
------ -------- ------- ----- --------
Net cash provided
(used) by financing
activities......... 121 12,927 (136) (21) 12,891
------ -------- ------- ----- --------
Net increase (decrease)
in cash and cash
equivalents........... 235 1,896 (3,056) (50) (975)
Cash and cash
equivalents, beginning
of year............... 463 2,482 6,727 50 9,722
------ -------- ------- ----- --------
Cash and cash
equivalents, end of
year.................. $ 698 $ 4,378 $ 3,671 $ -- $ 8,747
====== ======== ======= ===== ========
Supplemental
Disclosure:
Interest paid......... $ -- $ 3,104 $ 267 $ -- $ 3,371
Income taxes paid..... $5,783 $ -- $ -- $ -- $ 5,783
</TABLE>
F-33
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30,
1998
----------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 3,028
Accounts receivable, net of allowances for doubtful accounts of
$2,455......................................................... 41,484
Prepaid expenses and other...................................... 8,466
Deferred income taxes........................................... 2,150
--------
Total current assets.......................................... 55,128
Restricted cash................................................... 7,116
Property and equipment, net....................................... 102,048
Intangible assets, net............................................ 9,673
Note receivable................................................... 7,487
Deferred income taxes............................................. 71
--------
Total assets.................................................. $181,523
========
LIABILITIES
Current liabilities:
Current maturities of long-term debt............................ $ 202
Current portion of capital lease obligation..................... 4,204
Accounts payable................................................ 7,963
Employee compensation and benefits.............................. 13,696
Other accrued liabilities....................................... 5,786
Accrued interest................................................ 199
Current portion of deferred income.............................. 803
--------
Total current liabilities..................................... 32,853
Long-term portion of deferred income.............................. 5,045
Long-term debt.................................................... 36,346
Long-term portion of capital lease obligation..................... 51,594
--------
Total liabilities............................................. 125,838
--------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 30,000,000 shares authorized,
8,011,164 shares issued and outstanding.......................... 80
Additional paid-in capital........................................ 48,469
Retained earnings................................................. 7,136
--------
Total stockholders' equity.................................... 55,685
--------
Total liabilities and stockholders' equity.................. $181,523
========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-34
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- -------------------------
1997 1998 1997 1998
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Total net revenues...... $ 50,292 $ 76,186 $ 97,676 $ 148,640
------------- ------------- ------------ ------------
Expenses:
Facility operating.... 40,065 59,649 77,517 117,030
General and
administrative....... 2,334 4,110 4,723 7,475
Service charges paid
to affiliate......... 177 315 354 628
Depreciation and
amortization......... 960 1,178 1,882 2,263
Facility rent......... 2,687 6,065 5,309 11,621
------------- ------------- ------------ ------------
Total expenses...... 46,223 71,317 89,785 139,017
------------- ------------- ------------ ------------
Income from operations.. 4,069 4,869 7,891 9,623
Other:
Interest expense,
net.................. 1,364 1,552 2,756 3,202
Other expense......... 92 41 61 72
------------- ------------- ------------ ------------
Income before income
taxes.................. 2,613 3,276 5,074 6,349
Income taxes............ 1,020 1,278 1,979 2,476
------------- ------------- ------------ ------------
Net income.............. $ 1,593 $ 1,998 $ 3,095 $ 3,873
============= ============= ============ ============
Net income per share--
basic.................. $ 0.20 $ 0.25 $ 0.39 $ 0.48
============= ============= ============ ============
Net income per share--
diluted................ $ 0.20 $ 0.24 $ 0.39 $ 0.47
============= ============= ============ ============
Weighted average number
of common shares used
in per share
computations:
Basic................. 8,028,000 8,062,000 8,026,000 8,061,000
Diluted............... 8,057,000 8,351,000 8,043,000 8,328,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-35
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN
STOCK CAPITAL RETAINED EARNINGS TOTAL
------ ---------- ----------------- -------
<S> <C> <C> <C> <C>
Stockholders' equity, December 31,
1997............................. $80 $48,440 $3,263 $51,783
Exercise of stock options......... -- 29 -- 29
Net income for the six months
ended June 30, 1998.............. -- -- 3,873 3,873
--- ------- ------ -------
Stockholders' equity, June 30,
1998............................. $80 $48,469 $7,136 $55,685
=== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-36
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
-------------------------
1997 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net income........................................ $ 3,095 $ 3,873
Adjustments to reconcile net income
to net cash (used) by operating activities:
Depreciation of property and equipment............ 1,712 1,895
Amortization of intangible assets................. 170 368
Amortization of deferred income................... (184) (255)
Amortization of loan costs and fees............... 44 108
Accretion of interest on capital lease
obligation....................................... 1,419 1,532
Other............................................. 2 --
----------- ------------
6,258 7,521
Changes in operating assets and liabilities:
(Increase) in accounts receivable................. (4,577) (9,068)
(Increase) in prepaid expenses and other.......... (2,455) (1,755)
Increase in accounts payable...................... 317 688
Increase in employee compensation and benefits.... 1,578 2,955
Increase (decrease) in accrued interest........... 65 (52)
Increase in other accrued liabilities............. 1,116 1,369
(Decrease) in income taxes payable................ (705) --
----------- ------------
Net cash provided by operating activities......... 1,597 1,658
----------- ------------
Investing activities:
Additions to property and equipment............... (812) (7,071)
Additions to intangibles.......................... (1,357) (1,586)
Transfers to restricted cash, net................. (76) (1,571)
Repayment of demand note.......................... 1,369 --
----------- ------------
Net cash (used) by investing activities........... (876) (10,228)
----------- ------------
Financing activities:
Issuance of long-term debt........................ 2,175 3,000
Payment of long-term debt......................... (89) (94)
Principal payments of capital lease obligation.... (1,835) (2,019)
Receipt of lease inducement....................... -- 1,935
Exercise of stock options......................... -- 29
----------- ------------
Net cash provided by financing activities.......... 251 2,851
----------- ------------
Net increase (decrease) in cash and cash
equivalents....................................... 972 (5,719)
Cash and cash equivalents, beginning of period..... 9,722 8,747
----------- ------------
Cash and cash equivalents, end of period........... $ 10,694 $ 3,028
=========== ============
Supplemental Disclosure:
Interest paid..................................... $ 1,734 $ 2,128
=========== ============
Income taxes paid................................. $ 2,684 $ 2,923
=========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-37
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. General
The accompanying unaudited consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report or Form 10-K for the year ended
December 31, 1997. 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, 1998, the results of its operations for the three-
month and six-month periods ended June 30, 1997 and 1998 and its cash flows
for the six-month periods ended June 30, 1997 and 1998. The results of
operations for the three-month and six-month periods ended June 30, 1997 and
1998 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 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 $37,160,000. 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. Significant Accounting Policies
Reclassifications have been made to conform prior years' data to the current
year presentation.
D. Earnings Per Share
The following table sets forth the computation of basic and diluted net
income per share for the period ended June 30, 1998:
<TABLE>
<S> <C>
Numerator:
Numerator for basic and diluted net income per share......... $3,873,000
==========
Denominator:
Denominator for basic net income per share weighted average
shares...................................................... 8,061,000
Effect of dilutive securities employee stock options......... 267,000
----------
Denominator for diluted net income per share--adjusted
weighted-average shares and assumed conversions............. 8,328,000
==========
Basic net income per common share............................. $ 0.48
Diluted net income per common share........................... $ 0.47
</TABLE>
F-38
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
The denominator for basic net income per share includes 26,000 and 50,000
shares for the periods ended June 30, 1997 and 1998, respectively, resulting
from stock options issued within one year of the Company's public offering.
E. Acquisitions
During the second quarter of 1998, the Company completed the acquisitions of
two long-term care facilities (248 licensed beds) in Toledo, Ohio and two
long-term care facilities (267 licensed beds) in Warwick, Rhode Island. The
aggregate purchase price of these two acquisitions was approximately
$33,700,000, and the Company financed them through an expansion of funds
committed to its existing synthetic leasing facility (the "Leasing Facility").
The Ohio acquisition was completed on April 1 and the Rhode Island acquisition
on May 8. In connection with these acquisitions, the Company increased funds
committed by a bank group through its Leasing Facility to $59,250,000. In May
1998, the Company also increased funds committed by the bank group through its
revolving credit facility to $40,000,000.
F. Subsequent Events
On April 15, 1998, the Company entered into a Merger Agreement with HH
Acquisition Corp. ("MergerCo"), an entity organized for the sole purpose of
effecting a merger on behalf of Investcorp S.A., certain of its affiliates and
certain other international investors (collectively, the "New Investors"). On
August 11, 1998, MergerCo merged with and into the Company, with the Company
as the surviving corporation. As a result of the merger, the New Investors
acquired approximately 91% of the post-merger common stock of the Company.
Certain pre-merger stockholders of the Company, including certain of the
Company's existing members of senior management, retained approximately
660,000 shares (or approximately 9%) of the Company's post-merger common
stock. Each other share of the Company's pre-merger common stock was converted
into $25 in cash, representing aggregate cash payments of approximately $184
million. Holders of outstanding stock options of the Company converted the
majority of their options into cash at $25 per underlying share less the
applicable option exercise price and withholding taxes, representing aggregate
cash payments of approximately $8 million.
In connection with the transaction and prior to the merger, the New
Investors made cash common equity contributions of $165 million to MergerCo,
and MergerCo obtained gross proceeds of $99.5 million through the issuance of
11% senior subordinated discount notes due 2008 and $40 million through the
issuance of 13.5% exchangeable preferred stock mandatorily redeemable 2010. In
connection with the merger, the Company also entered into a new $250 million
senior secured credit facility with a group of banks.
G. Condensed Consolidating Financial Information
Certain of the Company's subsidiaries are precluded from guaranteeing the
debt of the parent company (the "Non-Guarantors"), based on current agreements
in effect. The Company's remaining subsidiaries (the "Guarantors") are not
restricted from serving as guarantors of the parent company debt. The
Guarantors are comprised of Harborside Healthcare Limited Partnership, Belmont
Nursing Center Corp., Orchard Ridge Nursing Center Corp., Oakhurst Manor
Nursing Center Corp., Riverside Retirement Limited Partnership, Harborside
Toledo Limited Partnership, Harborside Connecticut Limited Partnership,
Harborside of Florida Limited Partnership, Harborside of Ohio Limited
Partnership, Harborside Healthcare Baltimore Limited Partnership, Harborside
of Cleveland Limited Partnership, Harborside of Dayton Limited Partnership,
Harborside Massachusetts Limited Partnership, Harborside
F-39
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
Rhode Island Limited Partnership, Harborside North Toledo Limited Partnership,
Harborside Healthcare Advisors Limited Partnership, Harborside Toledo Corp.,
KHI Corporation, Harborside Acquisition Limited Partnership IV, Harborside
Acquisition Limited Partnership V, Harborside Acquisition Limited Partnership
VI, Harborside Acquisition Limited Partnership VII, Harborside Acquisition
Limited Partnership VIII, Harborside Acquisition Limited Partnership IX,
Harborside Acquisition Limited Partnership X, Sailors, Inc., New Jersey
Harborside Corp., Bridgewater Assisted Living Limited Partnership, Maryland
Harborside Corp., Harborside Homecare Limited Partnership, Harborside
Rehabilitation Limited Partnership, Harborside Healthcare Network Limited
Partnership and Harborside Health I Corporation.
The information which follows presents the condensed consolidating financial
position as of June 30, 1997 and 1998 and the condensed consolidating results
of operations and cash flows for the three month and six-month periods ended
June 30, 1997 and 1998 of (a) the parent company only (the "Parent"), (b) the
combined Guarantors, (c) the combined Non-Guarantors, (d) eliminating entries
and (e) the Company on a consolidated basis.
F-40
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1997
------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $ 698 $ 4,383 $ 3,666 $ -- $ 8,747
Receivables, net of allowance....... -- 24,845 9,321 (1,750) 32,416
Intercompany receivable ............ 31,289 -- -- (31,289) --
Prepaid expenses and other.......... 4,875 4,604 1,761 (4,596) 6,644
Deferred income taxes............... -- 1,847 303 -- 2,150
------- -------- ------- --------- --------
Total current assets.............. 36,862 35,679 15,051 (37,635) 49,957
------- -------- ------- --------- --------
Restricted cash....................... -- 2,374 3,001 170 5,545
Investment in limited partnership..... 11,032 28,335 4,046 (43,346) 67
Property and equipment, net........... -- 79,529 17,343 -- 96,872
Intangible assets, net................ 271 6,409 1,883 -- 8,563
Note receivable....................... -- 7,487 -- -- 7,487
Deferred income taxes................. 71 -- -- -- 71
------- -------- ------- --------- --------
Total assets...................... $48,236 $159,813 $41,324 $ (80,811) $168,562
======= ======== ======= ========= ========
LIABILITIES
Current liabilities:
Current maturities of long-term
debt............................... -- 20 166 -- 186
Current portion of capital lease
obligation......................... -- 3,924 -- -- 3,924
Accounts payable.................... -- 6,209 3,176 (2,110) 7,275
Intercompany payable................ -- 38,424 4,630 (43,054) --
Employee compensation and benefits.. 280 7,075 3,386 -- 10,741
Other accrued liabilities........... -- 2,216 2,024 177 4,417
Accrued interest.................... -- 251 -- -- 251
Current portion of deferred income.. -- 240 369 -- 609
------- -------- ------- --------- --------
Total current liabilities......... 280 58,359 13,751 (44,987) 27,403
------- -------- ------- --------- --------
Long-term portion of deferred income.. -- 980 2,579 -- 3,559
Long-term debt........................ -- 17,162 16,294 -- 33,456
Long-term portion of capital lease
obligation........................... -- 52,353 8 -- 52,361
------- -------- ------- --------- --------
Total liabilities................. 280 128,854 32,632 (44,987) 116,779
STOCKHOLDERS' EQUITY
Common stock, $.01 par value,
30,000,000 shares authorized,
8,008,665 shares issued and
outstanding.......................... 80 2,569 3,885 (6,454) 80
Additional paid-in capital............ 48,213 -- -- 227 48,440
Retained earnings (deficit)........... (337) 4,175 (2,267) 1,692 3,263
Partners' equity...................... -- 24,215 7,074 (31,289) --
------- -------- ------- --------- --------
Total stockholders' equity........ 47,956 30,959 8,692 (35,824) 51,783
------- -------- ------- --------- --------
Total liabilities and
stockholders' equity............. $48,236 $159,813 $41,324 $ (80,811) $168,562
======= ======== ======= ========= ========
</TABLE>
F-41
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1998
------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 131 $ 5,369 $ 1,734 $ (4,206) $ 3,028
Receivables, net of
allowance............. -- 32,083 12,920 (3,519) 41,484
Intercompany
receivable............ 32,747 -- -- (32,747) --
Prepaid expenses and
other................. 3,608 4,756 1,739 (1,637) 8,466
Deferred income taxes.. -- 1,847 303 -- 2,150
------- -------- ------- --------- --------
Total current assets.. 36,486 44,055 16,696 (42,109) 55,128
------- -------- ------- --------- --------
Restricted cash......... -- 3,012 3,068 1,036 7,116
Investment in limited
partnership............ 11,034 27,489 4,044 (42,567) --
Property and equipment,
net.................... 5 84,583 17,460 -- 102,048
Intangible assets, net.. 285 6,700 1,849 839 9,673
Note receivable......... -- 7,487 -- -- 7,487
Deferred income taxes... 71 -- -- -- 71
------- -------- ------- --------- --------
Total assets.......... $47,881 $173,326 $43,117 $ (82,801) $181,523
======= ======== ======= ========= ========
LIABILITIES
Current liabilities:
Current maturities of
long-term debt........ -- 27 175 -- 202
Current portion of
capital lease
obligation............ -- 4,204 -- -- 4,204
Accounts payable....... -- 6,926 4,878 (3,841) 7,963
Intercompany payable... -- 36,850 4,918 (41,768) --
Employee compensation
and benefits.......... -- 10,496 3,771 (571) 13,696
Other accrued
liabilities........... 35 4,969 1,695 (913) 5,786
Accrued interest....... -- 275 -- (76) 199
Current portion of
deferred income....... -- -- -- 803 803
------- -------- ------- --------- --------
Total current
liabilities.......... 35 63,747 15,437 (46,366) 32,853
Long-term portion of
deferred income........ -- 2,891 2,764 (610) 5,045
Long-term debt.......... -- 20,141 16,205 -- 36,346
Long-term portion of
capital lease
obligation............. -- 51,590 4 -- 51,594
------- -------- ------- --------- --------
Total liabilities..... 35 138,369 34,410 (46,976) 125,838
------- -------- ------- --------- --------
STOCKHOLDERS' EQUITY
Common stock $.01 par
value, 30,000,000
shares authorized,
8,011,164 shares issued
and outstanding........ 80 2,569 3,885 (6,454) 80
Additional paid-in
capital................ 48,243 -- -- 226 48,469
Retained earnings
(deficit).............. (477) 8,173 (2,252) 1,692 7,136
Partners' equity........ -- 24,215 7,074 (31,289) --
------- -------- ------- --------- --------
Total stockholders'
equity............... 47,846 34,957 8,707 (35,825) 55,685
------- -------- ------- --------- --------
Total liabilities and
stockholders'
equity............... $47,881 $173,326 $43,117 $ (82,801) $181,523
======= ======== ======= ========= ========
</TABLE>
F-42
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997
-----------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total net revenues...... $ -- $32,332 $25,119 $(7,159) $50,292
----- ------- ------- ------- -------
Expenses:
Facility operating.... -- 26,278 21,144 (7,357) 40,065
General and
administrative....... 169 2,356 (191) -- 2,334
Service charges paid
to affiliate......... -- 177 -- -- 177
Depreciation and
amortization......... 2 626 332 -- 960
Facility rent......... -- 636 2,051 -- 2,687
Management fees paid
to affiliates........ -- (1,501) 1,501 -- --
----- ------- ------- ------- -------
Total expenses...... 171 28,572 24,837 (7,357) 46,223
----- ------- ------- ------- -------
Income (loss) from oper-
ations (171) 3,760 282 198 4,069
Other:
Interest expense,
net.................. (49) 1,359 76 (22) 1,364
Income on investment
in limited
partnership.......... -- 92 -- -- 92
----- ------- ------- ------- -------
Income (loss) before in-
come taxes............. (122) 2,309 206 220 2,613
Income taxes............ 47 (900) (80) (87) (1,020)
----- ------- ------- ------- -------
Net income (loss)....... $ (75) $ 1,409 $ 126 $ 133 $ 1,593
===== ======= ======= ======= =======
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998
-----------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total net revenues...... $ -- $57,796 $25,304 $(6,914) $76,186
----- ------- ------- ------- -------
Expenses:
Facility operating.... -- 45,255 21,126 (6,732) 59,649
General and
administrative....... 101 3,862 147 -- 4,110
Service charges paid
to affiliate......... -- 338 -- (23) 315
Depreciation and
amortization......... 14 791 373 -- 1,178
Facility rent......... -- 3,919 2,054 92 6,065
Management fees paid
to affiliates........ -- (1,462) 1,462 -- --
----- ------- ------- ------- -------
Total expenses...... 115 52,703 25,162 (6,663) 71,317
----- ------- ------- ------- -------
Income (loss) from oper-
ations (115) 5,093 142 (251) 4,869
Other:
Interest expense,
net.................. -- 1,660 146 (254) 1,552
Income on investment
in limited
partnership.......... -- 72 -- (31) 41
----- ------- ------- ------- -------
Income (loss) before in-
come taxes............. (115) 3,361 (4) 34 3,276
Income taxes............ 45 (1,311) 2 (14) (1,278)
----- ------- ------- ------- -------
Net income (loss)....... $ (70) $ 2,050 $ (2) $ 20 $ 1,998
===== ======= ======= ======= =======
</TABLE>
F-43
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
-----------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total net revenues...... $ -- $59,937 $49,722 $(11,983) $97,676
----- ------- ------- -------- -------
Expenses:
Facility operating.... -- 48,460 41,040 (11,983) 77,517
General and
administrative....... 221 4,352 150 -- 4,723
Service charges paid
to affiliate......... -- 354 -- -- 354
Depreciation and
amortization......... 2 1,231 649 -- 1,882
Facility rent......... -- 1,113 4,196 -- 5,309
Management fees paid
to affiliates........ -- (2,962) 2,962 -- --
----- ------- ------- -------- -------
Total expenses...... 223 52,548 48,997 (11,983) 89,785
----- ------- ------- -------- -------
Income (loss) from oper-
ations................. (223) 7,389 725 -- 7,891
Other:
Interest expense,
net.................. (91) 2,586 261 -- 2,756
Loss on investment in
limited partnership.. -- 61 -- -- 61
----- ------- ------- -------- -------
Income (loss) before in-
come taxes............. (132) 4,742 464 -- 5,074
Income taxes............ 51 (1,849) (181) -- (1,979)
----- ------- ------- -------- -------
Net income (loss)....... $ (81) $ 2,893 $ 283 $ -- $ 3,095
===== ======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998
-----------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total net revenues...... $ -- $111,371 $50,867 $(13,598) $148,640
------ -------- ------- -------- --------
Expenses:
Facility operating.... -- 88,225 42,403 (13,598) 117,030
General and
administrative....... 216 7,088 171 -- 7,475
Service charges paid
to affiliate......... -- 628 -- -- 628
Depreciation and
amortization......... 14 1,509 740 -- 2,263
Facility rent......... -- 7,454 4,167 -- 11,621
Management fees paid
to affiliates........ -- (3,069) 3,069 -- --
------ -------- ------- -------- --------
Total expenses...... 230 101,835 50,550 (13,598) 139,017
------ -------- ------- -------- --------
Income (loss) from oper-
ations................. (230) 9,536 317 -- 9,623
Other:
Interest expense,
net.................. -- 2,909 293 -- 3,202
Loss on investment in
limited partnership.. -- 72 -- -- 72
------ -------- ------- -------- --------
Income (loss) before in-
come taxes............. (230) 6,555 24 -- 6,349
Income taxes............ 90 (2,557) (9) -- (2,476)
------ -------- ------- -------- --------
Net income (loss)....... $ (140) $ 3,998 $ 15 $ -- $ 3,873
====== ======== ======= ======== ========
</TABLE>
F-44
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
-----------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net cash provided
(used) by operating
activities........... $1,568 $ 870 $(1,417) $576 $ 1,597
------ ------- ------- ---- -------
Investing activities:
Additions to property
and equipment........ -- 330 (1,142) -- (812)
Additions to
intangibles.......... (107) (1,248) 148 (150) (1,357)
Transfers (to) from
restricted cash,
net.................. -- 899 (803) (172) (76)
Repayment (issuance)
of demand note....... -- 1,369 -- -- 1,369
------ ------- ------- ---- -------
Net cash provided
(used) by investing
activities......... (107) 1,350 (1,797) (322) (876)
------ ------- ------- ---- -------
Financing activities:
Issuance of long-term
debt................. -- 2,175 -- -- 2,175
Payments of long-term
debt................. -- (158) 69 -- (89)
Principal payments of
capital lease
obligation........... -- (1,835) -- -- (1,835)
------ ------- ------- ---- -------
Net cash provided
(used) by financing
activities......... -- 182 69 -- 251
------ ------- ------- ---- -------
Net increase (decrease)
in cash and cash
equivalents............ 1,461 2,402 (3,145) 254 972
Cash and cash
equivalents, beginning
of period.............. 463 2,482 6,727 50 9,722
------ ------- ------- ---- -------
Cash and cash
equivalents, end of
period................. $1,924 $ 4,884 $ 3,582 $304 $10,694
====== ======= ======= ==== =======
Supplemental Disclosure:
Interest paid......... $ -- $ 1,575 $ 159 $-- $ 1,734
Income taxes paid..... $ -- $ 2,445 $ 239 $-- $ 2,684
</TABLE>
F-45
<PAGE>
HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
-----------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net cash provided
(used) by operating
activities: $(563) $ 5,683 $(1,069) $(2,393) $ 1,658
----- ------- ------- ------- -------
Investing activities:
Additions to property
and equipment........ (5) (6,422) (644) -- (7,071)
Additions to
intangibles.......... (28) (539) (72) (947) (1,586)
Transfers (to) from
restricted cash,
net.................. -- (638) (67) (866) (1,571)
----- ------- ------- ------- -------
Net cash provided
(used) by investing
activities......... (33) (7,599) (783) (1,813) (10,228)
----- ------- ------- ------- -------
Financing activities:
Borrowed on revolving
line of credit....... -- 3,000 -- -- 3,000
Payment of long-term
debt................. -- (14) (80) -- (94)
Principal payments of
capital lease
obligation........... -- (2,019) -- -- (2,019)
Receipt of lease
inducement........... -- 1,935 -- -- 1,935
Exercise of stock
options.............. 29 -- -- -- 29
----- ------- ------- ------- -------
Net cash provided
(used) by financing
activities......... 29 2,902 (80) -- 2,851
----- ------- ------- ------- -------
Net increase (decrease)
in cash and cash
equivalents............ (567) 986 (1,932) (4,206) (5,719)
Cash and cash
equivalents, beginning
of period.............. 698 4,383 3,666 -- 8,747
----- ------- ------- ------- -------
Cash and cash
equivalents, end of
period................. $ 131 $ 5,369 $ 1,734 $(4,206) $ 3,028
===== ======= ======= ======= =======
Supplemental Disclosure:
Interest paid......... $ -- $ 1,933 $ 195 $ -- $ 2,128
Income taxes paid..... $ -- $ 2,913 $ 10 $ -- $ 2,923
</TABLE>
F-46
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Cushman Management Associates, Inc. and Affiliates
Topsfield, Massachusetts
We have audited the accompanying combined balance sheets of Cushman
Management Associates, Inc. and Affiliates as of December 31, 1995 and 1996,
and the related combined statements of income and owners' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Cushman
Management Associates, Inc. and Affiliates as of December 31, 1995 and 1996,
and the combined results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/ Landa & Altsher
Randolph, MA
October 22, 1997
F-47
<PAGE>
CUSHMAN MANAGEMENT ASSOCIATES, INC. AND AFFILIATES
COMBINED BALANCE SHEET AS OF DECEMBER 31,
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash......................................................... $1,026 $1,607
Accounts receivable--net of allowance for doubtful accounts
of $75...................................................... 2,189 2,004
Prepaid expenses and other................................... 107 159
------ ------
Total current assets....................................... 3,322 3,770
Property, plant and equipment, net............................. 3,732 3,490
Intangible assets, net......................................... 19 6
------ ------
Total assets................................................... $7,073 $7,266
====== ======
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Current maturities on long-term debt......................... $ 61 $ 61
Accounts payable............................................. 396 443
Employee compensation and benefits........................... 709 755
Other accrued liabilities.................................... 67 136
Accrued interest............................................. 49 72
Due to related parties....................................... 209 35
Income taxes payable......................................... 3 244
------ ------
Total current liabilities.................................. 1,494 1,746
Long-term debt, net of current maturities...................... 1,379 1,320
------ ------
Total liabilities.............................................. 2,873 3,066
------ ------
Owners' equity:
Common stock, 17,500 shares authorized without par value,
2,000 shares issued and 1,970 outstanding with 30 held in
treasury.................................................... 310 310
Additional paid-in capital................................... 172 172
Retained earnings and partners' capital...................... 3,738 3,738
------ ------
4,220 4,220
Less--treasury stock, at cost................................ (20) (20)
------ ------
Total owners' equity....................................... 4,200 4,200
------ ------
Total liabilities and owners' equity........................... $7,073 $7,266
====== ======
</TABLE>
See accompanying notes to financial statements.
F-48
<PAGE>
CUSHMAN MANAGEMENT ASSOCIATES, INC. AND AFFILIATES
COMBINED STATEMENT OF OPERATIONS AND OWNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Total net revenue............................................. $17,993 $19,368
------- -------
Expenses:
Facility operating.......................................... 14,100 14,313
General and administrative.................................. 2,111 2,250
Depreciation and amortization............................... 323 322
------- -------
Total expenses............................................ 16,534 16,885
------- -------
Income from operations........................................ 1,459 2,483
Other:
Interest expense, net....................................... 109 92
------- -------
Income before income taxes.................................... 1,350 2,391
Income taxes.................................................. -- 241
------- -------
Net income.................................................... 1,350 2,150
Owners' equity--beginning of year............................. 4,300 4,200
Less--distributions to owners................................. (1,450) (2,150)
------- -------
Owners' equity--end of year................................... $ 4,200 $ 4,200
======= =======
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE>
CUSHMAN MANAGEMENT ASSOCIATES, INC. AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 1,350 $ 2,150
Adjustments to reconcile net income to net cash provided by
operations:
Depreciation and amortization............................ 323 322
Provisions for losses on accounts receivable............. 47 116
Changes in assets and liabilities:
Accounts receivable...................................... (210) 69
Prepaid expenses and other............................... (13) (52)
Accounts payable and accrued liabilities................. (62) 185
Income taxes payable..................................... -- 241
------- -------
Net cash provided by operating activities.................... 1,435 3,031
------- -------
Cash flows from investing activities:
Proceeds from sale of property and equipment............... 8 --
Purchases of property and equipment........................ (94) (68)
------- -------
Net cash used by investing activities........................ (86) (68)
------- -------
Cash flows from financing activities:
Repayment of debt.......................................... (55) (59)
Distributions to owners.................................... (1,450) (2,150)
Repayment of related party debt............................ (192) (173)
------- -------
Net cash used by financing activities........................ (1,697) (2,382)
------- -------
Net increase (decrease) in cash.............................. (348) 581
Cash at beginning of year.................................... 1,374 1,026
------- -------
Cash at end of year.......................................... $ 1,026 $ 1,607
======= =======
Supplementary disclosure:
Interest paid.............................................. $ 121 $ 118
======= =======
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE>
CUSHMAN MANAGEMENT ASSOCIATES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
The financial statements presented are the combined financial statements of
Cushman Management Associates, Inc. (the management company), Cedar Glen
Nursing Home, Danvers Twin Oaks Nursing Home, Inc., Saugus Nursing Home, Inc.,
d/b/a Louise Caroline Rehabilitation and Nursing Center, and Evtan Nursing
Home, Inc., d/b/a Maplewood Manor Nursing Home, (collectively, the
"Companies"). The majority stockholders of Cushman Management Associates, Inc.
own a majority interest in the above nursing homes. Cushman Management
Associates, Inc. is a Subchapter S Corporation and operates a management
company in Topsfield, Massachusetts. Cushman Management Associates, Inc.
provides various services to nursing homes including administration,
bookkeeping, and other patient related services. Danvers Twin Oaks Nursing
Home, Inc.; Saugus Nursing Home, Inc., and Evtan Nursing Home, Inc. are
Subchapter S Corporations and operate nursing homes of 101, 80 and 120 beds,
respectively. Cedar Glen Nursing Home is a limited partnership and operates a
100-bed nursing home.
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Companies' significant accounting policies follows:
a) BASIS ON COMBINATION: The combined financial statements include all
the accounts of the above-named entities. All significant intercompany
balances and transactions have been eliminated.
b) PATIENT SERVICE REVENUE: Private patient service revenue is reported
at the estimated net realizable amounts. Third-party payor revenues are
recorded as indicated in Note 2.
c) PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost.
Depreciation of building and improvements is calculated using the straight-
line and accelerated methods over the estimated useful lives that range
from five to forty years. Depreciation of equipment and motor vehicles is
calculated using the straight-line and accelerated methods over the
estimated useful lives that range from three to ten years. Depreciation
charged to operations amounted to $309 and $310 for 1995 and 1996,
respectively.
d) CASH AND CASH EQUIVALENTS: The Companies consider all short-term debt
securities purchased with an original maturity of three months or less to
be cash equivalents.
e) INCOME TAXES: Cushman Management Associates, Inc.; Danvers Twin Oaks
Nursing Home, Inc.; Saugus Nursing Home, Inc.; and Evtan Nursing Home,
Inc.; have elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Under those provisions, the Companies do not pay
federal income taxes on their taxable income. Instead, the stockholders are
liable for individual income taxes on their respective share of the
Companies' taxable income.
As a result of an audit by the Massachusetts Department of Revenue in
1996, the Companies are considered to be engaged in a unitary business and
have exceeded certain gross income limitations for state income tax
purposes. Consequently, the Companies are liable for state corporate income
taxes on its taxable income and were assessed additional state income taxes
for the years 1993 through 1995 which have been recorded in 1996.
No income taxes are payable by or provided for Cedar Glen Nursing Home, a
Limited Partnership. Partners are liable for individual federal and state
income taxes on their respective share of the Partnership's taxable income.
f) INTANGIBLE ASSETS: Intangible assets are stated on the basis of cost
and are amortized on a straight-line basis, over the estimated future
periods to be benefited ranging from 3 to 5 years. Amortization charged to
operations amounted to $14 and $12 for 1995 and 1996, respectively.
g) ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the reporting period. Actual costs could differ from those estimates.
F-51
<PAGE>
CUSHMAN MANAGEMENT ASSOCIATES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
h) PROMOTIONAL ADVERTISING: Promotional advertising costs are expensed as
incurred. Promotional advertising costs charged to operations amounted to
$104 and $72 for 1995 and 1996, respectively.
NOTE 2--PATIENT SERVICE REVENUES FROM THIRD PARTY PAYORS
SUMMARY OF THE PAYMENT ARRANGEMENTS WITH THIRD PARTY PAYORS
MEDICAID--PROSPECTIVE RATE SVSTEM--The Companies receive reimbursement from
the Commonwealth of Massachusetts under the prospective rate of payment system
for the care and services rendered to publicly-aided patients in long-term
care facilities pursuant to regulations promulgated by the Division of Health
Care Finance and Policy (the Division). Under the regulations, the current
year rates are calculated utilizing base year costs adjusted for inflation.
The base year costs are subject to audit which could result in a retroactive
rate adjustment for the current year.
As a result of the audit of prior years' cost reports by the Division, the
Companies have received amended prospective rates for the years 1991 and 1992.
The amended rates resulted in a retroactive adjustment due the Companies of
$133 and $150 for 1991 and 1992, respectively. These settlements have been
received in 1996 and such settlements have been reflected under the caption
"Total Net Revenue" on Exhibit B to the extent not previously reflected.
Management estimates that the Companies have underspent the OBRA component
of the prospective rate during 1991, 1992 and 1993, resulting in a retroactive
adjustment due the Commonwealth of $15, $11 and $14 for 1991, 1992 and 1993,
respectively. These retroactive adjustments have been settled in 1996 and such
settlements have been reflected under the caption "Total Net Revenue" on
Exhibit B to the extent not previously recorded.
MEDICARE--The Companies receive reimbursement for patient care under the
federally sponsored Medicare program through an insurance intermediary. During
the year, an interim rate is assigned based upon the cost experience of a
prior year modified by its current regulations, and the facilities are paid at
this rate during the year. A cost report is filed with, and audited by, the
insurance intermediary. A final rate which may be subject to cost limitations
is then established and final settlement of the difference is called for under
the regulations.
Final settlements have been received through 1994 and such settlements have
been included in the caption "Total Net Revenue" on Exhibit B, to the extent
that they had not been reflected in prior years.
In as much as the final settlement rates for 1995 and 1996 cannot be
determined with sufficient accuracy for proper recording in these financial
statements, the income for these years has been recorded at the interim rate
of payment. The actual amounts will be accrued in the year of settlement.
F-52
<PAGE>
CUSHMAN MANAGEMENT ASSOCIATES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
NOTE 3--ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
BALANCE AT DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Private patients...................................... $ 133 $ 103
Prepaid room and board................................ (12) (11)
Medicare patients..................................... 304 334
Publicly aided patients............................... 1,834 1,648
Managed facilities.................................... 34 5
Allowance for uncollectibles.......................... (104) (75)
----------- -----------
Accounts receivable, net.............................. $ 2,189 $ 2,004
=========== ===========
</TABLE>
Bad debts expense charged to operations amounted to $47 and $116 for 1995
and 1996, respectively.
NOTE 4--RELATED PARTY TRANSACTIONS
The Companies have entered into the following transactions with related
parties:
(a) MANAGEMENT FEES--Danvers Twin Oaks Nursing Home, Inc. recorded
management fees of $47 to an officer and stockholder of Cushman Management
Associates, Inc. for 1996.
(b) Related party loans which have no fixed repayment terms, are as
follows:
<TABLE>
<CAPTION>
BALANCE AT
DECEMBER 31,
INTEREST -------------
RATE 1995 1996
---------- ------ ------
<S> <C> <C> <C>
Due from related parties:
Federal
Officers and stockholders.......................... Funds Rate $ 108 $124
------ ------
Due to related parties:
Officers and stockholders........................ 9% 141 88
Partners......................................... 9% 81 27
Other related parties............................ 9% 95 44
------ ------
Total due to related parties................... 317 159
------ ------
Net due to related parties......................... $ 209 $ 35
====== ======
</TABLE>
Net interest expense incurred on the above related party loans amounted to
$36 and $21 for 1995 and 1996, respectively.
F-53
<PAGE>
CUSHMAN MANAGEMENT ASSOCIATES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
NOTE 5--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are comprised of the following at December 31,
1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Land............................................................ $ 195 $ 195
Building and improvements....................................... 5,490 5,528
Equipment....................................................... 2,658 2,688
Motor vehicles.................................................. 39 39
Construction in process......................................... 5 5
------ ------
8,387 8,455
Less: Accumulated Depreciation.................................. (4,655) (4,965)
------ ------
Property, plant and equipment, net.............................. $3,732 $3,490
====== ======
</TABLE>
The Companies have incurred and capitalized $5 of engineering costs related
to the replacement of two HVAC systems. As of December 31, 1996, no date has
been set for the start of the work on the HVAC systems.
NOTE 6--LONG-TERM DEBT
The Companies are obligated under long-term debt at December 31, 1995 and
1996 as follows:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
9% first mortgage to Salem Five, secured by real estate and
guaranteed by a majority of the shareholders, payable in
monthly payments of $8, including interest with a balloon
payment of all unpaid principal and interest due on October 8,
1999........................................................... $ 811 $ 791
9% 3-year mortgage to Salem Five, due November 17, 1999, secured
by real estate and guaranteed by a majority of the
shareholders, payable in monthly installments of $6 including
interest with a balloon payment due November 17, 1999.......... 387 352
9% 25-year first mortgage to Ipswich Savings Bank, due October
1, 2017, secured by land and buildings of Cushman Management
Associates, Inc., payable in monthly installments of $2
including interest............................................. 242 238
------ ------
Total........................................................... 1,440 1,381
Current maturities.............................................. 61 61
------ ------
Long-term debt, net............................................. $1,379 $1,320
====== ======
</TABLE>
Interest incurred on the above long-term debt amounted to $121 and $119 for
1995 and 1996, respectively.
Following are maturities of long-term debt for each of the next five years:
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
1997..................................................................... $ 61
1998..................................................................... 69
1999..................................................................... 1,027
2000..................................................................... 5
2001..................................................................... 6
</TABLE>
F-54
<PAGE>
CUSHMAN MANAGEMENT ASSOCIATES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
NOTE 7--CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Companies to
concentrations of credit risk consist principally of the following:
a.) CASH: The Companies maintain cash balances in several federally
insured financial institutions in the same geographic area. The cash
exceeding federally insured limits totaled $995 at December 31, 1996. There
may be times during the year when uninsured cash is significantly higher.
b.) ACCOUNTS RECEIVABLE: The Companies extend unsecured credit to their
private patients and patients covered under third-party payor arrangements.
Accounts receivable from private patients and third-party payors totaled
$2,015 at December 31, 1996. See Note (2) and Note (3) for details of
third-party payor arrangements and receivable balances, respectively.
d.) DUE FROM RELATED PARTIES: The Companies extend unsecured credit to
their affiliates and owners. The balance due from related parties totaled
$124 at December 31, 1996. See Note (4) for further details.
NOTE 8--COMMITMENTS AND CONTINGENCIES
a) Pursuant to the Commonwealth of Massachusetts Medical Assistance Program
regulations, the Companies are members of a group of related nursing homes
(the Group) which are considered to be under common ownership. Consequently,
all members of the Group are contingently liable for the recoupments of
liabilities of other members of the Group.
b) A significant portion of the Companies' revenues are derived from
services reimbursable under the Medicaid program, (See Note 2). The base year
costs utilized in calculating the Medicaid prospective rates are subject to
audit which could result in a retroactive rate adjustment for all years in
which that base year's costs are utilized in calculating the prospective rate.
It is not possible at this time to determine whether the Companies will be
audited or if a retroactive rate adjustment would result.
c.) A portion of the Companies' revenues are derived from services under the
Medicare program, (see Note 2). Under this program all cost report years are
subject to audit which could result in a retroactive rate adjustment. It is
not possible at this time to determine whether the Companies will be audited
or if a retroactive rate adjustment will result.
If the Companies' Medicare Fiscal Intermediary were to issue prudent buyer
adjustments for 1996 using the same methodology as applied to 1995, as
detailed in Note 9 (b), this would result in a payable to the Medicare program
of approximately $280. The Companies would vigorously contest any adjustments
made by the fiscal intermediary. In addition, the Companies contract with
outside suppliers of therapy services provides for indemnification to the
Companies in the event that Medicare limits reimbursement to less then cost.
Consequently, no provision has been made to the accompanying financial
statements.
NOTE 9--SUBSEQUENT EVENTS
a.) SALE OF THE NURSING HOMES: In August 1997, the Companies sold their
nursing home property, equipment and operating licenses for $16,450 resulting
in a gain of $11,447. The nursing home companies retained all assets, other
than property and equipment, and all liabilities. In addition, the Management
Companies sold for $100 its contracts with outside nursing facilities.
F-55
<PAGE>
NOTE 9--SUBSEQUENT EVENTS (CONTINUED)
b.) MEDICARE SETTLEMENTS: In 1997, the Companies' Medicare Fiscal
Intermediary issued settlements for 1995, which include a limitation of the
ancillary therapy services to less than cost. These settlements result in a
payable to the Medicare program of approximately $130. The Companies strongly
disagree with these settlements and will vigorously contest these settlements
through the appeal process.
The Companies contract with outside suppliers of therapy services provides
for indemnification to the Companies in the event that Medicare limits
reimbursement to less than the providers cost, consequently, no provision has
been made in the accompanying financial statement for this retroactive
adjustment.
F-56
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Canterbury Care Center, Inc. and Related Companies
We have audited the accompanying combined balance sheets of Canterbury Care
Center, Inc. and Related Companies (all Ohio corporations) as of December 31,
1995 and 1996, and the related combined statements of operations and
accumulated deficit, and cash flows for the years then ended. These combined
financial statements are the responsibility of management. Our responsibility
is to express an opinion on these combined financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
combined financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Canterbury Care
Center, Inc. and Related Companies at December 31, 1995 and 1996, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/S/ Cummins, Krasik & Hohl Co.
Columbus, Ohio
February 13, 1997
F-57
<PAGE>
CANTERBURY CARE CENTER, INC. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Assets whose use is limited (note C)................. $ 147,499 $ 153,989
Accounts receivable, less allowance for doubtful
accounts
(notes B2 and B3)................................... 1,137,395 1,180,625
Cost settlements (note I)............................ 21,158 208,371
Inventories (note B4)................................ 13,303 13,303
Prepaid expenses..................................... 74,888 70,397
----------- -----------
Total current assets............................... 1,394,243 1,626,685
----------- -----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation
and amortization (notes B5, D, F, and G).............. 12,696,087 12,279,304
OTHER ASSETS
Related-party receivable (note H).................... -- 78,661
Deferred costs, less accumulated amortization of
$168,999 in 1995 and $286,290 in 1996 (note B6)..... 417,327 300,036
Deposits............................................. 3,115 3,115
----------- -----------
420,442 381,812
----------- -----------
$14,510,772 $14,287,801
=========== ===========
</TABLE>
See accompanying notes and independent auditors' report.
F-58
<PAGE>
CANTERBURY CARE CENTER, INC. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Note payable--bank (note F).......................... $ 4,678,426 $ 2,145,466
Current portion of long-term debt.................... 415,000 415,000
Cash overdraft (notes B1 and G)...................... 1,774,669 118,411
Accounts payable
Trade.............................................. 231,987 238,993
Other (note K)..................................... 531,853 531,853
Accrued liabilities (note E)......................... 990,858 948,503
Resident deposits (note C)........................... 30,334 34,894
Note payable--shareholder (note H)................... 42,923 --
Unearned rentals..................................... 8,564 83,733
----------- -----------
Total current liabilities........................ 8,704,614 4,516,853
----------- -----------
LONG-TERM OBLIGATIONS--net of current portion
Related-party advances (note H)...................... 963,581 3,763,581
Related-party loan (note H).......................... -- 1,200,000
Long-term debt (note G).............................. 5,134,819 4,719,800
Resident security deposits........................... 92,868 97,891
----------- -----------
6,191,268 9,781,272
----------- -----------
CONTINGENCIES (notes I and K)........................ -- --
DEFICIT IN STOCKHOLDERS' EQUITY
Common stock, authorized, 2,250 shares without par
value; issued and outstanding, 300 shares......... 1,500 1,500
Additional paid-in capital......................... 528,290 528,290
Accumulated deficit................................ (914,900) (540,114)
----------- -----------
(385,110) (10,324)
----------- -----------
$14,510,772 $14,287,801
=========== ===========
</TABLE>
See accompanying notes and independent auditors' report.
F-59
<PAGE>
CANTERBURY CARE CENTER, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
REVENUES (notes B2 and I)
Resident services (including ancillaries)............
Private............................................. $ 1,083,014 $ 1,370,475
Medicaid............................................ 4,398,685 6,346,204
Medicare............................................ 3,534,951 4,147,267
Assisted living..................................... 1,664,044 2,859,949
Veterans............................................ 26,447 60,856
Hospice............................................. 2,190 99,864
Rentals..............................................
Commercial.......................................... 101,565 90,392
Other services...................................... 70,112 85,795
----------- -----------
10,881,008 15,060,802
Provision for contractual adjustments................ (1,963,054) (2,319,988)
----------- -----------
8,917,954 12,740,814
----------- -----------
COSTS AND EXPENSES
Routine services
Nursing and habilitation............................ 4,011,176 5,605,053
Resident services................................... 581,052 877,698
Dietary............................................. 1,035,811 1,414,273
Property and bed taxes.............................. 158,582 172,503
Utilities........................................... 343,463 380,477
General and administrative........................... 1,881,814 2,418,086
Depreciation and amortization (notes B5 and B6)...... 678,190 677,574
Interest............................................. 957,901 862,739
----------- -----------
9,647,989 12,408,403
----------- -----------
(Loss) earnings from operations..................... (730,035) 332,411
NON-OPERATING REVENUES................................ 32,132 42,375
----------- -----------
NET (LOSS) EARNINGS................................. (697,903) 374,786
ACCUMULATED DEFICIT
Beginning of year.................................... (216,997) (914,900)
----------- -----------
End of year.......................................... $ (914,900) $ (540,114)
=========== ===========
</TABLE>
See accompanying notes and independent auditors' report.
F-60
<PAGE>
CANTERBURY CARE CENTER, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from:
Residents and third-party payors.................... $ 6,373,809 $ 9,736,885
Rentals............................................. 1,702,540 2,762,860
Other............................................... 102,244 125,903
----------- -----------
8,178,593 12,625,648
Cash paid for:
Salaries............................................ 2,916,108 5,324,584
Payroll taxes and fringe benefits................... 665,018 984,344
Property and income taxes........................... 44,073 197,230
Interest expense.................................... 989,501 824,278
Operating expenses.................................. 4,075,998 4,501,384
----------- -----------
8,690,698 11,831,820
----------- -----------
Net cash (used) provided by operating activities.... (512,105) 793,828
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment additions.................... (253,485) (143,498)
Assets whose use is limited......................... -- (3,170)
----------- -----------
Net cash used by investing activities............... (253,485) (146,668)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of note payable--bank..................... (231,111) (2,532,960)
Repayment of long-term debt......................... (391,521) (415,019)
Repayment of related-party loan..................... -- (42,923)
Proceeds from related-party loan.................... 8,093 4,000,000
----------- -----------
Net cash (used) provided by financing activities.... (614,539) 1,009,098
----------- -----------
(DECREASE) INCREASE IN CASH....................... (1,380,129) 1,656,258
CASH OVERDRAFT
Beginning of year................................... (394,540) (1,774,669)
----------- -----------
End of year......................................... $(1,774,669) $ (118,411)
=========== ===========
RECONCILIATION OF NET (LOSS) EARNINGS TO NET CASH
(USED) PROVIDED BY OPERATIONS
Net (loss) earnings................................. $ (697,903) $ 374,786
Adjustments to reconcile net (loss) earnings to net
cash (used) provided by operating activities
Depreciation and amortization....................... 678,190 677,574
(Increase) decrease in operating assets
Assets whose use is limited........................ (51,572) (2,979)
Accounts receivable................................ (765,573) (43,230)
Cost settlements................................... 15,067 (187,213)
Prepaid expenses................................... (28,662) 4,150
Related-party receivable........................... (10,146) (78,661)
Increase (decrease) in operating liabilities
Accounts payable--trade............................ 39,500 7,004
Accrued liabilities................................ 238,844 (42,355)
Unearned rentals................................... (20,987) 75,169
Resident deposits.................................. 91,137 9,583
----------- -----------
$ (512,105) $ 793,828
=========== ===========
</TABLE>
See accompanying notes and independent auditors' report.
F-61
<PAGE>
CANTERBURY CARE CENTER, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
NOTE A--DESCRIPTION OF BUSINESS
The combined financial statements present the financial position, results of
operations, and cash flows of Canterbury Care Center, and Related Companies
(the Company). The combined financial statements include the accounts of the
following:
1. Canterbury Care Center Inc. (Canterbury), an Ohio S Corporation, acquired
in 1993 and began operating a licensed 100-bed nursing facility (NF).
Canterbury acquired and began operating 20 additional NF beds in 1995, as
well as a 6-bed assisted living unit.
2. GNWT III, Inc., DBA Forest View Nursing Center (Forest View), an Ohio S
Corporation, acquired and renovated an existing building in 1993. Operating
rights for 100 NF beds were acquired and relocated. Operations began in
1994.
3. GNWT, Inc. II, DBA The Laurelwood (Laurelwood), an Ohio S Corporation,
acquired real property in 1992 to develop and operate a 115-unit assisted
living facility. The building also contains 5,016 square feet of commercial
rental space.
Canterbury and Forest View provide services to private residents and have
provider agreements with the Health Care Financing Administration (HCFA) and
the Ohio Department of Human Services (ODHS), to provide care for Medicare and
Medicaid residents, respectively.
All significant intercompany balances and transactions have been eliminated.
The financial statements have been prepared on a combined basis since the
entities are commonly owned and managed.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
preparation of the accompanying financial statements follows:
1. Cash
For purposes of the statements of cash flows, cash includes all of the
Company's checking and savings accounts. Bank accounts are insured by the
Federal Deposit Insurance Corporation up to $100,000. Cash balances
periodically exceed the insured limit.
2. Resident Accounts Receivable and Revenues
Resident accounts receivable and revenues are recorded when services are
provided. The Company provides services to certain of its residents under
contractual arrangements with the Medicare and Medicaid programs. Amounts paid
under these contractual arrangements are subject to review and final
determination by the appropriate government authority or its agent. In the
opinion of management, adequate provision has been made in the combined
financial statements for any adjustments resulting from the respective
government authority's review (see note I).
F-62
<PAGE>
CANTERBURY CARE CENTER, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
Contractual adjustments for the Medicare and Medicaid programs are
recognized when the related revenues are reported in the financial statements.
These contractual adjustments represent the difference between established
rates and the amounts estimated to be reimbursable by Medicare and Medicaid.
Differences between these estimates and amounts subsequently determined are
recorded as additions to or deductions from contractual adjustments in the
period such determination is made. Accounts receivable are unsecured.
3. Allowance for Doubtful Accounts
Bad debts are provided for on the reserve method based on management's
evaluation of accounts receivable at year end. Following is a summary of the
allowance for doubtful accounts at December 31:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Canterbury................................................... $40,000 $60,000
Forest View.................................................. 12,000 30,000
Laurelwood................................................... -- --
------- -------
$52,000 $90,000
======= =======
</TABLE>
4. Inventories
Inventories are stated at lower of cost (determined by the first-in, first-
out method) or market. Inventories consist of nonperishable food and kitchen
supplies, nursing supplies, a base stock of linens, and other miscellaneous
supplies.
5. Property and equipment
Property and equipment is stated at cost. Depreciation is provided for using
the straight-line and the double-declining balance methods over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Building.......................................................... 40 years
Furniture and equipment........................................... 7-10 years
Land improvements................................................. 15 years
Capitalized interest.............................................. 28 years
Motor vehicle..................................................... 3 years
</TABLE>
6. Deferred costs and expenses
Costs of obtaining long-term financing are deferred and amortized over the
term of the related debt on the straight-line method.
7. Income taxes
The federal and state taxable income of Canterbury, Forest View, and
Laurelwood, all of which are S Corporations, is includable in the
shareholders' income tax returns. Accordingly, no provision for income taxes
has been reflected in the combined financial statements.
8. Use of Management's Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets
F-63
<PAGE>
CANTERBURY CARE CENTER, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
and liabilities, disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenue and expense
during the reporting period. Actual results could differ from these estimates.
9. Reclassification
Certain 1995 amounts have been reclassified to conform to the 1996
presentation.
NOTE C--ASSETS WHOSE USE IS LIMITED
Assets whose use is limited consists of cash held in debt service funds
established under terms of financing agreements (see note G). Canterbury and
Forest View also maintain checking accounts for the purpose of holding patient
fund deposits. Canterbury and Forest View are restricted from using this cash
for operations. A corresponding liability is recorded in current liabilities.
NOTE D--PROPERTY AND EQUIPMENT
Following is a summary of property and equipment--at cost, less accumulated
depreciation and amortization at December 31:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Land and improvements............................. $ 946,813 $ 946,813
Building and improvements......................... 10,949,532 10,961,056
Capitalized interest.............................. 254,381 254,381
Furniture and equipment........................... 1,347,265 1,479,238
Motor vehicle..................................... 15,750 15,750
----------- -----------
13,513,741 13,657,238
Less: accumulated depreciation and amortization... (817,654) (1,377,934)
----------- -----------
$12,696,087 $12,279,304
=========== ===========
</TABLE>
NOTE E--ACCRUED LIABILITIES
Following is a summary of accrued liabilities at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Salaries and wages........................................ $294,432 $355,714
Management fees (note G).................................. 250,620 46,350
Payroll taxes and fringes................................. 149,524 189,037
Property taxes............................................ 220,267 199,123
Other..................................................... 76,015 158,279
-------- --------
$990,858 $948,503
======== ========
</TABLE>
NOTE F--NOTE PAYABLE--BANK
Note payable--bank consists of a construction note, payable in monthly
installments of $15,000, plus interest at 8.70% through December 1997. The
note is secured by an Open-End Mortgage, Assignments of Leases and Rents, and
a security interest in all assets of Laurelwood and Forest View (see note G).
F-64
<PAGE>
CANTERBURY CARE CENTER, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
NOTE G--LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
CANTERBURY
Variable Rate Taxable Demand Notes, Series 1993.... $3,030,019 $2,795,000
FOREST VIEW
Variable Rate Taxable Demand Notes, Series 1994.... 2,519,800 2,339,800
---------- ----------
5,549,819 5,134,800
Less: current portion................................ (415,000) (415,000)
---------- ----------
$5,134,819 $4,719,800
========== ==========
</TABLE>
Following are the principal maturities of long-term debt at December 31,
1996:
<TABLE>
<S> <C>
1997........................................................... $ 415,000
1998........................................................... 415,000
1999........................................................... 415,000
2000........................................................... 415,000
2001........................................................... 415,000
Thereafter..................................................... 3,059,800
----------
$5,134,800
==========
</TABLE>
The Variable Rate Taxable Demand Notes, Series 1993 (the Canterbury notes)
and the Variable Rate Taxable Demand Notes, Series 1994 (the Forest View
notes) are secured by irrevocable letters-of-credit from a bank. To obtain the
letters-of-credit, Canterbury and Forest View each granted the bank Open-End
Mortgages, Assignments of Leases and Rents, and security interests in their
personal property. In addition, Centurion Management Group, Inc. pledged its
accounts receivable and equipment. The shareholders of Canterbury and Forest
View are personal guarantors of the letters-of-credit and have pledged their
stock as additional collateral.
The notes are subject to annual redemptions pursuant to mandatory sinking
fund provisions. In addition, the notes are subject to early redemption at the
option of Canterbury or Forest View. Certain of the early redemption options
require payment of redemption premiums over and above the face values of the
notes.
The Canterbury and Forest View letters-of-credit expire on September 30,
1998, and November 30, 1999, respectively. The notes are subject to mandatory
redemption, at face value, if an extension or alternative letters-of-credit
are not in place at that time.
The notes bear interest initially at a variable rate based on the fair
market value of similar issues as determined by the remarketing agent. The
notes can be converted to a fixed rate at the option of Canterbury or Forest
View. The interest rates on the Canterbury notes were 6.10% and 6.03%, and on
the Forest View notes were 6.10% and 6.00%, at December 31, 1995 and 1996,
respectively. Additionally, Canterbury and Forest View pay the bank annual
line-of-credit fees in the amount of 1.5% and 1.25%, respectively.
The letter-of-credit agreements relating to these notes contain various
covenants pertaining to tangible net worth, cash flow coverage, and fixed
charge coverage ratios. Canterbury and Forest View were in compliance with
these covenants at December 31, 1996.
F-65
<PAGE>
CANTERBURY CARE CENTER, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
NOTE H--RELATED-PARTY TRANSACTIONS
The following summarizes related-party transactions as of December 31, 1995
and 1996:
1. Certain of the Company's operating cash accounts are combined with the
cash of other related companies in a cash concentration account. The
purpose of the concentration account is to invest the combined excess
cash in overnight repurchase agreements with a bank. Following is a
summary of the reconciled balances (overdrafts) of the participating
companies and in total at December 31:
<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
GNWT, Inc., DBA Wood Glen Care Center............. $ 314,667 $(1,527,164)
Laurelwood........................................ (299,450) 168,097
Forest View....................................... (761,984) 484,625
Centurion Management Group, Inc................... (297,583) 269,723
Health Care Strategies, Inc., DBA The Riverside... 818,896 2,044,228
Nursing Professionals, Inc........................ 316,588 369,222
GAN Enterprises................................... (209,387) (264,349)
Centurion Medical Supplies, Inc................... 196,762 199,655
Canterbury........................................ (755,119) (822,911)
Four Winds........................................ -- 140,513
GNWT Enterprises.................................. -- (91)
The Colonnades.................................... -- (1,104,306)
--------- -----------
$(676,610) $ (42,758)
========= ===========
</TABLE>
The participating companies receive or pay interest on their share of
the concentration account balance. Canterbury, Forest View, and
Laurelwood have other cash accounts as follows at December 31:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Canterbury................................................. $ 1,591 $11,000
Forest View................................................ 39,393 40,278
Laurelwood................................................. 900 500
------- -------
$41,884 $51,778
======= =======
</TABLE>
The combined balance sheets reflect the totals of the concentration
account and other cash account balances.
2. The Company is managed by Centurion Management Group (Centurion). The
principal shareholder of the Company is the principal shareholder of
Centurion. Management fees were $448,009 and $643,024, for 1995 and
1996, respectively.
3. The Company leases employees from Nursing Professionals, Inc. (NPI). The
principal shareholder of the Company owns NPI. There is no intercompany
or related-party profit as a result of this arrangement. Total leased
employee expense for 1995 and 1996, was $1,471,689 and $2,033,127,
respectively.
4. Canterbury purchases enteral and urological supplies from Centurion
Medical Supplies, Inc. (CMS), which is wholly-owned by the Company's
principal shareholder. Enteral and urological supplies purchased from
CMS for 1995 and 1996, were $4,256 and $0, respectively. At December 31,
1996, Canterbury had a long-term receivable from CMS of $78,661.
F-66
<PAGE>
CANTERBURY CARE CENTER, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
5. Note payable--shareholder represents the cost incurred personally by one
of the shareholders to obtain the operating rights for Forest View. The
note was repaid in 1996. The note had no stated interest rate and none
was paid and charged to operations.
6. Related-party advances totaling $963,581 and $3,763,581, at December 31,
1995 and 1996, respectively, represent amounts advanced by GNWT, Inc.,
DBA Wood Glen Nursing Center (Wood Glen) to Forest View and Laurelwood.
These advances are related to the cost of financing and constructing
each of the facilities plus ongoing working capital needs. These
advances have no repayment terms and management does not anticipate any
repayment within the next year. When repayment begins, Laurelwood will
pay interest at 8.7%.
7. Wood Glen also loaned Forest View $1,200,000 in 1996 to be used to fund
operating activities. Terms of the loan included monthly payments of
interest only at 8.7%. No principal payments were made in 1996 and none
are anticipated within the next year.
NOTE I--THIRD-PARTY REIMBURSEMENT
1. Medicare
Under the Medicare program, Canterbury and Forest View (beginning in 1994)
are entitled to reimbursement which approximates the lower of cost (as
defined by the program) or charges for caring for its Medicare residents.
Following is a summary by year of Canterbury's and Forest View's Medicare
reimbursement settlement status:
a. 1993
Canterbury received a 1993 Notice of Provider Reimbursement (NPR) and
corresponding audit report from the fiscal intermediary (FI) in 1995.
The NPR reflected a final settlement amount due to the Medicare program
of $7,103 which the FI recovered in 1995. Management contested the
final settlement amount and recorded $7,103 as a cost settlement
receivable at December 31, 1995. During 1996, management was precluded
from pursuing this issue by Medicare rules. The $7,103 is included in
the 1996 provision for contractual adjustments.
b. 1994
Canterbury's 1994 Medicare Cost Report reflected a balance due from the
program of $38,901. A tentative settlement of $33,000 was received in
1995. Management estimated an additional $1,000 was due from the
program and was recorded as a cost settlement receivable at December
31, 1995. The tentative settlement plus the estimated receivable
(totaling $34,000) was included in the 1995 provision for contractual
adjustments. During 1996, the FI issued a 1995 NPR with a final
settlement amount of $2,754 due to the Medicare program. The total
settlement impact of $3,754 is included in the 1996 provision for
contractual adjustments.
Forest View filed a 1994 Medicare Cost Report during 1995. There was no
material amount due to or from the program.
F-67
<PAGE>
CANTERBURY CARE CENTER, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
c. 1995
For Canterbury, management estimated that $5,900 was due from the
program and was recorded as a cost settlement receivable at December
31, 1995. During 1996, the FI issued a 1995 NPR which indicated a final
settlement amount of $15,894 due to the program. Management filed a
Routine Cost Limitation (RCL) Exception Request in 1996. Management
anticipates approval of the RCL Exception Request in 1997, and
estimates that $76,825 is due from the program. A cost settlement
receivable of $60,931, the net of the $15,894 due to the program, and
the $76,825 due from the program is recorded at December 31, 1996, and
included in the 1996 provision for contractual adjustments.
For Forest View, management estimated that $7,482 was due from the
program at December 31, 1995, and was recorded as a cost settlement
receivable and included in the 1995 provision for contractual
adjustments. Before the cost report was filed, Forest View received
payments for 1995 Medicare days at a higher per diem rate which reduced
the cost settlement to zero. Forest View filed a 1995 Medicare Cost
Report which reflected an amount due to the Medicare program of
$39,426. This amount was repaid during 1996 and is included in the 1996
provision for contractual adjustments. Management estimates no material
amount due to or from the Medicare program at final settlement for this
period.
d. 1996
Canterbury will file a 1996 Medicare Cost Report in 1997. Management
anticipates filing an RCL Exception Request in 1997, and estimates that
the Medicare program owes Canterbury $138,461. This amount is recorded
as a cost settlement receivable at December 31, 1996, and is included
in the 1996 provision for contractual adjustments.
Forest View will file a 1996 Medicare Cost Report in 1997. Management
estimates that $34,049 is due from the Medicare program. This amount is
recorded as a cost settlement receivable at December 31, 1996, and is
included in the 1996 provision for contractual adjustments.
The FI has the opportunity to audit the 1996 cost report and propose
adjustments to the amount of reimbursable cost. Management believes that there
will not be a significant impact on the financial statements as a result of
the intermediary's audit of the 1996 Medicare Cost Reports.
2. Medicaid
Since July 1, 1993, Medicaid payments are calculated and paid under a
prospective reimbursement system. Payment rates are based on actual cost
limited by certain ceilings, adjusted by a resident acuity factor, and
updated for inflation. While interim rates are subject to reconsideration
and appeal, once this process is completed, they are not subject to
subsequent retroactive adjustment. The direct care portion of the rate can
be adjusted prospectively for changes in acuity. Accordingly, there are no
cost settlements for rate adjustments under this system.
a. Fiscal Year 1994
In 1996, The Ohio Department of Human Services (ODHS) issued a fiscal
year 1994 (FY94) Rate Recalculation final settlement for Canterbury
which reflected no amount due to or from the Medicaid program.
Management executed a waiver and this period was adjudicated by the
ODHS.
F-68
<PAGE>
CANTERBURY CARE CENTER, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
b. Fiscal Year 1995
In 1996, the ODHS issued a fiscal year 1995 (FY95) Rate Recalculation
final settlement for Canterbury which reflected no amount due to or
from the Medicaid program. Management executed a waiver and this period
was adjudicated by the ODHS.
Forest View began participating in the Ohio Medicaid program in
December 1994. Payments covering this date through June 30, 1995, were
used in the final settlement rate calculation issued in December 1996.
The final settlement reflected no amount due to or from the Medicaid
program. Management executed a waiver and this period was adjudicated
by the ODHS.
c. Fiscal Year 1996
In 1996, the ODHS paid Forest View for an individual who was no longer
a resident at the facility. At December 31, 1996, Forest View recorded
a liability to the ODHS of $25,070.
Following is a summary of the net cost settlement receivables at December
31:
<TABLE>
<CAPTION>
RECEIVABLE (PAYABLE)
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Medicare
1993............................................. $ 7,103 $ --
1994............................................. 1,000 --
1995............................................. 13,382 60,931
1996............................................. -- 172,510
--------- ----------
Total Medicare................................. 21,485 233,441
Medicaid
FY97............................................. -- (25,070)
Prior 1995....................................... (327) --
--------- ----------
Total Medicaid................................. (327) (25,070)
--------- ----------
Total cost settlements......................... $ 21,158 $ 208,371
========= ==========
</TABLE>
NOTE J--RETIREMENT PLAN
The Company sponsors a defined contribution pension plan under Section
401(k) of the Internal Revenue Code. The plan covers all employees who meet
certain eligibility requirements. Matching contributions are established each
year and are allocated based on employee contributions. During 1995 and 1996,
contributions of $6,000 and $23,841 respectively, were charged to operations.
NOTE K--LOSS CONTINGENCY
Laurelwood filed a lawsuit against Wilcon Corporation (Wilcon) and certain
of its principals in connection with construction of the facility. The suit
alleges breach of contract and various other torts and seeks damages in excess
of $1,000,000.
Wilcon has countersued and is seeking $1,000,000 in compensatory damages and
a claim for punitive damages. Laurelwood has withheld payment of certain
construction draws pending outcome
F-69
<PAGE>
CANTERBURY CARE CENTER, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
of the litigation. In addition, the bank has postponed conversion of the
construction financing to a permanent note until the litigation is resolved.
The amount recorded is management's estimate of the amount due Wilcon.
NOTE L--EVENT SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT AUDITORS
On August 1, 1997, the Company's assets were sold to an unrelated entity.
There was no loss incurred on these sales.
F-70
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ALL TENDERED OLD SECURITIES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RE-
LATED DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND RE-
QUESTS FOR ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE
LETTER OF TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE
EXCHANGE AGENT AS FOLLOWS:
BY FACSIMILE:
(212) 780-0592
Attention: Customer Service
Confirm by telephone: (800) 548-6565
(Originals of all documents submitted by facsimile
should be sent promptly by hand,
overnight courier, or registered or certified mail)
BY MAIL:
United States Trust Company of New York
P.O. Box 843
Cooper Station
New York, New York 10276
Attention: Corporate Trust Services
BY HAND BEFORE 4:30 P.M.:
United States Trust Company of New York
111 Broadway
New York, New York 10006
Attention: Lower Level Corporate Trust Window
BY OVERNIGHT COURIER AND BY HAND AFTER
4:30 P.M. ON THE EXPIRATION DATE ONLY:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
NO BROKER, DEALER OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFER
MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CON-
TAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESEN-
TATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY NOR DOES IT CON-
STITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECU-
RITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CRE-
ATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL JANUARY 26, 1999, ALL DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER
A PROSPECTUS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[Logo of HARBORSIDE Healthcare Corporation]
OFFER FOR OUTSTANDING
11% SENIOR SUBORDINATED
DISCOUNT NOTES DUE 2008
IN EXCHANGE FOR
NEW 11% SENIOR SUBORDINATED
DISCOUNT NOTES DUE 2008
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
AND FOR OUTSTANDING SHARES OF
13 1/2% EXCHANGEABLE PREFERRED STOCK
MANDATORILY REDEEMABLE 2010
IN EXCHANGE FOR
NEW SHARES OF
13 1/2% EXCHANGEABLE PREFERRED STOCK
MANDATORILY REDEEMABLE 2010
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
---------------
PROSPECTUS
---------------
OCTOBER 28, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
permits a provision in the certificate of incorporation of each corporation
organized thereunder, eliminating or limiting, with certain exceptions, the
personal liability of a director to the corporation or its stockholders for
monetary damages for certain breaches of fiduciary duty as a director. The
Certificate of Incorporation of the registrant eliminates the personal
liability of directors to the fullest extent permitted by the DGCL.
Section 145 of the DGCL ("Section 145"), in summary, empowers a Delaware
corporation, within certain limitations, to indemnify its officers, directors,
employees and agents against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, actually and reasonably incurred by them
in connection with any suit or proceeding other than by or on behalf of the
corporation, if they acted in good faith and in a manner reasonably believed
to be in or not opposed to the best interest of the corporation, and, with
respect to a criminal action or proceeding, had no reasonable cause to believe
their conduct was unlawful.
With respect to actions by or on behalf of the corporation, Section 145
permits a corporation to indemnify its officers, directors, employees and
agents against expenses (including attorneys' fees) actually and reasonably
incurred in connection with the defense or settlement of such action or suit,
provided such person meets the standard of conduct described in the preceding
paragraph, except that no indemnification is permitted in respect of any claim
where such person has been found liable to the corporation, unless the Court
of Chancery or the court in which such action or suit was brought approves
such indemnification and determines that such person is fairly and reasonably
entitled to be indemnified.
Article VII of the Restated Certificate of Incorporation of the registrant
provides for the indemnification of officers and directors and certain other
parties (the "Indemnitees") of the registrant to the fullest extent permitted
under the DGCL.
The registrant maintains officers' and directors' insurance covering certain
liabilities that may be incurred by officers and directors in the performance
of their duties. Pursuant to the Merger Agreement, the Issuer has agreed that
for six years after the Effective Time it will indemnify all current and
former directors, officers, employees and agents of the registrant and will,
subject to certain limitations, maintain for six years a directors' and
officers' insurance and indemnification policy containing terms and conditions
that are not less advantageous than the policy in effect on the date of the
Merger Agreement.
Each of the employment agreements described in the Prospectus under the
caption "Management--Employment Agreements" contains provisions entitling the
executive to indemnification for losses incurred in the course of service to
the Issuer or its subsidiaries, under certain circumstances.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
See the Exhibit Index included immediately preceding the exhibits to this
Registration Statement.
ITEM 22. UNDERTAKINGS.
(a) The Issuer undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement (i) to include any
prospectus required by Section
II-1
<PAGE>
10(a)(3) of the Securities Act of 1933, as amended; (ii) to reflect in the
prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment will be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time will be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The Issuer undertakes to supply by means of a post-effective amendment
all information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the Registration
Statement when it became effective.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(d) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE HEALTHCARE CORPORATION
By: /s/ William H. Stephan
____________________________
William H. Stephan
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
--------- -----
*
- -------------------------------------- Director
Savio W. Tung
*
- -------------------------------------- Director
Christopher J. O'Brien
*
- -------------------------------------- Director
Charles J. Philippin
- -------------------------------------- Director
Christopher J. Stadler
*
- -------------------------------------- Chairman of the Board, President,
Stephen L. Guillard Chief Executive Officer and Director
(Principal Executive Officer)
*
- -------------------------------------- Executive Vice President of
Damian N. Dell'Anno Operations and Director
/s/ William H. Stephan
- -------------------------------------- Senior Vice President, Chief
William H. Stephan Financial Officer and Director
(Principal Financial and Accounting
Officer)
*By: /s/ William H. Stephan
- --------------------------------------
William H. Stephan
Attorney-in-Fact
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE HEALTHCARE LIMITED
PARTNERSHIP
By: KHI CORP., as General Partner
/s/ William H. Stephan
By: ________________________________
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
--------- -----
*
- -------------------------------------- Director
Christopher J. O'Brien
*
- -------------------------------------- Director
Charles J. Philippin
* President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
*By: /s/ William H. Stephan
- --------------------------------------
William H. Stephan
Attorney-in-Fact
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE HEALTHCARE ADVISORS
LIMITED PARTNERSHIP
By: KHI CORP., as General Partner
/s/ William H. Stephan
By: ________________________________
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
SIGNATURE TITLE
--------- -----
*
- -------------------------------------- Director
Christopher J. O'Brien
*
- -------------------------------------- Director
Charles J. Philippin
* President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
*By: /s/ William H. Stephan
- --------------------------------------
William H. Stephan
Attorney-in-Fact
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE HOMECARE LIMITED
PARTNERSHIP
By: KHI CORP., as General Partner
/s/ William H. Stephan
By: ________________________________
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
--------- -----
*
- -------------------------------------- Director
Christopher J. O'Brien
*
- -------------------------------------- Director
Charles J. Philippin
* President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
*By: /s/ William H. Stephan
- --------------------------------------
William H. Stephan
Attorney-in-Fact
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
RIVERSIDE RETIREMENT LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ William H. Stephan
By: ________________________________
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
--------- -----
*
- -------------------------------------- Director
Christopher J. O'Brien
*
- -------------------------------------- Director
Charles J. Philippin
* President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
*By: /s/ William H. Stephan
- --------------------------------------
William H. Stephan
Attorney-in-Fact
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE CONNECTICUT LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ William H. Stephan
By: ________________________________
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
--------- -----
*
- -------------------------------------- Director
Christopher J. O'Brien
*
- -------------------------------------- Director
Charles J. Philippin
* President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
*By: /s/ William H. Stephan
- --------------------------------------
William H. Stephan
Attorney-in-Fact
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE OF FLORIDA LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ William H. Stephan
By: ________________________________
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
--------- -----
*
- -------------------------------------- Director
Christopher J. O'Brien
*
- -------------------------------------- Director
Charles J. Philippin
* President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
*By: /s/ William H. Stephan
- --------------------------------------
William H. Stephan
Attorney-in-Fact
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE OF OHIO LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ William H. Stephan
By: ________________________________
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
--------- -----
*
- -------------------------------------- Director
Christopher J. O'Brien
*
- -------------------------------------- Director
Charles J. Philippin
* President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
*By: /s/ William H. Stephan
- --------------------------------------
William H. Stephan
Attorney-in-Fact
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE HEALTHCARE BALTIMORE
LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ William H. Stephan
By: ________________________________
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
--------- -----
*
- -------------------------------------- Director
Christopher J. O'Brien
*
- -------------------------------------- Director
Charles J. Philippin
* President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
/s/ William H. Stephan
*By: ____________________________
William H. Stephan
Attorney-in-Fact
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE OF CLEVELAND LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ William H. Stephan
By: ________________________________
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
--------- -----
*
- -------------------------------------- Director
Christopher J. O'Brien
*
- -------------------------------------- Director
Charles J. Philippin
* President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
/s/ William H. Stephan
*By: ___________________________
William H. Stephan
Attorney-in-Fact
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE OF DAYTON LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ William H. Stephan
By: ________________________________
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
--------- -----
Director
*
- --------------------------------------
Christopher J. O'Brien
Director
*
- --------------------------------------
Charles J. Philippin
President and Director (Principal
* Executive Officer)
- --------------------------------------
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
/s/ William H. Stephan
*By: ___________________________
William H. Stephan
Attorney-in-Fact
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE MASSACHUSETTS LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ William H. Stephan
By: ________________________________
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
--------- -----
*
- -------------------------------------- Director
Christopher J. O'Brien
*
- -------------------------------------- Director
Charles J. Philippin
* President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
/s/ William H. Stephan
*By: ___________________________
William H. Stephan
Attorney-in-Fact
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE RHODE ISLAND LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ William H. Stephan
By: ________________________________
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
--------- -----
Director
*
- --------------------------------------
Christopher J. O'Brien
Director
*
- --------------------------------------
Charles J. Philippin
President and Director (Principal
* Executive Officer)
- --------------------------------------
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
/s/ William H. Stephan
*By: ___________________________
William H. Stephan
Attorney-in-Fact
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE NORTH TOLEDO LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ William H. Stephan
By: ________________________________
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
--------- -----
*
- -------------------------------------- Director
Christopher J. O'Brien
*
- -------------------------------------- Director
Charles J. Philippin
*
- -------------------------------------- President and Director (Principal
Stephen L. Guillard Executive Officer)
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
/s/ William H. Stephan
*By: ___________________________
William H. Stephan
Attorney-in-Fact
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE DANBURY LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ William H. Stephan
By: ________________________________
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
--------- -----
*
- -------------------------------------- Director
Christopher J. O'Brien
*
- -------------------------------------- Director
Charles J. Philippin
*
- -------------------------------------- President and Director (Principal
Stephen L. Guillard Executive Officer)
/s/ William H. Stephan
- -------------------------------------- Treasurer (Principal Financial and
William H. Stephan Accounting Officer)
/s/ William H. Stephan
*By: ____________________________
William H. Stephan
Attorney-in-Fact
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP V
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ William H. Stephan
By: ________________________________
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
--------- -----
*
- -------------------------------------- Director
Christopher J. O'Brien
*
- -------------------------------------- Director
Charles J. Philippin
*
- -------------------------------------- President and Director (Principal
Stephen L. Guillard Executive Officer)
/s/ William H. Stephan
- -------------------------------------- Treasurer (Principal Financial and
William H. Stephan Accounting Officer)
/s/ William H. Stephan
*By: ____________________________
William H. Stephan
Attorney-in-Fact
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP VI
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ William H. Stephan
By: ________________________________
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
--------- -----
*
- -------------------------------------- Director
Christopher J. O'Brien
*
- -------------------------------------- Director
Charles J. Philippin
*
- -------------------------------------- President and Director (Principal
Stephen L. Guillard Executive Officer)
/s/ William H. Stephan
- -------------------------------------- Treasurer (Principal Financial and
William H. Stephan Accounting Officer)
/s/ William H. Stephan
*By: ____________________________
William H. Stephan
Attorney-in-Fact
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP VII
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
- --------- -----
*
- ------------------------------------- Director
Christopher J. O'Brien
*
- ------------------------------------- Director
Charles J. Philippin
*
- ------------------------------------- President and Director (Principal
Stephen L. Guillard Executive Director)
/s/ William H. Stephan
- ------------------------------------- Treasurer (Principal Financial and
William H. Stephan Accounting Officer)
/s/ William H. Stephan
*By: ____________________________
William H. Stephan
Attorney-in-Fact
II-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP VIII
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
- --------- -----
*
- ------------------------------------- Director
Christopher J. O'Brien
*
- ------------------------------------- Director
Charles J. Philippin
*
- ------------------------------------- President and Director (Principal
Stephen L. Guillard Executive Officer)
/s/ William H. Stephan
- ------------------------------------- Treasurer (Principal Financial and
William H. Stephan Accounting Officer)
/s/ William H. Stephan
*By: ____________________________
William H. Stephan
Attorney-in-Fact
II-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP IX
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
- --------- -----
*
- ------------------------------------- Director
Christopher J. O'Brien
*
- ------------------------------------- Director
Charles J. Philippin
*
- ------------------------------------- President and Director (Principal
Stephen L. Guillard Executive Officer)
/s/ William H. Stephan
- ------------------------------------- Treasurer (Principal Financial and
William H. Stephan Accounting Officer)
/s/ William H. Stephan
*By: ____________________________
William H. Stephan
Attorney-in-Fact
II-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP X
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
- --------- -----
*
- ------------------------------------- Director
Christopher J. O'Brien
*
- ------------------------------------- Director
Charles J. Philippin
*
- ------------------------------------- President and Director (Principal
Stephen L. Guillard Executive Officer)
/s/ William H. Stephan
- ------------------------------------- Treasurer (Principal Financial and
William H. Stephan Accounting Officer)
*By: /s/ William H. Stephan
--------------------------------
William H. Stephan
Attorney-in-Fact
II-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE REHABILITATION LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
- --------- -----
*
- ------------------------------------- Director
Christopher J. O'Brien
*
- ------------------------------------- Director
Charles J. Philippin
*
- ------------------------------------- President and Director (Principal
Stephen L. Guillard Executive Officer)
/s/ William H. Stephan
- ------------------------------------- Treasurer (Principal Financial and
William H. Stephan Accounting Officer)
*By: /s/ William H. Stephan
--------------------------------
William H. Stephan
Attorney-in-Fact
II-24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE HEALTHCARE NETWORK
LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
- --------- -----
*
- ------------------------------------- Director
Christopher J. O'Brien
*
- ------------------------------------- Director
Charles J. Philippin
*
- ------------------------------------- President and Director (Principal
Stephen L. Guillard Executive Officer)
/s/ William H. Stephan
- ------------------------------------- Treasurer (Principal Financial and
William H. Stephan Accounting Officer)
*By: /s/ William H. Stephan
--------------------------------
William H. Stephan
Attorney-in-Fact
II-25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
BRIDGEWATER ASSISTED LIVING
LIMITED PARTNERSHIP
By: NEW JERSEY HARBORSIDE CORP.,
as General Partner
By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
- --------- -----
*
- ------------------------------------- Director
Christopher J. O'Brien
*
- ------------------------------------- Director
Charles J. Philippin
* President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
*By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Attorney-in-Fact
II-26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE TOLEDO LIMITED
PARTNERSHIP
By: HARBORSIDE TOLEDO CORP.,
as General Partner
By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
- --------- -----
*
- ------------------------------------- Director
Christopher J. O'Brien
*
- ------------------------------------- Director
Charles J. Philippin
* President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
*By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Attorney-in-Fact
II-27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
ORCHARD RIDGE NURSING CENTER
CORPORATION
By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
- --------- -----
*
- ------------------------------------- Director
Christopher J. O'Brien
*
- ------------------------------------- Director
Charles J. Philippin
* President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
*By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Attorney-in-Fact
II-28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
OAKHURST MANOR NURSING CENTER
CORPORATION
By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
- --------- -----
*
- ------------------------------------- Director
Christopher J. O'Brien
*
- ------------------------------------- Director
Charles J. Philippin
* President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
*By: /s/ William H. Stephan
- --------------------------------------
William H. Stephan
Attorney-in-Fact
II-29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE TOLEDO CORPORATION
By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
- --------- -----
*
- ------------------------------------- Director
Christopher J. O'Brien
*
- ------------------------------------- Director
Charles J. Philippin
* President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
*By: /s/ William H. Stephan
- --------------------------------------
William H. Stephan
Attorney-in-Fact
II-30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
KHI CORPORATION
By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
- --------- -----
*
- ------------------------------------- Director
Christopher J. O'Brien
*
- ------------------------------------- Director
Charles J. Philippin
*
- ------------------------------------- President and Director (Principal
Stephen L. Guillard Executive Officer)
/s/ William H. Stephan
- ------------------------------------- Treasurer (Principal Financial and
William H. Stephan Accounting Officer)
*By: /s/ William H. Stephan
--------------------------------
William H. Stephan
Attorney-In-Fact
II-31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
SAILORS, INC.
By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
- --------- -----
*
- ------------------------------------- Director
Christopher J. O'Brien
*
- ------------------------------------- Director
Charles J. Philippin
*
- ------------------------------------- President and Director (Principal
Stephen L. Guillard Executive Officer)
/s/ William H. Stephan
- ------------------------------------- Treasurer (Principal Financial and
William H. Stephan Accounting Officer)
*By: /s/ William H. Stephan
--------------------------------
William H. Stephan
Attorney-in-Fact
II-32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
NEW JERSEY HARBORSIDE CORPORATION
By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
- --------- -----
*
- ------------------------------------- Director
Christopher J. O'Brien
*
- ------------------------------------- Director
Charles J. Philippin
*
- ------------------------------------- President and Director (Principal
Stephen L. Guillard Executive Officer)
/s/ William H. Stephan
- ------------------------------------- Treasurer (Principal Financial and
William H. Stephan Accounting Officer)
*By: /s/ William H. Stephan
--------------------------------
William H. Stephan
Attorney-in-Fact
II-33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
MARYLAND HARBORSIDE CORPORATION
By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
- --------- -----
*
- ------------------------------------- Director
Christopher J. O'Brien
*
- ------------------------------------- Director
Charles J. Philippin
*
- ------------------------------------- President and Director (Principal
Stephen L. Guillard Executive Officer)
/s/ William H. Stephan
- ------------------------------------- Treasurer (Principal Financial and
William H. Stephan Accounting Officer)
*By: /s/ William H. Stephan
--------------------------------
William H. Stephan
Attorney-in-Fact
II-34
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
HARBORSIDE HEALTH I CORPORATION
By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
- --------- -----
*
- ------------------------------------- Director
Christopher J. O'Brien
*
- ------------------------------------- Director
Charles J. Philippin
*
- ------------------------------------- President and Director (Principal
Stephen L. Guillard Executive Officer)
/s/ William H. Stephan
- ------------------------------------- Treasurer (Principal Financial and
William H. Stephan Accounting Officer)
*By: /s/ William H. Stephan
--------------------------------
William H. Stephan
Attorney-In-Fact
II-35
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 27, 1998.
BELMONT NURSING CENTER CORPORATION
By: /s/ William H. Stephan
----------------------------------
William H. Stephan
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
SIGNATURE TITLE
- --------- -----
*
- ------------------------------------- Director
Christopher J. O'Brien
*
- ------------------------------------- Director
Charles J. Philippin
* President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
*By: /s/ William H. Stephan
- --------------------------------------
William H. Stephan
Attorney-In-Fact
II-36
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1++ Placement Agreement, dated July 29, 1998, between the Issuer (as
successor to MergerCo) and the Placement Agents
1.2++ Registration Rights Agreement, dated July 31, 1998, between the Issuer
(as successor to MergerCo) and the Placement Agents, relating to the
Old Notes
1.3++ Registration Rights Agreement, dated July 31, 1998, between the Issuer
(as successor to MergerCo) and the Placement Agents, relating to the
Old Preferred Stock
1.4+ Form of Letter of Transmittal
2.1** Agreement and Plan of Merger dated as of April 15, 1998
2.2** Stockholder Agreement dated as of April 15, 1998
3.1.1+# Amended and Restated Certificate of Incorporation of the Issuer
3.1.2++ Certificate of Designation of the Issuer with respect to the
Exchangeable Preferred Stock
3.1.3** Amended and Restated By-laws of the Issuer
3.2.1+ Form of Certificate of Incorporation of certain registrants, as amended
3.2.2+ Certificate of Incorporation of Sailors, Inc.
3.2.3+ Form A of Articles of Organization, Articles of Amendment and Articles
of Merger of certain registrants
3.2.4+ Form B of Articles of Organization of certain registrants
3.2.5+ Form of First Amendment to and Restatement of Agreement of Limited
Partnership of certain registrants
3.2.6+ Form of Agreement of Limited Partnership of certain registrants
3.2.7+ Amended and Restated Agreement of Limited Partnership of Harborside
Healthcare Limited Partnership, dated as of May 12, 1987, as amended
and restated as of July 1, 1995
3.2.8+ Agreement of Limited Partnership of KHC Partners, Limited Partners,
dated as of May 28, 1987, as amended
3.2.9+ Form A of Certificate of Limited Partnership of certain registrants
3.2.10+ Form B of Certificate of Limited Partnership of certain registrants
3.2.11+ Certificate of Limited Partnership of Bridgewater Assisted Living
Limited Partnership
3.2.12+ First Amendment to and Restatement of Certificate of Limited
Partnership of KHC Partners Limited Partnership (now known as
Harborside Healthcare Advisors Limited Partnership)
3.2.13+ First Amendment to and Restatement of Certificate of Limited
Partnership of Harborside Acquisition Limited Partnership IV (now
known as Harborside Danbury Limited Partnership)
3.2.14+ Certificate of Formation and Agreement of Limited Partnership of
Riverside Retirement Limited Partnership, as amended
3.2.15+ Certificate of Limited Partnership of Harborside Healthcare Limited
Partnership
3.2.16+ Form A of By-laws of certain registrants
3.2.17+ Form B of By-laws of certain registrants
4.1++ Indenture between MergerCo and the Trustee, dated as of July 31, 1998,
with respect to the Notes
4.2++ Supplemental Indenture between the Issuer, the Guarantors and the
Trustee, dated as of August 11, 1998
4.3+# Form of New Note
4.4++ Registration Rights Agreement, dated July 31, 1998, between the Issuer
(as successor to MergerCo) and the Placement Agents, relating to the
Old Notes (filed as Exhibit 1.2)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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<C> <S>
4.5++ Certificate of Designation of the Issuer with respect to the
Exchangeable Preferred Stock (filed as Exhibit 3.1.2)
4.6+ Form of Stock Certificate representing New Preferred Stock
4.7++ Registration Rights Agreement, dated July 31, 1998, between the
Issuer (as successor to MergerCo) and the Placement Agents, relating
to the Old Preferred Stock (filed as Exhibit 1.3)
4.8+ Form of Letter of Transmittal (filed as Exhibit 1.4)
5.1+ Opinion of Gibson, Dunn & Crutcher LLP
5.2+ Opinion of McDermott, Will & Emery as to Massachusetts law matters
5.3+ Opinion of McDermott, Will & Emery as to Florida law matters
5.4+ Opinion of Blank, Rome, Comisky & McCauley LLP as to New Jersey law
matters
10.1(a)* Facility lease Agreement, dated as of December 31, 1995 between
Meditrust Tri-States, Inc. and HHCI Limited Partnership (New Haven
Facility)
10.1(b)* Facility Lease Agreement, dated as of December 31, 1995, between
Meditrust Tri-States, Inc. and HHCI Limited Partnership (Indianapolis
Facility)
10.1(c)* Facility Lease Agreement, dated as of December 31, 1995 between
Meditrust of Ohio, Inc. and HHCI Limited Partnership (Troy Facility)
10.1(d)* Facility Lease Agreement, dated as of December 31, 1995, between
Meditrust of Florida, Inc. and HHCI Limited Partnership (Sarasota
Facility)
10.1(e)* Facility Lease Agreement, dated as of December 31, 1995, between
Meditrust of Florida, Inc. and HHCI Limited Partnership (Pinebrook
Facility)
10.1(f)* Facility Lease Agreement, dated as of December 31, 1995 between
Meditrust of Florida, Inc. and HHCI Limited Partnership (Naples
Facility)
10.1(g)* Facility Lease Agreement, dated as of December 31, 1995 between
Meditrust of New Jersey, Inc. and HHCI Limited Partnership (Woods
Edge Facility)
10.1(h)* First Amendment to Facility Lease Agreement, dated as of May 17,
1996, by and between Meditrust Tri-States, Inc. and HHCI Limited
Partnership (New Haven Facility)
10.1(i)* First Amendment to Facility Lease Agreement, dated as of May 17,
1996, by and between Meditrust Tri-States, Inc. and HHCI Limited
Partnership (Indianapolis Facility)
10.1(j)* First Amendment to Facility Lease Agreement, dated as of May 17,
1996, by and between Meditrust of Ohio, Inc. and HHCI Limited
Partnership (Troy Facility)
10.1(k)* First Amendment to Facility Lease Agreement, dated as of May 17,
1996, by and between Meditrust of Florida, Inc. and HHCI Limited
Partnership (Sarasota Facility)
10.1(l)* First Amendment to Facility Lease Agreement, dated as of May 17,
1996, by and between Meditrust of Florida, Inc. and HHCI Limited
Partnership (Pinbrook Facility)
10.1(m)* First Amendment to Facility Lease Agreement, dated as of May 17,
1996, by and between Meditrust of Florida, Inc. and HHCI Limited
Partnership (Naples Facility)
10.1(n)* First Amendment to Facility Lease Agreement, dated as of May 17,
1996, by and between Meditrust of New Jersey, Inc. and HHCI Limited
Partnership (Woods Edge Facility)
10.2(a)* Loan Agreement among Meditrust Mortgage Investments, Inc. and Bay
Tree Nursing Center Corporation, Belmont Nursing Center Corporation,
Countryside Care Center Corporation, Oakhurst Manor Nursing Center
Corporation, Orchard Ridge Nursing Center Corporation, Sunset Point
Nursing Center Corporation, Weset Bay Nursing Center Corporation and
Harborside Healthcare Limited Partnership, dated October 13, 1994
</TABLE>
2
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<C> <S>
10.2(b)* Guaranty, dated October 14, 1994 to Meditrust Mortgage Investments,
Inc. from Harborside Healthcare Limited Partnership
10.2(c)* Environmental Indemnity Agreement, dated October 13, 1994, by and
among Bay Tree Nursing Center Corporation, Belmont Nursing Center
Corporation, Countryside Care Center Corporation, Oakhurst Manor
Nursing Center Corporation, orchard Ridge Nursing Center
Corporation, Sunset Point Nursing Center Corporation, West Bay
Nursing Center Corporation and Harborside Healthcare Limited
Partnership and Meditrust Mortgage Investments, Inc.
10.2(d)* Consolidated and Renewal Promissory Noted, dated October 13, 1994,
from Bay Tree Nursing Center Corporation, Belmont Nursing Center
Corporation, Countryside Care Center Corporation, Oakhurst Manor
Nursing Center Corporation, orchard Ridge Nursing Center
Corporation, Sunset Point Nursing Center Corporation, West Bay
Nursing Center Corporation and Harborside Healthcare Limited
Partnership and Meditrust Mortgage Investments, Inc.
10.2(e)* Negative Pledge Agreement, dated October 13, 1994, by and among
Douglas Krupp, George Krupp, Bay Tree Nursing Center Corporation,
Belmont Nursing Center Corporation, Countryside Care Center
Corporation, Oakhurst Manor Nursing Center Corporation, orchard
Ridge Nursing Center Corporation, Sunset Point Nursing Center
Corporation, West Bay Nursing Center Corporation and Harborside
Healthcare Limited Partnership and Meditrust Mortgage Investments,
Inc.
10.2(f)* Affiliated Party Subordination Agreement, dated October 13, 1994,
by and among Bay Tree Nursing Center Corporation, Belmont Nursing
Center Corporation, Countryside Care Center Corporation, Oakhurst
Manor Nursing Center Corporation, orchard Ridge Nursing Center
Corporation, Sunset Point Nursing Center Corporation, West Bay
Nursing Center Corporation and Harborside Healthcare Limited
Partnership and Meditrust Mortgage Investments, Inc.
10.2(g)* First Amendment to Loan Agreement, dated May 17, 1996 by and among
Meditrust Mortgage Investments, Inc. and Bay Tree Nursing Center
Corporation, Belmont Nursing Center Corporation, Countryside Care
Center Corporation, Oakhurst Manor Nursing Center Corporation,
orchard Ridge Nursing Center Corporation, Sunset Point Nursing
Center Corporation, West Bay Nursing Center Corporation and
Harborside Healthcare Limited Partnership
10.2(h)* Credit Agreement, dated as of April 14, 1997, among Harborside
Healthcare Corporation and the other Borrowers specified therein,
the Lenders party thereto and the Chase Manhattan Bank, as
Administrative Agent
10.2(i)*** First Amendment to Revolving Credit Agreement among Harborside
Healthcare and other borrowers specified therein, the Lenders party
thereto and Chase Manhattan Bank, Administrative Agent, dated as of
August 1, 1997
10.2(j)*** Second Amendment to Revolving Credit Agreement among Harborside
Healthcare and other borrowers specified therein, the Lenders party
thereto and Chase Manhattan Bank, Administrative Agent, dated as of
August 28, 1997
10.3(a)* Facility Lease Agreement, dated as of January 1, 1996 between
Meditrust of New Hampshire Inc. and Harborside New Hampshire
Limited Partnership (Westwood Facility)
10.3(b)* Facility Lease Agreement, dated as of January 1, 1996 between
Meditrust of New Hampshire Inc. and Harborside New Hampshire
Limited Partnership (Pheasant Wood Facility)
</TABLE>
3
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<TABLE>
<CAPTION>
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<C> <S>
10.3(c)* Facility Lease Agreement, dated as of January 1, 1996 between
Meditrust of New Hampshire Inc. and Harborside New Hampshire Limited
Partnership (Crestwood Facility)
10.3(d)* Facility Lease Agreement, dated as of January 1, 1996 between
Meditrust of New Hampshire Inc. and Harborside New Hampshire Limited
Partnership (Milford Facility)
10.3(e)* Facility Lease Agreement, dated as of January 1, 1996 between
Meditrust of New Hampshire Inc. and Harborside New Hampshire Limited
Partnership (Applewood Facility)
10.3(f)* Facility Lease Agreement, dated as of December 31, 1996 between
Meditrust of New Hampshire Inc. and Harborside New Hampshire Limited
Partnership (Northwood Facility)
10.3(g)* First Amendment to Facility Lease Agreement, dated as of May 17,
1996, by and between Meditrust of New Hampshire, Inc. and Harborside
New Hampshire Limited Partnership (Westwood Facility)
10.3(h)* First Amendment to Facility Lease Agreement, dated as of May 17,
1996, by and between Meditrust of New Hampshire, Inc. and Harborside
New Hampshire Limited Partnership (Pheasant Wood Facility)
10.3(i)* First Amendment to Facility Lease Agreement, dated as of May 17,
1996, by and between Meditrust of New Hampshire, Inc. and Harborside
New Hampshire Limited Partnership (Crestwood Facility)
10.3(j)* First Amendment to Facility Lease Agreement, dated as of May 17,
1996, by and between Meditrust of New Hampshire, Inc. and Harborside
New Hampshire Limited Partnership (Milford Facility)
10.3(k)* First Amendment to Facility Lease Agreement, dated as of May 17,
1996, by and between Meditrust of New Hampshire, Inc. and Harborside
New Hampshire Limited Partnership (Applewood Facility)
10.3(l)* First Amendment to Facility Lease Agreement, dated as of May 17,
1996, by and between Meditrust of New Hampshire, Inc. and Harborside
New Hampshire Limited Partnership (Northwood Facility)
10.4(a)* Facility Lease Agreement, dated as of March 31, 1995 between
Meditrust of Ohio, Inc. and Harborside of Toledo Limited Partnership
(Swanton Facility)
10.4(b)* First Amendment of Facility Lease Agreement, dated as of December 31,
1995, by and between Harborside Toledo Limited Partnership and
Meditrust of Ohio, Inc. (Swanton Facility)
10.4(c)* Second Amendment to Facility Lease Agreement, dated as of May 17,
1996, by and between Meditrust of Ohio, Inc. and Harborside Toledo
Limited Partnership (Swanton Facility)
10.5* Amended and Restated Agreement of Limited Partnership of Bowie Center
Limited Partnership, dated April 7, 1993
10.6* Agreement of Lease, dated March 16, 1993, between Bryan Nursing Home,
Inc. and Harborside of Ohio Limited Partnership (Defiance and
Northwestern Ohio Facilities)
10.7* First Amendment to Agreement of Lease, dated June 1, 1993, by and
between Bryan Nursing Home, Inc. and Harborside Ohio Limited
Partnership
10.8* Option to purchase Agreement, dated March 16, 1993, by and between
Bryan Nursing Home, Inc. and Harborside Ohio Limited Partnership
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
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NUMBER DESCRIPTION OF DOCUMENT
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<C> <S>
10.9(a)* Lease, dated September 30, 1994, between Rockledge T. Limited
Partnership and Harborside of Florida Limited Partnership (Brevard
Facility)
10.9(b)* Lease Guaranty, dated September 30, 1994, between Rockledge T.
Limited Partnership from Harborside Healthcare Limited Partnership
10.9(c)* Indemnity Agreement, dated September 30, 1994, between Rockledge T.
Limited Partnership, Harborside of Florida Limited Partnership,
Harborside Healthcare Limited Partnership and Southtrust Bank of
Alabama
10.9(d)* Assignment and Security Agreement, dated September 30, 1994,
between Rockledge T. Limited Partnership, Harborside of Florida
Limited Partnership and Southtrust Bank of Alabama
10.9(e)* Subordination Agreement (Lease), dated September 30, 1994, between
Rockledge T. Limited Partnership, Harborside of Florida Limited
Partnership and Southtrust Bank of Alabama
10.9(f)* Subordination Agreement (Management), dated September 30, 1994, by
and among Rockledge T. Limited Partnership, Harborside of Florida
Limited Partnership, Harborside Healthcare Limited Partnership and
Southtrust Bank of Alabama
10.10(a)++ Employment Agreement, dated as of August 11, 1998, between the
Issuer and Stephen L. Guillard
10.10(b)++ Employment Agreement, dated as of August 11, 1998, between the
Issuer and Damian Dell'Anno
10.10(c)++ Employment Agreement, dated as of August 11, 1998, between the
Issuer and Bruce Beardsley
10.10(d)++ Employment Agreement, dated as of August 11, 1998, between the
Issuer and William Stephan
10.10(e)++ Employment Agreement, dated as of August 11, 1998, between the
Issuer and Steven Raso
10.11(a)++ Management Stock Incentive Plan, established by the Issuer as of
August 11, 1998
10.11(b)++ Form of Stock Option Agreement pursuant to Management Stock
Incentive Plan
10.12(a)* 1996 Long-Term Stock Incentive Plan
10.12(b)* Form of Nonqualified Stock Option Agreement pursuant to the 1996
Long-Term Stock Incentive Plan
10.13++ Form of Put/Call Agreement dated August 11, 1998 between the Issuer
and each of Messrs. Guillard, Dell'Anno, Beardsley, Stephan and
Raso
10.14* Supplemental Executive Retirement Plan of the Issuer
10.15* Administrative Services Agreement dated April 15, 1988 between the
Issuer and The Berkshire Companies Limited Partnership ("BCLP")
10.16* Agreement to Lease, dated as of May 3, 1996 among Westbay Manor
Company, Westbay Manor II Development Company, royal View Manor
Development Company, Beachwood Care Center Limited Partnership,
Royalview Manor Company, Harborside Health I Corporation and
Harborside Healthcare Limited Partnership
</TABLE>
5
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<TABLE>
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NUMBER DESCRIPTION OF DOCUMENT
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<C> <S>
10.17* Guaranty by Harborside in favor of Westbay Manor Company, Westbay
Manor II Development Company, Royalview Manor Development Company and
Beachwood Care Center Limited Partnership
10.18+ Master Rights Agreement, dated as of August 11, 1998, by and among the
Issuer, BCLP, certain affiliates of BCLP and the New Investors
10.19++ Credit Agreement, dated as of August 11, 1998, among the Issuer, Chase
Securities, Inc., as Arranger, Morgan Stanley Senior Funding, Inc. and
BT Alex. Brown Incorporated, as Co-Arrangers, Bankers Trust Company,
as Documentation Agent, Morgan Stanley Senior Funding, Inc., as
Syndication Agent, The Chase Manhattan Bank, as Administrative Agent,
and the lenders party thereto (the "Lenders")
10.20++ Collateral Agreement, dated as of August 11, 1998, in favor of The
Chase Manhattan Bank, as administrative agent, together with the
Lenders
10.21++ HHC 1998-1 Trust Credit Agreement, $238,125,000 Credit Facility, dated
as of August 11, 1998, among the Issuer, Chase Securities Inc., as
Arranger, Morgan Stanley Senior Funding, Inc. and BT Alex. Brown
Incorporated, as Co-Arrangers, Bankers Trust Company, as Documentation
Agent, Morgan Stanley Senior Funding, Inc., as Syndication Agent, The
Chase Manhattan Bank, as Administrative Agent, and the lenders party
thereto
10.22++ Participation Agreement, dated as of August 11, 1998, among Harborside
of Dayton Limited Partnership, as Lessee, HHC 1998-1 Trust, as Lessor,
Wilmington Trust Company, BTD Harborside Inc., Morgan Stanley Senior
Funding, Inc. and CSL Leasing, Inc., as Investors, The Chase Manhattan
Bank, as Agent, and the lenders party thereto
10.23+ Lease, dated August 11, 1998, between HHC 1998-1 Trust, as Lessor, and
Harborside of Dayton Limited Partnership, as Lessee
10.24+ Accounts Receivable Intercreditor Agreement (Leased Facilities), dated
as of August 11, 1998, among (i) The Chase Manhattan Bank, as
administrative agent, (ii) HHC 1998-1 Trust, (iii) CSL Leasing, Inc.,
BTD Harborside, Inc. and Morgan Stanley Senior Funding, Inc. and (iv)
Meditrust Company LLC
10.25+ Accounts Receivable Intercreditor Agreement (Mortgaged Facilities),
dated as of August 11, 1998, among (i) The Chase Manhattan Bank, as
administrative agent, (ii) HHC 1998-1 Trust, (iii) CSL Leasing, Inc.,
BTD Harborside, Inc. and Morgan Stanley Senior Funding, Inc. and (iv)
Meditrust Mortgage Investments, Inc.
10.26++ Financing Advisory Agreement, dated August 11, 1998, between the
Issuer (as successor to MergerCo) and III
10.27++ Agreement for Management Advisory, Strategic Planning and Consulting
Services, dated August 11, 1998, between the Issuer (as successor to
MergerCo) and III
10.28+ Second Amendment to Loan Agreement, Consent to Merger and Confirmation
of Guaranties, dated as of July 31, 1998, by and among Bay Tree
Nursing Center Corp., Countryside Cave Center Corp., Sunset Point
Nursing Center Corp., West Bay Nursing Center Corp., Harborside
Healthcare Limited Partnership, Harborside Healthcare Corporation and
Meditrust Mortgage Investments, Inc.
10.29+ Omnibus Amendment to Facility Lease Agreements, Consent to Merger and
Confirmation of Guaranties, dated as of July 31, 1998, by and among
Harborside New Hampshire Limited Partnership, Harborside Bledo Limited
Partnership, HHCI Limited Partnership, Harborside Healthcare Limited
Partnership, Harborside Healthcare Corporation and Meditrust Company
LLC
</TABLE>
6
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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<C> <S>
12++ Statement re: Computation of Ratio of Earnings to Fixed Charges
21.1**** Subsidiaries of the Issuer
23.1+ Consent of PricewaterhouseCoopers LLP
23.2+ Consent of Cummins, Krasik & Hohl Co.
23.3+ Consent of Landa & Altsher, P.C.
23.4+ Consent of Gibson, Dunn & Crutcher LLP (contained in Exhibit 5.1)
24.1++ Powers of Attorney (included on signature pages of Registration
Statement)
25+ Statement of Eligibility of Trustee
</TABLE>
- --------
* Incorporated by reference to the Issuer's Registration Statement on Form
S-1 (Registration No. 333-3096)
** Incorporated by reference to the Issuer's Registration Statement on Form
S-4 (Registration No. 333-51633)
*** Incorporated by reference to the Issuer's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997 (File No. 01-14538)
**** Incorporated by reference to the Issuer's Annual Report on Form 10-K for
the year ended December 31, 1997 (File No. 01-14358)
+ Filed herewith
++ Previously filed
# Replaces previously filed exhibit
7
<PAGE>
EXHIBIT 1.4
LETTER OF TRANSMITTAL
OFFER FOR ALL OUTSTANDING
PRIVATELY PLACED 11% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2008
IN EXCHANGE FOR
NEW 11% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AND FOR ALL OUTSTANDING SHARES OF
PRIVATELY PLACED 13 1/2% EXCHANGEABLE PREFERRED STOCK MANDATORILY REDEEMABLE
IN EXCHANGE FOR
NEW SHARES OF 13 1/2% EXCHANGEABLE PREFERRED STOCK MANDATORILY REDEEMABLE 2010
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OF
HARBORSIDE HEALTHCARE CORPORATION
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON NOVEMBER 30, 1998, UNLESS EXTENDED
THE EXCHANGE AGENT IS UNITED STATES TRUST COMPANY OF NEW YORK, WHOSE
MAILING ADDRESSES AND FACSIMILE NUMBER ARE AS FOLLOWS AND WHOSE TELEPHONE NUMBER
IS (800) 548-6565:
<TABLE>
<CAPTION>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL: BY HAND DELIVERY BEFORE 4:30 PM. E.S.T.:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 843 111 Broadway
Cooper Station New York, New York 10006
New York, New York 10276 Attention: Lower Level Corporate Trust Window
Attention: Corporate Trust Services
BY FACSIMILE: BY OVERNIGHT COURIER AND BY HAND DELIVERY AFTER
(212) 780-0592 4:30 PM. E.S.T. ON THE EXPIRATION DATE ONLY:
Attention: Customer Service United States Trust Company of New York
Confirm by telephone: (800) 548-6565 770 Broadway, 13th Floor
New York, New York 10003
</TABLE>
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AND ADDRESS OF REGISTERED HOLDER AS IT APPEARS
ON THE PRIVATELY PLACED 11% SENIOR SUBORDINATED CERTIFICATE NUMBER(S) PRINCIPAL AMOUNT OF
DISCOUNT NOTES DUE 2008 ("OLD NOTES") OF OLD NOTES TRANSMITTED OLD NOTES TRANSMITTED
______________________________________________________ __________________________ _______________________
______________________________________________________ __________________________ _______________________
______________________________________________________ __________________________ _______________________
______________________________________________________ __________________________ _______________________
______________________________________________________ __________________________ _______________________
NAME AND ADDRESS OF REGISTERED HOLDER AS IT
APPEARS ON THE PRIVATELY PLACED 13 1/2% CERTIFICATE NUMBER(S) NUMBER OF SHARES OF
EXCHANGEABLE PREFERRED STOCK MANDATORILY OF OLD PREFERRED STOCK OLD PREFERRED STOCK
REDEEMABLE 2010 ("OLD PREFERRED STOCK") TRANSMITTED TRANSMITTED
______________________________________________________ __________________________ _______________________
______________________________________________________ __________________________ _______________________
______________________________________________________ __________________________ _______________________
______________________________________________________ __________________________ _______________________
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE
ACCOMPANYING INSTRUCTIONS CAREFULLY.
<PAGE>
Ladies and Gentlemen:
1. The undersigned hereby agrees to exchange (i) the aggregate principal
amount of privately placed 11% Senior Subordinated Discount Notes Due 2008 (the
"Old Notes") of Harborside Healthcare Corporation, a Delaware corporation (the
"Company"), specified on the first page of this Letter of Transmittal (if any)
for a like principal amount of new 11% Senior Subordinated Discount Notes Due
2008 (the "New Notes") of the Company which have been registered under the
Securities Act of 1933, and/or (ii) the number of shares of privately placed 13
1/2% Exchangeable Preferred Stock Mandatorily Redeemable 2010 (the "Old
Preferred Stock," and together with the Old Notes, the "Old Securities") of the
Company specified on the first page of this Letter of Transmittal (if any), plus
any shares of Old Preferred Stock paid as dividends thereon prior to the closing
of the Exchange Offer, for the same number of new shares of 13 1/2% Exchangeable
Preferred Stock Mandatorily Redeemable 2010 (the "New Preferred Stock," and
together with the New Notes, the "New Securities") of the Company which have
been registered under the Securities Act of 1933, upon the terms and subject to
the conditions contained in the Registration Statement on Form S-4 filed by the
Company and other Registrants with the Securities and Exchange Commission (the
"Registration Statement") and the accompanying Prospectus dated October 28, 1998
included therein (the "Prospectus"), receipt of which is hereby acknowledged.
2. The undersigned hereby acknowledges that a dividend is payable on the
Old Preferred Stock on November 1, 1998, which dividend will be paid in
additional shares of Old Preferred Stock. Accordingly, if this Letter of
Transmittal is being completed after November 1, 1998, the number of shares of
Old Preferred Stock specified on the front page of this Letter of Transmittal
(if any) includes such dividend shares.
3. The undersigned hereby represents and warrants that he, she or it has
full authority to tender the Old Securities described above. The undersigned
will, upon request, execute and deliver any additional documents deemed by the
Company to be necessary or desirable to complete the exchange of the Old
Securities.
4. The undersigned understands that the tender of the Old Securities
pursuant to all of the procedures set forth in the Prospectus will constitute an
agreement between the undersigned and the Company as to the terms and conditions
set forth in the Prospectus.
5. The undersigned hereby represents and warrants that the undersigned is
acquiring the New Securities in the ordinary course of the business of the
undersigned and that the undersigned is not engaged in, and does not intend to
engage in, a distribution of the New Securities.
6. If the undersigned is a broker-dealer, (i) it hereby represents and
warrants that it acquired the Old Securities for its own account as a result of
market-making activities or other trading activities and (ii) it hereby
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), in connection with
any resale of the New Securities received hereby. The acknowledgment contained
in the foregoing sentence shall not be deemed an admission that the undersigned
is an "underwriter" within the meaning of the Securities Act.
7. Any obligation of the undersigned hereunder shall be binding upon the
successors, assigns, executors, administrators, trustees in bankruptcy and legal
and personal representatives of the undersigned.
2
<PAGE>
SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 1)
To be completed ONLY IF the New Securities are to be issued in the name of
someone other than the undersigned or are to be sent to someone other than the
undersigned or to the undersigned at an address other than that provided above.
ISSUE TO:
Name______________________________________________
(Please Print)
Address___________________________________________
___________________________________________
___________________________________________
(Include Zip Code)
MAIL TO:
Name______________________________________________
(Please Print)
Address___________________________________________
___________________________________________
___________________________________________
(Include Zip Code)
3
<PAGE>
SIGNATURE
________________________________________________
(Name of Registered Holder)
By: ___________________________________________
Name:
Title:
Date: ___________________________________________
(Must be signed by registered holder exactly as name appears on Old Securities.
If signature is by trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, please set forth full title. See Instruction 3.)
Address:__________________________________________
__________________________________________
Telephone No._____________________________________
Taxpayer Identification No.:_____________________________________
Signature Guaranteed By:_________________________________________
(See Instruction 1)
Title:____________________________________________
Name of Institution:______________________________
Address:__________________________________________
Date:_____________________________________________
PLEASE READ THE INSTRUCTIONS BELOW, WHICH FORM A PART OF THIS LETTER OF
TRANSMITTAL.
4
<PAGE>
INSTRUCTIONS
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal must
be guaranteed by a firm that is a member of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or by
a commercial bank or trust company having an office or correspondent in the
United States which is a member of a recognized Medallion Signature Program
approved by the Securities Transfer Association, Inc. (an "Eligible
Institution"), unless (i) the "Special Issuance and Delivery Instructions" above
have not been completed or (ii) the Old Securities are tendered for the account
of an Eligible Institution.
2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD SECURITIES. The properly
completed and duly executed Letter of Transmittal (or a facsimile thereof)
should be mailed or delivered to the Exchange Agent at one of the addresses set
forth above. In addition, either (i) certificates for Old Securities being
tendered must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of a book-entry transfer (a "Book-
Entry Confirmation") of Old Securities being tendered into the Exchange Agent's
account at The Depository Trust Company pursuant to the procedure for book-entry
transfer described in the Prospectus, must be received by the Exchange Agent
prior to the Expiration Date, or (iii) the holder must comply with the
guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF LETTERS OF TRANSMITTAL, OLD SECURITIES AND OTHER
DOCUMENTS IS AT THE ELECTION AND RISK OF THE RESPECTIVE HOLDER. IF DELIVERY IS
BY MAIL, REGISTERED MAIL (WITH RETURN RECEIPT), PROPERLY INSURED, IS SUGGESTED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
3. GUARANTEED DELIVERY PROCEDURES. Registered holders who wish to tender
their Old Securities and (i) whose Old Securities are not immediately available
or (ii) who cannot deliver their Old Securities, the Letter of Transmittal or
any other required documents to the Exchange Agent prior to the Expiration Date,
or (iii) who cannot complete the procedure for book-entry transfer on a timely
basis, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery substantially in the form provided by
the Company (by facsimile transmission, mail or hand delivery) setting
forth the name and address of the holder of the Old Securities and the
amount of Old Securities tendered, stating that the tender is being
made thereby and guaranteeing that, within five New York Stock
Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, Letter of Transmittal (or facsimile
thereof) together with certificate(s) representing all physically
tendered Old Securities, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by
the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) for all physically
tendered Old Securities, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by
the Letter of Transmittal, are received by the Exchange Agent within
five NYSE trading days after the date of execution of the Notice of
Guaranteed Delivery.
4. SIGNATURES ON LETTER OF TRANSMITTAL, POWERS OF ATTORNEY AND
ENDORSEMENTS. If this Letter of Transmittal is signed by a person other than a
registered holder of any Old Securities, such Old
5
<PAGE>
Securities must be endorsed or accompanied by appropriate powers of attorney, in
either case signed exactly as the name or names of the registered holder or
holders appear on the Old Securities.
If this Letter of Transmittal or any Old Securities or powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by the
Company, proper evidence satisfactory to the Company of their authority to so
act must be submitted.
5. MISCELLANEOUS. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of tendered Old Securities will be
determined by the Company, in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any or all
tenders of any particular Old Securities not properly tendered or to not accept
any particular Old Securities which acceptance might, in the judgment of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right to waive any defects or irregularities or conditions of the Exchange Offer
as to particular Old Securities either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Old Securities in the Exchange Offer). The interpretation of the terms
and conditions of the Exchange Offer as to any particular Old Securities either
before or after the Expiration Date (including this Letter of Transmittal and
the instructions) by the Company will be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of Old
Securities for exchange must be cured within such reasonable period of time as
the Company shall determine. Neither the Company, the Exchange Agent nor any
other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Securities for exchange, nor
shall any of them incur any liability for failure to give such notification.
Tenders of Old Securities will not be deemed to have been made until such
defects or irregularities have been cured or waived. Any Old Securities
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned by
the Exchange Agent to the tendering holder thereof.
IMPORTANT TAX INFORMATION
A holder of an Old Security whose tendered Old Securities are accepted for
exchange is required to provide the Exchange Agent (as agent for the payer) with
his or her correct taxpayer identification number ("TIN") on Substitute Form W-9
below. If such holder of an Old Security is an individual, the TIN is his or
her social security number. If the Exchange Agent is not provided with the
correct TIN or an adequate basis for exemption, the holder may be subject to a
$50 penalty imposed by the Internal Revenue Service. In addition, payments that
are made to such holder with respect to New Securities received pursuant to the
Offer may be subject to backup withholding.
Certain holders of Securities (including, among others, all corporations
and certain foreign individuals) may not be subject to these backup withholding
and reporting requirements. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional
instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31 percent of any payments made to the holder of the Security. Backup
withholding is not an additional tax. Rather, the federal income tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained.
To prevent backup withholding, each tendering holder of Old Securities is
required to notify the Exchange Agent of his, her or its correct TIN by
completing the Substitute Form W-9 below certifying the TIN provided on such
form is correct (or that such holder is awaiting a TIN) and that (1) the holder
is exempt from backup withholding, (2) the holder has not been notified by the
Internal Revenue Service that he, she or it is subject to backup withholding as
a result of a failure to report all interest or dividends or (3) the Internal
Revenue Service has notified the holder that he, she or it is no longer subject
to backup withholding.
6
<PAGE>
The holder of an Old Security is required to give the Exchange Agent the
social security number or employer identification number of the record owner of
such Old Security. If the Old Securities are in more than one name or are not
in the name of the actual owner, consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidelines on which number to report.
The box in Part 3 of the Substitute Form W-9 may be checked if the
submitting holder has not been issued a TIN or intends to apply for a TIN in the
near future. If the box in Part 3 is checked, the holder or other payee must
also complete the Certificate of Awaiting Taxpayer Identification Number below
in order to avoid backup withholding. Notwithstanding that the box in Part 3 is
checked and the Certificate of Awaiting Taxpayer Identification Number is
completed, the Exchange Agent will withhold 31% on all payments made prior to
the time a properly certified TIN is provided to the Exchange Agent. However,
such amounts may be refunded to such holder if a TIN is provided to the Exchange
Agent within 60 days.
If the tendering holder of Old Securities is a nonresident alien or foreign
entity not subject to backup withholding, such holder must give the Company a
properly completed Form W-8, Certificate of Foreign Status, signed under
penalties of perjury, attesting to his, her or its exempt status. Such forms
may be obtained from the Exchange Agent.
PAYER'S NAME: UNITED STATES TRUST COMPANY OF NEW YORK,
AS AGENT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 PLEASE PROVIDE YOUR TIN IN Social Security Number
FORM W-9 THE BOX AT RIGHT AND CERTIFY BY or
SIGNING AND DATING BELOW Employer Identification Number:
_______________________
- -----------------------------------------------------------------------------------------------------
<S> <C>
DEPARTMENT OF THE PART 2 Certification Under penalties of perjury, I certify that:
TREASURY (1) The number shown on this form is my correct Taxpayer identification
INTERNAL REVENUE SERVICE Number (or I am waiting for a number to be issued to
me) and
(2) I am not subject to backup withholding because: (a) I am
exempt from backup withholding, (b) I have not been notified by the
PAYER'S REQUEST FOR Internal Revenue Service (the "IRS") that I am subject to backup
TAXPAYER IDENTIFICATION withholding as a result of a failure to report all interest or
NUMBER "TIN" dividends or (c) the IRS has notified me that I am no longer subject
to backup withholding.
Certification Instructions You must cross out Item (2) above if you
have been notified by the IRS that you are currently subject to
backup withholding because of under-reporting of interest or
dividends on your tax return. However, if after being notified by
the IRS that you were subject to backup withholding you received
another notification from the IRS that you are no longer subject to
backup withholding, do not cross out such Item (2).
--------------------------------------------------------------------------
PART 3
SIGNATURE:_______________ DATE:________ Awaiting
TIN [_]
--------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31
PERCENT OF ANY PAYMENTS MADE WITH RESPECT TO THE SECURITIES SUBSEQUENT TO
THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9"
FOR ADDITIONAL DETAILS.
7
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAX IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number within sixty (60) days, 31 percent of
all reportable payments made to me thereafter will be withheld until I provide a
number.
_________________________________ __________________________________
Signature Date
- --------------------------------------------------------------------------------
8
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the Payer.
- -- Social Security numbers have nine digits separated by two hyphens: i.e., 000-
00-0000. Employer identification numbers have nine digits separated by only one
hyphen: i.e., 00-0000000. The table below will help determine the number to give
the payer.
- ------------------------------------------------------------
Give the Social Security
For This Type of Account: Number
of --
- ------------------------------------------------------------
1. An individual The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, any one of the
individuals (1)
3. Husband and wife (joint The actual owner of the
account) account or, if joint
funds, either person (1)
4. Custodian account to a The minor (2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the minor
(1)
6. Account in the name of The ward, minor, or
guardian or committee incompetent person (3)
for a designated ward,
minor, or incompetent
person.
7. a. The usual The grantor-trustee (1)
revocable savings
trust account
(grantor is also
trustee) The actual owner (1)
b. So-called trust
account that is not
a legal or valid
trust under State
law
8. Sole proprietorship The owner (4)
account
- ------------------------------------------------------------
- ------------------------------------------------------------
Give the Employer
For This Type of Account Identification Number
of --
- ------------------------------------------------------------
9. A valid trust, estate, The legal entity (Do
or pension fund not furnish the
identifying member of
the personal
representative or
trustee unless the
legal entity itself is
not designated in the
account title.) (5)
10. Corporate account The corporation
11. Religious, charitable, The organization
or educational
organization account
12. Partnership account held The partnership
in the name of the
business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or nominee
nominee
15. Account with the The public entity
Department of
Agriculture in the name
of a public entity (such
as a State or local
government, school
district, or prison)
that receives
agricultural program
payments
_____________________
(1) List first and circle the name of the person whose number you furnish.
If only one person on a joint account has a Social Security number,
that person's number must be furnished.
(2) Circle the minor's name and furnish the minor's social security
number.
(3) Circle the ward's, minor's or incompetent person's name and furnish
such person's social security number.
(4) You must show your individual name, but you may also enter your
business or "doing business as" name. You may use either your Social
Security number or Employer identification number (if you have one).
(5) List first and circle the name of the legal trust, estate, or pension
trust.
Note: If no name is circled when there is more than one name, the number
will be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
ON SUBSTITUTE FORM W-9
Page 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number (for business and all other
entities), at the local office to the Social Security Administration or the
Internal Revenue Service (the "IRS") and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on all payments except
certain barter exchange and patronage dividends include the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), or an individual retirement plan, or a
custodial account under section 403(b)(7) of the Code, if the account
satisfies the requirements of section 401(f)(2) of the Code.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
Payees specifically exempted from backup withholding on all payments except
payments subject to reporting under section 6041 and 6041A of the code and
barter exchange and patronage dividends include:
. A dealer in securities required to register in the U.S., the District of
Columbia, or a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a) of the Code.
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1) of the Code.
. An entity registered at all times under the Investment Company Act of 1940.
. A foreign central bank of issue.
. A middleman known in the investment community as a nominee or who is listed
in the most recent publication of the American Society of Corporate
Securities, Inc., Nominee List.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresidential aliens subject to withholding under section 1441
of the Code.
. Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
. Section 401(k) payments made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852 of the Code).
. Payments described in section 6049(b)(5) of the code to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451 of the Code.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt Payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest dividends, and patronage dividends, that
are not subject information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A of the Code and the Treasury regulations promulgated thereunder.
PRIVACY ACT NOTICE
Section 6109 of the Code requires most recipients of dividend, interest, or
other payments to give taxpayer identification numbers to payers who must report
the payments to the IRS. The IRS uses the numbers for identification purposes.
Payers must be given the numbers whether or not recipients are required to file
tax returns. Payers must generally withhold 31% of taxable interest, dividend,
and certain other payments to payee who does not furnish a taxpayer
identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is
due to a reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying certifications
or affirmations may subject you to criminal penalties including fines
and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT
OR THE IRS.
<PAGE>
EXHIBIT 3.1.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
HH ACQUISITION CORP.
(Originally incorporated on March 13, 1998)
HH Acquisition Corp., a Delaware corporation (the "Corporation"), DOES
HEREBY CERTIFY:
FIRST: That, the Corporation has not yet received payment for any of its
stock; and
SECOND: That, in accordance with Sections 241 and 245 of the Delaware
General Corporation Law (the "DGCL"), the Board of Directors of the Corporation
duly adopted a resolution approving the amendment to and restatement of the
Corporation's Certificate of Incorporation (the "Amended and Restated
Certificate of Incorporation") such that the Amended and Restated Certificate of
Incorporation reads in its entirety as follows:
ARTICLE I -- NAME
-----------------
The name of the corporation (hereinafter called the "Corporation") is HH
Acquisition Corp.
ARTICLE II -- REGISTERED OFFICE
-------------------------------
The address, including street, number, city, and county, of the registered
office of the Corporation in the State of Delaware is 9 East Loockerman Street,
in the City of Dover County of Kent, Delaware 19901; and the name of the
registered agent of the Corporation in the State of Delaware is National
Registered Agents, Inc.
ARTICLE III -- PURPOSE
----------------------
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV -- CAPITALIZATION
----------------------------
1. Definitions. As used in this Article IV, the following terms shall
-----------
have the following meanings:
"Affiliate", with respect to a Class D Stockholder that is not a
---------
natural person, means (i) any Person which, directly or indirectly, is in
control of, is controlled by, or is under
<PAGE>
common control with, such Class D Stockholder or (ii) any Person who is a
director or officer (a) of such Class D Stockholder, (b) of any subsidiary of
such Class D Stockholder or (c) of any Person described in clause (i) above. For
purposes of this definition, "control" of a Person shall mean the power,
directly or indirectly, (y) to vote fifty percent (50%) or more of the
securities having ordinary voting power for the election of directors of such
Person whether by ownership of securities, contract, proxy or otherwise, or (z)
to direct or cause the direction of the management and policies of such Person
whether by ownership of securities, contract, proxy or otherwise.
"Board" means the Board of Directors of the Corporation.
-----
"Business Day" means any day other than a Saturday, Sunday, federal
------------
holiday or other day on which commercial banks in New York City are authorized
or required to close under the laws of the State of New York.
"Certificate of Incorporation" means this Restated Certificate of
----------------------------
Incorporation of the Corporation.
"Class A Stock" means the Class A Common Stock described in Section
-------------
2(c).
"Class B Stock" means the Class B Common Stock described in Section
-------------
2(c).
"Class C Stock" means the Class C Common Stock described in Section
-------------
2(c).
"Class D Stock" means the Class D Common Stock described in Section
-------------
2(c).
"Class A Stockholder" means a record holder of one or more shares of
-------------------
Class A Stock.
"Class B Stockholder" means a record holder of one or more shares of
-------------------
Class B Stock.
"Class C Stockholder" means a record holder of one or more shares of
-------------------
Class C Stock.
"Class D Stockholder" means a record holder of one or more shares of
-------------------
Class D Stock.
"Common Stock" has the meaning set forth in Section 2(c).
------------
"Common Stockholder" means a record holder of one or more shares of
------------------
Common Stock.
"Conversion Date" has the meaning set forth in Section 6.
---------------
"Corporation" means HH Acquisition Corp.
-----------
"Difference Shares" has the meaning set forth in Section 5.
-----------------
2
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated thereunder.
"Initial Public Offering" means the effectiveness after August 11,
-----------------------
1998 of a registration statement under the Securities Act on any of Forms S-1,
S-2, S-3 or any similar successor form covering any of the Stock, and the
completion of a sale of such Stock thereunder, (i) following which the
Corporation is, or becomes, a reporting Corporation under Section 12(b) or 12(g)
of the Exchange Act, and (ii) as a result of which the Stock is traded on the
New York Stock Exchange or the American Stock Exchange, or quoted on the Nasdaq
Stock Market or is traded or quoted on any other national stock exchange.
"IPO Date" means the closing date of the Initial Public Offering.
--------
"Non-Redeemable Shares" means all shares of Class A Stock, Class B
---------------------
Stock or Class C Stock that have been previously sold (whether under Section 4
or Section 5(c)) pursuant to a Tag-Along Transfer other than pursuant to a
Single Transaction Sale.
"Notice Date" has the meaning set forth in Section 4(b).
-----------
"Other Stockholders" has the meaning set forth in Section 4(a).
------------------
"Permitted Transferee" with respect to a Transfer by a Class D
--------------------
Stockholder, means (i) with respect to any Class D Stockholder who is a natural
person, a Transfer to (a) such Stockholder's spouse or issue, or (b) a trust the
beneficiaries of which, and a partnership the limited and general partners of
which, include only the Class D Stockholder, his spouse or issue; (ii) with
respect to any Class D Stockholder that is not a natural person, (A) a Transfer
to an Affiliate of such Class D Stockholder; or (B) a Transfer to another Class
D Stockholder or its Affiliates; provided such other Class D Stockholder
--------
referenced in clauses (i) and (ii) did not acquire its shares of Class D Stock
pursuant to a Tag-Along Transfer.
"Person" means any natural person, partnership, limited liability
------
Corporation, corporation (including the Corporation), trust or unincorporated
organization or a government or a political subdivision thereof.
"Preferred Stock" has the meaning set forth in Section 2(a).
---------------
"Preferred Stock Designation" has the meaning set forth in Section
---------------------------
2(b).
"Proposed Purchase Amount" has the meaning set forth in Section 4(a).
------------------------
"Proposed Transferee" has the meaning set forth in Section 4(a).
-------------------
"Proposed Transferor" has the meaning set forth in Section 4(a).
-------------------
"Redemption Date" has the meaning set forth in Section 5(d).
---------------
3
<PAGE>
"Sale of the Corporation" means, (i) the sale of one hundred percent
-----------------------
(100%) of the outstanding shares of Stock; (ii) a sale of all or substantially
all of the assets of the Corporation; or (iii) a merger, consolidation or
recapitalization of the Corporation as a result of which the ownership of the
Stock of the Corporation (or the voting stock of the surviving corporation, if
the Corporation is not the survivor) is changed to the extent of one hundred
percent (100%); provided, however, that, the merger of the Corporation with and
-------- -------
into Harborside Healthcare Corporation ("Harborside") pursuant to the
----------
transactions contemplated by the Agreement and Plan of Merger, dated as of April
15, 1998, as such agreement may be amended from time to time, between the
Corporation and Harborside, shall not be a Sale of the Corporation.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
"Single Transaction Sale" means a Sale of the Corporation in a single
-----------------------
transaction.
"Staggered Sale" means a Sale of the Corporation in more than one
--------------
transaction, each such transaction also being referred to individually as a
"Staggered Sale."
"Stock" has the meaning set forth in Section 2(c).
-----
"Stockholder" means a record holder of one or more shares of Class A
-----------
Stock, Class B Stock, Class C Stock, Class D Stock, or Common Stock.
"Tag-Along Acceptance Date" has the meaning set forth in Section 4(c).
-------------------------
"Tag-Along Notice" has the meaning set forth in Section 4(c).
----------------
"Tag-Along Pro Rata Amount" has the meaning set forth in Section 4(a).
-------------------------
"Tag-Along Redemption Price" has the meaning set forth in Section
--------------------------
5(a).
"Tag-Along Transfer" has the meaning set forth in Section 4(a).
------------------
"Transfer", with respect to any share of Stock, means the sale,
--------
assignment, pledge, hypothecation, gift or any other disposition whatsoever of
such share (other than pursuant to the Initial Public Offering or pursuant to
the redemption or conversion of any such share of Stock, in either case in
accordance with the terms of this Certificate of Incorporation), or the
encumbrance or granting of any rights or interests whatsoever in or with respect
to such share.
"Transfer Notice" has the meaning set forth in Section 4(b).
---------------
"Warrant" means the Class B Stock Purchase Warrant to be issued on or
-------
about August 11, 1998 by the Corporation which entitles the Warrant Holder(s),
upon the occurrence of a Warrant Triggering Event, to purchase a number of
shares of Common Stock of the Corporation as specified therein.
4
<PAGE>
"Warrant Date" means, (i) if the Warrant Triggering Event is the
------------
Initial Public Offering, the IPO Date, or (ii) if the Warrant Triggering Event
is a Sale of the Corporation, the closing date of (A) the Single Transaction
Sale, if the Sale of the Corporation is pursuant to a Single Transaction Sale,
or (B) the Staggered Sale that causes a Sale of the Corporation to occur, if the
Sale of the Corporation is pursuant to a series of Staggered Sales.
"Warrant Holder(s)" means the holder(s) of the Warrants.
-----------------
"Warrant Redemption Price" has the meaning set forth in Section 5(b).
------------------------
"Warrant Shares" means the shares of Common Stock purchasable by the
--------------
Warrant Holder(s) pursuant to the exercise of the Warrants, which shall equal in
all cases the number of shares of Class B Stock redeemed in connection with the
exercise of such Warrant.
"Warrant Triggering Event" means the first to occur of (i) an Initial
------------------------
Public Offering or (ii) a Sale of the Corporation, whether such sale occurs
pursuant to a Single Transaction Sale or a series of Staggered Sales.
2. Designation and Number.
----------------------
(a) The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 19,500,000 of which 500,000 shares
shall be preferred stock and shall have a par value of $0.01 per share
("Preferred Stock") and 19,000,000 shares shall be common stock, as set forth in
paragraph (c) below.
(b) Preferred Stock. The Board is expressly authorized to provide for
---------------
the issue of all or any shares of the Preferred Stock, in one or more series,
and to fix for each such series such voting powers, full or limited, and such
designations, preferences and relative, participating, optional or other special
rights and such qualifications, limitations or restrictions thereof as shall be
stated and expressed in the resolution or resolutions adopted by the Board
providing for the issue of such series (a "Preferred Stock Designation") and as
may be permitted by the Delaware General Corporation Law ("DGCL"). The
Corporation may, by an amendment to the Certificate of Incorporation duly
adopted, increase or decrease, at any time and from time to time (but not below
the number of shares of Preferred Stock then outstanding), the number of
authorized shares of Preferred Stock. Unless otherwise provided in a Preferred
Stock Designation, shares of Preferred Stock redeemed, purchased or otherwise
acquired by the Corporation pursuant to the terms hereof shall be retired and
shall revert to authorized but unissued Preferred Stock.
(c) Common Stock. There shall be five classes of common stock of the
------------
Corporation. The first class of common stock of the Corporation shall have a
par value of $0.01 per share and shall be designated as "Class A Common Stock"
and the number of shares constituting such class shall be 1,200,000. The second
class of common stock of the Corporation shall have a par value of $0.01 per
share and shall be designated as "Class B Common Stock" and the number of shares
constituting such class shall be 6,700,000. The third class of common stock of
the Corporation shall have a par value of $0.01 per share and shall be
designated as "Class C
5
<PAGE>
Common Stock" and the number of shares constituting such class shall be
1,580,000. The fourth class of common stock of the Corporation shall have a par
value of $0.01 per share and shall be designated as "Class D Common Stock" and
the number of shares constituting such class shall be 20,000. The fifth class of
common stock of the Corporation shall have a par value of $0.01 per share and
shall be designated as "Common Stock" and the number of shares constituting such
class shall be 9,500,000. The Class A Stock, Class B Stock, Class C Stock, Class
D Stock and Common Stock are sometimes referred to collectively herein as the
"Stock". The Corporation may, by an amendment to the Certificate of
Incorporation duly adopted, increase or decrease, at any time and from time to
time (but not below the number of shares of Class A Stock, Class B Stock, Class
C Stock, Class D Stock or Common Stock then outstanding), the number of
authorized shares of Class A Stock, Class B Stock, Class C Stock, Class D Stock
or Common Stock, as the case may be. Shares of Stock redeemed, purchased or
otherwise acquired by the Corporation pursuant to the terms hereof shall be
retired and shall revert to authorized but unissued Class A Stock, Class B
Stock, Class C Stock, Class D Stock or Common Stock, as the case may be.
3. Restrictions on Transfer.
------------------------
(a) Except for Transfers to a Permitted Transferee, no Class D
Stockholder shall Transfer any share of Class D Stock owned by such Class D
Stockholder except in accordance with the terms of this Certificate of
Incorporation. Any Transfer or attempt to Transfer any share of Class D Stock
in violation of the terms and conditions of this Certificate of Incorporation
shall be null and void and of no force and effect, the transferee thereof shall
not be deemed to be the registered holder thereof nor entitled to any rights
with respect thereto, and the Corporation shall refuse to Transfer any of such
Class D Stock on its books to such alleged transferee.
(b) No Stockholder shall Transfer any shares of Stock unless such
Transfer complies with the conditions specified in this Section 3(b), which are
intended to ensure compliance with the provisions of the Securities Act. Prior
to any Transfer, the holder of the shares of Stock proposed to be Transferred
(other than a holder of Class A Stock who is not an officer or director of the
Corporation) shall give written notice to the Corporation of such holder's
intention to effect such Transfer. Each such notice shall describe the manner
and circumstances of the proposed Transfer in sufficient detail, and, if
requested by the Corporation, shall be accompanied by either (i) a written
opinion of legal counsel who is reasonably satisfactory to the Corporation,
addressed to the Corporation and reasonably satisfactory in form and substance
to the Corporation's counsel, to the effect that the proposed Transfer may be
effected without registration under the Securities Act and qualification under
applicable state securities laws, or (ii) a "no action" letter from the SEC to
the effect that the Transfer of such securities without registration under the
Securities Act will not result in a recommendation by the staff of the SEC that
action be taken with respect thereof, or a combination of (i) and (ii) above,
whereupon the holder of such shares of Stock shall be entitled to Transfer such
shares in accordance with the terms of this Certificate and the written notice
delivered by the holder to the Corporation. Each certificate evidencing the
shares of Stock Transferred as above provided shall bear the appropriate
restrictive legend set forth in Section 9, provided that, following the Initial
-------- ----
Public Offering, such certificates shall bear the legend set forth in Section 9
or another legend only if, in the opinion of
6
<PAGE>
counsel to the Corporation, the imposition of such legend is required under the
Securities Act or other applicable law. Any purported Transfer in violation of
this Section 3(b) shall be null and void and of no force or effect, and the
Corporation shall not record any such Transfer on its stock transfer books. The
restrictions on Transfer contained in this Section 3(b) shall not apply to
Transfers of shares of Stock (i) in the Initial Public Offering; or (ii)
following the Initial Public Offering, provided that such Transfer is made in
-------- ----
compliance with the Securities Act and state securities laws and in accordance
with any restrictions on transfer contained in any restrictive legend set forth
on the certificates representing such shares.
4. Tag-Along Rights.
----------------
(a) Transfer by Class D Stockholders. If, other than in connection
--------------------------------
with the Initial Public Offering, any Class D Stockholder or Stockholders (for
purposes of this Section 4, singularly or collectively, the "Proposed
Transferor"), at any time or from time to time in one transaction or in a series
of transactions, desires to enter into an agreement (whether oral or written) to
Transfer its shares of Class D Stock or any part thereof in a transaction which
is a sale to any Person other than a Permitted Transferee (the "Proposed
Transferee"), such proposed Transfer shall be deemed a "Tag-Along Transfer" and,
each of the Class A Stockholders, Class B Stockholders and Class C Stockholders
(collectively, the "Other Stockholders") shall have the right, as a condition to
such Tag-Along Transfer, to have the Proposed Transferee purchase from each such
Other Stockholder up to the number of shares (the "Tag-Along Pro Rata Amount")
of Class A Stock, Class B Stock or Class C Stock derived by multiplying the
total number of shares of Class A Stock, Class B Stock or Class C Stock
exclusive of Non-Redeemable Shares, as the case may be, owned by such Other
Stockholder by a fraction, the numerator of which is equal to the number of
shares of Class D Stock that is proposed to be Transferred by the Proposed
Transferor to the Proposed Transferee (the "Proposed Purchase Amount") and the
denominator of which is the total number of shares of Class D Stock (other than
shares of Class D Stock that have previously been Transferred pursuant to a Tag-
Along Transfer) outstanding as of the Notice Date (as defined in Section 4(b)).
All Tag-Along Transfers by Other Stockholders shall be on the same terms and
conditions (with such changes as are necessary to apply such terms and
conditions to a sale by such Other Stockholders) as the proposed Tag-Along
Transfer by the Proposed Transferor, provided that no Other Stockholder may be
-------- ----
required to make any representation or warranty in connection with the Tag-Along
Transfer other than as to its ownership and authority to Transfer the shares of
Stock to be Transferred by it, free and clear of any and all liens and
encumbrances (other than under this Certificate of Incorporation) and in
compliance with all applicable laws.
(b) Transfer Notice. The Proposed Transferor participating in a Tag-
---------------
Along Transfer shall at least thirty (30) Business Days prior to the closing
date thereof provide the Corporation and the Other Stockholders with written
notice (the "Transfer Notice") of the proposed Tag-Along Transfer containing the
following:
(i) the name and address of the Proposed Transferor and the
Proposed Transferee;
(ii) the Proposed Purchase Amount;
7
<PAGE>
(iii) the proposed amount to be paid for such shares of Class D
Stock, the terms and conditions of payment offered by the Proposed
Transferee, the closing date for the proposed Tag-Along Transfer and the
estimated expenses payable pursuant to Section 4(d);
(iv) the aggregate number of shares of Class A Stock, Class B
Stock or Class C Stock, as the case may be, held of record as of the date
the Transfer Notice is sent (the "Notice Date") by the Other Stockholder to
whom the notice is sent;
(v) the aggregate number of shares of Class A Stock, Class B
Stock or Class C Stock, as the case may be, held of record as of the Notice
Date by all Other Stockholders as a group;
(vi) the Tag-Along Pro Rata Amount for the Other Stockholder to
whom the notice is sent; and
(vii) a statement confirming that the Proposed Transferee has
agreed (i) to the tag-along rights, and (ii) pursuant to Section 5(c), to
purchase the number of shares of Stock redeemed pursuant to Section 5(a).
Upon written request by the Proposed Transferor, the Corporation shall
provide to the Proposed Transferor the information referred to in (iv) and (v)
above for inclusion in the Transfer Notice and such other information as may be
required to enable the Proposed Transferor to comply with the terms of this
Section 4(b).
(c) Tag-Along Notice. Each Other Stockholder desiring to participate
----------------
in the proposed Tag-Along Transfer shall provide a written notice (the "Tag-
Along Notice") to the Proposed Transferor on or before the expiration of ten
(10) Business Days after the Notice Date (the "Tag-Along Acceptance Date")
stating the number of shares held by such Other Stockholder (up to its Tag-Along
Pro Rata Amount) to be included in the proposed Tag-Along Transfer on the terms
and conditions specified in the Transfer Notice. The Tag-Along Notice given by
each Other Stockholder shall include and constitute such Other Stockholder's
binding agreement to include a number of shares equal to its Tag-Along Pro Rata
Amount (or such lesser amount as stated in the Tag-Along Notice) in the Tag-
Along Transfer on the terms and conditions specified in the Transfer Notice and
in this Certificate of Incorporation. If the Proposed Transferee does not
purchase all of the shares of Stock of the Proposed Transferor and the Other
Stockholders included in such proposed Tag-Along Transfer, as well as shares to
be issued under Section 5(c) in connection with the Tag-Along Transfer, then the
proposed Tag-Along Transfer to such Proposed Transferee shall be prohibited and
any attempt to consummate the proposed Tag-Along Transfer shall be null and void
and of no force and effect.
(d) Each Proposed Transferor and each Other Stockholder whose shares
are sold in a Tag-Along Transfer shall be entitled to receive the proceeds of
such Tag-Along Transfer less its pro rata share, based on the number of shares
included in such Tag-Along Transfer, of the expenses of the transaction
including, without limitation, legal, accounting and investment
8
<PAGE>
banking fees and expenses, such determination of expenses to be made in the sole
discretion of the Board.
(e) The provisions of this Section 4 shall not apply to a subsequent
Transfer of any share of Class D Stock that has previously been the subject of a
completed Tag-Along Transfer which complied with the provisions of this Section
4.
5. Redemption.
----------
(a) The number of shares of Class A Stock, Class B Stock or Class C
Stock equal to the difference ("Difference Shares") between (i) the number of
shares included in any Tag-Along Transfer by the Class A Stockholder, Class B
Stockholder or Class C Stockholder pursuant to Section 4 and (ii) the Tag-Along
Pro Rata Amount for each such Class A Stockholder, Class B Stockholder or Class
C Stockholder shall be redeemed by the Corporation, to the extent it is lawfully
permitted to do so, out of funds legally available therefor pro rata, based on
--- ----
the number of Difference Shares held by such Stockholders, from each of the
Class A Stockholders, Class B Stockholders and Class C Stockholders who elected
to include in the Tag-Along Transfer a number of shares of Stock less than the
number of shares that constitute their Tag-Along Pro Rata Amount or any such
Stockholders that did not elect to participate in a Tag-Along Transfer at a
redemption price (the "Tag-Along Redemption Price") for each share of Class A
Stock, Class B Stock or Class C Stock so redeemed equal to the per share price
paid for the Class D Stock by the Proposed Transferee (provided that, if the
consideration to be paid by the Proposed Transferee includes any non-cash
consideration, the per share amount to be paid in such redemption shall be the
fair value of the per share consideration to be paid by such Proposed Transferee
as determined in good faith by the Board) less such Other Stockholder's pro rata
--- ----
share, based on the number of shares of Stock so redeemed from such Other
Stockholder, of the expenses of the Tag-Along Transfer including, without
limitation, legal, accounting and investment banking fees and expenses, such
determination of expenses to be made in the sole discretion of the Board of
Directors of the Corporation. The provisions of this Section 5(a) shall not
apply to the Non-Redeemable Shares. Redemption under this subsection is
conditioned upon the contemporaneous purchase by the Proposed Transferee of the
shares issuable under Section 5(c) in connection with the applicable Tag-Along
Transfer.
(b) If the Warrant Holder(s) exercise(s) the Class B Warrant, the
Corporation shall redeem, to the extent it is lawfully permitted to do so, from
the Class B Stockholders, pro rata based on the number of shares of such Class B
--- ----
Stock then owned by each such Stockholder, out of funds legally available
therefor, a number of shares of Class B Stock equal to the number of Warrant
Shares at a redemption price (the "Warrant Redemption Price") equal to the par
value of each share of Class B Stock so redeemed. The provisions of this
Section 5(b) shall not apply to the Non-Redeemable Shares. If a redemption
pursuant to this Section 5(b) occurs as a result of a Sale of the Corporation,
such redemption shall occur immediately prior to any redemption pursuant to
Section 5(a) hereof. Redemption under this subsection is conditioned upon the
contemporaneous purchase of the Warrant Shares by the Warrant Holder(s) pursuant
to the Class B Warrant.
9
<PAGE>
(c) The shares of Class B Stock redeemed by the Corporation pursuant
to a Section 5(b) mandatory redemption shall, on the Redemption Date (as defined
in Section 5(d)), be retired and upon such retirement shall automatically revert
to authorized but unissued shares of Class B Stock, and the Corporation shall,
on the Redemption Date, but immediately after such redemption and retirement,
issue, to the extent it is lawfully permitted to do so, to the Warrant Holder(s)
a number of shares of Common Stock equal to the number of Warrant Shares. The
shares of Class A Stock, Class B Stock or Class C Stock redeemed by the
Corporation pursuant to a Section 5(a) mandatory redemption pursuant to a Tag-
Along Transfer shall, on the Redemption Date, be retired and upon such
retirement shall automatically revert to authorized but unissued shares of Class
A Stock, Class B Stock or Class C Stock, as relevant, and the Corporation shall,
on the Redemption Date, but immediately after such redemption and retirement,
issue, to the extent it is lawfully permitted to do so, to the Proposed
Transferee a number of shares of Class A Stock, Class B Stock or Class C Stock
equal to the number of shares of such classes of Stock so redeemed. Upon any
issuance of shares of Class A Stock, Class B Stock or Class C Stock equal to the
number of shares of such class of Stock redeemed pursuant to a Section 5(a)
mandatory redemption (and as a condition to such issuance), the Corporation
shall receive from the Proposed Transferee as the purchase price for such shares
an amount equal to the Tag-Along Redemption Price.
(d) The Corporation shall give to each holder of record of the shares
of Class A Stock, Class B Stock or Class C Stock to be redeemed pursuant to the
terms of this Section 5 prior written notice of such redemption not less than
two Business Days prior to the date such shares will be redeemed (the
"Redemption Date") which (i) in the case of a redemption pursuant to Section
5(a) shall be the closing date of the Tag-Along Transfer and (ii) in the case of
a redemption pursuant to Section 5(b) shall be the Warrant Date. Each such
notice shall state: (A) the Redemption Date; (B) the total number of shares of
the Class A Stock, Class B Stock or Class C Stock to be redeemed and, if fewer
than all the shares held by such holder are to be redeemed, the number of such
shares to be redeemed from such holder; (C) the Tag-Along Redemption Price or
the Warrant Redemption Price, as relevant; and (D) the fact that the
certificates for the shares subject to redemption are to be surrendered in
exchange for payment of the Tag-Along Redemption Price or Warrant Redemption
Price, as relevant, at the principal office of the Corporation or at such other
place as the Corporation shall designate.
(e) On the Redemption Date, the shares of Class A Stock, Class B
Stock or Class C Stock required to be redeemed pursuant to the terms of this
Section 5 shall be deemed to have been so redeemed, notwithstanding that the
certificates representing such Class A Stock, Class B Stock or Class C Stock
shall not have been surrendered at the principal office of the Corporation or
such other place as the Corporation may have designated or that notice from the
Corporation shall not have been given by the Corporation or, if given, shall not
have been received by any holder of Class A Stock, Class B Stock or Class C
Stock whose shares of Stock are to be so redeemed. All certificates representing
the redeemed shares of Class A Stock, Class B Stock or Class C Stock, including
all certificates not so delivered by such Class A Stockholders, Class B
Stockholders or Class C Stockholders, shall be, or shall be deemed to be,
canceled by the Corporation as of the Redemption Date and shall thereafter no
longer be of any force or effect.
10
<PAGE>
6. Conversion.
----------
If the Initial Public Offering or a Sale of the Corporation (whether
pursuant to a Single Transaction Sale or a series of Staggered Sales) occurs,
each issued and outstanding share of Class A Stock, Class B Stock, Class C
Stock, and Class D Stock, not otherwise redeemed by the Corporation pursuant to
the mandatory redemption provisions of Section 5(a) or 5(b) hereof shall
automatically convert into one share of Common Stock effective on the Redemption
Date (or, in the case of an Initial Public Offering in which no Redemption Date
occurs, the IPO Date, or, in the case of a Sale of the Corporation in which no
Redemption Date occurs, then effective immediately prior to the consummation of
such Sale of the Corporation), but immediately after the redemptions and
issuances described in Section 5 (the "Conversion Date"). Prior to or on the
Conversion Date, each holder of shares of Class A Stock, Class B Stock, Class C
Stock, or Class D Stock shall surrender such holder's certificates evidencing
such shares at the principal office of the Corporation or at such other place as
the Corporation shall designate to such holder in writing at least ten (10)
Business Days prior to the Conversion Date, and shall, within ten (10) Business
Days after the Conversion Date, be entitled to receive from the Corporation
certificates evidencing the number of shares of Common Stock into which such
shares of Class A Stock, Class B Stock, Class C Stock or Class D Stock are
converted. On the Conversion Date, each holder of shares of Class A Stock,
Class B Stock, Class C Stock or Class D Stock shall be deemed to be a holder of
record of the Common Stock issuable upon such conversion, notwithstanding that
the certificates representing such Class A Stock, Class B Stock, Class C Stock
or Class D Stock shall not have been surrendered at the principal office of the
Corporation or such other place as the Corporation may have designated, that
notice from the Corporation shall not have been given or, if given, shall not
have been received by any holder of shares of Class A Stock, Class B Stock,
Class C Stock or Class D Stock, or that certificates evidencing such shares of
Common Stock shall not then be actually delivered to such holder. All
certificates representing the converted shares of Class A Stock, Class B Stock,
Class C Stock or Class D Stock, including all certificates not so delivered by
such Class A Stock, Class B Stock, Class C Stock or Class D Stockholders, shall
be, or shall be deemed to be, canceled by the Corporation as of the Conversion
Date and shall thereafter no longer be of any force or effect and the
Corporation shall not thereafter issue any such shares of Class A Stock, Class B
Stock, Class C Stock or Class D Stock.
7. Voting Rights.
-------------
(a) Holders of shares of Class A Stock and Common Stock shall be
entitled to one vote, and holders of Class D Stock shall be entitled to 319
votes, for each share of such stock held on all matters as to which stockholders
may be entitled to vote pursuant to the DGCL.
(b) Holders of Class B or Class C Stock shall not have any voting
rights, except that the holders of the Class B and Class C Stock shall have the
right to vote to the extent required under the laws of the State of Delaware.
Unless otherwise required by the terms of this Certificate of Incorporation,
paragraph (2) of subsection (b) of (S) 242 of the DGCL shall not entitle the
holders of any shares of Stock to vote as a class on the increase of the number
of authorized shares of such class of Stock or the decrease of the number of
authorized but not outstanding shares of such class of Stock. Except as
otherwise required by the DGCL and except
11
<PAGE>
as set forth in Section 7(c) below, the holders of any class of Stock entitled
to vote on any matter submitted to such holders for a vote shall vote together
as a single group and not as separate classes.
(c) Any amendment, alteration or repeal of any provision of this
Certificate of Incorporation, whether by merger, consolidation or otherwise,
that would alter or change the relative powers, preferences, or special rights
of any class of capital stock so as to affect the holders of the Class A Stock
materially and adversely, will require, in addition to any other approvals
required by the DGCL and this Certificate of Incorporation, the approval by the
holders of a majority of the then outstanding shares of Class A Stock, if any.
8. Liquidation; Dividends; Certain Adjustments; Merger.
---------------------------------------------------
(a) Subject to the rights of the holders of any shares of then
outstanding Preferred Stock, any distribution made upon the liquidation,
dissolution or winding up of the affairs of the Corporation, whether voluntary
or involuntary, shall be allocated pro rata based upon the number of shares of
--- ----
Stock held by each Stockholder. None of the sale, transfer, conveyance or lease
of all or substantially all of the property or business of the Corporation, the
merger or consolidation of the Corporation into or with any other corporation or
the merger or consolidation of any other corporation into or with the
Corporation shall be deemed to be a dissolution, liquidation or winding up,
voluntary or involuntary, for the purposes of this Section 8(a).
(b) Subject to the rights of the holders of any shares of then
outstanding Preferred Stock, holders of Class A Stock, Class B Stock, Class C
Stock, Class D Stock and Common Stock shall be entitled to share ratably as a
single class in all dividends and other distributions of cash or any other right
or property as may be declared thereon by the Board of Directors from time to
time out of assets or funds of the Corporation legally available therefor.
(c) Whenever, during the period that shares of Class A Stock shall be
outstanding, the Corporation shall (i) declare a dividend on shares of any class
of Stock in shares of such class of Stock or in securities convertible into or
exchangeable for shares of such class of Stock, (ii) subdivide the outstanding
shares of any class of Stock, (iii) combine the outstanding shares of any class
of Stock into a smaller number of shares, or (iv) issue any shares of any class
of Stock upon reclassification of such shares, a corresponding dividend,
subdivision, combination or other adjustment shall be made with respect to the
shares of the other class or classes of Stock if and to the extent necessary to
prevent the interests of the holders of Class A Stock from being materially and
adversely affected.
(d) In the event of a merger or consolidation of the Corporation with
or into another entity (whether or not the Corporation is the surviving entity),
the holders of each share of Class A Stock shall be entitled to receive not less
than the same per share consideration as the per share consideration, if any,
received by the holders of Class B, Class C and Class D Stock in such merger or
consolidation (unless, in addition to such other approvals, if any as may be
required by the DGCL and this Certificate of Incorporation, a different
treatment is approved by holders of a majority of the then outstanding shares of
Class A Stock).
12
<PAGE>
9. Legend.
------
(a) All certificates representing shares of Class A, Class B and
Class C Stock in the Corporation shall, in addition to other legends that may be
required by state or federal securities laws, bear the following legend:
"THESE SECURITIES ARE SUBJECT TO MANDATORY REDEMPTION BY THE
CORPORATION. AND SUCH REDEMPTION CAN BE ACCOMPLISHED WITHOUT THE CERTIFICATES
REPRESENTING SUCH SECURITIES BEING SURRENDERED AND WHETHER OR NOT THE
CORPORATION GIVES NOTICE OF SUCH REDEMPTION. THE CORPORATION WILL FURNISH
WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS THE POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF
EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS."
and the certificates representing shares of Class B and Class C Stock of the
Corporation shall bear the following additional legend:
"AS SPECIFIED IN THE CERTIFICATE OF INCORPORATION OF THE CORPORATION,
THE TRANSFERABILITY OF THESE SECURITIES IS SUBJECT TO RESTRICTION. THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES LAWS OF ANY STATE AND MAY BE REOFFERED AND SOLD ONLY IF SO REGISTERED
OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."
(b) All certificates representing shares of Class D Stock in the
Corporation shall, in addition to other legends that may be required by state or
federal securities laws, bear the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY BE REOFFERED AND SOLD ONLY IF
SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."
"AS SPECIFIED IN THE CERTIFICATE OF INCORPORATION OF THE CORPORATION,
THE TRANSFERABILITY OF THESE SECURITIES IS SUBJECT TO RESTRICTION. THE
CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS THE
POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS."
(c) All certificates representing shares of Common Stock in the
Corporation shall, in addition to other legends that may be required by state or
federal securities laws, bear the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY BE REOFFERED AND
13
<PAGE>
SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE."
"THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO
SO REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS."
provided that, as specified in Section 3(b) hereof, following the Initial Public
- -------- ----
Offering, such certificates shall bear the first legend set forth in this
Section 9 (c) above or another legend similar to it only if, in the opinion of
counsel to the Corporation, the imposition of such legend is required under the
Securities Act or other applicable law and, to the extent applicable, the second
and third legends.
10. Record Holders. The Corporation shall be entitled to recognize the
--------------
exclusive right of a person registered in its records as the holder of shares of
Class A, Class B, Class C, Class D or Common Stock and such record holders shall
be deemed the holders of such shares for all purposes.
ARTICLE V -- MANAGEMENT OF BUSINESS AND AFFAIRS
-----------------------------------------------
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation and of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by, or in the
manner provided in, the Bylaws. The phrase "whole Board" and the phrase "total
number of directors" shall be deemed to have the same meaning, to wit, the total
number of directors which the Corporation would have if there were no vacancies.
No election of directors need be by written ballot.
2. After the original or other Bylaws of the Corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of Section 109 of the DGCL, and, after the Corporation has received
any payment for any of its stock, the power to adopt, amend, or repeal the
Bylaws of the Corporation may be exercised by the Board of Directors of the
Corporation.
ARTICLE VI -- DIRECTOR 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, provided that (except as set forth below) this Article VI
does not eliminate or limit any such liability imposed by law: (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing
14
<PAGE>
violation of law; (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
DGCL hereafter is amended to authorize the further elimination or limitation of
the liability of directors, then the liability of a director of the Corporation
shall be further eliminated or limited pursuant to this Article VI to the
fullest extent permitted by the DGCL as so amended. Unless applicable law
requires otherwise, any repeal of this Article VI by the stockholders of the
Corporation, and any modification to this Article VI (other than one further
eliminating or limiting director personal liability) shall be prospective only
and shall not adversely affect any elimination of, or limitation on, the
personal liability of a director of the Corporation existing at the time of such
repeal or modification.
ARTICLE VII -- INDEMNIFICATION
------------------------------
1. Indemnification. To the fullest extent from time to time permitted by
---------------
Section 145 of the DGCL, the Corporation shall indemnify each Authorized
Representative who was or is a party or who was or is threatened to be made a
party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding (including, without limitation, one by or in the
right of the Corporation to procure a judgment in its favor), whether civil,
criminal, administrative or investigative (hereinafter a "Proceeding"), by
reason of the fact that he or she 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 or another corporation, partnership,
joint venture, trust, limited liability Corporation or other enterprise,
including service with respect to employee benefit plans, from and against any
and all expenses (including, without limitation, attorneys' fees and expenses),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such Authorized Representative or on such Authorized Representative's behalf
in connection with such Proceeding. The Corporation shall make such
indemnification to the Authorized Representative within 30 days after receipt by
the Corporation of the written request of the Authorized Representative for such
indemnification unless, within that time, the Corporation (by resolution of its
directors or stockholders or the written opinion of its independent legal
counsel) has determined that the Authorized Representative is not entitled to
such indemnification.
2. Advancement of Expenses. Expenses (including attorneys' fees and
-----------------------
expenses) incurred by an Authorized Representative or on such Authorized
Representative's behalf in defending any such Proceeding shall be paid by the
Corporation in advance of the final disposition of such Proceeding, within 10
days after receipt by the Corporation of the written request of the Authorized
Representative for such advance. To the extent required by law, the Corporation
may condition such advance upon the receipt of the written undertaking of such
Authorized Representative or on such Authorized Representative's behalf to repay
such amount if it shall ultimately be determined that the Authorized
Representative is not entitled to be indemnified by the Corporation. Such
undertaking shall not be required to be guarantied by any other person or
collateralized, and shall be accepted by the Corporation without regard to the
financial ability of the person providing such undertaking to make such
repayment.
3. Presumptions, Enforcement. For all purposes of this Article VII and to
-------------------------
the fullest extent permitted by applicable law, there shall be a rebuttable
presumption in favor of the
15
<PAGE>
Authorized Representative that all requested indemnifications and advancements
of expenses are reasonable and that all conditions to indemnification or expense
advancements, whether required under this Article VII or the DGCL, have been
satisfied. The rights to indemnification and advancements of expenses provided
by, or granted pursuant to, this Article VII shall be enforceable by any person
entitled to such indemnification or advancement of expenses in any court of
competent jurisdiction. Neither the failure of the Corporation (including the
directors, its independent legal counsel and its stockholders) to have made a
determination prior to the commencement of such action that such indemnification
or advancement of expenses is proper in the circumstances nor an actual
determination by the Corporation (including its directors, independent legal
counsel and its stockholders) that such person in not entitled to
indemnification 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
advancement of expenses, in whole or in part, in any such proceeding.
4. Definitions, Etc. As used in this Article VII, "Authorized
-----------------
Representative" means, collectively: (i) any person who is or was an officer or
director of the Corporation or is or was serving as a director, officer,
employee or agent or in any capacity at the request of the Corporation, for any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise; and (ii) any other person who may be designated by the Board
from time to time as an "authorized representative" for purposes of this Article
VII. The provisions of Section 145(h), (i) and (j) of the DGCL shall apply to
this Article VII.
5. Insurance. The Corporation may maintain insurance, at its expense, to
---------
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust, limited liability
Corporation or other enterprise against expense, liability or loss, whether or
not the Corporation would have the power to indemnify such person against such
expense, liability or loss under the DGCL or this Article VII.
6. Article Not Exclusive. The rights to indemnification and to the
---------------------
advancement of expenses conferred in this Article VII shall not be exclusive of
any other right which any Authorized Representative may have or hereafter
acquire under any statute, this Certificate of Incorporation, any by-law,
agreement (including any insurance policy), vote of stockholders or
disinterested directors or otherwise, both as to action in such Authorized
Representative's official capacity and as to action in another capacity while
holding such office. Nothing in this Article VII shall affect the right of the
Corporation to grant rights of indemnification, and the advancement of expenses,
to any other person or in any other circumstance.
7. Reliance. Each Authorized Representative shall be deemed to have acted
--------
in reliance upon the rights to indemnification and advancement of expenses
established in this Article VII. Unless applicable law requires otherwise, any
repeal or modification of this Article VII (other than a modification expanding
the right to indemnification and expense advancement in favor of Authorized
Representatives) shall be prospective only and shall not adversely affect any
right or benefit of an Authorized Representative to indemnification or expense
advancement at the time of such repeal or modification.
16
<PAGE>
8. Severability. If any portion of this Article VII shall be held to be
------------
illegal, invalid or otherwise unenforceable by any court having appropriate
jurisdiction, then the Corporation nevertheless shall indemnify and advance
expenses to each Authorized Representative to the fullest extent permitted by
the applicable portions of this Article VII not so held to be illegal, invalid,
unenforceable, and otherwise to the fullest extent permitted by law.
9. Related Service. 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.
10. Applicable Law. To the extent permitted by law, any person entitled
--------------
to indemnification or advancement of expenses as a matter of right pursuant to
this Article VII may elect to have the right to indemnification 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, or on the basis of the applicable law in effect at the time such
indemnification or advancement of expenses is sought. Such election shall be
made, by a notice in writing to the Corporation, at the time indemnification or
advancement of expenses is sought; provided, however, that if no such notice is
given, the right to indemnification or advancement of expenses shall be
determined by the law in effect at the time such indemnification or advancement
or expenses is sought.
ARTICLE VIII -- AMENDMENTS
--------------------------
From time to time any of the provisions of this certificate of
incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
certificate of incorporation are granted subject to the provisions of this
Article VIII.
17
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
which restates and integrates and further amends the provisions the provisions
of the Certificate of Incorporation of this Corporation, and which has been duly
adopted in accordance with Sections 241 and 245 of the DGCL, has been executed
by its duly authorized officer this 30th day of July, 1998.
HH ACQUISITION CORP.
By: /s/ Christopher J. O'Brien
--------------------------
Name: Christopher J. O'Brien
Title: President
18
<PAGE>
EXHIBIT 3.2.1
CERTIFICATE OF INCORPORATION
OF
[ ]
1. The name of the corporation is [ ].
2. The address of its registered office in the State of Delaware is 1209
Orange Street in the City of Wilmington, County of New Castle. The name of its
registered agent is The Corporation Trust Company.
3. The nature of the business or purpose to be conducted or promoted is:
To operate, manage, supervise and otherwise deal with health care
related real properties, including but not limited to nursing homes, extended
care facilities, retirement centers, psychiatric, substance abuse and other
specialty hospitals and medical office buildings or facilities; to acquire,
improve, hold, sell, exchange or otherwise deal in real estate situated in any
location in the United States and in any real property appurtenant thereto; to
acquire, own, manage, sell and otherwise deal with one or more entities which
operate, manage, supervise and otherwise deal with real estate, including but
not limited to health care related real properties; to be a partner in any
business enterprise which the corporation would have power to conduct by itself;
and to engage in any lawful act or activity for which corporations may be
organized under the General Corporate Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is one thousand (1,000) and the par value of each of such
shares is one dollar ($1.00) amounting in the aggregate to one thousand dollars
($1,000.00).
<PAGE>
5. The name and address of the incorporator are as follows:
Name Mailing Address
---- ---------------
Nicholas S. Hodge Gaston Snow & Ely Bartlett
One Federal Street
Boston, MA 02110
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
To make, alter or repeal the By-Laws of the corporation.
8. Elections of directors need not be by written ballot unless the By-
Laws of the corporation shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the By-Laws of the corporation.
9. To the fullest extent permitted by the General Corporation Law of the
State of Delaware as it now exists or may hereafter be amended, no director of
the corporation shall be liable to the corporation or its stockholders for
monetary damages arising from a breach of fiduciary duty owed as a director to
the corporation or its stockholders.
10. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do
2
<PAGE>
hereby make this certificate, hereby declaring and certifying that this is my
act and deed and the facts herein stated are true, and accordingly have hereunto
set my hand and seal this 9th day of April, 1987.
/s/ Nicholas Holdge
--------------------
Nicholas S. Hodge
3
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
[ ]
Harborside Healthcare Corporation, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That Article First of the Certificate of Incorporation be and it
hereby is amended to read as follows:
The name of the corporation is [ ].
SECOND: That Article Third of the Certificate of Incorporation be and it
hereby is amended to read as follows:
The nature of the business or purpose to be conducted or promoted is:
To acquire, own, sell, operate, manage, supervise or otherwise deal with
health care related real properties including but not limited to nursing homes,
extended care facilities, retirement centers, psychiatric, substance abuse and
other specialty hospitals and medical office buildings or facilities; to
acquire, own, manage, sell and otherwise deal with one or more entities which
acquire, own, sell, operate, manage, supervise and otherwise deal with health
care related real properties; to be a general or limited partner in any business
enterprise which the corporation would have the power to conduct by itself; to
originate, process, service, co-insure and otherwise deal with mortgage loans;
to
4
<PAGE>
acquire, own, manage, sell or otherwise deal with one or more entities which
originate, process, service, co-insure or otherwise deal with mortgage loans; to
acquire, improve, hold, sell, exchange or otherwise deal in real estate situated
in any location in the United States and in any real property appurtenant
thereto; and to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
THIRD: That the amendment was fully adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said [ ] has caused this
certificate to be signed by Douglas Krupp, President, this 27th day of May,
1987, and attested by George Krupp, its Secretary.
[ ]
By: /s/ Douglas Krupp
--------------------------
Douglas Krupp, President
ATTEST:
/s/ George Krupp
- -----------------------
George Krupp, Secretary
5
<PAGE>
CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE
AND OF REGISTERED AGENT
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is
[ ]
2. The registered office of the corporation within the State of Delaware
is hereby changed to 32 Loockerman Square, Suite L-100, City of Dover
19901, County of Kent.
3. The registered agent of the corporation within the State of Delaware
is hereby changed to The Prentice-Hall Corporation System, Inc., the
business office of which is identical with the registered office of
the corporation as hereby changed.
4. The corporation has authorized the changes hereinbefore set forth by
resolution of its Board of Directors.
Signed on November 30, 1989.
/s/ Stephen L. Guillard
-------------------------------
Stephen L. Guillard - President
Attest:
/s/ David Moskowitz
- ---------------------------
David Moskowitz -Secretary
6
<PAGE>
SCHEDULE TO EXHIBIT 3.2.1
-------------------------
The following entities have the Form of Certificate of Incorporation included as
Exhibit 3.2.1, with any changes from the form noted:
1. Harborside Healthcare Corporation (changed its name to KHI Corporation)
2. Harbor Health I Corporation (changed its name to Harborside Health I
Corporation)
Change from Form: Certificate of Amendment to Certificate of Incorporation
is signed by Laurence Gerber, President and attested to by Allen Binger,
Secretary and changes Harbor Health I Corporation's name to Harborside
Health I Corporation
<PAGE>
EXHIBIT 3.2.2
CERTIFICATE OF INCORPORATION
OF
SAILORS, INC.
The undersigned incorporator, in order to form a corporation under the
General Corporation Law of the State of Delaware (the "General Corporation
Law"), certifies as follows:
1. Name. The name of the corporation is Sailors, Inc. (the
----
"Corporation").
2. Address; Registered Office and Agent. The address of the
------------------------------------
Corporation's registered office is 9 East Loockerman Street, City of Dover,
County of Kent, State of Delaware; and its registered agent at such address is
National Corporate Research, Ltd.
3. Purposes. The purpose of the Corporation is to engage in any
--------
lawful act or activity for which corporations may be organized under the General
Corporation Law.
4. Number of Shares. The total number of shares of stock that the
----------------
Corporation shall have authority to issue is: One Thousand (1,000), all of
which shall be shares of Common Stock of the par value of One Cent ($0.01) each.
5. Name and Mailing Address of Incorporator. The name and mailing
----------------------------------------
address of the incorporator are: Raphael M. Russo, 1285 Avenue of the Americas,
2nd Floor, New York, New York 10019-6064.
6. Number of Directors. The number of directors constituting the
-------------------
Board of Directors is initially three, and may be changed from time to time in
accordance with the By-laws of the Corporation. The names and addresses of the
initial directors, who are to serve until
<PAGE>
the first annual meeting of the stockholders or until their successors are
elected and qualified, are:
Name Mailing Address
---- ---------------
Douglas Krupp c/o Harborside Healthcare Corporation
470 Atlantic Avenue
Boston, MA 02210
Laurence Gerber c/o Harborside Healthcare Corporation
470 Atlantic Avenue
Boston, MA 02210
Stephen Guillard c/o Harborside Healthcare Corporation
470 Atlantic Avenue
Boston, MA 02210
7. Election of Directors. Members of the Board of Directors of the
---------------------
Corporation (the "Board") may be elected either by written ballot or by voice
vote.
8. 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, provided that this provision shall
not eliminate or limit the liability of a director (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 General Corporation Law
or (d) for any transaction from which the director derived any improper personal
benefits.
Any repeal or modification of the foregoing provision shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
2
<PAGE>
9. Indemnification.
---------------
9.1 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
"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, at the request of the Corporation, is or was
serving as a director or officer of any other corporation or in a capacity with
comparable authority or responsibilities for any partnership, joint venture,
trust, employee benefit plan or other enterprise (an "Other Entity"), against
judgments, fines, penalties, excise taxes, amounts paid in settlement and costs,
charges and expenses (including attorneys' fees, disbursements and other
charges). Persons who are not directors or officers of the Corporation (or
otherwise entitled to indemnification pursuant to the preceding sentence) may be
similarly indemnified in respect of service to the Corporation or to an Other
Entity at the request of the Corporation to the extent the Board at any time
specifies that such persons are entitled to the benefits of this Section 9.
9.2 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 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
3
<PAGE>
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.
9.3 The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Section 9
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 Certificate of Incorporation, the
By-laws of the Corporation (the "By-laws"), any agreement, 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.
9.4 The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Section 9
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.
9.5 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
4
<PAGE>
provisions of this Section 9, the By-laws or under section 145 of the General
Corporation Law or any other provision of law.
9.6 The provisions of this Section 9 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 9 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 repeal or modification of this Section 9 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.
9.7 The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Section 9
shall be enforceable by any person entitled to such indemnification or
reimbursement or advancement of expenses in any court of competent jurisdiction.
The burden of proving that such indemnification or reimbursement or advancement
of expenses is not appropriate shall be on the Corporation. 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
5
<PAGE>
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.
9.8 Any director or officer of the Corporation serving in any
capacity of (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.
9.9 Any person entitled to be indemnified or to reimbursement or
advancement of expenses as a matter of right pursuant to this Section 9 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.
10. Adoption, Amendment and/or Repeal of By-Laws. The Board 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 the Board may be
- -------- -------
amended or repealed, and any By-
6
<PAGE>
laws may be adopted, by the stockholders of the Corporation by vote of a
majority of the holders of shares of stock of the Corporation entitled to vote
in the election of directors of the Corporation.
WITNESS the signature of this Certificate this 6th day of March,
1997.
/s/ Raphael M. Russo
-----------------------------
Rapahel M. Russo, Incorporator
7
<PAGE>
CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE
AND OF REGISTERED AGENT
It is hereby certified that:
1. The name of the corporation (hereinafter called this
"corporation") is
Sailors, Inc.
2. The registered office of the corporation within the State of
Delaware is hereby changed to 1013 Centre Road, City of Wilmington 19805, County
of New Castle.
3. The registered agent of the corporation within the State of
Delaware is hereby changed to Corporation Service Company, the business office
of which is identical with the registered office of the corporation as hereby
changed.
Signed on April 1, 1998
SAILORS, INC.
By: /s/ Scott D. Spelfogel
---------------------------
Scott D. Spelfogel
Secretary
<PAGE>
EXHIBIT 3.2.3
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL J. CONNOLLY, SECRETARY
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108
ARTICLES OF ORGANIZATION
(UNDER G.L. CH. 156B)
ARTICLE I
The name of the corporation is:
ARTICLE II
The purpose of the corporation is to engage in the following business
activities:
A. The character of the business intended to be transacted by the Corporation
is to acquire, invest in, maintain, operate, lease, improve, hold,
encumber, sell, manage and otherwise deal with one or more long term care
facilities, including the real property and intangible personal property
associated with such facilities; and to engage in such related activities
as are necessary, convenient, or incidental to the above.
B. To engage in and carry on any business permitted to corporations under
Massachusetts General Laws, Chapter 156B, now in effect or as hereafter
amended, or any successor provision of such Chapter 156B.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on seperate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch. Additions to more than one
article may be continued on a sheet so long as each article requiring each such
addition is clearly indicated.
<PAGE>
ARTICLE III
The type and classes of stock and the total number of shares and par value, if
any, of each type and class of stock which the corporation __ authorized to
issue is as follows:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- ------------------------------------- -----------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- ------------------------------------- -----------------------------------------
COMMON: COMMON
Series A 150,000
Series B 50,000
- ------------------------------------- -----------------------------------------
PREFERRED: PREFERRED
- ------------------------------------- -----------------------------------------
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established with any class.
Common Stock
Series A - voting stock
Series B - non-voting stock
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are as follows:
NONE
ARTICLE VI
Other lawful provisions, if any, for the conduct and regulation of business and
affairs of the corporation, for its voluntary dissolution, or for limiting,
defining, or regulating the powers of the corporation, or of its directors or
stockholders, or of any class of stockholders: (If there are no provisions
state "None".)
See Page 6A attached hereto and made a part hereof.
Note: The proceedng six articles are considered to be permanent and may ONLY
be changed by filing appropriate Articles of Amendment.
<PAGE>
Meetings of stockholders may be held anywhere in the United States as shall
be determined from time to time by the president or the directors and stated in
the notice of the meeting.
The Bylaws may provide that the directors may make, amend or repeal the
Bylaws, in whole or in part, except with respect to any provision thereof which
by law, by the Articles of Organization or by the Bylaws requires action by the
stockholders.
The corporation may enter into contracts and otherwise transact business as
vendor, purchaser or otherwise with its directors, officers and stockholders and
with corporations, joint stock companies, trusts, firms and associations in
which they are or may be or become interested as directors, officers,
shareholders, members, trustees, beneficiaries or otherwise as freely as though
such adverse interest did not exist even though the vote, action or presence of
such director, officer or stockholder may be necessary to obligate the
corporation upon such contract or transaction; and no such contract or
transaction shall be avoided and no such director, officer or stockholder shall
be held liable to account to the corporation or to any creditor or stockholder
of the corporation for any profit or benefit realized by him through any such
contract or transaction by reason of such adverse interest nor by reason of any
fiduciary relationship of such director, officer or stockholder to the
corporation arising out of such office or stock ownership; provided (in the case
of directors and officers but not in the case of any stockholder who is not a
director or officer of the corporation) the nature of the interest of such
director or officer, though not necessarily the details or extent thereof, be
known by or disclosed to the directors. Ownership of or beneficial interest in
a minority of the stock or securities of another corporation, joint stock
company, trust, firm or association shall not be deemed to constitute an
interest adverse to this corporation in such other corporation, joint stock
company, trust, firm or association and need not be disclosed. A general notice
that a director or officer of the corporation is interested in any corporation,
joint stock company, trust, firm or association shall be sufficient disclosure
as to such director or officer with respect to all contracts and transactions
with that corporation, joint stock company, trust, firm or association. In any
event the authorization or ratifying vote of a majority of the capital stock of
the corporation outstanding and entitled to vote passed at a meeting duly called
and held for the purpose shall validate any such contract or transaction as
against all stockholders of the corporation, whether of record or not at the
time of such vote, and as against all creditors and other claimants, under the
corporation, and no contract or transaction shall be avoided by reason of any
provision of this paragraph which would be valid but for these provisions.
The corporation shall, to the extent legally permissible, indemnify each of
its directors and officers and persons who serve at its request as directors or
officers of another organization in which it directly or indirectly owns shares
or of which it is a creditor against all liabilities (including expenses)
imposed upon or reasonably incurred by him in connection with any action, suit
or other proceeding in which he may be involved or with which he may be
threatened, while in office or thereafter, by reason of his acts or omissions as
such director or officer, unless in any proceeding, he shall be finally adjudged
not to have acted in good faith in the reasonable belief that his action was in
the best interest of the corporation; provided, however, that such
--------
indemnification shall not cover liabilities in connection with any matter which
shall be disposed of through a compromise payment by such director or officer,
pursuant to a consent decree or otherwise, unless such compromise shall be
approved as in the best interests of the corporation, after notice that it
involves such indemnification, (a) by a vote of the directors in which no
interested director participates, or (b) by a vote or the written approval of
the holders of a majority of the outstanding stock at the time having the right
to vote for directors, not counting as outstanding any stock owned by any
interested director or officer. Such indemnification may include payment by the
corporation of expenses incurred in defending a civil or criminal action or
proceeding in advance of the final disposition of such action or proceeding,
upon receipt of an undertaking by the person indemnified to repay such payment
if he shall be adjudicated to be not entitled to indemnification.
The right of indemnification hereby provided shall not be exclusive of or
affect other rights to which any director or officer may be entitled. As used
in this paragraph, the terms "director" and "officer" include their respective
heirs, executors and administrators, and an "interested" director or officer is
one against whom as such the proceeding in question or another proceeding on the
same or similar grounds is then pending.
<PAGE>
Indemnification of employees and other agents of the corporation (including
persons who serve at its request as employees or other agents of another
organization in which it owns shares or of which it is a creditor) may be
provided by the corporation to whatever extent shall be authorized by the
directors before or after the occurrence of any event as to or in consequence of
which indemnification may be sought. An indemnification to which a person is
entitled under these provisions may be provided although the person to be
indemnified is no longer a director, officer, employee or agent of the
corporation or of such other organization.
The directors may determine, in whole or in part, the preferences, voting
powers, qualifications, and/or special or relative rights or privileges of: (1)
any class of stock before the issuance of any shares of that class; or (2) one
or more series within a class before the issuance of any shares of that series,
provided; however, that each series of a class shall have a distinguishing
designation.
4
<PAGE>
ARTICLE VII
The effective date of organization of the corporation shall be the date approved
and filed by the Secretary of the Commonwealth. If a later effective date is
desired, specify such date which shall not be more than thirty days after the
date of filing.
The information contained in ARTICLE VIII is NOT a PERMANENT part of the
Articles of Organization and may be changed ONLY by filing the appropriate form
provided therefor.
ARTICLE VIII
a. The post office address of the corporation IN MASSACHUSETTS is:
470 Atlantic Avenue, 13th Floor, Boston, MA 02210
b. The name, residence and post office address (if different) of the directors
and officers of the corporation are as follows:
<TABLE>
<CAPTION>
NAME RESIDENCE POST OFFICE ADDRESS
<S> <C> <C> <C>
PRESIDENT: Stephen L. Guillard 11 Power House Road Dover, MA 02030
TREASURER: Clyde A. Thayer 33 Westgate Road Framingham, MA 01701
CLERK: David Moskowitz 8 Grasmere Road Needham, MA 02194
DIRECTORS: Stephen L. Guillard 11 Power House Road Dover, MA 02030
Stephen Puleo 65 Angela Road Canton, MA 02021
David Moskowitz 8 Grasmere Road Needham, MA 02194
</TABLE>
c. The fiscal year of the corporation shall end of the last day of the month
of December.
d. The name and BUSINESS address of the RESIDENT AGENT of the corporation, if
any, is:
Not applicable
ARTICLE IX
By-laws of the corporation have been duly adopted and the president, treasurer,
clerk and directors whose names are set forth above, have been duly elected.
IN WITNESS WHEREOF and under the pains and penalties of perjury, I XXX whose
signature(s) appear below as incorporator and whose names and the business or
residential address ARE CLEARLY TYPED OR PRINTED beneath each signature do
hereby associate with the intention of forming this corporation under the
provisions of General Laws Chapter 156B and do hereby sign these Articles of
Organization as incorporator(s) this 18th day of December 1989.
/s/ SCOTT D. SPELFOGEL
- --------------------------------------------------------------------------------
Scott D. Spelfogel, Sole Incorporator
- --------------------------------------------------------------------------------
470 Atlantic Avenue, 13th Floor
Boston, MA 02210
- --------------------------------------------------------------------------------
NOTE: If an already-existing corporation is acting as incorporator, type in
the exact name of the corporation, the state or other jurisdiction where it was
incorporated, the name of the person signing on behalf of said corporation and
the title he/she holds or other authority by which such action is taken.
<PAGE>
THE COMMON WEALTH OF MASSACHUSETTS
ARTICLES OF ORGANIZATION
GENERAL LAWS, CHAPTER 156B, SECTION 12
==================================================================
I hereby certify that, upon an examination of these articles of
organization, duly submitted to me, it appears that the provisions of the
General Laws relative to the organization of corporation have been complied
with, and I hereby approve said articles; and the filing fee in the amount
of $200 having been paid, said articles are deemed to have been filed with
me this 19th day of November 1989.
Effective date
MICHAEL J. CONNOLLY
Secretary of State
FILING FEE: 1/10 OF 1% of the total amount of the authorized capital
stock, but not less than $200.00. For the purpose of filing,
shares of stock with a par value less than one dollar or no par
stock shall be deemed to have a par value of one dollar per
share.
PHOTOCOPY OF ARTICLES OF ORGANIZATION TO BE SENT
Scott D. Spelfogel, Esq.
470 Atlantic Avenue, 13th Floor
Boston, MA 02210
Telephone (617) 574-8385
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL J. CONNOLLY, SECRETARY
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
FEDERAL IDENTIFICATION NO. 04-3072217
----------
<TABLE>
<S> <C>
WE Stephen L. Guillard
Scott D. Spelfogel President and Assistant Clerk of
- ------------------------------------------------------------------------------------------------------------------------
(EXACT Name of Corporation )
located at : 470 Atlantic Avenue, Boston, MA 02210
---------------------------------------------------------------------------------------------------------
(MASSACHUSETTS Address of Corporation)
do hereby certify that these ARTICLES OF AMENDMENT affecting Articles NUMBERED:____________________________
3,4,6
- ------------------------------------------------------------------------------------------------------------------------
(Number those articles 1,2,3,4,5 and/or 6 being amended hereby)
of the Articles of Organization were duly adopted at a meeting held on 2-12 1990, by vote of
100 shares of Common Series A out of 100 shares outstanding
- ---------- ------------------------------------ ----------------
(type, class & series, (if any)
shares of out of shares outstanding,
- ---------- ------------------------------------ ----------------
(type, class & series, (if any)
shares of out of shares outstanding
- ---------- ------------------------------------ ----------------
(type, class & series, (if any)
</TABLE>
CROSS OUT being at least two-thirds of each type, class or series
INAPPLICABLE outstanding and entitled to vote thereon and of each type,
class or series of stock whose rights are adversely affected
CLAUSE thereby:/1/
C [_]
P [_]
M [_]
R.A. [_]
Note: If the space provided under any Amendment or item on this
form is insufficient, additions shall be set forth on separate 8
1/2 x 11 sheets of paper leaving a left-hand margin of at least 1
inch for binding. Additions to more than one Amendment may be
continued on a single sheet so long as each Amendment requiring
each such addition is clearly indicated.
_________________
/1/ For amendments adopted pursuant to Chapter 156B, Section 70.
<PAGE>
3. To CHANGE the number of shares and the par value (if any) of any type,
class or series of stock which the corporation is authorized to issue, fill in
the following:
The total presently authorized is:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- ------------------------------------- ------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- ------------------------------------- ------------------------------------------
COMMON: COMMON
Series A 150,000
Series B 50,000
- ------------------------------------- ------------------------------------------
PREFERRED: PREFERRED
- ------------------------------------- -----------------------------------------
CHANGE the total authorized to:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- ------------------------------------- ------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- ------------------------------------- ------------------------------------------
COMMON: 200,000 COMMON
- ------------------------------------- ------------------------------------------
PREFERRED: PREFERRED
- ------------------------------------- ------------------------------------------
<PAGE>
PAGE 6A-R
Meetings of stockholders may be held anywhere in the United States as shall
be determined from time to time by the president or the directors and stated in
the notice of the meeting.
The corporation may enter into contracts and otherwise transact business as
vendor, purchaser or otherwise with its directors, officers and stockholders and
with corporations, joint stock companies, trusts, firms and associations in
which they are or may be or become interested as directors, officers,
shareholders, members, trustees, beneficiaries or otherwise as freely as though
such adverse interest did not exist even though the vote, action or presence of
such director, officer or stockholder may be necessary to obligate the
corporation upon such contract or transaction; and no such contract or
transaction shall be avoided and no such director, officer or stockholder shall
be held liable to account to the corporation or to any creditor or stockholder
of the corporation for any profit or benefit realized by him through any such
contract or transaction by reason of such adverse interest nor by reason of any
fiduciary relationship of such director, officer or stockholder to the
corporation arising out of such office or stock ownership; provided (in the case
of directors and officers but not in the case of any stockholder who is not a
director or officer of the corporation) the nature of the interest of such
director or officer, though not necessarily the details or extent thereof, be
known by or disclosed to the directors. Ownership of or beneficial interest in
a minority of the stock or securities of another corporation, joint stock
company, trust, firm or association shall not be deemed to constitute an
interest adverse to this corporation in such other corporation, joint stock
company, trust, firm or association and need not be disclosed. A general notice
that a director or officer of the corporation is interested in any corporation,
joint stock company, trust, firm or association shall be sufficient disclosure
as to such director or officer with respect to all contracts and transactions
with that corporation, joint stock company, trust, firm or association. In any
event the authorization or ratifying vote of a two-thirds majority of the
capital stock of the corporation outstanding and entitled to vote passed at a
meeting duly called and held for the purpose shall validate any such contract or
transaction as against all stockholders of the corporation, whether of record or
not at the time of such vote, and as against all creditors and other claimants,
under the corporation, and no contract or transaction shall be avoided by reason
of any provision of this paragraph which would be valid but for these
provisions.
The corporation shall, to the extent legally permissible, indemnify each of
its directors and officers and persons who serve at its request as directors or
officers of another organization in which it directly or indirectly owns shares
or of which it is a creditor, against all liabilities (including expenses)
imposed upon or reasonably incurred by him in connection with any action, suit
or other proceeding in which he may be involved or with which he may be
threatened, while in office or thereafter, by reason of his acts or omissions as
such director or officer, unless in any proceeding, he shall be finally adjudged
not to have acted in good faith in the reasonable belief that his action within
the best interest of the corporation; provided, however, that such
--------
indemnification shall not cover liabilities in connection with any matter which
shall be disposed of through a compromise payment by such director or officer,
pursuant to a consent decree or otherwise, unless such compromise shall be
approved as in the best interests of the corporation, after notice that it
involves such indemnification, (a) by a vote of the directors in which no
interested director participates, or (b) by a vote or the written approval of
the holders of a two-thirds majority of the outstanding stock at the time having
the right to vote for directors, not counting as outstanding any stock owned by
any interested director or officer. Such indemnification may include payment by
the corporation of expenses incurred in defending a civil or criminal action or
proceeding in advance of the final disposition of such action or proceeding,
upon receipt of an undertaking by the person indemnified to repay such payment
if he shall be adjudicated to be not entitled to indemnification.
The right of indemnification hereby provided shall not be exclusive of or
affect other rights to which any director or officer may be entitled. As used
in this paragraph, the terms "director" and "officer" include their respective
heirs, executors and administrators, and an "interested" director or officer is
one against whom as such the proceeding in question or another proceeding on the
same or similar grounds is then pending.
Indemnification of employees and other agents of the corporation (including
persons who serve at its request as employees or other agents of another
organization in which it owns shares or of which it is a creditor) may be
provided by the corporation to whatever extent shall be authorized by the
directors before or after the occurrence of any event as to or in consequence of
which indemnification may be sought. An indemnification to
<PAGE>
which a person is entitled under these provisions may be provided although the
person to be indemnified is no longer a director, officer, employee or agent of
the corporation or of such other organization.
The directors may determine, in whole or in part, the preferences, voting
powers, qualifications, and/or special or relative rights or privileges of: (1)
any class of stock before the issuance of any shares of that class: or (2) one
or more series within a class before the issuance of any shares of that series,
provided; however, that each series of a class shall have a distinguishing
designation.
10
<PAGE>
4. Delete Article IV. Article IV should read "NONE".
6. Change other lawful provisions by deleting pages 6A and 6B of the
Articles of Organization and replacing them with pages 6A-R and 6B-R attached
hereto and made a part hereof.
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date. EFFECTIVE
DATE:_______________________________
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto
signed our name on this 12th day of February, in the year 1990.
/s/ Stephen L. Guillard President
- -----------------------------------------------------------
/s/ Scott D. Spelfogel Clerk/Assistant Clerk
- -----------------------------------------------------------
<PAGE>
FEDERAL IDENTIFICATION FEDERAL IDENTIFICATION
NO. 04-3316448 NO. 04-3072217
---------- ----------
THE COMMON WEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
==========================================================
I hereby approve within the articles of amendment and, the filing fee
in the amount of $300.00 having been paid, said articles are deemed to have
been filed with me this 14th day of February 1990.
MICHAEL J. CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF ORGANIZATION TO BE SENT
TO:
Scott D. Spelfogel, Esq.
470 Atlantic Avenue, 13th Floor
Boston, MA 02210
Telephone (617) 574-8385
* Delete the inapplicable word. ** If there are no provisions state "None".
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper with a left margin of at least 1 inch. Additions to more than one article
may be made on a single sheet as long as each article requiring each addition is
clearly indicated.
<PAGE>
FEDERAL IDENTIFICATION FEDERAL IDENTIFICATION
NO. 04-3316448 NO. 04-3072217
---------- ----------
THE COMMONWEALTH OF MASSACHUSETTS
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF *MERGER
(GENERAL LAWS, CHAPTER 156B, SECTION 78)
*merger of [ ] CORP.
[ ] CORP.
the constituent corporations, into
[ ] CORP.,
*one of the constituent corporations.
The undersigned officers of each of the constituent corporations certify under
the penalties of perjury as follows:
1. An agreement of *merger has been duly adopted in compliance with the
requirements of General Laws, Chapter 156B, Section 78, and will be kept as
provided by Subsection (d) thereof. The *surviving corporation will furnish a
copy of said agreement to any of its stockholders, or to any person who was a
stockholder of any constituent corporation, upon written request, and without
charge.
2. The effective date of the *merger determined pursuant to the agreement of
*merger shall be the date approved and filed by the Secretary of the
Commonwealth. If a later effective date is desired, specify such date which
shall not be more than thirty days after the date of filing:
3. (FOR A MERGER)
**The following amendments to the Articles of Organization of the surviving
corporation have been effected pursuant to the agreement of merger:
None.
* Delete the inapplicable word. ** If there are no provisions state "None".
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper with a left margin of at least 1 inch. Additions to more than one article
may be made on a single sheet as long as each article requiring each addition is
clearly indicated.
<PAGE>
(FOR A CONSOLIDATION)
(a) The purpose of the resulting corporation is to engage in the following
business activities:
(b) State the total number of shares and the par value, if any, of each class
of stock which the resulting corporation is authorized to issue:
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
Common: Common
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
**(c) If more than one class of stock is authorized, state a distinguishing
designation for each class and provide a description of the preferences, voting
powers, qualifications, and special or relative rights or privileges of each
class and of each series then established.
**(d) The restrictions, if any, on the transfer of stock contained in the
agreement of consolidation are:
**(e) Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
**If there are no provisions state "None".
<PAGE>
4. The information contained in Item 4 is not a permanent part of the Articles
of Organization of the *surviving corporation.
(a) The street address of the *surviving corporation in Massachusetts is: (post
office boxes are not acceptable)
470 Atlantic Avenue, Boston, MA 02210
(b) The name, residential address, and post office address of each director and
officer of the *surviving corporation is:
<TABLE>
<CAPTION>
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
<S> <C> <C> <C>
President: Stephen L. Guillard 11 Powder House Road Dover, MA 02030
Treasurer: William H. Stephan #18 Constellation Wharf Charlestown, MA 02129
Clerk: Scott D. Spelfogel 27 Sentry Hill Road Sharon, MA 02067
Directors: Stephen L. Guillard 11 Powder House Road Dover, MA 02030
Douglas Krupp 33 Wachusett Road Wellesley, MA 02181
Laurence Gerber 46 Hillcrest Road Weston, MA 02193
</TABLE>
(c) The fiscal year (i.e. tax year) of the *surviving corporation shall end of
the last day of the month of:
December
(d) The name and business address of the resident agent, if any, of the
*surviving corporation is:
Not applicable
The undersigned officers of the several constituent corporations listed above
further state under the penalties of perjury as to their respective corporations
that the agreement of *merger has been duly executed on behalf of such
corporation and duly approved by the stockholders of such corporation in the
manner required by General Laws, Chapter 156B, Section 78.
/s/ Stephen L. Guillard, *President
- -----------------------
/s/ Scott D. Spelfogel, *Clerk / *Assistant Clerk
- ----------------------
of BELMONT NURSING-II CORP.
(Name of constituent corporation)
/s/ Stephen L. Guillard, *President
- -----------------------
/s/ Scott D. Spelfogel, *Clerk / *Assistant Clerk
- ----------------------
of BELMONT NURSING CENTER CORP.
(Name of constituent corporation)
**Delete the inapplicable words.
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF *MERGER
(GENERAL LAWS, CHAPTER 156B, SECTION 78)
================================================================
I hereby approve the within Articles of *Merger and, the filing fee in the
amount of $250, having been paid, said articles are deemed to have been filed
with me this 14th day of June, 1996.
Effective date:_________________________________________________
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
<PAGE>
SCHEDULE TO EXHIBIT 3.2.3
-------------------------
The following entities have the Form of Articles of Organization, Articles of
Amendment and Articles of Merger included as Exhibit 3.2.3, with any changes
from the form noted:
1. Belmont Nursing Center Corporation
Changes from Form:
Articles of Merger involve merger between: Belmont Nursing-II Corp. and
Belmont Nursing Center Corp. (constituent corporation)
2. Orchard Ridge Nursing Center Corporation
Changes from Form:
Articles of Merger involve merger between: Orchard Ridge-II Corp. and
Orchard Ridge Nursing Center Corp. (constituent corporation)
Officers and Directors listed in the Articles of Organization are as
follows:
President: S. Guillard
Treasurer: C. Thayer
Clerk: D. Moskowitz
Directors: S. Guillard, S. Puleo, D. Moskowitz
Officers and Directors listed in the Articles of Merger are as follows:
President: S. Guillard
Treasurer: W. Stephan
Clerk: S. Spelfogel
Directors: S. Guillard, D. Krupp, L. Gerber
3. Oakhurst Manor Nursing Center Corporation
Changes from Form:
Articles of Merger involve merger between: Oakhurst-II Corp. and
Oakhurst Manor Nursing Center Corp. (constituent corporation)
Officers and Directors listed in the Articles of Organization are as
follows:
President: S. Guillard
Treasurer: C. Thayer
Clerk: D. Moskowitz
Directors: S. Guillard, S. Puleo, D. Moskowitz
Officers and Directors listed in the Articles of Merger are as follows:
President: S. Guillard
Treasurer: W. Stephan
Clerk: S. Spelfogel
Directors: S. Guillard, D. Krupp, L. Gerber
<PAGE>
EXHIBIT 3.2.4
The Commonwealth of Massachusetts
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B)
ARTICLE I
The name of the corporation is:
[ ]
ARTICLE II
The purpose of the corporation is to engage in the following business
activities:
A. To acquire, develop, construct, own, sell, operate, manage, supervise or
otherwise deal with health care related real properties including but not
limited to nursing homes, extended care facilities, assisted living
facilities, retirement centers, psychiatric, substance abuse and other
specialty hospitals and medical office buildings or facilities; to acquire,
own, manage, sell and otherwise deal with one or more entities which
acquire, develop, construct, own, sell, operate, manage, supervise and
otherwise deal with health care related real properties; to be a general or
limited partner in any business enterprise which the corporation would have
the power to conduct by itself; to originate, process, service, co-insure
and otherwise deal with mortgage loans; to acquire, own, manage, sell or
otherwise deal with one or more entities which originate, process, service,
co-insure or otherwise deal with mortgage loans; to acquire, develop,
construct, improve, hold, sell, exchange or otherwise deal in real estate
situated in any location in the United States and in any real property
appurtenant thereto.
B. To engage in and carry on any business permitted to corporations under
Massachusetts General Laws, Chapter 156B, now in effect or as hereafter
amended, or any successor provision of such Chapter 156B.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper with a left margin of at least 1 inch. Additions to more than one article
may be made on a single sheet so long as each article requiring each addition is
clearly indicated.
<PAGE>
ARTICLE III
The types and classes of stock and the total number of shares and par value, if
any, of each type and class of stock which the corporation is authorized to
issue is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: 200,000 Common:
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Preferred: Preferred:
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established within any class:
None
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are:
None
ARTICLE VI
/*/Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporate, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
See Page 6A attached hereto and made a part hereof.
____________________________
/*/ If there are no provisions state "None".
Note: The preceding six (6) articles are considered to be permanent and may ONLY
be changed by filing appropriate Articles of Amendment.
<PAGE>
Meetings of stockholders may be held anywhere in the United States as shall be
determined from time to time by the president or the directors and stated in the
notice of the meeting.
The Bylaws may provide that the directors may make, amend or repeal the
Bylaws, in whole or in part, except with respect to any provision thereof which
by law, by the Articles of Organization or by the Bylaws requires action by the
stockholders.
The corporation may enter into contracts and otherwise transact business as
vendor, purchaser or otherwise with its directors, officers and stockholders and
with corporations, joint stock companies, trusts, firms and associations in
which they are or may be or become interested as directors, officers,
shareholders, members, trustees, beneficiaries or otherwise as freely as though
such adverse interest did not exist even though the vote, action or presence of
such director, officer or stockholder may be necessary to obligate the
corporation upon such contract or transaction; and no such contract or
transaction shall be avoided and no such director, officer or stockholder shall
be held liable to account to the corporation or to any creditor or stockholder
of the corporation for any profit or benefit realized by him through any such
contract or transaction by reason of such adverse interest nor by reason of any
fiduciary relationship of such director, officer or stockholder to the
corporation arising out of such office or stock ownership; provided (in the case
of directors and officers but not in the case of any stockholder who is not a
director or officer of the corporation) the nature of the interest of such
director or officer, though not necessarily the details or extent thereof, be
known by or disclosed to the directors. Ownership of or beneficial interest in
a minority of the stock or securities of another corporation, joint stock
company, trust, firm or association shall not be deemed to constitute an
interest adverse to this corporation in such other corporation, joint stock
company, trust, firm or association and need not be disclosed. A general notice
that a director or officer of the corporation is interested in any corporation,
joint stock company, trust, firm or association shall be sufficient disclosure
as to such director or officer with respect to all contracts and transactions
with that corporation, joint stock company, trust, firm or association. In any
event the authorization or ratifying vote of a majority of the capital stock of
the corporation outstanding and entitled to vote passed at a meeting duly called
and held for the purpose shall validate any such contract or transaction as
against all stockholders of the corporation, whether of record or not at the
time of such vote, and as against all creditors and other claimants, under the
corporation, and no contract or transaction shall be avoided by reason of any
provision of this paragraph which would be valid but for these provisions.
The corporation shall, to the extent legally permissible, indemnify each of
its directors and officers and persons who serve at its request as directors or
officers of another organization in which it directly or indirectly owns shares
or of which it is a creditor, against all liabilities (including expenses)
imposed upon or reasonably incurred by him in connection with any action, suit
or other proceeding in which he may be involved or with which he may be
threatened, while in office or thereafter, by reason of his acts or omissions as
such director of officer, unless in any proceeding, he shall be finally adjudged
not to have acted in good faith in the reasonable belief that his action was in
the best interest of the corporation; provided, however, that such
--------
6A
<PAGE>
indemnification shall not cover liabilities in connection with any matter which
shall be disposed of through a compromise payment by such director or officer,
pursuant to a consent decree or otherwise, unless such compromise shall be
approved as in the best interests of the corporation, after notice that it
involves such indemnification, (a) by a vote of the directors in which no
interested director participates; or (b) by a vote or the written approval of
the holders of a majority of the outstanding stock at the time having the right
to vote for directors, not counting as outstanding any stock owned by any
interested director or officer. Such indemnification may include payment by the
corporation of expenses incurred in defending a civil or criminal action or
proceeding in advance of the final disposition of such action or proceeding,
upon receipt of an undertaking by the person indemnified to repay such payment
if he shall be adjudicated to be not entitled to indemnification.
The right of indemnification hereby provided shall not be exclusive of or
affect other rights to which any director or officer may be entitled. As used
in this paragraph, the terms "director" and "officer" include their respective
heirs, executors and administrators, and an "interested" director or officer is
one against whom as such the proceeding in question or another proceeding on the
same or similar grounds is then pending.
Indemnification of employees and other agents of the corporation (including
persons who serve at its request as employees or other agents of another
organization in which it owns shares or of which it is a creditor) may be
provided by the corporation to whatever extent shall be authorized by the
directors before or after the occurrence of any event as to or in consequence of
which indemnification may be sought. An indemnification to which a person is
entitled under these provisions may be provided although the persons to be
indemnified is no longer a director, officer, employee or agent of the
corporation or of such other organization.
The directors may determine, in whole or in part, the preferences, voting
powers, qualifications, and/or special or relative rights or privileges of: (1)
any class of stock before the issuance of any shares of that class; or (2) one
or more series within a class before the issuance of any shares of that series,
provided; however, that each series of a class shall have a distinguishing
designation.
6B
<PAGE>
ARTICLE VII
The effective date of organization of the corporation shall be the date approved
and filed by the Secretary of the Commonwealth. If a later EFFECTIVE DATE is
desired, specify such date which shall not be more than thirty days after the
date of filing.
The information contained in ARTICLE VIII is not a permanent part of the
Articles of Organization and may be changed only by filing the appropriate form
provided therefor.
ARTICLE VIII
a. The street address of the principal office of the corporation in
Massachusetts is (post office boxes are not acceptable):
c/o The Berkshire Group, 470 Atlantic Avenue, Boston, Massachusetts 02210;
Attention: Legal Department
b. The name, residence and post office address (if different) of the directors
and officers of the corporation are:
<TABLE>
<CAPTION>
NAME RESIDENCE POST OFFICE ADDRESS
<S> <C> <C> <C>
President: Stephan L. Guillard 11 Powder House Road Dover, Massachusetts 02030
Treasurer: William H. Stephan 408 Governor's Drive Winthrop, Massachusetts 02152
Clerk: David Moskowitz 8 Grasmere Road Needham, Massachusetts 02194
Directors: Stephan L. Guillard 11 Powder House Road Dover, Massachusetts 02030
Frank Apeseche 5 Travis Road Natick, Massachusetts 01760
</TABLE>
c. The fiscal year (i.e., tax year) of the corporation shall end on the last
day of the month of: December
d. The name and business address of the resident agent of the corporation, if
any, is: David Moskowitz, The Berkshire Group, 470 Atlantic Avenue,
Boston, Massachusetts 02210
ARTICLE IX
By-laws of the corporation have been duly adopted and the president, treasurer,
clerk and directors whose names are set forth above, have been duly elected.
<PAGE>
IN WITNESS WHEREOF AND UNDER THE PAINS AND PENALTIES OF PERJURY, I/we, whose
signature(s) appear below as incorporator(s) and whose name(s) and business or
residential address(es) are clearly typed or printed beneath each signature do
hereby associate with the intention of forming this corporation under the
provisions of General Laws, Chapter 156B and do hereby sign these Articles of
Organization as incorporator(s) this 16th day of August, in the year 1995.
/s/ Scott D. Spelfogel
- --------------------------------------------------------------------------------
Scott D. Spelfogel, Sole Incorporator
470 Atlantic Avenue, Boston, Massachusetts 02210
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note: If an existing corporation is acting as incorporator, type in the exact
name of the corporation, the state or other jurisdiction where it was
incorporated, the name of the person signing on behalf of said corporation and
the title he/she holds or other authority by which such action is taken.
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B)
===========================================
I hereby certify that, upon examination of
these Articles of Organization, duly
submitted to me, it appears that the
provisions of the General Laws relative to
the organization of corporations have been
complied with, and I hereby approve said
articles; and the filing fee in the amount
of $200 having been paid, said articles are
deemed to have been filed with me this 16th
day of August, 1995.
Effective Date:____________________________
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
FILING FEE: One tenth of one percent of the
total authorized capital stock, but not
less than $200.00. For the purpose of
filing, shares of stock with a par value
less than one dollar, or no par stock,
shall be deemed to have a par value of one
dollar per share.
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
Erin L. Abernathy
The Berkshire Group
470 Atlantic Avenue
Boston, Massachusetts 02210
Telephone: (617) 423-2233
<PAGE>
SCHEDULE TO EXHIBIT 3.2.4
-------------------------
The following entities have the Form of Articles of Organization included as
Exhibit 3.2.4, with any changes from the form noted:
1. New Jersey Harborside Corporation
2. Harborside Toledo Corporation
Changes from Form:
Officers and Director are as follows:
President: S. Guillard
Treasurer: W. Stephan
Clerk: D. Moskowitz
Director: L. Gerber
3. Maryland Harborside Corporation
Changes from Form:
Officer and Directors are as follows:
President: S. Guillard
Treasurer: C. Thayer
Clerk: D. Moskowitz
Directors: S. Guillard, S. Puleo
Certificate of Correction was also filed (regarding spelling of
Harborside)
<PAGE>
EXHIBIT 3.2.5
FIRST AMENDMENT TO AND RESTATEMENT OF
AGREEMENT OF LIMITED PARTNERSHIP
OF [ ]
(NOW KNOWN AS [ ] LIMITED PARTNERSHIP)
THIS FIRST AMENDMENT TO AND RESTATEMENT OF AGREEMENT OF LIMITED PARTNERSHIP
of [ ] (the "Partnership") dated as of
the 25th day of November, 1997, by and between Harborside Health I Corporation
as the general partner (the "General Partner"); and Harborside Healthcare
Limited Partnership as the limited partner (the "Limited Partner," together, the
"Partners"), and any such other persons or entities as may hereafter be admitted
to the Partnership as Limited Partners.
WHEREAS, the General Partner and Limited Partner joined together pursuant
to the provisions of the laws of the Commonwealth of Massachusetts to form the
Partnership pursuant to that certain Agreement of Limited Partnership dated
August 26, 1997 (the "Agreement") and the Partners are desirous of amending and
restating in its entirety the Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereby agree as follows:
1. The name of the Partnership is Harborside Healthcare Rhode Island Limited
Partnership.
2. The general character of the business intended to be transacted by the
Partnership is to acquire, own, lease, invest in, improve, hold, encumber,
sell, manage, maintain, operate and otherwise deal with nursing homes,
retirement homes, congregate care facilities, rehabilitation facilities,
psychiatric facilities, substance abuse facilities, medical office
buildings or other health care related commercial properties, and any
equity interest of the Partnership therein, whether direct or indirect,
through nominees, joint ventures or otherwise, and real estate and personal
property related thereto; to be a general and/or limited partner in any
general or limited partnership in which the Partnership shall act as a
general and/or limited partner which conducts activities within the scope
of this section; and to conduct any other business activity allowed under
the Massachusetts Uniform Limited Partnership Act (the "Act").
3. The address of the office of the Partnership at which shall be kept the
records and Partnership documents of the Partnership is to be:
c/o The Berkshire Group
470 Atlantic Avenue
Boston, Massachusetts 02210
The agent for service of process for the Partnership shall be:
Scott D. Spelfogel, Esq.
Office of the General Counsel
c/o The Berkshire Group
470 Atlantic Avenue
Boston, Massachusetts 02210
<PAGE>
4. The name and business address of each Partner, General and Limited Partner
being respectively designated, is as follows:
General Partner Address
--------------- -------
Harborside Health I c/o The Berkshire Group
Corporation 470 Atlantic Avenue
Boston, MA 02210
Limited Partner Address
--------------- -------
Harborside Healthcare c/o The Berkshire Group
Limited Partnership 470 Atlantic Avenue
Boston, MA 02210
5. Profits, losses, credits and items thereof of the Partnership shall be
allocated, and cash, to the extent available for such purpose, shall be
distributed in the following percentages:
Harborside Health I Corporation 1.0%
Harborside Healthcare Limited Partnership 99.0%
6. No additional contributions to the capital of the Partnership have been
agreed to be made by the Partners.
7. A Limited Partner may substitute an assignee as contributor in his place
only with the prior written consent of the General Partner.
8. The Limited Partner has no right to withdraw from the Partnership during
the Partnership's existence, except with the consent of the General Partner
and on the terms agreed to at the time of withdrawal, and the General
Partner has no right to withdraw.
9. No Partner has a right to receive any distributions of property, including
cash, from the Partnership except to the extent the General Partner
determines to make distributions in accordance with Section 5 hereof.
10. No Partner has a right to receive distributions which include a return of
all or any part of its contribution except to the extent the General
Partner determines to make such distributions in accordance with Section 5
hereof.
11. The Partnership will be dissolved and its affairs wound up on December 31,
2029, unless sooner dissolved in accordance with the provisions of the Act.
12. The remaining General Partner or General Partners, if any, have the right
to continue the business of the Partnership on the happening of an event of
withdrawal of a General Partner.
13. The General Partner shall have and may exercise all rights and powers
granted by the Act as from time to time in effect.
<PAGE>
14. The General Partner may appoint and remove one or more officers of the
Partnership including, without limitation, a president, one or more
executive vice presidents, one or more other vice presidents, a treasurer,
one or more assistant treasurers, a controller, a secretary, and one or
more assistant secretaries. The General Partner may assign to any such
officer from time to time such duties and powers as the General Partner may
deem appropriate subject, however, to the general provisions of this
agreement with respect to the rights, powers and duties of the General
Partner.
15. The General Partner shall be entitled to such fees and reimbursements as
may be determined by agreement of the Partners.
16. The General Partner shall have the right to propose the transfer of some or
all of its interest to a new or additional General Partner. Such proposed
new or additional General Partner shall become a General Partner of the
Partnership only upon the unanimous written consent of all of the Partners.
17. Special Power of Attorney Relating to Continuance of Partnership: If the
----------------------------------------------------------------
business of the Partnership is continued after dissolution, the Limited
Partner constitutes and appoints the remaining or new General Partners, and
each of them, if more than one, irrevocably, recognizing their interest and
that of the other Partners herein, and intending to create a durable power
of attorney, as such Partners' true and lawful attorney to execute, swear
to and file whatever amended Certificates they deem appropriate in the
circumstances, and to take whatever action may be necessary to continue the
Partnership business under applicable law.
18. No person dealing with the Partnership, or its assets, whether as
mortgagee, assignee, purchaser, lessee, grantee or otherwise, shall be
required to investigate the authority of any General Partner purporting to
act on behalf of the Partnership, in selling, assigning, leasing,
mortgaging, or conveying any Partnership assets, nor shall any such
assignee, lessee, purchaser, mortgagee, or grantee be required to inquire
as to whether the approval of the Partners for any such sale, assignment,
lease, mortgage or transfer has been first obtained. Such person shall be
conclusively protected in relying upon a certificate of authority of, or in
accepting any instrument signed by any General Partner in the name and
behalf of, the Partnership or the General Partner.
19. The Partnership shall, to the extent provided below, indemnify a person who
was, is, or is threatened to be made a named Defendant or Respondent in a
proceeding because the person is or was a General Partner of the
Partnership. The indemnification required by this paragraph shall be
provided whenever it is determined, as provided below, that the person
seeking indemnification:
(1) Acted in good faith; and
(2) Reasonably believed:
(a) In the case of conduct in the person's official capacity as a
General Partner of the Partnership, that the person's conduct was
in the Partnership's best interest; and
(b) In all other cases, that the person's conduct was at least not
opposed to the Partnership's best interest; and
(3) In the case of a criminal proceeding, had no reasonable cause to
believe that his conduct was unlawful.
<PAGE>
A determination that the indemnification standards set forth above have
been met shall be made by special legal counsel selected by the holders of
a majority in interest of Limited Partners who at the time of the vote are
not named Defendants or Respondents in the proceeding. In the event that
such a majority in interest cannot be obtained, special legal counsel shall
be selected by a majority in interest of all Limited Partners.
20. The General Partners shall have the authority to employ such agents,
employees, managers, accountants, attorneys, consultants and other persons
necessary or appropriate to carry out the business and affairs of the
Partnership, including itself and whether or not any such persons so
employed are Partners or affiliates, and to pay such fees, expenses,
salaries, wages and other compensation, including incentive fees, to such
persons as it shall, in its sole discretion, determine, provided that any
--------
payments to the Partners or affiliates shall, unless otherwise specifically
provided herein, be on arms-length terms. For all purposes hereof any
standard fees (i.e., fees similar to the highest fees generally charged by
such affiliates) paid to an affiliate in connection with the property,
whether the fees are for management, brokerage or other services rendered
or goods provided, shall be conclusively presumed to be reasonable arms-
length fees.
21. This Agreement may be amended by and only by the General Partner together
with the consent of the Limited Partner.
IN WITNESS WHEREOF, the members of said Partnership have executed this
Agreement as of the date first above written, under penalties of perjury.
HARBORSIDE HEALTH I CORPORATION
By: /s/ Damian Dell'Anno
------------------------------------
Damian Dell'Anno, Executive Vice
President of Operations
HARBORSIDE HEALTHCARE LIMITED PARTNERSHIP
By: Harborside Health I Corporation, General Partner
By: /s/ Damian Dell'Anno
------------------------------------
Damian Dell'Anno, Executive Vice
President of Operations
<PAGE>
SCHEDULE TO EXHIBIT 3.2.5
-------------------------
The following entities have the Form of First Amendment to and Restatement of
Agreement of Limited Partnership included as Exhibit 3.2.5, with any changes
from the form noted:
1. Harborside Acquisition Limited Partnership III (now Harborside North Toledo
Limited Partnership)
Changes from Form:
Paragraph 5 is an additional section describing the contribution of each
of the general partner and limited partner.
2. Harborside Acquisition Limited Partnership II (now Harborside Rhode Island
Limited Partnership)
3. Harborside Acquisition Limited Partnership I (now Harborside Connecticut
Limited Partnership)
4. Harborside Acquisition Limited Partnership IV (now Harborside Danbury
Limited Partnership)
<PAGE>
EXHIBIT 3.2.6
[ ] LIMITED PARTNERSHIP
AGREEMENT OF LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP dated as of the ____ day of April,
1996, by and among Harborside Health I Corporation as the General Partner; and
Harborside Healthcare Limited Partnership as the Limited Partner, and any such
other persons or entities as may hereafter be admitted to this partnership as
Limited Partners.
WHEREAS, the General Partner and the Limited Partner desire to form a
limited partnership pursuant to this Agreement and the Massachusetts Uniform
Limited Partnership Act;
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereby agree as follows:
1. The name of the partnership is [ ] LIMITED
PARTNERSHIP.
2. The character of the business intended to be transacted by the partnership
is to acquire, own, lease, invest in, improve, hold, encumber, sell,
manage, maintain, operate and otherwise deal with nursing homes, retirement
homes, congregate care facilities, rehabilitation facilities, psychiatric
facilities, substance abuse facilities, medical office buildings or other
health care related commercial properties, and any equity interest of the
Partnership therein, whether direct or indirect, through nominees, joint
ventures or otherwise, and real estate and personal property related
thereto; to be a general and/or limited partner in any general or limited
partnership in which the Partnership shall act as a general and/or limited
partner which conducts activities within the scope of this section; and to
conduct any other business activity allowed under the Massachusetts Uniform
Limited Partnership Act (the "Act").
3. The address of the office of the partnership at which shall be kept the
records and partnership documents of the partnership is to be:
c/o The Berkshire Group
470 Atlantic Avenue
Boston, MA 02210
Attn: Legal Department
The agent for service of process for the partnership shall be:
The Prentice-Hall Corporation System, Inc.
1201 Hays Street
Tallahassee, Florida 32301
4. The name and business address of each partner, general and limited partner
being respectively designated, is as follows:
General Partner Address
--------------- -------
Harborside Health I Corporation c/o The Berkshire Group
470 Atlantic Avenue
Boston, MA 02210
Attn: Legal Department
<PAGE>
Limited Partner Address
--------------- -------
Harborside Health Care Limited Partnership c/o The Berkshire Group
470 Atlantic Avenue
Boston, MA 02210
Attn: Legal Department
5. The amount of cash contributed by the general partner, no other property
having been contributed by or agreed to be contributed in the future by the
general partner, is as follows: $10.00.
The amount of cash contributed by the limited partner, no other property
having been contributed by or agreed to be contributed in the future by the
limited partner, is as follows: $990.00.
6. Profits, losses, credits and items thereof of the partnership shall be
allocated, and cash shall be distributed in the following percentages:
Harborside Health I Corporation 1.0%
Harborside Healthcare Limited Partnership 99.0%
7. No additional contributions to the capital of the partnership have been
agreed to be made by the partners.
8. A limited partner may substitute an assignee as contributor in his place
only with the prior written consent of the general partner.
9. The limited partner has no right to withdraw from the partnership during
the partnership's existence, except with the consent of the general partner
and on the terms agreed to at the time of withdrawal, and the general
partner has no right to withdraw.
10. No partner has a right to receive any distributions of property, including
cash, from the partnership except to the extent the general partner
determines to make distributions in accordance with Section 6 hereof.
11. No partner has a right to receive distributions which include a return of
all or any part of its contribution except to the extent the general
partner determines to make such distributions in accordance with Section 6
hereof.
12. The partnership will be dissolved and its affairs wound up on December 31,
2046, unless sooner dissolved in accordance with the provisions of the Act.
13. The remaining general partner or general partners, if any, have the right
to continue the business of the partnership on the happening of an event of
withdrawal of a general partner.
14. The general partner shall have and may exercise all rights and powers
granted by the Act as from time to time in effect.
15. The general partner may appoint and remove one or more officers of the
partnership including, without limitation, a president, one or more
executive vice presidents, one or more other vice
<PAGE>
presidents, a treasurer, one or more assistant treasurers, a controller, a
secretary, and one or more assistant secretaries. The general partner may
assign to any such officer from time to time such duties and powers as the
general partner may deem appropriate subject, however, to the general
provisions of this agreement with respect to the rights, powers and duties
of the general partner.
16. The general partner shall be entitled to such fees and reimbursements as
may be determined by agreement of the partners.
17. The general partner shall have the right to propose the transfer of some or
all of its interest to a new or additional general partner. Such proposed
new or additional general partner shall become a general partner of the
partnership only upon the unanimous written consent of all of the partners.
18. Special Power of Attorney Relating to Continuance of Partnership: If the
----------------------------------------------------------------
business of the partnership is continued after dissolution, the limited
partner constitutes and appoints the remaining or new general partners, and
each of them, if more than one, irrevocably, recognizing their interest and
that of the other partners herein, and intending to create a durable power
of attorney, as such partners' true and lawful attorney to execute, swear
to and file whatever amended Certificates they deem appropriate in the
circumstances, and to take whatever action may be necessary to continue the
partnership business under applicable law.
19. No person dealing with the partnership, or its assets, whether as
mortgagee, assignee, purchaser, lessee, grantee or otherwise, shall be
required to investigate the authority of any general partner purporting to
act on behalf of the partnership, in selling, assigning, leasing,
mortgaging, or conveying any partnership assets, nor shall any such
assignee, lessee, purchaser, mortgagee, or grantee be required to inquire
as to whether the approval of the partners for any such sale, assignment,
lease, mortgage or transfer has been first obtained. Such person shall be
conclusively protected in relying upon certificate of authority of, or in
accepting any instrument signed by any general partner in the name and
behalf of, the partnership or the general partner.
20. The Partnership shall, to the extent provided below, indemnify a person who
was, is, or is threatened to be made a named Defendant or Respondent in a
proceeding because the person is or was a general partner of the
Partnership. The indemnification required by this paragraph shall be
provided whenever it is determined, as provided below, that the person
seeking indemnification:
(1) Acted in good faith; and
(2) Reasonably believed:
(a) In the case of conduct in the person's official capacity as a
general partner of the Partnership, that the person's conduct was
in the Partnership's best interest; and
(b) In all other cases, that the person's conduct was at least not
opposed to the Partnership's best interest; and
(3) In the case of a criminal proceeding, had no reasonable cause to
believe that his conduct was unlawful.
A determination that the indemnification standards set forth above have
been met shall be made by special legal counsel selected by the holders of
a majority in interest of limited partners who at
<PAGE>
the time of the vote are not named Defendants or Respondents in the
proceeding. In the event that such a majority in interest cannot be
obtained, special legal counsel shall be selected by a majority in interest
of all limited partners.
21. The general partners shall have the authority to employ such agents,
employees, managers, accountants, attorneys, consultants and other persons
necessary or appropriate to carry out the business and affairs of the
Partnership, including itself and whether or not any such persons so
employed are partners or affiliates, and to pay such fees, expenses,
salaries, wages and other compensation, including incentive fees, to such
persons as it shall, in its sole discretion, determine, provided that any
--------
payments to the partners or affiliates shall, unless otherwise specifically
provided herein, be on arms-length terms. For all purposes hereof any
standard fees (i.e., fees similar to the highest fees generally charged by
such affiliates) paid to an affiliate in connection with the property,
whether the fees are for management, brokerage or other services rendered
or goods provided, shall be conclusively presumed to be reasonable arms-
length fees.
22. This Agreement may be amended by and only by the general partner together
with the consent of the limited partner.
IN WITNESS WHEREOF, the members of said partnership have executed this
Agreement as of the date set forth above, under penalties of perjury.
GENERAL PARTNER:
---------------
HARBORSIDE HEALTH I CORPORATION
By: /s/ William Stephan
---------------------------------------------
William Stephan, Treasurer
LIMITED PARTNER:
----------------
HARBORSIDE HEALTHCARE LIMITED PARTNERSHIP
By: KHI Corporation, its general partner
By: /s/ Stephen L. Guillard
--------------------------------------------
Stephen L. Guillard, President
<PAGE>
SCHEDULE TO EXHIBIT 3.2.6
-------------------------
The following entities have the Form of Agreement of Limited Partnership
included as Exhibit 3.2.6 with any changes from the form noted:
1. Harborside Acquisition Limited Partnership V
Changes from Form: Recital is pursuant to the Delaware Revised Uniform
Limited Partnership Act
Paragraph 2. The general character of the business intended to be
transacted by the partnership is to acquire, own, lease, invest in,
improve, hold, encumber, sell, manage, maintain, operate and otherwise
deal with nursing homes, retirement homes, congregate care facilities,
rehabilitation facilities, psychiatric facilities, substance abuse
facilities, medical office buildings or other health care related
commercial properties, and any equity interest of the partnership
therein, whether direct or indirect, through nominees, joint ventures
or otherwise, and real estate and personal property related thereto;
to be a general and/or limited partner in any general or limited
partnership in which the partnership shall act as a general and/or
limited partner which conducts activities within the scope of this
section; and to conduct any other business activity allowed under the
Act.
Paragraph 3. The agent for SOP is as follows:
Scott D. Spelfogel, Esq.
Office of the General Counsel
c/o The Berkshire Group
470 Atlantic Avenue, 13th Floor
Boston, Massachusetts 02210
Paragraph 12. The partnership will be dissolved and its affairs wound
up on December 31, 2029, unless sooner dissolved in accordance
with the provision of the Act.
2. Harborside Acquisition Limited Partnership VI
Changes from Form: Recital (same as Harborside Acquisition Limited
Partnership IV above (HALP V)
Paragraph 2. same as HALP V above
Paragraph 3. The agent for SOP is same as HALP IV above
Paragraph 12. same as HALP V above.
3. Harborside Acquisition Limited Partnership VII
Changes from Form: Recital (same as Harborside Acquisition Limited
Partnership IV above (HALP V)
Paragraph 2. same as HALP V above
Paragraph 3. The agent for SOP is same as HALP V above
Paragraph 12. same as HALP V above.
4. Harborside Acquisition Limited Partnership VIII
<PAGE>
Changes from Form: Recital (same as Harborside Acquisition Limited
Partnership V above (HALP V)
Paragraph 2. same as HALP V above
Paragraph 3. The agent for SOP is same as HALP V above
Paragraph 12. same as HALP V above.
5. Harborside Acquisition Limited Partnership IX
Changes from Form: Recital (same as Harborside Acquisition Limited
Partnership V above (HALP V)
Paragraph 2. same as HALP V above
Paragraph 3. The agent for SOP is same as HALP IV above
Paragraph 12. same as HALP V above.
6. Harborside Acquisition Limited Partnership X
Changes from Form: Recital (same as Harborside Acquisition Limited
Partnership V above (HALP V)
Paragraph 2. same as HALP V above
Paragraph 3. The agent for SOP is same as HALP V above
Paragraph 12. same as HALP V above.
7. Harborside Massachusetts Limited Partnership
Changes from Form: Paragraph 12, dissolution of entity is December 31
2046
8. Harborside Dayton Limited Partnership
Changes from Form: Paragraph 12, dissolution of entity is December 31
2046
9. Harborside Healthcare Baltimore Limited Partnership
10. Harborside Healthcare Network Limited Partnership
Changes from Form: Recital is pursuant to the Florida Revised Uniform
Limited
Partnership Act, Chapter 620.108
Paragraph 2. The character of the business intended to be transacted
by the partnership is to develop a network of health care providers
and manage a consortium of healthcare providers dealing with post
acute services, said consortium to include skilled nursing facilities,
home health providers and durable medical equipment suppliers.
Paragraph 3. The address of the office at which records shall be kept
is as follows:
c/o The Berkshire Group
470 Atlantic Avenue, 13th Floor
2
<PAGE>
Boston, Massachusetts 02210
Attn: Legal Department
The agent for SOP is as follows:
The Prentice-Hall Corporation System, Inc.
1201 Hays Street
Tallahassee, FL 32301
Paragraph 12. dissolution of entity is December 31 2029.
11. Harborside of Florida Limited Partnership
Changes from Form: Recital is pursuant to the Florida Revised Uniform
Limited
Partnership Act, Chapter 620.108
Paragraph 2. The general character of the business intended to be
transacted by the partnership is to acquire, own, lease, invest in,
improve, hold, encumber, sell, manage, maintain, operate and otherwise
deal with nursing homes, retirement homes, congregate care facilities,
rehabilitation facilities, psychiatric facilities, substance abuse
facilities, medical office buildings or other health care related
commercial properties, and any equity interest of the partnership
therein, whether direct or indirect, through nominees, joint ventures
or otherwise, and real estate and personal property related thereto;
to be a general and/or limited partner in any general or limited
partnership in which the partnership shall act as a general and/or
limited partner which conducts activities within the scope of this
section; and to conduct any other business activity allowed under the
Act.
Paragraph 3. The address of the office at which records shall be kept
is as follows:
c/o The Berkshire Group
470 Atlantic Avenue, 13th Floor
Boston, Massachusetts 02210
Attn: Legal Department
The agent for SOP is as follows:
The Prentice-Hall Corporation System, Inc.
1201 Hays Street
Tallahassee, FL 32301
Paragraph 12. dissolution of entity is December 31 2044.
12. Bridgewater Assisted Living Limited Partnership
13. Harborside Homecare Limited Partnership
Paragraph 2. The general character of the business intended to be
transacted by the partnership is provision of pharmacy services,
provision of psychiatric services, provision of infusion therapy,
provision of home health services and sale of durable medical
equipment and any equity interest of the partnership therein, whether
direct or indirect, through nominees, joint ventures or otherwise, and
real estate and personal property related thereto; to be a general
and/or limited partner in any general or limited partnership in which
the partnership shall act as a general and/.or limited partner which
conducts activities within the scope of this section; and to conduct
any other business activity allowed under the Act.
3
<PAGE>
Paragraph 3. The address of the office at which records shall be kept
is as follows:
The Berkshire Group
470 Atlantic Avenue, 13th Floor
Boston, Massachusetts 02210
The agent for SOP is as follows:
David Moskowitzz, Esq.
c/o The Berkshire Group
470 Atlantic Avenue, 13th Fl.
Boston, MA 02210
Paragraph 12. dissolution of entity is December 31 2029.
Paragraph 4, general partner is KHI Corporation
14. Harborside of Ohio Limited Partnership
15. Harborside Toledo Limited Partnership
Changes from Form: Schedule A and an Amendment makes Harborside Toledo
the sole
General partner
16. Harborside Rehabilitation Limited Partnership
Paragraph 2. The general character of the business intended to be
transacted by the partnership is to provide physical therapy,
occupational therapy, speech pathology and audiology services, and
other rehabilitative services to patients of nursing homes, retirement
homes, congregate care facilities, psychiatric facilities, substance
abuse facilities and other health care related facilities; to be a
general and/or limited partner in any general or limited partnership
which conducts activities within the scope of this section; and to
conduct any other business activity allowed under the Act.
Paragraph 3. The address of the office at which records shall be kept
is as follows:
470 Atlantic Avenue, 13th Floor
Boston, Massachusetts 02210
The agent for SOP is as follows:
David Moskowitzz, Esq.
c/o The Berkshire Group
470 Atlantic Avenue, 13th Fl.
Boston, MA 02210
17. Harborside of Cleveland Limited Partnership
Paragraph 2. The character of the business intended to be transacted
by the partnership is to acquire, own, develop, improve, operate,
manage, maintain, lease, sell and otherwise deal with real property or
any improvements thereon; to do all the foregoing either directly or
through subsidiaries, and to do all things incidental to the foregoing
and to act in connection with any of the foregoing in any capacity
whatever; to own corporations or be a general or limited partner in
any business enterprise which the partnership would have the power to
conduct by itself; and to engage in such related activities as are
necessary, convenient or incidental to the above.
Paragraph 3. The address of the office at which records shall be kept
is as follows:
4
<PAGE>
The Berkshire Group
470 Atlantic Avenue, 13th Floor
Boston, Massachusetts 02210
The agent for SOP is as follows:
David Moskowitzz, Esq.
Office of the General Counsel
c/o The Berkshire Group
470 Atlantic Avenue, 13th Fl.
Boston, MA 02210
5
<PAGE>
EXHIBIT 3.2.7
HARBORSIDE HEALTHCARE LIMITED PARTNERSHIP
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
DATED AS OF MAY 28, 1987
AS AMENDED AND RESTATED AS OF JULY 1, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C>
ARTICLE I DEFINITIONS......................................................................................... 1
ARTICLE II FORMATION; NAME; AND PURPOSE........................................................................ 4
Section 2.1 Formation.................................................................................... 4
Section 2.2 Name and Office.............................................................................. 4
Section 2.3 Purpose...................................................................................... 5
Section 2.4 Authorized Acts.............................................................................. 5
Section 2.5 Term and Dissolution......................................................................... 6
ARTICLE III SALE AND OTHER TRANSACTIONS......................................................................... 6
ARTICLE IV PARTNERS: CAPITAL................................................................................... 6
Section 4.1 General Partner.............................................................................. 6
Section 4.2 Limited Partner.............................................................................. 7
Section 4.3. Partnership Capital.......................................................................... 7
Section 4.4. Liability of Partners; Further Capital Contributions......................................... 7
Section 4.5. Additional Limited Partners.................................................................. 7
ARTICLE V RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNER.................................................... 8
Section 5.1. Business..................................................................................... 8
Section 5.2. Action by General Partner.................................................................... 8
Section 5.3. Devotion of Time; Expense Reimbursement...................................................... 10
Section 5.4. Liability; Indemnification................................................................... 10
Section 5.5. Other Business Ventures...................................................................... 10
Section 5.6. Provisions Concerning Loans.................................................................. 10
Section 5.7. Actions Upon Dissolution..................................................................... 11
ARTICLE VI WITHDRAWAL; CONTINUATION OF PARTNERSHIP; NEW
GENERAL PARTNERS; TRANSFER OF GENERAL PARTNER
INTERESTS........................................................................................... 11
Section 6.1. Continuation of Partnership.................................................................. 11
Section 6.2. Designation of Successor or Additional General Partners;
Reconstitution of the Partnership.......................................................... 11
Section 6.3. Interest of Withdrawn General Partner........................................................ 12
Section 6.4. Additional General Partners.................................................................. 12
Section 6.5. Amendment to Certificate..................................................................... 13
Section 6.6. Special Restrictions......................................................................... 13
</TABLE>
i
<PAGE>
<TABLE>
Page
----
<S> <C>
ARTICLE VII TRANSFERABILITY OF LIMITED PARTNER INTERESTS........................................................ 13
Section 7.1. Restrictions on Transfer..................................................................... 13
Section 7.2. Substituted Limited Partners................................................................. 15
Section 7.3. Additional Restrictions...................................................................... 15
Section 7.4. Purchase of Limited Partner Interest Upon Termination of Employment.......................... 16
ARTICLE VIII BORROWINGS AND LOANS................................................................................ 18
ARTICLE IX PROFITS, LOSSES AND CREDITS; DISTRIBUTIONS.......................................................... 18
Section 9.1. Profits, Losses and Credits.................................................................. 18
Section 9.2. Distributions Prior to Dissolution........................................................... 19
Section 9.3. Distributions Upon Dissolution............................................................... 19
Section 9.4. Adjustment of Shares of Profits, Losses and Distributions to
Insure 1% to the General Partner........................................................... 20
ARTICLE X BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS........................................................ 20
Section 10.1 Books and Records............................................................................ 20
Section 10.2 Bank Accounts................................................................................ 21
Section 10.3 Accountants.................................................................................. 21
Section 10.5. Tax Elections; Special Basis Adjustments..................................................... 21
Section 10.6. Maintenance of Books for Accounting and Tax Purposes; Fiscal Years........................... 21
ARTICLE XI GENERAL PROVISIONS.................................................................................. 22
Section 11.1. Transfer of All Partners' Interest in Exchange............................................... 22
Section 11.2. Appointment of General Partner as Attorney-in-Fact........................................... 22
Section 11.3 Notices...................................................................................... 23
Section 11.4 Word Meanings................................................................................ 24
Section 11.5 Other Agreements............................................................................. 24
Section 11.6 Binding Effect............................................................................... 24
Section 11.7 Applicable Law; Supremacy of Uniform Act..................................................... 24
Section 11.8 Counterparts................................................................................. 24
Section 11.9 Separability of Provisions................................................................... 24
Section 11.10 Waiver....................................................................................... 25
Section 11.11 No Jury Trial; Liability; Statute of Limitations; Venue; Jurisdiction........................ 25
Section 11.12 Advice of Counsel............................................................................ 25
Section 11.13 Amendments................................................................................... 25
Section 11.14 Effective Date............................................................................... 25
Section 11.15 Limited Partner Signature Pages.............................................................. 26
</TABLE>
ii
<PAGE>
HARBORSIDE HEALTHCARE LIMITED PARTNERSHIP
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP, dated as of May 28, 1987 and amended
and restated as of July 1, 1995, has been entered into by and among KHI
Corporation as the General Partner; and each of the Persons listed on Schedule
--------
II annexed hereto as Limited Partners.
- --
WHEREAS, the General Partner and the Limited Partners desire to amend and
restate the Agreement of Limited Partnership of Harborside Healthcare Limited
Partnership dated as of May 28, 1987, as set forth herein;
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereby agree as follows:
ARTICLE I
---------
DEFINITIONS
-----------
As used herein the following terms shall have the following meanings:
"Accountants" means the accountants for the Partnership engaged by the
-----------
General Partner from time to time pursuant to Section 10.3 hereof.
"Affiliated Person" means any of the following: (i) a General Partner,
-----------------
(ii) the legal representative of the estate or the successor or assignee of any
General Partner, (iii) a trustee of a trust established or maintained primarily
for the benefit of any General Partner, (iv) an Entity of which a majority of
the voting interests is owned by any one or more of the persons or Entities
referred to in the preceding clauses, or (v) a Person who is an officer,
director, trustee, employee, stockholder (15% or more) or partner of any Person
or Entity referred to in the preceding clauses.
"Agreement" means this Agreement of Limited Partnership as it may be
---------
amended from time to time hereafter.
"Appraised Value" as defined in Section 7.4(b).
---------------
"Capital Contribution" means the total amount of cash and the fair market
--------------------
value of other property contributed or agreed to be contributed to the
Partnership by each Partner all as set forth in Schedules I and II hereto as
--------- - --
amended from time to time. Any reference in this Agreement to the Capital
Contribution of a then Partner shall include a Capital Contribution previously
made by any prior Partner in respect of the Partnership interest of such then
Partner.
<PAGE>
"Capital Transaction" means a sale, refinancing, exchange or other
-------------------
disposition by the partnership of all or substantially all of its assets or of
an Other Partnership Interest or by an Other partnership of a real property
(including related personal property) then owned by such Other Partnership.
"Cash Flow" means (i) all cash received by the Partnership as a result of
---------
its business activities, other than (a) Capital Contributions, (b) Net Cash
Proceeds from Capital Transactions, and (c) proceeds of loans made to the
Partnership, less (ii) all cash expended by the Partnership in the course of its
----
business (other than from equity investments in or loans to the Partnership or
from Net Cash proceeds of Capital Transactions), or allocated to reasonable
reserves established by the General Partner (less amounts of cash withdrawn from
such reserves) or used to repay the principal of loans made by the Partnership.
"Certificate" means the Certificate of Limited Partnership of the
-----------
Partnership filed hereunder, as such Certificate shall be amended or restated
from time to time hereafter.
"Code" means the Internal Revenue Code of 1986, as amended from time to
----
time, or corresponding provisions of subsequent law.
"Consent of the Limited Partners" means the specific written consent or
-------------------------------
approval of one or more Limited Partners whose aggregate Capital Contributions
(as reflected on Schedule II hereto) represent at least two-thirds of the total
-------- ---
Capital Contributions of the Limited Partners.
"Controlling" 70%" as defined in Section 11.1.
----------------
"Entity" means any general partnership, limited partnership, corporation,
------
joint venture, trust, business trust, association, or estate.
"Facility" or "Facilities" means a nursing home, retirement home,
-------- ----------
congregate care facility, rehabilitation facility, psychiatric facility,
substance abuse facility, or other health care related commercial property, and
any equity interest of the Partnership therein, whether direct or indirect,
through nominee, joint venture or otherwise.
"General Partner" means any Person designated as a General Partner in
---------------
Schedule I hereto or any other Person who becomes a General Partner as provided
- -------- -
herein, in such Person's capacity as a General Partner of the Partnership; and
"General Partners" means, collectively all Persons in such capacity of General
------- --------
Partner.
"Indebtedness" as defined in Section 7.4.
------------
"Legal Representatives" as defined in the definition of Related Person.
---------------------
"Limited Partner" means any Person designated as a Limited Partner in
---------------
Schedule II hereto, or any other Person who becomes a Limited Partner as
- -------- ---
provided herein, in such Person's capacity as a Limited Partner of the
Partnership; and "Limited Partners" means, collectively, all persons in such
------- --------
capacity as Limited Partner.
2
<PAGE>
"Net Cash Proceeds" from a Capital Transaction means the cash received by
-----------------
the Partnership as a result of such transaction in its capacity as an owner or
equity participant (and not as a creditor), less (i) all debts, expenses and
liabilities of the Partnership arising as a result of or payable from such
transaction (including, among other matters, any brokerage fees and expenses for
which the Partnership shall become liable as a result thereof), and (ii) any
reserves for contingent liabilities of the Partnership arising as a result of
such transaction, to the extent deemed reasonable by the General Partner,
provided that, at the expiration of such period as the General Partner shall
deem advisable, the balance of such reserves remaining after payment of such
contingencies shall be distributed in the manner provided for Net Cash Proceeds
(but to those Persons who, but for the setting aside of the reserve, would have
received the amount so reserved).
"Non-consenting Limited Partner" as defined in Section 11.2(c)(iii).
------------------------------
"Note" as defined in Section 7.4(g).
----
"Other Partnership" means any general or limited partnership in which the
-----------------
Partnership shall act as a general and/or limited partner.
"Other Partnership Interest" means the general and/or limited partnership
--------------------------
interest held by the Partnership in any Other Partnership.
"Partner" means any General Partner or Limited Partner; and "Partners"
------- --------
means, collectively, the General Partners and Limited Partners.
"Partnership" means the limited partnership governed by this Agreement as
-----------
said limited partnership may from time to time be constituted and amended.
"Person" means any individual or Entity, and the heirs, executors,
------
administrators, legal representatives, successors and assigns of such Person
where the context so admits.
"Preferred Return" means $7,000,000 reduced by any distributions made under
----------------
Sections 9.2(b) and 9.3 hereof.
"Profit-Sharing Ratio" means, with respect to each Partner specified on
--------------------
Schedule III hereto, the percentages set forth in such Schedule.
- ------------
"Prohibited Transfer" as defined in Section 7.1(b).
-------------------
"Related Persons" shall mean (i) in relation to any individual, (A) any
---------------
spouse or issue of such individual or any spouse of any such issue, (B) any
trust for the benefit of any one or more of such individuals, any spouse or
issue of such individuals or any spouse of any such issue, and (C) any executor,
administrator or other legal representative (any of the foregoing a "Legal
-----
Representative") of any such individual, any spouse or issue of such individual
- --------------
or any spouse of any such issue; (ii) in relation to any corporation, any
subsidiary in which such corporation is a holder of at least a majority
interest, or any successor entity by merger or consolidation; (iii) in
3
<PAGE>
relation to trusts, any settlor or any beneficiary thereof; and (iv) in relation
to the estate of any deceased individual, (A) any Legal Representative of such
individual, (B) any legatee or heir of such individual or (C) any trust for the
benefit of any one or more of such legatees and heirs. For purposes of this
definition, the word "issue" shall also include issue by adoption; and the word
"spouse" shall not include a spouse from whom an individual is legally separated
or in the process of obtaining a separation or divorce.
"Substituted Limited Partner" means any Person admitted to the Partnership
---------------------------
as a Limited Partner under the provisions of Section 7.2.
"Uniform Act" means the Uniform Limited Partnership Act as set forth in
-----------
Chapter 109 of the General Laws of the Commonwealth of Massachusetts as from
time to time in effect.
"Withdrawal" (and correlatively the terms "Withdraw", "Withdrawing" or
---------- -------- -----------
"Withdrawn") means, as to a General Partner, the occurrence of death,
---------
adjudication of insanity or incompetence, bankruptcy, dissolution, or any other
voluntary or involuntary withdrawal from the Partnership for any reason as
specified in the Uniform Act. Involuntary Withdrawal shall occur whenever a
General Partner may no longer continue as a General Partner by law or pursuant
to any terms of this Agreement. Withdrawal by any General Partner from the
Partnership by reason of ill health or an adjudication of insanity or
incompetence shall be deemed involuntary. Bankruptcy shall be deemed to have
occurred whenever a General Partner shall petition or apply for the appointment
of a trustee or other custodian, liquidator or receiver of the General Partner
or of any substantial part of the assets of the General Partner or shall
commence any case or other proceeding relating to the General Partner under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation or similar law of any jurisdiction, now or hereafter
in effect (collectively "Bankruptcy Laws"), or shall take any action to
---------- ----
authorize or in furtherance of any of the foregoing, or if any such petition or
application shall be filed or any such case or proceeding shall be commenced
against the General Partner and the General Partner shall indicate its approval
thereof, consent thereto or acquiescence therein or such petition or application
shall not have been dismissed within sixty days following the filing thereof. A
merger, combination or other reorganization (other than pursuant to any
Bankruptcy Laws) of any corporation or other Entity which serves as a General
Partner into another corporation or Entity shall not be considered a Withdrawal,
but rather the surviving corporation or other Entity of such merger, combination
or other reorganization shall continue to serve as a General Partner in place of
such former corporation or other Entity.
ARTICLE II
----------
FORMATION; NAME; AND PURPOSE
----------------------------
Section 2.1. Formation. The parties hereto hereby agree to continue the
---------
Partnership as a limited partnership under this Agreement and the Uniform Act.
Section 2.2. Name and Office. The Partnership shall continue to be
---------------
conducted under the name and style of "Harborside Healthcare Limited
Partnership" with a principal office at 470 Atlantic Avenue, Boston,
Massachusetts 02210. The General Partner may at any time change the
4
<PAGE>
location of such principal office and shall give due notice of any such change
to the Limited Partners. The Partnership shall at all times maintain in
Massachusetts (i) an office at which shall be kept the basic Partnership
documents described in Section 10.1. hereof, and (ii) an agent for service of
process selected by the General Partner in accordance with any relevant
provisions of the Uniform Act as then in effect.
Section 2.3. Purpose. The purpose of the Partnership is to acquire, own,
-------
lease, invest in, improve, hold, encumber, sell, manage, maintain, operate and
otherwise deal with Facilities, and real estate and personal property related
thereto; to be a general and/or limited partner in any Other Partnership which
conducts activities within the scope of this Section; and to conduct any other
business activity allowed under the Uniform Act.
Section 2.4. Authorized Acts. In furtherance of its purposes, the
---------------
Partnership is hereby authorized:
(i) To become and act as a general and/or limited partner in any
Other Partnership.
(ii) To acquire by purchase, lease or otherwise any facility and any
real or personal property which may be necessary, convenient or incidental
to the accomplishment of the purposes of the Partnership.
(iii) To construct, operate, manage, maintain, finance and improve,
and to own, sell, convey, assign, mortgage, or lease any Facilities and any
real estate and any personal property necessary, convenient or incidental
to the accomplishment of the purposes of the Partnership.
(iv) To borrow money and issue evidence of indebtedness, and to
guaranty the indebtedness of other Persons including, without limitation,
Other Partnerships, in furtherance of any or all of the purposes of the
Partnership, and to secure the same by mortgage, pledge or other lien on
any assets of the Partnership including, without limitation, Other
Partnership Interests then held by the Partnership.
(v) To enter into, perform and carry out, contracts, agreements and
other documents of any kind, including contracts with Affiliated Persons,
necessary to, or in connection with or incidental to, the accomplishment of
the purposes of the Partnership, specifically including, but not limited
to, the execution and delivery of partnership agreements, certificates of
limited partnership, and other agreements and documents pertaining to Other
Partnerships.
(vi) To enter into any kind of activity necessary to, or in
connection with, or incidental to, the accomplishment of the purposes of
the Partnership, so long as said activities may be lawfully carried on or
performed by a partnership, to the extent applicable, under the laws of the
Commonwealth of Massachusetts.
5
<PAGE>
Section 2.5. Term and Dissolution.
--------------------
(a) The term of this Partnership commenced on the filing of the
Certificate with the Massachusetts Secretary of State, and shall continue in
full force and effect for fifty (50) years from the date of such filing, except
that the term of the Partnership may be extended for an additional term of up to
thirty (30) years by consent of the General Partner or the unanimous consent of
the General Partners, as the case may be, and the Consent of the Limited
Partners.
(b) Notwithstanding the foregoing, the Partnership shall be earlier
dissolved upon the happening of any of the following events:
(i) The sale or other disposition of all or substantially all the
assets of the Partnership, unless such sale is for equity interests in an
entity to which the sale or other disposition is made or unless the General
Partners elect to continue the life of the Partnership to the extent
required for the purpose of the collection of any notes or other
consideration received by the Partnership upon sales or other disposition
of Partnership assets; or
(ii) The Withdrawal of any General Partner if the business of the
Partnership is not continued by the remaining General Partner(s); or
(iii) The Withdrawal of a General Partner if no General Partner
remains and the Partnership is not reconstituted with a successor General
Partner pursuant to Article VI; or
(iv) Any other event which shall cause the termination, dissolution
and/or winding up of the Partnership under the Uniform Act.
ARTICLE III
-----------
SALE AND OTHER TRANSACTIONS
---------------------------
The General Partner is authorized to sell, exchange, otherwise transfer or
convey, and to mortgage, pledge or otherwise grant security interests in, all or
substantially all the assets of the Partnership without approval of the Limited
Partners, which approval shall conclusively be deemed to have been granted by
each of the Limited Partners upon his execution of this Agreement.
ARTICLE IV
----------
PARTNERS: CAPITAL
-----------------
Section 4.1. General Partner. The Capital Contribution of the General
---------------
Partner is as set forth in Schedule I, as amended from time to time in the
-------- -
manner set forth herein.
6
<PAGE>
Section 4.2. Limited Partner. The Capital Contributions of the Limited
---------------
Partners are as set forth in Schedule II, as amended from time to time in the
-------- --
manner set forth herein.
Section 4.3. Partnership Capital. The capital of the Partnership shall be
-------------------
the aggregate amount of the cash and the aggregate fair market value of other
property or Facilities contributed by the General Partner and by the Limited
Partners as set forth in Schedules I and II. An individual capital account
--------- - --
shall be maintained for each Partner in accordance with generally accepted
accounting principles then being followed by the Partnership. Without
limitation of the foregoing, each such capital account shall be credited with
the Partner's Capital Contributions and with his share of profits, and shall be
charged with his, her or its share of losses and distributions. No interest
shall be paid on any Capital Contribution to the Partnership. No Partner shall
be entitled to bring an action for partition against the Partnership, or to
demand or receive any distribution of or with respect to this Capital
Contribution except as is specifically provided under this Agreement.
Section 4.4. Liability of Partners; Further Capital Contributions. No
----------------------------------------------------
Limited Partner shall be liable for any debts, liabilities, contracts, or
obligations of the Partnership or be required to lend funds to the Partnership.
Except with respect to repayments to the Partnership of distributions to the
Partners (and interest thereon) required by the Uniform Act or other applicable
law, no Partner shall have any obligation to eliminate a deficit balance from
his capital account. A Limited Partner's liability shall be limited to the
amount of his, her or its Capital Contribution. After such Capital Contribution
has been made, no General Partner or Limited Partner shall, except as required
by the Uniform Act, be required to make any further Capital Contributions to the
Partnership, and no Limited Partner shall be permitted to make any such further
Capital Contributions without the consent of the General Partner. No General
Partner shall have any personal liability for the repayment of the Capital
Contribution of any Partner.
Section 4.5. Additional Limited Partners.
---------------------------
(a) The General Partner shall have the right to admit one or more
additional Limited Partners to the Partnership from time to time without
approval of the Limited Partner, provided that no adverse change in the Profit-
Sharing Ratio of any Partner specified in Schedule III in effect at the time of
-------- ---
such admission shall be made with respect to the Partnership as a result of such
admission without the written consent of the Partner adversely affected.
(b) Nothing in this Section 4.5 shall impair the right of the Partners
specified in Schedule III to alter the Profit-Sharing Ratios specified on such
-------- ---
Schedule. In addition, nothing in this Section 4.5 shall impair the right of
the General Partner to admit Substituted Limited Partners under Section 7.2
hereof.
(c) Each incoming Limited Partner shall also agree to be bound by the
provisions of this Agreement and shall also agree to accept such other terms and
conditions set forth in writing to him at the time of admission as the General
Partner may reasonably determine.
(d) Upon the admission of any additional Limited Partner, Schedule II and
-------- --
III shall be amended by the General Partner (utilizing the powers of attorney
- ---
set forth in Section 11.1) to
7
<PAGE>
reflect the names, addresses and Capital Contributions of all Limited Partners
and their Profit-Sharing Ratios. Each Limited Partner shall become signatory
hereto by signing a Limited Partner Signature Page to which shall be attached a
conformed counterpart of this Agreement in such manner as the General Partner
shall determine, and, by so signing, such Limited Partner shall be deemed to
have adopted and to have agreed to be bound by all the provisions of this
Agreement; provided, however, that no such Limited Partner Signature Page or
-------- -------
counterpart of this Agreement shall be binding until it has been signed by one
or more General Partners.
ARTICLE V
---------
RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNER
------------------------------------------------
Section 5.1. Business.
--------
(a) The General Partner shall have the exclusive right to manage the
business of the Partnership. Except as specifically provided herein, the
General Partner shall have the right to perform all actions necessary,
convenient or incidental to the accomplishment of the purposes and authorized
acts of the Partnership, as specified in Sections 2.3 and 2.4, respectively, and
shall possess and may enjoy and exercise all the rights and powers of a general
partner as provided in the Uniform Act. In particular, and without limitation
on the rights and powers of the General Partner set forth elsewhere in this
Agreement, the General Partner shall have the right to set aside from the cash
receipts of the Partnership reasonable reserves to provide for working capital
needs, funds for improvements or replacements or for other contingencies of the
Partnership.
(b) No Limited Partner (except one who may also be a General Partner)
shall participate in or have any control over the Partnership business, except
as required by law. The Limited Partners hereby consent to the exercise by the
General Partner of powers conferred by this Agreement. No Limited Partner
(except one who may also be a General Partner) shall have any authority or right
to act for or bind the Partnership. Without limitation of the authority of the
General Partner, it is specifically authorized to employ and engage, on behalf
of the Partnership, Affiliated Persons to perform services for, or furnish goods
to, the Partnership; provided, however, that any payment for services or goods
-------- -------
provided to the Partnership shall not exceed an amount which would have been
payable if the transaction were at arms-length.
(c) To assist them in the performance of their duties hereunder, the
General Partner may appoint one or more officers of the Partnership including,
without limitation, a president, one or more executive vice presidents, one or
more other vice presidents, a treasurer, one or more assistant treasurers, a
controller, a secretary, and one or more assistant secretaries. The General
Partner may assign to any such officer from time to time such duties and powers
as the General Partner may deem appropriate subject, however, to the general
provisions of this Article V with respect to the rights, powers and duties of
the General Partner.
Section 5.2. Action by General Partner.
-------------------------
(a) Any and all actions with respect to the Partnership (whether the
Partnership is then acting on its own behalf or on behalf of an Other
Partnership in which the Partnership is a
8
<PAGE>
general partner) may be taken by any one or more of the General Partners, acting
either singly or together with one or more other General Partners.
(b) The General Partner, is specifically authorized, without limitation,
to execute, sign, seal and deliver in the name and on behalf of the Partnership
(whether the Partnership is then acting on its own behalf or on behalf of an
Other Partnership in which the Partnership is a general partner):
(i) any and all partnership agreements, certificates, instruments,
and any documents required in connection with the formation or operation of
any Other Partnership or by any buyer, seller or mortgagee from time to
time in connection with the acquisition, sale, ownership, development and
operation of any real or personal property;
(ii) any deed, lease, guarantee, assignment, mortgage, mortgage note,
bill of sale, security agreement, contract, business certificate, or any
amendments to any of the foregoing; and
(iii) any and all regulatory and other agreements, contracts,
documents, notes, certificates and instruments whatsoever involving the
ownership, construction, development, management, maintenance or operation
of any facilities or any real or personal property or the interest of the
Partnership in any Other Partnership, or otherwise requisite to carrying
out the intention and purpose of this Agreement.
(c) Every contract, deed, mortgage, lease, note, guarantee, assignment,
agreement and other instrument executed by a General Partner shall be conclusive
evidence in favor of every Person relying thereon or claiming thereunder that at
the time of the delivery thereof (A) this Partnership was in existence, (B) this
Agreement had not been terminated or cancelled or amended in any manner so as to
restrict such authority (except as shown in certificates or other instruments
duly filed in the office of the Secretary of State of the Commonwealth of
Massachusetts), and (C) the execution and delivery of such instruments were duly
authorized under this Agreement. Any Person dealing with the Partnership or the
General Partner may always rely on a certificate signed by the General Partner:
(i) as to who are the General Partner or Limited Partners hereunder,
(ii) as to the existence or nonexistence of any fact or facts which
constitute conditions precedent to acts by the General Partner or in any
other manner are germane to the affairs of this Partnership,
(iii) as to who is authorized to execute and deliver any instrument
or document of the Partnership,
(iv) as to the authenticity of any copy of this Agreement and
amendments thereto, or
9
<PAGE>
(v) as to any act or failure to act by the Partnership or as to any
other matter whatsoever involving the Partnership or any Partner.
Section 5.3. Devotion of Time; Expense Reimbursement. The General Partner
---------------------------------------
shall devote to the affairs of the Partnership such time as it may deem
necessary for the proper performance of its duties. The General Partner shall
also be entitled to charge the Partnership, or to be reimbursed by the
Partnership, for all expenses reasonably incurred by it in connection with the
Partnership business, but shall not receive any compensation for services
provided as a General Partner hereunder.
Section 5.4. Liability; Indemnification. No General Partner shall be
--------------------------
liable, responsible or accountable in damages or otherwise to the Partnership or
any Limited Partner for any act performed by it within the scope of the
authority conferred by this Agreement, for its failure or refusal to perform any
acts except those expressly required by the terms of this Agreement, or for its
performance or omission to perform any acts on advice of the Accountants or
legal counsel for the Partnership, except in case of willful misconduct. The
Partnership shall indemnify and save harmless each General Partner from any
expenses, loss or damage incurred by it by reason of (i) any act performed by it
within the scope of the authority conferred upon him by this Agreement unless
such act constitutes willful misconduct, or (ii) its failure or refusal to
perform any acts except those expressly required by the terms of this Agreement,
or (iii) its performance or omission to perform any acts on advice of the
Accountants or legal counsel for the Partnership. Any indemnity under this
Section 5.4 shall be provided out of and to the extent of Partnership assets
only, and no Limited Partner shall have any personal liability on account
thereof.
Section 5.5. Other Business Ventures. The General Partner may engage
-----------------------
independently or may act with others (including acting as a general and/or
limited partner) in other business ventures of every nature or description
including, without limitation, the ownership, operation, management,
syndication, sale, brokerage and development of facilities (including projects
competing with those of the Partnership or of Other Partnerships), and neither
the Partnership nor any Partner shall have any rights in or to such independent
ventures or the income or distributions derived therefrom as a result of being
Partners hereunder. Furthermore, as set forth in Sections 24, 4.5 and 9.1
through 9.4 of this Agreement, the Partnership may now or hereafter act as a
general and/or limited partner in various Other Partnerships which may either
exist as of the date of this Agreement or may hereafter be formed. Except as is
specifically set forth in those Sections (and the Schedules to this Agreement
referred to therein), no Partner (except as set forth in any written employment
agreement executed by the General Partner and its President) shall have any
right to participate either directly or indirectly in any income or
distributions derived from any such Other Partnership.
Section 5.6. Provisions Concerning Loans. In the event that funds not
---------------------------
otherwise available should be required at any time to pay operating expenses or
any other liabilities of the Partnership, including capital expenditures, the
General Partner may, but shall not be obligated to, lend to the Partnership all
or any such funds. Any loans made pursuant to this Section 5.6
10
<PAGE>
shall be repayable in the manner and bear interest at the rate set forth in
Article VIII of this Agreement.
Section 5.7. Actions Upon Dissolution. Upon dissolution of the
------------------------
Partnership, the General Partner (or its trustees, receivers, successors or
legal representatives) shall cause the cancellation of the Certificate and
shall, unless the Partnership is reconstituted pursuant to Section 6.2(a),
liquidate the Partnership assets and apply and distribute the proceeds thereof
in accordance with Section 9.3. Notwithstanding the foregoing, in the event the
liquidating General Partner shall determine that an immediate sale of part or
all of the Partnership's assets would cause undue loss to the Partners (by
reason of incurring taxable gain or otherwise), such liquidating General Partner
may, in order to avoid such loss, either (i) defer liquidation of, and withhold
from distribution for a reasonable time (provided that such deferral of
liquidation and distribution shall not have adverse tax consequences for the
Limited Partners as a class and they shall have been provided with an amount
sufficient to cover any tax liability resulting from such liquidation), the
assets of the Partnership except those necessary to satisfy the Partnership
debts and obligations (including loans of Partners and Affiliated Persons and
accrued interest thereon), or (ii) distribute the shares of such Partnership
assets to the Partners in kind.
ARTICLE VI
----------
WITHDRAWAL; CONTINUATION OF
---------------------------
PARTNERSHIP; NEW GENERAL PARTNERS;
----------------------------------
TRANSFER OF GENERAL PARTNER INTERESTS
-------------------------------------
Section 6.1. Continuation of Partnership. Upon the Withdrawal of a
---------------------------
General Partner, the remaining General Partner or General Partners, if any, or,
if none, the Withdrawing General Partner or his heirs, successors or assigns,
shall immediately send notice of such Withdrawal to each Partner, and the
Partnership shall be (i) dissolved if there is no remaining General Partner and
no Person who wilt thereupon become a successor General Partner under Section
6.2 (subject to possible reconstitution as provided in Section 6.2(a)), or (ii)
continued by the remaining General Partner(s) as provided in the sentence next
following, if such remaining General Partner(s) so elect. The remaining General
Partner(s) shall have the right to continue the business of the Partnership upon
the Withdrawal of a General Partner.
Section 6.2. Designation of Successor or Additional General Partners;
--------------------------------------------------------
Reconstitution of the Partnership.
- ---------------------------------
(a) If, following the Withdrawal of a General Partner, there is no
remaining General Partner of the Partnership, then and in such event the Limited
Partners may elect by Consent of the Limited Partners, at any time before ninety
(90) days have elapsed following the Withdrawal of the last remaining General
Partner, to reconstitute the Partnership and continue its business for the
balance of the term specified in Section 2.5 hereof. If the Limited Partners so
elect to reconstitute the Partnership and thereupon shall, by Consent of the
Limited Partners, elect one or more Persons as successor General Partner(s),
then such Person(s) shall, if they accept such
11
<PAGE>
appointment, be admitted to the Partnership as successor General Partner(s) and
the relationship among the then Partners shall be governed by this Agreement.
(b) If the successor General Partner(s) designated under the preceding
subsection (a) shall be a Limited Partner of the Partnership at the time of his
admission as a General Partner, his interest as a General Partner shall be the
same as it was as a Limited Partner; provided, however, that his interest as a
-------- -------
General Partner may be smaller than his interest as a Limited Partner (retaining
the difference as a Limited Partner) if, in the opinion of tax counsel to the
Partnership, such smaller General Partner interest will not jeopardize the
status of the Partnership as a partnership under the Code. If such successor
General Partner shall not then be a Limited Partner, his interest as a General
Partner shall be such interest as shall thereupon be voluntarily assigned to him
by any General and/or Limited Partners.
Section 6.3 Interest of Withdrawn General Partner.
-------------------------------------
(a) Each General Partner hereby covenants and agrees for himself and his
assigns, successors, heirs, executors and legal representatives to transfer, at
the time of his Withdrawal, to the remaining General Partner(s), or to a
successor General Partner selected in accordance with Section 6.2(a), as the
case may be, such portion of his General Partner interest, if any, as shall be
necessary, in the opinion of tax counsel to the Partnership, to ensure the
continued treatment of the Partnership as a partnership under the Code. No
consideration shall be paid to such Withdrawing Partner (or his estate) by the
remaining General Partners or the successor General Partner in the event of a
transfer pursuant to this Section 6.3. Notwithstanding the foregoing, such
Withdrawal and transfer shall not affect the right of the Withdrawing General
Partner to repayment of any loans made by such Withdrawing General Partner to
the Partnership in accordance with the provisions of Article VIII hereof. For
the purposes of Article IX hereof, the effective date of any transfer pursuant
to the provisions of this subsection (a) of all or any portion of the General
Partner interest of a Withdrawing General Partner shall be deemed to be the date
of Withdrawal, but the Partnership shall not make any distributions to the
designated transferee until the transfer has been made.
(b) That portion of the interest of the Withdrawn General Partner which
shall not have been transferred pursuant to Section 6.3(a) shall be retained by
such Withdrawn General Partner (or pass to his legal representatives, successors
or assigns) and shall, for all purposes hereunder except for purposes of
electing a new General Partner under Section 6.2(a) as a result of such
Withdrawing General Partner's Withdrawal, have the status of an interest of a
Limited Partner with the right to receive that share of the profits, losses and
distributions of the Partnership to which the Withdrawn General Partner, as
such, would have been entitled had he continued as a General Partner, reduced to
the extent of the interest transferred hereunder.
Section 6.4. Additional General Partners. Notwithstanding anything to the
---------------------------
contrary herein contained, the General Partner(s) (acting unanimously if there
shall be more than one such General Partner) shall have the right at any time,
and from time to time, with the Consent of the Limited Partners, to designate
one or more Persons as additional General Partner(s). Notice of any such
designation shall be promptly given to all the Limited Partners. Any such
Person so
12
<PAGE>
designated as an additional General Partner shall, after having received the
Consent of the Limited Partners, become such upon his acceptance in writing of
such position and, if such Person is not already a Partner of the Partnership,
his agreeing to be bound by all of the terms and conditions of this Agreement as
the same may theretofore have been amended. Provided the Consent of the Limited
Partners to the admittance of an additional General Partner shall have been
obtained, the consent of all Limited Partners to such admission shall
conclusively be deemed to have been given for all purposes. If any Person
designated as an additional General Partner under this Article VI shall have
theretofore been a Limited Partner of the Partnership, such Person shall be
allocated as a General Partner all or such portion as shall be agreed upon by
the General Partner(s) and such Person of the percentage of profits, losses and
distributions as were previously allocated to him as a Limited Partner. It any
Person so designated as an additional General Partner shall not theretofore have
been a Partner of the Partnership, his interest as a General Partner shall be
such interest as shall thereupon be voluntarily assigned to him by any General
and/or Limited Partners.
Section 6.5. Amendment to Certificate. Upon the admission of an
------------------------
additional or successor General Partner, Schedules I and III hereto shall be
--------- - ---
amended to reflect such admission and an amendment to the Certificate reflecting
such admission shall be filed in accordance with the Uniform Act. Subject to
the provisions of Article IX hereof, the General Partners, acting singly, are
hereby constituted, and empowered to act as, the attorney-in-fact of each
Limited Partner, with authority to execute, acknowledge, swear to and deliver
such instruments as may be necessary or appropriate to carry out the foregoing
provisions of this Article VI, including amendments to the aforesaid Schedules
hereto, amendments to the Certificate required by the Uniform Act, and such
consents or ratifications as may be required for purposes of the Uniform Act,
business certificates and the like.
Section 6.6. Special Restrictions. No General Partner shall sell,
--------------------
mortgage, hypothecate, transfer, or otherwise dispose of his General Partner
interest in the Partnership except (i) dispositions pursuant to Section 6.3 or
6.4, or (ii) dispositions made with the written consent of all other General
Partners.
ARTICLE VII
-----------
TRANSFERABILITY OF LIMITED PARTNER INTERESTS
--------------------------------------------
Section 7.1. Restrictions on Transfer.
------------------------
(a) Except as otherwise expressly provided in this Article VII or as
required by law, no Limited Partner may voluntarily or involuntarily transfer,
sell, alienate, assign or otherwise dispose of all or any part of his interest
in the Partnership without the written consent of the General Partner.
(b) If, notwithstanding the preceding paragraph (a), a Limited Partner's
interest in the Partnership is, in whole or in part, pledged, hypothecated,
encumbered, assigned or transferred (whether by operation of law or otherwise)
to any person or persons (except with the prior written consent of the General
Partner), or if any attempt is made to effect any such assignment
13
<PAGE>
or transfer (a "Prohibited Transfer"), then such Limited Partner shall be deemed
-------------------
automatically to have made an offer to sell to the Partnership and the
Partnership shall have the option in the sole discretion of the General Partner
to purchase, all or any portion of such Limited Partner's interest in the
Partnership, at a purchase price (prorated in the event of the General Partner's
election to purchase less than all of such Partnership interest) equal to the
Appraised Value of the Limited Partner's interest to be repurchased, determined
in accordance with the procedure set, forth in Section 7.4(b) through 7.4(h).
(c) In the event that the provisions of the preceding paragraphs (a) and
(b) shall be held unenforceable in connection with any proposed or purported
assignment or transfer of all or any portion of a Limited Partner's interest in
the Partnership, such Prohibited Transfer shall be automatically subject to the
prior right of the Partnership to repurchase such interest in the Partnership,
and such assignment or transfer shall not be recognized as consummated by the
Partnership until the General Partner shall have declined to exercise such
right, at a price and upon terms (subject to Section 7.1(d) hereof) no less
favorable than those which the proposed transferring Limited Partner would
receive from such assignment or transfer.
(d) The General Partner may exercise the Partnership's option under the
preceding paragraphs (b) or (c) by giving written notice of exercise to the
Limited Partner whose interest in the Partnership is subject of the Prohibited
Transfer and the person or persons who are the transferees or potential
transferees pursuant to such Prohibited Transfer. The General Partner's written
notice of exercise may be given at any time prior to sixty (60) days after the
General Partner receives written notice of the Prohibited Transfer (including at
any time prior to receipt of such written notice). The Partnership, upon
delivery of the General Partner's notice of exercise, shall be obligated to
purchase such Partnership interest. The closing of any repurchase of a Limited
Partner's Partnership interest under the provisions of paragraphs (b) or (c)
shall be held within a reasonable time, not to exceed thirty (30) days after the
later of the determination of the Appraised Value of the interest to be
purchased (solely in the case of a purchase pursuant to Section 7.1(b)) or
delivery of the General Partner's notice of exercise. Payment for such
repurchased Partnership interest shall be made either in full in cash, or
partially in cash together with a promissory note, in accordance with the
provisions of Section 7.4(g) below notwithstanding any provisions of Section
7.1(c) hereof.
(e) Any Limited Partner who shall assign all his interest in the
Partnership (other than by pledge or conditional assignment made with the
consent of the General Partner and which has not yet become effective) shall
cease to be a Limited Partner of the Partnership, and shall no longer have any
rights or privileges of a Limited Partner except that, unless and until the
assignee of such Limited Partner is admitted to the Partnership as a Substituted
Limited Partner in accordance with Section 7.2, said assigning Limited Partner
shall retain the statutory obligations of an assignor limited partner under the
Uniform Act.
(f) Upon any assignment made in accordance with this Section 7.1, there
shall be filed with the Partnership a duly executed and acknowledged counterpart
of the instrument making such assignment, which instrument shall evidence the
written acceptance of the assignee to be bound by all the provisions of this
Agreement and shall otherwise be in form satisfactory to
14
<PAGE>
the General Partner; and if such an instrument is not so filed, the Partnership
need not recognize any such assignment for any purpose.
(g) An assignee of a Limited Partner interest who does not become a
Substituted Limited Partner as provided in Section 7.2 and who desires to make a
further assignment of his interest shall be subject to all the provisions of
this Article VII to the same extent and in the same manner as any Limited
Partner desiring to make an assignment of his interest.
Section 7.2. Substituted Limited Partners.
----------------------------
(a) Except as otherwise provided in this Article VII, no Limited Partner
shall have the right to substitute an assignee as a Limited Partner in his
place.
(b) Upon the transfer of the interest of a Limited Partner to an assignee
and the substitution of such assignee as a Substituted Limited Partner, Schedule
--------
II and, to the extent appropriate, Schedule III, shall be amended to reflect the
- -- -------- ---
name and address of such assignee as a Substituted Limited Partner and to
eliminate the name and address of the predecessor Limited Partner. Each
Substituted Limited Partner shall, as a condition of his admission to the
Partnership as a Substituted Limited Partner, execute such instrument or
instruments as shall be required by the General Partner to signify his agreement
to be bound by all the provisions of this Agreement.
(c) Subject to the provisions of Article IX hereof, each of the General
Partners is hereby constituted and empowered to act singly as the attorney-in-
fact for the Limited Partners with authority to execute, swear to and deliver
such instruments as may be necessary or appropriate to carry out the provisions
of this Article VII, including amendments to the aforesaid Schedules hereto,
amendments to the Certificate, business certificates and the like.
Section 7.3. Additional Restrictions.
-----------------------
(a) In no event shall all or any part of a Limited Partner interest in the
Partnership be assigned or transferred to a minor (other than to a Related
Person by reason of death) or to an incompetent.
(b) The General Partner may, in addition to any other requirement it may
impose, require, as a condition of sale, transfer, exchange or other disposition
of any interest in the Partnership, that the transferor (i) assume all costs
incurred by the Partnership in connection therewith and (ii) furnish it with an
opinion of counsel satisfactory (both as to opinion and counsel) to the General
Partner that such sale, transfer, exchange or other disposition complies with
applicable federal and state securities laws.
(c) Any sale, exchange, transfer or other disposition in contravention of
any of the provisions of this Article VII shall be void and ineffectual and
shall not bind, or be recognized by, the Partnership.
15
<PAGE>
Section 7.4. Purchase of Limited Partner Interest Upon Termination of
--------------------------------------------------------
Employment.
- ----------
(a) Notwithstanding anything to the contrary provided elsewhere in this
Agreement, upon the cessation for any reason whatsoever or for no reason
(including without limitation by reason of death, voluntary termination of
employment or involuntary termination with or without cause) of any individual
Limited Partner's employment by the General Partner and all Affiliated Persons
of the General Partner, the entire Limited Partner interest held by such
individual Limited Partner shall be sold by such Limited Partner and purchased
by the Partnership, or its nominee (provided if purchased by a nominee the
Partnership shall guaranty payment of amounts due) at an aggregate purchase
price equal to the aggregate Appraised Value thereof.
(b) For purposes of this Section 7.4, "Appraised Value", with respect to
--------- -----
each Limited Partner interest subject to repurchase, shall mean the amount such
Limited Partner would receive if the Partnership's total assets and business
were sold, and it was liquidated. For purposes hereof the sale value shall be
determined by valuing the Partnership's total assets and business as a going
concern, determined in accordance with the following subsections (c) through (h)
of this Section 7.4 and after taking into account all fixed and contingent
liabilities as set forth in the books of account maintained by the Partnership.
(c) A Limited Partner whose interest is subject to repurchase under this
Section 7.4 (or his Legal Representative in the event of his death or
incapacity) and the Partnership (x) shall undertake in good faith to reach
mutual agreement upon an Appraised Value of the Partnership within thirty (30)
days of the termination of employment giving rise to repurchase under this
Section 7.4; and (y) failing such mutual agreement, within five (5) days of the
end of such thirty-day period each of the Partnership and such Limited Partner
(or his Legal Representative in the event of his death or incapacity) shall
engage an appraiser, who shall, within sixty (60) days of the termination of
such employment, deliver a report to such Limited Partner (or his Legal
Representative in the event of his death or incapacity) and the Partnership
setting forth the value of the Partnership net of all Indebtedness (as defined
below). If either the Limited Partner, on the one hand, or the Partnership, on
the other hand, fails to name an appraiser in a timely manner or an appraiser
fails to deliver a report of value in a timely manner, the appraiser named by
the other party or the appraiser delivering the timely value report, as
applicable, shall determine that value alone. If the net values determined by
the two appraisers differ by ten percent (10%) or less (measured as a percentage
of the higher of the two appraisals), the average net value shall be the
Appraised Value of the Partnership, and the Limited Partner, on the one hand,
and the Partnership on the other hand, shall each bear the cost of its or their
appraiser. If the two appraisers are not within such range, then a third
appraiser shall be engaged, either by the two appraisers agreeing on such person
or else by applying to a court for a decision; and the Appraised Value of the
Partnership shall be the average of the third appraiser's determination and that
of the other appraiser closest in value thereto. If a third appraiser is
engaged to determine the Appraised Value, the cost of all of the appraisers and
all other costs of the appraisal process with respect to determining the
Appraised Value of the Partnership shall be borne by the Limited Partner, on the
one hand, or the Partnership on the other hand, whose designated appraiser's
determination is not taken into account under the immediately preceding
sentence. If any appraiser is unable or unwilling to serve, his successor shall
be chosen within fifteen (15) days of
16
<PAGE>
his failing or ceasing to serve in the same manner as he was chosen.
Notwithstanding the foregoing provisions of this subsection (c) the parties may
at any time by agreement determine the Appraised Value of the Partnership and
terminate the appraisal process. Each appraiser designated pursuant to this
subsection (c) shall be a reputable appraiser with at least five (5) years'
professional experience.
(d) For purposes of this Section 7.4, "Indebtedness" shall mean all
------------
obligations of the Partnership, fixed and contingent as set forth in the books
of account maintained by the Partnership.
(e) The Appraised Value determined by each appraiser pursuant to this
Section 7.4 shall take into account and use as a standard the price that a
ready, willing and able buyer under no compulsion to buy, and a willing seller
under no compulsion to sell, would establish for the Partnership as of the
applicable date on a freely-negotiated basis and assuming that the purchase
price were to be paid in cash at the time of closing. Any cash or liquid
investments held by the Partnership as of the relevant date shall be taken into
account in determining the Appraised Value.
(f) All appraisers selected hereunder shall have at least ten (10) years
experience in valuing businesses, shall have appraised companies with an
aggregate value for all appraisals of at least $100,000,000 and shall have
appraised a single company with an appraised value of at least $25,000,000. The
Appraised Value of the Partnership determined pursuant to this Section 7.4 shall
be binding and conclusive on all parties, and award based thereon may be entered
in any court of competent jurisdiction and shall be final and binding on all
parties.
(g) Payment of the repurchase price for the Limited Partner interest
subject to repurchase pursuant to this Section 7.4 shall be made, at the
closing, either (i) in full, in cash or by certified or bank check, or (ii) in
cash or by certified or bank check in an amount equal to the greater of twenty-
five percent (25%) of the total repurchase price or $500,000, and by a
promissory note of the Partnership in the form of Exhibit A annexed hereto (the
------- -
"Note"), in a principal amount equal to the balance of such total purchase
----
price. The principal amount of any such promissory note shall be paid in one or
a series of installments, each installment except the final installment being in
an amount equal to the greater of one-third of such principal amount or
$500,000, payable on each anniversary of the date of the repurchase closing
until paid in full. Any such promissory note shall bear interest on the unpaid
principal balance thereof at an annual rate equal to one percent (1%) above the
rate of interest in effect on the date of the closing designated by The First
National Bank of Boston at its head office as its base rate. Interest shall be
payable in arrears on each principal installment payment date. If payment is
made in installments hereunder the selling Limited Partner shall obtain at the
time of closing of his sale a perfected security interest in the Partnership
interest sold to secure payments under the Note.
(h) In determining Appraised Value, the appraisers shall not take into
account the fact that any Limited Partner, or any Limited Partner's predecessor
in interest, ceasing to be an employee of the General Partner and all Affiliated
Persons of the General Partner may significantly adversely affect the value of
the Partnership. Notwithstanding anything otherwise
17
<PAGE>
provided, the right of the General Partner or an Affiliated Person to terminate
a Limited Partner's employment, with or without cause shall not be restricted
even if the timing of such termination of employment may have a significant
adverse effect on the Limited Partner's investment in this Partnership. Nothing
contained in this Agreement shall be construed to create any employment rights
whatsoever in any Limited Partner or Related Person of a Limited Partner.
ARTICLE VIII
------------
BORROWINGS AND LOANS
--------------------
(a) All Partnership borrowings shall be subject to the terms of this
Agreement. To the extent borrowings are permitted, they may be made from any
source, including Partners and Affiliated Persons. The Partnership may issue
suitable promissory notes to evidence such loans.
(b) If any Partner shall lend any moneys to the Partnership, the amount of
any such loan shall not constitute an increase in the amount of his Capital
Contribution nor affect in any way his share of the profits, losses and
distributions of the Partnership. Subject to the provisions of this Article
VIII, any loans made by a Partner shall be obligations of the Partnership of
equal rank with obligations to unsecured third-party creditors, and any interest
payable thereon shall be at the same rate applicable to the Note.
ARTICLE IX
----------
PROFITS, LOSSES AND CREDITS; DISTRIBUTIONS
------------------------------------------
Section 9.1. Profits, Losses and Credits.
---------------------------
(a) All profits and losses of the Partnership and all credits of the
Partnership except those arising from Capital Transactions shall be allocated
for all purposes (including federal and state income tax purposes) among the
Partners listed on Schedule IIIA in accordance with the Profit-Sharing Ratios
-------- ----
set forth therein.
(b) All profits of the Partnership arising from a Capital Transaction
shall be allocated for all purposes (including federal and state income tax
purposes) first among the Partners listed on Schedule IIIB(1) in accordance with
----------------
the Profit-Sharing Ratios set forth therein up to the amount of the Preferred
Return reduced by any prior allocation under this clause first and then among
the Partners listed on Schedule IIIB(2) in accordance with the Profit-Sharing
----------------
Ratios set forth therein.
(c) All losses of the Partnership arising from a Capital Transaction shall
be allocated among the Partners pro rata in accordance with their positive
Capital Account balances and after such Capital Account balances have been
reduced to zero to the Partners in accordance with the Profit-Sharing Ratios set
forth on Schedule IIIB(1).
-------- -------
(d) All profits and losses allocated to a Partner shall be credited or
charged, as the case may be, to his capital account. The terms "profits",
"losses" and "credits" as used in this
18
<PAGE>
Agreement shall mean taxable income, gains, losses and credits (and items of
income, gains, losses and credits entering into the computation thereof), all as
determined for federal income tax purposes using the accounting methods followed
by the Partnership.
Section 9.2. Distributions Prior to Dissolution.
----------------------------------
(a) All Cash Flow of the Partnership, shall be distributed as follows:
First, among the Partners listed in Schedule IIIA up to the amount of the
-------- ----
then aggregate pre-tax net income, (as calculated for generally accepted
accounting principles) of the Partnership reduced by any distributions under
this clause First, and
Second, in accordance with the Profit-Sharing Ratios specified on Schedule
--------
IIIB(1) hereto, and exclusively among the Partners specified in Schedule
- ------- --------
IIIB(1), as in effect from time to time.
- -------
(b) All Net Cash Proceeds from Capital Transactions shall be allocated
first among the Partners listed in Schedule III(B)(1) in accordance with the
-------- ---------
Profit-Sharing Ratios set forth therein up to the amount of the Preferred Return
reduced by any prior allocation under this clause first and under clause Second
of 9.2(a) and then among the Partners listed on Schedule IIIB(2) in accordance
-------- -------
with the Profit-Sharing Ratios set forth therein.
(c) The respective Profit-Sharing Ratios specified on Schedule III may be
-------- ---
changed at any time by the unanimous written consent of the Partners then
specified on much Schedule who are adversely affected by such change. Such
distributions shall be made by the General Partner from time to time, but not
less frequently than annually, as they may deem consistent with the operating
needs of the Partnership.
(d) Notwithstanding the foregoing provisions of this Section 9.2, if, in
the opinion of the General Partner, any Net Cash Proceeds from Capital
Transactions are required to be used by the Partnership to repay indebtedness of
the Partnership, or retained for a contingent future payment of such
indebtedness, such Net Cash Proceeds shall not be distributed to the Partners,
but rather shall be so used or retained by the Partnership until additional cash
shall become available for distribution to the Partners in the manner specified
in Article VIII hereof, but on expiration of the contingency, the Net Cash
Proceeds so retained shall be distributed to those Partners who, but for such
retention, would have received such Net Cash Proceeds.
Section 9.3. Distributions Upon Dissolution.
------------------------------
(a) Upon dissolution of the Partnership, unless the Partnership shall be
reconstituted as specified in Article VI hereof, the assets of the Partnership
shall, first be applied to payment of, or the establishment of adequate reserves
for the future payment of, the debts of or obligations of the Partnership,
including loans by Partners and Affiliated Persons and accrued interest thereon.
The remaining assets of the Partnership (or the proceeds of sales or other
dispositions in liquidation of the Partnership assets which the remaining or
surviving General Partners have determined to sell or dispose of) shall then be
distributed to the Partners in the respective
19
<PAGE>
manners set forth in Section 9.2(b); provided, however, that the General Partner
-------- -------
shall contribute to the capital of the Partnership an amount equal to (and shall
in no event be obligated to contribute more than) the lesser of (i) any negative
amount of its Capital Account existing after the distributions and allocations
required hereunder or (ii) 1.01% of the Capital Contributions made by the
Limited Partners. Any amount so contributed by the General Partner shall be
distributed to the Limited Partners in the respective manners set forth in
Section 9.2.
(b) If any assets of the Partnership are to be distributed in kind, such
assets shall be distributed on the basis of the fair market value thereof and
any Partner entitled to any interest in such assets shall receive such interest
therein as a tenant-in-common with all other Partners so entitled. The fair
market value of such assets shall, to the extent necessary, be determined by an
independent appraiser to be selected by the General Partner.
Section 9.4. Adjustment of Shares of Profits, Losses and Distributions to
------------------------------------------------------------
Insure 1% to the General Partner. Notwithstanding the foregoing provisions of
- --------------------------------
this Article IX, in no event shall there be allocated or distributed to the
General Partner or, the General Partners as a group, as the case may be
hereunder less than 1% of the aggregate of the profits, losses, credits and cash
distributions to be allocated or distributed to the Partners hereunder (the "One
---
Percent Share"). If the amounts of profits, losses or credits allocable or cash
- -------------
distributable to the General Partners in connection with any allocation or
distribution to the Partners hereunder shall not otherwise equal or exceed the
One Percent Share without giving effect to this provision, then all such amounts
otherwise allocable and distributable to the Limited Partners hereunder shall be
proportionately reduced in order to assure the General Partner of their One
Percent Share.
ARTICLE X
---------
BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS
--------------------------------------------
Section 10.1. Books and Records.
-----------------
(a) The General Partner shall keep or cause to be kept complete and
accurate books and records of the Partnership in accordance with generally
accepted accounting principles, which books and records shall be maintained and
be available at the principal office of the Partnership for examination by any
Partner, or his duly authorized representatives, at any and all reasonable
times. The Partnership may maintain such other books and records and may
provide such financial or other statements as the General Partner deems
advisable.
(b) The General Partner shall maintain at the Partnership's principal
office in Massachusetts the following documents: (i) a current list of the full
name and last known business address of each Partner set forth in alphabetical
order, (ii) a copy of the Certificate and all amendments thereto, together with
executed copies of any powers of attorney pursuant to which the Certificate or
any such amendment has been executed, (iii) copies of the Partnership's federal,
state and local income tax returns and reports, if any, for the three most
recent years, and (iv) copies of this Agreement as then in effect and of any
financial statements of the Partnership for the three most recent years. Such
documents are subject to inspection and copying at the reasonable request, and
at the expense, of any Partner during ordinary business hours.
20
<PAGE>
(c) In addition, the Partnership will furnish a list of the names and
addresses of all Limited Partners, together with their respective Capital
Contributions, to any Limited Partner who makes a written request therefor to
the Partnership. Except to the extent requested by any Limited Partner, the
General Partner shall have no obligation to deliver or mail a copy of the
Partnership's Certificate or any amendment thereto to the Limited Partners.
(d) Each Limited Partner shall also have the right to obtain from the
General Partner from time to time upon reasonable demand: (i) true and full
information regarding the status of the business and financial condition of the
Partnership, (ii) promptly after becoming available, a copy of the Partnership's
federal, state and local income tax returns for each year, and (iii) other
information regarding the affairs of the Partnership as is just and reasonable.
Section 10.2. Bank Accounts. The bank accounts of the Partnership shall
-------------
be maintained in such banking institutions as the General Partner shall
determine, and withdrawals shall be made therefrom on such signature or
signatures as the General Partner shall determine.
Section 10.3. Accountants. The Accountants for the Partnership shall be
-----------
such firm of public or certified public accountants as shall be engaged by the
General Partner from time to time.
Section 10.4. Reports to Partners. For each Limited Partner who shall be
-------------------
entitled to share in the Partnership's income, losses or credits during any
fiscal year (based upon such Partner's interest as reflected in the General
Partner shall cause to be prepared and sent to such Limited Partner a statement
indicating the share of such Limited Partner of the net income, net loss,
depreciation recapture, gain, loss and other relevant items of the Partnership
sufficient to enable such Limited Partner to prepare his own respective federal
and state tax return for the calendar year in which such fiscal year of the
Partnership was completed. Such statement shall be delivered within ninety (90)
days after the close of each such calendar year, provided that no cause of
action shall accrue to any Partner under this Section 10.4 if the General
Partner shall have acted in good faith in attempting to meet their obligations
under this Section.
Section 10.5. Tax Elections; Special Basis Adjustments. The General
----------------------------------------
Partner shall, in their reasonable discretion, make all tax elections on behalf
of the Partnership. In the event of a transfer of all or any part of the
interest of any Partner for an amount in excess of the adjusted basis for such
interest for federal income tax purposes, the Partnership may elect, pursuant to
Section 754 of the Code (or corresponding provisions of succeeding law), to
adjust the basis of the Partnership property. Such adjustment shall be made
only if the General Partner, in its discretion, determines such election should
be made. Notwithstanding anything contained in Article IX of this Agreement,
any adjustments made pursuant to Section 754 shall affect only the successor in
interest to the transferring Partner. Each Partner will furnish the Partnership
with all information necessary to give effect to such election.
Section 10.6. Maintenance of Books for Accounting and Tax Purposes; Fiscal
------------------------------------------------------------
Years. Subject to the foregoing provisions of this Article X, the books of the
- -----
Partnership shall be kept on such basis as the General Partner may determine.
In connection therewith, the General Partner shall select such fiscal year(s)
for accounting and tax purposes as they deem appropriate.
21
<PAGE>
ARTICLE XI
----------
GENERAL PROVISIONS
------------------
Section 11.1. Transfer of All Partners' Interest in Exchange. In the
----------------------------------------------
event that, at any time, one or more Limited Partner, whose aggregate Capital
Contributions (as reflected on Schedule II hereto) represent at least seventy
-------- --
percent (70%) of the total Capital Contributions of the Limited Partners (the
"Controlling 70%") elect to transfer their Limited Partners' interests in this
----------- ---
Partnership to another entity in exchange for equity interests therein, in
connection with or in contemplation of a public offering of the equity of any
class of such entity pursuant to an effective registration statement filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, then the Controlling 70% may by a notice sent to each Limited Partner
require such Limited Partner to transfer his Limited Partner's interests in this
Partnership to such entity on terms identical to the terms applicable to the
Controlling 70%.
Section 11.2. Appointment of General Partner as Attorney-in-Fact.
--------------------------------------------------
(a) Without limiting the effect of provisions elsewhere in this Agreement
appointing the General Partner as attorney-in-fact for all those who become
Limited Partners (including Substituted or additional Limited Partners) under
this Agreement in connection with the doing of certain acts and the filing of
certain papers, each Limited Partner (including a Substituted or additional
Limited Partner) by the execution of this Agreement or any counterpart hereof
irrevocably constitutes, appoints and empowers the General Partner as such
Limited Partner's true and lawful agent and attorney-in-fact with full power and
authority in such Limited Partner's name, place and stead to execute,
acknowledge, swear to, deliver and file all such instruments, agreements and
other documents, and to take all such other actions, as may be necessary or
appropriate, as determined by the General Partner, to carry out the intentions
and purposes of this Agreement (provided that the General Partner shall have
--------
given such Limited Partner not less than three business days' prior written
notice of the General Partner's intention to take any such action as such
Limited Partner's attorney-in-fact under this Section 11.2(a)), including,
without limitation, any of the transactions for transfer of Limited Partner
interests set forth in Sections 7.1, 7.2, 7.4 or 11.1 hereof, and all amendments
to this Agreement and the Schedules hereto effected in accordance with this
Agreement, the Certificate and all amendments thereto effected in accordance
herewith, and all business certificates and other certificates and amendments
thereto to be executed and/or filed from time to time in accordance with
applicable laws.
(b) The foregoing appointment shall be deemed to be a power coupled with
an interest in recognition of the fact that each of the Partners under this
Agreement will be relying upon the foregoing appointment of the General Partner
as attorney-in-fact for each Limited Partner, and the power of the General
Partner to act in such capacity as contemplated by this Agreement. The foregoing
power of attorney shall be irrevocable and shall survive the death, incapacity
or dissolution of any Limited Partner, and the assignment by any Limited Partner
of the whole or any part of his interest hereunder.
22
<PAGE>
(c) Each of the Limited Partners is aware that the terms of this Agreement
permit certain instruments to be executed, certain transfers to be effected,
certain amendments of this Agreement, the Schedules hereto and the Certificate
to be effected and certain other actions to be taken or omitted by, or with
respect to, the Partnership, in each case with the approval of less than all the
Limited Partners if, as applicable; (A) such amendment or action will have an
adverse effect upon less than all of the Limited Partners, or (B) the Consent of
the Limited Partners (as herein defined) shall have been given in favor of such
action, or (C) an election is made by a Controlling 70% in accordance with
Section 11.1. If, as, and when:
(i) such an amendment is proposed or such an action is proposed to
be taken or omitted by, or with respect to, the Partnership which requires,
under the terms of this Agreement, (x) consent only of the Limited Partners
who are adversely affected thereby, or (y) the Consent of the Limited
Partners, or (z) election by a Controlling 70%;
(ii) any of (x) the consent of those Limited Partners who would be
adversely affected by such amendment or action, or (y) the Consent of the
Limited Partners, or (z) election by a Controlling 70%, as appropriate, has
been given in the manner contemplated by this Agreement; and
(iii) a Limited Partner has failed or refused to consent to such
amendment or action (hereinafter referred to as a "Non-consenting Limited
----------------------
Partner"), then each Non-consenting Limited Partner agrees that each
-------
attorney-in-fact specified above, with full power of substitution, is
hereby authorized and empowered to execute, acknowledge, make, swear to,
verify, deliver, record, file and/or publish, for and in behalf of such
Non-consenting Limited Partner, and in his name, place and stead, any and
all instruments and documents which may be necessary or appropriate under
the Uniform Act and any and all other applicable laws and regulations to
permit such amendment to be lawfully made or action lawfully taken or
omitted, provided that the General Partner shall have given such Limited
Partner not less than three business days prior written notice of the
General Partner's intention to take any action as such Limited Partner's
attorney-in-fact under this Section 1l.2(c)(iii). Each consenting and Non-
consenting Limited Partner is fully aware that he and each other Limited
Partner have executed this special power of attorney and that each Limited
Partner will rely on the effectiveness of such powers with a view to the
orderly administration of the Partnership's affairs.
Section 11.3. Notices. Any notice or communication required or permitted
-------
to be given pursuant to this Agreement shall be deemed to have been duly and
sufficiently given for all purposes if in writing and delivered personally to
the party or to an officer, trustee or other representative of the party to whom
such notice is directed or if sent, postage prepaid, by courier service (e.g.,
----
Federal Express), or by certified or registered mail, postage and registration
prepaid, return receipt requested. Any such notice shall be deemed to have been
given on the date on which the same was personally delivered or mailed, as
applicable. All such mailed notices in order to be effective shall be addressed
to the last address of record on the Partnership books when given by the General
Partner and intended for the Limited Partner; and to the
23
<PAGE>
address of the Partnership when given by the Limited Partner and intended for
the General Partner.
Section 11.4. Word Meanings. Words such as "herein", "hereinafter",
-------------
"hereof" and "hereunder" refer to this Agreement as a whole and not merely to a
subdivision in which such words appear unless the context otherwise requires.
The singular shall include the plural and the masculine gender shall include the
feminine and neuter, and vice versa, unless the context otherwise requires.
Section 11.5. Other Agreements. This Agreement shall govern exclusively
----------------
the affairs of the Partnership and the Partners as to the matters herein
described, but shall not be deemed to affect any other agreement between any
General or Limited Partner and the Partnership or any other Partner respecting
matters not herein described.
Section 11.6. Binding Effect. The covenants and agreements contained
--------------
herein shall be binding upon and inure to the benefits of, the heirs, legal
representatives, successors and assigns of the respective parties hereto.
Except to the extent required by the Uniform Act and for fees, rights to
reimbursement, and other compensation provided for hereunder as such, none of
the provisions of this Agreement shall be for the benefit of or be enforceable
by any creditor of the Partnership.
Section 11.7. Applicable Law; Supremacy of Uniform Act. This Agreement
----------------------------------------
shall be construed and enforced in accordance with the laws of The Commonwealth
of Massachusetts. Notwithstanding any other provision of this Agreement, no
action may be taken under this Agreement unless such action is taken in
compliance with the provisions of the Uniform Act.
Section 11.8. Counterparts. This Agreement may be executed in several
------------
counterparts (including separate signature pages) and all so executed shall
constitute one agreement binding on all parties hereto, notwithstanding that all
parties have not signed the same counterpart or that any such counterpart does
not have attached copies of all Schedules and signature pages hereto as then in
effect. No counterpart of this Agreement or of any such Schedule or signature
page shall be binding unless signed by one or more of the General Partners. The
General Partner shall maintain at the principal office of the Partnership a
counterpart of this Agreement (including separate signature pages) as executed
by all Partners and to which shall be attached copies of all Schedules hereto as
then in effect, which counterpart shall be available for inspection by any
Partner.
Section 11.9. Separability of Provisions. Each provision of this
--------------------------
Agreement shall be considered separable and (i) if for any reason any provision
or provisions herein are determined to be invalid and contrary to any existing
or future law, such invalidity shall not impair the operation of or affect those
portions of this Agreement which are valid, or (ii) if for any reason any
provision or provisions herein would cause the Limited Partners who are not also
specifically designated herein as General Partners to be bound by the
obligations of the Partnership as General Partners under the laws of the
Commonwealth of Massachusetts as the same may now or hereafter exist, such
provision or provisions shall be deemed void and of no effect.
24
<PAGE>
Section 11.10. Waiver. No consent to or waiver of any breach or default
------
in the performance of any obligations of the parties under this Agreement shall
be deemed or construed to be a consent to or waiver of any other breach or
default in the performance of any of the same or any other obligations
hereunder. Subject to Section 11.11, no waiver hereunder shall be effective
unless it is in writing, executed by the party waiving a breach or a default
hereunder.
Section 11.11. No Jury Trial; Liability; Statute of Limitations; Venue;
--------------------------------------------------------
Jurisdiction. All parties hereto waive all rights to a jury trial with respect
- ------------
to any dispute hereunder. If any Partner brings any litigation against the
Partnership or any other Partner, or if the Partnership brings any litigation
against any Partner, in each case based on any rights such party may have under
this Agreement, or if any Partner or the Partnership fails to take actions
required of such party hereunder which the Partnership or any Partner,
respectively, contests by litigation, then the party which prevails in such
litigation shall be entitled to have all its costs and expenses (including legal
fees and court costs) in connection with such litigation paid by the other
party. Any cause of action or matter in dispute is hereby waived unless
judicial proceedings are initiated by the complaining party within one year from
the later of the accrual of cause of the action or the date upon which the cause
of action should reasonably have been discovered. The parties hereto agree that
any dispute hereunder shall be submitted to the federal or appropriate state
court having jurisdiction and located in Boston, Massachusetts, and the parties
consent to the venue and jurisdiction of such courts.
Section 11.12. Advice of Counsel. Each Partner in executing and
-----------------
delivering the signature pages attached hereto represents that he, she or it has
reviewed this Agreement with counsel of his, her or its choosing.
Section 11.13. Amendments. This Agreement may be amended or modified by
----------
the General Partner with the Consent of the Limited Partners, provided, however,
-------- -------
that (i) no amendment shall increase the liability or obligations of any Partner
without the written consent of such Partner, (ii) except as otherwise
specifically provided herein, no amendment shall reduce any Partner's rights to
share in the Partnership's Cash Flow, Net Cash Proceeds, or profits, losses and
credits without the written consent of such Partner, and (iii) the written
consent of all Partners must be obtained for any amendment which would amend
this Section 11.13.
Section 11.14. Effective Date. Notwithstanding the separate dates of
--------------
execution hereof, all parties hereto agree that this Agreement shall become
effective as of the date first set forth above. In the event Schedule III shall
-------- ---
hereafter be amended as provided herein to change any Profit-Sharing Ratio
specified thereon, the effective date of such change shall be as specified on
such Schedule as amended.
25
<PAGE>
Section 11.15. Limited Partner Signature Pages. The Limited Partner
-------------------------------
signature pages attached hereto constitute part of this Agreement.
WITNESS the execution hereof under seal as of the date first set forth
above.
KHI CORPORATION, as General Partner
By: /s/ DOUGLAS KRUPP
--------------------------------------
Douglas Krupp, President
26
<PAGE>
HARBORSIDE HEALTHCARE LIMITED PARTNERSHIP
LIMITED PARTNERS SIGNATURE PAGE
-------------------------------
The undersigned hereby executes as Limited Partner under seal the Agreement
of Limited Partnership dated as of May 28, 1987, as amended and restated as of
July 1, 1995, of Harborside Healthcare Limited Partnership, and hereby adopts
and agrees to be bound by all the provisions thereof effective as of July 1,
1995.
KHC Partners Limited Partnership
By: KHI CORPORATION, as General Partner
By: /s/ DOUGLAS KRUPP
--------------------------------------
Douglas Krupp, President
/s/ STEPHEN L. GUILLARD
-------------------------------------------
Stephen L. Guillard
/s/ DAMIAN DELL'ANNO
-------------------------------------------
Damian Dell'Anno
Accepted as of the date specified herein:
KHI Corporation as General Partner
By: /s/ DOUGLAS KRUPP
-----------------------------------
Douglas Krupp, President
27
<PAGE>
Schedule I
----------
GENERAL PARTNER
---------------
<TABLE>
<CAPTION>
General Partner Business Address Capital Contribution
--------------- ----------------- --------------------
<S> <C> <C> <C>
KHI Corporation 470 Atlantic Avenue $1.00
Boston, MA 02210
Total: $1.00
</TABLE>
<PAGE>
Schedule II
-----------
LIMITED PARTNERS
----------------
<TABLE>
<CAPTION>
Limited Partners Business Address Capital Contribution
- ---------------- ---------------- --------------------
<S> <C> <C> <C>
KHC Partners Limited 470 Atlantic Avenue $91.50
Partnership Boston, MA 02210
Stephen L. Guillard 470 Atlantic Avenue $ 6.00
Boston , MA 02210
Damian Dell'Anno 470 Atlantic Avenue $ 1.50
Boston, MA 02210
Total: $99.00
</TABLE>
<PAGE>
Schedule III
------------
PROFIT-SHARING RATIOS
---------------------
A. Allocations Among Partners Per Sections 9.1(a) and 9.2(a)
---------------------------------------------------------
General Partner Profit-Sharing Ratio
--------------- --------------------
KHI CORPORATION 1.0%
Limited Partners
----------------
KHC Partners Limited Partnership 99.0%
-----
Total 100.0%
B.(1) Allocations Among Partners Per Sections 9.1(b) and 9.2(a) and (b)
-----------------------------------------------------------------
General Partner Profit-Sharing Ratio
--------------- --------------------
KHI CORPORATION 1.0%
Limited Partners
----------------
KHC Partners Limited Partnership 93.0%
Stephen L. Guillard 6.0%
-----
Total 100.0%
<PAGE>
B.(2) Allocations Among Partners Per Sections 9.1(b) and 9.2(b)
---------------------------------------------------------
General Partner Profit-Sharing Ratio
--------------- --------------------
KHI CORPORATION 1.0%
Limited Partners
----------------
KHC Partners Limited Partnership 91.0%
Stephen L. Guillard 6.0%
Damian Dell'Anno 2.0%
-----
Total 100.0%
Accepted and agreed as of
July 1,1995
KHI CORPORATION,
as General Partner
By: /s/ DOUGLAS KRUPP
-------------------------
Douglas Krupp, President
KHC PARTNERS LIMITED PARTNERSHIP
By: KHI Corporation, as General Partner
By: /s/ DOUGLAS KRUPP
-------------------------
Douglas Krupp, President
/s/ STEPHEN L. GUILLARD
- ------------------------------
Stephen L. Guillard
/s/ DAMIAN DELL'ANNO
- ------------------------------
Douglas Krupp, President
<PAGE>
EXHIBIT A
---------
NONNEGOTIABLE PROMISSORY NOTE
-----------------------------
$__________________________ [Date]
FOR VALUE RECEIVED, the undersigned, [Harborside Healthcare Limited
Partnership or nominee], (together with its successor, the "Debtor"), by this
------
Promissory Note (this "Note"), absolutely and unconditionally promises to pay to
----
________________________ (the "Payee") the principal sum of
-----
_______________________________ Dollars ($_______________) and to pay interest
on the principal sum outstanding hereunder from time to time from the date
hereof until the said principal sum or the unpaid portion thereof shall have
become due and payable at the rate of _____ percent (__%) per annum [1% above
the Base Rate of The First National Bank of Boston on the date of issuance].
The principal hereof shall be paid in ______________ annual installment[s],
equal to [$500,000/one-third (1/3) of the original principal amount] and a final
installment equal to the remaining principal balance, payable on the first
________ anniversaries of the date of this Note, with a final maturity on
________. Interest accruing hereunder shall be paid on each principal
installment payment date and at the stated or any accelerated maturity hereof.
All payments of principal and interest hereunder shall be made at the principal
residence or business address of the holder hereof.
The Debtor shall have the right, to prepay the unpaid principal amount of
this Note in full at any time, or in part from time to time, without premium or
prepayment penalty, with all interest accrued to the date of prepayment on the
principal amount prepaid. The Debtor shall give the holder hereof at least
three business days prior written notice of each, if any, proposed date of
prepayment and shall specify the portion of the unpaid principal amount of this
Note to be prepaid on such date. Each partial prepayment of principal shall be
applied to the installments of principal due hereunder in the inverse order of
maturity.
This Note is made and delivered by the Debtor to the Payee pursuant to
Amended and Restated Agreement of Limited Partnership of Harborside Healthcare
Limited Partnership, dated as of May 28, 1987, as amended and restated as of
July 1, 1995 (the "Partnership Agreement"). This Note and all payments on or in
---------------------
respect of this Note are subject to the provisions of the Partnership Agreement,
to which reference is hereby made.
Anything implied herein to the contrary notwithstanding in the event that
(i) the Debtor shall fail to pay when due any installment of principal or
interest on this Note, (ii) the Debtor shall make an assignment of the whole or
a substantial part of its assets for the benefit of creditors, or (iii) there
shall be commenced by or against the Debtor any proceeding, which in the case of
a proceeding against the Debtor shall not have been dismissed within sixty (60)
days of its commencement, then the holder hereof may, in his, her or its
discretion, without notice to or demand upon the Debtor declare the entire
unpaid principal of this Note and all of the unpaid interest accrued thereon to
be immediately due and payable, whereupon all of the unpaid principal of this
Note and all of the unpaid interest accrued thereon shall (if not already due
and payable) forthwith become and be due and payable to the order of the holder.
A-1
<PAGE>
Every Obligor waives presentment, notice, protest and all other demands and
notices and assents to any extension of the time of payment or any other
indulgence, to any substitution, exchange or release of collateral and/or to the
release of any other Obligor. As used herein "Obligor" means any person
-------
primarily or secondarily liable hereunder or in respect hereto.
The failure of the holder to exercise any of its rights, remedies, powers
or privileges hereunder in any instance shall not constitute a waiver thereof in
that or any other instance.
The Debtor will pay on demand all costs of collection including all court
costs and reasonable attorneys' fees paid or incurred by the holder in enforcing
this Note on default.
This Note is delivered in and shall be governed by and interpreted and
determined in accordance with the laws of the Commonwealth of Massachusetts.
WITNESS the hand and seal of the undersigned on the day and in the year
first above written.
[NAME OF DEBTOR]
By: ________________________________
Title:__________________________
A-2
<PAGE>
EXHIBIT 3.2.8
================================================================================
KHC PARTNERS LIMITED PARTNERSHIP
AGREEMENT OF LIMITED PARTNERSHIP
Dated as of May 28, 1987
================================================================================
<PAGE>
KHC PARTNERS LIMITED PARTNERSHIP
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
DEFINITIONS
ARTICLE II
FORMATION; NAME; AND PURPOSE
<S> <C>
Section 2.1. Formation..................................................... 4
Section 2.2. Name and Office............................................... 4
Section 2.3. Purpose....................................................... 4
Section 2.4. Authorized Acts............................................... 4
Section 2.5. Term and Dissolution.......................................... 5
ARTICLE III
SALE AND OTHER TRANSACTIONS
ARTICLE IV
PARTNERS; CAPITAL
Section 4.1. General Partner............................................... 6
Section 4.2. Limited Partner............................................... 6
Section 4.3. Partnership Capital........................................... 6
Section 4.4. Liability of Partners; Further Capital Contributions.......... 6
Section 4.5. Additional Limited Partners................................... 6
ARTICLE V
RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNER
Section 5.1. Business...................................................... 7
Section 5.2. Action by General Partner..................................... 8
Section 5.3. Devotion of Time; Compensation................................ 9
Section 5.4. Liability; Indemnification.................................... 9
Section 5.5. Other Business Ventures....................................... 10
Section 5.6. Provisions Concerning Loans................................... 10
Section 5.7. Actions Upon Dissolution...................................... 10
</TABLE>
i
<PAGE>
ARTICLE VI
WITHDRAWAL; CONTINUATION OF PARTNERSHIP;
NEW GENERAL PARTNERS;
TRANSFER OF GENERAL PARTNER INTERESTS
<TABLE>
<S> <C>
Section 6.1. Continuation of Partnership..................................... 10
Section 6.2. Designation of Successor or Additional General Partners;
Reconstitution of the Partnership............................... 11
Section 6.3. Interest of Withdrawn General Partner........................... 11
Section 6.4. Additional General Partners..................................... 12
Section 6.5. Amendment to Certificate........................................ 12
Section 6.6. Special Restrictions............................................ 12
ARTICLE VII
TRANSFERABILITY OF LIMITED PARTNER INTERESTS
Section 7.1. Restrictions on Transfer........................................ 13
Section 7.2. Substituted Limited Partners.................................... 14
Section 7.3. Additional Restrictions......................................... 14
ARTICLE VIII
BORROWINGS AND LOANS
ARTICLE IX
PROFITS, LOSSES AND CREDITS; DISTRIBUTIONS
Section 9.1. Profits, Losses and Credits..................................... 15
Section 9.2. Distributions Prior to Dissolution.............................. 15
Section 9.3. Distributions Upon Dissolution.................................. 16
Section 9.4. Adjustment of Shares of Profits, Losses and Distributions to
Insure 1% to the General Partner................................ 17
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS
Section 10.1. Books and Records............................................... 17
Section 10.2. Bank Accounts................................................... 18
Section 10.3. Accountants..................................................... 18
Section 10.4. Reports to Partners............................................. 18
Section 10.5. Tax Elections; Special Basis Adjustments........................ 18
Section 10.6. Maintenance of Books for Accounting and Tax Purposes;
Fiscal Years.................................................... 18
</TABLE>
ii
<PAGE>
ARTICLE XI
GENERAL PROVISIONS
<TABLE>
<S> <C>
Section 11.1. Appointment of General Partner as Attorney-in-Fact....... 19
Section 11.2. Notices.................................................. 20
Section 11.3. Word Meanings............................................ 20
Section 11.4. Other Agreements......................................... 20
Section 11.5. Binding Effect........................................... 20
Section 11.6. Applicable Law; Supremacy of Uniform Act................. 20
Section 11.7. Counterparts............................................. 21
Section 11.8. Separability of Provisions............................... 21
Section 11.9. Waiver of Certain Rights................................. 21
Section 11.10. Amendments............................................... 21
Section 11.11. Effective Date........................................... 21
Section 11.12. Limited Partner Signature Pages.......................... 22
</TABLE>
iii
<PAGE>
THIS AGREEMENT OF LIMITED PARTNERSHIP dated as of the 28th day of May, 1987
by and among KHI Corporation as General Partner; and The Krupp Companies Limited
Partnership, and any such other persons or entities as may hereafter be admitted
to this Partnership as Limited Partners.
WHEREAS, the General Partner and the Limited Partner desire to form a
limited partnership pursuant to this Agreement and the Massachusetts Uniform
Limited Partnership Act;
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used herein the following terms shall have the following meanings:
"Accountants" means the accountants for the Partnership engaged
-----------
by the General Partners from time to time pursuant to Section 10.3 hereof.
"Affiliated Person" means any (i) General Partner, (ii) the legal
-----------------
representative of the estate or the successor or assignee of any General
Partner, (iii) a trustee of a trust established or maintained primarily for
the benefit of any General Partner, (iv) an Entity of which a majority of
the voting interests is owned by any one or more of the persons or Entities
referred to in the preceding clauses, or (vi) a Person or Entity who is an
officer, director, trustee, employee, stockholder (15% or more) or partner
of any Person or Entity referred to in the preceding clauses.
"Agreement" means this Agreement of Limited Partnership as it may be
---------
amended from time to time hereafter.
"Capital Contribution" means the total amount of cash and the fair
--------------------
market value of other property contributed or agreed to be contributed to
the Partnership by each Partner all as set forth in Schedules I and II
hereto as amended from time to time. Any reference in this Agreement to the
Capital Contribution of a then Partner shall include a Capital Contribution
previously made by any prior Partner in respect of the Partnership interest
of such then Partner.
"Capital Transaction" means a sale, refinancing, exchange or other
-------------------
disposition by the Partnership of an Other Partnership Interest or by an
Other Partnership of a real property (including related personal property)
then owned by such Other Partnership.
"Cash Flow" means (i) all cash received by the Partnership as a result
---------
of its business activities, other than (a) Capital Contributions, (b) Net
Cash Proceeds from Capital Transactions, (c) proceeds of loans made to the
Partnership, and (d) repayment of
<PAGE>
the principal of loans made by the Partnership, LESS (ii) all cash expended
by the Partnership in the course of its business (other than as equity
investments or loans by the Partnership), or allocated to reasonable
reserves established by the General Partners (less amounts of cash
withdrawn from such reserves).
"Certificate" means the Certificate of Limited Partnership of the
-----------
Partnership to be filed hereunder, as such Certificate shall be amended or
restated from time to time hereafter.
"Code" means the Tax Reform Act of 1986, as amended from time to time,
----
or corresponding provisions of subsequent law.
"Consent of the Limited Partners" means the specific written consent
-------------------------------
or approval of one or more Limited Partners whose aggregate Capital
Contributions (as reflected on Schedule II hereto) represent at least two-
thirds of the total Capital Contributions of the Limited Partners.
"Entity" means any general partnership, limited partnership,
------
corporation, joint venture, trust, business trust, association, or estate.
"Facilities" means a nursing home, retirement home, congregate care
----------
facility, rehabilitation facility, psychiatric facility, substance abuse
facility, medical office building or other health care related commercial
property, and any equity interest of the Partnership therein, whether
direct or indirect, through nominee, joint venture or otherwise.
"General Partner" or "General Partners" means any or all of those
-------------------------------------
Persons designated as a General Partner or General Partners, as the case
maybe, in Schedule I hereto or any other Person who becomes a General
Partner as provided herein, in such Person's capacity as a General Partner
of the Partnership.
"General Profit-sharing Ratio" means, with respect to each Partner
----------------------------
specified on Schedule III hereto, the percentage set forth in such
Schedule.
"Immediate Family" means with respect to any Person, his or her
----------------
spouse, issue (including issue by adoption) and ancestors.
"Limited Partner" or "Limited Partners" means any or all of those
-------------------------------------
Persons designated as Limited Partners in Schedule II hereto, or any other
Person who becomes a Limited Partner as provided herein, in such Person's
capacity as a Limited Partner of the Partnership.
"Net Cash Proceeds" from a Capital Transaction means the cash
-----------------
received by the Partnership as a result of such Transaction in its capacity
as an owner or equity participant (and not as a creditor), less (i) all
debts, expenses and liabilities of the Partnership arising as a result of
such Transaction (including, among other matters, any
2
<PAGE>
brokerage fees and expenses for which the Partnership shall become liable
as a result thereof), and (ii) any reserves for contingent liabilities of
the Partnership arising as a result of such Transaction, to the extent
deemed reasonable by the General Partner, provided that, at the expiration
of such period as the General Partner shall deem advisable, the balance of
such reserves remaining after payment of such contingencies shall be
distributed in the manner provided for Net Cash Proceeds.
"OTHER PARTNERSHIP" means any general or limited partnership
-----------------
in which the Partnership shall act as a general and/or limited partner.
"OTHER PARTNERSHIP INTEREST" means the general and/or limited
--------------------------
partnership interest held by the Partnership in any Other Partnership.
"PARTNER OR "PARTNERS" means any General Partner or Limited Partner.
--------------------
"PARTNERSHIP" means the limited partnership governed by this Agreement
-----------
as said limited partnership may from time to time be constituted and
amended.
"PERSON" means any individual or Entity, and the heirs, executors,
------
administrators, legal representatives, successors and assigns of such
Person where the context so admits.
"SPECIAL PROFIT-SHARING RATIO" means, with respect to each Partner
----------------------------
specified on an Other Partnership Schedule hereto, the percentage specified
on such Schedule.
"SUBSTITUTED LIMITED PARTNER" means any Person admitted to the
---------------------------
Partnership as a Limited Partner under the provisions of Section 7.2.
"UNIFORM ACT" means the Uniform Limited Partnership Act as set forth
-----------
in Chapter 109 of the General Laws of The Commonwealth of Massachusetts as
from time to time in effect.
"WITHDRAWAL" (including the terms "WITHDRAW", "WITHDRAWING" or
---------- -------- -----------
"WITHDRAWN") means as to a General Partner, the occurrence of death,
---------
adjudication of insanity or incompetence, bankruptcy, dissolution, or any
other voluntary or involuntary Withdrawal from the Partnership for any
reason as specified in the Uniform Act. Involuntary Withdrawal shall occur
whenever a General Partner may no longer continue as a General Partner by
law or pursuant to any terms of this Agreement. Withdrawal by any General
Partner from the Partnership by reason of ill health or an adjudication of
insanity or incompetence shall be deemed involuntary. Bankruptcy shall be
deemed to have occurred whenever a General Partner shall file (or consent
to the filing of) a petition seeking adjudication of such General Partner
as bankrupt or insolvent, or seeking an arrangement with creditors under
the Bankruptcy Act, shall execute an assignment for the benefit of
creditors, or shall become subject to the direction and control of a
receiver, or whenever a petition shall be filed without such General
Partner's consent seeking such General Partner's adjudication as a
bankrupt, or an arrangement among his creditors and such petition is not
dismissed or denied within 60 days after the date of filing. A merger,
3
<PAGE>
combination or other reorganization (other than pursuant to the laws of
bankruptcy) of any corporation or other Entity which serves as a General
Partner into another corporation or Entity shall not be considered a
Withdrawal, but rather the surviving corporation or other Entity of such
merger, combination or other reorganization shall continue to serve as a
General Partner in place of such former corporation or other Entity.
ARTICLE II
FORMATION; NAME; AND PURPOSE
Section 2.1. FORMATION. The parties hereto hereby agree to form the
---------
Partnership as a limited partnership under this Agreement and the Uniform Act.
Section 2.2. NAME AND OFFICE. The Partnership shall be conducted under
---------------
the name and style of "KHC Partners Limited Partnership" with a principal office
at 470 Atlantic Avenue, Boston, Massachusetts 02210. The General Partner may at
any time change the location of such principal office and shall give due notice
of any such change to the Limited Partner. The Partnership shall at all times
maintain in Massachusetts (i) an office at which shall be kept the basic
Partnership documents described in Section 10.1 hereof, and (ii) an agent for
service of process selected by the General Partner in accordance with any
relevant provisions of the Uniform Act as then in effect.
Section 2.3. PURPOSE. The purpose of the Partnership is to acquire, own,
-------
lease, invest in, improve, hold, encumber, sell, manage, maintain, operate and
otherwise deal with Facilities, and real estate and personal property related
thereto or to acquire, own, manage, sell and otherwise deal with one in more
entities which conducts activities within the scope of this Section; to be a
general and/or limited partner in any Other Partnership which conducts
activities within the scope of this Section; and to conduct any other business
activity allowed under the Uniform Act.
Section 2.4. AUTHORIZED ACTS. In furtherance of its purposes, the
---------------
Partnership is hereby authorized:
(i) To become and act as a general and/or limited partner in any
Other Partnership.
(ii) To acquire by purchase, lease or otherwise any facilities and
any real or personal property which may be necessary, convenient or
incidental to the accomplishment of the purposes of the Partnership.
(iii) To construct, operate, maintain, finance and improve, and to
own, sell, convey, assign, mortgage, or lease any facilities and any real
estate and any personal property necessary, convenient or incidental to the
accomplishment of the purpose of the Partnership.
(iv) To borrow money and issue evidence of indebtedness, and to
guaranty the indebtedness of other Persons including, without limitation,
Other Partnerships, in
4
<PAGE>
furtherance of any or all of the purposes of the Partnership, and to secure
the same by mortgage, pledge or other lien on any assets of the Partnership
including, without limitation, Other Partnership Interests then held by the
Partnership.
(v) To enter into, perform and carry out, contracts, agreements and
other documents of any kind, including contracts with Affiliated Persons,
necessary to, or in connection with or incidental to, the accomplishment of
the purposes of the Partnership, specifically including, but not limited
to, the execution and delivery of partnership agreements, certificates of
limited partnership, and other agreements and documents pertaining to Other
Partnerships.
(vi) To enter into any kind of activity necessary to, or in
connection with, or incidental to, the accomplishment of the purposes of
the Partnership, so long as said activities may be lawfully carried on or
performed by a partnership, to the extent applicable, under the laws of The
Commonwealth of Massachusetts.
Section 2.5. TERM AND DISSOLUTION. The term of the Partnership shall
--------------------
commence on the filing of the Certificate with the Massachusetts Secretary of
State, and shall continue in full force and effect for fifty (50) years from the
date of such filing, except that the term of the Partnership may be extended for
an additional term of up to thirty (30) years by consent of the General Partner
or the unanimous consent of the General Partners, as the case may be, and the
Consent of the Limited Partner. Notwithstanding the foregoing, the Partnership
shall be earlier dissolved upon the happening of any of the following events:
A. The sale or other disposition of all or substantially all the
assets of the Partnership, unless the General Partners elect to continue
the life of the Partnership to the extent required for the purpose of the
collection of any notes or other consideration received by the Partnership
upon sales or other disposition of Partnership assets; or
B. The Withdrawal of any General Partner if the business of the
Partnership is not continued by the remaining General Partner(s); or
C. The Withdrawal of a General Partner if no General Partner remains
and the Partnership is not reconstituted with a successor General Partner
pursuant to Article VI; or
D. Any other event which shall cause the termination, dissolution
and/or winding up of the Partnership under the Uniform Act.
ARTICLE III
SALE AND OTHER TRANSACTIONS
The General Partner is authorized to sell, exchange, otherwise transfer or
convey, and to mortgage, pledge or otherwise grant security interests in, all or
substantially all the assets of the Partnership without approval of the Limited
Partners, which approval shall conclusively be
5
<PAGE>
deemed to have been granted by each of the Limited Partners upon his execution
of this Agreement.
ARTICLE IV
PARTNERS; CAPITAL
Section 4.1. GENERAL PARTNER. The Capital Contribution of the General
---------------
Partner is as set forth in Schedule I, as amended from time to time in the
manner set forth herein.
Section 4.2. LIMITED PARTNER. The Capital Contribution of the Limited
---------------
Partner is as set forth in Schedule II, as amended from time to time in the
manner set forth herein.
Section 4.3. PARTNERSHIP CAPITAL. The capital of the Partnership shall be
-------------------
the aggregate amount of the cash and the aggregate fair market value of other
property or facilities contributed by the General Partner and by the Limited
Partner as set forth in Schedules I and II.
An individual capital account shall be maintained for each Partner in
accordance with generally accepted accounting principles then being followed by
the Partnership. Without limitation of the foregoing, each such capital account
shall be credited with the Partner's Capital Contributions and with his share of
profits, and shall be charged with his share of losses and distributions. No
interest shall be paid on any Capital Contribution to the Partnership. No
Partner shall be entitled to bring an action for partition against the
Partnership, or to demand or receive any distribution of or with respect to this
Capital Contribution except as is specifically provided under this Agreement.
Section 4.4. LIABILITY OF PARTNERS; FURTHER CAPITAL CONTRIBUTIONS. No
----------------------------------------------------
Limited Partner shall be liable for any debts, liabilities, contracts, or
obligations of the Partnership or be required to lend funds to the Partnership.
Except with respect to repayments to the Partnership of distributions to the
Partners (and interest thereon) required by the Uniform Act or other applicable
law, no Partner shall have any obligation to eliminate a deficit balance from
his capital account. A Limited Partner's liability shall be limited to the
amount of his Capital Contribution. After his Capital Contribution has been
made, no General Partner or Limited Partner shall, except as required by the
Uniform Act, be required to make any further Capital Contributions to the
Partnership, and no Limited Partner shall be permitted to make any such further
Capital Contributions without the consent of the General Partner. No General
Partner shall have any personal liability for the repayment of the Capital
Contribution of any Partner.
Section 4.5. ADDITIONAL LIMITED PARTNERS. The General Partner shall have
---------------------------
the right to admit additional Limited Partners to the Partnership from time to
time without approval of the Limited Partner, provided that no adverse change in
the General Profit-Sharing Ratio of any Partner specified in Schedule III or in
the Special Profit-Sharing Ratio of any Partner specified in any Other
Partnership Schedule in effect at the time of such admission shall be made with
respect to the Partnership (in the case of Schedule III) or the Other
Partnership specified on such Schedule (in the case of an Other Partnership
Schedule) as a result of such admission without the written consent of the
Partner adversely affected.
6
<PAGE>
Nothing in this Section 4.5 shall impair the right of the Partners
specified in Schedule III or in any Other Partnership Schedule to alter the
Profit-Sharing Ratios specified on such Schedule or to enter into additional
Other Partnership Schedules relating to additional Other Partnerships in the
manner specified in Section 9.2 hereof. In addition, nothing in this Section 4.5
shall impair the right of the General Partner to admit Substituted Limited
Partners under Section 7.2 hereof.
Each incoming Limited Partner shall also agree to be bound by the
provisions of this Agreement and shall also agree to accept such other terms and
conditions set forth in writing to him at the time of admission as the General
Partner may reasonably determine.
Upon the admission of any additional Limited Partner, Schedule II shall
be amended by the General Partner (utilizing the powers of attorney set forth in
Section 11.1) to reflect the names, addresses and Capital Contributions of all
Limited Partners, and an amendment to the Certificate, reflecting such
admission, shall be filed with the Secretary of State of The Commonwealth of
Massachusetts. Each Limited Partner shall become signatory hereto by signing a
Limited Partner Signature Page to which shall be attached a conformed
counterpart of this Agreement in such manner as the General Partner shall
determine, and, by so signing, such Limited Partner shall be deemed to have
adopted and to have agreed to be bound by all the provisions of this Agreement,
provided, however, that no such Limited Partner Signature Page or counterpart of
- -------- -------
this Agreement shall be binding until it has been signed by one or more General
Partners.
ARTICLE V
RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNER
Section 5.1. Business.
--------
A. The General Partner shall have the exclusive right to manage the
business of the Partnership. Except as specifically provided herein, the General
Partner shall have the right to perform all actions necessary, convenient or
incidental to the accomplishment of the purposes and authorized acts of the
Partnership, as specified in Sections 2.3 and 2.4, respectively, and shall
possess and may enjoy and exercise all the rights and powers of a general
partner as provided in the Uniform Act. In particular, and without limitation on
the rights and powers of the General Partner set forth elsewhere in this
Agreement, the General Partner shall have the right to set aside from the cash
receipts of the Partnership reasonable reserves to provide for working capital
needs, funds for improvements or replacements or for other contingencies of the
Partnership.
B. No Limited Partner (except one who may also be a General Partner)
shall participate in or have any control over the Partnership business, except
as required by law. The Limited Partners hereby consent to the exercise by the
General Partners of powers conferred by this Agreement. No Limited Partner
(except one who may also be a General Partner) shall have any authority or right
to act for or bind the Partnership. Without limitation of the authority of the
General Partners, they are specifically authorized to employ and engage, on
behalf of the Partnership, Affiliated Persons to perform services for, or
furnish goods to, the Partnership;
7
<PAGE>
provided, however, that any payment for services or goods provided to the
- -------- -------
Partnership shall not exceed an amount which would have been payable if the
transaction were at arms-length.
C. To assist them in the performance of their duties hereunder, the
General Partner may appoint one or more officers of the Partnership including,
without limitation, a president, one or more executive vice presidents, one or
more other vice presidents, a treasurer, one or more assistant treasurers, a
controller, a secretary, and one or more assistant secretaries. The General
Partner may assign to any such officer from time to time such duties and powers
as the General Partner may deem appropriate subject, however, to the general
provisions of this Article V with respect to the rights, powers and duties of
the General Partner.
Section 5.2. Action by General Partner.
-------------------------
A. Any and all actions with respect to the Partnership (whether the
Partnership is then acting on its own behalf or on behalf of an Other
Partnership in which the Partnership is a general partner) may be taken by any
one or more of the General Partners, acting either singly or together with one
or more other General Partners.
B. The General Partner, is specifically authorized, without limitation,
to execute, sign, seal and deliver in the name and on behalf of the Partnership
(whether the Partnership is then acting on its own behalf or on behalf of an
Other Partnership in which the Partnership is a general partner):
(i) any and all partnership agreements, certificates,
instruments, and any documents required in connection with the
formation or operation of any Other Partnership or by any buyer, seller
or mortgagee from time to time in connection with the acquisition,
sale, ownership, development and operation of any real or personal
property;
(ii) any deed, lease, guarantee, assignment, mortgage,
mortgage note, bill of sale, security agreement, contract, business
certificate, or any amendments to any of the foregoing; and
(iii) any and all regulatory and other agreements, contracts,
documents, notes, certificates and instruments whatsoever involving the
ownership, construction, development, management, maintenance or
operation of any facilities or any real or personal property or the
interest of the Partnership in any Other Partnership, or otherwise
requisite to carrying out the intention and purpose of this Agreement.
Every contract, deed, mortgage, lease, note, guarantee, assignment,
agreement and other instrument executed by a General Partner shall be conclusive
evidence in favor of every Person relying thereon or claiming thereunder that at
the time of the delivery thereof (a) this Partnership was in existence, (b) this
Agreement had not been terminated or cancelled or amended in any manner so as to
restrict such authority (except as shown in certificates or other instruments
duly filed in the office of the Secretary of State of The Commonwealth of
Massachusetts), and (c) the execution and delivery of such instruments were duly
authorized under this Agreement. Any
8
<PAGE>
Person dealing with the Partnership or the General Partners may always rely on a
certificate signed by the General Partner:
(i) as to who are the General Partner or Limited Partners
hereunder,
(ii) as to the existence or nonexistence of any fact or facts which
constitute conditions precedent to acts by the General Partner or in any
other manner are germane to the affairs of this Partnership,
(iii) as to who is authorized to execute and deliver any instrument
or document of the Partnership,
(iv) as to the authenticity of any copy of this Agreement and
amendments thereto, or
(v) as to any act or failure to act by the Partnership or as to
any other matter whatsoever involving the Partnership or any Partner.
Section 5.3. Devotion of Time; Compensation. The General Partner shall
------------------------------
devote to the affairs of the Partnership such time as they may deem necessary
for the proper performance of their duties and shall be paid such compensation
as is determined from time to time to be reasonable for such services, Provided
--------
that such compensation shall not exceed the amount which would be payable if the
payments were at arms-length. The General Partner shall also be entitled to
charge the Partnership, or to be reimbursed by the Partnership, for all expenses
reasonably incurred by them in connection with the Partnership business.
Section 5.4. Liability; Indemnification. No General Partner shall be
--------------------------
liable, responsible or accountable in damages or otherwise to the Partnership or
any Limited Partner for any act performed by him within the scope of the
authority conferred by this Agreement, for his failure or refusal to perform any
acts except those expressly required by the terms of this Agreement, or for his
performance or omission to perform any acts on advice of the Accountants or
legal counsel for the Partnership, except in case of willful misconduct.
Furthermore, with respect to any decisions made by the General Partner in
connection with the Partnership's role as a general partner of an Other
Partnership, all of the Partners hereby acknowledge and agree that the fiduciary
obligation owed by the Partnership to such Other Partnership or the partners
thereof shall be given priority over any such obligation owed by the General
Partner to the Partnership or its Partners should any conflict arise with
respect to any act to be performed (or to be omitted) on behalf of any such
Other Partnership. The Partnership shall indemnify and save harmless each
General Partner from any expenses, loss or damage incurred by him by reason of
(i) any act performed by him within the scope of the authority conferred upon
him by this Agreement unless such act constitutes willful misconduct, or (ii)
his failure or refusal to perform any acts except those expressly required by
the terms of this Agreement, or (iii) his performance or omission to perform any
acts on advice of the Accountants or legal counsel for the Partnership. Any
indemnity under this Section 5.4 shall be provided out of and to the extent of
Partnership assets only, and no Limited Partner shall have any personal
liability on account thereof.
9
<PAGE>
Section 5.5. Other Business Ventures. The General Partner may engage
-----------------------
independently or may act with others (including acting as a general and/or
limited partner) in other business ventures of every nature or description
including, without limitation, the ownership, operation, management,
syndication, sale, brokerage and development of facilities (including projects
competing with those of the Partnership or of Other Partnerships), and neither
the Partnership nor any Partner shall have any rights in or to such independent
ventures or the income or distributions derived therefrom. Furthermore, as set
forth in Sections 2.4, 4.5 and 9.1 through 9.4 of this Agreement, the
Partnership may now or hereafter act as a general and/or limited partner in
various Other Partnerships which may either exist as of the date of this
Agreement or may hereafter be formed. Except as is specifically set forth in
those Sections (and the Schedules to this Agreement referred to therein), no
Partner shall have any right to participate either directly or indirectly in any
income or distributions derived from any such Other Partnership.
Section 5.6. Provisions Concerning Loans. In the event that funds not
---------------------------
otherwise available should be required at any time to pay operating expenses or
any other liabilities of the Partnership, including capital expenditures, the
General Partner may, but shall not be obligated to, lend to the Partnership all
or any such funds. Any loans made pursuant to this Section 5.6 shall be
repayable in the manner and bear interest at the rate set forth in Article VIII
of this Agreement.
Section 5.7. Actions Upon Dissolution. Upon dissolution of the
------------------------
Partnership, the General Partner (or its trustees, receivers, successors or
legal representatives) shall cause the cancellation of the Certificate and
shall, unless the Partnership is reconstituted pursuant to Section 6.2.A,
liquidate the Partnership assets and apply and distribute the proceeds thereof
in accordance with Section 9.3. Notwithstanding the foregoing, in the event the
liquidating General Partner shall determine that an immediate sale of part or
all of the Partnership's assets would cause undue loss to the Partners (by
reason of incurring taxable gain or otherwise), such liquidating General Partner
may, in order to avoid such loss, either (i) defer liquidation of, and withhold
from distribution for a reasonable time, the assets of the Partnership except
those necessary to satisfy the Partnership debts and obligations (including
loans of Partners and Affiliated Persons and accrued interest thereon), or (ii)
distribute the shares of such Partnership assets to the Partners in kind.
ARTICLE VI
WITHDRAWAL; CONTINUATION OF PARTNERSHIP;
NEW GENERAL PARTNERS;
TRANSFER OF GENERAL PARTNER INTERESTS
Section 6.1. Continuation of Partnership. Upon the Withdrawal of a
---------------------------
General Partner, the remaining General Partner or General Partners, if any, or,
if none, the Withdrawing General Partner or his heirs, successors or assigns,
shall immediately send notice of such Withdrawal to each Partner, and the
Partnership shall be (i) dissolved if there is no remaining General Partner and
no Person who will thereupon become a successor General Partner under Section
6.2 (subject to possible reconstitution as provided in Section 6.2.A), or (ii)
continued by the remaining
10
<PAGE>
General Partner(s) as provided in the sentence next following, if such remaining
General Partner(s) so elect. The remaining General Partner(s) shall have the
right to continue the business of the Partnership upon the Withdrawal of a
General Partner.
Section 6.2. Designation of Successor or Additional General Partners;
--------------------------------------------------------
Reconstitution of the Partnership.
- ---------------------------------
A. If, following the Withdrawal of a General Partner, there is no
remaining General Partner of the Partnership, then and in such event the Limited
Partners may elect by Consent of the Limited Partners, at any time before 90
days have elapsed following the Withdrawal of the last remaining General
Partner, to reconstitute the Partnership and continue its business for the
balance of the term specified in Section 2.5 hereof. If the Limited Partners so
elect to reconstitute the Partnership and thereupon shall, by Consent of the
Limited Partners, elect one or more Persons as successor General Partner(s),
then such Person(s) shall, if they accept such appointment, be admitted to the
Partnership as successor General Partner(s) and the relationship among the then
Partners shall be governed by this Agreement.
B. If the successor General Partner(s) designated under Subsection A
preceding shall be a Limited Partner of the Partnership at the time of his
admission as a General Partner, his interest as a General Partner shall be the
same as it was as a Limited Partner; PROVIDED, HOWEVER, that his interest as a
General Partner may be smaller than his interest as a Limited Partner (retaining
the difference as a Limited Partner) if, in the opinion of tax counsel to the
Partnership, such smaller General Partner interest will not jeopardize the
status of the Partnership as a partnership under the Code. If such successor
General Partner shall not then be a Limited Partner, his interest as a General
Partner shall be such interest as shall thereupon be voluntarily assigned to him
by any General and/or Limited Partners.
Section 6.3. Interest of Withdrawn General Partner.
-------------------------------------
A. Each General Partner hereby covenants and agrees for himself and his
assigns, successors, heirs, executors and legal representatives to transfer, at
the time of his Withdrawal, to the remaining General Partner(s), or to a
successor General Partner selected in accordance with Section 6.2.A, as the case
may be, such portion of his General Partner interest, if any, as shall be
necessary, in the opinion of tax counsel to the Partnership, to ensure the
continued treatment of the Partnership as a partnership under the Code. No
consideration shall be paid to such Withdrawing Partner (or his estate) by the
remaining General Partners or the successor General Partner in the event of a
transfer pursuant to this Section 6.3. Notwithstanding the foregoing, such
Withdrawal and transfer shall not affect the right of the Withdrawing General
Partner to repayment of any loans made by such Withdrawing General Partner to
the Partnership in accordance with the provisions of Article VIII hereof. For
the purposes of Article IX hereof, the effective date of any transfer pursuant
to the provisions of this Subsection A of all or any portion of the General
Partner interest of a Withdrawing General Partner shall be deemed to be the date
of Withdrawal, but the Partnership shall not make any distributions to the
designated transferee until the transfer has been made.
11
<PAGE>
B. That portion of the interest of the Withdrawn General Partner which
shall not have been transferred pursuant to Section 6.3.A shall be retained by
such Withdrawn General Partner (or pass to his legal representatives, successors
or assigns) and shall, for all purposes hereunder except for purposes of
electing a new General Partner under Section 6.2.A as a result of such
Withdrawing General Partner's Withdrawal, have the status of an interest of a
Limited Partner with the right to receive that share of the profits, losses and
distributions of the Partnership to which the Withdrawn General Partner, as
such, would have been entitled had he continued as a General Partner, reduced to
the extent of the interest transferred hereunder.
Section 6.4. Additional General Partners. Notwithstanding anything to
---------------------------
the contrary herein contained, the General Partner(s) (acting unanimously if
there shall be more than one such General Partner) shall have the right at any
time, and from time to time, with the Consent of the Limited Partners, to
designate one or more Persons as additional General Partner(s). Notice of any
such designation shall be promptly given to all the Limited Partners. Any such
Person so designated as an additional General Partner shall, after having
received the Consent of the Limited Partners, become such upon his acceptance in
writing of such position and, if such Person is not already a Partner of the
Partnership, his agreeing to be bound by all of the terms and conditions of this
Agreement as the same may theretofore have been amended. Provided the Consent of
the Limited Partners to the admittance of an additional General Partner shall
have been obtained, the consent of all Limited Partners to such admission shall
conclusively be deemed to have been given for all purposes. If any Person
designated as an additional General Partner under this Article VI shall have
theretofore been a Limited Partner of the Partnership, such Person shall be
allocated as a General Partner all or such portion as shall be agreed upon by
the General Partner(s) and such Person of the percentage of profits, losses and
distributions as were previously allocated to him as a Limited Partner. If any
Person so designated as an additional General Partner shall not theretofore have
been a Partner of the Partnership, his interest as a General Partner shall be
such interest as shall thereupon be voluntarily assigned to him by any General
and/or Limited Partners.
Section 6.5. Amendment to Certificate. Upon the admission of an
------------------------
additional or successor General Partner, Schedules I, III, and, to the extent
appropriate, any Other Partnership Schedules, hereto shall be amended to reflect
such admission and an amendment to the Certificate reflecting such admission
shall be filed in accordance with the Uniform Act. Subject to the provisions of
Article IX hereof, the General Partners, acting singly, are hereby constituted,
and empowered to act as, the attorney-in-fact of each Limited Partner, with
authority to execute, acknowledge, swear to and deliver such instruments as may
be necessary or appropriate to carry out the foregoing provisions of this
Article VI, including amendments to the aforesaid Schedules hereto, amendments
to the Certificate required by the Uniform Act, and such consents or
ratifications as may be required for purposes of the Uniform Act, business
certificates and the like.
Section 6.6. Special Restrictions. No General Partner shall sell,
--------------------
mortgage, hypothecate, transfer, or otherwise dispose of his General Partner
interest in the Partnership except (i) dispositions pursuant to Section 6.3 or
6.4, or (ii) dispositions made with the written consent of all other General
Partners.
12
<PAGE>
ARTICLE VII
TRANSFERABILITY OF LIMITED PARTNER INTERESTS
Section 7.1. Restrictions on Transfer. Except as otherwise provided in
------------------------
this Article VII or as required by law, a Limited Partner may voluntarily or
involuntarily transfer, sell, alienate, assign or otherwise dispose of all or
any part of his interest in the Partnership without the written consent of the
General Partner. Prior to any such disposition, the Partnership, or its nominee,
shall have the right (exercisable by the General Partner or a Person or Persons
designated by them) to acquire the interest in question at a price and upon
terms no less favorable than those which the proposed transferor would receive
from such disposition. The Partnership's, or its nominee's, right to acquire the
interest in question shall not apply to the transfer or assignment (in trust or
otherwise) by a Limited Partner of all or any part of his interest in the
Partnership:
(1) to or for the benefit of himself, his Immediate Family,
another Partner, a corporation all of the capital stock of which is
owned by one or more of the foregoing Persons, or any combination of
the foregoing, or
(2) to the legal representatives of an incapacitated or
deceased Limited Partner, or by such a legal representative to
accomplish any transfer or assignment permitted by the foregoing
subparagraph (1), or
(3) to the beneficiaries of any trust which is a Limited
Partner.
Any Limited Partner who shall assign all his interest in the
Partnership (other than by pledge or conditional assignment made with the
consent of the General Partner and which has not yet become effective) shall
cease to be a Limited Partner of the Partnership, and shall no longer have any
rights or privileges of a Limited Partner except that, unless and until the
assignee of such Limited Partner is admitted to the Partnership as a Substituted
Limited Partner in accordance with Section 7.2, said assigning Limited Partner
shall retain the statutory obligations of an assignor limited partner under the
Uniform Act.
Upon any assignment made in accordance with this Section 7.1, there
shall be filed with the Partnership a duly executed and acknowledged counterpart
of the instrument making such assignment, which instrument shall evidence the
written acceptance of the assignee to be bound by all the provisions of this
Agreement and shall otherwise be in form satisfactory to the General Partner;
and if such an instrument is not so filed, the Partnership need not recognize
any such assignment for any purpose.
An assignee of a Limited Partner interest who does not become a
Substituted Limited Partner as provided in Section 7.2 and who desires to make a
further assignment of his interest shall be subject to all the provisions of
this Article VII to the same extent and in the same manner as any Limited
Partner desiring to make an assignment of his interest.
13
<PAGE>
Section 7.2. Substituted Limited Partners.
----------------------------
A. Except as otherwise provided in this Article VII, a Limited Partner
shall have the right to substitute an assignee as a Limited Partner in his
place.
B. Any such assignee shall become a Substituted Limited Partner upon
the filing of an amendment to the Certificate indicating such substitution,
which amendment shall be filed promptly by the General Partner in accordance
with this Section 7.2.
C. Upon the transfer of the interest of a Limited Partner to an
assignee and the substitution of such assignee as a Substituted Limited Partner,
Schedule II and, to the extent appropriate, Schedule III and any Other
Partnership Schedule, shall be amended to reflect the name and address of such
assignee as a Substituted Limited Partner and to eliminate the name and address
of the predecessor Limited Partner, and an amendment to the Certificate
reflecting such admission shall be filed in accordance with the Uniform Act.
Each Substituted Limited Partner shall, as a condition of his admission to the
Partnership as a Substituted Limited Partner, execute such instrument or
instruments as shall be required by the General Partner to signify his agreement
to be bound by all the provisions of this Agreement.
D. Subject to the provisions of Article IX hereof, each of the General
Partners is hereby constituted and empowered to act singly as the
attorney-in-fact for the Limited Partners with authority to execute, swear to
and deliver such instruments as may be necessary or appropriate to carry out the
provisions of this Article VII, including amendments to the aforesaid Schedules
hereto, amendments to the Certificate, business certificates and the like.
Section 7.3. Additional Restrictions.
-----------------------
A. In no event shall all or any part of a Limited Partner interest in
the Partnership be assigned or transferred to a minor (other than to a member of
a Limited Partner's Immediate Family by reason of death) or to an incompetent.
B. The General Partner may, in addition to any other requirement they
may impose, require, as a condition of sale, transfer, exchange or other
disposition of any interest in the Partnership, that the transferor (i) assume
all costs incurred by the Partnership in connection therewith and (ii) furnish
it with an opinion of counsel satisfactory (both as to opinion and counsel) to
the General Partner that such sale, transfer, exchange or other disposition
complies with applicable federal and state securities laws.
C. Any sale, exchange, transfer or other disposition in contravention
of any of the provisions of this Article VII shall be void and ineffectual and
shall not bind, or be recognized by, the Partnership.
14
<PAGE>
ARTICLE VIII
BORROWINGS AND LOANS
All Partnership borrowings shall be subject to the terms of this
Agreement. To the extent borrowings are permitted, they may be made from any
source, including Partners and Affiliated Persons. The Partnership may issue
suitable promissory notes to evidence such loans.
If any Partner shall lend any moneys to the Partnership, the amount of
any such loan shall not constitute an increase in the amount of his Capital
Contribution nor affect in any way his share of the profits, losses and
distributions of the Partnership. Subject to the provisions of this Article
VIII, any loans made by a Partner shall be obligations of the Partnership of
equal rank with obligations to unsecured third-party creditors, and any interest
payable thereon shall be at a reasonable commercial rate.
All loans to the Partnership shall be repayable out of any available
funds of the Partnership, including but not limited to Cash Flow and Net Cash
Proceeds of Capital Transactions. However, if any such loan shall be repaid out
of Net Cash Proceeds of Capital Transactions, no Partner shall thereafter be
entitled to receive any distribution of Cash Flow or Net Cash Proceeds of
Capital Transactions until the Partners who would otherwise have been entitled
to receive the Net Cash Proceeds from which such loan was repaid shall have
first received from the Partnership a distribution equal to the amount of such
repayment.
ARTICLE IX
PROFITS, LOSSES AND CREDITS; DISTRIBUTIONS
Section 9.1. Profits, Losses and Credits. All profits and losses of the
---------------------------
Partnership, and all credits of the Partnership, shall be allocated for all
purposes (including federal and state income tax purposes) in accordance with
the General Profit-Sharing Ratios set forth in Schedule III hereto, and
exclusively among the Partners specified in Schedule III, as in effect from time
to time, except that all profits, losses or credits of the Partnership arising
as a result of a Capital Transaction respecting an Other Partnership for which
there is then in effect an Other Partnership Schedule shall be allocated
exclusively among the Partners specified on such Schedule in accordance with the
Special Profit-Sharing Ratios reflected on such Schedule. All profits and losses
allocated to a Partner shall be credited or charged, as the case may be, to his
capital account. The terms "profits", "losses" and "credits" as used in this
Agreement shall mean taxable income, gains, losses and credits (and items of
income, gains, losses and credits entering into the computation thereof), all as
determined for federal income tax purposes using the accounting methods followed
by the Partnership.
Section 9.2. Distributions Prior to Dissolution.
----------------------------------
A. All Cash Flow and all Net Cash Proceeds from Capital Transactions of
the Partnership, exclusive of Net Cash Proceeds from Capital Transactions
respecting an Other Partnership for which there is then in effect an Other
Partnership Schedule, shall be distributed in
15
<PAGE>
accordance with the General Profit-Sharing Ratios specified on Schedule III
hereto, and exclusively among the Partners specified in Schedule III, as in
effect from time to time. The respective General Profit-Sharing Ratios specified
on Schedule III may be changed at any time by the unanimous written consent of
the Partners then specified on such Schedule who are adversely affected by such
change. Such distributions shall be made by the General Partner from time to
time, but not less frequently than annually, as they may deem consistent with
the operating needs of the Partnership.
B. All Net Cash Proceeds from Capital Transactions respecting an Other
Partnership for which there is then in effect an Other Partnership Schedule
shall be distributed exclusively among the Partners specified on such Schedule
in accordance with the Special Profit-Sharing Ratios specified on such Schedule,
as in effect from time to time. Such distributions shall be made by the General
Partners as soon as practicable following receipt by the Partnership of such Net
Cash Proceeds.
C. The respective Special Profit-Sharing Ratios specified on any Other
Partnership Schedule may be changed at any time by the unanimous written consent
of the Partners then specified on such Schedule who are adversely affected by
such change. In addition, at the sole discretion of the General Partner, the
Partnership may establish at any time an additional Other Partnership Schedule
respecting an Other Partnership for which there is not then in effect an Other
Partnership Schedule, provided that no such additional Other Partnership
Schedule shall become effective or otherwise be binding upon the Partnership
until it has been signed by at least one of the General Partners. In no event
shall any Partner be deemed to have any right to be included in any Other
Partnership Schedule or to be allocated any Special Profit-Sharing Ratio in
respect of any Other Partnership, except (i) with respect to a Partnership for
which there is then in effect an Other Partnership Schedule, as specified on
such Schedule or as otherwise may be agreed by the unanimous written consent of
the Partners who are then specified on such Schedule and who are adversely
affected by such change, or (ii) with respect to a Partnership for which there
is not then in effect an Other Partnership Schedule, as may be specified in an
Other Partnership Schedule thereupon established for such Partnership at the
sole discretion of the General Partner.
D. Notwithstanding the foregoing provisions of this Section 9.2, if, in
the opinion of the General Partner, any Net Cash Proceeds from Capital
Transactions are required to be used by the Partnership to repay indebtedness of
the Partnership, or retained for a contingent future payment of such
indebtedness, such Net Cash Proceeds shall not be distributed to the Partners,
but rather shall be so used or retained by the Partnership until additional cash
shall become available for distribution to the Partners in the manner specified
in Article VIII hereof.
Section 9.3. Distributions Upon Dissolution. Upon dissolution of the
------------------------------
Partnership, unless the Partnership shall be reconstituted as specified in
Article VI hereof, the assets of the Partnership shall first be applied to
payment of, or the establishment of adequate reserves for the future payment of,
the debts of or obligations of the Partnership, including loans by Partners and
Affiliated Persons and accrued interest thereon. The remaining assets of the
Partnership (or the proceeds of sales or other dispositions in liquidation of
the Partnership assets which the
16
<PAGE>
remaining or surviving General Partners have determined to sell or dispose of)
shall then be distributed to the Partners up to the positive balance, if any, in
their respective capital accounts and any excess in the respective manners set
forth in Section 9.2.
If any assets of the Partnership are to be distributed in kind, such
assets shall be distributed on the basis of the fair market value thereof and
any Partner entitled to any interest in such assets shall receive such interest
therein as a tenant-in-common with all other Partners so entitled. The fair
market value of such assets shall, to the extent necessary, be determined by an
independent appraiser to be selected by the General Partner.
Section 9.4. ADJUSTMENT OF SHARES OF PROFITS, LOSSES AND DISTRIBUTIONS
---------------------------------------------------------
TO INSURE 1% TO THE GENERAL PARTNER. Notwithstanding the foregoing provisions of
- -----------------------------------
this Article IX, in no event shall there be allocated or distributed to the
General Partner or, the General Partners as a group as the case may be hereunder
less than 1% of the aggregate of the profits, losses, credits and cash
distributions to be allocated or distributed to the Partners hereunder (the "One
Percent Share"). If the amounts of profits, losses or credits allocable or cash
distributable to the General Partners in connection with any allocation or
distribution to the Partners hereunder shall not otherwise equal or exceed the
One Percent Share without giving effect to this provision, then all such amounts
otherwise allocable and distributable to the Limited Partners hereunder shall be
proportionately reduced in order to assure the General Partner of their One
Percent Share.
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS
Section 10.1. BOOKS AND RECORDS. The General Partner shall keep or
-----------------
cause to be kept complete and accurate books and records of the Partnership in
accordance with generally accepted accounting principles, which books and
records shall be maintained and be available at the principal office of the
Partnership for examination by any Partner, or his duly authorized
representatives, at any and all reasonable times. The Partnership may maintain
such other books and records and may provide such financial or other statements
as the General Partner deems advisable.
The General Partner shall maintain at the Partnership's principal
office in Massachusetts the following documents: (i) a current list of the full
name and last known business address of each Partner set forth in alphabetical
order, (ii) a copy of the Certificate and all amendments thereto, together with
executed copies of any powers of attorney pursuant to which the Certificate or
any such amendment has been executed, (iii) copies of the Partnership's federal,
state and local income tax returns and reports, if any, for the three most
recent years, and (iv) copies of this Agreement as then in effect and of any
financial statements of the Partnership for the three most recent years. Such
documents are subject to inspection and copying at the reasonable request, and
at the expense, of any Partner during ordinary business hours. In addition, the
Partnership will furnish a list of the names and addresses of all Limited
Partners, together with their respective Capital Contributions, to any Limited
Partner who makes a written request therefor to the Partnership. Except to the
extent requested by any Limited Partner, the General Partner shall
17
<PAGE>
have no obligation to deliver or mail a copy of the Partnership's Certificate or
any amendment thereto to the Limited Partners. Each Limited Partner shall also
have the right to obtain from the General Partner from time to time upon
reasonable demand: (i) true and full information regarding the status of the
business and financial condition of the Partnership, (ii) promptly after
becoming available, a copy of the Partnership's federal, state and local income
tax returns for each year, and (iii) other information regarding the affairs of
the Partnership as is just and reasonable.
Section 10.2. BANK ACCOUNTS. The bank accounts of the Partnership shall
-------------
be maintained in such banking institutions as the General Partner shall
determine, and withdrawals shall be made therefrom on such signature or
signatures as the General Partner shall determine.
Section 10.3. ACCOUNTANTS. The Accountants for the Partnership shall
-----------
be such firm of public or certified public accountants as shall be engaged by
the General Partner from time to time.
Section 10.4. REPORTS TO PARTNERS. For each Limited Partner who shall
-------------------
be entitled to share in the Partnership's income, losses or credits during any
fiscal year (based upon such Partner's interest as reflected in Schedule III or
in any applicable Other Partnership Schedule), the General Partner shall cause
to be prepared and sent to such Limited Partner a statement indicating the share
of such Limited Partner of the net income, net loss, depreciation recapture,
gain, loss and other relevant items of the Partnership sufficient to enable such
Limited Partner to prepare his own respective federal and state tax return for
the calendar year in which such fiscal year of the Partnership was completed.
Such statement shall be delivered within 90 days after the close of each such
calendar year, provided that no cause of action shall accrue to any Partner
under this Section 10.4 if the General Partner shall have acted in good faith in
attempting to meet their obligations under this Section.
Section 10.5. TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS. The General
----------------------------------------
Partner shall, in their reasonable discretion, make all tax elections on behalf
of the Partnership. In the event of a transfer of all or any part of the
interest of any Partner for an amount in excess of the adjusted basis for such
interest for federal income tax purposes, the Partnership may elect, pursuant to
Section 754 of the Code (or corresponding provisions of succeeding law), to
adjust the basis of the Partnership property. Such adjustment shall be made only
if the General Partner, in its discretion, determine such election should be
made. Notwithstanding anything contained in Article IX of this Agreement, any
adjustments made pursuant to Section 754 shall affect only the successor in
interest to the transferring Partner. Each Partner will furnish the Partnership
with all information necessary to give effect to such election.
Section 10.6. MAINTENANCE OF BOOKS FOR ACCOUNTING AND TAX PURPOSES;
-----------------------------------------------------
FISCAL YEARS. Subject to the foregoing provisions of this Article X, the books
- ------------
of the Partnership shall be kept on such basis as the General Partner may
determine. In connection therewith, the General Partner shall select such fiscal
year(s) for accounting and tax purposes as they deem appropriate.
18
<PAGE>
ARTICLE XI
GENERAL PROVISIONS
Section 11.1. APPOINTMENT OF GENERAL PARTNER AS ATTORNEY-IN-FACT.
--------------------------------------------------
Without limiting the effect of provisions elsewhere in this Agreement appointing
the General Partner as attorney-in-fact for all those who become Limited
Partners (including Substituted or additional Limited Partners) under this
Agreement in connection with the doing of certain acts and the filing of certain
papers, each Limited Partner (including a Substituted or additional Limited
Partner) hereby severally irrevocably constitutes, and empowers to act alone,
the General Partner as his attorney-in-fact with authority to execute,
acknowledge and swear to all instruments and file all documents requisite to
carry out the intention and purpose of this Agreement, including, without
limitation, all amendments to this Agreement and the Schedules hereto effected
in accordance with this Agreement, the Certificate and all amendments thereto
effected in accordance herewith, and all business certificates and other
certificates and amendments thereto to be executed and/or filed from time to
time in accordance with applicable laws. Without limitation of the foregoing,
each of the General Partner is hereby specifically authorized as attorney-in-
fact for the Limited Partners to execute and file the Certificate and any
amendment thereto necessary or appropriate to reflect the admission of any
signatory hereto as a Limited Partner, or any addition or substitution of other
Limited Partners, or to reflect the Capital Contribution made by any signatory
hereto or by any other Limited Partner.
The foregoing appointment shall be deemed to be a power coupled with an
interest in recognition of the fact that each of the Partners under this
Agreement will be relying upon the power of the General Partner to act as
contemplated by this Agreement in such filing and other action by them on behalf
of the Partnership. The foregoing power of attorney shall survive the assignment
by any Limited Partner of the whole or any part of his interest hereunder.
Each of the Limited Partners is aware that the terms of this Agreement
permit certain amendments of this Agreement, the Schedules hereto and the
Certificate to be effected and certain other actions to be taken or omitted by,
or with respect to, the Partnership, in each case with the approval of less than
all the Limited Partners if either (i) such amendment or action will have an
adverse effect upon less than all of the Limited Partners, or (ii) the Consent
of the Limited Partners (as herein defined) shall have been given in favor of
such action. If, as, and when:
(i) such an amendment is proposed or such an action is proposed
to be taken or omitted by, or with respect to, the Partnership which
requires, under the terms of this Agreement, either (a) consent only of
the Limited Partners who are adversely affected thereby, or (b) the
Consent of the Limited Partners;
(ii) either (a) the consent of those Limited Partners who would
be adversely affected by such amendment or action or (b) the Consent of
the Limited Partners, as appropriate, has been given in the manner
contemplated by this Agreement; and
19
<PAGE>
(iii) a Limited Partner has failed or refused to consent to such
amendment or action (hereinafter referred to as a "non-consenting
Limited Partner"), then each non-consenting Limited Partner agrees that
each attorney-in-fact specified above, with full power of substitution,
is hereby authorized and empowered to execute, acknowledge, make, swear
to, verify, deliver, record, file and/or publish, for and in behalf of
such non-consenting Limited Partner, and in his name, place and stead,
any and all instruments and documents which may be necessary or
appropriate under the Uniform Act and any and all other applicable laws
and regulations to permit such amendment to be lawfully made or action
lawfully taken or omitted. Each consenting and non-consenting Limited
Partner is fully aware that he and each other Limited Partner have
executed this special power of attorney and that each Limited Partner
will rely on the effectiveness of such powers with a view to the
orderly administration of the Partnership's affairs.
Section 11.2. NOTICES. Any and all notices called for under this
-------
Agreement shall be deemed adequately given only if in writing and sent by first
class mail, postage prepaid, to the party or parties for whom such notices are
intended.
All such notices in order to be effective shall be addressed to the
last address of record on the Partnership books when given by the General
Partner and intended for the Limited Partner; and to the address of the
Partnership when given by the Limited Partner and intended for the General
Partner.
Section 11.3. WORD MEANINGS. The words such as "herein", "hereinafter",
-------------
"thereof" and "hereunder" refer to this Agreement as a whole and not merely to a
subdivision in which such words appear unless the context otherwise requires.
The singular shall include the plural and the masculine gender shall include the
feminine and neutre, and vice versa, unless the context otherwise requires.
Section 11.4. OTHER AGREEMENTS. This Agreement shall govern exclusively
----------------
the affairs of the Partnership and the Partners as to the matters herein
described, but shall not be deemed to affect any other agreement between any
General or Limited Partner and the Partnership or any other Partner respecting
matters not herein described.
Section 11.5. BINDING EFFECT. The covenants and agreements contained
--------------
herein shall be binding upon, and inure to the benefits of, the heirs, legal
representatives, successors and assigns of the respective parties hereto. Except
to the extent required by the Uniform Act and for fees, rights to reimbursement,
and other compensation provided for hereunder as such, none of the provisions of
this Agreement shall be for the benefit of or be enforceable by any creditor of
the Partnership.
Section 11.6. APPLICABLE LAW; SUPREMACY OF UNIFORM ACT. This Agreement
----------------------------------------
shall be construed and enforced in accordance with the laws of The Commonwealth
of Massachusetts. Notwithstanding any other provision of this Agreement, no
action may be taken under this Agreement unless such action is taken in
compliance with the provisions of the Uniform Act.
20
<PAGE>
Section 11.7. COUNTERPARTS. This Agreement may be executed in several
------------
counterparts (including separate signature pages) and all so executed shall
constitute one agreement binding on all parties hereto, notwithstanding that all
parties have not signed the same counterpart or that any such counterpart does
not have attached copies of all Schedules and signature pages hereto as then in
effect. No counterpart of this Agreement or of any such Schedule or signature
page shall be binding unless signed by one or more of the General Partners. The
General Partners shall maintain at the principal office of the Partnership a
counterpart of this Agreement (including separate signature pages) as executed
by all Partners and to which shall be attached copies of all Schedules hereto as
then in effect, which counterpart shall be available for inspection by any
Partner.
Section 11.8. SEPARABILITY OF PROVISIONS. Each provision of this
--------------------------
Agreement shall be considered separable and (i) if for any reason any provision
or provisions herein are determined to be invalid and contrary to any existing
or future law, such invalidity shall not impair the operation of or affect those
portions of this Agreement which are valid, or (ii) if for any reason any
provision or provisions herein would cause the Limited Partners who are not also
specifically designated herein as General Partners to be bound by the
obligations of the Partnership as General Partners under the laws of The
Commonwealth of Massachusetts as the same may now or hereafter exist, such
provision or provisions shall be deemed void and of no effect.
Section 11.9. WAIVER OF CERTAIN RIGHTS. The Partners, each of whom have
------------------------
been represented by independent counsel, and each of whom are experienced and
knowledgeable in the real estate business, agree that substantial damage would
be done to the goodwill and reputation of the Partnership and the Partners as a
result of any litigation involving the Partnership. Therefore, it is agreed
that, except as hereinafter provided, no proceeding shall be brought by a
Partner, former Partner or any other Person claiming by, through or under any of
the same to seek a dissolution of the Partnership based on any claim that the
provisions of this Agreement do not accurately reflect the agreement of the
parties hereto. This section shall be effective as a conclusive bar to any such
proceeding; but this section shall not be a bar to any proceeding seeking to
enforce this Agreement or any obligation or duty hereby created.
Section 11.10. AMENDMENTS. This Agreement may be amended or modified by
----------
the General Partner with the Consent of the Limited Partners, provided, however,
-------- -------
that (i) no amendment shall increase the liability or obligations of any Partner
without the written consent of such Partner, (ii) except as otherwise
specifically provided herein, no amendment shall reduce any Partner's rights to
share in the Partnership's Cash Flow, Net Cash Proceeds, or profits, losses and
credits without the written consent of such Partner, and (iii) the written
consent of all Partners must be obtained for any amendment which would amend
this Section 11.10.
Section 11.11. EFFECTIVE DATE. Notwithstanding the separate dates of
--------------
execution hereof, all parties hereto agree that this Agreement shall become
effective as of the date first set forth above. In the event Schedule III or any
Other Partnership Schedule shall hereafter be amended as provided herein to
change any Profit-Sharing Ratio specified thereon, the effective date of such
change shall be as specified on such Schedule as amended.
21
<PAGE>
Section 11.12. LIMITED PARTNER SIGNATURE PAGES. The Limited Partner
-------------------------------
signature pages attached hereto constitute part of this Agreement.
WITNESS the execution hereof under seal as of the date first set forth
above.
KHI CORPORATION, as General Partner
By: /s/ Douglas Krupp
________________________________
Douglas Krupp, President
22
<PAGE>
KHC PARTNERS LIMITED PARTNERSHIP
LIMITED PARTNER SIGNATURE PAGE
------------------------------
The undersigned hereby executes as Limited Partner under seal the Agreement
of Limited Partnership dated as of May 28, 1987, of KHC PARTNERS LIMITED
PARTNERSHIP, and hereby adopts and agrees to be bound by all the provisions
thereof.
THE KRUPP COMPANIES LIMITED
PARTNERSHIP
By: /s/ George Krupp
____________________________________
George Krupp, General Partner
Date: May 28, 1987
Accepted as of the
date specified herein:
KHI CORPORATION, as General Partner
By: /s/ Douglas Krupp
__________________________
Douglas Krupp, President
23
<PAGE>
SCHEDULE I
----------
GENERAL PARTNER
---------------
Capital
General Partner Business Address Contribution
- --------------- ---------------- ------------
KHI Corporation 470 Atlantic Avenue $100.00
Boston, MA 02110
Total $100.00
<PAGE>
SCHEDULE II
-----------
LIMITED PARTNER
---------------
Capital
Limited Partner Business Address Contribution
- --------------- ---------------- ------------
The Krupp Companies 470 Atlantic Avenue 3,099.00
Limited Partnership Boston, MA 02110
Total ------------
$3,099.00
<PAGE>
SCHEDULE III
------------
<TABLE>
<CAPTION>
GENERAL PROFIT-SHARING RATIOS
-----------------------------
GENERAL PARTNER PROFIT-SHARING RATIO
- --------------- --------------------
<S> <C>
KHI Corporation 1.0%
Limited Partner
- ---------------
The Krupp Companies 99.0%
Limited Partnership
-----
100.0%
</TABLE>
Accepted and agreed as of
May 28, 1987
The Krupp Companies
Limited Partnership,
By: /s/ George Krupp
________________________________
George Krupp, General Partner
KHI CORPORATION,
as General Partner
By: /s/ Douglas Krupp
________________________________
Douglas Krupp, President
<PAGE>
FIRST AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP
OF KHC PARTNERS LIMITED PARTNERSHIP
(Now known as Harborside Healthcare Advisors Limited Partnership)
This First Amendment dated as of the 25th day of October, 1991 is made by
and between KHI Corporation, as General Partner, and The Krupp Companies Limited
Partnership, as Limited Partner.
WHEREAS, the General Partner and the Limited Partner formed a limited
partnership (the "Partnership") by entering into an Agreement of Limited
Partnership dated as of May 28, 1987 (the "Agreement") and wish to amend the
Agreement to change the name and broaden the general character of the business
of the Partnership.
NOW, THEREFORE, the parties hereto agree that the Agreement shall be
amended as follows:
1. Section 2.2 shall be amended by deleting the words "KHC Partners
Limited Partnership" and replacing them with the words "Harborside
Healthcare Advisors Limited Partnership".
2. Section 2.3 of the Agreement shall be deleted and replaced with
the following new language:
The general character of the business intended to be
transacted by the Partnership is to acquire, own,
lease, invest in, improve, hold, encumber, sell,
manage, maintain, operate, and otherwise deal with
Facilities, and real estate and personal property
related thereto; to acquire, own, manage, sell, and
otherwise deal with one or more entities which conducts
activities within the scope of this section; to act as
an advisor and/or guarantor to real estate investment
trust ("REITs") which primarily invest in guaranteed or
insured mortgage backed securities, Facilities and real
estate and personal property related thereto, or direct
mortgages, by recommending investments and structuring
the terms of such investments, managing the day-to-day
affairs and/or acquisition and/or disposition of
investments for the REIT, serving as the mortgagee of
record for some or all of the REITs mortgages, and/or
managing the assets of the REIT; to be a general and/or
limited partner in any Other Partnership which conducts
activities within the scope of this section; and to
conduct any other business activity allowed under the
Uniform Act.
Except as otherwise provided herein, the parties hereto confirm the
Agreement in its entirety.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
First Amendment to Agreement of Limited Partnership as of the date first
specified above.
General Partner: KHI CORPORATION
By: /s/ Douglas Krupp
___________________________________
Its: President
Limited Partner: THE KRUPP COMPANIES LIMITED
PARTNERSHIP
By: Krupp I Incorporated, a general partner
By: /s/ George Krupp
___________________________________
Its: Executive Vice President
2
<PAGE>
EXHIBIT E
---------
VOTED: That the Corporation, in its individual capacity and as a
- -----
general partner of Harborside Healthcare Advisors Limited
Partnership, a Massachusetts limited partnership (the "Limited
Partnership"), hereby (1) approves that certain transaction (the
"Synthetic Lease Transaction") pursuant to which (a)(i) The Chase
Manhattan Bank, for itself and as agent for certain other lenders
(collectively, the "Lenders"), will provide a credit facility
(the "Credit Facility") to the HHC 1997-1 Trust, a Delaware
business trust (the "Lessor"), in an aggregate principal amount
not to exceed Twenty-Five Million Dollars ($25,000,000.00) (the
"Maximum Commitment") and (ii) the Bank of Montreal or an
affiliate thereof (the "Investor") will make an investment in the
Lessor in an aggregate amount not to exceed three percent (3%) of
the Maximum Commitment, to enable the Lessor to acquire and hold
fee title to certain properties (the "Properties"); (b) the
Lessor will grant a lien on all of its assets to the Lenders as
security for the Credit Facility; (c) Harborside of Dayton
Limited Partnership, an affiliate of the Corporation and the
Limited Partnership which is operated as a separate entity but
which is and will be operated on an integrated basis with the
Corporation and the Limited Partnership and their other
affiliates in connection with their respective financial
resources and all of which conduct their operations on a combined
basis with shared management, purchasing, planning, financial
contacts and other functions, will lease the Properties from the
Lessor and have an option to purchase one or more of the same;
(d) the Corporation, the Limited Partnership and their affiliates
will unconditionally guarantee for the benefit of the Lenders the
prompt and complete payment and performance by the Lessor when
due of all obligations and liabilities of the Lessor to the
Lenders under the Credit Facility, and will grant a lien on
certain of their respective assets to the Lenders as security
therefor; and (e) the Corporation, the Limited Partnership and
their affiliates will unconditionally guarantee for the benefit
of the Lessor the prompt and complete payment and performance by
the Lessee when due of all obligations and liabilities of the
Lessee to the Lessor under the Lease, and will grant a lien on
certain of their respective assets to the Lessor as security
therefor, and (2) determines that the Synthetic Lease Transaction
is necessary to the conduct, promotion and attainment of the
business of the Corporation and the Limited Partnership.
FURTHER
- -------
VOTED: That the form, terms and provisions of each of the following,
- ----- namely:
(1) Participation Agreement;
(2) Tranche A Notes and Tranche B Notes;
(3) Lease, Memorandum of Lease and each Lease Supplement;
<PAGE>
(4) Assignment of Lease and each supplemental assignment;
(5) Consent to Assignment;
(6) Credit Agreement;
(7) Mortgage and Security Agreement and/or Deed of Trust and
Security Agreement;
(8) UCC Financing Statements;
(9) Construction Contract;
(10) Contract Assignment;
(11) Agency Agreement and each Agency Agreement Supplement;
(12) Guarantee;
(13) Requisitions;
(14) Trust Agreement;
(15) Intercreditor Agreement;
(16) one or more Pledge Agreements;
(17) one or more Security Agreements;
(18) Lease Guarantee;
(19) any other Operative Agreement (as defined in Annex A to the
Participation Agr eement;
together with all other documents and instruments in connection
with any of the same (collectively, the "Synthetic Lease
Transaction Documents"), in or substantially in the form
presented to the Board of Directors with such changes therein as
may be approved by any one of the officers of the Corporation, be
and are hereby approved; that the execution, delivery and
performance by the Corporation and/or the Limited Partnership of
each of the Synthetic Lease Transaction Documents to which the
Corporation and/or the Limited Partnership is a party be and the
same is hereby approved; and that the officers of the Corporation
be and they are and each of them singly is hereby authorized in
the name and on behalf of the Corporation to execute and deliver
each of the Synthetic Lease Transaction Documents to which the
Corporation and/or the Limited Partnership is a party, in or
substantially in the form presented to the
2
<PAGE>
Board of Directors with such changes therein as may be approved
by any one of the officers of the Corporation, the taking of such
actions to conclusively evidence that the same is authorized
hereby.
FURTHER
- -------
VOTED: That the Corporation, in its individual capacity and as a
- -----
general partner of the Limited Partnership, hereby (1)(a)
confirms that certain credit facility in the aggregate principal
amount not to exceed of Twenty-Five Million Dollars ($25,000,000)
(the "Revolver") extended by The Chase Manhattan Bank for itself
and as agent for certain other lenders (collectively, the
"Banks") to the Corporation and the Limited Partnership pursuant
to a certain Credit Agreement dated as of April 14, 1997 and (ii)
the granting of a lien on certain of the respective assets of the
Corporation, the Limited Partnership and their affiliates to the
Banks as security therefor, and (b) approves the amendment of the
Revolver pursuant to the Amendment Documents (as defined below),
and (2) determines that the amendment of the Revolver pursuant to
the Amendment Documents is necessary to the conduct, promotion
and attainment of the business of the Corporation and the Limited
Partnership.
FURTHER
- -------
VOTED: That the form, terms and provisions of each of the following,
- ----- namely:
(1) First Amendment to Credit Agreement;
(2) Second Amendment to Credit Agreement;
(3) First Amendment to Security Agreement;
(4) Second Amendment to Security Agreement;
(5) First Amendment to A/R Security Agreement;
(6) First Amendment to Pledge Agreement;
(7) Note Pledge Agreement;
(8) First Amendment to Note Pledge Agreement;
(9) Amendment to Mortgage, Assignment and Security Agreement,
Assignment of Leases and Rents and Collateral Assignment of
Permits, Licenses, Approvals and Contracts;
(10) One or more intercreditor or amended and restated
intercreditor agreements, if appropriate; and
3
<PAGE>
(11) Financing Statements on Form UCC-1 evidencing the security
interests granted pursuant to the First Amendment to
Security Agreement and the Second Amendment to Security
Agreement;
together with other documents and instruments in connection with
any of the foregoing (collectively, the "Amendment Documents"),
in or substantially in the form presented to the Board of
Directors with such changes therein as may be approved by any one
of the officers of the Corporation, be and are hereby approved;
that the execution, delivery and performance by the Corporation
and/or the Limited Partnership of each of the Amendment Documents
to which the Corporation and/or the Limited Partnership is a
party be and the same is hereby approved; and that the officers
of the Corporation be and they are and each of them singly is
hereby authorized in the name of and on behalf of the Corporation
to execute and deliver each of the Amendment Documents to which
the Corporation and/or the Limited Partnership is a party, in or
substantially in the form presented to the Board of Directors
with such changes therein as may be approved by any one of the
officers of the Corporation, that taking such actions to
conclusively evidence that the same is authorized hereby.
FURTHER
- -------
VOTED: That the officers of the Corporation be and they are and each of
- ----- them singly is hereby authorized to execute and deliver any and
all such other documents and to take any and all such other
actions as they deem necessary or desirable in connection with
the foregoing votes, the taking of such actions and the execution
and delivery of such documents to be conclusive evidence for all
purposes that such actions and such documents so executed and
delivered are authorized by these votes.
4
<PAGE>
EXHIBIT 3.2.8
SECOND AMENDMENT TO
AGREEMENT OF LIMITED PARTNERSHIP
HARBORSIDE HEALTHCARE ADVISORS LIMITED PARTNERSHIP
This Second Amendment to Agreement of Limited Partnership dated as of the
14th day of June, 1996, by and among KHI Corporation, as its General Partner,
and The Berkshire Companies Limited Partnership (formerly The Krupp Companies
Limited Partnership), as its Limited Partner.
WHEREAS, the General Partner and the Limited Partner formed a limited
partnership (the "Partnership") by entering into an Agreement of Limited
Partnership (the "Agreement") on June 4, 1996 and most recently amended by the
First Amendment to Agreement of Limited Partnership on October 25, 1991 and wish
to further amend the Agreement.
NOW THEREFORE, the parties hereto agree that Schedule II and Schedule III
of the Agreement ("Schedules") be replaced with the attached revised Schedules,
which reflect the transfer to Harborside Healthcare Corporation of all of the
Limited Partnership interests of The Berkshire Companies Limited Partnership.
Except as otherwise provided herein, the parties hereto confirm the
Agreement in its entirety.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Second Amendment to Agreement of Limited Partnership as of the date firs
specified above.
General Partner: KHI Corporation
By: /s/ Scott D. Spelfogel
-----------------------------------
Its: Clerk (Secretary)
Old Limited Partner: The Berkshire Companies Limited Partnership
By: KGP-1 Incorporated, general Partner
By: /s/ Scott D. Spelfogel
-----------------------------------
Its: Clerk (Secretary)
New Limited Partner: Harborside Healthcare Corporation, Limited
Partner
By: /s/ Scott D. Spelfogel
-----------------------------------
Its: Clerk (Secretary)
<PAGE>
THIRD AMENDMENT TO
AGREEMENT OF LIMITED PARTNERSHIP
HARBORSIDE HEALTHCARE ADVISORS LIMITED PARTNERSHIP
This Third Amendment to the Agreement of Limited Partnership (Harborside
Healthcare Advisors Limited Partnership) is entered into as of the 10th of
August, 1998, by and between KHI Corporation, as its General Partner, and
Harborside Healthcare Corporation, as Limited Partner (collectively, the
"Parties").
WHEREAS, the Parties formed a limited partnership by entering into an
Agreement of Limited Partnership dated as of May 28, 1987 (the "Agreement"),
filed a Certificate of Limited Partnership (the "Certificate") with the
Corporations Division of the Secretary of the Commonwealth on Massachusetts (the
"Commonwealth") on June 4, 1987, amended the Agreement as of October 25, 1991,
and filed an amended and restated Certificate with the Commonwealth on October
25, 1991; and
WHEREAS, the Parties now wish to amend the Agreement;
NOW THEREFORE, the Parties hereto agree that:
Section 6.6 of the Agreement shall be deleted in its entirety.
All other provisions of the Agreement shall remain the same.
KHI CORPORATION, as General Partner
By: /s/ Scott D. Spelfogel
-----------------------------------------
Its: Clerk (Secretary)
HARBORSIDE HEALTHCARE CORPORATION, as Limited Partner
By: /s/ Scott D. Spelfogel
-----------------------------------------
Its: (Secretary)
<PAGE>
EXHIBIT 3.2.9
[ ] LIMITED PARTNERSHIP
CERTIFICATE OF LIMITED PARTNERSHIP
The Partners desire to organize a limited partnership in accordance with
the laws of the Commonwealth of Massachusetts. In furtherance thereof, the
General Partner hereby executes and agrees to file this Certificate in
accordance with the provisions of the Massachusetts Uniform Limited Partnership
Act (the "Act").
The undersigned, desiring to effectuate the formation of a limited
partnership, pursuant to the laws of the Commonwealth of Massachusetts, does
hereby certify and swear to the following:
1. The name of the partnership is [ ] Limited
Partnership.
2. The general character of the business intended to be transacted by the
partnership is to acquire, own, lease, invest in, improve, hold,
encumber, sell, manage, maintain, operate and otherwise deal with
nursing homes, retirement homes, congregate care facilities,
rehabilitation facilities, psychiatric facilities, substance abuse
facilities, medical office buildings or other health care related
commercial properties, and any equity interest of the partnership
therein, whether direct or indirect, through nominees, joint ventures
or otherwise, and real estate and personal property related thereto;
to be a general and/or limited partner in any general or limited
partnership in which the partnership shall act as a general and/or
limited partner which conducts activities within the scope of this
section; and to conduct any other business activity allowed under the
Act.
3. The address of the office of the partnership at which shall be kept
the records and partnership documents of the partnership is to be:
c/o The Berkshire Group
470 Atlantic Avenue
Boston, MA 02210
The agent for service of process for the partnership shall be:
Scott D. Spelfogel, Esq.
The Berkshire Group
470 Atlantic Avenue
Boston, MA 02210
4. The name and business address of the General Partner is as follows:
General Partner Address
--------------- -------
Harborside Health I Corporation c/o The Berkshire Group
470 Atlantic Avenue
Boston, MA 02210
5. The partnership will be dissolved and its affairs wound up on December
31, 2029, unless sooner dissolved in accordance with the provisions of
the Act.
<PAGE>
IN WITNESS WHEREOF, the General Partner of said partnership has executed this
certificate this 26th day of August, 1997, under penalty of perjury.
General Partner:
----------------
HARBORSIDE HEALTH I CORPORATION
By: /s/ K. Scott Griggs
--------------------------------------
K. Scott Griggs, Assistant Secretary
<PAGE>
SCHEDULE TO EXHIBIT 3.2.9
-------------------------
The following entities have the Form a of Certificate of Limited Partnership
included as Exhibit 3.2.9 with any changes from the form noted:
1. Harborside Acquisition Limited Partnership V
2. Harborside Acquisition Limited Partnership VI
3. Harborside Acquisition Limited Partnership VII
4. Harborside Acquisition Limited Partnership VIII
5. Harborside Acquisition Limited Partnership IX
6. Harborside Acquisition Limited Partnership X
7. Harborside Massachusetts Limited Partnership
8. Harborside Dayton Limited Partnership
Changes from Form: Paragraph 5 date for dissolution is December 31, 2046
9. Harborside Rhode Island Limited Partnership
10. Harborside Connecticut Limited Partnership
11. Harborside of Cleveland Limited Partnership
Changes from Form: Paragraph 5 date for dissolution is December 31, 2040.
12. Harborside Rehabilitation Limited Partnership
Changes from Form: Paragraph 5 date of dissolution is December 31, 2040.
13. Harborside Homecare Limited Partnership
Changes from Form: Paragraph 4, general partner is KHI Corporation
Paragraph 5 date of dissolution is December 31, 2045.
14. Harborside of Ohio Limited Partnership
Changes from Form: Paragraph 3 address is c/o The Krupp Companies
Paragraph 5 date of dissolution is December 31, 2029.
15. Harborside Toledo Limited Partnership
Changes from Form: Amendment making Harborside Toledo Corp. the general
partner
<PAGE>
Paragraph 5 date of dissolution is December 31, 2035
2
<PAGE>
EXHIBIT 3.2.10
CERTIFICATE OF LIMITED PARTNERSHIP
OF
[ ] LIMITED PARTNERSHIP
- -----------------------------------------------------------------------------
(Name of Limited Partnership; must contain a suffix such as "Limited",
"Ltd.", or "Limited Partnership")
c/o The Berkshire Group, 470 Atlantic Avenue, Boston, MA 02210; Attn: Legal
Dept.
- -----------------------------------------------------------------------------
(The Business Address of Limited Partnership)
The Prentice-Hall Corporation System, Inc.
- -----------------------------------------------------------------------------
(Name of Registered Agent for Service of Process)
1201 Hays Street, Suite 105, Tallahassee, Florida 32301
- -----------------------------------------------------------------------------
(Florida Street Address for Registered Agent)
The Prentice-Hall Corporation System, Inc.
By: /s/ Robert Porcein, Ass't Secretary
- -----------------------------------------------------------------------------
(Registered Agent must sign here to accept designation as
Registered Agent for Service of Process.)
c/o The Berkshire Group, 470 Atlantic Avenue, Boston, MA 02210; Attn: Legal
Dept.
- -----------------------------------------------------------------------------
(The Mailing Address of the Limited Partnership.)
The latest date upon which the Limited Partnership is to be dissolved is
December 31, 2044.
- ----------- ----
NAME OF GENERAL PARTNER(S) SPECIFIC ADDRESS
Harborside Health I Corporation c/o The Berkshire Group
----------------------------------- ---------------------------
470 Atlantic Avenue
F93000001467 Boston, MA 02110
----------------------------------- ---------------------------
Attn: Legal Department
----------------------------------- ---------------------------
----------------------------------- ---------------------------
----------------------------------- ---------------------------
<PAGE>
Signed this 30th day of June, 1994. Signature of all general partners:
---- ----------
HARBORSIDE HEALTH I CORPORATION
- ------------------------------------ __________________________________
General Partner General Partner
By: /s/ STEPHEN GUILLARD, PRESIDENT
------------------------------- __________________________________
Stephen Guillard, President General Partner
____________________________________
General Partner
2
<PAGE>
AFFIDAVIT OF CAPITAL CONTRIBUTIONS
----------------------------------
BEFORE ME, the undersigned constituting all of the general partners of
Harborside of Florida Limited Partnership, a Florida Limited Partnership,
certify as follows:
The amount of capital contributions to date of the limited partners is
$990.00.
The total amount contributed and anticipated to be contributed by the
limited partners at this time totals $990.00.
This ________ day of June, 1994.
FURTHER AFFIANT SAYETH NOT.
Under the penalties of perjury I(we) declare that I(we) have read the foregoing
and that the facts alleged are true, to the best of my knowledge and belief.
HARBORSIDE HEALTH I CORPORATION
- ------------------------------------ __________________________________
General Partner General Partner
By: /s/ STEPHEN GUILLARD, PRESIDENT
------------------------------- __________________________________
Stephen Guillard, President General Partner
____________________________________ __________________________________
General Partner General Partner
3
<PAGE>
Schedule to Exhibit 3.2.10
--------------------------
The following entities have the Form B Certificate of Limited Partnership
included as Exhibit 3.2.10 with any changes from the form noted:
1. Harborside of Florida Limited Partnership
2. Harborside Network Limited Partnership
<PAGE>
TITLE 42:2A-14 UNIFORM LIMITED PARTNERSHIP LAW
Mail to:
Secretary of State
CN-308
Trenton, NJ 08625
LIMITED PARTNERSHIP CERTIFICATE
(Must be filled in Dupicate)
(Please Type or Print in Ink Only)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
1. Name of the Partnership (Must Contain "Limited Partnership" or the abbreviation "L.P." in title)
BRIDGEWATER ASSISTED LIVING LIMITED PARTNERSHIP
- -----------------------------------------------------------------------------------------------------------------------------------
2. Registered Agent Registered Office
The Prentice-Hall Corporation 830 Bear Tavern Road
System, New Jersey, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
City State Zip Code
West Trenton New Jersey 08628
- -----------------------------------------------------------------------------------------------------------------------------------
3. The Character of Its Business Is: 4. The Term for Which the
To develop, construct, own and operate an assisted living facility Partnership is to Exist Is:
in Bridgewater, NJ 12/31/2029
- ---------------------------------------------------------------------------------------------------------------------------
5. The Name and Place of Residence of Each General Partner is:
-------
NAME
New Jersey Harborside Corp. ADDRESS (INCLUDE STREET NUMBER)
c/o The Berkshire Group
470 Atlantic Avenue
Boston, MA 02210
- ------------------------------------------------------------------------------------------------------------------------------------
6. Set Forth Aggregate Amount of Cash and a Description and Statement of the Agreed Value of Other Property of Services
Contributed by all Partners; or Agreed to be Contributed in the Future:
$1,000 - no other property contributed or will be contributed in the future
- ------------------------------------------------------------------------------------------------------------------------------------
7. Do the Limited Partners Have the Power to Grant the Right to Become a Limited Partner to an Assignee of Any Part or Their
Partnership? X Yes No. If Yes, List THE TERMS AND CONDITIONS OF THAT POWER. Prior written consent of the general partners
---- ----
- ------------------------------------------------------------------------------------------------------------------------------------
8. If Agreed Upon, List When or What Must Occur to Enable a Partner to Terminate his Membership in the Partnership. (Include the
Amount of, or the Way of Determining, the Distribution of Property to Terminate a Partner's Interest.) Limited partners can
withdraw only with consent of general partner on terms agreed to at time of withdrawal. General partners have no
right to withdraw.
- ------------------------------------------------------------------------------------------------------------------------------------
9. Does the limited partner have the right to receive distributions from a partner which includes a return of all or any part of
the partner's contributions? X Yes No. If yes, set forth these terms. Only if the general partners determine to
--- -----
make distributions
- ------------------------------------------------------------------------------------------------------------------------------------
10. Does the General Partner have the Right to Make Distributions to a Partner Which Includes a Return of All or Any Part
of the Partner's Contributions? yes x no
----- -----
If Yes, Set Forth the terms.
Only if general partner determines to make such distribution
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
11. When or Upon What Events Occurring is This Limited Partnership to be
Dissolved and its Affairs Wound Up? Upon dissolution date of 12/31/2029
unless sooner in accordance with provision of the Act.
- --------------------------------------------------------------------------------
12. What Are the Rights of the Remaining General Partners to Continue the
Business in the Event That a General Partner Withdraws?
They have the right to continue the business of the partnership on an
event of withdrawal of a general partner
13. List any Other Matters That the Partners Decide to Include:
14. The street address of the principal office of the limited partnership is:
c/o The Prentice-Hall Corporation System, New Jersey, Inc.
830 Bear Tavern Road, West Trenton, NJ 08628
- --------------------------------------------------------------------------------
Effective Date of Certificate, if Subsequent to Date of Filing Upon filing of
certificate (May not be later than 30 days from file date).
- --------------------------------------------------------------------------------
IN TESTIMONY WHEREOF, the undersigned partners execute this certificate.
By: New Jersey Harborside Corp., its general partner
/s/ Bruce Beardsley, 9/6/95
- ---------------------------------------------- -----------------------------
(SIGNATURE) (DATE) (SIGNATURE) (DATE)
Bruce Beardsley, Vice President
- ----------------------------------------------- ----------------------------
(SIGNATURE) (DATE) (SIGNATURE) (DATE)
- ----------------------------------------------- ----------------------------
(SIGNATURE) (DATE) (SIGNATURE) (DATE)
If additional space is needed, attach a separate sheet(s).
- --------------------------------------------------------------------------------
The purpose of this form is to simplify the filing requirements of the Secretary
of State and does not replace the need for competent legal advice.
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 3.2.12
FIRST AMENDMENT TO AND RESTATEMENT OF CERTIFICATE OF
LIMITED PARTNERSHIP OF KHC PARTNERS LIMITED PARTNERSHIP
(NOW KNOWN AS HARBORSIDE HEALTHCARE ADVISORS LIMITED PARTNERSHIP)
(Original Certificate of Limited Partnership filed June 4, 1987)
This First Amendment to and Restatement of Certificate of Limited
Partnership of KHC Partners Limited Partnership (the "Partnership") is being
executed to amend and restate in its entirety, as hereinafter set forth, the
Certificate of Limited Partnership of The Partnership originally filed on June
4, 1987 with the Secretary of State of the Commonwealth of Massachusetts.
The information contained in various sections of the original Certificate
of Limited Partnership referenced above is no longer accurate; however, this
First Amendment to and Restatement of Certificate of Limited Partnership is
intended to set forth completely only such information as is required to be
provided by Section 8 of the Massachusetts Uniform Limited Partnership Act (G.L.
ch. 109) (the "Act") as revised to date.
1. The name of the Partnership is Harborside Healthcare Advisors Limited
Partnership.
2. The general character of the business intended to be transacted by the
Partnership is to acquire, own, lease, invest in, improve, hold, encumber, sell,
manage, maintain, operate, and otherwise deal with nursing homes, retirement
homes, congregate care facilities, rehabilitation facilities, psychiatric
facilities, substance abuse facilities, medical office buildings or other health
care related commercial properties, and any equity interest of the partnership
therein, whether direct or indirect, through nominees, joint ventures or
otherwise (collectively "Facilities"), and real estate and personal property
related thereto; to acquire, own, manage, sell, and otherwise deal with one or
more entities which conducts activities within the scope of this paragraph; to
act as an advisor and/or guarantor to real estate investment trust ("REITs")
which primarily invest in guaranteed or insured mortgage backed securities,
Facilities and real estate and personal property related thereto, or direct
mortgages, by recommending investments and structuring the terms of such
investments, managing the day-to-day affairs and/or acquisition and/or
disposition of investments for the REIT, serving as the mortgagee of record for
some or all of the REIT's mortgages, and/or managing the assets of the REIT; to
be a general and/or limited partner in any other partnership which conducts
activities within the scope of this paragraph; and to conduct any other business
activity allowed under the Act.
3. The address of the office of the Partnership at which shall be kept the
records and partnership documents of the Partnership is to be:
c/o The Krupp Companies
470 Atlantic Avenue
Boston, MA 02210
The Agent for service of process for the Partnership shall be:
<PAGE>
David Moskowitz, Esq.
c/o The Krupp Companies
470 Atlantic Avenue
Boston, MA 02210
4. The name and business address of the General Partner is as follows:
General Partner Address
--------------- -------
KHI Corporation c/o The Krupp Companies
470 Atlantic Avenue
Boston, MA 02210
5. The latest date on which the Partnership will be dissolved and its
affairs wound up is June 4, 2067, unless sooner dissolved in accordance with the
provisions of the Act.
IN WITNESS WHEREOF, the General Partner of said partnership has executed
this First Amendment to and Restatement of Certificate of Limited Partnership
this 25th day of October, 1991, under penalties of perjury.
General Partner
---------------
KHI Corporation
By: /s/ Stephen L. Guillard
-----------------------------
Its: President
2
<PAGE>
CONSENT
-------
The undersigned KHI Corporation, a Massachusetts corporation, in its
capacity as general partner of Harborside Healthcare Limited Partnership, a
Massachusetts limited partnership, hereby consents to the adoption and filing of
the First Amendment to and Restatement of Certificate of Limited Partnership of
KHC Partners Limited Partnership with the Secretary of State of the Commonwealth
of Massachusetts this 25th day of October, 1991 for the purpose of changing the
name of KHC Partners Limited Partnership to Harborside Healthcare Advisors
Limited Partnership.
Wherefore, the undersigned has executed this consent as of October 25th,
1991.
HARBORSIDE HEALTHCARE LIMITED
PARTNERSHIP
By: KHI Corporation, its general partner
By: /s/ Stephen L. Guillard
----------------------------
Its: President
3
<PAGE>
EXHIBIT 3.2.13
FIRST AMENDMENT TO AND RESTATEMENT OF
CERTIFICATE OF LIMITED PARTNERSHIP
OF HARBORSIDE ACQUISITION LIMITED PARTNERSHIP IV
(NOW KNOWN AS HARBORSIDE DANBURY LIMITED PARTNERSHIP)
THIS FIRST AMENDMENT TO AND RESTATEMENT OF CERTIFICATE OF LIMITED
PARTNERSHIP of Harborside Acquisition Limited Partnership IV (the "Partnership")
is being executed in order to amend and restate in its entirety, as hereinafter
set forth, the Certificate of Limited Partnership of the Partnership originally
filed with the Secretary of State on August 26, 1997.
1. The name of the Partnership is Harborside Danbury Limited Partnership.
2. The character of the business intended to be transacted by the
partnership is to acquire, own, lease, invest in, improve, hold
encumber, sell, manage, maintain, operate and otherwise deal with
nursing homes, retirement homes, congregate care facilities,
rehabilitation facilities, psychiatric facilities, substance abuse
facilities, medical office buildings or other health care related
commercial properties, and any equity interest of the partnership
therein, whether direct or indirect, through nominees, joint ventures
or otherwise, and real estate and personal property related thereto;
to be a general and/or limited partner in any general or limited
partnership in which the partnership shall act as a general and/or
limited partnership which conducts activities within the scope of this
section; and to conduct any other business activity allowed under the
Act.
3. The address of the office of the partnership at which shall be kept
the records and partnership documents of the partnership is to be:
c/o Harborside Healthcare Corporation
470 Atlantic Avenue
Boston, MA 02210
The agent for service of process for the partnership shall be:
Scott D. Spelfogel, Esq.
c/o Harborside Healthcare Corporation
470 Atlantic Avenue
Boston, MA 02210
4. The name and business address the General Partner is as follows:
General Partner Address
--------------- -------
Harborside Health I Corporation c/o Harborside Healthcare
Corporation
470 Atlantic Avenue
Boston, MA 02210
5. The partnership will be dissolved and its affairs wound up on December
31, 2029, unless sooner dissolved in accordance with the provisions of
the Act.
<PAGE>
IN WITNESS WHEREOF, the sole general partner of said partnership has
executed this certificate this ____ day of October, 1998, under penalty of
perjury.
HARBORSIDE HEALTH I CORPORATION
By: /s/ K. Scott Griggs
____________________________________
K. Scott Griggs, Assistant Secretary
<PAGE>
EXHIBIT 3.2.14
RIVERSIDE RETIREMENT LIMITED PARTNERSHIP
THIRD AMENDMENT TO
CERTIFICATE OF FORMATION AND AGREEMENT
OF LIMITED PARTNERSHIP
Pursuant to Section 9 of Chapter 109 of the General Laws of Massachusetts, the
undersigned hereby make this Third Amendment to the Certificate of Formation and
Agreement of Limited Partnership of Riverside Retirement Limited Partnership,
said Certificate and Agreement having been originally filed in the Office of the
Secretary of the Commonwealth of Massachusetts on January 15, 1988. A First
Amendment was field in the Office of the Secretary of the Commonwealth of
Massachusetts on July 1, 1988. A Second Amendment was filed in the Office of
the Secretary of the Commonwealth of Massachusetts on December 12, 1988.
The purpose of this amendment is to reflect the transfer to Harborside
Healthcare Corporation of all of the Limited Partnership interests of Krupp
Enterprises Limited Partnership.
The last date on which this Partnership may dissolve is December 31, 2037.
EXECUTED as a sealed instrument the 14th day of June, 1996.
General Partner:
HARBORSIDE HEALTHCARE CORPORATION
470 Atlantic Avenue
Boston, MA 02210
By: /s/ STEPHEN GUILLARD
-------------------------------------
Stephen Guillard
President
Withdrawing Limited Partner:
KRUPP ENTERPRISES LIMITED PARTNERSHIP
By: KGP I Incorporated
General Partner
By: /s/ LAURENCE GERBER
-------------------------------------
Name: Laurence Gerber
Title: President
<PAGE>
Substituted Limited Partner:
HARBORSIDE HEALTHCARE CORPORATION
470 Atlantic Avenue
Boston, MA 02210
By: /s/ WILLIAM H. STEPHAN
-------------------------------------
Name: William H. Stephan
Title: Treasurer
2
<PAGE>
RIVERSIDE RETIREMENT LIMITED PARTNERSHIP
FIRST AMENDMENT TO
CERTIFICATE OF FORMATION AND AGREEMENT
OF LIMITED PARTNERSHIP
Pursuant to Section 9 of Chapter 109 of the General Laws of Massachusetts, the
undersigned hereby make this First Amendment to the Certificate of Formation and
Agreement of Limited Partnership of Riverside Retirement Limited Partnership,
said Certificate and Agreement having been originally filed in the Office of the
Secretary of the Commonwealth of Massachusetts on January 15, 1988.
The purpose of this amendment is to reflect the transfer to Krupp Apartments
1988 Limited Partnership (with a business address at 470 Atlantic Avenue,
Boston, MA 02210) of all of the limited partnership interests of Krupp
Apartments-I Limited Partnership.
EXECUTED as a sealed instrument the 23rd day of June, 1988.
General Partner:
HARBORSIDE HEALTH I CORPORATION
By: /s/ LAURENCE GERGER, PRESIDENT
-------------------------------------
Laurence Gerber, President
Withdrawing Limited Partner:
KRUPP APARTMENTS-I LIMITED PARTNERSHIP
By: KRUPP I INCORPORATED
GENERAL PARTNER
By: /s/ GEORGE KRUPP, PRESIDENT
-------------------------------------
George Krupp, President
Substituted Limited Partner:
KRUPP APARTMENTS 1988 LIMITED PARTNERSHIP
470 Atlantic Avenue
Boston, Massachusetts 02210
<PAGE>
By: THE KRUPP CORPORATION,
GENERAL PARTNER
By: /s/ GEORGE KRUPP, CO-PRESIDENT
-------------------------------------
George Krupp, Co-Chairman
2
<PAGE>
RIVERSIDE RETIREMENT LIMITED PARTNERSHIP
SECOND AMENDMENT TO
CERTIFICATE OF FORMATION AND AGREEMENT
OF LIMITED PARTNERSHIP
Pursuant to Section 9 of Chapter 109 of the General Laws of Massachusetts, the
undersigned hereby make this Second Amendment to the Certificate of Formation
and Agreement of Limited Partnership of Riverside Retirement Limited
Partnership, said Certificate and Agreement having been originally filed in the
Office of the Secretary of the Commonwealth of Massachusetts on January 15,
1988. A First Amendment was field in the Office of the Secretary of the
Commonwealth of Massachusetts on July 1, 1988.
The purpose of this amendment is to reflect the transfer to Krupp Enterprises
Limited Partnership of all of the limited partnership interests of Krupp
Apartments 1988 Limited Partnership.
EXECUTED as a sealed instrument the 12th day of December, 1988.
General Partner:
HARBORSIDE HEALTH I CORPORATION
By: /s/ GARY MARINI
-------------------------------------
Gary Marini
Treasurer
Withdrawing Limited Partner:
KRUPP APARTMENTS 1988 LIMITED PARTNERSHIP
By: The Krupp Corporation
General Partner
By: /s/ GEORGE KRUPP
-------------------------------------
George Krupp
President
<PAGE>
Substituted Limited Partner:
KRUPP ENTERPRISES LIMITED PARTNERSHIP
470 Atlantic Avenue
Boston, MA 02210
By: Krupp I Incorporated
General Partner
By: /s/ GEORGE KRUPP
-------------------------------------
George Krupp
President
2
<PAGE>
RIVERSIDE RETIREMENT LIMITED PARTNERSHIP
CERTIFICATE OF FORMATION AND AGREEMENT
OF LIMITED PARTNERSHIP
The Partners desire to organize a limited partnership in accordance with the
laws of The Commonwealth of Massachusetts. In furtherance thereof, the Partners
hereby execute and agree to file this Certificate in accordance with the
provisions of the Massachusetts Uniform Limited Partnership Act ("Act").
We, the undersigned, desiring to form a limited partnership pursuant to the laws
of The Commonwealth of Massachusetts, do hereby certify and swear to the
following:
1. The name of the partnership is RIVERSIDE RETIREMENT LIMITED
PARTNERSHIP.
2. The character of the business intended to be transacted by the
partnership is to acquire, invest in, maintain, operate, lease,
improve, hold, encumber, sell, manage and otherwise deal with long
term care facilities, including the real property, improvements,
personal property and intangible personal property associated with
such facilities; to be a general or limited partner in any business
enterprise which the partnership would have the power to conduct by
itself; and to engage in such related activities as are necessary,
convenient, or incidental to the above.
3. The address of the office of the partnership is to be:
470 Atlantic Avenue
Boston, MA 02210
or such other place or places as the general partner from time to time may
determine.
The agent for service of process for the partnerships shall be:
David Moskowitz, Esq.
c/o Harborside Health I Corporation
470 Atlantic Avenue
Boston, MA 02210
4. The name and business address of each partner, general and limited
partners being respectively designated, are as follows:
General Partner Address
--------------- -------
<PAGE>
Harborside Health I Corporation 470 Atlantic Avenue
Boston, MA 02210
Limited Partner
---------------
Krupp Apartments-I Limited 470 Atlantic Avenue
Partnership Boston, MA 02210
5. The amount of cash contributed by the general partner, no other
property having been contributed by or agreed to be contributed in the
future by the general partner, is as follows: $10.00.
The amount of cash contributed by the limited partner, no other
property having been contributed by or agreed to be contributed in the
future by the limited partner, is as follows: $95
6. No additional contributions to the capital of the partnership have
been agreed to be made by the partners.
7. A limited partner may substitute an assignee as contributor in his
place with the prior written consent of the general partner.
8. The limited partner has no right to withdraw from the partnership
during the partnership's existence, except with the consent of the
general partner and on the terms agreed to at the time of withdrawal,
and the general partner has no right to withdraw.
9. No partner has a right to receive any distributions of property,
including cash, from the partnership of except to the extent the
general partner determines to make distributions in accordance with
Section 13 hereof.
10. No partner has a right to receive distributions which include a return
of all or any part of its contribution except to the extent the
general partner determines to make such distributions in accordance
with Section 13 hereof.
11. The partnership will be dissolved and its affairs wound up on December
31, 2037, unless sooner dissolved in accordance with the provisions of
the Act.
12. The remaining general partner or general partners, if any, have the
right to continue the business of the partnership on the happening of
an event of withdrawal of a general partner.
13. Profits, losses, credits and items thereof of the partnership shall be
allocated, and cash shall be distributed in the following percentages:
Harborside Health I Corporation 1.0%
2
<PAGE>
Krupp Apartments-I Limited Partnership 99.0%
14. The general partner shall have and may exercise all rights and powers
granted by the Act as from time to time in effect.
15. The general partner may appoint one or more officers of the
partnership including, without limitation, a president, one or more
executive vice presidents, one or more other vice presidents, a
treasurer, one or more assistant treasurers, a controller, a
secretary, and one or more assistant secretaries. The general partner
may assign to any such officer from time to time such duties and
powers as the general partner may deem as appropriate subject,
however, to the general provisions of this agreement with respect to
the rights, powers and duties of the general partner.
16. The general partner shall be entitled to such fees and reimbursements
as may be determined by agreement of the partners.
17. The general partner shall have the right to propose the transfer of
some or all of its interest to a new or additional general partner and
such proposed new or additional general partner shall become a general
partner of the partnership upon the unanimous written consent of the
partners.
18. Special Power of Attorney Relating to Continuance of Partnership: If
-----------------------------------------------------------------
the business of the partnership is continued after dissolution, the
limited partner constitutes and appoints the remaining or the new
general partners, and each of them, if more than one, irrevocably,
recognizing their interest and that of the other partners herein, and
intending to create a durable power of attorney, as such partners'
true and lawful attorney to execute, swear to and file whatever
amended Certificates they deem appropriate in the circumstances, and
to take whatever action may be necessary to continue the partnership
business under applicable law.
19. No person dealing with the partnership, or its assets, whether as
mortgagee, assignee, purchaser, lessee, grantee or otherwise, shall be
required to investigate the authority of any general partner
purporting to act on behalf of the partnership, in selling, assigning,
leasing, mortgaging, or conveying any partnership assets, nor shall
any such assignee, lessee, purchaser, mortgagee, or grantee be
required to inquire as to whether the approval of the partners for any
such sale, assignment, lease, mortgage or transfer has been first
obtained. Such person shall be conclusively protected in relying upon
certificate of authority of, or in accepting any instrument signed by
a general partner in the name and behalf of, the partnership or the
general partner.
20. This Certificate and Agreement may be amended by and only by the
general partner together with the consent of the limited partner.
3
<PAGE>
IN WITNESS WHEREOF, the members of said partnership have executed this
certificate and agreement this 15th day of January, 1988, under penalty of
perjury.
General Partner Limited Partner
- --------------- ---------------
HARBORSIDE HEALTH I CORPORATION KRUPP APARTMENTS-I LIMITED PARTNERSHIP
By: /s/ LAURENCE GERBGER By: /s/ DOUGLAS KRUPP
------------------------- ---------------------------------
Laurence Gerber Douglas Krupp
President General Partner
4
<PAGE>
EXHIBIT 3.2.15
HARBORSIDE HEALTHCARE LIMITED PARTNERSHIP
CERTIFICATE OF LIMITED PARTNERSHIP
1. The name of the limited partnership is "Harborside Healthcare Limited
Partnership" (the "Partnership").
2. The general character of the business of the Partnership is as
described in Section 2.3 of the Agreement of Limited Partnership dated as of May
28, 1987 (the "Agreement") which is attached hereto and made a part hereof.
3. The address of the principal office of the Partnership is: 470
Atlantic Avenue, Boston, Massachusetts 02210. The name and address of the
agent for service of process is: KHI Corporation, 470 Atlantic Avenue, Boston,
Massachusetts 02210.
4. The name and business address of each partner of the Partnership,
general and limited partners being separately specified, are as set forth in
Schedules I and II to the Agreement.
5. The amount of cash contributed or agreed to be contributed to the
Partnership by each partner is as described in Schedules I and II to the
Agreement. No partner has contributed or agreed to contribute services or
property other than cash to the Partnership.
6. No partner has agreed to make additional capital contributions to the
Partnership.
7. The power of each limited partner to grant the right to become a
limited partner to an assignee of any part of his partnership interest, and the
terms and conditions of the power, are as described in Article VII of the
Agreement.
<PAGE>
8. The agreed time at which or the events on the happening of which a
partner may terminate his membership in the Partnership, the method of
determining the distribution to which he may be entitled respecting his
partnership interest, and the terms and conditions of the termination and
distribution are as set forth in Articles VI, VII and IX of the Agreement and in
Schedule III and the Other Partnership Schedules to the Agreement.
9. The rights of each partner to receive distributions of cash from the
Partnership are as set forth in Article IX of the Agreement and in Schedule III
and the Other Partnership Schedules to the Agreement. No partner has the right
to receive distributions of property other than cash from the Partnership.
10. The right of each partner to receive, or of a general partner to make,
distributions to a partner which include a return of all or any part of the
partner's contribution are as set forth in Article IX of the Agreement and in
Schedule III and the Other Partnership Schedules to the Agreement.
11. The time at which or events upon the happening of which the
Partnership is to be dissolved and its affairs wound up are as set forth in
Section 2.5 of the Agreement.
12. The rights of the remaining general partner of partners to continue
the business on the happening of an event of withdrawal of a general partner are
as set forth in Article VI of the Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Certificate of Limited Partnership as of the 28th day of May, 1987.
GENERAL PARTNER LIMITED PARTNER
- ---------------- ---------------
KHI CORPORATION KHC PARTNERS LIMITED
PARTNERSHIP
By: KHI Corporation, as
General Partner
By: /s/ Douglas Krupp By: /s/ Douglas Krupp
-------------------- --------------------
Douglas Krupp, President Douglas Krupp, President
3
<PAGE>
EXHIBIT 3.2.16
BY-LAWS
OF
[ ]
ARTICLE I.
---------
Certificate of Incorporation
----------------------------
These by-laws, the powers of the corporation and of its directors and
stockholders, and all matters concerning the conduct and regulation of the
business of the corporation shall be subject to such provisions in regard
thereto as are set forth in the certificate of incorporation filed pursuant to
the General Corporation Law of Delaware which is hereby made a part of these by-
laws.
The term "certificate of incorporation" in these by-laws, unless the
context requires otherwise, includes not only the original certificate of
incorporation filed to create the corporation but also all other certificates,
agreements of merger or consolidation, plans of reorganization, or other
instruments, howsoever designated, filed pursuant to the General Corporation Law
of Delaware which have the effect of amending or supplementing in some respect
the corporation's original certificate of incorporation.
ARTICLE II.
----------
Annual Meeting
--------------
An annual meeting of stockholders shall be held for the election of
directors and for the transaction of any other business for the transaction of
which the meeting shall have been properly convened in each year at such place,
within or without the State of Delaware, and at such time as shall be fixed by
the board of directors and specified in the notice of the meeting, if such date
is not a legal holiday and if a legal holiday, then at the same hour on the next
succeeding day not a legal holiday. Any other proper business may be transacted
at the annual meeting. If the annual meeting for election of directors shall
not be held on the date designated therefor, the directors shall cause the
meeting to be held as soon thereafter as convenient.
ARTICLE III.
------------
Special Meetings of Stockholders
--------------------------------
Special meetings of the stockholders may be held either within or without
the State of Delaware, at such time and place and for such purposes as shall be
specified in a call for such
<PAGE>
meeting made by the board of directors or by a writing filed with the secretary
signed by the president or by a majority of the directors.
ARTICLE IV.
----------
Notice of Stockholders' Meetings
--------------------------------
Whenever stockholders are required or permitted to take any action at a
meeting, a written notice of the meeting shall be given which shall state 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, which notice shall be given
not less than ten nor more than fifty days before the date of the meeting,
except where longer notice is required by law, to each stockholder entitled to
vote at such meeting, by leaving such notice with him or by mailing it, postage
prepaid, directed to him at his address as it appears upon the records of the
corporation. In case of the death, absence, incapacity or refusal of the
secretary, such notice may be given by a person designated either by the
secretary or by the person or persons calling the meeting or by the board of
directors. 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. At the adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting. If 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.
An affidavit of the secretary or an assistant secretary or of the transfer
agent of the corporation that the notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
ARTICLE V.
---------
Quorum of Stockholders; Stockholder List
----------------------------------------
At any meeting of the stockholders, a majority of all shares issued and
outstanding and entitled to vote upon a question to be considered at the meeting
shall constitute a quorum for the consideration of such question when
represented at such meeting by the holders thereof in person or by their duly
constituted and authorized attorney or attorneys, but a lesser interest may
adjourn any meeting from time to time, and the meeting may be held as adjourned
without further notice. When a quorum is present at any meeting a majority of
the stock so represented thereat and entitled to vote shall, except where a
larger vote is required by law, by the certificate of incorporation or by these
by-laws, decide any question brought before such meeting.
The secretary or other officer having charge of the stock ledger shall
prepare and make, at least ten days before every 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
2
<PAGE>
the examination of any stockholder, 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 or town where the meeting is to be
held, which place shall have been specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. Said 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 stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list of stockholders required by this Article or
the books of the corporation, or the stockholders entitled to vote in person or
by proxy at any meeting of stockholders.
ARTICLE VI.
----------
Proxies And Voting
------------------
Except as otherwise provided in the certificate of incorporation, each
stockholder shall at every meeting of the stockholders be entitled to one vote
for each share of the capital stock held by such stockholder. Each stockholder
entitled to vote at a meeting of stockholders or to express consent or dissent
to corporate action in writing without a meeting may authorize another person or
persons to act for him by proxy but (except as otherwise expressly permitted by
law) no proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period or so long as it is coupled with
an interest sufficient in law to support an irrevocable power.
Unless otherwise provided in the certificate of incorporation, any action
required by law to be taken or which may be taken at any annual or special
meeting of stockholders may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of such action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE VII.
-----------
Stockholders' Record Date
-------------------------
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the board of directors may fix, in advance, a record date, which shall not be
more than sixty nor less than ten days before the date of such meeting, nor more
than sixty days prior to any other action.
3
<PAGE>
If no record date is fixed:
(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.
(2) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is necessary, shall be at the close of business on the
day on which the first written consent is expressed.
(3) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board of directors
adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting,
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
ARTICLE VIII.
------------
Board of Directors
------------------
Except as otherwise provided by law or by the certificate of incorporation,
the business and affairs of the corporation shall be managed by the board of
directors.
The number of directors shall be such number, not fewer than one nor more
than four, as may be fixed for any corporate year and elected by the
stockholders at the annual meeting. During any year the board of directors may
be enlarged and additional directors elected to complete the enlarged number, to
not more than the maximum number above specified, by the stockholders at any
meeting or by a vote of a majority of the directors then in office. The
stockholders may, at any meeting held for the purpose during such year,
decrease, to not fewer than the minimum number above specified, the number of
directors as thus fixed or enlarged and remove directors to the decreased
number. Each director shall hold office until his successor is elected and
qualified or until his earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. No director need be a
stockholder.
ARTICLE IX.
----------
Committees
----------
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, each committee to consist of one or
more of the directors of
4
<PAGE>
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 the committee and may define the number and qualifications which
shall constitute a quorum of such committee. Except as otherwise limited by law,
any such committee, to the extent provided in the resolution appointing such
committee, shall have and may exercise the powers of the board of directors in
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers which may require it. In
the absence or disqualification of a member of any committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such absent or
disqualified member.
ARTICLE X.
---------
Meetings of the Board of Directors and of Committees
----------------------------------------------------
Regular meetings of the board of directors may be held without call or
formal notice at such places either within or without the State of Delaware and
at such times as the board may by vote from time to time determine.
Special meetings of the board of directors may be held at any place either
within or without the State of Delaware at any time when called by the
president, treasurer, secretary or two or more directors, reasonable notice of
the time and place thereof being given to each director. A waiver of such
notice in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent to
such notice. In any case it shall be deemed sufficient notice to a director to
send notice by mail at least forty-eight hours, or to deliver personally or to
send notice by telegram at least twenty-four hours, before the meeting,
addressed to him at his usual or last known business or residence address.
Unless otherwise restricted by the certificate of incorporation or by other
provisions of these by-laws, (a) any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting if all members of the board or of such committee, as the case
may be, consent thereto in writing and such writing or writings are filed with
the minutes of proceedings of the board or committee, and (b) members of the
board of directors or of any committee designated by the board may participate
in a meeting thereof by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation shall constitute presence in person at such
meeting.
5
<PAGE>
ARTICLE XI.
----------
Quorum of The Board of Directors
--------------------------------
Except as otherwise expressly provided in the certificate of incorporation
or in these by-laws, a majority of the total number of directors in office at
the time shall constitute a quorum for the transaction of business, but a lesser
number may adjourn any meeting from time to time. Except as otherwise so
expressly provided, the vote of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the board of directors,
provided, that the affirmative vote in good faith of a majority of the
disinterested directors, even though the disinterested directors shall be fewer
than a quorum, shall be sufficient to authorize a contract or transaction in
which one or more directors have interest if the material facts as to such
interest and the relation of the interested directors to the contract or
transaction have been disclosed or are known to the directors.
ARTICLE XII.
-----------
Waiver of Notice of Meetings
----------------------------
Whenever notice is required to be given under any provision of law or the
certificate of incorporation or by-laws, a written waiver thereof, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of 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 because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice unless
so required by the certificate of incorporation or the by-laws.
ARTICLE XIII.
------------
Officers and Agents
-------------------
The corporation shall have a president, secretary and treasurer, who shall
be chosen by the directors, each of whom shall hold his office until his
successor has been chosen and qualified or until his earlier resignation or
removal. The corporation may have such other officers and agents as are
desired, each of whom shall be chosen by the board of directors and shall hold
his office for such term and have such authority and duties as shall be
determined by the board of directors. The board of directors may secure the
fidelity of any or all of such officers or agents by bond or otherwise. Any
number of offices may be held by the same person. Each officer shall, subject
to these by-laws, have in addition to the duties and powers herein set forth,
such duties and powers as the board of directors shall from time to time
designate. In all cases where the duties of any officer, agent or employee are
not specifically prescribed by the by-laws, or by the board of directors, such
officer, agent or employee shall obey the orders and
6
<PAGE>
instructions of the president. Any officer may resign at any time upon written
notice to the corporation.
ARTICLE XIV.
------------
President
---------
The president shall, subject to the direction and under the supervision of
the board of directors, be the chief executive officer of the corporation and
shall have general and active control of its affairs and business and general
supervision over its officers, agents and employees. Except as otherwise voted
by the board he shall preside at all meetings of the stockholders and of the
board of directors at which he is present. The president shall have custody of
the treasurer's bond, if any.
ARTICLE XV.
----------
Secretary
---------
The secretary shall record all the proceedings of the meetings of the
stockholders and directors in a book, which shall be the property of the
corporation, to be kept for that purpose, and perform such other duties as shall
be assigned to him by the board of directors. In the absence of the secretary
from any such meeting, a temporary secretary shall be chosen, who shall record
the proceedings of such meeting in the aforesaid book.
ARTICLE XVI.
-----------
Treasurer
---------
The treasurer shall, subject to the direction and under the supervision of
the board of directors, have the care and custody of the funds and valuable
papers of the corporation, except his own bond, and he shall, except as the
board of directors shall generally or in particular cases authorize the
endorsement thereof in some other manner, have power to endorse for deposit or
collection all notes, checks, drafts and other obligations for the payment of
money to the corporation or its order. He shall keep, or cause to be kept,
accurate books of account, which shall be the property of the corporation.
ARTICLE XVII.
------------
Indemnification of Officers and Others
--------------------------------------
Section 1. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of
7
<PAGE>
the corporation) by reason of the fact that he or she is or was an officer of
the corporation, or is or was serving at the request of the corporation as
director or officer of another corporation, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interest of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
----
contendere or its equivalent, shall not, of itself, create a presumption that
- ----------
the person did not act in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interest of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
Section 2. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he or she is or was an officer
of the corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, against expenses (including
attorneys' fees) actually and, reasonably incurred by him or her in connection
with the defense or settlement of such action or suit if he or she acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation, except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
Section 3. To the extent that an officer of the corporation or person
serving at the request of the corporation as a director or officer of another
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 1 or 2 of this Article XVII
or in defense of any claim, issue or matter therein, he or she shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection therewith.
Section 4. Any indemnification under Sections 1 or 2 of this Article XVII
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the officer or
person serving at the request of the corporation as a director or officer of
another corporation is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Section of this Article XVII
under which indemnification is sought. Such determination shall be made (1) by
the board of directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (2) if such a quorum
is not obtainable, or, even if obtainable, a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
8
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Section 5. Expenses incurred in defending a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the officer or person serving at the request of the corporation as a
director or officer of another corporation to repay such amount if it shall
ultimately be determined that he or she is not entitled to be indemnified by the
corporation as authorized in this Article XVII.
Section 6. The indemnification and advancement of expenses provided by, or
granted pursuant to, the other Sections of this Article XVII shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, 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.
Section 7. The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was an officer of the corporation or
is or was serving at the request of the corporation as a director or officer of
another corporation against any liability asserted against him or her and
incurred by him or her in, any such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to indemnify
him or her against such liability under the provisions of this Article XVII.
Section 8. For purposes of this Article XVII, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors and officers so that any
person who is or was a director or officer of such constituent corporation, or
is or was serving at the request of such constituent corporation as a director
or officer of another corporation, shall stand in the same position under the
provisions of this Article XVII with respect to the resulting or surviving
corporation as he or she would have with respect to such constituent corporation
if its separate existence had continued.
Section 9. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article XVII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be an officer,
employee or person serving at the request of the corporation as a director or
officer of another corporation and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE XVIII.
-------------
Removals
--------
The stockholders may, at any meeting called for the purpose, by vote of a
majority of the capital stock issued and outstanding and entitled to vote
thereon, remove any director from office.
9
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The board of directors may, at any meeting called for, the purpose, by vote
of a majority of their entire number remove from office any officer or agent of
the corporation or any member of any committee appointed by the board of
directors or by any committee appointed by the board of directors or by any
officer or agent of the corporation.
ARTICLE XIX.
-----------
Vacancies
---------
Any vacancy occurring in any office of the corporation by death,
resignation, removal or otherwise and newly created directorships resulting from
any increase in the authorized number of directors, may be filled by a majority
of the directors then in office (though less than a quorum) or by a sole
remaining director and each of the incumbents so chosen shall hold office for
the unexpired term in respect of which the vacancy occurred and until his
successor shall have been duly elected and qualified or for such shorter period
as shall be specified in the filling of such vacancy or, if such vacancy shall
have occurred in the office of director, until such a successor shall have been
chosen by the stockholders.
ARTICLE XX.
-----------
Certificates of Stock
---------------------
Every holder of stock in the corporation shall be entitled to have a
certificate signed by, or in the name of the corporation by the chairman or
vice-chairman of the board of directors (if one shall be incumbent) or the
president or a vice-president and by the treasurer or an assistant treasurer, or
the secretary or an assistant secretary, certifying the number of shares owned
by him in the corporation. If such certificate is countersigned (1) by a
transfer agent other than the corporation or its employee, or (2) by a registrar
other than the corporation or its employee, any other signatures on the
certificate may be facsimile. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the date of
issue.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificates which the corporation shall issue to represent such
class or series of stock or there shall be set forth on the face or back of the
certificates which the corporation shall issue to represent such class or series
of stock, a statement that the corporation will furnish, without charge to each
stockholder who so requests, the designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Any restriction
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imposed upon the transfer of shares or registration of transfer of shares shall
be noted conspicuously on the certificate representing the shares subject to
such restriction.
ARTICLE XXI.
-----------
Loss of Certificate
-------------------
The corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the directors may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate in its place and upon such other terms or
without any such bond which the board of directors shall prescribe.
ARTICLE XXII.
------------
Seal
----
The corporate seal shall, subject to alteration by the board of directors,
consist of a flat-faced circular die with the word "Delaware" together with the
name of the corporation and the year of its organization cut or engraved
thereon. The corporate seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
ARTICLE XXIII.
-------------
Execution of Papers
-------------------
Except as otherwise provided in these by-laws or as the board of directors
may generally or in particular cases authorize the execution thereof in some
other manner, all deeds, leases, transfers, contracts, bonds, notes, checks,
drafts and other obligations made, accepted or endorsed by the corporation,
shall be signed by the president or by the treasurer.
ARTICLE XXIV.
------------
Fiscal Year
-----------
Except as from time to time otherwise provided by the board of directors,
the fiscal year of the corporation shall end on the last day of December of each
year.
11
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ARTICLE XXV.
-----------
Amendments
----------
Except as otherwise provided by law or by the certificate of incorporation,
these by-laws, as from time to time altered or amended, may be made, altered or
amended at any annual or special meeting of the stockholders called for the
purpose, of which the notice shall specify the subject matter of the proposed
alteration or amendment or new by-law or the article or articles to be affected
thereby. If the certificate of incorporation so provides, these by-laws may
also be made, altered or amended by a majority of the whole number of directors.
Such action may be taken at any meeting of the board of directors, of which
notice shall have been given as for a meeting of stockholders.
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<PAGE>
SCHEDULE TO EXHIBIT 3.2.13
--------------------------
The following entities have the Form A of Bylaws included as Exhibit 3.2.13,
with any changes from the form noted:
1. Harborside Health I Corporation
2. KHI Corporation
<PAGE>
EXHIBIT 3.2.17
[ ]
BY-LAWS
SECTION 1. ARTICLES OF ORGANIZATION
The name and purposes of the corporation shall be as set forth in the
Articles of Organization. These by-laws, the powers of the corporation and of
its directors and stockholders, or of any class of stockholders, if there shall
be more than one class of stock, and all matters concerning the conduct and
regulation of the business and affairs of the corporation shall be subject to
such provisions in regard thereto, if any, as are set forth in the Articles of
Organization as from time to time in effect.
SECTION 2. CORPORATION SEAL
The seal of the corporation shall, subject to alternation by the directors,
consist of a flat-faced circular die with the word "Massachusetts", together
with the name of the corporation and the year of its incorporation, cut or
engraved thereon.
SECTION 3. FISCAL YEAR
Except as from time to time otherwise provided by the Board of Directors,
the fiscal year of the corporation shall end on December 31 in each year.
SECTION 4. STOCKHOLDERS
4.1 Annual Meeting. The annual meeting of the stockholders shall be held
--------------
at the offices of the corporation on the second Tuesday in April of each year,
unless a different date or location is fixed by either the president or the
directors. If that day be a legal holiday at the place where the meeting is to
be held, the meeting shall be held on the next succeeding day not a legal
holiday at such place. Purposes for which an annual meeting is to be held,
additional to those prescribed by law, by the Articles of Organization or by
these by-laws, may be specified by either the president or by the directors.
4.2 Special Meeting in Place of Annual Meeting. If no annual meeting has
------------------------------------------
been held in accordance with the foregoing provisions, a special meeting of the
stockholders may be held in place thereof, and any action taken at such special
meeting shall have the same force and effect as if taken at the annual meeting,
and in such case all references in these by-laws to the annual meeting of the
stockholders shall be deemed to refer to such special meeting. Any such special
meeting shall be called as provided in Section 4.3.
4.3 Special Meetings. A special meeting of the stockholders may be called
----------------
at any time by either the president or by the directors. Each call of a meeting
shall state the place, date, hour and purposes of the meeting.
4.4 Place of Meetings. All meetings of the stockholders shall be held at
-----------------
the principal office of the corporation in Massachusetts or to the extent
permitted by the Articles of
<PAGE>
Organization at such other place within the United States as is designated in
the notice. An adjourned session of any meeting of the stockholders shall be
held at the same city or town as the initial session, or the place designated in
the vote of adjournment.
4.5 Notice of Meetings. A written notice of each meeting of stockholders,
------------------
stating the place, date and hour and the purposes of the meeting, shall be given
at least seven (7) days before the meeting to each stockholder entitled to vote
thereat and to each stockholder who, by law, by the Articles of Organization or
by these by-laws, is entitled to notice, by leaving such notice with him or at
his residence or usual place of business, or by mailing, postage prepaid,
addressed to such stockholder at his address as it appears in the records of the
corporation. Such notice shall be given by the clerk or an assistant clerk or
by an officer designated by the directors. No notice of any meeting of
stockholders need to be given to a stockholder if a written waiver of notice,
executed before or after the meeting by such stockholder or his attorney
thereunto duly authorized, is filed with the records of the meeting.
4.6 Quorum of Stockholders. At any meeting of the stockholders, a quorum
----------------------
shall consist of a majority in interest of all stock issued and outstanding and
entitled to vote at the meeting; except that if two (2) or more classes or
series of stock are entitled to vote as separate classes or series, then in the
case of each such class or series a quorum shall consist of a majority in
interest of the stock of such class or series issued and outstanding and
entitled to vote at the meeting; and except when a larger quorum is required by
law, by the Articles of Organization or by these by-laws. Stock owned directly
or indirectly by the corporation, if any, shall not be deemed outstanding for
this purpose. Any meeting may be adjourned from time to time by a majority of
the votes properly cast upon the question of adjournment whether or not a quorum
is present, and the meeting may be held as adjourned without further notice.
4.7 Action by Vote. When a quorum is present at any meeting, a plurality
--------------
of the votes properly cast for election to any office shall elect to such
office, and a majority of the votes properly cast upon any question other than
an election to an office shall decide the question, except when a larger vote is
required by law, by the Articles of Organization or by these by-laws. No ballot
shall be required for any election unless requested by a stockholder present or
represented at the meeting and entitled to vote in the election.
4.8 Action by Writing. Any action required or permitted to be taken at
-----------------
any meeting may be taken without a meeting if all stockholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of the meetings of stockholders. Such consents shall be
treated for all purposes as a vote at a meeting.
4.10 Proxies. Stockholders entitled to vote may vote either in person or
-------
by proxy in writing dated not more than six (6) months before the meeting named
therein, which proxies shall be filed with the clerk or other person responsible
to record the proceedings of the meeting before being voted. Unless otherwise
specifically limited by their terms, such proxies shall entitle the holders
thereof to vote at any adjournment of such meeting. A proxy, with respect to
stock held in the name of two (2) or more persons, shall be valid if executed by
one of them unless at or prior to the exercise of the proxy the corporation
receives a specific written notice to
2
<PAGE>
the contrary from any one of them. A proxy purporting to be executed by or on
behalf of a stockholder shall be deemed valid unless challenged at or prior to
its exercise.
SECTION 5. BOARD OF DIRECTORS
5.1 Number. A board of not more than seven nor less than the minimum
------
number of directors required by law shall be elected at the annual meeting of
the stockholders, by such stockholders as have the right to vote at such
election. The number of directors may be increased to the maximum number set
forth in this Section at any time or from time to time either by the
stockholders or by the directors by a vote of a majority of the directors then
in office. The number of directors may be decreased to any number not less than
the minimum required by law at any time or from time to time either by the
stockholders or by the directors by a vote of a majority of the directors then
in office, but only to eliminate vacancies existing by reason of the death,
resignation or removal of one or more directors. No director need be a
stockholder.
5.2 Tenure. Except as otherwise provided by law, by the Articles of
------
Organization or by these by-laws, the directors shall hold office until the next
annual meeting to the stockholders and until their successors are elected and
qualified, or until a director sooner dies, resigns, is removed or becomes
disqualified.
5.3 Chairman of the Board. The directors may elect from their number a
---------------------
Chairman of the Board who, if elected, shall preside at all meetings of the
directors and shall perform such other duties and powers as may be designated
from time to time by the directors.
5.4 Powers. Except as reserved to the stockholders by law, by the
------
Articles of Organization or by these by-laws, the business of the corporation
shall be managed by the directors who shall have and may exercise all the powers
of the corporation.
5.5 Committees. The directors may, by vote of a majority of the directors
----------
then in office, elect from their numbers an executive committee and may by vote
delegate to any such committee or committees some or all of the powers of the
directors except those which by law, by the Articles of Organization or by-these
by-laws they are prohibited from delegating. Except as the directors may
otherwise determine, any such committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or such rules its
business shall be conducted as nearly as may be in the same manner as is
provided by these by-laws for the conduct of business by the directors.
5.6 Regular Meetings. Regular meeting of the directors may be held with
----------------
call or notice at such places and at such times as the directors may from time
to time determine, provided that notice of the first regular meeting following
any such determination shall be given to absent directors. A regular meeting of
the directors may be held with call or notice immediately after and at the same
place as the annual meeting of the stockholders.
5.7 Special Meetings. Special meetings of the directors may be held at
----------------
any time and at any place designated in the call of the meeting, when called by
either the president or the
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<PAGE>
treasurer or by two (2) or more directors, reasonable notice thereof being given
to each director by the clerk or an assistant clerk, or by the officer or one of
the directors calling the meeting.
5.8 Notice. It shall be sufficient notice to a director to send notice by
------
mail or at least forty-eight (48) hours or by telegram at least twenty-four (24)
hours before the meeting addressed to him at his usual or last known business or
residence address or to give notice to him in person or by telephone at least
twenty-four (24) hours before the meeting. Notice of a meeting need not be
given to any director if a written waiver of notice, executed by him before or
after the meting, is filed with the records of the meeting, or to any director
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him. Neither notice of a meeting nor a waiver of a notice
need specify the purposes of the meeting.
5.9 Quorum. At any meeting of the directors a majority of the directors
------
then in office shall constitute a quorum. Any meeting may be adjourned from
time to time by a majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice.
5.10 Action by Vote. When a quorum is present at any meeting, a majority
--------------
of the directors present may take any action except when a larger vote is
required by law, by the Articles of Organization or by these by-laws.
5.11 Attendance By Telephone. Unless otherwise restricted by the Articles
-----------------------
of Organization, members of the Board of Directors, or any committee designated
by the directors, may participate in a meeting of such board or committee by
means of conference telephone or similar communications equipment by means of
which all persons participating in a meeting can hear each other, and
participation in a meeting pursuant to this provision shall constitute presence
at such meeting.
5.12 Action By Writing. Any action required or permitted to be taken may
-----------------
be taken without a meeting if all the directors consent to the action in writing
and the written consents are filed with the records of the meetings of
directors. Such consents shall be treated for all purposes as a vote at a
meeting.
SECTION 6. OFFICERS AND AGENTS
6.1 Enumeration: Qualification. The officers of the corporation shall be
---------------------------
a president, a treasurer, a clerk, an assistant clerk, and such other officers,
if any, as the incorporators at their initial meeting, or as the directors from
time to time, may in their discretion elect or appoint. The corporation may
also have such agents, if any, as the incorporators at their initial meeting, or
the directors from time to time, may in their discretion appoint. Any officer
may be but none need be a director or stockholder. Any two or more offices may
be held by the same person. Any officer may be required by the directors to
give bond for the faithful performance of his duties to the corporation in such
amount and with such sureties as the directors may determine.
6.2 Powers. Subject to law, to the Articles of Organization and to the
------
other provisions of these by-laws, each officer shall have, in addition to the
duties and powers herein
4
<PAGE>
set forth, such duties and powers are commonly incident to his office and such
duties and powers as the directors may from time to time designate.
6.3 Election. The president, the treasurer, the clerk and the assistant
--------
clerk shall be elected annually by the directors at their first meeting
following the annual meeting of the stockholders. Other officers, if any, may
be elected or appointed by the board of directors at said meeting or at any
other time.
6.4 Tenure. Except as otherwise provided by law or by the Articles of
------
Organization or by these by-laws, the president, the treasurer, the clerk and
the assistant clerk shall hold office until the first meeting of the directors
following the next annual meeting of the stockholders and until their respective
successors are chosen and qualified, and each other officer shall hold office
until the first meeting of the directors following the next annual meeting of
the stockholders unless a shorter period shall have been specified by the terms
of his election or appointment, or in each case until he sooner dies, resigns,
is removed or becomes disqualified. Each agent shall retain his authority at
the pleasure of the directors.
6.5 President and Vice Presidents. The president shall be the chief
-----------------------------
executive officer of the corporation and, subject to the control of the
directors, shall have general charge and supervision of all affairs and business
of the corporation. The president may, together with the clerk, sign mortgages
or other instruments which the Board of Directors has authorized to be executed.
The president shall preside at all meetings of the stockholders and of the
directors at which he is present, except as otherwise voted by the directors.
Any vice president shall have such duties and powers as shall be designated
from time to time by the directors.
6.6 Treasurer and Assistant Treasurers. The treasurer shall be the chief
----------------------------------
financial and accounting officer of the corporation and shall be in charge of
its funds and valuable papers, books of account and accounting records, and
shall have such other duties and powers as may be designated from time to time
by the directors or by the president.
Any assistant treasurers shall have such duties and powers as shall be
designated from time to time by the directors.
6.7 Clerk and Assistant Clerk. The clerk shall record all proceedings of
-------------------------
the stockholders in a book or series of books to be kept therefor, which book or
books shall be kept at the principal office of the corporation or at the office
of its transfer agent or of its clerk and shall be open at all reasonable times
to the inspection of any stockholder. In the absence of the clerk from any
meeting of stockholders, an assistant clerk or, if there are none or he is
absent, a temporary clerk chosen at the meeting, shall record the proceedings
thereof in the aforesaid book. Unless a transfer agent has been appointed, the
clerk shall keep or cause to be kept the stock and transfer records of the
corporation, which shall contain the names and record addresses of all
stockholders and the amount of stock held in each. The clerk shall also keep a
true record of the proceedings of all meetings of the directors and in his
absence from any such meeting an
5
<PAGE>
assistant clerk or, if there be none or he is absent, a temporary clerk chosen
at the meeting, shall record the proceedings thereof.
The office of the clerk shall be deemed to be the office of the secretary
of the corporation whenever the signature of the secretary of the corporation is
required on any document or instrument, by the laws of the United States or any
other state and the clerk shall have authority to affix his signature in such
capacity.
Any assistant clerk shall have all the duties and powers as the clerk and
such other duties and powers as shall be designated from time to time by the
directors. Any reference herein to the "clerk" shall also mean "assistant
clerk."
SECTION 7. RESIGNATIONS AND REMOVALS
Any director or officer may resign at any time by delivering his
resignation in writing to the president, the treasurer or the clerk or to a
meeting of the directors. Such resignation shall be effective upon receipt
unless specified to be effective at some other time. A director (including
persons elected by the directors to fill vacancies in the board) or officer
elected by the stockholders may be removed from office (a) with or without cause
by the vote of the holders of a majority of the shares issued and outstanding
and entitled to vote in the election of the directors, or such officers provided
that the directors of a class elected by a particular class of stockholders may
be removed only by the vote of the holders of a majority of the shares of such
class, or (b) for cause by vote of a majority of the directors then in office.
The directors may remove any officer elected by them with or without cause by
the vote of a majority of the directors then in office. A director or officer
may be removed for cause only after reasonable notice and opportunity to be
heard before the body proposing to remove him. No director or officer
resigning, and (except where right to receive compensation shall be expressly
provided in a duly authorized written agreement with the corporation) no
director or officer removed shall have any right to any compensation as such
director or officer for any period following his resignation or removal, whether
his compensation be by the month or by the year or otherwise; unless in the case
of a resignation, the directors, or in the case of removal, the body acting on
the removal, shall in their or its discretion provide for compensation.
SECTION 8. VACANCIES
Any vacancies in the Board of Directors, including a vacancy resulting from
the enlargement of the board, may be filled by the stockholders or, in the
absence of stockholder action, by the directors by vote of a majority of the
directors then in office. If the office of either the president, the treasurer
or the clerk becomes vacant, the directors may elect a successor by vote of
majority of the directors then in office. If the office of any other officer
becomes vacant, the directors may elect or appoint a successor by vote of a
majority of the directors present. Each such successor shall hold office for
the unexpired term, and in the case of the president, the treasurer and the
clerk, until his successor is chosen and qualified, or in each case until he
sooner dies, resigns, is removed or becomes disqualified. The directors shall
have and may exercise all their powers notwithstanding the existence of one or
more vacancies in their number.
6
<PAGE>
SECTION 9. CAPITAL STOCK
9.1 Number and Par Value. The total number of shares and the par value,
--------------------
if any, of each class of stock which the corporation is authorized to issue
shall be stated in the Articles of Organization.
9.2 Issuance. Any unissued capital stock from time to time authorized
--------
under the Articles of Organization may be issued by vote of the directors.
9.3 Stock Certificates. Each stockholder shall be entitled to a
------------------
certificate stating the number and the class and the designation of the series,
if any, of the shares held by him, in such form as shall, in conformity to law,
be prescribed from time to time by the directors. Such certificates shall be
signed by either the president or a vice president and by the treasurer or
assistant treasurer.
9.4 Legends on Certificates. Every certificate for shares of stock which
-----------------------
are subject to any restriction on transfer pursuant to the Articles of
Organization, these by-laws or any agreement to which the corporation is a
party, shall have the restriction noted conspicuously on the certificate and
shall also set forth on the face or back either the full text of the restriction
or a statement of the existence of such restriction and a statement that the
corporation will furnish a copy to the holder of such certificate upon written
request and without charge. Every certificate issued where the corporation is
authorized to issue more than one class or series of stock shall set forth on
its face or back either the full text of the preferences, voting powers,
qualifications and rights, or a statement that the corporation will furnish a
copy thereof to the holder of such certificate upon written request and without
charge.
9.5 Loss of Certificates. In the case of the alleged loss or destruction
--------------------
or the mutilation of a certificate of stock, a duplicate certificate may be
issued in place thereof, upon such terms as the directors may prescribe.
SECTION 10. TRANSFER OF SHARES OF STOCK
Subject to the restrictions, if any, stated or noted in the stock
certificates, shares of stock may be transferred on the books of the corporation
by the surrender to the corporation or its transfer agent of the certificate
therefor properly endorsed or accompanied by a written assignment and power of
attorney properly executed, and with such proof of the authenticity of signature
as the directors or the transfer agent of the corporation may reasonably
require. Except as may be otherwise required by law, by the Articles of
Organization or by these by-laws, the corporation shall be entitled to treat the
record holders of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to receive notice and
to vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock until the shares have been transferred on the books of
the corporation in accordance with the requirements of these by-laws.
It shall be the duty of each stockholder to notify the corporation of his
post office address.
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<PAGE>
SECTION 11. CONFLICTS OF INTEREST
The corporation may enter into contracts and otherwise transact business as
vendor, purchaser or otherwise with its directors, officers and stockholders and
with corporations, joint stock companies, trusts, firms and associations in
which they are or may be or become interested as directors, officers,
shareholders, members, trustees, beneficiaries or otherwise as freely as though
such adverse interest did not exist even though the vote, action or presence of
such director, officer, or stockholder may be necessary to obligate the
corporation upon such contract or transaction; and no such contract or
transaction shall be avoided and no such director, officer of stockholder shall
be held liable to account to the corporation or to any creditor or stockholder
of the corporation for any profit or benefit realized by him through any such
contract or transaction by reason of such adverse interest nor by reason of any
fiduciary relationship of such director, officer or stockholder to the
corporation arising out of such office or stock ownership; provided (in the case
of directors and officers but not in the case of any stockholder who is not a
director or officer of the corporation) the nature of the interest of such
director or officer, though not necessarily the details or extent thereof, be
known by or disclosed to the directors. Ownership of or beneficial interest in
a minority of the stock or securities of another corporation, joint stock
company, trust, firm or association shall not be deemed to constitute an
interest adverse to this corporation in such other corporation, joint stock
company, trust, firm or association and need not be disclosed. A general notice
that a director or officer of the corporation is interested in any corporation,
joint stock company, trust, firm or association shall be sufficient disclosure
as to such director or officer with respect to all contracts and transactions
with that corporation, joint stock company, trust, firm or association. In any
event the authorization or ratifying vote of a majority of the capital stock of
the corporation outstanding and entitled to vote passed at a meeting duly called
and held for the purpose shall validate any such contract or transaction as
against all stockholders of the corporation, whether of record or not at the
time of such vote, and as against all creditors and other claimants, under the
corporation, and no contract or transaction shall be avoided by reason of any
provision of this paragraph which would be valid but for these provisions.
SECTION 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the extent legally permissible, indemnify each of
its directors and officers against all costs, liabilities and expenses
(including counsel fees) reasonably incurred by him in connection with the
defense or dispositions of any action, suit or other proceeding, asserted or
threatened against him while in office or thereafter, by reason of his being or
having been such a director or officer, except with respect to any matter as to
which he shall have been adjudicated in any proceeding not to have acted in good
faith in the reasonable belief that his action was in the best interests of the
Corporation. The right of indemnification hereby provided shall not be
exclusive of or affect any other rights to which any director or officer may be
entitled. As used in this Section, the terms "director" and "officer" include
their respective heirs, executors and administrators. No officer or director
shall be liable whatsoever to the corporation or its shareholders for any action
or omission for which said officer or director would be entitled to
indemnification hereunder.
8
<PAGE>
SECTION 13. EXECUTION OF PAPERS
Except as the directors may generally or in particular cases authorize the
execution thereof in some other manner, all deeds, leases, transfers, contracts,
bonds, notes, checks, drafts and other obligations made, accepted or endorsed by
the corporation shall be signed by the president or by one of the vice
presidents or by the treasurer.
SECTION 14. BOOKS, ACCOUNTS AND RECORDS
The books, accounts and records of the corporation shall be kept at the
principal office of the corporation in Massachusetts or at such other place or
places as the directors may from time to time determine. They shall be
available at all reasonable times to the inspection of any stockholder for any
proper purpose.
SECTION 15. AMENDMENTS
These by-laws may be amended by vote of the holders of a majority of the
shares of each class of the capital stock at the time outstanding and entitled
to vote at any annual or special meeting of stockholders, if notice of the
substance of the proposed amendment is stated in the notice of such meeting. If
authorized by the Articles of Organization, the directors, by a majority of
their number then in office, may also make, amend or repeal these by-laws, in
whole or in part, except with respect to (a) the provisions of these by-laws
governing (i) the removal of directors, (ii) the indemnification of directors
and (iii) amendment of these by-laws and (b) any provision of these by-laws
which by law, the Articles of Organization or these by-laws requires action by
the stockholders.
No change in the date fixed in these by-laws for the annual meeting of
stockholders may be made within 60 days before the date fixed in these by-laws,
and in case of any change in such date, notice thereof shall be given to each
stockholder in person or by letter mailed to his last known post office address
at least 20 days before the new date fixed for such meeting.
Not later than the time of giving notice of the meeting of stockholders
next following the making, amending or repealing by the directors of any by-law,
notice stating the substance of such change shall be given to all stockholders
entitled to vote on amending the by-laws.
Any by-law adopted by the directors may be amended or repealed by the
stockholders entitled to vote on amending the by-laws.
9
<PAGE>
SCHEDULE TO EXHIBIT 3.2.14
--------------------------
The following entities have the Form B of Bylaws included as Exhibit 3.2.14,
with any changes from the form noted:
1. Maryland Harborside Corporation
2. New Jersey Harborside Corporation
3. Harborside Toledo Corporation
4. Oakhurst Manor Nursing Center Corporation
Changes from Form: Bylaws are as amended by Stockholders on February 12,
1990
Contains numbering error: Sections go from 4.8 to 4.10
5. Orchard Ridge Nursing Center Corporation
Changes from Form: Bylaws are as amended by Stockholders on February 12,
1990
Contains numbering error: Sections go from 4.8 to 4.10
6. Belmont Nursing Center Corporation
Changes from Form: Bylaws are as amended by Stockholders on February 12,
1990
Contains numbering error: Sections go from 4.8 to 4.10
7. Sailors, Inc.
<PAGE>
EXHIBIT 4.3
[FACE OF SECURITY]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.08 OF
THE INDENTURE.
HARBORSIDE HEALTHCARE CORPORATION
11% SENIOR SUBORDINATED DISCOUNT NOTE DUE 2008
No.1 CUSIP No.[ ]
$170,000,000 Principal Amount at Maturity
The following information is supplied for purposes of Sections 1273 and
1275 of the Internal Revenue Code:
Issue Date: [ ], 1998 Original issue discount under Section
1273 of the Internal Revenue Code (for
each $1,000 principal amount): $964.75
Yield to maturity for period from Issue Issue Price (for each $1,000 principal
Date to August 1, 2003: 11%, compounded amount): $585.25
semi-annually on August 1 and February 1,
commencing February 1, 2004
HARBORSIDE HEALTHCARE CORPORATION, a Delaware corporation (the "Company"),
promises to pay to CEDE & CO., or registered assigns, the principal sum of ONE
HUNDRED AND SEVENTY MILLION DOLLARS AND NO/100 ($170,000,000) on August 1, 2008.
Interest Payment Dates: February 1 and August 1, commencing February 1,
2004
Regular Record Dates: January 15 and July 15
<PAGE>
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Dated: [ ], 1998
HARBORSIDE HEALTHCARE CORPORATION
By:________________________________
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned
Indenture.
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By:________________________________
Authorized Signatory
2
<PAGE>
[REVERSE SIDE OF SECURITY]
11% Senior Subordinated Discount Note due 2008
1. INTEREST
--------
HARBORSIDE HEALTHCARE CORPORATION, a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above.
The Company will pay interest semiannually on August 1 and February 1 of
each year commencing February 1, 2004; provided that no interest shall accrue on
--------
the principal amount of this Security prior to August 1, 2003 (the "Full
Accretion Date"), and no interest shall be paid on this Security prior to the
Full Accretion Date.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate borne
by the Securities, and it shall pay interest on overdue installments of interest
at the same rate to the extent lawful.
2. METHOD OF PAYMENT
-----------------
The Company will pay interest (except defaulted interest) on the Securities
to the Persons who are registered holders of Securities at the close of business
on the January 15 or July 15 next preceding the interest payment date even if
Securities are cancelled after the record date and on or before the interest
payment date. Holders must surrender Securities to a Paying Agent to collect
principal payments. The Company will pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. However, the Company may pay principal and interest by check
payable in such money or by wire transfer of federal funds.
3. PAYING AGENT AND REGISTRAR
--------------------------
Initially, UNITED STATES TRUST COMPANY OF NEW YORK (the "Trustee") will
act as Paying Agent and Registrar. The Company may appoint and change any
Paying Agent, Registrar or co-registrar without notice to the Holders. The
Company or any domestically organized Wholly Owned Restricted Subsidiary may act
as Paying Agent, Registrar or co-registrar.
4. INDENTURE
---------
The Company issued the Securities under an Indenture dated as of July 31,
1998 (the "Indenture"), between the Company and the Trustee. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. (Sections)
------
77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the
3
<PAGE>
Indenture. The Securities are subject to all such terms, and Securityholders are
referred to the Indenture and the Act for a statement of those terms.
The Securities are unsecured senior subordinated obligations of the
Company. Subject to the conditions set forth in the Indenture, the Company may
issue Additional Securities.
5. OPTIONAL REDEMPTION
-------------------
Except as set forth in the next two paragraphs, the Securities may not be
redeemed at the Company's option prior to August 1, 2003. Thereafter, the
Securities will be subject to redemption at any time at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest to the applicable redemption
date (subject to the right of Holders on the relevant record date to receive
interest due on the relevant interest payment date), if redeemed during the
twelve-month period beginning on August 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2003 105.500%
2004 103.667%
2005 101.883%
2006 and thereafter 100.000%
</TABLE>
In addition, at any time and from time to time, prior to August 1, 2001,
the Company may redeem up to 35% of the sum of (i) the aggregate principal
amount at maturity of Securities and (ii) the aggregate principal amount at
maturity of any Additional Securities at a redemption price of 111% of the
Accreted Value thereof (determined at the redemption date) to the redemption
date, with the net cash proceeds received by the Company of a public offering of
common stock of the Company, provided that at least 65% of the sum of (i) the
--------
aggregate principal amount at maturity of Securities and (ii) the aggregate
principal amount at maturity of any Additional Securities remains outstanding
immediately after the occurrence of such redemption; and provided, further, that
-------- -------
such redemption shall occur within 60 days of the date of the closing of such
public offering.
At any time on or prior to August 1, 2003, the Securities may be redeemed
as a whole but not in part at the option of the Company upon the occurrence of a
Change of Control, upon not less than 30 nor more than 60 days' prior notice
(but in no event may any such redemption occur more than 90 days after the
occurrence of such Change of Control) mailed by first-class mail to each
Holder's registered address, at a redemption price equal to 100% of the Accreted
Value thereof (determined at the redemption date) plus the Applicable Premium to
the redemption date (subject to the right of Holders on the relevant record date
to receive interest due on the relevant interest payment date).
4
<PAGE>
6. SPECIAL MANDATORY REDEMPTION
----------------------------
In the event that the Merger is not consummated prior to the earlier to
occur of (i) January 10, 1999 and (ii) if it appears, in the sole judgment of
the Company, that the Merger shall not be consummated, the date on which notice
of same is delivered by the Company to the Escrow Agent and the Trustee, the
Company shall be required to redeem the Securities, in whole, on at least 15
days' prior written notice mailed by first class mail to each Holder's last
address as it appears in the Securities Register, at a redemption price equal to
101% of the Accreted Value of the Securities on the date of repurchase to the
redemption date.
7. NOTICE OF REDEMPTION
--------------------
Notice of redemption will be mailed by first-class mail at least 30 days
(or in the case of a Special Mandatory Redemption described in paragraph 6
hereof, 15 days) but not more than 60 days before the redemption date to each
Holder of Securities to be redeemed at its registered address all in accordance
with the Indenture. If less than all of the Securities are to be redeemed at
any time, selection of Securities for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Securities are listed, or, if the Securities are not so
listed, on a pro rata basis, by lot or by such method as the Trustee shall deem
fair and appropriate; provided that no Securities in an aggregate principal
--------
amount at maturity of $1,000 or less shall be redeemed in part.
If money sufficient to pay the redemption price of and accrued interest (if
any) on all Securities (or portions thereof) to be redeemed on the redemption
date is deposited with the Paying Agent on or before the redemption date and
certain other conditions are satisfied, on and after such date interest ceases
to accrue on such Securities (or such portions thereof) called for redemption.
8. REPURCHASE AT THE OPTION OF THE HOLDER
--------------------------------------
Upon a Change of Control, any Holder of Securities will have the right,
subject to certain conditions set forth in the Indenture, to cause the Company
to repurchase all or any part of the Securities of such Holder at a purchase
price equal to 101% of the aggregate principal amount of the Securities to be
repurchased plus accrued and unpaid interest to the date of repurchase (subject
to the right of Holders of record on the relevant record date to receive
interest due on the relevant interest payment date that is on or prior to the
date of repurchase) as provided in, and subject to the terms of, the Indenture.
9. SUBORDINATION
-------------
The Securities are subordinated to Senior Debt of the Company, as defined
in the Indenture. To the extent provided in the Indenture, Senior Debt of the
Company must be paid before the Securities may be paid. The Company agrees, and
each Securityholder by accepting a Security agrees, to the subordination
provisions contained in the Indenture and authorizes the Trustee to give it
effect and appoints the Trustee as attorney-in-fact for such purpose.
5
<PAGE>
10. DENOMINATIONS; TRANSFER; EXCHANGE
---------------------------------
The Securities are in registered form without coupons in denominations of
$1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. Upon any registration of transfer
or exchange, the Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements or transfer documents and to pay any
taxes required by law or permitted by the Indenture. The Registrar need not
register the transfer of or exchange any Securities selected for redemption
(except, in the case of a Security to be redeemed in part, the portion of the
Security not to be redeemed) or to transfer or exchange any Securities for a
period of 15 days prior to a selection of Securities to be redeemed or 15 days
before an interest payment date.
11. PERSONS DEEMED OWNERS
---------------------
The registered Holder of this Security may be treated as the owner of it
for all purposes.
12. UNCLAIMED MONEY
---------------
If money for the payment of principal or interest remains unclaimed for two
years, the Trustee or Paying Agent shall pay the money back to the Company at
its written request unless an abandoned property law designates another Person.
After any such payment, Holders entitled to the money must look only to the
Company and not to the Trustee for payment.
13. DISCHARGE AND DEFEASANCE
------------------------
Subject to certain conditions set forth in the Indenture, the Company at
any time may terminate some or all of its obligations under the Securities and
the Indenture if the Company deposits with the Trustee money or Government
Obligations for the payment of principal and interest on the Securities to
redemption or maturity, as the case may be.
14. AMENDMENT, WAIVER
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the Indenture
or the Securities may be amended with the written consent of the Holders of at
least a majority in principal amount outstanding of the Securities and (ii) any
past default or noncompliance with any provision of the Indenture may be waived
with the consent of the Holders of a majority in principal amount then
outstanding of the Securities. Subject to certain exceptions set forth in the
Indenture, without the consent of any Securityholder, the Company and the
Trustee may amend the Indenture or the Securities to cure any ambiguity, defect
or inconsistency, to provide for uncertificated Securities in addition to or in
place of certificated Securities (provided that the uncertificated Securities
are issued in registered form for purposes of Section 163(f) of the Code, or in
a manner such that the uncertificated Securities are described in Section
163(f)(2)(B) of the Code), to provide for the assumption of the Company*s or any
Guarantor*s obligations to Holders of Securities in the case of a merger,
consolidation or sale of assets, to release any Security Guarantee or collateral
in accordance with the provisions of the Indenture or Pledge Agreement, as the
case may be, to provide for additional Guarantors, to make any change that
6
<PAGE>
would provide any additional rights or benefits to the Holders of Securities or
that, as determined by the Board of Directors in good faith, does not have a
material adverse effect on the legal rights under this Indenture of any such
Holder, to comply with requirements of the SEC in order to effect or maintain
the qualification of the Indenture under the TIA or to provide for the issuance
of Additional Securities in compliance with Article II and Section 4.03 of the
Indenture.
15. DEFAULTS AND REMEDIES
---------------------
Under the Indenture, an Event of Default occurs if: (i) the Company
defaults in any payment of interest on any Security when the same becomes due
and payable, whether or not such payment shall be prohibited by Article X of the
Indenture, and such default continues for a period of 30 days; (ii) the Company
defaults in the payment of the principal of or premium, if any, on the
Securities, whether or not such payment shall be prohibited by Article X of the
Indenture; (iii) the Company fails to comply with other covenants and agreements
in the Indenture, subject to applicable grace periods as set forth in the
Indenture; (iv) certain accelerations (including failure to pay within any grace
period after final maturity) of other Debt of the Company or any Restricted
Subsidiary that is a Significant Subsidiary occur if the amount accelerated (or
so unpaid) exceeds $15,000,000; (v) certain events of bankruptcy, insolvency or
reorganization with respect to the Company and any Restricted Subsidiary which
is a Significant Subsidiary; (vi) certain judgments or decrees for the payment
of money in excess of $15,000,000 against the Company or any Restricted
Subsidiary that is a Significant Subsidiary; and (vii) except as is permitted by
the Indenture, a Security Guarantee by a Guarantor that is a Significant
Subsidiary shall be held in any judicial proceeding to be unenforceable or
invalid or shall for any reason cease to be in full force and effect or any
Guarantor, or any Person acting on behalf of any Guarantor, denies or disaffirms
its obligations under the Indenture or its Security Guarantee. If an Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the Securities may declare all the Securities to be due and
payable.
Securityholders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Securities
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Securityholders notice of any continuing Default (except a Default
in payment of principal, premium, if any, or interest) if and so long as a
committee of its trust officers in good faith determines that withholding notice
is in the interest of the Holders.
16. TRUSTEE DEALINGS WITH THE COMPANY
---------------------------------
Subject to certain limitations imposed by the Act, the Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
7
<PAGE>
17. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
-----------------------------------------------------------
STOCKHOLDERS
- ------------
No director, officer, employee, incorporator, stockholder or Affiliate of
the Company, as such, will have any liability for any obligations of the Company
under the Securities, the Indenture or for any claim based on, in respect of, or
by reason of, such obligations or their creation. No director, officer,
employee, incorporator, stockholder or Affiliate of any of the Guarantors, as
such, will have any liability for any obligations of the Guarantors under the
Security Guarantees, the Indenture or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder of Securities and
Security Guarantees by accepting a Security and a Security Guarantee waives and
releases all such liabilities. The waiver and release are part of the
consideration for issuance of the Securities and the Security Guarantees. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the SEC that such a waiver is against public policy.
18. GOVERNING LAW
-------------
THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
--------------------------------------------------------------------------
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF
- -------------------------------------------------------------------------------
CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER
- --------------------------------------------------------------------------
JURISDICTION WOULD BE REQUIRED THEREBY.
- --------------------------------------
19. AUTHENTICATION
--------------
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
20. ABBREVIATIONS
-------------
Customary abbreviations may be used in the name of a Securityholder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
21. CUSIP NUMBERS
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and have directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
8
<PAGE>
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST AND
WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH HAS IN IT THE
TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO:
HARBORSIDE HEALTHCARE CORPORATION
c/o Gibson, Dunn & Crutcher LLP
200 Park Avenue, 48th Floor
New York, New York 10166
Attention: Joerg H. Esdorn, Esq.
9
<PAGE>
TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- ----------------------------------
____________________________________________________________________________
Please print or typewrite name and address including zip code of assignee
____________________________________________________________________________
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing ____________________________________ attorney to transfer said
Security on the books of the Company with full power of substitution in the
premises.
OPTION OF ORDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.06 or 4.08 of the Indenture, check the box:
[_] 4.06 Asset Sale [_] 4.08 Change of Control
If you want to elect to have only part of this Security purchased
by the Company pursuant to Section 4.06 or 4.08 of the Indenture, state the
amount: $______.
Date:______________ Your Signature: ______________________________________
(Sign exactly as your name appears on the other side
of the Security)
_________________________
Tax I.D. number
Signature Guarantee:_____________________________________
(Signature must be guaranteed by a participant in
a recognized signature guarantee medallion
program)
10
<PAGE>
EXHIBIT 4.6
GLOBAL EXCHANGEABLE PREFERRED STOCK CERTIFICATE
[FACE OF EXCHANGEABLE PREFERRED STOCK CERTIFICATE]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE CERTIFICATE
OF DESIGNATION REFERRED TO BELOW.
HARBORSIDE HEALTHCARE CORPORATION
(Incorporated Under the Laws of the State of Delaware)
40,000 SHARES
OF
SERIES A 13 1/2% EXCHANGEABLE PREFERRED STOCK
MANDATORILY REDEEMABLE 2010
LIQUIDATION PREFERENCE OF $1,000 PER SHARE
FULLY PAID AND NON-ASSESSABLE EXCHANGEABLE PREFERRED
STOCK, PAR VALUE OF $0.01 PER SHARE, OF
HARBORSIDE HEALTHCARE CORPORATION
CUSIP NO.
[ ]
No. 1
THIS CERTIFIES that Cede & Co. is the owner of 40,000 shares of Series A 13
1/2% Exchangeable Preferred Stock ("Exchangeable Preferred Stock") of HARBORSIDE
HEALTHCARE CORPORATION (the " Issuer"), transferable on the books of the Issuer
by the holder hereof, in person or by duly authorized attorney, upon surrender
of this Certificate properly endorsed. This certificate and the shares
represented hereby are subject to the laws of the State of Delaware, and to the
Certificate of Designation as now or hereafter amended, which are made a part
hereof with the same force and effect as if they were set forth herein, to all
of which the holder, by acceptance hereof, assents. This certificate is not
valid unless countersigned by the Transfer Agent. Capitalized terms used herein
and not defined herein have the meanings given to such terms in the Certificate
of Designation. Copies of the Certificate of Designation are on file at the
offices of the Transfer Agent at 114 West 47th Street, New York, N.Y. 10036 and
are available for inspection by any holder of shares of the Exchangeable
Preferred Stock during normal business hours.
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused the signature of its duly
authorized officer to be hereunto affixed.
HARBORSIDE HEALTHCARE CORPORATION
By:_______________________________
Name:
Title:
Countersigned and Registered:
UNITED STATES TRUST COMPANY OF NEW YORK, Transfer Agent
By:_____________________
Name:
Title:
2
<PAGE>
[REVERSE OF EXCHANGEABLE PREFERRED STOCK CERTIFICATE]
HARBORSIDE HEALTHCARE CORPORATION
Dividends on each share of the Exchangeable Preferred Stock shall be
payable at a rate per annum set forth on the face hereof or as provided in the
Certificate of Designation. The shares of Exchangeable Preferred Stock shall be
redeemable as provided in the Certificate of Designation. The shares of
Exchangeable Preferred Stock shall be exchangeable at the Issuer's option into
the Exchange Debentures in the manner and according to the terms set forth in
the Certificate of Designation.
The Issuer shall furnish without charge to each Holder who so requests
a copy of the powers, designations, preferences and relative, participating,
optional, or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT - Custodian for................................................
MIN ACT (cust) (minor)
under Uniform Gifts to Minors Act of
.............................................................
(state)
Additional abbreviations may also be used though not in the above list.
3
<PAGE>
For Value Received, __________________ hereby sells, assigns and
transfers unto:
______________________________________________________________________________
Please insert Social Security
or other identifying number of assignee
______________________________________________________________________________
Please print or typewrite name and address
including postal zip code of assignee
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
______________________________________________________________________________
attorney, to transfer the said Shares on the books of the within named Issuer,
with full power of substitution in the premises.
Dated:_________________ _________________________________________
Signature
__________________________________________
Signature
Notice: The signature to this assignment must
correspond with the name as written upon the face
of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
In the presence of:
__________________________
4
<PAGE>
Important: All signatures must be guaranteed by a firm which is a
financial institution and a member of the Securities
Transfer Agent's medallion Program ("STAMP"), the Stock
Exchange Medallion Program ("SEMP") or the New York
Stock Exchange, Inc. Medallion Signature Program.
Signature Guarantee: ______________________________________________________
Name of Firm
______________________________________________________
Authorized Signature
______________________________________________________
Name of Authorized Signatory
(Please print)
______________________________________________________
Address of Firm
______________________________________________________
______________________________________________________
______________________________________________________
Area Code and Telephone Number of Firm
5
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF GIBSON, DUNN & CRUTCHER LLP]
-------------------------------------------
October 27, 1998
(212) 351-4000 C 41441-00004
Harborside Healthcare Corporation
and the Guarantors (as defined herein)
470 Atlantic Avenue
Boston, MA 02210
Re: Exchange of 11% Senior Subordinated Discount Notes Due 2008 and
13 1/2% Exchangeable Preferred Stock Mandatorily Redeemable 2010
Ladies and Gentlemen:
We have acted as counsel for Harborside Healthcare Corporation, a Delaware
corporation (the "Company"), and the Guarantors (as defined below), which are
wholly-owned subsidiaries of the Company, in connection with the proposed offer
by the Company (the "Exchange Offer") to exchange (i) $170,000,000 aggregate
principal amount at maturity of new 11% Senior Subordinated Discount Notes Due
2008 (the "New Notes") of the Company which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), for a like aggregate
principal amount at maturity of outstanding privately placed 11% Senior
Subordinated Discount Notes Due 2008 (the "Old Notes") and (ii) up to 41,365 new
shares of 13 1/2% Exchangeable Preferred Stock Mandatorily Redeemable 2010 (the
"New Preferred Stock") of the Company which have been registered under the
Securities Act for a like number of shares of privately placed 13 1/2%
Exchangeable Preferred Stock Mandatorily Redeemable 2010 of the Company
outstanding on the date hereof or to be paid as dividends on such outstanding
shares on November 1, 1998 (the "Old Preferred Stock," and together with the New
Preferred Stock, the "Preferred Stock").
For the purposes of this opinion, the following terms shall have the
following meanings:
<PAGE>
Harborside Healthcare Corporation, et al.
-- --
October 27, 1998
Page 2
"Guarantors" shall mean Harborside Healthcare Limited Partnership, a
Massachusetts limited partnership ("Harborside LP"), Belmont Nursing Center
Corp., a Massachusetts corporation ("Belmont"), Orchard Ridge Nursing Center
Corp., a Massachusetts corporation ("Orchard Ridge"), Oakhurst Manor Nursing
Center Corp., a Massachusetts corporation ("Oakhurst Manor"), Riverside
Retirement Limited Partnership, a Massachusetts limited partnership ("Riverside
Retirement"), Harborside Toledo Limited Partnership, a Massachusetts limited
partnership ("Harborside Toledo"), Harborside Connecticut Limited Partnership, a
Massachusetts limited partnership ("Harborside Connecticut"), Harborside of
Florida Limited Partnership, a Florida limited partnership ("Harborside
Florida"), Harborside of Ohio Limited Partnership, a Massachusetts limited
partnership ("Harborside Ohio"), Harborside Healthcare Baltimore Limited
Partnership, a Massachusetts limited partnership ("Harborside Baltimore"),
Harborside of Cleveland Limited Partnership, a Massachusetts limited partnership
("Harborside Cleveland"), Harborside of Dayton Limited Partnership, a
Massachusetts limited partnership ("Harborside Dayton"), Harborside
Massachusetts Limited Partnership, a Massachusetts limited partnership
("Harborside Massachusetts"), Harborside Rhode Island Limited Partnership, a
Massachusetts limited partnership ("Harborside Rhode Island"), Harborside North
Toledo Limited Partnership, a Massachusetts limited partnership ("Harborside
North Toledo"), Harborside Healthcare Advisors Limited Partnership, a
Massachusetts limited partnership ("Harborside Advisors"), Harborside Toledo
Corporation, a Massachusetts corporation ("Harborside Toledo Corp."), KHI
Corporation, a Delaware corporation ("KHI"), Harborside Danbury Limited
Partnership, a Massachusetts limited partnership ("Harborside IV"), Harborside
Acquisition Limited Partnership V, a Massachusetts limited partnership
("Harborside V"), Harborside Acquisition Limited Partnership VI, a Massachusetts
limited partnership ("Harborside VI"), Harborside Acquisition Limited
Partnership VII, a Massachusetts limited partnership ("Harborside VII"),
Harborside Acquisition Limited Partnership VIII, a Massachusetts limited
partnership ("Harborside VIII"), Harborside Acquisition Limited Partnership IX,
a Massachusetts limited partnership ("Harborside IX"), Harborside Acquisition
Limited Partnership X, a Massachusetts limited partnership ("Harborside X"),
Sailors, Inc., a Delaware corporation ("Sailors"), New Jersey Harborside
Corporation, a Massachusetts corporation ("NJ Harborside"), Bridgewater Assisted
Living Limited Partnership, a New Jersey limited partnership ("Bridgewater"),
Maryland Harborside Corporation, a Massachusetts corporation ("Harborside
Maryland"), Harborside Homecare Limited Partnership, a Massachusetts limited
partnership ("Harborside Homecare"), Harborside Rehabilitation Limited
Partnership, a Massachusetts limited partnership ("Harborside Rehabilitation"),
Harborside Healthcare Network Limited Partnership, a Florida limited partnership
("Harborside Network"), and Harborside Health I Corporation, a Delaware
corporation ("Harborside Health").
"Delaware Guarantors" shall mean KHI, Sailors and Harborside Health.
"Florida Guarantors" shall mean Harborside Florida and Harborside Network.
<PAGE>
Harborside Healthcare Corporation, et al.
-- --
October 27, 1998
Page 3
"Massachusetts Guarantors" shall mean Harborside LP, Belmont, Orchard
Ridge, Oakhurst Manor, Riverside Retirement, Harborside Toledo, Harborside
Connecticut, Harborside Ohio, Harborside Baltimore, Harborside Cleveland,
Harborside Dayton, Harborside Massachusetts, Harborside Rhode Island, Harborside
North Toledo, Harborside Advisors, Harborside Toledo Corp., Harborside IV,
Harborside V, Harborside VI, Harborside VII, Harborside VIII, Harborside IX,
Harborside X, NJ Harborside, Harborside Maryland, Harborside Homecare and
Harborside Rehabilitation.
"New Jersey Guarantor" shall mean Bridgewater.
"Other Guarantors" shall mean the Massachusetts Guarantors, the Florida
Guarantors and the New Jersey Guarantor.
The New Notes will be guaranteed pursuant to the terms of the Indenture (as
defined below) on a subordinated basis (each, a "Guarantee") by each of the
Guarantors. The New Notes will be issued pursuant to an Indenture dated as of
July 31, 1998 (the "Indenture") by and among the Company (as successor to HH
Acquisition Corp.) and United States Trust Company of New York (the "Trustee"),
as amended and supplemented by the First Supplemental Indenture dated as of
August 11, 1998 (the "Supplemental Indenture") by and among the Company, the
Guarantors and the Trustee. The shares of New Preferred Stock will be issued
pursuant to the Certificate of Designation of the Powers, Preferences and
Relative, Participating, Optional and Other Special Rights of the Preferred
Stock and Qualifications, Limitations and Restrictions Thereof of the Company
(the "Certificate of Designation") effective as of August 11, 1998.
As such counsel, we have examined, among other things, (i) the Registration
Statement on Form S-4 (File No. 333-64679) and Amendment No. 1 thereto (the
"Registration Statement") filed by the Company and the Guarantors with the
Securities and Exchange Commission (the "Commission") to register under the
Securities Act the issuance of the New Notes, the Guarantees and the New
Preferred Stock, (ii) the Indenture and the Supplemental Indenture, (iii) the
Certificate of Designation, (iv) the form of the New Notes to be issued pursuant
to the Indenture, (v) the form of stock certificates for the New Preferred Stock
to be issued pursuant to the Certificate of Designation and (vi) the Certificate
of Incorporation and Bylaws of the Company and the Delaware Guarantors. The
Indenture (which contains the Guarantees), the Supplemental Indenture and the
New Notes are sometimes referred to herein collectively as the "Note Documents."
We have also examined the proceedings and other actions taken by the Company and
the Delaware Guarantors in connection with the authorization, execution and
delivery of the Indenture and the Supplemental Indenture, the authorization,
execution and filing of the Certificate of Designation, the issuance of the New
Notes and the Guarantees thereunder and the issuance of the New Preferred Stock.
We have also made such other inquiries and examined, among other things,
originals or copies, certified or
<PAGE>
Harborside Healthcare Corporation, et al.
-- --
October 27, 1998
Page 4
otherwise identified to our satisfaction, of such records, agreements,
certificates, instruments and other documents as we have considered necessary or
appropriate for the purposes of this opinion.
In rendering this opinion, we have assumed:
(a) The Guarantee of each of the Massachusetts Guarantors has been
legally issued, and the Supplemental Indenture constitutes the binding
agreement (and, as a result, the Indenture constitutes the binding
agreement) of each of the Massachusetts Guarantors to the extent the
binding nature of the Supplemental Indenture and the Indenture involves
matters governed by the laws of the Commonwealth of Massachusetts;
(b) The Guarantee of each of the Florida Guarantors has been legally
issued, and the Supplemental Indenture constitutes the binding agreement
(and, as a result, the Indenture constitutes the binding agreement) of each
of the Florida Guarantors to the extent the binding nature of the
Supplemental Indenture and the Indenture involves matters governed by the
laws of the State of Florida;
(c) The Guarantee of the New Jersey Guarantor has been legally issued,
and the Supplemental Indenture constitutes the binding agreement (and, as a
result, the Indenture constitutes the binding agreement) of the New Jersey
Guarantor to the extent the binding nature of the Supplemental Indenture
and the Indenture involves matters governed by the laws of the State of New
Jersey;
(d) The due and valid execution and delivery of the Indenture and the
Supplemental Indenture by the Trustee, and that the Indenture and the
Supplemental Indenture each constitutes the legal, valid and binding
agreement of the Trustee; and
(e) The genuineness of all signatures, the legal capacity of all
natural persons, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted
to us as certified or photostatic copies and the authenticity of the
originals of such latter documents.
Based upon the foregoing, and in reliance thereon, and subject to receipt
by the Company and the Guarantors from the Commission of an order declaring the
Registration Statement effective, we are of the opinion that:
1. The New Notes, when issued and delivered in exchange for the Old Notes
in accordance with the terms of the Exchange Offer and when executed and
authenticated as specified in the Indenture, will be legally issued and will
constitute binding obligations of the Company.
<PAGE>
Harborside Healthcare Corporation, et al.
-- --
October 27, 1998
Page 5
2. The New Preferred Stock, when issued and delivered in exchange for the
Old Preferred Stock in accordance with the terms of the Exchange Offer, will be
legally issued, fully paid and nonassessable.
3. The additional shares of 13 1/2% Exchangeable Preferred Stock
Mandatorily Redeemable 2010 of the Issuer that may be issued in payment of
dividends with respect to the New Preferred Stock, when issued and delivered in
accordance with the terms of the Certificate of Designation, will be legally
issued, fully paid and nonassessable.
4. Each Guarantee of a Delaware Guarantor, when issued and delivered in
connection with the exchange of the Old Notes in the manner described in the
Registration Statement and when the New Notes and all of the Guarantees have
been executed and, in the case of the New Notes, authenticated, as specified in
the Indenture, will be legally issued and will constitute a binding obligation
of such Delaware Guarantor.
5. Each Guarantee of an Other Guarantor, when issued and delivered in
connection with the exchange of the Old Notes in the manner described in the
Registration Statement and when the New Notes and all of the Guarantees have
been executed and, in the case of the New Notes, authenticated, as specified in
the Indenture, will be legally issued and will constitute a binding obligation
of such Other Guarantor to the extent the legal issuance and binding nature of
such Guarantee involves matters governed by the laws of the State of New York or
the General Corporation Law of the State of Delaware.
The foregoing opinions are subject to the following exceptions,
qualifications and limitations:
A. We render no opinion as to matters involving the laws of any
jurisdiction other than the State of New York and the General Corporation Law of
the State of Delaware. This opinion is limited to the effect of the present
state of the laws of the States of New York and Delaware and the facts as they
presently exist. We assume no obligation to revise or supplement this opinion
in the event of changes in such laws or the interpretations thereof or in the
event of changes in such facts.
B. Our opinions set forth herein are subject to (i) the effect of any
bankruptcy, insolvency, reorganization, moratorium, arrangement or similar laws
affecting the enforcement of creditors' rights generally (including, without
limitation, the effect of statutory or other laws regarding fraudulent transfers
or preferential transfers) and (ii) general principles of equity, regardless of
whether a matter is considered in a proceeding in equity or at law, including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing. Without limitation, we express no opinion as to the ability to obtain
specific performance, injunctive relief or other equitable relief as a remedy
for noncompliance with any of the Note Documents.
<PAGE>
Harborside Healthcare Corporation, et al.
-- --
October 27, 1998
Page 6
C. We express no opinion with respect to the validity, binding nature or
enforceability of any provision of the Note Documents to the effect that rights
or remedies are not exclusive, that every right or remedy is cumulative and may
be exercised in addition to any other right or remedy, that the election of some
particular remedy does not preclude recourse to one or more others or that
failure to exercise or delay in exercising rights or remedies will not operate
as a waiver of any such right or remedy.
D. We express no opinion as to the effect on the enforceability of the
Guarantees against any Guarantor of any facts or circumstances that would
constitute a defense to the obligation of a guarantor or surety, unless such
defense has been waived effectively by such Guarantor.
E. We express no opinion as to the validity, binding nature or
enforceability (i) of provisions in the Note Documents providing for
indemnification or contribution or (ii) of any provision of any Note Document
insofar as it provides for the payment or reimbursement of costs and expenses or
indemnification for claims, losses or liabilities in excess of a reasonable
amount determined by any court or other tribunal.
F. We express no opinion with respect to the validity, binding nature or
enforceability of (i) any waivers of unknown future rights or waivers of rights
existing, or duties owed, that are broadly or vaguely stated or do not describe
the right or duty purportedly waived with reasonable specificity, (ii) any
waivers or consents (whether or not characterized as a waiver or consent in the
Note Documents) relating to the rights of the Company or any Guarantor or duties
owing to any of them existing as a matter of law, to the extent such waivers or
consents are found to be against public policy or are ineffective pursuant to
applicable statutes or judicial decisions, (iii) any waivers or variations of
rights of a debtor, including a guarantor, (iv) provisions in the Note Documents
imposing late payment charges or an increase in interest rate, upon delinquency
in payment or the occurrence of a default, to the extent that such provisions
are found to constitute a forfeiture or impose a penalty, (vi) covenants (other
than covenants relating to the payment of money, including payment of principal,
interest, indemnities and expenses) to the extent they are construed to be
independent requirements as distinguished from conditions precedent to the
occurrence of an event of default, and (vii) any rights of setoff (other than
such rights provided by Section 151 of the New York Debtor and Creditor Law Code
as interpreted by applicable judicial decisions).
G. We express no opinion as to any provisions of the Note Documents
requiring written amendments or waivers of such documents insofar as it suggests
that oral or other modifications, amendments or waivers could not be effectively
agreed upon by the parties or that the doctrine of promissory estoppel might not
apply.
<PAGE>
Harborside Healthcare Corporation, et al.
-- --
October 27, 1998
Page 7
H. We express no opinion as to the application of the securities or "blue
sky" laws of the various states to the issuance of the New Notes, the Guarantees
or the New Preferred Stock.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and we further consent to the use of our name under the
caption "Legal Matters" in the Prospectus forming a part of the Registration
Statement. In giving this consent, we do not admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the Rules and Regulations of the Commission
promulgated thereunder.
Very truly yours,
/s/ GIBSON, DUNN & CRUTCHER LLP
GIBSON, DUNN & CRUTCHER LLP
<PAGE>
EXHIBIT 5.2
[LETTERHEAD OF MCDERMOTT, WILL & EMERY]
October 23, 1998
Harborside Healthcare Corporation and
the Massachusetts Guarantors (as defined herein)
470 Atlantic Avenue
Boston, MA 02210
Re: Exchange of 11% Senior Subordinated Discount Notes Due 2008
-----------------------------------------------------------
Ladies and Gentlemen:
This opinion is furnished to you in connection with a registration
statement on Form S-4 (File No. 333-64679), together with Amendment No. 1
thereto (the "Registration Statement"), filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), for the registration of, among other securities, $170,000,000
aggregate principal amount at maturity of 11% Senior Subordinated Discount Notes
Due 2008 (the "New Notes") of Harborside Healthcare Corporation, a Delaware
corporation (the "Company"). You have advised us that the New Notes are to be
issued pursuant to the provisions of the Indenture (as defined below) in
exchange for a like amount of the Company's 11% Senior Subordinated Discount
Notes Due 2008 (the "Old Notes") in accordance with the terms of the Exchange
Offer (the "Exchange Offer") set forth in the prospectus included in the
Registration Statement (the "Prospectus") and the form of Letter of Transmittal
(the "Letter of Transmittal") in the form filed as an Exhibit to the
Registration Statement.
We have acted as special Massachusetts counsel for the Company and the
Massachusetts Guarantors (as defined below), which you have advised us are
wholly-owned subsidiaries of the Company, in connection with the issue and sale
of the New Notes.
Our opinions herein are limited to the laws of The Commonwealth of
Massachusetts. Each of the New Notes, the Supplemental Indenture (as defined
below) and the Indenture (which contains the Massachusetts Guarantees and the
New Jersey Guarantee (each as defined below)) provides that it is to be governed
by and construed in accordance with the laws of the State of New York. For
purposes of rendering the opinions expressed below, we have assumed that each of
the New Notes, the Supplemental Indenture and the Indenture (and, accordingly,
the Massachusetts
<PAGE>
Harborside Healthcare Corporation and
the Massachusetts Guarantors (as defined herein)
October 23, 1998
Page 2
Guarantees and the New Jersey Guarantee) provides that it is to be governed
by and construed in accordance with the laws of The Commonwealth of
Massachusetts.
For the purposes of this opinion, the following terms shall have the
following meanings:
"Guarantors" shall mean Harborside Healthcare Limited Partnership, a
Massachusetts limited partnership ("Harborside LP"), Belmont Nursing Center
Corp., a Massachusetts corporation ("Belmont"), Orchard Ridge Nursing Center
Corp., a Massachusetts corporation ("Orchard Ridge"), Oakhurst Manor Nursing
Center Corp., a Massachusetts corporation ("Oakhurst Manor"), Riverside
Retirement Limited Partnership, a Massachusetts limited partnership ("Riverside
Retirement"), Harborside Toledo Limited Partnership, a Massachusetts limited
partnership ("Harborside Toledo"), Harborside Connecticut Limited Partnership, a
Massachusetts limited partnership ("Harborside Connecticut"), Harborside of
Florida Limited Partnership, a Florida limited partnership ("Harborside
Florida"), Harborside of Ohio Limited Partnership, a Massachusetts limited
partnership ("Harborside Ohio"), Harborside Healthcare Baltimore Limited
Partnership, a Massachusetts limited partnership ("Harborside Baltimore"),
Harborside of Cleveland Limited Partnership, a Massachusetts limited partnership
("Harborside Cleveland"), Harborside of Dayton Limited Partnership, a
Massachusetts limited partnership ("Harborside Dayton"), Harborside
Massachusetts Limited Partnership, a Massachusetts limited partnership
("Harborside Massachusetts"), Harborside Rhode Island Limited Partnership, a
Massachusetts limited partnership ("Harborside Rhode Island"), Harborside North
Toledo Limited Partnership, a Massachusetts limited partnership ("Harborside
North Toledo"), Harborside Healthcare Advisors Limited Partnership, a
Massachusetts limited partnership ("Harborside Advisors"), Harborside Toledo
Corporation, a Massachusetts corporation ("Harborside Toledo Corp."), KHI
Corporation, a Delaware corporation ("KHI"), Harborside Danbury Limited
Partnership (formerly known as Harborside Acquisition Limited Partnership IV), a
Massachusetts limited partnership ("Harborside Danbury"), Harborside Acquisition
Limited Partnership V, a Massachusetts limited partnership ("Harborside V"),
Harborside Acquisition Limited Partnership VI, a Massachusetts limited
partnership ("Harborside VI"), Harborside Acquisition Limited Partnership VII, a
Massachusetts limited partnership ("Harborside VII"), Harborside Acquisition
Limited Partnership VIII, a Massachusetts limited partnership ("Harborside
VIII"), Harborside Acquisition Limited Partnership IX, a Massachusetts limited
partnership ("Harborside IX"), Harborside Acquisition Limited Partnership X, a
Massachusetts limited partnership ("Harborside X"), Sailors, Inc., a Delaware
corporation ("Sailors"), New Jersey Harborside Corporation, a Massachusetts
corporation ("NJ Harborside"), Bridgewater Assisted Living Limited Partnership,
a New Jersey limited partnership ("Bridgewater"), Maryland Harborside
Corporation, a Massachusetts corporation ("Harborside Maryland"), Harborside
Homecare Limited Partnership, a Massachusetts limited partnership ("Harborside
Homecare"), Harborside Rehabilitation Limited Partnership, a Massachusetts
limited partnership ("Harborside Rehabilitation"), Harborside Healthcare Network
Limited Partnership, a Florida limited partnership ("Harborside Network"), and
Harborside Health I Corporation, a Delaware corporation ("Harborside Health").
<PAGE>
Harborside Healthcare Corporation and
the Massachusetts Guarantors (as defined herein)
October 23, 1998
Page 3
"Massachusetts Guarantors" shall mean Harborside LP, Belmont, Orchard
Ridge, Oakhurst Manor, Riverside Retirement, Harborside Toledo, Harborside
Connecticut, Harborside Ohio, Harborside Baltimore, Harborside Cleveland,
Harborside Dayton, Harborside Massachusetts, Harborside Rhode Island, Harborside
North Toledo, Harborside Advisors, Harborside Toledo Corp., Harborside Danbury,
Harborside V, Harborside VI, Harborside VII, Harborside VIII, Harborside IX,
Harborside X, NJ Harborside, Harborside Maryland, Harborside Homecare and
Harborside Rehabilitation.
"New Jersey Guarantor" shall mean Bridgewater.
We have been advised that the New Notes will be issued pursuant to an
Indenture dated as of July 31, 1998 (the "Indenture") by and among the Company
(as successor by merger to HH Acquisition (as defined below)) and United States
Trust Company of New York (the "Trustee"), as amended and supplemented by the
First Supplemental Indenture dated as of August 11, 1998 (the "Supplemental
Indenture") by and among the Company, the Guarantors and the Trustee. The
guarantees of the New Notes by the Massachusetts Guarantors (each such guarantee
by a Massachusetts Guarantor, a "Massachusetts Guarantee") are to be issued
pursuant to the Indenture on a subordinated basis by each of the Massachusetts
Guarantors. The guarantee of the New Notes by the New Jersey Guarantor (such
guarantee by the New Jersey Guarantor, the "New Jersey Guarantee") is to be
issued pursuant to the Indenture on a subordinated basis by the New Jersey
Guarantor. The guarantees of all of the Guarantors are referred to collectively
as the "Guarantees".
We have examined (i) the Registration Statement, (ii) the Indenture and the
Supplemental Indenture and (iii) the form of the New Notes to be issued pursuant
to the Indenture. The Indenture (including the Guarantees contained therein),
the Supplemental Indenture and the New Notes are sometimes referred to herein
collectively as the "Note Documents." We have also examined originals, or
copies, certified or otherwise identified to our satisfaction, of such records,
agreements, certificates, instruments and other documents as we have considered
necessary or appropriate for the purposes of this opinion.
In rendering this opinion, we have assumed:
(a) HH Acquisition Corp., a Delaware corporation ("HH Acquisition"), has merged
with and into the Company;
(b) The New Notes, when issued and delivered in exchange for the Old Notes in
accordance with the terms of the Exchange Offer and when executed and
authenticated as specified in the Indenture, will have been duly
authorized, executed and delivered by the Company and will constitute
binding obligations of the Company;
(c) The Registration Rights Agreement dated July 31, 1998 with respect to the
Exchange Offer among HH Acquisition, the Guarantors and the placement
agents named therein has
<PAGE>
Harborside Healthcare Corporation and
the Massachusetts Guarantors (as defined herein)
October 23, 1998
Page 4
been duly authorized, executed and delivered by each party thereto and
constitutes the binding obligation of each such party;
(d) The definitive terms of the Indenture and the Supplemental Indenture have
been fixed; each of the Indenture and the Supplemental Indenture has been
duly authorized, executed and delivered by, and each constitutes a binding
agreement of, the Company, the Trustee and the other parties thereto other
than the Massachusetts Guarantors and the New Jersey Guarantor; and the
guarantee contained therein of each of the Guarantors other than the
Massachusetts Guarantors and the New Jersey Guarantor has been legally
issued and constitutes the binding obligation of the relevant Guarantor;
(e) Each of the Indenture and the Supplemental Indenture (including without
limitation the Massachusetts Guarantees) has been duly authorized by all
necessary action of the general partner of each of the Massachusetts
Guarantors (other than Harborside Toledo) that is a partnership; and
(f) The genuineness of all signatures, the legal capacity of all natural
persons, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of
such latter documents.
Based upon the foregoing, and in reliance thereon, and subject to receipt by the
Company and the Guarantors from the Commission of an order declaring the
Registration Statement effective, we are of the opinion that:
1. Each Massachusetts Guarantee, upon the due execution and authentication of
the New Notes with the Massachusetts Guarantees endorsed thereon in
accordance with the provisions of the Indenture and when the New Notes with
the Massachusetts Guarantees endorsed thereon are delivered in exchange for
the Old Notes in the manner provided by the Registration Rights Agreement,
the Prospectus and the Letter of Transmittal, will be legally issued and
will constitute binding obligations of each respective Massachusetts
Guarantor to the extent the legal issuance and the binding nature of such
Massachusetts Guarantee involve matters governed by the laws of the
Commonwealth of Massachusetts.
2. The Supplemental Indenture constitutes the binding agreement (and, as a
result, the Indenture constitutes the binding agreement) of each of the
Massachusetts Guarantors to the extent the binding nature of the
Supplemental Indenture and the Indenture as to the Massachusetts Guarantors
involve matters governed by the laws of the Commonwealth of Massachusetts.
3. The New Jersey Guarantee, upon the due execution and authentication of the
New Notes with the New Jersey Guarantee endorsed thereon in accordance with
the provisions of the
<PAGE>
Harborside Healthcare Corporation and
the Massachusetts Guarantors (as defined herein)
October 23, 1998
Page 5
Indenture and when the New Notes with the New Jersey Guarantee endorsed
thereon are delivered in exchange for the Old Notes in the manner provided
by the Registration Rights Agreement, the Prospectus and the Letter of
Transmittal, will be legally issued and will constitute the binding
obligation of the New Jersey Guarantor to the extent the legal issuance and
the binding nature of the New Jersey Guarantee involve matters governed by
the laws of the Commonwealth of Massachusetts.
The foregoing opinions are subject to the following exceptions,
qualifications and limitations:
A. Our opinions set forth herein are subject to (i) the effect of any
bankruptcy, insolvency, reorganization, moratorium, arrangement or similar
laws affecting the enforcement of creditors' rights generally (including,
without limitation, the effect of statutory or other laws regarding
fraudulent transfers or preferential transfers) and (ii) general principles
of equity, regardless of whether a matter is considered in a proceeding in
equity or at law, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing. Without limiting the
generality of the foregoing, we express no opinion as to the ability to
obtain specific performance, injunctive relief or other equitable relief as
a remedy for noncompliance with any of the Note Documents, or as to the
validity or binding effect of provisions in the Note Documents providing
for indemnification or contribution or for the payment or reimbursement of
costs and expenses or indemnification for claims, losses or liabilities in
excess of a reasonable amount determined by any court or other tribunal.
B. We call your attention to the fact that the opinions expressed herein with
respect to the Massachusetts Guarantees and the New Jersey Guarantee do not
purport to cover, and we express no opinion with respect to, the
applicability of Section 548 of the United States Bankruptcy Code or any
comparable provision of state law. In addition, we express no opinion as
to whether a corporation or partnership (the "First Entity") may guarantee
or otherwise become liable for, or pledge its assets to secure,
indebtedness incurred by another corporation, partnership or other entity
(an "Other Entity") except to the extent such First Entity may be
determined to have benefited from the incurrence of such indebtedness by
the Other Entity or as to whether such benefit may be measured other than
by the extent to which the proceeds of the indebtedness incurred by the
Other Entity are directly or indirectly made available to such First Entity
for its corporate or partnership purposes.
C. We express no opinion as to the application of the securities or "blue sky"
laws of the various states to the issuance of the Guarantees.
D. This opinion is limited to the matters expressly set forth herein and no
opinion is implied or may be inferred beyond the matters expressly so
stated. This opinion is based upon
<PAGE>
Harborside Healthcare Corporation and
the Massachusetts Guarantors (as defined herein)
October 23, 1998
Page 6
facts known to the undersigned on the date hereof, and the undersigned does
not undertake any liability or responsibility to inform you of any change
in circumstances occurring after the date hereof which might alter the
opinions contained herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and we further consent to the use of our name under the
caption "Legal Matters" in the Prospectus. In giving this consent, we do not
admit that we are within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the Rules and
Regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ McDermott, Will & Emery
<PAGE>
EXHIBIT 5.3
[LETTERHEAD OF MCDERMOTT, WILL & EMERY]
October 23, 1998
Harborside Healthcare Corporation
and the Florida Guarantors (as defined herein)
470 Atlantic Avenue
Boston, MA 02210
Re: Exchange of 11% Senior Subordinated Discount Notes Due 2008
-----------------------------------------------------------
Ladies and Gentlemen:
This opinion is furnished to you in connection with a registration
statement on Form S-4 (File No. 333-64679), together with Amendment No. 1
thereto (the "Registration Statement"), filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), for the registration of, among other securities, $170,000,000
aggregate principal amount at maturity of 11% Senior Subordinated Discount Notes
Due 2008 (the "New Notes") of Harborside Healthcare Corporation, a Delaware
corporation (the "Company"). You have advised us that the New Notes are to be
issued pursuant to the provisions of the Indenture (as defined below) in
exchange for a like amount of the Company's 11% Senior Subordinated Discount
Notes Due 2008 (the "Old Notes") in accordance with the terms of the Exchange
Offer (the "Exchange Offer") set forth in the prospectus included in the
Registration Statement (the "Prospectus") and the form of Letter of Transmittal
(the "Letter of Transmittal") in the form filed as an Exhibit to the
Registration Statement.
We have acted as special Florida counsel for the Company and the Florida
Guarantors (as defined below), which you have advised us are wholly-owned
subsidiaries of the Company, in connection with the issue and sale of the New
Notes.
Our opinions herein are limited to the laws of the State of Florida. Each
of the New Notes, the Supplemental Indenture (as defined below) and the
Indenture (which contains the Florida Guarantees ) (each as defined below)
provides that it is to be governed by and construed in accordance with the laws
of the State of New York. For purposes of rendering the opinions expressed
below, we have assumed that each of the New Notes, the Supplemental Indenture
and the Indenture (and, accordingly, the Florida Guarantees)
<PAGE>
Harborside Healthcare Corporation
and the Florida Guarantors (as defined herein)
October 23, 1998
Page 2
provides that it is to be governed by and construed in accordance with the laws
of the State of Florida.
For the purposes of this opinion, the following terms shall have the
following meanings:
"Guarantors" shall mean Harborside Healthcare Limited Partnership, a
Massachusetts limited partnership ("Harborside LP"), Belmont Nursing Center
Corp., a Massachusetts corporation ("Belmont"), Orchard Ridge Nursing Center
Corp., a Massachusetts corporation ("Orchard Ridge"), Oakhurst Manor Nursing
Center Corp., a Massachusetts corporation ("Oakhurst Manor"), Riverside
Retirement Limited Partnership, a Massachusetts limited partnership ("Riverside
Retirement"), Harborside Toledo Limited Partnership, a Massachusetts limited
partnership ("Harborside Toledo"), Harborside Connecticut Limited Partnership, a
Massachusetts limited partnership ("Harborside Connecticut"), Harborside of
Florida Limited Partnership, a Florida limited partnership ("Harborside
Florida"), Harborside of Ohio Limited Partnership, a Massachusetts limited
partnership ("Harborside Ohio"), Harborside Healthcare Baltimore Limited
Partnership, a Massachusetts limited partnership ("Harborside Baltimore"),
Harborside of Cleveland Limited Partnership, a Massachusetts limited partnership
("Harborside Cleveland"), Harborside of Dayton Limited Partnership, a
Massachusetts limited partnership ("Harborside Dayton"), Harborside
Massachusetts Limited Partnership, a Massachusetts limited partnership
("Harborside Massachusetts"), Harborside Rhode Island Limited Partnership, a
Massachusetts limited partnership ("Harborside Rhode Island"), Harborside North
Toledo Limited Partnership, a Massachusetts limited partnership ("Harborside
North Toledo"), Harborside Healthcare Advisors Limited Partnership, a
Massachusetts limited partnership ("Harborside Advisors"), Harborside Toledo
Corporation, a Massachusetts corporation ("Harborside Toledo Corp."), KHI
Corporation, a Delaware corporation ("KHI"), Harborside Danbury Limited
Partnership (formerly known as Harborside Acquisition Limited Partnership IV), a
Massachusetts limited partnership ("Harborside Danbury"), Harborside Acquisition
Limited Partnership V, a Massachusetts limited partnership ("Harborside V"),
Harborside Acquisition Limited Partnership VI, a Massachusetts limited
partnership ("Harborside VI"), Harborside Acquisition Limited Partnership VII, a
Massachusetts limited partnership ("Harborside VII"), Harborside Acquisition
Limited Partnership VIII, a Massachusetts limited partnership ("Harborside
VIII"), Harborside Acquisition Limited Partnership IX, a Massachusetts limited
partnership ("Harborside IX"), Harborside Acquisition Limited Partnership X, a
Massachusetts limited partnership ("Harborside X"), Sailors, Inc., a Delaware
corporation ("Sailors"), New Jersey Harborside Corporation, a Massachusetts
corporation ("NJ Harborside"), Bridgewater Assisted Living Limited Partnership,
a New Jersey limited partnership ("Bridgewater"), Maryland Harborside
Corporation, a Massachusetts corporation
<PAGE>
Harborside Healthcare Corporation
and the Florida Guarantors (as defined herein)
October 23, 1998
Page 3
("Harborside Maryland"), Harborside Homecare Limited Partnership, a
Massachusetts limited partnership ("Harborside Homecare"), Harborside
Rehabilitation Limited Partnership, a Massachusetts limited partnership
("Harborside Rehabilitation"), Harborside Healthcare Network Limited
Partnership, a Florida limited partnership ("Harborside Network"), and
Harborside Health I Corporation, a Delaware corporation ("Harborside Health").
"Florida Guarantors" shall mean Harborside Florida and Harborside Network..
"Massachusetts Guarantors" shall mean Harborside LP, Belmont, Orchard
Ridge, Oakhurst Manor, Riverside Retirement, Harborside Toledo, Harborside
Connecticut, Harborside Ohio, Harborside Baltimore, Harborside Cleveland,
Harborside Dayton, Harborside Massachusetts, Harborside Rhode Island, Harborside
North Toledo, Harborside Advisors, Harborside Toledo Corp., Harborside Danbury,
Harborside V, Harborside VI, Harborside VII, Harborside VIII, Harborside IX,
Harborside X, NJ Harborside, Harborside Maryland, Harborside Homecare and
Harborside Rehabilitation.
"New Jersey Guarantor" shall mean Bridgewater.
We have been advised that the New Notes will be issued pursuant to an
Indenture dated as of July 31, 1998 (the "Indenture") by and among the Company
(as successor by merger to HH Acquisition (as defined below)) and United States
Trust Company of New York (the "Trustee"), as amended and supplemented by the
First Supplemental Indenture dated as of August 11, 1998 (the "Supplemental
Indenture") by and among the Company, the Guarantors and the Trustee. The
guarantees of the New Notes by the Florida Guarantors (each such guarantee by a
Florida Guarantor, a "Florida Guarantee") are to be issued pursuant to the
Indenture on a subordinated basis by each of the Florida Guarantors. The
guarantees of all of the Guarantors are referred to collectively as the
"Guarantees".
We have examined (i) the Registration Statement, (ii) the Indenture and the
Supplemental Indenture, and (iii) the form of the New Notes to be issued
pursuant to the Indenture. The Indenture (including the Guarantees contained
therein), the Supplemental Indenture and the New Notes are sometimes referred to
herein collectively as the "Note Documents." We have also examined originals, or
copies, certified or otherwise identified to our satisfaction, of such records,
agreements, certificates, instruments and other documents as we have considered
necessary or appropriate for the purposes of this opinion.
In rendering this opinion, we have assumed:
(a) HH Acquisition Corp., a Delaware corporation ("HH Acquisition"), has merged
with and into the Company;
<PAGE>
Harborside Healthcare Corporation
and the Florida Guarantors (as defined herein)
October 23, 1998
Page 4
(b) The New Notes, when issued and delivered in exchange for the Old Notes in
accordance with the terms of the Exchange Offer and when executed and
authenticated as specified in the Indenture, will have been duly
authorized, executed and delivered by the Company and will constitute
binding obligations of the Company;
(c) The Registration Rights Agreement dated July 31, 1998, with respect to the
Exchange Offer among HH Acquisition, the Guarantors and the placement
agents named therein has been duly authorized, executed and delivered by
each party thereto and constitutes the binding obligation of each such
party;
(d) The definitive terms of the Indenture and the Supplemental Indenture have
been fixed; each of the Indenture and the Supplemental Indenture has been
duly authorized, executed and delivered by, and each constitutes a binding
agreement of, the Company, the Trustee and the other parties thereto other
than the Florida Guarantors; and the guarantee contained therein of each of
the Guarantors other than the Florida Guarantors has been legally issued
and constitutes the binding obligation of the relevant Guarantor;
(e) Each of the Indenture and the Supplemental Indenture (including without
limitation the Florida Guarantees) has been duly authorized by all
necessary action of the general partner of each of the Florida Guarantors;
and
(f) The genuineness of all signatures, the legal capacity of all natural
persons, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of
such latter documents.
Based upon the foregoing, and in reliance thereon, and subject to receipt by the
Company and the Guarantors from the Commission of an order declaring the
Registration Statement effective, we are of the opinion that:
1. Each Florida Guarantee, upon the due execution and authentication of the
New Notes with the Florida Guarantees endorsed thereon in accordance with
the provisions of the Indenture and when the New Notes with the Florida
Guarantees endorsed thereon are delivered in exchange for the Old Notes in
the manner provided by the Registration Rights Agreement, the Prospectus
and the Letter of Transmittal, will be legally issued and will constitute
binding obligations of each respective Florida Guarantor to the extent the
legal issuance and the binding nature
<PAGE>
Harborside Healthcare Corporation
and the Florida Guarantors (as defined herein)
October 23, 1998
Page 5
of such Florida Guarantee involves matters governed by the laws of the
State of Florida.
2. The Supplemental Indenture constitutes the binding agreement (and, as a
result, the Indenture constitutes the binding agreement) of each of the
Florida Guarantors to the extent the binding nature of the Supplemental
Indenture and the Indenture as to the Florida Guarantors involves matters
governed by the laws of the State of Florida.
The foregoing opinions are subject to the following exceptions,
qualifications and limitations:
A. Our opinions set forth herein are subject to (i) the effect of any
bankruptcy, insolvency, reorganization, moratorium, arrangement or similar
laws affecting the enforcement of creditors' rights generally (including,
without limitation, the effect of statutory or other laws regarding
fraudulent transfers or preferential transfers) and (ii) general principles
of equity, regardless of whether a matter is considered in a proceeding in
equity or at law, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing. Without limiting the
generality of the foregoing, we express no opinion as to the ability to
obtain specific performance, injunctive relief or other equitable relief as
a remedy for noncompliance with any of the Note Documents, or as to the
validity or binding effect of provisions in the Note Documents providing
for indemnification or contribution or for the payment or reimbursement of
costs and expenses or indemnification for claims, losses or liabilities in
excess of a reasonable amount determined by any court or other tribunal.
B. We call your attention to the fact that the opinions expressed herein with
respect to the Florida Guarantees do not purport to cover, and we express
no opinion with respect to, the applicability of Section 548 of the United
States Bankruptcy Code or any comparable provision of state law. In
addition, we express no opinion as to whether a corporation or partnership
(the "First Entity") may guarantee or otherwise become liable for, or
pledge its assets to secure, indebtedness incurred by another corporation,
partnership or other entity (an "Other Entity") except to the extent such
First Entity may be determined to have benefited from the incurrence of
such indebtedness by the Other Entity or as to whether such benefit may be
measured other than by the extent to which the proceeds of the indebtedness
incurred by the Other Entity are directly or indirectly made available to
such First Entity for its corporate or partnership purposes.
<PAGE>
Harborside Healthcare Corporation
and the Florida Guarantors (as defined herein)
October 23, 1998
Page 6
C. We express no opinion as to the application of the securities or "blue sky"
laws of the various states to the issuance of the Guarantees.
D. This opinion is limited to the matters expressly set forth herein and no
opinion is implied or may be inferred beyond the matters expressly so
stated. This opinion is based upon facts known to the undersigned on the
date hereof, and the undersigned does not undertake any liability or
responsibility to inform you of any change in circumstances occurring after
the date hereof which might alter the opinions contained herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and we further consent to the use of our name under the
caption "Legal Matters" in the Prospectus. In giving this consent, we do not
admit that we are within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the Rules and
Regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ McDermott, Will & Emery
<PAGE>
EXHIBIT 5.4
[LETTERHEAD OF BLANK, ROME, COMISKY & MCCAULEY LLP]
October 23, 1998
Harborside Healthcare Corporation
and Bridgewater Assisted Living Limited Partnership
470 Atlantic Avenue
Boston, MA 02210
Re: Exchange of 11% Senior Subordinated Discount Notes Due 2008
and 13 1/2% EXCHANGEABLE PREFERRED STOCK MANDATORILY
REDEEMABLE 2010
Ladies and Gentlemen:
We have acted as special New Jersey counsel for Harborside Healthcare
Corporation, a Delaware corporation (the "Company"), and Bridgewater Assisted
Living Limited Partnership, a New Jersey limited partnership ("Bridgewater"),
which is indirectly wholly-owned by the Company, in connection with the proposed
offer by the Company (the "Exchange Offer") to exchange (i) $170,000,000
aggregate principal amount at maturity of new 11% Senior Subordinated Discount
Notes Due 2008 (the "New Notes") of the Company which have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), for a like
aggregate principal amount at maturity of outstanding privately placed 11%
Senior Subordinated Discount Notes Due 2008 (the "Old Notes") and (ii) up to
40,000 new shares of 13 1/2% Exchangeable Preferred Stock Mandatorily Redeemable
2010 (the "New Preferred Stock") of the Company which have been registered under
the Securities Act for a like number of shares of outstanding privately placed
13 1/2% Exchangeable Preferred Stock Mandatorily Redeemable 2010 (the "Old
Preferred Stock," and together with the New Preferred Stock, the "Preferred
Stock") of the Company.
For the purposes of this opinion, the following terms shall have the
following meanings:
"Guarantors" shall mean Harborside Healthcare Limited Partnership, a
Massachusetts limited partnership ("Harborside LP"), Belmont Nursing Center
Corp., a Massachusetts corporation ("Belmont"), Orchard Ridge Nursing Center
Corp., a Massachusetts corporation ("Orchard Ridge"), Oakhurst Manor Nursing
Center Corp., a Massachusetts corporation ("Oakhurst Manor"), Riverside
Retirement Limited
<PAGE>
BLANK ROME COMISKY & McCAULEY LLP______________________________________________
October 23, 1998
Page 2
Partnership, a Massachusetts limited partnership ("Riverside Retirement"),
Harborside Toledo Limited Partnership, a Massachusetts limited partnership
("Harborside Toledo"), Harborside Connecticut Limited Partnership, a
Massachusetts limited partnership ("Harborside Connecticut"), Harborside of
Florida Limited Partnership, a Florida limited partnership ("Harborside
Florida"), Harborside of Ohio Limited Partnership, a Massachusetts limited
partnership ("Harborside Ohio"), Harborside Healthcare Baltimore Limited
Partnership, a Massachusetts limited partnership ("Harborside Baltimore"),
Harborside of Cleveland Limited Partnership, a Massachusetts limited partnership
("Harborside Cleveland"), Harborside of Dayton Limited Partnership, a
Massachusetts limited partnership ("Harborside Dayton"), Harborside
Massachusetts Limited Partnership, a Massachusetts limited partnership
("Harborside Massachusetts"), Harborside Rhode Island Limited Partnership, a
Massachusetts limited partnership ("Harborside Rhode Island"), Harborside North
Toledo Limited Partnership, a Massachusetts limited partnership ("Harborside
North Toledo"), Harborside Healthcare Advisors Limited Partnership, a
Massachusetts limited partnership ("Harborside Advisors"), Harborside Toledo
Corporation, a Massachusetts corporation ("Harborside Toledo Corp."), KHI
Corporation, a Delaware corporation ("KHI"), Harborside Danbury Limited
Partnership, a Massachusetts limited partnership ("Harborside IV"), Harborside
Acquisition Limited Partnership V, a Massachusetts limited partnership
("Harborside V"), Harborside Acquisition Limited Partnership VI, a Massachusetts
limited partnership ("Harborside VI"), Harborside Acquisition Limited
Partnership VII, a Massachusetts limited partnership ("Harborside VII"),
Harborside Acquisition Limited Partnership VIII, a Massachusetts limited
partnership ("Harborside VIII"), Harborside Acquisition Limited Partnership IX,
a Massachusetts limited partnership ("Harborside IX"), Harborside Acquisition
Limited Partnership X, a Massachusetts limited partnership ("Harborside X"),
Sailors, Inc., a Delaware corporation ("Sailors"), New Jersey Harborside
Corporation, a Massachusetts corporation ("NJ Harborside"), Bridgewater,
Maryland Harborside Corporation, a Massachusetts corporation ("Harborside
Maryland"), Harborside Homecare Limited Partnership, a Massachusetts limited
partnership ("Harborside Homecare"), Harborside Rehabilitation Limited
Partnership, a Massachusetts limited partnership ("Harborside Rehabilitation"),
Harborside Healthcare Network Limited Partnership, a Florida limited partnership
("Harborside Network"), and Harborside Health I Corporation, a Delaware
corporation ("Harborside Health").
"Delaware Guarantors" shall mean KHI, Sailors and Harborside Health.
"Florida Guarantors" shall mean Harborside Florida and Harborside Network.
<PAGE>
BLANK ROME COMISKY & McCAULEY LLP______________________________________________
October 23, 1998
Page 3
"Massachusetts Guarantors" shall mean Harborside LP, Belmont, Orchard
Ridge, Oakhurst Manor, Riverside Retirement, Harborside Toledo, Harborside
Connecticut, Harborside Ohio, Harborside Baltimore, Harborside Cleveland,
Harborside Dayton, Harborside Massachusetts, Harborside Rhode Island, Harborside
North Toledo, Harborside Advisors, Harborside Toledo Corp., Harborside IV,
Harborside V, Harborside VI, Harborside VII, Harborside VIII, Harborside IX,
Harborside X, NJ Harborside, Harborside Maryland, Harborside Homecare and
Harborside Rehabilitation.
We have been advised that: (1) the New Notes will be guaranteed pursuant to
the terms of the Indenture (as defined below) on a subordinated basis (each, a
"Guarantee") by each of the Guarantors; and (2) the New Notes will be issued
pursuant to an Indenture dated as of July 31, 1998 (the "Indenture") by and
among the Company (as successor to HH Acquisition Corp.) and United States Trust
Company of New York (the "Trustee"), as amended and supplemented by the First
Supplemental Indenture dated as of August 11, 1998 (the "Supplemental
Indenture") by and among the Company, the Guarantors and the Trustee.
As such counsel, we have examined the following documents: (i) the
Indenture and the Supplemental Indenture, (ii) the form of the New Notes to be
issued pursuant to the Indenture; (iii) the organizational documents of
Bridgewater; and (iv) the actions taken by NJ Harborside as general partner of
and on behalf of Bridgewater in connection with the authorization, execution and
delivery of the Supplemental Indenture and the issuance of its Guarantee
thereunder. The Indenture (which contains the Guarantees), the Supplemental
Indenture and the New Notes are sometimes referred to herein collectively as the
"Note Documents." We have also made such other inquiries and examined copies of
such records, agreements, certificates, instruments and other documents as we
have considered necessary or appropriate for the purposes of this opinion.
In rendering this opinion, we have assumed:
(a) The New Notes, when issued and delivered in exchange for the Old
Notes in accordance with the terms of the Exchange Offer and when executed
and authenticated as specified in the Indenture, will be legally issued and
will constitute binding obligations of the Company as so indicated in the
opinion of Gibson, Dunn & Crutcher LLP dated October 27, 1998 which we
have reviewed and upon which we have relied;
<PAGE>
BLANK ROME COMISKY & McCAULEY LLP______________________________________________
October 23, 1998
Page 4
(b) The Indenture and the Supplemental Indenture each constitutes a
binding agreement of the Company;
(c) The Guarantee of each of the Delaware Guarantors has been legally
issued, and the Supplemental Indenture constitutes the binding agreement
(and, as a result, the Indenture constitutes the binding agreement) of each
of the Delaware Guarantors;
(d) The Guarantee of each of the Florida Guarantors has been legally
issued, and the Supplemental Indenture constitutes the binding agreement
(and, as a result, the Indenture constitutes the binding agreement) of each
of the Florida Guarantors;
(e) The Guarantee of each of the Massachusetts Guarantors has been
legally issued, and the Supplemental Indenture constitutes the binding
agreement (and, as a result, the Indenture constitutes the binding
agreement) of each of the Massachusetts Guarantors;
(f) The due and valid execution and delivery of the Indenture and the
Supplemental Indenture by the Trustee, and that the Supplemental Indenture
and the Indenture each constitutes the legal, valid and binding agreement
of the Trustee;
(g) The Supplemental Indenture, the Indenture and the Guarantee of
Bridgewater are fair to, in furtherance of the purposes of and in the best
interests of Bridgewater and the consideration received by Bridgewater in
exchange for its obligations under the Supplemental Indenture, the
Indenture and its Guarantee is adequate and sufficient under applicable
law; and
(h) The genuineness of all signatures, the legal capacity of all
natural persons, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted
to us as certified or photostatic copies and the authenticity of the
originals of such latter documents.
Based upon the foregoing, and in reliance thereon, and subject to receipt
by the Company and the Guarantors from the Securities and Exchange Commission
(the "Commission") of an order declaring the Registration Statement on Form S-4
(File No. 333-64679) (the "Registration Statement") filed by the Company and the
Guarantors
<PAGE>
BLANK ROME COMISKY & McCAULEY LLP______________________________________________
October 23, 1998
Page 5
with the Commission to register under the Securities Act the issuance of the New
Notes, the Guarantees and the New Preferred Stock, effective, we are of the
opinion that:
1. The Guarantee of Bridgewater, when issued and delivered in
connection with the exchange of the Old Notes in the manner described in the
Registration Statement and when the New Notes and the Guarantee of Bridgewater
have been executed and, in the case of the New Notes, authenticated, as
specified in the Indenture, will be legally issued, and will constitute a
binding obligation of Bridgewater to the extent the binding nature of such
Guarantee involves matters governed by the laws of the State of New Jersey.
2. The Supplemental Indenture constitutes the binding agreement (and,
as a result, the Indenture constitutes the binding agreement) of Bridgewater to
the extent the binding nature of the Supplemental Indenture and the Indenture
involves matters governed by the laws of the State of New Jersey.
The foregoing opinions are subject to the following exceptions,
qualifications and limitations:
A. We have assumed that the parties' choice of New York law will be
respected. For purposes of our opinion, we have assumed that, to the extent that
New York law applies to the Indenture, the Supplemental Indenture, the New Notes
or the Guarantee of Bridgewater, the applicable provisions of New York law are
the same as New Jersey law. We render no opinion as to matters involving the
laws of any jurisdiction other than the State of New Jersey. This opinion is
limited to the effect of the present state of the laws of the State of New
Jersey and the facts as they presently exist. We assume no obligation to revise
or supplement this opinion in the event of changes in such laws or the
interpretations thereof or in the event of changes in such facts.
B. Our opinions set forth herein are subject to (i) the effect of any
bankruptcy, insolvency, reorganization, moratorium, arrangement or similar laws
affecting the enforcement of creditors' rights generally (including, without
limitation, the effect of statutory or other laws regarding fraudulent transfers
or preferential transfers) and (ii) general principles of equity, regardless of
whether a matter is considered in a proceeding in equity or at law, including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing. Without limitation, we express no opinion as to the ability to obtain
specific performance, injunctive relief or other equitable relief as a remedy
for noncompliance with any of the Note Documents.
<PAGE>
BLANK ROME COMISKY & McCAULEY LLP______________________________________________
October 23, 1998
Page 6
C. We express no opinion with respect to the validity, binding nature
or enforceability of any provision of the Note Documents to the effect that
rights or remedies are not exclusive, that every right or remedy is cumulative
and may be exercised in addition to any other right or remedy, that the election
of some particular remedy does not preclude recourse to one or more others or
that failure to exercise or delay in exercising rights or remedies will not
operate as a waiver of any such right or remedy.
D. We express no opinion as to the effect on the enforceability of the
Guarantees against any Guarantor of any facts or circumstances that would
constitute a defense to the obligation of a guarantor or surety, unless such
defense has been waived effectively by such Guarantor.
E. We express no opinion as to the validity, binding nature or
enforceability (i) of provisions in the Note Documents providing for
indemnification or contribution or (ii) of any provision of any Note Document
insofar as it provides for the payment or reimbursement of costs and expenses or
indemnification for claims, losses or liabilities in excess of a reasonable
amount determined by any court or other tribunal.
F. We express no opinion with respect to the validity, binding nature
or enforceability of (i) any waivers of unknown future rights or waivers of
rights existing, or duties owed, that are broadly or vaguely stated or do not
describe the right or duty purportedly waived with reasonable specificity, (ii)
any waivers or consents (whether or not characterized as a waiver or consent in
the Note Documents) relating to the rights of the Company or any Guarantor or
duties owing to any of them existing as a matter of law, to the extent such
waivers or consents are found to be against public policy or are ineffective
pursuant to applicable statutes or judicial decisions, (iii) any waivers or
variations of rights of a debtor, including a guarantor, (iv) provisions in the
Note Documents imposing late payment charges or an increase in interest rate,
upon delinquency in payment or the occurrence of a default, to the extent that
such provisions are found to constitute a forfeiture or impose a penalty, (vi)
covenants (other than covenants relating to the payment of money, including
payment of principal, interest, indemnities and expenses) to the extent they are
construed to be independent requirements as distinguished from conditions
precedent to the occurrence of an event of default, and (vii) any rights of
setoff.
G. We express no opinion as to any provisions of the Note Documents
requiring written amendments or waivers of such documents insofar as it suggests
that oral or other
<PAGE>
BLANK ROME COMISKY & McCAULEY LLP______________________________________________
October 23, 1998
Page 7
modifications, amendments or waivers could not be effectively agreed upon by the
parties or that the doctrine of promissory estoppel might not apply.
H. We express no opinion as to the application of the securities or
"blue sky" laws of the various states to the issuance of the New Notes or the
Guarantees.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and we further consent to the use of our name under the
caption "Legal Matters" in the Prospectus forming a part of the Registration
Statement. In giving this consent, we do not admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the Rules and Regulations of the Commission
promulgated thereunder.
Very truly yours,
BLANK ROME COMISKY & McCAULEY LLP,
a Pennsylvania LLP
By: /S/ Bruce A. Eisenberg
----------------------------------
New Jersey Resident Partner
<PAGE>
EXHIBIT 10.18
MASTER RIGHTS AGREEMENT
THIS MASTER RIGHTS AGREEMENT ("Agreement") is entered into as of August 11,
---------
1998, by and among Harborside Healthcare Corporation, a Delaware corporation
(the "Company) and the initial Holders identified on Schedule A hereto.
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R E C I T A L S
A. This Agreement is being entered into pursuant to the Agreement and Plan
of Merger (the "Merger Agreement") dated as of April 15, 1998 (as amended)
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between the Company and HH Acquisition Corp., a Delaware corporation
("MergerCo").
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B. Pursuant to the Merger Agreement, MergerCo will be merged into the
Company (the "Merger"), and the initial Holders identified on Schedule A hereto
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will be stockholders of the Company. The purpose of this Agreement is to grant
certain rights to such stockholders as set forth herein.
A G R E E M E N T
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the parties
hereto agree as follows:
1. CERTAIN DEFINITIONS; EFFECTIVENESS.
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1.1. The following terms shall have the following meanings:
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. A Person will be deemed to control a
corporation if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise.
"Berkshire Stockholders" means the initial Holders identified as such
on Schedule A hereto.
"Berkshire Registrable Securities" means the Registrable Securities
held by the Berkshire Stockholders as of immediately after the Effective Time.
"Class D Investors" means, as of any date of determination, the
Holders of Class D Common Stock of the Company.
"Commission" means the Securities and Exchange Commission or any
successor organization.
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"Charter" means the Amended and Restated Certificate of Incorporation
of the Company as in effect immediately after the Effective Time and as such
Amended and Restated Certificate of Incorporation may thereafter from time to
time be amended in accordance with applicable law and such certificate.
"Effective Time" means the time at which the Merger becomes effective
as specified in the Merger Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"Holders" means, as of any date of determination, the holders of
record of Registrable Securities other than any Persons to whom Registrable
Securities have been transferred who are not Permitted Assignees under Section
12.3 hereof.
"Investcorp Investors," at any date of determination, means all of the
following who are then Holders: Investcorp Bank E.C. and its Affiliates and any
other investor with whom Investcorp Bank E.C. or any Affiliate thereof has an
administrative relationship.
"Initial Public Offering" shall have the meaning ascribed to that term
in the Charter as in effect immediately after the Effective Time.
"Person" means an individual, partnership, joint venture, limited
liability company, corporation, trust, unincorporated organization or a
government or any department or agency thereof.
"register," "registered" and "registration" means a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, the declaration or ordering of effectiveness of such
registration statement by the Commission and the compliance with all applicable
state securities or blue sky laws which will permit the sale of Registrable
Stock to the public.
"Registrable Securities" means as of any date of determination: (a)
the shares of Class A Common Stock of the Company held by any of the Berkshire
Stockholders as of immediately following the Effective Time as reflected on
Schedule A hereto; (b) the shares of Class B Common Stock, Class C Common Stock
and Class D Common Stock of the Company held by Investcorp Investors outstanding
as of immediately following the Effective Time as reflected on Schedule A
hereto; (c) any additional shares of any class or series of common equity
securities of the Company (or securities convertible into or exercisable or
exchangeable for any such additional shares) acquired prior to the Initial
Public Offering by an Investcorp Investor; (d) any additional shares of any
class or series of common equity securities of the Company (or securities
convertible into or exercisable or exchangeable for any such additional shares)
acquired prior to an Initial Public Offering by a Berkshire Stockholder pursuant
to clause (ii) of Section 11.1 hereof and (e) any shares of capital stock of the
Company issued on account of any of the foregoing in connection with any stock
split or stock dividend effected after the Effective Time and any equity
securities of any other issuer issued in exchange for any of the foregoing in
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connection with any merger, consolidation, reorganization or recapitalization
involving the Company or its securityholders which is effected after the
Effective Time. Notwithstanding anything to the contrary in this Agreement, (x)
any particular Registrable Securities shall cease to be Registrable Securities
when a registration statement with respect to the sale of such securities shall
have become effective under the Securities Act and such stock shall have been
disposed of in accordance with such registration statement, or when such
securities cease to be outstanding and (y) any Berkshire Registrable Securities
beneficially owned by a Holder who beneficially holds less than 1% of the
outstanding common equity securities of the Company and can sell all common
equity securities of the Company beneficially held by such Holder pursuant to
Rule 144(k) under the Securities Act shall be excluded from the definition of
Registrable Securities.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
Certain other items are defined elsewhere in this Agreement.
1.2. This Agreement shall be deemed effective upon and only upon the
Effective Time.
2. DEMAND REGISTRATION.
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2.1. Written Request. Commencing on the earlier of (i) 90 days after
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the closing of an Initial Public Offering and (ii) the fifth anniversary of the
date on which the Effective Time occurs, Holders who are Investcorp Investors
shall have the right, exercisable for up to a total of three (3) effective
registration statements, to require the Company to register under the Securities
Act such number of Registrable Securities as such Holders shall designate for
sale in a written request to the Company (a "Demand Registration"); provided,
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however, that, the aggregate number of Registrable Securities to be so
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registered is equal to or greater than two percent (2%) of the total outstanding
common equity interests of the Company then outstanding.
2.2. Demand Registration.
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2.2.1. If the Demand Registration is requested pursuant to
Section 2.1 hereof, the Company agrees to use its reasonable best efforts to
cause to be filed at the earliest possible date, and in no event later than 60
days from the receipt of such request, and declared effective within 120 days of
such request a registration statement covering such Registrable Securities as
are designated for sale in such Demand Registration request on an appropriate
registration form pursuant to the Securities Act. A registration shall not count
as a Demand Registration until it has become effective; provided that all of the
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other obligations of the Company to the Holders of Registrable Securities
included therein will remain in effect whether or not such registration is
counted as a Demand Registration; and provided, further, that, after the filing
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of a registration statement pursuant to a Demand Registration request until such
time as such registration statement becomes effective, the holders of a majority
of the Registrable Securities included therein pursuant to the demand rights
granted under this Section 2 may, by written notice to the Company, request that
such registration statement be withdrawn, and the
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Company shall thereafter promptly notify the appropriate staff of the Commission
that such registration statement (and any request for acceleration of
effectiveness thereof) is being withdrawn.
2.2.2. The Company shall be entitled to postpone for a reasonable
period of time (not to exceed six (6) months) the filing of a registration
statement pursuant to the Demand Registration if, within 10 business days after
the Company receives the Demand Registration request, the Company shall furnish
to the Holders making such request a certificate signed by an executive officer
of the Company stating that in the good faith belief of a majority of the Board
of Directors, it would be in the best interests of the Company and its
stockholders to defer the filing required hereunder. Such certificate shall
summarize the reasons for such good faith belief, and such Holders shall be
entitled to discuss the reasons given with the entire Board of Directors.
2.2.3. At least 30 days before the anticipated filing date of the
Demand Registration, the Company shall give written notice of such proposed
filing to each Holder of Berkshire Registrable Securities and such notice shall
offer each such Holder the opportunity to include in such registration statement
the Registrable Securities then owned by such Holder, as such Holder may request
in writing within 15 days after receipt of the Company's notice (which request
shall specify the number of Registrable Securities to be included in such
registration statement and the intended method of disposition), up to an amount
equal to the number of Registrable Securities held by such Holder multiplied by
the quotient of the number of Registrable Securities to be registered by
Investcorp Investors and the total number of Registrable Securities held by
Investcorp Investors.
2.2.4. The Company will not, without the written consent of a
majority in interest of the Investcorp Investors, include in any Demand
Registration securities for sale for the account of any Person other than
Investcorp Investors or the Holders of Berkshire Registrable Securities.
2.2.5. In the event that a Demand Registration is proposed to be
effected through an underwritten offering, (x) the provisions of Section 3.1.1
or 3.1.2, as applicable, shall govern such Demand Registration, (y) (I) the
Company shall have the right in its sole discretion to select the managing
underwriter if 50% or more of the shares to be included in such offering will be
sold for the account of the Company and (II) in connection with any other Demand
Registration which is to be an underwritten offering, the Investcorp Investors
joining in such Demand Registration, by action of the Investcorp Investors
holding a majority in interest of the common equity interests to be included in
such offering, shall have the right in their sole discretion to select the
managing underwriter, and (z) the Company shall make its senior management
available to provide reasonable and customary assistance to the underwriters in
connection with the marketing of the securities included therein.
2.2.6 Prior to the Initial Public Offering, the demand rights granted
pursuant to this Section 2 (and any rights incident thereto) shall be
exercisable by the holders of a majority of the outstanding shares of Class D
Common Stock of the Company.
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3. COMPANY REGISTRATION.
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3.1. If the Company proposes to file a registration statement with
respect to common equity securities of the Company (other than a Demand
Registration or a registration statement on Form S-8 or S-4 or comparable
successor forms or a registration statement relating to a dividend reinvestment
plan) which is available for use for the sale of Registrable Securities under
the Securities Act, then the Company shall give written notice of such proposed
filing at least 30 days before the anticipated filing date of such registration
statement to each Holder, and such notice shall offer each Holder the
opportunity to include in such registration statement the Registrable Securities
then owned by such Holder, as such Holder may request in writing within 15 days
after receipt of the Company's notice (which request shall specify the number of
Registrable Securities to be included in such registration statement and the
intended method of disposition). The Company shall include in any such
registration statement all such Registrable Securities requested to be included.
Notwithstanding the foregoing:
3.1.1. if (x) the registration statement relates to an
underwritten offering which includes shares to be offered and sold for the
account of the Company and (y) the managing underwriter of any such offering
advises the Company in writing (with a copy to the Holders and the Other Rights
Holders) that the total number of shares which the Company, the Holders, and
other Persons whose contractual rights (now existing or hereafter granted) give
them the right to be included in such registration (the "Other Rights Holders")
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intend to include in such offering is sufficiently large to affect materially
and adversely the ability of such underwriter to complete successfully an
offering that does not significantly and adversely impact the market price of
the shares being offered, then the number of shares to be included in such
registration statement and offering for the account of the Holders and the Other
Rights Holders shall be reduced pro rata so that the aggregate amount of shares
included in such registration statement and offering for the account of the
Holders and the Other Rights Holders, together with the shares to be sold for
the account of the Company, does not exceed the amount that such managing
underwriter determines in good faith can be sold in such offering without
materially and adversely affecting the ability of such managing underwriter to
complete successfully such offering without significantly and adversely
affecting the market price of the shares being offered; and
3.1.2. if (x) the registration statement relates to an
underwritten offering which does not include shares to be sold for the account
of the Company and (y) the managing underwriter advises (in writing) the Holders
and the Other Rights Holders who have requested that shares be included therein
that the total number of shares which the Holders and the Other Rights Holders
intend to include in such offering is sufficiently large to affect materially
and adversely the ability of such underwriter to complete successfully an
offering that does not significantly and adversely affect the market price of
the shares being offered, then the number of shares to be included in such
registration statement and offering for the accounts of the Holders and the
Other Rights Holders shall be reduced pro rata so that the aggregate amount of
shares included in such registration statement and offering for the accounts of
Holders and the Other Rights Holders in the aggregate does not exceed the amount
that such managing underwriters determine in good faith can be sold in such
offering without materially and adversely affecting
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the ability of such managing underwriter to complete successfully such offering
without significantly and adversely affecting the market price of the shares
being offered.
3.2. The Company may require each Holder to furnish to the Company
information regarding such Holder and the intended manner of disposition of such
Holder's Registrable Securities, and Holders shall furnish such information to
the Company and any other information as shall be required by law or by the
Commission in connection therewith.
3.3. In connection with any registration pursuant to this Section 3
which relates to a proposed underwritten offering in which 50% or more of the
shares included in such offering are to be sold for the account of the Company,
the Company shall have the right in its sole discretion to select the managing
underwriter. In connection with any other registration pursuant to this Section
3 which relates to a proposed underwritten offering, holders of a majority of
the shares to be included therein pursuant to contractual registration rights
(now existing or hereafter granted) shall have the right to select the managing
underwriter and, in the absence of such a majority designation, the managing
underwriter will be selected by the Company.
4. REGISTRATION PROCEDURES.
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4.1. If and whenever the Company is required to effect the
registration of any Registrable Securities under the Securities Act as provided
in Sections 2 or 3 hereof, the Company will, as expeditiously as possible:
4.1.1. (A) prepare and file with the Commission a registration
statement with respect to such Registrable Securities, (B) promptly respond to
all comments received with respect to such registration statement and make and
file all amendments thereto deemed necessary by the Company's legal counsel, and
(C) thereafter use its reasonable best efforts to cause such registration
statement to become effective; provided, however, that the Company shall not be
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required to cause such registration statement to become effective if the
Company's legal counsel delivers a reasoned written opinion to the Company that
it is likely that the Commission will commence proceedings either to issue an
order under Section 8(b) of the Securities Act refusing to permit such
registration statement to become effective or to issue a stop order under
Section 8(d) of the Securities Act suspending the effectiveness of such
registration statement;
4.1.2. prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement accurate and
effective and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities and other securities covered by
such registration statement until the earlier of such time as all of such
Registrable Securities have been disposed of by the Holder or Holders thereof
set forth in such registration statement or for the longer of (A) nine months or
(B) if the Company is eligible to conduct a continuous secondary offering
pursuant to Rule 415 under the Securities Act, two years; and will furnish to
each such Holder at least two (2) business days prior to the filing thereof a
copy of any amendment or supplement to such registration statement or
prospectus, and shall not file any such amendment or supplement to which any
such Holder shall have reasonably
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<PAGE>
objected on the grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or of the rules or
regulations thereunder;
4.1.3. furnish to each Holder whose Registrable Securities are
included in such registration statement such number of conformed copies of such
registration statement and of each such amendment thereof and supplement thereto
(in each case including all exhibits), such number of copies of the prospectus
included in such registration statement (including each preliminary prospectus
and any summary prospectus), in conformity with the requirements of the
Securities Act, such documents, if any, incorporated by reference in such
registration statement or prospectus, and such other documents as such seller
may reasonably request;
4.1.4. use its reasonable best efforts to register or qualify all
Registrable Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each Holder whose
Registrable Securities are included in such registration statement shall
reasonably request, to keep such registration or qualification in effect for so
long as such registration statement remains in effect, and do any and all other
acts and things that may be necessary or advisable to enable such Holder to
consummate the disposition in such jurisdictions of its Registrable Securities
covered by such registration statement, except that the Company shall not for
any such purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not but for the requirements of
this Section 4.1.4 be obligated to be so qualified, or to subject itself to
taxation in any such jurisdiction, or to consent to general service of process
in any such jurisdiction;
4.1.5. if such registration statement relates to an underwritten
offering, obtain and furnish to each Holder whose Registrable Securities are
included in such registration statement a signed counterpart, addressed to such
Holder, of the legal opinions and accountants' comfort letters which are to be
delivered to the underwriters;
4.1.6. promptly notify each Holder whose Registrable Securities are
included in such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon discovery
that, or upon the happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and the Company shall promptly prepare
a supplement to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
4.1.7. otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
securities holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month of the first fiscal
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quarter after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder;
4.1.8. if any class of equity security of the Company is listed
on a national securities exchange or quoted on Nasdaq, use its best efforts to
comply with the requirements of such exchange or Nasdaq for inclusion of the
Registrable Securities covered by such registration statement for listing on
each such securities exchange or for quotation on Nasdaq;
4.1.9. if requested by a Holder whose Registrable Securities
are included in such registration statement or the managing underwriters
retained in the case of a Demand Registration, and subject to the reasonable
judgment of the Company and its counsel and to applicable law, promptly include
in a prospectus supplement or post-effective amendment such information
concerning such Holder or such Holder's Registrable Securities covered thereby
and/or the intended method of distribution of such Registrable Securities which
is furnished to the Company by such Holder or in writing and expressly for use
in the prospectus, and promptly make all required filings of such prospectus
supplement or post-effective amendment.
5. UNDERWRITING AGREEMENT.
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5.1. If requested by the underwriters for any underwritten offering
of Registrable Securities on behalf of Holders pursuant to a registration
requested under Section 2 or 3 hereof, the Company will enter into an
underwriting agreement with such underwriters for such offering; such agreement
to contain representations and warranties by the Company and other terms and
provisions not inconsistent with this Agreement as are customarily contained in
such underwriting agreements, including, without limitation, indemnities to the
effect and to the extent provided in Section 8 hereof, and the Company will
cooperate with such Holders to the end that the conditions precedent to the
obligations of such Holders under such underwriting agreement shall not include
conditions that are not customary in such underwriting agreements and shall be
otherwise reasonably satisfactory to such Holders. Holders on whose behalf
shares are to be distributed by such underwriters shall be parties to any such
underwriting agreement, and the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such Holders. Such
Holders shall not be required by the Company to make any representations or
warranties to or agreements with the Company or the underwriters other than
reasonable representations, warranties or agreements regarding such Holders,
such Holders' Registrable Securities and such Holders' intended method or
methods of disposition and any other representations required by law or to
indemnify (or contribute with respect to an indemnifiable claim) the Company or
any underwriters of the Registrable Securities, except as set forth in Section 8
hereof.
6. LOCK-UP.
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6.1. Initial Public Offering. Holders of Berkshire Registrable
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Securities shall, if and to the extent requested in writing by the managing
underwriter of the Initial Public Offering, not sell or transfer (other than as
part of such Initial Public Offering) any common
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equity securities of the Company or any securities convertible into, or
exercisable or exchangeable for, common equity securities of the Company within
the period of 180 days after the effective date of the registration statement
relating to such Initial Public Offering or such shorter period as may be
acceptable to such managing underwriter.
6.2. Secondary Offerings. Holders of Berkshire Registrable
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Securities shall, if and to the extent requested in writing by the managing
underwriter of any underwritten offering that is not the Initial Public
Offering, with respect to a registration statement filed prior to the third
anniversary of the Initial Public Offering, not sell or transfer (other than as
part of such offering) any common equity securities of the Company or any
securities convertible into, or exercisable or exchangeable for, such common
equity securities of the Company within the period of 90 days after the
effective date of the registration statement relating to such offering or such
shorter period as may be acceptable to such managing underwriter.
7. REGISTRATION EXPENSES.
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7.1. The Company agrees to pay, in connection with each registration
of Registrable Securities requested or filed pursuant to Sections 2 or 3 hereof,
all registration expenses; provided, however, each Holder participating therein
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shall be responsible for any underwriting discounts and selling commissions in
connection with the shares of such Holder sold pursuant thereto.
8. INDEMNIFICATION AND CONTRIBUTION.
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8.1. Indemnification by Company. The Company agrees to indemnify, to
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the fullest extent permitted by law, each Holder, each of its officers,
trustees, trust beneficiaries, directors, employees and partners, and each
Person who controls such Holder within the meaning of Section 15 of the
Securities Act and Section 20(a) of the Exchange Act (each, a "Stockholder
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Indemnified Party") against any and all losses, claims, damages, liabilities or
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expenses (including, without limitation, the reasonable legal fees and expenses
of legal counsel), joint or several (collectively, "Damages") to which they or
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any of them may become subject: (i) under the Securities Act, the Exchange Act,
or otherwise, insofar as such Damages (or actions in respect thereof) arise out
of or are based upon any untrue or alleged untrue statement of a material fact
contained in any registration statement, prospectus, preliminary prospectus or
any amendment to any of the foregoing, or arise out of or are based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; or
(ii) as a result of or in connection with any violation of applicable federal,
state or foreign laws or regulations (collectively, "Laws") by the Company
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(other than as a result of any act committed by or omission of a Stockholder
Indemnified Party without the Company's approval) or any of the Company's
employees, officers or directors in connection with any such registration and
the Company will reimburse any Stockholder Indemnified Party for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such claim or threatened claim for such Damages; provided,
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however, that the Company will not be liable to a Stockholder Indemnified Party
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if any such Damages arise out of or are based upon any such untrue statement or
alleged untrue statement or
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omission or alleged omission made therein in reliance upon and in conformity
with information furnished in writing to the Company by or on behalf of such
Stockholder Indemnified Party in a signed document stating that such information
is specifically for use therein; provided, further, that the foregoing indemnity
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is subject to the condition that, insofar as it related to any untrue statement,
alleged untrue statement, omission or alleged omission made in a preliminary
prospectus but eliminated or remedied in the final prospectus (filed pursuant to
Rule 424(b) under the Securities Act), such indemnity shall not inure to the
benefit of a Holder from whom the Person asserting any Damages purchased the
Registrable Securities which are the subject thereof, if copies of such final
prospectus were delivered to such Holder on a timely basis and such Holder did
not deliver to such Person the final prospectus with or prior to the written
confirmation for the sale of such Registrable Securities to such Person. In
connection with an Underwritten Offering, the Company will indemnify the
underwriters thereof to the same extent as provided above with respect to the
indemnification of Stockholder Indemnified Parties and use its reasonable best
efforts to obtain a reciprocal and mutual indemnity from the underwriters. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Stockholder Indemnified Party and shall survive any
transfer by the same of the Registrable Securities of the Holders.
8.2. Indemnification by Holders. Each Holder whose Registrable
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Securities are included in a registration statement will furnish to the Company
in writing such information and affidavits with respect to such Holder as the
Company reasonably requests for use in connection with such registration
statement (or prospectus included therein) to be filed or used under this
Agreement, and each of them agrees to indemnify and hold harmless to the fullest
extent permitted by law, the Company, each person who signed the registration
statement, and each Person who controls the Company within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Exchange Act (each, a
"Company Indemnified Party" and, collectively with Stockholder Indemnified
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Parties, the "Indemnified Parties") against joint or several Damages to which
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they or any of them may become subject (i) under the Securities Act, the
Exchange Act or otherwise, insofar as such Damages (or actions in respect
thereof) arise out of or are based upon any untrue or alleged untrue statement
of a material fact contained in any registration statement, prospectus,
preliminary prospectus or any amendment thereof or supplement thereto, or arise
out of or are based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
any Damages arise out of or are based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with information furnished in writing by such Holder to the
Company in a signed document stating that such information is specifically for
use therein; or (ii) as a result of or in connection with any violation of
applicable Laws by such Holder (other than as a result of any act committed by
or omission of a Company Indemnified Party) or any general or limited partners,
employees, officers or directors of such Holder in connection with any such
registration. Notwithstanding the foregoing, the liability of a Holder pursuant
to this Section 8, except for any liability resulting from the willful
misconduct or intentional action of such Holder, shall not exceed an amount
equal to the proceeds realized by such Holder of Registrable Securities sold as
contemplated herein.
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8.3. Conduct of Indemnification Proceedings. Promptly after receipt
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by an Indemnified Party under Sections 8.1 or 8.2 above of notice of the
commencement of any action, such Indemnified Party shall, if a claim in respect
thereof is to be made against the indemnifying party under such subsection,
notify each party against whom indemnification is to be sought in writing at the
commencement thereof (but the failure so to notify an indemnifying party shall
not relieve it from any liability which such party may have under this Section 8
except to the extent that the indemnifying party has been prejudiced in any
material respect by such failure or from any liability which such party may have
otherwise). In case any such action is brought against any Indemnified Party,
and the Indemnified Party notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in and to assume
the defense thereof, jointly with any other indemnifying party, if any, so
notified, with counsel reasonably satisfactory to such Indemnified Party, and
after notice from the indemnifying party to such Indemnified Party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such Indemnified Party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other than
reasonable costs of investigation. Notwithstanding the foregoing, the
Indemnified Party shall have the right to employ its counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of such
Indemnified Party unless (i) the employment of such counsel shall have been
authorized in writing by the indemnifying party in connection with the defense
of such action, or (ii) the indemnifying party shall not have employed counsel
to take charge of the defense of such action within a reasonable time after
notice of the commencement of the action. Anything in this subsection to the
contrary notwithstanding: (A) an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent; and (B)
no indemnifying party shall, without the consent of the Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
8.4. Contribution. In order to provide for contribution in
------------
circumstances in which the indemnification provided for in this Section 8 is for
any reason held to be unavailable or is insufficient to hold harmless an
Indemnified Party, then the indemnifying party and the Indemnified Party shall
contribute to the aggregate Damages of the nature contemplated by such
indemnification provision (including any investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claims asserted, but after deducting from Damages
suffered by the indemnifying party any contribution received by the indemnifying
party from Persons, other than the Indemnified Party, who may also be liable for
contribution, including Persons who control the indemnifying party within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act) to which the indemnifying party, on the one hand, and the Indemnified
Party, on the other hand, may be subject, in such proportions as is appropriate
to reflect the relative fault of the indemnifying party, on the one hand, and
the Indemnified Party, on the other hand, in connection with the statements or
omissions which resulted in Damages, as well as any other relevant equitable
considerations.
11
<PAGE>
8.5. Determination of Fault. The relative fault of the parties shall
----------------------
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by a party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The parties agree that it would not be just
and equitable if contribution pursuant to Section 8.4 and this Section 8.5 was
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to above.
Notwithstanding the foregoing, (i) any underwriting agreement entered into
pursuant hereto may provide that in no case shall any underwriter (except as may
be provided in any agreement among underwriters) be liable or responsible for
any amount in excess of the underwriting discount applicable to the Registrable
Securities purchased by such underwriters, and (ii) no Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under Section 8.4 and this Section 8.5,
notify such party or parties from which contribution may be sought of any
obligation it or they may have under Section 8.4 and this Section 8.5 or
otherwise. No party shall be liable for contribution with respect to any action
or claim settled without its consent, which consent may not be unreasonably
withheld or delayed. Notwithstanding the foregoing, the liability of a Holder
except for any liability resulting from the willful misconduct or intentional
action of such Holder shall not exceed an amount equal to the proceeds realized
by such Holder of Registrable Securities sold as contemplated herein.
9. RULE 144 SALES.
--------------
(i) Exchange Act Compliance. The Company covenants that, so long as
-----------------------
it is subject to the reporting requirements of the Exchange Act, it will use its
reasonable best efforts to file the reports required to be filed by it under the
Exchange Act on a timely basis.
(ii) Cooperation with Holders. In connection with any sale, transfer
------------------------
or other disposition by any Holder of any Registrable Securities pursuant to
Rule 144 under the Securities Act, the Company shall, to the extent permissible
under applicable law, cooperate with such Holder to facilitate such sale,
transfer or other disposition.
10. INFORMATION RIGHTS.
------------------
10.1. From and after the Effective Time and so long as the Berkshire
Stockholders collectively and beneficially own (A) at least 90% of the common
equity securities of the Company held by such Berkshire Stockholders immediately
after the Effective Time and (B) at least five percent (5%) of the outstanding
common equity securities of the Company (clauses (A) and (B) together, the
"Retention Condition"), the Company shall, on a timely basis, furnish such
-------------------
Berkshire Stockholders with annual and quarterly reports concerning the Company,
the content of which will be substantially as would be required to be publicly
disclosed by an issuer whose securities are registered under Section 12 of the
Exchange Act.
12
<PAGE>
10.2. So long as the Retention Condition remains satisfied, the
Company shall, on a timely basis, furnish the Berkshire Stockholders with the
written materials that the Company submits to the members of its Board of
Directors if either (A) a material default under any of the Company's material
debt agreements shall have occurred and is continuing; or (B) the fifth
anniversary of the Effective Time shall have occurred and no Initial Public
Offering shall have been consummated. To the extent such written materials
contain material, nonpublic information about the Company or information which
is otherwise marked as confidential, the Berkshire Stockholders will treat such
information as confidential.
11. FUTURE COMMON EQUITY OFFERINGS.
------------------------------
11.1. The Company agrees with the Berkshire Stockholders as follows:
In the event that, during the period beginning immediately after the Effective
Time up to but not including the Initial Public Offering, the Company intends to
engage in a New Common Equity Offering (as defined below), it shall (i) issue
all common equity interests in such New Common Equity Offering at a price that
is not less than the fair market value of such common equity interests as
determined, in good faith, by the Board of Directors of the Company, or (ii)
take steps as are necessary to enable all holders of then outstanding common
equity interests (exclusive of stock options and other stock incentive
arrangements) to participate pro rata in the New Common Equity Offering through
reasonable procedures prescribed in good faith by the Board of Directors of the
Company. For purposes hereof, a "New Common Equity Offering" means the issuance
by the Company of common equity securities, or securities convertible into, or
exercisable or exchangeable for, common equity securities other than issuance of
any common equity interests (x) in connection with stock incentive or
compensation plans approved by the Board of Directors of the Company and (y) to
sellers of businesses in connection with acquisitions of such businesses by the
Company or similar transactions by the Company (or a subsidiary of the Company).
12. MISCELLANEOUS.
-------------
12.1. Notices. All notices, instructions and other communications in
-------
connection with this Agreement shall be in writing and may be given by (i)
personal delivery, (ii) sent by certified mail, return receipt requested,
postage prepaid, or (iii) delivery by a nationally recognized overnight courier,
to the parties at the addresses of each as set forth on the signature pages to
this Agreement (or at such other address as the Company may specify in a notice
to the other parties or as any other party may specify in a notice to the
Company and the other parties). Notices shall be deemed to have been given (A)
when actually delivered personally, (B) the next business day if sent by
overnight courier (with proof of delivery), and (C) on the fifth day after
mailing by certified mail.
12.2. No Waiver. No course of dealing and no delay on the part of
---------
any party hereto in exercising any right, power or remedy conferred by this
Agreement shall operate as a waiver thereof or otherwise prejudice such party's
rights, powers and remedies conferred by this Agreement, or shall preclude any
other or further exercise thereof or the exercise of any other right, power and
remedy.
13
<PAGE>
12.3. Binding Effect; Assignability. This Agreement may not be
-----------------------------
assigned by any Holder under any circumstances except to a Permitted Assignee.
As used herein, "Permitted Assignee" means (a) a Person to whom record ownership
of Registrable Securities is transferred by a Holder without violation or breach
of the Charter or any agreement restricting such transfer provided that the
--------
transferring Holder shall give at least 10 days advance notice of such transfer
to the Company and provided further that, with respect to any transfer to any
-------- -------
Person who is not an Investcorp Investor after giving effect to such transfer,
such Permitted Transferee holds no less than 25,000 shares of Class A common
stock of the Company or, if the Initial Public Offering has occurred, 25,000
shares of common stock of the Company (in each case as such amount may be
adjusted to reflect any stock split, stock dividend or similar transaction) and
all the shares so held are subject to the terms and provisions of this Agreement
or (b) any Investcorp Investor. This Agreement shall be binding upon the
Company and its successors and upon the successors and Permitted Assignees of
the Holders.
12.4. Amendment and Waiver. The rights of the Holders and the
--------------------
obligations the Company hereunder are subject to amendment upon and any non-
compliance by the Company may be waived by, the written consent of the Company
and a majority in interest of the Holders of Registrable Securities; provided
--------
that (i) no such amendment or waiver which adversely affects Holders who are
Investcorp Investors shall be effective unless a majority in interest of Holders
who are Investcorp Investors shall also give their consent thereto, (ii) no such
amendment or waiver which adversely affects Holders who are not Investcorp
Investors shall be effective unless a majority in interest of the Holders who
are not Investcorp Investors shall also give their consent thereto and (iii)
waivers and amendments of Sections 10 or 11 shall be effective only upon the
written consent of the Company and the Berkshire Stockholders. Any amendment
satisfying the foregoing requirements, as applicable, shall be binding upon all
parties and Holders, as applicable.
12.5. Governing Law; Service of Process. This Agreement shall be
---------------------------------
construed as to both the validity and performance in accordance with, and
governed by, the laws of the State of New York applicable to agreements to be
performed in New York, without regard to principles of conflict of laws. Each
of the parties hereto irrevocably consents to the jurisdiction and venue of any
state or federal court situated in the City of New York in the State of New
York, and further consents to the service of any and all process in any action
or proceeding arising out of or relating to this Agreement by the mailing of
copies of such process to such party at its address pursuant to Section 12.1
hereof.
12.6. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument, and all signatures need
not appear on any one counterpart.
12.7. Headings; Sections. All headings and captions in this
------------------
Agreement are for purposes of reference only and shall not be construed to limit
or affect the substance of this Agreement. All references to Section in this
Agreement refer to Sections of this Agreement, unless the context otherwise
expressly provides.
14
<PAGE>
12.8. Entire Agreement. This Agreement contains, and is intended as,
----------------
a complete statement of all the terms of the arrangements between the parties
with respect to the matters provided for, and supersedes any previous agreements
and understandings between the parties with respect to those matters.
12.9. Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired in any way
thereby.
[The remainder of this page intentionally left blank]
15
<PAGE>
IN WITNESS WHEREOF, this Agreement is entered into as of the date first
above written.
HARBORSIDE HEALTHCARE CORPORATION
By: /s/ William Stephan
-------------------
Name: William Stephan
Title: Senior Vice President and
Chief Financial Officer
Address: 470 Atlantic Avenue
Boston, MA 02210
KRUPP ENTERPRISES, L.P.
By: KGP-1 Incorporated
its General Partner
By: /s/ Douglas Krupp
-----------------
Name: Douglas Krupp
Title: Chairman
Address: 470 Atlantic Avenue
Boston, MA 02210
THE BERKSHIRE COMPANIES
LIMITED PARTNERSHIP
By: KGP-1 Incorporated
its General Partner
By: /s/ Douglas Krupp
-----------------
Name: Douglas Krupp
Title: Chairman
Address: 470 Atlantic Avenue
Boston, MA 02210
<PAGE>
THE GEORGE KRUPP 1994 FAMILY TRUST
By: /s/ Lawrence I. Silverstein
---------------------------
Name: Lawrence I. Silverstein
Title: Trustee
By: /s/ Paul Krupp
--------------
Name: Paul Krupp
Title: Trustee
By: /s/ M. Gordon Ehrlich
---------------------
Name: M. Gordon Ehrlich
Title: Trustee
Address: 470 Atlantic Avenue
Boston, MA 02210
THE DOUGLAS KRUPP 1994 FAMILY TRUST
By: /s/ Lawrence I. Silverstein
---------------------------
Name: Lawrence I. Silverstein
Title: Trustee
By: /s/ Paul Krupp
--------------
Name: Paul Krupp
Title: Trustee
By: /s/ M. Gordon Ehrlich
---------------------
Name: M. Gordon Ehrlich
Title: Trustee
Address: 470 Atlantic Avenue
Boston, MA 02210
<PAGE>
BALLET LIMITED
By: /s/ H. Richard Lukens, III
------------------------------
DENARY LIMITED
By: /s/ H. Richard Lukens, III
------------------------------
HIGHLANDS LIMITED
By: /s/ H. Richard Lukens, III
------------------------------
GLEAM LIMITED
By: /s/ H. Richard Lukens, III
------------------------------
NOBLE LIMITED
By: /s/ H. Richard Lukens, III
------------------------------
OUTRIGGER LIMITED
By: /s/ H. Richard Lukens, III
------------------------------
<PAGE>
QUILL LIMITED
By: /s/ H. Richard Lukens, III
-------------------------------
RADIAL LIMITED
By: /s/ H. Richard Lukens, III
-------------------------------
SHORELINE LIMITED
By: /s/ H. Richard Lukens, III
-------------------------------
ZINNIA LIMITED
By: /s/ H. Richard Lukens, III
-------------------------------
INVESTCORP INVESTMENT
EQUITY LIMITED
By: /s/ Sydney J. Coleman
-------------------------------
ANDOVER LIMITED
By: /s/ Kenneth V. Shanahan
-------------------------------
CORDAVILLE LIMITED
By: /s/ Kenneth V. Shanahan
-------------------------------
<PAGE>
QUILL LIMITED
By: /s/ H. Richard Lukens, III
----------------------------------
RADIAL LIMITED
By: /s/ H. Richard Lukens, III
----------------------------------
SHORELINE LIMITED
By: /s/ H. Richard Lukens, III
----------------------------------
ZINNIA LIMITED
By: /s/ H. Richard Lukens, III
----------------------------------
INVESTCORP INVESTMENT EQUITY
LIMITED
By: /s/ Sydney J. Coleman
----------------------------------
The Director Ltd., Director
ANDOVER LIMITED
By: /s/ Kenneth V. Shanahan
----------------------------------
Martonmere Services Ltd., Director
CORDAVILLE LIMITED
By: /s/ Kenneth V. Shanahan
----------------------------------
Martonmere Services Ltd., Director
<PAGE>
FOXBORO LIMITED
By: /s/ Kenneth V. Shanahan
-----------------------------------
Martonmere Services Ltd., Director
PATTENVILLE LIMITED
By: /s/ Kenneth V. Shanahan
-----------------------------------
Martonmere Services Ltd., Director
HBRS LIMITED
By: /s/ Sydney J. Coleman
-----------------------------------
The Director Ltd., Director
<PAGE>
Exhibit A
to
Master Rights Agreement
Initial Berkshire Stockholders
------------------------------
<TABLE>
<CAPTION>
Name Number and Class of Shares
---- --------------------------
<S> <C>
The George Krupp 1994 Family Trust [217,840] shares of Class A Common Stock
The Douglas Krupp 1994 Family Trust [217,841] shares of Class A Common Stock
</TABLE>
Initial Investcorp Investors
----------------------------
<TABLE>
<CAPTION>
Name Number and Class of Shares
---- --------------------------
<S> <C>
Andover Limited 1,485,000 shares of Class B Common Stock
Cordaville Limited 1,485,000 shares of Class B Common Stock
Foxboro Limited 1,485,000 shares of Class B Common Stock
Pattenville Limited 1,485,000 shares of Class B Common Stock
HBRS Limited 640,000 shares of Class C Common Stock
Ballet Limited 1,840 shares of Class D Common Stock
Denary Limited 1,840 shares of Class D Common Stock
Highlands Limited 1,840 shares of Class D Common Stock
Gleam Limited 1,840 shares of Class D Common Stock
Noble Limited 1,840 shares of Class D Common Stock
Outrigger Limited 1,840 shares of Class D Common Stock
Quill Limited 1,840 shares of Class D Common Stock
Radial Limited 1,840 shares of Class D Common Stock
Shoreline Limited 1,840 shares of Class D Common Stock
Zinnia Limited 1,840 shares of Class D Common Stock
Investcorp Investment Equity Limited 1,600 shares of Class D Common Stock
</TABLE>
22
<PAGE>
EXHIBIT 10.23
================================================================================
LEASE
between
HHC 1998-1 TRUST,
as Lessor,
and
HARBORSIDE OF DAYTON LIMITED PARTNERSHIP,
as Lessee
___________________________
Dated as of August 11, 1998
___________________________
================================================================================
THIS LEASE IS SUBJECT TO A SECURITY INTEREST IN FAVOR OF THE CHASE MANHATTAN
BANK, AS AGENT (THE "AGENT") FOR THE LENDERS UNDER A CREDIT AGREEMENT, DATED AS
OF AUGUST 11, 1998 AMONG HHC 1998-1 TRUST, THE LENDERS, AND THE AGENT, AS
AMENDED OR SUPPLEMENTED. THIS LEASE HAS BEEN EXECUTED IN SEVERAL COUNTERPARTS.
TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER (AS SUCH TERM
IS DEFINED IN THE UNIFORM COMMERCIAL CODE OF THE STATE OF NEW YORK), NO SECURITY
INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY
COUNTERPART OTHER THAN THE ORIGINAL COUNTERPART CONTAINING THE RECEIPT THEREFOR
EXECUTED BY THE AGENT ON THE SIGNATURE PAGE HEREOF.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS...................................................... 1
1.1 Defined Terms....................................................... 1
SECTION 2. PROPERTY AND TERM................................................ 1
2.1 Property............................................................ 1
2.2 Lease Term.......................................................... 1
2.3 Title............................................................... 1
2.4 Lease Supplements................................................... 1
SECTION 3. RENT............................................................. 1
3.1 Rent................................................................ 1
3.2 Supplemental Rent................................................... 2
3.3 Performance on a Non-Business Day................................... 2
SECTION 4. UTILITY CHARGES.................................................. 2
4.1 Utility Charges..................................................... 2
SECTION 5. QUIET ENJOYMENT.................................................. 3
5.1 Quiet Enjoyment..................................................... 3
SECTION 6. NET LEASE........................................................ 3
6.1 Net Lease; No Setoff; Etc........................................... 3
6.2 No Termination or Abatement......................................... 4
SECTION 7. OWNERSHIP OF PROPERTY............................................ 4
7.1 Ownership of the Property........................................... 4
SECTION 8. CONDITION OF PROPERTY............................................ 6
8.1 Condition of the Property........................................... 6
8.2 Possession and Use of the Property.................................. 6
SECTION 9. COMPLIANCE....................................................... 6
9.1 Compliance with Legal Requirements and Insurance Requirements....... 6
9.2 Environmental Matters............................................... 7
SECTION 10................................................................... 7
10.1 Maintenance and Repair; Return...................................... 7
10.2 Right of Inspection................................................. 9
10.3 Environmental Inspection............................................ 9
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 11. MODIFICATIONS.................................................... 9
11.1 Modifications, Substitutions and Replacements....................... 9
SECTION 12. TITLE............................................................ 10
12.1 Warranty of Title................................................... 10
12.2 Grants and Releases of Easements.................................... 11
SECTION 13. PERMITTED CONTESTS............................................... 11
13.1 Permitted Contests Other Than in Respect of Impositions............. 11
SECTION 14. INSURANCE........................................................ 12
14.1 Public Liability and Workers' Compensation Insurance................ 12
14.2 Hazard and Other Insurance.......................................... 12
14.3 Coverage............................................................ 13
SECTION 15. CONDEMNATION AND CASUALTY........................................ 13
15.1 Casualty and Condemnation........................................... 13
SECTION 16. LEASE TERMINATION................................................ 15
16.1 Termination upon Certain Events..................................... 15
16.2 Procedures.......................................................... 16
SECTION 17. DEFAULT.......................................................... 16
17.1 Lease Events of Default............................................. 16
17.2 Final Liquidated Damages............................................ 17
17.3 Lease Remedies...................................................... 18
17.4 Waiver of Certain Rights............................................ 19
17.5 Assignment of Rights Under Contracts................................ 20
17.6 Remedies Cumulative................................................. 20
SECTION 18. LESSOR'S RIGHT TO CURE........................................... 20
18.1 Lessor's Right to Cure Lessee's Lease Defaults...................... 20
SECTION 19. LEASE TERMINATION................................................ 20
19.1 Provisions Relating to Lessee's Termination of this Lease or
Exercise of Purchase Option......................................... 20
SECTION 20. PURCHASE OPTION.................................................. 21
20.1 Purchase Option..................................................... 21
20.2 Maturity Date Purchase Option....................................... 21
20.3 Obligation to Purchase All Properties............................... 21
SECTION 21. SALE OF PROPERTY 21
21.1 Sale Procedure...................................................... 21
21.2 Application of Proceeds of Sale..................................... 22
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
21.3 Indemnity for Excessive Wear......................................... 23
21.4 Appraisal Procedure.................................................. 23
21.5 Certain Obligations Continue......................................... 23
SECTION 22. HOLDING OVER...................................................... 24
22.1 Holding Over......................................................... 24
SECTION 23. RISK OF LOSS...................................................... 24
23.1 Risk of Loss......................................................... 24
SECTION 24. SUBLETTING AND ASSIGNMENT......................................... 24
24.1 Subletting and Assignment............................................ 24
24.2 Subleases............................................................ 24
SECTION 25. ESTOPPEL CERTIFICATES............................................. 25
25.1 Estoppel Certificates................................................ 25
SECTION 26. NO WAIVER......................................................... 25
26.1 No Waiver............................................................ 25
SECTION 27. ACCEPTANCE OF SURRENDER........................................... 25
27.1 Acceptance of Surrender.............................................. 25
SECTION 28. NO MERGER OF TITLE................................................ 25
28.1 No Merger of Title................................................... 26
SECTION 29. NOTICES........................................................... 26
29.1 Notices.............................................................. 26
SECTION 30. MISCELLANEOUS..................................................... 27
30.1 Miscellaneous........................................................ 27
30.2 Amendments and Modifications......................................... 27
30.3 Successors and Assigns............................................... 27
30.4 Headings and Table of Contents....................................... 27
30.5 Counterparts......................................................... 27
30.6 GOVERNING LAW........................................................ 27
30.7 Limitations on Recourse.............................................. 28
30.8 Memorandum of Lease.................................................. 28
30.9 Priority............................................................. 28
30.10 Ground Lease......................................................... 28
</TABLE>
Exhibits
Exhibit A Lease Supplement
Exhibit B Memorandum of Lease
-iii-
<PAGE>
LEASE (this "Lease"), dated as of August 11, 1998, between HHC 1998-1
-----
TRUST, a Delaware business trust, as lessor (the "Lessor"), and HARBORSIDE OF
------
DAYTON LIMITED PARTNERSHIP, a Massachusetts limited partnership, as lessee (the
"Lessee").
------
In consideration of the mutual agreements herein contained, and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS
1.1 Defined Terms. Capitalized terms used herein but not otherwise
-------------
defined in this Lease shall have the respective meanings specified in Annex A to
the Participation Agreement dated as of the date hereof among Lessee, Lessor,
Trust Company, Agent, the Investors and the Lenders named therein, as such
Participation Agreement may be amended, supplemented or otherwise modified from
time to time in accordance with the terms thereof.
2. PROPERTY AND TERM
2.1 Property. Subject to the terms and conditions hereinafter set
--------
forth and contained in the respective Lease Supplement relating to each
Property, Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor,
each Property.
2.2 Lease Term. The Property is leased for the Term, unless extended
----------
or earlier terminated in accordance with the provisions of this Lease.
2.3 Title. The Property is leased to Lessee without any
-----
representation or warranty, express or implied, by Lessor and subject to the
rights of parties in possession, the existing state of title (including, without
limitation, the Permitted Exceptions) and all applicable Legal Requirements.
Lessee shall in no event have any recourse against Lessor for any defect in
title to the Property.
2.4 Lease Supplements. On each Property Closing Date, Lessee and
-----------------
Lessor shall each execute and deliver a Lease Supplement for the Property to be
leased on such date in substantially the form of Exhibit A hereto and thereafter
---------
such Property shall be subject to the terms of this Lease.
3. RENT
3.1 Rent. (a) On each applicable Payment Date occurring after the
----
termination of the Construction Period with respect to a Construction Period
Property and on each applicable Payment Date after the Property Closing Date
with respect to a Completed Property, Lessee shall pay the Basic Rent
attributable to such Property.
<PAGE>
2
(a) Basic Rent shall be due and payable in lawful money of the United
States and shall be paid by wire transfer of immediately available funds on the
due date therefor to such account or accounts at such bank or banks or to such
other Person or in such other manner as Lessor shall from time to time direct.
(b) Neither Lessee's inability or failure to take possession of all,
or any portion, of the Property when delivered by Lessor, nor Lessor's inability
or failure to deliver all or any portion of the Property to Lessee, whether or
not attributable to any act or omission of Lessee or any act or omission of
Lessor, or for any other reason whatsoever, shall delay or otherwise affect
Lessee's obligation to pay Rent in accordance with the terms of this Lease.
3.2 Supplemental Rent. (a) Lessee shall pay to Lessor or the Person
-----------------
entitled thereto any and all Supplemental Rent promptly as the same shall become
due and payable, and if Lessee fails to pay any Supplemental Rent as the same
shall become due and payable, Lessor shall have all rights, powers and remedies
provided for herein or by law or equity or otherwise in the case of nonpayment
of Basic Rent. Lessee shall pay to Lessor as Supplemental Rent, among other
things, on demand, to the extent permitted by applicable Legal Requirements,
interest at the applicable Overdue Rate on any installment of Basic Rent not
paid when due for the period for which the same shall be overdue and on any
payment of Supplemental Rent not paid when due or demanded by Lessor for the
period from the due date or the date of any such demand or the date on which the
Person entitled thereto is entitled to receive interest thereon (if later than
the due date or the date of Lessor's demand), as the case may be, until the same
shall be paid. The expiration or other termination of Lessee's obligations to
pay Basic Rent hereunder shall not limit or modify the obligations of Lessee
with respect to Supplemental Rent. Unless expressly provided otherwise in this
Lease or any other Operative Agreement, in the event of any failure on the part
of Lessee to pay and discharge any Supplemental Rent as and when due, Lessee
shall also promptly pay and discharge any fine, penalty, interest or cost which
may be assessed or added for nonpayment or late payment of such Supplemental
Rent, all of which shall also constitute Supplemental Rent.
(a) Lessee shall make a payment of Supplemental Rent equal to the
Maximum Residual Guarantee Amount in accordance with Section 21.1(c).
3.3 Performance on a Non-Business Day. If any payment is required
---------------------------------
hereunder on a day that is not a Business Day, then such payment shall be due on
the next succeeding Business Day, unless, in the case of payments based on the
Eurodollar Rate, the result of such extension would be to extend such payment
into another calendar month, in which event such payment shall be made on the
immediately preceding Business Day.
4. UTILITY CHARGES
4.1 Utility Charges. Lessee shall pay, or cause to be paid, all
---------------
charges for electricity, power, gas, oil, water, telephone, sanitary sewer
service and all other rents and
<PAGE>
3
utilities used in or on each Property during the Term. Lessee shall be entitled
to receive any credit or refund with respect to any utility charge paid by
Lessee and the amount of any credit or refund received by Lessor on account of
any utility charges paid by Lessee, net of the costs and expenses incurred by
Lessor in obtaining such credit or refund, shall be promptly paid over to
Lessee. All charges for utilities imposed with respect to the Property for a
billing period during which this Lease expires or terminates shall be adjusted
and prorated on a daily basis between Lessor and Lessee, and each party shall
pay or reimburse the other for each party's pro rata share thereof.
5. QUIET ENJOYMENT
5.1 Quiet Enjoyment. So long as no Lease Event of Default shall have
---------------
occurred and be continuing, Lessee shall peaceably and quietly have, hold and
enjoy each Property for the Term, free of any claim or other action by Lessor or
anyone rightfully claiming by, through or under Lessor.
6. NET LEASE
6.1 Net Lease; No Setoff; Etc. This Lease shall constitute a net
--------------------------
lease and, notwithstanding any other provision of this Lease, it is intended
that Basic Rent and Supplemental Rent shall be paid without counterclaim,
setoff, deduction or defense of any kind and without abatement, suspension,
deferment, diminution or reduction of any kind, and Lessee's obligation to pay
all such amounts is absolute and unconditional. The obligations and liabilities
of Lessee hereunder shall in no way be released, discharged or otherwise
affected for any reason, including, without limitation, to the maximum extent
permitted by law: (a) any defect in the condition, merchantability, design,
construction, quality or fitness for use of any portion of any Property, or any
failure of any Property to comply with all Legal Requirements, including any
inability to occupy or use any Property by reason of such non-compliance; (b)
any damage to, abandonment, loss, contamination of or Release from or
destruction of or any requisition or taking of any Property or any part thereof,
including eviction; (c) any restriction, prevention or curtailment of or
interference with any use of any Property or any part thereof, including
eviction; (d) any defect in title to or rights to any Property or any Lien on
such title or rights or on any Property; (e) any change, waiver, extension,
indulgence or other action or omission or breach in respect of any obligation or
liability of or by Lessor, Investors, Agent or any Lender; (f) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution, liquidation or
other like proceedings relating to Lessee, Lessor, Investors, Agent, any Lender
or any other Person, or any action taken with respect to this Lease by any
trustee or receiver of Lessee, Lessor, Investors, Agent, any Lender or any other
Person, or by any court, in any such proceeding; (g) any claim that Lessee has
or might have against any Person, including, without limitation, Lessor,
Investors, Agent or any Lender; (h) any failure on the part of Lessor to perform
or comply with any of the terms of this Lease, any other Operative Agreement or
of any other agreement; (i) any invalidity or unenforceability or disaffirmance
against or by Lessee of this Lease or any provision hereof or any of the other
Operative Agreements or any provision of
<PAGE>
4
any thereof; (j) the impossibility of performance by Lessee, Lessor or both; (k)
any action by any court, administrative agency or other Governmental Authority;
any restriction, prevention or curtailment of or any interference with the
construction on or any use of any Property or any part thereof; or (m) any other
occurrence whatsoever, whether similar or dissimilar to the foregoing, whether
or not Lessee shall have notice or knowledge of any of the foregoing. This Lease
shall be noncancellable by Lessee for any reason whatsoever except as expressly
provided herein, and Lessee, to the extent permitted by Legal Requirements,
waives all rights now or hereafter conferred by statute or otherwise to quit,
terminate or surrender this Lease, or to any diminution, abatement or reduction
of Rent payable by Lessee hereunder. If for any reason whatsoever this Lease
shall be terminated in whole or in part by operation of law or otherwise, except
as otherwise expressly provided herein, Lessee shall, unless prohibited by Legal
Requirements, nonetheless pay to Lessor (or, in the case of Supplemental Rent,
to whomever shall be entitled thereto) an amount equal to each Rent payment at
the time and in the manner that such payment would have become due and payable
under the terms of this Lease if it had not been terminated in whole or in part,
and in such case, so long as such payments are made and no Lease Event of
Default shall have occurred and be continuing, Lessor will deem this Lease to
have remained in effect. Each payment of Rent made by Lessee hereunder shall be
final and, absent manifest error in the computation of the amount thereof,
Lessee shall not seek or have any right to recover all or any part of such
payment from Lessor, Investors, Agent or any party to any agreements related
thereto for any reason whatsoever. Lessee assumes the sole responsibility for
the condition, use, operation, maintenance, and management of the Property and
Lessor shall have no responsibility in respect thereof and shall have no
liability for damage to the property of Lessee or any subtenant of Lessee on any
account or for any reason whatsoever.
6.2 No Termination or Abatement. Lessee shall remain obligated under
---------------------------
this Lease in accordance with its terms and shall not take any action to
terminate, rescind or avoid this Lease, notwithstanding any action for
bankruptcy, insolvency, reorganization, liquidation, dissolution, or other
proceeding affecting Lessor, or any action with respect to this Lease which may
be taken by any trustee, receiver or liquidator of Lessor or by any court with
respect to Lessor, except as otherwise expressly provided herein. Lessee hereby
waives all right (i) to terminate or surrender this Lease, except as otherwise
expressly provided herein, or (ii) to avail itself of any abatement, suspension,
deferment, reduction, setoff, counterclaim or defense with respect to any Rent.
Lessee shall remain obligated under this Lease in accordance with its terms and
Lessee hereby waives any and all rights now or hereafter conferred by statute or
otherwise to modify or to avoid strict compliance with its obligations under
this Lease. Notwithstanding any such statute or otherwise, Lessee shall be
bound by all of the terms and conditions contained in this Lease.
<PAGE>
5
7. OWNERSHIP OF PROPERTY
7.1 Ownership of the Property. (a) Lessor and Lessee intend that (i)
-------------------------
for financial accounting purposes with respect to Lessee (A) this Lease will be
treated as an "operating lease" pursuant to Statement of Financial Accounting
Standards (SFAS) No. 13, as amended, (B) Lessor will be treated as the owner and
lessor of the Property and (C) Lessee will be treated as the lessee of the
Property, but (ii) for federal, state and local income tax and remedial purposes
(A) this Lease will be treated as a financing arrangement, (B) the Lenders will
be treated as senior lenders making loans to Lessee in an amount equal to the
Loans, which Loans will be secured by the Property, (C) Lessor will be treated
as a subordinated lender making a loan to Lessee in an amount equal to the
Investor Contribution, which loan is secured by the Property, and (D) Lessee
will be treated as the owner of the Property and will be entitled to all tax
benefits ordinarily available to an owner of property like the Property for such
tax purposes.
(a) Lessor and Lessee further intend and agree that, for the purpose
of securing Lessee's obligations for the repayment of the above-described loans,
(i) this Lease shall also be deemed to be a security agreement and financing
statement within the meaning of Article 9 of the Uniform Commercial Code and a
real property mortgage or deed of trust, as applicable; (ii) the conveyance
provided for in Section 2 shall be deemed a grant of a security interest in and
a mortgage lien on the Lessee's right, title and interest in the Properties
(including the right to exercise all remedies as are contained in the applicable
Mortgage and Memorandum of Lease upon the occurrence of a Lease Event of
Default) and all proceeds of the conversion, voluntary or involuntary, of the
foregoing into cash, investments, securities or other property, whether in the
form of cash, investments, securities or other property, for the benefit of the
Lessor to secure the Lessee's payment of all amounts owed by the Lessee under
this Lease and the other Operative Agreements and Lessor holds title to the
Properties so as to create and grant a first lien and prior security interest in
each Property (A) pursuant to this Lease for the benefit of the Agent under the
Assignment of Lease, to secure to the Agent the obligations of the Lessee under
the Lease and (B) pursuant to the Mortgages to secure to the Agent the
obligations of the Lessor under the Mortgages and the Notes; (iii) the
possession by Lessor or any of its agents of notes and such other items of
property as constitute instruments, money, negotiable documents or chattel paper
shall be deemed to be "possession by the secured party" for purposes of
perfecting the security interest pursuant to Section 9-305 of the Uniform
Commercial Code; and (iv) notifications to Persons holding such property, and
acknowledgements, receipts or confirmations from financial intermediaries,
bankers or agents (as applicable) of Lessee shall be deemed to have been given
for the purpose of perfecting such security interest under applicable law.
Lessor and Lessee shall, to the extent consistent with this Lease, take such
actions as may be necessary to ensure that, if this Lease were deemed to create
a security interest in the Properties in accordance with this Section, such
security interest would be deemed to be a perfected security interest of first
priority under applicable law and will be maintained as such throughout the
Basic Term. Nevertheless, Lessee acknowledges and agrees that none of Lessor,
Investors, the Trust Company, Agent, or any Lender has provided or will provide
tax, accounting or legal advice to Lessee regarding this Lease, the Operative
Agreements or the transactions contemplated hereby and thereby, or made any
representations or warranties concerning the tax, accounting or legal
<PAGE>
6
characteristics of the Operative Agreements, and that Lessee has obtained and
relied upon such tax, accounting and legal advice concerning the Operative
Agreements as it deems appropriate.
(b) Lessor and Lessee further intend and agree that in the event of
any insolvency or receivership proceedings or a petition under the United States
bankruptcy laws or any other applicable insolvency laws or statute of the United
States of America or any State or Commonwealth thereof affecting Lessee or
Lessor, the transactions evidenced by this Lease shall be regarded as loans made
by an unrelated third party lender to Lessee.
8. CONDITION OF PROPERTY
8.1 Condition of the Property. LESSEE ACKNOWLEDGES AND AGREES THAT IT
-------------------------
IS RENTING EACH PROPERTY "AS IS" WITHOUT REPRESENTATION, WARRANTY OR COVENANT
(EXPRESS OR IMPLIED) BY LESSOR AND SUBJECT TO (A) THE EXISTING STATE OF TITLE,
(B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, (C) ANY STATE OF FACTS
WHICH AN ACCURATE SURVEY OR PHYSICAL INSPECTION MIGHT SHOW AND (D) VIOLATIONS OF
LEGAL REQUIREMENTS WHICH MAY EXIST ON THE DATE HEREOF. NONE OF LESSOR, THE
INVESTORS, THE AGENT AND ANY LENDER HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY
REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED, INCLUDING THE
CONDITION OF ANY IMPROVEMENTS THEREON, THE SOIL CONDITION, OR ANY ENVIRONMENTAL
OR HAZARDOUS MATERIAL CONDITION) OR SHALL BE DEEMED TO HAVE ANY LIABILITY
WHATSOEVER AS TO THE TITLE, VALUE, HABITABILITY, USE, CONDITION, DESIGN,
OPERATION, OR FITNESS FOR USE OF THE PROPERTY (OR ANY PART THEREOF), OR ANY
OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO ANY PROPERTY (OR ANY PART THEREOF) AND NONE OF LESSOR, THE INVESTORS,
THE AGENT AND ANY LENDER SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT
DEFECT THEREIN OR THE FAILURE OF ANY PROPERTY, OR ANY PART THEREOF, TO COMPLY
WITH ANY LEGAL REQUIREMENT.
8.2 Possession and Use of the Property. Each Construction Period
----------------------------------
Property shall be used in a manner consistent with the Agency Agreement and,
after the Completion Date for such Construction Period Property, and after the
Property Closing Date for a Completed Property, used by Lessee in the normal
course of its operations as a skilled nursing, assisted living, retirement or
congregate care facility (or related ancillary businesses, such as
rehabilitative therapy, home healthcare and pharmaceutical businesses associated
therewith). Lessee shall pay, or cause to be paid, all charges and costs
required in connection with the use of the Properties. Lessee shall not commit
or permit any waste of any Property or any part thereof.
9. COMPLIANCE
<PAGE>
7
9.1 Compliance with Legal Requirements and Insurance Requirements.
-------------------------------------------------------------
Subject to the terms of Section 13 relating to permitted contests, Lessee, at
its sole cost and expense, shall (a) comply in all material respects with all
Legal Requirements (including all Environmental Laws) and Insurance Requirements
relating to each Property, including the use, construction, operation,
maintenance, repair and restoration thereof, whether or not compliance therewith
shall require structural or extraordinary changes in the Improvements or
interfere with the use and enjoyment of each Property, and (b) procure, maintain
and comply in all material respects with all licenses, permits, orders,
approvals, consents and other authorizations required for the construction,
renovation, use, maintenance and operation of each Property and for the use,
operation, maintenance, repair and restoration of the Improvements.
9.2 Environmental Matters. (a) Promptly upon Lessee's actual
---------------------
knowledge of the presence of Hazardous Substances in any portion of a Property
in concentrations and conditions that constitute an Environmental Violation,
Lessee shall notify Lessor in writing of such condition. In the event of such
Environmental Violation, Lessee shall, not later than ninety (90) days after
Lessee has actual knowledge of such Environmental Violation, either deliver to
Lessor and the Agent an Officer's Certificate and a Termination Notice with
respect to such Property pursuant to Section 16.1, if applicable, or, at
Lessee's sole cost and expense, promptly and diligently undertake any response,
clean up, remedial or other action necessary to remove, cleanup or remediate the
Environmental Violation in accordance with the terms of Section 9.1. If Lessee
does not deliver a Termination Notice with respect to such Property pursuant to
Section 16.1, Lessee shall, upon completion of remedial action by Lessee, cause
to be prepared by an environmental consultant reasonably acceptable to Lessor a
report describing the Environmental Violation and the actions taken by Lessee
(or its agents) in response to such Environmental Violation, and a statement by
the consultant that such Environmental Violation has been remedied in full
compliance with applicable Environmental Laws.
(a) In addition, Lessee shall provide to Lessor, within five (5)
Business Days of receipt, copies of all written communications with any
Governmental Authority relating to the material violation of any Environmental
Law in connection with any Property. Lessee shall also promptly provide such
detailed reports of any such environmental claims as reasonably may be requested
by Lessor and the Agent.
10. MAINTENANCE AND REPAIR
10.1 Maintenance and Repair; Return. (a) Lessee, at its sole cost
------------------------------
and expense, shall maintain each Property in good condition (ordinary wear and
tear excepted) and make all necessary repairs thereto, of every kind and nature
whatsoever, whether interior or exterior, ordinary or extraordinary, structural
or nonstructural or foreseen or unforeseen, in each case as required by all
Legal Requirements and Insurance Requirements and on a basis reasonably
consistent with the operation and maintenance of commercial properties
comparable in type and location to the applicable Property subject, however, to
the provisions of Section 15 with respect to Condemnation and Casualty.
<PAGE>
8
(a) Lessor shall under no circumstances be required to build any
Improvements on any Property, make any repairs, replacements, alterations or
renewals of any nature or description to any Property, make any expenditure
whatsoever in connection with this Lease or maintain any Property in any way.
Lessor shall not be required to maintain, repair or rebuild all or any part of
any Property, and Lessee waives the right to (i) require Lessor to maintain,
repair, or rebuild all or any part of any Property, or (ii) make repairs at the
expense of Lessor pursuant to any Legal Requirement, Insurance Requirement,
contract, agreement, covenants, condition or restriction at any time in effect.
(b) Lessee shall, upon the expiration or earlier termination of the
Term with respect to a Property (unless the Property is being conveyed to
Lessee), vacate, surrender and transfer such Property to Lessor, at Lessee's own
expense, free and clear of all Liens other than Permitted Liens and Lessor
Liens, in as good condition as they were on the Property Closing Date in the
case of a Completed Property or on the Completion Date in the case of a
Construction Period Property, ordinary wear and tear excepted, and in compliance
with all Legal Requirements and the other requirements of this Lease (and in any
event without (x) any asbestos installed or maintained in any part of such
Property, (y) any polychlorinated byphenyls (PCBs) in, on or used, stored or
located at such Property, and (z) any other Hazardous Substances). Lessee shall
provide, or cause to be provided or accomplished, at the sole cost and expense
of Lessee, (unless the Property is being conveyed to Lessee) to or for the
benefit of Lessor or a purchaser, at least thirty Business Days prior to the
expiration or earlier termination of the Term with respect to a Property, each
of the following: (i) an endorsement to the title policy issued for such
Property showing (A) record title of the Lessor in the leasehold or fee estate,
as the case may be, subject to no Liens other than Permitted Liens described in
clauses (i),(v) and (viii) of the definition of Permitted Liens, Liens for Taxes
not yet due, Liens described in clauses (iii) and (iv) of the definition of
Permitted Exceptions and Lessor Liens and (B) the Mortgage as a valid and
perfected first lien; (ii) an environmental assessment for such Property
satisfying the requirements set forth in Section 10.3 below; (iii) an assignment
(to the extent assignable) of all of the Lessee's right, title and interest in
and to each agreement executed by Lessee in connection with the construction,
renovation, development, use, maintenance or operation of such Property
(including all warranty, performance, service and indemnity provisions); (iv) to
the extent available, copies of all Plans and Specifications relating to the
design, construction, renovation or development of such Property; (v) an
assignment (to the extent assignable) of all permits, licenses, approvals and
other authorizations from all Governmental Authorities in connection with the
construction, operation and use of such Property; (vi) copies of all books and
records, and in the case of any Non-Completed Property, all Budgets and
construction schedules, with respect to the construction, renovation,
maintenance, repair, operation or use of such Property; (vii) in the case of any
Non-Completed Property, (x) evidence satisfactory to Lessor that all building
materials purchased or contracted for purchase which have not been incorporated
into the Improvements at such Property are (A) owned by Lessor free from any
Liens, (B) secured, segregated and identifiable (and if stored off-site, the
location of such place of storage) and (C) insured under policies in amounts and
by insurers reasonably satisfactory to Lessor; (y) evidence satisfactory to
Lessor that adequate provision has been made for the protection of materials
stored on-site and for the protection of the Improvements, to the extent then
constructed, against deterioration and against other loss or damage or theft,
and (z) an agreement, in form and
<PAGE>
9
substance reasonably satisfactory to Lessor, from all contractors, construction
managers, architects, engineers and other designee professionals that each will
continue to perform under their respective contracts for the benefit of Lessor
or its assignee; and (viii) an estoppel certificate in form and substance
reasonably acceptable to Lessor from the ground lessor of any Ground Lease.
Lessee shall cooperate with any independent purchaser of such Property in order
to facilitate the ownership and operation by such purchaser of such Property
after such expiration or earlier termination of the Term, including providing
all books, reports and records regarding the maintenance, repair and ownership
of such Property and all data and technical information relating thereto. Lessee
shall assign to Lessor or to any independent purchaser of such property all
licenses necessary for the operation and maintenance of such Property (to the
extent assignable) and if requested by Lessor or by such independent purchaser,
shall use best efforts in seeking and obtaining all licenses, permits and
approvals of Governmental Authorities for the benefit of such independent
purchaser necessary for the operation of such Property for the uses set forth in
Section 8.2 hereof. Lessee shall have also paid the total cost for the
completion of all Modifications commenced prior to such expiration or earlier
termination of the Term. The obligation of Lessee under this Section 10.1(c)
shall survive the expiration or termination of this Lease.
10.2 Right of Inspection. Lessor may, at reasonable times (but no
-------------------
more frequently than quarterly unless a Lease Default or Lease Event of Default
shall have occurred and be continuing) and with reasonable prior notice, enter
upon, inspect and examine at its own cost and expense (unless a Lease Event of
Default exists, in which case the out-of-pocket costs and expenses of Lessor
shall be paid by Lessee), any Property. Lessor shall have no duty to make any
such inspection or inquiry and shall not incur any liability or obligation by
reason of not making any such inspection or inquiry.
10.3 Environmental Inspection. During the period commencing on the
------------------------
date which is 12 months prior to the Maturity Date (unless Lessee has previously
irrevocably exercised the Maturity Date Purchase Option), and terminating on the
date which is thirty Business Days prior to surrender of possession of a
Property, Lessor shall, at Lessee's sole cost and expense, obtain a report by
the Environmental Engineer or such other environmental consultant reasonably
selected by Lessor certifying that each Property or any portion thereof (i) does
not contain Hazardous Substances under circumstances or in concentrations that
could result in a violation of or liability under any Environmental Law and (ii)
is in compliance with all Environmental Laws. If such is not the case, then
Lessee shall be deemed to have irrevocably exercised the Maturity Date Purchase
Option pursuant to Section 20.2.
11. MODIFICATIONS
11.1 Modifications, Substitutions and Replacements. (a) So long as
---------------------------------------------
no Lease Event of Default has occurred and is continuing, Lessee, at its sole
cost and expense, may at any time and from time to time make alterations,
renovations, improvements and additions to a Property or any part thereof
(collectively, "Modifications"); provided, that: (i) except for any Modification
------------- --------
required to be made pursuant to a Legal Requirement or an Insurance Requirement,
<PAGE>
10
no Modification, individually, or when aggregated with any (A) other
Modification to such Property or (B) grant, dedication, transfer or release
pursuant to Section 12.2, shall impair the value of such Property or the utility
or useful life of such Property from that which existed immediately prior to
such Modification; (ii) the Modification shall be performed expeditiously and in
a good and workmanlike manner; (iii) Lessee shall comply with all Legal
Requirements (including all Environmental Laws) and Insurance Requirements
applicable to the Modification, including the obtaining of all permits and
certificates of occupancy, and the structural integrity of such Property shall
not be adversely affected; (iv) Lessee shall maintain or cause to be maintained
builders' risk insurance at all times when a Modification is in progress; (v)
subject to the terms of Section 13 relating to permitted contests, Lessee shall
pay all costs and expenses and discharge any Liens arising with respect to the
Modification; (vi) such Modifications shall comply with Sections 8.2 and 10.1
and shall not change the primary character of such Property; and (vii) no
Improvements shall be demolished, except to the extent such demolition does not
impair the value, utility or useful life of such Property or is replaced with
Improvements of at least equivalent value. All Modifications (other than those
that may be readily removed without impairing the value, utility or remaining
useful life of such Property) shall remain part of the realty and shall be
subject to this Lease, and title thereto shall immediately vest in Lessor. So
long as no Lease Event of Default has occurred and is continuing, Lessee may
place upon a Property any inventory, trade fixtures, machinery, equipment or
other property belonging to Lessee or third parties and may remove any
inventory, trade fixtures, machinery, equipment or other personal property,
whether placed thereon by Lessee or otherwise located thereon (or cause Lessor
to remove the same, to the extent owned by Lessor) at any time during the term
of this Lease; provided that the removal of such inventory, trade fixtures,
--------
machinery, equipment or other property, or their respective operations, does not
materially impair the value, utility or remaining useful life of such Property
unless appropriate replacements having at least equal value, utility and
remaining useful life are provided therefor.
(a) Following the Completion Date with respect to any Construction
Period Property, or the Property Closing Date with respect to any Completed
Property, Lessee shall notify Lessor of the undertaking of any construction,
repairs or alterations to a Property the cost of which is anticipated to exceed
$1,000,000. Prior to undertaking any such construction or alterations, Lessee
shall deliver to Lessor (i) a brief narrative of the work to be done and a copy
of the plans and specifications relating to such work; and (ii) an Officer's
Certificate stating that such work when completed will not impair the value,
utility or remaining life of such Property. Lessor, by itself or its agents,
shall have the right, but not the obligation, from time to time at reasonable
times, upon reasonable prior notice to inspect such construction to ensure that
the same is completed consistent with the plans and specifications.
(b) Following the Completion Date with respect to any Construction
Period Property, or the Property Closing Date with respect to any Completed
Property, Lessee shall not without the consent of Lessor undertake any
construction or alterations to such Property (other than construction or
alterations required for compliance with any Legal Requirement) if such
construction or alterations cannot, in the reasonable judgement of Agent, be
completed on or prior to the date that is twelve months prior to the Expiration
Date unless Lessee has irrevocably exercised the Maturity Date Purchase Option.
<PAGE>
11
12. TITLE
12.1 Warranty of Title. (a) Lessee agrees that, except as otherwise
-----------------
provided herein and subject to the terms of Section 13 relating to permitted
contests, Lessee shall not directly or indirectly create or allow to remain, and
shall promptly discharge at its sole cost and expense, any Lien, defect,
attachment, levy, title retention agreement or claim upon any Property or any
Modifications or any Lien, attachment, levy or claim with respect to the Rent or
with respect to any amounts held by the Agent pursuant to the Credit Agreement,
other than Permitted Liens. Lessee shall promptly notify Lessor in the event it
receives knowledge that a Lien (other than a Permitted Lien) exists with respect
to the Property.
(a) Nothing contained in this Lease shall be construed as
constituting the consent or request of Lessor, expressed or implied, to or for
the performance by any contractor, mechanic, laborer, materialman, supplier or
vendor of any labor or services or for the furnishing of any materials for any
construction, alteration, addition, repair or demolition of or to any Property
or any part thereof. NOTICE IS HEREBY GIVEN THAT LESSOR IS NOT AND SHALL NOT BE
LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO
LESSEE, OR TO ANYONE HOLDING ANY PROPERTY OR ANY PART THEREOF THROUGH OR UNDER
LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR
MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LESSOR IN AND TO ANY
PROPERTY.
12.2 Grants and Releases of Easements. Provided that no Lease Event
--------------------------------
of Default shall have occurred and be continuing and subject to the provisions
of Sections 8, 9, 10 and 11, Lessor hereby consents to the following actions by
Lessee, in the name and stead of Lessor, but at Lessee's sole cost and expense:
(a) the granting (and subordination of the Lien of the Mortgage thereto) of
easements, licenses, rights-of-way and other rights and privileges in the nature
of easements reasonably necessary or desirable for the construction, use,
repair, renovation or maintenance of any Property as herein provided; (b) the
release (free and clear of the Lien of the Mortgage) of existing easements or
other rights in the nature of easements which are for the benefit of any
Property; (c) the dedication or transfer (and subordination of the Lien of the
Mortgage thereto) of unimproved portions of any Property for road, highway or
other public purposes; (d) the execution of petitions to have any Property
annexed to any municipal corporation or utility district; and (e) the execution
of amendments to any covenants and restrictions affecting any Property;
provided, that in each case Lessee shall have delivered to Lessor an Officer's
- --------
Certificate stating that: (i) such grant, release, dedication or transfer does
not impair the value or utility or remaining useful life of the applicable
Property, (ii) such grant, release, dedication or transfer is necessary in
connection with the construction, use, maintenance, alteration, renovation or
improvement of the applicable Property, (iii) Lessee shall remain obligated
under this Lease and under any instrument executed by Lessee consenting to the
assignment of Lessor's interest in this Lease as security for indebtedness, in
each such case in accordance with their terms, as though such grant, release,
dedication or transfer, had not been effected and (iv) Lessee shall pay and
perform any obligations of Lessor under such grant,
<PAGE>
12
release, dedication or transfer. Without limiting the effectiveness of the
foregoing, provided that no Lease Event of Default shall have occurred and be
continuing, Lessor shall, upon the request of Lessee, and at Lessee's sole cost
and expense, execute and deliver any instruments necessary or appropriate to
confirm any such grant, release, dedication or transfer to any Person permitted
under this Section.
13. PERMITTED CONTESTS
13.1 Permitted Contests Other Than in Respect of Impositions. Except
-------------------------------------------------------
to the extent otherwise provided for in Section 12.2 of the Participation
Agreement, Lessee, on its own or on Lessor's behalf but at Lessee's sole cost
and expense, may contest, by appropriate administrative or judicial proceedings
conducted in good faith and with due diligence, the amount, validity or
application, in whole or in part, of any Legal Requirement, or utility charges
payable pursuant to Section 4.1 or any Lien, attachment, levy, encumbrance or
encroachment, and Lessor agrees not to pay, settle or otherwise compromise any
such item, provided that (a) the commencement and continuation of such
proceedings shall suspend the collection thereof from, and suspend the
enforcement thereof against the applicable Properties, Lessor, the Agent, the
Investors and the Lenders; (b) there shall be no risk of the imposition of a
Lien (other than a Permitted Lien) on any Property and no part of any Property
nor any Rent would be in any danger of being sold, forfeited, lost or deferred
during the pendency of such proceedings; (c) at no time during the permitted
contest shall there be a risk of the imposition of criminal liability or civil
liability on Lessor, the Agent or any Lender for failure to comply therewith;
and (d) in the event that, at any time, there shall be a material risk of
extending the application of such item beyond the earlier of the Maturity Date
and the Expiration Date for the applicable Property, then Lessee shall deliver
to Lessor an Officer's Certificate certifying as to the matters set forth in
clauses (a), (b) and (c) of this Section 13.1. Lessor, at Lessee's sole cost and
expense, shall execute and deliver to Lessee such authorizations and other
documents as may reasonably be required in connection with any such contest and,
if reasonably requested by Lessee, shall join as a party therein at Lessee's
sole cost and expense.
14. INSURANCE
14.1 Public Liability and Workers' Compensation Insurance. During
----------------------------------------------------
the Term, Lessee shall procure and carry, at Lessee's sole cost and expense,
commercial general liability insurance for claims for injuries or death
sustained by persons or damage to property while on each Property. Such
insurance shall be on terms and in amounts that are no less favorable than
insurance maintained by owners of similar properties, that are in accordance
with normal industry practice. The policy shall be endorsed to name Lessor, the
Trust Company, the Investors, the Agent and the Lenders as additional insureds.
The policy shall also specifically provide that the policy shall be considered
primary insurance which shall apply to any loss or claim before any contribution
by any insurance which Lessor, the Trust Company, the Agent or the Lenders may
have in force. Lessee shall, in the operation of the Property, comply with the
applicable workers' compensation laws and protect Lessor against any liability
under such laws.
<PAGE>
13
14.2 Hazard and Other Insurance. (a) During the Term, Lessee shall
--------------------------
keep with respect to each Property an All Risk policy of insurance for loss or
damage in amounts equal to the actual replacement cost of the Improvements and
betterments and/or building value, if applicable. So long as no Lease Event of
Default exists, any loss payable under the insurance policy required by this
Section will be paid to and adjusted solely by Lessee, subject to Section 15.
(a) If at any time during the Term the area in which any Property is
located is designated a "flood-prone" area pursuant to the Flood Disaster
Protection Act of 1973 or any amendments or supplements thereto, then Lessee
shall comply with the National Flood Insurance Program as set forth in the Flood
Disaster Protection Act of 1973, as may be amended. In addition, Lessee will
fully comply with the requirements of the National Flood Insurance Act of 1968
and the Flood Disaster Protection Act of 1973, as each may be amended from time
to time, and with any other Legal Requirement, concerning flood insurance to the
extent that it applies to any Property. Coverage shall be maintained in an
amount equal to the insurable replacement cost of the Improvements and
betterments and/or building value, if applicable.
(b) Notwithstanding the provisions of Section 14.2, with respect to
each Construction Period Property, at all times until the Completion Date with
respect to such Construction Period Property, Lessee shall maintain (i) a
standard builder's all risk policy (completed value non-reporting form) for not
less than the full insurable amount of the work to be performed and equipment,
supplies and materials to be furnished, which policy shall contain a stated
value endorsement so that no co-insurance provision shall be applicable to any
loss thereunder and shall contain such endorsements and shall be in such form as
the Agent shall reasonably require and (ii) such other coverage and in such
amounts as the Agent shall reasonably require.
14.3 Coverage. (a) Lessee shall furnish Lessor with certificates
--------
showing the insurance required under Sections 14.1 and 14.2 to be in effect and
naming Agent, the Lenders, the Lessor, the Investors, and the Trust Company as
an additional insured with respect to liability insurance and showing the
mortgagee endorsement required by Section 14.3(c). All such insurance shall be
at the cost and expense of Lessee. Such certificates shall include a provision
in which the insurer agrees to provide thirty (30) days' advance written notice
by the insurer to Lessor and the Agent in the event of cancellation or
modification of such insurance that could be adverse to the interests of Lessor,
the Trust Company or the Agent. If a Lease Event of Default has occurred and is
continuing and Lessor so requests, Lessee shall deliver to Lessor copies of all
insurance policies required by this Lease to be held and applied by Lessor
toward payment of the cost of Restoration in accordance with Section 15.1(e).
(a) Lessee agrees that the insurance policy or policies required by
this Lease shall include an appropriate clause pursuant to which such policy
shall provide that it will not be invalidated should Lessee waive, in writing,
prior to a loss, any or all rights of recovery against any party for losses
covered by such policy. Lessee hereby waives any and all such rights
<PAGE>
14
against Lessor, the Trust Company, the Investors, the Agent and the Lenders to
the extent of payments made under such policies.
(b) All insurance policies required by Section 14.2 shall include a
"New York" or standard form mortgagee endorsement in favor of the Agent; the
Agent, as its interests may appear shall be named as "Morgagee" and "loss
payee", accordingly.
(c) Neither Lessor nor Lessee shall carry separate insurance
concurrent in kind or form or contributing in the event of loss with any
insurance required under this Lease except that Lessor may carry separate
liability insurance so long as (i) Lessee's insurance is designated as primary
and in no event excess or contributory to any insurance Lessor may have in force
which would apply to a loss covered under Lessee's policy and (ii) each such
insurance policy will not cause Lessee's insurance required under this Lease to
be subject to a coinsurance exception of any kind.
(d) Lessee shall pay as they become due all premiums for the
insurance required by this Lease, shall renew or replace each policy prior to
the expiration date thereof and shall promptly deliver to Lessor and the Agent
certificates for renewal and replacement policies.
15. CONDEMNATION AND CASUALTY
15.1 Casualty and Condemnation. (a) Subject to the provisions of
-------------------------
this Section 15 and Section 16 (in the event Lessee delivers, or is obligated to
deliver, a Termination Notice), and prior to the occurrence and continuation of
a Lease Default, Lessee shall be entitled to receive (and Lessor hereby
irrevocably assigns to Lessee all of Lessor's right, title and interest in) any
award, compensation or insurance proceeds to which Lessee or Lessor may become
entitled by reason of their respective interests in a Property (i) if all or a
portion of such Property is damaged or destroyed in whole or in part by a
Casualty or (ii) if the use, access, occupancy, easement rights or title to such
Property or any part thereof is the subject of a Condemnation; provided,
--------
however, if a Lease Default shall have occurred and be continuing such award,
- -------
compensation or insurance proceeds shall be paid directly to Lessor or, if
received by Lessee, shall be held in trust for Lessor, and shall be paid over by
Lessee to Lessor, and provided further that in the event of any Casualty or
-------- -------
Condemnation, the estimated cost of restoration of which is in excess of 25% of
the aggregate Project Costs for such Property, any such award, compensation or
insurance proceeds shall be paid directly to Lessor, or if received by Lessee,
shall be held in trust for Lessor and shall be paid over by Lessee to Lessor to
be held and applied by Lessor toward payment of the cost of restoration in
accordance with Section 15.1(e).
(a) So long as no Lease Event of Default has occurred and is
continuing, Lessee may appear in any proceeding or action to negotiate,
prosecute, adjust or appeal any claim for any award, compensation or insurance
payment on account of any such Casualty or Condemnation and shall pay all
expenses thereof; provided that if the estimated cost of restoration of the
--------
Property or the payment on account of such proceeding or action is in excess of
25% of the aggregate Project Costs for such Property, then Lessor shall be
entitled to participate
<PAGE>
15
in any such proceeding or action. At Lessee's reasonable request, and at
Lessee's sole cost and expense, Lessor and the Agent shall participate in any
such proceeding, action, negotiation, prosecution or adjustment. Lessor and
Lessee agree that this Lease shall control the rights of Lessor and Lessee in
and to any such award, compensation or insurance payment.
(b) If Lessor or Lessee shall receive notice of a Casualty or a
possible Condemnation of a Property or any interest therein, Lessor or Lessee,
as the case may be, shall give notice thereof to the other and to the Agent
promptly after the receipt of such notice.
(c) In the event of a Casualty or receipt of notice by Lessee or
Lessor of a Condemnation, Lessee shall, not later than thirty (30) days after
such occurrence, deliver to Lessor and the Agent an Officer's Certificate
stating that either (i) (x) such Casualty is not a Significant Casualty or (y)
such Condemnation is neither a Total Condemnation nor a Significant Condemnation
and that this Lease shall remain in full force and effect with respect to the
applicable Property and, at Lessee's sole cost and expense, Lessee shall
promptly and diligently restore the applicable Property in accordance with the
terms of Section 15.1(e) or (ii) this Lease shall terminate with respect to the
applicable Property in accordance with Section 16.1.
(d) If pursuant to this Section 15.1, this Lease shall continue in
full force and effect following a Casualty or Condemnation with respect to the
affected Property, Lessee shall, at its sole cost and expense, promptly and
diligently repair any damage to the applicable Property caused by such Casualty
or Condemnation in conformity with the requirements of Sections 10.1 and 11.1
using the as-built plans and specifications for the applicable Property (as
modified to give effect to any subsequent Modifications, any Condemnation
affecting the Property and all applicable Legal Requirements) so as to restore
the applicable Property to the same condition, operation, function and value as
existed immediately prior to such Casualty or Condemnation. In such event, title
to the applicable Property shall remain with Lessor. Lessor shall make
disbursements from time to time of any award, compensation or insurance proceeds
held by it to Lessee for application to the cost of restoration subject to the
following conditions: (i) Lessor shall have received a fully executed
counterpart of a Requisition requesting funds in an amount not exceeding the
cost of work completed or incurred since the last disbursement, together with
reasonably satisfactory evidence of the stage of completion and of performance
of the work in a good and workman-like manner and in accordance with the as-
built plans and specifications, (ii) at the time of any such disbursement, no
Lease Event of Default shall have occurred and be continuing, and no mechanic's
or materialmen's liens shall have been filed and remain undischarged, except
those discharged by the disbursement of the requested funds or bonded, (iii)
Lessor shall be reasonably satisfied that sufficient funds are available to
complete such restoration and (iv) title to the Project shall conform to the
representation set forth in Section 7.7 (b) of the Participation Agreement.
Provided no Lease Default shall have occurred and be continuing, any award,
compensation or insurance proceeds remaining after restoration of the Project as
herein provided shall be paid to Lessee.
(e) In no event shall a Casualty or Condemnation with respect to
which this Lease remains in full force and effect under this Section 15.1 affect
Lessee's obligations to pay Rent pursuant to Section 3.1.
<PAGE>
16
(f) Notwithstanding anything to the contrary set forth in Section
15.1(a) or Section 15.1(e), if during the Term a Casualty occurs with respect to
a Property or Lessee receives notice of a Condemnation with respect to a
Property, and following such Casualty or Condemnation, such Property cannot
reasonably be restored on or before the date which is twelve months prior to the
Maturity Date to substantially the same condition as existed immediately prior
to such Casualty or Condemnation or before such day such Property is not in fact
so restored, then Lessee shall exercise its Purchase Option with respect to such
Property on the next Payment Date or irrevocably agree in writing to exercise
the Maturity Date Purchase Option with respect to such Property, and in either
such event Casualty or Condemnation proceeds shall be paid to the Agent, which
shall pay such funds to Lessee upon the closing of the purchase of such
Property.
16. LEASE TERMINATION
16.1 Termination upon Certain Events. (a) Lessee shall be obligated
-------------------------------
to deliver a written notice in the form described in Section 16.2(a) (a
"Termination Notice") of the termination of this Lease with respect to any
------------------
Property (i) within thirty (30) days after Lessee receives notice of a Total
Condemnation with respect to any such Property or (ii) promptly after the
occurrence of a Significant Environmental Event with respect to any such
Property.
(a) If: (i) Lessee or Lessor shall have received notice of a
Condemnation, and Lessee shall have delivered to Lessor an Officer's Certificate
that such Condemnation is a Significant Condemnation; or (ii) a Casualty occurs,
and Lessee shall have delivered to Lessor an Officer's Certificate that such
Casualty is a Significant Casualty; or (iii) an Environmental Violation occurs
with respect to any Property and Lessee shall have delivered to Lessor an
Officer's Certificate that this Lease shall terminate with respect to such
Property; then, Lessee shall, simultaneously with the delivery of the Officer's
Certificate pursuant to the preceding clause (i), (ii) or (iii), deliver a
Termination Notice with respect to the affected Property.
16.2 Procedures. (a) A Termination Notice shall contain: (i)
----------
notice of termination of this Lease with respect to the affected Property on a
date not more than thirty (30) days after Lessor's receipt of such Termination
Notice (the "Termination Date"); (ii) a binding and irrevocable agreement of
----------------
Lessee to pay the Termination Value and purchase such Property on such
Termination Date and (iii) the Officer's Certificate described in Section
16.1(b).
(a) On the Termination Date, Lessee shall pay to Lessor the
Termination Value for the applicable Property, including all amounts owing in
respect of Rent for such Property (including Supplemental Rent) theretofore
accruing and Lessor shall convey such Property to Lessee (or Lessee's designee)
all in accordance with Section 19.1.
17. DEFAULT
<PAGE>
17
17.1 Lease Events of Default. If any one or more of the following
-----------------------
events (each a "Lease Event of Default") shall occur:
----------------------
(a) Lessee shall fail to make payment of (i) any Basic Rent or any
Supplemental Rent representing amounts owed under the Credit Agreement or
the other Credit Documents within five (5) days after the same has become
due and payable or (ii) any Maximum Residual Guarantee Amount, Purchase
Option Price or Termination Value after the same has become due and
payable; or
(b) Lessee shall fail to make payment of any other Supplemental Rent
due and payable within five (5) days after receipt of notice thereof; or
(c) Lessee shall fail to maintain insurance as required by Section
14; or
(d) Lessee or any Guarantor shall default in the observance or
performance of any term, covenant or condition of Lessee or any Guarantor,
respectively, under this Lease, the Participation Agreement, the Guarantee
or any other Operative Agreement to which it is a party (other than those
set forth in Section 17.1(a), (b), (c) or (h) hereof) and such default
shall continue unremedied for a period of thirty days or any representation
or warranty by Lessee or any Guarantor, respectively, set forth in this
Lease, the Guarantee or in any other Operative Agreement or in any document
entered into in connection herewith or therewith or in any document,
certificate or financial or other statement delivered in connection
herewith or therewith shall prove to have been incorrect in any material
respect on or as of the date made or deemed made; or
(e) an Agency Agreement Event of Default shall have occurred and be
continuing; or
(f) Lessee or the Guarantor shall (i) admit in writing its inability
to pay its debts generally as they become due, (ii) file a petition under
the United States bankruptcy laws or any other applicable insolvency law or
statute of the United States of America or any State or Commonwealth
thereof, (iii) make a general assignment for the benefit of its creditors,
(iv) consent to the appointment of a receiver of itself or the whole or any
substantial part of its property, (v) fail to cause the discharge of any
custodian, trustee or receiver appointed for Lessee or the Guarantor or the
whole or a substantial part of its property within sixty (60) days after
such appointment, or (vi) file a petition or answer seeking or consenting
to reorganization under the United States bankruptcy laws or any other
applicable insolvency law or statute of the United States of America or any
State or Commonwealth thereof; or
(g) insolvency proceedings or a petition under the United States
bankruptcy laws or any other applicable insolvency law or statute of the
United States of America or any State or Commonwealth thereof shall be
filed against Lessee or the Guarantor and not dismissed within sixty (60)
days from the date of its filing, or a court of competent jurisdiction
shall enter an order or decree appointing, without its consent of, a
receiver of
<PAGE>
18
Lessee or the Guarantor or the whole or a substantial part of its property,
and such order or decree shall not be vacated or set aside within ninety
(90) days from the date of the entry thereof; or
(h) a Credit Agreement Event of Default (other than a Credit
Agreement Event of Default set forth in Section 6.1(d)) shall have occurred
and be continuing; or
(i) an Event of Default under and as defined in the Senior Secured
Credit Agreement shall have occurred and be continuing;
then, in any such event, Lessor may, in addition to the other rights and
remedies provided for in this Section 17 and in Section 18.1, terminate this
Lease by giving Lessee ten (10) days notice of such termination, and this Lease
shall terminate. Lessee shall, to the fullest extent permitted by law, pay as
Supplemental Rent all costs and expenses incurred by or on behalf of Lessor,
including fees and expenses of counsel, as a result of any Lease Event of
Default hereunder.
17.2 Final Liquidated Damages. If a Lease Event of Default shall
------------------------
have occurred and be continuing, Lessor shall have the right to recover, by
demand to Lessee and at Lessor's election, and Lessee shall pay to Lessor, as
and for final liquidated damages, but exclusive of the indemnities payable under
Section 13 of the Participation Agreement, and in lieu of all damages beyond the
date of such demand the sum of (a) the Termination Value, plus (b) all other
amounts owing in respect of Rent and Supplemental Rent theretofore accruing
under this Lease. In addition, if a Lease Event of Default shall have occurred
and be continuing, Lessee shall have the right to pay, without regard to
Lessor's demand, as and for final liquidated damages, but exclusive of the
indemnities payable under Section 13 of the Participation Agreement, and in lieu
of all damages beyond the date of such payment, the sum of (i) the Termination
Value, plus (ii) all other amounts owing in respect of Rent and Supplemental
Rent theretofore accruing under this Lease. Upon payment of the amount specified
pursuant to the first or second sentence of this Section 17.2, Lessee shall be
entitled to receive from Lessor, at Lessee's request and cost, an assignment of
Lessor's right, title and interest in the Properties, in each case in recordable
form and otherwise in conformity with local custom and free and clear of the
Lien of the Mortgages and other Security Documents. Lessee (or Lessee's
designee) shall execute and deliver to Lessor an assumption of all of Lessor's
obligations under the Ground Leases, if any. The Properties shall be quitclaimed
to Lessee (or Lessee's designee) "AS IS" and in their then present physical
condition. If any statute or rule of law shall limit the amount of such final
liquidated damages to less than the amount agreed upon, Lessor shall be entitled
to the maximum amount allowable under such statute or rule of law; provided,
--------
that Lessee shall not be entitled to receive an assignment of Lessor's interest
under the Ground Leases, if any, or in the Properties unless Lessee shall have
paid in full the Termination Value of each of the Properties.
17.3 Lease Remedies. Lessor and Lessee intend that for commercial
--------------
law and bankruptcy law purposes, this Lease will be treated as a financing
arrangement, as set forth in Section 7. If, as a result of applicable state
law, which cannot be waived, this Lease is deemed to be a lease of the
Properties, rather than a financing arrangement, and Lessor is unable to enforce
the remedies set forth in Section 17.2, the following remedies shall be
available to Lessor:
<PAGE>
19
(a) Surrender of Possession. If a Lease Event of Default shall have
-----------------------
occurred and be continuing, and whether or not this Lease shall have been
terminated pursuant to Section 17.1, Lessee shall, upon thirty (30) days
written notice, surrender to Lessor possession of the Property and Lessee
shall quit the same. Lessor may enter upon and repossess the Property by
such means as are available at law or in equity, and may, subject to the
provisions of applicable law, remove Lessee and all other Persons and any
and all personal property and Lessee's equipment and personalty and
severable Modifications from the Property. Lessor shall have no liability
by reason of any such entry, repossession or removal performed in
accordance with applicable law.
(b) Reletting. If a Lease Event of Default shall have occurred and be
---------
continuing, and whether or not this Lease shall have been terminated
pursuant to Section 17.1, Lessor may, but shall be under no obligation to,
relet all, or any portion, of the Property, for the account of Lessee or
otherwise, for such term or terms (which may be greater or less than the
period which would otherwise have constituted the balance of the Term) and
on such conditions (which may include concessions or free rent) and for
such purposes as Lessor may determine, and Lessor may collect, receive and
retain the rents resulting from such reletting. Lessor shall not be liable
to Lessee for any failure to relet the Property or for any failure to
collect any rent due upon such reletting.
(c) Damages. None of (i) the termination of this Lease pursuant to
-------
Section 17.1; (ii) the repossession of the Property; or (iii) except to the
extent required by applicable law, the failure of Lessor to relet all, or
any portion, of the Property, the reletting of all or any portion thereof,
nor the failure of Lessor to collect or receive any rentals due upon any
such reletting shall relieve Lessee of its liability and obligations
hereunder, all of which shall survive any such termination, repossession or
reletting. If any Lease Event of Default shall have occurred and be
continuing and notwithstanding any termination of this Lease pursuant to
Section 17.1, Lessee shall forthwith pay to Lessor all Basic Rent and other
sums due and payable hereunder to and including the date of such
termination. Thereafter, on the days on which the Basic Rent or
Supplemental Rent, as applicable, are payable under this Lease or would
have been payable under this Lease if the same had not been terminated
pursuant to Section 17.1 and until the end of the Term or what would have
been the Term in the absence of such termination, Lessee shall pay Lessor,
as current liquidated damages (it being agreed that it would be impossible
accurately to determine actual damages) an amount equal to the Basic Rent
and Supplemental Rent that are payable under this Lease or would have been
payable by Lessee hereunder if this Lease had not been terminated pursuant
to Section 17.1, less the net proceeds, if any, which are actually received
by Lessor with respect to the period in question of any reletting of the
Property or any portion thereof; provided that Lessee's obligation to make
--------
payments of Basic Rent and Supplemental Rent under this Section 17.3 shall
continue only so long as Lessor shall not have received the amounts
specified in Section 17.2. In calculating the amount of such net proceeds
from reletting, there shall be deducted all of Lessor's, the Agent's and
any Lenders' expenses in connection therewith, including repossession
costs, brokerage commissions, fees and expenses for
<PAGE>
20
counsel and any necessary repair or alteration costs and expenses incurred
in preparation for such reletting. To the extent Lessor receives any
damages pursuant to this Section 17.3, such amounts shall be regarded as
amounts paid on account of Rent.
(d) Acceleration of Rent. If a Lease Event of Default shall have
--------------------
occurred and be continuing, and this Lease shall not have been terminated
pursuant to Section 17.1, and whether or not Lessor shall have collected
any current liquidated damages pursuant to Section 17.3(c), Lessor may upon
written notice to Lessee accelerate all payments of Basic Rent due
hereunder and, upon such acceleration, Lessee shall immediately pay Lessor,
as and for final liquidated damages and in lieu of all current liquidated
damages on account of such Lease Event of Default beyond the date of such
acceleration (it being agreed that it would be impossible accurately to
determine actual damages) an amount equal to the sum of (a) all Basic Rent
(assuming interest at a rate per annum equal to the Overdue Rate), as
applicable, due from the date of such acceleration until the end of the
Term, plus (b) the Maximum Residual Guarantee Amount that would be payable
----
under Section 21.1(c) assuming the proceeds of the sale pursuant to such
Section 21.1(c) are equal to zero, which sum is then discounted to present
value at a rate equal to the rate then being paid on United States treasury
securities with maturities corresponding to the then remaining Term.
Following payment of such amount by Lessee, Lessee will be permitted to
stay in possession of the Property for the remainder of the Term, subject
to the terms and conditions of this Lease, including the obligation to pay
Supplemental Rent, provided that no further Lease Event of Default shall
occur and be continuing, following which Lessor shall have all the rights
and remedies set forth in this Section 17 (but not including those set
forth in this Section 17.3). If any statute or rule of law shall limit the
amount of such final liquidated damages to less than the amount agreed
upon, Lessor shall be entitled to the maximum amount allowable under such
statute or rule of law.
17.4 Waiver of Certain Rights. If this Lease shall be terminated
------------------------
pursuant to Section 17.1, Lessee waives, to the fullest extent permitted by law,
(a) any notice of re-entry or the institution of legal proceedings to obtain re-
entry or possession; (b) any right of redemption, re-entry or repossession; (c)
the benefit of any laws now or hereafter in force exempting property from
liability for rent or for debt; and (d) any other rights which might otherwise
limit or modify any of Lessor's rights or remedies under this Section 17.
17.5 Assignment of Rights Under Contracts. If a Lease Event of
------------------------------------
Default shall have occurred and be continuing and if Lessee shall be obligated
to surrender to Lessor possession of the Property, whether or not this Lease
shall have been terminated pursuant to Section 17.1, Lessee shall upon Lessor's
demand immediately assign, transfer and set over to Lessor all of Lessee's
right, title and interest in and to each agreement executed by Lessee in
connection with the construction, renovation, development, use or operation of
the Property (including all right, title and interest of Lessee with respect to
all warranty, performance, service and indemnity provisions), as and to the
extent that the same relate to the construction, renovation, and operation of
the Property.
<PAGE>
21
17.6 Remedies Cumulative. The remedies herein provided shall be
-------------------
cumulative and in addition to (and not in limitation of) any other remedies
available at law, equity or otherwise including, without limitation, any
mortgage foreclosure remedies contained in the Memorandum of Lease.
18. LESSOR'S RIGHT TO CURE
18.1 Lessor's Right to Cure Lessee's Lease Defaults. Lessor, without
----------------------------------------------
waiving or releasing any obligation or Lease Event of Default, may (but shall be
under no obligation to) remedy any Lease Event of Default for the account and at
the sole cost and expense of Lessee, including the failure by Lessee to maintain
any insurance required by Section 14, and may, to the fullest extent permitted
by law, and notwithstanding any right of quiet enjoyment in favor of Lessee,
enter upon any Property for such purpose and take all such action thereon as may
be necessary or appropriate therefor. No such entry shall be deemed an eviction
of Lessee. All out-of-pocket costs and expenses so incurred (including the fees
and expenses of counsel), together with interest thereon at the Overdue Rate
from the date on which such sums or expenses are paid by Lessor, shall be paid
by Lessee to Lessor on demand as Supplemental Rent.
19. LEASE TERMINATION
19.1 Provisions Relating to Lessee's Termination of this Lease or
------------------------------------------------------------
Exercise of Purchase Option. In connection with any termination of this Lease
- ---------------------------
with respect to any Property pursuant to the terms of Section 16.2, or in
connection with Lessee's exercise of its Purchase Option or Maturity Date
Purchase Option, upon the date on which this Lease is to terminate with respect
to the applicable Property or upon the Expiration Date with respect to the
applicable Property, and upon tender by Lessee of the amounts set forth in
Section 16.2(b), 20.1 or 20.2, as applicable:
(a) Lessor shall execute and deliver to Lessee (or to Lessee's
designee) at Lessee's cost and expense an assignment of Lessor's entire
interest in the applicable Properties, in each case in recordable form and
otherwise in conformity with local custom and free and clear of the Lien of
the applicable Mortgage and other Security Documents and any Lessor Liens;
and
(b) The applicable Property shall be conveyed to Lessee "AS IS" and
in then present physical condition.
20. PURCHASE OPTION
20.1 Purchase Option. Provided that no Lease Default or Lease Event
---------------
of Default shall have occurred and be continuing, Lessee shall have the option
(exercisable by giving Lessor irrevocable written notice (the "Purchase Notice")
---------------
of Lessee's election, which election shall be
<PAGE>
22
irrevocable, to exercise such option not less than ten (10) days prior to the
date of purchase pursuant to such option) to purchase one or more of the
Properties on the date specified in such Purchase Notice, which date must occur
prior to the date which is twelve months prior to the Maturity Date, at a price
equal to the Termination Value (the "Purchase Option Price") (which the parties
---------------------
do not intend to be a "bargain" purchase price) of such Property. If Lessee
exercises its option to purchase one or more of the Properties pursuant to this
Section 20.1 (the "Purchase Option"), Lessor shall quitclaim to Lessee or
---------------
Lessee's designee all of Lessor's right, title and interest in and to such
Property as of the date specified in the Purchase Notice upon receipt of the
Purchase Option Price, including all Rent and other amounts then due and payable
under this Lease and any other Operative Agreement, in accordance with Section
19.1.
20.2 Maturity Date Purchase Option. Not less than twelve months
-----------------------------
prior to the Maturity Date, Lessee may give Lessor and Agent irrevocable written
notice (the "Maturity Date Election Notice") that Lessee is electing to exercise
-----------------------------
the Maturity Date Purchase Option. If Lessee does not give a Maturity Date
Election Notice on or before the date twelve months prior to the Maturity Date,
then Lessee shall be obligated to remarket the Properties pursuant to Section
21. If Lessee has elected to exercise the Maturity Date Purchase Option, then
on the Maturity Date Lessee shall pay to Lessor an amount equal to the
Termination Value for all the Properties (which the parties do not intend to be
a "bargain" purchase price) and, upon receipt of such amount, including all Rent
and other amounts then due and payable under this Lease and any other Operative
Agreement, Lessor shall transfer to Lessee or Lessee's designee all of Lessor's
right, title and interest in and to the Properties in accordance with Section
19.1.
20.3 Obligation to Purchase All Properties. If on the date which is
-------------------------------------
twelve months prior to the Maturity Date the then Termination Value of all the
Properties is less than the Maximum Purchase Option Amount, then on the Maturity
Date Lessee shall be required to exercise its Purchase Option on the Maturity
Date with respect to all remaining Properties.
21. SALE OF PROPERTY
21.1 Sale Procedure. (a) With respect to each Property, at the
--------------
expiration of the Term, unless Lessee shall have elected to purchase such
Property and has paid the Purchase Option Price with respect thereto, or
otherwise terminated this Lease with respect thereto and paid the Termination
Value with respect thereto, Lessee shall (i) pay to Lessor the Maximum Residual
Guarantee Amount for such Property, and (ii) to the extent that Lessor has not
elected to retain the Property, sell such Property to one or more third parties
for cash in accordance with Section 21.1(b).
(a) During the Marketing Period, Lessee, as nonexclusive broker for
Lessor, shall use its best efforts to obtain bids for the cash purchase of each
Property being sold for the highest price available in the relevant market,
shall notify Lessor promptly of the name and address of each prospective
purchaser and the cash price which each prospective purchaser shall have offered
to pay for such Property and shall provide Lessor with such additional
information about the bids and the bid solicitation procedure as Lessor may
request from time to time.
<PAGE>
23
Lessor may reject any and all bids and may assume sole responsibility for
obtaining bids by giving Lessee written notice to that effect; provided,
--------
however, that notwithstanding the foregoing, Lessor may not reject a bid if such
- -------
bid, together with any amounts to be paid pursuant to Section 21.3, is greater
than or equal to the sum of the Limited Deficiency Amount and all costs and
expenses referred to in Section 21.2(i) and is a bona fide offer by a third
party purchaser who is not an Affiliate of Lessee. If the price which a
prospective purchaser shall have offered to pay for all or any of the Properties
is less than the sum of the Limited Deficiency Amount and all costs and expenses
referred to in Section 21.2(i), Lessor may elect to retain the Property by
giving Lessee at least two Business Days' prior written notice of Lessor's
election to retain the Property, and upon receipt of such notice, Lessee shall
surrender the Property to Lessor pursuant to Section 10.1(c). Unless Lessor
shall have elected to retain the Property pursuant to the preceding sentence,
Lessor shall sell the Property free of any Lessor Liens attributable to it,
without recourse or warranty, for cash to the purchaser or purchasers identified
by Lessee or Lessor, as the case may be. Lessee shall surrender the Property so
sold to each purchaser in the condition specified in Section 10.1.
(b) On each date during the Marketing Period on which a Property is
sold pursuant to Section 21.1(b), and on the Maturity Date with respect to any
Properties remaining unsold, Lessee shall pay to Lessor the Maximum Residual
Guarantee Amount for such Property.
(c) If within six (6) months after the expiration of the Term,
Lessor shall sell all of the Properties, then to the extent net sale proceeds
from the sale of the Properties are available after payment (i) to the
Indemnified Parties of all costs, expenses, fees, commissions, transfer taxes
and recording costs with respect to the operation, maintenance, repair,
transfer, sale, financing and administration of the Properties incurred by any
Indemnified Party, (ii) to the Lenders of the outstanding amount of the Tranche
B Notes and any and all accrued and unpaid interest thereon at the Overdue Rate
or otherwise, and (iii) to the Investors of the unreturned Investor Contribution
and any and all accrued and unpaid Investor Return thereon at the Overdue Rate
or otherwise, such excess proceeds shall be paid to Lessee within thirty (30)
days after the sale of the last Property.
21.2 Application of Proceeds of Sale. Lessor shall apply the
-------------------------------
proceeds of sale of each Property in the following order of priority:
(i) FIRST, to pay or to reimburse Lessor for the payment of all
-----
reasonable costs and expenses incurred by Lessor in connection with the
sale; and
(ii) SECOND, the balance shall be paid to the Agent to be
------
applied pursuant to the provisions of the Credit Agreement.
21.3 Indemnity for Excessive Wear. If the proceeds of the sale
----------------------------
described in Section 21.1(b) with respect to any Property, less all expenses
incurred by Lessor in connection with such sale, shall be less than the Limited
Deficiency Amount for such Property at the time of such sale and if it shall
have been determined (pursuant to the Appraisal Procedure) that the Fair Market
Sales Value of such Property shall have been impaired by greater than expected
wear and
<PAGE>
24
tear during the Term, Lessee shall pay to Lessor within ten (10) days
after receipt of Lessor's written statement (i) the amount of such excess wear
and tear determined by the Appraisal Procedure or (ii) the amount of the Net
Sale Proceeds Shortfall, whichever amount is less. Any Appraisal Procedure
shall be commenced within ten (10) days after Lessor delivers written notice to
Lessee that the proceeds of such sale, less all expenses incurred by Lessor,
shall be less than the Limited Deficiency Amount and that Lessor is requiring an
appraisal to be obtained pursuant to this Section 21.3 and Section 21.4 hereof.
21.4 Appraisal Procedure. For determining the Fair Market Sales
-------------------
Value of a Property or any other amount which may, pursuant to any provision of
any Operative Agreement, be determined by an appraisal procedure, Lessor and
Lessee shall use the following procedure (the "Appraisal Procedure"). Lessor
-------------------
and Lessee shall endeavor to reach a mutual agreement as to such amount for a
period of ten (10) days from commencement of the Appraisal Procedure, and if
they cannot agree within ten (10) days, then two qualified appraisers, one
chosen by Lessee and one chosen by Lessor, shall mutually agree thereupon, but
if either party shall fail to choose an appraiser within twenty (20) days after
notice from the other party of the selection of its appraiser, then the
appraisal by such appointed appraiser shall be binding on Lessee and Lessor. If
the two appraisers cannot agree within twenty (20) days after both shall have
been appointed, then a third appraiser shall be selected by the two appraisers
or, failing agreement as to such third appraiser within thirty (30) days after
both shall have been appointed, by the American Arbitration Association. The
decisions of the three appraisers shall be given within twenty (20) days of the
appointment of the third appraiser and the decision of the appraiser most
different from the average of the other two shall be discarded and such average
shall be binding on Lessor and Lessee; provided that if the highest appraisal
--------
and the lowest appraisal are equidistant from the third appraisal, the third
appraisal shall be binding on Lessor and Lessee. The fees and expenses of all
of the appraisers shall be paid by the Lessee.
21.5 Certain Obligations Continue. During the Marketing Period, the
----------------------------
obligation of Lessee to pay Rent with respect to each Property (including the
installment of Basic Rent due on the Maturity Date) shall continue undiminished
until payment in full to Lessor of the sale proceeds, the Maximum Residual
Guarantee Amount, if any, the amount due under Section 21.3, if any, and all
other amounts due to Lessor with respect to the Property. Lessor shall have the
right, but shall be under no duty, to solicit bids, to inquire into the efforts
of Lessee to obtain bids or otherwise to take action in connection with any such
sale, other than as expressly provided in this Section 21.
22. HOLDING OVER
22.1 Holding Over. If Lessee shall for any reason remain in
------------
possession of a Property after the expiration or earlier termination of this
Lease (unless the Property is conveyed to Lessee), such possession shall be as a
tenancy at sufferance during which time Lessee shall continue to pay
Supplemental Rent that would be payable by Lessee hereunder were the Lease then
in full force and effect with respect to such Property and Lessee shall continue
to pay Basic Rent at an annual rate equal to the rate payable hereunder
immediately preceding such expiration
<PAGE>
25
or earlier termination; provided, however, that from and after the sixtieth
-------- -------
(60th) day Lessee shall remain in possession of such Property after such
expiration or earlier termination, Lessee shall pay Basic Rent at an annual rate
equal to two hundred percent (200%) of the Basic Rent payable hereunder
immediately preceding such expiration or earlier termination. Such Basic Rent
shall be payable from time to time upon demand by Lessor. During any period of
tenancy at sufferance, Lessee shall, subject to the second preceding sentence,
be obligated to perform and observe all of the terms, covenants and conditions
of this Lease, but shall have no rights hereunder other than the right, to the
extent given by law to tenants at sufferance, to continue its occupancy and use
of the Property. Nothing contained in this Section 22 shall constitute the
consent, express or implied, of Lessor to the holding over of Lessee after the
expiration or earlier termination of this Lease as to any Property and nothing
contained herein shall be read or construed as preventing Lessor from
maintaining a suit for possession of any Property or exercising any other remedy
available to Lessor at law or in equity.
23. RISK OF LOSS
23.1 Risk of Loss. The risk of loss of or decrease in the enjoyment
------------
and beneficial use of the Property as a result of the damage or destruction
thereof by fire, the elements, casualties, thefts, riots, wars or otherwise is
assumed by Lessee, and Lessor shall in no event be answerable or accountable
therefor.
24. SUBLETTING AND ASSIGNMENT
24.1 Subletting and Assignment. Lessee may not assign this Lease or
-------------------------
any of its rights or obligations hereunder in whole or in part. Lessee may,
without the consent of Lessor, sublease the Property or a portion thereof to any
Person. No sublease or other relinquishment of possession of the Property shall
in any way discharge or diminish any of Lessee's obligations to Lessor hereunder
and Lessee shall remain directly and primarily liable under this Lease as to the
Property, or any portion thereof, so sublet. Any sublease of the Property shall
be made subject to and subordinate to this Lease and to the rights of Lessor
hereunder, shall expire prior to the expiration of the Term and shall expressly
provide for the surrender of the Property after a Lease Event of Default
hereunder.
24.2 Subleases. Promptly following the execution and delivery of any
---------
sublease permitted by this Section 24, Lessee shall deliver a copy of such
executed sublease to Lessor and the Agent.
25. ESTOPPEL CERTIFICATES
25.1 Estoppel Certificates. Each party hereto agrees at any time and
---------------------
from time to time upon not less than twenty (20) days' prior request by the
other party, it shall furnish to such other party a certificate signed by an
individual having the office of vice president or higher in the Certifying Party
certifying that this Lease is in full force and effect (or that this Lease is in
<PAGE>
26
full force and effect as modified and setting forth the modifications); the
dates to which the Basic Rent and Supplemental Rent have been paid; to the best
knowledge of the signer of such certificate, whether or not any party hereto is
in default under any of its obligations hereunder (and, if so, the nature of
such alleged default); and such other matters under this Lease as may be
reasonably requested. Any such certificate furnished by any party hereto
pursuant to this Section 25 may be relied upon by such other party hereto, and
any existing or prospective mortgagee, purchaser or lender, and any accountant
or auditor, of, from or to such other party (or any Affiliate thereof), provided
that no such certificate may be requested unless the requesting party has a good
faith reason for such request.
26. NO WAIVER
26.1 No Waiver. No failure by Lessor or Lessee to insist upon the
---------
strict performance of any term hereof or to exercise any right, power or remedy
upon a default hereunder, and no acceptance of full or partial payment of Rent
during the continuance of any such default, shall constitute a waiver of any
such default or of any such term. To the fullest extent permitted by law, no
waiver of any default shall affect or alter this Lease, and this Lease shall
continue in full force and effect with respect to any other then existing or
subsequent default.
27. ACCEPTANCE OF SURRENDER
27.1 Acceptance of Surrender. (a) As of the Expiration Date, if any
-----------------------
Default shall have occurred and be continuing under the Lease or the
representations and warranties set forth in Section 7.5 of the Participation
Agreement shall not be true and correct in all material respects, then Lessee
shall be deemed to have irrevocably exercised the Maturity Date Purchase Option
pursuant to Section 20.2.
(a) Except as otherwise expressly provided in this Lease, no
surrender to Lessor of this Lease or of all or any portion of the Property or of
any interest therein shall be valid or effective unless agreed to and accepted
in writing by Lessor and, prior to the payment or performance of all obligations
under the Credit Documents, the Agent, and no act by Lessor or the Agent or any
representative or agent of Lessor or the Agent, other than a written acceptance,
shall constitute an acceptance of any such surrender.
28. NO MERGER OF TITLE
28.1 No Merger of Title. There shall be no merger of this Lease or
------------------
of the leasehold estate created hereby by reason of the fact that the same
Person may acquire, own or hold, directly or indirectly, in whole or in part,
(a) this Lease or the leasehold estate created hereby or any interest in this
Lease or such leasehold estate, (b) the fee estate in the Property,
<PAGE>
27
except as may expressly be stated in a written instrument duly executed and
delivered by the appropriate Person, or (c) a beneficial interest in Lessor.
29. NOTICES
29.1 Notices. Unless otherwise specifically provided herein, all
-------
notices, consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to be given to any
Person to be effective shall be in writing (including by Facsimile transmission)
and shall be deemed to have been duly given or made (a) when delivered by hand,
(b) one Business Day after delivery to such nationally recognized courier
service specifying overnight delivery, (c) three Business Days after being
deposited in the mail, certified or registered, postage prepaid or (d) in the
case of Facsimile notice, when received, addressed to such Person as indicated:
If to Lessee: c/o Harborside Healthcare Corporation
470 Atlantic Avenue
Boston, Massachusetts 02210
Attention: William H. Stephan
Telecopy: (617) 556-1565
With a copy to: Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
Attention: Janet Vance, Esq.
Telecopy: (212) 351-4035
If to Lessor: Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
Telecopy: (302) 651-8882
with a copy to the Agent:
The Chase Manhattan Bank
c/o The Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Janet M. Belden
Telecopy: (212) 552-5658
<PAGE>
28
With a copy to:
Chase New England Corporation
85 Wells Avenue, Suite 200
Newton, Massachusetts 02159
Attention: Roger A. Stone
Telecopy: (617) 928-3057
or such additional parties and/or other address as such party may hereafter
designate.
30. MISCELLANEOUS
30.1 Miscellaneous. Anything contained in this Lease to the contrary
-------------
notwithstanding, all claims against and liabilities of Lessee or Lessor arising
from events commencing prior to the expiration or earlier termination of this
Lease shall survive such expiration or earlier termination. If any term or
provision of this Lease or any application thereof shall be declared invalid or
unenforceable, the remainder of this Lease and any other application of such
term or provision shall not be affected thereby. If any right or option of
Lessee provided in this Lease, including any right or option described in
Sections 15, 16, 22 or 21, would, in the absence of the limitation imposed by
this sentence, be invalid or unenforceable as being in violation of the rule
against perpetuities or any other rule of law relating to the vesting of an
interest in or the suspension of the power of alienation of property, then such
right or option shall be exercisable only during the period which shall end
twenty-one (21) years after the date of death of the last survivor of the
descendants of Franklin D. Roosevelt, the former President of the United States,
Henry Ford, the deceased automobile manufacturer, and John D. Rockefeller, the
founder of the Standard Oil Company, known to be alive on the date of the
execution and delivery of this Lease.
30.2 Amendments and Modifications. Neither this Lease nor any
----------------------------
provision hereof may be amended, waived, discharged or terminated except by an
instrument in writing signed by Lessor and Lessee.
30.3 Successors and Assigns. All the terms and provisions of this
----------------------
Lease shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
30.4 Headings and Table of Contents. The headings and table of
------------------------------
contents in this Lease are for convenience of reference only and shall not limit
or otherwise affect the meaning hereof.
30.5 Counterparts. This Lease may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same instrument.
<PAGE>
29
30.6 GOVERNING LAW. THIS LEASE HAS BEEN DELIVERED IN, AND SHALL IN
-------------
ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
WITHIN SUCH STATE, EXCEPT AS TO MATTERS RELATING TO THE CREATION, PERFECTION AND
ENFORCEMENT OF LIENS AND SECURITY INTERESTS AND THE EXERCISE OF REMEDIES WITH
RESPECT THERETO, WHICH SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE IN WHICH THE APPLICABLE PROPERTY IS LOCATED.
30.7 Limitations on Recourse. Except as expressly set forth in the
-----------------------
Operative Agreements, Lessee agrees to look solely to Lessor's estate and
interest in the Property, the proceeds of sale thereof, any insurance proceeds
or any other award or any third party proceeds received by Lessor in connection
with the Property for the collection of any judgment requiring the payment of
money by Lessor in the event of liability by Lessor, and no other property or
assets of Lessor, the Trust Company member, partner or other owner of an
interest, direct or indirect, in Lessor, or any director, officer, shareholder,
employee, beneficiary, Affiliate of any of the foregoing shall be subject to
levy, execution or other enforcement procedure for the satisfaction of Lessee's
remedies under or with respect to this Lease, the relationship of Lessor and
Lessee hereunder or Lessee's use of the Property or any other liability of
Lessor to Lessee; provided that nothing in this Section shall be construed to
--------
impair or limit the rights of Lessee against the Investors under the Operative
Agreements. Nothing in this Section shall be interpreted so as to limit the
terms of Section 6.1 or 6.2.
30.8 Memorandum of Lease. This Lease shall not be recorded, but
-------------------
Lessor and Lessee shall, upon the execution and delivery of each Lease
Supplement, execute and deliver a memorandum of this Lease (a "Memorandum of
-------------
Lease") substantially in the form of Exhibit B and otherwise in form suitable
- ----- ---------
for recording under the laws of the jurisdiction in which the Property covered
by such Lease Supplement is located, which memorandum shall be recorded at
Lessee's sole cost and expense.
30.9 Priority. On and prior to the Maturity Date, the Mortgage shall
--------
be subject and subordinate to this Lease and following the Maturity Date, the
Mortgage, at the sole election of the Agent, shall be senior to this Lease
without any further act by any Person.
30.10 Ground Lease. During the Term, Lessee shall observe and perform
------------
all of the obligations of Lessor under any Ground Lease (including the payment
of all rent and other amounts thereunder) and, in connection therewith, shall,
prior to the occurrence and continuation of a Lease Event of Default, have the
benefit of all of Lessor's rights as lessee under any Ground Lease.
<PAGE>
30
IN WITNESS WHEREOF, the parties have caused this Lease be duly
executed and delivered as of the date first above written.
HARBORSIDE OF DAYTON LIMITED
PARTNERSHIP
By: Harborside Health I Corporation,
its general partner
By: /s/ Stephen L. Guillard
----------------------------------------
Name: Stephen L. Guillard
Title: Chief Executive Officer
HHC 1998-1 TRUST, by Wilmington Trust
Company, not individually but solely as Trustee
By: /s/ Charlotte Paglia
-------------------------------------
Name: Charlotte Paglia
Title: Financial Services Officer
Receipt of this original counterpart of the foregoing Lease is hereby
acknowledged on this 11th day of August, 1998.
THE CHASE MANHATTAN BANK, as the Agent
for the Lenders
By: /s/ Robert Anastasio
----------------------------------------
Name: Robert Anastasio
Title: Vice President
<PAGE>
Exhibit A
---------
LEASE SUPPLEMENT NO. __
THIS LEASE SUPPLEMENT NO. __ (this "Lease Supplement") dated as of
----------------
_______________, between HHC 1998-1 TRUST, a Delaware business trust, as lessor
(the "Lessor"), and HARBORSIDE OF DAYTON LIMITED PARTNERSHIP, a Massachusetts
------
limited partnership, as lessee (the "Lessee").
------
WHEREAS, the Lessor is the owner of the Property described on Schedule
I hereto (the "Leased Property") and wishes to lease the same to the Lessee;
---------------
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
31. Definitions; Rules of Usage. For purposes of this Lease
---------------------------
Supplement, capitalized terms used herein and not otherwise herein shall have
the meanings assigned to them in Appendix A to the Participation Agreement,
dated as of August 11, 1998, among the Lessee, the Lessor, the Investors, the
Agent, and the Lenders, as it may be amended, supplemented or otherwise modified
from time to time in accordance with the terms thereof.
32. The Properties. Attached hereto as Schedule I is the description
--------------
of the Leased Property. Effective upon the execution and delivery of this Lease
Supplement by the Lessor and the Lessee, the Leased Property shall be subject to
the terms and provisions of the Lease.
33. Ratification. Except as specifically modified hereby, the terms
------------
and provisions of the Lease are hereby ratified and confirmed and remain in full
force and effect.
34. Original Lease Supplement. The single executed original of this
-------------------------
Lease Supplement marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART"
on the signature page thereof and containing the receipt of the Agent therefor
on or following the signature page thereof shall be the Original Executed
Counterpart of this Lease Supplement (the "Original Executed Counterpart"). To
-----------------------------
the extent that this Lease Supplement constitutes chattel paper, as such term is
defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction, no security interest in this Lease Supplement may be created
through the transfer or possession of any counterpart other than the Original
Executed Counterpart.
35. GOVERNING LAW. THIS LEASE SUPPLEMENT HAS BEEN DELIVERED IN, AND
-------------
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE, EXCEPT AS TO MATTERS RELATING TO THE CREATION,
PERFECTION AND ENFORCEMENT OF LIENS AND SECURITY INTERESTS AND THE EXERCISE OF
REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED
<PAGE>
2
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE IN WHICH THE
APPLICABLE PROPERTY IS LOCATED.
36. Counterpart Execution. This Lease Supplement may be executed in
---------------------
any number of counterparts and by each of the parties hereto in separate
counterparts, all such counterparts together constituting but one and the same
instrument.
37. Recordation. The Lessor and the Lessee agree that a memorandum of
-----------
this Lease Supplement No. __ shall be recorded at the Lessee's sole cost and
expense as required by the Lease.
IN WITNESS WHEREOF, the parties have caused this Lease Supplement No.
__ be duly executed and delivered as of the date first above written.
HARBORSIDE OF DAYTON LIMITED
PARTNERSHIP
By: Harbor Health I Corporation,
its general partner
By: ____________________________________
Name:
Title:
HHC 1998-1 TRUST, by Wilmington Trust
Company, not in its individual capacity but solely
as Trustee
By:______________________________
Name:
Title:
<PAGE>
3
Receipt of this original counterpart of the foregoing Lease Supplement
is hereby acknowledged on this ___ day of ______, _____.
THE CHASE MANHATTAN BANK, as the Agent
for the Lenders
By:____________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.24
ACCOUNTS RECEIVABLE
INTERCREDITOR AGREEMENT
-----------------------
(LEASED FACILITIES)
THIS AGREEMENT is made as of the 11th day of August, 1998, by and among (I)
THE CHASE MANHATTAN BANK, as administrative agent (in such capacity, the
"Corporate Credit Agent") for itself and the other lenders (the "Corporate
Credit Lenders") which are, or may in the future become, parties to the
Corporate Credit Agreement (as hereinafter defined), (II) THE CHASE MANHATTAN
BANK, as administrative agent (in such capacity, the "Lease Credit Agent") for
itself and the other lenders (the "Lease Credit Lenders") which are, or may in
the future become, parties to the Lease Credit Agreement (as hereinafter
defined), (III) THE CHASE MANHATTAN BANK, as administrative agent (in such
capacity, the "Agent") for the Corporate Credit Lenders, the Lease Credit
Lenders and/or the Investors, as the case may be, pursuant to the Security
Documents, (IV) HHC 1998-1 TRUST, a Delaware business trust (the "HHC Trust"),
(V) CSL LEASING, INC., BTD HARBORSIDE, INC. and MORGAN STANLEY SENIOR FUNDING,
INC. (collectively, the "Investors") and (VI) MEDITRUST COMPANY LLC, a Delaware
limited liability company, having an office at 197 First Avenue, Needham
Heights, Massachusetts 02494 (the "Lessor"), successor by merger to Meditrust of
Ohio, Inc., Meditrust of New Hampshire, Inc., Meditrust of Bedford, Inc.,
Meditrust of Florida, Inc., Meditrust of New Jersey, Inc., and Meditrust Tri-
States, Inc. (collectively, the "Original Lessors").
WHEREAS, the Original Lessors and HARBORSIDE TOLEDO LIMITED PARTNERSHIP, a
Massachusetts limited partnership, HARBORSIDE NEW HAMPSHIRE LIMITED PARTNERSHIP,
a Massachusetts limited partnership and HHCI LIMITED PARTNERSHIP, a
Massachusetts limited partnership (collectively, the "Lessees") entered into
those certain Facility Lease Agreements more particularly described on EXHIBIT B
---------
(collectively, the "Leases"). The Lessees' obligations under the Leases are
secured, in part, by security interests granted by the Lessees to the Original
Lessors and now held by the Lessor pertaining to the Credit Lenders' Collateral
(as hereinafter defined). All documents evidencing, securing or otherwise given
in connection with the Leases are hereinafter collectively referred to as the
"Lease Documents" and all collateral granted thereunder to the Original Lessor
(and now held by the Lessor) or the Lessor, as the case may be, shall be
collectively referred to as the "Lessor's Collateral" (which includes, without
limitation, the Credit Lenders' Collateral); and
WHEREAS, the Corporate Credit Agent and the Corporate Credit Lenders have
entered into a Credit Agreement, dated as of August 11, 1998 (such credit
agreement, together with any and all other documents securing or evidencing the
loans established by said credit agreement, the "Corporate Credit Agreement")
with Harborside Healthcare Corporation, a Delaware corporation ("Harborside"),
its subsidiaries listed on EXHIBIT A attached hereto and incorporated herein by
---------
reference and such additional subsidiaries which may be from time to time added
as parties thereto (collectively, together with Harborside, the "Debtors"),
including, without limitation, the Lessees; and
<PAGE>
WHEREAS, the Lease Credit Agent and the Lease Credit Lenders have entered
into a Credit Agreement dated as of August 11, 1998 (such credit agreement,
together with any and all other documents securing or evidencing the loans
established by said credit agreement and the lease and credit transactions
established by such other documents, including, without limitation, the
Participation Agreement (as hereinafter defined) and the HHC Lease Guaranty (as
hereinafter defined), the "Lease Credit Agreement") with the HHC Trust; and
WHEREAS, pursuant to a Participation Agreement dated as of August 11, 1998
(the "Participation Agreement") by and among Harborside of Dayton Limited
Partnership, the HHC Trust, Wilmington Trust Company, the Investors, the Lease
Credit Agent and the Lease Credit Lenders, the Investors have agreed to make
certain investments in the HHC Trust; and
WHEREAS, the Debtors have executed that certain Guarantee, dated as of
August 11, 1998, in favor of the HHC Trust, the Investors and the Lease Credit
Agent, for the benefit of the Lease Credit Lenders (such guaranty, together with
any and all other documents securing or evidencing the obligations established
by said guaranty, the "HHC Lease Guaranty"), pursuant to which the Debtors have
agreed to guarantee the Note Obligations, the Contribution Obligations and the
Lease Obligations (as each term is defined in the HHC Lease Guaranty); and
WHEREAS, the Lessor acknowledges having been informed by the Corporate
Credit Agent, the Lease Credit Agent, the HHC Trust and the Investors that, as
collateral for (A) the loans made pursuant to the Corporate Credit Agreement and
investments and loans made pursuant to the Lease Credit Agreement and (B) the
obligations of the Debtors under the HHC Lease Guaranty, the Agent was (or, in
the case of mortgaged properties, within sixty (60) days after the date hereof,
will be) granted security interests (I) by the Lessees, pursuant to the Security
Documents (as hereinafter defined) in certain collateral that is more
particularly described therein (the "Credit Lenders' Collateral"), including,
without limitation, the facilities (collectively, the "Facilities") more
particularly described in the Leases, and (II) by the other Debtors in certain
other collateral that is more particularly described in the Corporate Credit
Agreement and the Lease Credit Agreement (the "Remaining Collateral"); and
WHEREAS, the Lease Credit Lenders, the Corporate Credit Lenders, the HHC
Trust and the Investors have agreed that the Credit Lenders' Collateral and the
Remaining Collateral secure the obligations under the Corporate Credit
Agreement, the Lease Credit Agreement and the HHC Lease Guaranty on the terms
and conditions set forth in that certain Agency and Intercreditor Agreement,
dated as of August 11, 1998, by and among the Debtors, the HHC Trust, the
Corporate Credit Agent, the Lease Credit Agent, the Corporate Credit Lenders,
the Lease Credit Lenders and the Investors (the "Chase Intercreditor
Agreement"); and
-2-
<PAGE>
WHEREAS, the Lessor is willing to consent to the granting of security
interests in the Credit Lenders' Collateral to the Corporate Credit Agent, for
the benefit of the Corporate Credit Lenders, the Lease Credit Agent, for the
benefit of the Lease Credit Lenders, the HHC Trust and the Investors, upon the
terms and conditions set forth herein.
NOW, THEREFORE, for consideration paid, receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. CONSENT. Notwithstanding anything to the contrary set forth in the
-------
Lease Documents, the Lessor hereby consents to (I) the establishment by the
Corporate Credit Lenders of the credit facilities in favor of the Debtors under
the Corporate Credit Agreement, (II) the establishment by the Lease Credit
Lenders and the Investors of the synthetic lease facility contemplated in the
Participation Agreement, including, without limitation, the credit facilities in
favor of the HHC Trust under the Lease Credit Agreement and (III) the granting
by the Lessees to the Agent, pursuant to the Security Documents, of security
interests in the Credit Lenders' Collateral. The documents more particularly
described on EXHIBIT C attached hereto and incorporated herein by reference are
---------
collectively referred to herein as the "Security Documents". The Lessor hereby
further agrees that to the extent that any of the provisions set forth in any of
the Lease Documents prohibits or restricts (A) any of the Lessees from entering
into the Corporate Credit Agreement, incurring their respective obligations
thereunder to the Corporate Credit Agent or the Corporate Credit Lenders or
granting security interests or liens in the Credit Lenders' Collateral to the
Agent, for the benefit of the Corporate Credit Lenders, pursuant to the Security
Documents, (B) any of the Lessees from entering into the Lease Credit Agreement,
incurring their respective obligations thereunder to the Lease Credit Agent or
the Lease Credit Lenders or granting security interests or liens in the Credit
Lenders' Collateral to the Agent, for the benefit of the Lease Credit Lenders,
pursuant to the Security Documents or (C) any of the Lessees from entering into
the HHC Lease Guaranty, incurring their respective obligations thereunder to the
HHC Trust, the Lease Credit Agent, the Lease Credit Lenders and the Investors or
granting security interests or liens in the Credit Lenders' Collateral to the
Agent, for the benefit of the Lease Credit Lenders and the Investors pursuant to
the Security Documents in order to secure such Lessee's obligations under the
HHC Lease Guaranty then, subject to the terms hereof, such provisions are hereby
----
waived by the Lessor. Notwithstanding the foregoing, it is understood and agreed
by the parties hereto that in no event is the Lessor consenting to the granting
of (A) a leasehold mortgage by any Lessee (encumbering such Lessee's interest in
any Lease) for the benefit of any or all of the Corporate Credit Agent, the
Corporate Credit Lenders, the Lease Credit Agent, the Lease Credit Lenders, the
HHC Trust and the Investors or (B) a security interest for the benefit of any or
all of the Corporate Credit Agent, the Corporate Credit Lenders, the Lease
Credit Agent, the Lease Credit Lenders, the HHC Trust and/or the Investors in
any of the Capital Stock (as defined in the Corporate Credit Agreement) of any
Lessee or in the general partner of any Lessee.
-3-
<PAGE>
2. NOTICES. The Corporate Credit Agent agrees to give the Lessor a copy
-------
of any notice of default and/or any other notice pertaining to any exercise of
any right and/or remedy under the Corporate Credit Agreement that the Corporate
Credit Agent gives to any Lessee or Harborside pursuant to the Corporate Credit
Agreement, simultaneously with the giving of such notice to such Lessee or
Harborside. The Lease Credit Agent agrees to give the Lessor a copy of any
notice of default and/or any other notice pertaining to any exercise of any
right and/or remedy under the Lease Credit Agreement or under the HHC Lease
Guaranty that the Lease Credit Agent gives to any Lessee or Harborside pursuant
to the Lease Credit Agreement, simultaneously with the giving of such notice to
such Lessee or Harborside. The Agent agrees to give the Lessor a copy of any
notice of default and/or any other notice pertaining to any exercise of any
right and/or remedy under the Security Documents that the Agent gives to any
Lessee or Harborside pursuant to the Security Documents, simultaneously with the
giving of such notice to such Lessee or Harborside. The Lessor agrees to give
the Agent a copy of any notice of default and/or any other notice pertaining to
any exercise of any right or remedy under the Lease Documents that the Lessor
gives to any Lessee or Harborside pursuant to the Lease Documents,
simultaneously with the giving of such notice to such Lessee or Harborside.
3. PRIORITIES WITH RESPECT TO THE COLLATERAL.
-----------------------------------------
(A) Notwithstanding anything to the contrary that may be set forth in
any of the Lease Documents, the Lessor acknowledges and agrees
that, as between (I) the Lessor and (II) the Agent, except as
provided in paragraph 3(d) below, the Agent's security interests
in that portion of the Credit Lenders' Collateral that
constitutes Accounts (as hereinafter defined) shall be treated as
prior to the Lessor's security interest in such Accounts.
(B) The Agent acknowledges having been informed by the Lessor that,
as additional security for the obligations of the Lessees under
the Lease Documents, as part of the Lessor's Collateral, (I) the
Lessor (as the successor by merger to the Original Lessors) has
been granted by the Lessees collateral assignments of, and
perfected security interests in, all licenses, approvals,
qualifications, variances, permissive uses, certificates of need,
franchises, accreditations, certificates, certifications,
consents, permits and other authorizations (collectively, the
"Permits") and agreements and patient admission agreements,
contracts, contract rights, warranties and representations and
franchises (collectively, the "Contracts"), benefiting, relating
to or affecting the facilities demised under the Leases
(collectively, the "Facilities") and the ownership, construction,
development, maintenance, management, repair, use, occupancy,
possession or operation thereof or the operation of any programs
or services in conjunction with any Facility and all
-4-
<PAGE>
renewals and replacements and substitutions therefor, now or
hereafter issued by or entered into with any governmental
authority or maintained or used by any Lessee or entered into by
any Lessee with any third party, including, without limitation,
patient contracts and governmental reimbursement contracts
associated with the Facilities which generate Accounts and (II)
the Lessor (as the successor by merger to the Original Lessors)
has been granted by the Lessees perfected security interests in
all books, records, ledgers, print-outs, papers, data, file
materials and information relating to the Facilities, any account
debtors in respect thereof and/or to the operation of the
Lessees' businesses, and all rights of access to such books,
records, ledgers, print-outs, papers, file materials and
information, and all property in which such books, records,
ledgers, print-outs, data, file materials and information are
stored, recorded, and maintained (collectively, the "Books and
Records"). Notwithstanding anything to the contrary set forth in
the Corporate Credit Agreement, the Lease Credit Agreement and/or
the HHC Lease Guaranty, the Agent further acknowledges and agrees
that, as between (X) the Agent and (Y) the Lessor, the Lessor's
said security interests in the Permits, the Contracts and the
Books and Records, as well as the Lessor's security interests in
all other items of the Credit Lenders' Collateral (other than, as
provided in paragraphs 3(a) and 3(d), in Accounts accruing on or
prior to the "Trigger Event", as hereinafter defined) shall be
treated as prior to the Agent's security interests in the
Permits, the Contracts, the Books and Records and the other items
of the Credit Lenders' Collateral (other than Accounts accruing
on or prior to the Trigger Event).
As used herein, the term Accounts shall mean (I) accounts (as
defined in the Uniform Commercial Code as adopted in
Massachusetts) and (II) rights to payment for goods sold or
leased or services rendered by any Lessee or any other party,
whether now in existence or arising from time to time hereafter
and whether or not yet earned by performance, including, without
limitation, obligations evidenced by an account, note, contract,
security agreement, chattel paper, or other evidence of
indebtedness (collectively, the "Receivables"); together with (1)
all security pledged, assigned, hypothecated or granted to or
held by any Lessee to secure the foregoing, (2) any property
received in payment, settlement or compromise of any account or
Receivable, (3) all guarantees, endorsements and indemnifications
on, or of, any of the foregoing, (4) all rights, remedies, and
privileges pertaining to any of the foregoing, (5) all powers of
attorney for the execution of any evidence of indebtedness or
security or other writing in connection therewith, and (6) all
evidences of the filing of financing statements and
-5-
<PAGE>
other statements and the registration of other instruments in
connection therewith and amendments thereto; all whether now
existing or hereafter acquired or arising and including all
proceeds and products thereof.
(C) Without representing or implying that the license hereafter
referred to is necessary, the Lessor hereby grants to the Agent a
license in the Permits, the Contracts and the Books and Records
(the "License Rights"), but only to the extent that (I) the
Lessor is able to do so consistent with applicable law and the
Lessor's contractual obligations (now existing or hereafter
entered into) and (II) the License Rights are necessary for the
Agent to sue for and collect all Accounts that accrue on or prior
to the Trigger Event; provided, however, that the foregoing grant
-------- -------
is made without any representation or implication on behalf of
the Lessor that it has the ability to make any such grant in
accordance with the terms hereof and without any other
representation of any kind or nature whatsoever. In addition, the
Lessor agrees that it will not intentionally use whatever rights
it may have in the Permits, the Contracts and the Books and
Records for the purpose of hindering the Agent from collecting
Accounts that accrued on or prior to the Trigger Event.
(D) Notwithstanding any priority that would otherwise apply as a
matter of law, after the occurrence of a default or breach of
condition continuing beyond all applicable notice and/or grace
periods, if any, under any of the Lease Documents (I) upon
receipt by the Agent of written notice (the "Trigger Notice")
from the Lessor, notifying the Agent of the commencement by the
Lessor of any action to exercise any of its remedies under any of
the Lease Documents, including, without limitation, the taking of
any steps to terminate any one or more of the Leases, to
accelerate or to demand full payment under the Lease Documents or
to realize on all or any portion of the Lessor's Collateral (the
date of the receipt by the Agent of the Trigger Notice shall be
referred to herein as the "Trigger Event"), all Accounts arising
and/or accruing after the Trigger Event from operations at the
applicable Facility or Facilities identified in the Trigger
Notice (and the proceeds thereof) and the rights to collect and
retain the same shall be, as between (A) the Agent and (B) the
Lessor, the Lessor's as first priority collateral for the
obligations of the Lessees to the Lessor and (II) the Lessor
agrees with the Agent that all uncollected Accounts that accrued
from operations of such Facility or Facilities occurring on or
prior to the Trigger Event are part of the Accounts in which the
Agent has a security interest prior to the Lessor's and as to
which the rights to collect and retain the same shall be, as
between (X) the Agent and (Y)
-6-
<PAGE>
the Lessor, the Agent's as first priority collateral for the
obligations owed to the Corporate Credit Agent and the Corporate
Credit Lenders under the Corporate Credit Agreement, the
obligations owed to the Lease Credit Agent and the Lease Credit
Lenders under the Lease Credit Agreement and the obligations owed
to the Lease Credit Agent (for the benefit of the Lease Credit
Lenders) and the Investors under the HHC Lease Guaranty.
The parties hereto agree that a Trigger Notice may be given on
any one or more occasions and that there may be different Trigger
Events for the Facilities.
(E) The Lessor hereby grants to the Agent, access to the Facilities
and the Books and Records at reasonable times and after
reasonable notice to the Lessor to the extent that such access is
necessary for the Agent to pursue its rights in such Accounts
accruing on or prior to the Trigger Event. With respect to any
Facility, such right of access shall be effective from and after
the time the Lessor takes exclusive possession of such Facility
and the Books and Records relating thereto.
(F) It is recognized that individual patients at any Facility may
have unpaid Accounts that accrued both before and after the
applicable Trigger Event relating to such Facility. The parties
hereto agree that payments received under such circumstances
shall be applied against the oldest Accounts first.
(G) In the event that the Corporate Credit Agent, the Lease Credit
Agent, the Agent and/or the Investors collect any Accounts that
accrued after the Trigger Event, the Corporate Credit Agent, the
Lease Credit Agent, the Agent and/or the Investors, as the case
may be, shall forward such Accounts to the Lessor. In the event
that the Lessor collects any Accounts that accrued on or prior to
the Trigger Event, the Lessor shall forward such Accounts to the
Agent.
4. THE CORPORATE CREDIT AGENT'S, THE LEASE CREDIT AGENT'S, THE AGENT'S,
--------------------------------------------------------------------
THE HHC TRUST'S AND THE INVESTORS' EXERCISE OF REMEDIES. Notwithstanding
- -------------------------------------------------------
anything to the contrary set forth in the Corporate Credit Agreement, the Lease
Credit Agreement and/or the HHC Lease Guaranty, the Corporate Credit Agent, the
Lease Credit Agent, the Agent, the HHC Trust and the Investors agree that,
without the prior written consent of the Lessor, which consent may be withheld
in the Lessor's sole and absolute discretion, (A) the Corporate Credit Agent,
the Lease Credit Agent, the Agent, the HHC Trust and the Investors shall not
exercise any of their respective rights and remedies under the Corporate Credit
Agreement, the Lease Credit Agreement and/or the HHC Lease Guaranty (including,
without limitation, the rights and remedies under the Security Documents) with
respect to the Lessees
-7-
<PAGE>
or the Credit Lenders' Collateral, other than such rights and remedies as may be
necessary to collect the Accounts that accrue on or prior to the Trigger Event
and (B) without limiting the foregoing, the Corporate Credit Agent, the Lease
Credit Agent, the Agent, the HHC Trust and the Investors shall not file, cause
to be filed or join in the filing of, any petition under the United States
Bankruptcy Code, as the same may hereafter be amended and including any
successor provision thereto, or any similar petition or pleading under any state
law, against any Lessee or the general partner of any Lessee or seek any relief
with respect to any Lessee or the general partner of any Lessee (including,
without limitation, the appointment of a receiver, trustee or other similar
official for such Lessee or the general partner of any Lessee or any of their
respective businesses or assets) under any such law. Except as expressly set
forth in this Paragraph 4, this Agreement shall not, however, limit the
respective rights and remedies of the Corporate Credit Agent, the Lease Credit
Agent, the Agent, the HHC Trust and/or the Investors under the Corporate Credit
Agreement, the Lease Credit Agreement and/or the HHC Trust with respect to the
Debtors, other than the Lessees and the general partner of the Lessees, the HHC
Trust or the Remaining Collateral.
The Corporate Credit Agent, the Lease Credit Agent, the Agent, the HHC
Trust and the Investors will not demand or accept as security for the
indebtedness evidenced by the Corporate Credit Agreement, the Lease Credit
Agreement and/or the HHC Lease Guaranty any collateral owned, wholly or in part,
by any Lessee or any general partner of any Lessee, other than such collateral
as is already included within the definition of the Credit Lenders' Collateral,
without the prior written consent of the Lessor, in each instance, which consent
may be withheld in the Lessor's sole and absolute discretion.
5. BIND AND INURE; TERMINATION. This Agreement shall be binding upon and
---------------------------
inure only to the benefit of the Lessor, the Corporate Credit Agent, the Lease
Credit Agent, the Agent, the HHC Trust, the Investors and their respective
successors and assigns (including, without limitation, any other future holder
of the landlord's interest under any Lease); provided, however, that this
-------- -------
Agreement shall be null and void and of no further force or effect upon the
payment in full of the obligations under either (A) the Corporate Credit
Agreement, the Lease Credit Agreement and the HHC Lease Guaranty or (B) the
Lease Documents. The Corporate Credit Agent hereby represents and warrants that
it has the authority to execute this Agreement on behalf of itself and the other
lenders which are, or may in the future become, parties to the Corporate Credit
Agreement. The Lease Credit Agent hereby represents and warrants that it has
the authority to execute this Agreement on behalf of itself and the other
Corporate Credit Lenders, the other Lease Credit Lenders which are, or may in
the future become, secured parties under the Lease Credit Agreement. The Agent
hereby represents and warrants that it has the authority to execute this
Agreement on behalf of itself, the other Lenders, the Investors and such other
parties which may in the future become parties to the Security Documents. By
executing this Agreement on behalf of the HHC Trust, Wilmington Trust Company
represents and warrants that it is the Trustee of the HHC Trust and has the
authority to execute this Agreement on behalf of the HHC Trust. The Investors
hereby represent and warrant that they have the authority to execute this
Agreement.
-8-
<PAGE>
6. NOTICES. All notices and other communications hereunder shall be in
-------
writing and mailed (by registered or certified mail, return receipt requested
and postage prepaid), delivered by a reputable commercial overnight delivery
service with provision for a receipt, with delivery charges prepaid, hand
delivered or transmitted by facsimile on a regular business day between the
hours of 9:00 a.m. and 5:00 p.m., and shall be effective upon receipt, or upon
attempted delivery if delivery is refused by the addressee, addressed or
facsimile transmitted to the respective parties, as follows:
(A) if to the Corporate Credit Agent, to the Lease Credit Agent and/or to
the Agent:
The Chase Manhattan Bank
c/o The Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, NY 10081
Attention: Janet M. Belden
Telephone: (212) 552-5658
Fax: (212) 552-5650
with copies to:
Chase New England Corporation
85 Wells Avenue
Suite 200
Newton, MA 02159
Attention: Roger A. Stone
Telephone: (617) 928-3056
Fax: (617) 928-3057
Simpson, Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Gregory A. Weiss, Esq.
Telephone: (212) 455-2000
Fax: (212) 455-2502
-9-
<PAGE>
(B) if to the HHC Trust:
c/o Wilmington Trust Company
Rodney Square North
110 North Market Street
Wilmington, DE 19890
Attention: Corporate Trust Administration
Reference: HHC 1998-1 Trust
Telephone: (301) 651-8882
Fax: (302) 651-1000
with copies to:
Chase New England Corporation
85 Wells Avenue
Suite 200
Newton, MA 02159
Attention: Roger A. Stone
Telephone: (617) 928-3056
Fax: (617) 928-3057
Simpson, Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Gregory A. Weiss, Esq.
Telephone: (212) 455-2000
Fax: (212) 455-2502
(C) if to the Investors:
BTD Harborside Inc.
1011 Centre Road, Suite 200
Wilmington, DE 19805
Attention: Donna Mitchell
Fax: (302) 636-3333
Morgan Stanley Senior Funding, Inc.
1585 Broadway
New York, NY 10036
Attention: Michael A. Hart
Fax: (212) 761-0587
-10-
<PAGE>
CSL Leasing, Inc.
1201 Market Street, 9th Floor
Wilmington, DE 19801
Attention: Michael Handago
Fax: (302) 428-3390
with copies to:
Chase New England Corporation
85 Wells Avenue
Suite 200
Newton, MA 02159
Attention: Roger A. Stone
Telephone: (617) 928-3056
Fax: 617) 928-3057
Simpson, Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Gregory A. Weiss, Esq.
Telephone: (212) 455-2000
Fax: (212) 455-2502
(D) if to the Lessor:
Meditrust Company LLC
197 First Avenue
Needham Heights, MA 02494
Attention: President
Telephone: (781) 433-6000
Fax: (781) 433-1290
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<PAGE>
with copies to:
Meditrust Company LLC
197 First Avenue
Needham Heights, MA 02494
Attention: General Counsel
Telephone: (781) 433-6000
Fax: (781) 433-1224
Nutter, McClennen & Fish, LLP
One International Place
Boston, MA 02110
Attention: Marianne Ajemian, Esq.
Telephone: (617) 439-2000
Fax: (617) 973-9748
or to such other address or facsimile telephone number as any party may
hereafter designate by written notice given to the other.
When any notice is to be given under this Agreement simultaneously with
notice to another party or simultaneously with the happening of an event, such
notice shall be given as simultaneously as is reasonable in the circumstances.
7. NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the
----------------------------
benefit of the parties hereto and nothing contained herein shall confer upon
anyone other than the parties hereto and their permitted successors and assigns,
any right to insist upon or to enforce the performance or observance of any of
the obligations contained herein; provided, however, that notwithstanding the
-------- -------
foregoing, it is acknowledged and agreed that the Debtors may rely on the
consents and waivers set forth in Paragraph 1.
8. ENTIRE AGREEMENT; AMENDMENTS. This Agreement sets forth the entire
----------------------------
agreement of the parties with respect to the Credit Lenders' Collateral and the
Lessor's Collateral and can be amended, modified, supplemented, extended,
terminated, discharged or changed only by an agreement in writing which makes
specific reference to this Agreement and which is signed by all parties hereto.
The Corporate Credit Agent shall provide the Lessor with copies of all
amendments to the Corporate Credit Agreement. The Lease Credit Agent shall
provide the Lessor with copies of all amendments to the Lease Credit Agreement.
The Lessor shall provide the Agent with copies of all amendments to any of the
Lease Documents.
9. NO WAIVER. No waiver of any term, provision or condition of this
---------
Agreement in any one or more instances, shall be deemed to be or be construed as
a further or continuing waiver of any such term, provision or condition of this
Agreement. No failure to
-12-
<PAGE>
act shall be construed as a waiver of any term, provision, condition or right
granted hereunder.
Excluding any breach of any covenant set forth herein, no action or
inaction with respect to the Lessor's Collateral; nor any amendment to any of
the Lease Documents; nor any exercise or nonexercise of any right, power or
remedy under the Lease Documents; nor any waiver, consent, release, indulgence,
extension, renewal, modification, delay or other action, inaction or omission in
respect of the obligations evidenced by the Lease Documents will in any event
give rise to any claim by the Corporate Credit Agent, the Lease Credit Agent,
the Agent, the HHC Trust and/or the Investors against the Lessor.
Excluding any breach of any covenant set forth herein, no action or
inaction with respect to the Credit Lenders' Collateral or the Remaining
Collateral; nor any amendment to the Corporate Credit Agreement; nor any
exercise or nonexercise of any right, power or remedy under the Corporate Credit
Agreement; nor any waiver, consent, release, indulgence, extension, renewal,
modification, delay or other action, inaction or omission in respect of the
obligations evidenced by the Corporate Credit Agreement will in any event give
rise to any claim by the Lessor against the Corporate Credit Agent or the Agent.
Excluding any breach of any covenant set forth herein, no action or
inaction with respect to the Credit Lenders' Collateral or the Remaining
Collateral; nor any amendment to the Lease Credit Agreement; nor any exercise or
nonexercise of any right, power or remedy under the Lease Credit Agreement; nor
any waiver, consent, release, indulgence, extension, renewal, modification,
delay or other action, inaction or omission in respect of the obligations
evidenced by the Lease Credit Agreement will in any event give rise to any claim
by the Lessor against the Lease Credit Agent or the Agent.
Excluding any breach of any covenant set forth herein, no action or
inaction with respect to the Credit Lenders' Collateral or the Remaining
Collateral; nor any amendment to the HHC Lease Guaranty; nor any exercise or
nonexercise of any right, power or remedy under the HHC Lease Guaranty; nor any
waiver, consent, release, indulgence, extension, renewal, modification, delay or
other action, inaction or omission in respect of the obligations evidenced by
the HHC Lease Guaranty will in any event give rise to any claim by the Lessor
against the Lease Credit Agent, the Agent, the HHC Trust or the Investors.
The Corporate Credit Agent, the Lease Credit Agent, the Agent, the HHC
Trust and the Investors each irrevocably waives any right to require marshalling
of the assets of the Lessees and agrees that the Lessor shall have no obligation
to seek satisfaction of the Lessees' obligations under the Lease Documents
through recourse to collateral, if any, other than the Facilities prior to the
exercise of the Lessor's rights with respect to the Facilities.
The Lessor irrevocably waives any right to require marshalling of the
assets of the Debtors and agrees that the Corporate Credit Agent, the Lease
Credit Agent, the Agent, the HHC Trust and the Investors shall have no
obligation to seek satisfaction of the indebtedness evidenced by the Corporate
Credit Agreement, the Lease Credit Agreement and/or the HHC Lease Guaranty
through recourse to collateral, if any, other than the Accounts that accrued
-13-
<PAGE>
on or prior to the Trigger Event prior to the exercise of the Corporate Credit
Agent's, the Lease Credit Agent's, the Agent's and/or the Investors' rights with
respect to such Accounts.
10. NO JOINT VENTURE. Nothing contained herein shall be construed as
----------------
forming a joint venture or partnership between the parties hereto with respect
to the subject matter hereof.
11. FURTHER ASSURANCES. Each of the parties hereto agrees to execute and
------------------
deliver any and all further agreements, documents or instruments necessary to
effectuate this Agreement and the transactions referred to herein or
contemplated hereby or reasonably requested by the other party to perfect or
evidence its rights hereunder.
12. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Agreement to produce or account
for more than the number of counterparts containing the respective signatures
of, or on behalf of, all of the parties hereto.
13. CAPTIONS AND HEADINGS. The captions and headings set forth in this
---------------------
Agreement are included for convenience and reference only and the words
contained therein shall in no way be held or deemed to define, limit, describe,
explain, modify, amplify or add to the interpretation, construction or meaning
of, or the scope or intent of, this Agreement or any part hereof.
14. LIMITATION OF LIABILITY. In no event shall the Lessor ever be liable
-----------------------
to the Corporate Credit Agent, the Lease Credit Agent, the Agent, the HHC Trust,
the Investors or any other party for any indirect or consequential damages
incurred by the Corporate Credit Agent, the Lease Credit Agent, the Agent, the
HHC Trust, the Investors or such other party resulting from any cause
whatsoever.
15. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the Commonwealth of Massachusetts.
To the maximum extent permitted by applicable law, the Corporate Credit
Agent, the Lease Credit Agent, the Agent, the HHC Trust and the Investors each
hereby submits to the jurisdiction of the courts of the Commonwealth of
Massachusetts and the United States District Court for the District of
Massachusetts, as well as to the jurisdiction of all courts from which an appeal
may be taken from the aforesaid courts, for the purpose of any suit, action or
other proceeding arising out of, or with respect to this Agreement and the
Corporate Credit Agent, the Lease Credit Agent, the Agent, the HHC Trust and the
Investors each expressly waives any and all objections it may have as to venue
in any of such courts.
16. TIME OF THE ESSENCE. Time is of the essence of this Agreement.
-------------------
-14-
<PAGE>
17. NO AMENDMENT OF CHASE INTERCREDITOR AGREEMENT. As between the
---------------------------------------------
Corporate Credit Agent, the Lease Credit Agent, the Agent, the HHC Trust and the
Investors only, the terms and conditions of this Agreement shall not amend or
modify the terms and conditions of the Chase Intercreditor Agreement; provided,
--------
however that the provisions of the Chase Intercreditor Agreement shall not
- -------
affect, in any manner whatsoever, the Lessor's rights and remedies with respect
to the Lessees and the Lessor's Collateral.
18. RULES OF CONSTRUCTION. The provisions of this Agreement shall extend
---------------------
and be applicable to all renewals, replacements, amendments, extensions,
substitutions, revisions, consolidations and modifications of the Corporate
Credit Agreement, the Lease Credit Agreement, the HHC Lease Guaranty and/or the
Lease Documents. References herein to the Corporate Credit Agreement, the Lease
Credit Agreement, the HHC Lease Guaranty and/or any of the Lease Documents shall
be deemed to include any renewals, replacements, amendments, extensions,
substitutions, revisions, consolidations or modifications thereof.
Notwithstanding the foregoing, any reference contained herein, whether
express or implied, to any renewal, replacement, amendment, extension,
substitution, revisions, consolidation or modification of any of the Lease
Documents, the Corporate Credit Agreement, the Lease Credit Agreement and/or the
HHC Lease Guaranty is not intended to constitute an agreement or consent by any
of the parties hereto to any such renewal, replacement, amendment, substitution,
revision, consolidation or modification; but, rather as a reference only to
those instances where the applicable parties may give, agree or consent to any
such renewal, replacement, amendment, extension, substitution, revision,
consolidation or modification as the same may be (and only to the extent that
the same may be) required pursuant to the terms, covenants and conditions hereof
or of any of the Lease Documents, the Corporate Credit Agreement, the Lease
Credit Agreement and/or the HHC Lease Guaranty.
Notwithstanding anything to the contrary contained herein, (A) every
agreement, consent and undertaking made herein by the Corporate Credit Agent is
made on behalf of, and shall be binding upon, the Corporate Credit Lenders, (B)
every agreement, consent and undertaking made herein by the Lease Credit Agent
is made on behalf of, and shall be binding upon, the Lease Credit Lenders and
(C) every agreement, consent and undertaking made herein by the Agent is made on
behalf of, and shall be binding upon, the Corporate Credit Lenders, the Lease
Credit Lenders and the Investors.
-15-
<PAGE>
WITNESS the execution hereof under seal as of day and year first written
above.
WITNESS CORPORATE CREDIT AGENT:
- ------- ----------------------
THE CHASE MANHATTAN BANK, as
Administrative Agent under the Corporate Credit
Agreement
/s/ Pilar Ramos By: /s/ Robert Anastasio
- ------------------------- ----------------------------------------
Name: Pilar Ramos Name: Robert Anastasio
Title: Vice President
WITNESS LEASE CREDIT AGENT:
- ------- ------------------
THE CHASE MANHATTAN BANK, as
Administrative Agent under the Lease Credit
Agreement
/s/ Pilar Ramos By: /s/ Robert Anastasio
- ------------------------- -----------------------------------------
Name: Pilar Ramos Name: Robert Anastasio
Title: Vice President
WITNESS AGENT:
- ------- -----
THE CHASE MANHATTAN BANK, as
Administrative Agent under the Security
Documents
/s/ Pilar Ramos By: /s/ Robert Anastasio
- ------------------------- -----------------------------------------
Name: Pilar Ramos Name: Robert Anastasio
Title: Vice President
<PAGE>
WITNESS HHC TRUST:
- ------- ---------
HHC 1998-1 TRUST, a Delaware business trust
By: WILMINGTON TRUST COMPANY, a
Delaware banking corporation, not in its
individual capacity but solely as Trustee
/s/ Susanne Gula By: /s/ Charlotte Paglia
- ------------------------- ------------------------------------------
Name: Susanne Gula Name: Charlotte Paglia
Title: Financial Services Officer
WITNESS INVESTORS:
- ------- ---------
CSL LEASING, INC.
/s/ James P. Donaghey By: /s/ Michael P. Handago
- ------------------------- ------------------------------------------
Name: James P. Donaghey Name: Michael P. Handago
Title: Vice President
WITNESS BTD HARBORSIDE INC.
- -------
/s/ Jean M. Mazarella By: /s/ James H. Stallkamp
- ------------------------- ------------------------------------------
Name: Jean M. Mazarella Name: James H. Stallkamp
Title: President
<PAGE>
WITNESS MORGAN STANLEY SENIOR FUNDING, INC.
- -------
/s/ Robert J. Franz By: /s/ Michael T. McLaughlin
- ------------------------- ------------------------------------
Name: Robert J. Franz Name: Michael T. McLaughlin
Title: Principal
WITNESS LESSOR:
- ------- ------
MEDITRUST COMPANY LLC, a Delaware
limited liability company
/s/ Kim M. Priesing By: /s/ Michael S. Benjamin, Esq.
- ------------------------- ------------------------------------
Name: Kim M. Priesing Name: Michael S. Benjamin, Esq.
Title: Senior Vice President
<PAGE>
EXHIBIT A
---------
DEBTORS
Bay Tree Nursing Center Corp.
Belmont Nursing Center Corp.
Bridgewater Assisted Living Limited Partnership
Countryside Care Center Corp.
Harborside of Cleveland Limited Partnership
Harborside Health I Corporation
Harborside Acquisition Limited Partnership IV
Harborside Acquisition Limited Partnership V
Harborside Acquisition Limited Partnership VI
Harborside Acquisition Limited Partnership VII
Harborside Acquisition Limited Partnership VIII
Harborside Acquisition Limited Partnership IX
Harborside Acquisition Limited Partnership X
Harborside Atlantrix Limited Partnership
Harborside Connecticut Limited Partnership
Harborside Funding Limited Partnership
Harborside Healthcare Advisors Limited Partnership
Harborside Healthcare Baltimore Limited Partnership
Harborside Healthcare Limited Partnership
Harborside Healthcare Network Limited Partnership
Harborside Homecare Limited Partnership
Harborside Massachusetts Limited Partnership
Harborside New Hampshire Limited Partnership
Harborside North Toledo Limited Partnership
Harborside of Dayton Limited Partnership
Harborside of Florida Limited Partnership
Harborside of Ohio Limited Partnership
Harborside Properties Trust I
Harborside Rehabilitation Limited Partnership
Harborside Rhode Island Limited Partnership
Harborside Toledo Limited Partnership
Harborside Toledo Corp.
HHCI Limited Partnership
KHI Corp.
Maryland Harborside Corp.
New Jersey Harborside Corp.
Oakhurst Manor Nursing Center Corp.
Orchard Ridge Nursing Center Corp.
Riverside Retirement Limited Partnership
Sailors, Inc.
Sunset Point Nursing Center Corp.
West Bay Nursing Center Corp.
<PAGE>
EXHIBIT B
---------
FACILITY LEASE AGREEMENTS
1. Facility Lease Agreement, dated as of March 31, 1995, as amended, by and
between Meditrust of Ohio, Inc. and Harborside Toledo Limited Partnership,
relating to the facility commonly known as the Harborside of Toledo
Rehabilitation and Nursing Center
2. Facility Lease Agreement, dated as of January 1, 1996, as amended, by and
between Meditrust of New Hampshire, Inc. and Harborside New Hampshire
Limited Partnership, relating to the facility commonly known as the
Applewood Healthcare Center
3. Facility Lease Agreement, dated as of January 1, 1996, as amended, by and
between Meditrust of New Hampshire, Inc. and Harborside New Hampshire
Limited Partnership, relating to the facility commonly known as the
Crestwood Healthcare Center
4. Facility Lease Agreement, dated as of January 1, 1996, as amended, by and
between Meditrust of New Hampshire, Inc. and Harborside New Hampshire
Limited Partnership, relating to the facility commonly known as the Milford
Nursing Home
5. Facility Lease Agreement, dated as of January 1, 1996, as amended, by and
between Meditrust of New Hampshire, Inc. and Harborside New Hampshire
Limited Partnership, relating to the facility commonly known as the
Pheasant Wood Nursing Home
6. Facility Lease Agreement, dated as of January 1, 1996, as amended, by and
between Meditrust of New Hampshire, Inc. and Harborside New Hampshire
Limited Partnership, relating to the facility commonly known as the
Westwood Healthcare Center
7. Facility Lease Agreement, dated as of January 1, 1996, as amended, by and
between Meditrust of Bedford, Inc. and Harborside New Hampshire Limited
Partnership, relating to the facility commonly known as the Northwood
Healthcare Center
8. Facility Lease Agreement, dated as of December 31, 1995 as amended, by and
between Meditrust of Florida, Inc. and HHCI Limited Partnership, relating
to the facility commonly known as the Harborside Healthcare - Naples
9. Facility Lease Agreement, dated as of December 31, 1995, as amended, by and
between Meditrust of Florida, Inc. and HHCI Limited Partnership, relating
to the facility commonly known as the Harborside Healthcare - Pinebrook
10. Facility Lease Agreement, dated as of December 31, 1995, as amended, by and
between Meditrust of Florida, Inc. and HHCI Limited Partnership, relating
to the facility commonly known as the Harborside Healthcare - Sarasota
<PAGE>
11. Facility Lease Agreement, dated as of December 31, 1995, as amended, by and
between Meditrust Tri-States, Inc. and HHCI Limited Partnership, relating
to the facility commonly known as the Harborside Healthcare - New Haven
12. Facility Lease Agreement, dated as of December 31, 1995, as amended, by and
between Meditrust Tri-States, Inc. and HHCI Limited Partnership, relating
to the facility commonly known as the Harborside Healthcare - Indianapolis
13. Facility Lease Agreement, dated as of December 31, 1995, as amended, by and
between Meditrust of Ohio, Inc. and HHCI Limited Partnership, relating to
the facility commonly known as the Harborside Healthcare - Troy
14. Facility Lease Agreement, dated as of December 31, 1995, as amended, by and
between Meditrust of New Jersey, Inc. and HHCI Limited Partnership,
relating to the facility commonly known as the Harborside Healthcare -
Woods Edge
<PAGE>
EXHIBIT C
---------
SECURITY DOCUMENTS
Collectively, (A) the "Security Documents" (as defined under the Corporate
Credit Agreement) entered into as of the date hereof to which any Borrower is a
party, (B) the "Security Documents" (as defined under the Participation
Agreement) executed as of the date hereof to which any Borrower is a party and
(C) the "Guarantee Security Documents" (as defined under the Participation
Agreement) executed as of the date hereof to which any Borrower is a party.
<PAGE>
EXHIBIT 10.25
ACCOUNTS RECEIVABLE
INTERCREDITOR AGREEMENT
-----------------------
(MORTGAGED FACILITIES)
THIS AGREEMENT is made as of the 11th day of August, 1998, by and among (I)
THE CHASE MANHATTAN BANK, as administrative agent (in such capacity, the
"Corporate Credit Agent") for itself and the other lenders (the "Corporate
Credit Lenders") which are, or may in the future become, parties to the
Corporate Credit Agreement (as hereinafter defined), (II) THE CHASE MANHATTAN
BANK, as administrative agent (in such capacity, the "Lease Credit Agent") for
itself and the other lenders (the "Lease Credit Lenders") which are, or may in
the future become, parties to the Lease Credit Agreement (as hereinafter
defined), (III) THE CHASE MANHATTAN BANK, as administrative agent (in such
capacity, the "Agent") for the Corporate Credit Lenders, the Lease Credit
Lenders and/or the Investors, as the case may be, pursuant the Security
Documents, (IV) HHC 1998-1 TRUST, a Delaware business trust (the "HHC Trust"),
(V) CSL LEASING, INC., BTD HARBORSIDE INC. and MORGAN STANLEY SENIOR FUNDING,
INC. (collectively, the "Investors"), and (VI) MEDITRUST MORTGAGE INVESTMENTS,
INC., a Delaware corporation, having an office at 197 First Avenue, Needham
Heights, Massachusetts 02494 ("MMI").
WHEREAS, on October 13, 1994, MMI made a loan to BAY TREE NURSING CENTER
CORP., a Massachusetts corporation ("Bay Tree"), COUNTRYSIDE CARE CENTER CORP.,
a Massachusetts corporation ("Countryside"), SUNSET POINT NURSING CENTER CORP.,
a Massachusetts corporation ("Sunset"), WEST BAY NURSING CENTER CORP. ("West
Bay" and Bay Tree, Countryside, Sunset and West Bay are hereinafter collectively
referred to as the "Borrowers"), BELMONT NURSING CENTER CORP., a Massachusetts
corporation ("Belmont"), OAKHURST MANOR NURSING CENTER CORP., a Massachusetts
corporation ("Oakhurst") and ORCHARD RIDGE NURSING CENTER CORP., a Massachusetts
corporation ("Orchard Ridge") in the original principal amount of FORTY-TWO
MILLION THREE HUNDRED THOUSAND ($42,300,000) DOLLARS (the "MMI Loan"), which is
secured, in part, by security interests granted by the Borrowers pertaining to
the Credit Lenders' Collateral (as hereinafter defined), including, without
limitation, the liens (collectively, the "MMI Mortgages") more particularly
described on EXHIBIT A attached hereto and incorporated herein by reference (the
---------
real and personal property encumbered by the MMI Liens is collectively referred
to herein as the "Mortgaged Property"). References herein in to the Mortgaged
Property shall be deemed to include references to all of the Mortgaged Property
and references to any portion thereof. All documents evidencing, securing or
otherwise given in connection with the MMI Loan, including, without limitation,
the MMI Mortgages, are hereinafter collectively referred to as the "Loan
Documents" and all collateral granted thereunder to MMI shall be collectively
referred to as the "MMI Collateral" (which includes, without limitation, the
Credit Lenders' Collateral); and
WHEREAS, subsequent to the consummation of the MMI Loan and in connection
with a partial prepayment thereof, (I) the liens granted by Oakhurst, Belmont
and Orchard
<PAGE>
Ridge to MMI securing the MMI Loan were released and (II) Oakhurst, Belmont and
Orchard Ridge were each released from all obligations relating to the MMI Loan,
other than those obligations which, by the terms of any of the Loan Documents,
extend beyond the term of the MMI Loan or survive the payment of the MMI Loan;
and
WHEREAS, the Corporate Credit Agent and the Corporate Credit Lenders have
entered into a Credit Agreement, dated as of August 11, 1998 (such credit
agreement, together with any and all other documents securing or evidencing the
loans established by said credit agreement, the "Corporate Credit Agreement")
with Harborside Healthcare Corporation, a Delaware corporation ("Harborside"),
its subsidiaries listed on EXHIBIT B attached hereto and incorporated herein by
---------
reference and such additional subsidiaries which may be from time to time added
as parties thereto (collectively, together with Harborside, the "Debtors"),
including, without limitation, the Borrowers; and
WHEREAS, the Lease Credit Agent and the Lease Credit Lenders have entered
into a Credit Agreement dated as of August 11, 1998 (such credit agreement,
together with any and all other documents securing or evidencing the loans
established by said credit agreement and the lease and credit transactions
established by such other documents, including, without limitation, the
Participation Agreement (as hereinafter defined) and the HHC Lease Guaranty (as
hereinafter defined), the "Lease Credit Agreement") with the HHC Trust; and
WHEREAS, pursuant to a Participation Agreement dated as of August 11, 1998
(the "Participation Agreement") by and among Harborside of Dayton Limited
Partnership, the HHC Trust, Wilmington Trust Company, the Investors, the Lease
Credit Agent and the Lease Credit Lenders, the Investors have agreed to make
certain investments in the HHC Trust; and
WHEREAS, the Debtors have executed that certain Guarantee, dated as of
August 11, 1998, in favor of the HHC Trust, the Investors and the Lease Credit
Agent, for the benefit of the Lease Credit Lenders (such guaranty, together with
any and all other documents securing or evidencing the obligations established
by said guaranty, the "HHC Lease Guaranty"), pursuant to which the Debtors have
agreed to guarantee the Note Obligations, the Contribution Obligations and the
Lease Obligations (as each term is defined in the HHC Lease Guaranty); and
WHEREAS, MMI acknowledges having been informed by the Corporate Credit
Agent, the Lease Credit Agent, the HHC Trust and the Investors that, as
collateral for (A) the loans made pursuant to the Corporate Credit Agreement and
investments and loans made pursuant to the Lease Credit Agreement and (B) the
obligations of the Debtors under the HHC Lease Guaranty, the Agent was (or, in
the case of mortgaged properties, within sixty (60) days after the date hereof,
will be) granted security interests (I) by the Borrowers, pursuant to the
Security Documents (as hereinafter defined) in certain collateral that is more
particularly described therein (the "Credit Lenders' Collateral"), including,
without limitation, the facilities (collectively, the "Facilities") more
particularly described on
-2-
<PAGE>
EXHIBIT C attached hereto and incorporated herein by reference, and (II) by the
- ---------
other Debtors in certain other collateral that is more particularly described in
the Corporate Credit Agreement and the Lease Credit Agreement (the "Remaining
Collateral"); and
WHEREAS, the Lease Credit Lenders, the Corporate Credit Lenders, the HHC
Trust and the Investors have agreed that the Credit Lenders' Collateral and the
Remaining Collateral secure the obligations under the Corporate Credit
Agreement, the Lease Credit Agreement and the HHC Lease Guaranty on the terms
and conditions set forth in that certain Agency and Intercreditor Agreement,
dated as of August 11, 1998, by and among the Debtors, the HHC Trust, the
Corporate Credit Agent, the Lease Credit Agent, the Corporate Credit Lenders,
the Lease Credit Lenders and the Investors (the "Chase Intercreditor
Agreement"); and
WHEREAS, MMI is willing to consent to the granting of security interests in
the Credit Lenders' Collateral to the Corporate Credit Agent, for the benefit of
the Corporate Credit Lenders, the Lease Credit Agent, for the benefit of the
Lease Credit Lenders, the HHC Trust and the Investors, upon the terms and
conditions set forth herein.
NOW, THEREFORE, for consideration paid, receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. CONSENT. Notwithstanding anything to the contrary set forth in the
-------
Loan Documents, MMI hereby consents to (I) the establishment by the Corporate
Credit Lenders of the credit facilities in favor of the Debtors under the
Corporate Credit Agreement, (II) the establishment by the Lease Credit Lenders
and the Investors of the synthetic lease facility contemplated in the
Participation Agreement, including, without limitation, the credit facilities in
favor of the HHC Trust under the Lease Credit Agreement and (III) the granting
by the Borrowers to the Agent, pursuant to the Security Documents, of security
interests in the Credit Lenders' Collateral. The documents more particularly
described on EXHIBIT D attached hereto and incorporated herein by reference are
---------
collectively referred to herein as the "Security Documents". MMI hereby further
agrees that to the extent that any of the provisions set forth in any of the
Loan Documents prohibits or restricts (A) any of the Borrowers from entering
into the Corporate Credit Agreement, incurring their respective obligations
thereunder to the Corporate Credit Agent or the Corporate Credit Lenders or
granting security interests or liens in the Credit Lenders' Collateral to the
Agent, for the benefit of the Corporate Credit Lenders, pursuant to the Security
Documents, (B) any of the Borrowers from entering into the Lease Credit
Agreement, incurring their respective obligations thereunder to the Lease Credit
Agent or the Lease Credit Lenders or granting security interests or liens in the
Credit Lenders' Collateral to the Agent, for the benefit of the Lease Credit
Lenders, pursuant to the Security Documents or (C) any of the Borrowers from
entering into the HHC Lease Guaranty, incurring their respective obligations
thereunder to the HHC Trust, the Lease Credit Agent, the Lease Credit Lenders
and the Investors or granting security interests or liens in the Credit Lenders'
Collateral to the Agent, for the benefit of the Lease Credit Lenders and the
Investors pursuant to the Security Documents in
-3-
<PAGE>
order to secure such Borrower's obligations under the HHC Lease Guaranty then,
----
subject to the terms hereof, such provisions are hereby waived by MMI.
Notwithstanding the foregoing, it is understood and agreed by the parties hereto
that (A) MMI is hereby consenting to the granting of only one junior mortgage by
each Borrower (encumbering the portion of the Mortgaged Property owned by such
Borrower) for the benefit of any or all of the Corporate Credit Agent, the
Corporate Credit Lenders, the Lease Credit Agent, the Lease Credit Lenders, the
HHC Trust and the Investors to secure all or any of the Borrowers' obligations
under the Corporate Credit Agreement, the Lease Credit Agreement and/or the HHC
Lease Guaranty and (B) in no event is MMI consenting to the granting of a
security interest by Harborside for the benefit of any or all of the Corporate
Credit Agent, the Corporate Credit Lenders, the Lease Credit Agent, the Lease
Credit Lenders, the HHC Trust and/or the Investors in any of the Capital Stock
(as defined in the Corporate Credit Agreement) of any Borrower.
2. NOTICES. The Corporate Credit Agent agrees to give MMI a copy of any
-------
notice of default and/or any other notice pertaining to any exercise of any
right and/or remedy under the Corporate Credit Agreement that the Corporate
Credit Agent gives to any Borrower or Harborside pursuant to the Corporate
Credit Agreement, simultaneously with the giving of such notice to such Borrower
or Harborside. The Lease Credit Agent agrees to give MMI a copy of any notice
of default and/or any other notice pertaining to any exercise of any right
and/or remedy under the Lease Credit Agreement or under the HHC Lease Guaranty
that the Lease Credit Agent gives to any Borrower or Harborside pursuant to the
Lease Credit Agreement, simultaneously with the giving of such notice to such
Borrower or Harborside. The Agent agrees to give MMI a copy of any notice of
default and/or any other notice pertaining to any exercise of any right and/or
remedy under the Security Documents that the Agent gives to any Borrower or
Harborside pursuant to the Security Documents, simultaneously with the giving of
such notice to such Borrower or Harborside. MMI agrees to give the Agent a copy
of any notice of default and/or any other notice pertaining to any exercise of
any right or remedy under the Loan Documents that MMI gives to any Borrower or
Harborside pursuant to the Loan Documents, simultaneously with the giving of
such notice to such Borrower or Harborside.
3. PRIORITIES WITH RESPECT TO THE COLLATERAL.
-----------------------------------------
(A) Notwithstanding anything to the contrary that may be set forth in
any of the Loan Documents, MMI acknowledges and agrees that, as
between (I) MMI and (II) the Agent, except as provided in
paragraph 3(d) below, the Agent's security interests in that
portion of the Credit Lenders' Collateral that constitutes
Accounts (as hereinafter defined) shall be treated as prior to
MMI's security interest in such Accounts.
(B) The Agent acknowledges having been informed by MMI that, as
additional security for the obligations of the Borrowers under
the Loan Documents, as part of the MMI Collateral, (I) MMI has
been granted
-4-
<PAGE>
by the Borrowers collateral assignments of, and perfected
security interests in, all licenses, approvals, qualifications,
variances, permissive uses, certificates of need, franchises,
accreditations, certificates, certifications, consents, permits
and other authorizations (collectively, the "Permits") and
agreements and patient admission agreements, contracts, contract
rights, warranties and representations and franchises
(collectively, the "Contracts"), benefiting, relating to or
affecting Facilities and the ownership, construction,
development, maintenance, management, repair, use, occupancy,
possession or operation thereof or the operation of any programs
or services in conjunction with any Facility and all renewals and
replacements and substitutions therefor, now or hereafter issued
by or entered into with any governmental authority or maintained
or used by any Borrower or entered into by any Borrower with any
third party, including, without limitation, patient contracts and
governmental reimbursement contracts associated with the
Facilities which generate Accounts and (II) MMI has been granted
by the Borrowers perfected security interests in all books,
records, ledgers, print-outs, papers, data, file materials and
information relating to the Facilities, any account debtors in
respect thereof and/or to the operation of the Borrowers'
businesses, and all rights of access to such books, records,
ledgers, print-outs, papers, file materials and information, and
all property in which such books, records, ledgers, print-outs,
data, file materials and information are stored, recorded, and
maintained (collectively, the "Books and Records").
Notwithstanding anything to the contrary set forth in the
Corporate Credit Agreement, the Lease Credit Agreement and/or the
HHC Lease Guaranty, the Agent further acknowledges and agrees
that, as between (X) the Agent and (Y) MMI, MMI's said security
interests in the Permits, the Contracts and the Books and
Records, as well as MMI's security interests in all other items
of the Credit Lenders' Collateral (other than, as provided in
paragraphs 3(a) and 3(d), in Accounts accruing on or prior to the
"Trigger Event", as hereinafter defined) shall be treated as
prior to the Agent's security interests in the Permits, the
Contracts, the Books and Records and the other items of the
Credit Lenders' Collateral (other than Accounts accruing on or
prior to the Trigger Event).
As used herein, the term Accounts shall mean (I) accounts (as
defined in the Uniform Commercial Code as adopted in
Massachusetts) and (II) rights to payment for goods sold or
leased or services rendered by any Borrower or any other party,
whether now in existence or arising from time to time hereafter
and whether or not yet earned by performance, including, without
limitation, obligations evidenced by an account, note, contract,
security agreement, chattel paper, or other evidence of
-5-
<PAGE>
indebtedness (collectively, the "Receivables"); together with (1)
all security pledged, assigned, hypothecated or granted to or
held by any Borrower to secure the foregoing, (2) any property
received in payment, settlement or compromise of any account or
Receivable, (3) all guarantees, endorsements and indemnifications
on, or of, any of the foregoing, (4) all rights, remedies, and
privileges pertaining to any of the foregoing, (5) all powers of
attorney for the execution of any evidence of indebtedness or
security or other writing in connection therewith, and (6) all
evidences of the filing of financing statements and other
statements and the registration of other instruments in
connection therewith and amendments thereto; all whether now
existing or hereafter acquired or arising and including all
proceeds and products thereof.
(C) Without representing or implying that the license hereafter
referred to is necessary, MMI hereby grants to the Agent a
license in the Permits, the Contracts and the Books and Records
(the "License Rights"), but only to the extent that (I) MMI is
able to do so consistent with applicable law and MMI's
contractual obligations (now existing or hereafter entered into)
and (II) the License Rights are necessary for the Agent to sue
for and collect all Accounts that accrue on or prior to the
Trigger Event; provided, however, that the foregoing grant is
-------- -------
made without any representation or implication on behalf of MMI
that it has the ability to make any such grant in accordance with
the terms hereof and without any other representation of any kind
or nature whatsoever. In addition, MMI agrees that it will not
intentionally use whatever rights it may have in the Permits, the
Contracts and the Books and Records for the purpose of hindering
the Agent from collecting Accounts that accrued on or prior to
the Trigger Event.
(D) Notwithstanding any priority that would otherwise apply as a
matter of law, after the occurrence of a default or breach of
condition continuing beyond all applicable notice and/or grace
periods, if any, under any of the Loan Documents (I) upon receipt
by the Agent of written notice (the "Trigger Notice") from MMI,
notifying the Agent of the commencement by MMI of any action to
exercise any of its remedies under any of the Loan Documents,
including, without limitation, the taking of any steps to
foreclose any one or more of the MMI Mortgages, to accelerate or
to demand full payment under the Loan Documents or to realize on
all or any portion of MMI Collateral (the date of the receipt by
the Agent of the Trigger Notice shall be referred to herein as
the "Trigger Event"), all Accounts arising and/or accruing after
the Trigger Event from operations at the applicable Facility or
Facilities identified in the Trigger Notice (and the proceeds
thereof) and
-6-
<PAGE>
the rights to collect and retain the same shall be, as between
(A) the Agent and (B) MMI, MMI's as first priority collateral for
the obligations of the Borrowers to MMI and (II) MMI agrees with
the Agent that all uncollected Accounts that accrued from
operations of such Facility or Facilities occurring on or prior
to the Trigger Event are part of the Accounts in which the Agent
has a security interest prior to MMI's and as to which the rights
to collect and retain the same shall be, as between (X) the Agent
and (Y) MMI, the Agent's as first priority collateral for the
obligations owed to the Corporate Credit Agent and the Corporate
Credit Lenders under the Corporate Credit Agreement, the
obligations owed to the Lease Credit Agent and the Lease Credit
Lenders under the Lease Credit Agreement and the obligations owed
to the Lease Credit Agent (for the benefit of the Lease Credit
Lenders) and the Investors under the HHC Lease Guaranty.
The parties hereto agree that a Trigger Notice may be given on
any one or more occasions and that there may be different Trigger
Events for the Facilities.
(E) MMI hereby grants to the Agent, access to the Facilities and the
Books and Records at reasonable times and after reasonable notice
to MMI to the extent that such access is necessary for the Agent
to pursue its rights in such Accounts accruing on or prior to the
Trigger Event. With respect to any Facility, such right of access
shall be effective from and after the time MMI takes exclusive
possession of such Facility and the Books and Records relating
thereto.
(F) It is recognized that individual patients at any Facility may
have unpaid Accounts that accrued both before and after the
applicable Trigger Event relating to such Facility. The parties
hereto agree that payments received under such circumstances
shall be applied against the oldest Accounts first.
(G) In the event that the Corporate Credit Agent, the Lease Credit
Agent, the Agent and/or the Investors collect any Accounts that
accrued after the Trigger Event, the Corporate Credit Agent, the
Lease Credit Agent, the Agent and/or the Investors, as the case
may be, shall forward such Accounts to MMI. In the event that MMI
collects any Accounts that accrued on or prior to the Trigger
Event, MMI shall forward such Accounts to the Agent.
4. THE CORPORATE CREDIT AGENT'S, THE LEASE CREDIT AGENT'S, THE AGENT'S,
--------------------------------------------------------------------
THE HHC TRUST'S AND THE INVESTORS' EXERCISE OF REMEDIES. Notwithstanding
- -------------------------------------------------------
anything to the contrary set forth in the Corporate Credit Agreement, the Lease
Credit Agreement and/or the
-7-
<PAGE>
HHC Lease Guaranty, the Corporate Credit Agent, the Lease Credit Agent, the
Agent, the HHC Trust and the Investors agree that, without the prior written
consent of MMI, which consent may be withheld in MMI's sole and absolute
discretion, (A) except as expressly provided in Paragraph 5 below, the Corporate
Credit Agent, the Lease Credit Agent, the Agent, the HHC Trust and the Investors
shall not exercise any of their respective rights and remedies under the
Corporate Credit Agreement, the Lease Credit Agreement and/or the HHC Lease
Guaranty (including, without limitation, the rights and remedies under the
Security Documents) with respect to the Borrowers or the Credit Lenders'
Collateral (including, without limitation, the Mortgaged Property and the
Facilities), other than such rights and remedies as may be necessary to collect
the Accounts that accrue on or prior to the Trigger Event and (B) without
limiting the foregoing, the Corporate Credit Agent, the Lease Credit Agent, the
Agent, the HHC Trust and the Investors shall not file, cause to be filed or join
in the filing of, any petition under the United States Bankruptcy Code, as the
same may hereafter be amended and including any successor provision thereto, or
any similar petition or pleading under any state law, against any Borrower or
seek any relief with respect to any Borrower (including, without limitation, the
appointment of a receiver, trustee or other similar official for such Borrower
or any of its businesses or assets) under any such law. Except as expressly set
forth in this Paragraph 4, this Agreement shall not, however, limit the
respective rights and remedies of the Corporate Credit Agent, the Lease Credit
Agent, the Agent, the HHC Trust and/or the Investors under the Corporate Credit
Agreement, the Lease Credit Agreement and/or the HHC Trust with respect to the
Debtors, other than the Borrowers, the HHC Trust or the Remaining Collateral.
The Corporate Credit Agent, the Lease Credit Agent, the Agent, the HHC
Trust and the Investors will not demand or accept as security for the
indebtedness evidenced by the Corporate Credit Agreement, the Lease Credit
Agreement and/or the HHC Lease Guaranty any collateral owned, wholly or in part,
by any Borrower, other than such collateral as is already included within the
definition of the Credit Lenders' Collateral, without the prior written consent
of MMI, in each instance, which consent may be withheld in MMI's sole and
absolute discretion.
5. ADDITIONAL PROVISIONS REGARDING THE CORPORATE CREDIT AGENT'S, THE
-----------------------------------------------------------------
LEASE CREDIT AGENT'S, THE AGENT'S, THE HHC TRUST'S AND THE INVESTORS' EXERCISE
- ------------------------------------------------------------------------------
OF REMEDIES. As long as any portion of the indebtedness evidenced under the
- ------------
Loan Documents remains outstanding:
(A) the Corporate Credit Agent, the Lease Credit Agent, the Agent,
the HHC Trust and the Investors acknowledge and agree that (I) without
limiting the terms of clause (ii) immediately below, if the Corporate
Credit Agent, the Lease Credit Agent, the Agent, the HHC Trust or the
Investors should ever acquire any interest in the Mortgaged Property, such
interest is hereby made subordinate and junior in priority to the interest
of MMI in the Mortgaged Property, and regardless of time, order or place of
filing or recording of any mortgage (including, without limitation, the MMI
Mortgages), collateral assignment of leases or other property,
-8-
<PAGE>
financing statement or other document or instrument relating to the MMI
Loan, and regardless of the perfection or non-perfection thereof,
notwithstanding to the contrary any provision of any applicable law
relating to perfection or priority and, without limiting the foregoing or
any provision of Paragraph 4 hereof, the Corporate Credit Agent, the Lease
Credit Agent, the Agent, the HHC Trust and the Investors expressly
acknowledge and agree that with respect to any and all insurance proceeds
recovered or recoverable in connection with a fire or other casualty at the
Mortgaged Property, and with respect to any and all proceeds recovered or
recoverable in connection with a taking of the Mortgaged Property by
condemnation or by eminent domain by a public or quasi-public authority,
the rights of MMI under the MMI Mortgages shall be superior, in all
respects, to the rights of the Corporate Credit Agent, the Lease Credit
Agent, the Agent, the HHC Trust and the Investors under the Corporate
Credit Agreement, the Lease Credit Agreement and the HHC Lease Guaranty;
(II) the Corporate Credit Agent, the Lease Credit Agent, the Agent, the HHC
Trust and the Investors will not, under any circumstance whatsoever,
exercise or attempt to exercise any right, remedy or recourse against or to
realize upon the Mortgaged Property, without the prior consent of MMI, in
each instance, which consent may be withheld by MMI in its sole and
absolute discretion; provided, however, that notwithstanding the foregoing,
-------- -------
in the event that any foreclosure proceeding is commenced by MMI with
respect to the Mortgaged Property, the Corporate Credit Agent, the Lease
Credit Agent, the Agent, the HHC Trust and the Investors shall be entitled
to take all such actions as may be necessary to preserve and/or assert
their respective rights as a defendant in any such foreclosure proceeding
(including, without limitation, the right to accelerate the indebtedness
evidenced by the Corporate Credit Agreement, the Lease Credit Agreement
and/or the HHC Lease Guaranty, but, excluding, specifically, the
commencement of any foreclosure proceeding against the Mortgaged Property)
and (III) upon any disposition of the Mortgaged Property in the exercise of
the Corporate Credit Agent's, the Lease Credit Agent's, the Agent's, the
HHC Trust's and/or the Investors' rights as mortgagee or secured party
(with MMI's consent as aforesaid), the Corporate Credit Agent, the Lease
Credit Agent, the Agent, the HHC Trust and the Investors shall have no
right to any proceeds of any such disposition until the MMI Loan has been
paid and satisfied in full, and any such proceeds to which any holder of
the indebtedness evidenced by the Corporate Credit Agreement, the Lease
Credit Agreement and/or the HHC Lease Guaranty would otherwise be entitled,
but for the subordination provisions of this Agreement, shall be paid
directly to MMI (to be applied towards the MMI Loan); and
(B) the Corporate Credit Agent, the Lease Credit Agent, the Agent,
the HHC Trust and the Investors shall not grant or consent to any further
or additional subordination of its respective liens on the Mortgaged
Property in whole or in part in favor of any party other than MMI, without
the prior written consent of MMI, in each instance, which consent may be
withheld in MMI's sole and absolute discretion.
-9-
<PAGE>
6. BIND AND INURE; TERMINATION. This Agreement shall be binding upon and
---------------------------
inure only to the benefit of MMI, the Corporate Credit Agent, the Lease Credit
Agent, the Agent, the HHC Trust, the Investors and their respective successors
and assigns (including, without limitation, any other future holder of all or
any portion of the lender's interest under the Loan Documents); provided,
--------
however, that this Agreement shall be null and void and of no further force or
- -------
effect upon the payment in full of the obligations under either (A) the
Corporate Credit Agreement, the Lease Credit Agreement and the HHC Lease
Guaranty or (B) the Loan Documents. The Corporate Credit Agent hereby
represents and warrants that it has the authority to execute this Agreement on
behalf of itself and the other lenders which are, or may in the future become,
parties to the Corporate Credit Agreement. The Lease Credit Agent hereby
represents and warrants that it has the authority to execute this Agreement on
behalf of itself and the other lenders which are, or may in the future become,
parties to the Lease Credit Agreement. The Agent hereby represents and warrants
that it has the authority to execute this Agreement on behalf of itself, the
other Corporate Credit Lenders, the other Lease Credit Lenders, the Investors
and such other parties which may in the future become secured parties under the
Security Documents. By executing this Agreement on behalf of the HHC Trust,
Wilmington Trust Company represents and warrants that it is the Trustee of the
HHC Trust and has the authority to execute this Agreement on behalf of the HHC
Trust. The Investors hereby represent and warrant that they have the authority
to execute this Agreement.
7. NOTICES. All notices and other communications hereunder shall be in
-------
writing and mailed (by registered or certified mail, return receipt requested
and postage prepaid), delivered by a reputable commercial overnight delivery
service with provision for a receipt, with delivery charges prepaid, hand
delivered or transmitted by facsimile on a regular business day between the
hours of 9:00 a.m. and 5:00 p.m., and shall be effective upon receipt, or upon
attempted delivery if delivery is refused by the addressee, addressed or
facsimile transmitted to the respective parties, as follows:
(A) if to the Corporate Credit Agent, to the Lease Credit Agent and/or to
the Agent:
The Chase Manhattan Bank
c/o The Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, NY 10081
Attention: Janet M. Belden
Telephone: (212) 552-5658
Fax: (212) 552-5650
-10-
<PAGE>
with copies to:
Chase New England Corporation
85 Wells Avenue
Suite 200
Newton, MA 02159
Attention: Roger A. Stone
Telephone: (617) 928-3056
Fax: (617) 928-3057
Simpson, Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Gregory A. Weiss, Esq.
Telephone: (212) 455-2000
Fax: (212) 455-2502
(B) if to the HHC Trust:
c/o Wilmington Trust Company
Rodney Square North
110 North Market Street
Wilmington, DE 19890
Attention: Corporate Trust Administration
Reference: HHC 1998-1 Trust
Telephone: (301) 651-8882
Fax: (302) 651-1000
with copies to:
Chase New England Corporation
85 Wells Avenue
Suite 200
Newton, MA 02159
Attention: Roger A. Stone
Telephone: (617) 928-3056
Fax: (617) 928-3057
-11-
<PAGE>
Simpson, Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Gregory A. Weiss, Esq.
Telephone: (212) 455-2000
Fax: (212) 455-2502
(C) if to the Investors:
BTD Harborside Inc.
1011 Centre Road, Suite 200
Wilmington, DE 19805
Attention: Donna Mitchell
Fax: (302) 636-3333
Morgan Stanley Senior Funding, Inc.
1585 Broadway
New York, NY 10036
Attention: Michael A. Hart
Fax: (212) 761-0587
CSL Leasing, Inc.
1201 Market Street, 9th Floor
Wilmington, DE 19801
Attention: Michael Handago
Fax: (302) 428-3390
with copies to:
Chase New England Corporation
85 Wells Avenue
Suite 200
Newton, MA 02159
Attention: Roger A. Stone
Telephone: (617) 928-3056
Fax: (617) 928-3057
Simpson, Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Gregory A. Weiss, Esq.
Telephone: (212) 455-2000
Fax: (212) 455-2502
-12-
<PAGE>
(D) if to MMI:
Meditrust Mortgage Investments, Inc.
197 First Avenue
Needham Heights, MA 02494
Attention: President
Telephone: (781) 433-6000
Fax: (781) 433-1290
with copies to:
Meditrust Mortgage Investments, Inc.
197 First Avenue
Needham Heights, MA 02494
Attention: General Counsel
Telephone: (781) 433-6000
Fax: (781) 433-1224
Nutter, McClennen & Fish, LLP
One International Place
Boston, MA 02110
Attention: Marianne Ajemian, Esq.
Telephone: (617) 439-2000
Fax: (617) 973-9748
or to such other address or facsimile telephone number as any party may
hereafter designate by written notice given to the other.
When any notice is to be given under this Agreement simultaneously with
notice to another party or simultaneously with the happening of an event, such
notice shall be given as simultaneously as is reasonable in the circumstances.
8. NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the
----------------------------
benefit of the parties hereto and nothing contained herein shall confer upon
anyone other than the parties hereto and their permitted successors and assigns,
any right to insist upon or to enforce the performance or observance of any of
the obligations contained herein; provided, however, that notwithstanding the
-------- -------
foregoing, it is acknowledged and agreed that the Debtors may rely on the
consents and waivers set forth in Paragraph 1.
-13-
<PAGE>
9. ENTIRE AGREEMENT; AMENDMENTS. This Agreement sets forth the entire
----------------------------
agreement of the parties with respect to the Credit Lenders' Collateral and the
MMI Collateral and can be amended, modified, supplemented, extended, terminated,
discharged or changed only by an agreement in writing which makes specific
reference to this Agreement and which is signed by all parties hereto.
The Corporate Credit Agent shall provide MMI with copies of all amendments
to the Corporate Credit Agreement. The Lease Credit Agent shall provide MMI
with copies of all amendments to the Lease Credit Agreement. MMI shall provide
the Agent with copies of all amendments to any of the Loan Documents.
10. NO WAIVER. No waiver of any term, provision or condition of this
---------
Agreement in any one or more instances, shall be deemed to be or be construed as
a further or continuing waiver of any such term, provision or condition of this
Agreement. No failure to act shall be construed as a waiver of any term,
provision, condition or right granted hereunder.
Excluding any breach of any covenant set forth herein, no action or
inaction with respect to the MMI Collateral; nor any amendment to any of the
Loan Documents; nor any exercise or nonexercise of any right, power or remedy
under the Loan Documents; nor any waiver, consent, release, indulgence,
extension, renewal, modification, delay or other action, inaction or omission in
respect of the obligations evidenced by the Loan Documents will in any event
give rise to any claim by the Corporate Credit Agent, the Lease Credit Agent,
the Agent, the HHC Trust and/or the Investors against MMI.
Excluding any breach of any covenant set forth herein, no action or
inaction with respect to the Credit Lenders' Collateral or the Remaining
Collateral; nor any amendment to the Corporate Credit Agreement; nor any
exercise or nonexercise of any right, power or remedy under the Corporate Credit
Agreement; nor any waiver, consent, release, indulgence, extension, renewal,
modification, delay or other action, inaction or omission in respect of the
obligations evidenced by the Corporate Credit Agreement will in any event give
rise to any claim by MMI against the Corporate Credit Agent or the Agent.
Excluding any breach of any covenant set forth herein, no action or
inaction with respect to the Credit Lenders' Collateral or the Remaining
Collateral; nor any amendment to the Lease Credit Agreement; nor any exercise or
nonexercise of any right, power or remedy under the Lease Credit Agreement; nor
any waiver, consent, release, indulgence, extension, renewal, modification,
delay or other action, inaction or omission in respect of the obligations
evidenced by the Lease Credit Agreement will in any event give rise to any claim
by MMI against the Lease Credit Agent or the Agent.
Excluding any breach of any covenant set forth herein, no action or
inaction with respect to the Credit Lenders' Collateral or the Remaining
Collateral; nor any amendment to the HHC Lease Guaranty; nor any exercise or
nonexercise of any right, power or remedy under the HHC Lease Guaranty; nor any
waiver, consent, release, indulgence, extension, renewal, modification, delay or
other action, inaction or omission in respect of the
-14-
<PAGE>
obligations evidenced by the HHC Lease Guaranty will in any event give rise to
any claim by MMI against the Lease Credit Agent, the Agent, the HHC Trust or the
Investors.
The Corporate Credit Agent, the Lease Credit Agent, the Agent, the HHC
Trust and the Investors each irrevocably waives any right to require marshalling
of the assets of the Borrowers and agrees that MMI shall have no obligation to
seek satisfaction of the MMI Loan through recourse to collateral, if any, other
than the Mortgaged Property prior to the exercise of MMI's rights with respect
to the Mortgaged Property.
MMI irrevocably waives any right to require marshalling of the assets of
the Debtors and agrees that the Corporate Credit Agent, the Lease Credit Agent,
the Agent, the HHC Trust and the Investors shall have no obligation to seek
satisfaction of the indebtedness evidenced by the Corporate Credit Agreement,
the Lease Credit Agreement and/or the HHC Lease Guaranty through recourse to
collateral, if any, other than the Accounts that accrued on or prior to the
Trigger Event prior to the exercise of the Corporate Credit Agent's, the Lease
Credit Agent's, the Agent's and/or the Investors' rights with respect to such
Accounts.
11. NO JOINT VENTURE. Nothing contained herein shall be construed as
----------------
forming a joint venture or partnership between the parties hereto with respect
to the subject matter hereof.
12. FURTHER ASSURANCES. Each of the parties hereto agrees to execute and
------------------
deliver any and all further agreements, documents or instruments necessary to
effectuate this Agreement and the transactions referred to herein or
contemplated hereby or reasonably requested by the other party to perfect or
evidence its rights hereunder.
13. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Agreement to produce or account
for more than the number of counterparts containing the respective signatures
of, or on behalf of, all of the parties hereto.
14. CAPTIONS AND HEADINGS. The captions and headings set forth in this
---------------------
Agreement are included for convenience and reference only and the words
contained therein shall in no way be held or deemed to define, limit, describe,
explain, modify, amplify or add to the interpretation, construction or meaning
of, or the scope or intent of, this Agreement or any part hereof.
15. LIMITATION OF LIABILITY. In no event shall MMI ever be liable to the
-----------------------
Corporate Credit Agent, the Lease Credit Agent, the Agent, the HHC Trust, the
Investors or any other party for any indirect or consequential damages incurred
by the Corporate Credit Agent, the Lease Credit Agent, the Agent, the HHC Trust,
the Investors or such other party resulting from any cause whatsoever.
16. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the Commonwealth of Massachusetts.
-15-
<PAGE>
To the maximum extent permitted by applicable law, the Corporate Credit
Agent, the Lease Credit Agent, the Agent, the HHC Trust and the Investors each
hereby submits to the jurisdiction of the courts of the Commonwealth of
Massachusetts and the United States District Court for the District of
Massachusetts, as well as to the jurisdiction of all courts from which an appeal
may be taken from the aforesaid courts, for the purpose of any suit, action or
other proceeding arising out of, or with respect to this Agreement and the
Corporate Credit Agent, the Lease Credit Agent, the Agent, the HHC Trust and the
Investors each expressly waives any and all objections it may have as to venue
in any of such courts.
17. TIME OF THE ESSENCE. Time is of the essence of this Agreement.
-------------------
18. NO AMENDMENT OF CHASE INTERCREDITOR AGREEMENT. As between the
---------------------------------------------
Corporate Credit Agent, the Lease Credit Agent, the Agent, the HHC Trust and the
Investors only, the terms and conditions of this Agreement shall not amend or
modify the terms and conditions of the Chase Intercreditor Agreement; provided,
--------
however that the provisions of the Chase Intercreditor Agreement shall not
- -------
affect, in any manner whatsoever, MMI's rights and remedies with respect to the
Borrowers and the MMI Collateral.
19. RULES OF CONSTRUCTION. The provisions of this Agreement shall extend
---------------------
and be applicable to all renewals, replacements, amendments, extensions,
substitutions, revisions, consolidations and modifications of the Corporate
Credit Agreement, the Lease Credit Agreement, the HHC Lease Guaranty and/or the
Loan Documents. References herein to the Corporate Credit Agreement, the Lease
Credit Agreement, the HHC Lease Guaranty and/or any of the Loan Documents shall
be deemed to include any renewals, replacements, amendments, extensions,
substitutions, revisions, consolidations or modifications thereof.
Notwithstanding the foregoing, any reference contained herein, whether
express or implied, to any renewal, replacement, amendment, extension,
substitution, revisions, consolidation or modification of any of the Loan
Documents, the Corporate Credit Agreement, the Lease Credit Agreement and/or the
HHC Lease Guaranty is not intended to constitute an agreement or consent by any
of the parties hereto to any such renewal, replacement, amendment, substitution,
revision, consolidation or modification; but, rather as a reference only to
those instances where the applicable parties may give, agree or consent to any
such renewal, replacement, amendment, extension, substitution, revision,
consolidation or modification as the same may be (and only to the extent that
the same may be) required pursuant to the terms, covenants and conditions hereof
or of any of the Loan Documents, the Corporate Credit Agreement, the Lease
Credit Agreement and/or the HHC Lease Guaranty.
Notwithstanding anything to the contrary contained herein, (A) every
agreement, consent and undertaking made herein by the Corporate Credit Agent is
made on behalf of, and shall be binding upon, the Corporate Credit Lenders, (B)
every agreement, consent and undertaking made herein by the Lease Credit Agent
is made on behalf of, and shall be binding upon, the Lease Credit Lenders and
(C) every agreement, consent and undertaking made herein by the Agent is made on
behalf of, and shall be binding upon, the Corporate Credit Lenders, the Lease
Credit Lenders and the Investors.
-16-
<PAGE>
WITNESS the execution hereof under seal as of day and year first written
above.
WITNESS CORPORATE CREDIT AGENT:
- ------- ----------------------
THE CHASE MANHATTAN BANK, as
Administrative Agent under the Corporate Credit
Agreement
/s/ Pilar Ramos By: /s/ Robert Anastasio
- ------------------------- -------------------------------------
Name: Pilar Ramos Name: Robert Anastasio
Title: Vice President
WITNESS LEASE CREDIT AGENT:
- ------- ------------------
THE CHASE MANHATTAN BANK, as
Administrative Agent under the Lease Credit
Agreement
/s/ Pilar Ramos By: /s/ Robert Anastasio
- ------------------------- -------------------------------------
Name: Pilar Ramos Name: Robert Anastasio
Title: Vice President
WITNESS AGENT:
- ------- -----
THE CHASE MANHATTAN BANK, as
Administrative Agent under the Security
Documents
/s/ Pilar Ramos By: /s/ Robert Anastasio
- ------------------------- -------------------------------------
Name: Pilar Ramos Name: Robert Anastasio
Title: Vice President
<PAGE>
WITNESS HHC TRUST:
- ------- ---------
HHC 1998-1 TRUST, a Delaware business trust
By: WILMINGTON TRUST COMPANY, a
Delaware banking corporation, not in its
individual capacity but solely as Trustee
/s/ Susanne Gula By: /s/ Charlotte Paglia
- ------------------------- -------------------------------------
Name: Name: Charlotte Paglia
Title: Financial Services Officer
WITNESS INVESTORS:
- ------- ---------
CSL LEASING, INC.
/s/ James P. Donaghey By: /s/ Michael P. Handago
- ------------------------- -------------------------------------
Name: James P. Donaghey Name: Michael P. Handago
Title: Vice President
WITNESS BTD HARBORSIDE INC.
- -------
/s/ Jean M. Mazarella By: /s/ James H. Stallkamp
- ------------------------- -------------------------------------
Name: Jean M. Mazarella Name: James H. Stallkamp
Title: President
<PAGE>
WITNESS MORGAN STANLEY SENIOR FUNDING, INC.
- -------
/s/ Robert J. Franz By: /s/ Michael T. McLaughlin
- --------------------------- -------------------------------------
Name: Robert J. Franz Name: Michael T. McLaughlin
Title: Principal
WITNESS MMI:
- ------- ---
MEDITRUST MORTGAGE INVESTMENTS,
INC., a Delaware corporation
/s/ Kim M. Priesing By: /s/ Michael S. Benjamin Esq.
- --------------------------- -------------------------------------
Name: Kim M. Priesing Name: Michael S. Benjamin Esq.
Title: Senior Vice President
<PAGE>
EXHIBIT A
---------
MORTGAGES
1. Renewal, Consolidation, Mortgage, Spreader, Assignment and Security
Agreement, dated as of October 13, 1994, by and between Bay Tree, as
Mortgagor and MMI, as Mortgagee, recorded with the Public Records of
Pinellas County in O.R. Book 8812, Page 1952.
2. Renewal, Consolidation, Mortgage, Spreader, Assignment and Security
Agreement, dated as of October 13, 1994, by and between Countryside, as
Mortgagor and MMI, as Mortgagee, recorded with the Recorder of Vigo County
in Record p-20, Page 4579.
3. Renewal, Consolidation, Mortgage, Spreader, Assignment and Security
Agreement, dated as of October 13, 1994, by and between Sunset, as
Mortgagor and MMI, as Mortgagee, recorded with the Public Records of
Pinellas County in O.R. Book 8812, Page 1900.
4. Renewal, Consolidation, Mortgage, Spreader, Assignment and Security
Agreement, dated as of October 13, 1994, by and between West Bay, as
Mortgagor and MMI, as Mortgagee, recorded with the Public Records of
Pinellas County in O.R. Book 8812, Page 1858.
<PAGE>
EXHIBIT B
---------
DEBTORS
Bay Tree Nursing Center Corp.
Belmont Nursing Center Corp.
Bridgewater Assisted Living Limited Partnership
Countryside Care Center Corp.
Harborside of Cleveland Limited Partnership
Harborside Health I Corporation
Harborside Acquisition Limited Partnership IV
Harborside Acquisition Limited Partnership V
Harborside Acquisition Limited Partnership VI
Harborside Acquisition Limited Partnership VII
Harborside Acquisition Limited Partnership VIII
Harborside Acquisition Limited Partnership IX
Harborside Acquisition Limited Partnership X
Harborside Atlantrix Limited Partnership
Harborside Connecticut Limited Partnership
Harborside Funding Limited Partnership
Harborside Healthcare Advisors Limited Partnership
Harborside Healthcare Baltimore Limited Partnership
Harborside Healthcare Limited Partnership
Harborside Healthcare Network Limited Partnership
Harborside Homecare Limited Partnership
Harborside Massachusetts Limited Partnership
Harborside New Hampshire Limited Partnership
Harborside North Toledo Limited Partnership
Harborside of Dayton Limited Partnership
Harborside of Florida Limited Partnership
Harborside of Ohio Limited Partnership
Harborside Properties Trust I
Harborside Rehabilitation Limited Partnership
Harborside Rhode Island Limited Partnership
Harborside Toledo Limited Partnership
Harborside Toledo Corp.
HHCI Limited Partnership
KHI Corp.
Maryland Harborside Corp.
New Jersey Harborside Corp.
Oakhurst Manor Nursing Center Corp.
Orchard Ridge Nursing Center Corp.
Riverside Retirement Limited Partnership
Sailors, Inc.
Sunset Point Nursing Center Corp.
West Bay Nursing Center Corp.
<PAGE>
EXHIBIT C
---------
FACILITIES
1. That certain skilled nursing facility with 120 licensed beds, owned and
operated by Bay Tree, commonly known as "Bay Tree Nursing Center", located
in Palm Harbor, Florida.
2. That certain skilled nursing facility with 120 licensed beds, owned and
operated by Countryside, commonly known as "Countryside Nursing Center",
located in Terre Haute, Indiana.
3. That certain skilled nursing facility with 120 licensed beds, owned and
operated by Sunset, commonly known as Sunset Point Nursing Center located
in Clearwater, Florida.
4. That certain skilled nursing facility with 120 licensed beds, owned and
operated by West Bay, commonly known as "West Bay Nursing Center" located
in Oldsmar, Florida.
<PAGE>
EXHIBIT D
---------
SECURITY DOCUMENTS
Collectively, (A) the "Security Documents" (as defined under the Corporate
Credit Agreement) entered into as of the date hereof to which any Borrower is a
party, (B) the "Security Documents" (as defined under the Participation
Agreement) executed as of the date hereof to which any Borrower is a party, (C)
the "Guarantee Security Documents" (as defined under the Participation
Agreement) executed as of the date hereof to which any Borrower is a party and
(D) the second priority mortgages to be granted by each of the Borrowers
(encumbering the portion of the Mortgaged Property owned by such Borrower)
within sixty (60) days from the date hereof.
<PAGE>
EXHIBIT 10.28
SECOND AMENDMENT TO LOAN AGREEMENT,
CONSENT TO MERGER AND CONFIRMATION OF GUARANTIES
-------------------------------------------------
THIS AGREEMENT is made as of the 31st day of July, 1998, by and among BAY
TREE NURSING CENTER CORP., a Massachusetts corporation, COUNTRYSIDE CARE CENTER
CORP., a Massachusetts corporation, SUNSET POINT NURSING CENTER CORP., a
Massachusetts corporation and WEST BAY NURSING CENTER CORP., a Massachusetts
corporation, each having its principal place of business at Harbor Plaza, 470
Atlantic Avenue, Boston, Massachusetts 02210 (hereinafter collectively referred
to as the "Borrowers"); HARBORSIDE HEALTHCARE LIMITED PARTNERSHIP, a
Massachusetts limited partnership having its principal place of business at
Harbor Plaza, 470 Atlantic Avenue, Boston, Massachusetts 02210 (the
"Guarantor"); HARBORSIDE HEALTHCARE CORPORATION, a Delaware corporation having
its principal place of business at Harbor Plaza, 470 Atlantic Avenue, Boston,
Massachusetts 02210 ("Harborside") and MEDITRUST MORTGAGE INVESTMENTS, INC., a
Delaware corporation, having its principal place of business at 197 First
Avenue, Needham Heights, Massachusetts 02494 (hereinafter referred to as the
"Lender").
W I T N E S S E T H:
--------------------
WHEREAS, on October 13, 1994, the Lender made a loan to (I) the Borrowers
and (ii) BELMONT NURSING CENTER CORP., a Massachusetts corporation, OAKHURST
MANOR NURSING CENTER CORP., a Massachusetts corporation and ORCHARD RIDGE
NURSING CENTER CORP., a Massachusetts corporation (collectively, the "Released
Borrowers") in the original principal amount of FORTY-TWO MILLION THREE HUNDRED
THOUSAND DOLLARS ($42,300,000) (hereinafter referred to as the "Loan"),
evidenced by a Consolidated and Renewal Promissory Note, dated as of October 13,
1994, made by the Borrowers and the Released Borrowers to the order of the
Lender (hereinafter referred to as the "Note");
WHEREAS, the Note is referred to in that certain Loan Agreement, dated as
of October 13, 1994, by and between the Borrowers, the Released Borrowers, the
Guarantor and the Lender (the "Original Loan Agreement"), as amended by that
certain First Amendment to Loan Agreement, dated as of May 17, 1996 (the "First
Amendment" and the Original Loan Agreement as amended by the First Amendment is
hereinafter referred to as the "Loan Agreement") and is in all respect subject
to the provisions of the Loan Agreement;
WHEREAS, all capitalized terms used herein and not specifically defined
shall have the meaning ascribed to them in the Loan Agreement;
WHEREAS, payment of the indebtedness evidenced by the Note is secured, in
part, by four (4) separate Renewal, Consolidation, Mortgage, Spreader,
Assignment and Security Agreements, each dated as of October 13, 1994, executed
by the Borrowers in favor of the
<PAGE>
Lender (collectively, the "Mortgages") encumbering certain real property more
particularly described in the Mortgages and all of the improvements now or
hereafter located thereon;
WHEREAS, the payment of the indebtedness evidenced by the Note and the
performance of all other obligations set forth under the Loan Documents (other
than the Lender's obligations) are unconditionally guaranteed by (I) the
Guarantor pursuant to that certain Guaranty, dated as of October 13, 1994, from
the Guarantor to the Lender (hereinafter referred to as the "Guaranty") and (II)
Harborside pursuant to that certain Guaranty, dated as of May 17, 1996 from
Harborside to the Lender (the "Harborside Guaranty");
WHEREAS, the Borrowers have requested that the Lender consent to the
proposed merger of HH Acquisition Corp. a Delaware corporation with and into
Harborside pursuant to and in accordance with the Agreement and Plan of Merger,
dated as of April 15, 1998, by and between HH Acquisition Corp. and Harborside
(the "Merger"); and
WHEREAS, notwithstanding anything to the contrary set forth in the Loan
Agreement or any of the other Loan Documents, the Lender is willing to consent
to the Merger, but as a condition of such consent, the Lender has requested that
the parties hereto execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration paid, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Notwithstanding anything to the contrary set forth in any of the Loan
Documents, the Lender hereby consents to the Merger and to the change in the
control of Harborside, the Borrowers, the Guarantor and the General Partner
resulting from the Merger and agrees that the same shall not constitute an Event
of Default under any of the Loan Documents.
2. Effective as of the consummation of the Merger, Section 3.6 of the
Loan Agreement is deleted in its entirety and is restated to thereafter read as
follows:
3.6. PREPAYMENT.
Except as otherwise expressly provided herein, a prepayment fee (referred
to herein as the "Prepayment Fee") shall be paid to the Lender in the event that
the Loan is prepaid (or shall become due and payable) prior to the Maturity
Date, whether such prepayment is voluntary or involuntary, including, without
limitation, any prepayment which results from any default under any of the Loan
Documents and an acceleration of the indebtedness due thereunder. The Borrowers
shall have the right, at any time during the Term, to prepay the entire
outstanding principal balance of the Loan, provided, that, the Borrowers furnish
-------- ----
the Lender with at least ninety (90) days' prior written notice of its intent to
prepay (the "Prepayment Notice"), and provided, further, that the Borrowers pay
-------- -------
to the Lender, upon the specific date for prepayment which shall be identified
in the Prepayment Notice (the "Prepayment Date"), together with the entire
outstanding principal balance of the Loan, all
-2-
<PAGE>
accrued and unpaid interest (including, without limitation, Additional Interest)
and any other costs, charges and sums due under this Agreement and all of the
other Loan Documents, a "Prepayment Fee" equal to (and defined herein as) the
greater of: (A) the then present value discounted at the Current Rate of the
difference between (I) the product of the Interest Rate then in effect,
multiplied by the then outstanding principal balance of the Loan, multiplied by
the remaining number of years (or fraction thereof) of the Term and (II) the
product of the annual rate of interest (as of the date of prepayment) of
actively traded marketable United States treasury securities bearing a fixed
rate of interest adjusted for a constant maturity equal to the remaining number
of years (rounded to the nearest whole year) of the Term (the "Current Rate"),
multiplied by the then-outstanding principal balance of the Loan, multiplied by
the remaining number of years (or fraction thereof) of the Term; or (B) one
percent (1%) of the then outstanding principal balance of the Loan multiplied by
the remaining number of years (or fraction thereof) of the Term. The Prepayment
Fee shall be paid without prejudice to the rights of the Lender to collect any
amounts due to the Lender. The Borrowers shall not be entitled to make any
partial prepayments of principal at any time during the Term without the prior
written consent of the Lender, which consent may be withheld in the Lender's
sole and absolute discretion. Once given, the Prepayment Notice may only be
revoked upon the payment of a fee (the "Prepayment Revocation Fee") equal to
one-half of one percent (.5%) of the then outstanding principal balance of the
Loan. The failure to make prepayment of the Loan in accordance with the
Prepayment Notice (unless such Prepayment Notice is revoked in accordance with
the immediately preceding sentence) shall be an Event of Default hereunder.
Notwithstanding anything to the contrary set forth herein, the Borrower may
extend the Prepayment Date (on one or more occasions) for up to ten (10)
Business Days upon prior written notice to the Lender, which written notice must
be received by the Lender prior to the Prepayment Date (as the same may be
exended) and must specify the date to which the Prepayment Date is to be
extended; provided, however, that in no event shall the Borrower have the right
-------- -------
to extend the Prepayment Date to a date more than ten (10) Business Days after
the original Prepayment Date.
3. Effective as of the consummation of the Merger, Section 6 of the First
Amendment is deleted in its entirety.
4. Effective as of the consummation of the Merger, the Loan Agreement is
amended by adding the following Sections 6.1.05:
6.1.05. CURRENT RATIO-HARBORSIDE
Harborside shall maintain, at all times, a ratio of Consolidated
Current Assets to Consolidated Current Liabilities equal to or greater than 1.0
to 1, which shall be calculated on a monthly basis.
-3-
<PAGE>
5. Effective as of the consummation of the Merger, clause (i) of Section
6.14 of the Loan Agreement is deleted in its entirety and is restated to
thereafter read as follows:
(i) change their respective fiscal years or capital structures
6. Effective as of the consummation of the Merger, Section 6.18 of the
Loan Agreement is deleted in its entirety and is restated to thereafter read as
follows:
6.18 PERMITTED TRANSFERS.
Notwithstanding anything to the contrary set forth herein or in any of the
other Loan Documents, issuances and transfers of the capital stock of Harborside
shall be expressly permitted; provided, that, such issuances and/or transfers,
-------- ----
whether individually or in the aggregate, do not result in any Change of
Control.
In addition, notwithstanding anything to the contrary set forth herein or
in any of the other Loan Documents, (A) the issued and outstanding stock of the
General Partner may be (I) transferred, on any one or more occasions, to any
other Person that is wholly-owned and controlled, directly or indirectly, by
Harborside or (II) pledged, on any one or more occasions, as collateral to
secure the obligations under any credit facility (or other financing
arrangement) now or hereafter entered into by Harborside with any institutional
lender, (B) the partnership interests in the Guarantor may be (I) transferred,
on any one or more occasions, to any other Person that is wholly-owned and
controlled, directly or indirectly, by Harborside or (II) pledged, on any one or
more occasions, as collateral to secure the obligations under any credit
facility (or other financing arrangement) now or hereafter entered into by
Harborside with any institutional lender, (C) the General Partner may merge into
or with any other Person that is wholly-owned and controlled, directly or
indirectly, by Harborside and (D) the Guarantor may merge into or with any other
Person that is wholly-owed and controlled, directly or indirectly, by
Harborside; provided, that (X) simultaneously with the consummation of any
-------- ----
merger described in clause (d), the surviving entity (if such surviving entity
is not the Guarantor) executes a guaranty of the Loan Obligations in form and
substance substantially similar to the Guaranty, (Y) with respect to any merger
described in clause (c) or (d), the Lender receives at least fifteen (15) days
prior written notice of such merger and (Z) the Lender receives such assurances,
estoppels, assumptions and confirmations that it reasonably requires with
respect to such merger.
7. Effective as of the consummation of the Merger, Sections 10 G and 10 H
of the Loan Agreement are deleted in their entirety and are restated to
thereafter read as follows:
G. in the event that, without the prior written consent of the Lender, in
each instance, which consent may be withheld by the Lender in its sole and
absolute discretion:
-4-
<PAGE>
i. there shall be any change in the Person or Persons in control of
any Lessee or any Manager (whether by operation of law or
otherwise);
ii. any of the shares of the issued and outstanding capital stock of
the Borrowers or, subject to Section 6.18, the General Partner
shall be, on any one or more occasions, directly or indirectly,
sold, assigned, hypothecated or otherwise transferred (whether by
operation of law or otherwise);
iii. subject to Section 6.18, any portion of the interest of any
partner of the Guarantor in the Guarantor shall be, on any one or
more occasions, directly or indirectly, sold, assigned,
hypothecated or otherwise transferred (whether by operation of
law or otherwise); or
iv. any Change of Control occurs;
H. the death, incapacity, liquidation, dissolution or termination of
existence of any Borrower or, subject to Section 6.18, the merger of any
member of the Borrowing Group with any other Person; provided, however,
-------- -------
that notwithstanding the foregoing, a merger involving Harborside shall not
constitute an Event of Default so long as (I) Harborside is the surviving
entity of such merger and there is no material adverse change to the
financial condition of Harborside as a result of or in connection with such
merger, (II) no Change of Control occurs as a result of such merger, (III)
the Lender receives at least fifteen (15) days prior written notice of such
merger and (IV) the Lender receives such assurances, estoppels, assumptions
and confirmations that it reasonably requires with respect to such merger;
8. Effective as of the consummation of the Merger, the Loan Agreement is
amended by deleting, in its entirety, the definition of Borrowers in EXHIBIT B
---------
and restating it to hereafter read as follows:
BORROWERS: Collectively, BAY TREE NURSING CENTER CORP., a Massachusetts
---------
corporation, COUNTRYSIDE CARE CENTER CORP., a Massachusetts corporation, SUNSET
POINT NURSING CENTER CORP., a Massachusetts corporation and WEST BAY NURSING
CENTER CORP., a Massachusetts corporation and their respective successors and
assigns.
9. Effective as of the consummation of the Merger, the Loan Agreement is
amended by adding the following definition to EXHIBIT B immediately after the
---------
term "Casualty":
-5-
<PAGE>
CHANGE OF CONTROL: The occurrence of any of the following events: (a) if,
-----------------
at any time prior to an IPO, Investcorp or any of its Affiliates or
Subsidiaries, any Person that is a member of the senior management of Harborside
as of the date of the Second Amendment, or any entity the majority of the equity
ownership interests of which is owned by such senior management of Harborside,
shall cease to own, directly or indirectly, in the aggregate, at least 51% of
the issued and outstanding voting stock of Harborside, free and clear of all
Liens or (b) if, at any time after an IPO, any Person (other than Investcorp,
any of its Affiliates or Subsidiaries, any Person that is a member of the senior
management of Harborside as of the date of the Second Amendment, any entity the
majority of the equity ownership interests of which is owned by such senior
management of Harborside or any Person acting in the capacity of an
underwriter), whether singly or in concert with one or more Persons, shall,
directly or indirectly, have acquired, or acquire the power (i) to vote or
direct the voting of 30% or more, on a fully diluted basis, of the outstanding
common stock of Harborside or (ii) to elect or designate for election a majority
of the Board of Directors of Harborside by voting power, contract or otherwise.
For the purposes of this definition only, the term "Affiliate" shall mean,
as to any Person, (a) any other Person (other than a Subsidiary) which, directly
or indirectly, is in control of, is controlled by, or is under common control
with such Person, or (b) any other Person who is a director or officer (i) of
such Person, (ii) of any Subsidiary of such Person or (iii) of any Person
described in the foregoing clause (a). For purposes of the immediately
preceding sentence, control of a Person shall mean the power, direct or
indirect, (x) to vote 51% or more of the securities having ordinary voting power
for the election of directors of such Person, whether by ownership of
securities, contract, proxy or otherwise, or (y) to direct or cause the
direction of the management and policies of such Person, whether by ownership of
securities, contract, proxy or otherwise.
10. Effective as of the consummation of the Merger, the Loan Agreement is
amended by adding the following definition to EXHIBIT B immediately after the
---------
term "Interest Rate":
INVESTCORP: Investcorp S.A., a Luxembourg corporation
----------
11. Effective as of the consummation of the Merger, the Loan Agreement is
amended by adding the following definition to EXHIBIT B immediately after the
---------
term "Investment Subsidiary":
IPO: Any sale by Harborside through a public offering of its common (or
---
other voting) stock pursuant to an effective registration statement (other than
a registration statement on Form S-4, S-8 or any successor or similar form)
filed under the Securities Act of 1933, as amended.
-6-
<PAGE>
12. Effective as of the consummation of the Merger, the Loan Agreement is
amended by adding the following definition to EXHIBIT B immediately after the
---------
term "Pledgors' Shares":
PREPAYMENT DATE: As defined in Section 3.6.
---------------
13. Effective as of the consummation of the Merger, the Loan Agreement is
amended by adding the following definition to EXHIBIT B immediately after the
---------
term "Retainage":
SECOND AMENDMENT: That certain Second Amendment to Loan Agreement, Consent
----------------
to Merger and Confirmation of Guaranties, dated as of July 31, 1998, by and
among the Borrowers, the Guarantor, Harborside and the Lender.
14. Effective as of the consummation of the Merger, the Loan Agreement is
amended by deleting the following definitions in their entirety from EXHIBIT B:
---------
"Borrower Parties", "Monetary Default", "Monetary Default Prepayment Fee",
"NatWest Markets", "New Business", "New Business Credit", "Non-Monetary
Default", "Non-Monetary Default Prepayment Fee", "Partial Prepayment", "Partial
Prepayment Revocation Fee", "Partial Release Fee", "Partial Release Notice",
"Reduced Loan Amount", "Remaining Time", "Special Current Rate", "Special
Prepayment", "Special Prepayment Date", "Special Prepayment Fee", "Special
Prepayment Notice" and "Special Reduced Loan Amount".
15. Each of the Borrowers hereby represent and warrant to the Lender that,
except as already obtained or filed, as the case may be, no consent or approval
or other authorization of, or exemption by, or declaration or filing with, any
Person and no waiver of any right by any Person is required to authorize or
permit, or is otherwise required as a condition of such Borrower's execution and
delivery of this Agreement and the performance of its obligations under the Loan
Agreement as amended hereby.
16. This Agreement shall be deemed to amend the Loan Agreement solely as
expressly set forth herein and the Loan Agreement as amended hereby remains in
full force and effect and is hereby ratified and confirmed.
This Agreement shall not be deemed to amend any of the other Loan
Documents, each of which are hereby ratified, confirmed and reaffirmed and each
of which remain in full force and effect notwithstanding and unaffected by this
Amendment, except as may be otherwise expressly provided herein.
17. By the execution hereof, the Guarantor hereby ratifies, confirms and
reaffirms the Guaranty, which remains in full force and effect notwithstanding
and unaffected by this Agreement, except as may be otherwise expressly provided
herein.
-7-
<PAGE>
18. By the execution hereof, Harborside hereby ratifies, confirms and
reaffirms the Harborside Guaranty, which remains in full force and effect
notwithstanding and unaffected by this Agreement, except as may be otherwise
expressly provided herein.
19. This Agreement shall be binding upon the parties hereto and their
respective successors and assigns.
20. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
21. This Agreement may be executed in one or more counterparts, each of
which taken together shall constitute an original and all of which shall
constitute one and the same instrument.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as a sealed instrument on the date first above-mentioned.
WITNESSES: BORROWERS:
- --------- ---------
BAYTREE NURSING CENTER CORP., a
Massachusetts corporation
/s/ Martin J. Damian Jr. By: /s/ William H. Stephan
- ------------------------------ -------------------------------
Name: Martin J. Damian, Jr. Name: William H. Stephan
Title: Treasurer
/s/ Kathryn Wellock
- ------------------------------
Name: Kathryn Wellock
WITNESSES: COUNTRYSIDE CARE CENTER CORP., a
- ---------
Massachusetts corporation
/s/ Martin J. Damian Jr. By: /s/ William H. Stephan
- ------------------------------ -------------------------------
Name: Martin J. Damian, Jr. Name: William H. Stephan
Title: Treasurer
/s/ Kathryn Wellock
- ------------------------------
Name: Kathryn Wellock
WITNESSES: SUNSET POINT NURSING CENTER CORP.,
- ---------
a Massachusetts corporation
/s/ Martin J. Damian Jr. By: /s/ William H. Stephan
- ------------------------------ -------------------------------
Name: Martin J. Damian, Jr. Name: William H. Stephan
Title: Treasurer
/s/ Kathryn Wellock
- ------------------------------
Name: Kathryn Wellock
-9-
<PAGE>
WITNESSES: WEST BAY NURSING CENTER CORP., a
- ---------
Massachusetts corporation
/s/ Martin J. Damian Jr. By: /s/ William H. Stephan
- ------------------------------ -------------------------------
Name: Martin J. Damian, Jr. Name: William H. Stephan
Title: Treasurer
/s/ Kathryn Wellock
- ------------------------------
Name: Kathryn Wellock
WITNESSES: GUARANTOR:
- --------- ---------
HARBORSIDE HEALTHCARE LIMITED
PARTNERSHIP, a Massachusetts
limited partnership
By: KHI CORPORATION, a Delaware
corporation, its sole General
Partner
/s/ Martin J. Damian Jr. By: /s/ William H. Stephan
- ------------------------------ -------------------------------
Name: Martin J. Damian, Jr. Name: William H. Stephan
Title: Treasurer
/s/ Kathryn Wellock
- ------------------------------
Name: Kathryn Wellock
WITNESSES: HARBORSIDE:
- --------- ----------
HARBORSIDE HEALTHCARE CORPORATION,
a Delaware corporation
/s/ Martin J. Damian Jr. By: /s/ William H. Stephan
- ------------------------------ -------------------------------
Name: Martin J. Damian, Jr. Name: William H. Stephan
Title: Senior Vice President
and Chief Financial
Officer
/s/ Kathryn Wellock
- ------------------------------
Name: Kathryn Wellock
-10-
<PAGE>
WITNESSES: LENDER:
- --------- ------
MEDITRUST MORTGAGE INVESTMENTS,
INC., a Delaware corporation
/s/ Kim M. Priesing By: /s/ Michael F. Bushee
- ------------------------------ --------------------------------
Name: Kim M. Priesing Name: Michael F. Bushee
Title: Chief Operating Officer
/s/ Richard W. Pomroy
- ------------------------------
Name: Richard W. Pomroy
-11-
<PAGE>
EXHIBIT 10.29
OMNIBUS AMENDMENT TO FACILITY LEASE AGREEMENTS,
CONSENT TO MERGER AND
CONFIRMATION OF GUARANTIES
--------------------------
THIS AGREEMENT is made as of the 31st day of July, 1998 by and among
HARBORSIDE NEW HAMPSHIRE LIMITED PARTNERSHIP, a Massachusetts limited
partnership having a place of business at Harbor Plaza, 470 Atlantic Avenue,
Boston, Massachusetts 02210 (the "New Hampshire Lessee"); HARBORSIDE TOLEDO
LIMITED PARTNERSHIP, a Massachusetts limited partnership having a place of
business at Harbor Plaza, 470 Atlantic Avenue, Boston, Massachusetts 02210 (the
"Swanton Lessee"); HHCI LIMITED PARTNERSHIP, a Massachusetts limited partnership
having a place of business at Harbor Plaza, 470 Atlantic Avenue, Boston,
Massachusetts 02210 (the "HHCI Lessee"); (the Swanton Lessee, the New Hampshire
Lessee and the HHCI Lessee being hereinafter collectively referred to as the
"Lessees" and singly as a "Lessee"); HARBORSIDE HEALTHCARE LIMITED PARTNERSHIP,
a Massachusetts limited partnership having its principal place of business at
Harbor Plaza, 470 Atlantic Avenue, Boston, Massachusetts 02210 (the
"Guarantor"); HARBORSIDE HEALTHCARE CORPORATION, a Delaware corporation having
its principal place of business at Harbor Plaza, 470 Atlantic Avenue, Boston,
Massachusetts 02210 ("Harborside"); and MEDITRUST COMPANY LLC, a Delaware
limited liability company, having a principal address at 197 First Avenue,
Needham Heights, Massachusetts 02494 ("Lessor"), successor by merger to
Meditrust of Ohio, Inc. ("Meditrust-OH"), Meditrust of New Hampshire, Inc.
("Meditrust-NH"), Meditrust of Bedford, Inc. ("Meditrust-Bedford"), Meditrust of
Florida, Inc. ("Meditrust-FL"), Meditrust of New Jersey, Inc. ("Meditrust-NJ"),
and Meditrust Tri-states, Inc. ("Meditrust-Tri-States").
W I T N E S S E T H:
--------------------
WHEREAS, the Lessor and the New Hampshire Lessee are parties to those
certain Facility Lease Agreements described in EXHIBIT A attached hereto and
---------
incorporated herein by reference (collectively, the "New Hampshire Leases");
WHEREAS, the Lessor and the Swanton Lessee are parties to that certain
Facility Lease Agreement described in EXHIBIT B attached hereto and incorporated
---------
herein by reference (the "Swanton Lease");
WHEREAS, the Lessor and the HHCI Lessee are parties to those certain
Facility Lease Agreements described in EXHIBIT C attached hereto and
---------
incorporated herein by reference (collectively, the "HHCI Leases");
WHEREAS, the New Hampshire Leases, the Swanton Lease and the HHCI Leases
are hereinafter collectively referred to as the "Leases";
WHEREAS, all capitalized terms used herein and no specifically defined
shall have the meaning ascribed to them in the Leases;
<PAGE>
WHEREAS, the "Lease Obligations" as defined under each of the Leases are
unconditionally guaranteed by (I) the Guarantor pursuant to those certain
Guaranties described in EXHIBIT D attached hereto and incorporated herein by
---------
reference (collectively, the "HHLP Guaranties") and (II) Harborside pursuant to
those certain Guaranties described in EXHIBIT E attached hereto and incorporated
---------
herein by reference (collectively, the "HHC Guaranties");
WHEREAS, the Lessees have requested that the Lessor consent to the proposed
merger of HH Acquisition Corp. a Delaware corporation with and into Harborside
pursuant to and in accordance with the Agreement and Plan of Merger, dated as of
April 15, 1998, by and between HH Acquisition Corp. and Harborside (the
"Merger"); and
WHEREAS, notwithstanding anything to the contrary set forth in the any of
the Leases or any of the other Lease Documents (as defined in each of the
Leases), the Lessor is willing to consent to the Merger, but as a condition of
such consent, the Lessor has requested that the parties hereto execute and
deliver this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration paid, the receipt and sufficiency of which is
hereby acknowledged, the Lessor and the Lessees agree as follows:
A. CONSENT TO MERGER
-----------------
Notwithstanding anything to the contrary set forth in any of the Lease
Documents, the Lessor hereby consents to the Merger and to the change in the
control of Harborside, the Lessees, the Guarantor and the General Partner
resulting from the Merger and agrees that the same shall not constitute an Event
of Default under any of the Lease Documents.
B. AMENDMENTS TO LEASES
--------------------
1. Effective as of the consummation of the Merger, each of the Leases is
amended by adding the following definition to Article 2 immediately after the
term "Casualty":
CHANGE OF CONTROL: The occurrence of any of the following events: (a)
-----------------
if, at any time prior to an IPO, Investcorp or any of its Affiliates or
Subsidiaries, any Person that is a member of the senior management of
Harborside as of the date of the Omnibus Amendment, or any entity the
majority of the equity ownership interests of which is owned by such senior
management of Harborside, shall cease to own, directly or indirectly, in
the aggregate, at least 51% of the issued and outstanding voting stock of
Harborside, free and clear of all Liens or (b) if, at any time after an
IPO, any Person (other than Investcorp, any of its Affiliates or
Subsidiaries, any Person that is a member of the senior management of
Harborside as of the date of the Omnibus Amendment, any entity the majority
of the equity ownership interests of which is owned by such senior
management of Harborside or any Person acting in the capacity of an
underwriter), whether singly or in concert with one or more Persons, shall,
2
<PAGE>
directly or indirectly, have acquired, or acquire the power (i) to vote or
direct the voting of 30% or more, on a fully diluted basis, of the
outstanding common stock of Harborside or (ii) to elect or designate for
election a majority of the Board of Directors of Harborside by voting
power, contract or otherwise.
For the purposes of this definition only, the term "Affiliate" shall
mean, as to any Person, (a) any other Person (other than a Subsidiary)
which, directly or indirectly, is in control of, is controlled by, or is
under common control with such Person, or (b) any other Person who is a
director or officer (i) of such Person, (ii) of any Subsidiary of such
Person or (iii) of any Person described in the foregoing clause (a). For
purposes of the immediately preceding sentence, control of a Person shall
mean the power, direct or indirect, (x) to vote 51% or more of the
securities having ordinary voting power for the election of directors of
such Person, whether by ownership of securities, contract, proxy or
otherwise, or (y) to direct or cause the direction of the management and
policies of such Person, whether by ownership of securities, contract,
proxy or otherwise.
2. Effective as of the consummation of the Merger, each of the Leases is
amended by adding the following definitions to Article 2 immediately after the
term "Insurance Requirements":
INVESTCORP: Investcorp S.A., a Luxembourg corporation
----------
IPO: Any sale by Harborside through a public offering of its common
---
(or other voting) stock pursuant to an effective registration statement
(other than a registration statement on Form S-4, S-8 or any successor or
similar form) filed under the Securities Act of 1933, as amended.
3. Effective as of the consummation of the Merger, each of the Leases is
amended by adding the following definition to Article 2 immediately after the
term "Officer's Certificate":
OMNIBUS AMENDMENT: That certain Omnibus Amendment to Facility Lease
-----------------
Agreements, Consent to Merger and Confirmation of Guaranties, dated as of
July 31, 1998, by and among the Harborside New Hampshire Limited
Partnership, Harborside Toledo Limited Partnership, HHCI Limited
Partnership, the Guarantor, Harborside and the Lessor.
4. Effective as of the consummation of the Merger, clause (a) Section
11.5.10 of each of the Leases is deleted in its entirety and is restated to
thereafter read as follows:
(A) change its fiscal year or capital structure or
3
<PAGE>
5. Effective as of the consummation of the Merger, Sections 16.1 (h) and
(i) of each of the Leases are deleted in their entirety and are restated to
thereafter read as follows:
(H) in the event that, without the prior written consent of the Lessor, in
each instance, which consent may be withheld by the Lessor in its sole
and absolute discretion:
I. there shall be a change in the Person or Persons in control of
any Sublessee or any Manager (whether by operation of law or
otherwise);
II. all or any portion of the interest of any partner of Lessee in
Lessee shall be, on any one or more occasions, directly or
indirectly, sold, assigned, hypothecated or otherwise transferred
(whether by operation of law or otherwise);
III. subject to Section 19.4, any of the shares of the issued and
outstanding capital stock of the General Partner shall be, on any
one or more occasions, directly or indirectly, sold, assigned,
hypothecated or otherwise transferred (whether by operation of
law or otherwise); or
IV. subject to Section 19.4, any portion of the interest of any
partner of the Guarantor in the Guarantor shall be, on any one or
more occasions, directly or indirectly, sold, assigned,
hypothecated or otherwise transferred (whether by operation of
law or otherwise); or
V. any Change of Control occurs;
(I) the death, incapacity, liquidation, dissolution or termination of
existence of any Lessee or, subject to Section 19.4, the merger of any
member of the Leasing Group with any other Person; provided, however,
-------- -------
that notwithstanding the foregoing, a merger involving Harborside
shall not constitute an Event of Default so long as (I) Harborside is
the surviving entity of such merger and there is no material adverse
change to the financial condition of Harborside as a result of or in
connection with such merger, (II) no Change of Control occurs as a
result of such merger, (III) the Lessor receives at least fifteen (15)
days prior written notice of such merger and (IV) the Lessor receives
such assurances, estoppels, assumptions and confirmations that it
reasonably requires with respect to such merger;
6. Effective as of the consummation of the Merger, Section 19.4 of each
of the Leases is deleted in its entirety and is restated to thereafter read as
follows:
4
<PAGE>
19.4 PERMITTED TRANSFERS.
Notwithstanding anything to the contrary set forth herein or in any of
the other Lease Documents, issuances and transfers of the capital stock of
Harborside shall be expressly permitted; provided, that, such issuances
-------- ----
and/or transfers, whether individually or in the aggregate, do not result
in any Change of Control.
In addition, notwithstanding anything to the contrary set forth herein
or in any of the other Lease Documents, (A) the issued and outstanding
stock of the General Partner may be (I) transferred, on any one or more
occasions, to any other Person that is wholly-owned and controlled,
directly or indirectly, by Harborside or (II) pledged, on any one or more
occasions, as collateral to secure the obligations under any credit
facility (or other financing arrangement) now or hereafter entered into by
Harborside with any institutional lender, (B) the partnership interests in
the Guarantor may be (I) transferred, on any one or more occasions, to any
other Person that is wholly-owned and controlled, directly or indirectly,
by Harborside or (II) pledged, on any one or more occasions, as collateral
to secure the obligations under any credit facility (or other financing
arrangement) now or hereafter entered into by Harborside with any
institutional lender, (C) the General Partner may merge into or with any
other Person that is wholly-owned and controlled, directly or indirectly,
by Harborside and (D) the Guarantor may merge into or with any other Person
that is wholly-owed and controlled, directly or indirectly, by Harborside;
provided, that (X) simultaneously with the consummation of any merger
-------- ----
described in clause (d), the surviving entity (if such surviving entity is
not the Guarantor) executes a guaranty of the Lease Obligations in form and
substance substantially similar to the Guaranty, (Y) with respect to any
merger described in clause (c) or (d), the Lessor receives at least fifteen
(15) days prior written notice of such merger and (Z) the Lessor receives
such assurances, estoppels, assumptions and confirmations that it
reasonably requires with respect to such merger.
C. AMENDMENTS TO NEW HAMPSHIRE LEASES
----------------------------------
1. Effective as of the consummation of the Merger, the second paragraph
of Section 1.3 of each of the New Hampshire Leases is deleted in its entirety
and is restated to thereafter read as follows:
Notwithstanding anything to the contrary set forth herein, Lessee's
rights to exercise the extension options granted in this Section 1.3 are
subject to the further condition that concurrently with the exercise of any
extension option hereunder, (I) Lessee shall have exercised its option to
extend the terms of all of the Related Leases in accordance with the
provisions of Section 1.3 of each of the Related Leases and (II) the
Swanton Lessee shall have exercised its option to extend the term of the
Swanton Lease in accordance with the provisions of Section 1.3 of the
Swanton Lease.
5
<PAGE>
2. Effective as of the consummation of the Merger, each of the New
Hampshire Leases is amended by deleting the definition of "Cash Flow" in its
entirety from Article 2 and restating the definition of Cash Flow to thereafter
read as follows:
CASH FLOW: The Consolidated Net Income (or Consolidated Net Loss) of
---------
Lessee and the Swanton Lessee before federal and state taxes for any period
plus (I) the amount of the provision for depreciation and amortization
----
actually deducted on the books of the applicable Person for the purposes of
computing such Consolidated Net Income (or Consolidated Net Loss) for the
period involved, plus (II) Rent under the New Hampshire Leases, plus (III)
---- ----
"Rent" as defined under the Swanton Lease, plus (IV) management fees which
----
are fully subordinated to the New Hampshire Lease Obligations pursuant to
the Affiliated Party Subordination Agreement, plus (V) management fees
----
which are fully subordinated to the "Lease Obligations" (as defined under
the Swanton Lease) pursuant to the "Affiliated Party Subordination
Agreement" (as defined under the Swanton Lease).
3. Effective as of the consummation of the Merger, each of the New
Hampshire Leases is amended by deleting the definition of "Rent Coverage Ratio"
in its entirety from Article 2 and restating the definition of Rent Coverage
Ratio to thereafter read as follows:
RENT COVERAGE RATIO: The ratio of (I) Cash Flow for each applicable
-------------------
period of time to (II) the total of all New Hampshire Rent and Swanton Rent
paid or payable during such period or accrued for such period.
4. Effective as of the consummation of the Merger, each of the New
Hampshire Leases is amended by deleting the definition of "Swanton Lease" in its
entirety from Article 2 and restating the definition of Swanton Lease to
thereafter read as follows:
SWANTON LEASE: That certain Facility Lease Agreement, dated as of
-------------
March 31, 1995 by and between Meditrust of Ohio, Inc., as lessor, and the
Swanton Lessee, as lessee, as amended by that certain First Amendment to
Facility Lease Agreement, dated as of December 31, 1995, and as further
amended by that certain Second Amendment to Facility Lease Agreement, dated
as of May 17, 1996, relating to the premises located in Swanton, Ohio, as
the same may be hereafter further amended, modified, revised, renewed
and/or replaced.
5. Effective as of the consummation of the Merger, each of the New
Hampshire Leases is amended by adding the following definition to Article 2
immediately after the term Swanton Lease:
SWANTON LESSEE: Harborside Toledo Limited Partnership, a
--------------
Massachusetts limited partnership.
6
<PAGE>
6. Effective as of the consummation of the Merger, each of the New
Hampshire Leases is amended by adding the following definition to Article 2
immediately after the term Swanton Lessee:
SWANTON RENT: An amount equal to the sum of the "Rent" (excluding
------------
Additional Rent, as defined under the Swanton Lease) due and payable during
the applicable period under the Swanton Lease.
7. Effective as of the consummation of the Merger, Section 11.3.1 of each
of the New Hampshire Leases is deleted in its entirety and is restated to
thereafter read as follows:
11.3.1 RENT COVERAGE RATIO OF LESSEE. For each calendar quarter,
-----------------------------
Lessee and the Swanton Lessee shall maintain a combined Rent Coverage Ratio
equal to or greater than 1.25 to 1.
8. Effective as of the consummation of the Merger, the second paragraph
of Section 18.4.2 of each of the New Hampshire Leases is deleted in its entirety
and is restated to thereafter read as follows:
18.4.2 EXERCISE OF OPTION. The Purchase Option shall permit Lessee
------------------
to purchase the Leased Property (A) on the ninth (9th) anniversary of the
Fixed Term Commencement Date or (B) on the last day of the Fixed Term and
each Extended Term (any of such dates hereinafter called a "Purchase Option
Date") and shall be exercised by written notice given by Lessee to Lessor
(the "Lessee's Purchase Option Notice") at least one hundred eighty (180)
days (but not more than two hundred seventy (270) days) prior to the
relevant Purchase Option Date. Notwithstanding anything to the contrary
set forth in this Lease, Lessee's right to purchase the Leased Property is
subject to the further conditions that (I) concurrently with the exercise
of the option set forth under this Section 18.4, the Lessee shall have
exercised its right to purchase the premises demised under each of the
Related Leases in accordance with the provisions of Section 18.4 of each of
the Related Leases, (II) concurrently with the exercise of the option set
forth under this Section 18.4, the Swanton Lessee shall have exercised its
right to purchase the premises demised under the Swanton Lease in
accordance with the provisions of Section 18.4 of the Swanton Lease, and
(III) the conveyance of the Leased Property pursuant to the provisions of
this Section 18.4 shall occur simultaneously with the conveyance of the
premises demised under each of the Related Leases and the Swanton Lease
pursuant to Section 18.4 of each of the Related Leases and the Swanton
Lease.
D. AMENDMENTS TO SWANTON LEASE
---------------------------
7
<PAGE>
1. Effective as of the consummation of the Merger, Section 1.2 of the
Swanton Lease is deleted in its entirety and is restated to thereafter read as
follows:
1.2 TERM. The term of this Lease shall consist of a "Fixed Term",
----
which shall commence on March 31, 1995 (the "Fixed Term Commencement Date")
and end on December 31, 2005 (the "Fixed Term Expiration Date"); provided,
--------
however that this Lease may be sooner terminated as hereinafter provided.
-------
In addition, Lessee shall have the options to extend the Term (as
hereinafter defined) as provided for in Section 1.3.
2. Effective as of the consummation of the Merger, the Swanton Lease is
amended by adding the following paragraph to the end of Section 1.3:
Notwithstanding anything to the contrary set forth herein, Lessee's
rights to exercise the extension options granted in this Section 1.3 are
subject to the further condition that concurrently with the exercise of any
extension option hereunder, the New Hampshire Lessee shall have exercised
its option to extend the terms of all of the New Hampshire Leases in
accordance with the provisions of Section 1.3 of each of the New Hampshire
Leases.
3. Effective as of the consummation of the Merger, the Swanton Lease is
amended by deleting the definition of "Cash Flow" in its entirety from Article 2
and restating the definition of Cash Flow to thereafter read as follows:
CASH FLOW: The Consolidated Net Income (or Consolidated Net Loss) of
---------
Lessee and the New Hampshire Lessee before federal and state taxes for any
period plus (I) the amount of the provision for depreciation and
----
amortization actually deducted on the books of the applicable Person for
the purposes of computing such Consolidated Net Income (or Consolidated Net
Loss) for the period involved, plus (II) Rent, plus (III) "Rent" as defined
---- ----
under each of the New Hampshire Leases, plus (IV) management fees which are
----
fully subordinated to the Lease Obligations pursuant to the Affiliated
Party Subordination Agreement, plus (V) management fees which are fully
----
subordinated to the "New Hampshire Lease Obligations" (as defined under
each of the New Hampshire Leases) pursuant to the "Affiliated Party
Subordination Agreement" (as defined under the New Hampshire Leases).
4. Effective as of the consummation of the Merger, the Swanton Lease is
amended by deleting the definition of "Debt Coverage Ratio" in its entirety from
Article 2.
5. Effective as of the consummation of the Merger, the Swanton Lease is
amended by adding the following definition to Article 2 immediately after the
term "Net Income (or Net Loss)":
8
<PAGE>
NEW HAMPSHIRE RENT: An amount equal to the sum of the "Rent" due and
------------------
payable during the applicable period under the New Hampshire Leases.
9
<PAGE>
6. Effective as of the consummation of the Merger, the Swanton Lease is
amended by adding the following definition to Article 2 immediately after the
term "Rent Adjustment Rate":
RENT COVERAGE RATIO: The ratio of (I) Cash Flow for each applicable
-------------------
period of time to (II) the total of all New Hampshire Rent and Swanton Rent
(excluding Additional Rent) paid or payable during such period or accrued
for such period.
7. Effective as of the consummation of the Merger, Section 11.3.1 of the
Swanton Lease is deleted in its entirety and is restated to thereafter read as
follows:
11.3.1 RENT COVERAGE RATIO OF LESSEE. For each calendar quarter,
-----------------------------
Lessee and the New Hampshire Lessee shall maintain a combined Rent Coverage
Ratio equal to or greater than 1.25 to 1.
8. Effective as of the consummation of the Merger, Section 18.4.2 of the
Swanton Lease is deleted in its entirety and is restated to thereafter read as
follows:
18.4.2 EXERCISE OF OPTION. The Purchase Option shall permit Lessee
------------------
to purchase the Leased Property (A) on the ninth (9th) anniversary of the
Fixed Term Commencement Date or (B) on the last day of the Fixed Term and
each Extended Term (any of such dates hereinafter called a "Purchase Option
Date") and shall be exercised by written notice given by Lessee to Lessor
(the "Lessee's Purchase Option Notice") at least one hundred eighty (180)
days (but not more than two hundred seventy (270) days) prior to the
relevant Purchase Option Date. Notwithstanding anything to the contrary
set forth in this Lease, Lessee's right to purchase the Leased Property is
subject to the further conditions that (I) concurrently with the exercise
of the option set forth under this Section 18.4, the New Hampshire Lessee
shall have exercised its right to purchase the premises demised under each
of the New Hampshire Leases in accordance with the provisions of Section
18.4 of each of the New Hampshire Leases and (II) the conveyance of the
Leased Property pursuant to the provisions of this Section 18.4 shall occur
simultaneously with the conveyance of the premises demised under each of
the New Hampshire Leases pursuant to Section 18.4 of each of the New
Hampshire Leases.
E. CONFIRMATION OF GUARANTIES
--------------------------
1. By the execution hereof, the Guarantor hereby ratifies, confirms and
reaffirms the HHLP Guaranties, which remain in full force and effect
notwithstanding and unaffected by this Agreement, except as may be otherwise
expressly provided herein..
10
<PAGE>
2. By the execution hereof, Harborside hereby ratifies, confirms and
reaffirms the HHC Guaranties, which remain in full force and effect
notwithstanding and unaffected by this Agreement, except as may be otherwise
expressly provided herein.
11
<PAGE>
F. MISCELLANEOUS PROVISIONS
------------------------
1. Each of the Lessees hereby represent and warrant to Lessor that,
except as already obtained or filed, as the case may be, no consent or approval
or other authorization of, or exemption by, or declaration or filing with, any
Person and no waiver of any right by any Person is required to authorize or
permit, or is otherwise required as a condition of such Lessee's execution and
delivery of this Agreement and the performance of its obligations under the
applicable Lease or Leases as amended hereby.
2. This Agreement shall be deemed to amend the Leases solely as expressly
set forth herein, and as amended hereby, the Leases are hereby ratified,
approved and confirmed in every aspect and is valid, binding and in full force
and effect.
This Agreement shall not be deemed to amend any of the other "Lease
Documents" (as defined under each of the Leases), each of which are hereby
ratified, approved and confirmed in every aspect and each of which are valid,
binding and in full force and effect notwithstanding and unaffected by this
Agreement, except as may be otherwise expressly provided herein.
3. This Agreement shall be binding upon the Lessees and Lessor and their
respective successors and assigns.
4. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
5. This Agreement may be executed in one or more counterparts, each of
which taken together shall constitute one original and all of which shall
constitute one and the same instrument.
12
<PAGE>
WITNESS the execution hereof under seal as of the day and year first above
written.
WITNESSES: NEW HAMPSHIRE LESSEE:
- --------- --------------------
HARBORSIDE NEW HAMPSHIRE
LIMITED PARTNERSHIP, a
Massachusetts limited
partnership
/s/ Martin J. Damian Jr. By: Harborside Toledo Corp.,
- -----------------------------
Name: Martin J. Damian, Jr. a Massachusetts corporation, its sole
General Partner
/s/ Kathryn Wellock By: /s/ William H. Stephan
- ------------------------------ ----------------------------
Name: Kathryn Wellock NAME: William H. Stephan
Title: Treaurer
WITNESSES: SWANTON LESSEE:
- --------- --------------
HARBORSIDE TOLEDO LIMITED
PARTNERSHIP, a Massachusetts
limited partnership
/s/ Martin J. Damian Jr. By: Harborside Toledo Corp.,
- -----------------------------
Name: Martin J. Damian, Jr. a Massachusetts corporation, its sole
General Partner
/s/ Kathryn Wellock By: /s/ William H. Stephan
- ------------------------------ ----------------------------
Name: Kathryn Wellock NAME: William H. Stephan
TITLE: Treasurer
<PAGE>
WITNESSES: HHCI LESSEE:
- --------- -----------
HHCI LIMITED PARTNERSHIP, a
Massachusetts limited partnership
/s/ Martin J. Damian Jr. By: Harborside Toledo Corp.,
- -----------------------------
Name: Martin J. Damian, Jr. a Massachusetts corporation, its sole
General Partner
/s/ Kathryn Wellock By: /s/ William H. Stephan
- ------------------------------ ----------------------------
Name: Kathryn Wellock NAME: William H. Stephan
TITLE: Treasurer
WITNESSES: GUARANTOR:
- --------- ---------
HARBORSIDE HEALTHCARE
LIMITED PARTNERSHIP, a
Massachusetts limited partnership
/s/ Martin J. Damian Jr. By: KHI CORPORATION, a Delaware
- -----------------------------
Name: Martin J. Damian, Jr. corporation, its sole general partner
/s/ Kathryn Wellock By: /s/ William H. Stephan
- ------------------------------ ----------------------------
Name: Kathryn Wellock William H. Stephan
TITLE: Treasurer
WITNESSES: HARBORSIDE
- --------- ----------
HARBORSIDE HEALTHCARE
CORPORATION, a Delaware corporation
/s/ Martin J. Damian Jr. By: /s/ William H. Stephan
- ----------------------------- ----------------------------
Name: Martin J. Damian, Jr. William H. Stephan
TITLE: Senior Vice President
and Chief Financial Officer
/s/ Kathryn Wellock
- ------------------------------
Name: Kathryn Wellock
<PAGE>
WITNESS: LESSOR:
- ------- ------
MEDITRUST COMPANY LLC, a
Delaware limited liability company
/s/ Kim M. Priesing By: /s/ Michael F. Bushee
- ------------------------------- ------------------------------
Name: Kim M. Priesing Michael F. Bushee
Title: Chief Operating Officer
/s/ Richard W. Pomroy
- -------------------------------
Name: Richard W. Pomroy
<PAGE>
EXHIBIT A
---------
NEW HAMPSHIRE LEASES
1. Facility Lease Agreement, dated as of January 1, 1996, by and between the New
Hampshire Lessee, as lessee, and Meditrust-NH, as lessor, as amended by that
certain First Amendment to Facility Lease Agreement, dated as of May 17, 1996
and as further amended by that certain Second Amendment to Facility Lease,
dated as of January 1, 1997 (as so amended, the "Applewood Lease"), relating
to the real property and the improvements located thereon located at 8 Snow
Road, Winchester, New Hampshire, more particularly described in the Applewood
Lease.
2. Facility Lease Agreement, dated as of January 1, 1996, by and between the New
Hampshire Lessee, as lessee, and Meditrust-NH, as lessor, as amended by that
certain First Amendment to Facility Lease Agreement, dated as of May 17, 1996
and as further amended by that certain Second Amendment to Facility Lease,
dated as of January 1, 1997 (as so amended, the "Crestwood Lease"), relating
to the real property and the improvements located thereon located at 40
Crosby Street, Milford, New Hampshire, more particularly described in the
Crestwood Lease.
3. Facility Lease Agreement, dated as of January 1, 1996, by and between the New
Hampshire Lessee, as lessee, and Meditrust-NH, as lessor, as amended by that
certain First Amendment to Facility Lease Agreement, dated as of May 17, 1996
and as further amended by that certain Second Amendment to Facility Lease,
dated as of January 1, 1997 (as so amended, the "Milford Lease"), relating to
the real property and the improvements located thereon located at 71 Elm
Street, Milford, New Hampshire, more particularly described in the Milford
Lease.
4. Facility Lease Agreement, dated as of January 1, 1996, by and between the New
Hampshire Lessee, as lessee, and Meditrust-Bedford, as lessor, as amended by
that certain First Amendment to Facility Lease Agreement, dated as of May 17,
1996 and as further amended by that certain Second Amendment to Facility
Lease, dated as of January 1, 1997 (as so amended, the "Northwood Lease"),
relating to the real property and the improvements located thereon located at
30 Colby Court, Bedford, New Hampshire, more particularly described in the
Northwood Lease.
5. Facility Lease Agreement, dated as of January 1, 1996, by and between the New
Hampshire Lessee, as lessee, and Meditrust-NH, as lessor, as amended by that
certain First Amendment to Facility Lease Agreement, dated as of May 17, 1996
and as further amended by that certain Second Amendment to Facility Lease,
dated as of January 1, 1997 (as so amended, the "Pheasant Wood Lease"),
relating to the real property and the improvements located thereon located at
Pheasant Road,
<PAGE>
Peterborough, New Hampshire, more particularly described in the Pheasant Wood
Lease.
6. Facility Lease Agreement, dated as of January 1, 1996, by and between the New
Hampshire Lessee, as lessee, and Meditrust-NH, as lessor, as amended by that
certain First Amendment to Facility Lease Agreement, dated as of May 17, 1996
and as further amended by that certain Second Amendment to Facility Lease,
dated as of January 1, 1997 (as so amended, the "Westwood Lease"), relating
to the real property and the improvements located thereon located at 298 Main
Street, Keene, New Hampshire, more particularly described in the Westwood
Lease.
<PAGE>
EXHIBIT B
---------
SWANTON LEASE
Facility Lease Agreement by and between the Meditrust-OH, as lessor and the
Swanton Lessee, as lessee, dated as of March 31, 1995, as amended by that
certain First Amendment to Facility Lease Agreement dated as of December 31,
1995, and as further amended by that certain Second Amendment to Facility
Lease Agreement, dated as of May 17, 1996, (as so amended, and as the same may
hereafter be amended, modified, revised, renewed and/or replaced, the "Swanton
Lease"), relating to the real property and all of the improvements now or
hereafter located thereon at 401 West Airport Highway, Swanton, Fulton County.
<PAGE>
EXHIBIT C
---------
HHCI LEASES
1. Facility Lease Agreement, dated as of December 31, 1995, by and between the
HHCI Lessee, as lessee, and Meditrust-FL, as lessor, as amended by that
certain First Amendment to Facility Lease Agreement, dated as of May 17,
1996, as further amended by that certain Second Amendment to Facility Lease
Agreement, dated as of May 8, 1997 and as further amended by that certain
Third Amendment to Facility Lease, dated as of May 9, 1997 (as so amended,
the "Naples Lease"), relating to the real property and the improvements
located thereon located at 2900 Twelfth Street North, Naples, Florida, more
particularly described in the Naples Lease.
2. Facility Lease Agreement, dated as of December 31, 1995, by and between the
HHCI Lessee, as lessee, and Meditrust-Tri-States, as lessor, as amended by
that certain First Amendment to Facility Lease Agreement, dated as of May 17,
1996, as further amended by that certain Second Amendment to Facility Lease
Agreement, dated as of May 8, 1997 and as further amended by that certain
Third Amendment to Facility Lease, dated as of May 9, 1997 (as so amended,
the "New Haven Lease"), relating to the real property and the improvements
located thereon located at 1201 Daly Drive, New Haven, Indiana, more
particularly described in the New Haven Lease.
3. Facility Lease Agreement, dated as of December 31, 1995, by and between the
HHCI Lessee, as lessee, and Meditrust-OH, as lessor, as amended by that
certain First Amendment to Facility Lease Agreement, dated as of May 17,
1996, as further amended by that certain Second Amendment to Facility Lease
Agreement, dated as of May 8, 1997 and as further amended by that certain
Third Amendment to Facility Lease, dated as of May 9, 1997 (as so amended,
the "Troy Lease"), relating to the real property and the improvements located
thereon located at 512 Crescent Drive, Troy, Ohio, more particularly
described in the Troy Lease.
4. Facility Lease Agreement, dated as of December 31, 1995, by and between the
HHCI Lessee, as lessee, and Meditrust-NJ, as lessor, as amended by that
certain First Amendment to Facility Lease Agreement, dated as of May 17,
1996, as further amended by that certain Second Amendment to Facility Lease
Agreement, dated as of May 8, 1997 and as further amended by that certain
Third Amendment to Facility Lease, dated as of May 9, 1997 (as so amended,
the "Woods Edge Lease"), relating to the real property and the improvements
located thereon located at 875 Route 202/206 North Bridgewater, New Jersey,
more particularly described in the Woods Edge Lease.
5. Facility Lease Agreement, dated as of December 31, 1995, by and between the
HHCI Lessee, as lessee, and Meditrust-FL, as lessor, as amended by that
certain First Amendment to Facility Lease Agreement, dated as of May 17, 1996
and as further amended by that certain Second Amendment to Facility Lease,
dated as of January 1, 1997 (as so amended, the "Pinebrook Lease"), relating
to the real property and the
<PAGE>
improvements located thereon located at 1240 Pinebrook Road, Venice, Florida,
more particularly described in the Pinebrook Lease.
6. Facility Lease Agreement, dated as of December 31, 1995, by and between the
HHCI Lessee, as lessee, and Meditrust-FL, as lessor, as amended by that
certain First Amendment to Facility Lease Agreement, dated as of May 17, 1996
and as further amended by that certain Second Amendment to Facility Lease,
dated as of January 1, 1997 (as so amended, the "Sarasota Lease"), relating
to the real property and the improvements located thereon located at 4602
Northgate Court, Sarasota, Florida, more particularly described in the
Sarasota Lease.
7. Facility Lease Agreement, dated as of December 31, 1995, by and between the
HHCI Lessee, as lessee, and Meditrust-Tri-States, as lessor, as amended by
that certain First Amendment to Facility Lease Agreement, dated as of May 17,
1996 and as further amended by that certain Second Amendment to Facility
Lease, dated as of January 1, 1997 (as so amended, the "Indianapolis Lease"),
relating to the real property and the improvements located thereon located at
8201 West Washington Street, Indianapolis, Indiana, more particularly
described in the Indianapolis Lease.
<PAGE>
EXHIBIT D
---------
HHLP GUARANTIES
1. Guaranty, dated as of March 31, 1995, executed by the Guarantor for the
benefit of Meditrust-OH, relating to the Swanton Lease.
2. Guaranty, dated as of January 1, 1996, executed by the Guarantor for the
benefit of Meditrust-NH, relating to the Applewood Lease.
3. Guaranty, dated as of January 1, 1996, executed by the Guarantor for the
benefit of Meditrust-NH, relating to the Crestwood Lease.
4. Guaranty, dated as of January 1, 1996, executed by the Guarantor for the
benefit of Meditrust-NH, relating to the Milford Lease.
5. Guaranty, dated as of January 1, 1996, executed by the Guarantor for the
benefit of Meditrust-Bedford, relating to the Northwood Lease.
6. Guaranty, dated as of January 1, 1996, executed by the Guarantor for the
benefit of Meditrust-NH, relating to the Pheasant Wood Lease.
7. Guaranty, dated as of January 1, 1996, executed by the Guarantor for the
benefit of Meditrust-NH, relating to the Westwood Lease.
8. Guaranty, dated as of December 31, 1995, executed by the Guarantor for the
benefit of Meditrust-FL, relating to the Naples Lease.
9. Guaranty, dated as of December 31, 1995, executed by the Guarantor for the
benefit of Meditrust-Tri-States relating to the New Haven Lease.
10. Guaranty, dated as of December 31, 1995, executed by the Guarantor for the
benefit of Meditrust-OH, relating to the Troy Lease.
11. Guaranty, dated as of December 31, 1995, executed by the Guarantor for the
benefit of Meditrust-NJ, relating to the Woods Edge Lease.
12. Guaranty, dated as of December 31, 1995, executed by the Guarantor for the
benefit of Meditrust-FL, relating to the Pinebrook Wood Lease.
13. Guaranty, dated as of December 31, 1995, executed by the Guarantor for the
benefit of Meditrust-FL, relating to the Sarasota Lease.
14. Guaranty, dated as of December 31, 1995, executed by the Guarantor for the
benefit of Meditrust-Tri-States, relating to the Indianapolis Lease.
<PAGE>
EXHIBIT E
---------
HHC GUARANTIES
1. Guaranty, dated as of May 17, 1996, executed by Harborside for the benefit
of Meditrust-NH, relating to the Applewood Lease.
2. Guaranty, dated as of May 17, 1996, executed by Harborside for the benefit
of Meditrust-NH, relating to the Crestwood Lease.
3. Guaranty, dated as of May 17, 1996, executed by Harborside for the benefit
of Meditrust-NH, relating to the Milford Lease.
4. Guaranty, dated as of May 17, 1996, executed by Harborside for the benefit
of Meditrust-Bedford, relating to the Northwood Lease.
5. Guaranty, dated as of May 17, 1996, executed by Harborside for the benefit
of Meditrust-NH, relating to the Pheasant Wood Lease.
6. Guaranty, dated as of May 17, 1996, executed by Harborside for the benefit
of Meditrust-NH, relating to the Westwood Lease.
7. Guaranty, dated as of May 17, 1996, executed by Harborside for the benefit
of Meditrust-OH, relating to the Swanton Lease.
8. Guaranty, dated as of May 17, 1996, executed by Harborside for the benefit
of Meditrust-FL, relating to the Naples Lease.
9. Guaranty, dated as of May 17, 1996, executed by Harborside for the benefit
of Meditrust-Tri-States, relating to the New Haven Lease.
10. Guaranty, dated as of May 17, 1996, executed by Harborside for the benefit
of Meditrust-OH, relating to the Troy Lease.
11. Guaranty, dated as of May 17, 1996, executed by Harborside for the benefit
of Meditrust-NJ, relating to the Woods Edge Lease.
12. Guaranty, dated as of May 17, 1996, executed by Harborside for the benefit
of Meditrust-FL, relating to the Pinebrook Wood Lease.
13. Guaranty, dated as of May 17, 1996, executed by Harborside for the benefit
of Meditrust-FL, relating to the Sarasota Lease.
14. Guaranty, dated as of May 17, 1996, executed by Harborside for the benefit
of Meditrust-Tri-States, relating to the Indianapolis Lease.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report dated February 13, 1998, on our audits of the consolidated financial
statements of Harborside Healthcare Corporation and subsidiaries. We also
consent to the references to our firm under the caption "Experts" and "Selected
Consolidated Historical Financial and Operating Data."
/s/ PricewaterhouseCoopers LLP
Boston Massachusetts
October 27, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report dated February 13, 1997, on our audits of the combined financial
statements of Canterbury Care Center, Inc. and Related Companies. We also
consent to the references to our firm under the caption "Experts."
/s/ Ralph L. Krasik
CUMMINS, KRASIK & HOHL CO.
Columbus, Ohio
October 27, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report dated October 22, 1997, on our audit of the combined financial statements
of Cushman Management Associates, Inc. and Affiliates. We also consent to the
references to our firm under the caption "Experts."
/s/ Landa & Altsher
LANDA & ALTSHER, P.C.
Randolph, Massachusetts
October 27, 1998
<PAGE>
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
__________________________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
__________________________
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
__________________________
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I. R. S. Employer
if not a U. S. national bank) Identification No.)
114 West 47th Street 10036-1532
New York, New York (Zip Code)
(Address of principal
executive offices)
__________________________
HARBORSIDE HEALTHCARE CORPORATION
(Exact name of OBLIGOR as specified in its charter)
Delaware 04-3307188
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
470 Atlantic Avenue 02210
Boston, Massachusetts (Zip code)
(Address of principal executive offices)
__________________________
<PAGE>
OTHER OBLIGORS
--------------
<TABLE>
<CAPTION>
STATE OR OTHER I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION
NAME INCORPORATION NUMBER
---- ------------- ------
<S> <C> <C>
Harborside Heathcare Limited Partnership Massachusetts 04-2985687
Belmont Nursing Center Corp. Massachusetts 04-3072217
Orchard Ridge Nursing Center Corp. Massachusetts 04-3072231
Oakhurst Manor Nursing Center Corp. Massachusetts 04-3072232
Riverside Retirement Limited Partnership Massachusetts 04-2991629
Harborside Toledo Limited Partnership Massachusetts 04-3260170
Harborside Connecticut Limited Partnership Massachusetts 06-1496629
Harborside Florida Limited Partnership Florida 04-3239093
Harborside of Ohio Limited Partnership Massachusetts 04-3189435
Harborside Healthcare Baltimore Limited
Partnership Massachusetts 52-2013622
Harborside of Cleveland Limited Partnership Massachusetts 04-3313798
Harborside of Dayton Limited Partnership Massachusetts 31-1546651
Harborside Massachusetts Limited
Partnership Massachusetts 04-3364219
Harborside Rhode Island Limited Partnership Massachusetts 05-0495209
Harborside North Toledo Limited Partnership Massachusetts 34-1855902
Harborside Healthcare Advisors Limited
Partnership Massachusetts 04-2985690
Harborside Toledo Corporation Massachusetts 04-3274482
KHI Corporation Delaware 51-0304577
Harborside Danbury Limited Partnership Massachusetts 06-1528119
Harborside Acquisition Limited Partnership V Massachusetts None
Harborside Acquisition Limited Partnership VI Massachusetts None
Harborside Acquisition Limited Partnership VII Massachusetts None
Harborside Acquisition Limited Partnership VIII Massachusetts None
Harborside Acquisition Limited Partnership IX Massachusetts None
Harborside Acquisition Limited Partnership X Massachusetts None
Sailors, Inc. Delaware None
New Jersey Harborside Corporation Massachusetts 04-3285183
Bridgewater Assisted Living Limited Partnership New Jersey 04-3331905
Maryland Harborside Corporation Massachusetts 04-3168713
Harborside Homecare Limited Partnership Massachusetts 04-3276939
Harborside Rehabilitation Limited Partnership Massachusetts 04-3209245
Harborside Healthcare Network Limited
Partnership Florida 04-3310886
Harborside Health I Corporation Delaware 51-0304578
</TABLE>
________________________________
11% Series A Senior Subordinated Discount Notes Due 2008
13 1/2% Subordinated Exchange Debentures Due 2010
(Title of the indenture securities)
<PAGE>
- 3 -
GENERAL
1. GENERAL INFORMATION
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
-----------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
The obligors currently are not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and
15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
----------------
T-1.1 -- Organization Certificate, as amended, issued by the State
of New York Banking Department to transact business as a
Trust Company, is incorporated by reference to Exhibit T-
1.1 to Form T-1 filed on September 15, 1995 with the
Commission pursuant to the Trust Indenture Act of 1939, as
amended by the Trust Indenture Reform Act of 1990
(Registration No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 4 -
16. LIST OF EXHIBITS
----------------
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of
the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
- ----
As of October 20, 1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
__________________
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 20th day
of October 1998.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ James E. Logan
---------------------------------
James E. Logan
Vice President
JEL/kk
<PAGE>
Exhibit T-1.6
-------------
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
-----------------------
By: /s/ Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
JUNE 30, 1998
-------------
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash and Due from Banks $ 99,322
Short-Term Investments 171,315
Securities, Available for Sale 626,426
Loans 1,857,795
Less: Allowance for Credit Losses 16,708
----------
Net Loans 1,841,087
Premises and Equipment 59,304
Other Assets 122,476
----------
TOTAL ASSETS $2,919,930
==========
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 648,072
Interest Bearing 1,646,049
----------
Total Deposits 2,294,121
Short-Term Credit Facilities 306,807
Accounts Payable and Accrued Liabilities 144,419
----------
TOTAL LIABILITIES $2,745,347
==========
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 107,703
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,344
----------
TOTAL STOCKHOLDER'S EQUITY 174,583
----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $2,919,930
==========
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
July 31, 1998
