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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER , 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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)
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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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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% Series A Senior
Subordinated Discount
Notes due 2008......... $170,000,000 59.586% $101,296,200 $29,882
Guarantees of the
Notes.................. $170,000,000 (2) (2) (2)
13 1/2% Series A
Exchangeable Preferred
Stock Mandatorily
Redeemable 2010 ("New
Preferred Stock")...... 40,000(3) $1,000 $40,000,000 $11,800
13 1/2% Subordinated
Exchange Debentures due
2010(4)................ (5) (2) (2) (2)
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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) 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.
(3) This Registration Statement also covers an indeterminate number of shares
of New Preferred Stock that may be issued in payment of dividends on
shares of New Preferred Stock pursuant to the terms thereof.
(4) Issuable at the Registrant's option in exchange for the New Preferred
Stock.
(5) 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. This Registration Statement also covers Exchange
Debentures that may be issued in payment of dividends on Exchange
Debentures pursuant to the termes thereof.
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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.
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*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 Acquisition Limited Partnership
IV (MA, None), 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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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 SEPTEMBER , 1998
PROSPECTUS
OFFER FOR ALL OUTSTANDING 11% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2008
IN EXCHANGE FOR
11% SERIES A SENIOR SUBORDINATED DISCOUNT NOTES DUE 2008,
AND FOR ALL OUTSTANDING 13 1/2% EXCHANGEABLE PREFERRED STOCK MANDATORILY
REDEEMABLE 2010
IN EXCHANGE FOR
13 1/2% SERIES A EXCHANGEABLE PREFERRED STOCK MANDATORILY REDEEMABLE 2010, OF
[LOGO HARBORSIDE HEALTHCARE CORPORATION]
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON , 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 11% Series A Senior
Subordinated Discount Notes due 2008 (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 40,000 shares of its 13 1/2%
Series A Exchangeable Preferred Stock Mandatorily Redeemable 2010 (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 (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 on an unsecured senior
subordinated basis by certain subsidiaries of the Issuer (the "Guarantors").
The New Notes and Note Guarantees 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 New 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.
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."
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 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.
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 , 1998.
<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"), 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") and the
indenture pursuant to which the Exchange Debentures may be issued (the
"Exchange Debenture Indenture"), 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 has filed 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.
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
2
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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.
3
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TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION.................................................... 2
FORWARD LOOKING STATEMENTS............................................... 2
SUMMARY.................................................................. 5
RISK FACTORS............................................................. 24
USE OF PROCEEDS.......................................................... 37
THE EXCHANGE OFFER....................................................... 38
CAPITALIZATION........................................................... 48
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION................... 49
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA.......................... 64
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................... 66
BUSINESS................................................................. 77
MANAGEMENT............................................................... 98
PRINCIPAL SHAREHOLDERS................................................... 104
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 107
THE TRANSACTIONS......................................................... 109
DESCRIPTION OF CAPITAL STOCK............................................. 112
DESCRIPTION OF THE NEW CREDIT FACILITY................................... 113
DESCRIPTION OF THE NEW NOTES............................................. 116
DESCRIPTION OF THE NEW PREFERRED STOCK................................... 153
DESCRIPTION OF THE EXCHANGE DEBENTURES................................... 169
U.S. FEDERAL INCOME TAX CONSEQUENCES..................................... 203
PLAN OF DISTRIBUTION..................................................... 208
LEGAL MATTERS............................................................ 209
EXPERTS.................................................................. 209
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.
4
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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
5
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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
6
<PAGE>
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.
8
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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.
9
<PAGE>
THE EXCHANGE OFFER
Issuer...................... Harborside Healthcare Corporation
Securities Offered.......... Up to an aggregate principal amount of
$170,000,000 of its 11% Series A Senior
Subordinated Discount Notes due 2008 (the "New
Notes"), and up to 40,000 shares of its 13 1/2%
Series A 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.
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 , 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 to Tendering Old
Securities................. Each holder of Old Securities wishing to accept
the Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
such Old Securities and any other required
documentation, to
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<PAGE>
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.
11
<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 NOTES
Issuer...................... Harborside Healthcare Corporation.
Aggregate Amount............ $170,000,000 principal amount at maturity of 11%
Series A 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..... 40,000 shares of 13 1/2% Series A 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. All dividends
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 of the New Preferred
Stock. 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 of the Old Preferred Stock.
For federal income tax purposes, distributions
with respect to the Exchangeable Preferred Stock,
whether paid in
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<PAGE>
cash or in additional shares of 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 (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
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<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.
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<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
17
<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 Exchange Debenture 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 (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.
18
<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)
19
<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
20
<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.
21
<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)
22
<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.
23
<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
24
<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 Old Securities 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
the Old Securities to investors was not registered under the Securities Act in
reliance upon the exemptions provided by Rule 144A and Regulation S
promulgated under the Securities Act. 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 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
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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 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
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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 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 , 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. This Prospectus, together with the Letter of Transmittal, is
first being sent on or about , 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
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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 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
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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.
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.
42
<PAGE>
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
43
<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 properly completed and duly executed Letter
of Transmittal (or a facsimile thereof) and 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, 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) 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.
44
<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: (800) 548- New York, New York 10006
6565 Attention: Lower Level Corporate Trust
Window
BY MAIL
United States Trust Company of New BY OVERNIGHT COURIER AND BY HAND AFTER 4:30
York 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
45
<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
46
<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.
47
<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.
48
<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.
49
<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 divi-
dends.......... -- -- (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 com-
mon 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
50
<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
51
<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 divi-
dends.......... -- -- (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 com-
mon 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
52
<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
53
<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
54
<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>
55
<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.
56
<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;
57
<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> <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.
58
<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
59
<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 operat-
ing (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.
60
<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
61
<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>
62
<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.
63
<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)
64
<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.
65
<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
66
<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.
67
<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
68
<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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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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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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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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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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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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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........... 46 Director
Christopher J. O'Brien.. 40 Director
Charles J. Philippin.... 47 Director
Christopher J. Stadler.. 33 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, Saks Holdings, Inc., 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 Holdings, Inc., 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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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 Of- 1995 267,800 80,000 -- -- -- -- 4,063
ficer
Damian N. Dell'Anno,.... 1997 192,115 117,000 -- -- 27,000 -- 7,578
Executive Vice Presi- 1996 176,371 266,000 -- -- 50,000 -- 5,152
dent 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 Acquisi- 1995 117,192 37,306 -- -- -- -- 3,191
tions
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 Of- 1995 120,000 24,000 -- -- -- -- 5,954
ficer
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 ($)(3)
---- ----------- ---------------- ----------- ----------------- --------
<S> <C> <C> <C> <C> <C>
Stephen L.
Guillard(1)............. 55,000 25.8 12.00 February 12, 2007 294,250
Damian N.
Dell'Anno(1)............ 27,000 12.7 12.00 February 12, 2007 144,450
Bruce J. Beardsley(1).... 17,000 8.0 12.00 February 12, 2007 90,950
William H. Stephan(1).... 16,000 7.5 12.00 February 12, 2007 85,600
Steven V. Raso(1)(2)..... 14,000 6.6 12.00 February 12, 2007 74,900
4,000 1.9 18.69 November 14, 2007 32,840
</TABLE>
- --------
(1) Messrs. Guillard, Dell'Anno, Beardsley, Stephan and Raso received options
to purchase shares of Harborside Common Stock on February 12, 1997. One
third of these options become exercisable on the first, second and third
anniversary of their date of grant. The options terminate (with certain
exceptions) on the tenth anniversary of their date of grant.
(2) Mr. Raso received additional options to purchase shares of Harborside
Common Stock on November 14, 1997. These options become exercisable and
terminate on the same terms as the options granted on February 12, 1997.
(3) The fair value of each stock option is estimated on the date of grant
using the Black-Scholes pricing model with the following weighted-average
assumptions: an expected life of five years, expected volatility of 40%,
no dividend yield and a risk-free interest rate of 6.2%, except that the
assumed risk-free interest rate for Mr. Raso's options granted on November
14, 1997 is 5.8%.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR END FISCAL YEAR END ($)
--------------- -------------------
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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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."
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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.
105
<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.
106
<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
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<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.
108
<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.
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<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 and the Old
Preferred Stock and 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 Results of
Operations--Liquidity and Capital Resources." The proceeds of the offering of
Old Notes and Old Preferred Stock and of
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<PAGE>
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).
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<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.
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<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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<PAGE>
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 an indenture (the "Indenture") by
and among the Issuer, the Guarantors and United States Trust Company of New
York, as trustee (the "Trustee"). 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 Registration Rights Agreement 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 on the New Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the Full Accretion Date. 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 of immediately available
funds to the
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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, Liquidated Damages 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 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 and Liquidated Damages thereon,
if any, 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 become due on the date fixed for redemption. On and after the
redemption date, interest and Liquidated Damages, if any, 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 and Liquidated
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Damages thereon, if any, to the date 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 plus Liquidated Damages thereon, if
any).
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 and
Liquidated Damages (or, if prior to Full Accretion Date, 100% of the Accreted
Value thereof on the date of purchase, plus Liquidated Damages (if any) to 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, Liquidated Damages (if
any) 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, or
Liquidated Damages with respect to, 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), interest or Liquidated Damages 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), interest or Liquidated Damages 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 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 New Note Guarantees. 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 and Liquidated Damages 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 and
Liquidated Damages 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
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Guarantors have 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 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, 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 Exchange Debentures of the Issuer due 2010
issued 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 Exchangeable Preferred Stock of the
Issuer Due 2010 issued on the Issue Date, any Exchangeable Preferred Stock
issued as payment of dividends thereon and any Preferred Stock containing
terms substantially identical to the Exchangeable Preferred stock that are
issued and exchanged for the Exchangeable Preferred Stock.
"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 of Rhode Island L.P., 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 were originally 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 a
Certificate of Designation (the "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 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 additional shares of Exchangeable Preferred Stock which, among
other things, may be used to pay certain dividends on the Exchangeable
Preferred Stock issued in the Offering at the election of the Issuer.
In addition, the Certificate of Designation provides for the issuance
(subject to the 500,000 maximum referred to above of additional shares of
Preferred Stock having identical terms and conditions to the New Preferred
Stock offered hereby (the "Additional Exchangeable Preferred Stock"). Any
shares of Additional Exchangeable Preferred Stock will be part of the same
issue as the Exchangeable Preferred Stock offered hereby and will vote as one
class with such New 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 Exchangeable 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 "New
Credit Facility."
In the event that dividends with respect to the Exchangeable 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 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 will also provide that certain change of
control events with respect to the Issuer will constitute a default
thereunder. The indenture governing the Notes will require 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 an 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 (i) 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 and (ii) the
Recapitalization shall have been consummated. 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 pursuant to which the Notes are
issued 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
It is expected that 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 is 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 and certain other organizations. 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") by and between the Issuer and United
States Trust Company of New York, as trustee (the "Exchange Debenture
Trustee"). The terms of the Exchange Debentures include those stated in the
Exchange Debenture Indenture and those made part of the Exchange Debenture
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Exchange Debentures are subject to all such terms,
and Holders of Exchange Debentures are referred to the Exchange Debenture
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of the material provisions of the Exchange Debenture Indenture does
not purport to be complete and is qualified in its entirety by reference to
the Exchange Debenture Indenture, including the definitions therein of certain
terms used below. Copies of the proposed form of Exchange Debenture Indenture
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 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 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, as set forth in the Exchange Debenture
Indenture, 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 contains 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 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 does 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 governing the Notes 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 governing the Notes
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 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 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
purchase
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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 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 Securities
and Exchange Commission (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 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 provides 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 that are 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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ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Exchange
Debenture Indenture 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
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 in the Exchange Debenture Indenture. Reference is made to the
Certificate of Designation and the Exchange Debenture Indenture for a full
disclosure of all such terms, as well as any other capitalized terms used
herein for which no definition is provided.
"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 pursuant to which the Notes were issued.
"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
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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 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.
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"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 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
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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) 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)
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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 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.
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"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 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 Exchange Debentures of the Issuer due 2010
issued 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 Exchangeable Preferred Stock of the
Issuer Due 2010 issued on the Issue Date, any Exchangeable Preferred Stock
issued as payment of dividends thereon and any Preferred Stock containing
terms substantially identical to the Exchangeable Preferred stock that are
issued and exchanged for the Exchangeable Preferred Stock.
"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.
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"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 (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 Exchangeable
Preferred Stock was originally issued.
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"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.
"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 Issuers
Obligations under the Notes.
"Notes" means the 11% Senior Subordinated Discount Notes Due 2008 issued by
the Issuer.
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"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.
"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
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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 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
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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 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).
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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 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
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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 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;
(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.
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"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 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 [ ], 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
The validity of the Securities offered hereby will be passed upon for the
Issuer by Gibson, Dunn & Crutcher LLP, New York, New York. Gibson, Dunn &
Crutcher LLP has provided a tax opinion in connection with the Exchange Offer.
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
accounts 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
============ ============
</TABLE>
F. INTANGIBLE ASSETS:
Intangible assets are stated at cost and consist of the following as of
December 31:
<TABLE>
<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
benefit................................. 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-average 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,
respectively........................................ $ 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--
diluted................... -- -- $ 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
extraordinary 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
(benefit)................... (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 adminis-
trative.............. -- 3,590 1,486 -- 5,076
Service charges paid
to affiliate......... -- 700 -- -- 700
Depreciation and amor-
tization............. -- 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 facil-
ities, 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 adminis-
trative.............. 612 9,499 37 805 10,953
Service charges paid
to affiliate......... -- 708 -- -- 708
Depreciation and amor-
tization............. 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 oper-
ations................. (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 in-
come 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> <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 intangi-
bles................. -- (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 penal-
ty................... -- -- (1,154) -- (1,154)
Note Payable to an af-
filiate.............. -- 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 equiva-
lents............................................. 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 SYSTEM--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 , 19 , 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 CORP.]
OFFER FOR OUTSTANDING
11% SENIOR SUBORDINATED
DISCOUNT NOTES DUE 2008
IN EXCHANGE FOR
11% SERIES A SENIOR SUBORDINATED
DISCOUNT NOTES DUE 2008
AND FOR OUTSTANDING
13 1/2% EXCHANGEABLE PREFERRED STOCK
MANDATORILY REDEEMABLE 2010
IN EXCHANGE FOR
13 1/2% SERIES A EXCHANGEABLE
PREFERRED STOCK
MANDATORILY REDEEMABLE 2010
---------------
PROSPECTUS
---------------
, 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 September , 1998.
Harborside Healthcare Corporation
/s/ Stephen L. Guillard
By _________________________________
Stephen L. Guillard
Chairman of the Board,
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Savio W. Tung Director
- --------------------------------------
Savio W. Tung
/s/ Christopher J. O'Brien Director
- --------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- --------------------------------------
Charles J. Philippin
Director
- --------------------------------------
Christopher J. Stadler
/s/ Stephen L. Guillard Chairman of the Board, President,
- -------------------------------------- Chief Executive Officer and Director
Stephen L. Guillard (Principal Executive Officer)
/s/ Damian N. Dell'Anno Executive Vice President of
- -------------------------------------- Operations and Director
Damian N. Dell'Anno
/s/ William H. Stephan Senior Vice President, Chief
- -------------------------------------- Financial Officer and Director
William H. Stephan (Principal Financial and Accounting
Officer)
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 September , 1998.
HARBORSIDE HEALTHCARE LIMITED
PARTNERSHIP
By: KHI CORP., as General Partner
/s/ Stephen L. Guillard
By: ________________________________
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- --------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- --------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE HEALTHCARE ADVISORS
LIMITED PARTNERSHIP
By: KHI CORP., as General Partner
/s/ Stephen L. Guillard
By: ________________________________
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- --------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- --------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE HOMECARE LIMITED
PARTNERSHIP
By: KHI CORP., as General Partner
/s/ Stephen L. Guillard
By: ________________________________
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- --------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- --------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
RIVERSIDE RETIREMENT LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ Stephen L. Guillard
By: ________________________________
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- --------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- --------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE CONNECTICUT LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ Stephen L. Guillard
By: ________________________________
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- --------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- --------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE OF FLORIDA LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ Stephen L. Guillard
By: ________________________________
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- --------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- --------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE OF OHIO LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ Stephen L. Guillard
By: ________________________________
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- --------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- --------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE HEALTHCARE BALTIMORE
LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ Stephen L. Guillard
By: ________________________________
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- --------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- --------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE OF CLEVELAND LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ Stephen L. Guillard
By: ________________________________
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- --------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- --------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE OF DAYTON LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ Stephen L. Guillard
By: ________________________________
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- --------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- --------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE MASSACHUSETTS LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ Stephen L. Guillard
By: ________________________________
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- --------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- --------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE RHODE ISLAND LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ Stephen L. Guillard
By: ________________________________
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- --------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- --------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE NORTH TOLEDO LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ Stephen L. Guillard
By: ________________________________
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- --------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- --------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP IV
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ Stephen L. Guillard
By: ________________________________
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- --------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- --------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP V
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ Stephen L. Guillard
By: ________________________________
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- --------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- --------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP VI
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ Stephen L. Guillard
By: ________________________________
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- --------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- --------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- -------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- -------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP VII
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
By: /s/ Stephen L. Guillard
----------------------------------
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- -------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- -------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP VIII
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
By: /s/ Stephen L. Guillard
----------------------------------
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- -------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- -------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP IX
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
By: /s/ Stephen L. Guillard
----------------------------------
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- -------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- -------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP X
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
By: /s/ Stephen L. Guillard
----------------------------------
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- -------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- -------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE REHABILITATION LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
By: /s/ Stephen L. Guillard
----------------------------------
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- -------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- -------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE HEALTHCARE NETWORK
LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
By: /s/ Stephen L. Guillard
----------------------------------
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- -------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- -------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
BRIDGEWATER ASSISTED LIVING
LIMITED PARTNERSHIP
By: NEW JERSEY HARBORSIDE CORP.,
as General Partner
By: /s/ Stephen L. Guillard
----------------------------------
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- -------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- -------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE TOLEDO LIMITED
PARTNERSHIP
By: HARBORSIDE TOLEDO CORP.,
as General Partner
By: /s/ Stephen L. Guillard
----------------------------------
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- -------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- -------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
ORCHARD RIDGE NURSING CENTER
CORPORATION
By: /s/ Stephen L. Guillard
----------------------------------
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- -------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- -------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
OAKHURST MANOR NURSING CENTER
CORPORATION
By: /s/ Stephen L. Guillard
----------------------------------
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- -------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- -------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE TOLEDO CORPORATION
By: /s/ Stephen L. Guillard
----------------------------------
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- -------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- -------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
KHI CORPORATION
By: /s/ Stephen L. Guillard
----------------------------------
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- -------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- -------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
SAILORS, INC.
By: /s/ Stephen L. Guillard
----------------------------------
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- -------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- -------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
NEW JERSEY HARBORSIDE CORPORATION
By: /s/ Stephen L. Guillard
----------------------------------
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- -------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- -------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
MARYLAND HARBORSIDE CORPORATION
By: /s/ Stephen L. Guillard
----------------------------------
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- -------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- -------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
HARBORSIDE HEALTH I CORPORATION
By: /s/ Stephen L. Guillard
----------------------------------
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- -------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- -------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
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 September , 1998.
BELMONT NURSING CENTER CORPORATION
By: /s/ Stephen L. Guillard
----------------------------------
Stephen L. Guillard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen L. Guillard and William H. Stephan, and
each of them, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might
or could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 September , 1998.
SIGNATURE TITLE
/s/ Christopher J. O'Brien Director
- -------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director
- -------------------------------------
Charles J. Philippin
/s/ Stephen L. Guillard President and Director (Principal
- ------------------------------------- Executive Officer)
Stephen L. Guillard
/s/ William H. Stephan Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
William H. Stephan
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 other registrants
3.2.2+ Form of By-laws of other 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 (included as Exhibit A to Exhibit 4.2)
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)
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 as to legality of shares
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)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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<C> <S>
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
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.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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<C> <S>
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)
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)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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<C> <S>
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
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
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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<C> <S>
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
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
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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<C> <S>
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+ Stand-by Commitment Letter of Invifin S.A.
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)
+ To be filed by amendment
6
<PAGE>
EXHIBIT 1.1
EXECUTION COPY
HH ACQUISITION CORP.
11% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2008
13 1/2% EXCHANGEABLE PREFERRED STOCK
PLACEMENT AGREEMENT
July 29, 1998
<PAGE>
July 29, 1998
Morgan Stanley & Co. Incorporated
Chase Securities Inc.
BT Alex. Brown Incorporated
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
HH ACQUISITION CORP., a Delaware corporation ("ACQUISITION"), proposes
to issue and sell to the several purchasers named in Schedule I hereto (the
----------
"PLACEMENT AGENTS") (i) $170,000,000 principal amount at maturity of its 11%
Senior Subordinated Discount Notes Due 2008 (the "NOTES") to be issued pursuant
to the provisions of an Indenture to be dated as of July 31, 1998 (the
"INDENTURE") between Acquisition, as issuer, and United States Trust Company of
New York, as Trustee (the "TRUSTEE"), and (ii) 40,000 shares of its 13 1/2%
Exchangeable Preferred Stock (the "PREFERRED STOCK") which will be exchangeable,
at the option of Acquisition or, after the Merger (as defined below), Harborside
Healthcare Corporation, a Delaware corporation (the "COMPANY"), in whole but not
in part, into Subordinated Exchange Debentures due 2008 (the "EXCHANGE
DEBENTURES") to be issued, if applicable, pursuant to an indenture to be dated
as of the date of such exchange (the "EXCHANGE INDENTURE" and, together with the
Indenture, the "INDENTURES").
The Notes and the Preferred Stock (collectively the "SECURITIES") will
be offered and sold to the Placement Agents without being registered under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), to qualified
institutional buyers in compliance with the exemption from registration provided
by Rule 144A under the Securities Act, and, in the case of the Notes only, in
offshore transactions in reliance on Regulation S under the Securities Act
("REGULATION S").
The Placement Agents and their direct and indirect transferees will be
entitled to the benefits of (i) a Registration Rights Agreement with respect to
the Notes (the "NOTES REGISTRATION RIGHTS AGREEMENT"), to be dated the Closing
Date (as defined below) and (ii) a Registration Rights Agreement with respect to
the Preferred Stock (the "PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT" and,
together with the Notes Registration Rights Agreement, the "REGISTRATION RIGHTS
AGREEMENTS"), to be dated the Closing Date.
The Securities are being sold in connection with the recapitalization
of the Company pursuant to an Agreement and Plan of Merger dated as of April 15,
1998 (the "MERGER AGREEMENT") between Acquisition and the Company, pursuant to
which Acquisition will merge with and into the Company (the "MERGER"), and the
Company will be the surviving corporation. Upon consummation of the Merger, the
obligations of Acquisition under the Notes and the Indenture will be guaranteed
on an unsecured senior subordinated basis pursuant
<PAGE>
2
to the terms of the Indenture (collectively, the "NOTE GUARANTEES") by the
subsidiaries of the Company specified on Schedule II hereto (collectively, the
-----------
"GUARANTORS").
The net proceeds from the issuance of the Notes and the Preferred
Stock will be delivered to and held by United States Trust Company of New York,
as collateral agent (the "COLLATERAL AGENT"), pursuant to collateral pledge
security agreements to be dated as of the Closing Date (the "PLEDGE
AGREEMENTS"). In connection with the consummation of the Merger and the
satisfaction of certain conditions set forth in the Pledge Agreements, the
Collateral Agent will release the Collateral (as defined in each Pledge
Agreement) to or upon the order of Acquisition. In the event 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 Acquisition that the Merger will not be
consummated, the date on which notice of same is delivered by Acquisition to the
Collateral Agent, Acquisition will be required to redeem the Securities in
accordance with their terms.
As a result of the Merger, all of Acquisition's obligations under this
Agreement, the Registration Rights Agreements, the Indenture, the Exchange
Debentures, the Exchange Indenture and the Securities will, by operation of law,
become obligations of the Company. In connection with the release of the
Collateral in connection with the consummation of the Merger and after
consummation of the Merger, the Company will enter into a supplemental indenture
relating to the Indenture (the "SUPPLEMENTAL INDENTURE").
In connection with the sale of the Securities, Acquisition has
prepared a preliminary offering memorandum (the "PRELIMINARY MEMORANDUM") and
will prepare a final offering memorandum (the "FINAL MEMORANDUM" and, with the
Preliminary Memorandum, each a "MEMORANDUM") including a description of the
terms of the Securities, the terms of the offering and a description of the
Company.
1. Representations and Warranties. Acquisition represents and
warrants to, and agrees with, you that:
(a) The Preliminary Memorandum does not contain and the Final
Memorandum, in the form used by the Placement Agents to confirm sales and
on the Closing Date, will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in
this paragraph do not apply to statements or omissions in either Memorandum
based upon information relating to any Placement Agent furnished to
Acquisition in writing by such Placement Agent through you expressly for
use therein as set forth in a letter delivered by the Placement Agents to
the Issuer prior to the date hereof.
<PAGE>
3
(b) Each of Acquisition and the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in each
Memorandum and is duly qualified to transact business and is in good
standing as foreign corporations in each jurisdiction in which the conduct
of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or
be in good standing would not have a material adverse effect on Acquisition
or on the Company and its subsidiaries, taken as a whole.
(c) Each subsidiary of the Company has been duly formed, is validly
existing as a corporation or partnership in good standing under the laws of
the jurisdiction of its formation, has the corporate or other requisite
organizational power and authority to own its property and to conduct its
business as described in each Memorandum and is duly qualified to transact
business and is in good standing as a foreign corporation or partnership in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole (a "COMPANY MATERIAL ADVERSE EFFECT"); all of the issued shares of
capital stock of each corporate subsidiary of the Company and all issued
partnership interests of each partnership subsidiary of the Company have
been duly and validly authorized and issued, are fully paid and non-
assessable and are owned directly or indirectly by the Company, except as
set forth in the Final Memorandum or with respect to the Company's existing
financing arrangements, free and clear of all liens, encumbrances, equities
or claims.
(d) This Agreement has been duly authorized, executed and delivered
by Acquisition.
(e) The Certificate of Designation creating the Preferred Stock and
the Additional Preferred Stock (as defined below), the proposed form of
which has been furnished to you, will have been duly filed with the
Secretary of State of the State of Delaware and with all other offices
where such filing is required to be made under the General Corporation Law
of the State of Delaware, on or before the Closing Date.
(f) The Notes have been duly authorized by Acquisition and, when
executed and authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Placement Agents in
accordance with the terms of this Agreement, will be valid and binding
obligations of Acquisition (and, after the Merger, the Company),
enforceable against Acquisition (and, after the Merger, the Company) in
accordance with their terms, subject to applicable bankruptcy, insolvency
or similar
<PAGE>
4
laws affecting creditors' rights generally and general principles of
equity, and will be entitled to the benefits of the Indenture and the Notes
Registration Rights Agreement.
(g) The Preferred Stock has been duly authorized by Acquisition and,
when issued and delivered in accordance with the terms of this Agreement,
will be validly issued, fully paid and non-assessable and entitled to the
benefits of the Preferred Stock Registration Rights Agreement, and the
issuance of such Preferred Stock will not be subject to any preemptive or
similar rights.
(h) The additional shares of Preferred Stock (the "ADDITIONAL
PREFERRED STOCK") that may be issued in payment of dividends in respect of
the Preferred Stock have been duly authorized and reserved by Acquisition
and, when issued and delivered in accordance with the Certificate of
Designation, will be validly issued, fully paid and non-assessable and
entitled to the benefits of the Preferred Stock Registration Rights
Agreement, and the issuance of such Additional Preferred Stock will not be
subject to any preemptive or similar rights.
(i) Prior to the issuance thereof, the Exchange Debentures will have
been duly authorized by the Company and, when executed, authenticated and
delivered in accordance with the Exchange Indenture and the Certificate of
Designation, will (i) be valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, subject to
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally and general principles of equity and (ii) be entitled to
the benefits of the Exchange Indenture.
(j) The Indenture has been duly authorized by Acquisition and, when
executed and delivered by each of the parties thereto in accordance with
its terms, will be a valid and binding agreement of Acquisition (and, after
the Merger, the Company), enforceable against Acquisition (and, after the
Merger, the Company) in accordance with its terms, subject to applicable
bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity.
(k) Prior to the issuance of the Exchange Debentures, the Exchange
Indenture will have been duly authorized by the Company and, when executed
and delivered by each of the parties thereto in accordance with its terms,
will be a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, subject to applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally and
general principles of equity.
(l) The Supplemental Indenture when duly authorized, executed and
delivered by the Company, each Guarantor and each other party thereto, will
be a valid and binding agreement of the Company, enforceable against the
Company and each
<PAGE>
5
Guarantor in accordance with its terms, subject to applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally and
general principles of equity.
(m) Immediately upon consummation of the Merger, each Note Guarantee
will have been duly authorized by each Guarantor and, when the Supplemental
Indenture is executed and delivered by each Guarantor and each of the other
parties thereto, each Note Guarantee will be a valid and binding agreement
of such Guarantor enforceable against such Guarantor in accordance with its
terms, subject to applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally and general principles of equity, and
will be entitled to the benefits of the Indenture.
(n) Each of the Registration Rights Agreements has been duly
authorized by Acquisition, and, when executed and delivered by Acquisition,
will be a valid and binding agreement of Acquisition (and, after the
Merger, the Company), enforceable against Acquisition (and, after the
Merger, the Company) in accordance with its terms, subject to applicable
bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity and except as rights to
indemnification and contribution under either of the Registration Rights
Agreements may be limited under applicable law and public policy
considerations.
(o) Each Pledge Agreement has been duly authorized by Acquisition
and, when executed and delivered by each of the parties thereto in
accordance with its terms, will be a valid and binding agreement of
Acquisition, enforceable against Acquisition in accordance with its terms,
subject to applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally and general principles of equity; and upon the
Closing Date, the pledge of Collateral (as defined in each such Pledge
Agreement) securing the payment of the Obligations (as defined in each such
Pledge Agreement) for the benefit of the Trustee and the holders of the
Securities will constitute a first priority perfected security interest in
such Collateral, enforceable against all creditors of Acquisition.
(p) The Merger Agreement has been duly authorized, executed and
delivered by each of Acquisition and the Company. The Merger Agreement is a
valid and binding agreement of each of Acquisition and the Company,
enforceable as to each in accordance with its terms, subject to applicable
bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity.
(q) Except as disclosed in the Final Memorandum, neither the
execution and delivery by Acquisition of, and the performance by
Acquisition (and, after the Merger, the Company and the Guarantors) of its
obligations under, this Agreement, the Indenture, the Registration Rights
Agreements, the Certificate of Designation, the Preferred Stock, the
Additional Preferred Stock, the Pledge Agreements, the Supplemental
Indenture and the Securities nor the consummation of the Merger will
<PAGE>
6
contravene (i) any provision of applicable law, (ii) the certificate of
incorporation or by-laws of Acquisition, the Company or the Guarantors,
(iii) any agreement or other instrument binding upon Acquisition or the
Company or any of its subsidiaries that is material to Acquisition or to
the Company and its subsidiaries, taken as a whole, or (iv) any judgment,
order or decree of any governmental body, agency or court having
jurisdiction over Acquisition or the Company or any of its subsidiaries,
except, with respect to clauses (i), (iii) and (iv), for such
contraventions which would not have a Company Material Adverse Effect, and
no consent, approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by Acquisition,
any Guarantor or the Company of their respective obligations (both before
and after the Merger) under this Agreement, the Indenture, the Registration
Rights Agreements, the Certificate of Designation, the Preferred Stock, the
Additional Preferred Stock, the Pledge Agreements, the Supplemental
Indenture or the Securities, except such as (x) may be required by the
securities or Blue Sky laws of the various states in connection with the
offer and sale of the Securities and by federal and state securities laws
with respect to the Company's obligations (after the Merger) under the
Registration Rights Agreements, (y) have been obtained or, with respect to
the Company and any of the Guarantors, will be obtained prior to
consummation of the Merger or (z) if not obtained, would not have a Company
Material Adverse Effect or a material adverse effect on Acquisition. Each
of Acquisition and the Company has full corporate power and authority to
consummate the Merger.
(r) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of Acquisition or the Company and its subsidiaries, taken as a
whole, from that set forth in the Final Memorandum.
(s) There are no legal or governmental proceedings pending or, to
Acquisition's knowledge, threatened to which Acquisition or the Company or
any of its subsidiaries is a party or to which any of the properties of
Acquisition or the Company or any of its subsidiaries is subject other than
proceedings accurately described in all material respects in each
Memorandum and proceedings that would not have a Company Material Adverse
Effect or a material adverse effect on Acquisition, or on the power or
ability of Acquisition or the Company to perform their respective
obligations (both before and after the Merger) under this Agreement, the
Indenture, the Registration Rights Agreements, the Certificate of
Designation, the Preferred Stock, the Additional Preferred Stock, the
Exchange Debentures, the Exchange Indenture, the Pledge Agreement, the
Supplemental Indenture or the Securities or to consummate the
Recapitalization (as defined in the Offering Memorandum).
(t) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic
<PAGE>
7
substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"),
(ii) have received all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of any
such permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such
permits, licenses or approvals would not, singly or in the aggregate, have
a Company Material Adverse Effect.
(u) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a Company Material
Adverse Effect.
(v) Acquisition (and after the Merger, the Company and each
Guarantor) is not, and after giving effect to the offering and sale of the
Securities and the application of the proceeds thereof as described in the
Final Memorandum will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(w) None of Acquisition, the Guarantors, the Company or any of their
respective affiliates (as defined in Rule 501(b) of Regulation D under the
Securities Act, each, an "AFFILIATE") has directly, or through any agent,
(i) sold, offered for sale, solicited offers to buy or otherwise negotiated
in respect of, any security (as defined in the Securities Act) which is or
will be integrated with the sale of the Securities in a manner that would
require the registration under the Securities Act of the Securities or (ii)
engaged in any form of general solicitation or general advertising in
connection with the offering of the Securities (as those terms are used in
Regulation D under the Securities Act), or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act.
(x) None of Acquisition, the Guarantors, the Company, their
respective Affiliates or any person acting on its or their behalf has
engaged or will engage in any directed selling efforts (within the meaning
of Regulation S) with respect to the Securities and Acquisition, the
Guarantors, the Company and their respective Affiliates and any person
acting on its or their behalf have complied and will comply with the
offering restrictions requirement of Regulation S.
(y) Assuming the accuracy of the representations and warranties of
the Placement Agents and compliance by them of their agreements contained
herein, it is not necessary in connection with the offer, sale and delivery
of the Securities to the
<PAGE>
8
Placement Agents in the manner contemplated by this Agreement to register
the Securities under the Securities Act or to qualify the Indenture under
the Trust Indenture Act of 1939, as amended.
(z) The Securities satisfy the requirements set forth in Rule
144A(d)(3) under the Securities Act.
(aa) The Notes conform in all material respects to the description
thereof contained in the Final Memorandum under the heading "Description of
the Notes".
(bb) The Preferred Stock conforms in all material respects to the
description thereof contained in the Final Memorandum under the heading
"Description of the Exchangeable Preferred Stock".
(cc) Upon issuance, the Exchange Debentures will conform in all
material respects to the description thereof contained in the Final
Memorandum under the heading "Description of the Exchange Debentures".
(dd) Acquisition has no subsidiaries and has conducted no business
prior to the date hereof other than in connection with the transactions
contemplated by this Agreement and the Final Memorandum, including the
Merger.
2. Agreements to Sell and Purchase. Acquisition hereby agrees to
sell to the several Placement Agents, and each Placement Agent, upon the basis
of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees, severally and not jointly, to purchase
from Acquisition (i) the Notes at a purchase price of $96,507,725.00 for the
Notes plus accrued original issue discount, if any, from July 31, 1998 to the
date of payment and delivery and (ii) the Preferred Stock at a purchase price of
$38,600,000.00 for the Preferred Stock, plus accumulated dividends, if any, from
July 31, 1998 to the date of payment and delivery, in each case, in the amounts
set forth opposite its respective name on Schedule I hereto.
Acquisition hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Placement Agents, it will
not, during the period beginning on the date hereof and continuing to and
including the Closing Date, offer, sell, contract to sell or otherwise dispose
of any debt or preferred stock of Acquisition or warrants to purchase debt or
preferred stock of substantially similar to the Securities (other than the sale
of the Securities under this Agreement).
3. Terms of Offering. You have advised the Company that the
Placement Agents will make an offering of the Securities purchased by the
Placement Agents hereunder on the terms to be set forth in the Final Memorandum,
as soon as practicable after this Agreement is entered into as in your judgment
is advisable.
<PAGE>
9
4. Payment and Delivery. Payment for the Securities shall be made
in federal or other funds immediately available in New York City against
delivery of such Securities for the respective accounts of the several Placement
Agents at 10:00 a.m., New York City time, on July 31, 1998, or at such other
time on the same or such other date, not later than August 7, 1998, as shall be
designated in writing by you, and agreed upon by Acquisition (provided that such
agreement will not be unreasonably withheld). The time and date of such payment
are hereinafter referred to as the "CLOSING DATE".
Certificates for the Securities shall be in definitive form or global
form, as specified by you, and registered in such names and in such
denominations as permitted under the Indenture as you shall request in writing
not later than one full business day prior to the Closing Date. The certificates
evidencing the Securities shall be delivered to you on the Closing Date for the
respective accounts of the several Placement Agents, with any transfer taxes
payable in connection with the transfer of the Securities to the Placement
Agents duly paid, against payment of the purchase price therefor.
5. Conditions to the Placement Agents' Obligations. The several
obligations of the Placement Agents to purchase and pay for the Securities on
the Closing Date are subject to the following conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or
of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any of the
Company's securities by any "nationally recognized statistical rating
organization", as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations of
Acquisition or the Company and its subsidiaries, taken as a whole,
from that set forth in the Final Memorandum (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement) that, in your judgment, is so material and adverse that it
makes it, in your judgment, impracticable to market the Securities on
the terms and in the manner contemplated in the Final Memorandum.
(b) The Placement Agents shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
Acquisition, to the effect set forth in Section 5(a)(i) and to the effect
that the representations and warranties of Acquisition contained in this
Agreement are true and correct in all
<PAGE>
10
material respects (except with respect to proceedings threatened, as to
which such officer may certify to the best of such officer's knowledge) as
of the Closing Date and that Acquisition has complied in all material
respects with all of the agreements and satisfied all of the conditions on
its part to be performed or satisfied hereunder on or before the Closing
Date.
(c) The Placement Agents shall have received on the Closing Date (i)
an opinion of Gibson, Dunn & Crutcher LLP, outside counsel for Acquisition,
dated the Closing Date, substantially to the effect set forth in Exhibit A
---------
and (ii) an opinion of the office of the General Counsel of the Company,
dated the Closing Date, to the effect set forth in Exhibit B. Such opinions
---------
shall be rendered to the Placement Agents at the request of Acquisition and
shall so state therein.
(d) The Placement Agents shall have received on the Closing Date (i)
an opinion of McDermott, Will & Emery, regulatory counsel to Acquisition,
dated the Closing Date, substantially to the effect set forth in Exhibit C,
---------
and (ii) an opinion of local regulatory counsel to Acquisition for each of
the states in which the Company and each of its subsidiaries conduct their
respective long-term care facility businesses, dated the Closing Date,
substantially to the effect set forth in Exhibit D. Such opinions shall be
---------
rendered to the Placement Agents at the request of Acquisition and shall so
state therein.
(e) The Placement Agents shall have received on the Closing Date an
opinion of Shearman & Sterling, counsel for the Placement Agents, dated the
Closing Date, in form and substance satisfactory to you.
(f) The Placement Agents shall have received on each of the date
hereof and the Closing Date a letter, dated the date hereof or the Closing
Date, as the case may be, in form and substance satisfactory to the
Placement Agents, from PricewaterhouseCoopers LLP, independent public
accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to
the financial statements and certain financial information, including the
pro forma financial information, contained the Final Memorandum; provided
that the letter delivered on the Closing Date shall use a "cut-off date"
not earlier than the date hereof.
(g) The Merger Agreement shall be in full force and effect on the
Closing Date and the Placement Agents shall have received a true and
correct copy of all final agreements pertaining thereto.
(h) The Pledge Agreements shall have been duly executed and delivered
by all the parties thereto.
<PAGE>
11
(i) The Placement Agents shall have received on the Closing Date a
copy of each final solvency certificate or opinion with respect to the
Company received by Acquisition, if such final solvency certificate or
opinion shall have been delivered to Acquisition on or prior to the Closing
Date.
(j) The Placement Agents shall have received such other documents and
certificates as are reasonably requested by you or your counsel.
6. Covenants of Acquisition. In further consideration of the
agreements of the Placement Agents contained in this Agreement, Acquisition
(and, after the Merger, the Company) covenants with each Placement Agent as
follows:
(a) To furnish to you in New York City, without charge, as soon as
practicable, and in no event later than 12:00 noon, New York time, on the
second business day next succeeding the date of this Agreement and during
the period mentioned in Section 6(c), as many copies of the Final
Memorandum and any supplements and amendments thereto as you may reasonably
request.
(b) Before amending or supplementing either Memorandum, to furnish to
you a copy of each such proposed amendment or supplement and not to use any
such proposed amendment or supplement to which you reasonably object.
(c) If, during such period after the date hereof and prior to the
date on which all of the Securities shall have been sold by the Placement
Agents, any event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Final Memorandum in order to make the
statements therein, in the light of the circumstances when the Final
Memorandum is delivered to a purchaser, not misleading, or if, in the
opinion of counsel for the Placement Agents, it is necessary to amend or
supplement the Final Memorandum to comply with applicable law, forthwith to
prepare and furnish, at its own expense, to the Placement Agents, either
amendments or supplements to the Final Memorandum so that the statements in
the Final Memorandum as so amended or supplemented will not, in the light
of the circumstances when the Final Memorandum is delivered to a purchaser,
be misleading or so that the Final Memorandum, as amended or supplemented,
will comply with applicable law.
(d) To endeavor to qualify the Securities for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request, provided that in no event shall Acquisition or the
Company or any of its subsidiaries be obligated to qualify to do business
in any jurisdiction in which they are not so qualified or to take any
action which would subject any of them to (i) service of process in suits,
other than those arising out of the sale of the Securities, or (ii)
taxation in excess of a nominal amount, in each case where any of them is
not now so subject.
<PAGE>
12
(e) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid
all expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of its
counsel and accountants in connection with the issuance and sale of the
Securities and all other fees or expenses of Acquisition in connection with
the preparation of each Memorandum and all amendments and supplements
thereto, including all printing costs associated therewith, and the
delivering of copies thereof to the Placement Agents, in the quantities
herein above specified, (ii) all costs and expenses related to the transfer
and delivery of the Securities to the Placement Agents, including any
transfer or other taxes payable thereon, (iii) the cost of printing or
producing any Blue Sky or legal investment memorandum in connection with
the offer and sale of the Securities under state securities laws and all
expenses in connection with the qualification of the Securities for offer
and sale under state securities laws as provided in Section 6(d) hereof,
including filing fees and the reasonable fees and disbursements of counsel
for the Placement Agents in connection with such qualification and in
connection with the Blue Sky or legal investment memorandum, (iv) any fees
charged by rating agencies for the rating of the Securities, (v) the fees
and expenses, if any, incurred in connection with the admission of the
Securities for trading in PORTAL or any appropriate market system, (vi) the
costs and charges of the Trustee and any transfer agent, registrar or
depositary, (vii) the cost of the preparation, issuance and delivery of the
Securities, (viii) the costs and expenses of Acquisition and the Company
relating to investor presentations on any "road show" undertaken in
connection with the marketing of the offering of the Securities, including,
without limitation, expenses associated with the production of road show
slides and graphics, fees and expenses of any consultants engaged in
connection with the road show presentations with the prior approval of
Acquisition, travel and lodging expenses of the representatives and
officers of Acquisition and the Company and any such consultants, and 50
percent of the cost of any aircraft chartered in connection with the road
show, and (ix) all other costs and expenses incident to the performance of
the obligations of Acquisition and the Company hereunder for which
provision is not otherwise made in this Section. It is understood, however,
that except as provided in this Section 6(e), Section 8 and the last
paragraph of Section 10, the Placement Agents will pay all of their costs
and expenses, including fees and disbursements of their counsel, transfer
taxes payable on resale of any of the Securities by them, 50 percent of the
cost of any aircraft chartered in connection with the road show and any
advertising expenses connected with any offers they may make.
(f) None of Acquisition, the Company or any of their respective
Affiliates will sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the Securities Act)
which could be integrated with the sale of the Securities in a manner which
would require the registration under the Securities Act of the Securities
or the Exchange Debentures.
<PAGE>
13
(g) None of Acquisition, the Company or any of their respective
Affiliates will solicit any offer to buy or offer or sell the Securities by
means of any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Securities Act) or in any manner
involving a public offering within the meaning of Section 4(2) of the
Securities Act.
(h) While any of the Securities remain "restricted securities" within
the meaning of the Securities Act, to make available, upon request, to any
seller of the Securities the information specified in Rule 144A(d)(4) under
the Securities Act, unless the Company is then subject to Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT").
(i) To use its reasonable best efforts to permit the Securities to be
designated PORTAL securities in accordance with the rules and regulations
adopted by the National Association of Securities Dealers, Inc. relating to
trading in the PORTAL Market.
(j) None of Acquisition, the Company, their respective Affiliates or
any person acting on its or their behalf (other than the Placement Agents
and persons acting on their behalf) will engage in any directed selling
efforts (as that term is defined in Regulation S) with respect to the
Notes, and Acquisition, the Company and their respective Affiliates and
each person acting on its or their behalf (other than the Placement Agents
and persons acting on their behalf) will comply with the offering
restrictions requirement of Regulation S.
(k) During the period of two years after the Closing Date, neither
Acquisition nor the Company will, nor will Acquisition or the Company
permit any of their respective affiliates (as defined in Rule 144 under the
Securities Act) to, resell any of the Securities which constitute
"restricted securities" under Rule 144 that have been reacquired by any of
them.
(l) To use the net proceeds from the sale of the Securities as
described in the Final Memorandum.
7. Offering of Securities; Restrictions on Transfer. (a) Each
Placement Agent, severally and not jointly, represents and warrants that such
Placement Agent is a qualified institutional buyer as defined in Rule 144A under
the Securities Act (a "QIB"). Each Placement Agent, severally and not jointly,
agrees with Acquisition that (i) it will not solicit offers for, or offer or
sell, such Securities by any form of general solicitation or general advertising
(as those terms are used in Regulation D under the Securities Act) or in any
manner involving a public offering within the meaning of Section 4(2) of the
Securities Act and (ii) it will solicit offers for such Securities only from,
and will offer such Securities only to, persons that it reasonably believes to
be (A) in the case of offers inside the United States,
<PAGE>
14
QIBs, and (B) with respect to the Notes only, in the case of offers outside the
United States, to persons other than U.S. persons ("FOREIGN PURCHASERS", which
term shall include dealers or other professional fiduciaries in the United
States acting on a discretionary basis for foreign beneficial owners (other than
an estate or trust)) in reliance upon Regulation S under the Securities Act
that, in each case, in purchasing such Securities are deemed to have represented
and agreed as provided in the Final Memorandum under the caption "TRANSFER
RESTRICTIONS".
(b) Each Placement Agent, severally and not jointly, represents,
warrants to Acquisition and the Company, and agrees with respect to offers and
sales outside the United States that:
(i) such Placement Agent understands that no action has been or will
be taken in any jurisdiction by Acquisition or the Company that would
permit a public offering of the Notes, or possession or distribution of
either Memorandum or any other offering or publicity material relating to
the Notes, in any country or jurisdiction where action for that purpose is
required;
(ii) such Placement Agent will comply with all applicable laws and
regulations in each jurisdiction in which it acquires, offers, sells or
delivers Notes or has in its possession or distributes either Memorandum or
any such other material, in all cases at its own expense;
(iii) the Notes have not been registered under the Securities Act and
may not be offered or sold within the United States or to, or for the
account or benefit of, U.S. persons except in accordance with Rule 144A or
Regulation S under the Securities Act or pursuant to another exemption from
the registration requirements of the Securities Act;
(iv) such Placement Agent has offered the Notes and will offer and
sell the Notes (A) as part of its distribution at any time, (B) otherwise
until 40 days after the later of the commencement of the offering and the
Closing Date, only in accordance with Rule 903 of Regulation S or as
otherwise permitted in Section 7(a) or (C) pursuant to another exemption
from the registration requirements of the Securities Act; accordingly, none
of such Placement Agent, its Affiliates or any persons acting on its or
their behalf have engaged or will engage in any directed selling efforts
(within the meaning of Regulation S) with respect to the Notes, and any
such Placement Agent, its Affiliates and any such persons have complied and
will comply with the offering restrictions requirement of Regulation S;
(v) such Placement Agent has (A) not offered or sold and, prior to
the date six months after the Closing Date, will not offer or sell any
Notes to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes
<PAGE>
15
of their businesses or otherwise in circumstances which have not resulted
and will not result in an offer to the public in the United Kingdom within
the meaning of the Public Offers of Securities Regulations 1995; (B)
complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the
Notes in, from or otherwise involving the United Kingdom, and (C) only
issued or passed on and will only issue or pass on in the United Kingdom
any document received by it in connection with the issue of the Notes to a
person who is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is
a person to whom such document may otherwise lawfully be issued or passed
on;
(vi) such Placement Agent understands that the Notes have not been
and will not be registered under the Securities and Exchange Law of Japan,
and represents that it has not offered or sold, and agrees not to offer or
sell, directly or indirectly, any Notes in Japan or for the account of any
resident thereof except pursuant to any exemption from the registration
requirements of the Securities and Exchange Law of Japan and otherwise in
compliance with applicable provisions of Japanese law; and
(vii) such Placement Agent agrees that, at or prior to confirmation of
sales of the Notes, it will have sent to each distributor, dealer or person
receiving a selling concession, fee or other remuneration that purchases
Notes from it during the restricted period a confirmation or notice to
substantially the following effect:
"The Notes covered hereby have not been registered
under the U.S. Securities Act of 1933, as amended (the
"SECURITIES ACT"), and may not be offered and sold within
the United States or to, or for the account or benefit of,
U.S. persons (i) as part of their distribution at any time
or (ii) otherwise until 40 days after the later of the
commencement of the offering and the closing date, except
in either case in accordance with Regulation S (or Rule
144A if available) under the Securities Act. Terms used
above have the meaning given to them by Regulation S."
Terms used in this Section 7(b) have the meanings given to them by Regulation S.
In addition to the foregoing, each Placement Agent acknowledges and
agrees that Acquisition and, for purposes of the opinions to be delivered to the
Placement Agents pursuant to Sections 5(c), (d) and (e), counsel for
Acquisition, the Company and the Placement Agents, respectively, may rely upon
the accuracy and truth of the representations and warranties of the Placement
Agents and their compliance with their agreements contained in this Section 7,
and each Placement Agent hereby consents to such reliance.
<PAGE>
16
8. Indemnity and Contribution. (a) Acquisition (and, after the
Merger, the Company) agrees to indemnify and hold harmless each Placement Agent
and each person, if any, who controls any Placement Agent within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act from
and against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material fact contained in
either Memorandum (as amended or supplemented if Acquisition shall have
furnished any amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact necessary to make the
statements therein in the light of the circumstances under which they were made
not misleading, except insofar as such losses, claims, damages or liabilities
are caused by any such untrue statement or omission or alleged untrue statement
or alleged omission based upon information relating to any Placement Agent
furnished to Acquisition in writing by such Placement Agent through you
expressly for use therein; provided, however, that the foregoing indemnity
agreement with respect to any Preliminary Memorandum shall not inure to the
benefit of any Placement Agent from whom the person asserting any such losses,
claims, damages or liabilities purchased Securities, or any person controlling
such Placement Agent, if a copy of the Final Memorandum (as then amended or
supplemented if Acquisition or any of its agents or advisors shall have
furnished any amendments or supplements thereto) was not sent or given by or on
behalf of such Placement Agent to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Securities to such person, and if the Final Memorandum (as so amended or
supplemented) would have cured the defect giving rise to such losses, claims,
damages or liabilities, unless such failure is the result of noncompliance by
Acquisition with Section 6(a) hereof.
(b) Each Placement Agent agrees, severally and not jointly, to
indemnify and hold harmless Acquisition (and, after the Merger, the Company),
its directors, its officers and each person, if any, who controls Acquisition
(and, after the Merger, the Company) within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from Acquisition (and, after the Merger, the Company) to
such Placement Agent, but only with reference to information relating to such
Placement Agent furnished to Acquisition in writing by such Placement Agent
through you expressly for use in either Memorandum or any amendments or
supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 8(a) or 8(b), such person (the "INDEMNIFIED PARTY")
shall promptly notify the person against whom such indemnity may be sought (the
"INDEMNIFYING PARTY") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party
<PAGE>
17
shall have the right to retain its own counsel, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and, based upon advice of the indemnified party's counsel,
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them. It is understood that the
indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the fees and expenses of more than one
separate firm (in addition to any local counsel) for all such indemnified
parties and that all such fees and expenses shall be reimbursed as they are
incurred. Such firm shall be designated in writing by Morgan Stanley & Co.
Incorporated, in the case of parties indemnified pursuant to Section 8(a), and
by Acquisition (and, after the Merger, the Company) in the case of parties
indemnified pursuant to Section 8(b). The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party (which consent shall not
unreasonably be withheld), effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(d) To the extent the indemnification provided for in Section 8(a) or
8(b) is unavailable to an indemnified party or insufficient in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by Acquisition and the Company on the one hand and the
Placement Agents on the other hand from the offering of the Securities or (ii)
if the allocation provided by clause 8(d)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 8(d)(i) above but also the relative
fault of Acquisition and the Company on the one hand and of the Placement Agents
on the other hand in connection with the
<PAGE>
18
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by Acquisition and the Company on the one hand and
the Placement Agents on the other hand in connection with the offering of the
Securities shall be deemed to be in the same respective proportions as the net
proceeds from the offering of the Securities (before deducting expenses)
received by Acquisition and the Company and the total discounts and commissions
received by the Placement Agents in respect thereof, bear to the aggregate
offering price of the Securities. The relative fault of Acquisition and the
Company on the one hand and of the Placement Agents on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by Acquisition and the Company
or by the Placement Agents and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Placement Agents' respective obligations to contribute pursuant to this
Section 8 are several in proportion to the respective amount of Securities they
have purchased hereunder, and not joint.
(e) Acquisition (and, after the Merger, the Company) and the
Placement Agents agree that it would not be just or equitable if contribution
pursuant to this Section 8 were determined by pro rata allocation (even if the
Placement Agents were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in Section 8(d). The amount paid or payable by an indemnified party
as a result of the losses, claims, damages and liabilities referred to in
Section 8(d) shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Placement Agent shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities resold by it in the initial placement of such
Securities were offered to investors exceeds the amount of any damages that such
Placement Agent has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. 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. The remedies provided for in this
Section 8 are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this
Section 8 and the representations, warranties and other statements of
Acquisition contained in this Agreement shall remain operative and in full force
and effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Placement Agent or any person
controlling any Placement Agent or by or on behalf of Acquisition or the
Company, their respective officers or directors or any person controlling
Acquisition or the Company and (iii) acceptance of and payment for any of the
Securities.
<PAGE>
19
9. Termination. This Agreement shall be subject to termination by
notice given by you to Acquisition, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 9(a)(i) through 9(a)(iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Securities on the terms and in the manner contemplated in the Final
Memorandum.
10. Effectiveness; Defaulting Placement Agents. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date, any one or more of the Placement Agents shall
fail or refuse to purchase Securities that it or they have agreed to purchase
hereunder on such date, and the aggregate amount of Securities which such
defaulting Placement Agent or Placement Agents agreed but failed or refused to
purchase is not more than one-tenth of the aggregate amount of Securities to be
purchased on such date, the other Placement Agents shall be obligated severally
in the proportions that the amount of Securities set forth opposite their
respective names in Schedule I bears to the aggregate amount of Securities set
forth opposite the names of all such non-defaulting Placement Agents, or in such
other proportions as you may specify, to purchase the Securities which such
defaulting Placement Agent or Placement Agents agreed but failed or refused to
purchase on such date; provided that in no event shall the amount of Securities
that any Placement Agent has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 10 by an amount in excess of one-ninth of
such amount of Securities without the written consent of such Placement Agent.
If, on the Closing Date any Placement Agent or Placement Agents shall fail or
refuse to purchase Securities which it or they have agreed to purchase hereunder
on such date and the aggregate amount of Securities with respect to which such
default occurs is more than one-tenth of the aggregate amount of Securities to
be purchased on such date, and arrangements satisfactory to you and Acquisition
for the purchase of such Securities are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Placement Agent or of Acquisition or the Company. In any such
case, either you or Acquisition shall have the right to postpone the Closing
Date, but in no event for longer than seven days, in order that the required
changes, if any, in the Final Memorandum or in any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Placement Agent from liability in respect of any default
of such Placement Agent under this Agreement.
<PAGE>
20
If this Agreement shall be terminated by the Placement Agents, or any
of them, because of any failure or refusal on the part of Acquisition to comply
with the terms or to fulfill any of the conditions of this Agreement on its part
to be fulfilled, or if for any reason Acquisition shall be unable to perform its
obligations under this Agreement, Acquisition will reimburse the Placement
Agents or such Placement Agents as have so terminated this Agreement with
respect to themselves, severally, for all out-of-pocket expenses (including the
fees and disbursements of their counsel) reasonably incurred by such Placement
Agents in connection with this Agreement or the offering contemplated hereunder.
Notwithstanding any provision contained herein to the contrary, if this
Agreement is terminated by reason of the default of one or more of the Placement
Agents, neither Acquisition nor the Company shall be obligated to reimburse any
defaulting Placement Agent or its counsel on account of such expenses.
11. Notices. All notices and other communications under this
Agreement shall be in writing and mailed, delivered or sent by facsimile
transmission to: if sent to the Placement Agents, Morgan Stanley & Co.
Incorporated, 1585 Broadway, New York, New York 10036, attention: High Yield
New Issues Group, facsimile number (212) 761-0587, and if sent to Acquisition,
to 200 Park Avenue, 48/th/ Floor, New York, New York 10166, c/o Gibson Dunn &
Crutcher LLP, Attention: Joerg H. Esdorn, facsimile number (212) 351-4035.
12. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York. The parties
hereto hereby submit to the non-exclusive jurisdiction of the federal and state
courts in the Borough of Manhattan in The City of New York in any suit or
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
14. Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
Very truly yours,
HH ACQUISITION CORP.
By: /s/ Christopher J. O'Brien
_____________________________
Name: Christopher J. O'Brien
Title: President
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
CHASE SECURITIES INC.
BT ALEX. BROWN INCORPORATED
Acting severally on behalf of themselves and
the several Placement Agents named in
Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By: /s/ Daniel Klausner
____________________________
Name: Daniel Klausner
Title: President
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT AT NUMBER OF SHARES OF
MATURITY OF NOTES PREFERRED STOCK
PLACEMENT AGENT TO BE PURCHASED TO BE PURCHASED
<S> <C> <C>
Morgan Stanley & Co. 68,000,000 16,000
Incorporated
Chase Securities Inc. 68,000,000 16,000
BT Alex. Brown
Incorporated 34,000,000 8,000
Total: ................ 170,000,000 40,000
</TABLE>
<PAGE>
SCHEDULE II
GUARANTORS
Harborside Healthcare LP
Belmont Nursing Center Corp.
Orchard Ridge Nursing Center Corp.
Oakhurst Manor Nursing Center Corp.
Riverside Retirement L.P.
Harborside Toledo L.P.
Harborside Connecticut L.P.
Harborside of Florida L.P.
Harborside of Ohio L.P.
Harborside Healthcare Baltimore L.P.
Harborside of Cleveland L.P.
Harborside of Dayton L.P.
Harborside Massachusetts L.P.
Harborside of Rhode Island L.P.
Harborside of North Toledo L.P.
HH Advisors L.P.
Harborside Toledo Corp.
KHI Corp.
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 L.P.
Maryland Harborside Corp.
Harborside Homecare L.P.
Harborside Rehabilitation L.P.
Harborside Healthcare Network L.P.
Harborside Health I Corp.
<PAGE>
EXHIBIT 1.2
EXECUTION COPY
HH ACQUISITION CORP.
$170,000,000
11% Senior Subordinated Discount Notes due 2008
REGISTRATION RIGHTS AGREEMENT
-----------------------------
July 31, 1998
MORGAN STANLEY & CO. INCORPORATED
CHASE SECURITIES INC.
BT ALEX. BROWN INCORPORATED
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
HH Acquisition Corp., a Delaware corporation (the "Issuer"), proposes
------
to issue and sell to Morgan Stanley & Co. Incorporated, Chase Securities Inc.
and BT Alex. Brown Incorporated (collectively, the "Placement Agents"), upon the
----------------
terms and subject to the conditions set forth in a placement agreement dated
July 29, 1998 between the Issuer and the Placement Agents (the "Placement
---------
Agreement"), $170,000,000 aggregate principal amount at maturity of its 11%
- ---------
Senior Subordinated Discount Notes due 2008 (the "Securities"). The Securities
----------
will be issued pursuant to an Indenture to be dated the Closing Date (as the
same may be amended from time to time in accordance with the terms thereof, the
"Indenture") between the Issuer and United States Trust
---------
<PAGE>
Company of New York, as trustee (the "Trustee"). Capitalized terms used but not
-------
defined herein shall have the meanings given to such terms in the Placement
Agreement.
The Issuer has entered into an Agreement and Plan of Merger dated as
of April 15, 1998 (the "Merger Agreement") with Harborside Healthcare
----------------
Corporation, a Delaware corporation (the "Company"), pursuant to which the
-------
Issuer will merge with and into the Company (the "Merger"), and the Company will
------
be the surviving corporation.
As an inducement to the Placement Agents to enter into the Placement
Agreement and in satisfaction of a condition to the obligations of the Placement
Agents thereunder, the Issuer and each subsidiary of the Company which may
hereafter execute a counterpart signature page hereto (collectively, the
"Guarantors"), agree with the Placement Agents, for the benefit of the holders
- -----------
(including the Placement Agents) of the Securities and of the Exchange
Securities (as defined herein) (collectively, the "Holders"), as follows:
-------
1. Registered Exchange Offer. Unless the Registered Exchange Offer
-------------------------
(as defined below) is not permitted by applicable law or Securities and Exchange
Commission ("Commission") policy, or each Holder of Transfer Restricted
Securities (as defined below) notifies the Issuer that it is a Restricted Holder
(as defined below), the Issuer shall (i) prepare and, not later than 90 days
following the date on which the Issuer is merged with and into the Company (the
"Closing Date"), file with the Commission a registration statement (the
------------
"Exchange Offer Registration Statement") on an appropriate form under the
- --------------------------------------
Securities Act of 1933, as amended (the "Securities Act"), with respect to a
--------------
proposed offer to the Holders (the "Registered Exchange Offer") to issue and
-------------------------
deliver to such Holders, in exchange for Securities, a like aggregate principal
amount at maturity of debt securities of the Issuer (the "Exchange Securities")
-------------------
having the same Accreted Value as the Securities on the date of exchange and
that are identical in all material respects to the Securities, except for the
transfer restrictions relating to the Securities and the absence of registration
rights, (ii) use its reasonable best efforts to cause the Exchange Offer
Registration Statement to become effective under the Securities Act on or prior
to 180 days after the Closing Date, and (iii) commence the Registered 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, Exchange Securities in exchange for all
Securities tendered prior thereto in the Registered Exchange Offer (such period
being called the "Exchange Offer Registration Period"). The Exchange Securities
----------------------------------
will be issued under the Indenture or an indenture (the "Exchange Securities
-------------------
Indenture") between the Issuer, the Guarantors and the Trustee or such other
- ---------
bank or trust company that is reasonably satisfactory to the Placement Agents,
as trustee (the "Exchange Securities Trustee"), such indenture to be identical
---------------------------
in all material respects to the Indenture, except for the transfer restrictions
relating to the Securities.
Upon the effectiveness of the Exchange Offer Registration Statement,
the Issuer shall promptly commence the Registered Exchange Offer, it being the
objective of such Registered Exchange Offer to enable each Holder electing to
exchange Securities for Exchange Securities (assuming that such Holder (a) is
not an affiliate of the Issuer or an Exchanging Dealer (as defined herein) not
complying with the requirements of the next sentence, (b) is not a Placement
Agent
2
<PAGE>
holding Securities that have, or that are reasonably likely to have, the status
of an unsold allotment in an initial distribution, (c) acquires the Exchange
Securities in the ordinary course of such Holder's business and (d) has no
arrangements or understandings with any person to participate in the
distribution of the Securities or the Exchange Securities) to trade such
Exchange Securities from and after their receipt without any limitations or
restrictions under the Securities Act and without material restrictions under
the securities laws of the several states of the United States. The Issuer, the
Guarantors and the Placement Agents and each Exchanging Dealer acknowledge that,
pursuant to current interpretations by the Commission's staff of Section 5 of
the Securities Act, (i) each Holder that is a broker-dealer electing to exchange
Securities, acquired for its own account as a result of market making activities
or other trading activities, for Exchange Securities (an "Exchanging Dealer"),
-----------------
is required to deliver a prospectus containing substantially the information set
forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section and in Annex
C hereto in the "Plan of Distribution" section of such prospectus in connection
with a sale of any such Exchange Securities received by such Exchanging Dealer
pursuant to the Registered Exchange Offer and (ii) if any Placement Agent elects
to sell Exchange Securities acquired in exchange for Securities constituting any
portion of an unsold allotment, it is required to deliver a prospectus,
containing the information required by Items 507 and/or 508 or Regulation S-K
under the Securities Act, as applicable, in connection with such a sale.
In connection with the Registered Exchange Offer, the Issuer and the
Guarantors shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 20
business days (or longer, if required by applicable law) after the date on
which notice of the Registered Exchange Offer is mailed to the Holders;
(c) utilize the services of a depository for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
(d) permit Holders to withdraw tendered Securities at any time prior
to the close of business, New York City time, on the last business day on
which the Registered Exchange Offer shall remain open; and
(e) otherwise comply in all respects with all laws that are
applicable to the Registered Exchange Offer.
As soon as practicable after the close of the Registered Exchange
Offer, the Issuer and the Guarantors shall:
3
<PAGE>
(a) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer;
(b) deliver, or cause to be delivered, to the Trustee for
cancellation all Securities so accepted for exchange; and
(c) issue, and cause the Trustee or the Exchange Securities Trustee,
as the case may be, promptly to authenticate and deliver to each Holder,
Exchange Securities equal in principal amount at maturity to the principal
amount at maturity of the Securities of such Holder so accepted for
exchange.
Subject to the provisions of Section 4(b) hereof, the Issuer and the
Guarantors shall use their reasonable best efforts to keep the Exchange
Offer Registration Statement effective and to amend and supplement the
prospectus contained therein in order to permit such prospectus to be used
by all persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as such persons must comply with
such requirements in order to resell the Exchange Securities; provided that
--------
(i) in the case where such prospectus and any amendment or supplement
thereto must be delivered by an Exchanging Dealer, such period shall be the
lesser of 90 days and the date on which all Exchanging Dealers have sold
all Exchange Securities held by them and (ii) the Issuer and the Guarantors
shall make such prospectus and any amendment or supplement thereto
available to any broker-dealer for use in connection with any resale of any
Exchange Securities for a period not to exceed 90 days after the
consummation of the Registered Exchange Offer.
The Indenture or the Exchange Securities Indenture, as the case may
be, shall provide that the Securities and the Exchange Securities shall vote and
consent together on all matters as one class and that none of the Securities or
the Exchange Securities will have the right to vote or consent as a separate
class on any matter.
The Accreted Value (as defined in the Indenture) of each Exchange
Security issued pursuant to the Registered Exchange Offer will accrete from the
last Semi-Annual Accrual Date (as defined in the Indenture) of the Securities
surrendered in exchange therefor; provided, however, that if any Exchange
-------- -------
Security is issued after the Full Accretion Date (as defined in the Indenture),
interest on such Exchange Security will accrue from the last interest payment
date on which interest was paid on the Securities surrendered in exchange
therefor or, if no interest has been paid on the Securities, from the Full
Accretion Date.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Issuer that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Securities received by such Holder
will be acquired in the ordinary course of business, (ii) such Holder will have
no arrangements or understandings with any person to participate in the
distribution of the Securities or the Exchange Securities within the meaning of
the Securities Act and (iii) such Holder is not an "affiliate," as defined in
Rule 405 under the Securities Act, of the Issuer or,
4
<PAGE>
if it is such an affiliate, such Holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
Notwithstanding any other provisions hereof, the Issuer and each
Guarantor will ensure that, except with respect to the Holders' Information (as
defined in Section 2(c)), (i) any Exchange Offer Registration Statement and any
amendment thereto and any prospectus forming part thereof and any supplement
thereto complies in all material respects with the Securities Act and the rules
and regulations of the Commission thereunder, (ii) any Exchange Offer
Registration Statement and any amendment thereto does not, when it becomes
effective, contain 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 and (iii) any prospectus forming part of any Exchange
Offer Registration Statement, and any supplement to such prospectus, does not,
as of the consummation of the Registered Exchange Offer, include an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
2. Shelf Registration. If (i) the Issuer and the Guarantors are not
------------------
required to file the Exchange Offer Registration Statement or permitted to
consummate the Registered Exchange Offer, (ii) any Securities validly tendered
pursuant to the Registered Exchange Offer are not exchanged for Exchange
Securities within 30 days after the Effectiveness Target Date (as defined in
Section 3) of the Exchange Offer Registration Statement or (iii) any Holder (a
"Restricted Holder") of Transfer Restricted Securities notifies the Issuer prior
to the 20th day following consummation of the Registered Exchange Offer that (A)
it is prohibited by law or Commission policy from participating in the
Registered Exchange Offer, (B) it may not resell the Exchange Securities
acquired by it in the Registered 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 that such Securities are not eligible to be exchanged for
Exchange Securities or (D) it is a broker-dealer and owns Securities acquired
directly from the Issuer or an affiliate of the Issuer, the Issuer will file
with the Commission a shelf registration statement on an appropriate form under
the Securities Act relating to the offer and sale of the Transfer Restricted
Securities by the Holders thereof from time to time in accordance with the
methods of distribution set forth in such registration statement (hereafter, a
"Shelf Registration Statement" and together with any Exchange Offer Registration
- -----------------------------
Statement, a "Registration Statement"). If the Issuer is required to file a
----------------------
Shelf Registration Statement the following provisions shall apply:
(a) The Issuer and the Guarantors will use their reasonable best
efforts to file the Shelf Registration Statement with the Commission on or
prior to the date that is 90 days after such filing obligation arises and
to cause the Shelf Registration Statement to be declared effective by the
Commission on or prior to the date that is 135 days after such obligation
arises.
5
<PAGE>
(b) Subject to the provisions of Section 4(b) hereof, the Issuer and
the Guarantors shall use their reasonable best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
prospectus forming part thereof to be used by Holders of Transfer
Restricted Securities for a period of two years after its effective date or
such shorter period that will terminate when all the Transfer Restricted
Securities covered thereby (i) have been sold pursuant thereto or (ii) are
distributed to the public pursuant to Rule 144 under the Securities Act or
are saleable pursuant to Rule 144(k) under the Securities Act (in any such
case, such period being called the "Shelf Registration Period"). Subject
-------------------------
to the provisions of Section 4(b) hereof, the Issuer and the Guarantors
shall be deemed not to have used their reasonable best efforts to keep the
Shelf Registration Statement effective during the requisite period if any
of them voluntarily takes any action that would result in Holders of
Transferred Restricted Securities covered thereby not being able to offer
and sell such Transfer Restricted Securities during that period, unless (i)
such action is required by applicable law, or (ii) such action is taken by
the Issuer in good faith and for valid business reasons (not including
avoidance of the Issuer's obligations hereunder), including the acquisition
or divestiture of assets, so long as the Issuer promptly thereafter
complies with the requirements of Section 4(j) hereof, if applicable.
(c) Notwithstanding any other provisions hereof, the
Issuer and the Guarantors will ensure that (i) any Shelf Registration
Statement and any amendment thereto and any prospectus forming part thereof
and any supplement thereto complies in all material respects with the
Securities Act and the rules and regulations of the Commission thereunder,
(ii) any Shelf Registration Statement and any amendment thereto (in either
case, other than with respect to information included therein in reliance
upon or in conformity with written information furnished to the Issuer by
or on behalf of any Holder specifically for use therein (the "Holders'
--------
Information")) does not contain 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 and (iii) any prospectus forming
part of any Shelf Registration Statement, and any supplement to such
prospectus (in either case, other than with respect to Holders'
Information), does not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
3. Liquidated Damages.
------------------
(a) The parties hereto agree that the Holders of
Transfer Restricted Securities will suffer damages if the Issuer or any
Guarantor fails to fulfill its obligations under Section 1 or Section 2, as
applicable, and that it would not be feasible to ascertain the extent of
such damages. Accordingly, if (i) the Issuer fails to file any of the
Registration Statements required by this Registration Rights Agreement on
or before the date specified for such filing, (ii) any of such Registration
Statements is not declared effective by the Commission on or prior to the
date specified for such effectiveness in Section 1 or Section 2(a), as
applicable (the "Effectiveness Target Date"), (iii) unless the Registered
--------------------------
Exchange Offer would not be
6
<PAGE>
permitted by applicable law or Commission policy or the Issuer is otherwise
not required to do so, the Issuer fails to consummate the Registered
Exchange Offer within 30 business days of the Effectiveness Target Date
with respect to the Exchange Offer Registration Statement, or (iv) 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 or exchanges of Transfer Restricted Securities
during the periods specified in Section 1 or Section 2, as applicable,
other than a Blackout Period (as defined herein) (each such event referred
to in clauses (i) through (iv) above, a "Registration Default"), then the
--------------------
Issuer and the Guarantors agree to pay liquidated damages (the "Liquidated
Damages") to each Holder of Transfer Restricted Securities in cash, with
respect to the first 90-day period immediately following the occurrence of
the first Registration Default in an amount equal to $.05 per week per
$1,000 principal amount at maturity of Transfer Restricted Securities held
by such Holder. The amount of the Liquidated Damages will increase by an
additional $.05 per week per $1,000 principal amount at maturity 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
at maturity of Transfer Restricted Securities. All accrued Liquidated
Damages will be paid by the Issuer and the Guarantors on each Semi-Annual
Accrual Date specified in the Indenture, in the same manner as interest
payments on the Securities. Following the cure of all Registration
Defaults, the accrual of Liquidated Damages will cease. As used herein, the
term "Transfer Restricted Securities" means (i) each Security until the
------------------------------
date on which such Security has been exchanged for a freely transferable
Exchange Security in the Registered Exchange Offer, (ii) each Exchange
Security following the exchange by a broker-dealer in the Registered
Exchange Offer of a Security for an Exchange Security, until the date on
which such Exchange Security is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) each Security
until the date on which it has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) each Security until the date on which it has been
distributed to the public pursuant to Rule 144 under the Securities Act.
Notwithstanding anything to the contrary in this Section 3(a), the Issuer
and the Guarantors shall not be required to pay Liquidated Damages to a
Holder of Transfer Restricted Securities if such Holder failed to comply
with its obligations to make the representations set forth in the second to
last paragraph of Section 1 or failed to provide the information required
to be provided by it, if any, pursuant to Section 4(n).
(b) The Issuer shall notify the Trustee and the Paying
Agent under the Indenture immediately upon the happening of each and every
Registration Default. The Issuer and the Guarantors shall pay the
Liquidated Damages due on the Transfer Restricted Securities by depositing
with the Paying Agent (which may not be the Issuer for these purposes), in
trust, for the benefit of the Holders thereof, prior to 10:00 a.m., New
York City time, on the next Semi-Annual Accrual Date specified by the
Indenture, sums sufficient to pay the Liquidated Damages then due, or by
making payment in such other manner as may be specified for the payment of
interest in the Indenture or the Exchange Securities Indenture. The
Liquidated
7
<PAGE>
Damages due shall be payable on each Semi-Annual Accrual Date specified by
the Indenture to the record holder on such date. Each obligation to pay
Liquidated Damages shall be deemed to accrue from and including the date of
the applicable Registration Default.
(c) The parties hereto agree that the Liquidated Damages provided for
in this Section 3 constitute a reasonable estimate of and are intended to
constitute the sole damages that will be suffered by Holders of Transfer
Restricted Securities by reason of the occurrence of any of the events
described in Section 3(a)(i) through 3(a)(iv) hereof.
4. Registration Procedures. In connection with any Registration
-----------------------
Statement, the following provisions shall apply:
(a) The Issuer shall (i) furnish to each Placement Agent, prior to
the filing thereof with the Commission, a copy of the Registration
Statement and each amendment thereof and each supplement, if any, to the
prospectus included therein and shall use its reasonable best efforts to
reflect in each such document, when so filed with the Commission, such
comments as any Placement Agent may reasonably propose; (ii) include the
information set forth in Annex A hereto on the cover, in Annex B hereto in
the "Exchange Offer Procedures" section and the "Purpose of the Exchange
Offer" section and in Annex C hereto in the "Plan of Distribution" section
of the prospectus forming a part of the Exchange Offer Registration
Statement, and include the information set forth in Annex D hereto in the
Letter of Transmittal delivered pursuant to the Registered Exchange Offer;
and (iii) if reasonably requested by any Placement Agent, include the
information required by Items 507 or 508 of Regulation S-K, as applicable,
in the prospectus forming a part of the Exchange Offer Registration
Statement.
(b) The Issuer shall advise each Placement Agent, each Exchanging
Dealer and the Holders (if applicable) and, if requested by any such
person, confirm such advice in writing (which advice pursuant to clauses
(ii)-(v) hereof shall be accompanied by an instruction to suspend the use
of the prospectus until the requisite changes have been made):
(i) when any Registration Statement and any amendment thereto
has been filed with the Commission and when such Registration
Statement or any post-effective amendment thereto has become
effective;
(ii) of any request by the Commission for amendments or
supplements to any Registration Statement or the prospectus included
therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of any Registration Statement or the
initiation of any proceedings for that purpose;
8
<PAGE>
(iv) of the receipt by the Issuer or any Guarantor of any
notification with respect to the suspension of the qualification of
the Securities or the Exchange Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose;
and
(v) of the happening of any event that requires the making of
any changes in any Registration Statement or the prospectus included
therein in order that the statements therein are not misleading and do
not omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
Upon complying with the procedures described above in this Section
4(b) following the occurrence of an event of the type described in clause
(v) of this Section 4(b), the Issuer may suspend the use of any prospectus
included in any Registration Statement for a period (the "Blackout Period")
---------------
not to exceed an aggregate of 60 days in any 12 month period if (i) the
Board of Directors of the Issuer determines that the disclosure of such
event at such time would have a material adverse effect on the business,
operations or prospects of the Issuer or (ii) the disclosure otherwise
relates to a material business transaction which has not yet been publicly
disclosed and the Board of Directors determines that any such disclosure
would jeopardize the success of such transaction; provided that, upon the
termination of such Blackout Period, the Issuer promptly shall advise the
Placement Agents, each Exchanging Dealer and the Holders (if applicable)
and, if requested by any such person, confirm such advice in writing that
such Blackout Period has been terminated.
(c) The Issuer and the Guarantors will make every reasonable effort
to obtain the withdrawal at the earliest possible time of any order
suspending the effectiveness of any Registration Statement.
(d) The Issuer will furnish to each Holder of Transfer Restricted
Securities included within the coverage of any Shelf Registration
Statement, without charge, at least one conformed copy of such Shelf
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules and, if any such Holder so requests in
writing, all exhibits thereto (including those, if any, incorporated by
reference).
(e) The Issuer will, during the Shelf Registration Period, deliver to
each Holder of Transfer Restricted Securities included within the coverage
of any Shelf Registration Statement, without charge, as many copies of the
prospectus (including each preliminary prospectus) included in such Shelf
Registration Statement and any amendment or supplement thereto as such
Holder may reasonably request; and the Issuer and the Guarantors consent to
the use (in accordance with applicable law) of such prospectus or any
amendment or supplement thereto by each of the selling Holders of Transfer
Restricted Securities in connection with the offer and sale of the Transfer
Restricted Securities covered by such prospectus or any amendment or
supplement thereto.
9
<PAGE>
(f) The Issuer will furnish to each Placement Agent and each
Exchanging Dealer, and to any other Holder who so requests, without charge,
at least one conformed copy of the Exchange Offer Registration Statement
and any post-effective amendment thereto, including financial statements
and schedules and, if any Placement Agent or Exchanging Dealer or any such
Holder so requests in writing, all exhibits thereto (including those, if
any, incorporated by reference).
(g) The Issuer will, during the Exchange Offer Registration Period or
the Shelf Registration Period, as applicable, promptly deliver to each
Placement Agent, each Exchanging Dealer and such other persons that are
required to deliver a prospectus following the Registered Exchange Offer,
without charge, as many copies of the final prospectus included in the
Exchange Offer Registration Statement or the Shelf Registration Statement
and any amendment or supplement thereto as such Placement Agent, Exchanging
Dealer or other persons may reasonably request; and the Issuer and the
Guarantors consent to the use (in accordance with applicable law) of such
prospectus or any amendment or supplement thereto by any such Placement
Agent, Exchanging Dealer or other persons, as applicable, as aforesaid.
(h) Prior to the effective date of any Registration Statement, the
Issuer and the Guarantors will use their reasonable best efforts to
register or qualify, or cooperate with the Holders of Securities or
Exchange Securities included therein and their respective counsel in
connection with the registration or qualification of, such Securities or
Exchange Securities for offer and sale under the securities or blue sky
laws of such jurisdictions as any such Holder reasonably requests in
writing and do any and all other acts or things necessary or advisable to
enable the offer and sale in such jurisdictions of the Securities or
Exchange Securities covered by such Registration Statement; provided that
--------
the Issuer and the Guarantors will not be required to qualify generally to
do business in any jurisdiction where it is not then so qualified or to
take any action which would subject it to general service of process or to
taxation in any such jurisdiction where it is not then so subject.
(i) The Issuer and the Guarantors will cooperate with the Holders of
Securities or Exchange Securities to facilitate the timely preparation and
delivery of certificates representing Securities or Exchange Securities to
be sold pursuant to any Registration Statement free of any restrictive
legends and in such denominations and registered in such names as the
Holders thereof may request in writing at least three business days prior
to sales of Securities or Exchange Securities pursuant to such Registration
Statement.
(j) Subject to the provisions of the last paragraph of Section 4(b)
hereof, if any event contemplated by Section 4(b)(ii) through (v) occurs
during the period for which the Issuer is required to maintain an effective
Registration Statement, the Issuer will promptly prepare and file with the
Commission a post-effective amendment to the Registration Statement or a
supplement to the related prospectus or file any other required document so
that, as thereafter delivered to purchasers of the Securities or Exchange
Securities from a
10
<PAGE>
Holder or an Exchanging Dealer, the prospectus will not include an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(k) Not later than the effective date of the applicable Registration
Statement, the Issuer will provide a CUSIP number for the Securities and
Exchange Securities, as the case may be, and provide the applicable trustee
with printed certificates for the Securities or the Exchange Securities, as
the case may be, in a form eligible for deposit with The Depository Trust
Company.
(l) The Issuer and the Guarantors will comply with all applicable
rules and regulations of the Commission and the Issuer will make generally
available to its security holders as soon as practicable after the
effective date of the applicable Registration Statement an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act.
(m) The Issuer and the Guarantors will cause the Indenture or the
Exchange Securities Indenture, as the case may be, to be qualified under
the Trust Indenture Act as required by applicable law in a timely manner.
(n) The Issuer may require each Holder of Transfer Restricted
Securities to be registered pursuant to any Shelf Registration Statement to
furnish to the Issuer such information (including supplements thereto)
concerning the Holder and the distribution of such Transfer Restricted
Securities as the Issuer may from time to time reasonably require for
inclusion in such Shelf Registration Statement, and the Issuer may exclude
from such registration the Transfer Restricted Securities of any Holder
that fails to furnish such information (including supplements thereto)
within 5 business days after receiving such request.
(o) In the case of a Shelf Registration Statement, each Holder of
Transfer Restricted Securities to be registered pursuant thereto agrees by
acquisition of such Transfer Restricted Securities that, upon receipt of
any notice from the Issuer pursuant to Section 4(b)(ii) through (v) hereof,
such Holder will discontinue disposition of such Transfer Restricted
Securities until such Holder's receipt of copies of the supplemental or
amended prospectus contemplated by Section 4(j) hereof or until advised in
writing (the "Advice") by the Issuer that the use of the applicable
------
prospectus may be resumed. If the Issuer shall give any notice under
Section 4(b)(ii) through (v) during the period that the Issuer is required
to maintain an effective Registration Statement (the "Effectiveness
-------------
Period"), such Effectiveness Period shall be extended by the number of days
------
during such period from and including the date of the giving of such notice
to and including the date when each seller of Transfer Restricted
Securities covered by such Registration Statement shall have received (x)
the copies of the supplemental or amended prospectus contemplated by
Section 4(j) (if an amended or supplemental prospectus is required) or (y)
the Advice (if no amended or supplemental prospectus is required).
11
<PAGE>
(p) In the case of a Shelf Registration Statement, the Issuer shall
enter into such customary agreements (including, if requested, an
underwriting agreement to be negotiated between the parties in good faith)
and take all such other action, if any, as Holders of a majority in
aggregate principal amount at maturity of the Securities and Exchange
Securities being sold or the managing underwriters (if any) shall
reasonably request in order to facilitate any disposition of Securities or
Exchange Securities pursuant to such Shelf Registration Statement.
(q) In the case of a Shelf Registration Statement, the Issuer and the
Guarantors shall (i) make reasonably available for inspection by a
representative of, and Special Counsel (as defined below) acting for,
Holders of a majority in aggregate principal amount at maturity of the
Securities and Exchange Securities being sold and any underwriter
participating in any disposition of Securities or Exchange Securities
pursuant to such Shelf Registration Statement, and (ii) use their
reasonable best efforts to have their officers, directors, employees,
accountants and counsel supply, all relevant information reasonably
requested by such representative, Special Counsel or any such underwriter
(an "Inspector") in connection with such Shelf Registration Statement,
---------
subject to executing a confidentiality undertaking in customary form and
with respect to confidential and/or proprietary information of the Issuer
and the Guarantors.
(r) In the case of a Shelf Registration Statement, the Issuer shall,
if requested by Holders of a majority in aggregate principal amount at
maturity of the Securities and Exchange Securities being sold, their
Special Counsel or the managing underwriters (if any) in connection with
such Shelf Registration Statement, use its reasonable best efforts to cause
(i) its counsel to deliver an opinion relating to the Shelf Registration
Statement and the Securities or Exchange Securities, as applicable, in
customary form, (ii) its officers to execute and deliver all customary
documents and certificates reasonably requested by Holders of a majority in
aggregate principal amount at maturity of the Securities and Exchange
Securities being sold, their Special Counsel or the managing underwriters
(if any) and (iii) its independent public accountants to provide a comfort
letter or letters in customary form, subject to receipt of appropriate
documentation as contemplated, and only if permitted, by Statement of
Auditing Standards No. 72.
5. Registration Expenses. The Issuer and the Guarantors will bear
---------------------
all expenses incurred in connection with the performance of their obligations
under Sections 1, 2, 3 and 4 and, in the case of a Shelf Registration Statement,
the Issuer and the Guarantors will reimburse the Placement Agents and the
Holders for the reasonable fees and disbursements of one firm of attorneys (in
addition to any local counsel) chosen by the Holders of a majority in aggregate
principal amount at maturity of the Securities and the Exchange Securities to be
sold pursuant to such Registration Statement (the "Special Counsel") acting for
---------------
the Placement Agents or Holders in connection therewith.
12
<PAGE>
6. Indemnification.
---------------
(a) The Issuer and the Guarantors, jointly and severally, agree to
indemnify and hold harmless each Placement Agent, each Holder (including,
without limitation, each Exchanging Dealer), their respective affiliates,
officers, directors, employees, representatives and agents, and each
person, if any, who controls any Placement Agent and any Holder within the
meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (collectively referred to for purposes of this
------------
Section 6 and Section 7 as a "Holder") from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof
(including, without limitation, any loss, claim, damage, liability or
action relating to purchases and sales of Securities or Exchange
Securities), to which that Holder may become subject, whether commenced or
threatened, under the Securities Act, the Exchange Act, any other federal
or state statutory law or regulation, at common law or otherwise, insofar
as such loss, claim, damage, liability or action arises out of, or is based
upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement (or in any amendment or
supplement thereto), including all documents incorporated therein by
reference, or any omission or alleged omission to state therein a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any prospectus (as amended
or supplemented), or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and shall reimburse each Holder promptly upon demand
for any legal or other expenses reasonably incurred by that Holder in
connection with investigating or defending or preparing to defend against
or appearing as a third party witness in connection with any such loss,
claim, damage, liability or action as such expenses are incurred; provided,
--------
however, that the Issuer and the Guarantors shall not be liable in any such
-------
case to the extent that any such loss, claim, damage, liability or action
arises out of, or is based upon, an untrue statement or alleged untrue
statement in or omission or alleged omission from any of such documents in
reliance upon and in conformity with any Holders' Information; and provided
--------
further that, with respect to any such untrue statement in or omission from
-------
any related preliminary prospectus, the indemnity contained in this Section
6(a) shall not inure to the benefit of any Holder from whom the person
asserting any such loss, claim, damage, liability or action received
Securities or Exchange Securities to the extent that such loss, claim,
damage, liability or action of or with respect to such Holder results from
the fact that both (A) a copy of the final prospectus was not sent or given
to such person at or prior to the written confirmation of the sale of such
Securities or Exchange Securities to such person and such delivery was
required by the Securities Act and (B) the untrue statement in or omission
from the related preliminary prospectus was corrected in the final
prospectus unless, in either case, such failure to deliver the final
prospectus was a result of non-compliance by the Issuer with Section 4(d),
4(e), 4(f) or 4(g).
13
<PAGE>
(b) Each Holder agrees to indemnify and hold harmless the Issuer, the
Placement Agents and the other selling Holders, and each of their
respective affiliates, and their respective officers, directors, employees,
representatives and agents, and each person, if any, who controls the
Issuer or the Guarantors, any Placement Agent and any other selling Holder
within the meaning of the Securities Act or the Exchange Act, from and
against any loss, claim, damage or liability, joint or several, or any
action in respect thereof, to which the Issuer may become subject, whether
commenced or threatened, under the Securities Act, the Exchange Act, any
other federal or state statutory law or regulation, at common law or
otherwise, insofar as such loss, claim, damage, liability or action arises
out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement (or in
any amendment or supplement thereto), including all documents incorporated
therein by reference, or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary in order to make
the statements therein not misleading, or (ii) any untrue statement or
alleged untrue statement of a material fact contained in any prospectus (as
amended or supplemented), or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, but in each case only to the extent that the
untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with any Holders'
Information furnished to the Issuer by such Holder, and shall reimburse the
Issuer and/or the Guarantors for any legal or other expenses reasonably
incurred by the Issuer in connection with investigating or defending or
preparing to defend against or appearing as a third party witness in
connection with any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that no such Holder shall be
-------- -------
liable for any indemnity claims hereunder in excess of the amount of net
proceeds received by such Holder from the sale of Securities or Exchange
Securities pursuant to a Registration Statement.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 6(a) or 6(b), notify the
indemnifying party in writing of the claim or the commencement of that
action; provided, however, that the failure to notify the indemnifying
-------- -------
party shall not relieve it from any liability which it may have under this
Section 6 except to the extent that it has been materially prejudiced
(through the forfeiture of substantive rights or defenses) by such failure;
and provided further that the failure to notify the indemnifying party
-------- -------
shall not relieve it from any liability which it may have to an indemnified
party otherwise than under this Section 6. If any such claim or action
shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any
other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice
from the indemnifying party to the indemnified party of its election to
assume the defense of such claim or action, the indemnifying party shall
not be liable to the indemnified party under this Section 6 for any legal
or other expenses subsequently incurred by the
14
<PAGE>
indemnified party in connection with the defense thereof other than the
reasonable costs of investigation; provided, however, that an indemnified
-------- -------
party shall have the right to employ its own counsel in any such action,
but the fees, expenses and other charges of such counsel for the
indemnified party will be at the expense of such indemnified party unless
(1) the employment of counsel by the indemnified party has been authorized
in writing by the indemnifying party, (2) the indemnified party has
reasonably concluded (based upon advice of counsel to the indemnified
party) that there may be legal defenses available to it or other
indemnified parties that are different from or in addition to those
available to the indemnifying party, (3) a conflict or potential conflict
exists (based upon advice of counsel to the indemnified party) between the
indemnified party and the indemnifying party that makes it impossible or
inadvisable for counsel to the indemnifying party to conduct the defense of
both the indemnifying party and the indemnified party (in which case the
indemnifying party will not have the right to direct the defense of such
action on behalf of the indemnified party) or (4) the indemnifying party
has not in fact employed counsel reasonably satisfactory to the indemnified
party to assume the defense of such action within a reasonable time after
receiving notice of the commencement of the action, in each of which cases
the reasonable fees, disbursements and other charges of counsel will be at
the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding
or related proceedings in the same jurisdiction, be liable for the
reasonable fees, disbursements and other charges of more than one separate
firm of attorneys (in addition to any local counsel) at any one time for
all such indemnified party or parties. In the event of any claim or action
in which the Placement Agents or persons who control the Placement Agents
are indemnified parties, such firm shall be designated in writing by Morgan
Stanley & Co. Incorporated. In the event of any claim or action in which
the Holders or persons who control the Holders are indemnified parties, and
the Placement Agents are not indemnified parties, such firm shall be
designated in writing by the Holders of a majority of the aggregate
principal amount at maturity of the Securities to which such claim or
action relates (excluding for this purpose, affiliates of the Issuer and
the Guarantors). In all other cases, such firm shall be designated by the
Issuer. Each indemnified party, as a condition of the indemnity contained
in Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate
with the indemnifying party in the defense of any such action or claim. No
indemnifying party shall be liable for any settlement of any such action
effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there
be a final judgment for the plaintiff in any such action, the indemnifying
party agrees to indemnify and hold harmless any indemnified party from and
against any loss or liability by reason of such settlement or judgment. No
indemnifying party shall, without the prior written consent of the
indemnified party (which consent shall not be unreasonably withheld),
effect any settlement of any pending or threatened proceeding in respect of
which any indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding.
15
<PAGE>
7. Contribution. If the indemnification provided for in Section 6
------------
is unavailable or insufficient to hold harmless an indemnified party under
Section 6(a) or 6(b), then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Issuer from the offering and sale
of the Securities, on the one hand, and a Holder with respect to the sale by
such Holder of Securities or Exchange Securities, on the other, or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Issuer, on
the one hand, and such Holder, on the other, with respect to the statements or
omissions that resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Issuer, on the one hand, and a Holder, on the
other, with respect to such offering and such sale shall be deemed to be in the
same proportion as the total net proceeds from the offering of the Securities
(before deducting expenses) received by or on behalf of the Issuer, on the one
hand, bear to the total proceeds received by such Holder with respect to its
sale of Securities or Exchange Securities, on the other. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to the Issuer or information supplied by the
Issuer, on the one hand, or to any Holders' Information supplied by such Holder,
on the other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The parties hereto agree that it would not be just and equitable if
contributions pursuant to this Section 7 were to be determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 7 shall be deemed
to include, for purposes of this Section 7, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending or preparing to defend any such action or claim. Notwithstanding
the provisions of this Section 7, an indemnifying party that is a Holder of
Securities or Exchange Securities shall not be required to contribute any amount
in excess of the amount by which the total price at which the Securities or
Exchange Securities sold by such indemnifying party to any purchaser exceeds the
amount of any damages which such indemnifying party has otherwise paid or become
liable to pay by reason of any untrue or alleged untrue statement or omission or
alleged omission. 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.
8. Rules 144 and 144A. The Issuer shall use its reasonable best
------------------
efforts to file the reports required to be filed by it under the Securities Act
and the Exchange Act in a timely manner and, if at any time the Issuer is not
required to file such reports, it will, upon the written request of any Holder
of Transfer Restricted Securities, make publicly available other information so
long as necessary to permit sales of such Holder's securities pursuant to Rules
144 and 144A. The Issuer and the Guarantors covenant that they will take such
further action as any Holder of Transfer Restricted Securities may reasonably
request, all to the extent required from time to time to enable
16
<PAGE>
such Holder to sell Transfer Restricted Securities without registration under
the Securities Act within the limitation of the exemptions provided by Rules 144
and 144A (including, without limitation, the requirements of Rule 144A(d)(4)).
Upon the written request of any Holder of Transfer Restricted Securities, the
Issuer shall deliver to such Holder a written statement as to whether it has
complied with such requirements. Notwithstanding the foregoing, nothing in this
Section 8 shall be deemed to require the Issuer to register any of its
securities pursuant to the Exchange Act.
9. Underwritten Registrations. If any of the Transfer Restricted
--------------------------
Securities covered by any Shelf Registration Statement are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority in aggregate principal amount at maturity of such Transfer Restricted
Securities included in such offering, subject to the consent of the Issuer
(which shall not be unreasonably withheld or delayed), and such Holders shall be
responsible for all underwriting commissions and discounts in connection
therewith.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted
Securities on the basis reasonably provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
10. Miscellaneous.
-------------
(a) Amendments and Waivers. The provisions of this Agreement may
----------------------
not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless the Issuer
has obtained the written consent of Holders of a majority in aggregate
principal amount at maturity of the Securities and the Exchange Securities,
taken as a single class. Notwithstanding the foregoing, a waiver or consent
to depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders whose Securities or Exchange
Securities are being sold pursuant to a Registration Statement and that
does not directly or indirectly affect the rights of other Holders may be
given by Holders of a majority in aggregate principal amount at maturity of
the Securities and Exchange Securities being sold by such Holders pursuant
to such Registration Statement.
(b) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telecopier or air courier guaranteeing next-day delivery:
(1) if to a Holder, at the most current address given by such
Holder to the Issuer in accordance with the provisions of this Section
10(b), which address initially is, with respect to each Holder, the
address of such Holder maintained by the
17
<PAGE>
Registrar under the Indenture, with a copy in like manner to Morgan
Stanley & Co. Incorporated, Chase Securities Inc. and BT Alex. Brown
Incorporated;
(2) if to the Placement Agents, initially at the address set
forth in the Placement Agreement; and
(3) if to the Issuer or the Guarantors, initially at the
address of the Issuer set forth in the Placement Agreement.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; one business day after
being delivered to a next-day air courier; five business days after being
deposited in the mail; and when receipt is acknowledged by the recipient's
telecopier machine, if sent by telecopier.
(c) Successors And Assigns. This Agreement shall be binding upon the
----------------------
Issuer, the Guarantors and their respective successors and assigns.
(d) Counterparts. This Agreement may be executed in any number of
------------
counterparts (which may be delivered in original form or by telecopier) and
by the parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement. This Agreement shall become
effective upon the execution of a counterpart by each of the Issuer and the
Placement Agents. Upon the execution after the date hereof of a
counterpart, by any Guarantor, such Guarantor shall, without further
action, become a party hereto and such Guarantor shall be bound by the
provisions hereof.
(e) Definition of Terms. For purposes of this Agreement, (a) the term
-------------------
"business day" means any day on which the New York Stock Exchange, Inc. is
open for trading and (b) except where otherwise expressly provided, the
term "affiliate" has the meaning set forth in Rule 405 under the Securities
Act.
(f) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York.
(h) Remedies. In the event of a breach by the Issuer or the
--------
Guarantors or by any Holder of any of their obligations under this
Agreement, each Holder, the Issuer or the Guarantors, as the case may be,
in addition to being entitled to exercise all rights granted by law,
including recovery of damages (other than the recovery of damages for a
breach by the Issuer of its obligations under Section 1 or 2 hereof for
which Liquidated Damages have been paid pursuant to Section 3 hereof), will
be entitled to specific performance of its rights under
18
<PAGE>
this Agreement. The Issuer, the Guarantors and each Holder agree that
monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by them of any of the provisions of this Agreement
and hereby further agree that, in the event of any action for specific
performance in respect of such breach, they shall waive the defense that a
remedy at law would be adequate.
(i) No Inconsistent Agreements. The Issuer and the Guarantors
--------------------------
represent, warrant and agree that (i) they have not entered into and shall
not, on or after the date of this Agreement, enter into any agreement that
is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof, (ii) they have not
previously entered into any agreement which remains in effect granting any
registration rights with respect to any of its debt securities to any
person and (iii) without limiting the generality of the foregoing, without
the written consent of the Holders of a majority in aggregate principal
amount at maturity of the then outstanding Transfer Restricted Securities,
they shall not grant to any person the right to request the Issuer to
register any debt securities of the Issuer under the Securities Act unless
the rights so granted are not in conflict or inconsistent with the
provisions of this Agreement.
(j) No Piggyback on Registrations. Neither the Issuer, the
-----------------------------
Guarantors nor any of their security holders (other than the Holders of
Transfer Restricted Securities in such capacity) shall have the right to
include any securities of the Issuer in any Shelf Registration or
Registered Exchange Offer other than Transfer Restricted Securities.
(k) Severability. The remedies provided herein are cumulative and not
------------
exclusive of any remedies provided by law. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder
of the terms, provisions, covenants and restrictions set forth herein shall
remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their reasonable best
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
19
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Issuer, the Guarantors and the Placement Agents.
Very truly yours,
HH ACQUISITION CORP.
By: /s/ Christopher J. O'Brien
________________________________
Name: Christopher J. O'Brien
Title: President
Accepted as of the date hereof:
MORGAN STANLEY & CO. INCORPORATED
CHASE SECURITIES INC.
BT ALEX. BROWN INCORPORATED
By: Morgan Stanley & Co. Incorporated
By: /s/ Stephanie Kaplan
___________________________
Name: Stephanie Kaplan
Title: Principal
<PAGE>
HARBORSIDE HEALTHCARE LIMITED
PARTNERSHIP
By: KHI CORPORATION, its general partner
By: /s/ Stephen L. Guillard
__________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
BELMONT NURSING CENTER CORP.
By: /s/ Stephen L. Guillard
__________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
ORCHARD RIDGE NURSING CENTER CORP.
By: /s/ Stephen L. Guillard
__________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
OAKHURST MANOR NURSING CENTER CORP.
By: /s/ Stephen L. Guillard
__________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
<PAGE>
RIVERSIDE RETIREMENT LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
HARBORSIDE TOLEDO LIMITED PARTNERSHIP
By: HARBORSIDE TOLEDO CORP.,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
HARBORSIDE CONNECTICUT LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
<PAGE>
HARBORSIDE OF FLORIDA LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
HARBORSIDE OF OHIO LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
HARBORSIDE HEALTHCARE BALTIMORE LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
<PAGE>
HARBORSIDE OF CLEVELAND LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
HARBORSIDE OF DAYTON LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
HARBORSIDE MASSACHUSETTS LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
<PAGE>
HARBORSIDE RHODE ISLAND LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
HARBORSIDE NORTH TOLEDO LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
HARBORSIDE HEALTHCARE ADVISORS
LIMITED PARTNERSHIP
By: KHI CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
<PAGE>
HARBORSIDE TOLEDO LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
KHI CORPORATION.
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP IV
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP V
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
<PAGE>
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP VI
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP VII
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP VIII
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
<PAGE>
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP IX
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP X
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
SAILORS, INC.
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
NEW JERSEY HARBORSIDE CORP.
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
<PAGE>
BRIDGEWATER ASSISTED LIVING LIMITED
PARTNERSHIP
By: NEW JERSEY HARBORSIDE
CORPORATION, its general partner
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
MARYLAND HARBORSIDE CORP.
By: \s\ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE HOMECARE LIMITED
PARTNERSHIP
By: KHI CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE REHABILITATION LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
<PAGE>
HARBORSIDE HEALTHCARE
NETWORK LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE HEALTH I CORPORATION
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Execuitve Officer
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Securities.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Securities received in exchange for
Securities where such 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 (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Securities for its own
account in exchange for Securities, where such 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 Exchange Securities. See "Plan of Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange 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 Exchange Securities
received in exchange for Securities where such 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 _______________,
199_, all dealers effecting transactions in the Exchange Securities may be
required to deliver a prospectus./1/
Neither the Issuer nor any of the Guarantors will receive any proceeds
from any sale of Exchange Securities by broker-dealers. Exchange Securities
received by broker-dealers for their own account pursuant to the Registered
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange 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 or the purchasers of any such Exchange Securities. Any broker-dealer
that resells Exchange Securities that were received by it for its own account
pursuant to the Registered Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Securities may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Securities and any commission 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.
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 and the Guarantors have agreed to pay
all expenses incident to the Registered Exchange Offer (including the expenses
of one counsel for the Holders of the Securities) other than commissions or
_____________________
/1/ In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Registered Exchange Offer prospectus.
<PAGE>
concessions of any broker-dealers and will indemnify the Holders of the
Securities (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
<PAGE>
ANNEX D
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES
OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
Address:
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE>
EXHIBIT 1.3
EXECUTION COPY
HH ACQUISITION CORP.
40,000 Shares of 13 1/2% Exchangeable Preferred Stock
REGISTRATION RIGHTS AGREEMENT
-----------------------------
July 31, 1998
MORGAN STANLEY & CO. INCORPORATED
CHASE SECURITIES INC.
BT ALEX. BROWN INCORPORATED
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
HH Acquisition Corp., a Delaware corporation (the "Issuer"), proposes
------
to issue and sell to Morgan Stanley & Co. Incorporated, Chase Securities Inc.
and BT Alex. Brown Incorporated (collectively, the "Placement Agents"), upon the
----------------
terms and subject to the conditions set forth in a placement agreement dated
July 29, 1998 between the Issuer and the Placement Agents (the "Placement
---------
Agreement"), an aggregate of 40,000 shares of its 13 1/2% Exchangeable Preferred
- ---------
Stock (the "Securities"). The Securities will be issued pursuant to a
----------
Certificate of Designation to be dated the Closing Date (as the same may be
amended from time to time in accordance with the terms thereof, the
"Certificate") executed by the Issuer. United States Trust Company of New York
-----------
is the transfer agent (the "Transfer Agent") for the Securities. The Securities
--------------
will be exchangeable, at the option of the Company, into 13 1/2% Subordinated
Exchange Debentures due 2010 to be issued
<PAGE>
pursuant to the provisions of an indenture, if applicable, to be dated the date
of such exchange. Capitalized terms used but not defined herein shall have the
meanings given to such terms in the Placement Agreement.
The Issuer has entered into an Agreement and Plan of Merger dated as
of April 15, 1998 (the "Merger Agreement") with Harborside Healthcare
----------------
Corporation, a Delaware corporation (the "Company"), pursuant to which the
-------
Issuer will merge with and into the Company (the "Merger"), and the Company will
------
be the surviving corporation.
As an inducement to the Placement Agents to enter into the Placement
Agreement and in satisfaction of a condition to the obligations of the Placement
Agents thereunder, the Issuer and each subsidiary of the Company which may
hereafter execute a counterpart signature page hereto (collectively, the
"Guarantors"), agree with the Placement Agents, for the benefit of the holders
- -----------
(including the Placement Agents) of the Securities and of the Exchange
Securities (as defined herein) (collectively, the "Holders"), as follows:
-------
1. Registered Exchange Offer. Unless the Registered Exchange Offer
-------------------------
(as defined below) is not permitted by applicable law or Securities and Exchange
Commission ("Commission") policy, or each Holder of Transfer Restricted
Securities (as defined below) notifies the Issuer that it is a Restricted Holder
(as defined below), the Issuer shall (i) prepare and, not later than 90 days
following the date on which the Issuer is merged with and into the Company (the
"Closing Date"), file with the Commission a registration statement (the
------------
"Exchange Offer Registration Statement") on an appropriate form under the
- --------------------------------------
Securities Act of 1933, as amended (the "Securities Act"), with respect to a
--------------
proposed offer to the Holders (the "Registered Exchange Offer") to issue and
-------------------------
deliver to such Holders, in exchange for Securities, a like aggregate
liquidation preference of securities of the Issuer (the "Exchange Securities")
-------------------
and that are identical in all material respects to the Securities, except for
the transfer restrictions relating to the Securities and the absence of
registration rights, (ii) use its reasonable best efforts to cause the Exchange
Offer Registration Statement to become effective under the Securities Act on or
prior to 180 days after the Closing Date, and (iii) commence the Registered
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, Exchange Securities in exchange for all
Securities tendered prior thereto in the Registered Exchange Offer (such period
being called the "Exchange Offer Registration Period"). The Exchange Securities
----------------------------------
will be issued under the Certificate or a certificate of designation (the
"Exchange Securities Certificate") executed by the Issuer, such Exchange
- --------------------------------
Securities Certificate to be identical in all material respects to the
Certificate, except for the transfer restrictions relating to the Securities.
The transfer agent for the Exchange Securities, which shall be reasonably
satisfactory to the Placement Agents, is hereinafter referred to as the
"Exchange Securities Transfer Agent."
- -----------------------------------
Upon the effectiveness of the Exchange Offer Registration Statement,
the Issuer shall promptly commence the Registered Exchange Offer, it being the
objective of such Registered Exchange Offer to enable each Holder electing to
exchange Securities for Exchange Securities (assuming that such Holder (a) is
not an affiliate of the Issuer or an Exchanging Dealer (as defined
2
<PAGE>
herein) not complying with the requirements of the next sentence, (b) is not a
Placement Agent holding Securities that have, or that are reasonably likely to
have, the status of an unsold allotment in an initial distribution, (c) acquires
the Exchange Securities in the ordinary course of such Holder's business and (d)
has no arrangements or understandings with any person to participate in the
distribution of the Securities or the Exchange Securities) to trade such
Exchange Securities from and after their receipt without any limitations or
restrictions under the Securities Act and without material restrictions under
the securities laws of the several states of the United States. The Issuer, the
Guarantors and the Placement Agents and each Exchanging Dealer acknowledge that,
pursuant to current interpretations by the Commission's staff of Section 5 of
the Securities Act, (i) each Holder that is a broker-dealer electing to exchange
Securities, acquired for its own account as a result of market making activities
or other trading activities, for Exchange Securities (an "Exchanging Dealer"),
-----------------
is required to deliver a prospectus containing substantially the information set
forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section and in Annex
C hereto in the "Plan of Distribution" section of such prospectus in connection
with a sale of any such Exchange Securities received by such Exchanging Dealer
pursuant to the Registered Exchange Offer and (ii) if any Placement Agent elects
to sell Exchange Securities acquired in exchange for Securities constituting any
portion of an unsold allotment, it is required to deliver a prospectus,
containing the information required by Items 507 and/or 508 or Regulation S-K
under the Securities Act, as applicable, in connection with such a sale.
In connection with the Registered Exchange Offer, the Issuer and the
Guarantors shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 20
business days (or longer, if required by applicable law) after the date on
which notice of the Registered Exchange Offer is mailed to the Holders;
(c) utilize the services of a depository for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
(d) permit Holders to withdraw tendered Securities at any time prior
to the close of business, New York City time, on the last business day on
which the Registered Exchange Offer shall remain open; and
(e) otherwise comply in all respects with all laws that are applicable
to the Registered Exchange Offer.
As soon as practicable after the close of the Registered Exchange
Offer, the Issuer and the Guarantors shall:
3
<PAGE>
(a) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer;
(b) deliver, or cause to be delivered, to the Transfer Agent for
cancellation all Securities so accepted for exchange; and
(c) issue, and cause the Transfer Agent or the Exchange Securities
Transfer Agent, as the case may be, promptly to issue, countersign and
deliver to each Holder, Exchange Securities in denominations equal to those
of the Securities of such Holder so accepted for exchange.
Subject to the provisions of Section 4(b) hereof, the Issuer and the
Guarantors shall use their reasonable best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the prospectus
contained therein in order to permit such prospectus to be used by all persons
subject to the prospectus delivery requirements of the Securities Act for such
period of time as such persons must comply with such requirements in order to
resell the Exchange Securities; provided that (i) in the case where such
--------
prospectus and any amendment or supplement thereto must be delivered by an
Exchanging Dealer, such period shall be the lesser of 90 days and the date on
which all Exchanging Dealers have sold all Exchange Securities held by them and
(ii) the Issuer and the Guarantors shall make such prospectus and any amendment
or supplement thereto available to any broker-dealer for use in connection with
any resale of any Exchange Securities for a period not to exceed 90 days after
the consummation of the Registered Exchange Offer.
The Certificate or the Exchange Securities Certificate, as the case
may be, shall provide that the Securities and the Exchange Securities shall vote
and consent together on all matters as one class and that none of the Securities
or the Exchange Securities will have the right to vote or consent as a separate
class on any matter.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Issuer that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Securities received by such Holder
will be acquired in the ordinary course of business, (ii) such Holder will have
no arrangements or understandings with any person to participate in the
distribution of the Securities or the Exchange Securities within the meaning of
the Securities Act and (iii) such Holder is not an "affiliate," as defined in
Rule 405 under the Securities Act, of the Issuer or, if it is such an affiliate,
such Holder will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
Notwithstanding any other provisions hereof, the Issuer and each
Guarantor will ensure that, except with respect to the Holders' Information (as
defined in Section 2(c)), (i) any Exchange Offer Registration Statement and any
amendment thereto and any prospectus forming part thereof and any supplement
thereto complies in all material respects with the Securities Act and the rules
and regulations of the Commission thereunder, (ii) any Exchange Offer
Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a
4
<PAGE>
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any prospectus
forming part of any Exchange Offer Registration Statement, and any supplement to
such prospectus, does not, as of the consummation of the Registered Exchange
Offer, include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
2. Shelf Registration. If (i) the Issuer and the Guarantors are not
------------------
required to file the Exchange Offer Registration Statement or permitted to
consummate the Registered Exchange Offer, (ii) any Securities validly tendered
pursuant to the Registered Exchange Offer are not exchanged for Exchange
Securities within 30 days after the Effectiveness Target Date (as defined in
Section 3) of the Exchange Offer Registration Statement or (iii) any Holder (a
"Restricted Holder") of Transfer Restricted Securities notifies the Issuer prior
to the 20th day following consummation of the Registered Exchange Offer that (A)
it is prohibited by law or Commission policy from participating in the
Registered Exchange Offer, (B) it may not resell the Exchange Securities
acquired by it in the Registered 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 that such Securities are not eligible to be exchanged for
Exchange Securities or (D) it is a broker-dealer and owns Securities acquired
directly from the Issuer or an affiliate of the Issuer, the Issuer will file
with the Commission a shelf registration statement on an appropriate form under
the Securities Act relating to the offer and sale of the Transfer Restricted
Securities by the Holders thereof from time to time in accordance with the
methods of distribution set forth in such registration statement (hereafter, a
"Shelf Registration Statement" and together with any Exchange Offer Registration
- -----------------------------
Statement, a "Registration Statement"). If the Issuer is required to file a
----------------------
Shelf Registration Statement the following provisions shall apply:
(a) The Issuer and the Guarantors will use their reasonable best
efforts to file the Shelf Registration Statement with the Commission on or
prior to the date that is 90 days after such filing obligation arises and
to cause the Shelf Registration Statement to be declared effective by the
Commission on or prior to the date that is 135 days after such obligation
arises.
(b) Subject to the provisions of Section 4(b) hereof, the Issuer and
the Guarantors shall use their reasonable best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
prospectus forming part thereof to be used by Holders of Transfer
Restricted Securities for a period of two years after its effective date or
such shorter period that will terminate when all the Transfer Restricted
Securities covered thereby (i) have been sold pursuant thereto or (ii) are
distributed to the public pursuant to Rule 144 under the Securities Act or
are saleable pursuant to Rule 144(k) under the Securities Act (in any such
case, such period being called the "Shelf Registration Period"). Subject to
-------------------------
the provisions of Section 4(b) hereof, the Issuer and the Guarantors shall
be deemed not to have used their reasonable best efforts to keep the Shelf
Registration Statement effective during the requisite
5
<PAGE>
period if any of them voluntarily takes any action that would result in
Holders of Transferred Restricted Securities covered thereby not being able
to offer and sell such Transfer Restricted Securities during that period,
unless (i) such action is required by applicable law, or (ii) such action
is taken by the Issuer in good faith and for valid business reasons (not
including avoidance of the Issuer's obligations hereunder), including the
acquisition or divestiture of assets, so long as the Issuer promptly
thereafter complies with the requirements of Section 4(j) hereof, if
applicable.
(c) Notwithstanding any other provisions hereof, the Issuer and the
Guarantors will ensure that (i) any Shelf Registration Statement and any
amendment thereto and any prospectus forming part thereof and any
supplement thereto complies in all material respects with the Securities
Act and the rules and regulations of the Commission thereunder, (ii) any
Shelf Registration Statement and any amendment thereto (in either case,
other than with respect to information included therein in reliance upon or
in conformity with written information furnished to the Issuer by or on
behalf of any Holder specifically for use therein (the "Holders'
-------
Information")) does not contain 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 and (iii) any prospectus forming
part of any Shelf Registration Statement, and any supplement to such
prospectus (in either case, other than with respect to Holders'
Information), does not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
3. Liquidated Damages.
------------------
(a) The parties hereto agree that the Holders of Transfer Restricted
Securities will suffer damages if the Issuer or any Guarantor fails to
fulfill its obligations under Section 1 or Section 2, as applicable, and
that it would not be feasible to ascertain the extent of such damages.
Accordingly, if (i) the Issuer fails to file any of the Registration
Statements required by this Registration Rights Agreement on or before the
date specified for such filing, (ii) any of such Registration Statements is
not declared effective by the Commission on or prior to the date specified
for such effectiveness in Section 1 or Section 2(a), as applicable (the
"Effectiveness Target Date"), (iii) unless the Registered 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
Registered Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement, or
(iv) 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 or exchanges of Transfer Restricted
Securities during the periods specified in Section 1 or Section 2, as
applicable, other than a Blackout Period (as defined herein) (each such
event referred to in clauses (i) through (iv) above, a "Registration
------------
Default"), then the Issuer and the Guarantors agree to pay liquidated
-------
damages (the "Liquidated Damages") to each Holder of Transfer Restricted
Securities, with respect to the first 90-day period immediately following
6
<PAGE>
the occurrence of the first Registration Default in an amount equal to $.05
per week per $1,000 liquidation preference of Transfer Restricted
Securities held by such Holder. The amount of the Liquidated Damages will
increase by an additional $.05 per week per $1,000 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 liquidation
preference of Transfer Restricted Securities. All accrued Liquidated
Damages will be paid by the Issuer and the Guarantors on each Dividend
Payment Date specified in the Certificate, in the same manner as dividend
payments on the Securities. Following the cure of all Registration
Defaults, the accrual of Liquidated Damages will cease. As used herein, the
term "Transfer Restricted Securities" means (i) each Security until the
------------------------------
date on which such Security has been exchanged for a freely transferable
Exchange Security in the Registered Exchange Offer, (ii) each Exchange
Security following the exchange by a broker-dealer in the Registered
Exchange Offer of a Security for an Exchange Security, until the date on
which such Exchange Security is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) each Security
until the date on which it has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) each Security until the date on which it has been
distributed to the public pursuant to Rule 144 under the Securities Act.
Notwithstanding anything to the contrary in this Section 3(a), the Issuer
and the Guarantors shall not be required to pay Liquidated Damages to a
Holder of Transfer Restricted Securities if such Holder failed to comply
with its obligations to make the representations set forth in the second to
last paragraph of Section 1 or failed to provide the information required
to be provided by it, if any, pursuant to Section 4(n).
(b) The Issuer shall notify the Transfer Agent and the paying agent
under the Certificate immediately upon the happening of each and every
Registration Default. The Issuer and the Guarantors shall pay the
Liquidated Damages due on the Transfer Restricted Securities by depositing
with the paying agent (which may not be the Issuer for these purposes), in
trust, for the benefit of the Holders thereof, prior to 10:00 a.m., New
York City time, on the next Dividend Payment Date specified by the
Certificate, sums sufficient to pay the Liquidated Damages then due, or by
making payment in such other manner as may be specified for the payment of
dividends in the Certificate or the Exchange Securities Certificate. The
Liquidated Damages due shall be payable on each Dividend Payment Date
specified by the Certificate to the record holder on such date. Each
obligation to pay Liquidated Damages shall be deemed to accrue from and
including the date of the applicable Registration Default.
(c) The parties hereto agree that the Liquidated Damages provided for
in this Section 3 constitute a reasonable estimate of and are intended to
constitute the sole damages that will be suffered by Holders of Transfer
Restricted Securities by reason of the occurrence of any of the events
described in Section 3(a)(i) through 3(a)(iv) hereof.
7
<PAGE>
4. Registration Procedures. In connection with any Registration
-----------------------
Statement, the following provisions shall apply:
(a) The Issuer shall (i) furnish to each Placement Agent, prior
to the filing thereof with the Commission, a copy of the Registration
Statement and each amendment thereof and each supplement, if any, to the
prospectus included therein and shall use its reasonable best efforts to
reflect in each such document, when so filed with the Commission, such
comments as any Placement Agent may reasonably propose; (ii) include the
information set forth in Annex A hereto on the cover, in Annex B hereto in
the "Exchange Offer Procedures" section and the "Purpose of the Exchange
Offer" section and in Annex C hereto in the "Plan of Distribution" section
of the prospectus forming a part of the Exchange Offer Registration
Statement, and include the information set forth in Annex D hereto in the
Letter of Transmittal delivered pursuant to the Registered Exchange Offer;
and (iii) if reasonably requested by any Placement Agent, include the
information required by Items 507 or 508 of Regulation S-K, as applicable,
in the prospectus forming a part of the Exchange Offer Registration
Statement.
(b) The Issuer shall advise each Placement Agent, each Exchanging
Dealer and the Holders (if applicable) and, if requested by any such
person, confirm such advice in writing (which advice pursuant to clauses
(ii)-(v) hereof shall be accompanied by an instruction to suspend the use
of the prospectus until the requisite changes have been made):
(i) when any Registration Statement and any amendment thereto
has been filed with the Commission and when such Registration
Statement or any post-effective amendment thereto has become
effective;
(ii) of any request by the Commission for amendments or
supplements to any Registration Statement or the prospectus included
therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of any Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Issuer or any Guarantor of any
notification with respect to the suspension of the qualification of
the Securities or the Exchange Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose;
and
(v) of the happening of any event that requires the making
of any changes in any Registration Statement or the prospectus
included therein in order that the statements therein are not
misleading and do not omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading.
8
<PAGE>
Upon complying with the procedures described above in this Section
4(b) following the occurrence of an event of the type described in clause
(v) of this Section 4(b), the Issuer may suspend the use of any prospectus
included in any Registration Statement for a period (the "Blackout Period")
---------------
not to exceed an aggregate of 60 days in any 12 month period if (i) the
Board of Directors of the Issuer determines that the disclosure of such
event at such time would have a material adverse effect on the business,
operations or prospects of the Issuer or (ii) the disclosure otherwise
relates to a material business transaction which has not yet been publicly
disclosed and the Board of Directors determines that any such disclosure
would jeopardize the success of such transaction; provided that, upon the
termination of such Blackout Period, the Issuer promptly shall advise the
Placement Agents, each Exchanging Dealer and the Holders (if applicable)
and, if requested by any such person, confirm such advice in writing that
such Blackout Period has been terminated.
(c) The Issuer and the Guarantors will make every reasonable effort
to obtain the withdrawal at the earliest possible time of any order
suspending the effectiveness of any Registration Statement.
(d) The Issuer will furnish to each Holder of Transfer Restricted
Securities included within the coverage of any Shelf Registration
Statement, without charge, at least one conformed copy of such Shelf
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules and, if any such Holder so requests in
writing, all exhibits thereto (including those, if any, incorporated by
reference).
(e) The Issuer will, during the Shelf Registration Period, deliver to
each Holder of Transfer Restricted Securities included within the coverage
of any Shelf Registration Statement, without charge, as many copies of the
prospectus (including each preliminary prospectus) included in such Shelf
Registration Statement and any amendment or supplement thereto as such
Holder may reasonably request; and the Issuer and the Guarantors consent to
the use (in accordance with applicable law) of such prospectus or any
amendment or supplement thereto by each of the selling Holders of Transfer
Restricted Securities in connection with the offer and sale of the Transfer
Restricted Securities covered by such prospectus or any amendment or
supplement thereto.
(f) The Issuer will furnish to each Placement Agent and each
Exchanging Dealer, and to any other Holder who so requests, without charge,
at least one conformed copy of the Exchange Offer Registration Statement
and any post-effective amendment thereto, including financial statements
and schedules and, if any Placement Agent or Exchanging Dealer or any such
Holder so requests in writing, all exhibits thereto (including those, if
any, incorporated by reference).
(g) The Issuer will, during the Exchange Offer Registration Period or
the Shelf Registration Period, as applicable, promptly deliver to each
Placement Agent, each Exchanging Dealer and such other persons that are
required to deliver a prospectus following
9
<PAGE>
the Registered Exchange Offer, without charge, as many copies of the final
prospectus included in the Exchange Offer Registration Statement or the
Shelf Registration Statement and any amendment or supplement thereto as
such Placement Agent, Exchanging Dealer or other persons may reasonably
request; and the Issuer and the Guarantors consent to the use (in
accordance with applicable law) of such prospectus or any amendment or
supplement thereto by any such Placement Agent, Exchanging Dealer or other
persons, as applicable, as aforesaid.
(h) Prior to the effective date of any Registration Statement, the
Issuer and the Guarantors will use their reasonable best efforts to
register or qualify, or cooperate with the Holders of Securities or
Exchange Securities included therein and their respective counsel in
connection with the registration or qualification of, such Securities or
Exchange Securities for offer and sale under the securities or blue sky
laws of such jurisdictions as any such Holder reasonably requests in
writing and do any and all other acts or things necessary or advisable to
enable the offer and sale in such jurisdictions of the Securities or
Exchange Securities covered by such Registration Statement; provided that
--------
the Issuer and the Guarantors will not be required to qualify generally to
do business in any jurisdiction where it is not then so qualified or to
take any action which would subject it to general service of process or to
taxation in any such jurisdiction where it is not then so subject.
(i) The Issuer and the Guarantors will cooperate with the Holders of
Securities or Exchange Securities to facilitate the timely preparation and
delivery of certificates representing Securities or Exchange Securities to
be sold pursuant to any Registration Statement free of any restrictive
legends and in such denominations and registered in such names as the
Holders thereof may request in writing at least three business days prior
to sales of Securities or Exchange Securities pursuant to such Registration
Statement.
(j) Subject to the provisions of the last paragraph of Section 4(b)
hereof, if any event contemplated by Section 4(b)(ii) through (v) occurs
during the period for which the Issuer is required to maintain an effective
Registration Statement, the Issuer will promptly prepare and file with the
Commission a post-effective amendment to the Registration Statement or a
supplement to the related prospectus or file any other required document so
that, as thereafter delivered to purchasers of the Securities or Exchange
Securities from a Holder or an Exchanging Dealer, the prospectus will not
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(k) Not later than the effective date of the applicable Registration
Statement, the Issuer will provide a CUSIP number for the Securities and
Exchange Securities, as the case may be, and provide the applicable trustee
with printed certificates for the Securities or the Exchange Securities, as
the case may be, in a form eligible for deposit with The Depository Trust
Company.
10
<PAGE>
(l) The Issuer and the Guarantors will comply with all applicable
rules and regulations of the Commission and the Issuer will make generally
available to its security holders as soon as practicable after the
effective date of the applicable Registration Statement an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act.
(m) INTENTIONALLY OMITTED.
(n) The Issuer may require each Holder of Transfer Restricted
Securities to be registered pursuant to any Shelf Registration Statement to
furnish to the Issuer such information (including supplements thereto)
concerning the Holder and the distribution of such Transfer Restricted
Securities as the Issuer may from time to time reasonably require for
inclusion in such Shelf Registration Statement, and the Issuer may exclude
from such registration the Transfer Restricted Securities of any Holder
that fails to furnish such information (including supplements thereto)
within 5 business days after receiving such request.
(o) In the case of a Shelf Registration Statement, each Holder of
Transfer Restricted Securities to be registered pursuant thereto agrees by
acquisition of such Transfer Restricted Securities that, upon receipt of
any notice from the Issuer pursuant to Section 4(b)(ii) through (v) hereof,
such Holder will discontinue disposition of such Transfer Restricted
Securities until such Holder's receipt of copies of the supplemental or
amended prospectus contemplated by Section 4(j) hereof or until advised in
writing (the "Advice") by the Issuer that the use of the applicable
------
prospectus may be resumed. If the Issuer shall give any notice under
Section 4(b)(ii) through (v) during the period that the Issuer is required
to maintain an effective Registration Statement (the "Effectiveness
-------------
Period"), such Effectiveness Period shall be extended by the number of days
------
during such period from and including the date of the giving of such notice
to and including the date when each seller of Transfer Restricted
Securities covered by such Registration Statement shall have received (x)
the copies of the supplemental or amended prospectus contemplated by
Section 4(j) (if an amended or supplemental prospectus is required) or (y)
the Advice (if no amended or supplemental prospectus is required).
(p) In the case of a Shelf Registration Statement, the Issuer shall
enter into such customary agreements (including, if requested, an
underwriting agreement to be negotiated between the parties in good faith)
and take all such other action, if any, as Holders of a majority of the
Securities and Exchange Securities being sold or the managing underwriters
(if any) shall reasonably request in order to facilitate any disposition of
Securities or Exchange Securities pursuant to such Shelf Registration
Statement.
(q) In the case of a Shelf Registration Statement, the Issuer and the
Guarantors shall (i) make reasonably available for inspection by a
representative of, and Special Counsel (as defined below) acting for,
Holders of a majority of the Securities and Exchange Securities being sold
and any underwriter participating in any disposition of Securities or
Exchange
11
<PAGE>
Securities pursuant to such Shelf Registration Statement, and (ii) use
their reasonable best efforts to have their officers, directors, employees,
accountants and counsel supply, all relevant information reasonably
requested by such representative, Special Counsel or any such underwriter
(an "Inspector") in connection with such Shelf Registration Statement,
---------
subject to executing a confidentiality undertaking in customary form and
with respect to confidential and/or proprietary information of the Issuer
and the Guarantors.
(r) In the case of a Shelf Registration Statement, the Issuer shall,
if requested by Holders of a majority of the Securities and Exchange
Securities being sold, its Special Counsel or the managing underwriters (if
any) in connection with such Shelf Registration Statement, use its
reasonable best efforts to cause (i) its counsel to deliver an opinion
relating to the Shelf Registration Statement and the Securities or Exchange
Securities, as applicable, in customary form, (ii) its officers to execute
and deliver all customary documents and certificates reasonably requested
by Holders of a majority of the Securities and Exchange Securities being
sold, their Special Counsel or the managing underwriters (if any) and (iii)
its independent public accountants to provide a comfort letter or letters
in customary form, subject to receipt of appropriate documentation as
contemplated, and only if permitted, by Statement of Auditing Standards No.
72.
5. Registration Expenses. The Issuer and the Guarantors will bear
---------------------
all expenses incurred in connection with the performance of their obligations
under Sections 1, 2, 3 and 4 and, in the case of a Shelf Registration Statement,
the Issuer and the Guarantors will reimburse the Placement Agents and the
Holders for the reasonable fees and disbursements of one firm of attorneys (in
addition to any local counsel) chosen by the Holders of a majority of the
Securities and the Exchange Securities to be sold pursuant to such Registration
Statement (the "Special Counsel") acting for the Placement Agents or Holders in
---------------
connection therewith.
6. Indemnification.
---------------
(a) The Issuer and the Guarantors, jointly and severally, agree to
indemnify and hold harmless each Placement Agent, each Holder (including,
without limitation, each Exchanging Dealer), their respective affiliates,
officers, directors, employees, representatives and agents, and each
person, if any, who controls any Placement Agent and any Holder within the
meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (collectively referred to for purposes of this
------------
Section 6 and Section 7 as a "Holder") from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof
(including, without limitation, any loss, claim, damage, liability or
action relating to purchases and sales of Securities or Exchange
Securities), to which that Holder may become subject, whether commenced or
threatened, under the Securities Act, the Exchange Act, any other federal
or state statutory law or regulation, at common law or otherwise, insofar
as such loss, claim, damage, liability or action arises out of, or is based
upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement (or in any amendment or
supplement thereto), including all documents
12
<PAGE>
incorporated therein by reference, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
prospectus (as amended or supplemented), or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and shall reimburse each Holder
promptly upon demand for any legal or other expenses reasonably incurred by
that Holder in connection with investigating or defending or preparing to
defend against or appearing as a third party witness in connection with any
such loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that the Issuer and the Guarantors shall not
-------- -------
be liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, an untrue statement or
alleged untrue statement in or omission or alleged omission from any of
such documents in reliance upon and in conformity with any Holders'
Information; and provided further that, with respect to any such untrue
-------- -------
statement in or omission from any related preliminary prospectus, the
indemnity contained in this Section 6(a) shall not inure to the benefit of
any Holder from whom the person asserting any such loss, claim, damage,
liability or action received Securities or Exchange Securities to the
extent that such loss, claim, damage, liability or action of or with
respect to such Holder results from the fact that both (A) a copy of the
final prospectus was not sent or given to such person at or prior to the
written confirmation of the sale of such Securities or Exchange Securities
to such person and such delivery was required by the Securities Act and (B)
the untrue statement in or omission from the related preliminary prospectus
was corrected in the final prospectus unless, in either case, such failure
to deliver the final prospectus was a result of non-compliance by the
Issuer with Section 4(d), 4(e), 4(f) or 4(g).
(b) Each Holder agrees to indemnify and hold harmless the Issuer, the
Placement Agents and the other selling Holders, and each of their
respective affiliates, and their respective officers, directors, employees,
representatives and agents, and each person, if any, who controls the
Issuer or the Guarantors, any Placement Agent and any other selling Holder
within the meaning of the Securities Act or the Exchange Act, from and
against any loss, claim, damage or liability, joint or several, or any
action in respect thereof, to which the Issuer may become subject, whether
commenced or threatened, under the Securities Act, the Exchange Act, any
other federal or state statutory law or regulation, at common law or
otherwise, insofar as such loss, claim, damage, liability or action arises
out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement (or in
any amendment or supplement thereto), including all documents incorporated
therein by reference, or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary in order to make
the statements therein not misleading, or (ii) any untrue statement or
alleged untrue statement of a material fact contained in any prospectus (as
amended or supplemented), or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not
13
<PAGE>
misleading, but in each case only to the extent that the untrue statement
or alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with any Holders' Information furnished to
the Issuer by such Holder, and shall reimburse the Issuer and/or the
Guarantors for any legal or other expenses reasonably incurred by the
Issuer in connection with investigating or defending or preparing to defend
against or appearing as a third party witness in connection with any such
loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that no such Holder shall be liable for any indemnity
-------- -------
claims hereunder in excess of the amount of net proceeds received by such
Holder from the sale of Securities or Exchange Securities pursuant to a
Registration Statement.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 6(a) or 6(b), notify the
indemnifying party in writing of the claim or the commencement of that
action; provided, however, that the failure to notify the indemnifying
-------- -------
party shall not relieve it from any liability which it may have under this
Section 6 except to the extent that it has been materially prejudiced
(through the forfeiture of substantive rights or defenses) by such failure;
and provided further that the failure to notify the indemnifying party
-------- -------
shall not relieve it from any liability which it may have to an indemnified
party otherwise than under this Section 6. If any such claim or action
shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any
other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice
from the indemnifying party to the indemnified party of its election to
assume the defense of such claim or action, the indemnifying party shall
not be liable to the indemnified party under this Section 6 for any legal
or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than the reasonable costs of
investigation; provided, however, that an indemnified party shall have the
-------- -------
right to employ its own counsel in any such action, but the fees, expenses
and other charges of such counsel for the indemnified party will be at the
expense of such indemnified party unless (1) the employment of counsel by
the indemnified party has been authorized in writing by the indemnifying
party, (2) the indemnified party has reasonably concluded (based upon
advice of counsel to the indemnified party) that there may be legal
defenses available to it or other indemnified parties that are different
from or in addition to those available to the indemnifying party, (3) a
conflict or potential conflict exists (based upon advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party
that makes it impossible or inadvisable for counsel to the indemnifying
party to conduct the defense of both the indemnifying party and the
indemnified party (in which case the indemnifying party will not have the
right to direct the defense of such action on behalf of the indemnified
party) or (4) the indemnifying party has not in fact employed counsel
reasonably satisfactory to the indemnified party to assume the defense of
such action within a reasonable time after receiving notice of the
commencement of the action, in each of which cases the reasonable fees,
disbursements and other charges of counsel will be at the expense of the
indemnifying
14
<PAGE>
party or parties. It is understood that the indemnifying party or parties
shall not, in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm of attorneys (in addition to
any local counsel) at any one time for all such indemnified party or
parties. In the event of any claim or action in which the Placement Agents
or persons who control the Placement Agents are indemnified parties, such
firm shall be designated in writing by Morgan Stanley & Co. Incorporated.
In the event of any claim or action in which the Holders or persons who
control the Holders are indemnified parties, and the Placement Agents are
not indemnified parties, such firm shall be designated in writing by the
Holders of a majority of the Securities to which such claim or action
relates (excluding for this purpose, affiliates of the Issuer and the
Guarantors). In all other cases, such firm shall be designated by the
Issuer. Each indemnified party, as a condition of the indemnity contained
in Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate
with the indemnifying party in the defense of any such action or claim. No
indemnifying party shall be liable for any settlement of any such action
effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there
be a final judgment for the plaintiff in any such action, the indemnifying
party agrees to indemnify and hold harmless any indemnified party from and
against any loss or liability by reason of such settlement or judgment. No
indemnifying party shall, without the prior written consent of the
indemnified party (which consent shall not be unreasonably withheld),
effect any settlement of any pending or threatened proceeding in respect of
which any indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding.
7. Contribution. If the indemnification provided for in Section 6
------------
is unavailable or insufficient to hold harmless an indemnified party under
Section 6(a) or 6(b), then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Issuer from the offering and sale
of the Securities, on the one hand, and a Holder with respect to the sale by
such Holder of Securities or Exchange Securities, on the other, or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Issuer, on
the one hand, and such Holder, on the other, with respect to the statements or
omissions that resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Issuer, on the one hand, and a Holder, on the
other, with respect to such offering and such sale shall be deemed to be in the
same proportion as the total net proceeds from the offering of the Securities
(before deducting expenses) received by or on behalf of the Issuer, on the one
hand, bear to the total proceeds received by such Holder with respect to its
sale of Securities or Exchange Securities, on the other. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to the
15
<PAGE>
Issuer or information supplied by the Issuer, on the one hand, or to any
Holders' Information supplied by such Holder, on the other, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The parties hereto agree
that it would not be just and equitable if contributions pursuant to this
Section 7 were to be determined by pro rata allocation or by any other method of
allocation that does not take into account the equitable considerations referred
to herein. The amount paid or payable by an indemnified party as a result of the
loss, claim, damage or liability, or action in respect thereof, referred to
above in this Section 7 shall be deemed to include, for purposes of this Section
7, any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending or preparing to defend any such
action or claim. Notwithstanding the provisions of this Section 7, an
indemnifying party that is a Holder of Securities or Exchange Securities shall
not be required to contribute any amount in excess of the amount by which the
total price at which the Securities or Exchange Securities sold by such
indemnifying party to any purchaser exceeds the amount of any damages which such
indemnifying party has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission. 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.
8. Rules 144 and 144A. The Issuer shall use its reasonable best
------------------
efforts to file the reports required to be filed by it under the Securities Act
and the Exchange Act in a timely manner and, if at any time the Issuer is not
required to file such reports, it will, upon the written request of any Holder
of Transfer Restricted Securities, make publicly available other information so
long as necessary to permit sales of such Holder's securities pursuant to Rules
144 and 144A. The Issuer and the Guarantors covenant that they will take such
further action as any Holder of Transfer Restricted Securities may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Transfer Restricted Securities without registration under the Securities
Act within the limitation of the exemptions provided by Rules 144 and 144A
(including, without limitation, the requirements of Rule 144A(d)(4)). Upon the
written request of any Holder of Transfer Restricted Securities, the Issuer
shall deliver to such Holder a written statement as to whether it has complied
with such requirements. Notwithstanding the foregoing, nothing in this Section
8 shall be deemed to require the Issuer to register any of its securities
pursuant to the Exchange Act.
9. Underwritten Registrations. If any of the Transfer Restricted
--------------------------
Securities covered by any Shelf Registration Statement are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority of such Transfer Restricted Securities included in such offering,
subject to the consent of the Issuer (which shall not be unreasonably withheld
or delayed), and such Holders shall be responsible for all underwriting
commissions and discounts in connection therewith.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted
Securities on the basis reasonably provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
16
<PAGE>
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
10. Miscellaneous.
-------------
(a) Amendments and Waivers. The provisions of this Agreement may
----------------------
not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless the Issuer
has obtained the written consent of Holders of a majority of the Securities
and the Exchange Securities, taken as a single class. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders whose
Securities or Exchange Securities are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of a majority of the Securities and
Exchange Securities being sold by such Holders pursuant to such
Registration Statement.
(b) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telecopier or air courier guaranteeing next-day delivery:
(1) if to a Holder, at the most current address given by such
Holder to the Issuer in accordance with the provisions of this Section
10(b), which address initially is, with respect to each Holder, the
address of such Holder maintained by the Registrar under the
Certificate, with a copy in like manner to Morgan Stanley & Co.
Incorporated, Chase Securities Inc. and BT Alex. Brown Incorporated;
(2) if to the Placement Agents, initially at the address set
forth in the Placement Agreement; and
(3) if to the Issuer or the Guarantors, initially at the address
of the Issuer set forth in the Placement Agreement.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; one business day after
being delivered to a next-day air courier; five business days after being
deposited in the mail; and when receipt is acknowledged by the recipient's
telecopier machine, if sent by telecopier.
(c) Successors And Assigns. This Agreement shall be binding upon the
----------------------
Issuer, the Guarantors and their respective successors and assigns.
(d) Counterparts. This Agreement may be executed in any number of
------------
counterparts (which may be delivered in original form or by telecopier) and
by the parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and
17
<PAGE>
all of which taken together shall constitute one and the same agreement.
This Agreement shall become effective upon the execution of a counterpart
by each of the Issuer and the Placement Agents. Upon the execution after
the date hereof of a counterpart, by any Guarantor, such Guarantor shall,
without further action, become a party hereto and such Guarantor shall be
bound by the provisions hereof.
(e) Definition of Terms. For purposes of this Agreement, (a) the
-------------------
term "business day" means any day on which the New York Stock Exchange,
Inc. is open for trading and (b) except where otherwise expressly provided,
the term "affiliate" has the meaning set forth in Rule 405 under the
Securities Act.
(f) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York.
(h) Remedies. In the event of a breach by the Issuer or the
--------
Guarantors or by any Holder of any of their obligations under this
Agreement, each Holder, the Issuer or the Guarantors, as the case may be,
in addition to being entitled to exercise all rights granted by law,
including recovery of damages (other than the recovery of damages for a
breach by the Issuer of its obligations under Section 1 or 2 hereof for
which Liquidated Damages have been paid pursuant to Section 3 hereof), will
be entitled to specific performance of its rights under this Agreement. The
Issuer, the Guarantors and each Holder agree that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by
them of any of the provisions of this Agreement and hereby further agree
that, in the event of any action for specific performance in respect of
such breach, they shall waive the defense that a remedy at law would be
adequate.
(i) No Inconsistent Agreements. The Issuer and the Guarantors
--------------------------
represent, warrant and agree that (i) they have not entered into and shall
not, on or after the date of this Agreement, enter into any agreement that
is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof, (ii) they have not
previously entered into any agreement which remains in effect granting any
registration rights with respect to any of its equity securities to any
person and (iii) without limiting the generality of the foregoing, without
the written consent of the Holders of a majority of the then outstanding
Transfer Restricted Securities, they shall not grant to any person the
right to request the Issuer to register any debt securities of the Issuer
under the Securities Act unless the rights so granted are not in conflict
or inconsistent with the provisions of this Agreement.
(j) No Piggyback on Registrations. Neither the Issuer,
-----------------------------
the Guarantors nor any of their security holders (other than the Holders of
Transfer Restricted Securities in such
18
<PAGE>
capacity) shall have the right to include any securities of the Issuer in
any Shelf Registration or Registered Exchange Offer other than Transfer
Restricted Securities.
(k) Severability. The remedies provided herein are cumulative and not
------------
exclusive of any remedies provided by law. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder
of the terms, provisions, covenants and restrictions set forth herein shall
remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their reasonable best
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
19
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Issuer, the Guarantors and the Placement Agents.
Very truly yours,
HH ACQUISITION CORP.
By: /s/ Christopher J. O'Brien
___________________________________
Name: Christopher J. O'Brien
Title: President
Accepted as of the date hereof:
MORGAN STANLEY & CO. INCORPORATED
CHASE SECURITIES INC.
BT ALEX. BROWN INCORPORATED
By: Morgan Stanley & Co. Incorporated
By: /s/ Stephanie Kaplan
____________________________
Name: Stephanie Kaplan
Title: Principal
<PAGE>
HARBORSIDE HEALTHCARE LIMITED
PARTNERSHIP
By: KHI CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
___________________________________
Name: Stephen L. Guillard
Title: President and Chief
Executive Officer
BELMONT NURSING CENTER CORP.
By: /s/ Stephen L. Guillard
___________________________________
Name: Stephen L. Guillard
Title: President and Chief
Executive Officer
ORCHARD RIDGE NURSING CENTER CORP.
By: /s/ Stephen L. Guillard
___________________________________
Name: Stephen L. Guillard
Title: President and Chief
Executive Officer
OAKHURST MANOR NURSING CENTER
CORP.
By: /s/ Stephen L. Guillard
___________________________________
Name: Stephen L. Guillard
Title: President and Chief
Executive Officer
<PAGE>
RIVERSIDE RETIREMENT LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
___________________________________
Name: Stephen L. Guillard
Title: President and Chief
Executive Officer
HARBORSIDE TOLEDO LIMITED
PARTNERSHIP
By: HARBORSIDE TOLEDO CORP.,
its general partner
By: /s/ Stephen L. Guillard
___________________________________
Name: Stephen L. Guillard
Title: President and Chief
Executive Officer
HARBORSIDE CONNECTICUT LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
___________________________________
Name: Stephen L. Guillard
Title: President and Chief
Executive Officer
<PAGE>
HARBORSIDE OF FLORIDA LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
HARBORSIDE OF OHIO LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
HARBORSIDE HEALTHCARE BALTIMORE
LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
<PAGE>
HARBORSIDE OF CLEVELAND LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE OF DAYTON LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE MASSACHUSETTS LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
_____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
<PAGE>
HARBORSIDE RHODE ISLAND LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE NORTH TOLEDO LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE HEALTHCARE ADVISORS
LIMITED PARTNERSHIP
By: KHI CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
<PAGE>
HARBORSIDE TOLEDO LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
KHI CORPORATION.
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE ACQUISITION LIMITED PARTNERSHIP IV
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE ACQUISITION LIMITED PARTNERSHIP V
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
<PAGE>
HARBORSIDE ACQUISITION LIMITED PARTNERSHIP VI
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP VII
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP VIII
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
<PAGE>
HARBORSIDE ACQUISITION LIMITED PARTNERSHIP IX
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
_____________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
HARBORSIDE ACQUISITION LIMITED PARTNERSHIP X
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
_____________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
SAILORS, INC.
By: /s/ Stephen L. Guillard
_____________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
NEW JERSEY HARBORSIDE CORP.
By: /s/ Stephen L. Guillard
_____________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
<PAGE>
BRIDGEWATER ASSISTED LIVING LIMITED
PARTNERSHIP
By: NEW JERSEY HARBORSIDE
CORP., its general partner
By: /s/ Stephen L. Guillard
_____________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
MARYLAND HARBORSIDE CORP.
By: /s/ Stephen L. Guillard
_____________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
HARBORSIDE HOMECARE LIMITED PARTNERSHIP
By: KHI CORPORATION, its general partner
By: /s/ Stephen L. Guillard
_____________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
HARBORSIDE REHABILITATION LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
_____________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
<PAGE>
HARBORSIDE HEALTHCARE
NETWORK LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
_____________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
HARBORSIDE HEALTH I CORPORATION
By: /s/ Stephen L. Guillard
_____________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive
Officer
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Securities.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Securities received in exchange for
Securities where such 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 (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Securities for its own
account in exchange for Securities, where such 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 Exchange Securities. See "Plan of Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange 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 Exchange Securities
received in exchange for Securities where such 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 _______________,
199_, all dealers effecting transactions in the Exchange Securities may be
required to deliver a prospectus./1/
Neither the Issuer nor any of the Guarantors will receive any proceeds
from any sale of Exchange Securities by broker-dealers. Exchange Securities
received by broker-dealers for their own account pursuant to the Registered
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange 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 or the purchasers of any such Exchange Securities. Any broker-dealer
that resells Exchange Securities that were received by it for its own account
pursuant to the Registered Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Securities may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Securities and any commission 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.
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 and the Guarantors have agreed to pay
all expenses incident to the Registered Exchange Offer (including the expenses
of one counsel for the Holders of the Securities) other than commissions or
concessions of any broker-dealers and will indemnify the Holders of the
Securities (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
_______________________
/1/ In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Registered Exchange Offer prospectus.
<PAGE>
Consessions of any broker-dealers and will indemnify the Holders of the
Securities (including any broker-dealers) against certain liabilities under the
Securities Act.
<PAGE>
ANNEX D
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES
OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
Address:
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE>
EXHIBIT 3.1.2
HARBORSIDE HEALTHCARE CORPORATION
CERTIFICATE OF DESIGNATION OF THE POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER SPECIAL RIGHTS OF
13 1/2% EXCHANGEABLE PREFERRED STOCK
AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF
------------------------------------------------
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
------------------------------------------------
<PAGE>
Harborside Healthcare Corporation (the "Issuer"), a corporation organized
------
and existing under the General Corporation Law of the State of Delaware, does
hereby certify that, pursuant to authority conferred upon the Board of Directors
of the Issuer or any committee of the Board of Directors by its Certificate of
Incorporation (the "Certificate of Incorporation"), and pursuant to the
----------------------------
provisions of Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors, by unanimous written consent dated as of
August 11, 1998, duly approved and adopted the following resolution:
RESOLVED, that, pursuant to the authority vested in the Board of
Directors by its Certificate of Incorporation, the Board of Directors
does hereby create, authorize and provide for the issue of 13 1/2%
Exchangeable Preferred Stock, par value $0.01 per share, with a
liquidation preference of $1,000.00 per share, consisting of up to
250,000 shares, having the designations, preferences and relative,
participating, optional and other special rights and the
qualifications, limitations and restrictions thereof that are set
forth in the Certificate of Incorporation and in this Resolution as
follows:
This Certificate of Designation shall be deemed effective on August 11,
1998.
ARTICLE 1
DESIGNATION
SECTION 1.1 There is hereby created out of the authorized and unissued
shares of Preferred Stock of the Issuer a class of Preferred Stock designated as
the "13 1/2% Exchangeable Preferred Stock". The number of shares constituting
such class shall be 250,000 shares of 13 1/2% Exchangeable Preferred Stock (the
"Exchangeable Preferred Stock"), consisting of one or more series. Initially,
----------------------------
there is hereby created "Series A" (the "Series A Exchangeable Preferred
-------------------------------
Stock"), consisting of 120,000 shares of Exchangeable Preferred Stock which
- -----
consists of an initial issuance of 40,000 shares of Exchangeable Preferred
Stock, plus up to 40,000 additional shares of Exchangeable Preferred Stock which
may be issued pursuant to the Preferred Stock Registration Rights Agreement in
exchange for the Exchangeable Preferred Stock issued on the Issue Date, plus
additional shares of Exchangeable Preferred Stock which, among other things, may
be used to pay certain dividends on the Exchangeable Preferred Stock if the
Issuer elects to pay dividends in additional shares of Preferred Stock.
SECTION 1.2 In addition, if and when authorized by the Board of
Directors, the Issuer may issue (subject to the 250,000 maximum referred to
above and compliance with the terms and provisions hereof) additional series of
Preferred Stock having identical terms and conditions to the Series A
Exchangeable Preferred Stock (the "Additional Exchangeable Preferred Stock").
---------------------------------------
Any shares of Additional Exchangeable Preferred Stock will be part of the same
issue and class as the Series A 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 Certificate of Designation
to "Exchangeable Preferred Stock" include any Additional Exchangeable
Preferred Stock, and any references to "Exchange Debentures" include
2
<PAGE>
any Exchange Debentures issued in exchange for Additional Exchangeable Preferred
Stock, unless the context otherwise requires.
ARTICLE 2
RANK
SECTION 2.1 The Exchangeable Preferred Stock shall, 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 the date of the Offering Memorandum 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 the date of the Offering Memorandum 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").
-----------------
ARTICLE 3
DIVIDENDS
SECTION 3.1 Beginning on the Issue Date, Holders of outstanding
Exchangeable Preferred Stock 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 outstanding Exchangeable Preferred Stock at a rate
per annum equal to 13 1/2% of the liquidation preference per share of
outstanding Exchangeable Preferred Stock. All dividends will be cumulative,
whether or not earned or declared, on a daily basis from the date of issuance of
the Exchangeable Preferred Stock and will be payable quarterly in arrears on
February 1, May 1, August 1 and November 1 of each year (each a "Dividend
--------
Payment Date"), commencing on November 1, 1998. 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 having an aggregate
liquidation preference equal to the amount of such dividends. After August 1,
2003, dividends may be paid only in cash. Each distribution in the form of a
dividend (whether in cash or in additional shares of Exchangeable Preferred
Stock) shall be payable to Holders of record as they appear on the stock books
of the Issuer on the applicable record date, which record date shall be January
15, April 15, July 15 and October 15, as the case may be. Dividends shall cease
to accumulate in respect of shares of the Exchangeable Preferred Stock on the
Exchange Date or on the date of their earlier redemption unless the Issuer shall
have failed to issue the appropriate aggregate principal amount of Exchange
Debentures in respect of the Exchangeable Preferred Stock on the Exchange Date
or shall have failed to pay the relevant redemption price on the date fixed for
redemption.
3
<PAGE>
SECTION 3.2 In addition to the dividend rights set forth in Section 3.1,
under certain circumstances set forth in the Preferred Stock Registration Rights
Agreement, the Holders of outstanding Exchangeable Preferred Stock may be
entitled to Liquidated Damages (as defined therein). Copies of the Preferred
Stock Registration Rights Agreement may be obtained without charge by writing to
the Issuer at the following address: Harborside Healthcare Corporation, 470
Atlantic Avenue, Boston Massachusetts 02110, Attn: Chief Financial Officer.
SECTION 3.3 All dividends paid with respect to shares of the outstanding
Exchangeable Preferred Stock pursuant to Section 3.1 hereof shall be paid pro
rata to the Holders entitled thereto.
SECTION 3.4 Nothing herein contained shall in any way or under any
circumstances be construed or deemed to require the Board of Directors to
declare, or the Issuer to pay or set apart for payment, any dividends on shares
of the Exchangeable Preferred Stock at any time.
SECTION 3.5 Dividends on account of arrears for any past Dividend Period
and dividends in connection with any optional redemption pursuant to Section 5.1
hereof may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to Holders of record on such date, not more than 45 days
prior to the payment thereof, as may be fixed by the Board of Directors.
SECTION 3.6 Notwithstanding Section 3.4, 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 based on the relative liquidation preference of the
Exchangeable Preferred Stock and such 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.
Holders of Exchangeable Preferred Stock 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.
SECTION 3.7 Holders of shares of Exchangeable Preferred Stock shall be
entitled to receive the dividends provided for in Section 3.1 hereof in
preference to and in priority over any dividends upon any Junior Securities.
SECTION 3.8 Dividends payable on shares of the outstanding Exchangeable
Preferred Stock for any period less than a year shall be computed on the basis
of a 360-day year of twelve 30-day months. If any Dividend Payment Date occurs
on a day that is not a Business
4
<PAGE>
Day, any accrued dividends otherwise payable on such Dividend Payment Date shall
be paid on the next succeeding Business Day.
ARTICLE 4
LIQUIDATION PREFERENCE
SECTION 4.1 Upon any voluntary or involuntary liquidation, dissolution
or winding-up of the Issuer, Holders of the 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
Exchangeable Preferred Stock will not be entitled to any further participation
in any distribution of assets of the Issuer.
SECTION 4.2 For purposes of Section 4.1, neither the sale, conveyance,
exchange or transfer (for cash, shares of 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.
ARTICLE 5
REDEMPTION
SECTION 5.1 Optional Redemption.
--------------------
(a) The Exchangeable 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>
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
2003 106.750%
--------------------------------------
2004 104.500%
--------------------------------------
2005 102.250%
--------------------------------------
2006 and thereafter 100.000%
--------------------------------------
</TABLE>
(b) In addition, at any time and from time to time prior to August 1,
2001, the Issuer may redeem up to 35% of the aggregate liquidation
preference of (i) all shares of Series A Exchangeable Preferred Stock
issued on the respective Issue Date, and (ii) all shares of each other
series of Exchangeable Preferred Stock issued on the respective Issue Date,
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.
(c) 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 at a redemption price
equal to 100% of the liquidation preference thereof 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, provided that in
no event may any such redemption pursuant to this Section 5.1(c) occur more
than 90 days after the occurrence of such Change of Control.
(d) 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.
(e) Notwithstanding Sections 5.1(a), 5.1(b) or 5.1(c), 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.
SECTION 5.2 [Intentionally Deleted]
SECTION 5.3 Mandatory Redemption On August 1, 2010, the Issuer shall
--------------------
be required to redeem (subject to the legal availability of funds therefor) all
outstanding shares of
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<PAGE>
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.
SECTION 5.4 Procedures for Redemption. Redemptions pursuant to Section
-------------------------
5.1 and 5.3 shall made in the manner set forth in this Section 5.4.
(a) At least 30 days and not more than 60 days prior to the date fixed
for any redemption of the Exchangeable Preferred Stock written notice (the
"Redemption Notice") shall be given by the Issuer by first-class mail to
------------------
each Holder of record on the record date fixed for such redemption of the
Exchangeable Preferred Stock at such Holder's address as the same appears
on the stock register of the Issuer, provided that no failure to give such
notice nor any deficiency therein shall affect the validity of the
procedure for the redemption of any shares of Exchangeable Preferred Stock
to be redeemed except as to the Holder or Holders to whom the Issuer has
failed to give said notice or except as to the Holder or Holders whose
notice was defective. The Redemption Notice shall state:
(i) whether the redemption is pursuant to Section 5.1(a),
5.1(b), 5.1(c), or 5.3 hereof;
(ii) the redemption price;
(iii) whether all or less than all the outstanding shares of the
Exchangeable Preferred Stock are to be redeemed and the total number
of shares of the Exchangeable Preferred Stock being redeemed;
(iv) the number of shares of Exchangeable Preferred Stock held,
as of the appropriate record date, by the Holder that the Issuer
intends to redeem;
(v) the Redemption Date;
(vi) that the Holder is to surrender to the Issuer, at the place
or places where certificates for shares of Exchangeable Preferred
Stock are to be surrendered for redemption, in the manner and at the
price designated, the certificate or certificates representing the
shares of Exchangeable Preferred Stock to be redeemed; and
(vii) that dividends on the shares of the Exchangeable Preferred
Stock to be redeemed shall cease to accrue on such Redemption Date
unless the Issuer defaults in the payment of the redemption price.
(b) Each Holder of Exchangeable Preferred Stock shall surrender the
certificate or certificates representing such shares of Exchangeable
Preferred Stock to the Issuer (duly endorsed or assigned for transfer) in
the manner and at the place designated in the Redemption Notice and on the
Redemption Date. The full redemption price for such shares of Exchangeable
Preferred Stock shall be payable in cash to the Person whose name appears
on such certificate or certificates as the owner thereof, and each
surrendered
7
<PAGE>
certificate shall be canceled and retired. In the event that less than all
of the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(c) Unless the Issuer defaults in the payment in full of the
applicable redemption price, dividends on the Exchangeable Preferred Stock
called for redemption shall cease to accumulate on the Redemption Date, and
the Holders of such redeemed shares shall cease to have any further rights
with respect thereto from and after the Redemption Date, other than the
right to receive the redemption price, without interest.
SECTION 5.5 Sinking Fund. The Issuer will not be required to make
------------
sinking fund payments with respect to the Exchangeable Preferred Stock.
ARTICLE 6
VOTING RIGHTS
SECTION 6.1 The Holders of shares of Exchangeable Preferred Stock,
except as otherwise required under Delaware law or as set forth in this Article
6, shall not be entitled or permitted to vote on any matter required or
permitted to be voted upon by the stockholders of the Issuer.
SECTION 6.2 Voting Rights Triggering Event.
------------------------------
(a) 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
(as defined in Section 8.1), (iv) a breach or violation of the covenants
contained in Articles 9, 10, 11, 12 or Section 15.6 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, 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 $15.0 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
------
8
<PAGE>
Rights Triggering Event." Voting rights arising as a result of a Voting
-----------------------
Rights Triggering Event will continue until (x) 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 (y) 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
Article 6 shall terminate automatically.
(b) At any time after voting power to elect directors shall have
become vested and be continuing in the Holders of shares of the
Exchangeable Preferred Stock pursuant to Section 6.2(a) hereof, or if
vacancies shall exist in the offices of directors elected by the Holders of
shares of the Exchangeable Preferred Stock, a proper officer of the Issuer
may, and upon the written request of the Holders of record of at least 25%
of the shares of Exchangeable Preferred Stock then outstanding addressed to
the Secretary of the Issuer shall, call a special meeting of the Holders of
Exchangeable Preferred Stock, for the purpose of electing the directors
which such Holders are entitled to elect. If such meeting shall not be
called by the proper officer of the Issuer within 15 days after personal
service of said written request upon the Secretary of the Issuer, or within
20 days after mailing the same within the United States by certified mail,
addressed to the Secretary of the Issuer at its principal executive
offices, then the Holders of record of at least 25% of the outstanding
shares of the Exchangeable Preferred Stock may designate in writing one of
their number to call such meeting at the expense of the Issuer, and such
meeting may be called by the Person so designated upon the notice required
for the annual meetings of stockholders of the Issuer and shall be held at
the place for holding the annual meetings of stockholders or such other
place in the United States as shall be designated in such notice.
Notwithstanding the provisions of this Section 6.2(b), no such special
meeting shall be called if any such request is received less than 40 days
before the date fixed for the next ensuing annual or special meeting of
stockholders of the Issuer. Such meeting shall be held within 30 days of
the date such notice is given. Any Holder of shares of the Exchangeable
Preferred Stock so designated shall have, and the Issuer shall provide,
access to the lists of Holders of shares of the Exchangeable Preferred
Stock for purposes of calling a meeting pursuant to the provisions of this
Section 6.2(b).
(c) At any meeting held for the purpose of electing directors at which
the Holders of Exchangeable Preferred Stock shall have the right, voting
separately as one class, to elect directors as aforesaid, the presence in
person or by proxy of the Holders of at least a majority of the outstanding
Exchangeable Preferred Stock shall be required to constitute a quorum of
such Exchangeable Preferred Stock.
(d) Any vacancy occurring in the office of a director elected by the
Holders of the Exchangeable Preferred Stock may be filled by the remaining
director elected by such Holders unless and until such vacancy shall be
filled by such Holders.
9
<PAGE>
SECTION 6.3 So long as any shares of Exchangeable Preferred Stock are
outstanding, the Issuer shall not amend this 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 Holders of in excess of 50% of the then outstanding
shares of Exchangeable Preferred Stock, voting or consenting, as the case may
be, separately as one class, given in person or by proxy, either in writing or
by resolution adopted at an annual or special meeting; provided that (i) the
creation, authorization or issuance of any shares of Junior Securities or any
Parity Securities, (ii) the decrease in the amount of authorized Capital Stock
of any class, including any Exchangeable Preferred Stock or (iii) 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.
SECTION 6.4 In any case in which the Holders of shares of the
Exchangeable Preferred Stock shall be entitled to vote pursuant to this Article
6 or pursuant to Delaware law, each Holder of shares of the Exchangeable
Preferred Stock shall be entitled to one vote for each share of Exchangeable
Preferred Stock held. Any action that may be taken hereunder by the Holders of
the Exchangeable Preferred Stock at a meeting may be taken by written consent of
a majority of the Holders of such Exchangeable Preferred Stock.
SECTION 6.5 Without the consent of any Holder of Exchangeable Preferred
Stock, the Issuer may amend or supplement this Certificate of Designation to (i)
cure any ambiguity, defect or inconsistency in this Certificate of Designation
or (ii) make any change that, as determined by the Board of Directors in good
faith, does not adversely effect the legal rights under this Certificate of
Designation of any such Holder.
ARTICLE 7
OPTIONAL EXCHANGE
SECTION 7.1 Requirements.
------------
(a) 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 (i) on the
date of such exchange such exchange is permitted by the terms of the
Indenture and the New Credit Facility, (ii) the Recapitalization shall have
been consummated, (iii) either (x) a registration statement relating to the
Exchange Debentures shall have been declared effective under the Securities
Act prior to such exchange and shall continue to be in effect on the
Exchange Date or (y) (1) the Issuer shall have obtained (and delivered to
the Exchange Debenture Trustee) a written Opinion of Counsel reasonably
acceptable to the Exchange Debenture Trustee that an exemption from the
registration requirements of the Securities Act is available for such
exchange and that upon receipt of such Exchange Debentures pursuant to such
exchange made in accordance with such exemption, each Holder that is not an
10
<PAGE>
Affiliate of the Issuer will not be subject to any restrictions imposed by
the Securities Act upon the resale thereof and (2) such exemption is relied
upon by the Issuer for such exchange; and (iv) the Issuer shall have
delivered to the Exchange Debenture Trustee a written Opinion of Counsel
reasonably acceptable to the Exchange Debenture Trustee, dated the Exchange
Date, subject to customary exceptions and qualifications, regarding the
satisfaction of the conditions set forth in clauses (i) and (ii) and
including language substantially to the effect set forth in Section 7.1(b)
hereof, provided that in rendering such opinion such counsel may rely, as
to matters of fact, on an Officer's Certificate. In the event that the
issuance of the Exchange Debentures is not permitted on the date of
exchange or any of the conditions set forth in clauses (i) through (iv) of
the preceding sentence are not satisfied on the Exchange Date, the Issuer
shall use its reasonable best efforts to satisfy such conditions and effect
such exchange as soon as practicable.
(b) Opinion Language. The Opinion of Counsel referenced in Section
----------------
7.1(a)(iv) hereof shall include language substantially to the following effect:
(i) The Exchange Debentures have been duly authorized by the
Issuer and, when executed, authenticated and delivered in accordance
with the provisions of the Exchange Debenture Indenture, will be valid
and binding obligations of the Issuer, enforceable against the Issuer,
in accordance with their terms, except as the same may be limited by
(A) applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally, including without
limitation the effect of statutory or other laws regarding fraudulent
conveyances or transfers, preferential transfers or distributions by
corporations to shareholders, or (B) general principles of equity,
whether considered at law or at equity, including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing.
(ii) The Exchange Debenture Indenture has been duly authorized,
executed and delivered by the Issuer, and is a valid and binding
agreement of the Issuer, enforceable against the Issuer in accordance
with its terms, except as the same may be limited by (A) applicable
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally, including without limitation
the effect of statutory or other laws regarding fraudulent conveyances
or transfers, preferential transfers or distributions by corporations
to shareholders, or (B) general principles of equity, whether
considered at law or at equity, including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing.
(c) To exchange the Exchangeable Preferred Stock for Exchange
Debentures, the Issuer shall send a written notice (the "Exchange Notice")
---------------
of exchange by mail to each Holder of shares of Exchangeable Preferred
Stock, which notice shall state (i) that the Issuer is exercising its
option to exchange the Exchangeable Preferred Stock for Exchange Debentures
pursuant to this Certificate of Designation, (ii) the date fixed for
exchange (the "Exchange Date"), which date shall not be less than 30 days
-------------
nor more than 60 days following the date on which the Exchange Notice is
mailed, (iii) that the Holder is to
11
<PAGE>
surrender to the Issuer, at the place or places where certificates for
shares of Exchangeable Preferred Stock are to be surrendered for exchange,
in the manner designated in the Exchange Notice, the certificate or
certificates representing the shares of Exchangeable Preferred Stock to be
exchanged (duly endorsed or assigned for transfer); (iv) that dividends on
the shares of Exchangeable Preferred Stock to be exchanged shall cease to
accrue on the Exchange Date, and that Holders of Exchangeable Preferred
Stock shall cease to have any further rights with respect to such shares
(other than the right to receive Exchange Debentures), whether or not
certificates for shares of Exchangeable Preferred Stock are surrendered for
exchange on the Exchange Date unless the Issuer shall default in the
delivery of Exchange Debentures; and (v) that interest on the Exchange
Debentures shall accrue from the Exchange Date whether or not certificates
for shares of Exchangeable Preferred Stock are surrendered for exchange on
the Exchange Date; provided, however, that no failure to give such notice
nor any deficiency therein shall affect the validity of the procedure for
the exchange of any shares of Exchangeable Preferred Stock to be exchanged
except as to the Holder or Holders to whom the Issuer has failed to give
said notice or except as to the Holder or Holders whose notice was
defective. On the Exchange Date, if the conditions set forth in Section
7.1(a)(i) through 7.1(a)(iv) are satisfied, the Issuer shall issue Exchange
Debentures in exchange for the Exchangeable Preferred Stock as provided in
Section 7.1(d).
(d) 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). 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.
SECTION 7.2 Procedure for Exchange.
----------------------
12
<PAGE>
(a) On or before the Exchange Date, each Holder of Exchangeable
Preferred Stock shall surrender the certificate or certificates
representing such shares of Exchangeable Preferred Stock, in the manner and
at the place designated in the Exchange Notice. The Issuer shall cause the
Exchange Debentures to be executed on the Exchange Date and, upon surrender
in accordance with the Exchange Notice of the certificates for any shares
of Exchangeable Preferred Stock so exchanged (duly endorsed or assigned for
transfer), such shares shall be exchanged by the Issuer into Exchange
Debentures. The Issuer shall pay interest on the Exchange Debentures at the
rate and on the dates specified therein from the Exchange Date.
(b) Subject to the satisfaction of the conditions set forth in clauses
(i) through (iv) of Section 7.1(a), if notice has been mailed as aforesaid,
and if before the Exchange Date (i) the Exchange Debenture Indenture shall
have been duly executed and delivered by the Issuer and the Exchange
Debenture Trustee and (ii) all Exchange Debentures necessary for such
exchange shall have been duly executed by the Issuer and delivered to the
Exchange Debenture Trustee with irrevocable instructions to authenticate
the Exchange Debentures necessary for such exchange, then the rights of the
Holders of shares of the Exchangeable Preferred Stock as stockholders of
the Issuer shall cease (except the right to receive Exchange Debentures),
and the Person or Persons entitled to receive the Exchange Debentures
issuable upon exchange shall be treated for all purposes as the registered
Holder or Holders of such Exchange Debentures as of the date of exchange
without any further action of the Holders of Exchangeable Preferred Stock.
ARTICLE 8
CHANGE OF CONTROL OFFER
SECTION 8.1
(a) Upon the occurrence of a Change of Control, unless all
Exchangeable Preferred Stock has been called for redemption pursuant to
Article 5, each Holder of outstanding Exchangeable Preferred Stock will
have the right to require the Issuer to repurchase all or any part of such
Holder's Exchangeable Preferred Stock pursuant to an offer (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.
(b) The Issuer shall 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 in accordance
with the provisions of this Article 8.
13
<PAGE>
SECTION 8.2 In the event that the Issuer shall be required to commence
an Exchangeable Preferred Change of Control Offer, the Issuer shall follow the
procedures specified in this Section 8.2.
(a) Within 30 days after a Change of Control (unless (i) the Issuer is
not required to make such offer pursuant to Section 8.1(b) or (ii) all
shares of Exchangeable Preferred Stock have been called for redemption
pursuant to Article 5), the Issuer shall (x) commence an Exchangeable
Preferred Change of Control Offer, which shall remain open for a period of
at least 20 Business Days following its commencement (the "Offer Period")
------------
and (y) send, by first class mail, a notice to the Transfer Agent and each
of the Holders of the Exchangeable Preferred Stock which shall contain all
instructions and materials necessary to enable such Holders to tender their
shares of Exchangeable Preferred Stock pursuant to such Exchangeable
Preferred Change of Control Offer. The notice, which shall govern the terms
of the Exchangeable Preferred Change of Control Offer, shall describe the
transaction or transactions that constitute the Change of Control and shall
state:
(i) that the Exchangeable Preferred Change of Control Offer is
being made pursuant to this Article 8;
(ii) that the Issuer is required to offer to purchase all of
the outstanding shares of Exchangeable Preferred Stock at a purchase
price equal to the Exchangeable Preferred Change of Control Payment
and, that on the date specified in such notice (the "Purchase Date"),
-------------
which date shall be no earlier than 30 days and no later than 60 days
from the date such notice is mailed, the Issuer shall repurchase all
shares of Exchangeable Preferred Stock validly tendered and not
withdrawn pursuant to this Article 8;
(iii) that any outstanding shares of Exchangeable Preferred
Stock not tendered or accepted for payment shall continue to accrue
dividends;
(iv) that, unless the Issuer defaults in making such payment,
shares of Exchangeable Preferred Stock accepted for payment pursuant
to the Exchangeable Preferred Change of Control Offer shall cease to
accrue dividends after the Purchase Date;
(v) that Holders of outstanding Exchangeable Preferred Stock
electing to have such shares purchased pursuant to an Exchangeable
Preferred Change of Control Offer may elect to have all or any portion
of such shares purchased;
(vi) that Holders of outstanding Exchangeable Preferred Stock
electing to have such shares purchased pursuant to an Exchangeable
Preferred Change of Control Offer shall be required to surrender the
Exchangeable Preferred Stock with such customary documents of
surrender and transfer as the Issuer may reasonably request, duly
completed, or transfer by book-entry transfer, to the
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Issuer or the Transfer Agent at the address specified in the notice
prior to the Purchase Date;
(vii) that Holders shall be entitled to withdraw their election
if the Issuer, or the Transfer Agent, as the case may be, receives,
not later than the expiration of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder,
the aggregate liquidation preference of the Exchangeable Preferred
Stock the Holder delivered for purchase and a statement that such
Holder is withdrawing its election to have such Exchangeable Preferred
Stock purchased; and
(viii) that Holders whose shares of Exchangeable Preferred Stock
are purchased only in part shall be issued new Exchangeable Preferred
Stock equal in liquidation preference to the unpurchased portion of
the Exchangeable Preferred Stock surrendered (or transferred by book-
entry transfer), which unpurchased portion must be equal to $1,000 in
liquidation preference or an integral multiple thereof.
(b) On (or at the Issuer's election, before) the Purchase Date, the
Issuer shall:
(i) to the extent lawful, accept for payment, the outstanding
Exchangeable Preferred Stock or portions thereof validly tendered
pursuant to the Exchangeable Preferred Change of Control Offer and not
theretofore withdrawn;
(ii) deposit with the Transfer Agent an amount equal to the
Exchangeable Preferred Change of Control Payment in respect of all
Exchangeable Preferred Stock or portions thereof so tendered; and
(iii) deliver or cause to be delivered to the Transfer Agent the
shares of Exchangeable Preferred Stock so accepted together with an
Officers' Certificate stating the aggregate liquidation preference of
such Exchangeable Preferred Stock or portions thereof being purchased
by the Issuer.
The Issuer or the Transfer Agent, as the case may be, shall promptly
mail or deliver to each tendering Holder an amount equal to the
Exchangeable Preferred Change of Control Payment with respect to the
Exchangeable Preferred Stock tendered by such Holder and accepted by the
Issuer for purchase. The Issuer shall promptly issue new certificates
representing shares of Exchangeable Preferred Stock and mail (or cause to
be transferred by book entry) to each Holder a new certificate representing
shares of Exchangeable Preferred Stock equal in liquidation preference to
any unpurchased portion of the Exchangeable Preferred Stock so surrendered,
if any, provided that each such new share of Exchangeable Preferred Stock
shall be in a principal amount of $1,000 or an integral multiple thereof.
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Any Exchangeable Preferred Stock not so accepted shall be promptly
mailed or delivered by the Issuer to the Holder thereof. On the Purchase
Date, all Exchangeable Preferred Stock purchased by the Issuer shall be
delivered to the Transfer Agent for cancellation. All Exchangeable
Preferred Stock or portions thereof purchased pursuant to the Exchangeable
Preferred Change of Control Offer will be canceled by the Transfer Agent.
The Issuer shall publicly announce the results of the Exchangeable
Preferred Change of Control Offer on or as soon as practicable after the
Purchase Date.
(c) On and after the Purchase Date, dividends shall cease to accrue
on the Exchangeable Preferred Stock or the portions of Exchangeable
Preferred Stock repurchased and all rights of Holders of such tendered
shares shall terminate, except for the right to receive payment therefor,
on the Purchase Date.
SECTION 8.3 The Issuer shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations to the
extent such laws and regulations are applicable in connection with the
Exchangeable Preferred Change of Control Offer. To the extent that the
provisions of any applicable securities laws or regulations conflict with
provisions of this Article 8, the Issuer shall comply with such securities laws
and regulations and shall not be deemed to have breached its obligations under
this Section 8.3 by virtue thereof.
SECTION 8.4 Prior to complying with the provisions of this Article 8,
but in any event within 90 days following a Change of Control, the Issuer will
either use commercially reasonable efforts to 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 Article 8, unless notice of redemption of all Exchangeable
Preferred Stock has then been given pursuant to the provisions described in this
Article 5 and such redemption is permitted by the terms of outstanding Senior
Debt.
ARTICLE 9
RESTRICTED PAYMENTS
SECTION 9.1 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
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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;
(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 Section 10.1; 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 Section 9.2, but
including all other Restricted Payments permitted by Section 9.2, 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 with respect to the Series
A Exchangeable Preferred Stock 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
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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.
SECTION 9.2 The foregoing provisions of Section 9.1 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 this 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
Section 9.1;
(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 Article 8 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
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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 Article 9, (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
this Certificate of Designation, such Restricted Payment will be deemed to have
been made in compliance with this 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 Section 12.2 shall be
considered a Restricted Payment for purposes of, or otherwise restricted by,
this Certificate of Designation.
ARTICLE 10
INCURRENCE OF DEBT
AND ISSUANCE OF PREFERRED STOCK
SECTION 10.1 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
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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
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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.
SECTION 10.2 The provisions of Section 10.1 will not apply to the
incurrence of any of the following items of Debt (collectively, "Permitted
---------
Debt"):
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(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 this 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 this 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 section; 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 Article 10, 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) of Section 10.2, or is
entitled to be incurred pursuant to Section 10.1, the Issuer shall, in its sole
discretion, classify such item of Debt in any manner that complies with this
Article 10 and such item of Debt will be treated as having been incurred
pursuant to only one of such clauses of Section 10.2 or pursuant to Section 10.1
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 Section 10.2. Accrual of interest and the accretion
of accreted value will be deemed not to be an incurrence of Debt for purposes of
this Article 10.
ARTICLE 11
MERGER, CONSOLIDATION OR SALE OF
ALL OR SUBSTANTIALLY ALL ASSETS
SECTION 11.1 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,
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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 Section 10.1 or (y) have a Consolidated Coverage Ratio at least equal to
the Consolidated Coverage Ratio of the Issuer for such four-quarter
reference period.
SECTION 11.2 Notwithstanding clauses (iii) and (iv) of Section 11.1, (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.
ARTICLE 12
TRANSACTIONS WITH AFFILIATES
SECTION 12.1 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.
SECTION 12.2 The provisions of Section 12.1 shall not prohibit and the
following shall 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 this Certificate of Designation described in
Article 9;
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(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 between the Berkshire
Companies Limited Partnership and the Issuer (as amended) 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 clause (ix) of Section 10.2 hereof 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.
ARTICLE 13
DISCHARGE AND DEFEASANCE
SECTION 13.1 Legal Defeasance and Covenant Defeasance.
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(a) The Issuer may, at the option of its Board of Directors evidenced
by a resolution set forth in an Officers' Certificate, at any time, elect
to have either Section 13.1(b) or 13.1(c) hereof be applied to all
outstanding Exchangeable Preferred Stock upon compliance with the
conditions set forth below in this Article 13.
(b) Upon the Issuer's exercise under Section 13.1(a) hereof of the
option applicable to this Section 13.1(b), the Issuer shall, subject to the
satisfaction of the conditions set forth in Section 13.2 hereof, be deemed
to have been discharged from their obligations with respect to all
outstanding Exchangeable Preferred Stock on the date the conditions set
forth below are satisfied (hereinafter, "Legal Defeasance"). For this
----------------
purpose, Legal Defeasance means that the Issuer shall be deemed to have
paid and discharged all the obligations represented by the outstanding
Exchangeable Preferred Stock, which Exchangeable Preferred Stock shall
thereafter be deemed to be "outstanding" only for the purposes of Section
13.3 hereof and the other Sections of this Certificate of Designation
referred to in (i) and (ii) below, and to have satisfied all their other
obligations under such Exchangeable Preferred Stock and this Certificate of
Designation (and the Transfer Agent, on demand of and at the expense of the
Issuer, shall
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execute proper instruments acknowledging the same), except for the
following provisions which shall survive until otherwise terminated or
discharged hereunder: (i) the rights of Holders of outstanding Exchangeable
Preferred Stock to receive solely from the trust fund described in this
Article 13, as more fully set forth in such Article, payments in respect of
the liquidation preference of, accumulated and unpaid dividends on, and
Liquidated Damages, if any, on such Exchangeable Preferred Stock when such
payments are due and (ii) this Article 13. Subject to compliance with this
Article 13, the Issuer may exercise its option under this Section 13.1(b)
notwithstanding the prior exercise of its option under Section 13.1(c)
hereof.
(c) Upon the Issuer's exercise under Section 13.1(a) hereof of the
option applicable to this Section 13.1(c), the Issuer shall, subject to the
satisfaction of the conditions set forth in Section 13.2 hereof, be
released from its obligations under Articles 8, 9, 10, 12, and Sections
11.1(iv) and 15.6 hereof with respect to the outstanding Exchangeable
Preferred Stock on and after the date the conditions set forth below are
satisfied (hereinafter, "Covenant Defeasance"), and the Exchangeable
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Preferred Stock shall thereafter be deemed not "outstanding" for the
purposes of any direction, waiver, consent or declaration or act of Holders
(and the consequences of any thereof) in connection with such Articles and
Section, but shall continue to be deemed "outstanding" for all the other
purposes hereunder (it being understood that such Exchangeable Preferred
Stock shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect of any term,
condition or limitation set forth in any such Article or Section, whether
directly or indirectly, by reason of any reference elsewhere herein to any
such Article or Section or by reason of any reference in any such Article
or Section to any other provision herein or in any other document and such
omission to comply shall not constitute a Voting Rights Triggering Event
under Section 6.2 hereof, but, except as specified above, the remainder of
this Certificate of Designation and such Exchangeable Preferred Stock shall
be unaffected thereby.
SECTION 13.2. Conditions to Legal or Covenant Defeasance. The following
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shall be the conditions to the application of either Section 13.1(b) or 13.1(c)
hereof to the outstanding Exchangeable Preferred Stock:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Issuer must irrevocably deposit with the Transfer Agent, in
trust, for the benefit of the Holders, cash in United States dollars,
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 aggregate liquidation preference of,
accumulated and unpaid dividends on, and Liquidated Damages, if any, on the
outstanding Exchangeable Preferred Stock on the stated date for payment
thereof or on the applicable Redemption Date, as the case may be;
(b) in the case of an election under Section 13.1(b) hereof, the
Issuer shall have delivered to the Transfer Agent an Opinion of Counsel in
the United States
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reasonably acceptable to the Transfer Agent confirming that (A) the Issuer
has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date hereof, 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, the Holders
of the outstanding Exchangeable Preferred Stock 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;
(c) in the case of an election under Section 13.1(c) hereof, the
Issuer shall have delivered to the Transfer Agent an Opinion of Counsel in
the United States, subject to customary assumptions and exclusions,
reasonably acceptable to the Transfer Agent confirming that the Holders of
the outstanding Exchangeable Preferred Stock 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;
(d) no Voting Rights Triggering Event shall have occurred and be
continuing on the date of such deposit (other than a Voting Rights
Triggering Event resulting from the Incurrence of Debt) all or a portion of
the proceeds of which will be used to defease the Exchangeable Preferred
Stock pursuant to this Article 13 concurrently with such Incurrence;
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Certificate of Designation) to
which the Issuer or any of its Subsidiaries is a party or by which the
Issuer or any of its Subsidiaries is bound;
(f) the Issuer shall have delivered to the Transfer Agent an Opinion
of Counsel, subject to customary assumptions and exclusions, to the effect
that after the 91st day following the deposit pursuant to Section 13.2(a),
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 a Covenant Defeasance, will be
subject to a first priority lien in favor of the Transfer Agent for the
benefit of the Holders;
(g) the Issuer shall have delivered to the Transfer Agent an Officers'
Certificate stating that the deposit was not made by the Issuer with the
intent of preferring the Holders over any other creditors of the Issuer or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Issuer; and
(h) the Issuer shall have delivered to the Transfer Agent an Officers'
Certificate and an Opinion of Counsel, subject to customary assumptions and
exclusions, each stating that all conditions precedent provided for or
relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
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SECTION 13.3. Deposited Money and Government Securities to be Held in
-------------------------------------------------------
Trust; Other Miscellaneous Provisions. Subject to Section 13.4 hereof, all
- -------------------------------------
money and Government Notes (including the proceeds thereof) deposited with the
Transfer Agent (or other qualifying trustee, collectively for purposes of this
Section 13.3, the "Transfer Agent") pursuant to Section 13.2 hereof in respect
--------------
of the outstanding Exchangeable Preferred Stock shall be held in trust and
applied by the paying agent, in accordance with the provisions of such
Exchangeable Preferred Stock and this Certificate of Designation, to the
payment, either directly or through any paying agent (including the Issuer
acting as paying agent) as the Transfer Agent may determine, to the Holders of
such Exchangeable Preferred Stock of all sums due and to become due thereon in
respect of the liquidation preference of and accumulated and unpaid dividends on
the Exchangeable Preferred Stock, but such money need not be segregated from
other funds except to the extent required by law.
Anything in this Article 13 to the contrary notwithstanding, the Transfer
Agent shall deliver or pay to the Issuer from time to time upon the request of
the Issuer any money or Government Notes held by it as provided in Section 13.2
hereof which, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
Transfer Agent (which may be the opinion delivered under Section 13.2(a)
hereof), are in excess of the amount thereof that would then be required to be
deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 13.4. Repayment to Issuer. Any money deposited with the Transfer
-------------------
Agent or any paying agent, or then held by the Issuer, in trust for the payment
of the aggregate liquidation preference of, accumulated and unpaid dividends on
and Liquidated Damages, if any, and remaining unclaimed for two years after such
amounts have become due and payable shall be paid to the Issuer on its request
or (if then held by the Issuer) shall be discharged from such trust; and the
Holder of such Security shall thereafter, as an unsecured general creditor, look
only to the Issuer for payment thereof, and all liability of the Transfer Agent
with respect to such trust money, and all liability of any paying agent
(including the Issuer as paying agent) thereof, shall thereupon cease; provided,
--------
however, that the Transfer Agent or paying agent, before being required to make
- -------
any such repayment, may at the expense of the Issuer, cause to be published
once, in the Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Issuer.
SECTION 13.5. Reinstatement. If the Transfer Agent is unable to apply any
-------------
United States dollars or Government Notes in accordance with this Article 13 by
reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, then the
Issuer's obligations under this Certificate of Designation and the Exchangeable
Preferred Stock shall be revived and reinstated as though no deposit had
occurred pursuant to this Article 13 until such time as the Transfer Agent is
permitted to apply all such money in accordance with this Article 13; provided,
--------
however, that, if the Issuer makes any payment on account of the Exchangeable
- -------
Preferred Stock following the reinstatement of its obligations, the Issuer shall
be subrogated to the rights of the Holders of such Exchangeable
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Preferred Stock to receive such payment from the money held by the Transfer
Agent or any paying agent.
ARTICLE 14
REGISTRATION RIGHTS
SECTION 14.1 Registration Rights. So long as any shares of Exchangeable
-------------------
Preferred Stock constitute "Transfer Restricted Securities", as defined in the
Preferred Stock Registration Rights Agreement, each Holder shall be entitled to
the rights granted by the Issuer thereunder, and shall be bound by the
restrictions contained therein, on the certificates representing the
Exchangeable Preferred Stock, in the Offering Memorandum and in any offering
memorandum for any Additional Exchangeable Preferred Stock.
ARTICLE 15
MISCELLANEOUS
SECTION 15.1 Conversion or Exchange. The Holders of Exchangeable
----------------------
Preferred Stock shall not have any rights hereunder to convert such shares into
or exchange such shares for shares of any other class or classes or of any other
series of any class or classes of Capital Stock of the Issuer.
SECTION 15.2 Preemptive Rights. No shares of Exchangeable Preferred Stock
-----------------
shall have any rights of preemption whatsoever as to any securities of the
Issuer, or any warrants, rights or options issued or granted with respect
thereto, regardless of how such securities or such warrants, rights or options
may be designated, issued or granted.
SECTION 15.3 Reissuance of Exchangeable Preferred Stock. Shares of
------------------------------------------
Exchangeable Preferred Stock that have been issued and reacquired in any manner,
including shares purchased or redeemed or exchanged, shall (upon compliance with
any applicable provisions of the laws of Delaware) have the status of authorized
but unissued shares of Preferred Stock of the Issuer and may 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 this
Certificate of Designation.
SECTION 15.4 Business Day. If any payment, redemption, repurchase or
------------
exchange shall be required by the terms hereof to be made on a day that is not a
Business Day, such payment, redemption, repurchase or exchange shall be made on
the immediately succeeding Business Day and no interest shall accrue on the
intervening period.
SECTION 15.5 Remedies. The sole remedy to Holders of Exchangeable
--------
Preferred Stock in the event of the Issuer's failure to comply with any of the
provisions hereof and the sole consequence of any such failure will be the
voting rights described in Article 6.
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SECTION 15.6 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 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.
SECTION 15.7 Waiver. 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 this
Certificate of Designation.
SECTION 15.8 Certificate as to Conditions Precedent. Upon any request or
--------------------------------------
application by the Issuer to the Transfer Agent to take or refrain from taking
any action under this Certificate of Designation, at the request of the Transfer
Agent, the Issuer shall furnish to the Transfer Agent:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Transfer Agent (which shall include the statements set
forth in Section 15.9 hereof) stating that in the opinion of the signers,
all conditions precedent, if any, provided for in this Certificate of
Designation relating to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Transfer Agent (which shall include the statements set
forth in Section 15.9 hereof) stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 15.9. Statements Required in Certificate. Each certificate or
----------------------------------
opinion with respect to compliance with a covenant or condition provided for in
this Certificate of Designation shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
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SECTION 15.10 Notice. Any notice or communication given pursuant to this
------
Certificate of Designation shall be in writing and delivered in person or
mailed by first-class mail addressed as follows:
if to the Issuer, to:
Harborside Healthcare Corporation
470 Atlantic Avenue
Boston, MA 02210
Attn: Chief Financial Officer
Phone: (617) 556 8158
Fax: (617) 556 1565
with copies to:
Investcorp International Inc.
280 Park Avenue, 37 West
New York, NY 10017
Attn: Christopher J. O'Brien
Phone: (212) 599-4700
Fax: (212) 983-7073
Gibson, Dunn & Crutcher LLP
200 Park Avenue, 48th Floor
New York, NY 10166
Attn: Joerg H. Esdorn
Phone: (212) 351-4000
Fax: (212) 351-4035
If to the Transfer Agent, to:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
Attn: Corporate Trust Administration
Phone: (212) 852-1000
Fax: (212) 852-1626
The Issuer or the Transfer Agent by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Holder of Exchangeable Preferred
Stock shall be mailed to the Holder at the Holder's address as it appears
in the stock register of the Issuer and shall be sufficiently given if so
mailed within the time prescribed. Failure to mail a notice or
communication to a Holder or any defect in such notice shall not affect its
sufficiency with respect to other Holders. If a notice or communication is
mailed in the manner provided above, it is duly given, whether or not the
addressee receives it.
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ARTICLE 16
TRANSFER RESTRICTIONS
SECTION 16.1 The certificates evidencing the Exchangeable Preferred Stock
shall, unless otherwise agreed to by the Issuer and the Holders of any such
certificates, bear a legend substantially to the following effect:
THE EXCHANGEABLE PREFERRED STOCK HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT, WITHIN THE TIME
PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT
ON THE DATE OF THE TRANSFER OF THE EXCHANGEABLE PREFERRED STOCK, RESELL OR
OTHERWISE TRANSFER THE EXCHANGEABLE PREFERRED STOCK EXCEPT (A) TO THE
ISSUER OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED
STATES TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRANSFER AGENT A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THE EXCHANGEABLE PREFERRED STOCK (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM THE TRANSFER AGENT) AND, IF SUCH TRANSFER
IS IN RESPECT OF EXCHANGEABLE PREFERRED STOCK HAVING AN AGGREGATE
LIQUIDATION PREFERENCE AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN
OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE),
OR (E) AFTER REGISTRATION UNDER THE SECURITIES ACT AND (3) AGREES THAT IT
WILL DELIVER TO EACH PERSON TO WHOM THIS EXCHANGEABLE PREFERRED STOCK IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THIS EXCHANGEABLE PREFERRED STOCK WITHIN
THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE
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APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF
SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRANSFER AGENT. THE
CERTIFICATE OF DESIGNATION OF THE ISSUER CONTAINS A PROVISION REQUIRING THE
TRANSFER AGENT TO REFUSE TO REGISTER ANY TRANSFER OF THIS EXCHANGEABLE
PREFERRED STOCK IN VIOLATION OF THE FOREGOING RESTRICTIONS.
SECTION 16.2 The Transfer Agent shall refuse to register any attempted
transfer of shares of Exchangeable Preferred Stock not in compliance with
Section 16.1.
SECTION 16.3 The legend provided in Section 16.1 may be removed if the
Exchangeable Preferred Stock has been registered pursuant to an effective
registration statement under the Securities Act.
ARTICLE 17
BOOK-ENTRY, DELIVERY AND FORM
SECTION 17.1 The certificates representing the Exchangeable Preferred
Stock will be issued in fully registered form. Exchangeable Preferred Stock
sold in reliance on Rule 144A under the Securities Act will be represented by
one or more permanent global Exchangeable Preferred Stock certificates in
definitive, fully registered form (each a "Restricted Global Preferred Stock
---------------------------------
Certificate") and will be deposited with a custodian for, and registered in the
- -----------
name of a nominee of, Depositary Trust Company ("DTC"). Owners of beneficial
---
interests in a Restricted Global Preferred Stock Certificate will generally not
be entitled to receive physical delivery of a physical certificate for their
Exchangeable Preferred Stock ("Certificated Preferred Stock"). The
----------------------------
Exchangeable Preferred Stock is not issuable in bearer form.
Investors to whom Exchangeable Preferred Stock is transferred and who
are not Qualified Institutional Buyers (as defined in Rule 144A under the
Securities Act) will receive Certificated Preferred Stock, which cannot then be
traded through the facilities of DTC, except in connection with a transfer to a
Qualified Institutional Buyer. Upon the transfer to a Qualified Institutional
Buyer of Certificated Preferred Stock, such Certificated Preferred Stock will,
unless the relevant Restricted Global Preferred Stock Certificate has previously
been exchanged in whole for Certificated Preferred Stock, be exchanged for an
interest in a Restricted Global Preferred Stock Certificate.
Upon the issuance of the Restricted 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 Restricted 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 Placement Agents. Ownership
of beneficial interests in a Restricted 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
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<PAGE>
interests in a Restricted 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). Qualified Institutional Buyers may hold their interests in a
Restricted 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
Restricted 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 Restricted 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
Restricted 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 this Certificate of Designation.
Payments made with respect to the Restricted Global Preferred Stock
Certificates will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. Neither the Issuer nor the Placement Agents will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Restricted
Global Preferred Stock Certificate or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
If DTC is at any time unwilling or unable to continue as a depositary
for the Restricted Global Preferred Stock Certificates and a successor
depositary is not appointed by the Issuer within 90 days, the Issuer will issue
Certificated Preferred Stock, which may bear the legend referred to in Section
16.1 in exchange for the Restricted Global Preferred Stock Certificates.
ARTICLE 18
DEFINITIONS
SECTION 18.1 As used in this Certificate of Designation, the following
terms shall have the following meanings:
"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
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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.
"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.
"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.
"Business Day" means a day other than a Saturday, Sunday or other day on
which banking institutions in New York State are authorized or required by law
to close.
"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
33
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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.
"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.
"Closing Date" means the date on which MergerCo was merged with and into
the Issuer.
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"Collateral Agent" means United States Trust Company of New York, as
Collateral Agent, under the Collateral Pledge and Security Agreement dated as of
July 31, 1998 between the Issuer and the Collateral Agent relating to the
Exchangeable Preferred Stock.
"Commission" means the Securities and Exchange Commission.
"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
35
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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, 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.
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"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 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
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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.
"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 set forth in Section 5.3 hereof;
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
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satisfy applicable statutory or regulatory obligations. For the avoidance of
doubt, Exchangeable Preferred Stock shall not be considered "Disqualified
Stock."
"Dividend Payment Date" means February 1, May 1, August 1 and November 1 of
each year.
"Dividend Period" means the Initial Dividend Period and, thereafter, each
Quarterly Dividend Period.
"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 Act" means the Securities and Exchange Act of 1934, as amended.
"Exchange Date" means the date on which the Exchangeable Preferred Stock
is exchanged for Exchange Debentures.
"Exchange Debentures" means the Exchange Debentures of the Issuer due 2010
issued in exchange for the Exchangeable Preferred Stock and any Exchange
Debentures issued as payments in kind interest thereon, provided that such
Exchange Debentures have the terms set forth in the Offering Memorandum.
"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.
"Exchange Debenture Trustee" means the trustee under the Exchange Debenture
Indenture, as appointed by the Issuer in its discretion.
"Exchangeable Preferred Stock" is defined in Section 1.1.
"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.
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"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 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.
"Indenture" means the Indenture dated as of July 31, 1998 between MergerCo
and United States Trust Company of New York, as Trustee pursuant to which the
Notes were issued as it may from time to time be amended or supplemented.
"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.
"Initial Dividend Period" means the dividend period commencing on the Issue
Date and ending on the day before the first Dividend Payment Date to occur
thereafter.
"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
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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 Section 9.2.
"Issue Date" means, with respect to any series of Exchangeable Preferred
Stock, the date on which such series of Exchangeable Preferred Stock is
originally issued. The Series A Exchangeable Preferred Stock was originally
issued on July 31, 1998 by MergerCo.
"Issuer" means Harborside Healthcare Corporation, a Delaware corporation,
and any successor.
"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.
"MergerCo" means HH Acquisition Corp., a Delaware corporation.
"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
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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.
"New Credit Facility" means the collective reference to (a) the Credit
Agreement 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 Credit Documents, including any appendices, exhibits or schedules to any of
the foregoing (as the same may be in effect from time to time), and (b) the
Synthetic Lease Facility described in the Credit Agreement, including the Lease
between a Subsidiary of the Issuer, as lessee, and the Delaware business trust
named therein, as lessor (the "Lessor"), the Credit Agreement among the Lessor
and the financial institutions named therein, the Participation Agreement among
the parties to the Lease, the parties to the Credit Agreement, the Trustee of
Lessor, and the Investors in Lessor, and the additional Operative Agreements
described in the Participation 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 agreements or other credit agreements or otherwise).
"Note Guarantee" means the Guarantee by each Guarantor of the Issuer's
Obligations under the Notes.
"Notes" means the 11% Senior Subordinated Discount Notes Due 2008 issued
by the Issuer.
"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.
"Offering Memorandum" means the Offering Memorandum, dated July 29, 1998,
relating to the offering and placement of the Notes and the Exchangeable
Preferred Stock.
"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 Transfer Agent.
"Officers' Certificate" means a certificate signed by two Officers.
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"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Transfer Agent. The counsel may be an employee of
or counsel to the Issuer or the Transfer Agent.
"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 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 for the Series A Exchangeable Preferred Stock or made pursuant to
legally binding written commitments in existence on the Issue Date for the
Series A Exchangeable Preferred Stock; (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 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
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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.
"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.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Placement Agents" means each of Morgan Stanley Dean Witter, BT Alex. Brown
and Chase Securities Inc.
"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).
"Preferred Stock Registration Rights Agreement" means (i) with respect to
the Series A Exchangeable Preferred Stock, the Registration Rights Agreement
dated July 31, 1998 between the Issuer and the Placement Agents, as the same may
be amended or supplemented from time to time and (ii) with respect to any other
series of Exchangeable Preferred Stock, any registration rights agreement
applicable to such series.
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"Quarterly Dividend Period" means the quarterly period commencing on each
February 1, May 1, August 1 and November 1 and ending on the day before the
following Dividend Payment Date.
"Recapitalization" means the recapitalization of Harborside Healthcare
Corporation pursuant to which MergerCo 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 MergerCo and Harborside Healthcare
Corporation, as amended through the Closing Date.
"Redemption Date" with respect to any shares of Exchangeable Preferred
Stock, means the date on which such shares of Exchangeable Preferred Stock are
redeemed by the Issuer.
"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.
"Securities Act" means the Securities Act of 1933, as amended.
"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 Article 10 (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 Article 10) 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.
"Series A Exchangeable Preferred Stock" is defined in Section 1.1.
"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.
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"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 for the Series A Exchangeable Preferred Stock 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
Section 9.1 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;
(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 Section 12.2;
"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 for the Series A Exchangeable Preferred Stock or thereafter
incurred) that is subordinate or junior in right of payment to the Exchange
Debentures pursuant to written agreement.
46
<PAGE>
"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.
"Transfer Agent" means (i) United States Trust Company of New York, until a
successor is appointed by the Issuer or replaces it and, thereafter, means the
successor or (ii) any exchange agent appointed by the Issuer for purposes of
Article 7 or 8, as applicable.
"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.
"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
47
<PAGE>
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 Article
9. 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 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 Article 10, the
Issuer shall be in default of such Article). 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 Article 10 calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period,
and (ii) no Voting Rights Triggering Event 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.
SECTION 18.2 Rules of Construction. For the purposes of this
---------------------
Certificate of Designation (i) words in the singular shall be held to include
the plural and vice versa and words of one gender shall be held to include the
other gender as the context requires, (ii) the word "including" and words of
similar import shall mean "including, without limitation," (iii) a word has the
meaning assigned to it, (iv) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP, and (v) "or" is not exclusive.
48
<PAGE>
IN WITNESS WHEREOF, Harborside Healthcare Corporation has caused this
Certificate of Designation to be signed by Stephen L. Guillard, its President,
on the date and year first above written.
HARBORSIDE HEALTHCARE CORPORATION
By /s/ Stephen L. Guillard
-----------------------
Name: Stephen L. Guillard
Title: President
49
<PAGE>
EXHIBIT 4.1
EXECUTION COPY
================================================================================
HH ACQUISITION CORP.,
AS ISSUER
AND
UNITED STATES TRUST COMPANY OF NEW YORK,
AS TRUSTEE,
______________________
INDENTURE
DATED AS OF JULY 31, 1998
_______________________
11% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2008
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions............................................................................. 1
SECTION 1.02. Other Definitions....................................................................... 26
SECTION 1.03. Incorporation by Reference of Trust Indenture Act....................................... 27
SECTION 1.04. Rules of Construction................................................................... 27
ARTICLE II
THE SECURITIES
SECTION 2.01. Form and Dating......................................................................... 28
SECTION 2.02. Restrictive Legends..................................................................... 29
SECTION 2.03. Execution, Authentication and Denominations............................................. 31
SECTION 2.04. Registrar and Paying Agent.............................................................. 32
SECTION 2.05. Paying Agent to Hold Money in Trust..................................................... 33
SECTION 2.06. Transfer and Exchange................................................................... 33
SECTION 2.07. Book-Entry Provisions for Global Securities............................................. 34
SECTION 2.08. Special Transfer Provisions............................................................. 36
SECTION 2.09. Replacement Securities.................................................................. 40
SECTION 2.10. Outstanding Securities.................................................................. 40
SECTION 2.11. Temporary Securities.................................................................... 40
SECTION 2.12. Cancellation............................................................................ 41
SECTION 2.13. CUSIP Numbers........................................................................... 41
SECTION 2.14. Defaulted Interest...................................................................... 41
SECTION 2.15. Issuance of Additional Securities....................................................... 42
ARTICLE III
REDEMPTION
SECTION 3.01. Notices to Trustee...................................................................... 42
SECTION 3.02. Selection and Notice.................................................................... 42
SECTION 3.03. Notice.................................................................................. 42
SECTION 3.04. Effect of Notice of Redemption.......................................................... 43
SECTION 3.05. Deposit of Redemption Price............................................................. 44
SECTION 3.06. Securities Redeemed in Part............................................................. 44
SECTION 3.07. Optional Redemption..................................................................... 44
SECTION 3.08. Special Mandatory Redemption............................................................ 45
SECTION 3.09. Repurchase Offers....................................................................... 45
</TABLE>
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<TABLE>
<S> <C>
SECTION 3.10. No Sinking Fund.......................................................................... 48
ARTICLE IV
COVENANTS
SECTION 4.01. Payment of Securities.................................................................... 48
SECTION 4.02. Reports.................................................................................. 49
SECTION 4.03. Incurrence of Debt and Issuance of Preferred Stock....................................... 49
SECTION 4.04. Restricted Payments...................................................................... 51
SECTION 4.05. Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries.................................................................. 55
SECTION 4.06. Asset Sales.............................................................................. 57
SECTION 4.07. Transactions with Affiliates............................................................. 58
SECTION 4.08. Change of Control........................................................................ 59
SECTION 4.09. Compliance Certificate................................................................... 59
SECTION 4.10. Liens.................................................................................... 60
SECTION 4.11. Additional Security Guarantees........................................................... 60
SECTION 4.12. Restriction on Senior Subordinated Debt.................................................. 60
ARTICLE V
SUCCESSOR COMPANY
SECTION 5.01. Merger, Consolidation or Sale of All or Substantially
All Assets of the Company............................................................ 60
SECTION 5.02. Merger, Consolidation or Sale of All or Substantially
All Assets of a Guarantor............................................................ 62
ARTICLE VI
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default and Remedies........................................................... 62
SECTION 6.02. Acceleration............................................................................. 64
SECTION 6.03. Other Remedies........................................................................... 64
SECTION 6.04. Waiver of Past Defaults.................................................................. 65
SECTION 6.05. Control by Majority...................................................................... 65
SECTION 6.06. Limitation on Suits...................................................................... 65
SECTION 6.07. Rights of Holders to Receive Payment..................................................... 66
SECTION 6.08. Collection Suit by Trustee............................................................... 66
SECTION 6.09. Trustee May File Proofs of Claim......................................................... 66
SECTION 6.10. Priorities............................................................................... 66
</TABLE>
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SECTION 6.11. Undertaking for Costs.................................................................... 67
SECTION 6.12. Waiver of Stay or Extension Laws......................................................... 67
ARTICLE VII
TRUSTEE
SECTION 7.01. Duties of Trustee........................................................................ 67
SECTION 7.02. Rights of Trustee........................................................................ 68
SECTION 7.03. Individual Rights of Trustee............................................................. 70
SECTION 7.04. Trustee's Disclaimer..................................................................... 70
SECTION 7.05. Notice of Defaults....................................................................... 70
SECTION 7.06. Reports by Trustee to Holders............................................................ 70
SECTION 7.07. Compensation and Indemnity............................................................... 70
SECTION 7.08. Replacement of Trustee................................................................... 72
SECTION 7.09. Successor Trustee by Merger.............................................................. 73
SECTION 7.10. Eligibility; Disqualification............................................................ 73
SECTION 7.11. Preferential Collection of Claims Against Company........................................ 73
ARTICLE VIII
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Legal Defeasance and Covenant Defeasance................................................. 73
SECTION 8.02. Conditions to Legal or Covenant Defeasance............................................... 74
SECTION 8.03. Deposited Money and Government Securities to
Be Held in Trust; Other Miscellaneous Provisions.............................. 76
SECTION 8.04. Repayment to Company..................................................................... 76
SECTION 8.05. Reinstatement............................................................................ 77
SECTION 8.06. Satisfaction and Discharge of Indenture.................................................. 77
ARTICLE IX
AMENDMENTS
SECTION 9.01. Without Consent of Holders............................................................... 78
SECTION 9.02. With Consent of Holders.................................................................. 79
SECTION 9.03. Compliance with Trust Indenture Act...................................................... 80
SECTION 9.04. Revocation and Effect of Consents and Waivers............................................ 80
SECTION 9.05. Notation on or Exchange of Securities.................................................... 81
SECTION 9.06. Trustee to Sign Amendments............................................................... 81
</TABLE>
ARTICLE X
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<TABLE>
<S> <C>
SUBORDINATION
SECTION 10.01. Agreement To Subordinate................................................................ 81
SECTION 10.02. Liquidation, Dissolution, Bankruptcy.................................................... 82
SECTION 10.03. Default on Senior Debt.................................................................. 82
SECTION 10.04. Acceleration of Payment of Securities................................................... 83
SECTION 10.05. When Distribution Must Be Paid Over..................................................... 83
SECTION 10.06. Subrogation............................................................................. 83
SECTION 10.07. Relative Rights......................................................................... 83
SECTION 10.08. Subordination May Not Be Impaired by Company............................................ 84
SECTION 10.09. Rights of Trustee and Paying Agent...................................................... 84
SECTION 10.10. Distribution or Notice to Representative................................................ 84
SECTION 10.11. Article X Not to Prevent Events of Default or Limit
Right to Accelerate........................................................... 84
SECTION 10.12. Trust Moneys Not Subordinated........................................................... 84
SECTION 10.13. Trustee Entitled to Rely................................................................ 85
SECTION 10.14. Trustee to Effectuate Subordination..................................................... 85
SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Debt........................................ 85
SECTION 10.16. Reliance by Holders of Senior Debt on
Subordination Provisions...................................................... 85
SECTION 10.17. Trustee's Compensation Not Prejudiced................................................... 86
ARTICLE XI
SECURITY GUARANTEES
SECTION 11.01. Security Guarantees..................................................................... 86
SECTION 11.02. Limitation on Liability................................................................. 88
SECTION 11.03. Successors and Assigns.................................................................. 88
SECTION 11.04. No Waiver............................................................................... 88
SECTION 11.05. Modification............................................................................ 89
ARTICLE XII
SUBORDINATION OF THE SECURITY GUARANTEES
SECTION 12.01. Agreement to Subordinate................................................................ 89
SECTION 12.02. Liquidation, Dissolution, Bankruptcy.................................................... 89
SECTION 12.03. Default on Senior Debt of a Guarantor................................................... 89
SECTION 12.04. Demand for Payment...................................................................... 90
SECTION 12.05. When Distribution Must Be Paid Over..................................................... 90
SECTION 12.06. Subrogation............................................................................. 91
SECTION 12.07. Relative Rights......................................................................... 91
SECTION 12.08. Subordination May Not Be Impaired by a Guarantor........................................ 91
</TABLE>
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<TABLE>
<S> <C>
SECTION 12.09. Rights of Trustee and Paying Agent...................................................... 91
SECTION 12.10. Distribution or Notice to Representative................................................ 92
SECTION 12.11. Article XII Not to Prevent Events of Default or
Limit Right to Accelerate..................................................... 92
SECTION 12.12. Trustee Entitled to Rely................................................................ 92
SECTION 12.13. Trustee to Effectuate Subordination..................................................... 92
SECTION 12.14. Trustee Not Fiduciary for Holders of Senior Debt
of a Guarantor................................................................ 92
SECTION 12.15. Reliance by Holders of Senior Debt of a Guarantor
on Subordination Provisions................................................... 93
ARTICLE XIII
MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls............................................................ 93
SECTION 13.02. Notices................................................................................. 93
SECTION 13.03. Communication by Holders with Other Holders............................................. 95
SECTION 13.04. Certificate and Opinion as to Conditions Precedent...................................... 95
SECTION 13.05. Statements Required in Certificate or Opinion........................................... 95
SECTION 13.06. When Securities Disregarded............................................................. 96
SECTION 13.07. Rules by Trustee, Paying Agent and Registrar............................................ 96
SECTION 13.08. Legal Holidays.......................................................................... 96
SECTION 13.09. GOVERNING LAW........................................................................... 96
SECTION 13.10. No Recourse Against Others.............................................................. 96
SECTION 13.11. Successors.............................................................................. 97
SECTION 13.12. Multiple Originals...................................................................... 97
SECTION 13.13. Table of Contents; Headings............................................................. 97
</TABLE>
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CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Section Indenture
----------- ---------
<S> <C>
310 (a) (1) ...................................... 7.10
(a) (2) ...................................... 7.10
(a) (3) ...................................... N.A.
(a) (4) ...................................... N.A.
(b) ...................................... 7.08; 7.10
(c) ...................................... N.A.
311 (a) ...................................... 7.11
(b) ...................................... 7.11
(c) ...................................... N.A.
312 (a) ...................................... 2.04
(b) ...................................... 13.03
(c) ...................................... 13.03
313 (a) ...................................... 7.06
(b) (1) ...................................... N.A.
(b) (2) ...................................... 7.06
(c) ...................................... 13.02
(d) ...................................... 7.06
314 (a) ...................................... 4.02; 4.09
(b) ...................................... N.A.
(c) (1) ...................................... 13.04
(c) (2) ...................................... 13.04
(c) (3) ...................................... 13.04
(d) ...................................... N.A.
(e) ...................................... 13.05
(f) ...................................... N.A.
315 (a) ...................................... 7.01
(b) ...................................... 7.05; 13.02
(c) ...................................... 7.01
(d) ...................................... 7.01
(e) ...................................... 6.11
316 (a) (last sentence) ...................................... 13.06
(a) (1) (A) ...................................... 6.05
(a) (1) (B) ...................................... 6.04
(a) (2) ...................................... N.A.
(b) ...................................... 6.07
317 (a) (1) ...................................... 6.08
(a) (2) ...................................... 6.09
(b) ...................................... 2.05
318 (a) ...................................... 13.01
N.A. means Not Applicable
</TABLE>
_____________________
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of this Indenture.
<PAGE>
INDENTURE dated as of July 31, 1998, among HH ACQUISITION CORP., a
Delaware corporation (the "Company"), and UNITED STATES TRUST COMPANY OF NEW
YORK, as Trustee (the "Trustee").
Each party agrees as follows for the benefit of the other parties and
for the equal and ratable benefit of the Holders of (i) the Company's 11% Senior
Subordinated Discount Notes due 2008 issued on the date hereof, (ii) any
Additional Securities that may be issued on any other Issue Date (all such
Securities in clauses (i) and (ii) being referred to collectively as the
"Initial Securities") and (iii) if and when issued as provided in a Registration
Rights Agreement of the Company's 11% Senior Subordinated Discount Notes due
2008 issued in a Registered Exchange Offer in exchange for any Initial
Securities (the "Exchange Securities", and together with the Initial Securities
and any Exchange Securities issued hereunder, the "Securities"). The Securities
issued on the date hereof will be limited to $170,000,000 in aggregate principal
amount at maturity. Subject to the conditions set forth herein, the Company may
issue Additional Securities.
WHEREAS, as of the date hereof, Harborside and the Guarantors are not
parties to this Indenture. However, upon consummation of the Recapitalization,
Harborside, each of the Guarantors and the Trustee will execute and deliver a
supplemental indenture providing for (i) the assumption by Harborside of the
Company's obligations under this Indenture and (ii) each of the Guarantors to
become a party to this Indenture as a Guarantor.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
------------------------------------------
SECTION 1.01. Definitions.
-----------
"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 Securities:
(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:
SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE
------------------------ --------------
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
<PAGE>
August 1, 2001....................... $ 807.21
February 1, 2002....................... $ 851.61
August 1, 2002....................... $ 898.45
February 1, 2003....................... $ 947.86
August 1, 2003....................... $1000.00
(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 Securities per $1,000 principal amount and (b) an amount equal to the
product of (1) the Accreted Value for the first 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 first 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 first 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.
"Additional Securities" shall mean Initial Securities initially
issued subsequent to the date hereof pursuant to Article II and in compliance
with Section 4.03.
"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)
2
<PAGE>
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.
"Agent" means any Registrar, Paying Agent or Co-registrar.
"Applicable Premium" means, with respect to a Security at any
redemption date prior to August 1, 2003, the greater of (i) 1.0% of the Accreted
Value of such Security or (ii) the excess of (A) the present value at such time
of the redemption price of such Security at August 1, 2003 (such redemption
price being set forth in the table in Section 3.07(a)), computed using a
discount rate equal to the Treasury Rate plus 50 basis points, over (B) the
Accreted Value of such Security on the redemption date.
"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 Company will be governed by Article V and
not by the provisions of Section 4.06), and (ii) the issue or sale by the
Company or any of its Restricted Subsidiaries of Equity Interests of any of the
Company'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 Company to a Restricted Subsidiary or by a Restricted
Subsidiary to the Company or to another Restricted Subsidiary, (ii) an issuance
of Equity Interests by a Restricted Subsidiary to the Company or to another
Restricted Subsidiary, (iii) a Restricted Payment or Permitted Investment that
is permitted by Section 4.04 (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 Company 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 Company or any of its Subsidiaries that, in the reasonable
judgment of the Company, 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 Company
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 Company
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 Company and
its Restricted Subsidiaries represent the fair market value of such receivables.
3
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"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.
"Board Resolution" means a copy of a resolution certified by an
Officer of the Company to have been duly adopted by the Board of Directors and
to be in full force and effect on the date of such certification, and delivered
to the Trustee.
"Business Day" means a day other than a Saturday, Sunday or other day
on which banking institutions in New York State are authorized or required by
law to close.
"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.
"Change of Control" means the occurrence of any of the following
events:
(i) prior to the first public offering of Voting Stock of the
Company, the Initial Control Group ceases to be the "beneficial owner" (as
defined in Rules 13d-3
4
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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 Company, whether as a
result of the issuance of securities of the Company, any merger,
consolidation, liquidation or dissolution of the Company, 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
Company (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 Company 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 Company, 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 Company (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 Company, 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 Company 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 Company following such election.
"Closing Date" means the date on which the Company is merged with and
into Harborside Healthcare Corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Agent" means United States Trust Company of New York.
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"Commodity Hedging Agreements" means any futures contract or other
similar agreement or arrangement designed to protect the Company or any
Restricted Subsidiary against fluctuations in commodities prices.
"Company" means HH Acquisition Corp. and, upon consummation of the
Recapitalization, Harborside, until a successor replaces it pursuant to this
Indenture and thereafter shall mean such successor corporation.
"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 noncash costs of Interest Rate
Agreements, Commodity Hedging Agreements or Currency Agreements, license
agreements and non-competition agreements), noncash amortization of Capital
Lease Obligations, and organization costs, (iv) noncash 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 this 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 noncash 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 Company 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
6
<PAGE>
referred to above, Investments, acquisitions, dispositions, mergers and
consolidations that have been made by the Company 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 Company 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 Company. 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 Company 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 Company 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, noncash
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
7
<PAGE>
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 Company 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 noncash
charges resulting from any write-up, write-down or write-off of assets, of the
Company and its Restricted Subsidiaries in connection with the Recapitalization,
shall be excluded.
"Credit Facilities" means, with respect to the Company, 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 Company 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
8
<PAGE>
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 Company or
- -------- -------
any of its Restricted Subsidiaries arising from agreements of the Company 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 Company 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 Company 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 Company,
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 Company 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 Company's election, but without duplication, may be reduced by the principal
amount (not to exceed $7.5 million) of the note receivable issued to Harborside
before the
9
<PAGE>
Issue Date in connection with the leasing of certain nursing home facilities in
the State of Connecticut.
"Default" means any event that, with the passage of time or the
giving of notice or both, would be an Event of Default.
"Depositary" means The Depository Trust Company, its nominees, and
their respective successors.
"Designated Senior Debt" means (i) any Debt outstanding under the New
Credit Facility and (ii) any other Senior Debt permitted under this Indenture
the principal amount of which is $25.0 million or more and that has been
designated by the Company 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 Securities mature;
provided, however, that if such Capital Stock is issued to any plan for the
- -------- -------
benefit of employees of the Company 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 Company 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 Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Debentures" means the Exchange Debentures of the Company
due 2010 issued 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 Exchangeable Preferred Stock
of the Company Due 2010 issued on the first Issue Date, any Exchangeable
Preferred Stock issued as payment of dividends thereon and any Preferred Stock
containing terms substantially identical
10
<PAGE>
to the Exchangeable Preferred Stock that are issued in exchange for the
Exchangeable Preferred Stock.
"Existing Debt" means Debt of the Issuer and its Restricted
Subsidiaries (other than Debt under the New Credit Facility) in existence on the
first Issue Date, until such amounts are repaid.
"Exchange Securities" means any securities of the Company containing
terms identical to the Securities (except that such Exchange Securities shall be
registered under the Securities Act) that are issued and exchanged for the
Initial Securities pursuant to a Registration Rights Agreement and this
Indenture.
"Foreign Subsidiary" means any Subsidiary of the Company 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.
"Full Accretion Date" means August 1, 2003.
"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 this Indenture shall be computed in conformity with GAAP as in
effect as of the first Issue Date.
"Government Securities" 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 Company'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 Security Guarantee after the Closing Date, and their respective
successors and assigns, in each case until released from its Security Guarantee
in accordance with the terms of this Indenture.
11
<PAGE>
"Harborside" means Harborside Healthcare Corporation.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under Interest Rate Agreements, Currency Agreements
or Commodity Hedging Agreements.
"Holder" or "Securityholder" means a Person in whose name a Security
is registered in the register for the Securities.
"HRI" means Harborside of Rhode Island L.P., a Massachusetts limited
partnership, or its successor.
"Incur", "Incurring" and "Incurred" means to, directly or indirectly,
create, Incur, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise; provided, however, that any Debt
-------- -------
or Capital Stock of a Person existing at the time such Person becomes a
Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be
deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"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 Company's Capital Stock, any employee
benefit plan of the Company 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.
"Initial Purchasers" means Morgan Stanley & Co. Incorporated, Chase
Securities Inc. and BT Alex.Brown Incorporated.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"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 Company 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
12
<PAGE>
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 Company 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 Company or any Restricted Subsidiary of
the Company sells or otherwise disposes of any Equity Interests of any direct or
indirect Subsidiary of the Company such that, after giving effect to any such
sale or disposition, such Person is no longer a Subsidiary of the Company, the
Company 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 Section 4.04.
"Investors" shall mean Investcorp and certain other international
investors organized by Investcorp.
"Issue Date" means the date on which any Securities are originally
issued.
"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.
"Liquidated Damages" shall have the meaning set forth in a
Registration Rights Agreement.
"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
13
<PAGE>
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
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including any cash received upon the sale or other disposition of any noncash
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 Securities
required (other than required by clause (a) of the second paragraph of Section
4.06) 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 Company as a reserve, in accordance with GAAP,
against any liabilities associated with the asset disposed of in such
transaction and retained by the Company 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 (a) the
Credit Agreement 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 Credit Documents, including any appendices, exhibits or Schedules to any of
the foregoing (as the same may be in effect from time to time), and (b) the
Synthetic Lease Facility described in the Credit Agreement, including the Lease
between a Subsidiary of the Issuer, as lessee, and the Delaware business trust
named therein, as lessor (the "Lessor"), the Credit Agreement among the Lessor
and the financial institutions named therein, the Participation Agreement among
the parties to the Lease, the parties to the Credit Agreement, the Trustee of
Lessor, and the Investors in Lessor, and the additional Operative Agreements
described in the Participation 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 agreements or other credit agreements or otherwise). For
purposes of this
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definition, capitalized terms used in this definition and not defined have the
meanings given in the New Credit Facility.
"Non-U.S. Person" means a Person who is not a "U.S. person" (as
defined in Regulation S).
"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.
"Offering" means the Security Offering and the offering of the
Company's Exchangeable Preferred Stock.
"Offering Memorandum" shall mean the offering memorandum dated July
29, 1998, relating to the sale by the Issuer of $170,000,000 aggregate principal
amount at maturity of the Initial Securities and 40,000 shares of Exchangeable
Preferred Stock.
"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.
"Opinion of Counsel" means a written opinion from legal counsel who
is reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Pari Passu Debt" means any Debt of the Company or any Guarantor that
ranks pari passu with the Securities or the relevant Security Guarantee.
---- -----
"Paying Agent" has the meaning provided in Section 2.04, except that,
for the purposes of Article Eight, the Paying Agent shall not be the Company or
a Subsidiary of the Company or an Affiliate of any of them. The term "Paying
Agent" includes any additional Paying Agent.
"Payment" means, with respect to the Securities, any payment, whether
in cash or other assets or property, of interest, principal (including
redemption price and purchase price), premium, Liquidated Damages or any other
amount on, of or in respect of the
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<PAGE>
Securities, any other acquisition of Securities and any deposit into the trust
described in Article VIII. The verb "pay" has a correlative meaning.
"Permitted Investments" means (a) any Investment in the Company 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 Company or any Restricted Subsidiary of
the Company 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 Company or a Restricted Subsidiary; (d)
any securities or other assets received or other Investments made as a result of
the receipt of noncash consideration from an Asset Sale that was made pursuant
to and in compliance with Section 4.06 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 Company; (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
Company 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 Company or such
Restricted Subsidiary deems reasonable); (i) any Investment existing on the
first Issue Date or made pursuant to legally binding written commitments in
existence on the first Issue Date; (j) Investments in Interest Rate Agreements,
Currency Agreements and Commodity Hedging Agreements otherwise permitted under
this 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 Company or any successor corporation issued pursuant to a plan of
reorganization or readjustment of the Company that are subordinated to the
payment of all Senior Debt at least to the same extent that the Securities are
subordinated to the payment of all Senior Debt on the first Issue Date, so long
as (i) the effect of the use of this defined term in the subordination
provisions described in Article X is not to cause the Securities 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 Company 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
16
<PAGE>
receive securities that constitute Senior Debt and that 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 Company
and Guarantors and unsubordinated Debt of a Subsidiary Non-Guarantor (in each
case including related Obligations) that was permitted by the terms of this
Indenture to be Incurred; (ii) Liens in favor of the Company or any Restricted
Subsidiary; (iii) Liens on property of a Person existing at the time such Person
is merged into or consolidated with the Company or any Restricted Subsidiary of
the Company, 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 Company or a
Restricted Subsidiary, as the case may be; (iv) Liens on property existing at
the time of acquisition thereof by the Company or any Restricted Subsidiary of
the Company, 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 Company or any Restricted Subsidiary of the
Company 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 Company 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 Company 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 Company 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 Company and its Subsidiaries on the
properties subject
17
<PAGE>
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
Company or any Restricted Subsidiary of the Company has easement rights or on
any real property leased by the Company or any Restricted Subsidiary on the
first 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 Company
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 this 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 Company 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 this 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 Company, provided that such Liens do not extend to any assets other than
--------
those of the Person that became a Restricted Subsidiary of the Company, 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 Company or any
Restricted Subsidiary in a transaction entered into in the ordinary course of
business of the Company 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 Company 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 Company or any of its Restricted Subsidiaries Incurred in compliance with
this 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 Securities 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 Securities;
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(iii) if the Debt being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Securities, 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 Securities on terms at least
as favorable to the Holders of Securities 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 Company or by
its Restricted Subsidiary who is the obligor on the Debt being extended,
refinanced, renewed, replaced, defeased or refunded. The Company 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 Company shall provide written
notice thereof to the Trustee, specifically identifying the Debt to be
refinanced with Permitted Refinancing Debt.
"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.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Placement Agreement" means (i) with respect to the Initial Securities
issued on the date hereof, the Placement Agreement dated July 29, 1998, for the
purchase of $170,000,000 principal amount at maturity of Initial Securities
between the Company and the Initial Purchasers as such agreement may be amended,
modified or supplemented from time to time in accordance with the terms thereof
and (ii) with respect to any Additional Securities, any purchase or underwriting
agreement entered into by the Company, any Guarantors and the initial purchasers
or underwriters with respect thereto, as such agreement may be amended, modified
or supplemented from time to time in accordance with the terms thereof.
"Pledge Agreement" means the collateral pledge and security agreement
dated as of the first Issue Date between the Company and the Collateral Agent.
"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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<PAGE>
"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 Company,
"Preferred Stock" includes the Exchangeable Preferred Stock.
"principal" of a Security means the principal of the Security plus the
premium, if any, payable on the Security that is due or overdue or is to become
due at the relevant time.
"Private Placement Legend" means the legend initially set forth on the
Securities in the form set forth in Section 2.02.
"Recapitalization" means the recapitalization of Harborside pursuant
to which the Company will be merged with and into Harborside and the financing
transactions related thereto.
"Recapitalization Agreement" means the Agreement and Plan of Merger
dated as of April 15, 1998 by and between the Company and Harborside Healthcare
Corporation, as amended through the Closing Date.
"Registered Exchange Offer" shall mean an offer made by the Company
pursuant to a Registration Rights Agreement and under an effective registration
statement under the Securities Act to exchange Exchange Securities for
outstanding Initial Securities substantially identical in all material respects
to such Initial Securities (except for the differences provided for therein).
"Registration Statement" means the Registration Statement as defined
and described in the Registration Rights Agreement.
"Registration Rights Agreement" means (i) with respect to the Initial
Securities issued on the date hereof, the Registration Rights Agreement dated
July 31, 1998, among the Company, the Guarantors and the Initial Purchasers, as
such agreement may be amended, modified or supplemented from time to time in
accordance with the terms thereof and (ii) with respect to any Additional
Securities, any registration rights agreement entered into among the Company,
any Guarantors and the relevant initial purchasers or underwriters, as the same
may be amended, modified or supplemented from time to time in accordance with
the terms thereof.
"Regulation S" means Regulation S under the Securities Act.
"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
20
<PAGE>
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.
"Rule 144A" means Rule 144A under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Secured Debt" means any Debt of the Company or any Subsidiary secured
by a Lien.
"Securities" has the meaning stated in the recital of this Indenture
and more particularly means any Securities authenticated and delivered under
this Indenture. For all purposes of this Indenture, the term "Securities" shall
include any Exchange Securities to be issued and exchanged for any Initial
Securities pursuant to a Registration Rights Agreement and this Indenture. From
and after the issuance of any Additional Securities (but not for purposes of
determining whether such issuance is permitted hereunder), "Securities" shall
include such Additional Securities for purposes of this Indenture and all
Exchange Securities from time to time issued with respect to any Initial
Securities that constitute such Additional Securities. All Securities,
including any such Additional Securities, shall vote together as one series of
Securities under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" or "Custodian" means the custodian with respect
to any Global Security (as appointed by the Depository), or any successor entity
thereto covered in Section 2.03.
"Security Offering" means the offering of the Company's 11% Senior
Subordinated Discount Notes due 2008 as described in the Offering Memorandum.
"Security Guarantee" means, upon consummation of the Recapitalization,
the Guarantee by each Guarantor of the Company's Obligations under the
Securities pursuant to Article XI.
"Senior Debt" means (i) all Debt of the Company 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 Company or any Guarantor pursuant to Section 4.03, unless the
instrument under which such Debt is Incurred expressly
21
<PAGE>
provides that it is on a parity with or subordinated in right of payment to the
Securities or the relevant Security 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 Company, (w) any Debt of the Company
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
Section 4.03 (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 Company to the effect
that the issuance of such Debt does not violate such covenant) or (z) any Debt
or obligation of the Company or any Guarantor that is expressly subordinated in
right of payment to any other Debt or obligation of the Company or such
Guarantor, as applicable, including any Subordinated Debt of the Company.
"Senior Officer" means the Chief Executive Officer or the Chief
Financial Officer of the Company.
"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 first Issue Date.
"Specified Affiliate Payments" means:
(i) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company or any Restricted Subsidiary
of the Company held by any future, present or former employee, director,
officer or consultant of the Company (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 Securities 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 Company (including by way of capital contribution) since the Issue
Date from the sale of Equity Interests of the Company to employees,
directors, officers or consultants of the Company or its Subsidiaries that
occurs in such calendar year (it being understood that such cash proceeds
shall be excluded from clause (c)(ii) of Section 4.04(a)) plus (B) the cash
proceeds from key man life insurance policies received by the Company and
its Restricted Subsidiaries in such calendar year (including proceeds
22
<PAGE>
from the sale of such policies to the person insured thereby); and provided
--------
further that cancellation of Debt owing to the Company from employees,
-------
directors, officers or consultants of the Company or any of its
Subsidiaries in connection with a repurchase of Equity Interests of the
Company will not be deemed to constitute a Restricted Payment for purposes
of this 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 Company to shareholders or members of
management of the Company and its Subsidiaries in connection with the
Recapitalization; and
(iv) payments or transactions permitted under clause (5) of Section
4.07(b);
"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 Company or any Guarantor
(whether outstanding on the first Issue Date or thereafter Incurred) that is
subordinate or junior in right of payment to the Securities or the applicable
Security 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 Company.
"Subsidiary Non-Guarantors" means (i) each of the Subsidiaries of the
Company on the Closing Date that do not issue or are released from a Security
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 Security Guarantee.
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"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
------
77bbbb) as in effect on the date of this Indenture; provided, however, that, in
-------- -------
the event the Trust Indenture Act of 1939 is amended after such date, "TIA"
means, to the extent required by any such amendments, the Trust Indenture Act of
1939 as so amended.
"Temporary Offshore Global Notes" has the meaning provided in Section
2.01.
"Total Assets" means, at any time, the total consolidated assets of
the Company and its Restricted Subsidiaries at such time.
"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
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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.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
"Trust Officer" means any officer or assistant officer of the Trustee
assigned by the Trustee to administer this Indenture.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to 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 Company or any
Restricted Subsidiary of the Company unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Company or
such Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; and (b) except in the case of a
Foreign Subsidiary, is a Person with respect to which neither the Company 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
24
<PAGE>
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 Section 4.04. 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 this Indenture and any Debt of such Subsidiary shall
be deemed to be Incurred by a Restricted Subsidiary of the Company as of such
date (and, if such Debt is not permitted to be Incurred as of such date pursuant
to Section 4.03, the Company shall be in default of such covenant). The Board of
Directors of the Company may at any time designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that such designation shall be deemed to
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be an Incurrence of Debt by a Restricted Subsidiary of the Company of any
outstanding Debt of such Unrestricted Subsidiary and such designation shall only
be permitted if (i) such Debt is permitted by Section 4.03, 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.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the Company's option.
"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.
25
<PAGE>
SECTION 1.02. Other Definitions.
-----------------
Term Defined in Section
---- ------------------
"Affiliate Transaction"....................... 4.07
"Agent Members"............................... 2.07(a)
"Asset Sale Offer"............................ 4.06
"Bankruptcy Law".............................. 6.01
"Change of Control Offer"..................... 3.09(a)
"Change of Control Payment"................... 4.08(a)
"Covenant Defeasance"......................... 8.01(c)
"Custodian"................................... 6.01
"estate"...................................... 8.02(f)
"Event of Default"............................ 6.01
"Excess Proceeds"............................. 4.06
"Excess Proceeds Offer"....................... 3.09(a)
"Global Securities"........................... 2.01
"Guaranteed Obligations"...................... 11.01
"Guarantor non-payment default"............... 12.03
"Guarantor Payment Blockage Notice"........... 12.03
"Guarantor payment default"................... 12.03
"Indemnified Party"........................... 7.07
"Legal Defeasance"............................ 8.01(b)
"Legal Holiday"............................... 13.08
"non-payment default"......................... 10.03
"Notice of Default"........................... 6.01
"Offer Amount"................................ 3.09(a)
"Offer Period"................................ 3.09(a)
"Offshore Global Security..................... 2.01
"Offshore Physical Securities................. 2.01
"Option of Holder to Elect Purchase".......... 3.09
"Payment Blockage Notice"..................... 10.03
"payment default"............................. 10.03
"Permanent Offshore Global Securities"........ 2.01
"Permitted Debt".............................. 4.03(b)
"Physical Securities"......................... 2.01
"Purchase Date"............................... 3.09(a)
"Registrar.................................... 2.04
"Repurchase Offer"............................ 3.09(a)
"Restricted Payments"......................... 4.04(a)
"Rule 144A"................................... 2.01(b)
"Security Register"........................... 2.04
"Trustee"..................................... 8.03
26
<PAGE>
"U.S. Global Securities"...................... 2.01
"U.S. Physical Securities".................... 2.01
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
This Indenture is subject to the mandatory provisions of the TIA, which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Security holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on this Indenture securities means the Company, each
Guarantor and any other obligor under this Indenture.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context otherwise
---------------------
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Debt shall not be deemed to be subordinate or junior to
Secured Debt merely by virtue of its nature as unsecured Debt;
27
<PAGE>
(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would be
shown on a balance sheet of the Company dated such date prepared in
accordance with GAAP and accretion of principal on such security shall be
deemed to be the Incurrence of Debt; and
(8) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation value of such Preferred Stock or (ii) the maximum
mandatory redemption or mandatory repurchase price with respect to such
Preferred Stock, whichever is greater.
ARTICLE II
THE SECURITIES
--------------
SECTION 2.01. Form and Dating. The Securities and the Trustee's
---------------
certificate of authentication shall be substantially in the form annexed hereto
as Exhibit A with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture. The Securities
may have notations, legends or endorsements required by law, stock exchange
agreements to which the Company is subject or usage. The Company shall approve
the form of the Securities and any notation, legend or endorsement on the
Securities. Each Security shall be dated the date of its authentication.
The terms and provisions contained in the form of the Securities
annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a
part of this Indenture. To the extent applicable, the Company and the Trustee,
by their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Securities offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more permanent global Securities in registered
form, substantially in the form set forth in Exhibit A (the "U.S. Global
-----------
Securities"), registered in the name of the nominee of the Depositary, deposited
- ----------
with the Trustee, as custodian for the Depositary, duly executed by the Company
and authenticated by the Trustee as hereinafter provided. The aggregate
principal amount at maturity of the U.S. Global Securities may from time to time
be increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depositary or its nominee, in accordance with the instructions
given by the Holder thereof, as hereinafter provided.
Securities offered and sold in offshore transactions in reliance on
Regulation S shall be issued initially in the form of one or more temporary
global Securities in registered form substantially in the form set forth in
Exhibit A (the "Temporary Offshore Global Securities"), registered in the name
------------------------------------
of the nominee of the Depositary, deposited with the Trustee, as custodian for
the Depositary, duly executed by the Company and authenticated by
28
<PAGE>
the Trustee as hereinafter provided. At any time on or after September 10, 1998,
upon receipt by the Trustee and the Company of a certificate substantially in
the form of Exhibit B hereto, one or more permanent global Securities in
registered form substantially in the form set forth in Exhibit A (the "Permanent
---------
Offshore Global Securities"; and together with the Temporary Offshore Global
- --------------------------
Securities, the "Offshore Global Securities") duly executed by the Company and
--------------------------
authenticated by the Trustee as hereinafter provided, shall be deposited with
the Trustee, as custodian for the Depositary or its nominee, and the Registrar
shall reflect on its books and records the date and a decrease in the principal
amount at maturity of the Temporary Offshore Global Securities in an amount
equal to the principal amount at maturity of the beneficial interest in the
Temporary Offshore Global Securities transferred.
Securities may not be originally offered or sold to Institutional
Accredited Investors which are not QIBs (excluding Non-U.S. Persons).
Securities resold or otherwise transferred to Institutional Accredited Investors
as provided in Section 2.08(a) shall be issued in the form of permanent
certificated Securities in registered form in substantially the form set forth
in A (the "U.S. Physical Securities").
------------------------
Securities issued pursuant to Section 2.07 in exchange for interests
in the Offshore Global Securities shall be in the form of permanent certificated
Securities in registered form substantially in the form set forth in A (the
"Offshore Physical Securities").
- -----------------------------
The Offshore Physical Securities and U.S. Physical Securities are
sometimes collectively herein referred to as the "Physical Securities." The
-------------------
U.S. Global Securities and the Offshore Global Securities are sometimes referred
to herein as the "Global Securities."
-----------------
The definitive Securities shall be typed, printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Securities may be listed, all as determined by the Officers executing such
Securities, as evidenced by their execution of such Securities.
SECTION 2.02. Restrictive Legends. Unless and until a Security is
-------------------
exchanged for an Exchange Security or sold in connection with an effective
Registration Statement pursuant to the Registration Rights Agreement, (i) the
U.S. Global Securities and U.S. Physical Securities shall bear the legend set
forth below on the face thereof and (ii) the Offshore Physical Securities, until
at least the 41st day after the Closing Date and receipt by the Company and the
Trustee of a certificate substantially in the form of B hereto, and the
Temporary Offshore Global Securities shall bear the legend set forth below on
the face thereof.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR
29
<PAGE>
FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING
THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER
THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD
REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE
DATE OF TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE
EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE), AND, IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE ACCRETED VALUE OF NOTES AT THE TIME OF TRANSFER OF LESS THAN
$250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER
MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO
THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF
THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER
MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO
30
<PAGE>
THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS
NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.
Each Global Security, whether or not an Exchange Security, shall also
bear the following legend on the face thereof:
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 IN 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.
SECTION 2.03. Execution, Authentication and Denominations. Subject
-------------------------------------------
to Section 4.03, the aggregate principal amount at maturity of Securities which
may be authenticated and delivered under this Indenture is unlimited. The
Securities shall be executed by one or more Officers of the Company. The
signature of these Officers on the Securities may be by facsimile or manual
signature in the name and on behalf of the Company.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee or authenticating agent authenticates the
Security, the Security shall be valid nevertheless.
A Security shall not be valid until the Trustee or authenticating
agent manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
31
<PAGE>
At any time and from time to time after the execution of this
Indenture, the Trustee or an authenticating agent shall upon receipt of a
written order of the Company authenticate for original issue Securities in the
aggregate principal amount at maturity specified in such order; provided that
--------
the Trustee shall be entitled to receive an Officers' Certificate and an Opinion
of Counsel of the Company in connection with such authentication of Securities.
Such written order of the Company shall specify the amount of Securities to be
authenticated and the date on which the original issue of Securities is to be
authenticated and, in case of an issuance of Securities pursuant to Section
2.15, shall certify that such issuance is in compliance with Article Four.
The Trustee may appoint an authenticating agent to authenticate
Securities. Any such appointment shall be evidenced by an instrument signed by
the Trustee, a copy of which shall be furnished to the Company. An
authenticating agent may authenticate Securities whenever the Trustee may do so
unless limited by the terms of such appointment. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
authenticating agent. An authenticating agent has the same rights as an Agent
to deal with the Company or an Affiliate of the Company.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 in principal amount at maturity and
any integral multiple thereof.
SECTION 2.04. Registrar and Paying Agent. The Company shall maintain
--------------------------
an office or agency where Securities may be presented for registration of
transfer or for exchange (the "Registrar"), an office or agency where Securities
---------
may be presented for payment (the "Paying Agent") and an office or agency where
------------
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served, which shall be in the Borough of Manhattan, The City of
New York. The Company shall cause the Registrar to keep a register of the
Securities and of their transfer and exchange (the "Security Register"). The
-----------------
Security Register shall be in written form or any other form capable of being
converted into written form within a reasonable time. The Company may have one
or more co-Registrars and one or more additional Paying Agents.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall give
prompt written notice to the Trustee of the name and address of any such Agent
and any change in the address of such Agent. If the Company fails to maintain a
Registrar, Paying Agent and/or agent for service of notices and demands, the
Trustee shall act as such Registrar, Paying Agent and/or agent for service of
notices and demands. The Company may remove any Agent upon written notice to
such Agent and the Trustee; provided that no such removal shall become effective
--------
until (i) the acceptance of an appointment by a successor Agent to such Agent as
evidenced by an appropriate agency agreement entered into by the Company and
such successor Agent and
32
<PAGE>
delivered to the Trustee or (ii) notification to the Trustee that the Trustee
shall serve as such Agent until the appointment of a successor Agent in
accordance with clause (i) of this proviso. The Company, any domestically
organized Wholly Owned Restricted Subsidiary of the Company, or any Affiliate of
any of them may act as Paying Agent, Registrar or co-Registrar, and/or agent for
service of notice and demands.
The Company initially appoints the Trustee as Registrar, Paying Agent
and agent for service of notice and demands. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Holders and shall otherwise comply with TIA (S)
312(a). If the Trustee is not the Registrar, the Company shall furnish to the
Trustee as of each regular record date and at such other times as the Trustee
may reasonably request the names and addresses of Holders as they appear in the
Security Register, including the aggregate principal amount at maturity of
Securities held by each Holder.
SECTION 2.05. Paying Agent to Hold Money in Trust. Not later than
-----------------------------------
11:00 a.m. (New York City time) on each due date of the principal, premium and
Liquidated Damages, if any, and interest on any Securities, the Company shall
deposit with the Paying Agent money in immediately available funds sufficient to
pay such principal, premium and Liquidated Damages, if any, and interest so
becoming due. The Company shall require each Paying Agent other than the
Trustee to agree in writing that such Paying Agent shall hold in trust for the
benefit of the Holders or the Trustee all money held by the Paying Agent for the
payment of principal of, premium and Liquidated Damages, if any, and interest on
the Securities (whether such money has been paid to it by the Company or any
other obligor on the Securities), and such Paying Agent shall promptly notify
the Trustee of any default by the Company (or any other obligor on the
Securities) in making any such payment. The Company at any time may require a
Paying Agent to pay all money held by it to the Trustee and account for any
funds disbursed, and the Trustee may at any time during the continuance of any
payment default, upon written request to a Paying Agent, require such Paying
Agent to pay all money held by it to the Trustee and to account for any funds
disbursed. Upon doing so, the Paying Agent shall have no further liability for
the money so paid over to the Trustee. If the Company or any Subsidiary of the
Company or any Affiliate of any of them acts as Paying Agent, it will, on or
before each due date of any principal of, premium and Liquidated Damages, if
any, or interest on the Securities, segregate and hold in a separate trust fund
for the benefit of the Holders a sum of money sufficient to pay such principal,
premium and Liquidated Damages, if any, or interest so becoming due until such
sum of money shall be paid to such Holders or otherwise disposed of as provided
in this Indenture, and will promptly notify the Trustee of its action or failure
to act.
SECTION 2.06. Transfer and Exchange. The Securities are issuable
---------------------
only in registered form. A Holder may register the transfer of a Security only
by written application to the Registrar stating the name of the proposed
transferee and otherwise complying with the terms of this Indenture. No such
registration of transfer shall be effected until, and such
33
<PAGE>
transferee shall succeed to the rights of a Holder only upon, final acceptance
and registration of the transfer by the Registrar in the Security Register.
Prior to the registration of any transfer by a Holder as provided herein, the
Company, the Trustee, and any agent of the Company or the Trustee shall treat
the Person in whose name the Security is registered as the owner thereof for all
purposes whether or not the Security shall be overdue, and neither the Company,
the Trustee, nor any such agent shall be affected by notice to the contrary.
Furthermore, any Holder of a Global Security shall, by acceptance of such Global
Security, agree that transfers of beneficial interests in such Global Security
may be effected only through a book entry system maintained by the Holder of
such Global Security (or its agent) and that ownership of a beneficial interest
in the Security shall be required to be reflected in a book entry. When
Securities are presented to the Registrar or a co-Registrar with a request to
register the transfer or to exchange them for an equal principal amount at
maturity of Securities of other authorized denominations (including an exchange
of Securities for Exchange Securities), the Registrar shall register the
transfer or make the exchange as requested if its requirements for such
transactions are met (including that such Securities are duly endorsed or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee and Registrar duly executed by the Holder thereof or by an attorney who
is authorized in writing to act on behalf of the Holder); provided that no
--------
exchanges of Securities for Exchange Securities shall occur until a Registration
Statement shall have been declared effective by the Commission and that any
Securities that are exchanged for Exchange Securities shall be cancelled by the
Trustee. To permit registrations of transfers and exchanges, the Company shall
execute and the Trustee shall authenticate Securities at the Registrar's
request. No service charge shall be made for any registration of transfer or
exchange or redemption of the Securities, but the Company may require payment of
a sum sufficient to cover any transfer tax assessments or similar governmental
charge payable in connection therewith (other than any such transfer taxes or
other similar governmental charge payable upon exchanges pursuant to Section
2.11, 3.06 or 9.05).
The Registrar shall not be required (i) to issue, register the
transfer of or exchange any Security during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Securities selected for redemption and ending at the close of business on the
day of such mailing, or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.
SECTION 2.07. Book-Entry Provisions for Global Securities. (a) The
-------------------------------------------
U.S. Global Securities and Offshore Global Securities initially shall (i) be
registered in the name of the Depositary for such Global Securities or the
nominee of such Depositary, (ii) be delivered to the Trustee as custodian for
such Depositary and (iii) bear legends as set forth in Section 2.02.
Members of, or participants in, the Depositary ("Agent Members") shall
-------------
have no rights under this Indenture with respect to any Global Security held on
their behalf by the
34
<PAGE>
Depositary, or the Trustee as its custodian, or under such Global Security, and
the Depositary may be treated by the Company, the Trustee and any agent of the
Company or the Trustee as the absolute owner of such Global Security for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Company, the Trustee or any agent of the Company or the Trustee, from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its Agent Members, the
operation of customary practices governing the exercise of the rights of a
Holder of any Security.
(b) Transfers of a Global Security shall be limited to transfers of
such Global Security in whole, but not in part, to the Depositary, its
successors or their respective nominees. Interests of beneficial owners in
Global Securities may be transferred in accordance with the rules and procedures
of the Depositary and the provisions of Section 2.08. In addition, U.S.
Physical Securities and Offshore Physical Securities shall be transferred to all
beneficial owners in exchange for their beneficial interests in the U.S. Global
Securities or the Offshore Global Securities, as the case may be, if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for the U.S. Global Securities or the Offshore Global Securities, as
the case may be, and a successor depositary is not appointed by the Company
within 90 days of such notice, (ii) an Event of Default has occurred and is
continuing and the Registrar has received a request from the Depositary or (iii)
in accordance with the rules and procedures of the Depositary and the provisions
of Section 2.08.
(c) Any beneficial interest in one of the Global Securities that is
transferred to a Person who takes delivery in the form of an interest in another
Global Security will, upon transfer, cease to be an interest in such Global
Security and become an interest in such other Global Security and, accordingly,
will thereafter be subject to all transfer restrictions, if any, and other
procedures applicable to beneficial interests in such other Global Security for
as long as it remains such an interest.
(d) In connection with any transfer of a portion of the beneficial
interests in a Global Security to beneficial owners pursuant to paragraph (b) of
this Section 2.07, the Registrar shall reflect on its books and records the date
and a decrease in the principal amount at maturity of such Global Security in an
amount equal to the principal amount at maturity of the beneficial interest in
such Global Security to be transferred, and the Company shall execute, and the
Trustee shall authenticate and deliver, one or more U.S. Physical Securities or
Offshore Physical Securities, as the case may be, of like tenor and amount.
(e) In connection with the transfer of the U.S. Global Securities or
the Offshore Global Securities, in whole, to beneficial owners pursuant to
paragraph (b) of this Section 2.07, the U.S. Global Securities or Offshore
Global Securities, as the case may be, shall be deemed to be surrendered to the
Trustee for cancellation, and the Company shall execute, and the Trustee shall
authenticate and deliver, to each beneficial owner identified by the Depositary
in exchange for its beneficial interest in the U.S. Global Securities or
Offshore
35
<PAGE>
Global Securities, as the case may be, an equal aggregate principal amount at
maturity of U.S. Physical Securities or Offshore Physical Securities, as the
case may be, of authorized denominations.
(f) Any U.S. Physical Security delivered in exchange for an interest
in the U.S. Global Securities pursuant to paragraph (b), (d) or (e) of this
Section 2.07 shall, except as otherwise provided by paragraph (f) of Section
2.08, bear the legend regarding transfer restrictions applicable to the U.S.
Physical Security set forth in Section 2.02.
(g) Any Offshore Physical Security delivered in exchange for an
interest in the Offshore Global Securities pursuant to paragraph (b), (d) or (e)
of this Section 2.07 shall, except as otherwise provided by paragraph (f) of
Section 2.08, bear the legend regarding transfer restrictions applicable to the
Offshore Physical Security set forth in Section 2.02.
(h) The registered holder of a Global Security may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
SECTION 2.08. Special Transfer Provisions. Unless and until a
---------------------------
Security is exchanged for an Exchange Security or sold in connection with an
effective Registration Statement pursuant to the Registration Rights Agreement,
the following provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors. The
-------------------------------------------------------
following provisions shall apply with respect to the registration of any
proposed transfer of a Security to any Institutional Accredited Investor
which is not a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Security,
whether or not such Security bears the Private Placement Legend, if
(x) the requested transfer is after the time period referred to in
Rule 144(k) under the Securities Act or (y) the proposed transferee
has delivered to the Registrar (A) a certificate substantially in the
form of C hereto and (B) if the aggregate Accreted Value at the time
of transfer of the Securities being transferred is less than $250,000,
an Opinion of Counsel acceptable to the Company that such transfer is
in compliance with the Securities Act.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Securities, upon receipt by the
Registrar of (x) the documents, if any, required by paragraph (i)
above and (y) instructions given in accordance with the Depositary's
and the Registrar's procedures, the Registrar shall reflect on its
books and records the date and a decrease in the principal amount at
maturity of the U.S. Global Securities in an amount equal to
36
<PAGE>
the principal amount at maturity of the beneficial interest in the
U.S. Global Securities to be transferred, and the Company shall
execute, and the Trustee shall authenticate and deliver, one or more
U.S. Physical Securities of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
-----------------
respect to the registration of any proposed transfer of a Security to a QIB
(excluding Non-U.S. Persons):
(i) If the Security to be transferred consists of (x) either
Offshore Physical Securities prior to the removal of the Private
Placement Legend or U.S. Physical Securities, the Registrar shall
register the transfer if such transfer is being made by a proposed
transferor who has checked the box provided for on the form of
Security stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with
the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Security stating, or has
otherwise advised the Company and the Registrar in writing, that it is
purchasing the Security for its own account or an account with respect
to which it exercises sole investment discretion and that it and any
such account is a QIB within the meaning of Rule 144A and is aware
that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the
Company as it has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the
transferor is relying upon its foregoing representations in order to
claim the exemption from registration provided by Rule 144A or (y) an
interest in the U.S. Global Securities, the transfer of such interest
may be effected only through the book entry system maintained by the
Depositary.
(ii) If the proposed transferee is an Agent Member, and the
Security to be transferred consists of U.S. Physical Securities, upon
receipt by the Registrar of the documents referred to in paragraph (i)
above and instructions given in accordance with the Depositary's and
the Registrar's procedures, the Registrar shall reflect on its books
and records the date and an increase in the principal amount at
maturity of U.S. Global Securities in an amount equal to the principal
amount at maturity of the U.S. Physical Securities to be transferred,
and the Trustee shall cancel the U.S. Physical Securities so
transferred.
(c) Transfers of Interests in the Temporary Offshore Global
-------------------------------------------------------
Securities. The following provisions shall apply with respect to
----------
registration of any proposed transfer of an interest in a Temporary
Offshore Global Securities:
37
<PAGE>
(i) The Registrar shall register the transfer of any Security
(x) if the proposed transferee is a Non-U.S. Person and the proposed
transferor has delivered to the Registrar a certificate substantially
in the form of D hereto or (y) if the proposed transferee is a QIB and
the proposed transferor has checked the box provided for on the form
of Security stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with
the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Security stating, or has
otherwise advised the Company and the Registrar in writing, that it is
purchasing the Security for its own account or an account with respect
to which it exercises sole investment discretion and that it and any
such account is a QIB within the meaning of Rule 144A, and is aware
that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the
Company as it has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the
transferor is relying upon its foregoing representations in order to
claim the exemption from registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, upon receipt
by the Registrar of the documents referred to in clause (i)(y) above
and instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and an increase in the principal amount at maturity
of the U.S. Global Securities in an amount equal to the principal
amount at maturity of the Temporary Offshore Global Securities to be
transferred, and the Trustee shall decrease the amount of the
Temporary Offshore Global Securities.
(d) Transfers of Interests in the Permanent Offshore Global
-------------------------------------------------------
Securities or Unlegended Offshore Physical Securities. The following
-----------------------------------------------------
provisions shall apply with respect to any transfer of interests in
Permanent Offshore Global Securities or unlegended Offshore Physical
Securities. The Registrar shall register the transfer of any such Security
without requiring any additional certification.
(e) Transfers to Non-U.S. Persons at Any Time. The following
-----------------------------------------
provisions shall apply with respect to any transfer of a Security to a Non-
U.S. Person:
(i) Prior to September 10, 1998, the Registrar shall register
any proposed transfer of a Security to a Non-U.S. Person upon receipt
of a certificate substantially in the form of D hereto from the
proposed transferor.
(ii) On and after September 10, 1998, the Registrar shall
register any proposed transfer to any Non-U.S. Person if the Security
to be transferred is a
38
<PAGE>
U.S. Physical Security or an interest in U.S. Global Securities, upon
receipt of a certificate substantially in the form of D hereto from
the proposed transferor.
(iii) (a) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Securities, upon receipt by the
Registrar of (x) the documents, if any, required by paragraph (ii) and
(y) instructions in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and a decrease in the principal amount at maturity of
the U.S. Global Securities in an amount equal to the principal amount
at maturity of the beneficial interest in the U.S. Global Securities
to be transferred, and (b) if the proposed transferee is an Agent
Member, upon receipt by the Registrar of instructions given in
accordance with the Depositary's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and an
increase in the principal amount at maturity of the Offshore Global
Securities in an amount equal to the principal amount at maturity of
the U.S. Physical Securities or the U.S. Global Securities, as the
case may be, to be transferred, and the Trustee shall cancel the
Physical Security, if any, so transferred or decrease the amount of
the U.S. Global Securities.
(f) Private Placement Legend. Upon the registration of transfer,
------------------------
exchange or replacement of Securities not bearing the Private Placement
Legend, the Registrar shall deliver Securities that do not bear the Private
Placement Legend. Upon the registration of transfer, exchange or
replacement of Securities bearing the Private Placement Legend, the
Registrar shall deliver only Securities that bear the Private Placement
Legend unless (i) the Private Placement Legend is no longer required by
Section 2.02, (ii) the circumstances contemplated by paragraph (a)(i)(x) of
this Section 2.08 exist or (iii) there is delivered to the Registrar an
Opinion of Counsel reasonably satisfactory to the Company and the Trustee
to the effect that neither such legend nor the related restrictions on
transfer are required in order to maintain compliance with the provisions
of the Securities Act.
(g) General. By its acceptance of any Security bearing the Private
-------
Placement Legend, each Holder of such a Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture and
in the Private Placement Legend and agrees that it will transfer such
Security only as provided in this Indenture. The Registrar shall not
register a transfer of any Security unless such transfer complies with the
restrictions on transfer of such Security set forth in this Indenture. In
connection with any registration of transfer of Securities, each Holder
agrees by its acceptance of the Securities to furnish the Registrar or the
Company such certifications, legal opinions or other information as either
of them may reasonably require to confirm that such transfer is being made
pursuant to an exemption from, or a transaction not subject to, the
registration requirements of the Securities Act; provided that the
--------
Registrar shall
39
<PAGE>
not be required to determine (but may rely on a determination made by the
Company with respect to) the sufficiency of any such certifications, legal
opinions or other information.
The Registrar shall retain in accordance with its customary procedures
copies of all letters, notices and other written communications received
pursuant to Section 2.07 or this Section 2.08. The Company shall have the right
to inspect and make copies of all such letters, notices or other written
communications at any reasonable time upon the giving of reasonable written
notice to the Registrar.
SECTION 2.09. Replacement Securities. If a mutilated Security is
----------------------
surrendered to the Trustee or if the Holder claims that the Security has been
lost, destroyed or wrongfully taken, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall issue and the Trustee shall authenticate a
replacement Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding; provided that the requirements of this Section
--------
2.09 are met. If required by the Trustee or the Company, an indemnity bond must
be furnished that is sufficient in the judgment of both the Trustee and the
Company to protect the Company, the Trustee or any Agent from any loss that any
of them may suffer if a Security is replaced. The Company may charge such
Holder for its expenses and the expenses of the Trustee in replacing a Security.
In case any such mutilated, lost, destroyed or wrongfully taken Security has
become or is about to become due and payable, the Company in its discretion may
pay such Security instead of issuing a new Security in replacement thereof.
Every replacement Security is an additional obligation of the Company
and shall be entitled to the benefits of this Indenture.
SECTION 2.10. Outstanding Securities. Securities outstanding at any
----------------------
time are all Securities that have been authenticated by the Trustee except for
those cancelled by it, those delivered to it for cancellation and those
described in this Section 2.10 as not outstanding.
If a Security is replaced pursuant to Section 2.09, it ceases to be
outstanding unless and until the Trustee and the Company receive proof
satisfactory to them that the replaced Security is held by a protected
purchaser.
If the Paying Agent (other than the Company or an Affiliate of the
Company) holds on the maturity date money sufficient to pay Securities payable
on that date, then on and after that date such Securities cease to be
outstanding and interest on them shall cease to accrue.
A Security does not cease to be outstanding because the Company or one
of its Affiliates holds such Security.
40
<PAGE>
SECTION 2.11. Temporary Securities. Until definitive Securities are
--------------------
ready for delivery, the Company may prepare and execute and the Trustee shall
authenticate temporary Securities. Temporary Securities shall be substantially
in the form of definitive Securities but may have insertions, substitutions,
omissions and other variations determined to be appropriate by the Officers
executing the temporary Securities, as evidenced by their execution of such
temporary Securities. If temporary Securities are issued, the Company will
cause definitive Securities to be prepared without unreasonable delay. After
the preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 2.04, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
principal amount at maturity of definitive Securities of authorized
denominations. Until so exchanged, the temporary Securities shall be entitled
to the same benefits under this Indenture as definitive Securities.
SECTION 2.12. Cancellation. The Company at any time may deliver to
------------
the Trustee for cancellation any Securities previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and may deliver to the Trustee for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold.
The Registrar and the Paying Agent shall forward to the Trustee any Securities
surrendered to them for registration of transfer, exchange or payment. The
Trustee shall cancel all Securities surrendered for transfer, exchange, payment
or cancellation and shall destroy them in accordance with its normal procedure.
SECTION 2.13. CUSIP Numbers. The Company in issuing the Securities
-------------
may use "CUSIP", "CINS" or "ISIN" numbers (if then generally in use), and the
Company and the Trustee shall use CUSIP, CINS or ISIN numbers, as the case may
be, in notices of redemption or exchange as a convenience to Holders; provided
--------
that any such notice shall state that no representation is made as to the
correctness of such numbers either as printed on the Securities or as contained
in any notice of redemption or exchange and that reliance may be placed only on
the other identification numbers printed on the Securities. The Company shall
promptly notify the Trustee of any change in "CUSIP", "CINS" or "ISIN" numbers
for the Securities.
SECTION 2.14. Defaulted Interest. If the Company defaults in a
------------------
payment of interest on the Securities, it shall pay, or shall deposit with the
Paying Agent money in immediately available funds sufficient to pay, the
defaulted interest, plus (to the extent lawful) any interest payable on the
defaulted interest, to the Persons who are Holders on a subsequent special
record date. The Company shall fix or cause to be fixed any such special record
date and payment date to the reasonable satisfaction of the Trustee and shall
promptly mail or cause to be mailed to each Securityholder a notice that states
the special record date, the payment date and the amount of defaulted interest
to be paid. The Company may make payment of any defaulted interest in any other
lawful manner not inconsistent with the requirements (if applicable) of any
securities exchange on which the Securities may be listed, and upon such
41
<PAGE>
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this paragraph, such
manner of payment shall be deemed practicable by the Trustee.
SECTION 2.15. Issuance of Additional Securities. The Company may,
---------------------------------
subject to Section 4.03 of this Indenture and applicable law, issue Additional
Securities under this Indenture. The Initial Securities issued on the Closing
Date and any Additional Securities subsequently issued shall be treated as a
single class for all purposes under this Indenture.
ARTICLE III
REDEMPTION
----------
SECTION 3.01. Notices to Trustee. If the Company elects to redeem
------------------
Securities pursuant to Section 3.07, it shall notify the Trustee in writing of
the redemption date, the principal amount of Securities to be redeemed and the
paragraph of the Securities pursuant to which the redemption will occur.
The Company shall give each notice to the Trustee provided for in this
Section at least 60 days before the redemption date unless the Trustee consents
to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption will comply with the conditions herein. If fewer than all the
Securities are to be redeemed, the record date relating to such redemption shall
be selected by the Company and given to the Trustee, which record date shall be
not fewer than 15 days after the date of notice to the Trustee. Any such notice
may be canceled at any time prior to notice of such redemption being mailed to
any Holder and shall thereby be void and of no effect.
SECTION 3.02. Selection and Notice. 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 (among the
Securities and any Additional Securities as one class), by lot or by such method
as the Trustee shall deem fair and appropriate; provided that no Securities in a
--------
principal amount at maturity of $1,000 or less shall be redeemed in part. If
any Security is to be redeemed in part only, the notice of redemption that
relates to such Security shall state the portion of the principal amount thereof
to be redeemed. On and after the redemption date, interest and Liquidated
Damages, if any, cease to accrue on Securities or portions of them called for
redemption (or, if such redemption date is prior to the Full Accretion Date,
Accreted Value of the Securities will cease to accrete).
SECTION 3.03. Notice. Notices of redemption shall be mailed by first
------
class mail at least 30 (or in the case of a "Special Mandatory Redemption"
described in Section
42
<PAGE>
3.08, 15 days), but not more than 60 days before the redemption date to each
Holder of Securities to be redeemed at its registered address. Notices of
redemption may not be conditional. The Trustee shall notify the Company promptly
of the Securities or portions of Securities to be redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the certificate numbers and principal amounts of the particular Securities
to be redeemed;
(6) that, unless the Company defaults in making such redemption
payment or the Paying Agent is prohibited from making such payment pursuant
to the terms of this Indenture, interest on Securities (or portion thereof)
called for redemption ceases to accrue on and after the redemption date;
(7) the paragraph of the Securities pursuant to which the Securities
called for redemption are being redeemed;
(8) the CUSIP number, if any, printed on the Securities being
redeemed; and
(9) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's request (which may be revoked at any time in writing
prior to the time at which the Trustee shall have given such notice to the
Holders), the Trustee shall give the notice of redemption in the Company's name
and at the Company's expense. In such event, the Company shall provide the
Trustee with the information required by this Section.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
------------------------------
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest and Liquidated Damages, if
any, to the redemption date; provided that if the redemption date is after a
--------
regular record date and on or prior to the interest payment date, the accrued
interest
43
<PAGE>
shall be payable to the Securityholder of the redeemed Securities registered on
the relevant record date. If mailed in the manner herein, the notice shall be
conclusively presumed to have been given whether or not the Holder receives such
notice. Failure to give notice or any defect in the notice to any Holder shall
not affect the validity of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. Prior to 10:00 a.m., New
---------------------------
York City time, on the redemption date, the Company shall deposit with the
Paying Agent (or, if the Company or a Wholly Owned Restricted Subsidiary is the
Paying Agent, shall segregate and hold in trust) money sufficient to pay the
redemption price of and accrued interest and Liquidated Damages, if any, on all
Securities to be redeemed on the redemption date other than Securities or
portions of Securities called for redemption that have been delivered by the
Company to the Trustee for cancellation.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a
---------------------------
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in principal amount to the unredeemed portion of the Security surrendered.
SECTION 3.07. Optional Redemption. (a) Except as described in
-------------------
Section 3.07(b) or (c), the Securities will not be redeemable 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 and Liquidated Damages 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:
YEAR PERCENTAGE
---- ----------
2003..................................... 105.500%
2004..................................... 103.667%
2005..................................... 101.883%
2006 and thereafter...................... 100.000
(b) 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) plus
Liquidated Damages thereon, if any, 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
44
<PAGE>
provided, further, that such redemption shall occur within 60 days of the date
- -------- -------
of the closing of such public offering.
(c) 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 and Liquidated Damages thereon, if any, 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).
SECTION 3.08. 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 Collateral 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
Security Register, at a redemption price equal to 101% of the Accreted Value
plus Liquidated Damages, if any, of the Securities on the date of repurchase to
the redemption date (the "Special Redemption Payment").
SECTION 3.09. Repurchase Offers. (a) In the event that the Company
-----------------
shall be required to commence an offer to all Holders to purchase Securities (a
"Repurchase Offer") pursuant to Section 4.06 hereof (an "Excess Proceeds Offer")
or pursuant to Section 4.08 hereof (a "Change of Control Offer") the Company
shall follow the procedures specified in this Section 3.09:
(i) Within 30 days after (A) a Change of Control (unless (1) the
Company is not required to make such offer pursuant to Section 4.08(c) or
(2) all Securities have been called for redemption pursuant to Section
3.07(a), 3.07(c) and 3.08 or (B) the Company is required to make an Asset
Sale Offer pursuant to Section 4.06, the Company shall (x) commence a
Repurchase Offer, which shall remain open for a period of at least 20
Business Days following its commencement (the "Offer Period") and (y) send,
by first class mail, a notice to the Trustee and each of the Holders which
shall contain all instructions and materials necessary to enable such
Holders to tender Securities pursuant to such Repurchase Offer. The
notice, which shall govern the terms of the Repurchase Offer, shall
describe the transaction or transactions that constitute the Change of
Control or Asset Sale requiring an Asset Sale Offer, as the case may be,
and shall state:
(A) that the Repurchase Offer is being made pursuant to this
Section 3.09 and Section 4.06 or 4.08, as the case may be, as
applicable;
45
<PAGE>
(B) the principal amount of Securities required to be purchased
pursuant to Section 4.06, in case of an Excess Proceeds Offer, or that
the Company is required to offer to purchase all of the outstanding
principal amount of Securities, in the case of a Change of Control
Offer (such amount, the "Offer Amount"), the purchase price and, that
on the date specified in such notice (the "Purchase Date"), which date
shall be no earlier than 30 days and no later than 60 days from the
date such notice is mailed, the Company shall repurchase all
Securities validly tendered and not withdrawn pursuant to this Section
3.09 and Section 4.06 or 4.08, as applicable;
(C) that any Security not tendered or accepted for payment shall
continue to accrue interest;
(D) that, unless the Company defaults in making such payment,
Securities accepted for payment pursuant to the Repurchase Offer shall
cease to accrue interest after the Purchase Date;
(E) that Holders electing to have a Security purchased pursuant
to a Repurchase Offer may elect to have all or any portion of such
Security purchased;
(F) that Holders electing to have a Security purchased pursuant
to any Repurchase Offer shall be required to surrender the Security,
with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Security, or such other customary documents of
surrender and transfer as the Company may reasonably request, duly
completed, or transfer by book-entry transfer, to the Company, the
Depositary or the Paying Agent at the address specified in the notice
prior to the Purchase Date;
(G) that Holders shall be entitled to withdraw their election if
the Company, the Depositary or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a
telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Security the Holder
delivered for purchase and a statement that such Holder is withdrawing
its election to have such Security purchased;
(H) that, in the case of an Excess Proceeds Offer, if the
aggregate principal amount of Securities surrendered by Holders
thereof exceeds the Offer Amount, the Company shall select the
Securities to be purchased on a pro rata basis (based upon the
outstanding principal amount thereof), with such adjustments as may be
deemed appropriate by the Company so that only Securities in
denominations of $1,000, or integral multiples thereof, shall be
purchased;
46
<PAGE>
(I) that Holders whose Securities are purchased only in part
shall be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered (or transferred by
book-entry transfer); and
(J) the CUSIP number, if any, printed on the Securities being
repurchased and that no representation is made as to the correctness
or accuracy of the CUSIP number, if any, listed in such notice or
printed on the Securities.
(ii) On (or at the Company's election, before) the Purchase Date, the
Company shall, (A) to the extent lawful, accept for payment, on a pro rata
basis to the extent necessary in the case of an Excess Proceeds Offer, the
Securities or portions thereof tendered pursuant to the Repurchase Offer
and not theretofore withdrawn, or if Securities aggregating less than the
Offer Amount have been tendered, all Securities tendered, and shall deliver
to the Trustee an Officers' Certificate stating that such Securities or
portions thereof were accepted for payment by the Company in accordance
with the terms of this Section 3.09, (B) deposit with the Paying Agent an
amount equal to the payment required in respect of all Securities or
portions thereof so tendered and (C) deliver or cause to be delivered to
the Trustee the Securities so accepted together with an Officers'
Certificate stating the aggregate principal amount of Securities or
portions thereof being purchased by the Company. The Company, the
Depositary or the Paying Agent, as the case may be, shall promptly (but in
any case not later than five days after the Purchase Date) mail or deliver
to each tendering Holder an amount equal to the Change of Control Payment
or the payment due to each respective Holder in respect of the Excess
Proceeds Offer, as applicable, with respect to the Securities tendered by
such Holder and accepted by the Company for purchase, and the Company shall
promptly issue a new Security, and the Trustee, upon written request from
the Company, shall authenticate and mail or deliver such new Security to
such Holder, in a principal amount equal to any unpurchased portion of the
Securities so surrendered, provided that each such new Security shall be in
--------
a principal amount of $1,000 or an integral multiple thereof. Any Security
not so accepted shall be promptly mailed or delivered by the Company to the
Holder thereof. On the Purchase Date, all Securities purchased by the
Company shall be delivered to the Trustee for cancellation. All Securities
or portions thereof purchased pursuant to the Repurchase Offer will be
canceled by the Trustee. The Company shall publicly announce the results
of the Repurchase Offer on or as soon as practicable after the Purchase
Date, but in no case more than five Business Days thereafter.
If the Company complies with the provisions of the preceding
paragraph, on and after the Purchase Date interest shall cease to accrue on the
Securities or the portions of Securities repurchased. If a Security is
repurchased on or after an interest record date but on or prior to the related
interest payment date, then any accrued and unpaid interest shall be paid to the
Person in whose name such Security was registered at the close of business on
such record date. If any Security called is not repurchased upon surrender
because of the failure of the Company to comply with the preceding paragraph,
interest shall be paid on the unpaid
47
<PAGE>
principal, from the Purchase Date until such principal is paid, and to the
extent lawful on any interest not paid on such unpaid principal, in each case at
the rate provided in the Securities and in Section 4.01 hereof.
(b) The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations to the
extent such laws and regulations are applicable in connection with the
Repurchase Offer. To the extent that the provisions of any applicable securities
laws or regulations conflict with provisions of this Section 3.09, the Company
shall comply with such securities laws and regulations and shall not be deemed
to have breached its obligations under this Section by virtue thereof.
(c) Prior to complying with the provisions of this Section 3.09, but
in any event within 90 days following a Change of Control Offer or Asset Sale
Offer, as applicable, the Company shall either repay all outstanding Senior Debt
of the Company or obtain the requisite consents, if any, under all agreements
governing outstanding Senior Debt of the Company to permit the repurchase of
Securities required by this Section 3.09 and Section 4.06 or 4.08, as
applicable.
(d) Once notice of repurchase is mailed in accordance with this
Section 3.09, all Securities validly tendered and not withdrawn (or, in the case
of an Excess Proceeds Offer, if the Company is not required to repurchase all of
such Securities then the pro rata portion of such Securities that the Company
may be required to purchase pursuant to Section 3.02 and/or 4.06 hereof, as
applicable) become irrevocably due and payable on the Purchase Date at the
purchase price specified herein. A notice of repurchase may not be conditional.
(e) Other than as specifically provided in this Section 3.09 or
Section 4.06 or 4.08, as applicable, any purchase pursuant to this Section 3.09
shall be made pursuant to the provisions of Sections 3.02 and 3.06 hereof.
SECTION 3.10. No Sinking Fund. There shall be no sinking fund for
---------------
the payment of principal on the Securities to the Securityholders.
ARTICLE IV
COVENANTS
---------
SECTION 4.01. Payment of Securities. The Company shall promptly pay
---------------------
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Unless otherwise specified in
the relevant Placement Agreement and set forth in an Officers' Certificate
delivered to the Trustee, principal and
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interest shall be considered paid on the date due if on such date the Trustee or
the Paying Agent (but only if other than the Company or a Wholly Owned
Restricted Subsidiary) holds by 11:00 a.m., New York City time, in accordance
with this Indenture available funds sufficient to pay all principal and interest
then due and the Trustee or the Paying Agent, as the case may be, is not
prohibited from paying such money to the Securityholders on that date pursuant
to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.02. Reports. Notwithstanding that the Company 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 Company
will file with the SEC, and provide within 15 days after the Company is required
to file the same with the SEC, 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 Company is not
permitted to file such reports, documents and information with the SEC, the
Company will provide substantially similar information to the Trustee and the
Holders, as if the Company were subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act. The Company also shall comply with the other
provisions of TIA (S) 314(a).
SECTION 4.03. Incurrence of Debt and Issuance of Preferred Stock.
--------------------------------------------------
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, Incur any Debt and the Company and Guarantors shall not issue
any Disqualified Stock and shall not permit any of its Restricted Subsidiaries
that are not Guarantors to issue any shares of Preferred Stock; provided,
--------
however, that the Company and its Restricted Subsidiaries may Incur Debt or
- -------
issue shares of Disqualified Stock, if the Consolidated Coverage Ratio for the
Company'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 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.
(b) The provisions of Section 4.03(a) shall 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 Company 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
--------
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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 Company and its Restricted Subsidiaries
of Existing Debt;
(iii) the Incurrence by the Company of Debt represented by the
Securities and by the Guarantors of Debt represented by the Security
Guarantees;
(iv) the Incurrence by the Company or any of its Restricted
Subsidiaries of Acquired Debt;
(v) the Incurrence by the Company 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 this Indenture to be Incurred;
(vi) the Incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Debt or Preferred Stock owed or issued to and
held by the Company and any of its Restricted Subsidiaries, provided,
--------
however, that (X) any such Debt of the Company shall be subordinated and
-------
junior in right of payment to the Securities 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
Company or a Restricted Subsidiary and (B) any sale or other transfer of
any such Debt or Preferred Stock to a Person that is neither the Company
nor a Restricted Subsidiary shall be deemed, in each case, to constitute an
Incurrence of such Debt or issuance of such Preferred Stock by the Company
or such Restricted Subsidiary, as the case may be, that was not permitted
by this clause (vi);
(vii) the Incurrence by the Company 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 this 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 Company or any Guarantor of Debt of the
Company or a Restricted Subsidiary of the Company that was permitted to be
Incurred by another provision of this Section 4.03;
(ix) Debt of the Company 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
50
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Exchange Debentures upon such exchange was permitted by this covenant at
the time of such exchange; and
(x) the Incurrence by the Company 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 (x) not to
exceed an amount equal to $20.0 million.
For purposes of determining compliance with this Section 4.03, 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 Section 4.03(a), the Company 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 Section 4.03(a); 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 Section 4.03.
SECTION 4.04. Restricted Payments. (a) The Company shall 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 Company'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
Company 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 Company (or any Restricted Subsidiary held by Persons
other than the Company 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 Company, 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 Company 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
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(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:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof,
(2) the Company 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 Section
4.03(a), and
(3) such Restricted Payment, together with (without duplication)
the aggregate amount of all other Restricted Payments made by the
Company and its Restricted Subsidiaries after the first Issue Date
(excluding Restricted Payments permitted by Section 4.04(b)(ii),
Section 4.04(b)(iii)(A), Section 4.04(b)(iv), Section 4.04(b)(v),
Section 4.04(b)(vi)(A) and Section 4.04(b)(vii), but including all
other Restricted Payments permitted by Section 4.04(b)), is less than
the sum (without duplication) of
(i) 50% of the Consolidated Net Income of the Company for
the period (taken as one accounting period) from the beginning of
the fiscal quarter during which the first Issue Date occurs to
the end of the Company'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 Company from the issue or sale (other than to a Subsidiary)
of, or from capital contributions with respect to, Equity
Interests of the Company (other than Disqualified Stock), in
either case after the first Issue Date, plus
(iii) the aggregate principal amount (or accreted value, if
less) of Debt or Disqualified Stock of the Company or any
Restricted Subsidiary issued since the first Issue Date (other
than to a Restricted Subsidiary) that has been converted into
Equity Interests (other than Disqualified Stock) of the Company,
plus
(iv) 100% of the aggregate net cash received by the Company
or a Restricted Subsidiary of the Company since the first Issue
Date from (A) Restricted Investments, whether through interest
payments,
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principal payments, dividends or other distributions or payments,
or the sale or other disposition (other than to the Company or a
Restricted Subsidiary) thereof made by the Company and its
Restricted Subsidiaries and (B) a cash dividend from, or the sale
(other than to the Company 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 Company and its Restricted Subsidiaries (other
than such Subsidiary) in such Subsidiary.
(b) The provisions of Section 4.04(a) shall 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 this Section 4.04;
(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 Company) of, other Equity Interests
(other than any Disqualified Stock) of, or a capital contribution to, the
Company; 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 Section 4.04(a)(iv)(3)(ii);
(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 Company) 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 Company shall have complied with
Section 4.06 or 4.08, as the case may be, and repurchased all Securities
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
Company 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 first 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 first Issue Date), out of funds legally
available therefor, on any of the shares of Exchangeable Preferred Stock
issued on the first Issue Date or subsequently issued in payment of
dividends in respect of such shares of Exchangeable Preferred Stock issued
on the first 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,
provided that such exchange is permitted by Article 4; 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 or an
Event of Default. For purposes of making such determination, all outstanding
Investments by the Company 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 Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary that is represented by the interest of the Company and
its Restricted Subsidiaries in such Subsidiary, in each case as determined in
good faith by the Board of Directors of the Company. 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 Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any noncash Restricted Payment shall be determined in
good faith by the Board of Directors of the Company.
54
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In making the computations required by this covenant, (i) the Company
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 Company for
the remaining portion of such period and (ii) the Company 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
Company and the Restricted Subsidiary that are available on the date of
determination. If the Company makes a Restricted Payment that, at the time of
the making of such Restricted Payment, would, in the good faith determination of
the Company or any Restricted Subsidiary, be permitted under the requirements of
this Indenture, such Restricted Payment will be deemed to have been made in
compliance with this Indenture notwithstanding any subsequent adjustments made
in good faith to the Company's or any Restricted Subsidiary's financial
statements affecting Consolidated Net Income of the Company for any period.
For the avoidance of doubt, it is expressly agreed that no payment or
other transaction permitted by Sections 4.07(b)(3), 4.07(b)(4) and 4.07(b)(5)
shall be considered a Restricted Payment for purposes of, or otherwise
restricted by, this Indenture.
SECTION 4.05. Dividend and Other Payment Restrictions Affecting
-------------------------------------------------
Restricted Subsidiaries. The Company shall not, and shall 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 Company 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 Debt owed to the Company or any of
its Restricted Subsidiaries, (ii) make loans or advances to the Company or any
of its Restricted Subsidiaries or (iii) transfer any of its properties or assets
to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of:
(1) Existing Debt,
(2) this Indenture, the Securities, the Additional Securities, the
Exchangeable Preferred Stock and any Additional Exchangeable Preferred
Stock (as defined in the Certificate of Designation for the Exchangeable
Preferred Stock), the Exchange Debentures or the Exchange Debenture
Indenture and any other agreement entered into after the first Issue Date,
provided that the encumbrances or restrictions in such agreements are not
--------
materially more restrictive than those contained in the foregoing
agreements,
(3) any agreement or other instrument of a Person acquired by the
Company 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
55
<PAGE>
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,
(4) 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,
(5) in the case of clause (iii) above, 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
Company or any Restricted Subsidiary not otherwise prohibited by this
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,
(6) 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,
(7) contractual encumbrances or restrictions in effect on the Closing
Date, including pursuant to the New Credit Facility and its related
documentation,
(8) 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,
(9) customary provisions in joint venture agreements and other
similar agreements,
(10) any encumbrances or restrictions created with respect to (i) Debt
of Guarantors permitted to be Incurred subsequent to the first Issue Date
pursuant to Section 4.03 and (ii) Debt of Subsidiary Non-Guarantors
permitted to be Incurred subsequent to the Issue Date pursuant to Section
4.03 or operating leases, provided that in the case of this clause (ii) the
--------
Board of Directors of the Company determines (as evidenced by a Board
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
Company to make payments of interest, Liquidated Damages (if any) and
scheduled payments of principal on the Securities, in each case as and when
due; and
(11) any encumbrances or restrictions of the type referred to in
clauses (1), (2) and (3) above imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings of the contracts,
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instruments or obligations referred to in clauses (1) through (10),
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 Company, 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.
SECTION 4.06. Asset Sales. The Company shall not, and shall not
-----------
permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless
(i) the Company (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 Company 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 Company's or such
Restricted Subsidiary's most recent balance sheet) of the Company or any
Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Securities or, in the case of liabilities of a Guarantor,
the Security Guarantee of such Guarantor) that are assumed by the transferee of
any such assets, or from which the Company 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 Company or any such
Restricted Subsidiary from such transferee that are converted by the Company 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 Company 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 Company or a Subsidiary of the Company, and provided that if the Company
--------
shall so reduce Pari Passu Debt, it will equally and ratably make an Asset Sale
Offer (in accordance with the procedures set forth in Section 3.09 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 Company 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 Company or any of its Restricted
Subsidiaries; provided that if during such 360-day period the Company 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 Company shall (i) make an offer to all Holders of Securities, and
(ii)
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prepay, purchase or redeem (or make an offer to do so) any other Pari Passu
Debt of the Company in accordance with provisions requiring the Company 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 Securities and such other Debt required to
be prepaid, purchased or redeemed or tendered for, in the case of the Securities
pursuant to such offer (an "Asset Sale Offer"), to purchase the maximum
principal amount of Securities 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 and Liquidated
Damages (or, if prior to the Full Accretion Date, 100% of the Accreted Value
thereof on the date of purchase, plus Liquidated Damages (if any) to 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 Section 3.09). To the extent that the aggregate
principal amount (or, if prior to the Full Accretion Date, the aggregate
Accreted Value) of Securities and Pari Passu Debt tendered pursuant to an Asset
Sale Offer or other offer is less than the Excess Proceeds, the Company may use
any remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount (or Accreted Value, as the case may be) of Securities
surrendered by Holders thereof exceeds the pro rata portion of such Excess
Proceeds to be used to purchase Securities, the Trustee shall select the
Securities 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.
SECTION 4.07. Transactions with Affiliates. (a) The Company shall
----------------------------
not, and shall 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 Company or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable transaction by the
Company or such Restricted Subsidiary with an unrelated Person; and
(ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction entered into after the first Issue Date involving
aggregate consideration in excess of $3.0 million, a Board Resolution
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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(b) The provisions of Section 4.07(a) shall not prohibit (and, the
following shall not be deemed to be Affiliate Transactions):
(1) transactions between or among the Company and/or its Restricted
Subsidiaries;
(2) Permitted Investments and Restricted Payments that are permitted
by Section 4.04;
(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 Company) (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
Company 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 Company
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 Section 4.03(b)(x) to the extent such Debt is
on terms that, taken as a whole, are no less favorable to the Company or
the relevant Restricted Subsidiary than those that would have been obtained
in a comparable transaction with an unrelated Person.
SECTION 4.08. Change of Control. (a) Upon the occurrence of a
-----------------
Change of Control, unless all Securities have been called for redemption
pursuant to the provisions in Section 3.07 or 3.08, each Holder of Securities
shall have the right to require the Company 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 Securities pursuant to a Change of Control Offer made pursuant to
Section 3.09 at an offer price in cash (the "Change of Control Payment") equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date 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 plus Liquidated Damages
thereon, if any).
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(b) The Company shall 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.
SECTION 4.09. Compliance Certificate. The Company and each Guarantor
----------------------
shall deliver to the Trustee within 120 days after the end of each fiscal year
of the Company an Officers' Certificate stating that in the course of the
performance by the signers of their duties as Officers of the Company they would
normally have knowledge of any Default or Event of Default and whether or not
the signers know of any Default or Event of Default that occurred during such
period. If they do have such knowledge, the certificate shall describe the
Default or Event of Default, its status and what action the Company is taking or
proposes to take with respect thereto. The Company also shall comply with
Section 314(a)(4) of the TIA.
SECTION 4.10. Liens. The Company shall not, and shall 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 this Indenture and
the Securities 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
this Indenture, the Securities or any Security 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.
SECTION 4.11. Additional Security Guarantees. All future
------------------------------
Subsidiaries of the Company who guarantee any Debt of the Company under the New
Credit Facility, other than Subsidiaries that have been properly designated as
Unrestricted Subsidiaries in accordance with this Indenture for so long as they
continue to constitute Unrestricted Subsidiaries, shall be Guarantors in
accordance with the terms of this Indenture until released from such Guarantee
of the New Credit Facility.
Each future Security Guarantee shall be limited to an amount not to
exceed the maximum amount that can be Guaranteed by that Subsidiary without
rendering the Security 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 Security
Guarantee shall be subordinated to Senior Debt of the respective Guarantor on
the same basis and to the same extent as the Securities are subordinated to
Senior Debt of the Company.
SECTION 4.12. Restriction on Senior Subordinated Debt. The Company
---------------------------------------
shall 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 Securities
and no Guarantor shall 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
Security Guarantee of such Guarantor.
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ARTICLE V
SUCCESSOR COMPANY
-----------------
SECTION 5.01. Merger, Consolidation or Sale of All or Substantially
-----------------------------------------------------
All Assets of the Company. The Company shall not consolidate or merge with or
- -------------------------
into (whether or not the Company 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 Company is the surviving corporation or the Person formed by
or surviving any such consolidation or merger (if other than the Company)
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 Company) or the Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have
been made assumes all the obligations of the Company under the Securities
and this 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;
(iv) except in the case of a merger of the Company with or into a
Wholly Owned Restricted Subsidiary of the Company, the Company or the
Person formed by or surviving any such consolidation or merger (if other
than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made shall, 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 Section
4.03(a) or (y) have a Consolidated Coverage Ratio at least equal to the
Consolidated Coverage Ratio of the Company for such four-quarter reference
period; and
(v) the Company or the surviving corporation, as the case may be,
shall have delivered to the Trustee an Officers' Certificate and an Opinion
of Counsel, each stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and, if a supplemental
indenture is required in connection with such transaction, such
supplemental indenture comply with the applicable provisions of this
Indenture and that all conditions precedent in this Indenture relating to
such transaction have been satisfied.
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Notwithstanding the foregoing clauses (iii) and (iv) above, (a) any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company, (b) the Company may merge with an
Affiliate incorporated solely for the purpose of reincorporating the Company in
another jurisdiction and (c) the Company may merge with and into Harborside.
SECTION 5.02. Merger, Consolidation or Sale of All or Substantially
-----------------------------------------------------
All Assets of a Guarantor. No Guarantor may consolidate with or merge with or
- -------------------------
into (whether or not such Guarantor is the surviving Person) another Person
(other than the Company or another Guarantor) unless (i) subject to the
provisions of Section 11.02(b), 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 Securities and this 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.
ARTICLE VI
DEFAULTS AND REMEDIES
---------------------
SECTION 6.01. Events of Default and Remedies.
------------------------------
Each of the following constitutes an Event of Default with respect to
the Securities if:
(1) the Company defaults for 30 days in the payment when due of
interest on, or Liquidated Damages with respect to, the Securities (whether
or not prohibited by the provisions of Article X);
(2) the Company defaults in payment when due of the principal of or
premium, if any, on the Securities (whether or not prohibited by the
provisions of Article X);
(3) the Company fails for 30 days after receipt of a Notice of
Default to comply with the provisions in Sections 4.03, 4.04, 4.06, 4.08
and 5.01;
(4) the Company fails for 60 days after receipt of a Notice of
Default specifying such failure to comply with any of its other agreements
in this Indenture or the Securities;
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(5) the Company or any Restricted Subsidiary that is a Significant
Subsidiary fails 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;
(6) 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) shall be entered against the Company 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 shall be 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;
(7) except as permitted by this Indenture, any Security 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
Security Guarantee;
(8) the Company or any Restricted Subsidiary that is a Significant
Subsidiary pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in
an involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property;
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency; or
(9) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Restricted
Subsidiary that is a Significant Subsidiary in an involuntary case;
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(B) appoints a Custodian of the Company or any Restricted
Subsidiary that is a Significant Subsidiary or for any substantial
part of its property; or
(C) orders the winding-up or liquidation of the Company or any
Restricted Subsidiary that is a Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order or
decree relating thereto remains unstayed and in effect for 60 days:
The foregoing shall constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
------------------
similar federal or state law for the relief of debtors. For purposes of this
Section, the term "Custodian" means any receiver, trustee, assignee, liquidator,
custodian or similar official under any Bankruptcy Law.
A Default under clause (3) or (4) is not an Event of Default until the
Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding Securities notify the Company (and the Trustee, in the case of
notices to the Company by Holders) in writing by registered or certified mail,
return receipt requested, of the Default and the Company does not cure such
Default within the time specified in clauses (3) or (4) after receipt of such
notice. Such notice must specify the Default, demand that it be remedied and
state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, forthwith upon any Senior
Officer obtaining actual knowledge of any Default, written notice in the form of
an Officers' Certificate of any Event of Default, its status and what action the
Company is taking or proposes to take with respect thereto.
SECTION 6.02. Acceleration. If any Event of Default occurs and is
------------
continuing, the Trustee by notice to the Company or the Holders of at least 25%
in principal amount of the then outstanding Securities by notice to the Company
and the Trustee may declare all the Securities 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 Company 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 under clause
(8) or (9) with respect to the Company, all outstanding Securities will become
due and payable without
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further action or notice. The Holders of a majority in aggregate principal
amount of the Securities by written notice to the Trustee may, on behalf of all
the Holders, rescind an acceleration and its consequences if the recession would
not conflict with any judgment or decree and if all existing Defaults or Events
of Default have been cured or waived except nonpayment of principal or interest
that has become due because of such acceleration. No such rescission shall
affect any subsequent Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
--------------
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative (to the
extent permitted by law).
SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
-----------------------
aggregate principal amount of the Securities then outstanding by written notice
to the Trustee may on behalf of the Holders of all of the Securities waive any
existing Default or Event of Default and its consequences except (i) a
continuing Default or Event of Default in the payment of interest on, or the
principal of, the Securities or (ii) a Default in respect of a provision that
under Section 9.02 cannot be amended without the consent of each Securityholder
affected. When a Default is waived, it is deemed cured and ceases to exist and
any Event of Default arising therefrom shall be deemed to have been cured and
waived for every purpose under this Indenture, but no such waiver shall extend
to any subsequent or other Default or Event of Default or impair any consequent
right.
SECTION 6.05. Control by Majority. The Holders of a majority in
-------------------
aggregate principal amount of the Securities may 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 by this Indenture.
However, the Trustee may refuse to follow any direction that conflicts with law
or this Indenture or, subject to Section 7.01, that the Trustee determines is
unduly prejudicial to the rights of other Securityholders or would involve the
Trustee in personal liability; provided, however, that the Trustee may take any
-------- -------
other action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking any action hereunder, the Trustee shall be entitled
to indemnification satisfactory to it in its sole discretion against all losses
and expenses caused by taking or not taking such action.
SECTION 6.06. Limitation on Suits. Except to enforce the right to
-------------------
receive payment of principal, premium (if any), interest or Liquidated Damages
when due, a Security holder may not pursue any remedy with respect to this
Indenture or the Securities unless:
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(1) such Holder has previously given the Trustee written notice that
an Event of Default is continuing;
(2) Holders of at least 25% in principal amount at maturity of the
outstanding Securities have requested the Trustee to pursue the remedy;
(3) such Holder has offered the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) 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
(5) the Holders of a majority in principal amount at maturity of the
outstanding Securities have not given the Trustee a direction inconsistent
with such request within such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding
------------------------------------
any other provision of this Indenture, the right of any Holder to receive
payment of principal of and Liquidated Damages and interest on the Securities
held by such Holder, on or after the respective due dates expressed in the
Securities, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default
--------------------------
specified in Section 6.01(a)(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
--------------------------------
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, any Subsidiary or
any Guarantor, their creditors or their property and, unless prohibited by law
or applicable regulations, may vote on behalf of the Holders in any election of
a trustee in bankruptcy or other Person performing similar functions, and any
Custodian in any such judicial proceeding is hereby authorized by each Holder to
make payments to the Trustee and, in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and its counsel, and any other amounts due
the Trustee under Section 7.07.
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SECTION 6.10. Priorities. If the Trustee collects any money or
----------
property pursuant to this Article VI, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to the holders of Senior Debt to the extent required by
Article X;
THIRD: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, and any Liquidated Damages
without preference or priority of any kind, according to the amounts due
and payable on the Securities for principal, any Liquidated Damages and
interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the Trustee shall mail to each Securityholder and the Company a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
---------------------
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of
more than 10% in principal amount of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. Neither the Company
--------------------------------
nor any Guarantor (to the extent they may lawfully do so) shall at any time
insist upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of this
Indenture; and the Company and each Guarantor (to the extent that they may
lawfully do so) hereby expressly waive all benefit or advantage of any such law,
and shall not hinder, delay or impede the execution of any power herein granted
to the Trustee, but shall suffer and permit the execution of every such power as
though no such law had been enacted.
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ARTICLE VII
TRUSTEE
-------
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has
-----------------
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(1) this paragraph does not limit the effect of Section 7.01(b);
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
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(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise Incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. Subject to Section 7.01:
-----------------
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee
need not investigate any fact or matter stated in any such document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance
on such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Trustee's conduct does not
-------- -------
constitute willful misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or opinion
of counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it
hereunder in good faith and in accordance with the advice or opinion of
such counsel.
(f) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
bond, debenture, note or other paper or document unless requested in
writing to do so by the Holders of not less than a majority in principal
amount of the Securities at the time outstanding, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney.
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(g) The Trustee shall not be required to give any note, bond or
surety in respect of the execution of the trusts and powers under this
Indenture.
(h) The permissive rights of the Trustee to take any action
enumerated in this Indenture shall not be construed as a duty to take such
action.
(i) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this
Indenture, unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may
be incurred therein or thereby.
(j) The Trustee shall not be charged with knowledge of any Default or
Event of Default, of the identity of any Restricted Subsidiary or the
existence of any Change of Control or Asset Sale unless either (i) a Trust
Officer shall have received notice thereof or (ii) the Trustee shall have
received written notice thereof from the Company or any Holder.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
----------------------------
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar
or co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
--------------------
responsible for and makes no representation as to the validity or adequacy of
this Indenture, any Subsidiary Guarantee or the Securities, it shall not be
accountable for the Company's use of the proceeds from the Securities, and it
shall not be responsible for any statement of the Company in this Indenture or
in any document issued in connection with the sale of the Securities or in the
Securities other than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is
------------------
continuing and is known to the Trustee, the Trustee shall 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), interest or Liquidated Damages on any Security, 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 Securityholders.
Notwithstanding anything to the contrary expressed in this Indenture, the
Trustee shall not be deemed to have knowledge of any Default or Event of Default
hereunder, except in the case of an Event of Default under Section 6.01(a) and
(b) hereof (provided that the Trustee is Paying Agent), unless and until a Trust
Officer receives written notice thereof at its Corporate Trust Office specified
in Section 13.02, from the Company or a Holder that such Default or Event of
Default has occurred.
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SECTION 7.06. Reports by Trustee to Holders. The Trustee shall
-----------------------------
transmit to the Holders such reports concerning the Trustee and its actions
under this Indenture as may be required pursuant to the TIA at the times and in
the manner provided pursuant thereto. To the extent that any such report is
required by the TIA with respect to any 12-month period, such report shall cover
the 12-month period ending December 31 and shall be transmitted by the next
succeeding March 1.
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to
--------------------------
the Trustee from time to time such compensation as is agreed to in writing by
the Trustee and Company for the Trustee's services hereunder. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee upon request for all
reasonable out-of-pocket disbursements, advances and expenses Incurred or made
by it, including costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Trustee's agents, counsel, accountants and
experts. The Company and each Guarantor, jointly but not severally, shall
indemnify the Trustee and its officers, directors, shareholders, agents and
employees (each, an "Indemnified Party") for and hold each Indemnified Party
harmless against any and all loss, liability or expense (including reasonable
attorneys' fees) Incurred by them without negligence or bad faith on their part
arising out of or in connection with the acceptance or administration of this
Indenture or the Securities and the performance of their duties hereunder,
including the cost and expense of enforcing this Indenture against the Company
or any Guarantor (including this Section 7.07), and defending itself against any
claim (whether asserted by a Holder or any other person). The Trustee and its
officers, directors, shareholders, agents and employees in its capacity as
Paying Agent, Registrar, Custodian and agent for service of notice and demands
shall have the full benefit of the foregoing indemnity as well as all other
benefits, rights and privileges accorded to the Trustee in this Indenture when
acting in such other capacity. The Trustee shall notify the Company of any
claim for which it may seek indemnity promptly upon obtaining actual knowledge
thereof; provided that any failure so to notify the Company shall not relieve
--------
the Company or any Guarantor of its indemnity obligations hereunder. The
Company shall defend the claim and the Indemnified Party shall provide
reasonable cooperation at the Company's expense in the defense. Such
Indemnified Parties may have separate counsel and the Company shall pay the fees
and expenses of such counsel; provided that the Company shall not be required to
--------
pay such fees and expenses if it assumes such Indemnified Parties' defense and,
in such Indemnified Parties' reasonable judgment, there is no conflict of
interest between the Company and such parties in connection with such defense.
The Company need not reimburse any expense or indemnify against any loss,
liability or expense Incurred by an Indemnified Party through such party's own
willful misconduct,
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negligence or bad faith. The Company need not pay any settlement made without
its consent (which consent shall not be unreasonably withheld).
To secure the Company's payment obligations in this Section and all
other obligations to the Trustee pursuant to this Indenture, including all fees,
expenses and rights to indemnification, the Trustee shall have a lien on all
money or property held or collected by the Trustee other than money or property
held in trust to pay principal of and interest and any Liquidated Damages on
particular Securities. Such lien shall survive the satisfaction and discharge
of this Indenture and the resignation or removal of the Trustee. The Trustee's
right to receive payment of any amounts due under this Indenture shall not be
subordinated to any other indebtedness of the Company and the Securities shall
be subordinate to the Trustee's rights to receive such payment.
The Company's payment obligations pursuant to this Section shall
survive the satisfaction or discharge of this Indenture, any rejection or
termination of this Indenture under any Bankruptcy Law or the resignation or
removal of the Trustee. When the Trustee Incurs expenses after the occurrence
of a Default specified in Section 6.01(a)(8) or (9) with respect to the Company,
the expenses are intended to constitute expenses of administration under the
Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign at any
----------------------
time by so notifying the Company in writing. The Holders of a majority in
principal amount of the Securities may remove the Trustee by so notifying the
Trustee and the Company in writing and may appoint a successor Trustee. The
Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders of
a majority in principal amount of the Securities and such Holders do not, within
a reasonably prompt period, appoint a successor Trustee, or if a vacancy exists
in the office of Trustee for any reason (the Trustee in such event being
referred to herein as the retiring Trustee), the Company shall promptly appoint
a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
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succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
at least 10% in aggregate principal amount of the Securities may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee
---------------------------
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation, without any
further act, shall be the successor Trustee, provided that such Person shall be
--------
qualified and eligible under this Article VII.
In case at the time such successor or successors, by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of the
successor to the Trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at
-----------------------------
all times satisfy the requirements of TIA (S) 310(a). The Trustee shall have a
combined capital and surplus of at least $100,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
(S) 310(b); provided, however, that there shall be excluded from the operation
-------- -------
of TIA (S) 310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of the Company are
out standing if the requirements for such exclusion set forth in TIA (S)
310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
-------------------------------------------------
Trustee shall comply with TIA (S) 311(a), excluding any creditor relationship
listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be
subject to TIA (S) 311(a) to the extent indicated therein.
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ARTICLE VIII
DISCHARGE OF INDENTURE; DEFEASANCE
----------------------------------
SECTION 8.01. Legal Defeasance and Covenant Defeasance. (a) The
----------------------------------------
Company may, at the option of its Board of Directors evidenced by a Board
Resolution, at any time, elect to have either Section 8.01(b) or 8.01(c) hereof
be applied to all outstanding Securities upon compliance with the conditions set
forth below in this Article VIII.
(b) Upon the Company's exercise under Section 8.01(a) hereof of the
option applicable to this Section 8.01(b), the Company and each Guarantor shall,
subject to the satisfaction of the conditions set forth in Section 8.02 hereof,
be deemed to have been discharged from their obligations with respect to all
outstanding Securities and any Security Guarantee on the date the conditions set
forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose,
Legal Defeasance means that the Company and each Guarantor shall be deemed to
have paid and discharged the entire Debt represented by the outstanding
Securities and any Security Guarantee, which Securities and Security Guarantees
shall thereafter be deemed to be "outstanding" only for the purposes of Section
8.03 hereof and the other Sections of this Indenture referred to in clauses (i)
and (ii) below, and to have satisfied all their other obligations under such
Securities and this Indenture (and the Trustee, on demand of and at the expense
of the Company, shall execute proper instruments acknowledging the same), except
for the following provisions, which shall survive until otherwise terminated or
discharged hereunder: (i) the rights of Holders of outstanding Securities to
receive, solely from the trust fund described in Article VIII hereof, as more
fully set forth in such Article, payments in respect of the principal of,
premium, if any, and interest and Liquidated Damages, if any, on such Securities
when such payments are due, (ii) the Company's obligations with respect to the
Securities under Sections 2.04, 2.06 and 2.09 and the rights, powers, trusts,
duties and immunities of the Trustee, and (iii) the Company's obligations in
connection therewith and this Article VIII. Subject to compliance with this
Article VIII, the Company may exercise its option under this Section 8.01(b)
notwithstanding the prior exercise of its option under Section 8.01(c) hereof.
(c) Upon the Company's exercise under Section 8.01(a) hereof of the
option applicable to this Section 8.01(c), the Company and each Guarantor shall,
subject to the satisfaction of the conditions set forth in Section 8.02 hereof,
be released from their obligations under Sections 4.02, 4.03, 4.04, 4.05, 4.06,
4.07, 4.08, 4.09, 4.10, 4.11, 4.12 and 5.01(iv) hereof with respect to the
outstanding Securities on and after the date the conditions set forth below are
satisfied (hereinafter, "Covenant Defeasance"), and the Securities shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration of act of Holders (and the consequences of any
thereof) in connection with such Sections, but shall continue to be deemed
"outstanding" for all the other purposes hereunder (it being understood that
such Securities and the related Security Guarantees shall not be deemed
outstanding for accounting purposes). For this purpose,
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Covenant Defeasance means that, with respect to any term, condition or
limitation set forth in any such Section, whether directly or indirectly, by
reason of any reference elsewhere herein to any such Section or by reason of any
reference in any such Section to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under Section 6.01 hereof, but, except as specified above, the
remainder of this Indenture and such Securities shall be unaffected thereby. In
addition, upon the Company's exercise under Section 8.01(a) hereof of the option
applicable to this Section 8.01(c) hereof, subject to the satisfaction of the
conditions set forth in Section 8.02, Sections 6.01(4), 6.01(5) (with respect to
compliance with Section 4.09 only), 6.01(6), 6.01(7) (with respect to
Subsidiaries of the Company only), 6.01(8) (with respect to Subsidiaries of the
Company only), 6.01(9) and 6.01(10) shall not constitute Events of Default.
SECTION 8.02. Conditions to Legal or Covenant Defeasance. The
------------------------------------------
following shall be the conditions to the application of either Section 8.01(b)
or 8.01(c) hereof to the outstanding Securities:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company or the Guarantors must irrevocably deposit with the
Trustee, in trust, for the benefit of the Holders of the Securities cash in
U.S. dollars, Government Securities, 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 and Liquidated Damages on the outstanding Securities
on the stated maturity or on the applicable redemption date, as the case
may be, and the Company and the Guarantors must specify whether the
Securities are being defeased to maturity or to a particular redemption
date;
(b) in the case of Legal Defeasance, the Company 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, (1) the Company and the Guarantors
have received from, or there has been published by, the Internal Revenue
Service a ruling or (2) 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
Securities 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;
(c) in the case of Covenant Defeasance, the Company 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
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and exclusions, the Holders of the outstanding Securities 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;
(d) 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;
(e) 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 this Indenture) to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(f) the Company 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 Company 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;
(g) the Company or the Guarantors must deliver to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company
or the Guarantors with the intent of preferring the Holders of Securities
over the other creditors of the Company or the Guarantors, as applicable,
with the intent of defeating, hindering, delaying or defrauding creditors
of the Company or the Guarantors, as applicable, or others; and
(h) the Company 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.
SECTION 8.03. Deposited Money and Government Securities to Be Held in
-------------------------------------------------------
Trust; Other Miscellaneous Provisions. Subject to Section 8.04 hereof, all
- -------------------------------------
money and Government Obligations (including the proceeds thereof) deposited with
the Trustee (or other qualifying trustee, collectively for purposes of this
Section 8.03, the "Trustee") pursuant to Section 8.02 hereof in respect of the
outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
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payment, either directly or through any Paying Agent (including the Company
acting as Paying Agent) as the Trustee may determine, to the Holders of such
Securities of all sums due and to become due thereon in respect of principal,
premium and Liquidated Damages if any, and interest but such money need not be
segregated from other funds except to the extent required by law.
Anything in this Article VIII to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time, upon the request
of the Company, any money or Government Obligations held by it as provided in
Section 8.02 hereof that, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
8.02(a) hereof), are in excess of the amount thereof that would then be required
to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 8.04. Repayment to Company. Any money deposited with the
--------------------
Trustee or any Paying Agent, or then held by the Company, in trust for the
payment of the principal of, premium and Liquidated Damages, if any, or interest
on any Security and remaining unclaimed for two years after such principal,
premium and Liquidated Damages, if any, or interest has become due and payable
shall be paid to the Company on its request or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Security shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
-------- -------
Paying Agent, before being required to make any such repayment, may, at the
expense of the Company, cause to be published once, in the Wall Street Journal
-------------------
(national edition), notice that such money remains unclaimed and that, after a
date specified therein, which shall not be less than 30 days from the date of
such notification or publication, any unclaimed balance of such money then
remaining will be repaid to the Company.
SECTION 8.05. Reinstatement. If the Trustee or Paying Agent is
-------------
unable to apply any United States dollars or Government Obligations in
accordance with this Article VIII by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under this
Indenture and the Securities and the Guarantors obligations under this Indenture
and the Security Guarantees shall be revived and reinstated as though no deposit
had occurred pursuant to this Article VIII until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with this
Article VIII; provided, however, that if the Company or any Guarantor makes any
-------- -------
payment of principal of, premium and Liquidated Damages, if any, or interest on
any Security following the reinstatement of its obligations, the Company or any
Guarantor, as the case may be, shall be subrogated to the rights of the Holders
of such Securities to receive such payment from the money held by the Trustee or
Paying Agent.
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SECTION 8.06. Satisfaction and Discharge of Indenture. Upon the
---------------------------------------
request of the Company, this Indenture will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Securities, as expressly provided for herein or pursuant hereto), the Company
and the Guarantors will be discharged from their obligations under the
Securities and Security Guarantees and the Trustee, at the expense of the
Company, will execute proper instruments acknowledging satisfaction and
discharge of this Indenture, any security agreements relating thereto, the
Securities and the Security Guarantees when:
(a) either (i) all the Securities theretofore authenticated and
delivered (other than mutilated, destroyed, lost or stolen Securities that
have been replaced or paid and Securities that have been subject to
defeasance under this Article VIII) have been delivered to the Trustee for
cancellation or (ii) all Securities not theretofore delivered to the
Trustee for cancellation (A) have become due and payable, (B) shall 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 Company, and the Company 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
Securities not theretofore delivered to the Trustee for cancellation, for
principal (and premium and Liquidated Damages, if any, on) and interest on
the Securities to the date of such deposit (in case of Securities that have
become due and payable) or to the Stated Maturity or redemption date, as
the case may be;
(b) the Company has paid or caused to be paid all sums payable under
this Indenture by this Company; or
(c) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
provided in this Indenture relating to the satisfaction and discharge of
this Indenture, the security agreements relating thereto, the Securities
and the Security Guarantees have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 7.07 and, if money shall
have been deposited with the Trustee pursuant to clause (a)(ii) of this Section,
the obligations of the Trustee under Section 8.06 and Section 2.04 shall
survive.
ARTICLE IX
AMENDMENTS
----------
SECTION 9.01. Without Consent of Holders. Notwithstanding Section
--------------------------
9.02, the Company and the Trustee may amend or supplement this Indenture, the
Securities, the
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Security Guarantees or the Pledge Agreement without notice to or the consent of
any Securityholder:
(1) to cure any ambiguity, defect or inconsistency;
(2) 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);
(3) 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;
(4) to release any Security Guarantee or collateral in accordance with
the provisions of this Indenture or the Pledge Agreement;
(5) to provide for additional Guarantors;
(6) to make any change that 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;
(7) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA; or
(8) to make any change to Article II, Section 4.01 or the Exhibits
hereto that applies only to Additional Securities (other than a change
relating to other provisions of this Indenture incorporated or referenced
in Article II, Section 4.01 or any such Exhibit).
An amendment under this Section may not make any change that adversely
affects the rights under Article X of any holder of Senior Debt then outstanding
unless the holders of such Senior Debt (or any group or representative thereof
authorized to give a consent) consent to such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.02. With Consent of Holders. Except as provided in this
-----------------------
Section 9.02 and Section 9.01, this Indenture, the Securities, the Security
Guarantees and the Pledge
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Agreement may be amended or supplemented without notice to any Securityholders
but with the consent of the Holders of at least a majority in principal amount
at maturity of the Securities then outstanding (including consents obtained in
connection with a purchase of, or tender offer or exchange offer for,
Securities), and any existing default or noncompliance with any provision of
this Indenture or the Securities may be waived with the consent of the Holders
of a majority in principal amount at maturity of the then outstanding Securities
(including consents obtained in connection with a tender offer or exchange offer
for Securities). However, without the consent of each Holder affected thereby,
an amendment or waiver may not (with respect to any Securities held by a non-
consenting Holder):
(i) reduce the principal amount at maturity of Securities whose
Holders must consent to an amendment, supplement or waiver,
(ii) reduce the principal of, change the fixed maturity of any
Security, reduce any premium payable upon optional redemption of the
Securities or otherwise alter the provisions with respect to the redemption
or repurchase of the Securities (other than provisions relating to the
covenants described in Sections 3.09, 4.06 and 4.08,
(iii) reduce the rate of or change the time for payment of interest
on any Security, or reduce the rate of accretion on the Accreted Value or
extend the period during which no interest accrues on the Securities,
(iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Securities (except a
rescission of acceleration of the Securities by the Holders of at least a
majority in aggregate principal amount of the Securities and a waiver of
the payment default that resulted from such acceleration),
(v) make any Security payable in money other than that stated in
the Securities,
(vi) impair the rights of Holders of the Securities to receive
payments of principal of or premium, if any, on the Securities,
(vii) make any change to Section 6.04 or 6.07 or this 9.02, or
(viii) except as permitted by this Indenture, release any Security
Guarantee or any collateral under the Pledge Agreement.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such
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notice to all Securityholders, or any defect therein, shall not impair or affect
the validity of an amendment under this Section.
SECTION 9.03. Compliance with Trust Indenture Act. Every amendment
-----------------------------------
to this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers. A
---------------------------------------------
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any
such Holder or subsequent Holder may revoke the consent or waiver as to such
Holder's Security or portion of the Security if the Trustee receives written
notice of revocation before the date the amendment or waiver becomes effective.
After an amendment or waiver becomes effective, it shall bind every
Securityholder. Except if otherwise specified in such amendment or waiver, an
amendment or waiver becomes effective once the requisite number of consents are
received by the Company or the Trustee.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Securityholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date.
SECTION 9.05. Notation on or Exchange of Securities. If an amendment
-------------------------------------
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.06. Trustee to Sign Amendments. The Trustee shall sign any
--------------------------
amendment authorized pursuant to this Article IX if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Section 7.01) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that such
amendment is authorized or permitted by this Indenture that such amendment is
the legal, valid and binding obligation of the Company and the Guarantors
enforceable against them in accordance with its terms, subject to customary
exceptions, and complies with the provisions hereof (including Section 9.03).
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ARTICLE X
SUBORDINATION
-------------
SECTION 10.01. Agreement To Subordinate. The Company agrees, and
------------------------
each Securityholder by accepting a Security agrees, that the Debt evidenced by
the Securities is subordinated in right of payment, to the extent and in the
manner provided in this Article X, to the prior payment in full in cash or Cash
Equivalents of all existing and future Senior Debt of the Company and that the
subordination is for the benefit of and enforceable by the holders of Senior
Debt of the Company. The Securities shall rank pari passu in right of payment
----------
with all existing and future Pari Passu Debt of the Company and shall be senior
in right of payment to all existing and future Subordinated Debt of the Company.
The Securities shall also be effectively subordinated to any Secured Debt of the
Company to the extent of the value of the assets securing such Debt. However,
payment from the money or the proceeds of Government Securities held in any
defeasance trust described in Article VIII is not subordinated to any Senior
Debt or subject to the restrictions described in this Section 10.01, so long as
the payments into the defeasance trust were not prohibited pursuant to the
subordination provisions described at the time when so paid. For purposes of
these subordination provisions, the Debt evidenced by the Securities is deemed
to include the Liquidated Damages payable pursuant to the provisions set forth
in the Securities and the applicable Registration Rights Agreement. All
provisions of this Article X shall be subject to Section 10.12.
SECTION 10.02. Liquidation, Dissolution, Bankruptcy. Upon any
------------------------------------
payment or distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Debt of the Company shall 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 Securities will be entitled to receive any payment with respect to
the Securities, and until all Obligations with respect to such Senior Debt are
paid in full, in cash or Cash Equivalents, any payment or distribution to which
the Holders of Securities would be entitled shall be made to the holders of such
Senior Debt (except that Holders of Securities may receive and retain (i)
Permitted Junior Securities and (ii) payments made from the trust described in
Article VIII so long as, on the date or dates the respective amounts were paid
into the trust, such payments were made with respect to the Securities without
violating this Article X). The term "payment" means, with respect to the
Securities, any payment, whether in cash or other assets or property, of
interest, principal (including redemption price and purchase price), premium,
Liquidated Damages or any other amount on, of or in respect of the Securities,
any other acquisition of Securities and any deposit into the trust described in
Article VIII. The verb "pay" has a correlative meaning.
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SECTION 10.03. Default on Senior Debt. The Company shall not make
----------------------
any payment or distribution upon or in respect of the Securities (except from
the trust described in Article VIII) if (i) a default in the payment of any
Obligations with respect to Designated Senior Debt of the Company occurs and is
continuing (a "payment default") or any other default on Designated Senior Debt
of the Company 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 of the
Company that permits holders of the Designated Senior Debt of the Company 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 Company, a Representative for, or
the holders of a majority of the outstanding principal amount, of any such issue
of Designated Senior Debt of the Company. Payments on the Securities 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 of
the Company 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 of the Company 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 in this Section 10.03, during any
365 day period, there must be at least 180 days where there is no Payment
Blockage Notice in effect.
SECTION 10.04. Acceleration of Payment of Securities. If payment of
-------------------------------------
the Securities is accelerated because of an Event of Default, the Company shall
promptly notify the Representative of the lenders under the New Credit Facility
of the acceleration. If any Debt under the New Credit Facility is outstanding,
the Company may not make any payment on account of such accelerated Securities
until five Business Days after such holders of such Debt receive notice of such
acceleration and, thereafter, may pay the Securities only if this Article X
otherwise permits payment at that time.
SECTION 10.05. When Distribution Must Be Paid Over. If a
-----------------------------------
distribution is made to Securityholders that because of this Article X should
not have been made to them, the Securityholders who receive such distribution
shall hold it in trust for holders of Senior Debt of the Company and pay it over
to them as their interests may appear.
SECTION 10.06. Subrogation. After all Senior Debt of the Company is
-----------
paid in full and until the Securities are paid in full, Securityholders shall be
subrogated to the rights of holders of Senior Debt of the Company to receive
distributions applicable to Senior Debt of
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the Company. A distribution made under this Article X to holders of Senior Debt
of the Company which otherwise would have been made to Securityholders is not,
as between the Company and Securityholders, a payment by the Company on Senior
Debt of the Company.
SECTION 10.07. Relative Rights. This Article X defines the relative
---------------
rights of Securityholders and holders of Senior Debt of the Company. Nothing in
this Indenture shall:
(1) impair, as between the Company and Securityholders, the obligation
of the Company, which is absolute and unconditional, to pay principal of
and interest on the Securities in accordance with their terms; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon an Event of Default, subject to the rights of
holders of Senior Debt of the Company to receive distributions otherwise
payable to Securityholders.
SECTION 10.08. Subordination May Not Be Impaired by Company. No
--------------------------------------------
right of any holder of Senior Debt of the Company to enforce the subordination
of the Debt evidenced by the Securities shall be impaired by any act or failure
to act by the Company or by its failure to comply with this Indenture.
SECTION 10.09. Rights of Trustee and Paying Agent. Notwithstanding
----------------------------------
Section 10.03, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, a Trust Officer of the Trustee
receives written notice satisfactory to it that payments may not be made under
this Article X. The Company, the Registrar or co-registrar, the Paying Agent, a
Representative or a holder of Senior Debt of the Company may give the notice;
provided, however, that, if an issue of Senior Debt of the Company has a
- -------- -------
Representative, only the Representative may give the notice. The Trustee shall
be entitled to rely on the delivery to it of a written notice by a Person
representing himself or itself to be a holder of any Senior Debt of the Company
(or a Representative of such holder) to establish that such notice has been
given by a holder of such Senior Debt of the Company or Representative thereof.
The Trustee in its individual or any other capacity may hold Senior
Debt of the Company with the same rights it would have if it were not Trustee.
The Registrar and co-registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article X with respect to any Senior Debt of the Company which may at any time
be held by it, to the same extent as any other holder of Senior Debt of the
Company; and nothing in Article VII shall deprive the Trustee of any of its
rights as such holder. Nothing in this Article X shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 7.07.
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SECTION 10.10. Distribution or Notice to Representative. Whenever a
----------------------------------------
distribution is to be made or a notice given to holders of Senior Debt of the
Company, the distribution may be made and the notice given to their
Representative (if any).
SECTION 10.11. Article X Not to Prevent Events of Default or Limit
---------------------------------------------------
Right to Accelerate. The failure to make a payment pursuant to the Securities
- -------------------
by reason of any provision in this Article X shall not be construed as
preventing the occurrence of an Event of Default. Nothing in this Article X
shall have any effect on the right of the Securityholders or the Trustee to
accelerate the maturity of the Securities.
SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding
-----------------------------
anything contained herein to the contrary, payments from money or the proceeds
of Government Obligations held in trust under Article VIII by the Trustee for
the payment of principal of and interest on the Securities shall not be
subordinated to the prior payment of any Senior Debt or subject to the
restrictions set forth in this Article X, and none of the Securityholders shall
be obligated to pay over any such amount to the Company or any holder of Senior
Debt of the Company or any other creditor of the Company.
SECTION 10.13. Trustee Entitled to Rely. Upon any payment or
------------------------
distribution pursuant to this Article X, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 10.02
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representative for the holders of Senior Debt
of the Company for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior Debt of
the Company and other Debt of the Company, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article X. In the event that the Trustee
determines, in good faith, that evidence is required with respect to the right
of any Person as a holder of Senior Debt of the Company to participate in any
payment or distribution pursuant to this Article X, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of Senior Debt of the Company held by such Person, the extent to
which such Person is entitled to participate in such payment or distribution and
other facts pertinent to the rights of such Person under this Article X, and, if
such evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment. The provisions of Sections 7.01 and 7.02 shall be applicable to all
actions or omissions of actions by the Trustee pursuant to this Article X.
SECTION 10.14. Trustee to Effectuate Subordination. Each
-----------------------------------
Securityholder by accepting a Security authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination between the Securityholders and the holders of
Senior Debt of the Company as provided in this Article X and appoints the
Trustee as attorney-in-fact for any and all such purposes.
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SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Debt.
------------------------------------------------
With respect to the holders of Senior Debt of the Company, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article X. The Trustee shall not be deemed
to owe any fiduciary or other duty to the holders of Senior Debt of the Company
and shall not be liable to any such holders if it shall mistakenly pay over or
distribute to Securityholders or the Company or any other Person, money or
assets to which any holders of Senior Debt of the Company shall be entitled by
virtue of this Article X or otherwise.
SECTION 10.16. Reliance by Holders of Senior Debt on Subordination
---------------------------------------------------
Provisions. Each Securityholder by accepting a Security acknowledges and agrees
- ----------
that the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of any Senior Debt of the Company,
whether such Senior Debt was created or acquired before or after the issuance of
the Securities, to acquire and continue to hold, or to continue to hold, such
Senior Debt and such holder of Senior Debt shall be deemed conclusively to have
relied on such subordination provisions in acquiring and continuing to hold, or
in continuing to hold, such Senior Debt.
SECTION 10.17. Trustee's Compensation Not Prejudiced. Nothing in
-------------------------------------
this Article shall apply to amounts due to the Trustee pursuant to other
sections of this Indenture.
ARTICLE XI
SECURITY GUARANTEES
-------------------
SECTION 11.01. Security Guarantees. Each Guarantor hereby jointly
-------------------
and severally unconditionally and irrevocably guarantees as a primary obligor
and not merely as a surety, to each Holder and to the Trustee and its successors
and assigns (a) the full and punctual payment of principal of, premium, if any,
and interest and Liquidated Damages, if any, on the Securities when due, whether
at maturity, by acceleration, by redemption or otherwise, subject to any
applicable grace period, and all other monetary obligations of the Company under
this Indenture (including obligations to the Trustee) and the Securities and (b)
the full and punctual performance within applicable grace periods of all other
obligations of the Company whether for expenses, indemnification or otherwise
under this Indenture and the Securities (all of the foregoing being hereinafter
collectively called the "Guaranteed Obligations"). Each Guarantor further
agrees that the Guaranteed Obligations may be extended or renewed, in whole or
in part, without notice or further assent from each such Guarantor, and that
each such Guarantor shall remain bound under this Article XI notwithstanding any
extension or renewal of any Guaranteed Obligation.
Each Guarantor waives presentation to, demand of, payment from and
protest to the Company of any of the Guaranteed Obligations and also waives
notice of protest for nonpayment. Each Guarantor waives notice of any default
under the Securities or the
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Guaranteed Obligations. The obligations of each Guarantor hereunder shall not be
affected by (a) the failure of any Holder or the Trustee to assert any claim or
demand or to enforce any right or remedy against the Company or any other Person
under this Indenture, the Securities or any other agreement or otherwise; (b)
any extension or renewal of any Guaranteed Obligations; (c) any rescission,
waiver, amendment or modification of any of the terms or provisions of this
Indenture, the Securities or any other agreement; (d) the release of any
security held by any Holder or the Trustee for the Guaranteed Obligations or any
of them; (e) the failure of any Holder or Trustee to exercise any right or
remedy against any other Guarantor of the Guaranteed Obligations; or (f) any
change in the ownership of such Guarantor, except as provided in Section
11.02(b).
Each Guarantor further agrees that its Security Guarantee herein
constitutes a Guarantee of payment, performance and compliance when due (and not
a guarantee of collection) and waives any right to require that any resort be
had by any Holder or the Trustee to any security held for payment of the
Guaranteed Obligations.
The obligations of each Guarantor hereunder shall not be subject to
any reduction, limitation, impairment or termination for any reason, including
any claim of waiver, release, surrender, alteration or compromise, and shall not
be subject to any defense of setoff, counterclaim, recoupment or termination
whatsoever or by reason of the invalidity, illegality or unenforceability of the
Guaranteed Obligations or otherwise. Without limiting the generality of the
foregoing, the obligations of each Guarantor herein shall not be discharged or
impaired or otherwise affected by the failure of any Holder or the Trustee to
assert any claim or demand or to enforce any remedy under this Indenture, the
Securities or any other agreement, by any waiver or modification of any thereof,
by any default, failure or delay, willful or otherwise, in the performance of
the Guaranteed Obligations, or by any other act or thing or omission or delay to
do any other act or thing which may or might in any manner or to any extent vary
the risk of any Guarantor or would otherwise operate as a discharge of any
Guarantor as a matter of law or equity.
Each Guarantor further agrees that its Security Guarantee herein shall
continue to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of principal of or interest on any Guaranteed
Obligation is rescinded or must otherwise be restored by any Holder or the
Trustee upon the bankruptcy or reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder or the Trustee has at law or in equity against any
Guarantor by virtue hereof, upon the failure of the Company to pay the principal
of or interest, premium or Liquidated Damages, if any, on any Guaranteed
Obligation when and as the same shall become due, whether at maturity, by
acceleration, by redemption or otherwise, or to perform or comply with any other
Guaranteed Obligation, each Guarantor hereby promises to and shall, upon receipt
of written demand by the Trustee, forthwith pay, or cause to be paid, in cash,
to the Holders or the Trustee an amount equal to the sum of (i) the unpaid
principal amount of such
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Guaranteed Obligations, (ii) accrued and unpaid interest, premium and Liquidated
Damages, if any, on such Guaranteed Obligations (but only to the extent not
prohibited by law) and (iii) all other monetary Guaranteed Obligations of the
Company to the Holders and the Trustee.
Each Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders in respect of any Guaranteed Obligations
guaranteed hereby until payment in full of all Guaranteed Obligations. Each
Guarantor further agrees that, as between it, on the one hand, and the Holders
and the Trustee, on the other hand, (x) the maturity of the Guaranteed
Obligations guaranteed hereby may be accelerated as provided in Article VI for
the purposes of any Security Guarantee herein, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
Guaranteed Obligations guaranteed hereby, and (y) in the event of any
declaration of acceleration of such Guaranteed Obligations as provided in
Article VI, such Guaranteed Obligations (whether or not due and payable) shall
forthwith become due and payable by such Guarantor for the purposes of this
Section.
Each Guarantor also agrees to pay any and all costs and expenses
(including reasonable attorneys' fees and expenses) Incurred by the Trustee or
any Holder in enforcing any rights under this Section.
SECTION 11.02. Limitation on Liability. (a) Any term or provision
-----------------------
of this Indenture to the contrary notwithstanding, the maximum, aggregate amount
of the obligations guaranteed hereunder by any Guarantor shall not exceed the
maximum amount that can be guaranteed (after giving effect to all its Guarantees
of Debt under the New Credit Facility) without rendering this Indenture, as it
relates to any such Guarantor, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally, provided, however, that the Security Guarantee by
-------- -------
HRI shall 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.
(b) This Guarantee as to any Guarantor shall terminate and be of no
further force or effect upon (i) the designation (in accordance with the
provisions of this Indenture) of such Guarantor as an Unrestricted Subsidiary or
(ii) the sale or other disposition of all of the assets of such Guarantor in
accordance with the terms of this Indenture, 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 Company and its Restricted Subsidiaries; provided
--------
that the Net Proceeds of such sale or other disposition are applied in
accordance with Section 4.06, to the extent such Section is applicable to such
disposition and is required thereby, or (iii) the sale or other disposition of
Capital Stock of any Guarantor if (A) as a result of such disposition, such
Person ceases to be a Subsidiary of the Company and (B) the Net Proceeds of such
sale are applied in accordance with Section 4.06, to the extent such Section is
applicable to such disposition. If the Security Guarantee of any Guarantor
terminates pursuant to the foregoing provisions, such Person shall cease to be a
Subsidiary, a Guarantor or otherwise a party to this
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Indenture and, upon request by the Company, the Trustee shall execute
appropriate instruments acknowledging such termination and the release of such
Person from its obligations hereunder.
SECTION 11.03. Successors and Assigns. This Article XI shall be
----------------------
binding upon each Guarantor and its successors and assigns and shall enure to
the benefit of the successors and assigns of the Trustee and the Holders and, in
the event of any transfer or assignment of rights by any Holder or the Trustee,
the rights and privileges conferred upon that party in this Indenture and in the
Securities shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions of this Indenture.
SECTION 11.04. No Waiver. Neither a failure nor a delay on the part
---------
of either the Trustee or the Holders in exercising any right, power or privilege
under this Article XI shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Trustee and the
Holders herein expressly specified are cumulative and not exclusive of any other
rights, remedies or benefits which either may have under this Article XI at law,
in equity, by statute or otherwise.
SECTION 11.05. Modification. No modification, amendment or waiver of
------------
any provision of this Article XI, nor the consent to any departure by any
Guarantor therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Trustee, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on any Guarantor in any case shall entitle such Guarantor to
any other or further notice or demand in the same, similar or other
circumstances.
ARTICLE XII
SUBORDINATION OF THE SECURITY GUARANTEES
----------------------------------------
SECTION 12.01. Agreement to Subordinate. Each Guarantor agrees, and
------------------------
each Securityholder by accepting a Security agrees, that such Guarantor's
obligations under its Security Guarantee are subordinated in right of payment,
to the extent and in the manner provided in this Article XII, to the prior
payment in full in cash or Cash Equivalents of all existing and future Senior
Debt of such Guarantor and that the subordination is for the benefit of and
enforceable by the holders of Senior Debt of such Guarantor. The obligations of
a Guarantor under this Article XII shall rank pari passu in right of payment
----------
with all existing and future Pari Passu Debt of such Guarantor, and shall be
senior in right of payment to all existing and future Subordinated Debt of such
Guarantor. Each Security 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.
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SECTION 12.02. Liquidation, Dissolution, Bankruptcy. Upon any
------------------------------------
payment or distribution to creditors of any Guarantor in a liquidation or
dissolution of such Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Guarantor or its property,
an assignment for the benefit of creditors or any marshaling of such Guarantor's
assets and liabilities, the holders of Senior Debt of such Guarantor shall 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 Securities will be entitled to receive any payment with respect to
the Security Guarantee and until all Obligations with respect to such Senior
Debt are paid in full, in cash or Cash Equivalents, any payment or distribution
to which the Holders of Securities would be entitled shall be made to the
holders of such Senior Debt (except that Holders of Securities may receive and
retain (i) Permitted Junior Securities and (ii) payments made from the trust
described in Article VII so long as, on the date or dates the respective amounts
were paid into the trust, such payments were made with respect to the Securities
without violating this Article XII).
SECTION 12.03. Default on Senior Debt of a Guarantor. A Guarantor
-------------------------------------
shall not make any payment or distribution upon or in respect of its Security
Guarantee if (i) a default in the payment of any Obligations with respect to
Designated Senior Debt of such Guarantor occurs and is continuing (a "Guarantor
payment default") or any other default on Designated Senior Debt of such
Guarantor occurs and the maturity of such Designated Senior Debt of such
Guarantor is accelerated in accordance with its terms or (ii) a default, other
than a Guarantor payment default, occurs and is continuing with respect to
Designated Senior Debt of such Guarantor that permits holders of the Designated
Senior Debt of such Guarantor as to which such default relates to accelerate its
maturity (a "Guarantor non-payment default") and, in the case of this clause
(ii) only, the Trustee receives a notice of such default (a "Guarantor Payment
Blockage Notice") from the Company, a Representative for, or the holders of a
majority of the outstanding principal amount of, any issue of Designated Senior
Debt of such Guarantor. Payments on the Security Guarantee of such Guarantor
may and shall be resumed (a) in the case of a Guarantor payment default, upon
the date on which such default is cured or waived and, in the case of Designated
Senior Debt of such Guarantor that has been accelerated, such acceleration has
been rescinded, and (b) in case of a Guarantor non-payment default, the earlier
of the date on which such Guarantor non-payment default is cured or waived or
179 days after the date on which the applicable Guarantor Payment Blockage
Notice is received, unless the maturity of any Designated Senior Debt of such
Guarantor has been accelerated. No new period of payment blockage may be
commenced on account of any Guarantor non-payment default unless and until 360
days have elapsed since the initial effectiveness of the immediately prior
Guarantor Payment Blockage Notice. No Guarantor non-payment default that
existed or was continuing on the date of delivery of any Guarantor Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent
Guarantor Payment Blockage Notice unless such default shall have been cured or
waived for a period of not less than 90 days.
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Notwithstanding any other provision in this Section 12.03, during any
365-day period, there must be at least 180 days in which there is no Guarantor
Payment Blockage Notice.
SECTION 12.04. Demand for Payment. If payment of the Securities is
------------------
accelerated because of an Event of Default and a demand for payment is made on a
Guarantor pursuant to Article XI, the Trustee shall promptly notify the Company,
and the Company shall promptly (and in no event more than five Business Days
after receipt of such notice) notify the Representative of the lenders under the
New Credit Facility of the acceleration. If any Debt under the New Credit
Facility is outstanding, such Guarantor may not pay its Obligations under its
Security Guarantee until five Business Days after the holders of such Debt
receive notice of such demand and, thereafter, may pay its Obligations under its
Security Guarantee only if this Article XII otherwise permits payment at that
time.
SECTION 12.05. When Distribution Must Be Paid Over. If a
-----------------------------------
distribution is made to Securityholders that because of this Article XII should
not have been made to them, the Securityholders who receive the distribution
shall hold it in trust for holders of Senior Debt of the relevant Guarantor and
pay it over to them as their interests may appear.
SECTION 12.06. Subrogation. After all Senior Debt of a Guarantor is
-----------
paid in full and until the Securities are paid in full, Securityholders shall be
subrogated to the rights of holders of Senior Debt of such Guarantor to receive
distributions applicable to Senior Debt of such Guarantor. A distribution made
under this Article XII to holders of Senior Debt of such Guarantor which
otherwise would have been made to Securityholders is not, as between such
Guarantor and Securityholders, a payment by such Guarantor on Senior Debt of
such Guarantor.
SECTION 12.07. Relative Rights. This Article XII defines the
---------------
relative rights of Securityholders and holders of Senior Debt of a Guarantor.
Nothing in this Indenture shall:
(1) impair, as between a Guarantor and Securityholders, the obligation
of a Guarantor, which is absolute and unconditional, to pay its Obligations
under its Security Guarantee to the extent set forth in Article XI; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a default by a Guarantor under its Obligations
under its Security Guarantee, subject to the rights of holders of Senior
Debt of such Guarantor to receive distributions otherwise payable to
Securityholders.
SECTION 12.08. Subordination May Not Be Impaired by a Guarantor. No
------------------------------------------------
right of any holder of Senior Debt of a Guarantor to enforce the subordination
of the Obligations under the Security Guarantee of such Guarantor shall be
impaired by any act or failure to act by such Guarantor or by its failure to
comply with this Indenture.
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SECTION 12.09. Rights of Trustee and Paying Agent. Notwithstanding
----------------------------------
Section 12.03, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, a Trust Officer of the Trustee
receives notice satisfactory to it that payments may not be made under this
Article XII. A Guarantor, the Registrar or co-registrar, the Paying Agent, a
Representative or a holder of Senior Debt of a Guarantor may give the notice;
provided, however, that, if an issue of Senior Debt of a Guarantor has a
- -------- -------
Representative, only the Representative may give the notice. The Trustee shall
be entitled to rely on the delivery to it of a written notice by a Person
representing himself or itself to be a holder of any Senior Debt of a Guarantor
(or a Representative of such holder) to establish that such notice has been
given by a holder of such Senior Debt or Representative thereof.
The Trustee in its individual or any other capacity may hold Senior
Debt of a Guarantor with the same rights it would have if it were not Trustee.
The Registrar and co-registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article XII with respect to any Senior Debt of a Guarantor which may at any time
be held by it, to the same extent as any other holder of Senior Debt of such
Guarantor; and nothing in Article VII shall deprive the Trustee of any of its
rights as such holder. Nothing in this Article XII shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 7.07.
SECTION 12.10. Distribution or Notice to Representative. Whenever a
----------------------------------------
distribution is to be made or a notice given to holders of Senior Debt of a
Guarantor, the distribution may be made and the notice given to their
Representative (if any).
SECTION 12.11. Article XII Not to Prevent Events of Default or Limit
-----------------------------------------------------
Right to Accelerate. The failure of a Guarantor to make a payment on any of its
- -------------------
Obligations under its Security Guarantee by reason of any provision in this
Article XII shall not be construed as preventing the occurrence of a default by
such Guarantor under its Security Guarantee. Nothing in this Article XII shall
have any effect on the right of the Securityholders or the Trustee to make a
demand for payment on a Guarantor pursuant to Article XII.
SECTION 12.12. Trustee Entitled to Rely. Upon any payment or
------------------------
distribution pursuant to this Article XII, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 12.02
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Senior Debt
of a Guarantor for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior Debt of a
Guarantor and other Debt of a Guarantor, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article XII. In the event that the Trustee determines, in
good faith, that evidence is required with respect to the right of any Person as
a holder of
92
<PAGE>
Senior Debt of a Guarantor to participate in any payment or distribution
pursuant to this Article XII, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Debt of such Guarantor held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and other
facts pertinent to the rights of such Person under this Article XII, and, if
such evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment. The provisions of Sections 7.01 and 7.02 shall be applicable to all
actions or omissions of actions by the Trustee pursuant to this Article XII.
SECTION 12.13. Trustee to Effectuate Subordination. Each
-----------------------------------
Securityholder by accepting a Security authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination between the Securityholders and the holders of
Senior Debt of each of the Guarantors as provided in this Article XII and
appoints the Trustee as attorney-in-fact for any and all such purposes.
SECTION 12.14. Trustee Not Fiduciary for Holders of Senior Debt of a
-----------------------------------------------------
Guarantor. The Trustee shall not be deemed to owe any fiduciary or other duty
- ---------
to the holders of Senior Debt of a Guarantor and shall not be liable to any such
holders if it shall mistakenly pay over or distribute to Securityholders or the
relevant Guarantor or any other Person, money or assets to which any holders of
Senior Debt of such Guarantor shall be entitled by virtue of this Article XII or
otherwise.
SECTION 12.15. Reliance by Holders of Senior Debt of a Guarantor on
----------------------------------------------------
Subordination Provisions. Each Securityholder by accepting a Security
- ------------------------
acknowledges and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to each holder of any Senior
Debt of a Guarantor, whether such Senior Debt was created or acquired before or
after the issuance of the Securities, to acquire and continue to hold, or to
continue to hold, such Senior Debt and such holder of Senior Debt shall be
deemed conclusively to have relied on such subordination provisions in acquiring
and continuing to hold, or in continuing to hold, such Senior Debt.
ARTICLE XIII
MISCELLANEOUS
-------------
SECTION 13.01. Trust Indenture Act Controls. If any provision of
----------------------------
this Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 13.02. Notices. Any notice or communication shall be in
-------
writing and delivered in person or mailed by first-class mail addressed as
follows:
93
<PAGE>
if to the Company prior to the Recapitalization:
HH Acquisition Corp.
c/o Gibson, Dunn & Crutcher LLP
200 Park Avenue, 48/th/ Floor
New York, NY 10166
Attention: Joerg H. Esdorn, Esq.
and
Investcorp International Inc.
280 Park Avenue, 37 West Floor
New York, NY 10017
Attention: Christopher J. O'Brien
if to the Company after the Recapitalization:
Harborside Healthcare Corporation
470 Atlantic Avenue
Boston, MA 02210
Attention: William H. Stephan
Gibson, Dunn & Crutcher LLP
200 Park Avenue, 48/th/ Floor
New York, NY 10166
Attention: Joerg H. Esdorn, Esq.
and
Investcorp International Inc.
280 Park Avenue, 37 West Floor
New York, NY 10017
Attention: Christopher J. O'Brien
And with respect to notices pursuant to Article VI, with copies to:
Gibson, Dunn & Crutcher, LLP
200 Park Avenue
New York, NY 10166
Attention: Joerg H. Esdorn, Esq.
94
<PAGE>
if to the Trustee:
United States Trust Company of New York
114 West 47/th/ Street
New York, NY 10036
telecopier no.: (212) 852-1626
Attention: Corporate Trust Administration
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be made
in compliance with Section 313(c) of the TIA and mailed to the Securityholder at
the Securityholder's address as it appears on the registration books of the
Registrar and shall be sufficiently given if so mailed within the time
prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 13.03. Communication by Holders with Other Holders.
-------------------------------------------
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Guarantors, the Trustee, the Registrar and anyone
else shall have the protection of TIA (S) 312(c).
SECTION 13.04. Certificate and Opinion as to Conditions Precedent.
--------------------------------------------------
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, at the request of the Trustee the
Company shall furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 13.05 hereof) stating that, in the opinion of the signers, all
conditions precedent, if any, provided for in this Indenture relating to
the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 13.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent have been complied with.
To the extent applicable, the Company shall comply with the provisions
of Section 314(c)(3) of the TIA.
95
<PAGE>
SECTION 13.05. Statements Required in Certificate or Opinion. Each
---------------------------------------------
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 13.06. When Securities Disregarded. In determining whether
---------------------------
the Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to be
outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which the Trustee actually knows are so owned shall be so
disregarded. Also, subject to the foregoing, only Securities outstanding at the
time shall be considered in any such determination.
SECTION 13.07. Rules by Trustee, Paying Agent and Registrar. The
--------------------------------------------
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Registrar and the Paying Agent may make reasonable rules for their
functions.
SECTION 13.08. Legal Holidays. A "Legal Holiday" is a Saturday, a
--------------
Sunday or a day on which banking institutions are not required to be open in the
State of New York. If a payment date is a Legal Holiday, payment shall be made
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period. If a regular record date is a Legal Holiday,
the record date shall not be affected.
SECTION 13.09. GOVERNING LAW. THIS INDENTURE, THE SECURITIES AND THE
-------------
SECURITY GUARANTEES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK BUT 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.
96
<PAGE>
SECTION 13.10. No Recourse Against Others. A director, officer,
--------------------------
incorporator, employee, stockholder or Affiliate as such, of the Company or any
Guarantor shall not have any liability for any obligations of the Company or any
Guarantor under the Securities or this Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The
waiver and release shall be part of the consideration for the issue of the
Securities.
SECTION 13.11. Successors. All agreements of the Company and each
----------
Guarantor in this Indenture and the Securities shall bind their successors. All
agreements of the Trustee in this Indenture shall bind its successors.
SECTION 13.12. Multiple Originals. The parties may sign any number
------------------
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
SECTION 13.13. Table of Contents; Headings. The table of contents,
---------------------------
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
97
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
HH ACQUISITION CORP.
By: /s/ Christopher J. O'Brien
________________________________
Name: Christopher J. O'Brien
Title: President
UNITED STATES TRUST COMPANY OF NEW YORK, as
Trustee,
By: /s/ James E. Logan
________________________________
Name: James E. Logan
Title: Vice President
<PAGE>
EXHIBIT 4.2
EXECUTION COPY
FIRST SUPPLEMENTAL INDENTURE
This FIRST SUPPLEMENTAL INDENTURE (this "Supplemental Indenture")
----------------------
dated as of August 11, 1998, among HARBORSIDE HEALTHCARE CORPORATION, a Delaware
corporation ("Harborside"), the subsidiaries of Harborside listed on the
----------
signature pages hereto, as guarantors (collectively, the "Initial Guarantors"),
------------------
and UNITED STATES TRUST COMPANY OF NEW YORK, as trustee under the indenture
referred to below (the "Trustee").
-------
R E C I T A L S
WHEREAS, HH Acquisition Corp., a Delaware corporation ("MergerCo"),
--------
has heretofore executed and delivered to the Trustee an Indenture dated as of
July 31, 1998 (the "Indenture"), providing for the initial issuance of
---------
$170,000,000 million in aggregate principal amount at maturity of its 11%
Senior Subordinated Discount Notes due 2008 (the "Securities");
----------
WHEREAS, MergerCo has merged with and into Harborside and, in
connection therewith, Harborside has assumed by operation of law all of
MergerCo's debts, liabilities, duties and obligations, including MergerCo's
obligations in respect of the Securities and under the Indenture;
WHEREAS, each of the Initial Guarantors is required pursuant to the
Indenture to become a party thereto and as Guarantors under the Indenture to
guarantee the obligations of MergerCo in respect of the Securities and under the
Indenture;
WHEREAS, Harborside desires by this Supplemental Indenture, pursuant
to and as contemplated by Sections 5.01 and 9.01 of the Indenture, to expressly,
irrevocably and unconditionally assume the covenants, agreements, obligations
and undertakings of MergerCo in the Indenture and under the Securities; and
WHEREAS, all conditions and requirements necessary to make each of
this Supplemental Indenture and the Securities valid, binding and legal
instruments in accordance with their respective terms upon Harborside, and each
of this Supplemental Indenture and each of the Security Guarantees valid,
binding and legal instruments in accordance with their terms upon each of the
Initial Guarantors, have been performed and fulfilled by the applicable parties
hereto and the execution and delivery thereof have been in all respects duly
authorized by the applicable parties hereto.
<PAGE>
WHEREAS, MergerCo and Harborside authorize the Trustee to cancel the
11% Senior Subordinated Discount Notes due 2008 of MergerCo and to authenticate
the 11% Senior Subordinated Discount Notes due 2008 of Harborside, as guaranteed
by the Initial Guarantors.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, each
party agrees, for the benefit of the others and for the equal and ratable
benefit of the holders of the Notes as follows:
ARTICLE ONE
DEFINITIONS
-----------
SECTION 1.01. Definitions. For all purposes of this Supplemental
-----------
Indenture, except as otherwise herein expressly provided or unless the context
otherwise requires: (i) the terms and expressions used herein shall have the
same meanings as corresponding terms and expressions used in the Indenture; and
(ii) the words "herein," "hereof" and "hereby" and other words of similar import
used in this Supplemental Indenture refer to this Supplemental Indenture as a
whole and not to any particular section hereof.
ARTICLE TWO
ASSUMPTION OF OBLIGATIONS AND AGREEMENT TO GUARANTEE
----------------------------------------------------
SECTION 2.01. Assumption of Obligations of MergerCo. (a) Harborside
-------------------------------------
hereby expressly, irrevocably and unconditionally assumes each and every
covenant, agreement, obligation and undertaking of MergerCo in the Indenture as
if Harborside had been named the Company in the Indenture and the original
issuer of the Securities, and also hereby expressly, irrevocably and
unconditionally assumes each and every covenant, agreement, obligation and
undertaking of MergerCo in each Security outstanding on the date of this
Supplemental Indenture.
(b) Promptly following the execution and delivery of this
Supplemental Indenture, the Trustee shall, upon the written order of Harborside
in the form of an Officers' Certificate of Harborside, authenticate and deliver
Initial Securities substantially in the form of Exhibit A hereto in exchange for
the outstanding Initial Securities.
SECTION 2.02. Security Guarantee of the Initial Guarantors. Each of
--------------------------------------------
the Initial Guarantors hereby expressly, irrevocably and unconditionally agrees,
(i) that its shall be a "Guarantor" under the Indenture and shall, jointly and
severally with all other Guarantors, guarantee Harborside's obligations under
the Securities and the Indenture on the terms and subject to the conditions set
forth in Articles XI and XII of the Indenture and (ii) to be bound by all other
applicable provisions of the Indenture and the Securities.
<PAGE>
SECTION 2.03. Replacement of Exhibits to Indenture. Exhibits A, B, C
------------------------------------
and D to the Indenture are hereby deleted and replaced in their entirety by
Exhibits A, B, C and D, respectively, hereto.
ARTICLE THREE
MISCELLANEOUS PROVISIONS
------------------------
SECTION 3.01. Effect of Supplemental Indenture. Upon the execution
---------------------------------
and delivery of this Supplemental Indenture by Harborside, each of the Initial
Guarantors and the Trustee, the Indenture shall be supplemented in accordance
herewith, and this Supplemental Indenture shall form a part of the Indenture for
all purposes, and every Holder of a Security heretofore or hereafter
authenticated and delivered under the Indenture shall be bound thereby.
SECTION 3.02. Indenture Remains in Full Force and Effect. Except as
------------------------------------------
expressly amended and supplemented hereby, the Indenture is in all respects
ratified and confirmed and all terms, conditions and provisions of the Indenture
shall remain in full force and effect.
SECTION 3.03. Indenture and Supplemental Indenture Construed
----------------------------------------------
Together. This Supplemental Indenture is an indenture supplemental to and in
- --------
implementation of the Indenture, and the Indenture and this Supplemental
Indenture shall henceforth be read and construed together.
SECTION 3.04. Conflict with Trust Indenture Act. If any provision of
---------------------------------
this Supplemental Indenture limits, qualifies or conflicts with any provision of
the Trust Indenture Act that is required under such Act to be part of and govern
any provision of this Supplemental Indenture, the provision of such Act shall
control. If any provision of this Supplemental Indenture modifies or excludes
any provision of the Trust Indenture Act that may be so modified or excluded,
the provision of such Act shall be deemed to apply to the Indenture as so
modified or to be excluded by this Supplemental Indenture, as the case may be.
SECTION 3.05. Separability Clause. In case any provision in this
-------------------
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 3.06. Effect of Headings. The Article and Section headings
------------------
herein are for convenience only and shall not affect the construction hereof.
SECTION 3.07. Benefits of Supplemental Indenture, Etc. Nothing in
---------------------------------------
this Supplemental Indenture, the Indenture or the Securities express or implied,
shall give to any Person, other than the parties hereto and thereto and their
successors hereunder and thereunder and the Holders, any benefit of any legal or
equitable right, remedy or claim under the Indenture, this Supplemental
Indenture or the Securities.
<PAGE>
SECTION 3.08. Successors and Assigns. All covenants and agreements
----------------------
in this Supplemental Indenture by Harborside and by each Initial Guarantor shall
bind their respective successors and assigns, whether so expressed or not.
SECTION 3.09. Certain Duties and Responsibilities of Trustee. In
----------------------------------------------
entering into this Supplemental Indenture, the Trustee shall be entitled to the
benefit of every provision of the Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee, whether or not
elsewhere herein so provided. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Company.
SECTION 3.10. Governing Law. This Supplemental Indenture shall be
-------------
governed by and construed in accordance with the laws of the State of New York.
SECTION 3.11. Counterparts. This Supplemental Indenture may be
------------
executed in counterparts, each of which, when so executed, shall be deemed to be
an original, but all such counterparts shall together constitute but one and the
same instrument.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Supplemental
Indenture to be duly executed as of the date first written above.
HARBORSIDE HEALTHCARE CORPORATION
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
UNITED STATES TRUST COMPANY OF NEW
YORK, as Trustee
By: /s/ James E. Logan
___________________________________________
Name: James E. Logan
Title: Vice President
HARBORSIDE HEALTHCARE LIMITED
PARTNERSHIP
By: KHI CORPORATION, its general partner
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
BELMONT NURSING CENTER CORP.
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
ORCHARD RIDGE NURSING CENTER
CORP.
By: /s/ Stephen L. Guillard
____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
<PAGE>
OAKHURST MANOR NURSING CENTER
CORP.
By: /s/ Stephen L. Guillard
_____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
RIVERSIDE RETIREMENT LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
_____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE TOLEDO LIMITED
PARTNERSHIP
By: HARBORSIDE TOLEDO CORP.,
its general partner
By: /s/ Stephen L. Guillard
_____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE CONNECTICUT LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
_____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
<PAGE>
HARBORSIDE OF FLORIDA LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
_____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE OF OHIO LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
_____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE HEALTHCARE BALTIMORE
LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
_____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE OF CLEVELAND LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
_____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
<PAGE>
HARBORSIDE OF DAYTON LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
_____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE MASSACHUSETTS LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
_____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE RHODE ISLAND LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
_____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE NORTH TOLEDO LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
_____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
<PAGE>
HARBORSIDE HEALTHCARE ADVISORS
LIMITED PARTNERSHIP
By: KHI CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
_____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE TOLEDO LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
_____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
KHI CORPORATION
By: /s/ Stephen L. Guillard
_____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP IV
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
_____________________________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
<PAGE>
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP V
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
___________________________
Name: Stephen L. Guillard
Title: President and Chief Excutive Officer
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP VI
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
___________________________
Name: Stephen L. Guillard
Title: President and Chief Excutive Officer
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP VII
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
___________________________
Name: Stephen L. Guillard
Title: President and Chief Excutive Officer
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP VIII
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
___________________________
Name: Stephen L. Guillard
Title: President and Chief Excutive Officer
<PAGE>
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP IX
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
___________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE ACQUISITION LIMITED
PARTNERSHIP X
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
___________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
SAILORS, INC.
By: /s/ Stephen L. Guillard
___________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
NEW JERSEY HARBORSIDE CORP.
By: /s/ Stephen L. Guillard
___________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
<PAGE>
BRIDGEWATER ASSISTED LIVING LIMITED
PARTNERSHIP
By: NEW JERSEY HARBORSIDE
CORPORATION, its general partner
By: /s/ Stephen L. Guillard
___________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
MARYLAND HARBORSIDE CORP.
By: /s/ Stephen L. Guillard
___________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE HOMECARE LIMITED
PARTNERSHIP
By: KHI CORPORATION, its general partner
By: /s/ Stephen L. Guillard
___________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE REHABILITATION LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
___________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
<PAGE>
HARBORSIDE HEALTHCARE
NETWORK LIMITED PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
its general partner
By: /s/ Stephen L. Guillard
___________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
HARBORSIDE HEALTH I CORPORATION
By: /s/ Stephen L. Guillard
___________________________
Name: Stephen L. Guillard
Title: President and Chief Executive Officer
<PAGE>
EXHIBIT A
---------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT
A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT
WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE
SECURITIES ACT AS IN EFFECT ON THE DATE OF TRANSFER OF THIS NOTE, RESELL OR
OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY
THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE
144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3)
OR (7) OF REGULATION D UNDER THE SECURITIES ACT) THAT, PRIOR TO SUCH
TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), AND,
IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE ACCRETED VALUE OF NOTES AT
THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME
PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET
FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS
OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM
THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND
"U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
<PAGE>
A-2
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION
REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN
VIOLATION OF THE FOREGOING RESTRICTIONS.
[For Global Securities only:
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 IN 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.]
<PAGE>
A-3
[FORM OF FACE OF SECURITY]
HARBORSIDE HEALTHCARE CORPORATION
11% SENIOR SUBORDINATED DISCOUNT NOTE DUE 2008
No. ___ CUSIP No. _________
$____________
The following information is supplied for purposes of Sections 1273 and
1275 of the Internal Revenue Code:
Issue Date: [__________],____]
Original issue discount under Section
Yield to maturity for period from 1273 of the Internal Revenue Code
Issue Date to [__________,_____]: (for each $1,000 principal amount):
[____]%, compounded semi-annually on $[_______]
[__________ and _______], commencing
[_________, ____] (computed without Issue Price (for each $1,000
giving effect to the additional principal amount): $[_____]
payments of interest in the event
the issuer fails to commence the
exchange offer or cause the
registration statement to be
declared effective, each as
described on the reverse hereof)
HARBORSIDE HEALTHCARE CORPORATION, a Delaware corporation (the
"Company"), promises to pay to _______________, or registered assigns, the
principal sum of _____________________ ($________________) on August 1, 2008.
Interest Payment Dates: February 1 and August 1, commencing February 1, 2003
Regular Record Dates: January 15 and July 15
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:
HARBORSIDE HEALTHCARE CORPORATION
By: _______________________________________
Name:
Title:
<PAGE>
A-4
TRUSTEE'S CERTIFICATE OF AUHENTICATION
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
<PAGE>
A-5
[FORM OF 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 and shall pay Liquidated Damages, if any, payable
pursuant to the relevant Registration Rights Agreement.
The Company will pay interest and Liquidated Damages, if any,
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 except for
Liquidated Damages, if any, payable pursuant to the relevant Registration Rights
Agreement. The Holder of this Security is entitled to the benefit of such
Registration Rights Agreement.
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 and
Liquidated Damages, if any, in respect of 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.
<PAGE>
A-6
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. (S)(S)
------
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 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 and Liquidated Damages 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:
Redemption
Year Price
- ---- -----
105.500%
2003 103.667%
2004 101.883%
2005 100.000%
2006 and thereafter
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) plus Liquidated
Damages thereon, if any, 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.
<PAGE>
A-7
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 and Liquidated Damages thereon, if any, 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).
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 plus Liquidated Damages, if any, 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
<PAGE>
A-8
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 and Liquidated Damages thereon, if any, 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.
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.
<PAGE>
A-9
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 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, or Liquidated Damages with respect to,
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
<PAGE>
A-10
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.
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.
<PAGE>
A-11
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.
22. Guarantee
---------
The Company's obligations under the Securities are guaranteed on a
senior subordinated basis, jointly and severally, by the Guarantors.
<PAGE>
A-12
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
470 ATLANTIC AVENUE
BOSTON, MASSACHUSETTS 02210
ATTENTION: CHIEF FINANCIAL OFFICER
<PAGE>
A-13
[FORM OF 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.
[THE FOLLOWING PROVISION TO BE INCLUDED ON
ALL SECURITIES OTHER THAN EXCHANGE SECURITIES,
UNLEGENDED OFFSHORE GLOBAL SECURITIES AND
UNLEGENDED OFFSHORE PHYSICAL SECURITIES]
In connection with any transfer of this Security occurring prior to
the date which is the earlier of (i) the date the Shelf Registration Statement
is declared effective or (ii) the end of the period referred to in Rule 144(k)
under the Securities Act, the undersigned confirms that without utilizing any
general solicitation or general advertising that:
[Check One]
---------
[_] (a) this Security is being transferred in compliance with the exemption
from registration under the Securities Act of 1933 provided by Rule
144A thereunder.
or
--
[_] (b) this Security is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Security and the Indenture.
<PAGE>
A-14
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Security in the name of any Person other than
the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.08 of the Indenture shall have
been satisfied.
Date:______________ _______________________________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon the face of
the within-mentioned instrument in every particular,
without alteration or any change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933 and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:______________ _______________________________________________________
NOTICE: To be executed by an executive officer
<PAGE>
A-15
OPTION OF HOLDER 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)
<PAGE>
EXHIBIT B
---------
FORM OF CERTIFICATE
-------------------
________, ____
UNITED STATES TRUST COMPANY OF NEW YORK
114 West 47/th/ Street
New York, New York 10036
Attention: Corporate Trust Administration
Re: Harborside Healthcare Corporation (the "Company")
11% Senior Subordinated Securities due 2008 (the "Securities")
--------------------------------------------------------------
Dear Sirs:
This letter relates to U.S. $_______________ principal amount at
maturity of Securities represented by a Security (the "Legended Security") which
bears a legend outlining restrictions upon transfer of such Legended Security.
Pursuant to Section 2.02 of the Indenture dated as of July 31, 1998 (the
"Indenture") relating to the Securities, we hereby certify that we are (or we
will hold such securities on behalf of) a person outside the United States to
whom the Securities could be transferred in accordance with Rule 904 of
Regulation S promulgated under the U.S. Securities Act of 1933. Accordingly, you
are hereby requested to exchange the legended certificate for an unlegended
certificate representing an identical principal amount at maturity of
Securities, all in the manner provided for in the Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By: _____________________________________________
Authorized Signature
<PAGE>
EXHIBIT C
---------
[FORM OF CERTIFICATE TO BE
DELIVERED IN CONNECTION WITH
TRANSFERS TO NON-QIB ACCREDITED INVESTORS]
________, ____
UNITED STATES TRUST COMPANY OF NEW YORK
114 West 47/th/ Street
New York, New York 10036
Attention: Corporate Trust Administration
Re: Harborside Healthcare Corporation (the "Company")
11% Senior Subordinated Securities due 2008 (the "Securities")
--------------------------------------------------------------
Dear Sirs:
In connection with our proposed purchase of $__________________
aggregate principal amount at maturity of the Securities, we confirm that:
1. We understand that any subsequent transfer of the Securities is
subject to certain restrictions and conditions set forth in the Indenture dated
as of July 31, 1998 (the "Indenture") relating to the Securities and the
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Securities except in compliance with such restrictions and
conditions and the Securities Act of 1933, amended (the "Securities Act").
2. We understand that the offer and sale of the Securities have not
been registered under the Securities Act, and that the Securities may not be
offered or sold except as permitted in the following sentence. We agree, on our
own behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Securities within the time period referred to
in Rule 144(k) of the Securities Act, we will do so only (A) to the Company or
any subsidiary thereof, (B) in accordance with Rule 144A under the Securities
Act to a "qualified institutional buyer" (as defined therein), (C) to an
institutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to
you and to the Company a signed letter substantially in the form of this letter
and, if such transfer is in respect of an aggregate accreted value of Securities
at the time of transfer of less than $250,000, an opinion of counsel acceptable
to the Company that such transfer is in compliance with the Securities Act, (D)
outside the United States in accordance with Rule 904 of Regulation S under the
Securities Act, (E) pursuant to the exemption from registration provided by Rule
144 under the Securities Act (if available) or (F) pursuant to an effective
registration statement under the Securities Act, and we further agree to provide
to any person purchasing any of the Securities from us a notice advising such
purchaser that resales of the Securities are restricted as stated herein.
<PAGE>
C-2
3. We understand that, on any proposed resale of any Securities, we
will be required to furnish to you and the Company such certifications, legal
opinions and other information as you and the Company may reasonably require to
confirm that the proposed sale complies with the foregoing restrictions. We
further understand that the Securities purchased by us will bear a legend to the
foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Securities, and we
and any accounts for which we are acting are each able to bear the economic risk
of our or its investment.
5. We are acquiring the Securities purchased by us for our own
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:______________________________________________________________
Authorized Signature
<PAGE>
EXHIBIT D
---------
[FORM OF CERTIFICATE TO BE DELIVERED IN
CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S]
________, 19__
UNITED STATES TRUST COMPANY OF NEW YORK
114 West 47/th/ Street
New York, New York 10036
Attention: Corporate Trust Administration
Re: Harborside Healthcare Corporation (the "Company")
11% Senior Subordinated Securities due 2008 (the "Securities")
--------------------------------------------------------------
Dear Sirs:
In connection with our proposed sale of U.S.$__________________
aggregate principal amount at maturity of the Securities, we confirm that such
sale has been effected pursuant to and in accordance with Regulation S under the
Securities Act of 1933 and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the
United States;
(2) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States;
(3) no directed selling efforts have been made by us in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b)
of Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal
<PAGE>
D-2
proceedings or official inquiry with respect to the matters covered hereby.
Terms used in this certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:_________________________
Authorized Signature
<PAGE>
EXHIBIT 10.10(a)
Execution Copy
EMPLOYMENT AGREEMENT
This Employment Agreement ("this Agreement") is made and entered into as of
August 11, 1998 (the "Effective Date"), by and between Harborside Healthcare
Corporation, a Delaware corporation (the "Company"), and Stephen L. Guillard
("Executive").
The Company hereby agrees to employ Executive, and Executive hereby accepts
such employment, on the terms and conditions hereinafter set forth.
1. Position. From the Effective Date until the termination of Executive's
--------
employment hereunder (the "Period of Employment"), Executive shall serve in the
capacity indicated on Exhibit A, and shall have the normal duties and
responsibilities commensurate with such position. During the Period of
Employment, Executive will (a) during normal business hours, devote his full
time and exclusive attention to, and use his best efforts to advance, the
business and welfare of the Company, and (b) not engage in any other employment
activities for any direct or indirect remuneration without the concurrence of
the board of directors of the Company (the "Board"), provided, however,
Executive may continue to serve on those corporate, charitable and community
boards on which he serves as of the Effective Date and which have been
identified to the Board in writing or on any other such boards which are
approved in advance by the Board so long as such activities do not unreasonably
interfere with the performance of his duties under this Agreement.
2. Place and Term of Employment.
----------------------------
(a) Executive's office shall be at the location set forth on Exhibit
A.
(b) Subject to earlier termination pursuant to Section 6 hereof, the
Period of Employment shall be three (3) years commencing on the Effective Date;
provided that thereafter the Period of Employment shall be automatically renewed
for successive one-year periods on each anniversary of the Effective Date unless
either party hereto gives the other party written notice no later than sixty
(60) days prior to such anniversary of the Effective Date of its election not to
so renew the Period of Employment for the additional one-year period.
3. Compensation.
------------
3.1 Base Salary. The Company shall pay Executive a per annum Base
-----------
Salary as indicated on Exhibit A payable in accordance with the standard
policies of the Company. Thereafter, Executive's Base Salary hereunder shall be
subject to annual review by the Board, provided that the level of such Base
Salary shall not be subject to reduction below the level indicated on Exhibit A.
3.2 Performance Based Compensation. Executive shall also be entitled
------------------------------
to participate in an annual performance-based cash bonus program as set forth in
Exhibit B.
<PAGE>
4. Benefits.
--------
During the Period of Employment, Executive shall be entitled to
participate in benefit plans and programs maintained by the Company from time to
time and generally made available to its executive officers; provided that: (a)
Executive's right to participate in such plans and programs shall not affect the
Company's right to amend or terminate any such plan and program, and (b)
Executive acknowledges that he shall have no vested rights under any such plan
or program except as expressly provided under the terms thereof.
Notwithstanding the previous provisions, the Company shall pay for and provide
to the Executive the following benefits: life insurance equal to twice the
Executive's base salary; and health insurance coverage comparable to that
provided to the Executive on January 1, 1998 by the Company.
5. Expenses; Taxes.
---------------
(a) Upon presentation of acceptable substantiation therefor, the
Company will pay or reimburse Executive for such reasonable travel,
entertainment and other expenses as he may incur during the Period of Employment
in connection with the performance of his duties hereunder.
(b) Federal, state, local and other applicable taxes shall be withheld
on all cash and in-kind payments made by the Company to Executive in accordance
with applicable tax laws and regulations.
6. Termination of Employment.
-------------------------
6.1 Death or Disability.
-------------------
(a) Except as set forth in 6.1(b), the employment of Executive and all
rights to compensation under this Agreement shall terminate upon the death or
Disability (as defined below) of Executive except for such death or disability
payments as may be payable under one or more benefit plans maintained at that
time by the Company and applicable to the Executive. As used herein,
"Disability" means the Board has made a good faith determination that the
Executive has become physically or mentally incapacitated or disabled such that
he is unable to perform for the Company substantially the same services as he
performed prior to incurring such incapacity or disability, and such incapacity
or disability exists for an aggregate of six (6) calendar months in any twelve
(12) calendar month period. In connection with making any such determination,
the Company, at its option and expense, shall be entitled to select and retain a
physician to confirm the existence of such incapacity or disability and the
determination by such physician shall be binding on the parties for purposes of
this Agreement.
(b) Upon termination of the Executive's employment hereunder by the
Company due to the Executive's Disability, the Executive shall be entitled to
receive payment of the Base Salary in monthly installments for a period of
twelve months following the date of such termination of employment; provided
that the amount of such continued monthly payments of Base Salary shall be
reduced by the aggregate amount of payments received or to be received by the
Executive for the twelve months following the date of such termination of
employment under
2
<PAGE>
any disability insurance policy or program maintained by the Company or its
affiliates to the extent the premiums for such disability insurance policy are
not paid for by the Executive.
6.2 Other Termination without Severance Obligation. The parties
----------------------------------------------
hereto expressly agree that Executive's employment hereunder may be terminated
by either the Company or the Executive upon 30 days' advance written notice by
the terminating party and that upon any such termination, except as set forth in
Section 6.3 hereof, Executive shall not be entitled to any payment in the nature
of severance or otherwise (other than Base Salary and any other benefits earned
and accrued through the Termination Date).
6.3 Termination with Severance Obligation. Upon termination by the
-------------------------------------
Company other than for Cause (as defined below) or by the Executive for Good
Reason (as defined below), Executive shall be entitled to receive from the
Company a lump sum cash severance payment equal to 24 months of Executive's Base
Salary in effect at the effective time of such termination. As used herein, (a)
"Cause" means that Executive (i) has been convicted of a felony, or has entered
a plea of guilty or nolo contendere to a felony; (ii) has committed an act of
---- ----------
fraud involving dishonesty for personal gain which is injurious to the Company
or any of its subsidiaries; (iii) has willfully and continually refused to
substantially perform his duties with the Company or any of its subsidiaries
(other than any such refusal resulting from his incapacity due to mental illness
or physical illness or injury), after a demand for substantial performance has
been delivered to the Executive by the Board, where such demand reasonably
identifies the manner in which the Board believes that the Executive has refused
to substantially perform his duties and the passage of a reasonable period of
time as specified by the Board for Executive to comply with such demand; or (iv)
has willfully engaged in gross misconduct injurious to the Company or any of its
subsidiaries; and (b) "Good Reason" means (i) except as specifically provided
herein, the assignment to the Executive of duties, or the assignment of the
Executive to a position, constituting a material diminution in the Executive's
role, responsibilities or authority compared with his role, responsibilities or
authority with the Company or its affiliates on the Effective Date; (ii) a
reduction by the Company in the Executive's base salary as in effect on the
Effective Date as the same may be increased from time to time or a reduction of
the potential annual bonus expressed as a percent of base salary (subject to
attainment of goals, Board discretion and other conditions of the applicable
bonus program) from the levels in effect on the Effective Date as the same may
be increased from time to time; (iii) a demand by the Company to the Executive
to relocate to any place that exceeds a fifty (50) mile radius beyond the
location at which the Executive performed the Executive's duties on the
Effective Date; or (iv) any breach by the Company of any provision of this
Agreement.
6.4 Release. At the time of termination of Executive's employment,
-------
Executive agrees to execute a release whereby Executive will release, relinquish
and forever discharge the Company and each of its subsidiaries and any director,
officer, employee, shareholder, controlling person or agent of the Company and
its subsidiary from any and all claims, damages, losses, costs, expenses,
liabilities or obligations, whether known or unknown (other than any rights
Executive may have under (i) any indemnification arrangement of the Company with
respect to Executive, (ii) any employee benefit plan or program covering
Executive or (iii) any stock purchase or stock option plan or agreement to which
the Company and Executive are
3
<PAGE>
parties, which Executive has incurred or suffered or may incur or suffer as a
result of Executive's employment by the Company or the termination of such
employment. Executive expressly agrees that payment by the Company of the
severance amount set forth in Section 6.3 shall be deemed to fully discharge all
of the Company's obligations and duties under this Agreement and Executive shall
not be entitled to any other compensation hereunder.
6.5 Mitigation. Executive shall not be required to mitigate the
----------
amount of the severance payment called for by Section 6.3 by seeking other
employment and the amount of any such payment shall not be reduced by any
compensation earned or benefits received by Executive as the result of
employment by a future employer.
7. Non-Competition; Non-Disclosure of Proprietary Information, Surrender
--------------- ----------------------------------------------------
of Records; Inventions and Patents.
----------------------------------
7.1 Non-Competition.
---------------
(a) Executive acknowledges that in the course of his employment with
the Company he will become familiar with the trade secrets and other
confidential information of the Company and that his services will be of
special, unique and extraordinary value to the Company. Therefore, Executive
agrees that, during the Period of Employment and for 24 months thereafter (the
"Noncompete Period"), he shall not directly or indirectly own, manage, control,
participate in, consult with, render services for, or in any manner engage in
any business competing with any business of the Company within the United States
and any other geographical area in which the Company engages in business.
Nothing herein shall prohibit Executive from being a passive owner of not more
than 2% of the outstanding stock of any class of a corporation which is publicly
traded so long as Executive has no direct or indirect active participation in
the business of such corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly (i) induce or attempt to induce any employee of the Company to
terminate such employment, or in any way interfere with the employee
relationship between the Company and any such employee, (ii) hire any person who
is, or at any time during the Period of Employment was, an employee of the
Company or (iii) induce or attempt to induce any person having a business
relationship with the Company to cease doing business with the Company or
interfere materially with the relationship between any such person and the
Company.
7.2 Proprietary Information. Executive agrees that he shall not use
-----------------------
for his own purpose or for the benefit of any person or entity other than the
Company or its shareholders or affiliates, nor shall Executive otherwise
disclose to any individual or entity at any time while he is employed by the
Company or thereafter any proprietary information of the Company unless such
disclosure (a) has been authorized by the Board, (b) is reasonably required
within the course and scope of Executive's employment hereunder, or (c) is
required by law, a court of competent jurisdiction or a governmental or
regulatory agency. For purposes of this Agreement, "proprietary information"
shall mean: (a) the name or address of any customer, supplier or affiliate of
the Company or any information concerning the transactions or relations of any
customer, supplier or affiliate of the Company or any of its shareholders; (b)
any information
4
<PAGE>
concerning any product, service, technology or procedure offered or used by the
Company, or under development by or being considered for use by the Company; (c)
any information relating to marketing or pricing plans or methods, capital
structure, or any business or strategic plans of the Company; (d) any
inventions, innovations, trade secrets or other items covered by Section 7.4
below; and (e) any other information which the Board has determined by
resolution and communicated to Executive in writing to be proprietary
information for purposes hereof. However, proprietary information shall not
include any information that is or becomes generally known to the public other
than through actions of Executive in violation of Sections 7.1, 7.2 or 7.3
hereof.
7.3 Surrender of Records. Executive agrees that he shall not retain
--------------------
and shall promptly surrender to the Company all correspondence, memoranda,
files, manuals, financial, operating or marketing records, magnetic tape, or
electronic or other media of any kind which may be in Executive's possession or
under his control or accessible to him which contain any proprietary information
as defined in Section 7.2 above.
7.4 Inventions and Patents. Executive agrees that all inventions,
----------------------
innovations, trade secrets, patents and processes in any way relating, directly
or indirectly, to the Company's business developed by him alone or in
conjunction with others at any time during his employment by the Company shall
belong to the Company. Executive will use his best efforts to perform all
actions reasonably requested by the Board to establish and confirm such
ownership by the Company.
7.5 Definition of Company. For purposes of this Section 7, the term
---------------------
"Company" shall include Harborside Healthcare Corporation and any and all of its
subsidiaries, joint ventures and affiliated entities as the same may exist from
time to time.
7.6 Enforcement. The parties hereto agree that the duration and area
-----------
for which the covenants set forth in Section 7 are to be effective are
reasonable. In the event that any court or arbitrator determines that the time
period or the area, or both of them, are unreasonable and that any of the
covenants are to that extent unenforceable, the parties hereto agree that such
covenants will remain in full force and effect, first, for the greatest time
period, and second, in the greatest geographical area that would not render them
unenforceable. The parties intend that this Agreement will be deemed to be a
series of separate covenants, one for each and every county of each and every
state of the United States of America. Executive agrees that damages are an
inadequate remedy for any breach of the covenants in this Section 7 and that the
Company will, whether or not it is pursuing any potential remedies at law, be
entitled to equitable relief in the form of preliminary and permanent
injunctions without bond or other security upon any actual or threatened breach
of this Agreement.
8. Miscellaneous.
-------------
8.1 Notice. Any notice required or permitted to be given hereunder
------
shall be deemed sufficiently given if sent by registered or certified mail,
postage prepaid, addressed to the addressee at his or its address last provided
the sender in writing by the addressee for purposes of receiving notices
hereunder or, unless or until such address shall be so furnished, to the address
5
<PAGE>
indicated opposite his or its signature to this Agreement. Each party may also
provide notice by sending the other party a facsimile at a number provided by
such other party.
8.2 Modification and No Waiver of Breach. No waiver or modification
------------------------------------
of this Agreement shall be binding unless it is in writing, approved by the
Board and signed by the parties hereto. No waiver by a party of a breach hereof
by the other party shall be deemed to constitute a waiver of a future breach,
whether of a similar or dissimilar nature, except to the extent specifically
provided in any written waiver under this Section 8.2.
8.3 Governing Law. This Agreement shall be governed by and construed
-------------
and interpreted in accordance with the laws of the Commonwealth of Massachusetts
(without regard to principles of conflicts of laws), and all questions relating
to the validity and performance hereof and remedies hereunder shall be
determined in accordance with such law.
8.4 Counterparts. This Agreement may be executed in two
------------
counterparts, each of which shall be deemed an original, but both of which taken
together shall constitute one and the same Agreement.
8.5 Captions. The captions used herein are for ease of reference
--------
only and shall not define or limit the provisions hereof.
8.6 Entire Agreement. This Agreement together with any agreement,
----------------
plans or other documents implementing the terms of this Agreement constitute the
entire agreement between the parties hereto relating to the matters encompassed
hereby and supersede any prior oral or written agreements relating to such
matters. Without limiting the generality of the foregoing, Executive expressly
acknowledges and agrees that the Employment Agreement dated June 11, 1996
between the Company and Executive and the Change of Control Agreement between
the Company and Executive dated January 15, 1998 shall, upon effectiveness of
this Agreement, be automatically cancelled and of no further force and effect
and Executive shall be entitled to no further compensation or rights of any kind
thereunder (except that Executive shall be entitled to receive from the Company
at the Effective Date the payment called for by Section 1(a) of the Change of
Control Agreement and the cancellation without additional payment of the loan in
the amount of $197,100 as provided in Section 1(b) of the Change of Control
Agreement).
8.7 Assignment. The rights of the Company under this Agreement may,
----------
without the consent of Executive, be assigned by the Company, in its sole and
unfettered discretion, to any person, firm, corporation or other business entity
which at any time, whether by purchase, merger or otherwise, directly or
indirectly, acquires 80% or more of the stock, assets or business of the
Company.
8.8 Non-Transferability of Interest. None of the rights of Executive
-------------------------------
to receive any form of compensation payable pursuant to this Agreement shall be
assignable or transferable except through a testamentary disposition or by the
laws of descent and distribution upon the death of Executive. Any other
attempted assignment, transfer, conveyance or other disposition of
6
<PAGE>
any interest in the rights of Executive to receive any form of compensation to
be made by the Company pursuant to this Agreement shall be void.
8.9 Arbitration. Any dispute, claim or controversy arising out of or
-----------
relating to this Agreement, including without limitation any dispute, claim or
controversy concerning validity, enforceability, breach or termination hereof,
shall be finally settled by arbitration in accordance with the then-prevailing
Commercial Arbitration Rules of the American Arbitration Association, as
modified herein ("Rules"). There shall be one arbitrator who shall be jointly
selected by the parties. If the parties have not jointly agreed upon an
arbitrator within twenty days of respondent's receipt of claimant's notice of
intention to arbitrate, either party may request the American Arbitration
Association to furnish the parties with a list of names from which the parties
shall jointly select an arbitrator. If the parties have not agreed upon an
arbitrator within ten days of the transmittal date of the list, then each party
shall have an additional five days in which to strike any names objected to,
number the remaining names in order of preference, and return the list to the
American Arbitration Association, which shall then select an arbitrator in
accordance with Rule 13 of the Rules. The place of arbitration shall be Boston,
Massachusetts. By agreeing to arbitration, the parties hereto do not intend to
deprive any court of its jurisdiction to issue a pre-arbitral injunction, pre-
arbitral attachment or other order in aid of arbitration. The arbitration shall
be governed by the Federal Arbitration Act, 9 U.S.C. (S)(S) 1-16. Judgment upon
the award of the arbitrator may be entered in any court of competent
jurisdiction. Each party shall bear its or his own costs and expenses in any
such arbitration and one-half of the arbitrator's fees and expenses.
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first written above.
EXECUTIVE HARBORSIDE HEALTHCARE CORPORATION,
a Delaware Corporation.
/s/ Stephen L. Guillard By: /s/ William H. Stephan
- ----------------------- -------------------------
Stephen L. Guillard Name: William H. Stephan
Title: Vice President and Chief
-------------------------
Financial officer
-------------------------
Address for Notices: Address for Notices:
11 Power House Rd Harborside Healthcare Corporation
- -----------------------
Dover MA 02030 470 Atlantic Avenue
- -----------------------
_______________________
Boston, Massachusetts 02210
Attention: Chairman
Fax: (617) 556-1565
With a copy to:
Investcorp International Inc.
280 Park Avenue, 37th Floor
New York, New York 10017
Attention: Christopher J. O'Brien
Fax: (212) 983-7073
8
<PAGE>
EXHIBIT A
to
Employment Agreement
Name of Executive: Stephen L. Guillard
Title(s): President and Chief Executive Officer
Office Location: 470 Atlantic Avenue, Boston, Massachusetts
Base Salary (1998): $345,000 per annum
Minimum Base Salary $375,000 per annum
(Beginning March 31, 1999 and
beyond):
____________________________
* Effective retroactively to April 15, 1998.
<PAGE>
EXHIBIT B
to
Employment Agreement
--------------------
PERFORMANCE-BASED BONUS
Name of Executive: Stephen L. Guillard
For years beginning on January 1, 1999, Executive will be entitled to an
annual performance-based cash bonus determined as follows:
-------------------- ---------------------- -------------------
(A) + (B) =
Corporate Individual Total Cash
Performance Amount Performance Amount Bonus
-------------------- ---------------------- ------------------
(A) Corporate Performance Amount
------------------ ------- ------------------ ------------
Corporate = Applicable Base
Performance 80% x Corporate x Salary
Amount Performance
Percentage
------------------ ------- ------------------ ------------
Applicable Corporate Performance Percentage determined by Percent of
Target EBITDAR Achieved per the following:
----------------------------------------------------------------------
Percent of Target Applicable Corporate
EBITDAR Achieved Performance Percentage
----------------------------------------------------------------------
Less than 90% 0%
----------------------------------------------------------------------
90% or above, but below 100% 25%
----------------------------------------------------------------------
100% or above, but below 110% 50%
----------------------------------------------------------------------
110% or above but less than 125% 75%
----------------------------------------------------------------------
125% 100%
----------------------------------------------------------------------
<PAGE>
(B) Individual Performance Amount
Individual Performance Amount will be targeted at 20% of the Applicable
Corporate Performance Percentage of Base Salary, but may be reduced to 0%
or increased up to 40% of such percentage of Base Salary. The actual
Individual Performance Amount will be set annually by the Board in its
discretion based on individual performance of the Executive.
_________________________
EBITDAR defined in Schedule B-1 attached.
EBITDAR Targets per Schedule B-2 attached.
<PAGE>
Schedule B-1
to
Exhibit B
to
Employment Agreement
Earnings Before Interest, Taxes, Depreciation, Amortization and Rent
("EBITDAR") for a particular period is defined as consolidated net income (loss)
of the Company and its subsidiaries as shown on the consolidated statement of
income (loss) for such period prepared in accordance with U.S. GAAP consistently
applied plus (minus) the following amounts, to the extent such amounts are
----
otherwise taken into account in determining such consolidated net income (loss)
(prior to adjustment):
1. Any provision (benefit) for taxes, including franchise taxes, deducted
(added) in calculating such consolidated net income (loss);
2. Any interest expense (net of interest income (other than interest
income reflected in the Management EBITDAR Projections dated March, 1998),
deducted in calculating such consolidated net income (loss);
3. Amortization expenses deducted in calculating such consolidated net
income (loss);
4. Depreciation expense deducted in calculating such consolidated net
income (loss);
5. Rent expense deducted in calculating such consolidated net income
(loss);
6. Management fees paid to Investcorp to the extent recorded as an expense
in calculating such consolidated net income (loss);
7. Any unusual losses (gains) deducted (added) in calculating such
consolidated net income (loss). This adjustment is intended to exclude, in the
calculation of EBITDAR, the effects, if any, of any transactions outside of the
Company's ordinary course of business as and to the extent determined to be
appropriate in good faith by the Board;
8. Any expense (income) deducted (added) in calculating such consolidated
net income (loss) attributable to transactions involving equity securities of
the Company or its subsidiaries.
The Board reserves the right to make other adjustments to EBITDAR or the
EBITDAR targets as the Board determines in good faith are appropriate to take
into account the effect of material transactions or events during the period
including without limitation acquisitions, divestitures, equity issuances and
significant changes to capital expenditure plans.
In determining whether and to what extent EBITDAR targets have been met for
a period, the aggregate amount of compensation payable to employees as a result
of meeting such targets
<PAGE>
will be deducted from EBITDAR to the extent not otherwise included in the
calculation of consolidated net income (loss) for such period.
<PAGE>
Schedule B-2
to
Exhibit B
to
Employment Agreement
EBITDAR Targets
<TABLE>
<CAPTION>
EBITDAR TARGET
YEAR Ending December 31, --------------
- ------------------------- (In Millions of Dollars)
<S> <C>
1999 $80
2000 $114
2001 $151
2002 $192
</TABLE>
<PAGE>
EXHIBIT 10.10(b)
Execution Copy
EMPLOYMENT AGREEMENT
This Employment Agreement ("this Agreement") is made and entered into as of
August 11, 1998 (the "Effective Date"), by and between Harborside Healthcare
Corporation, a Delaware corporation (the "Company"), and Damian Dell'Anno
("Executive").
The Company hereby agrees to employ Executive, and Executive hereby accepts
such employment, on the terms and conditions hereinafter set forth.
1. Position. From the Effective Date until the termination of Executive's
--------
employment hereunder (the "Period of Employment"), Executive shall serve in the
capacity indicated on Exhibit A, and shall have the normal duties and
responsibilities commensurate with such position. During the Period of
Employment, Executive will (a) during normal business hours, devote his full
time and exclusive attention to, and use his best efforts to advance, the
business and welfare of the Company, and (b) not engage in any other employment
activities for any direct or indirect remuneration without the concurrence of
the board of directors of the Company (the "Board"), provided, however,
Executive may continue to serve on those corporate, charitable and community
boards on which he serves as of the Effective Date and which have been
identified to the Board in writing or on any other such boards which are
approved in advance by the Board so long as such activities do not unreasonably
interfere with the performance of his duties under this Agreement.
2. Place and Term of Employment.
----------------------------
(a) Executive's office shall be at the location set forth on Exhibit
A.
(b) Subject to earlier termination pursuant to Section 6 hereof, the
Period of Employment shall be three (3) years commencing on the Effective Date;
provided that thereafter the Period of Employment shall be automatically renewed
for successive one-year periods on each anniversary of the Effective Date unless
either party hereto gives the other party written notice no later than sixty
(60) days prior to such anniversary of the Effective Date of its election not to
so renew the Period of Employment for the additional one-year period.
3. Compensation.
------------
3.1 Base Salary. The Company shall pay Executive a per annum Base
-----------
Salary as indicated on Exhibit A payable in accordance with the standard
policies of the Company. Thereafter, Executive's Base Salary hereunder shall be
subject to annual review by the Board, provided that the level of such Base
Salary shall not be subject to reduction below the level indicated on Exhibit A.
3.2 Performance Based Compensation. Executive shall also be entitled
------------------------------
to participate in an annual performance-based cash bonus program as set forth in
Exhibit B.
<PAGE>
4. Benefits.
--------
During the Period of Employment, Executive shall be entitled to
participate in benefit plans and programs maintained by the Company from time to
time and generally made available to its executive officers; provided that: (a)
Executive's right to participate in such plans and programs shall not affect the
Company's right to amend or terminate any such plan and program, and (b)
Executive acknowledges that he shall have no vested rights under any such plan
or program except as expressly provided under the terms thereof.
5. Expenses; Taxes.
---------------
(a) Upon presentation of acceptable substantiation therefor, the
Company will pay or reimburse Executive for such reasonable travel,
entertainment and other expenses as he may incur during the Period of Employment
in connection with the performance of his duties hereunder.
(b) Federal, state, local and other applicable taxes shall be withheld
on all cash and in-kind payments made by the Company to Executive in accordance
with applicable tax laws and regulations.
6. Termination of Employment.
-------------------------
6.1 Death or Disability. The employment of Executive and all rights
-------------------
to compensation under this Agreement shall terminate upon the death or
Disability (as defined below) of Executive except for such death or disability
payments as may be payable under one or more benefit plans maintained at that
time by the Company and applicable to the Executive. As used herein,
"Disability" means the Board has made a good faith determination that the
Executive has become physically or mentally incapacitated or disabled such that
he is unable to perform for the Company substantially the same services as he
performed prior to incurring such incapacity or disability, and such incapacity
or disability exists for an aggregate of six (6) calendar months in any twelve
(12) calendar month period. In connection with making any such determination,
the Company, at its option and expense, shall be entitled to select and retain a
physician to confirm the existence of such incapacity or disability and the
determination by such physician shall be binding on the parties for purposes of
this Agreement.
6.2 Other Termination without Severance Obligation. The parties
----------------------------------------------
hereto expressly agree that Executive's employment hereunder may be terminated
by either the Company or the Executive upon 30 days' advance written notice by
the terminating party and that upon any such termination, except as set forth in
Section 6.3 hereof, Executive shall not be entitled to any payment in the nature
of severance or otherwise (other than Base Salary and any other benefits earned
and accrued through the Termination Date).
6.3 Termination with Severance Obligation. Upon termination by the
-------------------------------------
Company other than for Cause (as defined below) or by the Executive for Good
Reason (as defined below), Executive shall be entitled to receive from the
Company a lump sum cash severance payment equal to 12 months of Executive's Base
Salary in effect at the effective time of
2
<PAGE>
such termination. As used herein, (a) "Cause" means that Executive (i) has been
convicted of a felony, or has entered a plea of guilty or nolo contendere to a
---- ----------
felony; (ii) has committed an act of fraud involving dishonesty for personal
gain which is injurious to the Company or any of its subsidiaries; (iii) has
willfully and continually refused to substantially perform his duties with the
Company or any of its subsidiaries (other than any such refusal resulting from
his incapacity due to mental illness or physical illness or injury), after a
demand for substantial performance has been delivered to the Executive by the
Board, where such demand reasonably identifies the manner in which the Board
believes that the Executive has refused to substantially perform his duties and
the passage of a reasonable period of time as specified by the Board for
Executive to comply with such demand; or (iv) has willfully engaged in gross
misconduct injurious to the Company or any of its subsidiaries; and (b) "Good
Reason" means (i) except as specifically provided herein, the assignment to the
Executive of duties, or the assignment of the Executive to a position,
constituting a material diminution in the Executive's role, responsibilities or
authority compared with his role, responsibilities or authority with the Company
or its affiliates on the Effective Date; (ii) a reduction by the Company in the
Executive's base salary as in effect on the Effective Date as the same may be
increased from time to time or a reduction of the potential annual bonus
expressed as a percent of base salary (subject to attainment of goals, Board
discretion and other conditions of the applicable bonus program) from the levels
in effect on the Effective Date as the same may be increased from time to time;
(iii) a demand by the Company to the Executive to relocate to any place that
exceeds a fifty (50) mile radius beyond the location at which the Executive
performed the Executive's duties on the Effective Date; or (iv) any breach by
the Company of any provision of this Agreement.
6.4 Release. At the time of termination of Executive's employment,
-------
Executive agrees to execute a release whereby Executive will release, relinquish
and forever discharge the Company and each of its subsidiaries and any director,
officer, employee, shareholder, controlling person or agent of the Company and
its subsidiary from any and all claims, damages, losses, costs, expenses,
liabilities or obligations, whether known or unknown (other than any rights
Executive may have under (i) any indemnification arrangement of the Company with
respect to Executive, (ii) any employee benefit plan or program covering
Executive or (iii) any stock purchase or stock option plan or agreement to which
the Company and Executive are parties, which Executive has incurred or suffered
or may incur or suffer as a result of Executive's employment by the Company or
the termination of such employment. Executive expressly agrees that payment by
the Company of the severance amount set forth in Section 6.3 shall be deemed to
fully discharge all of the Company's obligations and duties under this Agreement
and Executive shall not be entitled to any other compensation hereunder.
6.5 Mitigation. Executive shall not be required to mitigate the
----------
amount of the severance payment called for by Section 6.3 by seeking other
employment and the amount of any such payment shall not be reduced by any
compensation earned or benefits received by Executive as the result of
employment by a future employer.
3
<PAGE>
7. Non-Competition; Non-Disclosure of Proprietary Information, Surrender
--------------- ----------------------------------------------------
of Records; Inventions and Patents.
----------------------------------
7.1 Non-Competition.
---------------
(a) Executive acknowledges that in the course of his employment with
the Company he will become familiar with the trade secrets and other
confidential information of the Company and that his services will be of
special, unique and extraordinary value to the Company. Therefore, Executive
agrees that, during the Period of Employment and for 12 months thereafter (the
"Noncompete Period"), he shall not directly or indirectly own, manage, control,
participate in, consult with, render services for, or in any manner engage in
any business competing with any business of the Company within the United States
and any other geographical area in which the Company engages in business.
Nothing herein shall prohibit Executive from being a passive owner of not more
than 2% of the outstanding stock of any class of a corporation which is publicly
traded so long as Executive has no direct or indirect active participation in
the business of such corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly (i) induce or attempt to induce any employee of the Company to
terminate such employment, or in any way interfere with the employee
relationship between the Company and any such employee, (ii) hire any person who
is, or at any time during the Period of Employment was, an employee of the
Company or (iii) induce or attempt to induce any person having a business
relationship with the Company to cease doing business with the Company or
interfere materially with the relationship between any such person and the
Company.
7.2 Proprietary Information. Executive agrees that he shall not use
-----------------------
for his own purpose or for the benefit of any person or entity other than the
Company or its shareholders or affiliates, nor shall Executive otherwise
disclose to any individual or entity at any time while he is employed by the
Company or thereafter any proprietary information of the Company unless such
disclosure (a) has been authorized by the Board, (b) is reasonably required
within the course and scope of Executive's employment hereunder, or (c) is
required by law, a court of competent jurisdiction or a governmental or
regulatory agency. For purposes of this Agreement, "proprietary information"
shall mean: (a) the name or address of any customer, supplier or affiliate of
the Company or any information concerning the transactions or relations of any
customer, supplier or affiliate of the Company or any of its shareholders; (b)
any information concerning any product, service, technology or procedure offered
or used by the Company, or under development by or being considered for use by
the Company; (c) any information relating to marketing or pricing plans or
methods, capital structure, or any business or strategic plans of the Company;
(d) any inventions, innovations, trade secrets or other items covered by Section
7.4 below; and (e) any other information which the Board has determined by
resolution and communicated to Executive in writing to be proprietary
information for purposes hereof. However, proprietary information shall not
include any information that is or becomes generally known to the public other
than through actions of Executive in violation of Sections 7.1, 7.2 or 7.3
hereof.
4
<PAGE>
7.3 Surrender of Records. Executive agrees that he shall not retain
--------------------
and shall promptly surrender to the Company all correspondence, memoranda,
files, manuals, financial, operating or marketing records, magnetic tape, or
electronic or other media of any kind which may be in Executive's possession or
under his control or accessible to him which contain any proprietary information
as defined in Section 7.2 above.
7.4 Inventions and Patents. Executive agrees that all inventions,
----------------------
innovations, trade secrets, patents and processes in any way relating, directly
or indirectly, to the Company's business developed by him alone or in
conjunction with others at any time during his employment by the Company shall
belong to the Company. Executive will use his best efforts to perform all
actions reasonably requested by the Board to establish and confirm such
ownership by the Company.
7.5 Definition of Company. For purposes of this Section 7, the term
---------------------
"Company" shall include Harborside Healthcare Corporation and any and all of its
subsidiaries, joint ventures and affiliated entities as the same may exist from
time to time.
7.6 Enforcement. The parties hereto agree that the duration and area
-----------
for which the covenants set forth in Section 7 are to be effective are
reasonable. In the event that any court or arbitrator determines that the time
period or the area, or both of them, are unreasonable and that any of the
covenants are to that extent unenforceable, the parties hereto agree that such
covenants will remain in full force and effect, first, for the greatest time
period, and second, in the greatest geographical area that would not render them
unenforceable. The parties intend that this Agreement will be deemed to be a
series of separate covenants, one for each and every county of each and every
state of the United States of America. Executive agrees that damages are an
inadequate remedy for any breach of the covenants in this Section 7 and that the
Company will, whether or not it is pursuing any potential remedies at law, be
entitled to equitable relief in the form of preliminary and permanent
injunctions without bond or other security upon any actual or threatened breach
of this Agreement.
8. Miscellaneous.
-------------
8.1 Notice. Any notice required or permitted to be given hereunder
------
shall be deemed sufficiently given if sent by registered or certified mail,
postage prepaid, addressed to the addressee at his or its address last provided
the sender in writing by the addressee for purposes of receiving notices
hereunder or, unless or until such address shall be so furnished, to the address
indicated opposite his or its signature to this Agreement. Each party may also
provide notice by sending the other party a facsimile at a number provided by
such other party.
8.2 Modification and No Waiver of Breach. No waiver or modification
------------------------------------
of this Agreement shall be binding unless it is in writing, approved by the
Board and signed by the parties hereto. No waiver by a party of a breach hereof
by the other party shall be deemed to constitute a waiver of a future breach,
whether of a similar or dissimilar nature, except to the extent specifically
provided in any written waiver under this Section 9.2.
5
<PAGE>
8.3 Governing Law. This Agreement shall be governed by and construed
-------------
and interpreted in accordance with the laws of the Commonwealth of Massachusetts
(without regard to principles of conflicts of laws), and all questions relating
to the validity and performance hereof and remedies hereunder shall be
determined in accordance with such law.
8.4 Counterparts. This Agreement may be executed in two
------------
counterparts, each of which shall be deemed an original, but both of which taken
together shall constitute one and the same Agreement.
8.5 Captions. The captions used herein are for ease of reference
--------
only and shall not define or limit the provisions hereof.
8.6 Entire Agreement. This Agreement together with any agreement,
----------------
plans or other documents implementing the terms of this Agreement constitute the
entire agreement between the parties hereto relating to the matters encompassed
hereby and supersede any prior oral or written agreements relating to such
matters. Without limiting the generality of the foregoing, Executive expressly
acknowledges and agreed that Employment Agreement dated June 11, 1996 between
the Company and Executive and the Change of Control Agreement between the
Company and Executive dated January 15, 1998 shall, upon effectiveness of this
Agreement, be automatically cancelled and of no further force and effect and
Executive shall be entitled to not further compensation or rights of any kind
thereunder (except that Executive shall be entitled to receive from the Company
at the Effective Date the payment called for by Section 1(a) of the Change of
Control Agreement).
8.7 Assignment. The rights of the Company under this Agreement may,
----------
without the consent of Executive, be assigned by the Company, in its sole and
unfettered discretion, to any person, firm, corporation or other business entity
which at any time, whether by purchase, merger or otherwise, directly or
indirectly, acquires 80% or more of the stock, assets or business of the
Company.
8.8 Non-Transferability of Interest. None of the rights of Executive
-------------------------------
to receive any form of compensation payable pursuant to this Agreement shall be
assignable or transferable except through a testamentary disposition or by the
laws of descent and distribution upon the death of Executive. Any other
attempted assignment, transfer, conveyance or other disposition of any interest
in the rights of Executive to receive any form of compensation to be made by the
Company pursuant to this Agreement shall be void.
8.9 Arbitration. Any dispute, claim or controversy arising out of or
-----------
relating to this Agreement, including without limitation any dispute, claim or
controversy concerning validity, enforceability, breach or termination hereof,
shall be finally settled by arbitration in accordance with the then-prevailing
Commercial Arbitration Rules of the American Arbitration Association, as
modified herein ("Rules"). There shall be one arbitrator who shall be jointly
selected by the parties. If the parties have not jointly agreed upon an
arbitrator within twenty days of respondent's receipt of claimant's notice of
intention to arbitrate, either party may request the American Arbitration
Association to furnish the parties with a list of names from which the parties
shall jointly select an arbitrator. If the parties have not agreed upon an
arbitrator within ten days
6
<PAGE>
of the transmittal date of the list, then each party shall have an additional
five days in which to strike any names objected to, number the remaining names
in order of preference, and return the list to the American Arbitration
Association, which shall then select an arbitrator in accordance with Rule 13 of
the Rules. The place of arbitration shall be Boston, Massachusetts. By
agreeing to arbitration, the parties hereto do not intend to deprive any court
of its jurisdiction to issue a pre-arbitral injunction, pre-arbitral attachment
or other order in aid of arbitration. The arbitration shall be governed by the
Federal Arbitration Act, 9 U.S.C. (S)(S) 1-16. Judgment upon the award of the
arbitrator may be entered in any court of competent jurisdiction. Each party
shall bear its or his own costs and expenses in any such arbitration and one-
half of the arbitrator's fees and expenses.
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first written above.
EXECUTIVE HARBORSIDE HEALTHCARE CORPORATION,
a Delaware Corporation.
/s/ Damian Dell'Anno By: /s/ Stephen L. Guillard
- -------------------- ---------------------------
Damian Dell'Anno Name: Stephen L. Guillard
-------------------------
Title: President C.E.O
------------------------
Address for Notices: Address for Notices:
19 Zachary Lane Harborside Healthcare
- ------------------------------
Reading MA, 01867 470 Atlantic Avenue
- ------------------------------
______________________________ Boston, Massachusetts 02210
Attention: Chairman
Fax: (617) 556-1565
With a copy to:
Investcorp International Inc.
280 Park Avenue, 37th Floor
New York, New York 10017
Attention: Christopher J. O'Brien
Fax: (212) 983-7073
8
<PAGE>
EXHIBIT A
to
Employment Agreement
Name of Executive: Damian Dell'Anno
Title(s): Executive Vice-president and Chief Operating
Officer
Office Location: 470 Atlantic Avenue, Boston, Massachusetts
Base Salary (1998): $225,000 per annum
Minimum Base Salary (beginning $240,000 per annum
March 31,1999 and beyond):
____________________________
Effective retroactively to April 15, 1998.
<PAGE>
EXHIBIT B
to
Employment Agreement
--------------------
PERFORMANCE-BASED BONUS
Name of Executive: Damian Dell'Anno
For years beginning on January 1, 1999, Executive will be entitled to an
annual performance-based cash bonus determined as follows:
------------------------ ---------------------- ------------------
(A) + (B) = Total
Corporate Individual Cash
Performance Amount Performance Amount Bonus
------------------------ ---------------------- ------------------
(A) Corporate Performance Amount
----------------- ------- --------------- --------
Corporate = x Applicable x Base
Performance 80% Corporate Salary
Amount Performance
Percentage
---------------- ------- --------------- --------
Applicable Corporate Performance Percentage determined by Percent of Target
EBITDAR Achieved per the following:
-----------------------------------------------------------------------------
Percent of Target Applicable Corporate
EBITDAR Achieved Performance Percentage
----------------------------------------------------------------------------
Less than 90% 0%
----------------------------------------------------------------------------
90% or above, but below 100% 20%
----------------------------------------------------------------------------
100% or above, but below 110% 40%
----------------------------------------------------------------------------
110% or above but less than 125% 60%
----------------------------------------------------------------------------
125% 80%
----------------------------------------------------------------------------
<PAGE>
(B) Individual Performance Amount
Individual Performance Amount will be targeted at 20% of the Applicable
Corporate Performance Percentage of Base Salary, but may be reduced to 0%
or increased up to 40% of such percentage of Base Salary. The actual
Individual Performance Amount will be set annually by the Board in its
discretion based on individual performance of the Executive.
_________________________
EBITDAR defined in Schedule B-1 attached.
EBITDAR Targets per Schedule B-2 attached.
<PAGE>
Schedule B-1
to
Exhibit B
to
Employment Agreement
Earnings Before Interest, Taxes, Depreciation, Amortization and Rent
("EBITDAR") for a particular period is defined as consolidated net income (loss)
of the Company and its subsidiaries as shown on the consolidated statement of
income (loss) for such period prepared in accordance with U.S. GAAP consistently
applied plus (minus) the following amounts, to the extent such amounts are
----
otherwise taken into account in determining such consolidated net income (loss)
(prior to adjustment):
1. Any provision (benefit) for taxes, including franchise taxes, deducted
(added) in calculating such consolidated net income (loss);
2. Any interest expense (net of interest income (other than interest
income reflected in the Management EBITDAR Projections dated March, 1998)),
deducted in calculating such consolidated net income (loss);
3. Amortization expenses deducted in calculating such consolidated net
income (loss);
4. Depreciation expense deducted in calculating such consolidated net
income (loss);
5. Rent expense deducted in calculating such consolidated net income
(loss);
6. Management fees paid to Investcorp to the extent recorded as an expense
in calculating such consolidated net income (loss);
7. Any unusual losses (gains) deducted (added) in calculating such
consolidated net income (loss). This adjustment is intended to exclude, in the
calculation of EBITDAR, the effects, if any, of any transactions outside of the
Company's ordinary course of business as and to the extent determined to be
appropriate in good faith by the Board;
8. Any expense (income) deducted (added) in calculating such consolidated
net income (loss) attributable to transactions involving equity securities of
the Company or its subsidiaries.
The Board reserves the right to make other adjustments to EBITDAR or the
EBITDAR targets as the Board determines in good faith are appropriate to take
into account the effect of material transactions or events during the period
including without limitation acquisitions, divestitures, equity issuances and
significant changes to capital expenditure plans.
In determining whether and to what extent EBITDAR targets have been met for
a period, the aggregate amount of compensation payable to employees as a result
of meeting such targets will be deducted from EBITDAR to the extent not
otherwise included in the calculation of consolidated net income (loss) for such
period.
<PAGE>
Schedule B-2
to
Exhibit B
to
Employment Agreement
EBITDAR Targets
EBITDAR TARGET
YEAR Ending December 31, --------------
------------------------ (In Millions of Dollars)
1999 80
2000 $114
2001 $151
2002 $192
<PAGE>
EXHIBIT 10.10(c)
EXECUTION COPY
EMPLOYMENT AGREEMENT
This Employment Agreement ("this Agreement") is made and entered into as of
August 11, 1998 (the "Effective Date"), by and between Harborside Healthcare
Corporation, a Delaware corporation (the "Company"), and Bruce Beardsley
("Executive").
The Company hereby agrees to employ Executive, and Executive hereby accepts
such employment, on the terms and conditions hereinafter set forth.
1. Position. From the Effective Date until the termination of Executive's
--------
employment hereunder (the "Period of Employment"), Executive shall serve in the
capacity indicated on Exhibit A, and shall have the normal duties and
responsibilities commensurate with such position. During the Period of
Employment, Executive will (a) during normal business hours, devote his full
time and exclusive attention to, and use his best efforts to advance, the
business and welfare of the Company, and (b) not engage in any other employment
activities for any direct or indirect remuneration without the concurrence of
the board of directors of the Company (the "Board"), provided, however,
Executive may continue to serve on those corporate, charitable and community
boards on which he serves as of the Effective Date and which have been
identified to the Board in writing or on any other such boards which are
approved in advance by the Board so long as such activities do not unreasonably
interfere with the performance of his duties under this Agreement.
2. Place and Term of Employment.
----------------------------
(a) Executive's office shall be at the location set forth on Exhibit
A.
(b) Subject to earlier termination pursuant to Section 6 hereof, the
Period of Employment shall be three (3) years commencing on the Effective Date;
provided that thereafter the Period of Employment shall be automatically renewed
for successive one-year periods on each anniversary of the Effective Date unless
either party hereto gives the other party written notice no later than sixty
(60) days prior to such anniversary of the Effective Date of its election not to
so renew the Period of Employment for the additional one-year period.
3. Compensation.
------------
3.1 Base Salary. The Company shall pay Executive a per annum Base
-----------
Salary as indicated on Exhibit A payable in accordance with the standard
policies of the Company. Thereafter, Executive's Base Salary hereunder shall be
subject to annual review by the Board, provided that the level of such Base
Salary shall not be subject to reduction below the level indicated on Exhibit A.
3.2 Performance Based Compensation. Executive shall also be entitled
------------------------------
to participate in an annual performance-based cash bonus program as set forth in
Exhibit B.
<PAGE>
4. Benefits.
--------
During the Period of Employment, Executive shall be entitled to
participate in benefit plans and programs maintained by the Company from time to
time and generally made available to its executive officers; provided that: (a)
Executive's right to participate in such plans and programs shall not affect the
Company's right to amend or terminate any such plan and program, and (b)
Executive acknowledges that he shall have no vested rights under any such plan
or program except as expressly provided under the terms thereof.
5. Expenses; Taxes.
---------------
(a) Upon presentation of acceptable substantiation therefor, the
Company will pay or reimburse Executive for such reasonable travel,
entertainment and other expenses as he may incur during the Period of Employment
in connection with the performance of his duties hereunder.
(b) Federal, state, local and other applicable taxes shall be
withheld on all cash and in-kind payments made by the Company to Executive in
accordance with applicable tax laws and regulations.
6. Termination of Employment.
-------------------------
6.1 Death or Disability. The employment of Executive and all rights
-------------------
to compensation under this Agreement shall terminate upon the death or
Disability (as defined below) of Executive except for such death or disability
payments as may be payable under one or more benefit plans maintained at that
time by the Company and applicable to the Executive. As used herein,
"Disability" means the Board has made a good faith determination that the
Executive has become physically or mentally incapacitated or disabled such that
he is unable to perform for the Company substantially the same services as he
performed prior to incurring such incapacity or disability, and such incapacity
or disability exists for an aggregate of six (6) calendar months in any twelve
(12) calendar month period. In connection with making any such determination,
the Company, at its option and expense, shall be entitled to select and retain a
physician to confirm the existence of such incapacity or disability and the
determination by such physician shall be binding on the parties for purposes of
this Agreement.
6.2 Other Termination without Severance Obligation. The parties
----------------------------------------------
hereto expressly agree that Executive's employment hereunder may be terminated
by either the Company or the Executive upon 30 days' advance written notice by
the terminating party and that upon any such termination, except as set forth in
Section 6.3 hereof, Executive shall not be entitled to any payment in the nature
of severance or otherwise (other than Base Salary and any other benefits earned
and accrued through the Termination Date).
6.3 Termination with Severance Obligation. Upon termination by the
-------------------------------------
Company other than for Cause (as defined below) or by the Executive for Good
Reason (as defined below), Executive shall be entitled to receive from the
Company a lump sum cash severance payment equal to 12 months of Executive's Base
Salary in effect at the effective time
2
<PAGE>
of such termination. As used herein, (a) "Cause" means that Executive (i) has
been convicted of a felony, or has entered a plea of guilty or nolo contendere
---- ----------
to a felony; (ii) has committed an act of
fraud involving dishonesty for personal gain which is injurious to the Company
or any of its subsidiaries; (iii) has willfully and continually refused to
substantially perform his duties with the Company or any of its subsidiaries
(other than any such refusal resulting from his incapacity due to mental illness
or physical illness or injury), after a demand for substantial performance has
been delivered to the Executive by the Board, where such demand reasonably
identifies the manner in which the Board believes that the Executive has refused
to substantially perform his duties and the passage of a reasonable period of
time as specified by the Board for Executive to comply with such demand; or (iv)
has willfully engaged in gross misconduct injurious to the Company or any of its
subsidiaries; and (b) "Good Reason" means (i) except as specifically provided
herein, the assignment to the Executive of duties, or the assignment of the
Executive to a position, constituting a material diminution in the Executive's
role, responsibilities or authority compared with his role, responsibilities or
authority with the Company or its affiliates on the Effective Date; (ii) a
reduction by the Company in the Executive's base salary as in effect on the
Effective Date as the same may be increased from time to time or a reduction of
the potential annual bonus expressed as a percent of base salary (subject to
attainment of goals, Board discretion and other conditions of the applicable
bonus program) from the levels in effect on the Effective Date as the same may
be increased from time to time; (iii) a demand by the Company to the Executive
to relocate to any place that exceeds a fifty (50) mile radius beyond the
location at which the Executive performed the Executive's duties on the
Effective Date; or (iv) any breach by the Company of any provision of this
Agreement.
6.4 Release. At the time of termination of Executive's employment,
-------
Executive agrees to execute a release whereby Executive will release, relinquish
and forever discharge the Company and each of its subsidiaries and any director,
officer, employee, shareholder, controlling person or agent of the Company and
its subsidiary from any and all claims, damages, losses, costs, expenses,
liabilities or obligations, whether known or unknown (other than any rights
Executive may have under (i) any indemnification arrangement of the Company with
respect to Executive, (ii) any employee benefit plan or program covering
Executive or (iii) any stock purchase or stock option plan or agreement to which
the Company and Executive are parties, which Executive has incurred or suffered
or may incur or suffer as a result of Executive's employment by the Company or
the termination of such employment. Executive expressly agrees that payment by
the Company of the severance amount set forth in Section 6.3 shall be deemed to
fully discharge all of the Company's obligations and duties under this Agreement
and Executive shall not be entitled to any other compensation hereunder.
6.5 Mitigation. Executive shall not be required to mitigate the
----------
amount of the severance payment called for by Section 6.3 by seeking other
employment and the amount of any such payment shall not be reduced by any
compensation earned or benefits received by Executive as the result of
employment by a future employer.
3
<PAGE>
7. Non-Competition; Non-Disclosure of Proprietary Information, Surrender
--------------- ----------------------------------------------------
of Records; Inventions and Patents.
----------------------------------
7.1 Non-Competition.
---------------
(a) Executive acknowledges that in the course of his employment with
the Company he will become familiar with the trade secrets and other
confidential information of the Company and that his services will be of
special, unique and extraordinary value to the Company. Therefore, Executive
agrees that, during the Period of Employment and for 12 months thereafter (the
"Noncompete Period"), he shall not directly or indirectly own, manage, control,
participate in, consult with, render services for, or in any manner engage in
any business competing with any business of the Company within the United States
and any other geographical area in which the Company engages in business.
Nothing herein shall prohibit Executive from being a passive owner of not more
than 2% of the outstanding stock of any class of a corporation which is publicly
traded so long as Executive has no direct or indirect active participation in
the business of such corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly (i) induce or attempt to induce any employee of the Company to
terminate such employment, or in any way interfere with the employee
relationship between the Company and any such employee, (ii) hire any person who
is, or at any time during the Period of Employment was, an employee of the
Company or (iii) induce or attempt to induce any person having a business
relationship with the Company to cease doing business with the Company or
interfere materially with the relationship between any such person and the
Company.
7.2 Proprietary Information. Executive agrees that he shall not use
-----------------------
for his own purpose or for the benefit of any person or entity other than the
Company or its shareholders or affiliates, nor shall Executive otherwise
disclose to any individual or entity at any time while he is employed by the
Company or thereafter any proprietary information of the Company unless such
disclosure (a) has been authorized by the Board, (b) is reasonably required
within the course and scope of Executive's employment hereunder, or (c) is
required by law, a court of competent jurisdiction or a governmental or
regulatory agency. For purposes of this Agreement, "proprietary information"
shall mean: (a) the name or address of any customer, supplier or affiliate of
the Company or any information concerning the transactions or relations of any
customer, supplier or affiliate of the Company or any of its shareholders; (b)
any information concerning any product, service, technology or procedure offered
or used by the Company, or under development by or being considered for use by
the Company; (c) any information relating to marketing or pricing plans or
methods, capital structure, or any business or strategic plans of the Company;
(d) any inventions, innovations, trade secrets or other items covered by Section
7.4 below; and (e) any other information which the Board has determined by
resolution and communicated to Executive in writing to be proprietary
information for purposes hereof. However, proprietary information shall not
include any information that is or becomes generally known to the public other
than through actions of Executive in violation of Sections 7.1, 7.2 or 7.3
hereof.
4
<PAGE>
7.3 Surrender of Records. Executive agrees that he shall not retain
--------------------
and shall promptly surrender to the Company all correspondence, memoranda,
files, manuals, financial, operating or marketing records, magnetic tape, or
electronic or other media of any kind which may be in Executive's possession or
under his control or accessible to him which contain any proprietary information
as defined in Section 7.2 above.
7.4 Inventions and Patents. Executive agrees that all inventions,
----------------------
innovations, trade secrets, patents and processes in any way relating, directly
or indirectly, to the Company's business developed by him alone or in
conjunction with others at any time during his employment by the Company shall
belong to the Company. Executive will use his best efforts to perform all
actions reasonably requested by the Board to establish and confirm such
ownership by the Company.
7.5 Definition of Company. For purposes of this Section 7, the term
---------------------
"Company" shall include Harborside Healthcare Corporation and any and all of its
subsidiaries, joint ventures and affiliated entities as the same may exist from
time to time.
7.6 Enforcement. The parties hereto agree that the duration and area
-----------
for which the covenants set forth in Section 7 are to be effective are
reasonable. In the event that any court or arbitrator determines that the time
period or the area, or both of them, are unreasonable and that any of the
covenants are to that extent unenforceable, the parties hereto agree that such
covenants will remain in full force and effect, first, for the greatest time
period, and second, in the greatest geographical area that would not render them
unenforceable. The parties intend that this Agreement will be deemed to be a
series of separate covenants, one for each and every county of each and every
state of the United States of America. Executive agrees that damages are an
inadequate remedy for any breach of the covenants in this Section 7 and that the
Company will, whether or not it is pursuing any potential remedies at law, be
entitled to equitable relief in the form of preliminary and permanent
injunctions without bond or other security upon any actual or threatened breach
of this Agreement.
8. Miscellaneous.
-------------
8.1 Notice. Any notice required or permitted to be given hereunder
------
shall be deemed sufficiently given if sent by registered or certified mail,
postage prepaid, addressed to the addressee at his or its address last provided
the sender in writing by the addressee for purposes of receiving notices
hereunder or, unless or until such address shall be so furnished, to the address
indicated opposite his or its signature to this Agreement. Each party may also
provide notice by sending the other party a facsimile at a number provided by
such other party.
8.2 Modification and No Waiver of Breach. No waiver or modification
------------------------------------
of this Agreement shall be binding unless it is in writing, approved by the
Board and signed by the parties hereto. No waiver by a party of a breach hereof
by the other party shall be deemed to constitute a waiver of a future breach,
whether of a similar or dissimilar nature, except to the extent specifically
provided in any written waiver under this Section 9.2.
5
<PAGE>
8.3 Governing Law. This Agreement shall be governed by and construed
-------------
and interpreted in accordance with the laws of the Commonwealth of Massachusetts
(without regard to principles of conflicts of laws), and all questions relating
to the validity and performance hereof and remedies hereunder shall be
determined in accordance with such law.
8.4 Counterparts. This Agreement may be executed in two
------------
counterparts, each of which shall be deemed an original, but both of which taken
together shall constitute one and the same Agreement.
8.5 Captions. The captions used herein are for ease of reference
--------
only and shall not define or limit the provisions hereof.
8.6 Entire Agreement. This Agreement together with any agreement,
----------------
plans or other documents implementing the terms of this Agreement constitute the
entire agreement between the parties hereto relating to the matters encompassed
hereby and supersede any prior oral or written agreements relating to such
matters. Without limiting the generality of the foregoing, Executive expressly
acknowledges and agreed that Employment Agreement dated June 11, 1996 between
the Company and Executive and the Change of Control Agreement between the
Company and Executive dated January 15, 1998 shall, upon effectiveness of this
Agreement, be automatically cancelled and of no further force and effect and
Executive shall be entitled to not further compensation or rights of any kind
thereunder (except that Executive shall be entitled to receive from the Company
at the Effective Date the payment called for by Section 1(a) of the Change of
Control Agreement).
8.7 Assignment. The rights of the Company under this Agreement may,
----------
without the consent of Executive, be assigned by the Company, in its sole and
unfettered discretion, to any person, firm, corporation or other business entity
which at any time, whether by purchase, merger or otherwise, directly or
indirectly, acquires 80% or more of the stock, assets or business of the
Company.
8.8 Non-Transferability of Interest. None of the rights of Executive
-------------------------------
to receive any form of compensation payable pursuant to this Agreement shall be
assignable or transferable except through a testamentary disposition or by the
laws of descent and distribution upon the death of Executive. Any other
attempted assignment, transfer, conveyance or other disposition of any interest
in the rights of Executive to receive any form of compensation to be made by the
Company pursuant to this Agreement shall be void.
8.9 Arbitration. Any dispute, claim or controversy arising out of or
-----------
relating to this Agreement, including without limitation any dispute, claim or
controversy concerning validity, enforceability, breach or termination hereof,
shall be finally settled by arbitration in accordance with the then-prevailing
Commercial Arbitration Rules of the American Arbitration Association, as
modified herein ("Rules"). There shall be one arbitrator who shall be jointly
selected by the parties. If the parties have not jointly agreed upon an
arbitrator within twenty days of respondent's receipt of claimant's notice of
intention to arbitrate, either party may request the American Arbitration
Association to furnish the parties with a list of names from which the parties
shall jointly select an arbitrator. If the parties have not agreed upon an
arbitrator within ten days
6
<PAGE>
ten days of the transmittal date of the list, then each party shall have an
additional five days in which to strike any names objected to, number the
remaining names in order of preference, and return the list to the American
Arbitration Association, which shall then select an arbitrator in accordance
with Rule 13 of the Rules. The place of arbitration shall be Boston,
Massachusetts. By agreeing to arbitration, the parties hereto do not intend to
deprive any court of its jurisdiction to issue a pre-arbitral injunction, pre-
arbitral attachment or other order in aid of arbitration. The arbitration shall
be governed by the Federal Arbitration Act, 9 U.S.C. (S)(S) 1-16. Judgment upon
the award of the arbitrator may be entered in any court of competent
jurisdiction. Each party shall bear its or his own costs and expenses in any
such arbitration and one-half of the arbitrator's fees and expenses.
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first written above.
EXECUTIVE HARBORSIDE HEALTHCARE
CORPORATION, a Delaware Corporation.
/s/ Bruce Beardsley By: /s/ Stephen L. Guillard
- ------------------------- -------------------------
Bruce Beardsley Name: Stephen L. Gillard
-------------------------
Title: Chairman, President, CEO
-------------------------
Address for Notices: Address for Notices:
26 Ledgetree Road Harborside Healthcare Corporation
- -------------------------- 470 Atlantic Avenue
Medfield,M.G 02052 Boston, Massachusetts 02210
- -------------------------- Attention: Chairman
__________________________ Fax: (617) 556-1565
With a copy to:
Investcorp International Inc.
280 Park Avenue, 37th Floor
New York, New York 10017
Attention: Christopher J. O'Brien
Fax: (212) 983-7073
8
<PAGE>
EXHIBIT A
to
Employment Agreement
Name of Executive: Bruce Beardsley
Title(s): Senior Vice-president of Acquisitions
Office Location: 470 Atlantic Avenue, Boston, Massachusetts
Base Salary (1998): $200,000 per annum*
Minimum Base Salary $215,000 per annum
(beginning March 31, 1999 and
beyond):
____________________
*Effective retroactively to April 1, 1998.
<PAGE>
EXHIBIT B
to
Employment Agreement
--------------------
PERFORMANCE-BASED BONUS
Name of Executive: Bruce Beardsley
For years beginning on January 1, 1999, Executive will be entitled to an
annual performance-based cash bonus determined as follows:
------------------- ------------------- -------------
(A) + (B) =
Corporate Individual Total
Performance Performance Cash
Amount Amount Bonus
-------------------- ------------------- -------------
(A) Corporate Performance Amount
-------------------- --------- ---------------- ------------
Corporate Applicable Base
Performance = 80% x Corporate x Salary
Amount Performance
Percentage
-------------------- --------- ---------------- ------------
Applicable Corporate Performance Percentage determined by Percent of Target
EBITDAR Achieved per the following:
<TABLE>
<CAPTION>
Percent of Target Applicable Corporate
EBITDAR Achieved Performance Percentage
------------------------------------------------------------------
<S> <C>
Less than 90% 0%
------------------------------------------------------------------
90% or above, but below 100% 20%
------------------------------------------------------------------
100% or above, but below 110% 35%
------------------------------------------------------------------
110% or above but less than 125% 50%
------------------------------------------------------------------
125% 65%
------------------------------------------------------------------
</TABLE>
<PAGE>
(B) Individual Performance Amount
Individual Performance Amount will be targeted at 20% of the Applicable
Corporate Performance Percentage of Base Salary, but may be reduced to 0%
or increased up to 40% of such percentage of Base Salary. The actual
Individual Performance Amount will be set annually by the Board in its
discretion based on individual performance of the Executive.
_____________________
EBITDAR defined in Schedule B-1 attached.
EBITDAR Targets per Schedule B-2 attached.
<PAGE>
Schedule B-1
to
Exhibit B
to
Employment Agreement
Earnings Before Interest, Taxes, Depreciation, Amortization and Rent
("EBITDAR") for a particular period is defined as consolidated net income (loss)
of the Company and its subsidiaries as shown on the consolidated statement of
income (loss) for such period prepared in accordance with U.S. GAAP consistently
applied plus (minus) the following amounts, to the extent such amounts are
----
otherwise taken into account in determining such consolidated net income (loss)
(prior to adjustment):
1. Any provision (benefit) for taxes, including franchise taxes, deducted
(added) in calculating such consolidated net income (loss);
2. Any interest expense (net of interest income (other than interest
income reflected in the Management EBITDAR Projections dated March, 1998)),
deducted in calculating such consolidated net income (loss);
3. Amortization expenses deducted in calculating such consolidated net
income (loss);
4. Depreciation expense deducted in calculating such consolidated net
income (loss);
5. Rent expense deducted in calculating such consolidated net income
(loss);
6. Management fees paid to Investcorp to the extent recorded as an
expense in calculating such consolidated net income (loss);
7. Any unusual losses (gains) deducted (added) in calculating such
consolidated net income (loss). This adjustment is intended to exclude, in the
calculation of EBITDAR, the effects, if any, of any transactions outside of the
Company's ordinary course of business as and to the extent determined to be
appropriate in good faith by the Board;
8. Any expense (income) deducted (added) in calculating such consolidated
net income (loss) attributable to transactions involving equity securities of
the Company or its subsidiaries.
The Board reserves the right to make other adjustments to EBITDAR or the
EBITDAR targets as the Board determines in good faith are appropriate to take
into account the effect of material transactions or events during the period
including without limitation acquisitions, divestitures, equity issuances and
significant changes to capital expenditure plans.
In determining whether and to what extent EBITDAR targets have been met for
a period, the aggregate amount of compensation payable to employees as a result
of meeting such targets
<PAGE>
will be deducted from EBITDAR to the extent not otherwise included in the
calculation of consolidated net income (loss) for such period.
<PAGE>
Schedule B-2
to
Exhibit B
to
Employment Agreement
EBITDAR Targets
<TABLE>
<CAPTION>
EBITDAR TARGET
--------------
YEAR Ending December 31, (In Millions of Dollars)
------------------------
<S> <C>
1999 $ 80
2000 $114
2001 $151
2002 $192
</TABLE>
<PAGE>
EXHIBIT 10.10(d)
EXECUTION COPY
EMPLOYMENT AGREEMENT
This Employment Agreement ("this Agreement") is made and entered into as of
August 11, 1998 (the "Effective Date"), by and between Harborside Healthcare
Corporation, a Delaware corporation (the "Company"), and William Stephan
("Executive").
The Company hereby agrees to employ Executive, and Executive hereby accepts
such employment, on the terms and conditions hereinafter set forth.
1. Position. From the Effective Date until the termination of
--------
Executive's employment hereunder (the "Period of Employment"), Executive shall
serve in the capacity indicated on Exhibit A, and shall have the normal duties
and responsibilities commensurate with such position. During the Period of
Employment, Executive will (a) during normal business hours, devote his full
time and exclusive attention to, and use his best efforts to advance, the
business and welfare of the Company, and (b) not engage in any other employment
activities for any direct or indirect remuneration without the concurrence of
the board of directors of the Company (the "Board"), provided, however,
Executive may continue to serve on those corporate, charitable and community
boards on which he serves as of the Effective Date and which have been
identified to the Board in writing or on any other such boards which are
approved in advance by the Board so long as such activities do not unreasonably
interfere with the performance of his duties under this Agreement.
2. Place and Term of Employment.
----------------------------
(a) Executive's office shall be at the location set forth on Exhibit
A.
(b) Subject to earlier termination pursuant to Section 6 hereof, the
Period of Employment shall be three (3) years commencing on the Effective Date;
provided that thereafter the Period of Employment shall be automatically renewed
for successive one-year periods on each anniversary of the Effective Date unless
either party hereto gives the other party written notice no later than sixty
(60) days prior to such anniversary of the Effective Date of its election not to
so renew the Period of Employment for the additional one-year period.
3. Compensation.
------------
3.1 Base Salary. The Company shall pay Executive a per annum Base
-----------
Salary as indicated on Exhibit A payable in accordance with the standard
policies of the Company. Thereafter, Executive's Base Salary hereunder shall be
subject to annual review by the Board, provided that the level of such Base
Salary shall not be subject to reduction below the level indicated on Exhibit A.
3.2 Performance Based Compensation. Executive shall also be entitled
------------------------------
to participate in an annual performance-based cash bonus program as set forth in
Exhibit B.
<PAGE>
4. Benefits.
--------
During the Period of Employment, Executive shall be entitled to
participate in benefit plans and programs maintained by the Company from time to
time and generally made available to its executive officers; provided that: (a)
Executive's right to participate in such plans and programs shall not affect the
Company's right to amend or terminate any such plan and program, and (b)
Executive acknowledges that he shall have no vested rights under any such plan
or program except as expressly provided under the terms thereof.
5. Expenses; Taxes.
---------------
(a) Upon presentation of acceptable substantiation therefor, the
Company will pay or reimburse Executive for such reasonable travel,
entertainment and other expenses as he may incur during the Period of Employment
in connection with the performance of his duties hereunder.
(b) Federal, state, local and other applicable taxes shall be
withheld on all cash and in-kind payments made by the Company to Executive in
accordance with applicable tax laws and regulations.
6. Termination of Employment.
-------------------------
6.1 Death or Disability. The employment of Executive and all rights
-------------------
to compensation under this Agreement shall terminate upon the death or
Disability (as defined below) of Executive except for such death or disability
payments as may be payable under one or more benefit plans maintained at that
time by the Company and applicable to the Executive. As used herein,
"Disability" means the Board has made a good faith determination that the
Executive has become physically or mentally incapacitated or disabled such that
he is unable to perform for the Company substantially the same services as he
performed prior to incurring such incapacity or disability, and such incapacity
or disability exists for an aggregate of six (6) calendar months in any twelve
(12) calendar month period. In connection with making any such determination,
the Company, at its option and expense, shall be entitled to select and retain a
physician to confirm the existence of such incapacity or disability and the
determination by such physician shall be binding on the parties for purposes of
this Agreement.
6.2 Other Termination without Severance Obligation. The parties
----------------------------------------------
hereto expressly agree that Executive's employment hereunder may be terminated
by either the Company or the Executive upon 30 days' advance written notice by
the terminating party and that upon any such termination, except as set forth in
Section 6.3 hereof, Executive shall not be entitled to any payment in the nature
of severance or otherwise (other than Base Salary and any other benefits earned
and accrued through the Termination Date).
6.3 Termination with Severance Obligation. Upon termination by the
-------------------------------------
Company other than for Cause (as defined below) or by the Executive for Good
Reason (as defined below), Executive shall be entitled to receive from the
Company a lump sum cash severance payment equal to 12 months of Executive's Base
Salary in effect at the effective time
2
<PAGE>
of such termination. As used herein, (a) "Cause" means that Executive (i) has
been convicted of a felony, or has entered a plea of guilty or nolo contendere
---------------
to a felony; (ii) has committed an act of fraud involving dishonesty for
personal gain which is injurious to the Company or any of its subsidiaries;
(iii) has willfully and continually refused to substantially perform his duties
with the Company or any of its subsidiaries (other than any such refusal
resulting from his incapacity due to mental illness or physical illness or
injury), after a demand for substantial performance has been delivered to the
Executive by the Board, where such demand reasonably identifies the manner in
which the Board believes that the Executive has refused to substantially perform
his duties and the passage of a reasonable period of time as specified by the
Board for Executive to comply with such demand; or (iv) has willfully engaged in
gross misconduct injurious to the Company or any of its subsidiaries; and (b)
"Good Reason" means (i) except as specifically provided herein, the assignment
to the Executive of duties, or the assignment of the Executive to a position,
constituting a material diminution in the Executive's role, responsibilities or
authority compared with his role, responsibilities or authority with the Company
or its affiliates on the Effective Date; (ii) a reduction by the Company in the
Executive's base salary as in effect on the Effective Date as the same may be
increased from time to time or a reduction of the potential annual bonus
expressed as a percent of base salary (subject to attainment of goals, Board
discretion and other conditions of the applicable bonus program) from the levels
in effect on the Effective Date as the same may be increased from time to time;
(iii) a demand by the Company to the Executive to relocate to any place that
exceeds a fifty (50) mile radius beyond the location at which the Executive
performed the Executive's duties on the Effective Date; or (iv) any breach by
the Company of any provision of this Agreement.
6.4 Release. At the time of termination of Executive's employment,
-------
Executive agrees to execute a release whereby Executive will release, relinquish
and forever discharge the Company and each of its subsidiaries and any director,
officer, employee, shareholder, controlling person or agent of the Company and
its subsidiary from any and all claims, damages, losses, costs, expenses,
liabilities or obligations, whether known or unknown (other than any rights
Executive may have under (i) any indemnification arrangement of the Company with
respect to Executive, (ii) any employee benefit plan or program covering
Executive or (iii) any stock purchase or stock option plan or agreement to which
the Company and Executive are parties, which Executive has incurred or suffered
or may incur or suffer as a result of Executive's employment by the Company or
the termination of such employment. Executive expressly agrees that payment by
the Company of the severance amount set forth in Section 6.3 shall be deemed to
fully discharge all of the Company's obligations and duties under this Agreement
and Executive shall not be entitled to any other compensation hereunder.
6.5 Mitigation. Executive shall not be required to mitigate the
----------
amount of the severance payment called for by Section 6.3 by seeking other
employment and the amount of any such payment shall not be reduced by any
compensation earned or benefits received by Executive as the result of
employment by a future employer.
3
<PAGE>
7. Non-Competition; Non-Disclosure of Proprietary Information, Surrender
--------------- ----------------------------------------------------
of Records; Inventions and Patents.
----------------------------------
7.1 Non-Competition.
---------------
(a) Executive acknowledges that in the course of his employment with
the Company he will become familiar with the trade secrets and other
confidential information of the Company and that his services will be of
special, unique and extraordinary value to the Company. Therefore, Executive
agrees that, during the Period of Employment and for 12 months thereafter (the
"Noncompete Period"), he shall not directly or indirectly own, manage, control,
participate in, consult with, render services for, or in any manner engage in
any business competing with any business of the Company within the United States
and any other geographical area in which the Company engages in business.
Nothing herein shall prohibit Executive from being a passive owner of not more
than 2% of the outstanding stock of any class of a corporation which is publicly
traded so long as Executive has no direct or indirect active participation in
the business of such corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly (i) induce or attempt to induce any employee of the Company to
terminate such employment, or in any way interfere with the employee
relationship between the Company and any such employee, (ii) hire any person who
is, or at any time during the Period of Employment was, an employee of the
Company or (iii) induce or attempt to induce any person having a business
relationship with the Company to cease doing business with the Company or
interfere materially with the relationship between any such person and the
Company.
7.2 Proprietary Information. Executive agrees that he shall not use
-----------------------
for his own purpose or for the benefit of any person or entity other than the
Company or its shareholders or affiliates, nor shall Executive otherwise
disclose to any individual or entity at any time while he is employed by the
Company or thereafter any proprietary information of the Company unless such
disclosure (a) has been authorized by the Board, (b) is reasonably required
within the course and scope of Executive's employment hereunder, or (c) is
required by law, a court of competent jurisdiction or a governmental or
regulatory agency. For purposes of this Agreement, "proprietary information"
shall mean: (a) the name or address of any customer, supplier or affiliate of
the Company or any information concerning the transactions or relations of any
customer, supplier or affiliate of the Company or any of its shareholders; (b)
any information concerning any product, service, technology or procedure offered
or used by the Company, or under development by or being considered for use by
the Company; (c) any information relating to marketing or pricing plans or
methods, capital structure, or any business or strategic plans of the Company;
(d) any inventions, innovations, trade secrets or other items covered by Section
7.4 below; and (e) any other information which the Board has determined by
resolution and communicated to Executive in writing to be proprietary
information for purposes hereof. However, proprietary information shall not
include any information that is or becomes generally known to the public other
than through actions of Executive in violation of Sections 7.1, 7.2 or 7.3
hereof.
4
<PAGE>
7.3 Surrender of Records. Executive agrees that he shall not retain
--------------------
and shall promptly surrender to the Company all correspondence, memoranda,
files, manuals, financial, operating or marketing records, magnetic tape, or
electronic or other media of any kind which may be in Executive's possession or
under his control or accessible to him which contain any proprietary information
as defined in Section 7.2 above.
7.4 Inventions and Patents. Executive agrees that all inventions,
----------------------
innovations, trade secrets, patents and processes in any way relating, directly
or indirectly, to the Company's business developed by him alone or in
conjunction with others at any time during his employment by the Company shall
belong to the Company. Executive will use his best efforts to perform all
actions reasonably requested by the Board to establish and confirm such
ownership by the Company.
7.5 Definition of Company. For purposes of this Section 7, the term
---------------------
"Company" shall include Harborside Healthcare Corporation and any and all of its
subsidiaries, joint ventures and affiliated entities as the same may exist from
time to time.
7.6 Enforcement. The parties hereto agree that the duration and area
-----------
for which the covenants set forth in Section 7 are to be effective are
reasonable. In the event that any court or arbitrator determines that the time
period or the area, or both of them, are unreasonable and that any of the
covenants are to that extent unenforceable, the parties hereto agree that such
covenants will remain in full force and effect, first, for the greatest time
period, and second, in the greatest geographical area that would not render them
unenforceable. The parties intend that this Agreement will be deemed to be a
series of separate covenants, one for each and every county of each and every
state of the United States of America. Executive agrees that damages are an
inadequate remedy for any breach of the covenants in this Section 7 and that the
Company will, whether or not it is pursuing any potential remedies at law, be
entitled to equitable relief in the form of preliminary and permanent
injunctions without bond or other security upon any actual or threatened breach
of this Agreement.
8. Miscellaneous.
-------------
8.1 Notice. Any notice required or permitted to be given hereunder
------
shall be deemed sufficiently given if sent by registered or certified mail,
postage prepaid, addressed to the addressee at his or its address last provided
the sender in writing by the addressee for purposes of receiving notices
hereunder or, unless or until such address shall be so furnished, to the address
indicated opposite his or its signature to this Agreement. Each party may also
provide notice by sending the other party a facsimile at a number provided by
such other party.
8.2 Modification and No Waiver of Breach. No waiver or modification
------------------------------------
of this Agreement shall be binding unless it is in writing, approved by the
Board and signed by the parties hereto. No waiver by a party of a breach hereof
by the other party shall be deemed to constitute a waiver of a future breach,
whether of a similar or dissimilar nature, except to the extent specifically
provided in any written waiver under this Section 9.2.
5
<PAGE>
8.3 Governing Law. This Agreement shall be governed by and construed
-------------
and interpreted in accordance with the laws of the Commonwealth of Massachusetts
(without regard to principles of conflicts of laws), and all questions relating
to the validity and performance hereof and remedies hereunder shall be
determined in accordance with such law.
8.4 Counterparts. This Agreement may be executed in two
------------
counterparts, each of which shall be deemed an original, but both of which taken
together shall constitute one and the same Agreement.
8.5 Captions. The captions used herein are for ease of reference
--------
only and shall not define or limit the provisions hereof.
8.6 Entire Agreement. This Agreement together with any agreement,
----------------
plans or other documents implementing the terms of this Agreement constitute the
entire agreement between the parties hereto relating to the matters encompassed
hereby and supersede any prior oral or written agreements relating to such
matters. Without limiting the generality of the foregoing, Executive expressly
acknowledges and agreed that Employment Agreement dated June 11, 1996 between
the Company and Executive and the Change of Control Agreement between the
Company and Executive dated January 15, 1998 shall, upon effectiveness of this
Agreement, be automatically cancelled and of no further force and effect and
Executive shall be entitled to not further compensation or rights of any kind
thereunder (except that Executive shall be entitled to receive from the Company
at the Effective Date the payment called for by Section 1(a) of the Change of
Control Agreement).
8.7 Assignment. The rights of the Company under this Agreement may,
----------
without the consent of Executive, be assigned by the Company, in its sole and
unfettered discretion, to any person, firm, corporation or other business entity
which at any time, whether by purchase, merger or otherwise, directly or
indirectly, acquires 80% or more of the stock, assets or business of the
Company.
8.8 Non-Transferability of Interest. None of the rights of Executive
-------------------------------
to receive any form of compensation payable pursuant to this Agreement shall be
assignable or transferable except through a testamentary disposition or by the
laws of descent and distribution upon the death of Executive. Any other
attempted assignment, transfer, conveyance or other disposition of any interest
in the rights of Executive to receive any form of compensation to be made by the
Company pursuant to this Agreement shall be void.
8.9 Arbitration. Any dispute, claim or controversy arising out of or
-----------
relating to this Agreement, including without limitation any dispute, claim or
controversy concerning validity, enforceability, breach or termination hereof,
shall be finally settled by arbitration in accordance with the then-prevailing
Commercial Arbitration Rules of the American Arbitration Association, as
modified herein ("Rules"). There shall be one arbitrator who shall be jointly
selected by the parties. If the parties have not jointly agreed upon an
arbitrator within twenty days of respondent's receipt of claimant's notice of
intention to arbitrate, either party may request the American Arbitration
Association to furnish the parties with a list of names from which the parties
shall jointly select an arbitrator. If the parties have not agreed upon an
arbitrator within ten days
6
<PAGE>
ten days of the transmittal date of the list, then each party shall have an
additional five days in which to strike any names objected to, number the
remaining names in order of preference, and return the list to the American
Arbitration Association, which shall then select an arbitrator in accordance
with Rule 13 of the Rules. The place of arbitration shall be Boston,
Massachusetts. By agreeing to arbitration, the parties hereto do not intend to
deprive any court of its jurisdiction to issue a pre-arbitral injunction, pre-
arbitral attachment or other order in aid of arbitration. The arbitration shall
be governed by the Federal Arbitration Act, 9 U.S.C. (S)(S) 1-16. Judgment upon
the award of the arbitrator may be entered in any court of competent
jurisdiction. Each party shall bear its or his own costs and expenses in any
such arbitration and one-half of the arbitrator's fees and expenses.
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first written above.
EXECUTIVE HARBORSIDE HEALTHCARE
CORPORATION, a Delaware Corporation.
/s/ William H. Stephan By: /s/ Stephen L. Guillard
- ----------------------------------- ---------------------------------
William Stephan Name: Stephen L. Guillard
Title: Chairman Pres. CEO
Address for Notices: Address for Notices:
18 Constellation Wharf Harborside Healthcare
- -----------------------------------
Charlestown, Ma 02129 470 Atlantic Avenue
- -----------------------------------
___________________________________ Boston, Massachusetts 02210
Attention: Chairman
Fax: (617) 556-1565
With a copy to:
Investcorp International Inc.
280 Park Avenue, 37th Floor
New York, New York 10017
Attention: Christopher J. O'Brien
Fax: (212) 983-7073
8
<PAGE>
EXHIBIT A
to
Employment Agreement
Name of Executive: William Stephan
Title(s): Senior Vice-president and Chief Financial
Officer
Office Location: 470 Atlantic Avenue, Boston, Massachusetts
Base Salary (1998): $190,000 per annum*
Minimum Base Salary $200,000 per annum
(Beginning March 31, 1999
_____________________
* Effective retroactively to April 11, 1998.
<PAGE>
EXHIBIT B
to
Employment Agreement
--------------------
PERFORMANCE-BASED BONUS
Name of Executive: William Stephan
For years beginning on January 1, 1999, Executive will be entitled to an
annual performance-based cash bonus determined as follows:
----------------------- -------------------- -----------
(A) (B)
Corporate + Individual = Total
Performance Performance Cash
Amount Amount Bonus
----------------------- -------------------- -----------
(A) Corporate Performance Amount
---------------------- ------- ------------------ ----------
Corporate Applicable Base
Performance = 80% x Corporate x Salary
Amount Performance
Percentage
---------------------- ------- ------------------ ----------
Applicable Corporate Performance Percentage determined by Percent of Target
EBITDAR Achieved per the following:
Percent of Target Applicable Corporate
EBITDAR Achieved Performance Percentage
-------------------------------------------------------------------
Less than 90% 0%
-------------------------------------------------------------------
90% or above, but below 100% 20%
-------------------------------------------------------------------
100% or above, but below 110% 35%
-------------------------------------------------------------------
110% or above but less than 125% 50%
-------------------------------------------------------------------
125% 65%
-------------------------------------------------------------------
<PAGE>
(B) Individual Performance Amount
Individual Performance Amount will be targeted at 20% of the Applicable
Corporate Performance Percentage of Base Salary, but may be reduced to 0%
or increased up to 40% of such percentage of Base Salary. The actual
Individual Performance Amount will be set annually by the Board in its
discretion based on individual performance of the Executive.
_________________________
EBITDAR defined in Schedule B-1 attached.
EBITDAR Targets per Schedule B-2 attached.
<PAGE>
Schedule B-1
to
Exhibit B
to
Employment Agreement
Earnings Before Interest, Taxes, Depreciation, Amortization and Rent
("EBITDAR") for a particular period is defined as consolidated net income (loss)
of the Company and its subsidiaries as shown on the consolidated statement of
income (loss) for such period prepared in accordance with U.S. GAAP consistently
applied plus (minus) the following amounts, to the extent such amounts are
----
otherwise taken into account in determining such consolidated net income (loss)
(prior to adjustment):
1. Any provision (benefit) for taxes, including franchise taxes, deducted
(added) in calculating such consolidated net income (loss);
2. Any interest expense (net of interest income (other than interest
income reflected in the Management EBITDAR Projections dated March, 1998)),
deducted in calculating such consolidated net income (loss);
3. Amortization expenses deducted in calculating such consolidated net
income (loss);
4. Depreciation expense deducted in calculating such consolidated net
income (loss);
5. Rent expense deducted in calculating such consolidated net income
(loss);
6. Management fees paid to Investcorp to the extent recorded as an expense
in calculating such consolidated net income (loss);
7. Any unusual losses (gains) deducted (added) in calculating such
consolidated net income (loss). This adjustment is intended to exclude, in the
calculation of EBITDAR, the effects, if any, of any transactions outside of the
Company's ordinary course of business as and to the extent determined to be
appropriate in good faith by the Board;
8. Any expense (income) deducted (added) in calculating such consolidated
net income (loss) attributable to transactions involving equity securities of
the Company or its subsidiaries.
The Board reserves the right to make other adjustments to EBITDAR or the
EBITDAR targets as the Board determines in good faith are appropriate to take
into account the effect of material transactions or events during the period
including without limitation acquisitions, divestitures, equity issuances and
significant changes to capital expenditure plans.
In determining whether and to what extent EBITDAR targets have been met for
a period, the aggregate amount of compensation payable to employees as a result
of meeting such targets
<PAGE>
will be deducted from EBITDAR to the extent not otherwise included in the
calculation of consolidated net income (loss) for such period.
<PAGE>
Schedule B-2
to
Exhibit B
to
Employment Agreement
EBITDAR Targets
EBITDAR TARGET
YEAR Ending December 31, --------------
------------------------ (In Millions of Dollars)
1999 $80
2000 $114
2001 $151
2002 $192
<PAGE>
EXHIBIT 10.10(e)
EXECUTION COPY
EMPLOYMENT AGREEMENT
This Employment Agreement ("this Agreement") is made and entered into as of
August 11, 1998 (the "Effective Date"), by and between Harborside Healthcare
Corporation, a Delaware corporation (the "Company"), and Steven Raso
("Executive").
The Company hereby agrees to employ Executive, and Executive hereby accepts
such employment, on the terms and conditions hereinafter set forth.
1. Position. From the Effective Date until the termination of Executive's
--------
employment hereunder (the "Period of Employment"), Executive shall serve in the
capacity indicated on Exhibit A, and shall have the normal duties and
responsibilities commensurate with such position. During the Period of
Employment, Executive will (a) during normal business hours, devote his full
time and exclusive attention to, and use his best efforts to advance, the
business and welfare of the Company, and (b) not engage in any other employment
activities for any direct or indirect remuneration without the concurrence of
the board of directors of the Company (the "Board"), provided, however,
Executive may continue to serve on those corporate, charitable and community
boards on which he serves as of the Effective Date and which have been
identified to the Board in writing or on any other such boards which are
approved in advance by the Board so long as such activities do not unreasonably
interfere with the performance of his duties under this Agreement.
2. Place and Term of Employment.
----------------------------
(a) Executive's office shall be at the location set forth on Exhibit
A.
(b) Subject to earlier termination pursuant to Section 6 hereof, the
Period of Employment shall be three (3) years commencing on the Effective Date;
provided that thereafter the Period of Employment shall be automatically renewed
for successive one-year periods on each anniversary of the Effective Date unless
either party hereto gives the other party written notice no later than sixty
(60) days prior to such anniversary of the Effective Date of its election not to
so renew the Period of Employment for the additional one-year period.
3. Compensation.
------------
3.1 Base Salary. The Company shall pay Executive a per annum Base
-----------
Salary as indicated on Exhibit A payable in accordance with the standard
policies of the Company. Thereafter, Executive's Base Salary hereunder shall be
subject to annual review by the Board, provided that the level of such Base
Salary shall not be subject to reduction below the level indicated on Exhibit A.
3.2 Performance Based Compensation. Executive shall also be entitled
------------------------------
to participate in an annual performance-based cash bonus program as set forth in
Exhibit B.
<PAGE>
4. Benefits.
--------
During the Period of Employment, Executive shall be entitled to
participate in benefit plans and programs maintained by the Company from time to
time and generally made available to its executive officers; provided that: (a)
Executive's right to participate in such plans and programs shall not affect the
Company's right to amend or terminate any such plan and program, and (b)
Executive acknowledges that he shall have no vested rights under any such plan
or program except as expressly provided under the terms thereof.
5. Expenses; Taxes.
---------------
(a) Upon presentation of acceptable substantiation therefor, the
Company will pay or reimburse Executive for such reasonable travel,
entertainment and other expenses as he may incur during the Period of Employment
in connection with the performance of his duties hereunder.
(b) Federal, state, local and other applicable taxes shall be withheld
on all cash and in-kind payments made by the Company to Executive in accordance
with applicable tax laws and regulations.
6. Termination of Employment.
-------------------------
6.1 Death or Disability. The employment of Executive and all rights
-------------------
to compensation under this Agreement shall terminate upon the death or
Disability (as defined below) of Executive except for such death or disability
payments as may be payable under one or more benefit plans maintained at that
time by the Company and applicable to the Executive. As used herein,
"Disability" means the Board has made a good faith determination that the
Executive has become physically or mentally incapacitated or disabled such that
he is unable to perform for the Company substantially the same services as he
performed prior to incurring such incapacity or disability, and such incapacity
or disability exists for an aggregate of six (6) calendar months in any twelve
(12) calendar month period. In connection with making any such determination,
the Company, at its option and expense, shall be entitled to select and retain a
physician to confirm the existence of such incapacity or disability and the
determination by such physician shall be binding on the parties for purposes of
this Agreement.
6.2 Other Termination without Severance Obligation. The parties
----------------------------------------------
hereto expressly agree that Executive's employment hereunder may be terminated
by either the Company or the Executive upon 30 days' advance written notice by
the terminating party and that upon any such termination, except as set forth in
Section 6.3 hereof, Executive shall not be entitled to any payment in the nature
of severance or otherwise (other than Base Salary and any other benefits earned
and accrued through the Termination Date).
6.3 Termination with Severance Obligation. Upon termination by the
-------------------------------------
Company other than for Cause (as defined below) or by the Executive for Good
Reason (as defined below), Executive shall be entitled to receive from the
Company a lump sum cash severance payment equal to 12 months of Executive's Base
Salary in effect at the effective time
2
<PAGE>
of such termination. As used herein, (a) "Cause" means that Executive (i) has
been convicted of a felony, or has entered a plea of guilty or nolo contendere
---- ----------
to a felony; (ii) has committed an act of fraud involving dishonesty for
personal gain which is injurious to the Company or any of its subsidiaries;
(iii) has willfully and continually refused to substantially perform his duties
with the Company or any of its subsidiaries (other than any such refusal
resulting from his incapacity due to mental illness or physical illness or
injury), after a demand for substantial performance has been delivered to the
Executive by the Board, where such demand reasonably identifies the manner in
which the Board believes that the Executive has refused to substantially perform
his duties and the passage of a reasonable period of time as specified by the
Board for Executive to comply with such demand; or (iv) has willfully engaged in
gross misconduct injurious to the Company or any of its subsidiaries; and (b)
"Good Reason" means (i) except as specifically provided herein, the assignment
to the Executive of duties, or the assignment of the Executive to a position,
constituting a material diminution in the Executive's role, responsibilities or
authority compared with his role, responsibilities or authority with the Company
or its affiliates on the Effective Date; (ii) a reduction by the Company in the
Executive's base salary as in effect on the Effective Date as the same may be
increased from time to time or a reduction of the potential annual bonus
expressed as a percent of base salary (subject to attainment of goals, Board
discretion and other conditions of the applicable bonus program) from the levels
in effect on the Effective Date as the same may be increased from time to time;
(iii) a demand by the Company to the Executive to relocate to any place that
exceeds a fifty (50) mile radius beyond the location at which the Executive
performed the Executive's duties on the Effective Date; or (iv) any breach by
the Company of any provision of this Agreement.
6.4 Release. At the time of termination of Executive's employment,
-------
Executive agrees to execute a release whereby Executive will release, relinquish
and forever discharge the Company and each of its subsidiaries and any director,
officer, employee, shareholder, controlling person or agent of the Company and
its subsidiary from any and all claims, damages, losses, costs, expenses,
liabilities or obligations, whether known or unknown (other than any rights
Executive may have under (i) any indemnification arrangement of the Company with
respect to Executive, (ii) any employee benefit plan or program covering
Executive or (iii) any stock purchase or stock option plan or agreement to which
the Company and Executive are parties, which Executive has incurred or suffered
or may incur or suffer as a result of Executive's employment by the Company or
the termination of such employment. Executive expressly agrees that payment by
the Company of the severance amount set forth in Section 6.3 shall be deemed to
fully discharge all of the Company's obligations and duties under this Agreement
and Executive shall not be entitled to any other compensation hereunder.
6.5 Mitigation. Executive shall not be required to mitigate the
----------
amount of the severance payment called for by Section 6.3 by seeking other
employment and the amount of any such payment shall not be reduced by any
compensation earned or benefits received by Executive as the result of
employment by a future employer.
3
<PAGE>
7. Non-Competition; Non-Disclosure of Proprietary Information, Surrender
--------------- ----------------------------------------------------
of Records; Inventions and Patents.
----------------------------------
7.1 Non-Competition.
---------------
(a) Executive acknowledges that in the course of his employment with
the Company he will become familiar with the trade secrets and other
confidential information of the Company and that his services will be of
special, unique and extraordinary value to the Company. Therefore, Executive
agrees that, during the Period of Employment and for 12 months thereafter (the
"Noncompete Period"), he shall not directly or indirectly own, manage, control,
participate in, consult with, render services for, or in any manner engage in
any business competing with any business of the Company within the United States
and any other geographical area in which the Company engages in business.
Nothing herein shall prohibit Executive from being a passive owner of not more
than 2% of the outstanding stock of any class of a corporation which is publicly
traded so long as Executive has no direct or indirect active participation in
the business of such corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly (i) induce or attempt to induce any employee of the Company to
terminate such employment, or in any way interfere with the employee
relationship between the Company and any such employee, (ii) hire any person who
is, or at any time during the Period of Employment was, an employee of the
Company or (iii) induce or attempt to induce any person having a business
relationship with the Company to cease doing business with the Company or
interfere materially with the relationship between any such person and the
Company.
7.2 Proprietary Information. Executive agrees that he shall not use
-----------------------
for his own purpose or for the benefit of any person or entity other than the
Company or its shareholders or affiliates, nor shall Executive otherwise
disclose to any individual or entity at any time while he is employed by the
Company or thereafter any proprietary information of the Company unless such
disclosure (a) has been authorized by the Board, (b) is reasonably required
within the course and scope of Executive's employment hereunder, or (c) is
required by law, a court of competent jurisdiction or a governmental or
regulatory agency. For purposes of this Agreement, "proprietary information"
shall mean: (a) the name or address of any customer, supplier or affiliate of
the Company or any information concerning the transactions or relations of any
customer, supplier or affiliate of the Company or any of its shareholders; (b)
any information concerning any product, service, technology or procedure offered
or used by the Company, or under development by or being considered for use by
the Company; (c) any information relating to marketing or pricing plans or
methods, capital structure, or any business or strategic plans of the Company;
(d) any inventions, innovations, trade secrets or other items covered by Section
7.4 below; and (e) any other information which the Board has determined by
resolution and communicated to Executive in writing to be proprietary
information for purposes hereof. However, proprietary information shall not
include any information that is or becomes generally known to the public other
than through actions of Executive in violation of Sections 7.1, 7.2 or 7.3
hereof.
4
<PAGE>
7.3 Surrender of Records. Executive agrees that he shall not retain
--------------------
and shall promptly surrender to the Company all correspondence, memoranda,
files, manuals, financial, operating or marketing records, magnetic tape, or
electronic or other media of any kind which may be in Executive's possession or
under his control or accessible to him which contain any proprietary information
as defined in Section 7.2 above.
7.4 Inventions and Patents. Executive agrees that all inventions,
----------------------
innovations, trade secrets, patents and processes in any way relating, directly
or indirectly, to the Company's business developed by him alone or in
conjunction with others at any time during his employment by the Company shall
belong to the Company. Executive will use his best efforts to perform all
actions reasonably requested by the Board to establish and confirm such
ownership by the Company.
7.5 Definition of Company. For purposes of this Section 7, the term
---------------------
"Company" shall include Harborside Healthcare Corporation and any and all of its
subsidiaries, joint ventures and affiliated entities as the same may exist from
time to time.
7.6 Enforcement. The parties hereto agree that the duration and area
-----------
for which the covenants set forth in Section 7 are to be effective are
reasonable. In the event that any court or arbitrator determines that the time
period or the area, or both of them, are unreasonable and that any of the
covenants are to that extent unenforceable, the parties hereto agree that such
covenants will remain in full force and effect, first, for the greatest time
period, and second, in the greatest geographical area that would not render them
unenforceable. The parties intend that this Agreement will be deemed to be a
series of separate covenants, one for each and every county of each and every
state of the United States of America. Executive agrees that damages are an
inadequate remedy for any breach of the covenants in this Section 7 and that the
Company will, whether or not it is pursuing any potential remedies at law, be
entitled to equitable relief in the form of preliminary and permanent
injunctions without bond or other security upon any actual or threatened breach
of this Agreement.
8. Miscellaneous.
-------------
8.1 Notice. Any notice required or permitted to be given hereunder
------
shall be deemed sufficiently given if sent by registered or certified mail,
postage prepaid, addressed to the addressee at his or its address last provided
the sender in writing by the addressee for purposes of receiving notices
hereunder or, unless or until such address shall be so furnished, to the address
indicated opposite his or its signature to this Agreement. Each party may also
provide notice by sending the other party a facsimile at a number provided by
such other party.
8.2 Modification and No Waiver of Breach. No waiver or modification
------------------------------------
of this Agreement shall be binding unless it is in writing, approved by the
Board and signed by the parties hereto. No waiver by a party of a breach hereof
by the other party shall be deemed to constitute a waiver of a future breach,
whether of a similar or dissimilar nature, except to the extent specifically
provided in any written waiver under this Section 9.2.
5
<PAGE>
8.3 Governing Law. This Agreement shall be governed by and construed
-------------
and interpreted in accordance with the laws of the Commonwealth of Massachusetts
(without regard to principles of conflicts of laws), and all questions relating
to the validity and performance hereof and remedies hereunder shall be
determined in accordance with such law.
8.4 Counterparts. This Agreement may be executed in two
------------
counterparts, each of which shall be deemed an original, but both of which taken
together shall constitute one and the same Agreement.
8.5 Captions. The captions used herein are for ease of reference
--------
only and shall not define or limit the provisions hereof.
8.6 Entire Agreement. This Agreement together with any agreement,
----------------
plans or other documents implementing the terms of this Agreement constitute the
entire agreement between the parties hereto relating to the matters encompassed
hereby and supersede any prior oral or written agreements relating to such
matters. Without limiting the generality of the foregoing, Executive expressly
acknowledges and agreed that Employment Agreement dated June 11, 1996 between
the Company and Executive and the Change of Control Agreement between the
Company and Executive dated January 15, 1998 shall, upon effectiveness of this
Agreement, be automatically cancelled and of no further force and effect and
Executive shall be entitled to not further compensation or rights of any kind
thereunder (except that Executive shall be entitled to receive from the Company
at the Effective Date the payment called for by Section 1(a) of the Change of
Control Agreement).
8.7 Assignment. The rights of the Company under this Agreement may,
----------
without the consent of Executive, be assigned by the Company, in its sole and
unfettered discretion, to any person, firm, corporation or other business entity
which at any time, whether by purchase, merger or otherwise, directly or
indirectly, acquires 80% or more of the stock, assets or business of the
Company.
8.8 Non-Transferability of Interest. None of the rights of Executive
-------------------------------
to receive any form of compensation payable pursuant to this Agreement shall be
assignable or transferable except through a testamentary disposition or by the
laws of descent and distribution upon the death of Executive. Any other
attempted assignment, transfer, conveyance or other disposition of any interest
in the rights of Executive to receive any form of compensation to be made by the
Company pursuant to this Agreement shall be void.
8.9 Arbitration. Any dispute, claim or controversy arising out of or
-----------
relating to this Agreement, including without limitation any dispute, claim or
controversy concerning validity, enforceability, breach or termination hereof,
shall be finally settled by arbitration in accordance with the then-prevailing
Commercial Arbitration Rules of the American Arbitration Association, as
modified herein ("Rules"). There shall be one arbitrator who shall be jointly
selected by the parties. If the parties have not jointly agreed upon an
arbitrator within twenty days of respondent's receipt of claimant's notice of
intention to arbitrate, either party may request the American Arbitration
Association to furnish the parties with a list of names from which the parties
shall jointly select an arbitrator. If the parties have not agreed upon an
arbitrator within ten days
6
<PAGE>
ten days of the transmittal date of the list, then each party shall have an
additional five days in which to strike any names objected to, number the
remaining names in order of preference, and return the list to the American
Arbitration Association, which shall then select an arbitrator in accordance
with Rule 13 of the Rules. The place of arbitration shall be Boston,
Massachusetts. By agreeing to arbitration, the parties hereto do not intend to
deprive any court of its jurisdiction to issue a pre-arbitral injunction, pre-
arbitral attachment or other order in aid of arbitration. The arbitration shall
be governed by the Federal Arbitration Act, 9 U.S.C. (S)(S) 1-16. Judgment upon
the award of the arbitrator may be entered in any court of competent
jurisdiction. Each party shall bear its or his own costs and expenses in any
such arbitration and one-half of the arbitrator's fees and expenses.
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first written above.
EXECUTIVE HARBORSIDE HEALTHCARE CORPORATION,
a Delaware Corporation.
/s/ Steven Raso By: /s/ Stephen L. Guillard
- ----------------------------------- ------------------------
Name: Stephen L. Guihard
------------------------
Steven Raso Title: Chairman, Pres., C.E.O.
------------------------
Address for Notices: Address for Notices:
228 Carnation Circle Harborside Healthcare
- -----------------------------------
Readings, MA 01867 470 Atlantic Avenue
- -----------------------------------
___________________________________ Boston, Massachusetts 02210
Attention: Chairman
Fax: (617) 556-1565
With a copy to:
Investcorp International Inc.
280 Park Avenue, 37th Floor
New York, New York 10017
Attention: Christopher J. O'Brien
Fax: (212) 983-7073
8
<PAGE>
EXHIBIT A
to
Employment Agreement
Name of Executive: Steven Raso
Title(s): Senior Vice-president of Reimbursement
Office Location: 470 Atlantic Avenue, Boston, Massachusetts
Base Salary (1998): $135,000 per annum
Minimum Base Salary $145,000 per annum*
(Beginning March 31, 1999
and beyond):
__________________
Effective retroactively to April 15, 1998.
<PAGE>
EXHIBIT B
to
Employment Agreement
--------------------
PERFORMANCE-BASED BONUS
Name of Executive: Steven Raso
For years beginning on January 1, 1999, Executive will be entitled to an
annual performance-based cash bonus determined as follows:
------------------ ---------------------- --------------
(A) (B)
Corporate + Individual = Total
Performance Performance Cash
Amount Amount Bonus
------------------ ---------------------- --------------
(A) Corporate Performance Amount
------------------ ------- --------------- ---------
Corporate = Applicable Base
Performance 80% x Corporate x Salary
Amount Performance
Percentage
------------------ ------- --------------- ---------
Applicable Corporate Performance Percentage determined by Percent of Target
EBITDAR Achieved per the following:
--------------------------------------------------------------------
Percent of Target Applicable Corporate
EBITDAR Achieved Performance Percentage
------------------------------- --------------------------
Less than 90% 0%
--------------------------------------------------------------------
90% or above, but below 100% 20%
--------------------------------------------------------------------
100% or above, but below 110% 35%
--------------------------------------------------------------------
110% or above but less than 125% 50%
--------------------------------------------------------------------
125% 65%
--------------------------------------------------------------------
<PAGE>
(B) Individual Performance Amount
Individual Performance Amount will be targeted at 20% of the Applicable
Corporate Performance Percentage of Base Salary, but may be reduced to 0%
or increased up to 40% of such percentage of Base Salary. The actual
Individual Performance Amount will be set annually by the Board in its
discretion based on individual performance of the Executive.
_________________________
EBITDAR defined in Schedule B-1 attached.
EBITDAR Targets per Schedule B-2 attached.
<PAGE>
Schedule B-1
to
Exhibit B
to
Employment Agreement
Earnings Before Interest, Taxes, Depreciation, Amortization and Rent
("EBITDAR") for a particular period is defined as consolidated net income (loss)
of the Company and its subsidiaries as shown on the consolidated statement of
income (loss) for such period prepared in accordance with U.S. GAAP consistently
applied plus (minus) the following amounts, to the extent such amounts are
----
otherwise taken into account in determining such consolidated net income (loss)
(prior to adjustment):
1. Any provision (benefit) for taxes, including franchise taxes, deducted
(added) in calculating such consolidated net income (loss);
2. Any interest expense (net of interest income (other than interest
income reflected in the Management EBITDAR Projections dated March, 1998)),
deducted in calculating such consolidated net income (loss);
3. Amortization expenses deducted in calculating such consolidated net
income (loss);
4. Depreciation expense deducted in calculating such consolidated net
income (loss);
5. Rent expense deducted in calculating such consolidated net income
(loss);
6. Management fees paid to Investcorp to the extent recorded as an expense
in calculating such consolidated net income (loss);
7. Any unusual losses (gains) deducted (added) in calculating such
consolidated net income (loss). This adjustment is intended to exclude, in the
calculation of EBITDAR, the effects, if any, of any transactions outside of the
Company's ordinary course of business as and to the extent determined to be
appropriate in good faith by the Board;
8. Any expense (income) deducted (added) in calculating such consolidated
net income (loss) attributable to transactions involving equity securities of
the Company or its subsidiaries.
The Board reserves the right to make other adjustments to EBITDAR or the
EBITDAR targets as the Board determines in good faith are appropriate to take
into account the effect of material transactions or events during the period
including without limitation acquisitions, divestitures, equity issuances and
significant changes to capital expenditure plans.
In determining whether and to what extent EBITDAR targets have been met for
a period, the aggregate amount of compensation payable to employees as a result
of meeting such targets
<PAGE>
will be deducted from EBITDAR to the extent not otherwise included in the
calculation of consolidated net income (loss) for such period.
<PAGE>
Schedule B-2
to
Exhibit B
to
Employment Agreement
EBITDAR Targets
EBITDAR TARGET
YEAR Ending December 31, --------------
- ------------------------ (In Millions of Dollars)
1999 $80
2000 $114
2001 $151
2002 $192
<PAGE>
EXHIBIT 10.11(a)
ADOPTED COPY
------------
HARBORSIDE HEALTHCARE CORPORATION
STOCK INCENTIVE PLAN
l. Establishment and Purpose of the Plan. This Management Stock
-------------------------------------
Incentive Plan (the "Plan") is established by Harborside Healthcare Corporation,
a Delaware corporation (the "Company"), as of August 11, 1998. The Plan is
designed to enable the Company to attract, retain and motivate directors,
members of the management and certain other officers and key employees the
Company, and its subsidiaries, by providing for or increasing their proprietary
interest in the Company. The Plan provides for the grant of options ("Options")
that qualify as incentive stock options ("Incentive Stock Options") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as
well as Options that do not so qualify ("Non-Qualified Options"), for the grant
of stock appreciation rights ("Stock Appreciation Rights") and for the sale or
grant of restricted stock ("Restricted Stock").
2. Stock Subject to Plan. The number of shares of stock that may be
---------------------
subject to Options or Stock Appreciation Rights granted hereunder plus the
number of shares of stock that may be granted or sold as Restricted Stock
hereunder shall not in the aggregate exceed 806,815 shares of the Company's
Class C Common Stock (the "Shares"), subject to adjustment under Section 13
hereof; provided further that the number of Shares that a Participant (as
hereinafter defined) may receive pursuant to the Plan shall in no event exceed
400,000 in any year. The Shares that may be subject to Options granted and
Restricted Stock sold or granted under the Plan may be authorized and unissued
Shares or Shares reacquired by the Company and held as treasury stock.
Shares that are subject to the unexercised portions of any Options
that expire, terminate or are canceled, and Shares that are subject to any Stock
Appreciation Rights that expire, terminate or are canceled, and Shares of
Restricted Stock that are reacquired by the Company pursuant to the restrictions
thereon, shall again be available for the grant of Options or Stock Appreciation
Rights and the sale or grant of Restricted Stock under the Plan. If a Stock
Appreciation Right is exercised, any Option or portion thereof that is
surrendered in connection with such exercise shall terminate and the Shares
theretofore subject to the Option or portion thereof shall not be available for
further use under the Plan.
3. Shares Subject to Certificate of Incorporation. All Shares
----------------------------------------------
issuable under Options or Stock Appreciation Rights and all Shares of Restricted
Stock sold or granted pursuant to this Plan shall be subject to the terms and
restrictions contained in the Certificate of Incorporation of the Company. A
copy of the Certificate of Incorporation shall be delivered to the recipient of
an Option, Stock Appreciation Right or Restricted Stock at the time of grant or
issuance.
4. Administration of the Plan. The Plan shall be administered by a
--------------------------
committee (the "Committee") appointed by the Board of Directors (the "Board") of
the
<PAGE>
Company. If no persons are designated by the Board to serve on the Committee,
the Plan shall be administered by the Board and all references herein to the
Committee shall refer to the Board. The Board shall have the discretion to add,
remove or replace members of the Committee, and shall have the sole authority to
fill vacancies on the Committee.
All actions of the Committee shall be authorized by a majority vote
thereof at a duly called meeting. The Committee shall have the sole authority,
in its absolute discretion, to adopt, amend, and rescind such rules and
regulations as, in its opinion, may be advisable in the administration of the
Plan, to construe and interpret the Plan, the rules and regulations, and the
agreements and other instruments evidencing Options and Stock Appreciation
Rights granted and Restricted Stock sold or granted under the Plan, and to make
all other determinations deemed necessary or advisable for the administration of
the Plan. All decisions, determinations, and interpretations of the Committee
shall be final and conclusive upon the Participants, as hereinafter defined.
Notwithstanding the foregoing, any dispute arising under any Agreement (as
defined below) shall be resolved pursuant to the dispute resolution mechanism
set forth in such Agreement.
Subject to the express provisions of the Plan, the Committee shall
determine the number of Shares subject to grants or sales and the terms thereof,
including the provisions relating to the exercisability of Options and Stock
Appreciation Rights, lapse and non-lapse restrictions upon the Shares obtained
or obtainable under the Plan and the termination and/or forfeiture of Options
and Stock Appreciation Rights and Restricted Stock under the Plan. The terms
upon which Options and Stock Appreciation Rights are granted and Restricted
Stock is sold or granted shall be evidenced by a written agreement, executed by
the Company and the Participant (each, an "Agreement"), containing such terms
and conditions as may be approved by the Committee; provided that such terms and
conditions are not inconsistent with the express conditions of the Plan.
5. Eligibility. Persons who shall be eligible for grants of Options
-----------
or Stock Appreciation Rights or sales or grants of Restricted Stock hereunder
shall be those directors, officers and employees of the Company or a subsidiary
of the Company who are members of a select group of directors, management and
other key employees that the Committee may from time to time designate to
participate under the Plan ("Participants") through grants of Non-Qualified
Options, Incentive Stock Options and, if applicable, Stock Appreciation Rights,
and/or through sales or grants of Restricted Stock.
6. Terms and Conditions of Options. No Incentive Stock Option shall
-------------------------------
be granted for a term of more than ten years and no Non-Qualified Option shall
be granted for a term of more than ten years and thirty days. Options may, in
the discretion of the Committee, be granted with associated Stock Appreciation
Rights or be amended so as to provide for associated Stock Appreciation Rights.
The Agreement may contain such other terms, provisions, and conditions as may be
determined by the Committee as long as such terms, conditions and provisions are
not inconsistent with the Plan. The Committee shall designate as such those
Options intended to be eligible to qualify and be treated as Incentive Stock
2
<PAGE>
Options and, correspondingly, those Options not intended to be eligible to
qualify and be treated as Incentive Stock Options.
7. Exercise Price of Options. The exercise price for each Non-
-------------------------
Qualified Option granted hereunder shall be set forth in the Agreement. For so
long as required under Section 422 of the Code and the regulations promulgated
thereunder (or any successor statute or rules), the exercise price of any Option
intended to be eligible to qualify and be treated as an Incentive Stock Option
shall not be less than the fair market value of the Shares on the date such
Incentive Stock Option is granted, except that if such Incentive Stock Option is
granted to a Participant who on the date of grant is treated under Section
424(d) of the Code as owning stock (not including stock purchasable under
outstanding options) possessing more than ten percent of the total combined
voting power of all classes of the Company's stock, the exercise price shall not
be less than one hundred ten percent (110%) of the fair market value of the
Shares on the date such Incentive Stock Option is granted.
The fair market value of Shares for the purposes of this Plan shall be
determined by the Board, whose valuation shall be binding upon each Optionee.
Payment for Shares purchased upon exercise of any Option granted
hereunder shall be in cash at the time of exercise, except that, if either the
Agreement so provides or the Committee so permits, and if the Company is not
then prohibited from doing so, such payment may be made in whole or in part with
surrendered or withheld shares of stock of the same class as the stock then
subject to the Option. The Committee also may on an individual basis permit
payment or agree to permit payment by such other alternative means as may be
lawful, including by delivery of an executed exercise notice together with
irrevocable instructions to a broker promptly to deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price.
8. Non-transferability. Unless provided otherwise in the Agreement,
-------------------
any Option granted under this Plan shall by its terms be nontransferable by the
Participant other than by will or the laws of descent and distribution (in which
case such descendant or beneficiary shall be subject to all terms of the Plan
applicable to Participants) and is exercisable during the Participant's lifetime
only by the Participant or by the Participant's guardian or legal
representative.
9. Incentive Stock Options. The provisions of the Plan are intended
-----------------------
to satisfy the requirements set forth in Section 422 of the Code and the
regulations promulgated thereunder (including the aggregate fair market value
limits set forth in Section 422(d) of the Code) with respect to Incentive Stock
Options granted under the Plan. For so long as required under Section 422 of
the Code and the regulations promulgated thereunder (or any successor statute or
rules), during the term of the Plan, the aggregate fair market value of the
Shares with respect to which Incentive Stock Options are first exercisable by a
Participant during any calendar year shall not exceed $100,000. For the purpose
of this Section 9, the fair market value of the Shares shall be determined at
the time the Incentive Stock Option is granted.
3
<PAGE>
10. Stock Appreciation Rights. The Committee may, under such terms
-------------------------
and conditions as it deems appropriate, grant to any Participant selected by the
Committee Stock Appreciation Rights, which may or may not be associated with
Options. Upon exercise of a Stock Appreciation Right, the Participant shall be
entitled to receive payment of an amount equal to the excess of the fair market
value, as defined by the Committee, of the underlying Shares on the date of
exercise over the Stock Appreciation Right's exercise price. Such payment may
be made in additional Shares valued at their fair market value on the date of
exercise or in cash, or partly in Shares and partly in cash, as the Committee
may designate. The Committee may require that any Stock Appreciation Right
shall be subject to the condition that the Committee may at any time in its
absolute discretion not allow the exercise of such Stock Appreciation Right.
11. Restricted Stock. The Committee may sell or grant Restricted
----------------
Stock under the Plan (either independently or in connection with the exercise of
Options or Stock Appreciation Rights under the Plan) to Participants selected by
the Committee. The Committee shall in each case determine the number of Shares
of Restricted Stock to be sold or granted, the price at which such Shares are
sold, if applicable, and the terms and duration of the restrictions to be
imposed upon those Shares.
12. Investment Representation. Each Agreement may contain an
-------------------------
agreement that, upon demand by the Committee for such a representation, the
optionee shall deliver to the Committee at the time of any exercise of an Option
a written representation that the Shares to be acquired upon such exercise are
to be acquired for investment and not for resale or with a view to the
distribution thereof. Upon such demand, delivery of such representation prior
to the delivery of any Shares issued upon exercise of an Option and prior to the
expiration of the option period shall be a condition precedent to the right of
the optionee or such other person to purchase any Shares.
13. Adjustments. In the event of any one or more reorganizations,
-----------
recapitalizations, stock splits, reverse stock splits, stock dividends,
extraordinary dividends, or distributions, or similar events, an appropriate
adjustment shall be made in the number, exercise or sale price and/or type of
shares or securities for which Options or Stock Appreciation Rights may
thereafter be granted and Restricted Stock may thereafter be sold or granted
under the Plan. The Committee also shall designate the appropriate changes that
shall be made in Options or Stock Appreciation Rights, or rights to purchase
Restricted Stock under the Plan, so as to preserve the value of any such
Options, Stock Appreciation Rights or Restricted Stock. Any such adjustment in
outstanding Options shall be made without changing the aggregate exercise price
applicable to the unexercised portions of such Options. Any such adjustments in
outstanding rights to purchase Restricted Stock shall be made without changing
the aggregate purchase price of such Restricted Stock.
14. Duration of Plan. Options may not be granted and Restricted
----------------
Stock may not be sold or granted under the Plan after August 11, 2008.
4
<PAGE>
15. Amendment and Termination of the Plan. The Board may at any time
-------------------------------------
amend, suspend or terminate the Plan. The Committee may amend the Plan or any
Agreement issued hereunder to the extent necessary for any Option or Stock
Appreciation Right granted or Restricted Stock sold or granted under the Plan to
comply with applicable tax or securities laws. If the Board determines that the
approval of such action by the stockholders of the Company is advisable or
necessary for compliance with applicable securities law, tax law, stock exchange
requirement or other applicable federal or state law, no such action of the
Board or the Committee shall be permitted unless taken with or ratified by such
approval.
No Option or Stock Appreciation Right may be granted or Restricted
Stock sold or granted during any suspension of the Plan or after the termination
of the Plan. No amendment, suspension or termination of the Plan or of any
Agreement issued hereunder shall, without the consent of the affected holder of
such Option or Stock Appreciation Right or Restricted Stock, adversely alter or
otherwise impair any rights or obligations in any Option or Stock Appreciation
Right or Restricted Stock theretofore granted or sold to such holder under the
Plan.
16. Nature of Plan. This Plan is intended to qualify as a
--------------
compensatory benefit plan within the meaning of Rule 701 under the Act. This
Plan is intended to constitute an unfunded arrangement for a select group of
directors, management and other key employees.
17. Cancellation of Options. Any Option granted under the Plan may
-----------------------
be canceled at any time with the consent of the holder and a new Option may be
granted to such holder in lieu thereof.
18. Withholding Taxes. Whenever Shares are to be issued with respect
-----------------
to the exercise of Options or amounts are to be paid or income earned with
respect to Stock Appreciation Rights or Restricted Stock under the Plan, the
Committee in its discretion may require the Participant to remit to the Company,
prior to the delivery of any certificate or certificates for such Shares or the
payment of any such amounts, all or any part of the amount determined in the
Committee's discretion to be sufficient to satisfy federal, state and local
withholding tax obligations (the "Withholding Obligation") that the Company or
its counsel determines may arise with respect to such exercise, issuance or
payment. Pursuant to a procedure established by the Committee or as set forth
in the Agreement, the Participant may (i) request the Company to withhold
delivery of a sufficient number of Shares or a sufficient amount of the
Participant's compensation or (ii) deliver a sufficient number of previously-
issued Shares, to satisfy the Withholding Obligation.
5
<PAGE>
EXHIBIT 10.11(b)
EXECUTION COPY
--------------
STOCK OPTION AGREEMENT
PURSUANT TO THE
HARBORSIDE HEALTHCARE CORPORATION
STOCK INCENTIVE PLAN
THIS STOCK OPTION AGREEMENT (this "Agreement") is made as of August 11,
1998 (the "Effective Date"), between Harborside Healthcare Corporation, a
Delaware corporation (the "Company"), and Steven Raso (the "Optionee").
R E C I T A L S
- - - - - - - -
A. The Company has adopted the Harborside Healthcare Corporation Stock
Incentive Plan (the "Plan"), a copy of which has been delivered to Optionee.
B. The Company desires to grant the Optionee the opportunity to acquire a
proprietary interest in the Company to encourage the Optionee's contribution to
the success and progress of the Company.
C. In accordance with the Plan, the Committee (as defined in the Plan)
has as of the Effective Date granted to the Optionee a non-qualified option to
purchase shares of Class C Stock, $0.01 par value, of the Company (the "Class C
Stock") subject to the terms and conditions of the Plan and this Agreement.
AGREEMENTS
----------
1. Definitions. Capitalized terms used herein shall have the following
-----------
meanings:
"Act" is defined in Section 10(a).
"Agreement" means this Stock Option Agreement.
"Annual Valuation" is defined in Section 9(e).
"Approved Sale" means a transaction or a series of related
transactions which results in a bona fide, unaffiliated change of economic
---- ----
beneficial ownership of the Company or its business of greater than 50%
(disregarding for this purpose any disparate voting rights attributable to the
outstanding stock of the Company), whether pursuant to the sale of the stock of
the Company, the sale of the assets of the Company, or a merger or consolidation
(other than a sale of stock by an Initial Stockholder to (i) another Initial
Stockholder or affiliate thereof, or (ii) a non-U.S. entity with respect to
which an Initial Stockholder or affiliate thereof has an administrative
relationship).
<PAGE>
"Certificate of Incorporation" means the Restated Certificate of
Incorporation of the Company setting forth the rights, preferences and
privileges of and restrictions on the Class C Stock.
"HBRS" is defined in Section 9(b).
"Cause," when used in connection with the termination of employment of
the Optionee, has the meaning set forth in the employment agreement between the
Company and the Optionee, or if there is no such employment agreement, means (a)
conviction of the Optionee for a felony, or the entry by the Optionee of a plea
of guilty or nolo contendere to a felony, (b) the commission of an act of fraud
---- ----------
involving dishonesty for personal gain which is injurious to the Company, (c)
the willful and continued refusal by the Optionee to substantially perform his
duties with the Company (other than any such refusal resulting from his
incapacity due to mental illness or physical illness or injury), after a demand
for substantial performance is delivered to the Optionee by the Company's Board
of Directors, where such demand identifies the manner in which the Company's
Board of Directors believes that the Optionee has refused to substantially
perform his duties and the passage of a reasonable period of time as specified
by the Board for the Optionee to comply with such demand or (d) the willful
engaging by the Optionee in gross misconduct injurious to the Company or its
Subsidiaries.
"Class C Stock" is defined in recital C.
"Closing Date" means the date on which occurs the closing of the
recapitalization of the Company pursuant to the Recapitalization Agreement dated
as of April 15, 1998 by and between the Company and the Investors, as such term
is defined herein.
"Company" is defined in the preamble.
"Disability" has the meaning set forth in the employment agreement
between the Company and the Optionee, or if there is no such employment
agreement, means the failure by the Optionee to render full-time employment
services to the Company for an aggregate of ninety (90) business days in any
continuous period of six (6) months on account of physical or mental disability.
"EBITDAR" is defined in Section 3(a).
"Effective Date" is defined in the preamble.
"Endorsed Certificate" is defined in Section 9(a).
"Exercise Price" is defined in Section 2.
2
<PAGE>
"Fair Market Value" means the value of a Share, as of the Termination
Date, calculated pursuant to Section 9(e).
"Fiscal Year" means the fiscal year of the Company.
"Good Reason" means, unless the Optionee shall have consented in
writing thereto, any of the following:
(a) except as specifically provided in the Optionee's employment
agreement, if any, the assignment to the Optionee of duties, or the
assignment of the Optionee to a position, constituting a material
diminution in the Optionee's role, responsibilities or authority compared
with his role, responsibilities or authority on the Effective Date;
(b) a reduction by the Company in the Executive's base salary as
in effect on the Effective Date as the same may be increased from time to
time or a reduction of the potential annual bonus expressed as a percent of
base salary (subject to attainment of goods, Board discretion and other
conditions of the applicable bonus program) from the levels in effect on
the Effective Date as the same may be increased from time to time;
(c) a demand by the Company to the Optionee to relocate to any
place that exceeds a fifty (50) mile radius beyond the location at which
the Optionee performed his duties on the Effective Date; or
(d) any material breach of this Agreement or any breach of the
employment agreement between the Optionee and the Company, if any, on the
part of the Company.
"Initial Public Offering" means the sale of any of the common stock of
the Company pursuant to a registration statement that has been declared
effective under the Act, if as a result of such sale (i) the issuer becomes a
reporting company under Section 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended, and (ii) such stock is traded on the New York Stock Exchange
or the American Stock Exchange, or is quoted on the NASDAQ National Market
System or is traded or quoted on any other national stock exchange or national
securities system.
"Initial Stockholders" means the shareholders of the Company who
became shareholders as of the Closing Date (other than any such shareholders who
are also employees of the Company or were shareholders of the Company prior to
the Closing Date) and any transferees of such shareholders prior to an Initial
Public Offering or an Approved Sale.
3
<PAGE>
"Investors" means those entities set forth on Schedule 1 of the
Recapitalization Agreement.
"Option" is defined in Section 2.
"Optionee" is defined in the preamble.
"Option Shares" is defined in Section 2.
"Plan" is defined in recital A.
"Put Date" is defined in Section 9(b).
"Recapitalization Date" means August 11, 1998.
"Repurchase" is defined in Section 9(a).
"Remaining Capital Stock" means the Company's capital stock
outstanding immediately prior to the Approved Sale other than the Company's
capital stock disposed of by stockholders of the Company as a result of such
Approved Sale in exchange for money or other property.
"Retirement" has the meaning set forth in the employment agreement
between the Company and the Optionee, or if there is no such employment
agreement, means the Optionee's retirement from employment with the Company in
accordance with the Company's normal retirement policy generally applicable to
its salaried employees.
"Subsidiary" means any joint venture, corporation, partnership or
other entity as to which the Company, whether directly or indirectly, has more
than 50% of the (i) voting rights or (ii) rights to capital or profits.
"Termination Date" means the date on which the Optionee ceases to be
employed by the Company for any reason.
2. Grant of Option. The Company grants to the Optionee the right and
---------------
option (the "Option") to purchase, on the terms and conditions hereinafter set
forth, all or any part of the number of shares of Class C Stock set forth below
the Optionee's signature below (the "Option Shares"), at the purchase price of
$25.00 per Share (the "Exercise Price"), on the terms and conditions set forth
herein.
3. Exercisability.
--------------
(a) The Option shall become exercisable to the extent of the portion
(the "Annual Portion") of the number of Option Shares as of the end of each
fiscal year set forth on Exhibit A of this Agreement if the Company's Earnings
before Interest, Taxes, Depreciation, Amortization and Rent ("EBITDAR"), as
defined on Exhibit A, equals or
4
<PAGE>
exceeds the Target annual EBITDAR amount set forth in column (B) of Exhibit A
with respect to such fiscal year. If for any fiscal year set forth on Exhibit A
the Company's cumulative annual EBITDAR amount for that and the preceding fiscal
years equals or exceeds the Cumulative Target EBITDAR amount set forth in column
(C) of Exhibit A with respect to such fiscal year, the Option shall become
exercisable to the extent that it would have become exercisable had the Company
achieved its Target annual EBITDAR amounts for that and each of the preceding
fiscal years.
(b) Notwithstanding Sections 3(a), (i) upon the occurrence of an
Initial Public Offering, the schedule set forth in Section 3(a) shall not apply
and the Optionee shall have the right to exercise one-third (1/3) of all
unexercisable Options on the first anniversary of the Initial Public Offering,
provided that the Optionee remains continuously employed by the Company through
such anniversary; (B) to exercise an additional one third (1/3) of all
unexercisable Options (as of the first anniversary) on the second anniversary of
the Initial Public Offering, provided that the Optionee remains continuously
employed by the Company through such anniversary; and (C) to exercise the
remaining one-third (1/3) of all unexercisable Options on the third anniversary
of the Initial Public Offering, provided that the Optionee remains continuously
employed by the Company through such anniversary; provided, however, that, if
-------- -------
the Initial Public Offering occurs during or after the third year after the
Recapitalization Date, to the extent unexercisable Options are attributable to
Annual Portions for any year including, or after, the year in which the Initial
Public Offering occurs, the Annual Portion attributable to the year in which
such Initial Public Offering occurs shall become exercisable at the end of such
year, and any remaining Annual Portion for subsequent years shall become
exercisable on December 31 of the year in which they otherwise would have become
exercisable pursuant to Section 3(a) hereof, in all cases provided that the
Optionee remains continuously employed by the Company through the date on which
vesting otherwise occurs; provided, further, however, that notwithstanding the
-------- ------- -------
preceding, if upon any secondary public offering of shares following an Initial
Public Offering the value of the shares held by the Initial Stockholders
(calculated using such secondary offering price) results in such Initial
Stockholders realizing a twenty-five percent (25%) annual internal rate of
return (calculated on a fully diluted basis, and taking into account the timing
and amount of distributions received by them and the proceeds from the
disposition of shares by them in the public market), all outstanding Options
shall immediately become exercisable; (ii) upon the occurrence of an Approved
Sale, the schedule set forth in Section 3(a) shall not apply and the Optionee
shall have the right to exercise (x) up to fifty percent (50%) of all
unexercisable Options, provided, and to the extent, that the Initial
Stockholders receive a twenty percent (20%) annual internal rate of return
(calculated on a fully diluted basis) from the Closing Date until the date of
closing of the Approved Sale (taking into account the Approved Sale), (y) up to
seventy-five percent (75%) of all unexercisable Options, provided, and to the
extent, that the Initial Stockholders receive a twenty-five percent (25%) annual
internal rate of return (calculated on a fully diluted basis) from the Closing
Date until the date of closing of the Approved Sale (taking into account the
Approved Sale) and (z) up to one-hundred percent (100%) of all unexercisable
Options if the
5
<PAGE>
Initial Stockholders receive a thirty percent (30%) annual internal rate of
return (calculated on a fully diluted basis) from the Closing Date until the
date of closing of the Approved Sale (taking into account the Approved Sale),
and (iii) without regard to whether an Initial Public Offering or an Approved
Sale has occurred, upon the seventh (7th) anniversary of the Effective Date,
provided the Optionee remains continuously employed by the Company through such
anniversary, any unexercisable Option shall immediately become fully
exercisable.
4. Expiration.
----------
(a) Subject to Sections 4(b) and 6(a), any nonexercised Option shall
expire upon the thirtieth (30th) day following the seventh (7th) anniversary of
the Effective Date (the "Expiration Date"), provided, however, that if it would
result in the expiration of the Option prior to the Expiration Date, if (i) at
any time prior to an Approved Sale the Optionee resigns without Good Reason, the
exercisable portion of any option shall expire thirty (30) days following the
Termination Date, or (ii) the Optionee is terminated for Cause from employment
by the Company, the exercisable portion of any Option shall expire on the
Termination Date, or (iii) the Optionee resigns with Good Reason or is
terminated without Cause from employment with the Company, the exercisable
portion of any Option shall expire one-hundred eighty (180) days following the
Termination Date, or (iv) dies or is terminated due to disability, the
exercisable portion of any Option shall expire one-year following the
Termination Date, or (v) in the event the Optionee is terminated other than for
Cause from employment by the Company and the Company exercises the repurchase
right pursuant to Section 9 hereof, or in the event the Optionee or his or her
representative exercises the put right pursuant to Section 9 hereof, the
exercisable portion of any Option shall expire on the business day immediately
preceding the Repurchase Date, the Put Date, or the date on which the Company
acquires any Option Shares pursuant to Section 9(c) hereof, as the case may be.
(b) The unexercisable portion of the Option shall expire on the
earlier to occur of (i) the Termination Date, unless the employment of the
Optionee is terminated without Cause, or by the Optionee for Good Reason, in
which case the unexercised portion of the Option other than the Annual Portion
of the Option attributable to the year in which the Termination Date occurred
shall expire on the Termination Date, and the Annual Portion for such year shall
terminate on the thirtieth (30th) day following the date on which the Optionee
received notice of the EBITDAR for the Fiscal Year during which the Termination
Date occurred, and a portion of such Annual Portion shall become exercisable as
if the Optionee's employment had not been terminated, such portion to be
determined by multiplying the Options in such Annual Portion by a fraction, the
numerator of which in the number of calendar days elapsed to the Termination
Date and the denominator of which is 365, or (ii) except to the extent provided
in Section 3(b)(ii), an Approved Sale.
5. Nontransferability. Subject to Section 9 hereof, the Option shall not
------------------
be transferable by the Optionee except to (a) his or her spouse, child, estate,
personal
6
<PAGE>
representative, heir or successor (b) a trust for the benefit of the Optionee or
his or her spouse, child or heir, or (c) a partnership, the partners of which
consist solely of the Optionee and/or his or her spouse, child, heir, and/or
successor (each, a "permitted transferee") and the Option is exercisable, during
the Optionee's lifetime, only by him or her or his or her spouse or child, or,
in the event of the Optionee's Disability, his or her guardian or legal
representative. More particularly (but without limiting the generality of the
foregoing), the Option may not be assigned, transferred (except as aforesaid),
pledged or hypothecated in any way (whether by operation of law or otherwise),
and shall not be subject to execution, attachment or similar process. Any
assignment, transfer, pledge, hypothecation or other disposition of the Option
contrary to the provisions hereof, and the levy of any attachment or similar
process upon the Option that would otherwise effect a change in the ownership of
the Option, shall terminate the Option; provided, however, that in the case of
the involuntary levy or any attachment or similar involuntary process upon the
Option, the Optionee shall have thirty (30) days after notice thereof to cure
such levy or process before the Option terminates. This Agreement shall be
binding on and enforceable against any person who is a permitted transferee of
the Option pursuant to the first sentence of this Section.
6. Effect of Approved Sale; Adjustments.
------------------------------------
(a) Subject to Section 6(b), in the event of an Approved Sale, the
unexercised portion of the Option shall terminate upon such Approved Sale,
provided that, if the agreement or plan of merger effecting such Approved Sale
provides that the Optionee shall receive upon such Approved Sale, with respect
to the entire exercisable but unexercised portion of the Option, the same
consideration that the holders of the Class C Stock shall be entitled to receive
upon such Approved Sale (less the Exercise Price attributable to such
exercisable but unexercised portion), the Optionee shall be given at least
thirty (30) days' prior notice of the proposed Approved Sale and shall be
entitled to exercise such exercisable but unexercised portion of the Option at
any time during such thirty (30) day period up to and until the close of
business on the day immediately preceding the date of consummation of such
Approved Sale and, upon exercise of the Option, the Option Shares shall be
treated in the same manner as the shares of any other holder of Class C Stock.
(b) Notwithstanding Section 6(a), if the shares of the Class C Stock,
or to the extent it affects the economic rights of the holders of the Class C
Stock, shares of Class A stock, Class B stock or Class D stock of the Company,
are changed into or exchanged for a different number or kind of shares or
securities, as the result of any one or more reorganizations, recapitalizations,
mergers, acquisitions, stock splits, reverse stock splits, stock dividends or
similar events, an appropriate adjustment shall be made in the number and kind
of shares or other securities subject to the Option, and the price for each
share or other unit of any securities subject to this Agreement, in accordance
with Section 13 of the Plan. No fractional interests shall be issued on account
of any such adjustment unless the Committee specifically determines to the
contrary; provided, however, that in lieu of fractional interests, the Optionee,
upon the exercise of the Option in whole or part, shall
7
<PAGE>
receive cash in an amount equal to the amount by which the fair market value of
such fractional interests exceeds the Exercise Price attributable to such
fractional interests.
7. Exercise of the Option. Prior to the expiration thereof, the Optionee
----------------------
may exercise the exercisable portion of the Option from time to time in whole or
in part. Upon electing to exercise the Option, the Optionee shall deliver to
the Secretary of the Company a written and signed notice of such election
setting forth the number of Option Shares the Optionee has elected to purchase,
together with cash or a cashier's or certified bank check to the order of the
Company for the full Exercise Price of such Option Shares and any amount
required pursuant to Section 16 hereof. Alternatively, if the Company is not at
the time prohibited from purchasing or acquiring shares of its capital stock,
the Exercise Price may be paid in whole or in part by delivery of shares of the
Class C Stock owned by the Optionee or by the Optionee directing the Company to
withhold shares otherwise issuable upon exercise. The value of any such shares
delivered or withheld as payment of the Exercise Price shall be such shares'
fair market value as determined by the Committee. The Committee further may, in
its discretion, permit payment of the Exercise Price in such form or in such
manner as may be permissible under the Plan and under any applicable law.
8. Restrictions on Transfers of Shares Issuable Upon Exercise. Subject to
----------------------------------------------------------
Section 9 hereof, prior to the earlier of (A) 180 days following an Initial
Public Offering or (B) an Approved Sale, the Option Shares shall not be
transferable or transferred, assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) except that the Optionee may transfer
the Option Shares (i) to a permitted transferee, as defined in Section 5 of this
Agreement, or (ii) as permitted by the Certificate of Incorporation. This
Agreement shall be binding on and enforceable against any person who is a
permitted transferee of the Option Shares except a person who acquires the
Option Shares pursuant to (y) Section 4 of Article IV of the Certificate of
Incorporation or (z) as part of the Initial Public Offering. The stock
certificates issued to evidence Option Shares upon exercise of the Option
hereunder shall bear a legend referring to this Agreement and the restrictions
contained herein.
9. Repurchase of Option Shares.
---------------------------
(a) In the event that the Optionee ceases to be employed by the
Company for any reason prior to an Initial Public Offering or an Approved Sale,
the Company, during the sixty (60) days following the Termination Date (the
"Repurchase Period"), shall have a one-time right to purchase all, but not less
than all, of the Option Shares. The purchase price for each Option Share shall
equal Fair Market Value, or, if the Optionee resigns without Good Reason prior
to August 11, 2001 or is terminated for Cause at any time, the lower of Fair
Market Value or the Exercise Price. If the Company elects to purchase the
Option Shares, it shall notify the Optionee at or before the end of the
Repurchase Period of such election and the purchase price shall be paid in cash
at a time set by the Company (the "Repurchase Date") within thirty (30) days
after the end of the Repurchase Period, provided that the Optionee has presented
to the Company a stock certificate evidencing the Option
8
<PAGE>
Shares duly endorsed for transfer (the "Endorsed Certificate"). If the Optionee
fails to deliver the Endorsed Certificate, the Option Shares represented thereby
shall be deemed to have been purchased upon (i) the payment by the Company of
the purchase price to the Optionee or his or her permitted transferee or (ii)
notice to the Optionee or such permitted transferee that the Company is holding
the purchase price for the account of the Optionee or such permitted transferee,
and upon such payment or notice the Optionee and such permitted transferee will
have no further rights in or to such Option Shares. If the Company does not
purchase the Option Shares, the restrictions on transfer thereof contained in
Sections 5 and 8 of this Agreement shall terminate and be of no further force
and effect.
(b) If the Optionee's employment by the Company is terminated prior
to an Initial Public Offering or an Approved Sale (i) by the Company without
Cause or by the Optionee for any reason; (ii) due to the Optionee's Retirement,
death or Disability; or (iii) by the Company with Cause after August 11, 2001,
the Optionee or his or her representative, during the 120 days following the
Termination Date, shall have a one-time right to require HBRS Limited, a Cayman
Islands corporation ("HBRS") to purchase all, but not less than all, of the
Option Shares, unless, by the thirtieth (30) day after HBRS and the Company have
received notice of the Optionee's election to exercise his put right to HBRS,
the Company has notified the Optionee and HBRS of its election, exercisable at
the discretion of the Company, to purchase the Option Shares on the same terms
as such Option Shares were offered to HBRS, in which case such Option Shares
will be acquired by the Company. The purchase price shall be at Fair Market
Value, unless the employment of the Optionee is terminated by the Company
without Cause prior to August 11, 2000, or for any other reason other than
Retirement, death, or Disability prior to August 11, 2001, in which case the
purchase price will be the lower of Fair Market Value or the Exercise Price. The
purchase price shall be paid in cash on the thirtieth (30th) day after HBRS and
the Company have received notice of the Optionee's election to exercise his put
right (the "Put Date"), provided that HBRS or the Company, as the case may be,
need not pay the purchase price until such later time that the Optionee presents
to the Company the Endorsed Certificate.
(c) In the event that, following the Termination Date, the Optionee
exercises an Option in accordance with Section 4(b) hereof, by notice to the
Optionee delivered during the Repurchase Period, the Company may elect to
purchase any Option Shares so acquired, and the Optionee may elect to put said
shares to HBRS (subject to the right of the Company to purchase the Option
Shares pursuant to Section 9(b)) by notice to such effect during the 120 day
period following the Termination Date. If notice with respect to the purchase
or put of such Option Shares was delivered as provided in the first sentence of
this paragraph, the Option Shares acquired upon such exercise shall be acquired
by the Company on the thirty-first (31st) day following the date on which the
Optionee received the notice of the determination of the EBITDAR for the Fiscal
Year during which the Termination Date occurred at Fair Market Value calculated
as of the relevant Termination Date.
9
<PAGE>
(d) The Fair Market Value of Option Shares to be purchased by the
Company or HBRS, as the case may be, hereunder shall be determined in good faith
by the Company's Board of Directors. The Board of Directors shall make its
determination of Fair Market Value annually (the "Annual Valuation") promptly
after the completion of the Company's audited financial statements for the year
then completed and such determination shall remain in effect until the Board of
Directors makes the next Annual Valuation. Notwithstanding the foregoing, if
the Board of Directors or an investment banker or appraiser appointed by the
Company makes a determination of Fair Market Value subsequent to an Annual
Valuation, such subsequent determination shall supersede the Annual Valuation
then in effect and shall establish the Fair Market Value until the next Annual
Valuation. The Fair Market Value shall be based on an assumed sale of 100% of
the outstanding capital stock of the Company (without reduction for minority
interest or lack of liquidity of the Option Shares or similar discount) and
determined in a manner consistent with the manner in which the purchase price to
be paid by the Investors pursuant to the Recapitalization Agreement was
determined. If such determination of the Fair Market Value is challenged by the
Optionee, a mutually acceptable investment banker or appraiser shall establish
the Fair Market Value as of the date of valuation referenced in the Annual
Valuation or a subsequent determination. The investment banker's or appraiser's
determination shall be conclusive and binding on the Company and the Optionee.
Upon request by the Optionee the Company shall make available to the Optionee a
description of the methodology employed by the investment banker or appraiser in
making the determination of Fair Market Value, which description shall include,
to the extent relevant, a listing of companies used in comparing market and
transaction valuations, the range of multiples applied, and the terminal
valuation, discount factor and multiples used in any discounted cash flow
analysis. The Company shall bear all costs incurred in connection with the
services of such investment banker or appraiser unless (i) the Fair Market Value
established by such investment banker or appraiser is less than or equal to 120%
but more than 110% of the determination challenged by the Optionee, in which
case the Optionee shall promptly pay or reimburse the Company fifty percent
(50%) for such costs, or (ii) the Fair Market Value established by such
investment banker or appraiser is equal to or less than 110% of the
determination challenged by the Optionee, in which case the Optionee shall
promptly pay or reimburse the Company for one hundred percent (100%) of such
costs. If the Optionee and the Company cannot agree upon an investment banker or
appraiser, they shall each choose an investment banker or appraiser and the two
shall choose a third investment banker or appraiser who shall establish the Fair
Market Value.
(e) The Optionee shall not be considered to have ceased to be
employed by the Company for purposes of this Agreement if he or she continues to
be employed by the Company or a Subsidiary, or by a company of which the Company
is a Subsidiary.
10. Compliance with Legal Requirements.
----------------------------------
(a) No Option Shares shall be issued or transferred pursuant to this
Agreement unless and until all legal requirements applicable to such issuance or
transfer
10
<PAGE>
have, in the opinion of counsel to the Company, been satisfied. Such
requirements may include, but are not limited to, registering or qualifying such
Shares under any state or federal law, satisfying any applicable law relating to
the transfer of unregistered securities or demonstrating the availability of an
exemption from applicable laws, placing a legend on the Shares to the effect
that they were issued in reliance upon an exemption from registration under the
Securities Act of 1933, as amended (the "Act"), and may not be transferred other
than in reliance upon Rule 144 or Rule 701 promulgated under the Act, if
available, or upon another exemption from the Act, or obtaining the consent or
approval of any governmental regulatory body.
(b) The Optionee understands that the Company intends for the
offering and sale of Option Shares to be effected in reliance upon Rule 701 or
another available exemption from registration under the Act and intends to file
a Form 701 as appropriate, and that the Company is under no obligation to
register for resale the Option Shares issued upon exercise of the Option,
subject to the Certificate of Incorporation. In connection with any such
issuance or transfer, the person acquiring the Option Shares shall, if requested
by the Company, provide information and assurances satisfactory to counsel to
the Company with respect to such matters as the Company reasonably may deem
desirable to assure compliance with all applicable legal requirements.
11. Equity Dilution Protection. In the event that, at any time after the
--------------------------
date hereof, the Company issues any equity securities at a price that is less
than the fair market value of such securities as determined by the Board in its
reasonable discretion (an "Antidilution Event"), not more than thirty (30) days
following such issuance the Executive shall be provided the opportunity to
acquire the equity interests in the Company described in Exhibit B. For
purposes of this Section 11, any common equity issued at a price per share of
not less than $25 prior to August 12, 1999 shall be deemed to have been issued
at fair market value.
12. Subject to Certificate of Incorporation. The Optionee acknowledges
---------------------------------------
that the Option Shares are subject to the terms of the Certificate of
Incorporation.
13. No Interest in Shares Subject to Option. Neither the Optionee
---------------------------------------
(individually or as a member of a group) nor any beneficiary or other person
claiming under or through the Optionee shall have any right, title, interest, or
privilege in or to any shares of stock allocated or reserved for the purpose of
the Plan or subject to this Agreement except as to such Option Shares, if any,
as shall have been issued to such person upon exercise of an Option or any part
thereof.
14. Plan Controls. The Option hereby granted is subject to, and the
-------------
Company and the Optionee agree to be bound by, all of the terms and conditions
of the Plan as the same may be amended from time to time in accordance with the
terms thereof, but no such amendment shall be effective as to the Option without
the Optionee's consent insofar as it may adversely affect the Optionee's rights
under this Agreement.
11
<PAGE>
15. Not an Employment Contract. Nothing in the Plan, in this Agreement or
--------------------------
any other instrument executed pursuant thereto shall confer upon the Optionee
any right to continue in the employ of the Company or any Subsidiary or shall
affect the right of the Company or any Subsidiary to terminate the employment of
the Optionee with or without Cause.
16. Governing Law. All terms of and rights under this Agreement shall be
-------------
governed by and construed in accordance with the internal laws of the
Commonwealth of Pennsylvania, without giving effect to principles of conflicts
of law.
17. Taxes. The Committee may, in its discretion, make such provisions and
-----
take such steps as it may deem necessary or appropriate for the withholding of
all federal, state, local and other taxes required by law to be withheld with
respect to the issuance or exercise of the Option including, but not limited to,
deducting the amount of any such withholding taxes from any other amount then or
thereafter payable to the Optionee, requiring the Optionee to pay to the Company
the amount required to be withheld or to execute such documents as the Committee
deems necessary or desirable to enable it to satisfy its withholding
obligations, or any other means provided in the Plan; provided further that the
Optionee may satisfy all aforesaid withholding tax obligations by directing the
Company to withhold that number of Option Shares with an aggregate Fair Market
Value equal to the amount of all federal, state, local and other taxes required
to be withheld, or delivering to the Company such number of previously held
shares.
18. Notices. All notices, requests, demands and other communications
-------
pursuant to this Agreement shall be in writing and shall be deemed to have been
duly given if personally delivered, telexed or telecopied to, or, if mailed,
when received by, the other party at the following addresses (or at such other
address as shall be given in writing by either party to the other):
If to the Company to:
Harborside Healthcare
470 Atlantic Avenue
Boston, Massachusetts 02210
Attention: Chief Financial Officer
If to HBRS to:
HBRS Limited
P.O. Box 1111, West Wind Building
Grand Cayman, Cayman Islands B.W.I.
12
<PAGE>
With a copy to:
Investcorp Management Services Limited
c/o Investcorp Bank E.C.
P.O. Box 5430
Manama, Bahrain
Attention: H. Richard Lukens, III
If to the Optionee to the address set forth below the Optionee's signature
below.
19. Amendments and Waivers. This Agreement may be amended, and any
----------------------
provision hereof may be waived, only by a writing signed by the party to be
charged.
20. Entire Agreement. This Agreement, together with the Plan, sets forth
----------------
the entire agreement and understanding between the parties as to the subject
matter hereof and supersedes all prior oral and written and all contemporaneous
oral discussions, agreements and understandings of any kind or nature.
21. Separability. In the event that any provision of this Agreement is
------------
declared to be illegal, invalid or otherwise unenforceable by a court of
competent jurisdiction, such provision shall be reformed, if possible, to the
extent necessary to render it legal, valid and enforceable, or otherwise
deleted, and the remainder of this Agreement shall not be affected except to the
extent necessary to reform or delete such illegal, invalid or unenforceable
provision.
22. Headings. The headings preceding the text of the sections hereof are
--------
inserted solely for convenience of reference, and shall not constitute a part of
this Agreement, nor shall they affect its meaning, construction or effect.
23. Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original, but which together shall constitute
one and the same instrument.
24. Further Assurances. Each party shall cooperate and take such action
------------------
as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement.
25. Remedies. In the event of a breach by any party to this Agreement of
--------
its obligations under this Agreement, any party injured by such breach, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, shall be entitled to specific performance of its rights
under this Agreement. The parties agree that the provisions of this Agreement
shall be specifically enforceable, it being agreed by the parties that the
remedy at law, including monetary damages, for breach of any such provision will
be inadequate compensation for any loss and that any defense in any action for
specific performance that a remedy at law would be adequate is hereby waived.
13
<PAGE>
26. Binding Effect. This Agreement shall inure to the benefit of and be
--------------
binding upon the parties hereto and their respective permitted successors and
assigns.
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
HARBORSIDE HEALTHCARE CORPORATION
By: /s/ S. L. Guillard
-------------------------------
Name:
Title:
OPTIONEE
/s/ Steven V. Raso
----------------------------------
STEVEN V. RASO
Address:__________________________
223 CARNATION CIRCLE
----------------------------------
READING, MA 01867
----------------------------------
Number of Option Shares: 50,771
Accepted and agreed to for purposes
of Section 9(b) only:
HBRS LIMITED
By: /s/ Sydney J. Coleman
___________________________
Name: The Director Ltd.
Title: Director
15
<PAGE>
EXHIBIT A
---------
EARNINGS BEFORE INTEREST, TAXES,
DEPRECIATION, AMORTIZATION AND RENT
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
(A) (B) (C)
Year ending Annual Cumulative
December 31, Portion* Target Target
------------ -------- ------ ----------
<S> <C> <C> <C>
1998 7.5% $ 51 $ 51
1999 20.0% $ 80 $131
2000 20.0% $114 $245
2001 20.0% $151 $396
2002 20.0% $192 $588
2003 12.5% $238 $826
</TABLE>
*PERCENTAGE OF TOTAL GRANT THAT IS ELIGIBLE FOR VESTING
Earnings Before Interest, Taxes, Depreciation, Amortization and Rent
("EBITDAR") for a particular period is defined as consolidated net income (loss)
of the Company and its subsidiaries as shown on the consolidated statement of
income (loss) for such period prepared in accordance with U.S. GAAP consistently
applied plus (minus) the following amounts, to the extent such amounts are
----
otherwise taken into account in determining such consolidated net income (loss)
(prior to adjustment):
1. Any provision (benefit) for taxes, including franchise taxes, deducted
(added) in calculating such consolidated net income (loss);
2. Any interest expense (net of interest income (other than interest
income reflected in the Management EBITDAR Projections dated March, 1998)),
deducted in calculating such consolidated net income (loss);
3. Amortization expenses deducted in calculating such consolidated net
income (loss);
4. Depreciation expense deducted in calculating such consolidated net
income (loss);
5. Rent expense deducted in calculating such consolidated net income
(loss);
6. Management fees paid to Investcorp to the extent recorded as an expense
in calculating such consolidated net income (loss);
7. Any unusual losses (gains) deducted (added) in calculating such
consolidated net income (loss). This adjustment is intended to exclude, in the
calculation of EBITDAR, the
<PAGE>
effects, if any, of any transactions outside of the Company's ordinary course of
business as and to the extent determined to be appropriate in good faith by the
Board;
8. Any expense (income) deducted (added) in calculating such consolidated
net income (loss) attributable to transactions involving equity securities of
the Company or its subsidiaries.
The Board reserves the right to make other adjustments to EBITDAR or the
EBITDAR targets as the Board determines in good faith are appropriate to take
into account the effect of material transactions or events during the period
including without limitation acquisitions, divestitures, equity issuances and
significant changes to capital expenditure plans.
In determining whether and to what extent EBITDAR targets have been met for
a period, the aggregate amount of compensation payable to employees as a result
of meeting such targets will be deducted from EBITDAR to the extent not
otherwise included in the calculation of consolidated net income (loss) for such
period.
2
<PAGE>
EXHIBIT B
---------
EQUITY DILUTION PROTECTION
If the Executive is permitted to acquire additional equity in the Company
pursuant to Section 11 of the Agreement, the Company shall loan (the "Loan") the
Executive, on a full recourse basis, the amount necessary to enable the
Executive to acquire the amount of stock of the Company determined pursuant to
paragraph (A) below, at a price per share (the "Acquisition Price") equal to the
most recent price at which the Company had issued its capital stock. The Loan
shall bear interest at a floating rate equal to the rate the Company is required
to pay with respect to its Senior Credit Facility, all such interest to accrue
until the Maturity Date. The Maturity Date of the Loan will be the earliest of
(i) the Termination of the Executive's employment with the Company, (ii) any
time after 180 days following an Initial Public Offering of the Company if, and
to the extent, the Executive is permitted under applicable securities laws
and/or other contractual arrangements to which the Company is a party to sell
any of the Executive's stock in the Company; provided, that in all events the
--------
Loan is repaid not later than sixty (60) days after the date on which all shares
of stock acquired by the Executive with the proceeds of the Loan may be sold as
described in this sentence, (iii) an Approved Sale of the Company, or (iv) the
sale by the Executive of any of the Executive's stock in the Company, to the
extent of the lesser of the net after tax proceeds of such sale or the amount
remaining outstanding on the Loan. In addition, the Executive shall be granted
an option to acquire additional shares of common stock of the Company, at an
exercise price equal to the Acquisition Price, determined in accordance with
Paragraph (B) below. For purposes of this Agreement, "common stock" shall
include the Company's Class A Stock, Class B Stock, Class C Stock, Class D Stock
and Common Stock
Executive Percentage = (the number of shares of common stock of the Company
- --------------------
owned by the Executive) plus (the number of shares of common stock of the
Company with respect to which the Executive has been granted an option to
purchase (whether or not exercisable)) divided by (the aggregate number of
shares of common stock of the Company issued and outstanding immediately prior
to the Antidilution Event) plus (the aggregate number of shares of common Stock
of the Company with respect to which options to purchase have been granted)
Aggregate Antidilution Protection = the aggregate number of shares of common
- ---------------------------------
stock issued in the Antidilution Event for less than fair market value
multiplied by the Executive Percentage
Proration Amount = (the number of shares of common stock of the Company owned by
- ----------------
the Executive) plus (the number of shares of common stock of the Company with
respect to which the Executive has been granted an option to purchase (whether
or not vested)) divided by (the
<PAGE>
aggregate number of shares of common stock of the Company issued to all
employees of the Company and outstanding immediately prior to the Antidilution
Event) plus (the aggregate number of shares of common Stock of the Company with
respect to which, prior to the Antidilution Event, options to purchase (whether
or not exercisable) have been granted to all employees of the Company).
Maximum Purchased Antidilution Protection = Proration Amount multiplied by
- -----------------------------------------
$2,000,000.
(A) To the extent that the value of Aggregate Antidilution Protection shares of
common stock to be acquired in the Antidilution Event (when combined with shares
acquired by the Executive in prior Antidilution Event(s)) does not exceed the
Maximum Purchased Antidilution Protection, the Executive shall be provided the
opportunity to purchase shares of common stock of the Company having a value up
to the amount of the difference between the Maximum Purchased Antidilution
Protection and the value (at the time of purchase) of shares acquired in prior
Antidilution Event(s).
(B) To the extent that the value of Aggregate Antidilution Protection shares of
common stock to be acquired in the Antidilution Event (when combined with shares
acquired by the Executive in prior Antidilution Event(s)) exceeds the Maximum
Purchased Antidilution Protection, the Executive shall be granted an option to
acquire the number of shares of common stock equal to the difference between the
number of Aggregate Antidilution Protection Shares and the number of shares
determined pursuant to paragraph (A) above.
2
<PAGE>
EXHIBIT 10.13
PUT/CALL AGREEMENT
THIS PUT/CALL AGREEMENT ("Agreement") is entered into as of August 11,
---------
1998, by and between Harborside Healthcare Corporation, a Delaware corporation
(the "Company"), and Stephen L. Guillard (the "Executive").
------- ---------
WHEREAS, the Company and HH Acquisition Corp., a Delaware Corporation
("MergerCo"), have entered into an Agreement and Plan of Merger, dated as of
--------
April 15, 1998 (the "Merger Agreement") pursuant to which, upon the Effective
----------------
Time of the Merger (each as defined below), 177,688 shares of Common Stock, par
value $.01 per share, of the Company (the "Common Stock") held by the Executive
------------
will be converted into the right to retain the same number of shares of Class A
Common Stock of the Company ("Management Rollover Stock");
-------------------------
WHEREAS, pursuant to Section 2.4 of the Merger Agreement, the
Executive has elected to retain options to purchase up to 0 shares of Common
Stock, which upon the Effective Time of the Merger, will become exercisable into
shares of Class A Common Stock ("Management Rollover Options" and, when and if
---------------------------
such Management Rollover Options are exercised, the "Management Rollover Option
--------------------------
Shares"); and
- ------
WHEREAS, the Executive and the Company are entering into an Employment
Agreement (the "Employment Agreement") of even date herewith;
--------------------
WHEREAS, the parties desire to provide for certain provisions relating
to the repurchase of the Management Rollover Stock and Management Rollover
Option Shares (collectively, the "Management Rollover Securities") following
------------------------------
certain events.
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.
-------------------
For purposes of this Agreement:
"Approved Sale" means a transaction or a series of related
-------------
transactions which results in a bona fide, unaffiliated change of economic
---- ----
beneficial ownership of the Company or its business of greater than 50%
(disregarding for this purpose any disparate voting rights attributable to the
outstanding stock of the Company), whether pursuant to the sale of the stock of
the Company, the sale of the assets of the Company, or a merger or consolidation
(other than a sale of stock by an Initial Stockholder to (i) another Initial
Stockholder or affiliate thereof, or (ii) a non-U.S. entity with respect to
which an Initial Stockholder or affiliate thereof has an administrative
relationship).
"Cause" shall have the meaning ascribed to that term in the Employment
-----
Agreement.
<PAGE>
"Cost" means $25.00.
----
"Disability" has the meaning set forth in the Employment Agreement.
----------
"Effective Time" means the time at which the Merger becomes effective
--------------
as specified in the Merger Agreement.
"Employment Agreement" means the Employment Agreement between the
--------------------
Company and the Executive dated as of the date hereof.
"Fair Market Value" means the value of a Management Rollover Security,
-----------------
as of the Termination Date, calculated pursuant to Section 5 hereof.
"Fiscal Year" means the fiscal year of the Company.
-----------
"Good Reason" shall have the meaning ascribed to that term in the
-----------
Employment Agreement.
"Initial Public Offering" means the sale of any of the common stock of
-----------------------
the Company pursuant to a registration statement that has been declared
effective under the Securities Act of 1933, as amended, if as a result of such
sale (i) the Company becomes a reporting company under Section 12(b) or 12(g) of
the Securities Exchange Act of 1934, as amended, and (ii) such stock is traded
on the New York Stock Exchange or the American Stock Exchange, or is quoted on
the Nasdaq National Market System or is traded or quoted on any other national
stock exchange or national securities system.
"Initial Stockholders" means the stockholders of the Company who
--------------------
became stockholders as of the Effective Time (other than any such stockholders
who are also employees of the Company prior to the Effective Time) and any
transferees of such stockholders prior to an Initial Public Offering or an
Approved Sale.
"Investors" shall mean those entities set forth on Schedule 1 of the
---------
Merger Agreement.
"Merger" means the merger of MergerCo into the Company pursuant to the
------
Merger Agreement.
"Retirement" shall have the meaning ascribed to that term in the
----------
Employment Agreement.
"Subsidiary" means any joint venture, corporation, partnership or
----------
other entity as to which the Company, whether directly or indirectly, has more
than 50% of the (i) voting rights or (ii) rights to capital or profits.
"Termination Date" means the date on which the Executive ceases to be
----------------
employed by the Company for any reason.
<PAGE>
Certain other items are defined elsewhere in this Agreement.
2. Call Provisions -- Management Rollover Securities.
-------------------------------------------------
In the event that the Executive ceases to be employed by the Company
for any reason prior to an Initial Public Offering or an Approved Sale, the
Company, at any time during the sixty (60) day period following the Termination
Date (the "Repurchase Period"), shall have a one-time right (the "Repurchase
----------------- ----------
Right") to purchase all, but not less than all, of the Management Rollover
- -----
Securities. The purchase price for each Management Rollover Security shall
equal Fair Market Value, or, if the Executive is terminated for Cause, the lower
of Fair Market Value or Cost. If the Company elects to purchase the Management
Rollover Securities, it shall notify the Executive at or before the end of the
Repurchase Period of such election and the purchase price shall be paid in cash
at a time set by the Company (the "Repurchase Date") within thirty (30) days
---------------
after the end of the Repurchase Period, provided that the Executive has
presented to the Company a stock certificate or certificates evidencing the
Management Rollover Securities duly endorsed for transfer (the "Endorsed
--------
Certificates"). If the Executive fails to deliver the Endorsed Certificates,
- ------------
the Management Rollover Securities represented thereby shall be deemed to have
been purchased upon (i) the payment by the Company of the purchase price to the
Executive or his permitted transferee or (ii) notice to the Executive or such
permitted transferee that the Company is holding the purchase price for the
account of the Executive or such permitted transferee, and upon such payment or
notice the Executive and such permitted transferee will have no further rights
in or to such Management Rollover Securities.
3. Put Provisions -- Management Rollover Securities.
------------------------------------------------
If the Executive's employment by the Company is terminated prior to an
Initial Public Offering or an Approved Sale (i) by the Company without Cause or
by the Executive for any reason (provided that the Executive shall not become
employed by a competitor of the Company as determined in good faith by the Board
of Directors of the Company); (ii) due to the Executive's Retirement, death or
Disability; or (iii) by the Company with Cause after August 11, 2001, and the
Company has not exercised its Repurchase Right, the Executive or his or her
representative, during the sixty (60) day period immediately following the
Repurchase Period, shall have a one-time right to require HBRS Limited, a Cayman
Islands corporation ("HBRS") to purchase all, but not less than all, of the
----
Management Rollover Securities, unless, by the thirtieth (30th) day after HBRS
and the Company have received notice of the Executive's election to exercise his
put right to HBRS, the Company has notified the Executive and HBRS of its
election, exercisable at the discretion of the Company, to purchase the
Management Rollover Securities on the same terms as such Management Rollover
Securities were offered to HBRS, in which case such Management Rollover
Securities will be acquired by the Company. The purchase price shall be at Fair
Market Value, unless the employment of the Executive is terminated by the
Company without Cause prior to August 11, 2000, or for any other reason other
than Good Reason, Retirement, death, or Disability prior to August 11, 2001, in
which case the purchase price will be the lower of Fair Market Value or Cost.
The purchase price shall be paid in cash on the thirtieth (30th) day after HBRS
and the Company have received notice of the Executive's election to exercise his
put right (the "Put Date"), provided that HBRS or the
--------
<PAGE>
Company, as the case may be, need not pay the purchase price until such later
time that the Executive presents to the Company the Endorsed Certificates.
4. Put/Call Provisions -- Management Rollover Options.
--------------------------------------------------
In the event that the Executive exercises a Management Rollover Option
following the Executive's Termination Date in accordance with the provisions
governing such Management Rollover Option, the Company may elect to purchase any
Management Rollover Option Shares so acquired at any time by notice to such
effect during the 60 days following the date of exercise (the "Exercise Date"),
-------------
and the Executive may elect to put said shares to HBRS (subject to the right of
the Company to purchase the Management Rollover Option Shares pursuant to the
provisions hereof) by notice to such effect during the following 60-day period.
Payment shall be made to the Executive in the amounts and subject to the terms
set forth in Sections 2 and 3 hereof (substituting the Exercise Date for the
Termination Date).
5. Determination Of Fair Market Value.
----------------------------------
The Fair Market Value of the Management Rollover Securities to be
purchased by the Company or HBRS, as the case may be, hereunder shall be
determined in good faith by the Company's Board of Directors. The Board of
Directors shall make its determination of Fair Market Value annually (the
"Annual Valuation") promptly after the completion of the Company's audited
- -----------------
financial statements for the year then completed and such determination shall
remain in effect until the Board of Directors makes the next Annual Valuation.
Notwithstanding the foregoing, if the Board of Directors or an investment banker
or appraiser appointed by the Company makes a determination of Fair Market Value
subsequent to an Annual Valuation, such subsequent determination shall supersede
the Annual Valuation then in effect and shall establish the Fair Market Value
until the next Annual Valuation. The Fair Market Value shall be based on an
assumed sale of 100% of the outstanding capital stock of the Company (without
reduction for minority interest or lack of liquidity of the Management Rollover
Securities or similar discount) and determined in a manner consistent with the
manner in which the purchase price to be paid by the Investors pursuant to the
Recapitalization Agreement was determined. If such determination of the Fair
Market Value is challenged by the Executive, a mutually acceptable investment
banker or appraiser shall establish the Fair Market Value as of the date of
valuation referenced in the Annual Valuation or a subsequent determination. The
investment banker's or appraiser's determination shall be conclusive and binding
on the Company and the Executive. Upon request by the Executive the Company
shall make available to the Executive a description of the methodology employed
by the investment banker or appraiser in making the determination of Fair Market
Value. The Company shall bear all costs incurred in connection with the
services of such investment banker or appraiser unless (i) the Fair Market Value
established by such investment banker or appraiser is less than or equal to 120%
but more than 110% of the determination challenged by the Executive, in which
case the Executive shall promptly pay or reimburse the Company fifty percent
(50%) for such costs, or (ii) the Fair Market Value established by such
investment banker or appraiser is equal to or less than 110% of the
determination challenged by the Executive, in which case the Executive shall
promptly pay or reimburse the Company for one hundred percent (100%) of such
costs. If the Executive and the
<PAGE>
Company cannot agree upon an investment banker or appraiser, they shall each
choose an investment banker or appraiser and the two investment bankers or
appraisers shall then choose a third investment banker or appraiser who shall
establish the Fair Market Value.
6. Additional Provisions.
---------------------
a. Employment with Subsidiary. The Executive shall not be considered
--------------------------
to have ceased to be employed by the Company for purposes of this Agreement if
he or she continues to be employed by the Company or a Subsidiary, or by a
company of which the Company is a Subsidiary.
b. Non-Transferability of Interest. The Executive agrees not to
-------------------------------
transfer any Management Rollover Securities unless the prospective transferee
has entered into a letter agreement substantially similar to this Agreement and
in form and substance acceptable to the Company.
c. Legend. Any transferee of the Management Rollover Securities
------
shall be bound by the provisions of this Agreement, and each certificate
representing one or more Management Rollover Securities shall bear a legend
clearly stating such restriction.
d. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York, without regard to
principles of conflicts of law.
e. Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original, but both of which taken together
shall constitute one and the same Agreement.
f. Captions. The captions used herein are for ease of reference only
--------
and shall not define or limit the provisions hereof.
g. Notice. Any notice required or permitted to be given hereunder
------
shall be deemed sufficiently given if sent by registered or certified mail,
postage prepaid, addressed to the addressee at his or its address last provided
the sender in writing by the addressee for purposes of receiving notices
hereunder or, unless or until such address shall be so furnished, to the address
indicated opposite his or its signature to this Agreement. Each party may also
provide notice by sending the other party a facsimile at a number provided by
such other party.
h. Modification and No Waiver of Breach. No waiver or modification
------------------------------------
of this Agreement shall be binding unless it is in writing, approved by the
Board of Directors of the Company and signed by the parties hereto. No waiver
by a party of a breach hereof by the other party shall be deemed to constitute a
waiver of a future breach, whether of a similar or dissimilar nature, except to
the extent specifically provided in any written waiver under this Section 6(h).
<PAGE>
IN WITNESS WHEREOF, this Agreement is entered into as of the date
first above written.
HARBORSIDE HEALTHCARE CORPORATION
By: /s/ William H. Stephan
----------------------
Name:
Title:
EXECUTIVE
/s/ Stephen L. Guillard
-----------------------
Stephen L. Guillard
Accepted and agreed:
HBRS LIMITED
By: /s/ Sydney J. Coleman
---------------------
Name: The Director Ltd.
Title: Director
<PAGE>
EXIHIBIT 10.19
CONFORMED COPY
- --------------------------------------------------------------------------------
HARBORSIDE HEALTHCARE CORPORATION
____________________________________
CREDIT AGREEMENT
dated as of August 11, 1998
____________________________________
$250,000,000
Credit Facility
____________________________________
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,
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1. DEFINITIONS............................................................... 2
1.1 Defined Terms............................................................. 2
1.2 Other Definitional Provisions............................................. 28
SECTION 2. AMOUNT AND TERMS OF REVOLVING
CREDIT COMMITMENTS...................................................... 29
2.1 Revolving Credit Commitments.............................................. 29
2.2 Commitment Fee............................................................ 30
2.3 Proceeds of Revolving Credit Loans........................................ 30
2.4 Swing Line Commitment..................................................... 30
2.5 Issuance of Letters of Credit............................................. 32
2.6 Participating Interests................................................... 32
2.7 Procedure for Opening Letters of Credit................................... 33
2.8 Payments in Respect of Letters of Credit.................................. 33
2.9 Letter of Credit Fees..................................................... 34
2.10 Letter of Credit Reserves................................................. 34
2.11 Further Assurances........................................................ 35
2.12 Obligations Absolute...................................................... 35
2.13 Assignments............................................................... 36
2.14 Participations............................................................ 36
2.15 Conversion to Term Loans.................................................. 36
SECTION 3. GENERAL PROVISIONS APPLICABLE TO LOANS.................................... 37
3.1 Procedure for Borrowing................................................... 37
3.2 Conversion and Continuation Options....................................... 38
3.3 Changes of Commitment Amounts............................................. 38
3.4 Optional and Mandatory Prepayments; Repayments of Term Loans.............. 39
3.5 Interest Rates and Payment Dates.......................................... 42
3.6 Computation of Interest and Fees.......................................... 42
3.7 Certain Fees.............................................................. 43
3.8 Inability to Determine Interest Rate...................................... 43
3.9 Pro Rata Treatment and Payments........................................... 43
3.10 Illegality................................................................ 46
3.11 Requirements of Law....................................................... 47
3.12 Indemnity................................................................. 49
3.13 Repayment of Loans; Evidence of Debt...................................... 50
3.14 Replacement of Lenders.................................................... 51
3.15 Appointment of the Company and Reliance on Representation of the Company.. 51
SECTION 4. REPRESENTATIONS AND WARRANTIES............................................ 51
4.1 Financial Condition....................................................... 52
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
4.2 No Change................................................................. 53
4.3 Corporate Existence; Compliance with Law.................................. 53
4.4 Corporate Power; Authorization............................................ 54
4.5 Enforceable Obligations................................................... 54
4.6 No Legal Bar.............................................................. 55
4.7 No Material Litigation.................................................... 55
4.8 Investment Company Act.................................................... 55
4.9 Federal Regulation........................................................ 55
4.10 No Default................................................................ 56
4.11 Taxes..................................................................... 56
4.12 Subsidiaries.............................................................. 56
4.13 Ownership of Property; Liens.............................................. 56
4.14 ERISA..................................................................... 57
4.15 Security Documents........................................................ 58
4.16 Copyrights, Patents, Permits, Trademarks and Licenses..................... 58
4.17 Environmental Matters..................................................... 59
4.18 Accuracy and Completeness of Information.................................. 60
4.19 AcquisitionCo............................................................. 60
4.20 Health Care Permits....................................................... 60
4.21 Year 2000................................................................. 61
SECTION 5. CONDITIONS PRECEDENT...................................................... 61
5.1 Conditions to Initial Revolving Credit Loans and Letters of Credit........ 61
5.2 Conditions to All Loans and Letters of Credit............................. 66
SECTION 6. AFFIRMATIVE COVENANTS..................................................... 67
6.1 Financial Statements...................................................... 67
6.2 Certificates; Other Information........................................... 69
6.3 Payment of Obligations.................................................... 70
6.4 Conduct of Business and Maintenance of Existence.......................... 71
6.5 Maintenance of Property; Insurance........................................ 71
6.6 Inspection of Property; Books and Records; Discussions.................... 71
6.7 Notices................................................................... 72
6.8 Environmental Laws........................................................ 73
6.9 Additional Collateral..................................................... 74
6.10 Health Care Permits and Approvals......................................... 76
6.11 Operating Leases.......................................................... 77
6.12 Mortgages................................................................. 77
SECTION 7. NEGATIVE COVENANTS........................................................ 77
7.1 Indebtedness.............................................................. 78
7.2 Limitation on Liens....................................................... 82
7.3 Limitation on Contingent Obligations...................................... 83
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
7.4 Prohibition of Fundamental Changes........................................ 85
7.5 Prohibition on Disposition of Assets...................................... 85
7.6 Limitation on Investments, Loans and Advances............................. 87
7.7 Capital Expenditures...................................................... 91
7.8 Interest Rate Agreements.................................................. 92
7.9 Debt to EBITDA............................................................ 92
7.10 Coverage Ratio............................................................ 93
7.11 Limitation on Dividends................................................... 94
7.12 Transactions with Affiliates.............................................. 95
7.13 Prepayments and Amendments of Subordinated Debt........................... 96
7.14 Limitation on Changes in Fiscal Year...................................... 96
7.15 Limitation on Lines of Business........................................... 96
7.16 Health Care Permits and Approvals......................................... 96
7.17 Preferred Stock........................................................... 97
SECTION 8. EVENTS OF DEFAULT......................................................... 97
SECTION 9. MISCELLANEOUS............................................................. 100
9.1 Amendments and Waivers.................................................... 100
9.2 Notices................................................................... 101
9.3 No Waiver; Cumulative Remedies............................................ 102
9.4 Survival of Representations and Warranties................................ 103
9.5 Payment of Expenses and Taxes............................................. 103
9.6 Successors and Assigns; Participations and Assignments.................... 104
9.7 Set-off................................................................... 108
9.8 Counterparts.............................................................. 109
9.9 Governing Law; No Third Party Rights...................................... 109
9.10 Submission to Jurisdiction; Waivers....................................... 109
9.11 Releases.................................................................. 110
9.12 Interest.................................................................. 110
9.13 Special Indemnification................................................... 111
9.14 Permitted Payments and Transactions....................................... 111
9.15 Harborside of Rhode Island................................................ 112
</TABLE>
<PAGE>
SCHEDULES
Schedule I Borrowers
Schedule II Lenders, Addresses and Commitments
Schedule III Pricing and Commitment Fee Grid
Schedule 2.5 Existing Letters of Credit
Schedule 4.11 Taxes
Schedule 4.12 Subsidiaries
Schedule 4.13 Fee and Leased Properties
Schedule 4.15(a) UCC Filing Offices
Schedule 4.16 Trademarks and Copyrights
Schedule 7.1(a) Existing Indebtedness
Schedule 7.2(i) Existing Liens
Schedule 7.3(e) Existing Contingent Obligations
EXHIBITS
EXHIBIT A Form of Revolving Credit Note
EXHIBIT B Form of Term Loan Note
EXHIBIT C Form of Swing Line Note
EXHIBIT D Form of Assignment and Acceptance
EXHIBIT E Form of Collateral Agreement
EXHIBIT F Form of Agency and Intercreditor Agreement
EXHIBIT G Form of L/C Participation Certificate
EXHIBIT H Form of Swing Line Loan Participation Certificate
EXHIBIT I Form of Subsection 3.11(d)(2) Certificate
EXHIBIT J-1 Form of Opinion of Gibson, Dunn & Crutcher LLP
EXHIBIT J-2 Form of Opinion of In-house or Massachusetts Counsel to the Company
EXHIBIT K-1 Form of Company Closing Certificate
EXHIBIT K-2 Form of Subsidiaries Closing Certificate
EXHIBIT L Form of Mortgage
EXHIBIT M-1 Form of Lease Intercreditor Agreement
EXHIBIT M-2 Form of Loan Intercreditor Agreement
EXHIBIT N Form of Trust Guarantee
<PAGE>
CREDIT AGREEMENT, dated as of August 11, 1998, among HARBORSIDE
HEALTHCARE CORPORATION, a Delaware corporation (the "Company"), and the other
-------
entities listed on Schedule I hereto, as joint and several borrowers hereunder
(together with the Company and any other Subsidiary of the Company that may
become a party hereto as provided herein, the "Borrowers" and, individually, a
---------
"Borrower"), the several lenders from time to time parties hereto (the
--------
"Lenders"), CHASE SECURITIES INC., as arranger (the "Arranger"), MORGAN STANLEY
------- --------
SENIOR FUNDING, INC. and BT ALEX. BROWN INCORPORATED, as co-arrangers
(collectively, in such capacity, the "Co-Arrangers"), MORGAN STANLEY SENIOR
------------
FUNDING, INC., as syndication agent (in such capacity, the "Syndication Agent"),
-----------------
BANKERS TRUST COMPANY, as documentation agent (in such capacity, the
"Documentation Agent"), and THE CHASE MANHATTAN BANK, a New York banking
-------------------
corporation, as administrative agent for the Lenders (in such capacity, the
"Administrative Agent").
--------------------
W I T N E S S E T H :
-------------------
WHEREAS, HH Acquisition Corp., a Delaware corporation
("AcquisitionCo"), and the Company have entered into an Agreement and Plan of
-------------
Merger, dated as April 15, 1998 (together with all schedules and exhibits
attached thereto and any and all amendments, supplements and modifications
thereto and as the same may be hereafter amended, supplemented or otherwise
modified from time to time in accordance with this Agreement, the "Merger
------
Agreement"), pursuant to which AcquisitionCo will be merged with and into the
- ---------
Company (the "Merger"), the Company being the surviving corporation of the
------
Merger;
WHEREAS, upon the Merger, the Investors will own approximately 90% of
the common stock of the Company and certain existing shareholders and management
(the "Existing Shareholders") will own the remaining portion of such common
---------------------
stock;
WHEREAS, the Company intends to finance the Merger (including the
refinancing of certain existing indebtedness) and related premiums, fees and
expenses from the following sources: (a) approximately $175,000,000 in common
equity (consisting of a cash investment of at least approximately 90% of the
common equity from the Investors, with the balance represented by common stock
retained by the Existing Shareholders); (b) approximately $40,000,000 in
exchangeable preferred stock or junior subordinated unsecured loans, with any
amount of exchangeable preferred stock over $40,000,000 reducing the common
equity ownership referenced in clause (a) above by a like amount; (c)
approximately $100,000,000 in gross cash proceeds from an issuance by the
Company of either subordinated unsecured loans or senior subordinated discount
notes; (d) approximately $15,000,000 of drawings under $250,000,000 of senior
secured credit facilities consisting of the credit facilities provided for
herein and/or the Synthetic Lease Facility (as defined below);
<PAGE>
2
WHEREAS, the Borrowers are and will be operated as separate entities
but are and will be operated on an integrated basis in connection with their
respective financial resources; the Borrowers conduct their operations on a
combined basis with shared management, purchasing, planning, financial controls
and other functions; and the access of all Borrowers to the credit facilities
provided for herein benefits all Borrowers in connection with their various
businesses; and
WHEREAS, the Company and the other Borrowers, jointly and severally,
have requested the Lenders to make loans and other extensions of credit
available to the Borrowers: (a) to enable the Company to finance a portion of
the Merger, (b) to refinance certain of the existing indebtedness of the Company
and its subsidiaries, (c) for working capital purposes of the Company and its
subsidiaries; (d) to finance certain acquisitions and capital expenditures and
(e) for general corporate purposes;
NOW, THEREFORE, the Borrowers, the Administrative Agent, the Arranger,
the Co-Arrangers, the Syndication Agent, the Documentation Agent and the Lenders
agree as follows:
1. DEFINITIONS
-----------
1.1 Defined Terms. As used in this Agreement, the terms defined in
-------------
the caption hereto shall have the meanings set forth therein, and the following
terms have the following meanings:
"Acquired Business": any Person or assets acquired by the Company or
-----------------
any Subsidiary in an acquisition permitted by subsection 7.6(g).
"AcquisitionCo": as defined in the Recitals hereto.
-------------
"Acquisition Consideration": with respect to any acquisition, the
-------------------------
aggregate consideration therefor paid by the Company or any Subsidiary
(excluding fees and expenses incurred in connection therewith), including,
without limitation, the cash purchase price payment, upfront cash payments
to obtain purchase options or favorable lease rates, Indebtedness arising
in connection with such acquisition as permitted by subsection 7.1(f) and
the fair market value of Capital Stock of the Company issued in connection
with such acquisition.
"Added Amount": at any time, an amount equal to 10% of the sum of (a)
------------
aggregate Acquisition Consideration given subsequent to the date hereof in
connection with acquisitions of Encumbered Subsidiaries permitted by
subsection 7.6(g)(iv) plus (b) the aggregate appraised value (as set forth
----
in the appraisals furnished pursuant to subsection 6.11) of the properties
that are the subject of operating leases entered into subsequent to the
date hereof under which any Encumbered Subsidiary is the lessee.
<PAGE>
3
"Additional Mortgage": as defined in subsection 6.9(c).
-------------------
"Administrative Agent": as defined in the Preamble hereto.
--------------------
"Adjustment Date": as defined in the definition of Applicable Margin.
---------------
"Affiliate": 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 clause (a) above. For
purposes of this definition, control of a Person shall mean the power,
direct or indirect, (x) to vote 25% 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.
"Agency and Intercreditor Agreement": the Agency and Intercreditor
-----------------------------------
Agreement, substantially in the form of Exhibit F, to be executed and
delivered by the Borrowers, the Trust, the Lenders, the Synthetic Investors
and the Administrative Agent, as the same may be amended, supplemented or
otherwise modified from time to time.
"Agreement": this Credit Agreement, as amended, supplemented or
---------
modified from time to time.
"Alternate Base Rate": for any day, a rate per annum (rounded
-------------------
upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a)
the Prime Rate in effect on such day, (b) the Base CD Rate in effect on
such day plus 1% and (c) the Federal Funds Effective Rate in effect on such
day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate
----------
of interest per annum publicly announced from time to time by the
Administrative Agent as its prime rate in effect at its principal office in
New York City (the Prime Rate not being intended to be the lowest rate of
interest charged by the Administrative Agent in connection with extensions
of credit to debtors); "Base CD Rate" shall mean the sum of (a) the product
------------
of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the numerator
of which is one and the denominator of which is one minus the C/D Reserve
Percentage and (b) the C/D Assessment Rate; "Three-Month Secondary CD Rate"
-----------------------------
shall mean, for any day, the secondary market rate for three-month
certificates of deposit reported as being in effect on such day (or, if
such day shall not be a Business Day, the next preceding Business Day) by
the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of
the Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day), or, if such rate shall not be so
reported on such day or such next preceding Business Day, the average of
the secondary market quotations for three-month certificates of deposit of
major money center banks in
<PAGE>
4
New York City received at approximately 10:00 A.M., New York City time, on
such day (or, if such day shall not be a Business Day, on the next
preceding Business Day) by the Administrative Agent from three New York
City negotiable certificate of deposit dealers of recognized standing
selected by it; and "Federal Funds Effective Rate" shall mean, for any day,
----------------------------
the weighted average of the rates on overnight federal funds transactions
with members of the Federal Reserve System arranged by federal funds
brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day
which is a Business Day, the average of the quotations for the day of such
transactions received by the Administrative Agent from three federal funds
brokers of recognized standing selected by it. Any change in the Alternate
Base Rate due to a change in the Prime Rate, the Base CD Rate or the
Federal Funds Effective Rate shall be effective as of the opening of
business on the effective day of such change in the Prime Rate, the Base CD
Rate or the Federal Funds Effective Rate, respectively.
"Alternate Base Rate Loans": Loans at such time as they are made
-------------------------
and/or being maintained at a rate of interest based upon the Alternate Base
Rate.
"Ancillary Businesses": any businesses ancillary to the operation of
--------------------
a Health Care Facility such as the rehabilitative therapy, home healthcare
and pharmaceutical businesses associated therewith.
"Applicable Margin": for Term Loans, Revolving Credit Loans and Swing
-----------------
Line Loans of the Types set forth below, the rate per annum set forth under
the relevant column heading opposite such Loans below:
<TABLE>
<CAPTION>
Alternate
Base Rate Eurodollar
Loans Loans
--------- ----------
<S> <C> <C>
Term Loans: 1.25% 2.25%
Revolving Credit Loans: 1.25% 2.25%
Swing Line Loans: 1.25% Not applicable;
</TABLE>
provided that the Applicable Margin with respect to the Loans will be
--------
adjusted on each Adjustment Date (as defined below) occurring after the
completion of four fiscal quarters of the Company after the Closing Date to
the applicable rate per annum set forth in the pricing grid attached hereto
as Schedule III based on the Leverage Ratio as determined from the relevant
financial statements delivered pursuant to subsection 6.1. Changes in the
Applicable Margin resulting from changes in the Leverage Ratio shall become
effective on each date (an "Adjustment Date") on which such financial
---------------
statements are delivered to the Lenders (but in any event not later than
the 45th day after the end of each of the first three quarterly periods of
each fiscal year or the 90th day after the end of each fiscal year as the
case may be) and shall remain in effect until the next change to be
<PAGE>
5
effected pursuant to this definition; provided that (a) the Applicable
--------
Margin shall be initially the rate per annum set forth under the relevant
column heading above; (b) if for any reason the financial statements
required by subsection 6.1 are not timely delivered to the Lenders, (i)
during the period from the date upon which such financial statements were
required to be delivered until the date upon which they actually are
delivered, the Applicable Margin shall be the Applicable Margin in effect
immediately prior to the date such financial statements were due, and (ii)
if such financial statements, when actually delivered, would have required
an increase in the Applicable Margin over the Applicable Margin in effect
immediately prior to the date such financial statements were due, the
Company shall promptly following the delivery of such financial statements
pay to the Lenders and the Administrative Agent any additional amounts of
interest or fees which would have been payable on any previous Interest
Payment Date had such higher Applicable Margin been in effect from the date
such financial statements were required to be delivered; (c) any change in
the Applicable Margin as a result of a change in the Leverage Ratio shall
apply to all Loans for each day during the period commencing on the
effective date of such change and ending on the date immediately preceding
the effective date of the next such change in the Applicable Margin; and
(d) if an Event of Default exists on any Adjustment Date or other date upon
which the Applicable Margin would otherwise be adjusted hereunder, the
Applicable Margin shall in no event be reduced on such Adjustment Date or
other date from the Applicable Margin in effect immediately prior to such
Adjustment Date or other date.
"Arranger": as defined in the Preamble hereto.
--------
"Asset Sale": any sale, sale-leaseback, or other disposition by the
----------
Company or any Subsidiary restricted by subsection 7.5 of any of its
property or assets, including the stock of any Subsidiary, except sales and
dispositions permitted by subsections 7.5(a), (b), (c), (f), (g), (i) and
(k).
"Assignee": as defined in subsection 9.6(c).
--------
"Assignment and Acceptance": an assignment and acceptance
-------------------------
substantially in the form of Exhibit D.
"Authorized Officer": each of Steven L. Guillard, William H. Stephan
------------------
and each additional or substitute officer as the Company notifies the
Administrative Agent in writing.
"Available Revolving Credit Commitment": as to any Lender, at a
-------------------------------------
particular time, an amount equal to (a) the amount of such Lender's
Revolving Credit Commitment at such time less (b) the sum of (i) the
----
aggregate unpaid principal amount at such time of all Revolving Credit
Loans made by such Lender pursuant to subsection 2.1, (ii) such Lender's
Revolving Credit Percentage of the aggregate unpaid principal amount at
such time of all Swing Line Loans, provided that for purposes of
--------
calculating the Revolving
<PAGE>
6
Credit Commitments pursuant to subsection 2.2 the amount referred to in
this clause (ii) shall be zero, (iii) such Lender's L/C Participating
Interest in the aggregate amount available to be drawn at such time under
all outstanding Letters of Credit issued by the Issuing Lender, (iv) such
Lender's Revolving Credit Percentage of the aggregate outstanding amount of
L/C Obligations and (v) such Lender's Revolving Credit Percentage of the
then aggregate principal amount of the Synthetic Lease Obligations;
collectively, as to all the Lenders, the "Available Revolving Credit
--------------------------
Commitments".
-----------
"Bankruptcy Code": Title I of the Bankruptcy Reform Act of 1978, as
---------------
amended and codified at Title 11 of the United States Code.
"Board": the Board of Governors of the Federal Reserve System of the
-----
United States, together with any successor.
"Borrower" and "Borrowers": as defined in the Preamble hereto.
-------- ---------
"Borrowing Date": any Business Day specified in a notice pursuant to
--------------
(a) subsection 2.4 or 3.1 as a date on which the Company requests the Swing
Line Lender or the Lenders to make Loans hereunder or (b) subsection 2.5 as
a date on which the Company requests the Issuing Lender to issue a Letter
of Credit hereunder.
"Bridge Commitment Letter": the Commitment Letter and term sheet
------------------------
thereto dated as of April 30, 1998 by and between Investcorp Investment
Equity Limited, on its behalf and on behalf of certain of its affiliates
and other investors and Morgan Stanley Bridge Fund L.L.C., Chase
Securities, Inc. and Bankers Trust Corporation.
"Bridge Junior Subordinated Debt": the junior subordinated unsecured
-------------------------------
bridge loans or exchange or rollover notes of the Company outstanding from
time to time pursuant to the Bridge Loan Agreement or the Indenture
contemplated thereby.
"Bridge Loan Agreement": the Bridge Loan Agreement that may be
---------------------
entered into pursuant to the Bridge Commitment Letter among Morgan Stanley
Bridge Fund L.L.C., Chase Securities, Inc., Bankers Trust Corporation and
an affiliate of AcquisitionCo, as the same may be amended, supplemented or
otherwise modified from time to time in accordance with its terms and the
terms of this Agreement.
"Bridge Senior Subordinated Debt": the senior subordinated unsecured
-------------------------------
bridge loans or exchange or rollover notes of the Company outstanding from
time to time pursuant to the Bridge Loan Agreement or the Indenture
contemplated thereby.
"Business Day": (a) for all purposes other than as covered by clause
------------
(b) below, a day other than a Saturday, Sunday or other day on which
commercial banks in New York City are authorized or required by law to
close and (b) with respect to all notices and determinations in connection
with, and payments of principal and interest on, Eurodollar
<PAGE>
7
Loans, any day which is a Business Day described in clause (a) and which is
also a day for trading by and between banks in Dollar deposits in the
interbank eurodollar market in London.
"Capital Expenditures": for any period, all amounts which would, in
--------------------
accordance with GAAP, be set forth as capital expenditures (exclusive of
any amount attributable to capitalized interest) on the consolidated
statement of cash flows or other similar statement of the Company and its
Subsidiaries for such period but shall exclude (a) any expenditures made
with the proceeds of condemnation or eminent domain proceedings affecting
real property or with insurance proceeds, provided that any Capital
--------
Expenditures financed with the proceeds of any Indebtedness permitted
hereunder (other than Indebtedness incurred hereunder) shall be deemed to
be a Capital Expenditure only in the period in which, and by the amount
which, any principal of such Indebtedness is repaid, (b) any expenditures
constituting a reinvestment contemplated by subsection 7.5(e), 7.5(h)(i) or
7.5(j), (c) expenditures made in connection with acquisitions permitted by
subsection 7.6(g) (other than subsection 7.6(g)(ii)(B)) and (d) with
respect to any acquired Person or assets operating or including, as the
case may be, a Health Care Facility, any capital expenditures with respect
thereto that have been identified by the acquiring Person at the time of
the acquisition of such Person or assets so long as the aggregate amount of
such capital expenditures does not exceed an amount equal to the greater of
(i) 10% of the Acquisition Consideration for such acquired Person or assets
and (ii) $3,000,000.
"Capital Stock": any and all shares, interests, participations or
-------------
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person (other than a
corporation) and any and all warrants, rights or options to purchase any of
the foregoing.
"Cash Equivalents": (a) securities issued or directly and fully
----------------
guaranteed or insured by the United States or any agency or instrumentality
thereof having maturities of not more than six months from the date of
acquisition, (b) 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 Lender or with any domestic (in the case of
any investments, acquisitions or holdings by the Company or its Domestic
Subsidiaries) commercial bank or trust company having capital and surplus
in excess of $300,000,000, (c) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in
clauses (a) and (b) entered into with any financial institution meeting the
qualifications specified in clause (b) above, (d) commercial paper having
the highest rating obtainable from S&P or Moody's and in each case maturing
within one year after date of acquisition, (e) investment funds investing
95% of their assets in securities of the type described in clauses (a)-(d)
above, (f) readily marketable direct obligations issued by any state of the
United States or any political subdivision thereof having one of the two
<PAGE>
8
highest rating categories obtainable from either S&P or Moody's and (g)
indebtedness with a rating of "A" or higher from S&P or "A2" or higher from
Moody's.
"C/D Assessment Rate": for any day the net annual assessment rate
-------------------
(rounded upwards, if necessary, to the next 1/100 of 1%) determined by the
Administrative Agent to be payable on such day to the Federal Deposit
Insurance Corporation or any successor ("FDIC") for FDIC's insuring time
----
deposits made in Dollars at offices of the Administrative Agent in the
United States.
"C/D Reserve Percentage": for any day, that percentage (expressed as
----------------------
a decimal) which is in effect on such day, as prescribed by the Board for
determining maximum reserve requirement for a Depositary Institution (as
defined in Regulation D of the Board) in respect of new non-personal time
deposits in Dollars having a maturity of 30 days or more.
"Change in Law": with respect to any Lender, the adoption of, or
-------------
change in, any law, rule, regulation, policy, guideline or directive
(whether or not having the force of law) or any change in the
interpretation or application thereof by any Governmental Authority having
jurisdiction over such Lender, in each case after the Closing Date.
"Change of Control": the occurrence of any of the following events:
-----------------
(a) at any time prior to an IPO by the Company, Investcorp or any of its
Affiliates (provided that for purposes of this definition only the
--------
reference to 25% in the definition of Affiliate shall be deemed to be 51%)
or Subsidiaries, any Person that is a member of the senior management of
the Company, or any entity the majority of the equity ownership interests
of which is owned by such senior management of the Company, shall cease to
own, directly or indirectly, in the aggregate, at least 51% of the issued
and outstanding voting stock of the Company, free and clear of all Liens or
(b) at any time after an IPO by the Company, any Person (other than
Investcorp, any of its Affiliates or Subsidiaries, any Person that is a
member of the senior management of the Company, any entity the majority of
the equity ownership interests of which is owned by such senior management
of the Company 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 the Company or (ii) to elect or designate for election a majority
of the Board of Directors of the Company by voting power, contract or
otherwise.
"Chase": The Chase Manhattan Bank, a New York banking corporation,
-----
and its successors.
"Closing Date": the date (which shall be on or prior to September 30,
------------
1998) on which the Lenders make their initial Loans or the Issuing Lender
issues the initial Letter of Credit.
<PAGE>
9
"Co-Arrangers": as defined in the Preamble hereto.
------------
"Code": the Internal Revenue Code of 1986, as amended from time to
----
time.
"Collateral": all assets of the Credit Parties, now owned or
----------
hereafter acquired, upon which a Lien is purported to be created by any
Security Document.
"Collateral Agreement": the Collateral Agreement, substantially in
--------------------
the form of Exhibit E, to be made by the Company and the Subsidiaries from
time to time parties thereto in favor of the Administrative Agent, for the
benefit of the Lenders, as the same may be amended, supplemented or
otherwise modified from time to time.
"Commercial L/C": a commercial documentary Letter of Credit under
--------------
which the Issuing Lender agrees to make payments in Dollars for the account
of the Company, on behalf of the Company or a Subsidiary, in respect of
obligations of the Company or such Subsidiary in connection with the
purchase of goods or services in the ordinary course of business.
"Commitment": as to any Lender at any time, such Lender's Swing Line
----------
Commitment and Revolving Credit Commitment; collectively, as to all the
Lenders, the "Commitments".
-----------
"Commonly Controlled Entity": an entity, whether or not incorporated,
--------------------------
which is under common control with the Company within the meaning of
Section 4001 of ERISA or is part of a group which includes the Company and
which is treated as a single employer under Section 414(b) or (c) of the
Code.
"Company": as defined in the Preamble hereto.
-------
"Confidential Information Memorandum": the Confidential Information
-----------------------------------
Memorandum dated May 1998 titled Harborside Healthcare Corporation
$250,000,000 Senior Secured Credit Facility.
"Consolidated Current Assets": at a particular date, all amounts
---------------------------
which would, in conformity with GAAP, be included under current assets on a
consolidated balance sheet of the Company and its Subsidiaries as at such
date.
"Consolidated Current Liabilities": at a particular date, all amounts
--------------------------------
which would, in conformity with GAAP, be included under current liabilities
on a consolidated balance sheet of the Company and its Subsidiaries as at
such date, excluding the current portion of long-term debt and the entire
outstanding principal amount of the Revolving Credit Loans.
<PAGE>
10
"Consolidated EBITDA": for any period, the Consolidated Net Income of
-------------------
the Company and its Subsidiaries for such period, plus, without duplication
and to the extent reflected as a charge in the statement of such
Consolidated Net Income for such period, the sum of (a) total income tax
expense (including any tax benefit or expense related to the dividend on
any preferred stock), (b) interest expense, amortization or writeoff of
debt discount, debt issuance, warrant and other equity (including any
preferred stock) issuance costs and commissions, discounts, redemption
premium and other fees and charges associated with the Loans, letters of
credit permitted hereunder, Financing Leases (including commitment fees and
other periodic bank charges), Standby L/Cs, the Subordinated Debt or with
the acquisition or repayment of any debt securities of the Company
permitted hereunder, and net costs associated with Interest Rate Agreements
to which the Company is a party in respect of the Loans, (c) costs of
surety bonds, (d) depreciation and amortization expense, (e) amortization
of intangibles (including, but not limited to, goodwill and costs of
interest-rate caps, leasehold interests and the cost of non-competition
agreements) and organization costs, (f) non-cash amortization of Financing
Leases, (g) franchise taxes, (h) management fees paid as contemplated by
subsection 9.14(a) and charges relating to management fees prepaid in
connection with the Merger, (i) all cash dividend payments and non-cash
dividend expenses on any series of preferred stock, (j) any fees and
expenses incurred in connection with any merger, acquisition, joint venture
or financing permitted hereunder, the Merger and, in each case, the related
financing thereof (excluding general business development expenses), (k)
any other write-downs, write-offs, minority interests and other non-cash
charges or expenses, (l) any non-cash restructuring or non-recurring charge
or reserve, (m) expenses and charges related to any equity offering, (n)
expenses consisting of internal software development costs that are
expensed during the period but could have been capitalized in accordance
with GAAP, (o) securitization expenses, (p) nonrecurring litigation or
claim settlement charges or expenses relating to activities or matters
outside of the ordinary course of business of the Company and its
Subsidiaries and (q) synthetic lease rent expense less any amortization of
principal included in such expense; provided that in determining such
--------
Consolidated EBITDA for such period (i) the cumulative effect of a change
in accounting principles (effected either through cumulative effect
adjustment or a retroactive application) shall be excluded, (ii) the impact
of foreign currency and hedging shall be excluded and (iii) the aggregate
amount of cash expenditures during such period relating to matters for
which non-cash restructuring or non-recurring charges or reserves shall
have been made or created shall be deducted.
"Consolidated Indebtedness": at a particular date, all Indebtedness
-------------------------
(including Synthetic Lease Obligations and any other obligations in respect
of synthetic leases but excluding any other Indebtedness described in
clauses (b) or (c) of the definition of Indebtedness), of the Company and
its Subsidiaries determined on a consolidated basis in accordance with GAAP
at such date.
"Consolidated Net Income": with respect to any Person and any period,
-----------------------
the net income (or loss) of such Person for such period, determined in
accordance with GAAP
<PAGE>
11
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, (ii) deferred financing costs
written off in connection with the early extinguishment of Indebtedness;
provided, however, that Consolidated 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 Consolidated Net Income
for such period; and further provided that (a) the net income (but not
------- --------
loss) of any Person that is not a 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 Company or a
wholly owned Subsidiary and (b) the net income of any Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or
similar distributions by that Subsidiary of that net income is prohibited
or not permitted at the date of determination.
"Consolidated Senior Indebtedness": at a particular date, all
--------------------------------
Consolidated Indebtedness other than Subordinated Debt.
"Contingent Obligation": as to any Person, any obligation of such
---------------------
Person guaranteeing or in effect guaranteeing any Indebtedness ("primary
-------
obligations") of any other Person (the "primary obligor") in any manner,
----------- ---------------
whether directly or indirectly, including, without limitation, any
obligation of such Person, whether or not contingent (a) to purchase any
such primary obligation or any property constituting direct or indirect
security therefor, (b) to advance or supply funds (i) for the purchase or
payment of any such primary obligation or (ii) to maintain working capital
or equity capital of the primary obligor or otherwise to maintain the net
worth or solvency of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of
any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation or (d) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect
thereof; provided that the term Contingent Obligation shall not include
--------
endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determinable amount (based on
the maximum reasonably anticipated net liability in respect thereof as
determined by the Company in good faith) of the primary obligation or
portion thereof in respect of which such Contingent Obligation is made or,
if not stated or determinable, the maximum reasonably anticipated net
liability in respect thereof (assuming such Person is required to perform
thereunder) as determined by the Company in good faith.
"Contractual Obligation": as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of the
property owned by it is bound.
<PAGE>
12
"Coverage Ratio": on the last day of any fiscal quarter of the
--------------
Company ending on or after December 31, 1998, the ratio of (a) the sum of
Consolidated EBITDA plus rental expense, in each case for the period of
----
four fiscal quarters ending on such day to (b) the sum of cash interest
expense (excluding (i) fees payable on account of letters of credit, (ii)
to the extent included in interest expense in accordance with GAAP, net
costs associated with Interest Rate Agreements to which the Company is
party in respect of the Loans and other periodic bank charges and
amortization of debt discount (including discount of liabilities and
reserves established under APB 16), (iii) costs of debt issuance and
interest expense on customer deposits and (iv) costs of debt issuance and
interest expense on any Bridge Junior Subordinated Debt) net of interest
income, in each case, for or during such period on a consolidated basis for
the Company and its Subsidiaries plus rental expense for such period on a
----
consolidated basis for the Company and its Subsidiaries; provided, however,
-------- -------
that on (A) the last day of the 1998 fourth fiscal quarter of the Company
such ratio shall measure the period of two fiscal quarters ending on such
day and (B) on the last day of the 1999 first fiscal quarter of the Company
such ratio shall measure the period of three fiscal quarters ending on such
day. For clarification, cash interest expense does not include the
accretion of interest expense.
"Credit Documents": the collective reference to this Agreement, the
----------------
Notes, the Mortgages, the Collateral Agreement, the Trust Guarantee, the
Intercreditor Agreement and the Agency and Intercreditor Agreement.
"Credit Parties": the collective reference to the Company, the other
--------------
Borrowers and each other Subsidiary which may from time to time be party to
a Credit Document.
"Default": any of the events specified in Section 8, whether or not
-------
any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"Documentation Agent": as defined in the Preamble hereto.
-------------------
"Dollars" and "$": dollars in lawful currency of the United States.
------- -
"Domestic Subsidiary": any Subsidiary other than a Foreign
-------------------
Subsidiary.
"Encumbered Subsidiary": at any time, any Domestic Subsidiary (a) as
---------------------
to which the Administrative Agent does not have a first priority Lien, for
the benefit of the Lenders, on all or substantially all of the accounts
receivable and real property owned in fee of such Subsidiary or (b) which
is not a Borrower hereunder or a guarantor of the obligations hereunder and
under the Synthetic Lease Facility, provided that the limitation set forth
--------
in subsection 9.15 shall not cause any Domestic Subsidiary to be deemed an
Encumbered Subsidiary.
"Environmental Laws": any and all foreign, Federal, state, local or
------------------
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees or requirements of
<PAGE>
13
any Governmental Authority or Requirements of Law (including, without
limitation, common law) regulating or imposing liability or standards of
conduct concerning environmental or public health protection matters,
including, without limitation, Hazardous Materials, as now or may at any
time hereafter be in effect.
"Environmental Permits": any and all permits, licenses,
---------------------
registrations, notifications, exemptions and any other authorizations
required under any Environmental Law.
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
---------------------------------
Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on such
day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board or other Governmental
Authority having jurisdiction with respect thereto) dealing with reserve
requirements prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) maintained by a
member bank of such System.
"Eurodollar Base Rate": with respect to each day during each Interest
--------------------
Period pertaining to a Eurodollar Loan, the rate per annum determined on
the basis of the rate for deposits in Dollars for a period equal to such
Interest Period commencing on the first day of such Interest Period
appearing on Page 3750 of the Dow Jones Markets screen as of 11:00 A.M.,
London time, two Business Days prior to the beginning of such Interest
Period. In the event that such rate does not appear on Page 3750 of the
Dow Jones Markets screen (or otherwise on such screen), the "Eurodollar
----------
Base Rate" for purposes of this definition shall be determined by reference
---------
to such other comparable publicly available service for displaying
eurodollar rates as may be selected by the Administrative Agent or, in the
absence of such availability, by reference to the rate at which the
Administrative Agent is offered Dollar deposits at or about 11:00 A.M.,
London time, two Business Days prior to the beginning of such Interest
Period in the interbank eurodollar market where its eurodollar and foreign
currency and exchange operations are then being conducted for delivery on
the first day of such Interest Period for the number of days comprised
therein.
"Eurodollar Lending Office": as to any Lender the office of such
-------------------------
Lender which shall be making or maintaining Eurodollar Loans.
"Eurodollar Loans": Loans for which the applicable rate of interest
----------------
is based upon a Eurodollar Rate.
<PAGE>
14
"Eurodollar Rate": with respect to each day during each Interest
---------------
Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the
nearest 1/100th of 1%):
Eurodollar Base Rate
__________________________________________
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 8, provided
---------------- --------
that any requirement for the giving of notice, the lapse of time, or both,
has been satisfied.
"Excess Cash Flow": at the end of any fiscal year of the Company
----------------
ending on or after December 31, 1999, the excess of (a) Consolidated EBITDA
for the period from January 1, 1999 to the end of such fiscal year plus any
extraordinary or non-recurring gains for such period over (b) the sum,
without duplication, of (i) the aggregate amount actually paid by the
Company and its Subsidiaries in cash since January 1, 1999 on account of
capital expenditures or acquisitions permitted hereunder (other than
capital expenditures made with the proceeds of eminent domain or
condemnation proceedings to the extent such proceeds are not included in
the determination of Consolidated EBITDA for such period), (ii) the
aggregate amount of payments of principal in respect of any Indebtedness
since January 1, 1999 (other than any such payments of principal pursuant
to subsections 3.4(b)(i), (ii), (iii) and (iv) or any such payment of
principal in respect of any revolving credit facility to the extent that
there is not an equivalent reduction in such facility), (iii) increases in
working capital (calculated as Consolidated Current Assets at the end of
such period minus Consolidated Current Liabilities as at the end of such
-----
period) of the Company and its Subsidiaries since January 1, 1999
(excluding any increase in cash or Cash Equivalents above an increase
deemed in good faith by the Company to be necessary or desirable for the
operation of the business of the Company and its Subsidiaries), (iv) cash
interest expense (including fees paid in connection with Letters of Credit,
surety bonds, commitment fees and other periodic bank charges) of the
Company since January 1, 1999, (v) any dividends actually paid in cash by
the Company since January 1, 1999 as permitted by subsection 7.11, (vi) the
amount of taxes actually paid in cash by the Company and its Subsidiaries
since January 1, 1999 either during such period or within a normal payment
period thereof, (vii) the amount of cash actually paid to repurchase
Capital Stock of the Company pursuant to subsection 7.11 since January 1,
1999, (viii) any fees and expenses incurred in connection with any merger,
acquisition, joint venture or financing permitted hereunder, the Merger
and, in each case, the related financing thereof and charges relating to
management fees prepaid in connection with the Merger, (ix) to the extent
used in computing Consolidated Net Income of the Company and its
Subsidiaries, (A) the net income of any Person acquired in a pooling of
interests transaction for any period prior to the date of acquisition and
(B) 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 Consolidated Net Income
for such period, (x) to the extent added to
<PAGE>
15
Consolidated Net Income of the Company and its Subsidiaries in calculating
Consolidated EBITDA for such period, the net cost of Interest Rate
Agreements, franchise taxes and management fees, (xi) the net income of any
Subsidiary to the extent that such amount is accounted for under the equity
method and to the extent cash dividends are not paid or the declaration or
payment of dividends is not permitted without prior governmental approval
(which has not been obtained), (xii) the amount (without duplication) of
cash actually paid by the Company in connection with clauses (b), (h), (k),
(m), (n), (o) and (p) in the definition of Consolidated EBITDA, (xiii) any
non-cash restructuring or non-recurring charge or reserve (net of cash
payments during such period with respect to such charge or reserve), (xiv)
any extraordinary or non-recurring losses for such period and (xv) any cash
synthetic lease rent expense (less any amortization of principal included
in such expense) since January 1, 1999, provided that such excess, if any,
--------
shall be reduced by the amount of any payments previously made pursuant to
subsection 3.4(b)(iv).
"Exchange Debentures": to the extent permitted to be issued
-------------------
hereunder, the exchange debentures which shall have material terms and
conditions as described in the Offering Memorandum (or any refinancing
thereof permitted hereunder).
"Existing Credit Agreement": the Credit Agreement dated as of April
-------------------------
14, 1997, as amended to date, among the Company, the other borrowers
specified therein, the lenders parties thereto and Chase, as administrative
agent.
"Existing Shareholders": as defined in the Recitals hereto.
---------------------
"Fee Property": as defined in subsection 4.13.
------------
"Financing Lease": (a) any lease of property, real or personal, the
---------------
obligations under which are capitalized on a consolidated balance sheet of
the Company and its consolidated Subsidiaries and (b) any other such lease
to the extent that the then present value of any rental commitment
thereunder should, in accordance with GAAP, be capitalized on a balance
sheet of the lessee.
"Foreign Subsidiary": any Subsidiary which is not organized under the
------------------
laws of the United States or any state thereof or the District of Columbia.
"Form S-4": the Registration Statement on Form S-4 dated May 1, 1998
--------
and as amended, filed by the Company with the Securities and Exchange
Commission in connection with the Merger.
"GAAP": generally accepted accounting principles in the United States
----
in effect from time to time.
<PAGE>
16
"Governmental Authority": any nation or government, any state or
----------------------
other political subdivision thereof or any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Hazardous Materials": any hazardous materials, hazardous wastes,
-------------------
hazardous pesticides or hazardous or toxic substances, and any other
material that may give rise to liability under any Environmental Law,
including, without limitation, asbestos, petroleum, any other petroleum
products (including gasoline, crude oil or any fraction thereof),
polychlorinated biphenyls and urea-formaldehyde insulation.
"Health Care Business": the business of operating a Health Care
--------------------
Facility or any Ancillary Businesses.
"Health Care Facility": any skilled nursing, assisted living,
--------------------
retirement or congregate care facility.
"Health Care Permit": every accreditation, authorization, certificate
------------------
of need, license or permit that is required by any applicable Governmental
Authority to own, lease, operate or manage a Health Care Facility or
Ancillary Business of the Company or any of its Subsidiaries.
"Indebtedness": of a Person, at a particular date, (a) all
------------
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, (b) the undrawn face amount of all letters
of credit issued for the account of such Person and, without duplication,
all drafts drawn thereunder and unpaid reimbursement obligations with
respect thereto, (c) all liabilities (other than Lease Obligations and
liabilities in connection with reserves established in accordance with
GAAP) secured by any Lien on any property owned by such Person, even though
such Person has not assumed or become liable for the payment thereof, (d)
Financing Leases and (e) all indebtedness of such Person arising under
acceptance facilities, but excluding (i) trade and other accounts payable
and accrued expenses payable in the ordinary course of business which are
not overdue for a period of more than 120 days or, if overdue for more than
120 days, as to which a dispute exists and adequate reserves in conformity
with GAAP have been established on the books of such Person and (ii)
letters of credit supporting the purchase of goods in the ordinary course
of business and expiring no more than six months from the date of issuance;
provided that (x) obligations in respect of Interest Rate Agreements and
--------
(y) obligations relating to Bowie Center L.P. in an aggregate principal
amount not to exceed $7,000,000 at any time shall not be included in this
definition and that interest expense in respect of the obligations
described in clause (y) shall be excluded from all calculations of
financial tests under this Agreement; and provided, further, that
-------- -------
Indebtedness shall at all times be reduced by amounts outstanding under the
Promissory Note.
<PAGE>
17
"Insolvency": with respect to any Multiemployer Plan, the condition
----------
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
---------
"Intercreditor Agreement": the collective reference to the Lease
-----------------------
Intercreditor Agreement and the Loan Intercreditor Agreement.
"Interest Payment Date": (a) as to Alternate Base Rate Loans, the
---------------------
last day of each March, June, September and December, commencing on the
first such day to occur after any Alternate Base Rate Loans are made or any
Eurodollar Loans are converted to Alternate Base Rate Loans, and the
Termination Date, (b) as to any Eurodollar Loan in respect of which the
Company, as agent for the Borrowers, has selected an Interest Period of
one, two or three months, the last day of such Interest Period, (c) as to
any Eurodollar Loan in respect of which the Company, as agent for the
Borrowers, has selected a longer Interest Period than the periods described
in clause (b), the last day of each three calendar month interval during
such Interest Period and, in addition, the last day of such Interest Period
and (d) as to any Loan (other than any Revolving Credit Loan that is an
Alternate Base Rate Loan and any Swing Line Loan), the date of any
repayment or prepayment made in respect thereof.
"Interest Period": with respect to any Eurodollar Loan:
---------------
(a) initially, the period commencing on, as the case may be, the
Borrowing Date or conversion date with respect to such Eurodollar Loan
and ending one, two, three or six months thereafter (or, if and when
available to all the relevant Lenders, nine or twelve months
thereafter) as selected by the Company, as agent for the Borrowers, in
its notice of borrowing as provided in subsection 3.1 or its notice of
conversion as provided in subsection 3.2; and
(b) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan and
ending one, two, three or six months thereafter (or, if and when
available to all the relevant Lenders, nine or twelve months
thereafter) as selected by the Company, as agent for the Borrowers, by
irrevocable notice to the Administrative Agent not less than three
Business Days prior to the last day of the then current Interest
Period with respect to such Eurodollar Loan;
provided that the foregoing provisions relating to Interest Periods are
--------
subject to the following:
(i) if any Interest Period would otherwise end on a day which is
not a Business Day, that Interest Period shall be extended to the next
succeeding Business Day, unless the result of such extension would be
to carry such Interest
<PAGE>
18
Period into another calendar month, in which event such Interest
Period shall end on the immediately preceding Business Day;
(ii) any Interest Period that would otherwise extend beyond the
Termination Date shall end on the Termination Date, or if the
Termination Date shall not be a Business Day, on the next preceding
Business Day;
(iii) if the Company shall fail to give notice as provided above
in clause (b), it shall be deemed to have selected a conversion of a
Eurodollar Loan into an Alternate Base Rate Loan (which conversion
shall occur automatically and without need for compliance with the
conditions for conversion set forth in subsection 3.2);
(iv) any Interest Period that begins on the last day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month; and
(v) the Company shall select Interest Periods so as not to
require a prepayment (to the extent practicable) or a scheduled
payment of a Eurodollar Loan during an Interest Period for such
Eurodollar Loan.
"Interest Rate Agreement": any interest rate swap agreement, interest
-----------------------
rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement.
"Investcorp": Investcorp S.A., a Luxembourg corporation.
----------
"Investment Grade Securities": (a) securities issued or directly and
---------------------------
fully guaranteed or insured by the United States government or any agency
or instrumentality thereof (other than Cash Equivalents), (b) debt
securities or debt instruments with a rating of BBB- or higher by S&P or
Baa3 by Moody's or the equivalent of such rating by such rating
organization, or if no rating of S&P's 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 Company and its Subsidiaries and
(c) investments in any fund that invests exclusively in investments of the
type described in clauses (a) and (b) which fund may also hold immaterial
amounts of cash pending investment and/or distribution.
"Investor Contributions": as defined in the Participation Agreement,
----------------------
dated as of the date hereof, among the Company, the Trust, the Synthetic
Investors, the Lenders and the Administrative Agent.
"Investors": Investcorp S.A., certain of its affiliated entities and
---------
other initial investors arranged by Investcorp S.A.
<PAGE>
19
"IPO": any sale by the Company 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.
"Issuing Lenders": Chase and any of its Affiliates, including Chase
---------------
Manhattan Bank Delaware, as issuer of the Letters of Credit; with respect
to any Letter of Credit, the term "Issuing Lender" shall mean the Issuing
Lender with respect to such Letter of Credit.
"L/C Application": as defined in subsection 2.5(a).
---------------
"L/C Obligations": the obligations of the Company to reimburse the
---------------
Issuing Lender for any payments made by the Issuing Lender under any Letter
of Credit that have not been reimbursed by the Company pursuant to
subsection 2.8(a).
"L/C Participating Interest": an undivided participating interest in
--------------------------
the face amount of each issued and outstanding Letter of Credit and the L/C
Application relating thereto.
"L/C Participation Certificate": a certificate in substantially the
-----------------------------
form of Exhibit G.
"Leased Property": as defined in subsection 4.13.
---------------
"Lease Intercreditor Agreement": the Accounts Receivable
-----------------------------
Intercreditor Agreement (Leased Facilities), substantially in the form of
Exhibit M-1, to be executed and delivered by Meditrust Company LLC, the
Administrative Agent, the Trust and the Synthetic Investors, as the same
may be amended, supplemented or otherwise modified from time to time.
"Lease Obligations": as of the date of any determination thereof, the
-----------------
rental commitments, if any, of the Company and its Subsidiaries determined
on a consolidated basis under leases for real and/or personal property (net
of rental commitments from sub-leases thereof), excluding however,
obligations under Financing Leases.
"Lenders": as defined in the Preamble hereto.
-------
"Letters of Credit": the collective reference to the Commercial L/Cs
-----------------
and the Standby L/Cs; individually, a "Letter of Credit".
----------------
"Leverage Ratio": as defined in subsection 7.9; provided that for
-------------- --------
purposes of calculating the Leverage Ratio on any date, the unencumbered
(other than Liens
<PAGE>
20
permitted pursuant to subsection 7.2(f)) cash and Cash Equivalent balances
of the Company and its Subsidiaries on such date, and any Bridge Junior
Subordinated Debt outstanding on such date, shall be deducted from the
amount of Consolidated Indebtedness on such date.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), or preference,
priority or other security agreement or preferential arrangement of any
kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the
filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction in respect of any of the foregoing,
except for the filing of financing statements in connection with Lease
Obligations incurred by the Company or its Subsidiaries to the extent that
such financing statements relate to the property subject to such Lease
Obligations).
"Loan Intercreditor Agreement": the Accounts Receivable Intercreditor
----------------------------
Agreement (Mortgaged Facilities), substantially in the form of Exhibit M-2,
to be executed and delivered by Meditrust Mortgage Investments, Inc., the
Administrative Agent, the Trust and the Synthetic Investors, as the same
may be amended, supplemented or otherwise modified from time to time.
"Loans": the collective reference to the Swing Line Loans, the Term
-----
Loans and the Revolving Credit Loans; individually, a "Loan".
----
"Meditrust": any one or more of the following entities: Meditrust
---------
Mortgage Investments, Inc., Meditrust Company LLC (as successor by merger
to Meditrust of Florida, Inc., Meditrust of Ohio, Inc., Meditrust of New
Hampshire, Inc., Meditrust of Bedford, Inc., Meditrust of New Jersey, Inc.,
Meditrust Tri-States, Inc.) and any of their affiliates.
"Meditrust Entities": the collective reference to HHCI Limited
------------------
Partnership, Harborside Toledo Limited Partnership, Harborside of New
Hampshire Limited Partnership, Harborside Toledo Corp., Countryside Care
Center Corp., Bay Tree Nursing Center Corp., West Bay Nursing Center Corp.
and Sunset Point Nursing Center Corp.
"Merger": as defined in the Recitals hereto.
------
"Merger Agreement": as defined in the Recitals hereto.
----------------
"Moody's": Moody's Investors Service, Inc.
-------
<PAGE>
21
"Mortgaged Properties": (a) the Real Property designated as
--------------------
"Mortgaged Property" on Schedule 4.13 and (b) any fee Real Property covered
by a Mortgage delivered pursuant to subsection 6.9(c).
"Mortgages": as defined in subsection 6.12.
---------
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
------------------
in Section 4001(a)(3) of ERISA.
"Net Proceeds": the aggregate cash proceeds received by the Company
------------
or any Subsidiary in respect of:
(a) (i) any issuance or borrowing of any debt securities or
loans by the Company or any Subsidiary other than debt or loans
permitted to be incurred or borrowed pursuant to subsection 7.1 or
(ii) any issuance of Capital Stock (excluding any such issuance to any
Investor or any Affiliate thereof);
(b) any Asset Sale, excluding (i) any net proceeds received upon
any condemnation or exercise of rights of eminent domain to the extent
the same shall be deemed not to constitute Net Proceeds pursuant to
the proviso to subsection 7.5(d) and (ii) any proceeds of insurance
received upon any casualty or loss;
(c) any substantially like-kind exchanges of property to the
extent provided in subsection 7.5(e); and
(d) any promissory notes delivered to the Company or such
Subsidiary in respect of an Asset Sale;
in each case net of (without duplication) (A) the amount required to repay
any Indebtedness (other than the Loans) secured by a Lien on any assets of
the Company or a Subsidiary that are collateral for any such debt
securities or loans that are sold or otherwise disposed of in connection
with such Asset Sale, (B) liabilities associated with the assets that are
the subject of any such Asset Sale that are not assumed by the purchaser in
connection with such Asset Sale, (C) the reasonable expenses (including
legal fees and brokers' and underwriters' commissions, lenders' fees or
credit enhancement fees, in any case, paid to third parties or, to the
extent permitted hereby, Affiliates) incurred in effecting such issuance or
sale and (D) any taxes reasonably attributable to such sale and reasonably
estimated by the Company or such Subsidiary to be actually payable.
"Non-Funding Lender": as defined in subsection 3.9(c).
------------------
"Notes": the collective reference to the Swing Line Note, the
-----
Revolving Credit Notes and the Term Loan Notes; each of the Notes, a
"Note".
----
<PAGE>
22
"Offering Memorandum": the offering memorandum dated July 29, 1998
-------------------
with respect to the Senior Subordinated Discount Notes and the Preferred
Stock.
"Participants": as defined in subsection 9.6(b).
------------
"Participating Lender": any Lender (other than the Issuing Lender)
--------------------
with respect to its L/C Participating Interest in each Letter of Credit.
"Payment Sharing Notice": a written notice from the Company or any
----------------------
Lender informing the Administrative Agent that an Event of Default has
occurred and is continuing and directing the Administrative Agent to
allocate payments thereafter received from or on behalf of any Borrower in
accordance with the provisions of subsection 3.9.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
----
to Subtitle A of Title IV of ERISA or any successor.
"Permanent Junior Subordinated Debt": (a) unsecured notes or
----------------------------------
debentures of the Company, subordinated to the prior payment of the Loans,
the other obligations under the Credit Documents, the Synthetic Lease
Obligations and related Interest Rate Agreements, provided that (i) such
--------
notes or debentures have terms which are as favorable to the Lenders as the
terms relating to the Exchange Debentures set forth in the Offering
Memorandum and the conditions contained in clauses (a)(ii)(C) and (D) of
this definition are met or (ii) (A) unless otherwise agreed to by the
Required Lenders, no part of the principal amount of any such notes or
debentures shall have a scheduled maturity date earlier than the date that
is one year after the Scheduled Termination Date, (B) unless otherwise
agreed to by the Required Lenders, (I) the subordination provisions of
which are as favorable to the Lenders as such provisions set forth in the
Offering Memorandum relating to the Exchange Debentures, (II) the terms and
conditions thereof (including, without limitation, subordination, covenant
and event of default provisions thereof but excluding any call protection
provisions) taken as a whole shall be at least as favorable to the Company
and the Lenders as such terms and conditions set forth with respect to the
Bridge Junior Subordinated Debt in the Bridge Commitment Letter (or in the
Bridge Loan Agreement if entered into by the parties thereto), and (III) no
cash interest shall be payable thereon for a period of five years
commencing on the Closing Date and, thereafter, the non-default cash
interest rate thereon shall not exceed 16% per annum and the total non-
default interest rate shall not exceed 18% per annum, (C) no covenant
contained in this Agreement or any of the other Credit Documents would be
violated on the proposed issuance date after giving effect to (I) the
issuance of such notes or debentures, (II) the payment of all issuance
costs, commissions, discounts, redemption premiums and other fees and
charges associated therewith, (III) the use of proceeds thereof and (IV)
the redemption, repayment, retirement and repurchase of all Indebtedness of
the Company and its Subsidiaries to be redeemed, repaid or repurchased
<PAGE>
23
in connection therewith and (D) substantially final drafts of the
documentation governing any such notes or debentures, showing the terms
thereof, shall have been furnished to the Arranger and the Co-Arrangers at
least 5 days prior to the date of issuance of such notes or debentures and
(b) unsecured notes or debentures of the Company, subordinated to the prior
payment of the Loans, the other obligations under the Credit Documents, the
Synthetic Lease Obligations and related Interest Rate Agreements, that may
be issued by the Company to refinance previously issued Bridge Junior
Subordinated Debt or Permanent Junior Subordinated Debt, provided that (i)
--------
unless otherwise agreed to by the Required Lenders, (A) no part of the
principal amount of any such notes or debentures shall have a scheduled
amortization date earlier than the date that is one year after the
Scheduled Termination Date and (B) the interest rate and subordination
provisions shall be at least as favorable to the Company and the Lenders as
such provisions of such refinanced Bridge Junior Subordinated Debt or
Permanent Junior Subordinated Debt, as the case may be, and the other terms
and conditions thereof (including, without limitation, the covenant and
event of default provisions thereof but excluding any call protection
provisions and provisions relating to accretion or accrual of interest
without cash payments thereof) taken as a whole shall be at least as
favorable to the Company and the Lenders as such refinanced Bridge Junior
Subordinated Debt or Permanent Junior Subordinated Debt, as the case may
be, and (ii) the conditions contained in clause (a)(ii)(C) and (D) of this
definition shall be met.
"Permanent Senior Subordinated Debt": (a) unsecured notes or
----------------------------------
debentures of the Company, subordinated to the prior payment of the Loans,
the other obligations under the Credit Documents, the Synthetic Lease
Obligations and related Interest Rate Agreements, provided that either (i)
--------
such notes or debentures (excluding, in the case of Cash Pay Permanent
Senior Subordinated Debt (as defined below), provisions relating to
accretion or accrual of interest without cash payments thereof) have terms
which are as favorable to the Lenders as the terms with respect to the
Senior Subordinated Discount Notes set forth in the Offering Memorandum and
the conditions contained in clauses (a)(ii)(C) and (D) of this definition
are met or (ii) (A) unless otherwise agreed to by the Required Lenders, no
part of the principal amount of any such notes or debentures shall have a
scheduled maturity date earlier than the date that is one year after the
Scheduled Termination Date, (B) unless otherwise agreed to by the Required
Lenders, (I) the subordination provisions of which are as favorable to the
Lenders as such provisions with respect to the Senior Subordinated Discount
Notes set forth in the Offering Memorandum, (II) the terms and conditions
thereof (including, without limitation, subordination, covenant and event
of default provisions thereof but excluding any call protection provisions)
taken as a whole shall be at least as favorable to the Company and the
Lenders as such terms and conditions with respect to the Bridge Senior
Subordinated Debt set forth in the Bridge Commitment Letter (or in the
Bridge Loan Agreement if entered into by the parties thereto), and (III) no
cash interest shall be payable thereon for a period of five years
commencing on the Closing Date (except in the case of Permanent Senior
Subordinated Debt issued to refinance Bridge Senior Subordinated Debt (any
such cash pay Permanent Senior Subordinated Debt being referred to as "Cash
----
Pay Permanent Senior Subordinated Debt")) and, thereafter, the non-default
--------------------------------------
cash interest rate thereon shall not exceed 16%
<PAGE>
24
per annum and the total non-default interest rate shall not exceed 18% per
annum, (C) no covenant contained in this Agreement or any of the other
Credit Documents would be violated on the proposed issuance date after
giving effect to (I) the issuance of such notes or debentures, (II) the
payment of all issuance costs, commissions, discounts, redemption premiums
and other fees and charges associated therewith, (III) the use of
proceeds thereof and (IV) the redemption, repayment, retirement and
repurchase of all Indebtedness of the Company and its Subsidiaries to be
redeemed, repaid or repurchased in connection therewith and (D)
substantially final drafts of the documentation governing any such notes or
debentures, showing the terms thereof, shall have been furnished to the
Arranger and the Co-Arrangers at least 5 days prior to the date of issuance
of such notes or debentures; and (b) unsecured notes or debentures of the
Company, subordinated to the prior payment of the Loans, the other
obligations under the Credit Documents, the Synthetic Lease Obligations and
related Interest Rate Agreements, that may be issued by the Company to
refinance previously issued Bridge Senior Subordinated Debt or Permanent
Senior Subordinated Debt, provided that (i) unless otherwise agreed to by
--------
the Required Lenders, (A) no part of the principal amount of any such notes
or debentures shall have a scheduled amortization date earlier than the
date that is one year after the Scheduled Termination Date and (B) the
interest rate and subordination provisions shall be at least as favorable
to the Company and the Lenders as such provisions of such refinanced Bridge
Senior Subordinated Debt or Permanent Senior Subordinated Debt, as the case
may be, and the other terms and conditions thereof (including, without
limitation, the covenant and event of default provisions thereof but
excluding any call protection provisions and provisions relating to
accretion or accrual of interest without cash payments thereof) taken as a
whole shall be at least as favorable to the Company and the Lenders as such
refinanced Bridge Senior Subordinated Debt or Permanent Senior Subordinated
Debt, as the case may be, and (ii) the conditions contained in clauses
(a)(ii)(C) and (D) of this definition shall be met.
"Permitted Liens": Liens permitted to exist under subsection 7.2.
---------------
"Person": an individual, partnership, corporation, business trust,
------
joint stock company, limited liability company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of
whatever nature.
"Plan": at a particular time, any employee benefit plan which is
----
covered by ERISA and in respect of which the Company or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Preferred Stock": the Company's exchangeable preferred stock,
---------------
provided that (a) such preferred stock shall not have a scheduled
--------
redemption date earlier than the date that is one year after the Scheduled
Termination Date, (b) the terms of such preferred stock are substantially
as set forth with respect to preferred stock in the Offering Memorandum and
(c) substantially final drafts of the documentation governing any such
preferred
<PAGE>
25
stock, showing the terms thereof, shall have been furnished to
the Arranger and the Co-Arrangers at least 5 days prior to the date of
issuance of such preferred stock.
"Promissory Note": the promissory note in the original principal
---------------
amount of $7,487,000, dated December 12, 1997, made by Harold J. Moffie and
certain other entities listed therein for the benefit of the Company.
"Purchase Option Acquisition": as defined in subsection 7.6.
---------------------------
"Real Property": each Fee Property and Leased Property listed on
-------------
Schedule 4.13.
"Refunded Swing Line Loans": as defined in subsection 2.4(b).
-------------------------
"Register": as defined in subsection 9.6(d).
--------
"Reorganization": with respect to any Multiemployer Plan, the
--------------
condition that such Plan is in reorganization as such term is used in
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(c) of
----------------
ERISA, other than those events as to which the thirty day notice is waived
under subpart B of PBGC Reg. (S) 4042.
"Required Lenders": at a particular time, the holders of at least 51%
----------------
of the sum of (a) the aggregate unpaid principal amount of the Term Loans,
if any, (b) the aggregate unpaid principal amount of the Term Synthetic
Lease Obligations, if any, and (c) the Revolving Credit Commitments or, if
the Revolving Credit Commitments are terminated, the aggregate unpaid
principal amount of the Revolving Credit Loans, and participations in Swing
Line Loans and the aggregate amount available to be drawn at such time
under all outstanding Letters of Credit and L/C Obligations. The Term
Loans, the Term Synthetic Lease Obligations and the Revolving Credit
Commitments (or, if the Revolving Credit Commitments are terminated, the
aggregate unpaid principal amount of the Revolving Credit Loans, and
participations in Swing Line Loans and the aggregate amount available to be
drawn at such time under all outstanding Letters of Credit and L/C
Obligations) of any Non-Funding Lender shall be disregarded in determining
Required Lenders at any time.
"Requirement of Law": as to any Person, the Articles or Certificate
------------------
of Incorporation and By-Laws or other organizational or governing documents
of such Person, and any law, treaty, rule or regulation, order or
determination of an arbitrator or a court or other Governmental Authority,
in each case, applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.
<PAGE>
26
"Responsible Officer": with respect to any Person, the president,
-------------------
chief executive officer, the chief operating officer, the chief financial
officer, treasurer, controller or any vice president of such Person.
"Revolving Credit Commitment": as to any Lender, its obligations to
---------------------------
make Revolving Credit Loans to the Company pursuant to subsection 2.1 and
participate in Swing Line Loans and Letters of Credit, in an aggregate
principal and/or face amount not to exceed the amount set forth under such
Lender's name in Schedule II opposite the caption "Revolving Credit
Commitment" or in Schedule 1 to the Assignment and Acceptance by which such
Lender acquired its Revolving Credit Commitment, as the same may be reduced
from time to time pursuant to subsection 2.15, 3.3 or 3.4(b) or adjusted
pursuant to subsection 9.6(c); collectively, as to all the Lenders, the
"Revolving Credit Commitments".
----------------------------
"Revolving Credit Commitment Period": the period from and including
----------------------------------
the Closing Date to but not including the Termination Date.
"Revolving Credit Lender": any Lender with a Revolving Credit
-----------------------
Commitment or which is the holder of Revolving Credit Loans.
"Revolving Credit Loan" and "Revolving Credit Loans": as defined in
--------------------- ----------------------
subsection 2.1(a).
"Revolving Credit Note": as defined in subsection 3.13(e).
---------------------
"Revolving Credit Percentage": as to any Revolving Credit Lender at
---------------------------
any time, the percentage which such Lender's Revolving Credit Commitment
then constitutes of the total Revolving Credit Commitments (or, at any time
after the Revolving Credit Commitments shall have expired or terminated,
the percentage which the aggregate principal amount of such Lender's
Revolving Credit Loans then outstanding constitutes of the aggregate
principal amount of the Revolving Credit Loans then outstanding).
"Revolving Synthetic Lease Obligations": at any time, Synthetic Lease
-------------------------------------
Obligations that have not been converted to term obligations pursuant to
the provisions of the relevant documentation with respect to the Synthetic
Lease Facility and in accordance with subsection 2.15.
"Scheduled Termination Date": August 11, 2004.
--------------------------
"Security Documents": the collective reference to the Collateral
------------------
Agreement, the Mortgages and all other security documents hereafter
delivered to the Administrative Agent granting a Lien on any property of
any Person to secure the obligations and liabilities of any Credit Party
under any Credit Document.
<PAGE>
"Senior Subordinated Discount Notes": the senior subordinated
----------------------------------
discount notes (or any refinancing thereof permitted hereunder) which: (a)
shall be issued under the Indenture, dated as of July 31, 1998 and as
supplemented by Supplemental Indenture dated as of August 11, 1998, between
the Company and United States Trust Company of New York, as Trustee, (b)
shall not be mandatorily redeemable or mandatorily purchasable (except upon
the occurrence of a change of control and assets sales (as defined therein)
at a purchase price not in excess of the principal amount thereof plus
redemption premium, if any, plus accrued and unpaid interest plus
liquidated damages, if any) and shall not have any scheduled amortization
or maturity prior to the date that is one year after the Scheduled
Termination Date, and (c) shall have material terms and conditions as
described in the Offering Memorandum.
"Single Employer Plan": any Plan which is covered by Title IV of
--------------------
ERISA, but which is not a Multiemployer Plan.
"S&P": Standard and Poor's Ratings Services, a division of McGraw-
---
Hill Companies, Inc.
"Standby L/C": an irrevocable letter of credit under which the
-----------
Issuing Lender agrees to make payments in Dollars for the account of the
Company, on behalf of the Company or any Subsidiary in respect of
obligations of the Company or such Subsidiary incurred pursuant to
contracts made or performances undertaken or to be undertaken or like
matters relating to contracts to which the Company or such Subsidiary is or
proposes to become a party in the ordinary course of the Company's or such
Subsidiary's business, including, without limiting the foregoing, for
insurance purposes or in respect of advance payments or as bid or
performance bonds or for any other purpose for which a standby letter of
credit might customarily be issued.
"Subordinated Debt": collectively, any Bridge Senior Subordinated
-----------------
Debt, Bridge Junior Subordinated Debt, Senior Subordinated Discount Notes,
Exchange Debentures, Permanent Junior Subordinated Debt and Permanent
Senior Subordinated Debt.
"Subsection 3.11(d)(2) Certificate": as defined in subsection
---------------------------------
3.11(d).
"Subsidiary": as to any Person, a corporation, partnership, limited
----------
liability company or other entity of which shares of stock of each class or
other interests having ordinary voting power (other than stock or other
interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the time
owned, or the management of which is otherwise controlled, by such Person
or by one or more Subsidiaries of such Person or by such Person and one or
more Subsidiaries of such Person. A Subsidiary shall be deemed wholly
owned by a Person who owns directly or indirectly all of the voting shares
of stock or other interests of such Subsidiary having voting power under
ordinary circumstances to vote for directors or other managers of
<PAGE>
28
such corporation, partnership or other entity, except for directors'
qualifying shares. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Company. Notwithstanding anything to the
contrary in this definition, "Subsidiary" shall not include Bowie Center
L.P.
"Supermajority Lenders": at a particular time, the holders of at least
---------------------
66-2/3% of the sum of (a) the aggregate unpaid principal amount of the Term
Loans, if any, and (b) the Revolving Credit Commitments or, if the
Revolving Credit Commitments are terminated, the aggregate unpaid principal
amount of the Revolving Credit Loans, and participations in Swing Line
Loans and the aggregate amount available to be drawn at such time under all
outstanding Letters of Credit and L/C Obligations. The Term Loans and the
Revolving Credit Commitments (or, if the Revolving Credit Commitments are
terminated, the aggregate unpaid principal amount of the Revolving Credit
Loans, and participations in Swing Line Loans and the aggregate amount
available to be drawn at such time under all outstanding Letters of Credit
and L/C Obligations) of any Non-Funding Lender shall be disregarded in
determining Supermajority Lenders at any time.
"Swing Line Commitment": the Swing Line Lender's obligation to make
---------------------
Swing Line Loans pursuant to subsection 2.4.
"Swing Line Lender": Chase in its capacity as the lender of the Swing
-----------------
Line Loans.
"Swing Line Loan Participation Certificate": a certificate in
-----------------------------------------
substantially the form of Exhibit H.
"Swing Line Loans": as defined in subsection 2.4(a).
----------------
"Swing Line Note": as defined in subsection 3.13(e).
---------------
"Syndication Agent": as defined in the Preamble hereto.
-----------------
"Synthetic Investors": as defined in the Agency and Intercreditor
-------------------
Agreement.
"Synthetic Lease Facility": the synthetic lease facility provided for
------------------------
in (a) the Participation Agreement, dated as of the date hereof, among the
Company, the Trust, the Synthetic Investors, the Lenders and the
Administrative Agent, (b) the Lease, dated as of the date hereof, between
Harborside of Dayton Limited Partnership, as lessee, and the Trust, as the
lessor, and (c) the Credit Agreement, dated as of the date hereof, among
the Trust, as borrower, the Lenders, the Arranger, the Co-Arrangers, the
Syndication Agent, the Documentation Agent and the Administrative Agent.
<PAGE>
29
"Synthetic Lease Obligations": the collective reference to (a)
---------------------------
outstanding obligations under the Synthetic Lease Facility and (b)
unreturned Investor Contributions.
"Termination Date": the earlier of (a) the Scheduled Termination Date
----------------
and (b) such earlier date as the Revolving Credit Commitments shall
terminate hereunder.
"Term Loan Lender": any Lender which is the holder of a Term Loan.
----------------
"Term Loan Note": as defined in subsection 3.13(e).
--------------
"Term Loans": as defined in subsection 2.15.
-----------
"Term Synthetic Lease Obligations": as defined in subsection 2.15.
---------------------------------
"Transferee": as defined in subsection 9.6(f).
----------
"Trust": HHC 1998-1 Trust, a Delaware business trust.
-----
"Trust Guarantee": the Guarantee, substantially in the form of
---------------
Exhibit N, to be made by the Trust in favor of the Administrative Agent for
the benefit of the Lenders, as the same may be amended, supplemented or
otherwise modified from time to time.
"Type": as to any Loan, its nature as an Alternate Base Rate Loan or
----
Eurodollar Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
---------------
Credits (1993 Revision), International Chamber of Commerce Publication No.
500, and any amendments thereof.
"United States": the United States of America.
-------------
"1997 Form 10-K": the annual report on Form 10-K of the Company filed
--------------
with the Securities and Exchange Commission on March 31, 1998.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
-----------------------------
therein, all terms defined in this Agreement shall have the defined meanings
when used in the Notes, any other Credit Document or any certificate or other
document made or delivered pursuant hereto.
(a) As used herein and in the Notes, any other Credit Document and
any certificate or other document made or delivered pursuant hereto, accounting
terms relating to the Company and its Subsidiaries not defined in subsection 1.1
and accounting terms partly defined in subsection 1.1 to the extent not defined,
shall have the respective meanings given to them under GAAP. To the extent
there are any changes in GAAP from the date of this Agreement, the financial
covenants set forth herein at the option of the Company will either (i) continue
to be
<PAGE>
30
determined in accordance with GAAP in effect on the Closing Date, as applicable,
or (ii) be adjusted or reset to reflect such changes in GAAP, such adjustments
or resets to be mutually agreed to by the Company, as agent for the Borrowers,
and the Administrative Agent.
(b) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified.
(c) The meanings given to terms defined herein shall be equally
applicable to the singular and plural forms of such terms.
2. AMOUNT AND TERMS OF REVOLVING
CREDIT COMMITMENTS
------------------------
2.1 Revolving Credit Commitments. (a) Subject to the terms and
----------------------------
conditions hereof, each Lender severally agrees to the extent of its Revolving
Credit Commitment to extend credit to the Borrowers from time to time on any
Borrowing Date during the Revolving Credit Commitment Period (i) by purchasing
an L/C Participating Interest in each Letter of Credit issued by the Issuing
Lender and (ii) by making loans in Dollars (individually, such a Loan is a
"Revolving Credit Loan", and collectively such Loans are the "Revolving Credit
- ---------------------- ----------------
Loans"; for purposes of clarity, Revolving Credit Loans do not include any
- -----
Synthetic Lease Obligations) to the Borrowers from time to time; provided,
--------
however, that in no event shall any Revolving Credit Loans be made, or Letter of
- -------
Credit be issued, if the aggregate amount of the Revolving Credit Loans to be
made or Letter of Credit to be issued would, after giving effect to the use of
proceeds, if any, thereof, exceed the aggregate Available Revolving Credit
Commitments, and no Letter of Credit shall be issued if after giving effect
thereto the sum of the undrawn amount of all outstanding Letters of Credit and
the amount of all L/C Obligations would exceed $25,000,000. During the
Revolving Credit Commitment Period, the Borrowers may use the Revolving Credit
Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in
part, and reborrowing, all in accordance with the terms and conditions hereof,
and/or by having the Issuing Lender issue Letters of Credit, having such Letters
of Credit expire undrawn upon or if drawn upon, reimbursing the Issuing Lender
for such drawing, and having the Issuing Lender issue new Letters of Credit.
(a) Each borrowing of Revolving Credit Loans pursuant to the
Revolving Credit Commitments shall be in an aggregate principal amount of the
lesser of (i) $1,000,000 or a whole multiple of $100,000 in excess thereof in
the case of Alternate Base Rate Loans, and $2,000,000 or a whole multiple of
$1,000,000 in excess thereof, in the case of Eurodollar Loans and (ii) the
Available Revolving Credit Commitments, except that any borrowing of Revolving
Credit Loans to be used solely to pay a like amount of Swing Line Loans may be
in the aggregate principal amount of such Swing Line Loans.
<PAGE>
31
2.2 Commitment Fee. The Company agrees to pay to the Administrative
--------------
Agent for the account of each Lender (other than any Non-Funding Lender) a
commitment fee from and including the Closing Date to and including the
Termination Date computed at the applicable rate (on each Adjustment Date
pursuant to the guidelines set forth in the definition of Applicable Margin) per
annum set forth on Schedule III on the average daily amount of the Available
Revolving Credit Commitment of such Lender during the period for which payment
is made (whether or not the Company shall have satisfied the applicable
conditions to borrow or for the issuance of a Letter of Credit set forth in
Section 5); provided that (a) from the Closing Date until the first Adjustment
--------
Date occurring after the completion of four fiscal quarters of the Company after
the Closing Date, the rate at which the commitment fee shall be calculated (the
"Commitment Fee Rate") shall be 0.50% per annum and (b) if a Default or an Event
-------------------
of Default shall have occurred and be continuing on any Adjustment Date or other
date upon which the Commitment Fee Rate would otherwise be adjusted hereunder,
the Commitment Fee Rate shall in no event be reduced on such Adjustment Date or
other date from the Commitment Fee Rate in effect immediately prior to such
Adjustment Date or other date. Such commitment fee shall be payable quarterly in
arrears on the last day of each March, June, September and December and on the
Termination Date, commencing on the later of (a) the first such date to occur on
or following the Closing Date (or, if earlier, the Termination Date) and (b)
September 30, 1998.
2.3 Proceeds of Revolving Credit Loans. The Borrowers shall use the
----------------------------------
proceeds of Revolving Credit Loans (a) to finance a portion of the cash
consideration payable in the Merger and other payments pursuant to the Merger
Agreement and to pay fees, expenses and financing costs in connection therewith,
(b) to refinance certain of the existing Indebtedness of the Company and its
Subsidiaries, (c) for working capital purposes of the Company and its
Subsidiaries, (d) to finance acquisitions permitted by subsection 7.6(g) or
other provisions of this Agreement, (e) to finance capital expenditures
permitted hereunder and (f) for general corporate purposes.
2.4 Swing Line Commitment. (a) Subject to the terms and conditions
---------------------
hereof, the Swing Line Lender agrees, so long as the Administrative Agent has
not received notice that an Event of Default has occurred and is continuing, to
make swing line loans (individually, a "Swing Line Loan"; collectively, the
---------------
"Swing Line Loans") to the Company from time to time during the Revolving Credit
- -----------------
Commitment Period in an aggregate principal amount at any one time outstanding
not to exceed $10,000,000, provided that no Swing Line Loan may be made if the
--------
aggregate principal amount of the Swing Line Loans to be made would exceed the
aggregate Available Revolving Credit Commitments at such time. Amounts borrowed
by the Company under this subsection 2.4 may be repaid and, through but
excluding the Termination Date, reborrowed. All Swing Line Loans shall be made
as Alternate Base Rate Loans and shall not be entitled to be converted into
Eurodollar Loans. The Company shall give the Swing Line Lender irrevocable
notice (which notice must be received by the Swing Line Lender prior to 3:00
p.m., New York City time) on the requested Borrowing Date specifying the amount
of each requested Swing Line Loan, which shall be in an aggregate minimum amount
of $250,000 or a whole multiple of $100,000 in excess thereof. The proceeds of
each Swing Line Loan will be made available by the Swing Line Lender to the
Company by crediting the account of the Company at
<PAGE>
32
the office of the Swing Line Lender with such proceeds. The proceeds of Swing
Line Loans may be used solely for the purposes referred to in subsection 2.3.
(a) The Swing Line Lender at any time in its sole and absolute
discretion may, and on the fifteenth day (or if such day is not a Business Day,
the next Business Day) and last Business Day of each month shall, on behalf of
the Company (which hereby irrevocably directs the Swing Line Lender to act on
its behalf) request each Revolving Credit Lender, including the Swing Line
Lender, to make a Revolving Credit Loan in an amount equal to such Lender's
Revolving Credit Percentage of the amount of the Swing Line Loans (the "Refunded
--------
Swing Line Loans") outstanding on the date such notice is given. Unless any of
- ----------------
the events described in paragraph (f) of Section 8 shall have occurred (in which
event the procedures of paragraph (c) of this subsection 2.4 shall apply) each
such Lender shall make the proceeds of its Revolving Credit Loan available to
the Swing Line Lender for the account of the Swing Line Lender at the office of
the Swing Line Lender specified in subsection 9.2 (or such other location as the
Swing Line Lender may direct) prior to 12:00 noon (New York City time) in funds
immediately available on the Business Day next succeeding the date such notice
is given. The proceeds of such Revolving Credit Loans shall be immediately
applied to repay the Refunded Swing Line Loans.
(b) If prior to the making of a Revolving Credit Loan pursuant to
paragraph (b) of this subsection 2.4 one of the events described in paragraph
(f) of Section 8 shall have occurred, each Revolving Credit Lender will, on the
date such Loan was to have been made, purchase an undivided participating
interest in the Refunded Swing Line Loan in an amount equal to its Revolving
Credit Percentage of such Refunded Swing Line Loan. Each such Lender will
immediately transfer to the Swing Line Lender in immediately available funds,
the amount of its participation and upon receipt thereof the Swing Line Lender
will deliver to such Lender a Swing Line Loan Participation Certificate dated
the date of receipt of such funds and in such amount.
(c) Whenever, at any time after the Swing Line Lender has received
from any Revolving Credit Lender such Lender's participating interest in a
Refunded Swing Line Loan, the Swing Line Lender receives any payment on account
thereof, the Swing Line Lender will distribute to such Lender its participating
interest in such amount (appropriately adjusted, in the case of interest
payments, to reflect the period of time during which such Lender's participating
interest was outstanding and funded) in like funds as received; provided that in
--------
the event that such payment received by the Swing Line Lender is required to be
returned, such Lender will return to the Swing Line Lender any portion thereof
previously distributed by the Swing Line Lender to it in like funds as such
payment is required to be returned by the Swing Line Lender.
(d) The obligation of each Revolving Credit Lender to purchase
participating interests pursuant to subsection 2.4(c) shall be absolute and
unconditional and shall not be affected by any circumstance, including, without
limitation, (i) any set-off, counterclaim, recoupment, defense or other right
which such Lender may have against the Swing Line Lender, any Borrower or any
other Person for any reason whatsoever, (ii) the occurrence or continuance of an
Event of Default, (iii) any adverse change in the condition (financial or
otherwise) of any Borrower, (iv) any breach of this Agreement by any Borrower or
any other Lender or (v) any
<PAGE>
33
other circumstance, happening or event whatsoever, whether or not similar to any
of the foregoing.
2.5 Issuance of Letters of Credit. (a) The Company, as agent for
-----------------------------
the Borrowers, may from time to time request the Issuing Lender to issue a
Standby L/C or a Commercial L/C by delivering to the Administrative Agent at its
address specified in subsection 9.2 a letter of credit application in the
Issuing Lender's then customary form (the "L/C Application") completed to the
---------------
satisfaction of the Issuing Lender, together with the proposed form of such
Letter of Credit (which shall comply with the applicable requirements of
paragraph (b) below) and such other certificates, documents and other papers and
information as the Issuing Lender may reasonably request; provided that if the
--------
Issuing Lender informs the Company that it is for any reason unable to open such
Letter of Credit, the Company, as agent for the Borrowers, may request any
Lender to open such Letter of Credit upon the same terms offered to the Issuing
Lender and each reference to the Issuing Lender for purposes of subsections 2.5
through 2.14, 5.1 and 5.2 shall be deemed to be a reference to such issuing
Lender. The letters of credit identified on Schedule 2.5 shall at all times on
and after the Closing Date be deemed to be a "Letter of Credit" or "Letters of
Credit" for all purposes of this Agreement and the other Loan Documents.
(a) Each Standby L/C and Commercial L/C issued hereunder shall, among
other things, (i) be for the account of the Company, (ii) be in such form
requested by the Company as shall be acceptable to the Issuing Lender in its
sole discretion and (iii) have an expiry date occurring (A) in the case of any
Standby L/C, not later than 365 days (or such later date as may be agreed to by
the Issuing Lender) after the date of issuance of such Standby L/C and (B) in
the case of any Commercial L/C, not later than 120 days (or such later date as
may be agreed to by the Issuing Lender) after the date of issuance of such
Commercial L/C. Each Letter of Credit issued hereunder may be automatically
renewed on its expiry date for an additional period equal to the initial term,
but in no case shall any Letter of Credit have an expiry date, or permit payment
of any draft drawn thereunder on any date, occurring later than the Termination
Date. Except as otherwise provided for in any Letter of Credit, each Letter of
Credit shall be subject to the Uniform Customs and, to the extent not
inconsistent therewith, the laws of the State of New York.
2.6 Participating Interests. Effective in the case of each Standby
-----------------------
L/C and Commercial L/C (if applicable) as of the date of the opening thereof,
the Issuing Lender agrees to allot and does allot, to itself and each other
Revolving Credit Lender, and each such Lender severally and irrevocably agrees
to take and does take in such Letter of Credit and the related L/C Application
(if applicable), an L/C Participating Interest in a percentage equal to such
Lender's Revolving Credit Percentage.
2.7 Procedure for Opening Letters of Credit. Upon receipt of any
---------------------------------------
L/C Application from the Company, the Issuing Lender will process such L/C
Application, and the other certificates, documents and other papers delivered to
the Issuing Lender in connection therewith, in accordance with its customary
procedures and, subject to the terms and conditions hereof, shall promptly open
such Letter of Credit by issuing the original of such Letter of Credit
<PAGE>
34
to the beneficiary thereof and by furnishing a copy thereof to the Company and,
after the end of the calendar month in which such Letter of Credit was opened,
to the other Lenders, provided that no such Letter of Credit shall be issued if
--------
subsection 2.1 would be violated thereby. The Issuing Lender shall promptly
furnish to the Administrative Agent, which shall in turn promptly furnish to the
Lenders, notice of the issuance of each Letter of Credit (including the amount
thereof). To the extent that any provision of any L/C Application related to any
Letter of Credit is inconsistent with the provisions of this Section 2, the
provisions of this Section 2 shall apply.
2.8 Payments in Respect of Letters of Credit. (a) The Company
----------------------------------------
agrees forthwith upon demand by the Issuing Lender and otherwise in accordance
with the terms of the L/C Application relating thereto, (i) to reimburse the
Issuing Lender for any payment made by the Issuing Lender under any Letter of
Credit issued for the account of the Company and (ii) to pay interest on any
unreimbursed portion of any such payment from the date of such payment until
reimbursement in full thereof at a rate per annum equal to (A) on or prior to
the date which is one Business Day after the day on which the Issuing Lender
demands reimbursement from the Company for such payment, the Alternate Base Rate
plus the Applicable Margin for the Revolving Credit Loans and (B) thereafter,
the Alternate Base Rate plus the Applicable Margin for the Revolving Credit
Loans plus 2%.
(a) In the event that the Issuing Lender makes a payment under any
Letter of Credit and is not reimbursed in full therefor forthwith upon demand of
the Issuing Lender, and otherwise in accordance with the terms of the L/C
Application relating to such Letter of Credit, the Issuing Lender will promptly
notify each other Revolving Credit Lender. Forthwith upon its receipt of any
such notice, each such other Lender will transfer to the Issuing Lender, in
immediately available funds, an amount equal to such other Lender's pro rata
--- ----
share (based on its Revolving Credit Percentage) of the L/C Obligation arising
from such unreimbursed payment. Promptly upon its receipt from such other
Lender of such amount, the Issuing Lender will complete, execute and deliver to
such other Lender an L/C Participation Certificate dated the date of such
receipt and in such amount.
(b) Whenever, at any time after the Issuing Lender has made a payment
under any Letter of Credit and has received from any other Revolving Credit
Lender such other Lender's pro rata share of the L/C Obligation arising
--- ----
therefrom, the Issuing Lender receives any reimbursement on account of such L/C
Obligation or any payment of interest on account thereof, the Issuing Lender
will distribute to such other Lender its pro rata share thereof in like funds as
--- ----
received; provided that in the event that the receipt by the Issuing Lender of
--------
such reimbursement or such payment of interest (as the case may be) is required
to be returned, such other Lender will return to the Issuing Lender any portion
thereof previously distributed by the Issuing Lender to it in like funds as such
reimbursement or payment is required to be returned by the Issuing Lender.
2.9 Letter of Credit Fees. (a) In lieu of any letter of credit
---------------------
commissions and fees provided for in any L/C Application relating to Standby or
Commercial L/Cs (other than standard issuance, amendment and negotiation fees),
the Company agrees to pay the Administrative Agent, for the account of the
Issuing Lender and the Participating Lenders, with
<PAGE>
35
respect to each Standby or Commercial L/C issued for the account of the Company,
a Standby or Commercial L/C fee, as the case may be, at a per annum rate equal
to the Applicable Margin for Revolving Credit Loans which are Eurodollar Loans
(of which the Issuing Lender shall retain for its own account, as the issuing
bank and not on account of its L/C Participating Interest therein, 1/4 of 1% per
annum) on the daily average amount available to be drawn under each Standby L/C
in the case of a Standby L/C and on the maximum face amount of each Commercial
L/C in the case of a Commercial L/C, in either case, payable, in arrears, on the
last day of each March, June, September and December and on the Termination
Date. Notwithstanding the foregoing, the Company agrees to pay standard
administrative, issuance, amendment, payment and negotiation fees to the Issuing
Lender.
(a) For purposes of any payment of fees required pursuant to this
subsection 2.9, the Administrative Agent agrees to provide to the Company a
statement of any such fees to be so paid; provided that the failure by the
--------
Administrative Agent to provide the Company with any such invoice shall not
relieve the Company of its obligation to pay such fees.
2.10 Letter of Credit Reserves. (a) If any Change in Law shall
-------------------------
either (i) impose, modify, deem or make applicable any reserve, special deposit,
assessment or similar requirement against letters of credit issued by the
Issuing Lender or (ii) impose on the Issuing Lender any other condition
regarding this Agreement (with respect to Letters of Credit) or any Letter of
Credit, and the result of any event referred to in clause (i) or (ii) above
shall be to increase the cost of the Issuing Lender of issuing or maintaining
any Letter of Credit (which increase in cost shall be the result of the Issuing
Lender's reasonable allocation of the aggregate of such cost increases resulting
from such events), then, upon demand by the Issuing Lender, the Company shall
immediately pay to the Issuing Lender, from time to time as specified by the
Issuing Lender, additional amounts which shall be sufficient to compensate the
Issuing Lender for such increased cost, together with interest on each such
amount from the date demanded until payment in full thereof at a rate per annum
equal to the rate applicable to Alternate Base Rate Loans pursuant to subsection
3.5(b). The Company shall not be required to make any payments to the Issuing
Lender for any additional amounts pursuant to this subsection 2.10(a) unless the
Issuing Lender has given written notice to the Company of its intent to request
such payments prior to or within 60 days after the date on which the Issuing
Lender incurred such amounts. A certificate, setting forth in reasonable detail
the calculation of the amounts involved, submitted by the Issuing Lender to the
Company concurrently with any such demand by the Issuing Lender, shall be
conclusive, absent manifest error, as to the amount thereof.
(b) In the event that any Change in Law with respect to the Issuing
Lender shall, in the opinion of the Issuing Lender, require that any obligation
under any Letter of Credit be treated as an asset or otherwise be included for
purposes of calculating the appropriate amount of capital to be maintained by
the Issuing Lender or any corporation controlling the Issuing Lender, and such
Change in Law shall have the effect of reducing the rate of return on the
Issuing Lender's or such corporation's capital, as the case may be, as a
consequence of the Issuing Lender's obligations under such Letter of Credit to a
level below that which the Issuing Lender or such corporation, as the case may
be, could have achieved but for such Change in Law (taking
<PAGE>
36
into account the Issuing Lender's or such corporation's policies, as the case
may be, with respect to capital adequacy) by an amount deemed by the Issuing
Lender to be material, then from time to time following notice by the Issuing
Lender to the Company of such Change in Law, within 15 days after demand by the
Issuing Lender, the Company shall pay to the Issuing Lender such additional
amount or amounts as will compensate the Issuing Lender or such corporation, as
the case may be, for such reduction. The Issuing Lender agrees that, upon the
occurrence of any event giving rise to the operation of paragraph (a) or (b) of
this subsection 2.10 with respect to the Issuing Lender, it will, if requested
by the Company and to the extent permitted by law or by the relevant
Governmental Authority, endeavor in good faith to avoid or minimize the increase
in costs or reduction in payments resulting from such event; provided that such
--------
avoidance or minimization can be made in such a manner that the Issuing Lender,
in its sole determination, suffers no economic, legal or regulatory
disadvantage. The Company shall not be required to make any payments to the
Issuing Lender for any additional amounts pursuant to this subsection 2.10(b)
unless the Issuing Lender has given written notice to the Company of its intent
to request such payments prior to or within 60 days after the date on which the
Issuing Lender incurred such amounts. A certificate, in reasonable detail
setting forth the calculation of the amounts involved, submitted by the Issuing
Lender to the Company concurrently with any such demand by the Issuing Lender,
shall be conclusive, absent manifest error, as to the amount thereof.
(c) The Company and each Participating Lender agree that the
provisions of the foregoing paragraphs (a) and (b) shall apply equally to each
Participating Lender in respect of its L/C Participating Interest in such Letter
of Credit, as if the references in such paragraphs and provisions referred to,
where applicable, such Participating Lender or, in the case of paragraph (b),
any corporation controlling such Participating Lender.
2.11 Further Assurances. The Company hereby agrees, from time to
------------------
time, to do and perform any and all acts and to execute any and all further
instruments reasonably requested by the Issuing Lender more fully to effect the
purposes of this Agreement and the issuance of Letters of Credit hereunder.
2.12 Obligations Absolute. The payment obligations of the Company
--------------------
under this Agreement with respect to the Letters of Credit shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances, including, without limitation,
the following circumstances:
(a) the existence of any claim, set-off, defense or other
right which the Company or any of its Subsidiaries may have at any time
against any beneficiary, or any transferee, of any Letter of Credit (or any
Persons for whom any such beneficiary or any such transferee may be
acting), the Issuing Lender, the Administrative Agent or any Lender, or any
other Person, whether in connection with this Agreement, any Credit
Document, the transactions contemplated herein, or any unrelated
transaction;
<PAGE>
37
(b) any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent or invalid or any
statement therein being untrue or inaccurate in any respect;
(c) payment by the Issuing Lender under any Letter of Credit
against presentation of a draft or certificate or other document which does
not comply with the terms of such Letter of Credit or is insufficient in
any respect, except where such payment constitutes gross negligence or
willful misconduct on the part of the Issuing Lender; or
(d) any other circumstances or happening whatsoever, whether
or not similar to any of the foregoing, except for any such circumstances
or happening constituting gross negligence or willful misconduct on the
part of the Issuing Lender.
2.13 Assignments. No Participating Lender's participation in any
-----------
Letter of Credit or any of its rights or duties hereunder shall be subdivided,
assigned or transferred (other than in connection with a transfer of part or all
of such Participating Lender's Revolving Credit Commitment in accordance with
subsection 9.6(c)) without the prior written consent of the Issuing Lender,
which consent will not be unreasonably withheld. Such consent may be given or
withheld without the consent or agreement of any other Participating Lender.
Notwithstanding the foregoing, a Participating Lender may subparticipate its L/C
Participating Interest without obtaining the prior written consent of the
Issuing Lender.
2.14 Participations. The obligation of each Revolving Credit Lender
--------------
to purchase participating interests pursuant to subsection 2.6 shall be absolute
and unconditional and shall not be affected by any circumstance, including,
without limitation, (a) any set-off, counterclaim, recoupment, defense or other
right which such Lender may have against the Issuing Lender, any Borrower or any
other Person for any reason whatsoever, (b) the occurrence or continuance of an
Event of Default, (c) any adverse change in the condition (financial or
otherwise) of any Borrower, (d) any breach of this Agreement by any Borrower or
any other Lender or (e) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing.
2.15 Conversion to Term Loans. If, on any anniversary of the Closing
------------------------
Date, the sum of (a) the then outstanding Revolving Credit Loans and Swing Line
Loans and (b) the then outstanding Revolving Synthetic Lease Obligations exceeds
$75,000,000 (the "Excess Amount"), then the following actions shall be taken (if
-------------
applicable) in the following order:
(i) the Revolving Credit Commitments shall be automatically reduced
by an amount equal to the Excess Amount,
(ii) any amount of outstanding Revolving Synthetic Lease Obligations
up to the Excess Amount shall be converted to term loans (the "Term
----
Synthetic Lease Obligations") in accordance with the terms of the Synthetic
---------------------------
Lease Facility and
<PAGE>
38
(iii) Revolving Credit Loans in an amount equal to (A) the Excess
Amount minus (B) the amount of the Revolving Synthetic Lease Obligations
-----
converted to Term Synthetic Lease Obligations on such date shall be
automatically converted to term loans (any such Revolving Credit Loans so
converted being herein called the "Term Loans").
----------
3. GENERAL PROVISIONS APPLICABLE TO LOANS
--------------------------------------
3.1 Procedure for Borrowing. (a) The Borrowers may borrow under the
-----------------------
Commitments during the Revolving Credit Commitment Period on any Business Day,
provided that, with respect to any borrowing, the Company, as agent for the
- --------
Borrowers, shall give the Administrative Agent irrevocable notice (which notice
must be received by the Administrative Agent prior to 10:00 a.m. (or, with
respect to Swing Line Loans, 3:00 p.m.), New York City time, (i) three Business
Days prior to the requested Borrowing Date if all or any part of the Loans are
to be Eurodollar Loans and (ii) one Business Day prior to the requested
Borrowing Date (or, in the case of Swing Line Loans and, if the Closing Date
occurs on the date this Agreement is executed and delivered, Loans made on the
Closing Date, on the requested Borrowing Date) if the borrowing is to be solely
of Alternate Base Rate Loans) and specifying (A) the amount of the borrowing,
(B) whether such Loans are initially to be Eurodollar Loans or Alternate Base
Rate Loans or a combination thereof, (C) if the borrowing is to be entirely or
partly Eurodollar Loans, the length of the Interest Period for such Eurodollar
Loans, (D) whether the Loan is a Swing Line Loan or a Revolving Credit Loan, (E)
the requested Borrowing Date and (F) the Borrower with respect to such
borrowing. Upon receipt of such notice the Administrative Agent shall promptly
notify each Lender. Not later than 12:00 noon, New York City time, on the
Borrowing Date specified in such notice, each Lender shall make available to the
Administrative Agent at the office of the Administrative Agent specified in
subsection 9.2 (or at such other location as the Administrative Agent may
direct) an amount in immediately available funds equal to the amount of the Loan
to be made by such Lender (except that proceeds of Swing Line Loans will be made
available to the Company in accordance with subsection 2.4(a)). Loan proceeds
received by the Administrative Agent hereunder shall promptly be made available
to the Company, by the Administrative Agent's crediting the account of the
Company, at the office of the Administrative Agent specified in subsection 9.2,
with the aggregate amount actually received by the Administrative Agent from the
Lenders and in like funds as received by the Administrative Agent.
(a) Any borrowing of Eurodollar Loans hereunder shall be in such
amounts and be made pursuant to such elections so that, after giving effect
thereto, (i) the aggregate principal amount of all Eurodollar Loans having the
same Interest Period shall not be less than $2,000,000 or a whole multiple of
$1,000,000 in excess thereof and (ii) no more than 16 Interest Periods shall be
in effect at any one time.
3.2 Conversion and Continuation Options. (a) Subject to subsection
-----------------------------------
3.12, the Company, as agent for the Borrowers, may elect from time to time to
convert Eurodollar Loans into Alternate Base Rate Loans by giving the
Administrative Agent irrevocable notice of such
<PAGE>
39
election, to be received by the Administrative Agent prior to 12:00 noon, New
York City time, at least three Business Days prior to the proposed conversion
date. The Company, as agent for the Borrowers, may elect from time to time to
convert all or a portion of the Alternate Base Rate Loans (other than Swing Line
Loans) then outstanding to Eurodollar Loans by giving the Administrative Agent
irrevocable notice of such election, to be received by the Administrative Agent
prior to 12:00 noon, New York City time, at least three Business Days prior to
the proposed conversion date, specifying the Interest Period selected therefor,
and, if no Default or Event of Default has occurred and is continuing, such
conversion shall be made on the requested conversion date or, if such requested
conversion date is not a Business Day, on the next succeeding Business Day. Upon
receipt of any notice pursuant to this subsection 3.2, the Administrative Agent
shall promptly notify each Lender thereof. All or any part of the outstanding
Loans (other than Swing Line Loans) may be converted as provided herein,
provided that partial conversions of Alternate Base Loans shall be in the
- --------
aggregate principal amount of $1,000,000 or a whole multiple of $100,000 in
excess thereof and the aggregate principal amount of the resulting Eurodollar
Loans outstanding in respect of any one Interest Period shall be at least
$2,000,000 or a whole multiple of $1,000,000 in excess thereof; and provided,
--------
further, that no Alternate Base Rate Loan may be converted into a Eurodollar
- -------
Loan (i) when any Event of Default has occurred and is continuing and the
Administrative Agent has or the Required Lenders have, by written notice to the
Company, determined that such a continuation is not appropriate or (ii) after
the date that is one month prior to the Termination Date.
(a) Any Eurodollar Loans may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Company, as
agent for the Borrowers, giving notice to the Administrative Agent, in
accordance with the applicable provisions of the term "Interest Period" set
forth in subsection 1.1, of the length of the next Interest Period to be
applicable to such Loans, provided that no Eurodollar Loan may be continued as
--------
such (i) when any Event of Default has occurred and is continuing and the
Administrative Agent has or the Required Lenders have, by written notice to the
Company, determined that such a continuation is not appropriate, (ii) if, after
giving effect thereto, subsection 3.1(b) would be contravened or (iii) after the
date that is one month prior to the Termination Date.
3.3 Changes of Commitment Amounts. (a) The Company, as agent for
-----------------------------
the Borrowers, shall have the right, upon not less than three Business Days'
notice to the Administrative Agent, to terminate or from time to time to
permanently reduce the Revolving Credit Commitments, subject to the provisions
of this subsection 3.3. To the extent, if any, that the sum of the amount of
the Revolving Credit Loans, Swing Line Loans, L/C Obligations then outstanding,
amounts then available to be drawn under outstanding Letters of Credit and
Revolving Synthetic Lease Obligations then outstanding exceeds the amount of the
Revolving Credit Commitments as then reduced, the Company, as agent for the
Borrowers, shall be required to apply an amount equal to such excess amount (i)
to prepay, in the order set forth in this subsection 3.3(a), the obligations
hereunder and/or, at its option, (ii) to cash collateralize the Revolving
Synthetic Lease Obligations and/or repurchase properties subject to the
Synthetic Lease Facility. If the Company elects to have such amount applied as
set forth in clause (i) of this subsection 3.3(a), such amount shall be applied,
first, to payment of the Swing Line Loans
- -----
<PAGE>
40
then outstanding, second, to payment of the Revolving Credit Loans then
------
outstanding, third, to payment of any L/C Obligations then outstanding, and
-----
fourth, to cash collateralize any outstanding Letters of Credit on terms
- ------
reasonably satisfactory to the Administrative Agent. Any such termination of the
Revolving Credit Commitments shall be accompanied by prepayment in full of the
Revolving Credit Loans, Swing Line Loans and L/C Obligations then outstanding,
by cash collateralization of any outstanding Letters of Credit on terms
reasonably satisfactory to the Administrative Agent and by payment in full of
the Synthetic Lease Obligations. Upon termination of the Revolving Credit
Commitments, any Letter of Credit then outstanding that has been so cash
collateralized shall no longer be considered a "Letter of Credit" as defined in
subsection 1.1, and any L/C Participating Interests heretofore granted by the
Issuing Lender to the Lenders in such Letter of Credit shall be deemed
terminated (subject to automatic reinstatement in the event that such cash
collateral is returned and the Issuing Lender is not fully reimbursed for any
such L/C Obligations) but the Letter of Credit fees payable under subsection 2.9
shall continue to accrue to the Issuing Lender and the Participating Lenders
(or, in the event of any such automatic reinstatement, as provided in subsection
2.9) with respect to such Letter of Credit until the expiry thereof (provided
--------
that in lieu of paying a Standby or Commercial L/C fee, as the case may be, at a
rate per annum equal to the Applicable Margin for Revolving Credit Loans which
are Eurodollar Loans, the Company shall pay to the Administrative Agent an
amount equal to .25% per annum).
(a) In the case of termination of the Revolving Credit Commitments,
interest accrued on the amount of any prepayment relating thereto and any unpaid
commitment fee accrued hereunder shall be paid on the date of such termination.
Any such partial reduction of the Revolving Credit Commitments shall be in an
amount of $2,000,000 or a whole multiple of $1,000,000 in excess thereof and
shall, in each case, reduce permanently the amount of the Revolving Credit
Commitments then in effect.
3.4 Optional and Mandatory Prepayments; Repayments of Term Loans.
------------------------------------------------------------
(a) Subject to subsection 3.12, the Company, as agent for the Borrowers, may at
any time and from time to time prepay Loans, in whole or in part, without
premium or penalty, by irrevocable notice to the Administrative Agent by 10:00
a.m., New York City time, on the same Business Day (or, in the case of Swing
Line Loans, by irrevocable notice to the Administrative Agent by 12:00 noon, New
York City time, on the same Business Day) in the case of Alternate Base Rate
Loans, and three Business Days' irrevocable notice to the Administrative Agent
in the case of Eurodollar Loans, specifying the date and amount of prepayment,
the applicable Borrower of the Loans being prepaid and whether the prepayment is
of Revolving Credit Loans or Term Loans. Upon receipt of such notice the
Administrative Agent shall promptly notify each Lender thereof. If such notice
is given, the Borrowers specified in such prepayment notice shall make such
prepayment, and the payment amount specified in such notice shall be due and
payable, on the date specified therein. Partial prepayments (i) of Term Loans
shall be in an aggregate principal amount equal to the lesser of (A) (I)
$2,000,000, or a whole multiple of $1,000,000 in excess thereof with respect to
Eurodollar Loans or (II) $1,000,000, or a whole multiple of $100,000 in excess
thereof with respect to Alternate Base Rate Loans and (B) the aggregate unpaid
principal amount of the Term Loans, and (ii) of Revolving Credit Loans shall be
in an aggregate principal
<PAGE>
41
amount equal to the lesser of (A) (I) $2,000,000, or a whole multiple of
$1,000,000 in excess thereof with respect to Eurodollar Loans or (II) $1,000,000
or a whole multiple of $100,000 in excess thereof with respect to Alternate Base
Rate Loans and (B) the aggregate unpaid principal amount of the Revolving Credit
Loans, as the case may be.
(a) (i) If, subsequent to the Closing Date, the Company or any of
its Subsidiaries shall issue any Capital Stock, 50% of the Net Proceeds thereof
(excluding (A) amounts provided by the Investors or their Affiliates or by
management employees of such issuer and (B) Net Proceeds in an aggregate amount
not to exceed $35,000,000 of any issuance of preferred stock) shall be promptly
applied toward the prepayment of the Term Loans, the reduction of the Revolving
Credit Commitments, the cash collateralization of the Synthetic Lease
Obligations and the repurchase of properties subject to the Synthetic Lease
Facility, in each case as set forth in clause (v) of this subsection 3.4(b);
provided that Net Proceeds of such issuance shall be deemed to be Net Proceeds
- --------
of such issuance for purposes of this subsection 3.4(b)(i) only after deducting
therefrom the redemption of the Subordinated Debt under any "equity clawback"
provisions, the redemption of the Bridge Junior Subordinated Debt with the
proceeds of preferred stock, the redemption of the Preferred Stock in its
entirety (but only with the proceeds of common stock or other preferred stock),
the redemption of preferred stock with the proceeds of other preferred stock,
and the payment of any premium or penalties or accrued interest with respect
thereto.
(i) If, subsequent to the Closing Date, the Company or any of
its Subsidiaries shall incur any Indebtedness (other than Indebtedness permitted
pursuant to subsection 7.1), 100% of the Net Proceeds thereof shall be promptly
applied toward the prepayment of the Term Loans, the reduction of the Revolving
Credit Commitments, the cash collateralization of the Synthetic Lease
Obligations and the repurchase of properties subject to the Synthetic Lease
Facility, in each case as set forth in clause (v) of this subsection 3.4(b).
(ii) If, subsequent to the Closing Date, the Company or any of
its Subsidiaries shall receive Net Proceeds from any Asset Sale, 100% of the Net
Proceeds thereof shall be promptly applied toward the prepayment of the Term
Loans, the reduction of Revolving Credit Commitments, the cash collateralization
of the Synthetic Lease Obligations and the repurchase of properties subject to
the Synthetic Lease Facility, in each case as set forth in clause (v) of this
subsection 3.4(b); provided that such Net Proceeds need not be so applied until
--------
the earlier of the date that the aggregate amount of Net Proceeds received by
the Company or any of its Subsidiaries from any Asset Sales exceeds $2,000,000
(and has not yet been applied as set forth in clause (v) of this subsection
3.4(b)) and the date which is six months after the last application of Net
Proceeds pursuant to this subsection 3.4(b)(iii).
(iii) If for any fiscal year commencing with its fiscal year
ending December 31, 1999, there shall be Excess Cash Flow for such fiscal year,
50% of such Excess Cash Flow shall be applied toward the prepayment of the Term
Loans, the reduction of the Revolving Credit Commitments, the cash
collateralization of the Synthetic Lease Obligations and the repurchase of
properties subject to the Synthetic Lease Facility, in each case as set forth
<PAGE>
42
in clause (v) of this subsection 3.4(b). Each such prepayment shall be made not
later than 120 days after the end of such fiscal year.
(iv) Amounts to be applied by any Borrower pursuant to
subsections 3.4(b)(i), (ii), (iii) or (iv) shall be applied (A) to prepay the
Term Loans and reduce the Revolving Credit Commitments and/or, at the option of
the Company, (B) to cash collateralize the Synthetic Lease Obligations and/or
repurchase properties subject to the Synthetic Lease Facility. If the Company
elects to have such amounts applied as set forth in clause (A) of this
subsection 3.4(b)(v), such amounts shall be applied, first, to the prepayment of
-----
the Term Loans and, second, to reduce permanently the Revolving Credit
------
Commitments. Any such reduction of the Revolving Credit Commitments shall be
accompanied by prepayment of, first, the Swing Line Loans, second, the Revolving
----- ------
Credit Loans and, third, the L/C Obligations to the extent, if any, that the sum
-----
of the aggregate outstanding principal amount of Revolving Credit Loans, the
aggregate outstanding principal amount of all Swing Line Loans, the aggregate
amount available to be drawn under all outstanding Letters of Credit, the
aggregate outstanding amount of all L/C Obligations and the aggregate then
outstanding amount of Revolving Synthetic Lease Obligations, in each case of all
Lenders, exceeds the amount of the aggregate Revolving Credit Commitments as so
reduced, provided that if the aggregate principal amount of Revolving Credit
--------
Loans, Swing Line Loans, L/C Obligations and Revolving Synthetic Lease
Obligations then outstanding is less than the amount of such excess (because
Letters of Credit constitute a portion thereof), the Company shall, to the
extent of the balance of such excess, replace outstanding Letters of Credit
and/or deposit an amount in cash in a cash collateral account established for
the benefit of the Lenders.
(v) The Company, as agent for the Borrowers, shall give the
Administrative Agent (which shall promptly notify each Lender) at least one
Business Day's notice of each prepayment or mandatory reduction pursuant to this
subsection 3.4(b) setting forth the date, amount and applicable Borrower thereof
and the amount, if any, that has been applied to cash collateralize the
Synthetic Lease Obligations or repurchase any properties subject to the
Synthetic Lease Facility. Except as otherwise may be agreed by the Company, as
agent for the Borrowers, and the Required Lenders, and subject to subsection
3.4(b)(v), any prepayment of Loans pursuant to this subsection 3.4 shall be
applied, first, to any Alternate Base Rate Loans then outstanding and the
-----
balance of such prepayment, if any, to the Eurodollar Loans then outstanding;
provided that prepayments of Eurodollar Loans, if not on the last day of the
- --------
Interest Period with respect thereto, shall, at the option of the Company, as
agent for the Borrowers, be prepaid subject to the provisions of subsection 3.12
or the amount of such prepayment (after application to any Alternate Base Rate
Loans) shall be deposited with the Administrative Agent as cash collateral for
the Loans on terms reasonably satisfactory to the Administrative Agent and
thereafter shall be applied in the order of the Interest Periods next ending
most closely to the date such prepayment is required to be made and on the last
day of each such Interest Period. After such application, unless an Event of
Default shall have occurred and be continuing, any remaining interest earned on
such cash collateral shall be paid to the Company, as agent for the Borrowers.
<PAGE>
43
(b) Amounts repaid on account of the Term Loans pursuant to this
subsection 3.4 or otherwise may not be reborrowed. Accrued interest on the
amount of any prepayments shall be paid on the Interest Payment Date next
succeeding the date of any partial prepayment and on the date of such prepayment
in the case of a prepayment in full of the Term Loans.
3.5 Interest Rates and Payment Dates. (a) Eurodollar Loans shall
--------------------------------
bear interest for each day during each Interest Period applicable thereto,
commencing on (and including) the first day of such Interest Period to, but
excluding, the last day of such Interest Period, on the unpaid principal amount
thereof at a rate per annum equal to the Eurodollar Rate determined for such
Interest Period plus the Applicable Margin from time to time in effect.
(a) Alternate Base Rate Loans shall bear interest for the period from
and including the date such Loans are made to, but excluding, the maturity date
thereof, or to, but excluding, the conversion date if such Loans are earlier
converted into Eurodollar Loans on the unpaid principal amount thereof at a rate
per annum equal to the Alternate Base Rate plus the Applicable Margin from time
to time in effect.
(b) If all or a portion of (i) the principal amount of any of the
Loans or (ii) any interest payable thereon shall not be paid when due (whether
at the stated maturity, by acceleration or otherwise) such Loan, if a Eurodollar
Loan, shall be converted into an Alternate Base Rate Loan at the end of the
then-current Interest Period for said Eurodollar Loan (which conversion shall
occur automatically and without need for compliance with the conditions for
conversion set forth in subsection 3.2), and any such overdue amount shall,
without limiting the rights of the Lenders under Section 8, bear interest (which
shall be payable on demand) at a rate per annum which is 2% plus the Alternate
Base Rate plus the Applicable Margin (or, in the case of a Eurodollar Loan, the
Eurodollar Rate for the Interest Period plus the Applicable Margin from time to
time in effect plus 2%, if higher) from the date of such non-payment until paid
in full (as well after as before judgment).
(c) Except as otherwise expressly provided for in this subsection
3.5, interest shall be payable in arrears on each Interest Payment Date.
3.6 Computation of Interest and Fees. (a) Interest in respect of
--------------------------------
Alternate Base Rate Loans, at any time that the Alternate Base Rate is
determined by reference to the Prime Rate, and all fees hereunder shall be
calculated on the basis of a 365 (or 366 as the case may be) day year for the
actual days elapsed. Interest in respect of Eurodollar Loans and in respect of
Alternate Base Rate Loans at any time that the Alternate Base Rate is determined
by reference to the Base CD Rate or the Federal Funds Effective Rate shall be
calculated on the basis of a 360 day year for the actual days elapsed. The
Administrative Agent shall as soon as practicable notify the Company and the
Lenders of each determination of a Eurodollar Rate. Any change in the interest
rate on a Loan resulting from a change in the Alternate Base Rate or the
Eurocurrency Reserve Requirements shall become effective as of the opening of
business on the day on which such change in the Alternate Base Rate is announced
or such change in the Eurocurrency Reserve Requirements becomes effective, as
the case may be. The Administrative
<PAGE>
44
Agent shall as soon as practicable notify the Company and the Lenders of the
effective date and the amount of each such change.
(a) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrowers and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Company, as agent for the
Borrowers, or any Lender, deliver to the Company or such Lender a statement
showing the quotations used by the Administrative Agent in determining the
Eurodollar Rate.
3.7 Certain Fees. The Borrowers agree to pay to the Administrative
------------
Agent, for its own account, a non-refundable agent's fee in an amount previously
agreed to with the Administrative Agent, payable in advance on the Closing Date
and on the first day of each fiscal year of the Company thereafter.
3.8 Inability to Determine Interest Rate. In the event that the
------------------------------------
Administrative Agent shall have determined (which determination shall be
conclusive and binding upon the Borrowers) that (a) by reason of circumstances
affecting the interbank eurodollar market, adequate and reasonable means do not
exist for ascertaining the Eurodollar Rate for any Interest Period with respect
to (i) proposed Loans that the Company, as agent for the Borrowers, has
requested be made as Eurodollar Loans, (ii) any Eurodollar Loans that will
result from the requested conversion of all or part of the Alternate Base Rate
Loans into Eurodollar Loans or (iii) the continuation of any Eurodollar Loan as
such for an additional Interest Period, or (b) dollar deposits in the relevant
amount and for the relevant period with respect to any such Eurodollar Loan are
not generally available to the Lenders in their respective Eurodollar Lending
Offices' interbank eurodollar markets, the Administrative Agent shall forthwith
give telecopy notice of such determination, confirmed in writing, to the Company
and the Lenders at least one day prior to, as the case may be, the requested
Borrowing Date, the conversion date or the last day of such Interest Period. If
such notice is given (i) any requested Eurodollar Loans shall be made as
Alternate Base Rate Loans, (ii) any Alternate Base Rate Loans that were to have
been converted to Eurodollar Loans shall be continued as Alternate Base Rate
Loans and (iii) any outstanding Eurodollar Loans shall be converted on the last
day of the then current Interest Period applicable thereto into Alternate Base
Rate Loans. Until such notice has been withdrawn by the Administrative Agent,
no further Eurodollar Loans shall be made and no Alternate Base Rate Loans shall
be converted to Eurodollar Loans.
3.9 Pro Rata Treatment and Payments. (a) Except to the extent
-------------------------------
otherwise provided herein, each borrowing of Loans by the Borrowers from the
Lenders, each conversion of Revolving Credit Loans to Term Loans and any
reduction of the Revolving Credit Commitments of the Lenders hereunder shall be
made pro rata according to the relevant Revolving Credit Percentages of the
--- ----
Lenders with respect to the Loans borrowed or converted or the Revolving Credit
Commitments to be reduced.
<PAGE>
45
(a) Whenever any payment received by the Administrative Agent under
this Agreement or any Note or any other Credit Document is insufficient to pay
in full all amounts then due and payable to the Administrative Agent and the
Lenders under this Agreement:
(i) If the Administrative Agent has not received a Payment
Sharing Notice (or, if the Administrative Agent has received a Payment
Sharing Notice but the Event of Default specified in such Payment Sharing
Notice has been cured or waived in accordance with the provisions of this
Agreement), such payment shall be distributed by the Administrative Agent
and applied by the Administrative Agent and the Lenders in the following
order: first, to the payment of fees and expenses due and payable to the
-----
Administrative Agent under and in connection with this Agreement and the
other Credit Documents; second, to the payment of all expenses due and
------
payable under subsection 9.5, ratably among the Lenders in accordance with
the aggregate amount of such payments owed to each such Lender; third, to
-----
the payment of fees due and payable under subsections 2.2 and 2.9, ratably
among the Lenders in accordance with the Revolving Credit Percentage of
each Lender of the Revolving Credit Commitment for which such payment is
owed and, in the case of the Issuing Lender, the amount retained by the
Issuing Lender for its own account pursuant to subsection 2.9; fourth, to
------
the payment of interest then due and payable on the Loans and the L/C
Obligations ratably in accordance with the aggregate amount of interest
owed to each such Lender; and fifth, to the payment of the principal amount
-----
of the Loans and the L/C Obligations which is then due and payable ratably
among the Lenders in accordance with the aggregate principal amount owed to
each such Lender; or
(ii) If the Administrative Agent has received a Payment Sharing
Notice which remains in effect, all payments received by the Administrative
Agent under this Agreement or any Note shall be distributed by the
Administrative Agent and applied by the Administrative Agent and the
Lenders in the following order: first, to the payment of all amounts
-----
described in clauses "first" through "third" of the foregoing clause (i) in
----- -----
the order set forth therein; second, to the payment of the interest accrued
------
on all Loans and L/C Obligations, regardless of whether any such amount is
then due and payable, ratably among the Lenders in accordance with the
aggregate accrued interest plus the aggregate principal amount of all Loans
and L/C Obligations then due and payable and owed to such Lender; and
third, to the payment of the principal amount of all Loans and L/C
-----
Obligations, regardless of whether any such amount is then due and payable,
ratably among the Lenders in accordance with the aggregate principal amount
owed to such Lender.
(b) If any Lender (a "Non-Funding Lender") has (x) failed to make a
------------------
Revolving Credit Loan required to be made by it hereunder, and the
Administrative Agent has determined that such Lender is not likely to make such
Revolving Credit Loan or (y) given notice to the Company or the Administrative
Agent that it will not make, or that it has disaffirmed or repudiated any
obligation to make, any Revolving Credit Loan, in each case by reason of the
provisions of the Financial Institutions Reform, Recovery and Enforcement Act of
1989, as
<PAGE>
46
amended, or otherwise, (i) any payment made on account of the principal of the
Revolving Credit Loans outstanding shall be made as follows:
(A) in the case of any such payment made on any date when and to the
extent that in the determination of the Administrative Agent the Borrowers
would be able under the terms and conditions hereof to reborrow the amount
of such payment under the Commitments and to satisfy any applicable
conditions precedent set forth in Section 5 to such reborrowing, such
payment shall be made on account of the outstanding Revolving Credit Loans
held by the Lenders other than the Non-Funding Lender pro rata according to
--- ----
the respective outstanding principal amounts of the Revolving Credit Loans
of such Lenders; and
(B) otherwise, such payment shall be made on account of the
outstanding Revolving Credit Loans held by the Lenders pro rata according
--- ----
to the respective outstanding principal amounts of such Revolving Credit
Loans; and
(ii) any payment made on account of interest on the Revolving Credit Loans shall
be made pro rata according to the respective amounts of accrued and unpaid
--- ----
interest due and payable on the Revolving Credit Loans with respect to which
such payment is being made. Each Borrower agrees to give the Administrative
Agent such assistance in making any determination pursuant to subparagraph
(i)(A) of this paragraph as the Administrative Agent may reasonably request.
Any such determination by the Administrative Agent shall be conclusive and
binding on the Lenders.
(c) All payments (including prepayments) to be made by any Borrower
on account of principal, interest and fees shall be made without set-off or
counterclaim and shall be made to the Administrative Agent, for the account of
the Lenders at the Administrative Agent's office located at 270 Park Avenue, New
York, New York 10017, in lawful money of the United States and in immediately
available funds. The Administrative Agent shall promptly distribute such
payments in accordance with the provisions of subsection 3.9(b) upon receipt in
like funds as received. If any payment hereunder (other than payments on
Eurodollar Loans) would become due and payable on a day other than a Business
Day, such payment shall become due and payable on the next succeeding Business
Day and, with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension. If any payment on a
Eurodollar Loan becomes due and payable on a day other than a Business Day, the
maturity thereof shall be extended to the next succeeding Business Day (and with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension), unless 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.
(d) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount which would constitute its Revolving Credit Percentage of such borrowing
available to the Administrative Agent, the
<PAGE>
47
Administrative Agent may assume that such Lender is making such amount available
to the Administrative Agent in accordance with subsection 3.1 and the
Administrative Agent may, in reliance upon such assumption, make available to
the Company, as agent for the Borrowers, a corresponding amount. If such amount
is not made available to the Administrative Agent by the required time on the
Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on
demand, such amount with interest thereon at a rate equal to the daily average
Federal Funds Effective Rate for the period until such Lender makes such amount
immediately available to the Administrative Agent. A certificate of the
Administrative Agent submitted to any Lender with respect to any amounts owing
under this subsection 3.9(e) shall be conclusive absent manifest error. If such
Lender's Revolving Credit Percentage of such borrowing is not in fact made
available to the Administrative Agent by such Lender within three Business Days
of such Borrowing Date, the Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
Alternate Base Rate Loans hereunder (in lieu of any otherwise applicable
interest), on demand, from the Borrowers, without prejudice to any rights which
any such Borrower or the Administrative Agent may have against such Lender
hereunder. Nothing contained in this subsection 3.9 shall relieve any Lender
which has failed to make available its ratable portion of any borrowing
hereunder from its obligation to do so in accordance with the terms hereof.
(e) The failure of any Lender to make the Loan to be made by it on
any Borrowing Date shall not relieve any other Lender of its obligation, if any,
hereunder to make its Loan on such Borrowing Date, but no Lender shall be
responsible for the failure of any other Lender to make the Loan to be made by
such other Lender on such Borrowing Date.
(f) All payments and optional prepayments (other than prepayments as
set forth in subsection 3.11 with respect to increased costs) of Eurodollar
Loans hereunder shall be in such amounts and be made pursuant to such elections
so that, after giving effect thereto, the aggregate principal amount of all
Eurodollar Loans with the same Interest Period shall not be less than $2,000,000
or a whole multiple of $1,000,000 in excess thereof.
3.10 Illegality. Notwithstanding any other provision herein, if
----------
any Change in Law occurring after the date that any lender becomes a Lender
party to this Agreement, shall make it unlawful for such Lender to make or
maintain Eurodollar Loans as contemplated by this Agreement, the commitment of
such Lender hereunder to make Eurodollar Loans or to convert all or a portion of
Alternate Base Rate Loans into Eurodollar Loans shall forthwith be suspended
until such time, if any, as such illegality shall no longer exist, and such
Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted
automatically to Alternate Base Rate Loans for the duration of the respective
Interest Periods (or, if permitted by applicable law, at the end of such
Interest Periods) and all payments of principal which would otherwise be applied
to such Eurodollar Loans shall be applied instead to such Lender's Alternate
Base Rate Loans. The Borrowers hereby agree to pay any Lender, promptly upon
its demand, any amounts payable pursuant to subsection 3.12 in connection with
any conversion in accordance with this subsection 3.10 (such Lender's notice of
such costs, as certified in reasonable detail as to such amounts to the Company
through the Administrative Agent, to be conclusive absent manifest error).
<PAGE>
48
3.11 Requirements of Law. (a) In the event that any Change in Law
-------------------
or compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority
occurring after the date that any lender becomes a Lender party to this
Agreement:
(i) does or shall subject any such Lender or its Eurodollar
Lending Office to any tax of any kind whatsoever with respect to this
Agreement, any Note or any Eurodollar Loans made by it, or change the basis
of taxation of payments to such Lender or its Eurodollar Lending Office of
principal, the commitment fee, interest or any other amount payable
hereunder (except for (x) net income and franchise taxes imposed on the net
income of such Lender or its Eurodollar Lending Office by the jurisdiction
under the laws of which such Lender is organized or any political
subdivision or taxing authority thereof or therein, or by any jurisdiction
in which such Lender's Eurodollar Lending Office is located or any
political subdivision or taxing authority thereof or therein, including
changes in the rate of tax on the overall net income of such Lender or such
Eurodollar Lending Office, and (y) taxes resulting from the substitution of
any such system by another system of taxation, provided that the taxes
--------
payable by Lenders subject to such other system of taxation are not
generally charged to borrowers from such Lenders having loans or advances
bearing interest at a rate similar to the Eurodollar Rate);
(ii) does or shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar requirement against
assets held by, or deposits or other liabilities in or for the account of,
advances or loans by, or other credit extended by, or any other acquisition
of funds by, any office of such Lender which are not otherwise included in
the determination of the Eurodollar Rate; or
(iii) does or shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender or
its Eurodollar Lending Office of making, converting, renewing or maintaining
advances or extensions of credit or to reduce any amount receivable hereunder,
in each case, in respect of its Eurodollar Loans, then, in any such case, the
Borrowers shall promptly pay such Lender, upon its demand, any additional
amounts necessary to compensate such Lender for such additional cost or reduced
amount receivable which such Lender deems to be material as determined by such
Lender with respect to such Eurodollar Loans, together with interest on each
such amount from the date demanded until payment in full thereof at a rate per
annum equal to the Alternate Base Rate plus 1%.
(b) In the event that any Change in Law occurring after the date that
any lender becomes a Lender party to this Agreement with respect to any such
Lender shall, in the opinion of such Lender, require that any Commitment of such
Lender be treated as an asset or otherwise be included for purposes of
calculating the appropriate amount of capital to be maintained by
<PAGE>
49
such Lender or any corporation controlling such Lender, and such Change in Law
shall have the effect of reducing the rate of return on such Lender's or such
corporation's capital, as the case may be, as a consequence of such Lender's
obligations hereunder to a level below that which such Lender or such
corporation, as the case may be, could have achieved but for such Change in Law
(taking into account such Lender's or such corporation's policies, as the case
may be, with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time following notice by such Lender to the
Borrowers of such Change in Law as provided in paragraph (c) of this subsection
3.11, within 15 days after demand by such Lender, the Borrowers shall pay to
such Lender such additional amount or amounts as will compensate such Lender or
such corporation on an after-tax basis, as the case may be, for such reduction.
(c) The Borrowers shall not be required to make any payments to any
Lender for any additional amounts pursuant to this subsection 3.11 unless such
Lender has given written notice to the Company, through the Administrative
Agent, of its intent to request such payments prior to or within 60 days after
the date on which such Lender incurred such amounts. If any Lender has notified
the Company through the Administrative Agent of any increased costs pursuant to
paragraph (a) of this subsection 3.11, the Borrowers at any time thereafter may,
upon at least three Business Days' notice to the Administrative Agent (which
shall promptly notify the Lenders thereof), and subject to subsection 3.12,
prepay (or convert into Alternate Base Rate Loans) all (but not a part) of the
Eurodollar Loans then outstanding. Each Lender agrees that, upon the occurrence
of any event giving rise to the operation of paragraph (a) of this subsection
3.11 with respect to such Lender, it will, if requested by the Company, as agent
for the Borrowers, and to the extent permitted by law or by the relevant
Governmental Authority, endeavor in good faith to avoid or minimize the increase
in costs or reduction in payments resulting from such event (including, without
limitation, endeavoring to change its Eurodollar Lending Office); provided, that
--------
such avoidance or minimization can be made in such a manner that such Lender, in
its sole determination, suffers no economic, legal or regulatory disadvantage.
If any Lender requests compensation from any Borrower under this subsection
3.11, the Company, as agent for the Borrowers, may, by notice to such Lender
(with a copy to the Administrative Agent), suspend the obligation of such Lender
thereafter to make or continue Loans of the Type with respect to which such
compensation is requested, or to convert Loans of any other Type into Loans of
such Type, until the Requirement of Law giving rise to such request ceases to be
in effect, provided that such suspension shall not affect the right of such
--------
Lender to receive the compensation so requested.
(d) Each Lender (and in case of an Assignee on the date it becomes a
Lender) that is not a United States Person (as defined in Section 7701(a)(30) of
the Code) for federal income tax purposes either (1) in the case of a Lender
that is a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (i)
represents to each Borrower (for the benefit of the Borrowers and the
Administrative Agent) that under applicable law and treaties no taxes are
required to be withheld by any Borrower or the Administrative Agent with respect
to any payments to be made to such Lender in respect of the Loans or the L/C
Participating Interests, (ii) agrees to furnish to the Company, with a copy to
the Administrative Agent, either U.S. Internal Revenue Service Form 4224 or U.S.
Internal Revenue Service Form 1001 (wherein such Lender claims
<PAGE>
50
entitlement to complete exemption from U.S. federal withholding tax on all
interest payments hereunder) and (iii) agrees (for the benefit of the Borrowers
and the Administrative Agent), to the extent it may lawfully do so at such
times, to provide the Company, with a copy to the Administrative Agent, a new
Form 4224 or Form 1001 upon the expiration or obsolescence of any previously
delivered form and comparable statements in accordance with applicable U.S. laws
and regulations and amendments duly executed and completed by such Lender, and
to comply from time to time with all applicable U.S. laws and regulations with
regard to such withholding tax exemption or (2) in the case of a Lender that is
not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (i)
represents to each Borrower (for the benefit of the Borrowers and the
Administrative Agent) that it is not a bank within the meaning of Section
881(c)(3)(A) of the Code, (ii) agrees to furnish to the Company, with a copy to
the Administrative Agent, (A) a certificate substantially in the form of Exhibit
I hereto (any such certificate, a "Subsection 3.11(d)(2) Certificate") and (B)
---------------------------------
two accurate and complete original signed copies of Internal Revenue Service
Form W-8, certifying to such Lender's legal entitlement at the Closing Date to
an exemption from U.S. withholding tax under the provisions of Section 881(c) of
the Code with respect to all payments to be made under this Agreement, and (iii)
agrees, to the extent legally entitled to do so, upon reasonable request by the
Company, to provide to the Company (for the benefit of the Borrowers and the
Administrative Agent) such other forms as may be required in order to establish
the legal entitlement of such Lender to an exemption from withholding with
respect to payments under this Agreement. Notwithstanding any provision of this
subsection 3.11 or 3.9(d) to the contrary, the Borrowers shall have no
obligation to pay any amount to or for the account of any Lender (or the
Eurodollar Lending Office of any Lender) on account of any taxes pursuant to
this subsection 3.11, to the extent that such amount results from (i) the
failure of any Lender to comply with its obligations pursuant to this subsection
3.11, (ii) any representation or warranty made or deemed to be made by any
Lender pursuant to this subsection 3.11(d) proving to have been incorrect, false
or misleading in any material respect when so made or deemed to be made or (iii)
any Change in Law or compliance by any Lender with any request or directive
(whether or not having the force of law) from any central bank or other
Governmental Authority, the effect of which would be to subject to any taxes any
payment made pursuant to this Agreement to any Lender making the representation
and covenants set forth in subsection 3.11(d)(2), which payment would not be
subject to such taxes were such Lender eligible to make and comply with, and
actually made and complied with, the representation and covenants set forth in
subsection 3.11(d)(1) hereinabove.
(e) A certificate in reasonable detail as to any amounts submitted by
such Lender, through the Administrative Agent, to the Company, shall be
conclusive in the absence of manifest error. The covenants contained in this
subsection 3.11 shall survive the termination of this Agreement and repayment of
the Loans.
3.12 Indemnity. The Borrowers agree to indemnify each Lender and to
---------
hold such Lender harmless from any loss or expense (but without duplication of
any amounts payable as default interest) which such Lender may sustain or incur
as a consequence of (a) default by any Borrower in payment of the principal
amount of or interest on any Eurodollar Loans of such Lender, including, but not
limited to, any such loss or expense arising from interest or fees
<PAGE>
51
payable by such Lender to lenders of funds obtained by it in order to make or
maintain its Eurodollar Loans hereunder, (b) default by any Borrower in making a
borrowing after the Company, as agent for the Borrowers, has given a notice in
accordance with subsection 3.1 or in making a conversion of Alternate Base Rate
Loans to Eurodollar Loans or in continuing Eurodollar Loans as such, in either
case, after the Company, as agent for the Borrowers, has given notice in
accordance with subsection 3.2, (c) default by any Borrower in making any
prepayment after the Company, as agent for the Borrower, has given a notice in
accordance with subsection 3.4 or (d) a payment or prepayment of a Eurodollar
Loan or conversion (including without limitation, as a result of subsection 3.4
and/or a conversion pursuant to subsection 3.10) of any Eurodollar Loan into an
Alternate Base Rate Loan, in either case on a day which is not the last day of
an Interest Period with respect thereto, including, but not limited to, any such
loss or expense arising from interest or fees payable by such Lender to lenders
of funds obtained by it in order to maintain its Eurodollar Loans hereunder (but
excluding loss of profit). This covenant shall survive termination of this
Agreement and repayment of the Loans.
3.13 Repayment of Loans; Evidence of Debt. (a) The Borrowers hereby
------------------------------------
unconditionally promise to pay to the Administrative Agent for the account of
each Lender (i) the then unpaid principal amount of each Revolving Credit Loan
of such Lender on the Termination Date, (ii) the then unpaid principal amount of
the Term Loans of such Lender on the Termination Date and (iii) the then unpaid
principal amount of the Swing Line Loans of the Swing Line Lender on the
Termination Date. The Borrowers hereby further agree to pay interest on the
unpaid principal amount of the Loans from time to time outstanding from the date
hereof until payment in full thereof at the rates per annum and on the dates set
forth in subsection 3.5.
(a) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of the Borrowers to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(b) The Administrative Agent shall maintain the Register pursuant to
subsection 9.6(d), and a subaccount therein for each Lender, in which shall be
recorded (i) the amount of each Revolving Credit Loan and Term Loan made
hereunder, the Type thereof and each Interest Period applicable thereto, (ii)
the applicable Borrower, (iii) the amount of any principal or interest due and
payable or to become due and payable from the Borrowers to each Lender hereunder
and (iv) both the amount of any sum received by the Administrative Agent
hereunder from the Borrowers and each Lender's share thereof.
(c) The entries made in the Register and the accounts of each Lender
maintained pursuant to subsection 3.13(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
----- -----
obligations of the Borrowers therein recorded; provided that the failure of any
--------
Lender or the Administrative Agent to maintain the Register or any such account,
or any error therein, shall not in any manner affect the obligation of any
Borrower to repay (with applicable interest) the Loans made to such Borrower by
such Lender or to repay any other obligations in accordance with the terms of
this Agreement.
<PAGE>
52
(d) Each Borrower agrees that, upon the request to the Administrative
Agent by any Lender, such Borrower will execute and deliver to such Lender (i) a
promissory note of such Borrower evidencing the Revolving Credit Loans of such
Lender, substantially in the form of Exhibit A with appropriate insertions as to
date and principal amount (a "Revolving Credit Note"), and/or (ii) a promissory
---------------------
note of such Borrower evidencing the Term Loan of such Lender, substantially in
the form of Exhibit B with appropriate insertions as to date and principal
amount (a "Term Loan Note"), and/or (iii) in the case of the Swing Line Lender,
--------------
a promissory note of the Company evidencing the Swing Line Loans of the Swing
Line Lender, substantially in the form of Exhibit C with appropriate insertions
as to date and principal amount (the "Swing Line Note").
---------------
3.14 Replacement of Lenders. In the event any Lender or the Issuing
----------------------
Lender is a Non-Funding Lender, exercises its rights pursuant to subsection 3.10
or requests payments pursuant to subsections 2.10 or 3.11, the Company, as agent
for the Borrowers, may require, at the Borrowers' expense (including payment of
any processing fees under subsection 9.6(e)) and subject to subsection 3.12,
such Lender or the Issuing Lender to assign, at par plus accrued interest and
fees, without recourse (in accordance with subsection 9.6) all of its interests,
rights and obligations hereunder (including all of its Commitments and the Loans
and other amounts at the time owing to it hereunder and its Notes and its
interest in the Letters of Credit) to a bank, financial institution or other
entity specified by the Company, provided that (i) such assignment shall not
--------
conflict with or violate any law, rule or regulation or order of any court or
other Governmental Authority, (ii) the Company shall have received the written
consent of the Administrative Agent, which consent shall not unreasonably be
withheld, to such assignment, (iii) the Borrowers shall have paid to the
assigning Lender or the Issuing Lender all monies other than principal, interest
and fees accrued and owing hereunder to it (including pursuant to subsections
2.10, 3.10, 3.11 and 3.12) and (iv) in the case of a required assignment by the
Issuing Lender, the Letters of Credit shall be canceled and returned to the
Issuing Lender.
3.15 Appointment of the Company and Reliance on Representation of
------------------------------------------------------------
the Company. Each Borrower hereby appoints the Company as its agent for all
- -----------
purposes hereunder, and each Borrower agrees that the Administrative Agent and
the Lenders may rely on any representations, warranty, certificate, notice,
document or telephone request which purports to be executed or made, and which
the Administrative Agent or the Lenders in good faith believe to have been
executed or made, by the Company or any of its Authorized Officers, and each
Borrower further agrees to indemnify and hold the Administrative Agent and the
Lenders harmless for any action, including the making of the borrowings
hereunder, and any loss or expense, taken or incurred by any of them as a result
of their good faith reliance upon any such representations, warranty,
certificate, notice, document or telephone request. All obligations of the
Borrowers under this Agreement or any notes, instruments or agreements entered
in connection herewith, shall be joint and several obligations of each of the
Borrowers.
4. REPRESENTATIONS AND WARRANTIES
------------------------------
<PAGE>
53
To induce the Lenders to enter into this Agreement and to make the
Loans and to induce the Issuing Lender to issue, and the Participating Lenders
to participate in, the Letters of Credit, each Borrower hereby represents and
warrants to each Lender and the Administrative Agent as of the Closing Date and
as of the making of any extension of credit hereunder:
4.1 Financial Condition. (a) The consolidated audited balance
-------------------
sheets of the Company and its consolidated Subsidiaries as at December 31, 1995,
December 31, 1996 and December 31, 1997 the related consolidated statements of
operations and of cash flows for the fiscal years ended on each such dates,
audited by Coopers & Lybrand LLP, copies of which have heretofore been furnished
to each Lender, present fairly in accordance with GAAP the consolidated
financial condition of the Company and its consolidated Subsidiaries as at such
dates, and the consolidated results of their operations and their consolidated
cash flows for the fiscal year then ended. All such financial statements have
been prepared in accordance with GAAP applied consistently throughout the
periods involved (except as approved by such accountants and as disclosed
therein). Neither the Company nor any of its consolidated Subsidiaries had, at
the date of each balance sheet referred to above, any material Contingent
Obligation, contingent liability or liability for taxes, or any long-term lease
or unusual forward or long-term commitment, including, without limitation, any
material interest rate or foreign currency swap or exchange transaction, which
is not reflected in the foregoing statements or in the notes thereto or
expressly permitted to be incurred hereunder.
(b) The unaudited consolidated balance sheet of the Company and its
consolidated Subsidiaries as at March 31, 1998 and the related consolidated
statements of operations and of cash flows for the three-month period then
ended, certified by a Responsible Officer of the Company, copies of which have
heretofore been furnished to each Lender, present fairly in accordance with GAAP
the financial position of the Company and its consolidated Subsidiaries as at
such date and the consolidated results of their operations and their
consolidated cash flows for the three-month period then ended (subject to normal
year-end adjustments). Such financial statements, including the related
schedules and notes thereto, have been prepared in accordance with GAAP (except
as approved by such Responsible Officer and disclosed therein). The Company and
its consolidated Subsidiaries did not have at the date of such balance sheet,
any material Contingent Obligation, contingent liability or liability for taxes,
or any long-term lease or unusual forward or long-term commitment, including,
without limitation, any interest rate or foreign currency exchange transaction,
which is not reflected in such balance sheet or in the notes thereto or in the
notes to the Company's audited financial statements. During the period from
December 31, 1997 to the Closing Date, no dividends or other distributions have
been declared, paid or made upon the Capital Stock of the Company or any of its
consolidated Subsidiaries nor has any of the Capital Stock of the Company or any
of its consolidated Subsidiaries been redeemed, retired, purchased or otherwise
acquired for value by the Company or any of its consolidated Subsidiaries,
respectively, in each case, except as contemplated in connection with the
Merger.
<PAGE>
54
(c) The unaudited consolidated pro forma balance sheet of the Company
--- -----
and its consolidated Subsidiaries, as of March 31, 1998, certified by a
Responsible Officer of the Company (the "Pro Forma Balance Sheet"), copies of
-----------------------
which have been furnished to each Lender, is the unaudited balance sheet of the
Company and its consolidated Subsidiaries adjusted to give effect (as if such
events had occurred on the date set forth therein) to (i) the Merger and each of
the transactions contemplated by the Merger Agreement and (ii) the incurrence of
the Loans and the issuance of the Letters of Credit to be incurred or issued, as
the case may be, on the Closing Date, and all Indebtedness that the Company and
its consolidated Subsidiaries expect to incur, and the payment of all amounts
the Company and its consolidated Subsidiaries expect to pay, in connection with
the Merger. The Pro Forma Balance Sheet, together with the notes thereto, was
prepared based on good faith assumptions in accordance with GAAP and is based on
the best information available to the Company as of the date of delivery thereof
and reflects on a pro forma basis the financial position of the Company and its
--- -----
consolidated Subsidiaries as of March 31, 1998, as adjusted, as described above,
assuming that the events specified in the preceding sentence had actually
occurred as of March 31, 1998.
4.2 No Change. Since December 31, 1997, (a) there has been no
---------
change, and (as of the Closing Date only) no development or event which has had
or could reasonably be expected to have a material adverse effect on (i) the
business, assets, condition (financial or otherwise) or results of operations of
the Company and its Subsidiaries taken as a whole, (ii) the ability of the
Company and its Subsidiaries to perform their obligations under the Credit
Documents and with respect to the other financings contemplated hereby or (iii)
the rights and remedies of the Lenders under the Credit Documents and (b) no
dividends or other distributions have been declared, paid or made upon the
Capital Stock of the Company nor has any of the Capital Stock of the Company
been redeemed, retired, repurchased or otherwise acquired for value by the
Company or any of its Subsidiaries, except as permitted by subsection 7.11 and,
in each case, except as contemplated in connection with the Merger.
4.3 Corporate Existence; Compliance with Law. Each of the Company
----------------------------------------
and its Subsidiaries (a) is a corporation duly organized and validly existing
under the laws of the jurisdiction of its incorporation, (b) has full corporate
power and authority and possesses all governmental franchises, licenses,
permits, authorizations and approvals necessary to enable it to use its
corporate name and to own, lease or otherwise hold its properties and assets and
to carry on its business as presently conducted other than such franchises,
licenses, permits, authorizations and approvals the lack of which, individually
or in the aggregate, would not have a material adverse effect on the business,
assets, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, taken as a whole, (c) is duly qualified and in
good standing to do business in each jurisdiction in which the nature of its
business or the ownership, leasing or holding of its properties makes such
qualification necessary, except such jurisdictions where the failure so to
qualify would not have a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the Company and
its Subsidiaries, taken as a whole, and (d) is in compliance with all applicable
statutes, laws, ordinances, rules, orders, permits and regulations of any
governmental authority or instrumentality, domestic or foreign (including,
without limitation, those related to Hazardous
<PAGE>
55
Materials and substances), except where noncompliance would not have a material
adverse effect on the business, assets, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries, taken as a whole.
Neither the Company nor any of its Subsidiaries has received prior to the date
hereof any written communication from a Governmental Authority that alleges that
the Company or any of its Subsidiaries is not in compliance, in all material
respects, with all material federal, state, local or foreign laws, ordinances,
rules and regulations, which alleged non-compliance has not been remedied.
4.4 Corporate Power; Authorization. Each of the Company and its
------------------------------
Subsidiaries has the corporate power and authority to make, deliver and perform
each of the Credit Documents to which it is a party, each Borrower has the
corporate power and authority and legal right to borrow hereunder, and the
Company has the corporate power and authority to have Letters of Credit issued
for its account hereunder. Each of the Company and its Subsidiaries has taken
all necessary corporate action to authorize the execution, delivery and
performance of each of the Credit Documents to which it is or will be a party,
each Borrower has taken all necessary corporate action to authorize the
borrowings hereunder, and the Company has taken all necessary corporate action
to authorize the issuance of Letters of Credit for its account hereunder. No
consent or authorization of, or filing with, any Person (including, without
limitation, any Governmental Authority) is required in connection with the
execution, delivery or performance by the Company or any of its Subsidiaries, or
for the validity or enforceability against the Company or any of its
Subsidiaries, of any Credit Document except for consents, authorizations and
filings which have been obtained or made and are in full force and effect and
except (a) such consents, authorizations and filings, the failure to obtain or
perform (i) which would not have a material adverse effect on the business,
assets, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries taken as a whole and (ii) which would not adversely
affect the validity or enforceability of any of the Credit Documents or the
rights or remedies of the Administrative Agent or the Lenders thereunder, and
(b) such filings as are necessary to perfect the Liens of the Lenders created
pursuant to this Agreement and the Security Documents.
4.5 Enforceable Obligations. This Agreement and the Merger
-----------------------
Agreement have been, and each of the other Credit Documents and any other
agreement to be entered into by any Credit Party pursuant to the Merger
Agreement will be, duly executed and delivered on behalf of such Credit Party
that is party thereto. The Merger Agreement has been duly executed and delivered
on behalf of the Company and AcquisitionCo. This Agreement and the Merger
Agreement each constitutes, and each of the other Credit Documents and any other
agreement to be entered into by any Credit Party pursuant to the Merger
Agreement will constitute upon execution and delivery, the legal, valid and
binding obligation of such Credit Party, enforceable against such Credit Party
in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws
affecting creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law). The Merger Agreement constitutes the legal, valid and binding obligation
of (a) the Company enforceable against the Company in accordance with its terms
and (b) AcquisitionCo enforceable against AcquisitionCo in accordance with its
terms,
<PAGE>
56
except, in each case, as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting creditors' rights
generally and by general principles of equity (regardless of whether enforcement
is sought in a proceeding in equity or at law).
4.6 No Legal Bar. The execution, delivery and performance of each
------------
Credit Document, the incurrence or issuance of and use of the proceeds of the
Loans, the Subordinated Debt, the Preferred Stock and drawings under the Letters
of Credit, and the transactions contemplated by the Merger Agreement, the Credit
Documents and the documentation for the Subordinated Debt and the Preferred
Stock, (a) will not violate any Requirement of Law or any Contractual Obligation
applicable to or binding upon AcquisitionCo, the Company or any Subsidiary or
any of their respective properties or assets, in any manner which, individually
or in the aggregate, (i) would have a material adverse effect on the ability of
AcquisitionCo, the Company or any such Subsidiary to perform its obligations
under the Credit Documents, the Merger Agreement, and any other agreement to be
entered into pursuant to the Merger Agreement or in connection with the
Subordinated Debt or the Preferred Stock, to which it is a party, (ii) would
give rise to any liability on the part of the Administrative Agent or any Lender
or (iii) would have a material adverse effect on the business, assets, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole, and (b) will not result in the creation or
imposition of any Lien on any of its properties or assets pursuant to any
Requirement of Law applicable to it, as the case may be, or any of its
Contractual Obligations, except for the Liens arising under the Security
Documents (some of which may be the subject of the Intercreditor Agreement or
the Agency and Intercreditor Agreement).
4.7 No Material Litigation. No litigation by, investigation known
----------------------
to the Company by, or proceeding of, any Governmental Authority is pending
against the Company or any of its Subsidiaries (including after giving effect to
the Merger) that could reasonably be expected to affect (a) the validity,
binding effect or enforceability of the Merger Agreement or any Credit Document,
(b) the Loans made hereunder or the use of proceeds thereof, of the Subordinated
Debt, of the Preferred Stock or of any drawings under a Letter of Credit or (c)
the other transactions contemplated hereby or by the Merger Agreement. No
lawsuits, claims, proceedings or investigations are pending or, to the best
knowledge of the Company, threatened as of the Closing Date against or affecting
the Company or a Subsidiary or any of their respective properties, assets,
operations or businesses (including after giving effect to the Merger), in which
there is a probability of an adverse determination, and is reasonably likely, if
adversely decided, to have a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the Company and
its Subsidiaries, taken as a whole.
4.8 Investment Company Act. Neither the Company nor any Subsidiary
----------------------
is an "investment company" or a company "controlled" by an "investment company"
(as each of the quoted terms is defined or used in the Investment Company Act of
1940, as amended).
4.9 Federal Regulation. No part of the proceeds of any of the
------------------
Loans or Subordinated Debt or any drawing under a Letter of Credit will be used
for any purpose which violates the provisions of Regulation T, U or X of the
Board. Neither the Company nor any of its
<PAGE>
57
Subsidiaries is engaged or will engage, principally or as one of its important
activities, in the business of extending credit for the purpose of "purchasing"
or "carrying" any "margin stock" within the respective meanings of each of the
quoted terms under said Regulation U. Following application of the proceeds of
each Loan, not more than 25% of the value of the assets (either of the Company
only or the Company and its Subsidiaries on a consolidated basis) subject to the
provisions of subsection 7.2, or subject to any restriction contained in any
agreement or instrument between the Company and any Lender or any affiliate of
any Lender relating to Indebtedness within the scope of Section 8(d), will be
"margin stock".
4.10 No Default. The Company and each of its Subsidiaries have
----------
performed all material obligations required to be performed by them under their
respective Contractual Obligations (including after giving effect to the Merger)
and they are not (with or without the lapse of time or the giving of notice, or
both) in breach or default in any respect thereunder, except to the extent that
such breach or default would not have a material adverse effect on the business,
assets, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, taken as a whole. Neither the Company nor any of
its Subsidiaries (including after giving effect to the Merger) is in default
under any material judgment, order or decree of any Governmental Authority,
domestic or foreign, applicable to it or any of its respective properties,
assets, operations or business, except to the extent that any such breaches or
defaults would not, in the aggregate, have a material adverse effect on the
business, assets, condition (financial or otherwise) or results of operations of
the Company and its Subsidiaries, taken as a whole.
4.11 Taxes. Except as set forth on Schedule 4.11, each of the
-----
Company and its Subsidiaries (including after giving effect to the Merger) has
filed or caused to be filed all material tax returns which, to the knowledge of
the Company, are required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of its
property by any Governmental Authority (other than any the amount of which is
currently being contested in good faith by appropriate proceedings and with
respect to which reserves (or other sufficient provisions) in conformity with
GAAP have been provided on the books of the Company or its Subsidiaries
(including after giving effect to the Merger), as the case may be); and no tax
Lien has been filed, and, to the knowledge of the Company, no written claim is
being asserted, with respect to any such tax, fee or other charges.
4.12 Subsidiaries. After giving effect to the consummation of the
------------
Merger, the Subsidiaries and their respective jurisdictions of incorporation
shall be as set forth on Schedule 4.12.
4.13 Ownership of Property; Liens. As of the Closing Date and as of
----------------------------
the making of any extension of credit hereunder (subject to transfers and
dispositions of property permitted under subsection 7.5), each of the Company
and its Subsidiaries has good and valid title to all of its material assets
(other than real property or interests in real property) in each case free and
clear of all mortgages, liens, security interests or encumbrances of any nature
<PAGE>
58
whatsoever except Permitted Liens. With respect to real property or interests in
real property, as of the Closing Date, each of the Company and its Subsidiaries
has (a) fee title to all of the real property listed on Schedule 4.13 under the
heading "Fee Properties" (each, a "Fee Property"), and (b) good and valid title
------------
to the leasehold estates in all of the real property leased by it and listed on
Schedule 4.13 under the heading "Leased Properties" (each, a "Leased Property"),
---------------
in each case, free and clear of all mortgages, liens, security interests,
easements, covenants, rights-of-way and other similar restrictions of any nature
whatsoever, except (i) Permitted Liens and (ii) as to Leased Property, the terms
and provisions of the respective lease therefor, including, without limitation,
the matters set forth on Schedule 4.13, and any matters affecting the fee title
and any estate superior to the leasehold estate related thereto. The Fee
Properties and the Leased Properties constitute, as of the Closing Date, all of
the real property owned in fee or leased by the Company and its Subsidiaries.
4.14 ERISA. Neither a Reportable Event nor an "accumulated funding
-----
deficiency" (within the meaning of Section 412 of the Code or Section
302 of ERISA) has occurred during the five-year period prior to the date on
which this representation is made or deemed made with respect to any Plan that
would result in a material liability to the Company or any of its Subsidiaries,
and each Plan has complied with the applicable provisions of ERISA and the Code
except to the extent that any non-compliance would not result in a material
liability to the Company. Neither the Company nor any Commonly Controlled
Entity has: been involved in any transaction that would cause the Company or any
of its Subsidiaries to be subject to material liability with respect to a Plan
to which the Company or any Commonly Controlled Entity contributed or was
obligated to contribute during the six-year period ending on the date this
representation is made or deemed made; or incurred any material liability under
Title IV of ERISA which would become or remain a material liability of the
Company or any of its Subsidiaries after the Closing Date. No termination of a
Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan
has arisen, during such five-year period that would result in a material
liability to the Company or any of its Subsidiaries. The present value of all
accrued benefits under each Single Employer Plan (based on those assumptions
used to fund such Plans) did not, as of the last annual valuation date prior to
the date on which this representation is made or deemed made, exceed the value
of the assets of such Plan allocable to such accrued benefits that would result
in a material liability to the Company or any of its Subsidiaries. Neither the
Company nor any Commonly Controlled Entity has had a complete or partial
withdrawal from any Multiemployer Plan, and neither the Company nor any Commonly
Controlled Entity would become subject to any liability under ERISA if the
Company or any such Commonly Controlled Entity were to withdraw completely from
all Multiemployer Plans as of the valuation date most closely preceding the date
on which this representation is made or deemed made, in either case that would
result in a material liability to the Company or any of its Subsidiaries. To the
knowledge of the Company, no such Multiemployer Plan is in Reorganization or
Insolvent. The present value (determined using actuarial and other assumptions
which are reasonable in respect of the benefits provided and the employees
participating) of the liability of the Company and each Commonly Controlled
Entity for post retirement benefits to be provided to their current and former
employees under Plans which are welfare benefit plans (as defined in Section
3(1) of ERISA) does not, in the aggregate, exceed the assets under all such
Plans allocable to such
<PAGE>
59
benefits by an amount that would result in a material liability to the Company
or any of its Subsidiaries, except as disclosed in the Company's audited
financial statements for the fiscal year ended December 31, 1997 provided to the
Lenders prior to the Closing Date. For purposes of this subsection 4.14, a
material liability shall exceed $7,500,000.
4.15 Security Documents. (a) Upon execution and delivery thereof
------------------
by the parties thereto, the Collateral Agreement will be effective to create in
favor of the Administrative Agent, for the benefit of the Lenders, a legal,
valid and enforceable security interest in the Collateral described therein.
When stock certificates representing or constituting the pledged stock described
in the Collateral Agreement are delivered to the Administrative Agent, such
security interest shall constitute a perfected first lien on, and security
interest in, all right, title and interest of the grantors party thereto in the
pledged stock described therein to the extent that such liens and security
interests are in accordance with the provisions of the Intercreditor Agreement
and the Agency and Intercreditor Agreement. In the case of the other Collateral
described in the Collateral Agreement, when Uniform Commercial Code financing
statements have been filed in each of the jurisdictions listed on Schedule
4.15(a), or arrangements have been made for such filing in such jurisdictions,
and upon such filing, and upon the taking of possession by the Administrative
Agent of any such Collateral the security interests in which may be perfected
only by possession, such security interests will, subject to the existence of
Permitted Liens and the provisions of the Intercreditor Agreement, constitute
perfected first priority liens on, and security interests in, all right, title
and interest of the grantors' party thereto in such other Collateral, to the
extent that such liens and security interests are in accordance with the
provisions of the Intercreditor Agreement and the Agency and Intercreditor
Agreement and except to the extent that a security interest cannot be perfected
therein by the filing of a financing statement or the taking of possession under
the Uniform Commercial Code of the relevant jurisdiction.
(a) Upon execution and delivery thereof by the applicable Credit
Party, each Mortgage will be effective to create in favor of the Administrative
Agent, for the benefit of the Lenders, a legal, valid and enforceable security
interest in the collateral described therein, and upon recording the Mortgages
in the jurisdictions listed on Schedule 4.13 (or, in the case of a Mortgage
delivered pursuant to subsection 6.9(c), the jurisdiction in which the property
covered by such Mortgage is located), such security interests will, subject to
the existence of Permitted Liens and the provisions of the Intercreditor
Agreement, constitute first (or, in the case of the Mortgages granted by
Meditrust Entities, second) priority liens on, and perfected security interests
in, all rights, title and interest of the debtor party thereto in the collateral
described therein to the extent that such liens and security interests are in
accordance with the provisions of the Intercreditor Agreement and the Agency and
Intercreditor Agreement.
4.16 Copyrights, Patents, Permits, Trademarks and Licenses.
-----------------------------------------------------
Schedule 4.16 sets forth a true and complete list as of the Closing Date of all
material trademarks (registered or unregistered), trade names, service marks,
patents, pending patent applications and copyrights and applications therefor
owned, used or filed by or licensed to the Company and its Subsidiaries (after
giving effect to the Merger) and, with respect to registered trademarks (if
any), contains a
<PAGE>
60
list of all jurisdictions in which such trademarks are registered or applied for
and all registration and application numbers. Except as set forth on Schedule
4.16, the Company or a Subsidiary (after giving effect to the Merger) owns or
has the right to use, trademarks (registered or unregistered), trade names,
service marks, patents, pending patent applications and copyrights and
applications therefor referred to in such Schedule. Except as set forth on
Schedule 4.16, to the best knowledge of the Company, no claims are pending by
any Person with respect to the ownership, validity, enforceability or the
Company's or any Subsidiary's use of any such trademarks (registered or
unregistered), trade names, service marks, patents, pending patent applications
and copyrights, or applications therefor, challenging or questioning the
validity or effectiveness of any of the foregoing, in any jurisdiction, domestic
or foreign, except to the extent such claims could not reasonably be expected to
have a material adverse effect on the Company and its Subsidiaries, taken as a
whole.
4.17 Environmental Matters. Except insofar as any exceptions to the
---------------------
following, individually or in the aggregate, could not reasonably be expected to
result in a material adverse effect on the business, assets, conditions
(financial or otherwise) or operations of the Company and its Subsidiaries,
taken as a whole:
(a) to the best knowledge of the Company, the properties owned,
leased, or otherwise operated by the Company or any of its Subsidiaries do
not contain, and have not previously contained, in, on or under, including,
without limitation, the soil and groundwater thereunder, any Hazardous
Materials in amounts or concentrations that constitute or constituted a
violation of, or could reasonably give rise to liability under,
Environmental Laws;
(b) to the best knowledge of the Company, the properties owned or
leased, or otherwise operated by the Company or any of its Subsidiaries and
all operations and facilities at such properties are in compliance with all
Environmental Laws, and there is no contamination or violation of any
Environmental Law which could interfere with the continued operation of, or
impair the fair saleable value of, such property;
(c) neither the Company nor any of its Subsidiaries has received or
is aware of any written complaint, notice of violation, alleged violation,
or notice of investigation or of potential liability under Environmental
Laws with regard to the Company or its Subsidiaries, nor does the Company
or any of its Subsidiaries have knowledge that any such action is being
contemplated, considered or threatened;
(d) to the best knowledge of the Company, Hazardous Materials have
not been generated, treated, stored or disposed of at, on or under any
properties presently or formerly owned, leased, or otherwise operated by
the Company or any of its Subsidiaries, nor have any Hazardous Materials
been transported from any such property, or come to be located at any other
property, in violation of or in a manner that could reasonably give rise to
liability under any Environmental Laws; and
<PAGE>
61
(e) there are no governmental administrative actions or judicial
proceedings pending or, to the best knowledge of the Company and its
Subsidiaries, threatened under any Environmental Law to which the Company
or any of its Subsidiaries is a party, nor are there any consent decrees or
other decrees, consent orders, administrative orders or other orders, or
other administrative or judicial requirements, other than permits
authorizing operations by the Company or any of its Subsidiaries,
outstanding under any Environmental Law.
4.18 Accuracy and Completeness of Information. The factual
----------------------------------------
statements contained in the financial statements referred to in subsection 4.1,
the Form S-4, the 1997 Form 10-K, the Credit Documents (including the schedules
thereto), the Merger Agreement and any other certificates or documents furnished
or to be furnished by any Credit Party or any of their representatives or
advisors to the Administrative Agent or the Lenders from time to time in
connection with this Agreement, taken as a whole, do not and will not, to the
best knowledge of the Company, as of the date when made, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not misleading in light of the
circumstances in which the same were made, all except as otherwise qualified
herein or therein, such knowledge qualification being given only with respect to
factual statements made by Persons other than the Company or any of its
Subsidiaries.
4.19 AcquisitionCo. To the best knowledge of the Company,
-------------
AcquisitionCo is a Delaware corporation organized on behalf of the Investors to
effect the Merger and has not carried on any activities, incurred any
liabilities, assumed any obligations or acquired any assets prior to the Closing
Date other than those incident to its formation and the transactions
contemplated by the Merger Agreement or by the Credit Documents.
4.20 Health Care Permits. (a) Except as, in the aggregate, would
-------------------
not reasonably be expected to have a material adverse effect on the business,
assets, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, taken as a whole: (i) each of the Company and its
Subsidiaries now has (after giving effect to the Merger), and has no reason to
believe it will not be able to maintain in effect, all Health Care Permits
necessary for the lawful conduct of its business or operations wherever now
conducted and as planned to be conducted, including without limitation, the
ownership and operation of its Health Care Facilities and Ancillary Businesses
pursuant to all Requirements of Law, (ii) all such Health Care Permits are in
full force and effect and have not been amended or otherwise modified,
rescinded, revoked or assigned, (iii) the Company and each of its Subsidiaries
is substantially complying with the requirements of each such Health Care
Permit, and no event has occurred, and no condition exists, which, with the
giving of notice, the passage of time, or both, would constitute a violation
thereof, (iv) neither the Company nor any of its Subsidiaries, has received any
written notice of any violation of any Requirement of Law, (v) to the knowledge
of the Company, no condition exists or event has occurred which in itself or
with the giving of notice or the lapse of time, or both, would result in the
suspension, revocation, impairment, forfeiture or non-renewal of any such Health
Care Permit, (vi) there is no claim filed with any Governmental Authority of
which the Company or any of its Subsidiaries has been notified in writing
<PAGE>
62
challenging the validity of any such Health Care Permit and (vii) the
continuation, validity and effectiveness of all such Health Care Permits will
not be adversely affected by the Merger or the execution and performance of any
of the Credit Documents.
(b) All Health Care Facilities and Ancillary Businesses owned,
leased, managed or operated by the Company or any of its Subsidiaries are
entitled to participate in, and receive payment under, the appropriate Medicare,
Medicaid and related reimbursement programs, and any similar state or local
government-sponsored program, to the extent that the Company or any of its
Subsidiaries has decided to participate in any such program with respect to such
Health Care Facility or Ancillary Business, as the case may be, and to receive
reimbursement from private and commercial payers and health maintenance
organizations to the extent applicable thereto. There are no proceedings
pending or, to the knowledge of the Company, any proceedings threatened or
investigations pending or threatened, by any Governmental Authority with respect
to the Company's or any of its Subsidiaries' participation in the Medicare,
Medicaid or related reimbursement programs and which would reasonably be
expected to have a material adverse effect on the business, assets, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole.
4.21 Year 2000. Any reprogramming required to permit the proper
---------
functioning, in and following the year 2000, of (a) the Borrowers' computer
systems and (b) equipment containing embedded microchips (including systems and
equipment supplied by others or with which the Borrowers' systems interface) and
the testing of all such systems and equipment, as so reprogrammed, will be
completed in all material respects by September 30, 1999. The cost to the
Borrowers of such reprogramming and testing and of the reasonably foreseeable
consequences of year 2000 to the Borrowers (including, without limitation,
reprogramming errors and the failure of others' systems or equipment) would not
reasonably be expected to result in a Default or Event of Default or a material
adverse effect on the business, assets, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries, taken as a whole.
Except for such of the reprogramming referred to in the preceding sentence as
may be necessary, the computer and management information systems of the
Borrowers are and, with ordinary course upgrading and maintenance, will continue
for the term of this Agreement to be, sufficient to permit the Borrowers to
conduct their respective businesses without resulting in a material adverse
effect on the business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole.
5. CONDITIONS PRECEDENT
--------------------
5.1 Conditions to Initial Revolving Credit Loans and Letters of
-----------------------------------------------------------
Credit. The obligation of each Lender to make its Revolving Credit Loans, and
- ------
the obligation of the Issuing Lender to issue any Letter of Credit, on the
Closing Date are subject to the satisfaction, or waiver by such Lender,
immediately prior to or concurrently with the making of such Revolving Credit
Loans or the issuance of such Letters of Credit, as the case may be, of the
following conditions:
<PAGE>
63
(a) Agreement; Notes; Merger Agreement. The Administrative Agent
----------------------------------
shall have received (i) a counterpart of this Agreement for each Lender
duly executed and delivered by a duly authorized officer of each Borrower
and (ii) for the account of each Revolving Credit Lender requesting the
same pursuant to subsection 3.13, a Revolving Credit Note of the Borrowers
conforming to the requirements hereof and executed by a duly authorized
officer of each Borrower. The Administrative Agent shall have received a
copy of the Merger Agreement.
(b) Merger. (i) The Merger shall be consummated simultaneously
------
pursuant to the Merger Agreement with all fees, costs and expenses incurred
in connection therewith not to exceed approximately $45,000,000, all of the
conditions precedent set forth in Article 6 of the Merger Agreement shall
have been satisfied or waived by AcquisitionCo and no material provision of
the Merger Agreement shall have been amended, supplemented, waived or
otherwise modified without the prior written consent of the Administrative
Agent, which consent shall not be unreasonably withheld.
(ii) No more than approximately $362,000,000 exclusive of fees
and expenses (which amount includes (A) the value attributable to common
stock of the Company retained by the Existing Shareholders, (B) the
aggregate amount expended in connection with the exercise of purchase
options with respect to the properties, or the equity interests in the
Persons that are the owners of such properties, that are the subject of the
documentation relating to the Company's existing synthetic lease facility
and (C) the assumption, repayment, maintenance and/or amendment of certain
existing Indebtedness) shall be expended to repurchase shares of the
Company's common stock from existing holders thereof and refinance existing
Indebtedness.
(c) Capitalization; Capital Structure (i) (A) The Company shall
---------------------------------
have been capitalized by the Investors (directly or indirectly through
AcquisitionCo) with at least approximately $157,000,000 in cash from the
issuance of its common stock as described in the Form S-4 (or otherwise
having material terms satisfactory to the Arranger and representing at
least 90% of the voting Capital Stock of the Company) and (B) the value of
the common stock of the Company held by Existing Shareholders (valued at a
price per share equal to the price at which the Investors purchased their
common stock), when added to the amount referred to in clause (A) above,
shall equal at least $175,000,000; provided, however, that the common
-------- -------
equity ownership amounts referred to in clauses (A) and (B) above shall
each be reduced by an amount approximately equal to the excess of (x) the
gross cash proceeds from the issuance by the Company on the Closing Date of
Preferred Stock over (y) $40,000,000.
(i) The Company shall have received at least approximately
$100,000,000 in gross cash proceeds from the issuance by the Company of (A)
Bridge Senior Subordinated Debt pursuant to a Bridge Loan Agreement
executed and delivered by the parties thereto in form and substance
satisfactory to the Lenders, which Bridge Loan Agreement shall be in full
force and effect and none of the provisions thereof shall
<PAGE>
64
have been amended, waived, supplemented or otherwise modified without the
prior written consent of the Administrative Agent, (B) Senior Subordinated
Discount Notes or (C) Permanent Senior Subordinated Debt.
(ii) The Company shall have received approximately $40,000,000
(or at least such amount, in the case of the issuance of Preferred Stock)
in gross cash proceeds from the issuance by the Company of (A) Bridge
Junior Subordinated Debt pursuant to a Bridge Loan Agreement executed and
delivered by the parties thereto in form and substance satisfactory to the
Lenders, which Bridge Loan Agreement shall be in full force and effect and
none of the provisions thereof shall have been amended, waived,
supplemented or otherwise modified without the prior written consent of the
Administrative Agent or (B) Preferred Stock; provided, however, that in the
-------- -------
event that the gross cash proceeds received by the Company in accordance
with subsection 5.1(c)(ii) are more than $100,000,000 but less than or
equal to $105,000,000, the gross cash proceeds required to be received by
the Company pursuant to this subsection 5.1(c)(iii) shall be reduced by an
amount equal to the amount by which such gross cash proceeds received in
accordance with subsection 5.1(c)(ii) exceed $100,000,000; provided
--------
further, that in the event that the gross cash proceeds received by the
-------
Company in accordance with subsection 5.1(c)(i)(A) are more than
$157,000,000, the gross cash proceeds required to be received by the
Company pursuant to this subsection 5.1(c)(iii) from the issuance of
Preferred Stock shall be reduced by an amount equal to the amount by which
such gross cash proceeds received in accordance with subsection
5.1(c)(i)(A) exceed $157,000,000.
(iv) The terms, conditions and documentation of all equity
securities of the Company or any of its Subsidiaries to be outstanding at
or after the Closing Date, the certificate of incorporation, by-laws, other
governing documents and the corporate and capital structure of the Company
and its Subsidiaries (excluding the identity and amount of equity
contribution of any Investor), in each case after giving effect to the
consummation of the Merger, shall be in form and substance satisfactory to
the Administrative Agent.
The execution and delivery of this Agreement by the Lenders and the
Administrative Agent shall be deemed to evidence the satisfaction of the
Lenders and the Administrative Agent with such of the matters referenced
and in clauses (i) through (iv) of this paragraph (c) as shall have been
disclosed and made available to the Administrative Agent prior to the date
hereof.
(d) Financial Statements. (i) The Lenders shall have received
--------------------
audited consolidated financial statements of the Company for the 1995, 1996
and 1997 fiscal years, which financial statements shall have been prepared
in accordance with GAAP; (ii) the Lenders shall have received unaudited
interim consolidated financial statements of the Company for the quarterly
period ended March 31, 1998, and such financial statements shall not
reflect any material adverse change in the consolidated financial condition
of the Company as reflected in the financial statements or projections
previously delivered to
<PAGE>
65
the Lenders; and (iii) the Lenders shall have received a satisfactory pro
---
forma balance sheet on a consolidated basis of the Company and its
-----
Subsidiaries as of March 31, 1998 reflecting and giving effect to the
Merger and the other transactions contemplated hereby.
(e) Fees. The Administrative Agent, the Arranger and the Lenders
----
shall have received all fees required to be paid, and all expenses and
other consideration for which invoices have been presented, on or before
the Closing Date.
(f) Lien Searches; Lien Perfection. (i) The Administrative Agent
------------------------------
shall have received the results of a search of Uniform Commercial Code, tax
and judgment filings made with respect to each of the Company and its
Subsidiaries in the jurisdictions set forth on Schedule 4.15(a), together
with copies of financing statements disclosed by such searches, and such
searches shall disclose no Liens on any assets encumbered by any Security
Document, except for Liens permitted hereunder or, if unpermitted Liens are
disclosed, the Administrative Agent shall have received satisfactory
evidence of the release of such Liens and (ii) the Administrative Agent
shall have received duly executed financing statements on Form UCC-1,
necessary or, in the opinion of the Administrative Agent, desirable to
perfect the Liens created by the Security Documents.
(g) Environmental. The Lenders shall be reasonably satisfied, based
-------------
upon the results of the environmental diligence conducted by the
Administrative Agent and its advisors in cooperation with the Company, with
respect to environmental hazards, conditions or liabilities to which the
Company or any of its Subsidiaries may be subject (the execution and
delivery of this Agreement by the Lenders and the Administrative Agent
being deemed to evidence the satisfaction of the Administrative Agent with
such due diligence as shall have been disclosed and made available to the
Administrative Agent prior to the date hereof).
(h) Employee Benefit Matters. The Lenders shall be reasonably
------------------------
satisfied with all employee benefit matters involving the Company or any of
its Subsidiaries.
(i) Collateral Agreement. The Administrative Agent shall have
--------------------
received the Collateral Agreement executed and delivered by a duly
authorized officer of each of the parties thereto, together with stock
certificates representing 100% of all issued and outstanding shares of
Capital Stock of each of the Domestic Subsidiaries listed on Part A of
Schedule V thereto, and undated stock powers for each certificate, executed
in blank and delivered by a duly authorized officer of the applicable
pledgor and the acknowledgment and consent of the issuer thereunder in the
form annexed thereto.
(j) Legal Opinion. The Administrative Agent shall have received,
-------------
dated the Closing Date and addressed to the Administrative Agent and the
Lenders, an opinion of (i) Gibson, Dunn & Crutcher LLP, counsel to the
Credit Parties, in substantially the form of Exhibit J-1, with such changes
thereto as may be approved by the Administrative Agent and its counsel and
(ii) in-house counsel to the Company or special Massachusetts
<PAGE>
66
counsel, in substantially the form of Exhibit J-2, with such changes
thereto as may be approved by the Administrative Agent and its counsel.
(k) Closing Certificate. The Administrative Agent shall have
-------------------
received a Closing Certificate of each Credit Party dated the Closing Date,
in substantially the form of Exhibits K-1 and K-2, respectively, with
appropriate insertions and attachments, in form and substance satisfactory
to the Administrative Agent and its counsel, executed by the President or
any Vice President and the Secretary or any Assistant Secretary of the
Company and its Subsidiaries, respectively.
(l) Solvency Certificate. The Administrative Agent shall have
--------------------
received a certificate of the chief financial officer of the Company, in
form and substance reasonably satisfactory to the Administrative Agent,
which shall document the solvency of the Company and its Subsidiaries after
giving effect to the consummation of the Merger and the other transactions
and related financings contemplated hereby.
(m) Insurance. The Administrative Agent shall have received (i) a
---------
schedule describing all insurance maintained by the Company and its
Subsidiaries pursuant to subsection 6.5, Section 5(h) of the Collateral
Agreement and Section 5 of the Mortgages and (ii) binders (or other
customary evidence as to the obtaining and maintenance by the Company of
such insurance) for each policy set forth on such schedule insuring against
casualty and other usual and customary risks.
(n) Other Agreements. The Administrative Agent shall have received
----------------
each additional legal opinion, document or instrument reasonably requested
by the Required Lenders.
(o) Litigation. On the Closing Date, there shall be no actions,
----------
suits, injunctions, restraining orders or proceedings pending or threatened
against any Credit Party (i) with respect to this Agreement or any other
Credit Document or the transactions contemplated hereby or thereby
(including the Merger) which would be reasonably expected to have a
material adverse effect on the rights or remedies of the Lenders under the
Credit Documents or on the ability of any Credit Party to perform its
respective obligations to the Lenders hereunder or under any other Credit
Document or (ii) which the Administrative Agent or the Required Lenders
shall determine could reasonably be expected to have a material adverse
effect on the rights or remedies of the Lenders hereunder or under any
other Credit Document or on the ability of any Credit Party to perform its
respective obligations to the Lenders hereunder or under any other Credit
Document.
(p) Consents, Approvals and Filings. Except for the financing
-------------------------------
statements contemplated by the Collateral Agreement and the Mortgages, on
the Closing Date, all necessary governmental and other third party filings,
authorizations, consents, approvals or waivers required in connection with
the execution, delivery and performance by the
<PAGE>
67
Credit Parties, and the validity and enforceability against the Credit
Parties, of the Credit Documents to which any of them is a party, or
otherwise in connection with the transactions contemplated by the Credit
Documents and the Merger Agreement, shall have been obtained or made and
remain in full force and effect (except where the failure to do so would
not reasonably be expected to have a material adverse effect on (i) the
business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole, or (ii)
(A) the validity or enforceability of this Agreement, any of the Notes or
the other Credit Documents or (B) the rights or remedies of the
Administrative Agent or the Lenders hereunder or thereunder), and all
applicable waiting periods shall have expired without any action being
taken by any competent authority which restrains or prevents such
transactions or imposes materially adverse conditions upon the consummation
of such transactions.
(q) Contractual Restrictions. The Company and its Subsidiaries shall
------------------------
not be subject to any contractual or other restrictions that would be
violated by the Merger or the other transactions contemplated hereby,
including the granting of security interests and guarantees under the
Credit Documents and the documentation with respect to the Synthetic Lease
Facility, except to the extent that any such violation would not reasonably
be expected to have a material adverse effect on (i) the business, assets,
condition (financial or otherwise) or results of operations of the Company
and its Subsidiaries, taken as a whole, (ii) (A) the validity or
enforceability of this Agreement, any of the Notes or the other Credit
Documents or (B) the rights or remedies of the Administrative Agent or the
Lenders hereunder or thereunder, or (iii) the ability of the Borrowers to
satisfy their obligations hereunder or thereunder.
(r) Existing Credit Agreement. (i) On the Closing Date, the
-------------------------
commitments under the Existing Credit Agreement shall have been terminated,
all loans thereunder shall have been repaid in full, together with interest
thereon, all letters of credit issued thereunder shall have been terminated
or incorporated hereunder as, or supported hereunder by, Letters of Credit,
and all other amounts owing pursuant to the Existing Credit Agreement shall
have been repaid in full, and the Administrative Agent shall have received
evidence in form, scope and substance reasonably satisfactory to it that
the matters set forth in this subsection have been satisfied at such time.
(i) On the Closing Date, the creditors under the Existing Credit
Agreement shall have terminated and released, or assigned to the
Administrative Agent for the benefit of the Lenders, all Liens on the
capital stock of and assets owned by the Company and its Subsidiaries, and
the Administrative Agent shall have received all such releases as may have
been requested by the Administrative Agent, which releases shall be in form
and substance reasonably satisfactory to the Administrative Agent.
(s) Intercreditor Agreement. The Administrative Agent shall have
-----------------------
received the Intercreditor Agreement executed and delivered by a duly
authorized officer of each of the parties thereto.
<PAGE>
68
(t) Agency and Intercreditor Agreement. The Administrative Agent
----------------------------------
shall have received the Agency and Intercreditor Agreement executed and
delivered by a duly authorized officer of each of the parties thereto.
(u) Trust Guarantee. The Administrative Agent shall have received
---------------
the Trust Guarantee executed and delivered by a duly authorized officer of
the Trust.
5.2 Conditions to All Loans and Letters of Credit. The obligation
---------------------------------------------
of each Lender to make any Loan (other than any Revolving Credit Loan the
proceeds of which are to be used to repay Refunded Swing Line Loans) and the
obligation of the Issuing Lender to issue any Letter of Credit are subject to
the satisfaction of the following conditions precedent on the relevant Borrowing
Date:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made in or pursuant to Section 4 or which are contained in any
other Credit Document shall be true and correct in all material respects on
and as of the date of such Loan or of the issuance of such Letter of Credit
as if made on and as of such date (unless stated to relate to a specific
earlier date, in which case, such representations and warranties shall be
true and correct in all material respects as of such earlier date).
(b) No Default or Event of Default. No Default or Event of Default
------------------------------
shall have occurred and be continuing on such Borrowing Date or after
giving effect to such Loan to be made or such Letter of Credit to be issued
on such Borrowing Date.
Each borrowing by the Company hereunder and the issuance of each Letter of
Credit by the Issuing Lender hereunder shall constitute a representation and
warranty by the Company as of the date of such borrowing or issuance that the
conditions in clauses (a) and (b) and of this subsection 5.2 have been
satisfied.
6. AFFIRMATIVE COVENANTS
---------------------
The Company hereby agrees that, so long as the Commitments remain in
effect, any Loan, Note or L/C Obligation remains outstanding and unpaid, any
amount (unless cash in an amount equal to such amount has been deposited to a
cash collateral account established by the Administrative Agent) remains
available to be drawn under any Letter of Credit or any other amount is owing to
any Lender or the Administrative Agent hereunder or under any of the other
Credit Documents, it shall, and, in the case of the agreements contained in
subsections 6.3 through 6.6, and 6.8 through 6.10, the Company shall cause each
of its Subsidiaries to:
<PAGE>
69
6.1 Financial Statements. Furnish to the Administrative Agent (with
--------------------
sufficient copies for each Lender which the Administrative Agent shall promptly
furnish to each Lender):
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of the Company, a copy of the consolidated balance
sheet of the Company and its consolidated Subsidiaries as at the end of
such fiscal year and the related consolidated statements of stockholders'
equity and cash flows and the consolidated statements of income of the
Company and its Subsidiaries for such fiscal year, setting forth in each
case in comparative form the figures for the previous year and, in the case
of the consolidated balance sheet referred to above, reported on, without a
"going concern" or like qualification or exception, or qualification
arising out of the scope of the audit, or qualification which would affect
the computation of financial covenants, by independent certified public
accountants of nationally recognized standing; provided that delivery
--------
within the time period specified above of copies of the Annual Report on
Form 10-K of the Company filed with the Securities and Exchange Commission
(together with the adjustments to such consolidated financial statements
necessary to provide consolidating information for each of its Subsidiaries
in the same manner, to the same extent and on the same basis as
historically provided to Meditrust) shall be deemed to satisfy the
requirements of this subsection 6.1(a) so long as such Form 10-K as so
adjusted shall contain the information referred to in this subsection
6.1(a);
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of the Company, the unaudited consolidated balance sheet of the
Company and its Subsidiaries as at the end of each such quarter and the
related unaudited consolidated statements of income and cash flows of the
Company and its Subsidiaries for such quarterly period and the portion of
the fiscal year of the Company through such date, setting forth in each
case in comparative form the figures for the corresponding quarter in, and
year to date portion of, the previous year, and the figures for such
periods in the budget prepared by the Company and furnished to the
Administrative Agent, certified by the chief financial officer, controller
or treasurer of the Company as being fairly stated in all material
respects; provided that delivery within the time period specified above of
--------
copies of the Quarterly Report on Form 10-Q of the Company filed with the
Securities and Exchange Commission (together with the adjustments to such
consolidated financial statements necessary to provide consolidating
information for each of its Subsidiaries in the same manner, to the same
extent and on the same basis as historically provided to Meditrust) shall
be deemed to satisfy the requirements of this subsection 6.1(b) so long as
such Form 10-K as so adjusted shall contain the information referred to in
this subsection 6.1(b);
(c) as soon as available, but in any event not later than 45 days
after the beginning of each fiscal year of the Company to which such budget
relates, a preliminary consolidated operating budget for the Company and
its Subsidiaries taken as a whole; and as soon as available, any material
revision to or any final revision of any such preliminary annual operating
budget or any such consolidated operating budget; and
<PAGE>
70
(d) concurrently with the delivery of financial statements pursuant
to subsection 6.1(a) or (b), a certificate of the chief financial officer
or treasurer of the Company setting forth, in reasonable detail, the
computations of Capital Expenditures as of the last day of the fiscal
period covered by such financial statements, the Leverage Ratio as of such
last day, and the Coverage Ratio as of such last day;
all such financial statements to be complete and correct in all material
respects (subject, in the case of interim statements, to normal year-end audit
adjustments) and to be prepared in reasonable detail and (except in the case of
the statements referred to in paragraphs (c) and (d) of this subsection 6.1) in
accordance with GAAP.
6.2 Certificates; Other Information. Furnish to the
-------------------------------
Administrative Agent (with sufficient copies for each Lender which the
Administrative Agent shall promptly deliver to each Lender):
(a) concurrently with the delivery of the consolidated financial
statements referred to in subsection 6.1(a), a letter from the independent
certified public accountants reporting on such financial statements stating
that in making the examination necessary to express their opinion on such
financial statements no knowledge was obtained of any Default or Event of
Default under subsections 3.4(b), 7.1, 7.3, and 7.5 through 7.11, except as
specified in such letter;
(b) within 15 days of the delivery of the financial statements
referred to in subsections 6.1(a) and (b) (except that the certificate as
to the statements referred to in clause (iii) below shall be delivered
concurrently with such financial statements), a certificate of the chief
financial officer or treasurer of the Company stating that, to the best of
such officer's knowledge, during such period (i) no Subsidiary has been
formed or acquired (or, if any such Subsidiary has been formed or acquired,
the Company has complied with the requirements of subsection 6.9 with
respect thereto), (ii) neither the Company nor any of its Subsidiaries has
changed its name, its principal place of business, its chief executive
office or the location of any material amount of tangible Collateral
without complying with the requirements of this Agreement and the Security
Documents with respect thereto, (iii) each of the Company and its
Subsidiaries has observed or performed all of its respective covenants and
other agreements, and satisfied every material condition, contained in this
Agreement, the Notes and the other Credit Documents to be observed,
performed or satisfied by it, and that such officer has obtained no
knowledge of any Default or Event of Default except as specified in such
certificate, (iv) showing in detail as of the end of the related fiscal
period the figures and calculations supporting such statement in respect of
clauses (c), (e), (f), (h), (i), (j), (k), (l), (m), (n) and (o) of
subsection 7.1, clauses (b), (c), (d), (f) and (i) of subsection 7.3 and
subsections 7.5 through 7.11 and any other calculations reasonably
requested by the Administrative Agent with respect to the quantitative
aspects of the other covenants contained herein, (v) if not specified in
the financial statements delivered pursuant to subsection 6.1,
<PAGE>
71
specifying the aggregate amount of interest paid or accrued by the Company
and its Subsidiaries, and the aggregate amount of depreciation, depletion
and amortization charged on the books of the Company and its Subsidiaries,
during such accounting period, and (vi) (A) identify any owned Real
Property of the Company or a Subsidiary acquired during such accounting
period that, together with any improvements thereon, has a value of at
least $2,500,000 and (B) in the event that the aggregate value of all Real
Properties (other than Real Properties for which the granting of an
Additional Mortgage would be prohibited under the circumstances set forth
in clause (i) or (ii) of the proviso to subsection 6.9(c)) for which
Additional Mortgages are not granted hereunder is $10,000,000, identify any
owned Real Property of the Company or a Subsidiary acquired during such
accounting period;
(c) promptly upon receipt thereof, copies of all final reports
submitted to the Company or to any of its Subsidiaries by independent
certified public accountants in connection with each annual, interim or
special audit of the books of the Company or any of its Subsidiaries made
by such accountants, and, upon the request of any Lender (through the
Administrative Agent), any final comment letter submitted by such
accountants to management in connection with their annual audit;
(d) promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available to
the public generally by the Company or any of its Subsidiaries, if any, and
all regular and periodic reports and all final registration statements and
final prospectuses, if any, filed by the Company or any of its Subsidiaries
with any securities exchange or with the Securities and Exchange Commission
or any Governmental Authority succeeding to any of its functions;
(e) concurrently with the delivery of the financial statements
referred to in subsections 6.1(a) and (b), a management summary describing
and analyzing the performance of the Company and its Subsidiaries during
the periods covered by such financial statements;
(f) within 45 days after the end of each fiscal quarter, a summary of
all Asset Sales during such fiscal quarter including the amount of all Net
Proceeds from such Asset Sales not previously applied to prepayments of the
Loans and reductions of the Commitments pursuant to the proviso to
subsection 3.4(b)(iii);
(g) contemporaneously with the delivery to Meditrust by any Borrower,
copies of all compliance certificates and similar periodic reports and any
and all notices of default which any Borrower delivers or is required to
deliver to Meditrust; and
(h) promptly, such additional financial and other information as any
Lender may from time to time reasonably request (through the Administrative
Agent).
<PAGE>
72
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy
----------------------
at or before maturity or before they become delinquent, as the case may be, all
its taxes and other obligations and liabilities of whatever nature, except (a)
when the amount or validity thereof is currently being contested in good faith
by appropriate proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of the Company or any of its
Subsidiaries, as the case may be, (b) for delinquent obligations which do not
have a material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries, taken
as a whole, and (c) for trade and other accounts payable in the ordinary course
of business which are not overdue for a period of more than 120 days or, if
overdue for more than 120 days, as to which a dispute exists and adequate
reserves in conformity with GAAP have been established on the books of the
Company or any of its Subsidiaries, as the case may be.
6.4 Conduct of Business and Maintenance of Existence. Continue
------------------------------------------------
to engage in businesses of the same general type as now conducted by it (after
giving effect to the Merger), and preserve, renew and keep in full force and
effect its corporate existence and take all reasonable action to maintain all
material rights, material privileges, franchises, copyrights, patents,
trademarks and trade names necessary or desirable in the normal conduct of its
business except for rights, privileges, franchises, copyrights, patents,
trademarks and tradenames the loss of which would not in the aggregate have a
material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries, taken
as a whole, and except as otherwise permitted by subsections 7.4 and 7.5; and
comply with all applicable Requirements of Law except to the extent that the
failure to comply therewith would not, in the aggregate, have a material adverse
effect on the business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole.
6.5 Maintenance of Property; Insurance. (a) Keep all property
----------------------------------
useful and necessary in its business in good working order and condition
(ordinary wear and tear excepted); and
(a) Maintain with financially sound and reputable insurance companies
insurance on all its property in at least such amounts and with only such
deductibles as are usually maintained by, and against at least such risks (but
including, in any event, public liability insurance) as are usually insured
against in the same general area by, companies engaged in the same or a similar
business, and furnish to each Lender, (i) annually, a schedule disclosing (in a
manner substantially similar to that used in the schedule provided pursuant to
subsection 5.1(m)) all insurance against products liability risk maintained by
the Company and its Subsidiaries pursuant to this subsection 6.5(b) or otherwise
and (ii) upon written request of any Lender, full information as to the
insurance carried; provided that the Company may implement programs of self
--------
insurance in the ordinary course of business and in accordance with industry
standards for a company of similar size so long as reserves are maintained in
accordance with GAAP for the liabilities associated therewith.
<PAGE>
73
6.6 Inspection of Property; Books and Records; Discussions. Keep
------------------------------------------------------
proper books of record and account in which full, true and correct entries are
made of all dealings and transactions in relation to its business and activities
which permit financial statements to be prepared in conformity with GAAP and all
Requirements of Law; and permit representatives of any Lender upon reasonable
notice (made through the Administrative Agent and no more frequently than
quarterly unless a Default or Event of Default shall have occurred and be
continuing) to visit and inspect any of its properties and examine and make
abstracts from any of its books and records, and to discuss the business,
operations, assets and financial and other condition of the Company and its
Subsidiaries with officers and employees thereof and with their independent
certified public accountants with prior reasonable notice to, and coordination
with, the chief financial officer or the treasurer of the Company.
6.7 Notices. Promptly give notice to the Administrative Agent (to
-------
be distributed by the Administrative Agent to the Lenders):
(a) of the occurrence of any Default or Event of Default;
(b) of any (i) default or event of default under any instrument or
other agreement, guarantee or collateral document of the Company or any of
its Subsidiaries which default or event of default has not been waived and
would have a material adverse effect on the business, assets, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole, or any other default or event of default
under any such instrument, agreement, guarantee or other collateral
document which, if the amount referred to in the proviso to clause (e) of
Section 8 were $2,000,000, would have constituted a Default or Event of
Default under this Agreement, or (ii) litigation, investigation or
proceeding which may exist at any time between the Company or any of its
Subsidiaries and any Governmental Authority, or receipt of any notice of
any environmental claim or assessment against the Company or any of its
Subsidiaries by any Governmental Authority, which in any such case would
have a material adverse effect on the business, assets, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole;
(c) of any litigation or proceeding against the Company or any of its
Subsidiaries (i) in which more than $5,000,000 of the amount claimed is not
covered by insurance or (ii) in which injunctive or similar relief is
sought which if obtained would have a material adverse effect on the
business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole;
(d) of the following events, as soon as practicable after, and in any
event within 30 days after, the Company knows or has reason to know
thereof: (i) the occurrence of any Reportable Event with respect to any
Plan which Reportable Event could reasonably result in material liability
to the Company and its Subsidiaries, taken as a whole, or (ii) the
institution of proceedings or the taking of any other action by the PBGC,
the Company or any Commonly Controlled Entity to terminate, withdraw or
partially
<PAGE>
74
withdraw from any Plan and, with respect to a Multiemployer Plan, the
Reorganization or Insolvency of such Plan, in each of the foregoing cases
which could reasonably result in material liability to the Company and its
Subsidiaries, taken as a whole, and in addition to such notice, deliver to
the Administrative Agent and each Lender whichever of the following may be
applicable: (A) a certificate of a Responsible Officer of the Company
setting forth details as to such Reportable Event and the action that the
Company or such Commonly Controlled Entity proposes to take with respect
thereto, together with a copy of any notice of such Reportable Event that
may be required to be filed with the PBGC, or (B) any notice delivered by
the PBGC evidencing its intent to institute such proceedings or any notice
to the PBGC that such Plan is to be terminated, as the case may be;
(e) concurrently with the delivery of the information delivered
pursuant to subsection 6.2(f) and each prepayment required pursuant to
subsection 3.4(b)(iii), of any Asset Sale or substantially like-kind
exchange of real property by the Company or any of its Subsidiaries; and
(f) of the following events, as soon as practicable and in any event
within five Business Days (i) after obtaining knowledge thereof, the
occurrence of any event that would (with the giving of notice, the passage
of time, or both) be a violation of any Health Care Permit that is
necessary for the lawful conduct of the business or operations of the
Company or any of its Subsidiaries (other than violations which the Company
does not reasonably expect to be able to cure within a reasonable period of
time and which could not reasonably be expected to have a material adverse
effect on the business, assets, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries, taken as a
whole), including, without limitation, the ownership and operation of its
Health Care Facilities and Ancillary Businesses, (ii) after receipt
thereof, any notice of any violation of any Requirements of Law which would
(with the giving of notice, the passage of time, or both) cause any of the
Health Care Permits referred to in clause (i) to be modified, rescinded or
revoked and which the Company does not reasonably expect to be able to cure
within a reasonable period of time, (iii) after receipt thereof, any
notice, summons, citation or other proceeding imposing a revocation,
suspension or a materially adverse modification of any Medicare provider
agreement, Medicaid provider agreement, Medicare certification or Medicaid
certification applicable to any of the Health Care Businesses of the
Company or any of its Subsidiaries in any manner which would reasonably be
expected to have a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the Company
and its Subsidiaries, taken as a whole, or (iv) after obtaining knowledge
thereof, any revocation or involuntary termination of any Medicare provider
agreement, Medicaid provider agreement, Medicare certification or Medicaid
certification applicable to any of the Health Care Businesses of the
Company or any of its Subsidiaries that could reasonably be expected to
have a material adverse effect on the business, assets, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole.
<PAGE>
75
Each notice pursuant to this subsection 6.7 shall be accompanied by a statement
of a Responsible Officer of the Company setting forth details of the occurrence
referred to therein and (in the cases of clauses (a) through (d)) stating what
action the Company proposes to take with respect thereto.
6.8 Environmental Laws. (a) (i) Comply with all Environmental Laws
------------------
applicable to it, and obtain, comply with and maintain any and all Environmental
Permits necessary for its operations as conducted and as planned and (ii) take
reasonable efforts to ensure that all of its tenants, subtenants, contractors,
subcontractors, and invitees comply with all Environmental Laws, and obtain,
comply with and maintain any and all Environmental Permits, applicable to any of
them insofar as any failure of the Company, its Subsidiaries or any of the
foregoing so to comply, obtain or maintain could result in a material adverse
effect on the business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole. Noncompliance
by the Company or any of its Subsidiaries with any applicable Environmental Law
or Environmental Permit shall be deemed not to constitute a breach of this
subsection 6.8(a), provided that, upon learning of any such noncompliance, the
--------
Company and its Subsidiaries shall promptly undertake reasonable efforts to
achieve compliance or to contest by appropriate proceedings any alleged
noncompliance and, provided, further, that, in any case, such noncompliance, and
-------- -------
any other noncompliance with Environmental Law and any contesting of allegations
of noncompliance with Environmental Laws, individually or in the aggregate,
could not reasonably be expected to give rise to a material adverse effect on
the business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole.
(b) Comply in a timely manner with all orders and lawful directives
regarding Environmental Laws issued to the Company or any of its Subsidiaries by
any Governmental Authority, other than such orders and lawful directives as to
which an appeal or other challenge has been timely and properly taken in good
faith and the pendency of any and all such appeals and other challenges could
not reasonably be expected to give rise to a material adverse effect on the
business, assets, condition (financial or otherwise) or results of operations of
the Company and its Subsidiaries, taken as a whole.
(c) Maintain, update as appropriate, and implement in all material
respects an environmental program reasonably designed to (i) ensure that the
Company, its Subsidiaries, any of their respective operations (including,
without limitation, disposal), and any properties owned, leased or operated by
any of them, attain and remain in substantial compliance with all applicable
Environmental Laws, (ii) reasonably and prudently manage any liabilities or
potential liabilities that the Company, any of the other Credit Parties, any of
their respective operations (including, without limitation, disposal), and any
properties owned or leased by any of them, may have under all applicable
Environmental Laws, and (iii) ensure that the Company and its Subsidiaries
undertake reasonable efforts to identify, and reasonably evaluate, issues of
compliance with and liability under Environmental Laws prior to acquiring,
directly or indirectly, any ownership or leasehold interest in real property, or
other interest in any real property that could give rise to
<PAGE>
76
Company or any of its Subsidiaries being subjected to liability under any
Environmental Law as a result of such acquisition.
6.9 Additional Collateral. (a) Subject to the limitations set
---------------------
forth in subsection 6.9(b) and subsection 6.9(c) and except with respect to any
joint venture investments permitted by subsection 7.6(h), with respect to any
assets acquired after the Closing Date by the Company or any of its Subsidiaries
(other than (x) any assets described in paragraph (b), (c) or (d) of this
subsection and (y) immaterial assets) as to which the Administrative Agent, for
the benefit of the Lenders, does not have a perfected Lien, promptly (and in any
event within 30 days after the acquisition thereof): (i) execute and deliver to
the Administrative Agent such amendments or supplements to the relevant Security
Documents or such other documents as the Administrative Agent shall deem
necessary or advisable to grant to the Administrative Agent, for the benefit of
the Lenders, a Lien on such assets, and (ii) take all actions necessary or
advisable to cause such Lien to be duly perfected to the extent required by such
Security Document in accordance with all applicable Requirements of Law,
including, without limitation, the filing of financing statements in such
jurisdictions as may be reasonably requested by the Administrative Agent.
(a) With respect to any Person that is or becomes a Domestic
Subsidiary, promptly upon the request of the Administrative Agent (i) execute
and deliver to the Administrative Agent, for the benefit of the Lenders, a new
pledge agreement or such amendments to the Collateral Agreement as the
Administrative Agent reasonably shall deem necessary or advisable to grant to
the Administrative Agent, for the benefit of the Lenders, a Lien on the Capital
Stock of such Subsidiary which is owned by the Company or any of its
Subsidiaries, (ii) deliver to the Administrative Agent the certificates
representing such Capital Stock, together with undated stock powers executed and
delivered in blank by a duly authorized officer of the Company or such Domestic
Subsidiary, as the case may be, and (iii) cause such new Domestic Subsidiaries
(A) to become a party to this Agreement as a Borrower (or to become a guarantor
of the obligations hereunder and under the Synthetic Lease Facility), to become
a party to the Collateral Agreement and to become a party to the Agency and
Intercreditor Agreement or, in each case, to become a party to such comparable
documentation which is in form and substance reasonably satisfactory to the
Administrative Agent and (B) to take all actions necessary or advisable to cause
the Lien created by the Collateral Agreement or such comparable documentation,
as the case may be, to be duly perfected to the extent required by such
agreement or document in accordance with all applicable Requirements of Law,
including, without limitation, the filing of financing statements in such
jurisdictions as may be reasonably requested by the Administrative Agent,
provided, that the Company and its Subsidiaries shall not be required to comply
- --------
with the requirements of this subsection 6.9(b) with respect to a Domestic
Subsidiary if (x) such compliance is prohibited by such Domestic Subsidiary's
Contractual Obligations with third parties in connection with lease arrangements
or Indebtedness for borrowed money and (y) the aggregate Acquisition
Consideration for all Domestic Subsidiaries acquired subsequent to the date
hereof which are not Borrowers hereunder or guarantors of the obligations
hereunder and under the Synthetic Lease Facility shall not exceed $30,000,000.
<PAGE>
77
(b) Upon the request of the Administrative Agent, the Company will,
and will cause its Domestic Subsidiaries to, promptly grant to the
Administrative Agent, within 60 days of such request, security interests and
mortgages (an "Additional Mortgage") in such owned Real Property of the Company
-------------------
and its Domestic Subsidiaries as are acquired after the Closing Date by the
Company or such Domestic Subsidiary as additional security for the obligations
of the Credit Parties under any Credit Document, provided that an Additional
--------
Mortgage covering any such owned Real Property will not be required if (i) such
Real Property is already mortgaged to a third party to the extent permitted by
subsection 7.2, (ii) with respect to a Domestic Subsidiary, such Additional
Mortgage is not permitted by such Domestic Subsidiary's Contractual Obligations
with third parties in connection with lease arrangements or Indebtedness for
borrowed money or (iii) (A) the value of such Real Property, together with any
improvements thereon, is less than $2,500,000 and (B) the aggregate value of all
Real Properties (other than Real Properties for which the granting of an
Additional Mortgage would be prohibited under the circumstances set forth in
clause (i) or (ii) of this proviso) for which Additional Mortgages are not
granted hereunder shall not exceed $10,000,000. Each such Additional Mortgage
shall be granted pursuant to documentation substantially similar to the form of
Mortgage attached hereto as Exhibit L and shall constitute valid and enforceable
perfected Liens subject only to Permitted Liens and such other Liens reasonably
acceptable to the Administrative Agent. The Additional Mortgages or instruments
related thereto shall be duly recorded or filed in such manner and in such
places as are required by law to establish, perfect, preserve and protect the
Liens in favor of the Administrative Agent, for the benefit of the Lenders,
required to be granted pursuant to the Additional Mortgages and all taxes, fees
and other charges payable in connection therewith shall be paid in full. If
requested by the Administrative Agent or the Required Lenders, the Company shall
provide a lender's title policy with respect to each such Additional Mortgage
conforming to the requirements of subsection 6.12.
(c) With respect to any new Foreign Subsidiary created or acquired
after the Closing Date by the Company or any of its Subsidiaries, promptly (i)
execute and deliver to the Administrative Agent such amendments to the
Collateral Agreement, or such other Security Document, as the Administrative
Agent deems necessary or advisable to grant to the Administrative Agent, for the
benefit of the Lenders, a perfected first priority security interest in the
Capital Stock of such new Subsidiary that is owned by the Company or any of its
Subsidiaries (provided that in no event shall more than 65% of the total
outstanding voting Capital Stock of any such new Subsidiary be required to be so
pledged), (ii) deliver to the Administrative Agent the certificates representing
such Capital Stock, together with undated stock powers, in blank, executed and
delivered by a duly authorized officer of the Company or such Subsidiary, as the
case may be, and take such other action as may be necessary or, in the opinion
of the Administrative Agent, desirable to perfect the Administrative Agent's
security interest therein, and (iii) if reasonably requested by the
Administrative Agent (taking into account the cost involved in relation to the
value of the collateral security to be afforded thereby), deliver to the
Administrative Agent legal opinions relating to the matters described above,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent, provided that the Company and its
--------
Subsidiaries shall not be required to comply with the requirements of this
subsection 6.9(c) with respect to a Foreign Subsidiary if
<PAGE>
78
such compliance is prohibited by such Foreign Subsidiary's Contractual
Obligations with third parties in connection with lease arrangements or
Indebtedness for borrowed money.
6.10 Health Care Permits and Approvals. Take all action
---------------------------------
reasonably necessary (a) to maintain in full force and effect all Health Care
Permits reasonably necessary for the lawful conduct of its business or
operations where now conducted and as planned to be conducted, including the
ownership and operation of its Health Care Facilities and Ancillary Businesses
pursuant to all Requirements of Law and (b) to ensure that each Health Care
Facility and Ancillary Business owned, leased, managed or operated by the
Company or any of its Subsidiaries are entitled to participate in, and receive
payment under, the appropriate Medicare, Medicaid and related reimbursement
programs, and any similar state or local government-sponsored program, to the
extent the Company or any of its Subsidiaries has decided to participate in any
such program with respect to such Health Care Facility or Ancillary Business, as
the case may be, and to receive reimbursement from private and commercial payers
and health maintenance organizations to the extent applicable thereto, except,
in each case, where a failure to do so could not reasonably be expected to have
a material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries, taken
as a whole.
6.11 Operating Leases. Furnish to the Administrative Agent, at the
----------------
time of the acquisition of any Encumbered Subsidiary the principal asset of
which is the subject of an operating lease under which such Encumbered
Subsidiary is the lessee, or of the acquisition by any Encumbered Subsidiary of
any assets the principal one of which is the subject of an operating lease under
which such Encumbered Subsidiary is the lessee, an appraisal prepared by an
appraiser of recognized standing in the area in which such leased property is
located of the fair market value of such property.
6.12 Mortgages. Furnish to the Administrative Agent, within 60 days
---------
after the Closing Date, (a) fully executed counterparts of deeds of trust,
mortgages and similar documents in each case in form and substance reasonably
satisfactory to the Administrative Agent and substantially in the form of
Exhibit L (each a "Mortgage" and collectively, the "Mortgages") covering all the
-------- ---------
Mortgaged Properties, and arrangements reasonably satisfactory to the
Administrative Agent shall be in place by the 60th day after the Closing Date to
provide that counterparts of such Mortgages shall be promptly recorded upon
execution in all places to the extent necessary or desirable, in the reasonable
judgment of the Administrative Agent, effectively to create a valid and
enforceable first (or, in the case of the Mortgages granted by the Meditrust
Entities, second) priority Lien, subject only to Permitted Liens, on each
Mortgaged Property in favor of the Administrative Agent (or such other trustee
as may be required or desired under local law) for the benefit of the Lenders,
(b) a lender's title insurance policy, paid for by the Company, issued by a
nationally recognized title insurance company, together with such endorsements,
coinsurance and reinsurance as may be reasonably requested by the Administrative
Agent, in form and substance reasonably acceptable to the Administrative Agent,
insuring each Mortgage as a first (or, in the case of the Mortgages granted by
the Meditrust Entities, second) lien on the relevant Mortgaged Property and
subject only to Permitted Liens
<PAGE>
79
and Liens expressly agreed to by the Administrative Agent and (c) such other
documents (including without limitation, ALTA/ASCM surveys of each Mortgaged
Property made in accordance with ALTA/ASCM standards, including Table A, Items
Nos. 1-4 and 6-13 as updated by inspection) as are reasonably required by the
Administrative Agent.
7. NEGATIVE COVENANTS
------------------
The Company hereby agrees that it shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly so long as the
Commitments remain in effect or any Loan, Note or L/C Obligation remains
outstanding and unpaid, any amount (unless cash in an amount equal to such
amount has been deposited to a cash collateral account established by the
Administrative Agent) remains available to be drawn under any Letter of Credit
or any other amount is owing to any Lender or the Administrative Agent hereunder
or under any other Credit Document (it being understood that each of the
permitted exceptions to each of the covenants in this Section 7 is in addition
to, and not overlapping with, any other of such permitted exceptions except to
the extent expressly provided):
7.1 Indebtedness. Create, incur, assume or suffer to exist any
------------
Indebtedness, except:
(a) the Indebtedness outstanding on the Closing Date and reflected on
Schedule 7.1(a), including the refinancing of any such Indebtedness on terms and
conditions that, in the good faith judgment of the Company, taken as a whole are
no less favorable to the Company and its Subsidiaries or the Lenders;
(b) Indebtedness of any Credit Party pursuant to (i) any Credit
Document and (ii) the Synthetic Lease Facility;
(c) Indebtedness (i) of the Company to any Domestic Subsidiary, (ii)
of any Domestic Subsidiary to the Company or any other Domestic Subsidiary and
(iii) of any Foreign Subsidiary to the Company or any other Subsidiary in an
aggregate principal amount at any one time outstanding for all Foreign
Subsidiaries not to exceed the sum of $15,000,000 plus the sum of any amounts
----
dividended or distributed to the Company or any Domestic Subsidiary (other than
an Encumbered Subsidiary) subsequent to the date hereof by any Foreign
Subsidiary, less the sum of (A) the aggregate amount of any Contingent
----
Obligations of the Borrowers in respect of then outstanding obligations of
Foreign Subsidiaries pursuant to subsection 7.3(c)(ii) and (B) the aggregate
amount of any investments made in Foreign Subsidiaries subsequent to the date
hereof pursuant to subsection 7.6(b)(iii), provided that such Indebtedness
--------
referred to in this clause (c) is evidenced, if requested by the Administrative
Agent, by a promissory note or promissory notes which has or have been pledged
to the Administrative Agent on terms and conditions satisfactory to the
Administrative Agent and provided, further, that at no time shall (x) the sum,
-------- -------
calculated for each Encumbered Subsidiary and then aggregated for all Encumbered
Subsidiaries, of the excess, if any, of (1) the aggregate amount of all loans,
advances and
<PAGE>
80
investments (other than any investments in connection with acquisitions of
Encumbered Subsidiaries permitted by subsection 7.6(g)(iv)) by the Company or
any Subsidiary (other than an Encumbered Subsidiary) to or in such Encumbered
Subsidiary subsequent to the date hereof as permitted by this subsection and
subsection 7.6(b)(ii)(B) over (2) the aggregate amount of loan repayments and
dividends and distributions from such Encumbered Subsidiary to the Company or
any Subsidiary (other than an Encumbered Subsidiary) subsequent to the date
hereof exceed (y) the sum of $25,000,000 plus the then Added Amount;
----
(d) Indebtedness of the Company in respect of:
(i) (A) up to $105,000,000 principal amount of Bridge
Senior Subordinated Debt issued on the Closing Date, and additional
principal amount of Bridge Senior Subordinated Debt issued in lieu of
cash interest on the outstanding Bridge Senior Subordinated Debt and
otherwise as contemplated by the Bridge Loan Agreement upon exchange
of Bridge Senior Subordinated Debt into exchange notes or (B) Senior
Subordinated Discount Notes issued on the Closing Date for gross cash
proceeds to the Company of up to $105,000,000;
(ii) Permanent Senior Subordinated Debt in an
aggregate principal amount not to exceed the accreted value of such
Senior Subordinated Discount Notes (or any refinancing thereof
permitted hereunder) at the time of such refinancing and 10% of such
value, the proceeds (net of any fees and expenses in connection
therewith) of which shall be applied to prepay, redeem, retire or
repurchase either (A) the outstanding principal amount of the Bridge
Senior Subordinated Debt, (B) the accreted value of the Senior
Subordinated Discount Notes at the time of such refinancing or (C)
other Permanent Senior Subordinated Debt;
(iii) up to $40,000,000 principal amount of Bridge Junior
Subordinated Debt issued on the Closing Date, and additional principal
amount of Bridge Junior Subordinated Debt issued in lieu of cash
interest on the outstanding Bridge Junior Subordinated Debt and
otherwise as contemplated by the Bridge Loan Agreement upon exchange
of Bridge Junior Subordinated Debt into exchange notes; provided,
--------
however, that in the event that the aggregate principal amount of
-------
Bridge Senior Subordinated Debt or Senior Subordinated Discount Notes,
as the case may be, issued as permitted by subsection 7.1(d)(i) is
more than $100,000,000 but less than or equal to $105,000,000, the
principal amount of Indebtedness permitted by this subsection
7.1(d)(iii) shall be reduced by an amount equal to the amount by which
such Bridge Senior Subordinated Debt or Senior Subordinated Discount
Notes, as the case may be, exceeds $100,000,000; and
(iv) Permanent Junior Subordinated Debt in an aggregate
principal amount not to exceed the principal amount of the Bridge
Junior Subordinated Debt or, if the issuance thereof to refinance
Preferred Stock shall be consented to
<PAGE>
81
by the Required Lenders, the Exchange Debentures (or, in either case,
any refinancing thereof permitted hereunder) at the time of such
refinancing and 10% of such value, the proceeds (net of any fees and
expenses in connection therewith) of which shall be applied to prepay,
redeem, retire or repurchase either (A) the outstanding principal
amount of Bridge Junior Subordinated Debt, (B) the outstanding amount
of Preferred Stock, (C) the outstanding principal amount of Exchange
Debentures, if any, or (D) other Permanent Junior Subordinated Debt.
(e) (i) Indebtedness of the Company and its Subsidiaries for (A)
industrial revenue bonds or other similar governmental and municipal bonds and
(B) the deferred purchase price of newly acquired equipment of the Company and
its Subsidiaries (pursuant to purchase money mortgages or otherwise and whether
owed to the seller or a third party) used in the ordinary course of business
(provided such financing is entered into within 180 days of the acquisition of
--------
such property) of the Company and its Subsidiaries in an amount (based on the
remaining balance of the obligations therefor on the books of the Company and
its Subsidiaries) which shall not exceed $10,000,000 in the aggregate at any one
time outstanding for Indebtedness described in this clause (i), and (ii)
Indebtedness of the Company and its Subsidiaries in respect of Financing Leases
to the extent subsections 7.7 and 7.10 would not be contravened;
(f) (i) Indebtedness assumed in connection with acquisitions
permitted by subsection 7.6(g) (so long as such Indebtedness was not incurred in
anticipation of such acquisitions), (ii) Indebtedness of newly acquired
Subsidiaries acquired in such acquisitions (so long as such Indebtedness was not
incurred in anticipation of such acquisition), (iii) Indebtedness owed to the
seller in any acquisition permitted by subsection 7.6(g) constituting part of
the purchase price thereof and (iv) Indebtedness of the Company or any
Subsidiary incurred to finance any acquisition permitted by subsection 7.6(g),
all of which Indebtedness permitted by this subsection 7.1(f) (including
refinancings thereof as permitted by subsection 7.1(m)), when added to the
aggregate principal amount of Indebtedness permitted by subsection 7.1(h) or
7.1(n) the Net Proceeds of which shall have been applied to refinance preferred
stock the proceeds of which were originally used to finance the acquisition of
an Encumbered Subsidiary permitted by subsection 7.6(g), shall not exceed in the
aggregate at any one time outstanding an amount equal to the excess, if any, of
(x) $175,000,000 over (y) the excess, if any, of (1) the aggregate Acquisition
Consideration given subsequent to the date hereof in connection with
acquisitions permitted by subsection 7.6(g)(iv) (excluding (A) Capital Stock of
the Company issued in connection with such acquisitions, (B) the Net Proceeds of
issuances of Capital Stock to the extent such Net Proceeds are contemporaneously
applied toward such acquisitions, (C) any Indebtedness constituting a portion of
such Acquisition Consideration and (D) the Net Proceeds of any bond issuance as
permitted by subsection 7.1(e) to the extent such Net Proceeds are
contemporaneously applied toward such acquisition) over (2) an amount equal to
the aggregate Acquisition Consideration (or in the event of one or more partial
sales of assets or Capital Stock as set forth in clause (aa) below, the proceeds
thereof not to exceed, individually or in the aggregate, the total Acquisition
Consideration therefor) given subsequent to the date hereof in connection with
acquisitions permitted by subsection 7.6(g)(iv) (excluding Capital Stock, Net
<PAGE>
Proceeds of issuances thereof, any Indebtedness constituting a portion of such
Acquisition Consideration and Net Proceeds of certain bond issuances as
aforesaid) with respect to which either (aa) all or a portion of the assets or
Capital Stock so acquired shall have been subsequently sold or (bb) in any case
where the Subsidiary that is the subject of such acquisition or that is the
holder of the assets so acquired is, immediately after giving effect to such
acquisition, an Encumbered Subsidiary, such Encumbered Subsidiary shall have
ceased to be an Encumbered Subsidiary; provided that the aggregate principal
--------
amount of outstanding Indebtedness permitted by this clause (iv) at any time
outstanding shall be increased by an amount equal to the aggregate amount which
the Company would then be permitted to borrow under subsection 7.1(e)(i) and
invest under subsection 7.6(h);
(g) Indebtedness in connection with workmen's compensation
obligations and general liability exposure of the Company and its Subsidiaries;
(h) unsecured subordinated indebtedness of the Company and its
Subsidiaries, provided that (i) such Indebtedness shall not exceed $10,000,000
--------
in aggregate principal amount at any one time outstanding plus any additional
principal amount of such Indebtedness issued in lieu of cash interest on such
outstanding Indebtedness or any refinancing thereof, (ii) no part of the
principal amount of such Indebtedness shall have a maturity date earlier than
the one-year anniversary of the Termination Date and (iii) the non-default
interest rate thereon shall not exceed 12% per annum;
(i) additional Indebtedness of the Company and its Subsidiaries in an
aggregate principal amount at any one time outstanding not in excess of
$15,000,000.
(j) Indebtedness in respect of letters of credit (other than Letters
of Credit issued hereunder) in an aggregate principal amount equal to $5,000,000
at any one time outstanding;
(k) Indebtedness of Foreign Subsidiaries owing to Persons other than
the Company or any other Subsidiary in an aggregate principal amount at any one
time outstanding not in excess of $15,000,000;
(l) Indebtedness of a Domestic Subsidiary in an aggregate principal
amount at any one time outstanding not in excess of $18,000,000 assumed in
connection with the exercise of purchase options with respect to the properties,
or the equity interests in the Persons that are the owners of such properties,
that are the subject of the currently existing Financing Leases to which
Harborside of Cleveland, L.P. is a party;
(m) refinancings on market terms and conditions of Indebtedness
permitted pursuant to subsection 7.1(f), provided that either (i) the Available
--------
Revolving Credit Commitment at the time of any such refinancing is less than the
amount being refinanced or (ii) such refinancing is of Indebtedness of an
Encumbered Subsidiary that occurs at the final maturity of such Indebtedness and
the payment of such Indebtedness in full at such final maturity would
<PAGE>
83
not (as a result of Contractual Obligations with third parties in connection
with lease arrangements or other Indebtedness for borrowed money) result in such
Encumbered Subsidiary ceasing to be an Encumbered Subsidiary;
(n) Indebtedness the aggregate gross proceeds received by the Company
in connection with the issuance of which do not exceed $25,000,000 on terms and
conditions (other than those relating to the rate of interest payable thereon,
provided that such rate may not exceed the then prevailing market rate for
similar issues by comparable issuers) substantially similar to those described
in the Offering Memorandum as being applicable to the Senior Subordinated
Discount Notes; and
(o) additional secured Indebtedness of the Company and its
Subsidiaries in an aggregate principal amount of any one time outstanding not in
excess of $10,000,000.
For the purposes of this subsection 7.1, Indebtedness incurred in
connection with the payment by the Company or any Subsidiary of expenses,
operating costs and maintenance capital expenditures of any Domestic Subsidiary
in the ordinary course of the business of such Domestic Subsidiary shall not be
considered to be a loan of, or advance by, the Company or any Subsidiary to such
Domestic Subsidiary and shall be permitted under this Agreement.
7.2 Limitation on Liens. Create, incur, assume or suffer to exist
-------------------
any Lien upon any of its property, assets, income or profits, whether now owned
or hereafter acquired, except:
(a) Liens for taxes, assessments or other governmental charges not
yet delinquent or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of the Company or such Subsidiary, as the case may be, in accordance with
GAAP;
(b) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business in
respect of obligations which are not yet due or which are bonded or which are
being contested in good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained on the books of the Company or such
Subsidiary, as the case may be, in accordance with GAAP;
(c) pledges or deposits in connection with workmen's compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, tenders, trade or
government contracts (other than for borrowed money), leases, licenses,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business;
<PAGE>
84
(e) easements (including, without limitation, 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, which do not in the
aggregate materially detract from the aggregate value of the properties of the
Company 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 Company and its Subsidiaries on the properties subject
thereto, taken as a whole;
(f) Liens in favor of the Administrative Agent and the Lenders
pursuant to the Credit Documents, including Liens pursuant to the Credit
Documents in respect of Interest Rate Agreements, and bankers' liens arising by
operation of law;
(g) Liens on property of the Company or any Subsidiary created solely
for the purpose of securing Indebtedness permitted by subsection 7.1(e)
representing or incurred to finance, refinance or refund the purchase price of
property or the cost of making improvements thereto, provided that (i) no such
--------
Lien shall extend to or cover property of the Company or such Subsidiary other
than the respective property so acquired or improved and (ii) the principal
amount of Indebtedness secured by any such Lien shall not exceed the fair market
value of such property at the time of the creation of such Indebtedness;
(h) Liens on property of the Company or any Subsidiary acquired with
the proceeds of any Indebtedness permitted by subsection 7.1(f), or on the
Capital Stock of any such acquired Subsidiary, to secure such Indebtedness,
provided that (i) no such Lien shall extend to or cover other property of the
- --------
Company or such Subsidiary and (ii) the principal amount of Indebtedness secured
by any such Lien shall not exceed the original purchase price of such property;
(i) Liens existing on the Closing Date after giving effect to the
consummation of the Merger and described in subsection 4.13 or Schedule 7.2(i)
(including the extension of any Liens listed on such Schedule relating to any
Indebtedness permitted under subsection 7.1(a) in connection with any
refinancing of such Indebtedness permitted by such subsection and any Liens
securing Indebtedness to be repaid on the Closing Date to the extent the Company
has made arrangements to terminate such Liens in a manner satisfactory to the
Administrative Agent), provided that no such Lien shall extend to or cover other
--------
property of the Company or the respective Subsidiary other than the respective
property so encumbered and the principal amount of Indebtedness secured by any
such Lien shall at no time exceed the original principal amount of the
Indebtedness so secured;
(j) Liens on documents of title and the property covered thereby
securing Indebtedness in respect of the Commercial L/Cs;
(k) (i) mortgages, liens, security interests, restrictions,
encumbrances or any other matter of record that have been placed by any
developer, landlord or other third party on property
<PAGE>
85
over which the Company or any Subsidiary has easement rights or on any Leased
Property and subordination or similar agreements relating thereto and (ii) any
condemnation or eminent domain proceedings affecting any real property;
(l) Liens in connection with workmen's compensation obligations and
general liability exposure of the Company and its Subsidiaries;
(m) Liens on goods (and proceeds thereof) securing reimbursement
obligations in respect of commercial letters of credit issued in accordance with
the terms of this Agreement;
(n) Liens on the Capital Stock or assets of any Foreign Subsidiary
securing Indebtedness of such Foreign Subsidiary permitted by subsection 7.1(k);
(o) Liens on the Capital Stock or personal property of any Subsidiary
securing operating leases of such Subsidiary; and
(p) Liens on property of the Company or any Subsidiary created solely
for the purpose of securing Indebtedness permitted by subsection 7.1(o).
7.3 Limitation on Contingent Obligations. Create, incur, assume or
------------------------------------
suffer to exist any Contingent Obligation except:
(a) pursuant to this Agreement, the Collateral Agreement or the
Synthetic Lease Facility;
(b) guarantees by the Company incurred in the ordinary course of
business for an aggregate amount not to exceed $5,000,000 at any one time
outstanding;
(c) guarantees by the Company or any Domestic Subsidiary of (i)
obligations of the Company or of Domestic Subsidiaries (other than Encumbered
Subsidiaries) and (ii) obligations of Foreign Subsidiaries in an aggregate
principal amount at any one time outstanding not to exceed $15,000,000 plus the
----
sum of any amounts dividended or distributed to the Company or any Domestic
Subsidiary (other than an Encumbered Subsidiary) subsequent to the date hereof
by Foreign Subsidiaries, less the sum of (A) the aggregate amount of any
----
Indebtedness of Foreign Subsidiaries pursuant to subsection 7.1(c)(iii) and (B)
the aggregate amount of any investments made in Foreign Subsidiaries subsequent
to the date hereof pursuant to subsection 7.6(b)(iii);
(d) guarantees by the Company or any Subsidiary of Indebtedness of
Encumbered Subsidiaries in an aggregate principal amount not to exceed at any
one time outstanding $35,000,000;
<PAGE>
86
(e) Contingent Obligations existing on the Closing Date and described
in Schedule 7.3(e) and Contingent Obligations relating to any Indebtedness
permitted under subsection 7.1(a);
(f) guarantees of obligations to third parties in connection with
travel and entertainment advances and relocation and other loans to employees of
the Company or any of its Subsidiaries, in an amount which, together with all
loans and advances made pursuant to subsection 7.6(f), shall not exceed
$5,000,000 at any one time outstanding;
(g) Contingent Obligations in connection with workmen's compensation
obligations and general liability exposure of the Company and its Subsidiaries;
(h) subordinated guarantees in respect of the Subordinated Debt
issued by Subsidiaries, provided that such subordinated guarantees are
--------
subordinated to the Borrowers' obligations under this Agreement on substantially
the same basis as the Subordinated Debt is subordinated to the Loans; and
(i) guarantees by the Company or any Domestic Subsidiary of
Indebtedness of joint ventures in or to which the Company or any of its
Subsidiaries has made investments or loans or advances as permitted by
subsection 7.6(h) in an aggregate principal amount (when added to the aggregate
then outstanding amount of such investments, loans and advances) not to exceed
at any one time outstanding $10,000,000 plus the sum of (i) any amounts
----
dividended or distributed to the Company or any Domestic Subsidiary (other than
an Encumbered Subsidiary) subsequent to the date hereof by such joint ventures
and (ii) the proceeds of any sale permitted by subsection 7.5(j) to the extent
that such proceeds are not otherwise reinvested.
7.4 Prohibition of Fundamental Changes. Enter into any merger or
----------------------------------
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or engage in any type of business other
than of the same general type now conducted by it, except (a) for the Merger,
(b) for the transactions otherwise permitted pursuant to subsection 7.5(b), (c)
Subsidiaries with a net book value not greater than $100,000 may be dissolved
and (d) any Subsidiary may otherwise be dissolved, provided that upon
dissolution, the assets of such Subsidiary are transferred to the Company or a
wholly owned Domestic Subsidiary of the Company on the terms and subject to the
conditions set forth in subsection 7.5(b).
7.5 Prohibition on Disposition of Assets. Convey, sell, lease,
------------------------------------
assign, transfer or otherwise dispose of (including through a transaction of
merger or consolidation of any Subsidiary of the Company) any of its property,
business or assets (including, without limitation, receivables and other
payments and Health Care Businesses), whether now owned or hereafter acquired,
except:
(a) the sale or other disposition of inventory in the ordinary course
of business;
<PAGE>
87
(b) the Company or any Subsidiary of the Company may sell, lease,
transfer or otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to, and any Subsidiary of the Company may merge with
and into, the Company or a wholly owned Domestic Subsidiary of the Company, and
the Company or any Subsidiary of the Company may sell or otherwise dispose of,
or part with control of any or all of, the Capital Stock of any Subsidiary to a
wholly owned Domestic Subsidiary of the Company or the Company, provided that no
--------
such transaction may be effected if it would result in the transfer of any
assets of, or any Capital Stock of, the Company or a Subsidiary (other than an
Encumbered Subsidiary) to, or the merger with and into, an Encumbered Subsidiary
unless such Encumbered Subsidiary (directly or through a series of mergers and
transfers) promptly transfers the assets transferred to it by such Subsidiary,
or, as the case may be, any Capital Stock thereof, to the Company or a Domestic
Subsidiary (other than an Encumbered Subsidiary);
(c) the lease in the ordinary course of business of Fee Properties
and other real property owned in fee;
(d) any condemnation or eminent domain proceeding affecting any real
property, provided that the parties hereto agree that the net proceeds received
--------
in connection with such proceeding shall be deemed not to constitute "Net
Proceeds" if such net proceeds are reinvested in new or existing properties or
used for capital expenditures within 18 months;
(e) any substantially like-kind exchange of real property, provided
--------
that only any cash received by the Company or any Subsidiary of the Company in
connection with such an exchange (net of all costs and expenses incurred in
connection with such transaction or with the commencement of operation of real
property received in such exchange) and not reinvested in real property or used
for capital expenditures within 360 days (or, in the event there is a definitive
agreement in existence committing such net proceeds to such reinvestment or
capital expenditure within 360 days of receipt of the same, 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)) of receipt of
the same shall be deemed to be Net Proceeds and shall be applied as provided for
in subsection 3.4(b)(iii) and provided, further, that the aggregate outstanding
-------- -------
amount of net proceeds held by the Company at any time for reinvestment in
respect of any real property exchanged pursuant to this paragraph (e) and real
property sold pursuant to subsection 7.5(h) shall not exceed $40,000,000;
(f) the sale or other disposition of any property that, in the
reasonable judgment of the Company has become uneconomic, obsolete or worn out,
and which is sold or disposed of in the ordinary course of business;
(g) the sale or other disposition of any property, the aggregate
amount of the net proceeds received in respect of which shall not exceed
$10,000,000 during the term of this Agreement;
<PAGE>
88
(h) the sale or other disposition of any interest in real property,
provided that (i) the net proceeds of any such sale shall constitute Net
- --------
Proceeds only to the extent such net proceeds are not reinvested in real
property or used for capital expenditures within 360 days (or, in the event
there is a definitive agreement in existence committing such net proceeds to
such reinvestment or capital expenditure within 360 days from the date of such
sale, 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)) from the date of such sale, (ii) if the real property so sold
constituted Collateral under the Security Documents then any real property
purchased with the net proceeds thereof shall be mortgaged for the benefit of
the Lenders if required by subsection 6.9(c) and in accordance therewith and
(iii) the aggregate outstanding amount of net proceeds held by the Company at
any time for reinvestment in respect of any real property sold pursuant to this
paragraph (h) and real property exchanged pursuant to subsection 7.5(e) shall
not exceed $40,000,000;
(i) the sale of all or any part of the Company's or any Subsidiary's
ownership of Bowie Center L.P. and the pharmacy joint venture with Neighborcare;
(j) the sale of all or any part of any joint venture interest
permitted by subsection 7.6(h), provided that the net proceeds of any such sale
--------
shall constitute Net Proceeds only to the extent such net proceeds are not
reinvested in joint ventures (as permitted by subsection 7.6(h)) or used for
capital expenditures or for acquisitions permitted by subsection 7.6(g) within
360 days (or, in the event there is a definitive agreement in existence
committing such net proceeds to such reinvestment, capital expenditure or
acquisition within 360 days from the date of such sale, 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)) from the date
of such sale; and
(k) the sublease in the ordinary course of business of any assets or
properties, provided that the Company and its Subsidiaries may not sublease all
--------
or substantially all of the assets of more than seven Health Care Facilities to
Persons that are not Affiliates of the Company.
7.6 Limitation on Investments, Loans and Advances. Make any
---------------------------------------------
advance, loan, extension of credit or capital contribution to, or purchase any
stock, bonds, notes, debentures or other securities of, or make any other
investment in (including, without limitation, any acquisition of all or any
substantial portion of the assets, and any acquisition of a business or a
product line, of other companies, other than the acquisition of inventory in the
ordinary course of business and it being understood that this covenant is not
intended to limit the ability of the Company or any Subsidiary to enter into any
lease of real or personal property but that this covenant is intended to cover
the acquisition of a business, the principal asset or assets of which is or are
the subject of an operating lease under which the Company or any Subsidiary is
the lessee and it being further understood that this covenant is intended to
cover the acquisition by the Company or any Subsidiary of any real property and
related personal property that is the
<PAGE>
89
subject of such an operating lease pursuant to the exercise by the Company or
such Subsidiary of a purchase option provided for in such lease (a "Purchase
--------
Option Acquisition")), any Person (except to the extent permitted by subsection
- ------------------
7.7), except:
(a) the Company may make loans or advances to any Domestic Subsidiary
(other than an Encumbered Subsidiary), and any Subsidiary may make loans or
advances to the Company or any Domestic Subsidiary (other than an Encumbered
Subsidiary), to the extent in each case the Indebtedness created thereby is
permitted by subsection 7.1(c);
(b) (i) any Subsidiary may make investments in the Company (by way of
capital contribution or otherwise), (ii) the Company and any Subsidiary may make
investments in, or create, any wholly owned Domestic Subsidiary (by way of
capital contribution or otherwise) or make investments permitted by subsection
7.5(b), provided that, in any such case, (A) the requirements of subsection 6.9
--------
are satisfied and (B) at no time shall (x) the sum, calculated for each
Encumbered Subsidiary and then aggregated for all Encumbered Subsidiaries, of
the excess, if any, of (1) the aggregate amount of all loans, advances and
investments (other than any investments in connection with acquisitions of
Encumbered Subsidiaries permitted by subsection 7.6(g)(iv)) by the Company or
any Subsidiary (other than an Encumbered Subsidiary) to or in such Encumbered
Subsidiary subsequent to the date hereof as permitted by this subsection and
subsection 7.1(c) over (2) the aggregate amount of loan repayments and dividends
and distributions from such Encumbered Subsidiary to the Company or any
Subsidiary (other than an Encumbered Subsidiary) subsequent to the date hereof
exceed (y) the sum of $25,000,000 plus the then Added Amount, and (iii) the
----
Company and any Subsidiary may make investments in, or create, any Foreign
Subsidiary (by way of capital contribution or otherwise), provided that (A) the
--------
requirements of subsection 6.9 are satisfied and (B) the aggregate amount of all
investments in such Foreign Subsidiaries shall not exceed at any one time
outstanding the sum of $15,000,000 plus any amounts dividended or distributed by
----
such Foreign Subsidiaries subsequent to the date hereof to the Company or any
Domestic Subsidiary (other than an Encumbered Subsidiary), less the sum of (x)
----
the aggregate amount of any Indebtedness of Foreign Subsidiaries pursuant to
subsection 7.1(c)(iii) and (y) the aggregate amount of any Contingent
Obligations of the Borrowers in respect of then outstanding obligations of
Foreign Subsidiaries pursuant to subsection 7.3(c)(ii);
(c) the Company and its Subsidiaries may invest in, acquire and hold
Cash Equivalents and Investment Grade Securities;
(d) the Company or any of its Subsidiaries may make payroll advances
in the ordinary course of business;
(e) the Company or any of its Subsidiaries may acquire and hold
receivables owing to it, if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade terms,
provided that nothing in this clause (e) shall prevent the Company or any
- --------
Subsidiary from offering such concessionary trade terms, or from receiving such
investments, in connection with the bankruptcy or reorganization of their
respective
<PAGE>
90
suppliers or customers or the settlement of disputes with such customers or
suppliers arising in the ordinary course of business, as management deems
reasonable in the circumstances;
(f) the Company or any of its Subsidiaries may make travel and
entertainment advances and relocation and other loans to officers and employees
of the Company or any such Subsidiary, provided that the aggregate principal
--------
amount of all such loans and advances outstanding at any one time, together with
the guarantees of such loans and advances made pursuant to subsection 7.3(f),
shall not exceed $5,000,000 at any one time outstanding; and
(g) the Company and its Subsidiaries may make Purchase Option
Acquisitions and may make expenditures to acquire all or a portion of the
Capital Stock or assets of any Person engaged primarily in one or more
businesses in which the Company and its Subsidiaries are engaged or directly
related thereto or in the ownership or operation of Health Care Facilities or
Ancillary Businesses generally (it being understood that this paragraph (g)
shall be applicable to any like-kind exchange of property effected pursuant to
subsection 7.5(e) to the extent that the fair market value of the property
received by the Company or any Subsidiary in such exchange exceeds the fair
market value of the property transferred by the Company or any Subsidiary in
connection therewith), provided that, after giving pro forma effect to any such
-------- --- -----
acquisition permitted by this paragraph (g) and the financing thereof and any
Indebtedness incurred or assumed in connection therewith:
(i) the provisions of subsection 6.9 are satisfied,
(ii) either (A) the ratio of Consolidated Senior Indebtedness as of
the day of such acquisition to Consolidated EBITDA for the period of four
fiscal quarters ending as at the last day of the most recently ended fiscal
quarter is less than or equal to 4.25 to 1.00, provided that for purposes
--------
of calculating such ratio, the unencumbered (other than Liens permitted
pursuant to subsection 7.2(f)) cash and Cash Equivalent balances of the
Company and its Subsidiaries as of the day of such acquisition shall be
deducted from the amount of Consolidated Senior Indebtedness on such date
and provided, further, that for purposes of calculating Consolidated EBITDA
-------- -------
for any period, the Consolidated EBITDA of any Acquired Business acquired
during such period (as the Consolidated EBITDA of such Acquired Business
may be adjusted (w) for those items that occur by reason of such
acquisition that would be substantially in conformity with the calculation
of Consolidated EBITDA in accordance with Regulation S-X, (x) in accordance
with the adjustment to EBITDA for the fiscal year ending December 31, 1997
described in the Confidential Information Memorandum in an aggregate
approximate amount of $1,300,000, (y) to reflect a full year of occupancy
for newly constructed beds and (z) for any cost reduction resulting from
the termination of any contracts of the Acquired Business which are in
existence at the time of the acquisition of such Acquired Business and any
additional costs incurred in connection with the services that were
terminated) shall be included on a pro forma basis for such period
--- -----
(assuming the consummation of such acquisition and the incurrence,
assumption or guarantee of any Indebtedness in connection therewith
occurred on the first day of such period), (B) the amount of expenditures
in connection
<PAGE>
with each such acquisition does not exceed $2,500,000 and the Company
elects (by prior written notice to the Administrative Agent) to treat such
expenditures as Capital Expenditures for purposes of this Agreement,
including but not limited to subsection 7.7, or (C) such acquisition
constitutes an acquisition of a business, the principal asset or assets of
which is or are the subject of an operating lease under which the Company
or any Subsidiary is the lessee and the Trust is not the lessor, and with
respect to which no amounts are expended by the Company or any Subsidiary
in connection therewith other than (w) regularly scheduled lease payments,
(x) customary closing costs and expenses, (y) customary security deposits
and (z) payments to acquire temporary working capital of such business so
long as the Company or such Subsidiary reasonably expects to receive at
least an equivalent amount of cash from such business within 90 days of
such expenditure,
(iii) no Default or Event of Default has occurred and is continuing
or would result therefrom,
(iv) the excess, if any, of (1) the aggregate Acquisition
Consideration given subsequent to the date hereof in connection with all
acquisitions of or by Encumbered Subsidiaries as permitted by this
subsection 7.6(g) (excluding (A) Capital Stock of the Company issued in
connection with such acquisitions, (B) the Net Proceeds of issuances of
Capital Stock to the extent such Net Proceeds are contemporaneously applied
toward such acquisitions, (C) any Indebtedness constituting a portion of
such Acquisition Consideration and (D) the Net Proceeds of any bond
issuance as permitted by subsection 7.1(e) to the extent such Net Proceeds
are contemporaneously applied toward such acquisition) over (2) an amount
equal to the aggregate Acquisition Consideration (or in the event of one or
more partial sales of assets or Capital Stock as set forth in clause (aa)
below, the proceeds thereof not to exceed, individually or in the
aggregate, the total Acquisition Consideration therefor) given subsequent
to the date hereof in connection with acquisitions permitted by this
subsection 7.6(g)(iv) (excluding Capital Stock, Net Proceeds of issuances
thereof, any Indebtedness constituting a portion of such Acquisition
Consideration and Net Proceeds of certain bond issuances as aforesaid) with
respect to which either (aa) all or a portion of the assets or Capital
Stock so acquired shall have been subsequently sold or (bb) in any case
where the Subsidiary that is the subject of such acquisition or that is the
holder of the assets so acquired is, immediately after giving effect to
such acquisition, an Encumbered Subsidiary, such Encumbered Subsidiary
shall have ceased to be an Encumbered Subsidiary, shall not exceed an
amount equal to the excess, if any, of (x) $175,000,000 over (y) the sum of
(I) the aggregate then outstanding principal amount of Indebtedness
permitted by subsection 7.1(f) (including refinancings thereof permitted by
subsection 7.1(m)) plus (II) the aggregate principal amount of Indebtedness
----
permitted by subsection 7.1(h) or 7.1(n) the Net Proceeds of which shall
have been applied to refinance preferred stock the proceeds of which were
originally used to finance the acquisition of an Encumbered Subsidiary
permitted by this subsection 7.6(g)); provided that the aggregate amount
--------
that the Company or any Subsidiary may at any time expend to acquire
Encumbered Subsidiaries
<PAGE>
92
shall be increased by an amount equal to the aggregate amount which the
Company would then be permitted to borrow under subsection 7.1(e)(i) and
invest under subsection 7.6(h) and
(v) in any case where such acquisition (other than an acquisition of
the Capital Stock of a Person and other than a Purchase Option Acquisition)
is made by a Subsidiary (other than an Encumbered Subsidiary) that conducts
a Health Care Business, such Subsidiary shall not, as a result of or in
connection with such acquisition, have become a party to any Contractual
Obligations with third parties in connection with lease arrangements or
Indebtedness for borrowed money that prohibit the transfer, assignment or
grant of a security interest in any asset that, but for such prohibition,
would constitute Collateral;
(h) the Company or any of its Subsidiaries may make investments in,
or loans or advances to, joint ventures or other Persons (other than
Subsidiaries) engaged primarily in one or more businesses in which the Company
and its Subsidiaries are engaged or directly related thereto or in the ownership
or operation of Health Care Facilities or Ancillary Businesses generally, in an
aggregate principal amount (when added to the aggregate then outstanding
principal amount of Indebtedness supported by Contingent Obligations as
permitted by subsection 7.3(i)) at any one time outstanding not to exceed
$10,000,000 plus the sum of (i) any amounts dividended or distributed to the
----
Company or any Domestic Subsidiary (other than an Encumbered Subsidiary)
subsequent to the date hereof by such joint venture or other Person and (ii) the
proceeds of any sales permitted by subsection 7.5(j) to the extent that such
proceeds are not otherwise reinvested; provided that at the time of and after
--------
giving effect thereto no Default or Event of Default shall have occurred and be
continuing or would result therefrom;
(i) the Company or any of its Subsidiaries may make investments in
connection with the exercise of purchase options with respect to the properties,
or the equity interests in the Persons that are the owners of such properties,
that are the subject of the currently existing Financing Leases to which
Harborside of Cleveland, L.P. is a party in an aggregate amount not to exceed
$57,125,000 less the aggregate principal amount of Indebtedness assumed in
----
connection therewith as permitted by subsection 7.1(l);
(j) the Company or any of its Subsidiaries (other than an Encumbered
Subsidiary) may make Purchase Option Acquisitions of the properties that are the
subject of the Synthetic Lease Facility, provided that the Company or such
--------
Subsidiary promptly, and in any event within 60 days after such Purchase Option
Acquisition by the Company or such Subsidiary, grants to the Administrative
Agent for the benefit of the Lenders an Additional Mortgage covering the real
property that is the subject thereof and otherwise complies with the
requirements of subsection 6.9 with respect to such Purchase Option Acquisition;
and
(k) the Company or any of its Subsidiaries may make loans to, and
hold investments in promissory notes issued by, purchasers, sellers or lessors
of assets in transactions
<PAGE>
permitted by subsection 7.5 or 7.6 in an aggregate principal amount not to
exceed $10,000,000 at any one time outstanding and may hold the Promissory Note.
For the purposes of this subsection 7.6, the payment by the Company or
any Subsidiary of expenses, operating costs or maintenance capital expenditures
of any Domestic Subsidiary incurred in the ordinary course of its business shall
not be considered to be a loan to, advance by or other investment of the Company
or any Subsidiary in, such Domestic Subsidiary and shall be permitted under this
Agreement.
7.7 Capital Expenditures. Make or commit to make any Capital
--------------------
Expenditures, except that the Company and its Subsidiaries may make or commit to
make Capital Expenditures not exceeding the amount set forth below (the "Base
----
Amount") for each of the fiscal years or periods of the Company (or other
- ------
period) set forth below:
--------------------------------------------------------------
Fiscal Year
or Period Base Amount
--------- -----------
--------------------------------------------------------------
Closing Date to December 31, 1999 $ 23,000,000
--------------------------------------------------------------
2000 $ 16,000,000
--------------------------------------------------------------
2001 $ 17,000,000
--------------------------------------------------------------
2002 $ 18,000,000
--------------------------------------------------------------
2003 $ 19,000,000
--------------------------------------------------------------
January 1, 2004 to $10,000,000;
Scheduled Termination Date
--------------------------------------------------------------
<PAGE>
94
provided that (a) for any period set forth above, the Base Amount set forth
- --------
above may be increased by a maximum of 50% of the Base Amount for any such
period by carrying over to any such period any portion of the Base Amount (as
increased) not spent in the immediately preceding period, (b) for each period
set forth above after the fiscal year in which any Person or assets of such
Person (an "Acquired Person") is acquired as permitted herein, the Base
---------------
Amount set forth above shall be increased by an amount equal to the product of
$1,000 times the number of beds of each such Acquired Person at the time of
acquisition thereof ("Acquired Capital Expenditures"), (c) with respect to the
-----------------------------
fiscal year in which such Person becomes an Acquired Person, the Base Amount
shall be increased by the product of (i) the Acquired Capital Expenditures of
such Acquired Person times (ii) a fraction, the numerator of which is the number
of days remaining in the fiscal year of the Company in which such Acquired
Person was acquired and the denominator of which is 365, (d) for each period set
forth above after the fiscal year in which the Company or any Subsidiary adds
new beds ("Acquired Beds") to any then existing Health Care Facility, the Base
-------------
Amount set forth above shall be increased by an amount equal to the product of
$1,000 times the number of such Acquired Beds ("Acquired Bed Expenditures") and
-------------------------
(e) with respect to the fiscal year in which the Company or any Subsidiary adds
Acquired Beds to any then existing Health Care Facility, the Base Amount shall
be increased by the product of (i) the Acquired Bed Expenditures for such
Acquired Beds times (ii) a fraction, the numerator of which is the number of
days remaining in the fiscal year of the Company in which the Acquired Beds were
acquired and the denominator of which is 365; and provided, further, that,
-------- -------
notwithstanding anything to the contrary herein, additional Capital Expenditures
may be made with net proceeds received in property sales or dispositions
permitted under subsection 7.5(g). Notwithstanding anything to the contrary in
this subsection 7.7, no expenditure to acquire real or personal property
pursuant to a Purchase Option Acquisition shall be deemed to constitute a
Capital Expenditure for purposes of this subsection.
7.8 Interest Rate Agreements. Enter into, create, incur, assume or
------------------------
suffer to exist any Interest Rate Agreements or obligations in respect thereof
except in the ordinary course of business for non-speculative purposes.
7.9 Debt to EBITDA. At the last day of any fiscal quarter set forth
--------------
below, permit the ratio (the "Leverage Ratio") of Consolidated Indebtedness as
--------------
of such day to Consolidated EBITDA for the period of four fiscal quarters ending
on such day to be greater than the ratio set forth below for such fiscal
quarter:
Fiscal Year Fiscal Quarter Ratio
----------- -------------- -----
1998 Fourth 6.85 to 1.00
1999 First 6.85 to 1.00
Second 6.85 to 1.00
Third 6.85 to 1.00
Fourth 6.85 to 1.00
<PAGE>
95
2000 First 6.85 to 1.00
Second 6.85 to 1.00
Third 6.85 to 1.00
Fourth 6.50 to 1.00
2001 First 6.50 to 1.00
Second 6.50 to 1.00
Third 6.50 to 1.00
Fourth 6.25 to 1.00
2002 First 6.25 to 1.00
Second 6.25 to 1.00
Third 6.25 to 1.00
Fourth 6.00 to 1.00
Thereafter 6.00 to 1.00;
provided that for purposes of calculating Consolidated EBITDA for any period,
- --------
the Consolidated EBITDA of any Acquired Business acquired during such period (as
the Consolidated EBITDA of such Acquired Business may be adjusted (w) for those
items that occur by reason of such acquisition that would be substantially in
conformity with the calculation of Consolidated EBITDA in accordance with
Regulation S-X, (x) in accordance with the adjustment to EBITDA for the fiscal
year ending December 31, 1997 described in the Confidential Information
Memorandum in an aggregate approximate amount of $1,300,000, (y) to reflect a
full year of occupancy of newly constructed beds and (z) for any cost reduction
resulting from the termination of any contracts of the Acquired Business which
are in existence at the time of the acquisition of such Acquired Business and
any additional costs incurred in connection with the services that were
terminated) shall be included on a pro forma basis for such period (assuming the
--- -----
consummation of such acquisition and the incurrence, assumption or guarantee of
any Indebtedness in connection therewith occurred on the first day of such
period).
7.10 Coverage Ratio. At the last day of any fiscal quarter set forth
--------------
below, permit the Coverage Ratio to be less than the ratio set forth below for
such fiscal quarter:
Fiscal Year Fiscal Quarter Coverage Ratio
----------- -------------- --------------
1998 Fourth 1.50 to 1.00
1999 First 1.50 to 1.00
Second 1.50 to 1.00
Third 1.50 to 1.00
Fourth 1.50 to 1.00
2000 First 1.50 to 1.00
<PAGE>
Interest
Coverage
Fiscal Year Fiscal Quarter Ratio
----------- -------------- -----
Second 1.50 to 1.00
Third 1.50 to 1.00
Fourth 1.50 to 1.00
2001 First 1.50 to 1.00
Second 1.50 to 1.00
Third 1.50 to 1.00
Fourth 1.50 to 1.00
2002 First 1.50 to 1.00
Second 1.50 to 1.00
Third 1.50 to 1.00
Fourth 1.50 to 1.00
2003 First 1.50 to 1.00
Second 1.50 to 1.00
Third 1.50 to 1.00
Fourth 1.40 to 1.00
2004 First 1.35 to 1.00
Second 1.30 to 1.00
Thereafter 1.30 to 1.00;
provided that for purposes of calculating Consolidated EBITDA for any period,
- --------
the Consolidated EBITDA of any Acquired Business acquired during such period in
an acquisition permitted by subsection 7.6(g) (as the Consolidated EBITDA of
such Acquired Business may be adjusted (w) for those items that occur by reason
of such acquisition that would be substantially in conformity with the
calculation of Consolidated EBITDA in accordance with Regulation S-X, (x) in
accordance with the adjustment to EBITDA for the fiscal year ending December 31,
1997 described in the Confidential Information Memorandum in an aggregate
approximate amount of $1,300,000, (y) to reflect a full year of occupancy for
newly constructed beds and (z) for any cost reduction resulting from the
termination of any contracts of the Acquired Business which are in existence at
the time of the acquisition of such Acquired Business and any additional costs
incurred in connection with the services that were terminated) shall be included
on a pro forma basis for such period (assuming the consummation of such
--- -----
acquisition and the incurrence, assumption or guarantee of any Indebtedness in
connection therewith occurred on the first day of such period); provided
--------
further, that for purposes of calculating interest expense for any period, pro
- ------- ---
forma effect shall be given to any incurrence, assumption or guarantee of
- -----
Indebtedness of any Person acquired by the Company or its Subsidiaries during
such period (assuming the consummation of such acquisition and the incurrence,
assumption or guarantee of any Indebtedness in connection therewith occurred on
the first day of such period and assuming that,
<PAGE>
97
with respect to any Indebtedness that bears a floating rate of interest, the
rate in effect on the last day of such period had been the applicable rate for
the entire period).
7.11 Limitation on Dividends. Declare any dividends on any shares of
-----------------------
any class of Capital Stock, or make any payment on account of, or set apart
assets for a sinking or other analogous fund for, the purchase, redemption,
defeasance, retirement or other acquisition of any shares of any class of
Capital Stock, or any warrants or options to purchase such Capital Stock,
whether now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of the Company or any of its Subsidiaries; except that:
(a) (i) Subsidiaries may pay dividends or distributions to the
Company or to Domestic Subsidiaries (other than Encumbered Subsidiaries) which
are directly or indirectly wholly owned by the Company, (ii) Subsidiaries may
pay dividends or distributions to Encumbered Subsidiaries that (directly or
through a series of dividends or distributions) promptly pay such dividends or
distributions to the Company or a Domestic Subsidiary (other than an Encumbered
Subsidiary) and (iii) Encumbered Subsidiaries may pay dividends or distributions
to other Encumbered Subsidiaries;
(b) the Company may pay or make dividends or distributions to any
holder of its Capital Stock in the form of additional shares of Capital Stock of
the same class and type;
(c) the Company may repurchase Capital Stock of the Company owned by
former, present or future employees of the Company or its Subsidiaries or their
assigns, estates and heirs, provided that the aggregate amount expended by the
--------
Company pursuant to this clause (c) shall not in the aggregate exceed (i)
$5,000,000 in any fiscal year or (ii) $10,000,000 during the term of this
Agreement, plus any amounts contributed to the Company as a result of resales of
such repurchased shares of Capital Stock;
(d) the Company may after the fifth anniversary of the date of the
issuance thereof make scheduled payments or dividends on the Preferred Stock
when due at a rate per annum no greater than the rate per annum applicable to
such Preferred Stock on the original date of issuance thereof, to the extent
required to be paid in cash, provided that no Default or Event of Default shall
--------
have occurred and be continuing or would result therefrom;
(e) the Company may redeem Preferred Stock with the proceeds of
issuances of common stock and preferred stock as referred to in subsection
3.4(b)(i); and
(f) the Company may redeem preferred stock with the proceeds of
issuances of other preferred stock as referred to in subsection 3.4(b)(i) and/or
with the proceeds of Indebtedness issued as permitted by subsection 7.1(h) or
7.1(n).
7.12 Transactions with Affiliates. Enter into any transaction,
----------------------------
including, without limitation, any purchase, sale, lease or exchange of property
or the rendering of any
<PAGE>
98
service, with any Affiliate except for transactions which are otherwise
permitted under this Agreement and which are in the ordinary course of the
Company's or a Subsidiary's business and which are upon fair and reasonable
terms no less favorable to the Company or such Subsidiary than it would obtain
in a hypothetical comparable arm's length transaction with a Person not an
Affiliate, provided that nothing in this subsection 7.12 shall prohibit the
--------
Company or its Subsidiaries from engaging in the following transactions: (a) the
performance of the Company's or any Subsidiary's obligations under any
employment contract, collective bargaining agreement, employee benefit plan,
related trust agreement or any other similar arrangement heretofore or hereafter
entered into in the ordinary course of business, (b) the payment of compensation
to employees, officers, directors or consultants in the ordinary course of
business or (c) the maintenance of benefit programs or arrangements for
employees, officers or directors, including, without limitation, vacation plans,
health and life insurance plans, deferred compensation plans, and retirement or
savings plans and similar plans, in each case, in the ordinary course of
business.
7.13 Prepayments and Amendments of Subordinated Debt. (a)
-----------------------------------------------
Optionally prepay, retire, redeem, purchase, defease or exchange any
Subordinated Debt (other than (i) any redemption of the Bridge Senior
Subordinated Debt or the Senior Subordinated Discount Notes with proceeds of
Permanent Senior Subordinated Debt as permitted by subsection 7.1(d), (ii) any
refinancing of the Permanent Junior Subordinated Debt or Permanent Senior
Subordinated Debt contemplated in the definition thereof, (iii) any redemption
of the Bridge Junior Subordinated Debt with the proceeds of the issuance of
Preferred Stock to the extent permitted by subsection 3.4(b)(i), or (iv) any
other redemption of Subordinated Debt with the proceeds of the issuance of
Capital Stock to the extent permitted by subsection 3.4(b)(i)), (b) pay any
interest on Subordinated Debt in cash if such interest may be paid by the
issuance of additional Subordinated Debt or (c) waive, amend, supplement,
modify, terminate or release the provisions of any Subordinated Debt, to the
extent that any such waiver, amendment, supplement, modification, termination or
release would be materially adverse to the Lenders.
7.14 Limitation on Changes in Fiscal Year. Permit the fiscal year of
------------------------------------
the Company to end on a day other than December 31 in any calendar year.
7.15 Limitation on Lines of Business. Enter into any business,
-------------------------------
either directly or through any Subsidiary, except for those businesses in which
the Company or any Subsidiary is engaged on the date of this Agreement (or which
are directly related thereto or those related generally to the ownership or
operation of Health Care Facilities or Ancillary Businesses).
7.16 Health Care Permits and Approvals. Engage in any activity that
---------------------------------
(a) constitutes or, with the giving of notice, the passage of time, or both,
would result in a material violation of, any Health Care Permit necessary for
the lawful conduct of its business or operations or (b) constitutes or, with the
giving of notice, the passage of time, or both, would result in the loss by any
Health Care Facility or Ancillary Business owned, leased, managed or operated by
the Company or any of its Subsidiaries of the right to participate in, and
receive payment under, the appropriate Medicare, Medicaid and related
reimbursement programs, and
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99
any similar state or local government-sponsored program, to the extent that such
Credit Party has decided to participate in any such program with respect to such
Health Care Facility or Ancillary Business, as the case may be, and to receive
reimbursement from private and commercial payers and health maintenance
organizations to the extent applicable thereto, in each case described in
clauses (a) or (b) above, except where such violation or the loss of such Health
Care Permit or rights to participate in or receive payments under such programs
could not reasonably be expected to have a material adverse effect on the
business, assets, condition (financial or otherwise) or results of operations of
the Company and its Subsidiaries, taken as a whole.
7.17 Preferred Stock. Convert any shares of Preferred Stock into, or
---------------
exchange any shares of Preferred Stock for, any Indebtedness.
8. EVENTS OF DEFAULT
-----------------
Upon the occurrence and during the continuance of any of the
following events:
(a) Any Borrower shall fail to (i) pay any principal of any Loan or
Note when due in accordance with the terms hereof or thereof or to reimburse the
Issuing Lender in accordance with subsection 2.8 or (ii) pay any interest on any
Loan or Note or any other amount payable hereunder within five days after any
such interest or other amount becomes due in accordance with the terms thereof
or hereof; or
(b) Any representation or warranty made or deemed made by any Credit
Party in any Credit Document shall prove to have been incorrect in any material
respect on or as of the date made or deemed made; or
(c) The Company or any other Borrower shall default in the
observance or performance of any agreement contained in subsection 6.7(a) or 6.9
or Section 7 of this Agreement or the Company or any Subsidiary shall default in
the observance or performance of any agreement contained in Section 5(a), 5(i),
5(j), 5(k), 5(l), 5(p), 5(s)(i) or 5(s)(ii) of the Collateral Agreement or
Section 5, 6 or 7 of any Mortgage; or
(d) Any Credit Party shall default in the observance or performance
of any other agreement contained in any Credit Document and such default shall
continue unremedied for a period of 30 days; or
(c) The Company or any of its Subsidiaries shall (i) default in any
payment of principal of or interest on or other amounts in respect of any
Indebtedness (other than the Loans, the L/C Obligations and any inter-company
debt) or Interest Rate Agreement or in the payment of any Contingent Obligation,
beyond the period of grace, if any, provided in the instrument or agreement
under which such Indebtedness, Interest Rate Agreement or Contingent Obligation
was created; or (ii) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness, Interest Rate
Agreement or Contingent Obligation or
<PAGE>
100
contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, or to permit the holder or
holders of such Indebtedness or beneficiary or beneficiaries of such Contingent
Obligation (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving of notice if required,
such Indebtedness to become due prior to its stated maturity, any applicable
grace period having expired, or such Contingent Obligation to become payable,
any applicable grace period having expired; in each case, provided that the
--------
aggregate principal amount of all such Indebtedness, Interest Rate Agreements
and Contingent Obligations under which a default exists or which would then
become due or payable equals or exceeds $7,500,000; or
(f) (i) The Company or any of its Subsidiaries shall commence any
case, proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it as bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or the Company or any
of its Subsidiaries shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Company or any of its
Subsidiaries any case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced against the
Company or any of its Subsidiaries any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar process
against all or any substantial part of its assets which results in the entry of
an order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry thereof; or (iv)
the Company or any of its Subsidiaries shall take any action in furtherance of,
or indicating its consent to, approval of, or acquiescence in, any of the acts
set forth in clause (i), (ii), or (iii) above; or (v) the Company or any of its
Subsidiaries shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
(ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan or any Lien in favor
of the PBGC or a Plan shall arise on the assets of the Company or any Commonly
Controlled Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan, which
Reportable Event or commencement of proceedings or appointment of a trustee is,
in the reasonable opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any Single
Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Company
or any Commonly Controlled Entity shall, or in the reasonable opinion of the
Required
<PAGE>
101
Lenders is likely to, incur any liability in connection with a withdrawal from,
or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other
event or condition shall occur or exist with respect to a Plan, and such event
or condition, together with all other such events or conditions, relating to a
Plan, if any, would be reasonably likely to subject the Company or any of its
Subsidiaries to any tax, penalty or other liabilities in the aggregate resulting
in a material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries, taken
as a whole; or
(h) One or more judgments or decrees shall be entered against the
Company or any of its Subsidiaries involving in the aggregate a liability (not
paid or fully covered by insurance) of $7,500,000 or more and all such judgments
or decrees shall not have been vacated, discharged, stayed or bonded pending
appeal within the time required by the terms of such judgment; or
(i) Any Credit Document shall cease, for any reason, to be in full
force and effect or any Credit Party or any of its Subsidiaries shall so assert
in writing, or any Security Document shall cease to be effective to grant a
perfected Lien on the collateral described therein with the priority purported
to be created thereby (other than as a result of any action or inaction on the
part of the Administrative Agent or the Lenders), subject to such exceptions as
may be permitted therein or herein, and such condition shall continue unremedied
for 30 days after notice thereof to the Company by the Administrative Agent or
any Lender; or
(j) There shall have occurred a Change of Control; or
(k) The subordination provisions of any document governing any
Subordinated Debt shall cease, for any reason, to be valid or any Credit Party
or any of its Subsidiaries shall so assert in writing; or
(l) There shall have occurred and be continuing an Event of Default
under and as defined in the documentation for the Synthetic Lease Facility;
<PAGE>
102
then, and in any such event, (a) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to any Borrower,
automatically (i) the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the Notes shall immediately become due and payable, and (ii) all
obligations of the Company in respect of the Letters of Credit, although
contingent and unmatured, shall become immediately due and payable and the
Issuing Lender's obligations to issue the Letters of Credit shall immediately
terminate and (b) if such event is any other Event of Default, so long as any
such Event of Default shall be continuing, either or both of the following
actions may be taken: (i) with the consent of the Required Lenders, the
Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, by notice to the Company, declare the Commitments
and the Issuing Lender's obligations to issue the Letters of Credit to be
terminated forthwith, whereupon the Commitments and such obligations shall
immediately terminate; and (ii) with the consent of the Required Lenders, the
Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, by notice of default to the Company, (A) declare all
or a portion of the Loans hereunder (with accrued interest thereon) and all
other amounts owing under this Agreement and the Notes to be due and payable
forthwith, whereupon the same shall immediately become due and payable, and (B)
declare all or a portion of the obligations of the Company in respect of the
Letters of Credit, although contingent and unmatured, to be due and payable
forthwith, whereupon the same shall immediately become due and payable and/or
demand that the Company discharge any or all of the obligations supported by the
Letters of Credit by paying or prepaying any amount due or to become due in
respect of such obligations. All payments under this Section 8 on account of
undrawn Letters of Credit shall be made by the Company directly to a cash
collateral account established by the Administrative Agent for such purpose for
application to the Company's reimbursement obligations under subsection 2.8 as
drafts are presented under the Letters of Credit, with the balance, if any, to
be applied to the Borrowers' obligations under this Agreement and the Notes as
the Administrative Agent shall determine with the approval of the Required
Lenders. Except as expressly provided above in this Section 8, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
9. MISCELLANEOUS
-------------
9.1 Amendments and Waivers. Except as otherwise expressly set forth
----------------------
in this Agreement, no Credit Document nor any terms thereof may be amended,
supplemented, waived or modified except in accordance with the provisions of
this subsection 9.1. With the written consent of the Required Lenders, the
Administrative Agent and the respective Credit Parties or their Subsidiaries
may, from time to time, enter into written amendments, supplements or
modifications hereto for the purpose of adding any provisions to any Credit
Document to which they are parties or changing in any manner the rights of the
Lenders or of any such Credit Party or its Subsidiaries thereunder or waiving,
on such terms and conditions as the Administrative Agent may specify in such
instrument, any of the requirements of any such Credit Document or any Default
or Event of Default and its consequences; provided that:
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<PAGE>
103
(a) no such waiver and no such amendment, supplement or modification
shall release collateral not required or permitted by any Credit Document
to be released and which, in the aggregate with all other collateral
released pursuant to this clause (a) (other than collateral released
pursuant to the proviso to this clause (a)) during the calendar year in
which such proposed release would be effected and the immediately preceding
calendar year, has fair market value on the proposed date of release in
excess of 20% of the fair market value of all collateral (including any
guarantee of the obligations hereunder) on such date without the written
consent of the Supermajority Lenders; provided that, notwithstanding the
--------
foregoing, this clause (a) shall not be applicable to and no consent shall
be required for (i) releases of collateral in connection with any Asset
Sales permitted by subsection 7.5, (ii) releases of collateral in
accordance with subsection 9.11 or (iii) upon the reincorporation of the
Company or any Subsidiary in a new jurisdiction or the creation of a new
Subsidiary of the Company, any release of collateral in connection with the
transfer of such released collateral to such reincorporated entity or new
Subsidiary in compliance with subsection 7.4, provided that the
--------
Administrative Agent, in its sole discretion, determines that such release
and transfer, together with any grant and perfection of a new Lien therein
in favor of the Administrative Agent, will cause no material impairment of
the value of the collateral taken as a whole, after giving effect to such
release and transfer;
(b) no such waiver and no such amendment, supplement or modification
shall extend the final maturity date of any Note or reduce the rate or
extend the time of payment of interest thereon, or change the method of
calculating interest thereon, or reduce or extend the time of payment of
any fee payable to the Lenders hereunder, or reduce the principal amount
thereof, or change the amount of any Lender's Commitment or Revolving
Credit Percentage, or amend, modify or waive any provision of subsection
3.9(b) or this subsection 9.1 or reduce the percentage specified in the
definition of Required Lenders or reduce the percentage specified in the
definition of Supermajority Lenders or consent to the assignment or
transfer by any Credit Party of any of its rights and obligations under any
Credit Document, in each case, without the prior written consent of each
Lender, and each holder of Term Synthetic Lease Obligations, directly
affected thereby;
(c) no such waiver and no such amendment, supplement or modification
affecting the then Administrative Agent or Issuing Lender shall amend,
modify or waive any provision of Section 5 of the Agency and Intercreditor
Agreement without the written consent of such Administrative Agent and
Issuing Lender; and
(d) no such waiver, and no such amendment, supplement or modification
shall amend, modify or waive the order of application of prepayments
specified in subsection 3.4(b)(v) without the written consent of the
holders of at least 51% of each of (i) the aggregate unpaid principal
amount of the Term Loans, if any, (ii) the Term Synthetic Lease
Obligations, if any, and (iii) the Revolving Credit Commitments or, if the
Revolving Credit Commitments are terminated, the aggregate unpaid principal
amount of
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104
the Revolving Credit Loans (the Term Loans, the Term Synthetic Lease
Obligations and the Revolving Credit Commitments (or, if the Revolving
Credit Commitments are terminated, the aggregate unpaid principal amount of
the Revolving Credit Loans, and participations in Swing Line Loans and the
aggregate amount available to be drawn at such time under all outstanding
Letters of Credit and L/C Obligations) of any Non-Funding Lender to be
disregarded in determining such percentage at any time);
any such waiver and any such amendment, supplement or modification described in
this subsection 9.1 shall apply equally to each of the Lenders and shall be
binding upon each Credit Party and its Subsidiaries, the Lenders, the
Administrative Agent, the Documentation Agent, the Syndication Agent and the
Issuing Lender and all future holders of the Notes and the Loans. Any extension
of a Letter of Credit by the Issuing Lender shall be treated hereunder as a new
Letter of Credit. In the case of any waiver, the Credit Parties, the Lenders,
the Administrative Agent and Issuing Lender shall be restored to their former
position and rights hereunder and under the outstanding Notes, and any Default
or Event of Default waived shall be deemed to be cured and not continuing; but
no such waiver shall extend to any subsequent or other Default or Event of
Default, or impair any right consequent thereon.
9.2 Notices. All notices, requests and demands to or upon the
-------
respective parties hereto to be effective shall be in writing (including by
telecopy) and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or three Business Days
after being deposited in the mail, postage prepaid, or, in the case of telecopy
notice, when sent, confirmation of receipt received, addressed as follows in the
case of the Company, the other Borrowers and the Administrative Agent, and as
set forth in Schedule II in the case of any Lender, or to such other address as
may be hereafter notified by the respective parties hereto and any future
holders of the Notes:
The Company
and the other
Borrowers: 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
<PAGE>
105
The Administrative Agent
and Swing Line Lender: 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
With a copy to: Chase New England Corporation
85 Wells Avenue, Suite 200
Newton, Massachusetts 02159
Attention: Roger A. Stone
Telecopy: (617) 928-3057
provided that any notice, request or demand to or upon the Administrative Agent
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or the Lenders pursuant to subsections 2.4, 2.5, 3.1, 3.2, 3.3 and 3.4 shall not
be effective until received and, provided, further, that the failure to provide
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the copies of notices to the Company and the other Borrowers provided for in
this subsection 9.2 shall not result in any liability to the Administrative
Agent.
9.3 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder, shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
9.4 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement, the Letters of Credit and the Notes.
9.5 Payment of Expenses and Taxes. Each Borrower agrees (a) to pay
-----------------------------
or reimburse the Administrative Agent, the Arranger, the Co-Arrangers, the
Syndication Agent and the Documentation Agent for all their reasonable out-of-
pocket costs and expenses incurred in connection with the development,
negotiation, preparation and execution of the Credit Documents and any other
documents prepared in connection herewith, and the consummation of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of one counsel to the Administrative Agent,
the Arranger, the Co-Arrangers, the Syndication Agent and the Documentation
Agent, (b) to pay or reimburse all of the reasonable expenses, including without
limitation, reasonable fees and expenses of counsel, incurred by the
Administrative Agent in connection with the administration of the facilities
provided for herein or in connection with any amendments, waivers, work-outs or
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106
restructurings in respect thereof, (c) to pay or reimburse the Administrative
Agent, the Arranger, each Co-Arranger, the Syndication Agent, the Documentation
Agent, the Issuing Lender and each Lender for all their costs and expenses
incurred in connection with, and to pay, indemnify, and hold the Administrative
Agent, the Arranger, each Co-Arranger, the Syndication Agent, the Documentation
Agent, the Issuing Bank and each Lender harmless from and against any and all
other liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever arising
out of or in connection with, the enforcement or preservation of any rights
under any Credit Document and any such other documents, including, without
limitation, reasonable fees and disbursements of counsel to the Administrative
Agent, the Arranger, each Co-Arranger, the Syndication Agent, the Documentation
Agent and each Lender incurred in connection with the foregoing and in
connection with advising the Administrative Agent with respect to its rights and
responsibilities under this Agreement and the documentation relating thereto,
(d) to pay, indemnify, and to hold the Administrative Agent, the Arranger, each
Co-Arranger, the Syndication Agent, the Documentation Agent and each Lender
harmless from any and all recording and filing fees and any and all liabilities
with respect to, or resulting from any delay in paying, stamp, excise and other
similar taxes (other than withholding taxes), if any, which may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
any Credit Document and any such other documents, and (e) to pay, indemnify, and
hold the Administrative Agent, the Arranger, each Co-Arranger, the Syndication
Agent, the Documentation Agent, the Issuing Bank and each Lender and their
respective affiliates, officers, directors and trustees harmless from and
against any and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever (including, without limitation, reasonable fees and
disbursements of counsel) which may be incurred by or asserted against the
Administrative Agent, the Arranger, each Co-Arranger, the Syndication Agent, the
Documentation Agent, the Issuing Bank or the Lenders or such affiliates,
officers, directors or trustees (x) arising out of or in connection with any
investigation, litigation or proceeding related to this Agreement, the other
Credit Documents, the proceeds of the Loans, the Preferred Stock or the
Subordinated Debt and the transactions contemplated by or in respect of such use
of proceeds, or any of the other transactions contemplated hereby, whether or
not the Administrative Agent, the Arranger, each Co-Arranger, the Syndication
Agent, the Documentation Agent, the Issuing Bank or any of the Lenders or such
affiliates, officers, directors or trustees is a party thereto, including,
without limitation, any of the foregoing relating to the violation of,
noncompliance with or liability under, any Environmental Law applicable to the
Company, any of its Subsidiaries or any of the facilities and properties owned,
leased or operated by the Company or any of its Subsidiaries, or (y) without
limiting the generality of the foregoing, by reason of or in connection with the
execution and delivery or transfer of, or payment or failure to make payments
under, Letters of Credit (it being agreed that nothing in this subsection
9.5(d)(y) is intended to limit the Company's obligations pursuant to subsection
2.8) (all the foregoing, collectively, the "indemnified liabilities"), provided
----------------------- --------
that no Borrower shall have any obligation hereunder with respect to indemnified
liabilities of the Administrative Agent, the Arranger, any Co-Arranger, the
Syndication Agent, the Documentation Agent, the Issuing Bank or any Lender or
any of their
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107
respective affiliates, officers, directors and trustees arising from (i) the
gross negligence or willful misconduct of the person seeking indemnification or
(ii) legal proceedings commenced against the Administrative Agent, the Arranger,
any such Co-Arranger, the Syndication Agent, the Documentation Agent, the
Issuing Bank or any such Lender by any security holder or creditor thereof
arising out of and based upon rights afforded any such security holder or
creditor solely in its capacity as such or (iii) legal proceedings commenced
against the Administrative Agent, the Arranger, any such Co-Arranger, the
Syndication Agent, the Documentation Agent, the Issuing Bank or any such Lender
by any Transferee. Without limiting the foregoing, and to the extent permitted
by applicable law, the Company agrees not to assert, and hereby waives (and
shall cause the Subsidiaries not to assert and to waive) all rights for
contribution or any other rights of recovery with respect to all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever, under or related to
Environmental Laws, that any of them might have by statute or otherwise against
the Administrative Agent, the Arranger, any Co-Arranger, the Syndication Agent,
the Documentation Agent, the Issuing Lender or any Lender. The agreements in
this subsection 9.5 shall survive repayment of the Loans and all other amounts
payable hereunder.
9.6 Successors and Assigns; Participations and Assignments. (a) This
------------------------------------------------------
Agreement shall be binding upon and inure to the benefit of the Borrowers, the
Lenders, the Administrative Agent, the Arranger, the Co-Arrangers, the
Syndication Agent, the Documentation Agent, all future holders of the Notes and
the Loans, and their respective successors and assigns, except that no Borrower
may assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of each Lender.
(a) Any Lender may, in the ordinary course of its commercial banking
or lending business and in accordance with applicable law, at any time sell to
one or more banks or other entities ("Participants") participating interests in
------------
any Loan owing to such Lender, any participating interest in the Letters of
Credit of such Lender, any Note held by such Lender, any Commitment of such
Lender or any other interest of such Lender hereunder. In the event of any such
sale by a Lender of participating interests to a Participant, such Lender's
obligations under this Agreement to the other parties to this Agreement shall
remain unchanged, such Lender shall remain solely responsible for the
performance thereof, such Lender shall remain the holder of any such Note for
all purposes under this Agreement and the Company and the Administrative Agent
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and the other Credit
Documents. Each Borrower agrees that if amounts outstanding under this
Agreement and the Notes are due and unpaid, or shall have been declared or shall
have become due and payable upon the occurrence of an Event of Default, each
Participant shall be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement and any Note to the
same extent as if the amount of its participating interest were owing directly
to it as a Lender under this Agreement or any Note; provided that such right of
--------
setoff shall be subject to the obligation of such Participant to share with the
Lenders, and the Lenders agree to share with such Participant, as provided in
the Agency and Intercreditor Agreement. Each Borrower also agrees that each
Participant shall be entitled to the benefits of subsections 2.10, 3.11 and 3.12
with respect to its
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108
participation in the Letters of Credit and in the Commitments and the Loans
outstanding from time to time as if it were a Lender; and provided, further,
-------- -------
that no Participant shall be entitled to receive any greater amount pursuant to
any such subsection than the transferor Lender would have been entitled to
receive in respect of the amount of the participation transferred by such
transferor Lender to such Participant had no such transfer occurred. Each Lender
agrees that the participation agreement pursuant to which any Participant
acquires its participating interest (or any other document) may afford voting
rights to such Participant, or any right to instruct such Lender with respect to
voting hereunder, only with respect to matters requiring the consent of (i) all
of the Lenders hereunder, (ii) such Lender (with respect to matters specified in
subsection 9.1(b) only), if it is affected thereby or (iii) all of the Lenders
holding the relevant Loans or Revolving Credit Commitments subject to such
participation.
(b) Subject to paragraph (g) of this subsection 9.6, any Lender may,
in the ordinary course of its commercial banking, lending or investment business
and in accordance with applicable law, (i) at any time and from time to time
assign all or any part of its rights and obligations under this Agreement and
the Notes to any Lender or any Affiliate thereof, provided that, in the event of
--------
a sale of less than all of such rights and obligations, such assigning Lender
after any such sale to any other Lender or any Affiliate of such Lender shall
retain Commitments and/or Loans and/or L/C Participating Interests aggregating
at least $5,000,000 (or such lesser amount as the Administrative Agent may
determine) and (ii) with the consent of the Company, as agent for the Borrowers,
and the Administrative Agent (which in each case shall not be unreasonably
withheld or delayed) at any time and from time to time assign to one or more
additional banks, mutual funds or financial institutions or entities (each, an
"Assignee"), all or any part of its rights and obligations under this Agreement
--------
and the Notes, pursuant to an Assignment and Acceptance, executed by such
Assignee, such transferor Lender (and, in the case of an Assignee that is not
then a Lender or an Affiliate thereof, by the Company, as agent for the
Borrowers, and the Administrative Agent), and delivered to the Administrative
Agent for its acceptance and recording in the Register (as defined below);
provided that (A) each such sale pursuant to clause (ii) of this subsection
- --------
9.6(c) shall be in a principal amount of $5,000,000 or more unless the Assigning
Lender is transferring all of its rights and obligations and (B) in the event of
a sale of less than all of such rights and obligations, such Lender after any
such sale shall retain Commitments and/or Loans and/or L/C Participating
Interests aggregating at least $5,000,000 (or such lesser amount as the
Administrative Agent and the Company may determine). Each assignment of
Commitments, Revolving Credit Loans and L/C Participating Interests to an
Assignee pursuant to this subsection 9.6(c) shall automatically include an
assignment to such Assignee of an equal percentage of all the assigning Lender's
rights and obligations in respect of the Revolving Synthetic Lease Obligations
and commitments to make revolving credit loans under the Synthetic Lease
Facility. Upon such execution, delivery, acceptance and recording, from and
after the effective date determined pursuant to such Assignment and Acceptance,
(x) the Assignee thereunder shall be a party hereto and to the Agency and
Intercreditor Agreement and, to the extent provided in such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder with a
Commitment as set forth therein, and (y) the assigning Lender thereunder shall,
to the extent of the interest transferred, as reflected in such Assignment and
Acceptance, be released from its obligations
<PAGE>
109
under this Agreement and the Agency and Intercreditor Agreement (and, in the
case of an Assignment and Acceptance covering all or the remaining portion of a
transferor Lender's rights and obligations under this Agreement, such transferor
Lender shall cease to be a party hereto and to the Agency and Intercreditor
Agreement but shall continue to be entitled to the benefits of the
indemnification provisions set forth in subsection 9.5).
(c) The Administrative Agent, which for purposes of this subsection
9.6(d) only shall be deemed to be the agent of the Borrowers, shall maintain at
the address of the Administrative Agent referred to in subsection 9.2 a copy of
each Assignment and Acceptance delivered to it and a register (the "Register")
--------
for the recordation of the names and addresses of the Lenders and the
Commitments of, and principal amounts of the Loans owing to, each Lender from
time to time. The entries in the Register shall be conclusive, in the absence
of manifest error, and the Borrowers, the Administrative Agent and the Lenders
shall treat each Person whose name is recorded in the Register as the owner of a
Loan or other obligation hereunder as the owner thereof for all purposes of this
Agreement and the other Credit Documents, notwithstanding any notice to the
contrary. Any assignment of any Loan or other obligation hereunder shall be
effective only upon appropriate entries with respect thereto being made in the
Register. The Register shall be available for inspection by the Company or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof, by the Company, as agent for the
Borrowers, and the Administrative Agent), together with payment to the
Administrative Agent of a registration and processing fee of $4,000 if the
Assignee is not a Lender prior to the execution of such supplement and $1,000
otherwise (which fee need not be paid in the case of any assignment by a Lender
to an affiliate of such Lender), the Administrative Agent shall (i) promptly
accept such Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto record the information contained therein in the Register and
give notice of such acceptance and recordation to the Lenders and the Company.
On or prior to such effective date, the applicable Borrower at its own expense,
shall execute and deliver to the Administrative Agent (in exchange for any or
all of the Term Loan Notes or Revolving Credit Notes of the assigning Lender, if
any) new Term Loan Notes or Revolving Credit Notes, as the case may be, to the
order of such Assignee (if requested) in an amount equal to the Revolving Credit
Commitment or the Term Loans, as the case may be, assumed by it pursuant to such
Assignment and Acceptance and, if the assigning Lender has retained a Commitment
or any Term Loans hereunder, new Term Loan Notes or Revolving Credit Notes, as
the case may be, to the order of the assigning Lender in an amount equal to the
Commitment or such Term Loans, as the case may be, retained by it hereunder (if
requested). Such new Notes shall be dated the Closing Date and shall otherwise
be in the form of the Notes replaced thereby.
(e) The Administrative Agent, the Arranger, the Co-Arrangers, the
Syndication Agent, the Documentation Agent and the Lenders agree that they will
use reasonable efforts to protect the confidentiality of any confidential
information concerning the Company and its
<PAGE>
110
Subsidiaries and Affiliates. Notwithstanding the foregoing, each Borrower
authorizes each Lender to disclose to any Participant or Assignee (each, a
"Transferee") and any prospective Transferee any and all information in such
----------
Lender's possession concerning the Company and its Subsidiaries and Affiliates
which has been delivered to such Lender by or on behalf of the Company pursuant
to this Agreement or which has been delivered to such Lender by or on behalf of
any Borrower in connection with such Lender's credit evaluation of the Company
and its Subsidiaries prior to becoming a party to this Agreement; provided that
--------
each Lender shall cause its respective prospective Transferees to agree in
writing to protect the confidentiality of any confidential information
concerning the Company and its Subsidiaries and Affiliates.
(f) If, pursuant to this subsection 9.6, any interest in this
Agreement or any Note is transferred to any Transferee which is organized under
the laws of any jurisdiction other than the United States or any State thereof,
the transferor Lender shall cause such Transferee, concurrently with the
effectiveness of such transfer either (1) in the case of a Transferee that is a
"bank" within the meaning of Section 881(c)(3)(A) of the Code, (i) to represent
to the transferor Lender (for the benefit of the transferor Lender, the
Administrative Agent and the Company) that under applicable law and treaties no
taxes will be required to be withheld by the Administrative Agent, any Borrower
or the transferor Lender with respect to any payments to be made to such
Transferee in respect of the Loans or L/C Participating Interests, (ii) to
furnish to the transferor Lender (and, in the case of any Transferee registered
in the Register, the Administrative Agent and the Company) either U.S. Internal
Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein
such Transferee claims entitlement to complete exemption from U.S. federal
withholding tax on all interest payments hereunder) and (iii) to agree (for the
benefit of the transferor Lender, the Administrative Agent and the Borrowers) to
the extent permitted by then-current law to provide the transferor Lender (and,
in the case of any Transferee registered in the Register, the Administrative
Agent and the Company) a new Form 4224 or Form 1001 upon the expiration or
obsolescence of any previously delivered form and comparable statements in
accordance with applicable U.S. laws and regulations and amendments duly
executed and completed by such Transferee, and to comply from time to time with
all applicable U.S. laws and regulations with regard to such withholding tax
exemption or (2) in the case of any Transferee that is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Code, (i) to represent to the transferor
Lender (for the benefit of the transferor Lender, the Administrative Agent and
the Borrowers) that it is not a "bank" within the meaning of Section
881(c)(3)(A) of the Code, (ii) to furnish to the transferor Lender (and, in the
case of any Transferee registered in the Register, to the Company), with a copy
to the Administrative Agent, (A) a Subsection 3.11(d)(2) Certificate and (B) two
accurate and complete original signed copies of Internal Revenue Service Form W-
8, certifying to such Transferee's legal entitlement on the date of the
effectiveness of such transfer to an exemption from U.S. withholding tax under
the provisions of Section 881(c) of the Code with respect to all payments to be
made under this Agreement, and (iii) to agree (for the benefit of the transferor
Lender, the Administrative Agent and the Borrowers), to the extent legally
entitled to do so, upon reasonable request by the transferor Lender (or, in the
case of any Transferee registered in the Register, the Administrative Agent or
the Company), to provide to the transferor Lender, the Administrative Agent and
the Company such other forms as may be
<PAGE>
111
required to establish the legal entitlement of such Transferee to an exemption
from withholding tax with respect to payments under this Agreement.
(g) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this subsection concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank
in accordance with applicable law.
9.7 Set-off. In addition to any rights and remedies of the Lenders
-------
provided by law, each Lender shall have the right, without prior notice to any
Borrower, any such notice being expressly waived by each Borrower to the extent
permitted by applicable law, upon the filing of a petition under any of the
provisions of the federal bankruptcy code or amendments thereto, by or against;
the making of an assignment for the benefit of creditors by; the application for
the appointment, or the appointment, of any receiver of, or of any substantial
portion of the property of; the issuance of any execution against any
substantial portion of the property of; the issuance of a subpoena or order, in
supplementary proceedings, against or with respect to any substantial portion of
the property of; or the issuance of a warrant of attachment against any
substantial portion of the property of; any Borrower to set off and apply
against any indebtedness, whether matured or unmatured, of any Borrower to such
Lender, any amount owing from such Lender to any Borrower, at or at any time
after, the happening of any of the above mentioned events, and as security for
such indebtedness, each Borrower hereby grants to each Lender a continuing
security interest in any and all deposits, accounts or moneys of such Borrower
then or thereafter maintained with such Lender, subject in each case to the
Agency and Intercreditor Agreement. The aforesaid right of set-off may be
exercised by such Lender against any Borrower or against any trustee in
bankruptcy, debtor in possession, assignee for the benefit of creditors,
receiver or execution, judgment or attachment creditor of any Borrower, or
against anyone else claiming through or against any Borrower or such trustee in
bankruptcy, debtor in possession, assignee for the benefit of creditors,
receiver, or execution, judgment or attachment creditor, notwithstanding the
fact that such right of set-off shall not have been exercised by such Lender
prior to the making, filing or issuance, or service upon such Lender of, or of
notice of, any such petition; assignment for the benefit of creditors;
appointment or application for the appointment of a receiver; or issuance of
execution, subpoena, order or warrant. Each Lender agrees promptly to notify the
Company and the Administrative Agent after any such set-off and application made
by such Lender, provided that the failure to give such notice shall not affect
--------
the validity of such set-off and application.
9.8 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Company and the Administrative Agent. This Agreement
shall become effective when the Administrative Agent shall have received copies
of this Agreement executed by the Borrowers, the Administrative Agent, the
Arranger, the Co-Arrangers, the Syndication Agent, the Documentation Agent and
the
<PAGE>
112
Lenders, or, in the case of any Lender, shall have received telephonic
confirmation from such Lender stating that such Lender has executed counterparts
of this Agreement or the signature pages hereto and sent the same to the
Administrative Agent.
9.9 Governing Law; No Third Party Rights. THIS AGREEMENT AND THE
------------------------------------
NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE
NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAW OF THE STATE OF NEW YORK. This Agreement is solely for the benefit of
the parties hereto and their respective successors and assigns, and, except as
set forth in subsection 9.6, no other Persons shall have any right, benefit,
priority or interest under, or because of the existence of, this Agreement.
9.10 Submission to Jurisdiction; Waivers. (a) Each party to this
-----------------------------------
Agreement hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal action
or proceeding relating to this Agreement or any of the other Credit
Documents, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the courts of the
State of New York, the courts of the United States for the Southern
District of New York, and appellate courts from any thereof;
(ii) consents that any such action or proceeding may be
brought in such courts, and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any such
court or that such action or proceeding was brought in an inconvenient
court and agrees not to plead or claim the same;
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to such party at its address set forth in subsection 9.2 or at
such other address of which the Administrative Agent shall have been
notified pursuant thereto; and
(iv) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction.
(B) EACH PARTY HERETO UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (A) ABOVE AND ANY
COUNTERCLAIM THEREIN.
9.11 Releases. The Administrative Agent and Lenders agree to
--------
cooperate with the Company and its Subsidiaries with respect to any sale or
other disposition permitted by subsection 7.5 and promptly take such action and
execute and deliver such instruments and documents necessary to release the
liens and security interests created by the Security Documents relating to any
of the assets or property affected by any such sale permitted by subsection 7.5,
<PAGE>
113
including, without limitation, any Uniform Commercial Code amendment, release or
termination or partial release or termination statements. The Administrative
Agent is hereby irrevocably authorized by each of the Lenders to release any
Lien covering any property or assets of the Company or any of its Subsidiaries
that is the subject of a disposition which is permitted by this Agreement or
which has been consented to in accordance with subsection 9.1.
9.12 Interest. Each provision in this Agreement and each other credit
--------
Document is expressly limited so that in no event whatsoever shall the amount
paid, or otherwise agreed to be paid, by any Borrower for the use, forbearance
or detention of the money to be loaned under this Agreement or any other Credit
Document or otherwise (including any sums paid as required by any covenant or
obligation contained herein or in any other Credit Document which is for the
use, forbearance or detention of such money), exceed that amount of money which
would cause the effective rate of interest to exceed the highest lawful rate
permitted by applicable law (the "Highest Lawful Rate"), and all amounts owed
-------------------
under this Agreement and each other Credit Document shall be held to be subject
to reduction to the effect that such amounts so paid or agreed to be paid which
are for the use, forbearance or detention of money under this Agreement or such
other Credit Document shall in no event exceed that amount of money which would
cause the effective rate of interest to exceed the Highest Lawful Rate.
Notwithstanding any provision in this Agreement or any other Credit Document to
the contrary, if the maturity of the Loans or the obligations in respect of the
other Credit Documents are accelerated for any reason, or in the event of any
prepayment of all or any portion of the Loans or the obligations in respect of
the other Credit Documents by any Borrower or in any other event, earned
interest on the Loans and such other obligations of any Borrower may never
exceed the Highest Lawful Rate, and any unearned interest otherwise payable on
the Loans or the obligations in respect of the other Credit Documents that is in
excess of the Highest Lawful Rate shall be cancelled automatically as of the
date of such acceleration or prepayment or other such event and (if theretofore
paid) shall, at the option of the holder of the Loans or such other obligations,
be either refunded to such Borrower or credited on the principal of the Loans.
In determining whether or not the interest paid or payable, under any specific
contingency, exceeds the Highest Lawful Rate, the Borrowers and the Lenders
shall, to the maximum extent permitted by applicable law, amortize, prorate,
allocate and spread, in equal parts during the period of the actual term of this
Agreement, all interest at any time contracted for, charged, received or
reserved in connection with this Agreement.
9.13 Special Indemnification. Notwithstanding any provision in this
-----------------------
Agreement to the contrary, (a) each Lender, or Transferee of any Lender pursuant
to subsection 9.6(g) of this Agreement, shall indemnify each Borrower and the
Administrative Agent, and hold each of them harmless against any and all
payments, expenses or taxes which such Borrower or the Administrative Agent may
become subject to or obligated to pay if and to the extent that, (i) on the
Closing Date or the effective date of transfer, as the case may be, such Lender,
or such Transferee of a Lender pursuant to subsection 9.6(g) of this Agreement,
(A) makes the representation and covenants set forth in subsection 3.11(d)(2) of
this Agreement, or, in the case of a Transferee, pursuant to subsection
9.6(g)(2) of this Agreement and the Assignment and Acceptance, and (B) is not in
fact also qualified to make the representation and covenants set
<PAGE>
114
forth in subsection 3.11(d)(1) of this Agreement or, in the case of a
Transferee, pursuant to subsection 9.6(g)(2) of this Agreement and the
Assignment and Acceptance, and (ii) as a result of any Change in Law or
compliance by such Lender, or Transferee, with any request or directive (whether
or not having the force of law) from any central bank or other Governmental
Authority the Company or the Administrative Agent is required to make any
additional payments on account of U.S. withholding taxes and amounts related
thereto with respect to any payments under this Agreement, any Note, or a
Eurodollar Loan, made prior to such Change in Law or request or directive, none
of which payments would have been required if such Lender, or Transferee, was
qualified on the Closing Date or the date of the transfer, as the case may be,
to make the representation and covenants set forth in subsection 3.11(d)(1) of
this Agreement or pursuant to subsection 9.6(g)(1) of this Agreement and the
Assignment and Acceptance, as the case may be, and (b) each Lender, or
Transferee, agrees that to the extent any amount payable by such Lender or
Transferee pursuant to this subsection 9.13 remains unpaid on any Interest
Payment Date or the date on which any prepayment is made, each Borrower shall
have the right to set-off against any payment due to such Lender or Transferee
on such date any amounts owing to such Borrower pursuant to this subsection
9.13.
9.14 Permitted Payments and Transactions. Notwithstanding any
-----------------------------------
provision to the contrary contained in this Agreement, the Company and its
Subsidiaries shall be permitted to pay fees and expenses pursuant to or in
respect of, the following agreements, and, in the case of clauses (a) and (d)
below, to engage in the following transactions: (a)(i) the Agreement for
Management and Advisory Services, between Investcorp International, Inc. ("III")
---
and AcquisitionCo dated as of August 11, 1998, (ii) the Loan Financing Advisory
Agreement between III and AcquisitionCo dated as of August 11, 1998, (iii) the
Equity Placement Fee Letter between Investcorp and AcquisitionCo dated August
11, 1998, (iv) the Standby Commitment Agreement between AcquisitionCo and
Invifin S.A. dated as of August 11, 1998 and (v) the Merger Agreement; (b)
agreements with any Person or Persons providing for the payment of customary
fees in connection with serving as a director of the Company or any Subsidiary
of the Company; (c) agreements providing for the payment of commercially
reasonable fees in connection with any permitted financing, refinancing, sale,
transfer, sale and leaseback or other permitted disposition of any assets of the
Company or its Subsidiaries; (d) the borrowing of any Indebtedness to the
extent, and upon the terms and conditions, the same is expressly permitted under
subsection 7.1; and (e) agreements providing for commercially reasonable fees in
connection with any permitted purchase or acquisition of stock or assets by the
Company or any of its Subsidiaries.
9.15 Harborside of Rhode Island. Notwithstanding any provision to the
--------------------------
contrary contained in this Agreement or any other Credit Document, to the extent
required by Department of Health of the State of Rhode Island or any successor
thereto, the obligations under the Credit Documents of Harborside Rhode Island
Limited Partnership, a Massachusetts limited partnership ("HRI"), and any other
---
Subsidiary substantially all the assets of which are located in the State of
Rhode Island shall not exceed, for each such Subsidiary, at any time an amount
equal to the product of 80% times the aggregate Acquisition Consideration paid
by the Company, HRI
<PAGE>
115
or any other Subsidiary for Health Care Facilities owned or operated by such
Subsidiary and located in the State of Rhode Island.
<PAGE>
116
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the day and year first above written.
HARBORSIDE HEALTHCARE CORPORATION
By: /s/ Stephen L. Guillard
------------------------
Title: President and Chief Executive Officer
BAY TREE NURSING CENTER CORP.
BELMONT NURSING CENTER CORP.
COUNTRYSIDE CARE CENTER CORP.
HARBORSIDE HEALTH I CORPORATION
HARBORSIDE TOLEDO CORP.
KHI CORP.
MARYLAND HARBORSIDE CORP.
NEW JERSEY HARBORSIDE CORP.
OAKHURST MANOR NURSING CENTER
CORP.
ORCHARD RIDGE NURSING CENTER CORP.
SAILORS, INC.
SUNSET POINT NURSING CENTER CORP.
WEST BAY NURSING CENTER CORP.
By: /s/ Stephen L. Guillard
------------------------
Title: President and Chief Executive Officer
<PAGE>
117
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 HEALTHCARE BALTIMORE
LIMITED PARTNERSHIP
HARBORSIDE HEALTHCARE NETWORK
LIMITED PARTNERSHIP
HARBORSIDE MASSACHUSETTS LIMITED
PARTNERSHIP
HARBORSIDE NORTH TOLEDO LIMITED
PARTNERSHIP
HARBORSIDE OF CLEVELAND LIMITED
PARTNERSHIP
HARBORSIDE OF DAYTON LIMITED
PARTNERSHIP
HARBORSIDE OF FLORIDA LIMITED
PARTNERSHIP
HARBORSIDE OF OHIO LIMITED
PARTNERSHIP
HARBORSIDE REHABILITATION LIMITED
PARTNERSHIP
HARBORSIDE RHODE ISLAND LIMITED
PARTNERSHIP
RIVERSIDE RETIREMENT LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION, as General
Partner
<PAGE>
118
By: /s/ Stephen L. Guillard
-------------------------
Title: President and Chief Executive Officer
<PAGE>
119
HARBORSIDE FUNDING LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTHCARE LIMITED PARTNERSHIP, as
General Partner
By: KHI CORP., as General Partner
By: /s/ Stephen L. Guillard
-------------------------
Title: President and Chief Executive Officer
BRIDGEWATER ASSISTED LIVING LIMITED
PARTNERSHIP
By: NEW JERSEY HARBORSIDE CORP., as General
Partner
By: /s/ Stephen L. Guillard
-------------------------
Title: President and Chief Executive Officer
HARBORSIDE NEW HAMPSHIRE LIMITED
PARTNERSHIP
HARBORSIDE TOLEDO LIMITED
PARTNERSHIP
HHCI LIMITED PARTNERSHIP
By: HARBORSIDE TOLEDO CORP., as General Partner
By: /s/ Stephen L. Guillard
-------------------------
Title: President and Chief Executive Officer
<PAGE>
120
HARBORSIDE HEALTHCARE ADVISORS
LIMITED PARTNERSHIP
HARBORSIDE HEALTHCARE LIMITED
PARTNERSHIP
HARBORSIDE HOMECARE LIMITED
PARTNERSHIP
By: KHI CORP., as General Partner
By: /s/ Stephen L. Guillard
-------------------------
Title: President and Chief Executive Officer
HARBORSIDE PROPERTIES TRUST I, a Massachusetts
business trust
By: /s/ William H. Stephan
------------------------
Name: William H. Stephan, in his capacity as
trustee and not individually
THE CHASE MANHATTAN BANK, as Administrative Agent,
the Issuing Lender, the Swing Line Lender and a
Lender
By: /s/ Robert Anastasio
----------------------
Title: Vice President
CHASE SECURITIES INC., as the Arranger
By: /s/ Robert Anastasio
------------------------
Title: Vice President
<PAGE>
121
MORGAN STANLEY SENIOR FUNDING, INC., as a Co-
Arranger, the Syndication Agent and a Lender
By: /s/ Michael Hart
------------------
Title: Principal
BT ALEX. BROWN INCORPORATED, as
a Co-Arranger
By: /s/ Lorenz E. Zimmerman, Jr.
------------------------------
Title: Principal
BANKERS TRUST COMPANY, as
the Documentation Agent and a Lender
By: /s/ Mary Kay Coyle
--------------------
Title: Managing Director
ARAB BANKING CORPORATION (B.S.C.)
By: /s/ Louise Bilbro
-------------------
Title: Vice President
BANKBOSTON, N.A.
By: /s/ Gregory R.D. Clark
------------------------
Title: Managing Director
<PAGE>
122
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By: /s/ Douglas J. Weir
---------------------
Title: Vice President
CITICORP U.S.A., INC.
By: /s/ R. Bruce Hall
-------------------
Title: Vice President
CREDITANSTALT CORPORATE FINANCE,
INC.
By: /s/ David E. Yewer
--------------------
Title: Vice President
By: /s/ Catherine K. MacDonald
----------------------------
Title: Vice President
DRESDNER BANK Ag, NEW YORK BRANCH
AND GRAND CAYMAN BRANCH
By: /s/ Andrew P. Nesi
--------------------
Title: Vice President
By: /s/ Felix K. Camacho
----------------------
Title: Assistant Treasurer
THE FIRST NATIONAL BANK OF MARYLAND
By: /s/ Michael B. Stueck
-----------------------
Title: Vice President
<PAGE>
123
FIRST UNION NATIONAL BANK
By: /s/ Joseph H. Towell
----------------------
Title: Senior Vice President
FLEET NATIONAL BANK
By: /s/ Maryann S. Smith
----------------------
Title: Vice President
IMPERIAL BANK
By: /s/ Ray Vadalma
-----------------
Title: Senior Vice President
NATIONSBANK, N.A.
By: /s/ Kevin Wagley
------------------
Title: Vice President
PROVIDENT BANK OF MARYLAND
By: /s/ Jennifer D. Patton
------------------------
Title: Assistant Vice President
STAR BANK, NATIONAL ASSOCIATION
By: /s/ William J. Goodwin
------------------------
Title: Senior Vice President
<PAGE>
124
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ David Kaplowitz
---------------------
Title: Vice President
<PAGE>
Schedule I to the
Credit Agreement
----------------
BORROWERS
<PAGE>
1
Schedule II to the
Credit Agreement
----------------
LENDERS, ADDRESSES AND COMMITMENTS
Revolving Credit
Commitment
----------
THE CHASE MANHATTAN BANK $ 20,000,000.00
85 Wells Avenue, Suite 200
Newton, MA 02159
Attn: Roger Stone
Telecopy: 617-928-3057
MORGAN STANLEY SENIOR FUNDING, INC. $ 20,000,000.00
1585 Broadway
New York, NY 10036
Attn: Michael A. Hart
Telecopy: 212-761-0587
BANKERS TRUST COMPANY $ 20,000,000.00
One Bankers Trust Plaza
130 Liberty Street
New York, NY 10006
Attn: Mary Kay Coyle
Telecopy: 212-250-1343
BANK OF TOKYO-MITSUBISHI TRUST COMPANY $ 15,750,000.00
1251 Avenue of the Americas, 12th Floor
New York, NY 10020
Attn: Doug Weir
Telecopy: 212-782-4935
CITICORP U.S.A., INC. $ 15,750,000.00
399 Park Avenue, 5th Floor
New York, NY 10043
Attn: Bruce Hall
Telecopy: 212-559-0292
FIRST UNION NATIONAL BANK $ 15,750,000.00
301 South College Street
Charlotte, NC 28288
Attn: J. Matt MacIver
Telecopy: 704-383-9144
<PAGE>
2
Revolving Credit
Commitment
----------
NATIONSBANK, N.A. $ 15,750,000.00
One Nationsbank Plaza - 7th Floor
Nashville, TN 37239-2697
Attn: Kevin Wagley
Telecopy: 615-749-4640
ARAB BANKING CORPORATION (B.S.C.) $ 13,000,000.00
277 Park Avenue, 32nd Floor
New York, NY 10172-3299
Attn: Sandy Tilney
Telecopy: 212-583-0921
THE CIT GROUP/BUSINESS CREDIT, INC. $ 13,000,000.00
1211 Avenue of the Americas
New York, NY 10036
Attn: Victor Russo
Telecopy: 212-536-1297
BANKBOSTON, N.A. $ 13,000,000.00
100 Federal Street, 8th Floor
Boston, MA 02110
Attn: Gregory Clark
Telecopy: 617-434-4929
CREDITANSTALT CORPORATE FINANCE, INC. $ 13,000,000.00
2 Greenwich Plaza
Greenwich, CT 06830
Attn: David Yewer
Telecopy: 203-861-1475
DRESDNER BANK AG, NEW YORK BRANCH AND GRAND $ 13,000,000.00
CAYMAN BRANCH
75 Wall Street, 24th Floor
New York, NY 10005
Attn: Felix Camacho
Telecopy: 212-429-2129
THE FIRST NATIONAL BANK OF MARYLAND $ 13,000,000.00
25 South Charles Street
Baltimore, MD 21201
Attn: Bob Hauver
Telecopy: 410-244-4388
FLEET NATIONAL BANK $ 13,000,000.00
1 Federal Street, MAOF 0324
<PAGE>
3
Revolving Credit
Commitment
----------
Boston, MA 02110
Attn: Paul R. Trefry
Telecopy: 617-346-4885
PROVIDENT BANK OF MARYLAND $ 13,000,000.00
114 East Lexington Street, 5th Floor
Baltimore, MD 21202
Attn: Tom Myers
Telecopy: 410-277-2793
STAR BANK, NATIONAL ASSOCIATION $ 13,000,000.00
425 Walnut Street, 8th Floor, Corporate Banking
Cincinnati, OH 45201-1038
Attn: Mark Whitson
Telecopy: 513-632-2068
IMPERIAL BANK $ 10,000,000.00
9920 South La Clenega Blvd., 14th Floor
Inglewood, CA 90301
Attn: Jamie Harney
Telecopy: 310-417-5997
TOTAL $250,000,000.00
<PAGE>
Schedule III to the
Credit Agreement
----------------
PRICING AND COMMITMENT FEE GRID
<TABLE>
<CAPTION>
Applicable Margin
Commitment
Fee
Eurodollar
Leverage Ratio ABR Loans Loans
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Greater than or equal to 5.0 1.250% 2.250% 0.500%
- -----------------------------------------------------------------------------
Less than 5.0 to 1.0, but greater than 1.000% 2.000% 0.375%
or equal to 4.5 to 1.0
- -----------------------------------------------------------------------------
Less than 4.5 to 1.0, but greater than 0.750% 1.750% 0.375%
or equal to 4.0 to 1.0
- -----------------------------------------------------------------------------
Less than 4.0 to 1.0, but greater than 0.500% 1.500% 0.300%
or equal to 3.5 to 1.0
- -----------------------------------------------------------------------------
Less than 3.5 to 1.0, but greater than 0.250% 1.250% 0.250%
or equal to 3.0 to 1.0
Less than 3.0 to 1.0 0.000% 1.000% 0.250%
- -----------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.20
COLLATERAL AGREEMENT
COLLATERAL AGREEMENT, dated as of August 11, 1998, made by each of the
signatories hereto (together with any other entity that may become a party
hereto as provided herein, the "Grantors"), in favor of THE CHASE MANHATTAN
--------
BANK, a New York banking corporation, as administrative agent (in such capacity,
the "Administrative Agent") for the banks and other financial institutions (the
--------------------
"Lenders") and the investors (the "Synthetic Investors" and, together with the
------- -------------------
Lenders, the "Secured Parties") from time to time parties to one or more of the
---------------
following agreements:
(a) the Credit Agreement, dated as of the date hereof (as amended,
supplemented or otherwise modified from time to time, the "Corporate Credit
----------------
Agreement"), among Harborside Healthcare Corporation, a Delaware
---------
corporation (the "Company"), the other Grantors referred to therein, the
-------
Lenders, Chase Securities Inc., as arranger (in such capacity, the
"Arranger"), Morgan Stanley Senior Funding, Inc. and BT Alex. Brown
--------
Incorporated, as co-arrangers (collectively, in such capacity, the "Co-
Arrangers"), Morgan Stanley Senior Funding, Inc., as syndication agent (in
---------
such capacity, the "Syndication Agent"), Bankers Trust Company, as
-----------------
documentation agent (in such capacity, the "Documentation Agent"), and the
-------------------
Administrative Agent and
(b) the Credit Agreement, dated as of the date hereof (as amended,
supplemented or otherwise modified from time to time, the "Synthetic Credit
----------------
Agreement" and, together with the Corporate Credit Agreement, the "Credit
--------- ------
Agreements") among HHC 1998-1 Trust, a Delaware business trust (the
----------
"Synthetic Borrower"), the Lenders, the Arranger, the Co-Arrangers, the
------------------
Syndication Agent, the Documentation Agent and the Administrative Agent;
and
(c) the Participation Agreement, dated as of the date hereof (as
amended, supplemented or otherwise modified from time to time, the
"Participation Agreement"), among the Company, the Synthetic Borrower, the
-----------------------
Synthetic Investors, the Lenders and the Administrative Agent.
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Corporate Credit Agreement, the Lenders have
severally agreed to make extensions of credit to the Grantors on a joint and
several basis upon the terms and subject to the conditions set forth therein;
WHEREAS, pursuant to the Synthetic Credit Agreement, the Lenders have
severally agreed to make extensions of credit to the Synthetic Borrower upon the
terms and subject to the conditions set forth therein, the proceeds of which
shall be used by the Synthetic Borrower to purchase real properties that will be
simultaneously leased to the Company;
<PAGE>
2
WHEREAS, pursuant to the Participation Agreement, the Synthetic
Investors have agreed to make certain investments (the "Investor Contributions")
----------------------
in the Synthetic Borrower upon the terms and subject to the conditions set forth
therein;
WHEREAS, the Grantors have entered into a Guarantee, dated as of the
date hereof (as amended, supplemented or otherwise modified from time to time,
the "Synthetic Guarantee"), in favor of the Administrative Agent, for the
-------------------
benefit of the Lenders, the Synthetic Investors and the Synthetic Borrower,
pursuant to which the Grantors have agreed, jointly and severally, to guarantee
the Note Obligations, the Contribution Obligations and the Lease Obligations (as
each such term is defined in the Synthetic Guarantee);
WHEREAS, the Grantors are engaged in related businesses, and each
Grantor will derive substantial direct and indirect benefit from the making of
the extensions of credit under the Corporate Credit Agreement and the Synthetic
Credit Agreement and from the making of the Investor Contributions; and
WHEREAS, it is a condition precedent to the obligation of the Lenders
to make their respective extensions of credit to the Grantors under the
Corporate Credit Agreement and to the Synthetic Borrower under the Synthetic
Credit Agreement, and to the obligation of the Synthetic Investors to make the
Investor Contributions, that each Grantor shall have executed and delivered this
Agreement to the Administrative Agent, for the benefit of the Secured Parties,
to secure such Grantor's obligations under the Corporate Credit Agreement and
under the Synthetic Guarantee;
NOW, THEREFORE, in consideration of the premises and to induce the
Lenders, the Arranger, the Co-Arrangers, the Syndication Agent, the
Documentation Agent and the Administrative Agent to enter into the Corporate
Credit Agreement and the Synthetic Credit Agreement, to induce the Lenders to
make their respective extensions of credit to the Grantors and the Synthetic
Borrower, as applicable, thereunder, and to induce the Synthetic Investors to
make the Investor Contributions, each Grantor hereby agrees with the
Administrative Agent, for the benefit of the Secured Parties, as follows:
1. Defined Terms. Unless otherwise defined herein or in the preamble
-------------
or recitals hereto, terms which are defined in the Corporate Credit Agreement
and used herein are so used as so defined; the following terms which are defined
in the Uniform Commercial Code in effect in the State of New York on the date
hereof are used herein as so defined: Certificated Security, Chattel Paper,
Documents, Farm Products, Goods, Instruments and Inventory; and the following
terms shall have the following meanings:
"Accounts" means all accounts receivable, book debts, notes, drafts,
--------
instruments, documents, acceptances and other forms of obligations now
owned or hereafter received or acquired by or belonging or owing to any
Grantor (including under any trade names,
<PAGE>
3
styles or divisions thereof) whether arising out of personal property owned
or leased by it, Goods sold by it or services rendered by it or from any
other transaction, whether or not the same involves the lease of personal
property, sale of Goods or performance of services by such Grantor
(including, without limitation, any such obligation which would be
characterized as an account, general intangible or chattel paper under the
Code) and all of such Grantor's rights in, to and under all purchase orders
now owned or hereafter received or acquired by it for Goods or services,
and all of such Grantor's rights to any Goods represented by any of the
foregoing (including returned or repossessed Goods and unpaid seller's
rights) and all moneys due or to become due to such Grantor under all
contracts for the sale of Goods and/or the performance of services by it
(whether or not yet earned by performance), under any lease of real or
personal property (to the extent the grant of such a security interest is
permitted by applicable law and is not prohibited by such lease), or under
any franchise agreement, or in connection with any other transaction, now
in existence or hereafter arising, including without limitation the right
to receive the proceeds of said purchase orders and contracts and rents
under such leases, and all collateral security and guarantees of any kind
given by any Person with respect to any of the foregoing; provided,
--------
however, that for each Grantor, "Account" shall not include any of the
-------
foregoing acquired in the ordinary course of business of an Acquired
Business acquired after the date hereof to the extent that the transfer,
assignment or grant of a security interest in such item is prohibited by
such Grantor's Contractual Obligations with third parties in connection
with lease arrangements or Indebtedness for borrowed money so long as such
Contractual Obligations are permitted by the Corporate Credit Agreement.
"Agreement" means this Collateral Agreement, as the same may be
---------
amended, supplemented or otherwise modified from time to time.
"Borrower Obligations" means the unpaid principal of and interest on
--------------------
the Loans and Reimbursement Obligations and all other obligations and
liabilities of each Grantor (including, without limitation, interest
accruing at the then applicable rate provided in the Corporate Credit
Agreement after the maturity of the Loans and Reimbursement Obligations and
interest accruing at the then applicable rate provided in the Corporate
Credit Agreement after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating
to such Grantor, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding) to the Arranger, any Co-Arranger,
the Syndication Agent, the Documentation Agent, the Administrative Agent or
any Lender (or, in the case of any Interest Rate Agreement, any affiliate
of any Lender), whether direct or indirect, absolute or contingent, due or
to become due, or now existing or hereafter incurred, which may arise
under, out of, or in connection with, the Corporate Credit Agreement, this
Agreement, the other Credit Documents, any Letter of Credit, any Interest
Rate Agreement or any other document made, delivered or given in connection
with any of the foregoing, in each case whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs, expenses or
otherwise (including, without limitation, all fees and disbursements of
<PAGE>
4
counsel to the Arranger, the Co-Arrangers, the Syndication Agent, the
Documentation Agent, the Administrative Agent or the Lenders that are
required to be paid by such Grantor pursuant to the terms of any of the
foregoing agreements).
"Code" means the Uniform Commercial Code as from time to time in
----
effect in the State of New York.
"Collateral" has the meaning assigned to it in Section 2 of this
----------
Agreement.
"Contract" means, with respect to an Account, any agreement relating
--------
to the terms of payment or the terms of performance thereof, including,
without limitation, (a) all rights of each Grantor to receive moneys due
and to become due to it thereunder or in connection therewith, (b) all
rights of each Grantor to damages arising out of, or for, breach or default
in respect thereof and (c) all rights of each Grantor to perform and to
exercise all remedies thereunder.
"Copyright License" means any written agreement, naming any Grantor,
-----------------
as licensor or licensee, granting any right in the United States to use any
Copyright including, without limitation, any referred to in Schedule I
----------
hereto; provided, however, that for each Grantor, "Copyright License" shall
-------- -------
not include any of the foregoing acquired in the ordinary course of
business of an Acquired Business acquired after the date hereof to the
extent that the transfer, assignment or grant of a security interest in
such item is prohibited by such Grantor's Contractual Obligations with
third parties in connection with lease arrangements or Indebtedness for
borrowed money so long as such Contractual Obligations are permitted by the
Corporate Credit Agreement.
"Copyrights" means all of the following to the extent any Grantor now
----------
or hereafter has any right, title or interest: (a) all United States
copyrights and all registrations and applications therefor, including,
without limitation, any referred to in Schedule I hereto, and (b) all
----------
renewals of such copyrights; provided, however, that for each Grantor,
-------- -------
"Copyright" shall not include any of the foregoing acquired in the ordinary
course of business of an Acquired Business acquired after the date hereof
to the extent that the transfer, assignment or grant of a security interest
in such item is prohibited by such Grantor's Contractual Obligations with
third parties in connection with lease arrangements or Indebtedness for
borrowed money so long as such Contractual Obligations are permitted by the
Corporate Credit Agreement.
"Deposit Account" has the meaning given to it in the Uniform
---------------
Commercial Code of any applicable jurisdiction and, in any event,
including, without limitation, any demand, time, savings, passbook or like
account maintained with a depositary institution.
"Equipment" means all machinery, equipment and furniture except
---------
Vehicles, now owned or hereafter acquired by any Grantor or in which any
Grantor now has or hereafter may acquire any right, title or interest and
any and all additions, substitutions and
<PAGE>
5
replacements thereof, wherever located, together with all attachments,
components, parts, equipment and accessories installed therein or affixed
thereto, including, but not limited to, all equipment as defined in Section
9-109(2) of the Code; provided, however, that for each Grantor, "Equipment"
-------- -------
shall not include any of the foregoing acquired in the ordinary course of
business of an Acquired Business acquired after the date hereof to the
extent that the transfer, assignment or grant of a security interest in
such item is prohibited by such Grantor's Contractual Obligations with
third parties in connection with lease arrangements or Indebtedness for
borrowed money so long as such Contractual Obligations are permitted by the
Corporate Credit Agreement.
"General Intangibles" has the meaning given to it in the Code and
-------------------
includes, whether or not so included in such meaning, any franchise
agreements or rights in favor of or granted by any Grantor to know-how,
trade secrets, product or service development ideas and designs,
advertising commercials, renderings, strategies and plans, blueprints,
architectural drawings, site location, personnel and franchisee
information, proprietary information, computer and software technology and
programs, contracts with distributors, and any similar items, all interest
rate, foreign currency or similar agreements and general intangibles
attributable to the Capital Stock of each Subsidiary; provided, however,
-------- -------
that for each Grantor, "General Intangibles" shall not include any of the
foregoing acquired in the ordinary course of business of an Acquired
Business acquired after the date hereof to the extent that the transfer,
assignment or grant of a security interest in such item is prohibited by
such Grantor's Contractual Obligations with third parties in connection
with lease arrangements or Indebtedness for borrowed money so long as such
Contractual Obligations are permitted by the Corporate Credit Agreement.
"Governmental Obligor Limited Receivables" means any amount payable to
----------------------------------------
a Grantor under or in connection with any Account where the obligor on any
such Account is a Governmental Authority or a governmental program
(including, but not limited to, Medicare and Medicaid) which pursuant to
applicable law (including, but not limited to, the Federal Assignment of
Claims Act) may not be sold by any Grantor or collected directly from, or
enforced directly against, such obligor or Account holder by the holder of
a security interest therein.
"Guarantor Obligations" means all obligations and liabilities of each
---------------------
Grantor which may arise under, out of, or in connection with this
Agreement, the Synthetic Guarantee or any other Synthetic Credit Document
to which such Grantor is a party, in each case whether on account of
guarantee obligations, reimbursement obligations, fees, indemnities, costs,
expenses or otherwise (including, without limitation, all fees and
disbursements of counsel to the Arranger, the Co-Arrangers, the Syndication
Agent, the Documentation Agent, the Administrative Agent, the Lenders or
the Synthetic Investors that are required to be paid by such Grantor
pursuant to the terms of any of the foregoing agreements).
<PAGE>
6
"Investment Property" means (a) all "investment property" as such term
-------------------
is defined in Section 9-115 of the Code and (b) whether or not constituting
"investment property" as so defined, all Pledged Notes and all Pledged
Stock; provided, however, that for each Grantor, "Investment Property"
-------- -------
shall not include any of the foregoing acquired in the ordinary course of
business of an Acquired Business acquired after the date hereof to the
extent that the pledge of or grant of a security interest in such item is
prohibited by such Grantor's Contractual Obligations with third parties in
connection with lease arrangements or Indebtedness for borrowed money so
long as such Contractual Obligations are permitted by the Corporate Credit
Agreement.
"Issuers" means (a) the companies identified on Schedule IV hereto as
------- -----------
the issuers of the Pledged Notes, (b) the companies identified on Schedule
--------
V hereto as the issuers of the Pledged Stock, (c) any other Subsidiaries of
-
the Company created or acquired after the date hereof the equity of which
is required to be pledged by this Agreement or subsection 6.9(b) of the
Corporate Credit Agreement and (d) any other issuer of any Investment
Property; individually, each an "Issuer".
------
"License" means any Copyright License, Patent License or Trademark
-------
License.
"Obligations" means the Borrower Obligations and the Guarantor
-----------
Obligations.
"Patent License" means any agreement, whether written or oral,
--------------
providing for the grant by or to any Grantor of any right to manufacture,
use or sell any invention covered in whole or in part by a Patent,
including, without limitation, any thereof referred to in Schedule II
-----------
hereto; provided, however, that for each Grantor, "Patent License" shall
-------- -------
not include any of the foregoing acquired in the ordinary course of
business of an Acquired Business acquired after the date hereof to the
extent that the transfer, assignment or grant of a security interest in
such item is prohibited by such Grantor's Contractual Obligations with
third parties in connection with lease arrangements or Indebtedness for
borrowed money so long as such Contractual Obligations are permitted by the
Corporate Credit Agreement.
"Patents" means (a) all letters patent of the United States or any
-------
other country and all reissues and extensions thereof, including, without
limitation, any thereof referred to in Schedule II hereto and (b) all
-----------
applications for letters patent of the United States or any other country
and all divisions, continuations and continuations-in-part thereof,
including, without limitation, any thereof referred to in Schedule II
-----------
hereto; provided, however, that for each Grantor, "Patent" shall not
-------- -------
include any of the foregoing acquired in the ordinary course of business of
an Acquired Business acquired after the date hereof to the extent that the
transfer, assignment or grant of a security interest in such item is
prohibited by such Grantor's Contractual Obligations with third parties in
connection with lease arrangements or Indebtedness for borrowed money so
long as such Contractual Obligations are permitted by the Corporate Credit
Agreement.
<PAGE>
7
"Pledged Notes" means all promissory notes listed on Schedule IV
------------- -----------
hereto, and, if requested by the Administrative Agent, any other promissory
note issued to or held by any Grantor (other than promissory notes issued
in connection with extensions of trade credit by such Grantor in the
ordinary course of business and Undelivered Notes).
"Pledged Stock" means the shares of Capital Stock listed on Schedule V
------------- ----------
hereto, together with all stock certificates, options or rights of any
nature whatsoever that may be issued or granted by any Issuer to any
Grantor and that are required by this Agreement or the Corporate Credit
Agreement to be pledged hereunder while this Agreement is in effect.
"Proceeds" means "proceeds", as such term is defined in Section 9-
--------
306(1) of the Code and, to the extent not included in such definition,
shall include, without limitation, (a) any and all proceeds of any
insurance, indemnity, warranty, guaranty or letter of credit payable to any
Grantor, from time to time with respect to any of the Collateral, (b) all
payments (in any form whatsoever) paid or payable to any Grantor from time
to time in connection with any taking of all or any part of the Collateral
by any Governmental Authority or any Person acting under color of
Governmental Authority, (c) all judgments in favor of any Grantor in
respect of the Collateral, (d) all dividends or other income from the
Investment Property, collections thereon or distributions or payments with
respect thereto and (e) all other amounts from time to time paid or payable
or received or receivable under or in connection with any of the
Collateral.
"Reimbursement Obligation" means the obligation of the Company to
------------------------
reimburse the Issuing Lender pursuant to subsection 2.8 of the Corporate
Credit Agreement for amounts drawn under Letters of Credit.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Stock Issuer" means each Issuer of Pledge Stock.
------------
"Synthetic Credit Documents" means (a) the Participation Agreement,
--------------------------
(b) the Lease, dated as of the date hereof, between Harborside of Dayton
Limited Partnership, as lessee, and the Synthetic Borrower, as lessor, (c)
the Synthetic Credit Agreement, (d) this Agreement, (e) the Notes (as
defined in the Participation Agreement), (f) the Synthetic Guarantee, (g)
the Security Documents (as defined in the Participation Agreement), (h) the
Agency and Intercreditor Agreement and (i) the Intercreditor Agreement.
"Trademark License" means any agreement, whether written or oral,
-----------------
providing for the grant by or to any Grantor of any right to use any
Trademark, including, without limitation, any thereof referred to in
Schedule III hereto; provided, however, that for each Grantor, "Trademark
------------ -------- -------
License" shall not include any of the foregoing acquired in the ordinary
course of business of an Acquired Business acquired after the date hereof
to the extent that the transfer, assignment or grant of a security interest
in such item is
<PAGE>
8
prohibited by such Grantor's Contractual Obligations with third parties in
connection with lease arrangements or Indebtedness for borrowed money so
long as such Contractual Obligations are permitted by the Corporate Credit
Agreement.
"Trademarks" means (a) all trademarks, trade names, corporate names,
----------
company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers, and the
goodwill associated therewith, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, whether in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any state
thereof or any other country or any political subdivision thereof, or
otherwise, including, without limitation, any thereof referred to in
Schedule III hereto, and (b) all renewals thereof; provided, however, that
------------ -------- -------
for each Grantor, "Trademark" shall not include any of the foregoing
acquired in the ordinary course of business of an Acquired Business
acquired after the date hereof to the extent that the transfer, assignment
or grant of a security interest in such item is prohibited by such
Grantor's Contractual Obligations with third parties in connection with
lease arrangements or Indebtedness for borrowed money so long as such
Contractual Obligations are permitted by the Corporate Credit Agreement.
"Undelivered Notes" means any promissory notes issued to any Grantor
-----------------
so long as the aggregate principal amount of all Undelivered Notes shall
not exceed, at any time, $1,000,000.
"Vehicles" means all cars, trucks, trailers and other vehicles covered
--------
by a certificate of title law of any state.
2. Grant of Security Interest. As collateral security for the
--------------------------
prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations, each Grantor hereby
assigns and transfers to the Administrative Agent, and hereby grants to the
Administrative Agent, for the benefit of the Secured Parties, a security
interest in all of the following property now owned or at any time hereafter
acquired by such Grantor or in which such Grantor now has or at any time in the
future may acquire any right, title or interest, excluding, however, (x)
Vehicles and (y) any of such property acquired in the ordinary course of
business of an Acquired Business acquired after the date hereof to the extent
such assignment, transfer or grant is prohibited by such Grantor's Contractual
Obligations with third parties in connection with lease arrangements or
Indebtedness for borrowed money so long as such Contractual Obligations are
permitted by the Corporate Credit Agreement (collectively, the "Collateral"):
----------
(a) all Accounts;
(b) all Chattel Paper;
(c) all Contracts;
<PAGE>
9
(d) all Copyrights;
(e) all Copyright Licenses;
(f) all Deposit Accounts required by Section 3(d);
(g) all Documents;
(h) all Equipment;
(i) all General Intangibles;
(j) all Instruments;
(k) all Inventory;
(l) all Investment Property;
(m) all Patents;
(n) all Patent Licenses;
(o) all Trademarks;
(p) all Trademark Licenses;
(q) all books and records pertaining to the Collateral;
(r) all other Goods and personal property of such Grantor, whether
tangible or intangible and whether now or hereafter owned by such Grantor,
and wherever located; and
(a) to the extent not otherwise included, all Proceeds and products
of any and all of the foregoing and all collateral security and guarantees
given by any Person with respect to any of the foregoing.
<PAGE>
10
2. Rights of Administrative Agent and Secured Parties; Limitations
---------------------------------------------------------------
on Administrative Agent's and Secured Parties' Obligations.
- ----------------------------------------------------------
(a) Each Grantor Remains Liable under Accounts, Licenses, Contracts,
----------------------------------------------------------------
Etc. Anything herein to the contrary notwithstanding, each Grantor shall
---
remain liable under each of the Accounts, Licenses and Contracts to observe
and perform all the material conditions and obligations to be observed and
performed by it thereunder, all in accordance with the terms of any
agreement giving rise to each such Account, License or Contract. Neither
the Administrative Agent nor any Secured Party shall have any obligation or
liability under any Account, License or Contract by reason of or arising
out of this Agreement or the receipt by the Administrative Agent or any
Secured Party of any payment relating to such Account, License or Contract
pursuant hereto, nor shall the Administrative Agent or any Secured Party be
obligated in any manner to perform any of the obligations of any Grantor
under or pursuant to any Account, License or Contract, to make any payment,
to make any inquiry as to the nature or the sufficiency of any payment
received by it or as to the sufficiency of any performance by any party
under any Account, License or Contract, to present or file any claim, to
take any action to enforce any performance or to collect the payment of any
amounts which may have been assigned to it or to which it may be entitled
at any time or times.
(b) Notice to Account Debtors and Contracting Parties. At any time
-------------------------------------------------
after an Event of Default has occurred and so long as such Event of Default
shall be continuing, upon the request of the Administrative Agent such
Grantor shall, and the Administrative Agent may (with concurrent notice to
such Grantor thereof), notify account debtors on the Accounts and parties
to the Contracts and Licenses that the Accounts, Contracts and Licenses
have been assigned to the Administrative Agent for the benefit of the
Secured Parties and that payments in respect thereof shall be made directly
to the Administrative Agent. At any time after an Event of Default shall
have occurred and be continuing, the Administrative Agent may in its own
name or in the name of others communicate with account debtors on the
Accounts and parties to the Contracts and Licenses to verify with them to
its satisfaction the existence, amount and terms thereof.
(c) Verification of Accounts and Inventory. The Administrative Agent
--------------------------------------
shall have the right to make test verifications of the Accounts and
Inventory forming part of the Collateral in any reasonable manner and
through any medium that it considers advisable, and each Grantor agrees to
furnish all such assistance and information as the Administrative Agent may
reasonably require in connection therewith, provided that, so long as no
--------
Event of Default shall have occurred and be continuing, (i) any such
verification shall be conducted in the name of the Company or of such other
Grantor or in such other manner as shall not disclose the Administrative
Agent's identity or interest in the Collateral and (ii) the Administrative
Agent shall conduct such verification with respect to any Grantor no more
frequently than once per year and shall give the Company reasonable advance
notice thereof. The Administrative Agent may after the occurrence and
during the continuance of an Event of Default in its own name or in the
name of
<PAGE>
11
others communicate with account debtors in order to verify with them to the
Administrative Agent's satisfaction the existence, amount and terms of any
Accounts and/or Inventory forming part of the Collateral.
(d) Governmental Obligor Limited Receivables. Notwithstanding the
----------------------------------------
provisions of Section 3(b) hereof, the Administrative Agent shall not
collect or enforce payment of any Governmental Obligor Limited Receivable
if and to the extent that such collection or enforcement is prohibited
under 42 U.S.C. (S)(S) 1395(g) or 1396(a) or under any comparable provision
of federal or state law. To the extent the Administrative Agent's rights
as to any Governmental Obligor Limited Receivable are limited pursuant to
this Section 3(d), upon the occurrence and during the continuance of an
Event of Default, each Grantor will (i) use its commercially reasonable
efforts to collect and enforce payment of such Governmental Obligor Limited
Receivable, (ii) promptly deposit such payment in the exact form received,
duly indorsed by such Grantor to the Administrative Agent if required, in a
Deposit Account maintained under the sole dominion and control of the
Administrative Agent, subject to withdrawal by the Administrative Agent for
the account of the Secured Parties as provided in Section 9 hereof, and
until so turned over, shall be held by such Grantor in trust for the
Administrative Agent and the Secured Parties, segregated from other funds
of such Grantor and (iii) upon written demand by the Administrative Agent
at any time and from time to time, remit (and cause the depository bank for
such Deposit Account to remit) directly to the Administrative Agent, as
Proceeds of the Collateral and for application to the payment of the
Obligations pursuant to Section 9 hereof, all finally collected funds on
deposit in such Deposit Account.
3. Representations and Warranties. Each Grantor hereby represents
------------------------------
and warrants that:
(a) Power and Authority. Each Grantor has the corporate power and
-------------------
authority and the legal right to execute and deliver, to perform its
obligations under, and to grant the Lien on the Collateral pursuant to,
this Agreement and has taken all necessary corporate actions to authorize
its execution, delivery and performance of, and grant of the Lien on the
Collateral pursuant to, this Agreement.
(b) Title; No Other Liens. Except for the Lien granted to the
---------------------
Administrative Agent for the benefit of the Secured Parties pursuant to
this Agreement and the other Liens permitted to exist on the Collateral
pursuant to the Corporate Credit Agreement, each Grantor owns each item of
the Collateral pledged by it hereunder free and clear of any and all Liens.
No security agreement, financing statement or other public notice with
respect to all or any part of the Collateral is on file or of record in any
public office, except (i) such as may have been filed in favor of the
Administrative Agent, for the benefit of the Secured Parties, pursuant to
this Agreement, or (ii) as may be permitted pursuant to the Corporate
Credit Agreement.
<PAGE>
12
(c) Perfected Liens. The Liens granted pursuant to this Agreement
---------------
constitute perfected Liens on the Collateral in favor of the Administrative
Agent, for the benefit of the Secured Parties, to the extent that (i) such
Liens constitute Liens on General Intangibles, (ii) such Liens constitute
Liens on Equipment located in a jurisdiction listed on Schedule VI hereto,
-----------
(iii) such Liens can be perfected by filing a financing statement under the
Uniform Commercial Code, as in effect in the relevant jurisdiction, (iv)
any Grantor is required to deliver such Collateral to the Administrative
Agent pursuant to Section 5(a) hereof or (v) such Liens constitute Liens on
a Deposit Account maintained in accordance with Section 3(d) hereof, which
are prior to all other Liens on the Collateral created by such Grantor and
in existence on the date hereof, except for Liens permitted to exist on the
Collateral pursuant to the Corporate Credit Agreement, and which are
enforceable as such against all creditors of and purchasers from such
Grantor.
(d) Accounts and Records. The amount represented by each Grantor to
--------------------
the Administrative Agent from time to time as owing by each account debtor
or by all account debtors in respect of the Accounts will at such time be
the correct amount actually owing by such account debtor or debtors
thereunder in all material respects, subject to adjustments in the ordinary
course of business. No amount payable to such Grantor under or in
connection with any Account, Contract or License in excess of $1,000,000 is
evidenced by any Instrument or Chattel Paper which has not been delivered
to the Administrative Agent except for notes receivable from officers
pursuant to executive stock purchase plans. The place where each Grantor
keeps its records concerning the Accounts and the other Collateral is
located at the address listed on Schedule VII hereto.
------------
(e) Consents. Each Contract and License is in full force and effect
--------
and, to the best knowledge of each Grantor, constitutes a valid and legally
enforceable obligation of the other obligor in respect thereof or parties
thereto, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally. No consent or authorization of, filing with
or other act by or in respect of any Governmental Authority is required in
connection with the execution, delivery, performance, validity or
enforceability of any of the Accounts, Licenses or Contracts by any party
thereto other than those which have been duly obtained, made or performed,
are in full force and effect and do not subject the scope of any such
Account, License or Contract to any material adverse limitation, either
specific or general in nature. No Grantor and (to the best of such
Grantor's knowledge) no other party to any Account, License or Contract is
in default in the performance or observance of any of the material terms
thereof. Each Grantor has fully performed all its material obligations
under each License and Contract to the extent such obligations are required
to be performed on or prior to the date hereof. The right, title and
interest of such Grantor in, to and under each Account, License and
Contract are not subject to any defense, offset, counterclaim or claim
which would materially adversely affect the value of such Account, License
or Contract as Collateral, nor have any of the foregoing been asserted or
alleged against such Grantor as to any of the foregoing.
<PAGE>
13
(f) Inventory. The Inventory forming part of the Collateral is kept
---------
at the locations listed on Schedule VI hereto, as amended or supplemented
-----------
from time to time pursuant to Section 5(p) hereof.
(g) Equipment. The Equipment is kept at the locations listed on
---------
Schedule VI hereto, as amended or supplemented from time to time pursuant
-----------
to Section 5(p) hereof.
(h) Chief Executive Office. Each Grantor's chief executive office
----------------------
and chief place of business is located at the address listed on Schedule
--------
VII hereto.
---
(i) Farm Products. None of the Collateral constitutes, or is the
-------------
Proceeds of, Farm Products.
(j) Investment Property. The shares of Pledged Stock pledged by such
-------------------
Grantor hereunder constitute all the issued and outstanding shares or
interests of all classes of the Capital Stock of each domestic Stock Issuer
owned by such Grantor and 65% of the total outstanding voting Capital Stock
of each foreign Stock Issuer owned by such Grantor. All the shares of the
Pledged Stock have been duly and validly issued and are fully paid and
nonassessable. To the best knowledge of such Grantor, each of the Pledged
Notes pledged by such Grantor hereunder constitutes a valid and legally
enforceable obligation of the other obligor in respect thereof or parties
thereto, enforceable in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally. Such
Grantor is the record and beneficial owner of, and has good and marketable
title to, the Investment Property pledged by it hereunder, free of any and
all Liens or options in favor of, or claims of, any other Person, except
for the Lien created by this Agreement and Permitted Liens.
(k) Patents, Trademarks and Copyrights. Schedule II hereto includes
---------------------------------- -----------
all material Patents and Patent Licenses owned by each Grantor in its own
name as of the date hereof. Schedule III hereto includes all material
------------
Trademarks and Trademark Licenses owned by each Grantor in its own name as
of the date hereof. Schedule I hereto includes all material Copyrights in
----------
which each Grantor has any colorable claim of ownership as of the date
hereof. Except as set forth on Schedule II or Schedule III, each Patent
----------- ------------
and Trademark is valid, subsisting, unexpired and enforceable and has not
been abandoned. Except as set forth on Schedule II or Schedule III, none
----------- ------------
of such Patents and Trademarks is the subject of any licensing or franchise
agreement. All licenses of each Grantor's Trademarks are in force and, to
the best knowledge of such Grantor, not in default. No holding, decision
or judgment has been rendered by any Governmental Authority with respect to
any Patent or Trademark which would limit, cancel or question the validity
of any Patent or Trademark. Except as set forth on Schedule II or Schedule
----------- --------
III, no action or proceeding is pending or, to the knowledge of such
---
Grantor, threatened (i) seeking to limit, cancel or question the validity
of any material Patent or
<PAGE>
14
Trademark or such Grantor's ownership thereof, or (ii) which, if adversely
determined, would have a material adverse effect on the value of any
material Patent or Trademark.
(l) No Litigation. No litigation, investigation or proceeding of or
-------------
before any arbitrator or Governmental Authority is pending or, to the
knowledge of any Grantor, threatened by or against such Grantor or against
any of its properties or revenues with respect to this Agreement or any of
the transactions contemplated hereby which would have a material adverse
effect upon any material portion of the Collateral or the granting of the
security interests hereby.
5. Covenants. Each Grantor covenants and agrees with the
---------
Administrative Agent and the Secured Parties that, from and after the date of
this Agreement until the Obligations are paid in full, the Commitments are
terminated and either no Letters of Credit are outstanding or each outstanding
Letter of Credit has been cash collateralized so that it is fully secured to the
satisfaction of the Administrative Agent:
(a) Further Documentation; Pledge of Instruments and Chattel Paper.
--------------------------------------------------------------
(i) At any time and from time to time, upon the written request
of the Administrative Agent, and at the sole expense of such Grantor,
any Grantor will promptly and duly execute and deliver such further
instruments and documents and take such further action as the
Administrative Agent may reasonably request for the purpose of
obtaining or preserving the full benefits of this Agreement and of the
rights and powers herein granted, including, without limitation, (A)
the filing of any financing or continuation statements under the
Uniform Commercial Code in effect in any jurisdiction with respect to
the Liens created hereby and (B) in the case of Investment Property,
any Deposit Account referred to in Section 3(d) and any other relevant
Collateral, taking actions necessary to enable the Administrative
Agent to obtain "control" (within the meaning of the applicable
Uniform Commercial Code) with respect thereto. Each Grantor also
hereby authorizes the Administrative Agent to file (after written
notice to the Company) any such financing or continuation statement
without the signature of such Grantor to the extent permitted by
applicable law, provided that any failure to give any such notice
--------
shall not affect the validity or effectiveness of any such filing. A
carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement for filing in any jurisdiction.
(ii) If any amounts payable under or in connection with any of
the Collateral having a face value in excess of $1,000,000 in the
aggregate at any one time outstanding shall be or become evidenced by
any Instrument, Certificated Security or Chattel Paper, such
Instrument, Certificated Security or Chattel Paper shall be
immediately delivered to the Administrative Agent, duly indorsed in a
manner satisfactory to the Administrative Agent, to be held as
Collateral pursuant to this Agreement. So long as no Default or Event
of Default has occurred and is
<PAGE>
15
continuing, upon request by any Grantor, the Administrative Agent
shall make available any pledged Collateral to such Grantor, or its
designee, that such Grantor specifies is required for the purpose of
ultimate sale, exchange, presentation, collection, renewal,
registration or transfer thereof, provided that in each case
--------
arrangements reasonably satisfactory to the Administrative Agent shall
be made for the return of such pledged Collateral within 21 days from
the time of delivery by the Administrative Agent, except for pledged
Collateral that has been fully repaid, satisfied, or transferred as
permitted hereunder.
(iii) Notwithstanding anything set forth in this Agreement to
the contrary, so long as no Default or Event of Default has occurred
and is continuing, no Grantor shall be required to deliver to the
Administrative Agent any Instrument, Certificated Security or Chattel
Paper to be held by the Administrative Agent as Collateral pursuant to
this Agreement so long as the aggregate amount evidenced by all such
Instruments, Certificated Securities and Chattel Paper does not exceed
$1,000,000 at any one time outstanding.
(b) Indemnification. Each Grantor agrees to pay, and to save the
---------------
Administrative Agent and the Secured Parties harmless from, any and all
liabilities, costs and expenses (including, without limitation, reasonable
legal fees and expenses) (i) with respect to, or resulting from, any delay
in paying, any and all excise, sales or other taxes which may be payable or
determined to be payable with respect to any of the Collateral, (ii) with
respect to, or resulting from, any delay by such Grantor in complying with
any Requirement of Law applicable to any of the Collateral or (iii) in
connection with any of the transactions contemplated by this Agreement;
provided that no Grantor shall be liable for the payment of any portion of
--------
such liabilities, costs or expenses resulting from the gross negligence or
willful misconduct of the Administrative Agent or any of the Secured
Parties. Without limiting the preceding sentence, each Grantor will
indemnify and save and keep harmless the Administrative Agent and each
Secured Party from and against all expense, loss or damage suffered by
reason of any counterclaim of the account debtor or obligor thereunder,
arising out of a breach by such Grantor of any obligation thereunder or
arising out of any other agreement, indebtedness or liability at any time
owing to or in favor of such account debtor or obligor or its successors
from such Grantor.
(c) Maintenance of Records. Each Grantor will keep and maintain at
----------------------
its own cost and expense satisfactory and complete records of the
Collateral, including, without limitation, a record of all payments
received and all credits granted with respect to the Accounts, Contracts
and Licenses. Each Grantor will mark its internal books and records
pertaining to the Collateral to evidence this Agreement and the security
interests granted hereby. For the Administrative Agent's and the Secured
Parties' further security, the Administrative Agent, for the benefit of the
Secured Parties, shall have a security interest in each Grantor's books and
records pertaining to the Collateral, and each Grantor shall make available
for review any such books and records to the Administrative Agent or to its
representatives during normal business hours at the reasonable request of
the
<PAGE>
16
Administrative Agent. Each Grantor shall permit representatives of the
Administrative Agent, upon reasonable notice to the Company (but no more
frequently than monthly unless a Default or Event of Default shall have
occurred and be continuing), to visit and inspect any of its properties and
examine and make abstracts from any of its books and records at any
reasonable time and as often as may reasonably be requested upon reasonable
notice, and to discuss the business, operations, assets and financial and
other condition of such Grantor with officers and employees thereof and
with their independent certified public accountants.
(d) Right of Inspection. The Administrative Agent and the
-------------------
representatives of any Secured Party shall upon reasonable notice (made
through the Administration Agent and no more frequently than quarterly
unless a Default or Event of Default shall have occurred and be continuing)
have full and free reasonable access to visit and inspect any of its
properties and examine and make abstracts from any of its books and records
at any reasonable time and as often as may reasonably be requested upon
reasonable notice, and to discuss the business, operations, assets and
financial and other condition of the Company and its Subsidiaries with
officers and employees thereof and with their independent certified public
accountants with prior reasonable notice to, and coordination with, the
chief financial officer or the treasurer of the Company, and the Company
agrees to render to the Administrative Agent at the Company's cost and
expense, and to the Secured Parties, such clerical and other assistance as
may be reasonably requested with regard thereto. The Administrative Agent
and the Secured Parties shall keep such information thereby obtained
confidential to the extent set forth in subsection 9.6(f) of the Corporate
Credit Agreement.
(e) Compliance with Laws, etc. Each Grantor will comply in all
--------------------------
material respects with all Requirements of Law applicable to the Collateral
or any part thereof or to the operation of such Grantor's business;
provided that such Grantor may contest any Requirement of Law in any
--------
reasonable manner which shall not, in the reasonable opinion of the
Administrative Agent, adversely affect the Administrative Agent's or the
Secured Parties' rights or the priority of their Liens on the Collateral.
(f) Compliance with Terms of Contracts, etc. Each Grantor will
---------------------------------------
perform and comply in all material respects with all its obligations under
the Contracts and all its other Contractual Obligations relating to the
Collateral.
(g) Payment of Obligations. Each Grantor will pay promptly when due
----------------------
all material taxes, assessments and governmental charges or levies imposed
upon the Collateral or in respect of its income or profits therefrom, as
well as all claims of any kind (including, without limitation, claims for
labor, materials and supplies) against or with respect to the Collateral,
except that no such charge need be paid if (i) the validity thereof is
being contested in good faith by appropriate proceedings, (ii) such
proceedings do not involve any material danger of the sale, forfeiture or
loss of any of the Collateral or any
<PAGE>
17
interest therein and (iii) such charge is adequately reserved against on
such Grantor's books in accordance with GAAP.
(h) Maintenance of Insurance. All insurance maintained by such
------------------------
Grantor pursuant to subsection 6.5(b) of the Corporate Credit Agreement
shall (i) provide that no cancellation, material reduction in amount or
material change in coverage thereof shall be effective until at least 30
days after receipt by the Administrative Agent of written notice thereof,
(ii) name the Administrative Agent as insured party or loss payee, and
(iii) be reasonably satisfactory in all other respects to the
Administrative Agent.
(i) Limitation on Liens on Collateral. No Grantor will create, incur
---------------------------------
or permit to exist, and each Grantor will take all commercially reasonable
actions to defend the Collateral against, and will take such other
commercially reasonable action as is necessary to remove, any Lien or claim
on or to the Collateral, other than the Liens created hereby and other than
as permitted pursuant to the Corporate Credit Agreement, and will take all
commercially reasonable actions to defend the right, title and interest of
the Administrative Agent and the Secured Parties in and to any of the
Collateral against the claims and demands of all Persons whomsoever.
(j) Limitations on Dispositions of Collateral. No Grantor will sell,
-----------------------------------------
transfer, lease or otherwise dispose of any of the Collateral, or attempt,
offer or contract to do so except for sales of assets permitted by the
Corporate Credit Agreement. Concurrently with any such permitted
disposition, the property acquired by a transferee in such disposition
shall automatically be released from the security interest created by this
Agreement (the "Security Interest"). It is acknowledged and agreed that
-----------------
notwithstanding any release of property from the Security Interest in
accordance with the foregoing provisions of this Section, the Security
Interest shall in any event continue in the Proceeds of Collateral. The
Administrative Agent shall promptly execute and deliver (and, when
appropriate, shall cause any separate agent, co-agent or trustee to execute
and deliver) any releases, instruments or documents reasonably requested by
any Grantor to accomplish or confirm the release of Collateral provided by
this Section. Any such release of Collateral provided by the
Administrative Agent shall specifically describe that portion of the
Collateral to be released, shall be expressed to be unconditional and shall
be without recourse or warranty (other than a warranty that the
Administrative Agent has not assigned its rights and interests to any other
Person). Such Grantor shall pay all of the Administrative Agent's
reasonable expenses in connection with any release of Collateral.
(k) Limitations on Modifications, Waivers, Extensions of Agreements
---------------------------------------------------------------
Giving Rise to Accounts. No Grantor will (i) amend, modify, terminate or
-----------------------
waive any provision of any Contract, agreement or lease giving rise to an
Account or License in any manner which could reasonably be expected to
materially adversely affect the value of such Contract, Account or License
as Collateral, except in a manner consistent with the ordinary and
customary conduct of its business, (ii) fail to exercise promptly and
<PAGE>
18
diligently each and every material right which it may have under each
material Contract, agreement or lease giving rise to an Account or License
(other than any right of termination), except in a manner consistent with
the ordinary and customary conduct of its business or (iii) fail to deliver
to the Administrative Agent upon its reasonable request a copy of each
material demand, notice or document received by it relating in any way to
any material Contract, agreement or lease giving rise to an Account or
License.
(l) Limitations on Discounts, Compromises, Extensions of Accounts.
-------------------------------------------------------------
Other than in the ordinary course of business as generally conducted by
each Grantor over a period of time, no Grantor will grant any extension of
the time of payment of any of the Accounts, compromise, compound or settle
the same for less than the full amount thereof, release, wholly or
partially, any Person liable for the payment thereof, or allow any credit
or discount whatsoever thereon.
(m) Maintenance of Equipment. Each Grantor will maintain each item of
------------------------
Equipment in good operating condition, ordinary wear and tear and
immaterial impairments of value and damage by the elements excepted, and
will provide all maintenance, service and repairs necessary for such
purpose.
(n) Further Identification of Collateral. Each Grantor will furnish
------------------------------------
to the Administrative Agent from time to time statements and schedules
further identifying and describing the Collateral and such other reports in
connection with the Collateral as the Administrative Agent may reasonably
request, all in reasonable detail.
(o) Notices. Each Grantor will advise the Administrative Agent and
-------
the Secured Parties promptly, in reasonable detail, at their respective
addresses set forth in the Corporate Credit Agreement, (i) of any Lien
(other than Liens created hereby or permitted under the Corporate Credit
Agreement) on, or claim asserted against, any of the Collateral and (ii) of
the occurrence of any other event which could reasonably be expected to
have a material adverse effect on the aggregate value of the Collateral or
on the Liens created hereunder.
(p) Changes in Locations, Name, etc. No Grantor will (i) change the
--------------------------------
location of its chief executive office/chief place of business from that
specified on Schedule VII hereto or remove its books and records from the
------------
location specified on Schedule VII hereto, (ii) remove any material amount
------------
of the Inventory forming part of the Collateral or Equipment to, or keep
any material amount of such Inventory or Equipment at, a location other
than those listed on Schedule VI hereto, or (iii) change its name
-----------
(including the adoption of any new trade name), identity or corporate
structure to such an extent that any financing statement filed by the
Administrative Agent in connection with this Agreement would become
seriously misleading, unless it shall have provided at least 15 days' prior
written notice to the Administrative Agent of any such event and provide
the Administrative Agent with the new location of its chief executive
office/chief place of business and its books and records, the location of
such Inventory and Equipment and the
<PAGE>
19
change in any Grantor's name, as the case may be. Any notice given pursuant
to this Section 5(p) shall be deemed to amend Schedule VI hereto or
-----------
Schedule VII hereto, as the case may be. In connection with any actions
------------
permitted pursuant to clause (i) of this Section 5(p), the Administrative
Agent shall be entitled to receive any legal opinions it reasonably
requests as to the continued perfection of the security interest granted
hereby in the Collateral, which opinions shall be deemed satisfactory to
the Administrative Agent if substantially similar to the perfection
opinions given by Gibson, Dunn & Crutcher on the Closing Date.
(q) Copyrights. Each Grantor (i) will employ the Copyright for each
----------
material published work with such notice of copyright as may be required by
law to secure copyright protection and (ii) will not do any act or
knowingly omit to do any act whereby any material Copyright may become
invalidated and:
(A) will not do any act, or omit to do any act, whereby any
material Copyright may become injected into the public domain;
(B) shall notify the Administrative Agent immediately if it
knows, or has reason to know, that any material Copyright may become
injected into the public domain or of any adverse determination or
development (including, without limitation, the institution of, or any
such determination or development in, any court or tribunal in the
United States or any other country) regarding such Grantor's ownership
of any such Copyright or its validity;
(C) will take all necessary steps as it shall deem appropriate
under the circumstances, to maintain and pursue each application (and
to obtain the relevant registration) and to maintain each registration
of each material Copyright owned by such Grantor including, without
limitation, filing of applications for renewal, where necessary; and
(D) will promptly notify the Administrative Agent of any
material infringement of any material Copyright of such Grantor of
which it becomes aware and will take such actions as it shall
reasonably deem appropriate under the circumstances to protect such
Copyright, including, where appropriate, the bringing of suit for
infringement, seeking injunctive relief and seeking to recover any and
all damages for such infringement.
<PAGE>
20
(r) Patents and Trademarks.
----------------------
(i) Each Grantor (either itself or through licensees) will,
except with respect to any Trademark that such Grantor shall
reasonably determine is of immaterial economic value to it or
otherwise reasonably determines not to do so, (A) continue to use each
Trademark on each and every trademark class of goods applicable to its
current line as reflected in its current catalogs, brochures and price
lists in order to maintain such Trademark in full force free from any
claim of abandonment for non-use, (B) maintain as in the past the
quality of products and services offered under such Trademark, (C) use
reasonable efforts to employ such Trademark with the appropriate
notice of registration, (D) not adopt or use any mark which is
confusingly similar or a colorable imitation of such Trademark unless
within 45 days after such use or adoption the Administrative Agent,
for the benefit of the Secured Parties, shall obtain a perfected
security interest in such mark pursuant to this Agreement, and (E) not
(and not permit any licensee or sublicensee thereof to) do any act or
knowingly omit to do any act whereby any Trademark may become
invalidated.
(ii) No Grantor will, except with respect to any Patent that
such Grantor shall reasonably determine is of immaterial economic
value to it or otherwise reasonably determines so to do, do any act,
or omit to do any act, whereby any Patent may become abandoned or
dedicated.
(iii) Each Grantor will notify the Administrative Agent
immediately if it knows, or has reason to know, that any application
relating to any Patent, or any application or registration relating to
any Trademark may become abandoned or dedicated, or of any adverse
determination or material development (including, without limitation,
the institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark Office or any
court or tribunal in any country) regarding such Grantor's ownership
of any Patent or Trademark or its right to register the same or to
keep and maintain the same.
(iv) Whenever any Grantor, either by itself or through any
agent, employee, licensee or designee, shall file an application for
any Patent or for the registration of any Trademark with the United
States Patent and Trademark Office or any similar office or agency in
any other country or any political subdivision thereof, such Grantor
shall report such filing to the Administrative Agent within five
Business Days after the last day of the fiscal quarter in which such
filing occurs. Upon request of the Administrative Agent, such Grantor
shall execute and deliver any and all agreements, instruments,
documents, and papers as the Administrative Agent may request to
evidence the Administrative Agent's security interest in any Patent or
Trademark and the goodwill and general intangibles of such Grantor
relating thereto or represented thereby, and each Grantor hereby
appoints and constitutes the Administrative Agent its attorney-in-fact
to execute
<PAGE>
21
and file all such writings for the foregoing purposes, all acts of
such attorney being hereby ratified and confirmed; such power being
coupled with an interest and is irrevocable until the Obligations are
paid in full, the Commitments are terminated and no Letters of Credit
are outstanding.
(v) Each Grantor, except with respect to any Patent or Trademark
such Grantor shall reasonably determine is of immaterial economic
value to it or it otherwise reasonably determines not to so do and
except with respect to any Trademark that is not registrable, will
take all reasonable and necessary steps, including, without
limitation, in any proceeding before the United States Patent and
Trademark Office, or any similar office or agency in any other country
or any political subdivision thereof, to maintain and pursue each
application (and to obtain the relevant registration or Patent) and to
maintain each Patent and each registration of Trademarks, including,
without limitation, filing of applications for renewal, affidavits of
use and affidavits of incontestability when appropriate.
(vi) In the event that any Patent or Trademark included in the
Collateral is infringed, misappropriated or diluted by a third party,
such Grantor shall promptly notify the Administrative Agent after it
learns thereof and shall, unless such Grantor shall reasonably
determine that such Patent or Trademark is of immaterial economic
value to such Grantor, which determination such Grantor shall promptly
report to the Administrative Agent, promptly sue for infringement,
misappropriation or dilution, to seek injunctive relief where
appropriate and to recover any and all damages for such infringement,
misappropriation or dilution, or take such other actions as such
Grantor shall reasonably deem appropriate under the circumstances to
protect such Patent or Trademark.
(s) Investment Property.
-------------------
(i) If such Grantor shall, as a result of its ownership of the
Pledged Stock, become entitled to receive or shall receive any stock
certificate (including, without limitation, any certificate
representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate
issued in connection with any reorganization), option or rights in
respect of the Capital Stock of any Issuer, whether in addition to, in
substitution of, as a conversion of, or in exchange for, any shares of
the Pledged Stock, or otherwise in respect thereof, such Grantor shall
accept the same as the agent of the Administrative Agent and the
Secured Parties, hold the same in trust for the Administrative Agent
and the Secured Parties and deliver the same forthwith to the
Administrative Agent in the exact form received, duly indorsed by such
Grantor to the Administrative Agent, if required, together with an
undated stock power covering such certificate duly executed in blank
by such Grantor and with, if the Administrative Agent so requests,
signature guaranteed, to be held by the
<PAGE>
22
Administrative Agent, subject to the terms hereof, as additional
collateral security for the Obligations.
(ii) Without the prior written consent of the Administrative
Agent, such Grantor will not (A) sell, assign, transfer, exchange, or
otherwise dispose of, or grant any option with respect to, the
Investment Property or Proceeds thereof (except pursuant to a
transaction expressly permitted by the Corporate Credit Agreement) or
(B) create, incur or permit to exist any Lien or option in favor of,
or any claim of any Person with respect to, any of the Investment
Property or Proceeds thereof, or any interest therein, except for the
Lien provided for by this Agreement and Permitted Liens.
(iii) In the case of each Grantor which is an Issuer, such Issuer
agrees that (A) it will be bound by the terms of this Agreement
relating to the Investment Property issued by it and will comply with
such terms insofar as such terms are applicable to it, (B) it will
notify the Administrative Agent promptly in writing of the occurrence
of any of the events described in Section 5(s)(i) hereof with respect
to the Investment Property issued by it and (C) the terms of Sections
7(c) and 10 hereof shall apply to it, mutatis mutandis, with respect
------- --------
to all actions that may be required of it pursuant to Section 7(c) or
10 with respect to the Investment Property issued by it.
3. Administrative Agent's Appointment as Attorney-in-Fact.
------------------------------------------------------
(a) Powers. Each Grantor hereby irrevocably constitutes and appoints
------
the Administrative Agent and any officer or agent thereof, with full power
of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of such Grantor and
in the name of such Grantor or in its own name, from time to time after the
occurrence, and during the continuation, of an Event of Default in the
Administrative Agent's discretion, for the purpose of carrying out the
terms of this Agreement, to take any and all appropriate action and to
execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Agreement, and, without
limiting the generality of the foregoing, each Grantor hereby gives the
Administrative Agent the power and right, on behalf of such Grantor,
without notice to or assent by such Grantor, to do the following:
(i) in the name of such Grantor or its own name, or otherwise,
to take possession of and indorse and collect any checks, drafts,
notes, acceptances or other instruments for the payment of moneys due
under any Account, Instrument forming part of the Collateral, License
or General Intangible or with respect to any other Collateral and to
file any claim or to take any other action or proceeding in any court
of law or equity or otherwise deemed appropriate by the Administrative
Agent for the purpose of collecting any and all such moneys due
<PAGE>
23
under any such Account, Instrument, License or General Intangible or
with respect to any other Collateral whenever payable;
(ii) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, provided that if such taxes are
--------
being contested in good faith and by appropriate proceedings, the
Administrative Agent will consult with such Grantor before making any
such payment; and
(iii) (A) to direct any party liable for any payment under any
of the Collateral to make payment of any and all moneys due or to
become due thereunder directly to the Administrative Agent or as the
Administrative Agent shall direct; (B) to ask or demand for, collect,
receive payment of and receipt for, any and all moneys, claims and
other amounts due or to become due at any time in respect of or
arising out of any Collateral; (C) to sign and indorse any invoices,
freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications, notices
and other documents in connection with any of the Collateral; (D) to
commence and prosecute any suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect the
Collateral or any thereof and to enforce any other right in respect of
any Collateral; (E) to defend any suit, action or proceeding brought
against such Grantor with respect to any Collateral; (F) to settle,
compromise or adjust any suit, action or proceeding described in
clause (E) above and, in connection therewith, to give such discharges
or releases as the Administrative Agent may deem appropriate; (G) to
assign any Patent or Trademark (along with the goodwill of the
business to which any such Trademark pertains), throughout the world
for such term or terms, on such conditions, and in such manner, as the
Administrative Agent shall in its sole discretion determine; and (H)
generally, to sell, transfer, pledge and make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though the Administrative Agent were the absolute owner
thereof for all purposes, and to do, at the Administrative Agent's
option and such Grantor's expense, at any time, or from time to time,
all acts and things which the Administrative Agent reasonably deems
necessary to protect, preserve or realize upon the Collateral and the
Administrative Agent's and the Secured Parties' Liens thereon and to
effect the intent of this Agreement, all as fully and effectively as
such Grantor might do.
Each Grantor hereby ratifies all that said attorneys shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power
coupled with an interest and shall be irrevocable.
(b) Other Powers. (i) Each Grantor also authorizes the Administrative
------------
Agent, at any time and from time to time, to execute, in connection with
the sale provided for in Section 9 or 10 hereof, any indorsement,
assignments or other instruments of conveyance or transfer with respect to
the Collateral and (ii) pursuant to Section 9-402 of the Code,
<PAGE>
24
each Grantor authorizes the Administrative Agent to file financing
statements with respect to the Collateral without the signature of such
Grantor in such form and in such filing offices as the Administrative Agent
reasonably determines appropriate to perfect the security interests of the
Administrative Agent under this Agreement. A carbon, photographic or other
reproduction of this Agreement shall be sufficient as a financing statement
for filing in any jurisdiction.
(c) No Duty on Administrative Agent's or Secured Parties' Part. The
----------------------------------------------------------
powers conferred on the Administrative Agent and the Secured Parties
hereunder are solely to protect the Administrative Agent's and the Secured
Parties' interests in the Collateral and shall not impose any duty upon the
Administrative Agent or any Secured Party to exercise any such powers. The
Administrative Agent and the Secured Parties shall be accountable only for
amounts that they actually receive as a result of the exercise of such
powers, and neither they nor any of their officers, directors, employees or
agents shall be responsible to any Grantor for any act or failure to act
hereunder, except for their own gross negligence or willful misconduct or
failure to comply with mandatory provisions of applicable law.
7. Investment Property.
-------------------
(a) Unless an Event of Default shall have occurred and be continuing,
each Grantor shall be permitted to receive all cash dividends paid by the
relevant Issuer to the extent permitted in the Corporate Credit Agreement
in respect of the Pledged Stock, and all payments made in respect of the
Pledged Notes, and to exercise all voting and corporate rights with respect
to the Investment Property; provided, however, that each Grantor agrees
-------- -------
that it shall not vote in any way that would be inconsistent with or result
in any violation of any provision of the Corporate Credit Agreement, the
Notes, the Security Documents, any of the other Corporate Credit Documents
or any of the other Synthetic Credit Documents. The Administrative Agent
shall, at the Company's sole cost and expense, execute and deliver (or
cause to be executed and delivered) to the Company all proxies and other
instruments as the Company may reasonably request for the purpose of
enabling any Grantor to exercise the voting and other rights that it is
entitled to exercise pursuant to this Section.
(b) If an Event of Default shall occur and be continuing, (i) the
Administrative Agent shall have the right to receive any and all cash
dividends, payments or other Proceeds paid in respect of the Investment
Property and make application thereof to the Obligations in such order as
the Administrative Agent may determine in accordance with the Agency and
Intercreditor Agreement, and (ii) any or all of the Investment Property may
be registered in the name of the Administrative Agent or its nominee, and,
subject to the terms of this Agreement, the Administrative Agent or its
nominee may thereafter exercise (A) all voting, corporate and other rights
pertaining to such Investment Property at any meeting of shareholders of
the relevant Issuer or Issuers or otherwise and (B) any and all rights of
conversion, exchange and subscription and any other rights, privileges or
<PAGE>
25
options pertaining to such Investment Property as if it were the absolute
owner thereof (including, without limitation, the right to exchange at its
discretion any and all of the Investment Property upon the merger,
consolidation, reorganization, recapitalization or other fundamental change
in the corporate structure of any Issuer, or upon the exercise by any
Grantor or the Administrative Agent of any right, privilege or option
pertaining to such Investment Property, and in connection therewith, the
right to deposit and deliver any and all of the Investment Property with
any committee, depositary, transfer agent, registrar or other designated
agency upon such terms and conditions as the Administrative Agent may
determine), all without liability except to account for property actually
received by it, and except for its gross negligence or willful misconduct
or failure to comply with the provisions of Section 13 hereof, but the
Administrative Agent shall have no duty to any Grantor to exercise any such
right, privilege or option and shall not be responsible for any failure to
do so or delay in so doing.
(c) Each Grantor hereby authorizes and instructs each Issuer of any
Investment Property pledged by such Grantor hereunder to comply with any
instruction received by it from the Administrative Agent in writing that
(i) states that an Event of Default has occurred and is continuing and (ii)
is otherwise in accordance with the terms of this Agreement, without any
other or further instructions from such Grantor, and each Grantor agrees
that each Issuer shall be fully protected in so complying.
(d) The rights of the Administrative Agent and the Secured Parties
hereunder shall not be conditioned or contingent upon the pursuit by the
Administrative Agent or any Secured Party of any right or remedy against
any other Person which may be or become liable in respect of all or any
part of the Obligations or against any collateral security therefor,
guarantee therefor or right of offset with respect thereto. Neither the
Administrative Agent nor any Secured Party shall be liable for any failure
to demand, collect or realize upon all or any part of the Collateral or for
any delay in doing so, nor shall the Administrative Agent be under any
obligation to sell or otherwise dispose of any Collateral upon the request
of any Grantor or any other Person or to take any other action whatsoever
with regard to the Collateral or any part thereof. The Administrative
Agent agrees to release promptly to the Company any dividends, cash,
securities, instruments and other property paid, payable or otherwise
distributed in respect of the Collateral which it may receive under Section
7(b) hereof if, prior to the occurrence of an acceleration of any of the
Obligations, all Defaults and Events of Default have been waived or are no
longer continuing.
5. Performance by Administrative Agent of Any Grantor's Obligations.
----------------------------------------------------------------
If any Grantor fails to perform or comply with any of its agreements contained
herein and the Administrative Agent, as provided for by the terms of this
Agreement, shall itself perform or comply, or otherwise cause performance or
compliance, with such agreement, the expenses of the Administrative Agent
incurred in connection with such performance or compliance, together with
interest thereon at a rate per annum equal to 2% plus the Alternate Base Rate,
shall be payable by such Grantor to the Administrative Agent on demand and shall
constitute Obligations
<PAGE>
26
secured hereby; provided that the Administrative Agent shall in any event first
--------
have given such Grantor written notice of its intent to do the same and such
Grantor shall not have, within 30 days of such notice (or such shorter period as
the Administrative Agent may reasonably determine is necessary in order to
preserve the benefits of this Agreement with respect to any material portion of
the Collateral), paid such claim or obtained to the Administrative Agent's
satisfaction the release of the claim or Lien to which such notice relates.
6. Remedies. If an Event of Default shall occur and be continuing,
--------
the Administrative Agent on behalf of the Secured Parties may, except with
respect to the Pledged Stock, exercise, in addition to all other rights and
remedies granted to them in this Agreement and in any other instrument or
agreement securing, evidencing or relating to the Obligations, all rights and
remedies of a secured party under the Code. With respect to the Pledged Stock,
in the event that any portion of the Obligations has been declared or becomes
due and payable in accordance with the terms of the Corporate Credit Agreement,
the Administrative Agent on behalf of the Secured Parties may exercise, in
addition to all other rights and remedies granted to them in this Agreement and
in any other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the Code. Without
limiting the generality of the foregoing, the Administrative Agent, without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to below) to or
upon any Grantor or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give an option or
options to purchase, or otherwise dispose of and deliver the Collateral or any
part thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, at any exchange, broker's board or office of
the Administrative Agent or any Secured Party or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
The Administrative Agent or any Secured Party shall have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such private
sale or sales, to purchase the whole or any part of the Collateral so sold, free
of any right or equity of redemption in any Grantor, which right or equity is
hereby waived and released. The Administrative Agent shall apply the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale, after deducting all reasonable costs and expenses of every kind
incurred therein or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the
Administrative Agent and the Secured Parties hereunder, including, without
limitation, reasonable attorneys' fees and disbursements, to the payment in
whole or in part of the Obligations, in such order as the Administrative Agent
may elect in accordance with the Agency and Intercreditor Agreement, and only
after such application and after the payment by the Administrative Agent of any
other amount required by any provision of law, including, without limitation,
Section 9-504(1)(c) of the Code, need the Administrative Agent account for the
surplus, if any, to such Grantor. To the extent permitted by applicable law,
each Grantor waives all claims, damages and demands it may acquire against the
Administrative Agent or any Secured Party arising out of the exercise by them of
any rights hereunder, except to the extent arising from the gross negligence or
willful
<PAGE>
27
misconduct of the Administrative Agent or such Secured Party. If any notice of a
proposed sale or other disposition of Collateral shall be required by law, such
notice shall be deemed reasonable and proper if given at least 10 days before
such sale or other disposition. Such Grantor shall remain liable for any
deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay the Obligations and the fees and disbursements of any
attorneys employed by the Administrative Agent or any Secured Party to collect
such deficiency.
7. Registration Rights.
-------------------
(a) If the Administrative Agent shall determine to exercise its right
to sell any or all of the Pledged Stock pursuant to Section 9 hereof, and
if in the opinion of the Administrative Agent it is necessary or advisable
to have the Pledged Stock, or that portion thereof to be sold, registered
under the provisions of the Securities Act, the relevant Grantor will cause
the Issuer thereof to (i) execute and deliver, and cause the directors and
officers of such Issuer to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts as may be, in the
opinion of the Administrative Agent, necessary or advisable to register the
Pledged Stock, or that portion thereof to be sold, under the provisions of
the Securities Act, (ii) use its best efforts to cause the registration
statement relating thereto to become effective and to remain effective for
a period of 90 days from the date of the first public offering of the
Pledged Stock, or that portion thereof to be sold, and (iii) make all
amendments thereto and/or to the related prospectus that, in the opinion of
the Administrative Agent, are necessary or advisable, all in conformity
with the requirements of the Securities Act and the rules and regulations
of the Securities and Exchange Commission applicable thereto. Each Grantor
agrees to cause such Issuer to comply with the provisions of the securities
or "Blue Sky" laws of any and all jurisdictions which the Administrative
Agent shall reasonably designate and to make available to its security
holders, as soon as practicable, an earnings statement (which need not be
audited) which will satisfy the provisions of Section 11(a) of the
Securities Act.
(b) Each Grantor recognizes that the Administrative Agent may be
unable to effect a public sale of any or all the Pledged Stock, by reason
of certain prohibitions contained in the Securities Act and applicable
state securities laws or otherwise, and may be compelled to resort to one
or more private sales thereof to a restricted group of purchasers that will
be obliged to agree, among other things, to acquire such securities for
their own account for investment and not with a view to the distribution or
resale thereof. Each Grantor acknowledges and agrees that any such private
sale may result in prices and other terms less favorable than if such sale
were a public sale and, notwithstanding such circumstances, agrees that any
such private sale conducted in a manner that the Administrative Agent in
good faith believes to be commercially reasonable under the circumstances
shall be deemed to have been made in a commercially reasonable manner. The
Administrative Agent shall be under no obligation to delay a sale of any of
the Pledged Stock for the period of time necessary to permit the Issuer
thereof to register
<PAGE>
28
such securities for public sale under the Securities Act, or under
applicable state securities laws, even if such Issuer would agree to do so.
(c) Each Grantor further agrees to use its best efforts to do or
cause to be done all such other acts as may be necessary to make such sale
or sales of all or any portion of the Pledged Stock pursuant to this
Section 10 valid and binding and in compliance with any and all other
applicable Requirements of Law. Each Grantor further agrees that a breach
of any of the covenants contained in this Section 10 will cause irreparable
injury to the Administrative Agent and the Secured Parties, that the
Administrative Agent and the Secured Parties have no adequate remedy at law
in respect of such breach and, as a consequence, that each and every
covenant contained in this Section 10 shall be specifically enforceable
against such Grantor, and such Grantor hereby waives and agrees not to
assert any defenses against an action for specific performance of such
covenants.
8. No Subrogation. Notwithstanding any payment or payments made by
--------------
any Grantor hereunder or any set-off or application of funds of any Grantor by
any Secured Party, or the receipt of any amounts by the Administrative Agent or
any Secured Party with respect to any of the Collateral, no Grantor shall be
entitled to be subrogated to any of the rights of the Administrative Agent or
any Secured Party against the Company or any other Grantor or any collateral
security or guarantee or right of offset held by the Administrative Agent or any
Secured Party for the payment of the Obligations, nor shall any Grantor seek any
reimbursement from the Company or any other Grantor in respect of payments made
by such Grantor hereunder, or amounts realized by the Administrative Agent or
any Secured Party in connection with the Collateral, and any such rights of
subrogation and reimbursement of the Grantors are hereby waived until all
amounts owing to the Administrative Agent and the Secured Parties by the
Grantors on account of the Obligations are paid in full, the Commitments are
terminated and either no Letters of Credit are outstanding or each outstanding
Letter of Credit has been cash collateralized so that it is fully secured to the
satisfaction of the Administrative Agent.
9. Amendments, etc. with Respect to the Obligations. Each Grantor
------------------------------------------------
shall remain obligated hereunder, and the Collateral shall remain subject to the
Lien granted hereby notwithstanding that, without any reservation of rights
against any Grantor, and without notice to or further assent by such Grantor,
any demand for payment of any of the Obligations made by the Administrative
Agent or any Secured Party may be rescinded by the Administrative Agent or any
Secured Party, and any of the Obligations continued, and the Obligations, or the
liability of each Grantor or any other Person upon or for any part thereof, or
any collateral security or guarantee therefor or right of offset with respect
thereto, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered, or released by
the Administrative Agent or any Secured Party, and the Corporate Credit
Agreement, the Notes, the other Corporate Credit Documents, the other Synthetic
Credit Documents, any Interest Rate Agreements and any other documents executed
and delivered in connection therewith may be amended, modified, supplemented or
terminated, in whole or part, as the Administrative Agent or any Secured Party
may deem advisable from time to time, and any guarantee, right of offset or
other collateral security at any time held by the Administrative Agent
<PAGE>
29
or any Secured Party for the payment of the Obligations may be sold, exchanged,
waived, surrendered or released. Neither the Administrative Agent nor any
Secured Party shall have any obligation to protect, secure, perfect or insure
this or any other Lien at any time held by it as security for the Obligations or
any property subject thereto. Each Grantor waives any and all notice of the
creation, renewal, extension or accrual of any of the Obligations and notice of
or proof of reliance by the Administrative Agent or any Secured Party upon this
Agreement; the Obligations, and any of them, shall conclusively be deemed to
have been created, contracted or incurred in reliance upon this Agreement; and
all dealings between any Grantor and the Administrative Agent or any Secured
Party, shall likewise be conclusively presumed to have been had or consummated
in reliance upon this Agreement. Each Grantor waives diligence, presentment,
protest, demand for payment and notice of default or nonpayment to or upon such
Grantor with respect to the Obligations.
10. Limitation on Duties Regarding Preservation of Collateral. The
---------------------------------------------------------
Administrative Agent's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Code or otherwise, shall be to deal with it in the same manner as the
Administrative Agent deals with similar property for its own account. Neither
the Administrative Agent, any Secured Party, nor any of their respective
directors, officers, employees or agents shall be liable for failure to demand,
collect or realize upon all or any part of the Collateral or for any delay in
doing so or shall be under any obligation to sell or otherwise dispose of any
Collateral upon the request of any Grantor or otherwise.
11. Delegation of Duties. The Administrative Agent may execute any
--------------------
of its duties under this Agreement by or through agents or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters pertaining to such
duties. The Administrative Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys-in-fact selected by it with reasonable
care, except as otherwise provided in subsection 5.3 of the Agency and
Intercreditor Agreement or Section 13 hereof.
12. Powers Coupled with an Interest. All authorizations and agencies
-------------------------------
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
13. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14. Section Headings. The section headings used in this Agreement
----------------
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.
<PAGE>
30
15. No Waiver; Cumulative Remedies. Neither the Administrative
------------------------------
Agent nor any Secured Party shall by any act (except by a written instrument
pursuant to Section 19 hereof), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part of the
Administrative Agent or any Secured Party, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Administrative Agent or any Secured Party of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which the Administrative Agent or such Secured Party would otherwise have
on any future occasion. The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
16. Integration; Waivers and Amendments; Successors and Assigns;
------------------------------------------------------------
Governing Law. This Agreement, the other Corporate Credit Documents and the
- -------------
other Synthetic Credit Documents represent the entire agreement of each Grantor
with respect to the subject matter hereof and there are no promises or
representations by the Administrative Agent or any Secured Party relative to the
subject matter hereof not reflected herein, in the other Corporate Credit
Documents or in the other Synthetic Credit Documents. None of the terms or
provisions of this Agreement may be waived, amended, supplemented or otherwise
modified except by a written instrument executed by the Company, each other
Grantor, and the Administrative Agent, provided that any provision of this
--------
Agreement may be waived by the Administrative Agent in a written letter or
agreement executed by the Administrative Agent or by telex or facsimile
transmission from the Administrative Agent. This Agreement shall be binding
upon the successors and assigns of each Grantor and shall inure to the benefit
of the Administrative Agent and the Secured Parties and their respective
successors and assigns. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
17. Notices. All notices, requests and demands to or upon each
-------
Grantor or the Administrative Agent or any Secured Party to be effective shall
be in writing and unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or, in the case of mail,
three days after deposit in the postal system, first class postage prepaid, or,
in the case of telecopy notice, when sent, or, in the case of telex notice, when
sent, answerback received, addressed to a party at the address provided for such
party (including any addresses for copies) in subsection 9.2 of the Corporate
Credit Agreement.
18. Counterparts. This Agreement may be executed by one or more of
------------
the parties hereto on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
19. Authority of Administrative Agent. Each Grantor acknowledges
---------------------------------
that the rights and responsibilities of the Administrative Agent under this
Agreement with respect to any
<PAGE>
31
action taken by the Administrative Agent or the exercise or non-exercise by the
Administrative Agent of any option, right, request, judgment or other right or
remedy provided for herein or resulting or arising out of this Agreement shall,
as between the Administrative Agent and the Secured Parties, be governed by the
Corporate Credit Agreement or the Synthetic Credit Agreement (as the case may
be) and by the Agency and Intercreditor Agreement, and by such other agreements
with respect thereto as may exist from time to time among them, but, as between
the Administrative Agent and each Grantor, the Administrative Agent shall be
conclusively presumed to be acting as agent for the Secured Parties with full
and valid authority so to act or refrain from acting, and such Grantor shall not
be under any obligation, or entitlement, to make any inquiry respecting such
authority.
20. Additional Grantors. Each Subsidiary of the Company that is
-------------------
required to become a party to this Agreement pursuant to subsection 6.9(b) of
the Corporate Credit Agreement shall become a Grantor for all purposes of this
Agreement, a Borrower for all purposes of the Corporate Credit Agreement, a
Guarantor for all purposes of the Synthetic Guarantee, and a party to the Agency
and Intercreditor Agreement upon execution and delivery by such Subsidiary of an
Assumption Agreement in the form of Annex 1 hereto.
-------
21. Releases. The Administrative Agent and the Secured Parties agree
--------
to cooperate with each Grantor with respect to any sale permitted by subsection
7.5 of the Corporate Credit Agreement and promptly take such action and execute
and deliver such instruments and documents necessary to release the Liens and
security interests created hereby relating to any of the assets or property
affected by any sale permitted by subsection 7.5 of the Corporate Credit
Agreement including, without limitation, any necessary Uniform Commercial Code
amendment, termination or partial termination statement.
<PAGE>
32
22. Termination. This Agreement (other than with respect to any cash
-----------
collateral securing any outstanding Letter of Credit) shall terminate when all
the Obligations have been paid in full, the Commitments have been terminated and
either no Letters of Credit are outstanding or each outstanding Letter of Credit
has been cash collateralized so that it is fully secured to the satisfaction of
the Administrative Agent. Upon such termination, the Administrative Agent shall
reassign and redeliver (or cause to be reassigned and redelivered) to each
Grantor, or to such person or persons as such Grantor shall designate, or to
whomever may be lawfully entitled to receive such surplus, against receipt, such
of the Collateral (if any) (other than with respect to any cash collateral
securing any outstanding Letter of Credit) as shall not have been sold or
otherwise applied by the Administrative Agent pursuant to the terms hereof and
shall still be held by it hereunder, together with appropriate instruments or
reassignment and release. Any such reassignment and release shall be without
recourse upon or warranty by the Administrative Agent (other than a warranty
that the Administrative Agent has not assigned its rights and interests
hereunder to any Person) and at the expense of each Grantor.
23. Excluded Items. Notwithstanding anything to the contrary in this
--------------
Agreement, the terms "Accounts", "Chattel Paper", "Contracts", "Copyrights",
"Copyright Licenses", "Documents", "Equipment", "General Intangibles",
"Instruments", "Inventory", "Investment Property", "Patents", "Patent Licenses",
"Trademarks", "Trademark Licenses" and "Collateral" shall not include (a) for
the Grantors specified on Schedule VIII hereto, any item as to which the
-------------
granting of a security interest is prohibited by the arrangements specified for
such Grantor on Schedule VIII and (b) for each Grantor, any items as to which
-------------
the granting of a security interest is prohibited by the terms of such Grantor's
Contractual Obligations with third parties in connection with Indebtedness for
borrowed money assumed in connection with Purchase Option Acquisitions permitted
by the Corporate Credit Agreement.
24. Meditrust. The grant of security interests in Section 2 of this
---------
Agreement by any Grantor that is a Meditrust Entity, and the other terms and
provisions of this Agreement as they relate to Collateral of any Meditrust
Entity, shall be subordinate to any and all security interests in such
Collateral granted by any Meditrust Entity to Meditrust, except as may otherwise
be specifically provided in the Intercreditor Agreement.
<PAGE>
33
IN WITNESS WHEREOF, each Grantor and the Administrative Agent have
caused this Agreement to be duly executed and delivered as of the date first
above written.
HARBORSIDE HEALTHCARE CORPORATION
/s/ Stephen L. Guillard
By:______________________________
Title: President and
Chief Executive Officer
BAY TREE NURSING CENTER CORP.
BELMONT NURSING CENTER CORP.
COUNTRYSIDE CARE CENTER CORP.
HARBORSIDE HEALTH I CORPORATION
HARBORSIDE TOLEDO CORP.
KHI CORP.
MARYLAND HARBORSIDE CORP.
NEW JERSEY HARBORSIDE CORP.
OAKHURST MANOR NURSING CENTER
CORP.
ORCHARD RIDGE NURSING CENTER CORP.
SAILORS, INC.
SUNSET POINT NURSING CENTER CORP.
WEST BAY NURSING CENTER CORP.
/s/ Stephen L. Guillard
By:______________________________
Title: President and
Chief Executive Officer
<PAGE>
34
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 HEALTHCARE BALTIMORE
LIMITED PARTNERSHIP
HARBORSIDE HEALTHCARE NETWORK
LIMITED PARTNERSHIP
HARBORSIDE MASSACHUSETTS LIMITED
PARTNERSHIP
HARBORSIDE NORTH TOLEDO LIMITED
PARTNERSHIP
HARBORSIDE OF CLEVELAND LIMITED
PARTNERSHIP
HARBORSIDE OF DAYTON LIMITED
PARTNERSHIP
HARBORSIDE OF OHIO LIMITED
PARTNERSHIP
HARBORSIDE REHABILITATION LIMITED
PARTNERSHIP
HARBORSIDE RHODE ISLAND LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTH I CORPORATION,
as General Partner
/s/ Stephen L. Guillard
By:_______________________________
Title: President and
Chief Executive Officer
<PAGE>
35
HARBORSIDE FUNDING LIMITED
PARTNERSHIP
By: HARBORSIDE HEALTHCARE LIMITED
PARTNERSHIP, as General Partner
By: KHI CORP., as General Partner
/s/ Stephen L. Guillard
By:_________________________________
Title: President and
Chief Executive Officer
BRIDGEWATER ASSISTED LIVING LIMITED
PARTNERSHIP
By: NEW JERSEY HARBORSIDE CORP., as
General Partner
/s/ Stephen L. Guillard
By:_________________________________
Title: President and
Chief Executive Officer
HARBORSIDE NEW HAMPSHIRE LIMITED
PARTNERSHIP
HARBORSIDE TOLEDO LIMITED
PARTNERSHIP
HHCI LIMITED PARTNERSHIP
By: HARBORSIDE TOLEDO CORP., as General
Partner
/s/ Stephen L. Guillard
By:_________________________________
Title: President and
Chief Executive Officer
<PAGE>
36
HARBORSIDE HEALTHCARE ADVISORS
LIMITED PARTNERSHIP
HARBORSIDE HEALTHCARE LIMITED
PARTNERSHIP
HARBORSIDE HOMECARE LIMITED
PARTNERSHIP
By: KHI CORP., as General Partner
/s/ Stephen L. Guillard
By:_________________________________
Title: President and
Chief Executive Officer
HARBORSIDE PROPERTIES TRUST I
/s/ William H. Stephan
By:__________________________
Name: William H. Stephan, in his capacity as
trustee and not individually
THE CHASE MANHATTAN BANK, as
Administrative Agent
/s/ Robert Anastasio
By:_________________________________
Title: Vice President
<PAGE>
EXHIBIT 10.21
CONFORMED COPY
================================================================================
HHC 1998-1 TRUST
____________________________________
CREDIT AGREEMENT
dated as of August 11, 1998
____________________________________
$238,125,000
Credit Facility
____________________________________
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
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS 1
1.1 Defined Terms.......................................... 1
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS.................. 1
2.1 Commitments............................................ 1
2.2 Procedure for Borrowing................................ 2
2.3 Conversion to Term Synthetic Loans..................... 3
2.4 Optional and Mandatory Prepayments..................... 3
2.5 Conversion and Continuation Options.................... 4
2.6 Reduction of Commitment................................ 5
2.7 Interest Rates and Payment Dates....................... 5
2.8 Computation of Interest................................ 5
2.9 Inability to Determine Interest Rate................... 6
2.10 Pro Rata Treatment and Payments........................ 6
2.11 Illegality............................................. 8
2.12 Requirements of Law.................................... 9
2.13 Indemnity.............................................. 11
2.14 Repayment of Loans; Evidence of Debt................... 12
2.15 Replacement of Lenders................................. 13
SECTION 3. REPRESENTATIONS AND WARRANTIES................... 13
SECTION 4. CONDITIONS PRECEDENT............................. 13
4.1 Conditions to Effectiveness............................ 13
4.2 Conditions to Each Loan................................ 13
SECTION 5. COVENANTS 14
5.1 Other Activities....................................... 14
5.2 Ownership of Property, Indebtedness.................... 14
5.3 Disposition of Assets.................................. 14
5.4 Compliance with Operative Agreements................... 14
5.5 Further Assurances..................................... 15
5.6 Notices................................................ 15
5.7 Discharge of Liens..................................... 15
5.8 Recordkeeping.......................................... 15
SECTION 6. REMEDIAL PROVISIONS.............................. 15
6.1 Events of Default...................................... 15
SECTION 7. [INTENTIONALLY OMITTED].......................... 17
SECTION 8. MATTERS RELATING TO PAYMENTS AND COLLATERAL;
INTERCREDITOR AGREEMENT
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.1 The Account............................................ 17
8.2 Proceeds of Collateral; Proceeds Remaining in Account.. 20
8.3 Certain Remedial Matters............................... 20
8.4 Release of the Property, etc........................... 21
SECTION 9. MISCELLANEOUS 21
9.1 Amendments and Waivers................................. 21
9.2 Notices................................................ 22
9.3 No Waiver; Cumulative Remedies......................... 23
9.4 Survival of Representations and Warranties............. 23
9.5 Successors and Assigns; Participations and Assignments. 23
9.6 Set-off................................................ 27
9.7 Counterparts........................................... 27
9.8 Severability........................................... 27
9.9 Integration............................................ 28
9.10 Governing Law; No Third Party Rights................... 28
9.11 Submission to Jurisdiction; Waivers.................... 28
9.12 Special Indemnification................................ 28
9.13 Nonrecourse............................................ 29
</TABLE>
EXHIBITS
- --------
Exhibit A-1 Form of Tranche A Revolving Credit Note
Exhibit A-2 Form of Tranche B Revolving Credit Note
Exhibit A-3 Form of Tranche A Term Loan Note
Exhibit A-4 Form of Tranche B Term Loan Note
Exhibit B Form of Assignment and Acceptance
Exhibit C Form of Section 2.12(d) Certificate
SCHEDULES
- ---------
Schedule 1.1 Commitments of Lenders
Schedule 2 Pricing Grid
<PAGE>
CREDIT AGREEMENT, dated as of August 11, 1998, among HHC 1998-1 TRUST,
a Delaware business trust (the "Borrower"), the several lenders from time to
--------
time parties hereto (the "Lenders"), CHASE SECURITIES INC., as arranger (the
-------
"Arranger"), MORGAN STANLEY SENIOR FUNDING, INC. and BT ALEX. BROWN
- ---------
INCORPORATED, as co-arrangers (collectively, in such capacity, the "Co-
--
Arrangers"), BANKERS TRUST COMPANY, as documentation agent (in such capacity,
the "Documentation Agent"), MORGAN STANLEY SENIOR FUNDING, INC., as syndication
-------------------
agent (in such capacity, the "Syndication Agent"), and THE CHASE MANHATTAN BANK,
-----------------
a New York banking corporation, as administrative agent for the Lenders (in such
capacity, the "Agent").
-----
The parties hereto hereby agree as follows:
1. DEFINITIONS
1.1 Defined Terms. Capitalized terms used herein but not otherwise
-------------
defined in this Agreement shall have the respective meanings set forth in Annex
A attached to the Participation Agreement dated as of the date hereof among
Lessee, the Borrower, the Investors, the Agent and the Lenders, as the same may
from time to time be amended, supplemented or otherwise modified in accordance
with the terms thereof.
2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Commitments. (a) Subject to the terms and conditions hereof,
-----------
each Lender severally agrees to the extent of its Commitment to extend credit to
the Borrower from time to time on any Borrowing Date during the Commitment
Period by making loans in Dollars (individually, such a Loan is a "Revolving
---------
Credit Synthetic Loan", and collectively such Loans are the "Revolving Credit
- --------------------- ----------------
Synthetic Loans"; for purposes of clarity, Revolving Credit Synthetic Loans do
- ---------------
not include any Senior Secured Obligations") to the Borrower from time to time;
provided, however, that in no event shall any Revolving Credit Synthetic Loans
- -------- -------
be made, if the aggregate amount of the Revolving Credit Synthetic Loans to be
made would, after giving effect to the use of proceeds, if any, thereof, exceed
the aggregate Available Commitments. During the Commitment Period, the Borrower
may use the Commitments by borrowing, prepaying the Revolving Credit Synthetic
Loans in whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof.
(a) Each borrowing of Revolving Credit Synthetic Loans pursuant to
the Commitments (other than borrowings pursuant to Section 2.2(c)) shall be in
an aggregate principal amount of the lesser of (i) $1,000,000 or a whole
multiple of $100,000 in excess thereof or, with respect to a Requisition for
payment of Property Acquisition Costs, a whole multiple of $10,000 in excess
thereof, in the case of Alternate Base Rate Loans, and $2,000,000 or a whole
multiple of $100,000 in excess thereof, in the case of Eurodollar Loans and (ii)
the Available Commitments.
<PAGE>
2
2.2 Procedure for Borrowing. (a) The Borrower may borrow under the
-----------------------
Commitments during the Commitment Period on any Business Day, provided that,
--------
with respect to any borrowing, the Borrower shall give the Agent irrevocable
notice (which notice must be received by the Agent prior to 10:00 a.m. New York
City time, (i) three Business Days prior to the requested Borrowing Date if all
or any part of the Loans are to be Eurodollar Loans and (ii) one Business Day
prior to the requested Borrowing Date if the borrowing is to be solely of
Alternate Base Rate Loans) and specifying (A) the amount of the borrowing, (B)
whether such Loans are initially to be Eurodollar Loans or Alternate Base Rate
Loans or a combination thereof, (C) if the borrowing is to be entirely or partly
Eurodollar Loans, the length of the Interest Period for such Eurodollar Loans
and (D) the requested Borrowing Date. Upon receipt of such notice the Agent
shall promptly notify each Lender. Not later than 12:00 noon, New York City
time, on the Borrowing Date specified in such notice, each Lender shall make
available to the Agent at the office of the Agent specified in Section 9.2 (or
at such other location as the Agent may direct) an amount in immediately
available funds equal to the amount of the Loan to be made by such Lender. Loan
proceeds received by the Agent hereunder shall promptly be made available to the
Borrower by the Agent's crediting the account of the Construction Agent, at the
office of the Agent specified in Section 9.2, with the aggregate amount actually
received by the Agent from the Lenders and in like funds as received by the
Agent. The Borrower may submit no more than three Requisitions in any one
calendar month, one of which may be for construction related costs and up to two
of which may be for Property Acquisition Costs.
(a) Any borrowing of Eurodollar Loans hereunder shall be in such
amounts and be made pursuant to such elections so that, after giving effect
thereto, (i) the aggregate principal amount of all Eurodollar Loans having the
same Interest Period shall not be less than $2,000,000 or a whole multiple of
$100,000 in excess thereof and (ii) no more than sixteen Interest Periods shall
be in effect at any one time.
(b) Notwithstanding anything in the foregoing Section 2.3(a) to the
contrary, on each date during the Construction Period with respect to any
Construction Period Property which is one Business Day prior to any Interest
Payment Date, unless otherwise requested by the Borrower at least three Business
Days prior to such Interest Payment Date by written notice to the Agent, the
Borrower shall be deemed to have requested a borrowing pursuant to Section
2.3(a) of Alternate Base Rate Loans in an amount equal to the aggregate amount
of Allocated Interest on the Loans due and payable on such Interest Payment Date
with respect to the Construction Period Properties. The Borrowing Date with
respect to any such borrowing shall be the relevant Interest Payment Date
(provided, that the making of the Loans pursuant to such borrowing shall be
- ---------
subject to satisfaction of the applicable conditions precedent set forth in
Section 4.2) and the proceeds of such borrowing shall be applied to pay such
interest. On each such Borrowing Date, the Tranche A/B Property Cost and the
Tranche A/B Construction Property Cost of each Construction Period Property
shall be increased by an amount equal to the Allocated Interest paid on such
date with respect to such Property.
(c) A portion of the principal amount of each Revolving Credit
Synthetic Loan made by each Lender, and upon conversion pursuant to Section 2.3,
each Term Synthetic Loan of each Lender, equal to the Tranche A Percentage of
the principal amount of such Loan shall be deemed to be a "Tranche A Loan" for
--------------
the purposes of the Operative Agreements and the
<PAGE>
3
remaining portion of the principal amount of such Loan shall be deemed to be a
"Tranche B Loan" for the purposes of the Operative Agreements, provided that
-------------- --------
payments in respect of the Loans shall be allocated to reduce the aggregate
outstanding principal amount of Tranche A Loans and Tranche B Loans of each
Lender in the manner specified in Section 2.10(a).
2.3 Conversion to Term Synthetic Loans. If, on any anniversary of
----------------------------------
the Initial Closing Date, the sum of (a) the then outstanding Revolving Credit
Synthetic Loans plus the then outstanding Investor Contribution and (b) the then
outstanding Senior Secured Revolving Credit Loans and Swing Line Loans exceeds
$75,000,000 (the "Excess Amount"), then the following actions shall be taken (if
-------------
applicable) in the following order:
(i) the Commitments shall be automatically reduced by an amount
equal to the Excess Amount less an amount equal to 4.75% of the Excess
Amount (the "Investor Excess Amount"), and
----------------------
(ii) any amount of outstanding Revolving Credit Synthetic Loans up
to the Excess Amount less the Investor Excess Amount shall be converted to
term loans (any such Revolving Credit Synthetic Loans so converted being
herein called the "Term Synthetic Loans").
--------------------
2.4 Optional and Mandatory Prepayments. (a) Subject to Section
----------------------------------
2.13, the Borrower may at any time and from time to time prepay Loans, in whole
or in part, without premium or penalty, by irrevocable notice to the Agent by
10:00 a.m., New York City time, on the same Business Day in the case of
Alternate Base Rate Loans, and three Business Days' irrevocable notice to the
Agent in the case of Eurodollar Loans, specifying the date and amount of
prepayment. Upon receipt of such notice the Agent shall promptly notify each
Lender thereof. If such notice is given, the Borrower shall make such
prepayment, and the payment amount specified in such notice shall be due and
payable, on the date specified therein. Partial prepayments of Loans shall be
in an aggregate principal amount equal to the lesser of (A) (I) $2,000,000, or a
whole multiple of $100,000 in excess thereof with respect to Eurodollar Loans or
(II) $1,000,000, or a whole multiple of $100,000 in excess thereof with respect
to Alternate Base Rate Loans and (B) the aggregate unpaid principal amount of
the Loans.
(a) If on any date the Agent or the Borrower shall receive, with
respect to any Property, any payment in respect of excess wear and tear pursuant
to Section 21.3 of the Lease (a "Wear and Tear Payment") or any Net Sales
---------------------
Proceeds Shortfall pursuant to Section 21.3 of the Lease, such payment shall be
applied to prepay the Loans on such date in accordance with Section 8.1(b)(vi).
(b)(i) On any date on which the Lessee is obligated to pay the Lessor
an amount equal to (x) the Termination Value of any Property in connection with
the delivery of a Termination Notice or (y) the Termination Value of any
Property in connection with the exercise of a Purchase Option or Maturity Date
Purchase Option, such amount shall be applied to prepay the Loans on such date
in accordance with Section 8.1(b)(ii), and (ii) on any date on which any
Property shall have been sold pursuant to Section 21 of the Lease, the Borrower
shall prepay the
<PAGE>
4
Loans on such date in an amount equal to the proceeds of such sale (net of costs
and expenses described in Section 21.2(i) of the Lease) in accordance with
Section 8.1(b)(iii).
(c) Each prepayment of the Loans pursuant to Section 2.4(b) or 2.4(c)
shall be allocated to reduce the Tranche A/B Property Cost of the affected
Property. Each prepayment of the Loans pursuant to Section 2.5(a) shall be
allocated to reduce the respective Tranche A/B Property Costs of all Properties,
pro rata according to the Tranche A/B Property Costs of such Properties
- --- ----
immediately before giving effect to such prepayment. Any amounts applied to
reduce the Tranche A/B Property Cost of any Construction Period Property
pursuant to this paragraph (d) shall also be applied to reduce the Tranche A/B
Construction Property Cost of such Property until such Tranche A/B Construction
Property Cost has been reduced to zero.
2.5 Conversion and Continuation Options. (a) Subject to Section
-----------------------------------
2.13, the Borrower, may elect from time to time to convert Eurodollar Loans into
Alternate Base Rate Loans by giving the Agent irrevocable notice of such
election, to be received by the Agent prior to 12:00 noon, New York City time,
at least three Business Days prior to the proposed conversion date. The
Borrower may elect from time to time to convert all or a portion of the
Alternate Base Rate Loans then outstanding to Eurodollar Loans by giving the
Agent irrevocable notice of such election, to be received by the Agent prior to
12:00 noon, New York City time, at least three Business Days prior to the
proposed conversion date, specifying the Interest Period selected therefor, and,
if no Default or Event of Default has occurred and is continuing, such
conversion shall be made on the requested conversion date or, if such requested
conversion date is not a Business Day, on the next succeeding Business Day.
Upon receipt of any notice pursuant to this Section 2.5, the Agent shall
promptly notify each Lender thereof. All or any part of the outstanding Loans
may be converted as provided herein, provided that partial conversions of
--------
Alternate Base Loans shall be in the aggregate principal amount of $1,000,000 or
a whole multiple of $100,000 in excess thereof and the aggregate principal
amount of the resulting Eurodollar Loans outstanding in respect of any one
Interest Period shall be at least $2,000,000 or a whole multiple of $100,000 in
excess thereof; and provided, further, that no Alternate Base Rate Loan may be
-------- -------
converted into a Eurodollar Loan (i) when any Event of Default has occurred and
is continuing and the Agent has or the Required Lenders have, by written notice
to the Borrower, determined that such a continuation is not appropriate or (ii)
after the date that is one month prior to the Maturity Date.
(a) Any Eurodollar Loans may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
irrevocable notice to the Agent, in accordance with the applicable provisions of
the term "Interest Period" set forth in Annex A, of the length of the next
-------
Interest Period to be applicable to such Loans, provided that no Eurodollar Loan
--------
may be continued as such (i) when any Event of Default has occurred and is
continuing and the Agent has or the Required Lenders have, by written notice to
the Borrower, determined that such a continuation is not appropriate, (ii) if,
after giving effect thereto, Section 2.3(b) would be contravened or (iii) after
the date that is one month prior to the Maturity Date.
2.6 Reduction of Commitment. The Commitments shall from time to time
-----------------------
be automatically and permanently reduced (a) to the same extent, on a dollar for
dollar basis, as the Revolving Credit Commitments are reduced pursuant to
Section 3.3 of the Senior Secured Credit
<PAGE>
5
Agreement, (b) by the amounts applied by HHC pursuant to Section 3.4(b)(v) of
the Senior Secured Credit Agreement to reduce the Revolving Credit Commitments
and prepay the Senior Secured Term Loans and (c) to the extent that Loans are
repaid as the result of the exercise by Lessee of its option to purchase
Properties pursuant to Section 20.1 of the Lease with amounts available pursuant
to Section 3.4(b)(i), (ii), (iii) or (iv) of the Senior Secured Credit Agreement
for such purpose.
2.7 Interest Rates and Payment Dates. (a) Eurodollar Loans shall
--------------------------------
bear interest for each day during each Interest Period applicable thereto,
commencing on (and including) the first day of such Interest Period to, but
excluding, the last day of such Interest Period, on the unpaid principal amount
thereof at a rate per annum equal to the Eurodollar Rate determined for such
Interest Period plus the Applicable Margin from time to time in effect.
(a) Alternate Base Rate Loans shall bear interest for the period from
and including the date such Loans are made to, but excluding, the maturity date
thereof, or to, but excluding, the conversion date if such Loans are earlier
converted into Eurodollar Loans on the unpaid principal amount thereof at a rate
per annum equal to the Alternate Base Rate plus the Applicable Margin from time
to time in effect.
(b) If all or a portion of (i) the principal amount of any of the
Loans or (ii) any interest payable thereon shall not be paid when due (whether
at the stated maturity, by acceleration or otherwise) such Loan, if a Eurodollar
Loan, shall be converted into an Alternate Base Rate Loan at the end of the
then-current Interest Period for said Eurodollar Loan (which conversion shall
occur automatically and without need for compliance with the conditions for
conversion set forth in Section 2.5), and any such overdue amount shall, without
limiting the rights of the Lenders under Section 6, bear interest (which shall
be payable on demand) at a rate per annum which is 2% plus the Alternate Base
Rate plus the Applicable Margin (or, in the case of a Eurodollar Loan, the
Eurodollar Rate for the Interest Period plus the Applicable Margin from time to
time in effect plus 2%, if higher) from the date of such non-payment until paid
in full (as well after as before judgment).
(c) Except as otherwise expressly provided for in this Section 2.7,
interest shall be payable in arrears on each Interest Payment Date.
2.8 Computation of Interest. (a) Interest in respect of Alternate
-----------------------
Base Rate Loans, at any time that the Alternate Base Rate is determined by
reference to the Prime Rate, shall be calculated on the basis of a 365 (or 366
as the case may be) day year for the actual days elapsed. Interest in respect
of Eurodollar Loans and in respect of Alternate Base Rate Loans at any time that
the Alternate Base Rate is determined by reference to the Base CD Rate or the
Federal Funds Effective Rate shall be calculated on the basis of a 360 day year
for the actual days elapsed. The Agent shall as soon as practicable notify the
Borrower and the Lenders of each determination of a Eurodollar Rate. Any change
in the interest rate on a Loan resulting from a change in the Alternate Base
Rate or the Eurocurrency Reserve Requirements shall become effective as of the
opening of business on the day on which such change in the Alternate Base Rate
is announced or such change in the Eurocurrency Reserve Requirements becomes
<PAGE>
6
effective, as the case may be. The Agent shall as soon as practicable notify the
Company and the Lenders of the effective date and the amount of each such
change.
(a) Each determination of an interest rate by the Agent pursuant to
any provision of this Agreement shall be conclusive and binding on the Borrower
and the Lenders in the absence of manifest error. The Agent shall, at the
request of the Borrower or any Lender, deliver to the Borrower or such Lender a
statement showing the quotations used by the Agent in determining the Eurodollar
Rate.
2.9 Inability to Determine Interest Rate. In the event that the
------------------------------------
Agent shall have determined (which determination shall be conclusive and binding
upon the Borrower) that (a) by reason of circumstances affecting the interbank
eurodollar market, adequate and reasonable means do not exist for ascertaining
the Eurodollar Rate for any Interest Period with respect to (i) proposed Loans
that the Borrower has requested be made as Eurodollar Loans, (ii) any Eurodollar
Loans that will result from the requested conversion of all or part of the
Alternate Base Rate Loans into Eurodollar Loans or (iii) the continuation of any
Eurodollar Loan as such for an additional Interest Period, or (b) dollar
deposits in the relevant amount and for the relevant period with respect to any
such Eurodollar Loan are not generally available to the Lenders in their
respective Eurodollar Lending Offices' interbank eurodollar markets, the Agent
shall forthwith give telecopy notice of such determination, confirmed in
writing, to the Borrower and the Lenders at least one day prior to, as the case
may be, the requested Borrowing Date, the conversion date or the last day of
such Interest Period. If such notice is given (i) any requested Eurodollar Loans
shall be made as Alternate Base Rate Loans, (ii) any Alternate Base Rate Loans
that were to have been converted to Eurodollar Loans shall be continued as
Alternate Base Rate Loans and (iii) any outstanding Eurodollar Loans shall be
converted on the last day of the then current Interest Period applicable thereto
into Alternate Base Rate Loans. Until such notice has been withdrawn by the
Agent, no further Eurodollar Loans shall be made and no Alternate Base Rate
Loans shall be converted to Eurodollar Loans.
2.10 Pro Rata Treatment and Payments. (a) Each borrowing by the
-------------------------------
Borrower from the Lenders hereunder, each conversion of Revolving Credit
Synthetic Loans to Term Synthetic Loans and any reduction of the Commitments of
the Lenders shall be made pro rata according to the respective Commitment
Percentages of the Lenders. Except as otherwise provided in Section 2.4 or
Section 8, each payment (including each prepayment) by the Borrower on account
of principal of and interest on the Loans shall be made pro rata according to
the respective outstanding principal amounts of the Loans then held by the
Lenders (it being understood that, except as otherwise provided in Section 8,
any payment so made in respect of principal of any Lender's Loans shall be
deemed to ratably reduce the outstanding amount of Tranche A Loans and Tranche B
Loans of such Lender).
(a) If any Lender (a "Non-Funding Lender") has (x) failed to make a
------------------
Loan required to be made by it hereunder, and the Agent has determined that such
Lender is not likely to make such Loan or (y) given notice to the Borrower or
the Agent that it will not make, or that it has disaffirmed or repudiated any
obligation to make, any Loan, in each case by reason of the provisions of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989, as
<PAGE>
7
amended, or otherwise, (i) any payment made on account of the principal of the
Loans outstanding shall be made as follows:
(A) in the case of any such payment made on any date when and to the
extent that in the determination of the Agent the Borrower would be able
under the terms and conditions hereof to reborrow the amount of such
payment under the Commitments and to satisfy any applicable conditions
precedent to such reborrowing, such payment shall be made on account of
the outstanding Loans held by the Lenders other than the Non-Funding
Lender pro rata according to the respective outstanding principal amounts
--- ----
of the Revolving Credit Synthetic Loans of such Lenders; and
(B) otherwise, such payment shall be made on account of the
outstanding Loans held by the Lenders pro rata according to the
--- ----
respective outstanding principal amounts of such Loans; and
(ii) any payment made on account of interest on the Loans shall be made pro rata
--- ----
according to the respective amounts of accrued and unpaid interest due and
payable on the Loans with respect to which such payment is being made. The
Borrower agrees to give the Agent such assistance in making any determination
pursuant to subparagraph (i)(A) of this paragraph as the Agent may reasonably
request. Any such determination by the Agent shall be conclusive and binding on
the Lenders.
(b) All payments (including prepayments) to be made by the Borrower
on account of principal, interest and fees shall be made without set-off or
counterclaim and shall be made to the Agent, for the account of the Lenders at
the Agent's office located at 270 Park Avenue, New York, New York 10017, in
lawful money of the United States and in immediately available funds. The Agent
shall promptly distribute such payments in accordance with the provisions of
Section 8 upon receipt in like funds as received. If any payment hereunder
(other than payments on Eurodollar Loans) would become due and payable on a day
other than a Business Day, such payment shall become due and payable on the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension. If
any payment on a Eurodollar Loan becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day (and with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension), unless 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.
(c) Unless the Agent shall have been notified in writing by any
Lender prior to a borrowing that such Lender will not make the amount which
would constitute its Commitment Percentage of such borrowing available to the
Agent, the Agent may assume that such Lender is making such amount available to
the Agent in accordance with Section 2.3 and the Agent may, in reliance upon
such assumption, make available to the Borrower a corresponding amount. If such
amount is not made available to the Agent by the required time on the Borrowing
Date therefor, such Lender shall pay to the Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such
<PAGE>
8
amount immediately available to the Agent. A certificate of the Agent submitted
to any Lender with respect to any amounts owing under this Section 2.10(d) shall
be conclusive absent manifest error. If such Lender's Commitment Percentage of
such borrowing is not in fact made available to the Agent by such Lender within
three Business Days of such Borrowing Date, the Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
Alternate Base Rate Loans hereunder (in lieu of any otherwise applicable
interest), on demand, from the Borrower, without prejudice to any rights which
the Borrower or the Agent may have against such Lender hereunder. Nothing
contained in this Section 2.10 shall relieve any Lender which has failed to make
available its ratable portion of any borrowing hereunder from its obligation to
do so in accordance with the terms hereof.
(d) The failure of any Lender to make the Loan to be made by it on
any Borrowing Date shall not relieve any other Lender of its obligation, if any,
hereunder to make its Loan on such Borrowing Date, but no Lender shall be
responsible for the failure of any other Lender to make the Loan to be made by
such other Lender on such Borrowing Date.
(e) All payments and optional prepayments (other than prepayments as
set forth in Section 2.12 with respect to increased costs) of Eurodollar Loans
hereunder shall be in such amounts and be made pursuant to such elections so
that, after giving effect thereto, the aggregate principal amount of all
Eurodollar Loans with the same Interest Period shall not be less than $2,000,000
or a whole multiple of $100,000 in excess thereof.
2.11 Illegality. Notwithstanding any other provision herein, if any
----------
Change in Law occurring after the date that any lender becomes a Lender party to
this Agreement, shall make it unlawful for such Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, the commitment of such
Lender hereunder to make Eurodollar Loans or to convert all or a portion of
Alternate Base Rate Loans into Eurodollar Loans shall forthwith be suspended
until such time, if any, as such illegality shall no longer exist, and such
Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted
automatically to Alternate Base Rate Loans for the duration of the respective
Interest Periods (or, if permitted by applicable law, at the end of such
Interest Periods) and all payments of principal which would otherwise be applied
to such Eurodollar Loans shall be applied instead to such Lender's Alternate
Base Rate Loans. The Borrower hereby agrees to pay any Lender, promptly upon
its demand, any amounts payable pursuant to Section 2.13 in connection with any
conversion in accordance with this Section 2.11 (such Lender's notice of such
costs, as certified in reasonable detail as to such amounts to the Borrower
through the Agent, to be conclusive absent manifest error).
2.12 Requirements of Law. (a) In the event that any Change in Law
-------------------
or compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority
occurring after the date that any lender becomes a Lender party to this
Agreement:
(i) does or shall subject any such Lender or its Eurodollar
Lending Office to any tax of any kind whatsoever with respect to this
Agreement, any Note or any Eurodollar Loans made by it, or change the basis
of taxation of payments to such Lender or its Eurodollar Lending Office of
principal, the commitment fee, interest or any other
<PAGE>
9
amount payable hereunder (except for (x) net income and franchise taxes
imposed on the net income of such Lender or its Eurodollar Lending Office
by the jurisdiction under the laws of which such Lender is organized or any
political subdivision or taxing authority thereof or therein, or by any
jurisdiction in which such Lender's Eurodollar Lending Office is located or
any political subdivision or taxing authority thereof or therein, including
changes in the rate of tax on the overall net income of such Lender or such
Eurodollar Lending Office, and (y) taxes resulting from the substitution of
any such system by another system of taxation, provided that the taxes
--------
payable by Lenders subject to such other system of taxation are not
generally charged to borrowers from such Lenders having loans or advances
bearing interest at a rate similar to the Eurodollar Rate);
(ii) does or shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar requirement against
assets held by, or deposits or other liabilities in or for the account of,
advances or loans by, or other credit extended by, or any other acquisition
of funds by, any office of such Lender which are not otherwise included in
the determination of the Eurodollar Rate; or
(iii) does or shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender or
its Eurodollar Lending Office of making, converting, renewing or maintaining
advances or extensions of credit or to reduce any amount receivable hereunder,
in each case, in respect of its Eurodollar Loans, then, in any such case, the
Borrower shall promptly pay such Lender, upon its demand, any additional amounts
necessary to compensate such Lender for such additional cost or reduced amount
receivable which such Lender deems to be material as determined by such Lender
with respect to such Eurodollar Loans, together with interest on each such
amount from the date demanded until payment in full thereof at a rate per annum
equal to the Alternate Base Rate plus 1%.
(b) In the event that any Change in Law occurring after the date that
any lender becomes a Lender party to this Agreement with respect to any such
Lender shall, in the opinion of such Lender, require that any Commitment of such
Lender be treated as an asset or otherwise be included for purposes of
calculating the appropriate amount of capital to be maintained by such Lender or
any corporation controlling such Lender, and such Change in Law shall have the
effect of reducing the rate of return on such Lender's or such corporation's
capital, as the case may be, as a consequence of such Lender's obligations
hereunder to a level below that which such Lender or such corporation, as the
case may be, could have achieved but for such Change in Law (taking into account
such Lender's or such corporation's policies, as the case may be, with respect
to capital adequacy) by an amount deemed by such Lender to be material, then
from time to time following notice by such Lender to the Borrower of such Change
in Law as provided in paragraph (c) of this Section 2.12, within 15 days after
demand by such Lender, the Borrower shall pay to such Lender such additional
amount or amounts as will compensate such Lender or such corporation on an
after-tax basis, as the case may be, for such reduction.
<PAGE>
10
(c) The Borrower shall not be required to make any payments to any
Lender for any additional amounts pursuant to this Section 2.12 unless such
Lender has given written notice to the Borrower through the Agent, of its intent
to request such payments prior to or within 60 days after the date on which such
Lender incurred such amounts. If any Lender has notified the Borrower through
the Agent of any increased costs pursuant to paragraph (a) of this Section 2.12,
the Borrower at any time thereafter may, upon at least three Business Days'
notice to the Agent (which shall promptly notify the Lenders thereof), and
subject to Section 2.13, prepay (or convert into Alternate Base Rate Loans) all
(but not a part) of the Eurodollar Loans then outstanding. Each Lender agrees
that, upon the occurrence of any event giving rise to the operation of paragraph
(a) of this Section 2.12 with respect to such Lender, it will, if requested by
the Borrower, and to the extent permitted by law or by the relevant Governmental
Authority, endeavor in good faith to avoid or minimize the increase in costs or
reduction in payments resulting from such event (including, without limitation,
endeavoring to change its Eurodollar Lending Office); provided, that such
--------
avoidance or minimization can be made in such a manner that such Lender, in its
sole determination, suffers no economic, legal or regulatory disadvantage. If
any Lender requests compensation from the Borrower under this Section 2.12, the
Borrower may, by notice to such Lender (with a copy to the Agent), suspend the
obligation of such Lender thereafter to make or continue Loans of the Type with
respect to which such compensation is requested, or to convert Loans of any
other Type into Loans of such Type, until the Requirement of Law giving rise to
such request ceases to be in effect, provided that such suspension shall not
--------
affect the right of such Lender to receive the compensation so requested.
(d) Each Lender (and in case of an Assignee on the date it becomes a
Lender) that is not a United States Person (as defined in Section 7701(a)(30) of
the Code) for federal income tax purposes either (1) in the case of a Lender
that is a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (i)
represents to the Borrower (for the benefit of the Borrower and the Agent) that
under applicable law and treaties no taxes are required to be withheld by the
Borrower or the Agent with respect to any payments to be made to such Lender in
respect of the Loans, (ii) agrees to furnish to the Borrower, with a copy to the
Agent, either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue
Service Form 1001 (wherein such Lender claims entitlement to complete exemption
from U.S. federal withholding tax on all interest payments hereunder) and (iii)
agrees (for the benefit of the Borrower and the Agent), to the extent it may
lawfully do so at such times, to provide the Borrower, with a copy to the Agent,
a new Form 4224 or Form 1001 upon the expiration or obsolescence of any
previously delivered form and comparable statements in accordance with
applicable U.S. laws and regulations and amendments duly executed and completed
by such Lender, and to comply from time to time with all applicable U.S. laws
and regulations with regard to such withholding tax exemption or (2) in the case
of a Lender that is not a "bank" within the meaning of Section 881(c)(3)(A) of
the Code, (i) represents to the Borrower (for the benefit of the Borrower and
the Agent) that it is not a bank within the meaning of Section 881(c)(3)(A) of
the Code, (ii) agrees to furnish to the Borrower, with a copy to the Agent, (A)
a certificate substantially in the form of Exhibit D hereto (any such
certificate, a "Section 2.12(d) Certificate") and (B) two accurate and complete
---------------------------
original signed copies of Internal Revenue Service Form W-8, certifying to such
Lender's legal entitlement at the Initial Closing Date to an exemption from U.S.
withholding tax under the provisions of Section 881(c) of the Code with respect
to all payments to be made under this Agreement, and (iii) agrees, to the extent
legally entitled to do so, upon reasonable request by the Borrower, to
<PAGE>
11
provide to the Borrower (for the benefit of the Borrower and the Agent) such
other forms as may be required in order to establish the legal entitlement of
such Lender to an exemption from withholding with respect to payments under this
Agreement. Notwithstanding any provision of this Section 2.12 or 2.10(c) to the
contrary, the Borrower shall have no obligation to pay any amount to or for the
account of any Lender (or the Eurodollar Lending Office of any Lender) on
account of any taxes pursuant to this Section 2.12, to the extent that such
amount results from (i) the failure of any Lender to comply with its obligations
pursuant to this Section 2.12, (ii) any representation or warranty made or
deemed to be made by any Lender pursuant to this Section 2.12(d) proving to have
been incorrect, false or misleading in any material respect when so made or
deemed to be made or (iii) any Change in Law or compliance by any Lender with
any request or directive (whether or not having the force of law) from any
central bank or other Governmental Authority, the effect of which would be to
subject to any taxes any payment made pursuant to this Agreement to any Lender
making the representation and covenants set forth in Section 2.12(d)(2), which
payment would not be subject to such taxes were such Lender eligible to make and
comply with, and actually made and complied with, the representation and
covenants set forth in Section 2.12(d)(1) hereinabove.
(e) A certificate in reasonable detail as to any amounts submitted
by such Lender, through the Agent, to the Borrower, shall be conclusive in the
absence of manifest error. The covenants contained in this Section 2.12 shall
survive the termination of this Agreement and repayment of the Loans.
2.13 Indemnity. The Borrower agrees to indemnify each Lender and to
---------
hold such Lender harmless from any loss or expense (but without duplication of
any amounts payable as default interest) which such Lender may sustain or incur
as a consequence of (a) default by the Borrower in payment of the principal
amount of or interest on any Eurodollar Loans of such Lender, including, but not
limited to, any such loss or expense arising from interest or fees payable by
such Lender to lenders of funds obtained by it in order to make or maintain its
Eurodollar Loans hereunder, (b) default by the Borrower in making a borrowing
after the Borrower has given a notice in accordance with Section 2.3 or in
making a conversion of Alternate Base Rate Loans to Eurodollar Loans or in
continuing Eurodollar Loans as such, in either case, after the Borrower, has
given notice in accordance with Section 2.5, (c) default by the Borrower in
making any prepayment after the Borrower has given a notice in accordance with
Section 2.4, (d) a payment or prepayment of a Eurodollar Loan or conversion
(including without limitation, as a result of Section 2.4 and/or a conversion
pursuant to Section 2.11) of any Eurodollar Loan into an Alternate Base Rate
Loan, in either case on a day which is not the last day of an Interest Period
with respect thereto, including, but not limited to, any such loss or expense
arising from interest or fees payable by such Lender to lenders of funds
obtained by it in order to maintain its Eurodollar Loans hereunder (but
excluding loss of profit), or (e) not being covered by the indemnities provided
for in Section 12.1(a) of the Participation Agreement as the result of the
application of Section 12.1(b) of the Participation Agreement. This covenant
shall survive termination of this Agreement and repayment of the Loans.
2.14 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby
------------------------------------
unconditionally promises to pay to the Agent for the account of each Lender (i)
the then unpaid principal amount of each Revolving Credit Synthetic Loan of such
Lender on the Maturity Date
<PAGE>
12
and (ii) the then unpaid principal amount of the Term Synthetic Loans of such
Lender on the Maturity Date. The Borrower hereby further agrees to pay interest
on the unpaid principal amount of the Loans from time to time outstanding from
the date hereof until payment in full thereof at the rates per annum and on the
dates set forth in Section 2.7.
(a) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of the Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(b) The Agent shall maintain the Register pursuant to subsection
9.5(d), and a subaccount therein for each Lender, in which shall be recorded (i)
the amount of each Revolving Credit Synthetic Loan and Term Synthetic Loan made
hereunder, the Type thereof and each Interest Period applicable thereto, (ii)
the amount of any principal or interest due and payable or to become due and
payable from the Borrower to each Lender hereunder and (iv) both the amount of
any sum received by the Agent hereunder from the Borrower and each Lender's
share thereof.
(c) The entries made in the Register and the accounts of each Lender
maintained pursuant to Section 2.14(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
----- -----
obligations of the Borrower therein recorded; provided that the failure of any
--------
Lender or the Agent to maintain the Register or any such account, or any error
therein, shall not in any manner affect the obligation of the Borrower to repay
(with applicable interest) the Loans made to the Borrower by such Lender or to
repay any other obligations in accordance with the terms of this Agreement.
(d) The Borrower agrees that, upon the request to the Agent by any
Lender, the Borrower will execute and deliver to such Lender (i) a promissory
note of such Borrower evidencing the Revolving Credit Synthetic Loans of such
Lender, substantially in the form of Exhibit A-1, in the case of Revolving
Credit Synthetic Loans which are Tranche A Loans (a "Tranche A Revolving Credit
--------------------------
Note"), or Exhibit A-2, in the case of Revolving Credit Synthetic Loans which
- ----
are Tranche B Loans (a "Tranche B Revolving Credit Note"), and/or (ii) a
-------------------------------
promissory note of such Borrower evidencing the Term Synthetic Loan of such
Lender, substantially in the form of Exhibit A-3, in the case of Term Synthetic
Loans which are Tranche A Loans (a "Tranche A Term Loan Note"), or Exhibit A-4,
------------------------
in the case of Term Synthetic Loans which are Tranche B Loans (a "Tranche B Term
--------------
Loan Note").
- ---------
2.15 Replacement of Lenders. In the event any Lender is a Non-
----------------------
Funding Lender, exercises its rights pursuant to Section 2.11 or requests
payments pursuant to Section 2.12, the Borrower may require, at the Borrower's
expense (including payment of any processing fees under Section 9.5(e)) and
subject to Section 2.13, such Lender to assign, at par plus accrued interest and
fees, without recourse (in accordance with Section 9.5) all of its interests,
rights and obligations hereunder (including all of its Commitments and the Loans
and other amounts at the time owing to it hereunder and its Notes) to a bank,
financial institution or other entity specified by the Borrower, provided that
--------
(i) such assignment shall not conflict with or violate any law, rule or
regulation or order of any court or other Governmental Authority, (ii) the
Borrower shall have
<PAGE>
13
received the written consent of the Agent, which consent shall not unreasonably
be withheld, to such assignment, and (iii) the Borrower shall have paid to the
assigning Lender all monies other than principal, interest and fees accrued and
owing hereunder to it (including pursuant to Sections 2.11, 2.12 and 2.13).
3. REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Agreement and
to make the Loans, the Borrower hereby represents and warrants to the Agent and
each Lender that the representations and warranties set forth in Section 7 of
the Participation Agreement are true and correct.
4. CONDITIONS PRECEDENT
4.1 Conditions to Effectiveness. The effectiveness of this Agreement
---------------------------
is subject to the satisfaction of all conditions precedent set forth in Section
6.1 of the Participation Agreement required by said Section to be satisfied on
or prior to the Closing Date.
4.2 Conditions to Each Loan. The agreement of each Lender to make
-----------------------
any Loan requested to be made by it on any date is subject to the satisfaction
of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by the Borrower, the Lessee or each Guarantor in or
pursuant to the Operative Agreements shall be true and correct in all
material respects on and as of such date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred
----------
and be continuing on such date or after giving effect to the Loans
requested to be made on such date.
(c) Participation Agreement Conditions. With respect to each Loan,
----------------------------------
the applicable conditions precedent to the Advance associated therewith
specified in Section 6 of the Participation Agreement shall have been
satisfied.
(d) Investor Contribution. With respect to each Advance, the Agent
---------------------
shall be satisfied that the Borrower shall receive from the Investors on
the relevant Funding Date an amount equal to the Investor Contribution
associated with such Loan.
Each borrowing by the Borrower hereunder shall constitute a representation and
warranty by the Borrower or the Lessee, as the case may be, as of the date of
such Loan that the conditions contained in this Section 4.2 have been satisfied.
<PAGE>
14
5. COVENANTS
So long as the Commitments remain in effect, any Note remains
outstanding and unpaid or any other amount is owing to any Lender or the Agent
hereunder:
5.1 Other Activities. The Borrower shall not conduct, transact or
----------------
otherwise engage in, or commit to transact, conduct or otherwise engage in, any
business or operations other than the entry into, and exercise of rights and
performance of obligations in respect of, the Operative Agreements and other
activities incidental or related to the foregoing.
5.2 Ownership of Property, Indebtedness. The Borrower shall not own,
-----------------------------------
lease, manage or otherwise operate any properties or assets other than in
connection with the activities described in Section 5.1, or incur, create,
assume or suffer to exist any indebtedness or other consensual liabilities or
financial obligations other than as may be incurred, created or assumed or as
may exist in connection with the activities described in Section 5.1 (including
the Loans and other obligations incurred by the Borrower hereunder).
5.3 Disposition of Assets. The Borrower shall not convey, sell,
---------------------
lease, assign, transfer or otherwise dispose of any of its property, business or
assets, whether now owned or hereafter acquired, except (i) for the disposition
of inventory, trade fixtures, machinery, equipment or other personal property
located on or used in connection with any Property, upon the request of the
Lessee made in the ordinary course of business, provided that the removal of
such inventory, trade fixtures, machinery, equipment or other personal property
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 or (ii) as otherwise permitted
under the Operative Agreements.
5.4 Compliance with Operative Agreements. The Borrower shall at all
------------------------------------
times (a) observe and perform all of the covenants, conditions and obligations
required to be performed by it under each Operative Agreement to which it is a
party and (b) observe and perform, or cause to be observed and performed, (i)
all of the covenants, conditions and obligations of the Lessee under the Lease,
even in the event the Lease is terminated at its stated expiration, following a
Lease Event of Default or otherwise and (ii) all of the covenants, conditions
and obligations of the Construction Agent relating to the construction of the
Improvements under the Agency Agreement.
5.5 Further Assurances. At any time and from time to time, upon the
------------------
written request of the Agent, the Borrower will, at its own sole expense,
promptly and duly execute and deliver such further instruments and documents and
take such further action as the Agent or the Required Lenders may reasonably
request for the purpose of obtaining or preserving the full benefits of this
Agreement and the other Operative Agreements and of the rights and powers herein
or therein granted.
<PAGE>
15
5.6 Notices. If on any date the Borrower shall obtain actual
-------
knowledge of the occurrence of a Default or Event of Default, the Borrower will
give prompt written notice thereof to the Agent.
5.7 Discharge of Liens. The Borrower will not create or permit to
------------------
exist at any time, and will, at its own expense, promptly take such action as
may be necessary duly to discharge, or cause to be discharged, all Lessor Liens
attributable to it, provided, that the Borrower shall not be required to
--------
discharge any Lessor Lien while the same is being contested in good faith by
appropriate proceedings diligently prosecuted so long as such proceedings shall
not involve any material danger of impairment of any of the Liens contemplated
by the Security Documents or of the sale, forfeiture or loss of, and shall not
materially interfere with the construction, use, operation or disposition of
(including, as a result of the exercise of the Purchase Option), the Property or
title thereto or any interest therein or the payment of Rent.
5.8 Recordkeeping. On each date on which the Tranche A/B Property
-------------
Cost or Tranche A/B Construction Property Cost for any Property is increased or
decreased pursuant to this Agreement, the Borrower shall notify the Agent of the
amount of such increase or decrease and the identity of the affected Property.
6. REMEDIAL PROVISIONS
6.1 Events of Default. Upon the occurrence of any of the following
-----------------
specified events (each an "Event of Default"):
----------------
(a) The Borrower shall fail to (i) pay any principal of any Loan or
Note when due in accordance with the terms hereof or thereof or (ii) pay
any interest on any Loan or Note or any other amount payable hereunder
within five days after any such interest or other amount becomes due in
accordance with the terms thereof or hereof; or
(b) The Borrower shall default in the due performance or observance
by it of any term, covenant or agreement contained in any Credit Document
to which it is a party (other than the terms, covenants or agreements
referred to in paragraph (a) above) and such default shall have continued
unremedied for a period of five Business Days after notice thereof from the
Agent or the Required Lenders; or
(c) Any Guarantor shall (i) fail to pay or perform any of the
Guaranteed Obligations or (ii) default in the observance or performance of
any agreement contained in Section 9 of the Guarantee or (iii) default in
the observance or performance of any other agreement contained in any
Credit Document to which it is a party and in the case of clause (iii),
such default shall continue unremedied for a period of 30 days; or
(d) Any representation, warranty or statement made or deemed made by
the Borrower herein or in any other Credit Document or by the Borrower in
the Participation Agreement, or in any statement or certificate delivered
or required to be delivered
<PAGE>
16
or required to be delivered pursuant hereto or thereto, shall prove to be
incorrect in any material respect on or as of the date made or deemed made;
or
(e) Any representation, warranty or statement made or deemed made by
any Guarantor in the Guarantee or in any other Operative Agreement, or in
any statement or certificate delivered or required to be delivered pursuant
thereto, shall prove to be incorrect in any material respect on or as of
the date made or deemed made; or
(f) Any Lease Event of Default shall have occurred and be continuing;
or
(g) The Borrower shall default in the due performance or observance by
it of any term, covenant or agreement contained in the Participation
Agreement or the Trust Company shall default in the due performance or
observance by it of any term, covenant or agreement contained in the Trust
Agreement, and in each case such default shall have continued unremedied
for a period of at least 30 days; or
(h)(i) The Borrower shall commence any case, proceeding or other
action (A) under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
or (B) seeking appointment of a receiver, trustee, custodian, conservator
or other similar official for it or for all or any substantial part of its
assets, or the Borrower shall make a general assignment for the benefit of
its creditors; or (ii) there shall be commenced against the Borrower any
case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced against
the Borrower any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of an
order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry thereof; or
(iv) the Borrower
shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause (i),
(ii), or (iii) above; or (v) the Borrower shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as
they become due; or
(i) Any Security Document shall cease to be in full force and effect,
or shall cease to give the Agent the Liens, rights, powers and privileges
purported to be created thereby, in favor of the Agent on behalf of the
Lenders, superior to and prior to the rights of all third Persons and
subject to no other Liens (except in each case to the extent expressly
permitted herein or in the other Operative Agreements); or
(j) The Guarantee or any material provision thereof shall cease to be
in full force and effect or any Guarantor or any Person acting by or on
behalf of any Guarantor shall deny or disaffirm such Guarantor's
obligations under the Guarantee; or
<PAGE>
17
(k) Any Senior Secured Credit Agreement Event of Default shall have
occurred and be continuing;
then, and in any such event, (A) if such event is an Event of Default specified
in clauses (i) or (ii) of paragraph (h), or an Event of Default specified in
paragraph (k) above resulting from an event specified in clause (i) or (ii) of
paragraph (f) of Section 8 of the Senior Secured Credit Agreement, automatically
the Commitments shall immediately terminate and the Loans hereunder (with
accrued interest thereon) and all other amounts owing under this Agreement and
the Notes shall immediately become due and payable, and (B) if such event is any
other Event of Default, either or both of the following actions may be taken:
(i) with the consent of the Required Lenders, the Agent may, or upon the request
of the Required Lenders, the Agent shall, by notice to the Borrower declare the
Commitments to be terminated forthwith, whereupon the Commitments shall
immediately terminate; and (ii) with the consent of the Required Lenders, the
Agent may, or upon the request of the Required Lenders, the Agent shall, by
notice to the Borrower, declare the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and the Notes to be
due and payable forthwith, whereupon the same shall immediately become due and
payable (any of the foregoing occurrences or actions referred to in clause (A)
or (B) above, an "Acceleration"). Except as expressly provided above in this
------------
Section 6, presentment, demand, protest and all other notices of any kind are
hereby expressly waived.
7. [INTENTIONALLY OMITTED]
8. MATTERS RELATING TO PAYMENTS AND COLLATERAL;
INTERCREDITOR AGREEMENT
8.1 The Account. (a) The Agent shall establish an account (the
-----------
"Account") into which the Agent shall deposit all payments, receipts and other
- --------
consideration of any kind whatsoever paid under the Lease and received by the
Agent pursuant to the Assignment of Lease.
(a) Payments deposited from time to time in the Account shall be paid
out as follows:
(i) Any such payment identified by the Lessee as Basic Rent
shall be paid out of the Account by the Agent on the relevant Interest
Payment Date, and shall be applied, first, ratably to the payment of
-----
interest then due and payable on the Loans until such amounts are paid in
full, second, to the payment to the Borrower of an amount equal to the
------
Investor Yield then due and payable under the Operative Agreements until
such amount is paid in full, and, third, the remainder of such amount shall
-----
be paid out of the Account by the Agent to such Person or Persons as the
Borrower may designate.
(ii) Any payment identified by the Lessee as a payment in
respect of the Termination Value of any Property pursuant to Section 16 of
the Lease or of the Termination Value of any Property pursuant to Section
20 of the Lease shall be paid out of the Account by the Agent promptly
after receipt, and shall be applied, first, ratably to
-----
<PAGE>
18
the payment of the principal of Tranche B Loans then outstanding in an
amount not to exceed the product of (x) the Tranche A/B Property Cost in
respect of such Property and (y) the Tranche B Percentage in respect of
such Property and all interest due and payable on such amount, second,
------
ratably to the payment of the principal of Tranche A Loans then outstanding
in an amount not to exceed the product of (x) the Tranche A/B Property Cost
in respect of such Property and (y) the Tranche A Percentage in respect of
such Property and all interest due and payable on such amount, third, to
-----
the payment to the Borrower of an amount not to exceed the outstanding
Investor Property Cost in respect of such Property and the Investor Yield
due and payable on such amount, and fourth, the remainder of such amount
------
shall be paid out of the Account by the Agent to the Lessee.
(iii) Any payment identified by the Lessee as proceeds of the
sale of any Property pursuant to Section 21 of the Lease (but in any event
excluding costs and expenses described in Section 21.2(i) of the Lease)
("Net Sale Proceeds") shall be paid out of the Account by the Agent
-----------------
simultaneously with the payment by the Agent out of the Account of the
Maximum Residual Guarantee Amount pursuant to Section 8.1(b)(v) promptly
after receipt, and shall be applied, first, ratably to the payment of the
-----
principal of Tranche B Loans then outstanding in an amount not to exceed
the product of (x) the Tranche A/B Property Cost in respect of such
Property and (y) the Tranche B Percentage in respect of such Property and
all interest then due and payable on such amount, second, to the payment to
------
the Borrower of an amount not to exceed the outstanding Investor Property
Cost in respect of such Property and the Investor Yield then due and
payable on such amount, and third, the remainder of such amount ("Excess
----- ------
Sale Proceeds") shall be held in the Account until the Maturity Date (or,
-------------
if earlier, the date of an Acceleration) for application in accordance with
Section 8.1(b)(iv) or 8.2, as the case may be.
(iv) On the Maturity Date any Excess Sale Proceeds contained in
the Account shall be applied as follows: first, ratably to the payment of
-----
the principal and interest on the Loans then outstanding, second, to the
------
payment to the Borrower of an amount not to exceed the aggregate Investor
Property Cost with respect to all Properties (whether or not the Lease has
terminated with respect to any such Property) and the Investor Yield due
and payable on such amount, and third, to the extent moneys remain after
-----
application pursuant to clauses first and second above, in the manner
----- ------
specified in Section 8.2.
(v) Any payment identified by the Lessee as the Maximum
Residual Guarantee Amount in respect of any Property shall be paid out of
the Account by the Agent promptly after receipt and shall be applied
ratably to the payment of the principal of Tranche A Loans then outstanding
in respect of such Property .
(vi) Any payment identified by the Lessee as a Wear and Tear
Payment or any Net Sale Proceeds Shortfall pursuant to Section 21.3 of the
Lease shall be paid out of the Account by the Agent promptly after receipt,
and shall be applied, first, ratably to the payment of the principal of
-----
Tranche B Loans then outstanding in an amount equal to the product of the
Tranche B Percentage with respect to such Property and the Tranche A/B
Property Cost with respect to such Property (in each case determined as of
the date
<PAGE>
19
of sale of such Property pursuant to Section 21 of the Lease immediately
prior to giving effect thereto) and all interest due and payable on such
amount, and second, the remainder of such amount shall be paid out of the
------
Account by the Agent to the Borrower.
(vii) Any payment identified by the Lessee as Supplemental Rent
(other than any Maximum Residual Guarantee Amount) (but in any event
excluding all Excepted Payments) shall be paid out of the Account by the
Agent promptly after receipt, and shall be applied to the payment of any
amounts then owing to the Agent, the Lenders, the Investors and the other
parties to the Operative Agreements (or any of them) (other than any such
amounts payable pursuant to the preceding provisions of this Section
8.1(b)) as shall be designated by the Lessee (or, in the absence of such
designation, ratably according to the respective amounts so owing of which
the Agent has received written notice).
In the event that the Lessee shall fail to identify the nature of any payment
deposited by it in the Account, or the Agent in its reasonable judgment shall
determine that the identification made by the Lessee is incorrect or
inappropriate, the nature of such payment shall instead be identified by the
Agent in its reasonable judgment and applied in the manner specified above;
provided, that in the event that the Agent identifies such payment as an
- --------
Excepted Payment, such payment shall be paid out of the Account by the Agent to
such Person or Persons as the Borrower may designate.
(b) Upon the termination of the Commitments and the payment in full
of the Loans and all other amounts owing by the Borrower hereunder or under any
other Credit Document, any moneys remaining in the Account shall be paid to the
Borrower or such other Person or Persons as the Borrower may designate.
8.2 Proceeds of Collateral; Proceeds Remaining in Account. (a) All
-----------------------------------------------------
moneys collected by the Agent under the Guarantee or upon any sale or other
disposition of the Collateral pursuant to any Security Document, together with
all other moneys received by the Agent thereunder and (b) all moneys contained
in the Account on the date of an Acceleration or on the Maturity Date
(excluding, in the case of any application made pursuant to this Section 8.2 on
the Maturity Date, an amount equal to the aggregate amount of Excess Sale
Proceeds or Maximum Residual Guarantee Amount deposited in the Account on or
prior to such date, which amount shall instead be applied on the Maturity Date
in accordance with Section 8.1(b)(iv) or Section 8.1(b)(v), respectively), or
deposited in the Account thereafter, shall be applied as follows:
First, to the payment of (x) any and all sums advanced by the Agent in
-----
order to preserve the Collateral or preserve its security interest therein
and (y) the expenses of retaking, holding, preparing for sale or lease,
selling or otherwise disposing or realizing on the Collateral, or of any
exercise by the Agent of its rights under the Security Documents, together
with reasonable attorneys' fees and court costs;
Second, to the payment of the amounts then due and unpaid for
------
principal of the Tranche B Loans, according to the amounts due and payable
on the Tranche B Loans in respect of principal;
<PAGE>
20
Third, to the payment of the amounts then due and unpaid for principal
-----
of the Tranche A Loans according to the amounts due and payable on the
Tranche A Loans in respect of principal;
Fourth, to the payment of the amounts then due and unpaid for interest
------
accrued on the Tranche B Loans and the Tranche A Loans, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Tranche B Loans and the Tranche A Loans in respect of
principal;
Fifth, to the payment of an amount equal to the aggregate outstanding
-----
Investor Contribution and all amounts then due and payable on account of
the Investor Yield;
Sixth, to the extent moneys remain after application pursuant to
-----
clauses First through Fifth above, to the Lessee or to whomever may be
----- -----
lawfully entitled to receive such surplus.
8.3 Certain Remedial Matters. Notwithstanding any other provision of
------------------------
this Agreement or any other Credit Document:
(i) the Borrower shall at all times to the exclusion of the
Agent retain (A) all rights to Excepted Payments and to demand, collect or
commence an action at law to obtain such payments and to enforce any
judgment with respect thereto and (B) all of its rights under the
Participation Agreement; and
(ii) the Borrower shall at all times retain the right, but not
to the exclusion of the Agent, (A) to receive from the Lessee all notices,
certificates and other documents and all information that the Lessee is
permitted or required to give or furnish to the "Borrower" or the "Lessor"
pursuant to the Lease, the Participation Agreement or any other Operative
Agreement, (B) to inspect the Properties and otherwise exercise rights of
the "Lessor" under Section 10.2 of the Lease, (C) to retain all rights with
respect to insurance that Section 14 of the Lease specifically confers upon
the "Lessor", (D) to provide such insurance as the Lessee shall have failed
to maintain or as the Borrower may desire, (E) to enforce compliance by the
Lessee with the provisions of Sections 8, 9, 10, 11, 14 and 30.10 of the
Lease, and (F) subject to the other applicable provisions of this
Agreement, to perform for the Lessee under Section 17 of the Lease.
8.4 Release of the Property, etc. (a) If the Lessee shall at any
----------------------------
time purchase the Property pursuant to Section 16.2 of the Lease or exercise its
Purchase Option with respect to the Property under Section 20 of the Lease, or
if the Property shall be sold in accordance with Section 21 of the Lease, then,
upon satisfaction by the Borrower of its obligation to prepay the Loans pursuant
to Section 2.5(c) and to pay accrued interest on the Loans so prepaid pursuant
to Section 2.8, the Agent shall release the Property from the Liens created by
the Security Documents. In addition, upon the termination of the Commitments
and the payment in full of the Loans and all other amounts owing by the Borrower
or the Guarantor hereunder or under any other Operative Agreement, the Agent
shall release all of the Properties from the Liens created by the Security
Documents. Upon request of the Borrower following any such release, the Agent
<PAGE>
21
shall, at the sole cost and expense of the Borrower, execute and deliver to the
Borrower or the Lessee such documents as the Borrower shall reasonably request
to evidence such release.
(a) Notwithstanding anything to the contrary herein, upon the
termination of the Commitments and the payment in full of (i) the Loans and all
other amounts owing by the Borrower or any Guarantor hereunder or under any
other Operative Agreement and (ii) all amounts owing by the Lessee to the Lessor
or to any other Person under the Operative Agreements, all remaining moneys in
the Account shall be paid out to the Lessee.
9. MISCELLANEOUS
9.1 Amendments and Waivers. Except as otherwise expressly set forth
----------------------
in this Agreement, no Operative Agreement nor any terms thereof may be amended,
supplemented, waived or modified except in accordance with the provisions of
this Section 9.1. The Borrower, the Investors or Required Investors, as
applicable, the Trust Company and the Guarantors may, from time to time, with
the written consent of the Required Lenders, the Agent and the Lessee, enter
into written amendments, supplements or modifications to the Operative
Agreements for the purpose of adding any provisions to any Operative Agreement
to which they are parties or changing in any manner the rights of the Lenders or
of the Lessee, the Lessor, the Investors, the Trust Company and the Guarantors
thereunder or waiving, on such terms and conditions as the Agent may specify in
such instrument, any of the requirements of any such Operative Agreement or any
Default or Event of Default and its consequences; provided that:
--------
(a) no such waiver and no such amendment, supplement or modification
shall release collateral not required or permitted by any Operative Agreement to
be released; provided that, notwithstanding the foregoing, this clause (a) shall
--------
not be applicable to and no consent shall be required for (i) releases of
collateral as permitted by Section 8.4 hereof or (ii) releases of collateral as
permitted by the Senior Secured Credit Agreement;
(b) no such waiver and no such amendment, supplement or modification
shall extend the final maturity date of any Note or reduce the rate or extend
the time of payment of interest thereon, or change the method of calculating
interest thereon, or reduce or extend the time of payment of any fee payable to
the Lenders hereunder, or reduce the principal amount thereof, or change the
amount of any Lender's Commitment or Commitment Percentage, or amend, modify or
waive any provision of Section 8.1 and 8.2 or this Section 9.1 or reduce the
percentage specified in the definition of Required Lenders or reduce the
percentage specified in the definition of Supermajority Lenders or consent to
the assignment or transfer by any Guarantor of any of its rights and obligations
under any Operative Agreement, in each case, without the prior written consent
of each Lender and each Senior Secured Lender directly affected thereby; and
(c) no such waiver and no such amendment, supplement or modification
affecting the then Agent shall amend, modify or waive any provision of Section 5
of the Agency and Intercreditor Agreement without the written consent of the
Agent;
<PAGE>
22
any such waiver and any such amendment, supplement or modification described in
this Section 9.1 shall apply equally to each of the Lenders and shall be binding
upon the Borrower, each Guarantor, the Lessee, the Lenders, the Agent, the
Documentation Agent, the Syndication Agent and all future holders of the Notes
and the Loans. In the case of any waiver, the Borrower, each Guarantor, the
Lessee, the Lenders and the Agent shall be restored to their former position and
rights hereunder and under the outstanding Notes, and any Default or Event of
Default waived shall be deemed to be cured and not continuing; but no such
waiver shall extend to any subsequent or other Default or Event of Default, or
impair any right consequent thereon.
9.2 Notices. All notices, requests and demands to or upon the
-------
respective parties hereto to be effective shall be in writing (including by
telecopy) and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or three Business Days
after being deposited in the mail, postage prepaid, or, in the case of telecopy
notice, when sent, confirmation of receipt received, addressed as follows in the
case of the Borrower and the Agent, and as set forth in Schedule 1.1 in the case
of any Lender, or to such other address as may be hereafter notified by the
respective parties hereto and any future holders of the Notes:
Borrower: Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
Telecopy: (302) 651-8882
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) 522-5658
With a copy to: Chase New England Corporation
85 Wells Avenue, Suite 200
Newton, Massachusetts 02159
Attention: Roger A. Stone
Telecopy: (617) 928-3057
provided that any notice, request or demand to or upon the Agent or the Lenders
- --------
pursuant to Section 2.3, 2.4, 2.5, or 2.10(d) shall not be effective until
received and, provided, further, that the failure to provide the copies of
-------- -------
notices to the Borrower provided for in this Section 9.2 shall not result in any
liability to the Agent.
9.3 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Agent or any Lender, any right, remedy,
power or privilege
<PAGE>
23
hereunder or under the other Operative Agreements shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
9.4 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made hereunder, in the other Operative Agreements and in any
document, certificate or statement delivered pursuant hereto or in connection
herewith shall survive the execution and delivery of this Agreement and the
Notes and the making of the Loans hereunder.
9.5 Successors and Assigns; Participations and Assignments. (a) This
------------------------------------------------------
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Agent, the Arranger, the Co-Arrangers, the Syndication Agent, the
Documentation Agent, all future holders of the Notes and the Loans and their
permitted respective successors and assigns, except that the Borrower may not
assign or transfer any of its rights or obligations under this Agreement without
the prior written consent of each Lender.
(a) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks or other
entities (each, a "Participant") participating interests in any Loan owing to
-----------
such Lender, any Note held by such Lender, any Commitment of such Lender or any
other interest of such Lender hereunder and under the other Operative
Agreements; provided, that any such participation shall be ratable as between
--------
the Tranche A Loans and Tranche B Loans of such Lender. In the event of any
such sale by a Lender of a participating interest to a Participant, such
Lender's obligations under this Agreement to the other parties to this Agreement
shall remain unchanged, such Lender shall remain solely responsible for the
performance thereof, such Lender shall remain the holder of any such Note for
all purposes under this Agreement and the Notes, and the Borrower and the Agent
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and the Notes. The
Borrower agrees that if amounts outstanding under this Agreement and the Notes
are due and unpaid, or shall have been declared or shall have become due and
payable upon the occurrence of an Event of Default, each Participant shall be
deemed to have the right of setoff in respect of its participating interest in
amounts owing under this Agreement and any Note to the same extent as if the
amount of its participating interest were owing directly to it as a Lender under
this Agreement or any Note; provided that such right of setoff shall be subject
--------
to the obligation of such Participant to share with the Lenders, and the Lenders
agree to share with such Participant, as provided in the Agency and
Intercreditor Agreement. The Borrower also agrees that each Participant shall
be entitled to the benefits of Sections 2.12 and 2.13 with respect to its
participation in the Commitments and the Loans outstanding from time to time as
if it were a Lender; and provided, further, that no Participant shall be
-------- -------
entitled to receive any greater amount pursuant to any such subsection than the
transferor Lender would have been entitled to receive in respect of the amount
of the participation transferred by such transferor Lender to such Participant
had no such transfer occurred. Each Lender agrees that the participation
agreement pursuant to which any Participant acquires its participating interest
(or any other document) may afford voting rights to such Participant, or any
right to instruct such Lender with respect to voting hereunder, only with
<PAGE>
24
respect to matters requiring the consent of (i) all of the Lenders hereunder,
(ii) such Lender with respect to matters specified in Section 9.1(b) only if it
is affected thereby or (iii) all of the Lenders holding the relevant Commitments
subject to such participation.
(b) Subject to paragraph (g) of this Section 9.5, any Lender may, in
the ordinary course of its commercial banking, lending or investment business
and in accordance with applicable law, (i) at any time and from time to time
assign all or any part of its rights and obligations under this Agreement and
the other Operative Agreements to any Lender or any Affiliate thereof, provided
--------
that, in the event of a sale of less than all of such rights and obligations,
such assigning Lender after any such sale to any other Lender or any Affiliate
of such Lender shall retain Commitments and/or Loans aggregating at least
$5,000,000 (or such lesser amount as the Agent may determine) and (ii) with the
consent of the Borrower, the Lessee and the Agent (which in each case shall not
be unreasonably withheld or delayed) at any time and from time to time assign to
one or more additional banks, mutual funds or financial institutions or entities
(each, an "Assignee"), all or any part of its rights and obligations under this
--------
Agreement and the other Operative Agreements, pursuant to an Assignment and
Acceptance, executed by such Assignee, such transferor Lender (and, in the case
of an Assignee that is not then a Lender or an Affiliate thereof, by the
Borrower, the Lessee and the Agent), and delivered to the Agent for its
acceptance and recording in the Register; provided that (A) each such sale
--------
pursuant to clause (ii) of this Section 9.5 (c) shall be in a principal amount
of $5,000,000 or more unless the assigning Lender is transferring all of its
rights and obligations and (B) in the event of a sale of less than all of such
rights and obligations, such Lender after any such sale shall retain Commitments
and/or Loans aggregating at least $5,000,000 (or such lesser amount as the Agent
and the Borrower may determine). Any such assignment shall be ratable as
between the Tranche A Loans and Tranche B Loans of the assigning Lender. Each
assignment of Commitments and Revolving Credit Synthetic Loans to an Assignee
pursuant to this Section 9.5(c) shall automatically include an assignment to
such Assignee of an equal percentage of all the assigning Lender's rights and
obligations in respect of the Senior Secured Revolving Credit Loans and
Revolving Credit Commitments under the Senior Secured Credit Facility. Upon
such execution, delivery, acceptance and recording, from and after the effective
date determined pursuant to such Assignment and Acceptance, (x) the Assignee
thereunder shall be a party hereto and to the Agency and Intercreditor Agreement
and, to the extent provided in such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder with a Commitment as set forth therein,
and (y) the assigning Lender thereunder shall, to the extent of the interest
transferred, as reflected in such Assignment and Acceptance, be released from
its obligations under this Agreement and the Agency and Intercreditor Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of a transferor Lender's rights and obligations under this Agreement,
such transferor Lender shall cease to be a party hereto and to the Agency and
Intercreditor Agreement but shall continue to be entitled to the benefits of the
indemnification provisions set forth in Section 12 of the Participation
Agreement).
(c) The Agent, which for purposes of this Section 9.5(d) only shall
be deemed to be the agent of the Borrower, shall maintain at the address of the
Agent referred to in Section 9.2 a copy of each Assignment and Acceptance
delivered to it and a register (the "Register") for the recordation of the names
--------
and addresses of the Lenders and the Commitments of, and principal amounts of
the Loans owing to, each Lender from time to time. The entries in the
<PAGE>
25
Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Agent and the Lenders shall treat each Person whose name is
recorded in the Register as the owner of a Loan or other obligation hereunder as
the owner thereof for all purposes of this Agreement and the other Operative
Agreements, notwithstanding any notice to the contrary. Any assignment of any
Loan or other obligation hereunder shall be effective only upon appropriate
entries with respect thereto being made in the Register. The Register shall be
available for inspection by the Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof, by the Borrower, the Lessee and the
Agent), together with payment to the Agent of a registration and processing fee
of $4,000 if the Assignee is not a Lender prior to the execution of such
supplement and $1,000 otherwise (which fee need not be paid in the case of any
assignment by a Lender to an affiliate of such Lender), the Agent shall (i)
promptly accept such Assignment and Acceptance and (ii) on the effective date
determined pursuant thereto record the information contained therein in the
Register and give notice of such acceptance and recordation to the Lenders and
the Borrower. On or prior to such effective date, the Borrower at its own
expense, shall execute and deliver to the Agent (in exchange for any or all of
the Notes of the assigning Lender) new Notes to the order of such Assignee in an
amount equal to the Commitment assumed by it pursuant to such Assignment and
Acceptance and, if the assigning Lender has retained a Commitment or any Loans
hereunder, new Notes, to the order of the assigning Lender in an amount equal to
the Commitment or such Loans, as the case may be, retained by it hereunder.
Such new Notes shall be dated the Initial Closing Date and shall otherwise be in
the form of the Notes replaced thereby.
(e) If, pursuant to this Section 9.5, any interest in this Agreement
or any Note is transferred to any Participant or Assignee (each, a "Transferee")
----------
which is organized under the laws of any jurisdiction other than the United
States or any State thereof, the transferor Lender shall cause such Transferee,
concurrently with the effectiveness of such transfer either (1) in the case of a
Transferee that is a "bank" within the meaning of Section 881(c)(3)(A) of the
Code, (i) to represent to the transferor Lender (for the benefit of the
transferor Lender, the Agent and the Borrower) that under applicable law and
treaties no taxes will be required to be withheld by the Agent, the Borrower or
the transferor Lender with respect to any payments to be made to such Transferee
in respect of the Loans, (ii) to furnish to the transferor Lender (and, in the
case of any Transferee registered in the Register, the Agent and the Borrower)
either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service
Form 1001 (wherein such Transferee claims entitlement to complete exemption from
U.S. federal withholding tax on all interest payments hereunder) and (iii) to
agree (for the benefit of the transferor Lender, the Agent and the Borrower) to
the extent permitted by then-current law to provide the transferor Lender (and,
in the case of any Transferee registered in the Register, the Agent, the Lessee
and the Borrower) a new Form 4224 or Form 1001 upon the expiration or
obsolescence of any previously delivered form and comparable statements in
accordance with applicable U.S. laws and regulations and amendments duly
executed and completed by such Transferee, and to comply from time to time with
all applicable U.S. laws and regulations with regard to such withholding tax
exemption or (2) in the case of any Transferee that is not a "bank" within the
meaning of Section 881(c)(3)(A)
<PAGE>
26
of the Code, (i) to represent to the transferor Lender (for the benefit of the
transferor Lender, the Agent, the Lessee and the Borrower) that it is not a
"bank" within the meaning of Section 881(c)(3)(A) of the Code, (ii) to furnish
to the transferor Lender (and, in the case of any Transferee registered in the
Register, to the Company), with a copy to the Agent, (A) a Subsection 2.12(d)
Certificate and (B) two accurate and complete original signed copies of Internal
Revenue Service Form W-8, certifying to such Transferee's legal entitlement on
the date of the effectiveness of such transfer to an exemption from U.S.
withholding tax under the provisions of Section 881(c) of the Code with respect
to all payments to be made under this Agreement, and (iii) to agree (for the
benefit of the transferor Lender, the Agent and the Borrower), to the extent
legally entitled to do so, upon reasonable request by the transferor Lender (or,
in the case of any Transferee registered in the Register, the Agent or the
Company), to provide to the transferor Lender, the Agent and the Borrower such
other forms as may be required to establish the legal entitlement of such
Transferee to an exemption from withholding tax with respect to payments under
this Agreement.
(f) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this Section concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank
in accordance with applicable law.
9.6 Set-off. In addition to any rights and remedies of the Lenders
-------
provided by law, each Lender shall have the right, without prior notice to the
Borrower, any such notice being expressly waived by the Borrower to the extent
permitted by applicable law, upon the filing of a petition under any of the
provisions of the federal bankruptcy code or amendments thereto, by or against;
the making of an assignment for the benefit of creditors by; the application for
the appointment, or the appointment, of any receiver of, or of any substantial
portion of the property of; the issuance of any execution against any
substantial portion of the property of; the issuance of a subpoena or order, in
supplementary proceedings, against or with respect to any substantial portion of
the property of; or the issuance of a warrant of attachment against any
substantial portion of the property of; the Borrower to set off and apply
against any indebtedness, whether matured or unmatured, of the Borrower to such
Lender, any amount owing from such Lender to the Borrower, at or at any time
after, the happening of any of the above mentioned events, and as security for
such indebtedness, the Borrower hereby grants to each Lender a continuing
security interest in any and all deposits, accounts or moneys of the Borrower
then or thereafter maintained with such Lender, subject in each case to the
Agency and Intercreditor Agreement. The aforesaid right of set-off may be
exercised by such Lender against the Borrower or against any trustee in
bankruptcy, debtor in possession, assignee for the benefit of creditors,
receiver or execution, judgment or attachment creditor of the Borrower, or
against anyone else claiming through or against the Borrower or such trustee in
bankruptcy, debtor in possession, assignee for the benefit of creditors,
receiver, or execution, judgment or attachment creditor, notwithstanding the
fact that such right of set-off shall not have been exercised by such Lender
prior to the making, filing or issuance, or service upon such Lender of, or of
notice of, any such petition; assignment for the benefit of creditors;
appointment or application for the appointment of a receiver; or issuance of
execution, subpoena, order or warrant. Each Lender agrees promptly to notify
the Borrower and
<PAGE>
27
the Agent after any such set-off and application made by such Lender, provided
--------
that the failure to give such notice shall not affect the validity of such set-
off and application.
9.7 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Borrower and the Agent. This Agreement shall become
effective when the Agent shall have received copies of this Agreement executed
by the Borrower, the Agent, the Arranger, the Co-Arrangers, the Syndication
Agent, the Documentation Agent and the Lenders, or, in the case of any Lender,
shall have received telephonic confirmation from such Lender stating that such
Lender has executed counterparts of this Agreement or the signature pages hereto
and sent the same to the Agent.
9.8 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
9.9 Integration. This Agreement and the other Operative Agreements
-----------
represent the agreement of the Borrower, the Agent and the Lenders with respect
to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Agent or any Lender relative to subject
matter hereof not expressly set forth or referred to herein or in the other
Operative Agreements.
9.10 Governing Law; No Third Party Rights. THIS AGREEMENT AND THE
------------------------------------
NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE
NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAW OF THE STATE OF NEW YORK. This Agreement is solely for the benefit of
the parties hereto and their respective successors and assigns, and, except as
set forth in Section 9.5, no other Persons shall have any right, benefit,
priority or interest under, or because of the existence of, this Agreement.
9.11 Submission to Jurisdiction; Waivers. (a) Each party to this
-----------------------------------
Agreement hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to this Agreement or any of the other Operative
Agreements, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the courts of the
State of New York, the courts of the United States for the Southern
District of New York, and appellate courts from any thereof;
(ii) consents that any such action or proceeding may be brought
in such courts, and waives any objection that it may now or hereafter have
to the venue of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient court and agrees
not to plead or claim the same;
<PAGE>
28
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to such party at its address set forth in Section 9.2 or at such
other address of which the Agent shall have been notified pursuant thereto;
and
(iv) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction.
(B) EACH PARTY HERETO UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (A) ABOVE AND ANY
COUNTERCLAIM THEREIN.
9.12 Special Indemnification. Notwithstanding any provision in this
-----------------------
Agreement to the contrary, (a) each Lender, or Transferee of any Lender pursuant
to Section 9.5(f) of this Agreement, shall indemnify the Borrower, the Trust
Company and the Agent, and hold each of them harmless against any and all
payments, expenses or taxes which the Borrower, the Trust Company or the Agent
may become subject to or obligated to pay if and to the extent that, (i) on the
Initial Closing Date or the effective date of transfer, as the case may be, such
Lender, or such Transferee of a Lender pursuant to Section 9.5(f) of this
Agreement, (A) makes the representation and covenants set forth in Section
2.12(d)(2) of this Agreement, or, in the case of a Transferee, pursuant to
Section 9.5(f)(2) of this Agreement and the Assignment and Acceptance, and (B)
is not in fact also qualified to make the representation and covenants set forth
in Section 2.12(d)(1) of this Agreement or, in the case of a Transferee,
pursuant to Section 9.5(f)(2) of this Agreement and the Assignment and
Acceptance, and (ii) as a result of any Change in Law or compliance by such
Lender, or Transferee, with any request or directive (whether or not having the
force of law) from any central bank or other Governmental Authority the Borrower
or the Agent is required to make any additional payments on account of U.S.
withholding taxes and amounts related thereto with respect to any payments under
this Agreement, any Note, or a Eurodollar Loan, made prior to such Change in Law
or request or directive, none of which payments would have been required if such
Lender, or Transferee, was qualified on the Initial Closing Date or the date of
the transfer, as the case may be, to make the representation and covenants set
forth in Section 2.12(d)(1) of this Agreement or pursuant to Section 9.5(f)(1)
of this Agreement and the Assignment and Acceptance, as the case may be, and (b)
each Lender, or Transferee, agrees that to the extent any amount payable by such
Lender or Transferee pursuant to this Section 9.12 remains unpaid on any
Interest Payment Date or the date on which any prepayment is made, the Borrower
shall have the right to set-off against any payment due to such Lender or
Transferee on such date any amounts owing to such Borrower pursuant to this
Section 9.12.
9.13 Nonrecourse. Anything to the contrary contained in this
-----------
Agreement or in any other Operative Agreement notwithstanding, neither the
Borrower nor any officer, director or shareholder thereof, nor any of the
Borrower's successors or assigns (all such Persons being hereinafter referred to
collectively as the "Exculpated Persons"), shall be personally liable in any
------------------
respect for any liability or obligation hereunder or under any other Operative
Agreement including the payment of the principal of, or interest on, the Notes,
or for monetary damages for
<PAGE>
29
the breach of performance of any of the covenants contained in this Agreement,
the Notes or any of the other Operative Agreements. The Agent and the Lenders
agree that, in the event any of them pursues any remedies available to them
under this Agreement, the Notes or any other Operative Agreement, neither the
Agent nor the Lenders shall have any recourse against the Borrower, nor any
other Exculpated Person, for any deficiency, loss or claim for monetary damages
or otherwise resulting therefrom and recourse shall be had solely and
exclusively against the Collateral and the Guarantor; but nothing contained
herein shall be taken to prevent recourse against or the enforcement of remedies
against the Property in respect of any and all liabilities, obligations and
undertakings contained in this Agreement, the Notes or any other Operative
Agreement. Notwithstanding the foregoing provisions of this Section 9.13,
nothing in this Agreement or any other Operative Agreement shall (a) constitute
a waiver, release or discharge of any obligation evidenced or secured by this
Agreement or any other Credit Document, (b) limit the right of the Agent or any
Lender to name the Borrower as a party defendant in any action or suit for
judicial foreclosure and sale under any Security Document, or (c) affect in any
way the validity or enforceability of the Guarantee or any other guaranty
(whether of payment and/or performance) given to the Agent or the Lenders, or of
any indemnity agreement given by the Borrower, in connection with the Loans made
hereunder.
<PAGE>
30
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the day and year first above written.
HHC 1998-1 TRUST
By: Wilmington Trust Company, not in its
individual capacity but solely as Trustee
By: /s/ Robert P. Hines, Jr.
-----------------------------------------
Title: Financial Services Officer
<PAGE>
31
THE CHASE MANHATTAN BANK, as the Agent
and a Lender
By: /s/ Robert Anastasio
------------------------------
Title: Vice President
<PAGE>
32
CHASE SECURITIES INC., as the Arranger
By: /s/ Robert Anastasio
--------------------
Name:
Title:
<PAGE>
33
MORGAN STANLEY SENIOR FUNDING, INC.,
as a Co-Arranger, the Syndication Agent,
and a Lender
By: /s/ Michael Hart
---------------------------------
Title: Principal
<PAGE>
34
BT ALEX. BROWN INCORPORATED, as a
Co-Arranger
By: /s/ Lorenz E. Zimmerman, Jr.
--------------------------------
Title: Principal
<PAGE>
35
BANKERS TRUST COMPANY, as the
Documentation Agent and a Lender
By: /s/ Mary Kay Coyle
---------------------------
Title: Managing Director
<PAGE>
36
ARAB BANKING CORPORATION (B.S.C.)
By: /s/ Louise Bilbro
---------------------------------
Title: Vice President
<PAGE>
37
BANKBOSTON, N.A.
By:/s/ Gregory R.D. Clark
-----------------------------------
Title: Managing Director
<PAGE>
38
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By:/s/ Douglas J. Weir
------------------------------------
Title: Vice President
<PAGE>
39
CITICORP U.S.A., INC.
By:/s/ R. Bruce Hall
-------------------------------------
Title: Vice President
<PAGE>
40
CREDITANSTALT CORPORATE
FINANCE, INC.
By:/s/ David E. Yewer
-------------------------------------
Title: Vice President
By:/s/ Catherine K. MacDonald
-------------------------------------
Title: Vice President
<PAGE>
41
DRESDNER BANK AG, NEW YORK BRANCH
AND GRAND CAYMAN BRANCH
By:/s/ Andrew P. Nesi
-------------------------------------
Title: Vice President
By:/s/ Charles M. O'Shea
-------------------------------------
Title: Vice President
<PAGE>
42
THE FIRST NATIONAL BANK OF
MARYLAND
By:/s/ Michael B. Stueck
-------------------------------
Title: Vice President
<PAGE>
43
FIRST UNION NATIONAL BANK
By:/s/ Joseph H. Towell
-------------------------------
Title: Senior Vice President
<PAGE>
44
FLEET NATIONAL BANK
By:/s/ Maryann S. Smith
-------------------------------
Title: Vice President
<PAGE>
45
IMPERIAL BANK
By:/s/ Ray Vadalma
-------------------------------
Title: Senior Vice President
<PAGE>
46
NATIONSBANK, N.A.
By:/s/ Kevin Wagley
-------------------------------
Title: Vice President
<PAGE>
47
PROVIDENT BANK OF MARYLAND
By:/s/ Jennifer D. Patton
-------------------------------
Title: Assistant Vice President
<PAGE>
48
STAR BANK, NATIONAL ASSOCIATION
By:/s/ William J. Goodwin
-------------------------------
Title: Senior Vice President
<PAGE>
49
THE CIT GROUP/BUSINESS CREDIT, INC.
By:/s/ David Kaplowitz
-------------------------------
Title: Vice President
<PAGE>
SCHEDULE 1.1
LENDERS, ADDRESSES AND COMMITMENTS
Commitment
----------
THE CHASE MANHATTAN BANK $14,181,250.00
85 Wells Avenue, Suite 200
Newton, MA 02159
Attn: Roger Stone
Telecopy: 617-928-3057
MORGAN STANLEY SENIOR FUNDING, INC. $16,378,125.00
1585 Broadway
New York, NY 10036
Attn: Michael A. Hart
Telecopy: 212-761-0587
BANKERS TRUST COMPANY $17,565,625.00
One Bankers Trust Plaza
130 Liberty Street
New York, NY 10006
Attn: Mary Kay Coyle
Telecopy: 212-250-1343
BANK OF TOKYO-MITSUBISHI TRUST COMPANY $15,750,000.00
1251 Avenue of the Americas, 12th Floor
New York, NY 10020
Attn: Doug Weir
Telecopy: 212-782-4935
CITICORP U.S.A., INC. $15,750,000.00
399 Park Avenue, 5th Floor
New York, NY 10043
Attn: Bruce Hall
Telecopy: 212-559-0292
FIRST UNION NATIONAL BANK $15,750,000.00
301 South College Street
Charlotte, NC 28288
<PAGE>
2
Attn: J. Matt MacIver
Telecopy: 704-383-9144
NATIONSBANK, N.A. $15,750,000.00
One Nationsbank Plaza - 7th Floor
Nashville, TN 37239-2697
Attn: Kevin Wagley
Telecopy: 615-749-4640
ARAB BANKING CORPORATION (B.S.C.) $13,000,000.00
277 Park Avenue, 32nd Floor
New York, NY 10172-3299
Attn: Sandy Tilney
Telecopy: 212-583-0921
THE CIT GROUP/BUSINESS CREDIT, INC. $13,000,000.00
1211 Avenue of the Americas
New York, NY 10036
Attn: Victor Russo
Telecopy: 212-536-1297
BANKBOSTON, N.A. $13,000,000.00
100 Federal Street, 8th Floor
Boston, MA 02110
Attn: Gregory Clark
Telecopy: 617-434-4929
CREDITANSTALT CORPORATE FINANCE, INC. $13,000,000.00
2 Greenwich Plaza
Greenwich, CT 06830
Attn: David Yewer
Telecopy: 203-861-1475
DRESDNER BANK AG, NEW YORK BRANCH $13,000,000.00
AND GRAND CAYMAN BRANCH
75 Wall Street, 24th Floor
New York, NY 10005
Attn: Felix Camacho
Telecopy: 212-429-2129
THE FIRST NATIONAL BANK OF MARYLAND $13,000,000.00
25 South Charles Street
Baltimore, MD 21201
Attn: Bob Hauver
Telecopy: 410-244-4388
<PAGE>
3
FLEET NATIONAL BANK $13,000,000.00
1 Federal Street, MAOF 0324
Boston, MA 02110
Attn: Paul R. Trefry
Telecopy: 617-346-4885
PROVIDENT BANK OF MARYLAND $13,000,000.00
114 East Lexington Street, 5th Floor
Baltimore, MD 21202
Attn: Tom Myers
Telecopy: 410-277-2793
STAR BANK, NATIONAL ASSOCIATION $13,000,000.00
425 Walnut Street, 8th Floor, Corporate Banking
Cincinnati, OH 45201-1038
Attn: Mark Whitson
Telecopy: 513-632-2068
IMPERIAL BANK $10,000,000.00
9920 South La Clenega Blvd., 14th Floor
Inglewood, CA 90301
Attn: Jamie Harney
Telecopy: 310-417-5997
TOTAL $238,125,000.00
<PAGE>
Schedule 2 to the
Credit Agreement
----------------
PRICING GRID
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Applicable Margin
--------------------------
ABR Loans Eurodollar
Leverage Ratio Loans
- ---------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 5.0 1.250% 2.250%
- ---------------------------------------------------------------------
Less than 5.0 to 1.0, but greater than 1.000% 2.000%
or equal to 4.5 to 1.0
- ---------------------------------------------------------------------
Less than 4.5 to 1.0, but greater than 0.750% 1.750%
or equal to 4.0 to 1.0
- ---------------------------------------------------------------------
Less than 4.0 to 1.0, but greater than 0.500% 1.500%
or equal to 3.5 to 1.0
- ---------------------------------------------------------------------
Less than 3.5 to 1.0, but greater than 0.250% 1.250%
or equal to 3.0 to 1.0
- ---------------------------------------------------------------------
Less than 3.0 to 1.0 0.000% 1.000%
- ---------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.22
CONFORMED COPY
================================================================================
PARTICIPATION AGREEMENT
among
HARBORSIDE OF DAYTON LIMITED PARTNERSHIP,
as Lessee
HHC 1998-1 TRUST,
a Delaware business 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 for the
Lenders
and
THE LENDERS PARTIES HERETO
______________________________
Dated as of August 11, 1998
______________________________
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. THE LOANS....................................................... 1
1.1 Loans................................................................. 1
1.2 Credit Agreement...................................................... 1
1.3 Collateral For Loans.................................................. 1
1.4 Guarantee............................................................. 2
SECTION 2. INVESTOR CONTRIBUTION........................................... 2
2.1 Investor Contribution................................................. 2
2.2 Allocated Investor Yield.............................................. 2
SECTION 3. SUMMARY OF THE TRANSACTIONS..................................... 2
3.1 Operative Agreements.................................................. 2
3.2 Property Purchase and Lease........................................... 2
3.3 Construction of Improvements; Lease of Improvements................... 3
3.4 Aggregate Tranche A Percentage; Tranche A Percentage.................. 3
SECTION 4. THE CLOSINGS.................................................... 3
4.1 Initial Closing Date.................................................. 3
4.2 Subsequent Funding Dates.............................................. 3
4.3 Trust Company Authorization........................................... 3
SECTION 5. FUNDING OF ADVANCES............................................. 4
5.1 General............................................................... 4
5.2 Procedures for Funding................................................ 4
SECTION 6. CONDITIONS OF THE CLOSING....................................... 5
6.1 General Conditions to the Investors' and the Lenders' Obligations to
Make Loans and Investor Contributions................................. 5
6.2 Conditions to the Investors' and the Lenders' Obligations to Make
Advances to pay Property Acquisition Costs............................ 7
6.3 Conditions to the Investors' and the Lenders' Obligations to Make
Advances to Pay Project Costs for Construction on any Property........ 11
SECTION 7. REPRESENTATIONS AND WARRANTIES.................................. 12
7.1 Representations and Warranties of the Investors on the Initial Closing
Date.................................................................. 12
7.2 Representations and Warranties of Lessor on the Initial Closing Date.. 13
7.3 Representations and Warranties of the Lessee on the Initial Closing
Date.................................................................. 15
7.4 Representations and Warranties of the Trust Company on the Initial
Closing Date.......................................................... 15
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.5 Representations and Warranties of the Lessee on Property Closing
Dates.................................................................. 16
7.6 Representations and Warranties of the Lessor on Property Closing
Dates.................................................................. 19
7.7 Representations and Warranties of the Lessee Upon each Funding
Date................................................................... 20
7.8 Representation and Warranties of the Lessor Upon each Funding
Date................................................................... 22
7.9 Representations and Warranties of the Investors Upon Funding Dates..... 22
SECTION 8. PAYMENT OF CERTAIN EXPENSES...................................... 23
8.1 Transaction Expenses................................................... 23
8.2 Brokers' Fees and Stamp Taxes.......................................... 23
8.3 Certain Fees and Expenses.............................................. 23
8.4 Credit Agreement and Related Obligations............................... 23
8.5 Overdue Rate........................................................... 24
SECTION 9. OTHER COVENANTS AND AGREEMENTS................................... 24
9.1 Covenants of the Trust and the Investors............................... 24
9.2 Repayment of Certain Amounts on Maturity Date.......................... 26
9.3 Amendment of Certain Documents......................................... 26
9.4 Proceeds of Casualty................................................... 26
9.5 Intercreditor Agreement................................................ 26
9.6 Available Proceeds..................................................... 26
SECTION 10. CREDIT AGREEMENT................................................ 27
10.1 Lessee's Credit Agreement Rights....................................... 27
SECTION 11. TRANSFER OF INTEREST............................................ 28
11.1 Restrictions on Transfer............................................... 28
11.2 Effect of Transfer..................................................... 28
SECTION 12. INDEMNIFICATION................................................. 29
12.1 General Indemnity...................................................... 29
12.2 General Tax Indemnity.................................................. 30
SECTION 13. MISCELLANEOUS................................................... 33
13.1 Survival of Agreements................................................. 36
13.2 No Broker, etc......................................................... 34
13.3 Notices................................................................ 34
13.4 Counterparts........................................................... 36
13.5 Amendments and Termination............................................. 36
13.6 Headings, etc.......................................................... 36
13.7 Parties in Interest.................................................... 36
13.8 GOVERNING LAW.......................................................... 36
13.9 Severability........................................................... 36
13.10 Liability Limited...................................................... 36
13.11 Rights of Lessee....................................................... 36
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
13.12 Further Assurances........................................ 37
13.13 Successors and Assigns.................................... 37
13.14 No Representation or Warranty............................. 37
13.15 Highest Lawful Rate....................................... 37
13.16 Submission to Jurisdiction; Waivers....................... 38
</TABLE>
Annex A Rules of Usage and Definitions
Exhibits
- --------
Exhibit A-1 Form of Construction Agreement
Exhibit A-2 Form of Agency Agreement
Exhibit B Form of Assignment of Leases; Rents and Guarantee and
Consent to Assignment
Exhibit C Form of Contract Assignment and Consent to Contract Assignment
Exhibit D-1 Form of Mortgage
Exhibit D-2 Form of Deed of Trust
Exhibit E Form of Guarantee
Exhibit F Form of Requisition
Exhibit G-1 Form of Opinion of Counsel to Lessee and Guarantor
Exhibit G-2 Form of Opinion of Counsel to Lessor and Trust Company
Exhibit G-3 Form of Opinion of Local Counsel to Lessee and Guarantor
Exhibit H Property Closing Certificate
Exhibit I Form of Agency and Intercreditor Agreement
Exhibit J Form of Collateral Agreement
-iii-
<PAGE>
PARTICIPATION AGREEMENT, dated as of August 11, 1998 (this
"Agreement"), among HARBORSIDE OF DAYTON LIMITED PARTNERSHIP, a Massachusetts
---------
limited partnership (the "Lessee"); HHC 1998-1 TRUST, a Delaware business trust
------
(the "Trust" or the "Lessor"); WILMINGTON TRUST COMPANY, a Delaware banking
----- ------
corporation, in its individual capacity (the "Trust Company"); THE CHASE
-------------
MANHATTAN BANK, a New York banking corporation, as agent (in such capacity, the
"Agent") for the Lenders; BTD HARBORSIDE INC., MORGAN STANLEY SENIOR FUNDING,
-----
INC. and CSL LEASING, INC., as investors (each an "Investor"; collectively, the
--------
"Investors"); and each of the financial institutions listed on the signature
pages hereof (each, a "Lender"; collectively, the "Lenders"). Capitalized terms
------ -------
used but not otherwise defined in this Agreement shall have the meanings set
forth in Annex A hereto.
In consideration of the mutual agreements herein contained and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. THE LOANS
1.1 Loans. The Lenders have agreed to make loans to the Lessor in an
-----
aggregate principal amount of up to the amounts and subject to the terms and
conditions as set forth in the Credit Agreement in order for the Lessor to
acquire Completed Properties or to acquire, develop and construct Construction
Period Properties in accordance with the Construction Agreement (in the form
attached hereto as Exhibit A-1) and the Agency Agreement (in the form attached
-----------
hereto as Exhibit A-2), and to pay other Project Costs, and in consideration of
-----------
the receipt of the proceeds of such Loans, the Lessor will issue the Tranche A
Notes and the Tranche B Notes.
1.2 Credit Agreement. The Loans shall be made and the Notes shall be
----------------
issued pursuant to the Credit Agreement. Pursuant to this Agreement and the
Credit Agreement, the Loans will be made to the Lessor from time to time at the
request of the Construction Agent in consideration for the Construction Agent's
agreeing for the benefit of the Lessor, pursuant to the Agency Agreement, to
assist with the acquisition by the Lessor of parcels of Land or other Property
and, if such Property is not a Completed Property, to construct Improvements in
accordance with the Plans and Specifications.
1.3 Collateral For Loans. The Loans and the obligations of the Lessor
--------------------
under the Credit Agreement shall be secured by, inter alia, (i) a first priority
----- ----
assignment of the Lease, granted pursuant to the Assignment of Lease and
consented to by the Lessee pursuant to the Consent to Assignment (in each case
in the respective forms set forth on Exhibit B hereto), (ii) a first priority
---------
assignment of the Agency Agreement, granted pursuant to the Contract Assignment
and consented to by the Construction Agent pursuant to the Consent to Contract
Assignment (in each case in the respective forms set forth on Exhibit C hereto);
---------
and (iii) a first priority mortgage lien on each Property pursuant to a Mortgage
in the form set forth on Exhibit D-1 or Exhibit D-2 hereto, as applicable.
----------- -----------
<PAGE>
2
1.4 Guarantee. The obligations of the Lessor under the Credit
---------
Agreement shall be guaranteed by the Guarantors to the extent provided in the
Guarantee (in the form attached hereto as Exhibit E) and the Guaranteed
---------
Obligations will be secured by the Guarantee Collateral.
2. INVESTOR CONTRIBUTION
2.1 Investor Contribution. (a) Subject to the terms and conditions of
---------------------
this Agreement, and in reliance on the representations and warranties of each of
the parties hereto contained herein or made pursuant hereto, on each Funding
Date, the Investors shall make an investment in the Lessor (each, an "Investor
--------
Contribution") in an amount equal to 4.75% of the amount of the Advance
- ------------
requested by the Construction Agent in the Requisition for such Funding Date.
The aggregate amount of Investor Contributions made by the Investors shall not
exceed the Investor Commitment. The Lessor shall use the Investor Contributions
to pay a portion of the Project Costs simultaneously and pro rata with the
fundings by the Lenders. The Lessee shall have the right to prepay the Investor
Contribution, in connection with the exercise by the Lessee of its right to
direct the Lessor to prepay the Loans in accordance with Section 10.1(e).
(a) The Investor Commitment shall automatically be reduced on a pro
rata basis with any reduction of the Commitment pursuant to Section 2.6 of the
Credit Agreement.
2.2 Allocated Investor Yield. With respect to each Construction
------------------------
Period Property, on each date which is one Business Day prior to any date on
which the Investors are entitled to a payment on account of the Investor Yield,
the Construction Agent shall be deemed to have requested that the Investors make
an Investor Contribution in an amount equal to the Investor Yield due and
payable on such date with respect to the Construction Period Properties solely
for the purpose of paying such Investor Yield which is then due and payable.
3. SUMMARY OF THE TRANSACTIONS
3.1 Operative Agreements. On the Initial Closing Date, each of the
--------------------
respective parties thereto shall execute and deliver this Agreement, the Lease,
the Construction Agreement, the Agency Agreement, the Notes, the Guarantee, the
Guarantee Security Documents, the Credit Agreement, the Assignment of Lease, the
Contract Assignment, the Consent to Assignment, the Consent to Contract
Assignment and such other documents, instruments, certificates and opinions of
counsel as agreed to by the parties hereto.
3.2 Property Purchase and Lease. (a) On each Property Closing Date
---------------------------
and subject to the terms and conditions of this Agreement and the Credit
Agreement (i) the Investors will make an Investor Contribution in accordance
with Section 2 hereof, (ii) the Lenders will make loans in accordance with
Section 5 hereof and the terms and provisions of the Credit Agreement which
loans will be secured by a Mortgage with respect to the Property executed and
delivered by the Lessor and joined in by the Lessee, (iii) the Lessor will
purchase all right, title and interest in and to each Property identified by the
Construction Agent pursuant to the Agency
<PAGE>
3
Agreement with respect to such Property Closing Date and (iv) the Lessor will
simultaneously lease (or sublease, as the case may be) all of its right, title
and interest in the Property to the Lessee by executing and delivering a Lease
Supplement and Memorandum of Lease which will be recorded in the real estate
records in the county where such Property is located.
(a) On each Property Closing Date, the Lessee shall certify to the
Agent on the Property Closing Certificate the Tranche A Percentage for each
Property being acquired on such Property Closing Date. The Tranche A Percentage
so certified shall be the Tranche A Percentage for such Property for the
duration of the Term.
3.3 Construction of Improvements; Lease of Improvements. On each
---------------------------------------------------
Property Closing Date, the Lessor and the Lessee will execute and deliver an
Agency Agreement Supplement, dated as of such Property Closing Date, pursuant to
which the Lessee will agree to act as Construction Agent and to perform the
Lessor's obligations under the Construction Agreement in connection with the
completion of the construction or renovation of the Improvements on the Land
acquired on such Property Closing Date.
3.4 Aggregate Tranche A Percentage; Tranche A Percentage.
----------------------------------------------------
Notwithstanding any other provision of this Agreement or the other Operative
Agreements, the Lessee agrees that in no event shall the Lessee specify a
Property for the Lessor to acquire and lease pursuant to the execution and
delivery of a Lease Supplement if the Aggregate Tranche A Percentage after
giving effect to the acquisition and lease pursuant to the execution and
delivery of a Lease Supplement of such Property would be less than 87.66%.
4. THE CLOSINGS
4.1 Initial Closing Date. All documents and instruments required to
--------------------
be delivered on the Initial Closing Date shall be delivered at the offices of
Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York, or at such
other location as may be determined by the Agent and the Lessee.
4.2 Subsequent Funding Dates. The Lessee shall deliver to each
------------------------
Investor and the Agent a Requisition appropriately completed, in connection with
each Funding Date.
4.3 Trust Company Authorization. Each Investor agrees that, with
---------------------------
respect to the Initial Closing Date and each Property Closing Date, the
satisfaction or waiver of the conditions contained in Section 6 hereof shall
constitute, without further act, authorization and direction by such Investor to
the Trust Company, in its capacity as Trustee, to take on behalf of the Lessor,
the actions specified in Section 2.1 of the Trust Agreement.
5. FUNDING OF ADVANCES
<PAGE>
4
5.1 General. To the extent funds have been made available to the
-------
Lessor as Loans and Investor Contributions, the Lessor will make advances of
such funds to the Construction Agent from time to time in accordance with the
terms and conditions of this Agreement and the other Operative Agreements in
order to provide sufficient funds to: (i) allow the Lessor, at the direction of
the Construction Agent to acquire the Land or Completed Property in accordance
with the terms of this Agreement and the other Operative Agreements; (ii) allow
the Lessor, on behalf of the Lessee, to pay Transaction Expenses; (iii) permit
the Construction Agent to construct the Improvements (provided that such
Property is not a Completed Property) in accordance with the Plans and
Specifications and the terms of the Construction Agreement, the Agency
Agreement, the Lease and the other Operative Agreements; and (iv) pay all other
Project Costs.
5.2 Procedures for Funding. (a) Not less than three Business Days
----------------------
prior to each proposed Funding Date, the Construction Agent shall deliver to the
Investors and the Agent, a requisition (a "Requisition"), appropriately
-----------
completed, in the form of Exhibit F hereto.
---------
(a) Each Requisition shall: (i) be irrevocable; and (ii) request funds
in an amount of at least $1,000,000 (or such lesser amount as shall be equal to
the total aggregate of the Available Commitments plus the Available Investor
Commitment at such time) for the payment of Property Acquisition Costs or other
Project Costs which have previously been incurred and were not the subject of
and funded pursuant to a prior Requisition, in each case as specified in the
Requisition.
(b) So long as no Default or Event of Default has occurred and is
continuing and subject to the Investors and the Agent having each received the
materials required by Section 6.1, 6.2 and/or 6.3, as applicable, on each
Funding Date (i) the Lenders shall make Loans to the Lessor in an aggregate
amount equal to 95.25% of the funds specified in any Requisition, up to an
aggregate principal amount equal to the Available Commitments; (ii) the
Investors shall make an Investor Contribution in an amount equal to 4.75% of the
funds specified in any Requisition, up to an amount equal to the Available
Investor Commitment; and (iii) the total amount of such Loans and Investor
Contribution made on such date shall be paid to the Construction Agent to pay
the Project Costs.
(c) Notwithstanding anything to the contrary in this Agreement, (i)
the Lenders shall not be required to make Loans with respect to a Property in an
aggregate amount in excess of 95.25% of, in the case of a Completed Property,
the Property Acquisition Cost and in the case of a Construction Period Property,
the amount allocated to such Property in the Budget, and (ii) the Investors
shall not be required to make Investor Contributions with respect to a Property
in an aggregate amount in excess of 4.75% of, in the case of a Completed
Property, the Property Acquisition Cost and in the case of a Construction Period
Property, the amount allocated to such Property in the Budget.
(d) Notwithstanding the provisions of Section 6 to the contrary, the
determination by the Agent that the conditions set forth in Section 6.1, 6.2 or
6.3, as applicable,
<PAGE>
5
have been satisfied shall be binding on the Investors, except that the Agent and
the Investors shall determine whether the conditions set forth in Section 6.2(i)
shall be satisfied.
6. CONDITIONS OF THE CLOSINGS AND ADVANCES
6.1 General Conditions to the Investors' and the Lenders' Obligations
-----------------------------------------------------------------
to Make Loans and Investor Contributions. The agreement of each Lender to make
- ----------------------------------------
Loans, and the Investors to make Investor Contributions, is subject to the
satisfaction, immediately prior to or concurrently with the making of such Loans
and Investor Contribution, of the following conditions precedent:
(a) Operative Agreements. Each of the Operative Agreements entered
--------------------
into on the Initial Closing Date or subsequently shall have been duly
authorized, executed, acknowledged and delivered by the parties thereto and
shall be in full force and effect, and no default shall exist thereunder
(both before and after giving effect to the transactions contemplated by
the Operative Agreements), and the Agent and the Investors shall have
received a fully executed copy of each of the Operative Agreements (other
than the Notes of which the Agent shall have received the originals
thereof);
(b) Taxes. All taxes, fees and other charges in connection with the
-----
execution, delivery, and, where applicable, recording, filing and
registration of the Operative Agreements shall have been paid or provisions
for such payment shall have been made to the reasonable satisfaction of the
Agent and the Investors;
(c) Consents, Licenses and Approvals. All necessary (or, in the
--------------------------------
reasonable opinion of the Agent, the Investors and their respective
counsel, advisable) Governmental Actions, in each case required by any law
or regulation enacted, imposed or adopted on or after the date hereof or by
any change in fact or circumstances since the date hereof, and all
necessary governmental and other third party filings, authorizations,
consents, approvals or waivers required in connection with the execution,
delivery and performance of this Agreement and the other Operative
Agreements by the parties thereto, and the validity and enforceability of
this Agreement and the other Operative Agreements against the parties
thereto, or otherwise in connection with the transactions contemplated by
this Agreement and the other Operative Agreements, shall have been obtained
or made and remain in full force and effect (except where the failure to do
so would not reasonably be expected to have a material adverse effect on
(i) the business, assets, condition (financial or otherwise) or results of
operations of the Lessee, HHC and its Subsidiaries, taken as a whole, or
(ii) (A) the validity or enforceability of this Agreement or the other
Operative Agreements or (B) the rights or remedies of the Agent, the
Lenders, the Lessor or the Investors hereunder or thereunder);
(d) Legal Requirements. In the opinion of the Agent, the Investors and
------------------
their respective counsel, the transactions contemplated by the Operative
Agreements do not
<PAGE>
6
and will not violate in any respect any Legal Requirements and do not and
will not subject the Agent, any Lender or the Investors to any material
adverse regulatory prohibitions or constraints;
(e) Closing Certificate of the Lessee and each Guarantor. On the
----------------------------------------------------
Initial Closing Date, the Agent and the Investors shall have received a
Closing Certificate of the Lessee and each Guarantor dated the Initial
Closing Date, in substantially the form of Exhibits K-1 and K-2,
respectively, to the Senior Secured Credit Agreement, with appropriate
insertions and attachments, in form and substance satisfactory to the Agent
and the Investors, executed by the President or any Vice President and the
Secretary or any Assistant Secretary of the Lessee and each Guarantor;
(f) Corporate Proceedings of the Trust Company. On the Initial
------------------------------------------
Closing Date, the Agent, the Investors and the Lessee shall have received a
copy of the resolutions, in form and substance satisfactory to the Agent,
the Investors and the Lessee, of the Board of Directors of the Trust
Company authorizing the execution, delivery and performance of the
Operative Agreements to which it is a party, certified by the Secretary or
an Assistant Secretary of the Trust Company as of the Initial Closing Date,
which certificate shall be in form and substance satisfactory to the Agent,
the Investors and the Lessee and shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded;
(g) Trust Company Incumbency Certificate. On the Initial Closing
------------------------------------
Date, the Agent, the Investors and the Lessee shall have received a
certificate of the Trust Company, dated the Initial Closing Date, as to the
incumbency and signature of the officers of the Trust Company executing any
Operative Agreement, satisfactory in form and substance to the Agent, the
Investors and the Lessee, executed by the President or any Vice President,
Assistant Vice President or Trust Officer and the Secretary or any
Assistant Secretary of the Trust Company;
(h) Senior Secured Credit Agreement Conditions Precedent. The
----------------------------------------------------
conditions set forth in subsections (b), (c) and (d) of Section 5.1 of the
Senior Secured Credit Agreement shall have been satisfied.
(i) Legal Opinions. (i) The Agent and the Investors shall have
--------------
received the executed legal opinion of Gibson, Dunn & Crutcher LLP, counsel
to the Lessee and each Guarantor, substantially in the form of Exhibit G-1
-----------
hereto; and
(i) The Agent, the Lessee and the Investors shall have received
the executed legal opinion of Morris, James, Hitchen & Williams, counsel to
the Trust and the Trust Company, substantially in the form of Exhibit G-2
-----------
hereto;
(j) Actions to Perfect Liens. The Agent shall have received evidence
------------------------
in form and substance reasonably satisfactory to it that all filings,
recordings, registrations and other actions, including the filing of duly
executed Lender Financing Statements and
<PAGE>
7
Lessor Financing Statements, necessary or, in the reasonable opinion of the
Agent, desirable to perfect the Liens created by the Security Documents
shall have been completed or arrangements made therefor reasonably
satisfactory to the Agent;
(k) Lien Searches. The Agent and the Investors shall have received
-------------
the results of a recent search by a Person reasonably satisfactory to the
Agent, of the Uniform Commercial Code, judgement and tax lien filings which
may have been filed with respect to personal property of the Lessee, and
the results of such search shall be satisfactory to the Agent and the
Investors;
(l) Insurance. The Agent and the Investors shall have received
---------
evidence in form and substance satisfactory to them that all of the
requirements of Section 14 of the Lease shall have been satisfied;
(m) Representations and Warranties. The representations and
------------------------------
warranties of the Lessor, the Lessee, the Investors and each Guarantor
contained herein and in each of the other Operative Agreements shall be
true and correct in all material respects on and as of each Funding Date as
if made on and as of each Funding Date;
(n) Performance of Operative Agreements. The parties hereto (other
-----------------------------------
than the Investors, the Lenders or the Agent) shall have performed their
respective agreements contained herein and in the other Operative
Agreements on or prior to each such Funding Date;
(o) Default. There shall not have occurred and be continuing any
-------
Default or Event of Default under any of the Operative Agreements and no
Default or Event of Default under any of the Operative Agreements will have
occurred after giving effect to the Advance requested by such Requisition;
and
(p) Guarantee Collateral. The Agent shall have received evidence in
--------------------
form and substance reasonably satisfactory to it that all filings,
recordings, registrations and other actions, including the filing of duly
executed UCC-1 financing statements and the Guarantee Mortgages, necessary
or, in the reasonable opinion of the Agent, desirable to perfect the Liens
created by the Guarantee Security Documents covering the Guarantee
Collateral, shall have been completed.
6.2 Conditions to the Investors' and the Lenders' Obligations to Make
-----------------------------------------------------------------
Advances to pay Property Acquisition Costs.
- ------------------------------------------
The obligations of the Investors to make each Investor Contribution,
and of the Lenders to make Loans to the Lessor, on a Property Closing Date for
the purpose of providing funds to the Lessor necessary to acquire a Property are
subject to the satisfaction or waiver of the following conditions precedent:
<PAGE>
8
(a) Requisition. The Investors and the Agent shall have received a
-----------
fully executed counterpart of the Requisition dated as of the Property
Closing Date (but delivered at least three Business Days prior to the
Property Closing Date), appropriately completed;
(b) Deed. There shall have been delivered to the Lessor, as
----
applicable, (i) a deed (the "Deed"), in form and substance appropriate for
----
recording with the applicable Governmental Authorities, with respect to
each Property (and all Improvements located thereon) being purchased on
such Property Closing Date, conveying fee simple title to such Property to
the Lessor, subject only to the Permitted Exceptions or (ii) a Ground Lease
with respect to each Property being ground leased on such Property Closing
Date (such Ground Lease, or a Memorandum of Ground Lease, as appropriate
under applicable Legal Requirements, to be in form and substance
appropriate for recording with the applicable Governmental Authorities),
subject only to Permitted Exceptions;
(c) Title. Title to all of the Properties shall conform to the
-----
representations and warranties set forth in Section 7.5(n);
(d) Lease Supplement and Memorandum of Lease. The Lessee shall have
----------------------------------------
delivered to the Agent a Lease Supplement and a Memorandum of Lease
executed by the Lessee and the Lessor with respect to each Property being
acquired on such Property Closing Date;
(e) Agency Agreement Supplement. The Construction Agent shall have
---------------------------
delivered an Agency Agreement Supplement executed by the Construction Agent
and the Lessor with respect to each Property being acquired on such
Property Closing Date to the Agent.
(f) Mortgages. The Lessee shall have recorded, or made arrangements
---------
therefor reasonably satisfactory to the Agent, in the real estate records
of the county where the Property is located an original of the Mortgage
executed by the Lessor and Lessee with respect to each Property being
acquired on such Property Closing Date and the Lien of the Mortgage shall
conform to the representations and warranties set forth in Section 7.5(g);
and the Guarantee Mortgages shall have been recorded so as to secure the
Guaranteed Obligations on a parity with the Senior Secured Obligations;
(g) Assignment of Lease. The Lessee shall have recorded in the real
-------------------
estate records of the county where the Property is located an original of
the Assignment of Lease executed by the Lessor with respect to each
Property being acquired on such Property Closing Date;
(h) Consent to Assignment of Lease. The Lessee and each Guarantor
------------------------------
shall have delivered to the Agent a consent to the Assignment of Lease
executed by the Lessee and each Guarantor with respect to each Property
being acquired on such Property Closing Date;
<PAGE>
9
(i) Environmental Audit. (i) The Agent and the Investors shall have
-------------------
received not less than 10 days prior to such Property Closing Date an
Environmental Audit with respect to each Property being acquired on such
Property Closing Date, prepared by the Environmental Engineer and the
results of the Environmental Audit shall be in form and substance
satisfactory to the Agent and the Investors; and
(i) the Agent and the Investors shall have received letters from
the Environmental Engineer stating, among other things, that the Agent, the
Lenders, the Lessor and the Investors may rely on the Environmental Audits
with respect to each Property being acquired on such Property Closing Date
which were prepared by such firm as if they were originally addressed to
them in all respects;
(j) Appraisal. The Agent and the Investors shall have received an
---------
Appraisal of each Property being acquired on such Property Closing Date and
such Appraisal shall show a value for each Property which shall not be less
than in the case of a Completed Property, the Property Acquisition Cost of
such Property, and in the case of a Construction Period Property, the
amount allocated to such Property in the Budget, and shall otherwise be in
form and substance acceptable to each Lender and the Lessor;
(k) Default. There shall not have occurred and be continuing any
-------
Default or Event of Default under any of the Operative Agreements and no
Default or Event of Default under any of the Operative Agreements will have
occurred after giving effect to the Advance requested by such Requisition;
(l) Survey. The Agent shall have received, and the Title Company
------
shall have received, a survey of each Property being acquired on such
Property Closing Date, certified to the Agent, the Investors, the Lessor
and the Title Company in a manner satisfactory to them, dated as of a date
within ninety days of the Property Closing Date, by an independent
professionally licensed land surveyor satisfactory to the Agent, which
survey shall be made in accordance with the Minimum Standard Detail
Requirements for Land Title Surveys jointly established and adopted by the
American Land Title Association and the American Congress on Surveying and
Mapping in 1992, and, without limiting the generality of the foregoing,
there shall be surveyed and shown on such survey the following: (i) the
locations on such Property of all the buildings, structures and other
improvements, if any, and the established building setback lines; (ii) the
lines of streets abutting such Property; (iii) all access and other
easements appurtenant to such Property; (iv) all roadways, paths,
driveways, easements, encroachments and overhanging projections and similar
encumbrances affecting such Property, whether recorded, apparent from a
physical inspection of the Property or otherwise known to the surveyor; (v)
any encroachments on any adjoining property by the building, structures and
improvements on such Property; and (vi) if such Property is described as
being on a filed map, a legend relating the survey to said map;
<PAGE>
10
(m) Mortgagee's Title Insurance Policy. With respect to each Property
----------------------------------
being acquired on such Property Closing Date, the Agent shall have received
with respect to the Mortgage a mortgagee's title policy or marked up
unconditional binder for such insurance dated the Property Closing Date;
such policy shall (i) be in an amount equal to 95.25% of the aggregate
amount shown on the Budget for such Property (with, in the case of a
Construction Period Property, a pending disbursements clause); (ii) be
issued at ordinary rates; (iii) insure that the Mortgage insured thereby
creates a valid first Lien on such Property, free and clear of all defects
and encumbrances, except Permitted Exceptions; (iv) name the Agent for the
benefit of the Lenders as the insured thereunder; (v) be in the form of
ALTA Loan Policy - 1970 (Amended 10/17/70); (vi) contain comprehensive,
zoning, access, subdivision, tax lot, revolving credit and such other
endorsements and affirmative coverage as the Agent may reasonably request
and to the extent available in the jurisdiction in which such Property is
located; and (vii) be issued by the Title Company; and the Agent shall have
received evidence reasonably satisfactory to it that all premiums in
respect of such policy, and all charges for any mortgage recording tax with
respect to the Mortgage and/or the Deed of Trust have been paid or
provision made therefor;
(n) Owner's Title Insurance Policy. The Lessor shall have received an
------------------------------
owner's title policy, or marked up unconditional binder for such insurance,
dated the Closing Date for each Property being acquired on such Property
Closing Date; and the Lessor shall have received evidence reasonably
satisfactory to it that all premiums in respect of such policy have been
paid or provision made therefor;
(o) Recorded Documents. The Agent and the Lessor shall have received
------------------
a copy of all recorded documents referred to, or listed as exceptions to
title in, the title policy referred to above;
(p) Construction Schedule. With respect to each Property (other than
---------------------
a Completed Property), the Agent and the Investors shall have received a
copy of the schedule prepared by or at the direction of the Construction
Agent showing the estimated (i) timetable for completion of each
Improvement to be constructed on each Property being acquired on such
Property Closing Date, and (ii) timetable for the making of Loans;
(q) Budget. With respect to each Property (other than a Completed
------
Property), the Agent and the Investors shall have received a copy of the
Budget with respect to the construction of each Improvement to be
constructed or installed on each Property being acquired on such Property
Closing Date, and such Budget shall be in form and substance reasonably
satisfactory to the Agent and the Lessor;
(r) Plans and Specifications. With respect to each Property (other
------------------------
than a Completed Property) on which Improvements are to be constructed, the
Agent and the Investors shall have received a copy of the Plans and
Specifications with respect to each Improvement to be constructed or
installed on each Property being acquired on such Property Closing Date;
<PAGE>
11
(s) Local Opinions. With respect to each Property being acquired on
--------------
such Property Closing Date
(i) the Agent and the Investors shall have received the executed
legal opinion of local counsel to the Lessee and the Guarantors in the
state in which such Property is located, substantially in the form of
Exhibit G-3 hereto;
-----------
(ii) the Agent, the Lessee and the Investors shall have received
the executed legal opinion of counsel to the Trust and the Trust Company,
substantially in the form of Exhibit G-2 hereto; and
-----------
(iii) the Agent and the Investors shall have received the executed
legal opinion of counsel to Lessee and the Guarantors, substantially in the
form of Exhibit G-1 hereto.
-----------
(t) FIRPTA Affidavit. The Agent and the Investors shall have received
----------------
either (i) a FIRPTA Affidavit from the seller of the Property in customary
form or (ii) if such seller is a "foreign person" as defined in Section
1445 of the Code, evidence that a portion of the sales price to be paid to
such seller has been withheld, if so required, in accordance with the
provisions of the Code.
(u) Limitation on Project Costs for Construction Period Properties.
--------------------------------------------------------------
The aggregate Project Costs with respect to all Construction Period
Properties previously expended and to be expended as anticipated by the
Budget with respect to each Construction Period Property shall at no time
exceed $50,000,000.
6.3 Conditions to the Investors' and the Lenders' Obligations to Make
-----------------------------------------------------------------
Advances to Pay Project Costs for Construction on any Property. The obligations
- --------------------------------------------------------------
of the Investors to make each Investor Contribution, and of the Lenders to make
Loans to the Lessor, on a Funding Date for the purpose of providing funds to the
Lessor necessary to pay for the construction of the Improvements or the payment
of Transaction Costs or other Project Costs (other than Property Acquisition
Costs) are subject to the satisfaction or waiver of the following conditions
precedent:
(a) Requisition. The Agent shall have received a fully executed
-----------
counterpart of the Requisition, appropriately completed;
(b) Title. Title to all of the Properties shall conform to the
-----
representations set forth in Section 7.5(n);
(c) Budget in Balance. Based upon the Budget, the Available
-----------------
Commitments and the Available Investor Commitment will be sufficient to
complete the Improvement or Improvements for which the Requisition relates
on such Properties;
<PAGE>
12
(d) Lien Waivers. The Agent shall have received lien waivers, in form
------------
and substance reasonably satisfactory to the Agent, from each contractor,
subcontractor, supplier and materialmen which the Lessee reasonably
believes will receive total compensation for services rendered or materials
supplied in connection with the construction of the related Improvements of
$25,000 or more; each such lien waiver shall evidence that such contractor,
subcontractor, supplier or materialmen has been paid in full for all work
performed or materials supplied to the date of the request for such
Advance, other than work which is the subject of such request.
7. REPRESENTATIONS AND WARRANTIES
7.1 Representations and Warranties of the Investors on the Initial
--------------------------------------------------------------
Closing Date. Each Investor represents and warrants to each of the other
- ------------
parties hereto as of the Initial Closing Date as follows:
(a) Due Organization, etc. It is a duly organized and validly
---------------------
existing corporation in good standing under the laws of the state of its
incorporation and has the power and authority to carry on its business as
now conducted and to enter into and perform its obligations under this
Agreement, each Operative Agreement to which it is a party and each other
agreement, instrument and document executed and delivered by it on the
Closing Date in connection with or as contemplated by each such Operative
Agreement to which it is or will be a party.
(b) Authorization; No Conflict. The execution, delivery and
--------------------------
performance of each Operative Agreement to which it is a party has been
duly authorized by all necessary action on its part and neither the
execution and delivery thereof by such Investor, nor the consummation of
the transactions contemplated thereby by such Investor, nor compliance by
it with any of the terms and provisions thereof (i) requires or will
require any approval of (which approval has not been obtained) the
shareholders of, or approval or consent of any trustee or holders of any
indebtedness or obligations of such Investor, (ii) contravenes or will
contravene any Legal Requirement applicable to or binding on it as of the
date hereof, (iii) does or will contravene or result in any breach of or
constitute any default under, or result in the creation of any Lessor Lien
upon the Property or any of the Improvements, its articles of incorporation
or by-laws, any indenture, mortgage, chattel mortgage, deed of trust,
conditional sales contract, bank loan or credit agreement or other
agreement or instrument to which it or its properties may be bound or (iv)
does or will require any Governmental Action by any Governmental Authority.
(c) Enforceability, etc. Each Operative Agreement to which it is a
--------------------
party has been duly executed and delivered by it and constitutes, or upon
execution and delivery will constitute, a legal, valid and binding
obligation, enforceable against it in accordance with the terms thereof.
<PAGE>
13
(d) ERISA. Such Investor is making the Investor Contribution
-----
contemplated to be made by it hereunder for its own account and with its
general corporate assets in the ordinary course of its business, and no
part of such amount constitutes the assets of any Employee Benefit Plan.
(e) Litigation. No litigation, investigation or proceeding of or
----------
before any arbitrator or Governmental Authority is pending or threatened by
or against such Investor (a) with respect to any of the Operative
Agreements or any of the transactions contemplated hereby or thereby, or
(b) which could reasonably be expected to have a material adverse effect on
the assets, liabilities, operations, business or financial condition of
such Investor.
(f) Investment Source. No portion of such Investor's Contribution has
-----------------
been or hereafter will be borrowed by such Investor as nonrecourse
indebtedness or as recourse indebtedness secured by collateral equal to
less than the amount of such indebtedness.
7.2 Representations and Warranties of Lessor on the Initial Closing
---------------------------------------------------------------
Date. Lessor represents and warrants to each of the other parties hereto as of
- ----
the Initial Closing Date as follows:
(a) Due Organization, etc. Lessor is a duly organized and validly
----------------------
existing business trust in good standing under the laws of the State of
Delaware and has the power and authority to carry on its business as now
conducted and to enter into and perform its obligations under this
Agreement, each Operative Agreement to which it is a party and each other
agreement, instrument and document executed and delivered by it on the
Closing Date in connection with or as contemplated by each such Operative
Agreement.
(b) Authorization; No Conflict. The execution, delivery and
--------------------------
performance of each Operative Agreement to which it is a party has been
duly authorized by all necessary action on its part and neither the
execution and delivery thereof by the Lessor, nor the consummation of the
transactions contemplated thereby by the Lessor, nor compliance by it with
any of the terms and provisions thereof (i) requires or will require any
approval of (which approval has not been obtained) any party or approval or
consent of any trustee or holders of any indebtedness or obligations of the
Lessor (ii) contravenes or will contravene any Legal Requirement applicable
to or binding on it as of the date hereof, (iii) does or will contravene or
result in any breach of or constitute any default under, or result in the
creation of any Lessor Lien upon the Property or any of the Improvements or
the Trust Agreement, any indenture, mortgage, chattel mortgage, deed of
trust, conditional sales contract, bank loan or credit agreement or other
agreement or instrument to which it or its properties may be bound or (iv)
does or will require any Governmental Action by any Governmental Authority
of the State of Delaware or of the federal government of the United States
of America governing the banking or trust powers of the Trustee.
<PAGE>
14
(c) Enforceability, etc. Each Operative Agreement to which it is a
--------------------
party has been duly executed and delivered by it and constitutes, or upon
execution and delivery will constitute, a legal, valid and binding
obligation enforceable against it in accordance with the terms thereof.
(d) Litigation. No litigation, investigation or proceeding of or
----------
before any arbitrator or Governmental Authority is pending or threatened by
or against the Lessor (a) with respect to any of the Operative Agreements
or any of the transactions contemplated hereby or thereby, or (b) which
could reasonably be expected to have a material adverse effect on the
assets, liabilities, operations, business or financial condition of the
Lessor.
(e) Assignment. Lessor has not assigned or transferred any of its
----------
right, title or interest in or under the Lease, any other Operative
Agreement or any of the Properties, except in accordance with the other
Operative Agreements.
(f) No Default. The Lessor is not in default under or with respect to
----------
any of its Contractual Obligations in any respect which could have a
material adverse effect on the assets, liabilities, operations, business or
financial condition of the Lessor. No Default or Event of Default
attributable to it has occurred and is continuing.
(g) Use of Proceeds. The proceeds of the Loans and the Investor
---------------
Contribution shall be applied by the Lessor solely in accordance with the
provisions of the Operative Agreements.
(h) Chief Place of Business. The Lessor's chief place of business,
-----------------------
chief executive office and office where the documents, accounts and records
relating to the transactions contemplated by this Agreement and each other
Operative Agreement are kept are located at Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19809-0001.
(i) Federal Reserve Regulations. The Lessor is not engaged
---------------------------
principally in, and does not have as one of its most important activities,
the business of extending credit for the purpose of purchasing or carrying
any margin stock (within the meaning of Regulation U of the Board), and no
part of the proceeds of the Loans will be used by it, directly or
indirectly, to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying any such margin stock or
for any purpose that violates, or is inconsistent with, the provisions of
Regulations of the Board, including but not limited to, G, T, U or X of the
Board.
(j) Investment and Holding Company Status. The Lessor is not (i) an
-------------------------------------
"investment company" as defined in, or subject to regulation under the
Investment Company Act of 1940 or (ii) a "holding company" as defined in,
or subject to regulation under, the Public Utility Holding Company Act of
1935.
<PAGE>
15
(k) Securities Act. Neither the Lessor nor any Person authorized by
--------------
the Lessor to act on its behalf has offered or sold any interest in the
Property or the Notes, or in any similar security or interest relating to
the Property, or in any security the offering of which for the purposes of
the Securities Act would be deemed to be part of the same offering as the
offering of the aforementioned securities to, or solicited any offer to
acquire any of the same from, any Person other than, in the case of the
Notes, the Agent, and neither the Lessor nor any Person authorized by the
Lessor to act on its behalf will take any action which would subject the
issuance or sale of any interest in the Property or the Notes to the
provisions of Section 5 of the Securities Act or require the qualification
of any Operative Agreement under the Trust Indenture Act of 1939, as
amended.
(l) ERISA. The Lessor is making the Investor Contribution
-----
contemplated to be made by it hereunder in the ordinary course of its
business, and no part of such amount constitutes the assets of any Employee
Benefit Plan.
(m) Lessor Liens. The Property is free and clear of all Lessor Liens.
------------
7.3 Representations and Warranties of the Lessee on the Initial
-----------------------------------------------------------
Closing Date. The Lessee represents and warrants to each of the other parties
- ------------
hereto as of the Initial Closing Date that the representations and warranties
set forth in Section 4 of the Senior Secured Credit Agreement are true and
correct in all respects on or as of the Initial Closing Date unless they relate
to another date as if made on and as of the Initial Closing Date or such other
date.
7.4 Representations and Warranties of the Trust Company on the Initial
------------------------------------------------------------------
Closing Date. The Trust Company represents and warrants to each of the other
- ------------
parties hereto as of the Initial Closing Date as follows:
(a) Due Organization, etc. It is a banking corporation duly organized
----------------------
and validly existing and in good standing under the laws of the State of
Delaware and has the power and authority to enter into and perform its
obligations under the Trust Agreement and has the corporate power and
authority to act as the trustee under the Trust Agreement and to enter into
and perform the obligations under each of the other Operative Agreements to
which Trust Company or the Trust, as the case may be, is or will be a party
and each other agreement, instrument and document to be executed and
delivered by it on or before the Initial Closing Date in connection with or
as contemplated by each such Operative Agreement to which the Trust Company
or the Trust, as the case may be, is or will be a party.
(b) Authorization; No Conflict. The execution, delivery and
--------------------------
performance of each Operative Agreement to which it is a party, either in
its individual capacity or (assuming due authorization, execution and
delivery of the Trust Agreement by each Investor) as the Trust, as the case
may be, has been duly authorized by all necessary action on its part and
neither the execution and delivery thereof, nor the consummation of the
transactions contemplated thereby, nor compliance by it with any of the
terms and provisions thereof (i) does or will require any approval or
consent of any trustee or
<PAGE>
16
holders of any of its indebtedness or obligations, (ii) does or will
contravene any current United States federal law, governmental rule or
regulation relating to its banking or trust powers, (iii) does or will
contravene or result in any breach of or constitute any default under, or
result in the creation of any Lien upon, any of its property under its
charter or by-laws, or any indenture, mortgage, chattel mortgage, deed of
trust, conditional sales contract, bank loan or credit agreement or other
agreement or instrument to which it is a party or by which it or its
properties may be bound or affected or (iv) does or will require any
Governmental Action by any Governmental Authority of the United States or
the State of Delaware regulating its banking or trust powers.
(c) Trust Company Enforceability, etc. The Trust Agreement and,
----------------------------------
assuming the Trust Agreement is the legal, valid and binding obligation of
each Investor, each other Operative Agreement to which the Trust Company or
the Trust, as the case may be, is a party have been, or on or before the
Closing Date will be, duly executed and delivered by the Trust Company or
the Trust, as the case may be, and the Trust Agreement and each such other
Operative Agreement to the extent entered into by the Trust Company
constitutes, or upon execution and delivery will constitute, a legal, valid
and binding obligation enforceable against the Trust Company in accordance
with the terms thereof.
(d) Litigation. No litigation, investigation or proceeding of or
----------
before any arbitrator or Governmental Authority is pending or threatened by
or against the Trust Company with respect to any of the Operative
Agreements or any of the transactions contemplated hereby or thereby.
7.5 Representations and Warranties of the Lessee on Property Closing
----------------------------------------------------------------
Dates. The Lessee hereby represents and warrants to each of the other parties
- -----
hereto as of each Property Closing Date as follows:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Construction Agent, the Lessee and each of the Guarantors, and
to the actual knowledge of the Lessee, the representations and warranties of the
Lessor and the Investors, set forth herein and in each of the other Operative
Agreements are true and correct in all material respects on and as of such
Property Closing Date as if made on and as of such Property Closing Date. The
Construction Agent, the Lessee and each of the Guarantors are in compliance with
their respective obligations under the Operative Agreements and there exists no
Default or Event of Default under any of the Operative Agreements.
(b) No Default. No Default or Event of Default will occur under any
----------
of the Operative Agreements as a result of, or after giving effect to, the
Advance requested by the Requisition on such Property Closing Date.
(c) Authorization by the Lessee. The execution and delivery of each
---------------------------
Lease Supplement, Memorandum of Lease, Consent to Assignment and other Operative
Agreement delivered by the Lessee on such Property Closing Date and the
performance of the obligations of the Lessee under each such Lease Supplement,
Memorandum of Lease, Consent to Assignment
<PAGE>
17
and other Operative Agreements have been duly authorized by all requisite
corporate action of the Lessee.
(d) Execution and Delivery by the Lessee. Each Lease Supplement,
------------------------------------
Memorandum of Lease, Consent to Assignment and other Operative Agreement
delivered on such Property Closing Date by the Lessee have been duly executed
and delivered by the Lessee.
(e) Valid and Binding Obligations. Each Lease Supplement, Memorandum
-----------------------------
of Lease, Consent to Assignment and other Operative Agreement delivered by the
Lessee on such Property Closing Date is a legal, valid and binding obligation of
the Lessee, enforceable against the Lessee in accordance with its respective
terms.
(f) Recording of Documents. Each of the Deed, or the Ground
----------------------
Lease or a Memorandum of Ground Lease, as applicable, the Memorandum of Lease,
the Assignment of Lease, the Consent to the Assignment of Lease and the Mortgage
delivered on such Property Closing Date has been or will be recorded with the
appropriate Governmental Authorities in the order listed in this paragraph, and
the UCC Financing Statements with respect to the Property being acquired will be
filed with the appropriate Governmental Authorities.
(g) Priority of Liens. (i) Each Mortgage delivered on such Property
-----------------
Closing Date, constitutes a valid and perfected first lien on each applicable
Property in an amount not less than the Tranche A/B Property Cost with respect
to such Property, subject only to the Permitted Exceptions, (ii) the Lessor
Financing Statements perfect the Lessor's interest under the Lease to the extent
the Lease is a security agreement governed by Article 9 of the Uniform
Commercial Code, and (iii) the Guarantee Mortgages constitute valid and
perfected liens on the Mortgaged Properties for the ratable benefit of the
Senior Secured Obligations and the Guaranteed Obligations.
(h) Flood Zone. No portion of any Property being acquired by the
----------
Lessor on such Property Closing Date is located in an area identified as a
special flood hazard area by the Federal Emergency Management Agency or other
applicable agency, or if any such Property is located in an area identified as a
special flood hazard area by the Federal Emergency Management Agency or other
applicable agency, then, to the extent available, flood insurance has been
obtained for such Property in accordance with Section 14.2(b) of the Lease and
in accordance with the National Flood Insurance Act of 1968, as amended.
(i) Insurance Coverage. The Lessee maintains insurance coverage for
------------------
each Property being acquired by the Lessor on such Property Closing Date which
meets the requirements of Section 14.1 of the Lease and all of such coverage is
in full force and effect.
(j) Legal Requirements. Each Property being acquired by the Lessor on
------------------
such Property Closing Date complies in all material respects with all applicable
Legal Requirements (including all zoning and land use laws and Environmental
Laws).
<PAGE>
18
(k) Consents, etc. All material consents, licenses and building
-------------
permits required by all Legal Requirements for construction, completion,
occupancy and operation of each Property being acquired on such Property Closing
Date, to the extent obtainable at such date, have been obtained and are in full
force and effect.
(l) Utilities. All utility services and facilities necessary for the
---------
use of the Improvements existing, or to be constructed, on the Land (including
gas, electrical, water and sewage services and facilities) will be available to
the Property on or prior to the Outside Completion Date.
(m) Environmental Matters. Except as disclosed in the Environmental
---------------------
Audit delivered to the Agent and the Lessor relating to the Property and except
insofar as any exceptions to the following, individually or in the aggregate,
could not reasonably be expected to result in a Significant Environmental Event:
(1) the Property being acquired on such Property Closing Date does
not contain, and to the Lessee's actual knowledge, has not previously
contained, any Hazardous Substances in amounts or concentrations which
(i) constitute or constituted a violation of, or (ii) could give rise
to liability under, any Environmental Law;
(2) the Property and all operations and facilities at the Property
are in compliance with all applicable Environmental Laws, and there is
no contamination at, on or under the Property or violation of any
Environmental Law which could interfere with the continued operation
of, or impair the fair saleable value of, the Property;
(3) neither the Lessee nor any of its Subsidiaries has received or
is aware of any written complaint, notice of violation, alleged
violation, or notice of investigation or of potential liability under
Environmental Laws with regard to the Property, nor does the Lessee
have actual knowledge that any such action is being contemplated,
considered or threatened;
(4) Hazardous Substances have not been generated, treated, stored
or disposed of at, on or under the Property, nor have any Hazardous
Substances been transported from the Property or come to be located at
any other property in violation of or in a manner that could
reasonably give rise to liability under any applicable Environmental
Law; and
(5) no judicial proceeding or governmental or administrative
action is pending or, to the best knowledge of the Lessee, threatened,
under any Environmental Law to which the Lessee or any Subsidiary is a
party with respect to the Property, nor are there any consent decrees
or other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial
<PAGE>
19
requirements (other than permits authorizing operations by the Lessee)
outstanding under any Environmental Law.
(n) Title to the Properties. Upon the acquisition of each Property on
-----------------------
such Property Closing Date, the Lessor has, as applicable, (i) good and
marketable title to the Property in fee simple or (ii) good and valid leasehold
title to such Property leased under any Ground Lease, subject in each case only
to the Permitted Exceptions. Upon the acquisition of each Property on such
Property Closing Date, the Lessor has the right to grant the Mortgage on the
Property. The Lessor will at all times have good and marketable title to the
Properties, subject only to Permitted Exceptions.
(o) Location of the Properties. Each Property being acquired on such
--------------------------
Property Closing Date is located within the continental United States.
(p) Execution and Delivery by the Construction Agent. The execution
------------------------------------------------
and delivery of each Operative Agreement delivered by the Construction Agent on
such date and the performance of the Construction Agent's obligations under each
Agency Agreement Supplement and Operative Agreement have been duly authorized by
all requisite corporate action of the Construction Agent.
(q) Agency Agreement Supplements. Each Operative Agreement delivered
----------------------------
by the Construction Agent on such date has been duly executed and delivered by
the Construction Agent.
(r) Valid and Binding Obligations of the Construction Agent. Each
-------------------------------------------------------
Operative Agreement delivered by the Construction Agent on such date is a legal,
valid and binding obligation of the Construction Agent, enforceable against the
Construction Agent in accordance with its terms.
(s) Conditions Precedent in Operative Agreements. All conditions
--------------------------------------------
precedent contained in this Agreement and in the other Operative Agreements to
be satisfied by the Lessee relating to the acquisition of a Property by the
Lessor have been satisfied in full or waived by the Agent and the Lessor.
(t) Hart-Scott-Rodino. The acquisition of the Property being acquired
-----------------
on such Property Closing Date does not conflict with, violate, or require the
consent of any governmental entity, under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
7.6 Representations and Warranties of the Lessor on Property Closing
----------------------------------------------------------------
Dates. The Lessor hereby represents and warrants to each of the other parties
- -----
hereto as of each Property Closing Date as follows:
(a) Representations and Warranties; No Default. The
------------------------------------------
representations and warranties of the Lessor set forth herein and in each of the
other Operative Agreements are true and correct in all material respects on and
as of such Property Closing Date as if made on and as
<PAGE>
20
of such Property Closing Date. The Lessor is in compliance with its respective
obligations under the Operative Agreements and there exists no Default or Event
of Default under any of the Operative Agreements. No Default or Event of Default
will occur under any of the Operative Agreements as a result of, or after giving
effect to, the Advance requested by the Requisition on such Property Closing
Date.
(b) Authorization by the Lessor. The execution and delivery of each
---------------------------
Lease Supplement, Memorandum of Lease, Mortgage, Assignment of Lease and other
Operative Agreement delivered by the Lessor on such Property Closing Date and
the performance of the obligations of the Lessor under each such Lease
Supplement, Memorandum of Lease, Mortgage, the Assignment of Lease and other
Operative Agreement have been duly authorized by all requisite action of the
Lessor.
(c) Execution and Delivery by the Lessor. Each Lease Supplement,
------------------------------------
Memorandum of Lease, Mortgage, Assignment of Lease and other Operative Agreement
delivered by the Lessor on such Property Closing Date have been duly executed
and delivered by the Lessor.
(d) Valid and Binding Obligations. Each Lease Supplement, Memorandum
-----------------------------
of Lease, Mortgage, Assignment of Lease and other Operative Agreement delivered
by the Lessor on such Property Closing Date is a legal, valid and binding
obligation of the Lessor, enforceable against the Lessor in accordance with its
terms.
(e) Conditions Precedent in Operative Agreements. All conditions
--------------------------------------------
precedent contained in this Agreement and in the other Operative Agreements to
be satisfied by the Lessor relating to the acquisition of a Property by the
Lessor have been satisfied in full.
7.7 Representations and Warranties of the Lessee Upon each Funding
--------------------------------------------------------------
Date. The Lessee hereby represents and warrants to each of the other parties
- ----
hereto as of each Funding Date as follows:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Construction Agent, the Lessee and each of the Guarantors, and
to the actual knowledge of the Lessee, the representations and warranties of the
Lessor and the Investors, set forth herein and in each of the other Operative
Agreements are true and correct in all material respects on and as of such
Funding Date as if made on and as of such Funding Date. The Construction Agent,
the Lessee and each of the Guarantors are in compliance with their respective
obligations under the Operative Agreements and there exists no Default or Event
of Default under any of the Operative Agreements. No Default or Event of
Default will occur under any of the Operative Agreements as a result of, or
after giving effect to, the Advance requested by the Requisition on such date.
(b) Title to Properties. The Lessor, as applicable, (i) has good and
-------------------
marketable title to each Property in fee simple and (ii) good and valid
leasehold title to each Property under any Ground Lease, in each case subject
only to the Permitted Exceptions.
<PAGE>
21
(c) Priority of Liens. Each Mortgage constitutes a valid and
-----------------
perfected first lien on each applicable Property in an amount not less than the
Tranche A/B Property Cost with respect to such Property, subject only to
Permitted Exceptions.
(d) Insurance. The Construction Agent has obtained insurance coverage
---------
covering the Property which meets the requirements of the Agency Agreement and
the other Operative Agreements before commencing construction, repairs or
Modifications, as the case may be, and such coverage is in full force and
effect.
(e) Property-Related Matters. Each Construction Period Property, when
------------------------
improved in accordance with the Plans and Specifications, will comply, and each
Completed Property complies, in all material respects with all Legal
Requirements (including all applicable zoning and land use laws and
Environmental Laws) and Insurance Requirements. With respect to each
Construction Period Property, the Plans and Specifications have been or will be
prepared in accordance with all applicable Legal Requirements (including all
applicable Environmental Laws and building, planning, zoning and fire codes) and
upon completion of the applicable Improvements in accordance with the Plans and
Specifications, such Improvements on the Construction Period Property will not
encroach in any manner onto any adjoining land (except as permitted by express
written easements or variance) and such Improvements and the use thereof by the
Lessee and its agents, assignees, employees, invitees, lessees, licensees and
tenants will comply in all material respects with all applicable Legal
Requirements (including all applicable Environmental Laws and building,
planning, zoning and fire codes). Upon completion of such Improvements in
accordance with the Plans and Specifications, (i) there will be no defects to
such Improvements including the plumbing, heating, air conditioning and
electrical systems thereof which would have a material and adverse effect on the
operation and use of such Improvements for its intended purposes and (ii) all
water, sewer, electric, gas, telephone and drainage facilities and all other
utilities required to adequately service such Improvements for its intended use
will be available pursuant to adequate permits or other appropriate
authorizations (including any that may be required under applicable
Environmental Laws). There is no action, suit or proceeding (including any
proceeding in condemnation or eminent domain or under any applicable
Environmental Law) pending or threatened which, if determined adversely to
Lessee or Lessor, adversely affects the title to, or materially adversely
affects the use, operation or value of, the Properties. No fire or other
casualty with respect to the Properties has occurred which fire or other
casualty has had a material adverse effect on the Lessee's ability to perform
its obligations under the Agency Agreement and the other Operative Agreements.
All utilities serving the Properties, or proposed to serve the Properties in
accordance with the Plans and Specifications, are located in, and in the future
will be located in, and vehicular access to the Improvements on each of the
Properties is provided by, either public rights-of-way abutting the Property or
Appurtenant Rights. All applicable licenses, approvals, authorizations,
consents, permits (including, without limitation, building, demolition and
environmental permits, licenses, approvals, authorizations and consents),
easements and rights-of-way, including proof of dedication, required for (i) the
use, treatment, storage, transport, disposal or disposition of any Hazardous
Substance on, at, under or from the Properties during the construction of the
Improvements thereon and the use and operation of the Improvements following
such construction, (ii) the construction of the Improvements in accordance with
the Plans and
<PAGE>
22
Specifications and the Agency Agreement and (iii) the use and operation of the
Improvements following such construction as permitted pursuant to the Lease have
been obtained or will, prior to the time the same is required by any Legal
Requirement, be obtained from the appropriate Governmental Authorities having
jurisdiction or from private parties.
(f) Lease Requirements. The Improvements, when completed, will comply
------------------
with all requirements and conditions set forth in the Lease and all other
conditions and requirements of the Operative Documents.
(g) Conditions Precedent contained in the Operative Agreements. All
----------------------------------------------------------
conditions precedent contained in this Agreement and in the other Operative
Agreements to be satisfied by the Lessee relating to the relevant Advance have
been satisfied in full.
(h) Projected Completion Value. With respect to Construction Period
--------------------------
Properties, the Property Cost of each Improvement as established by the Budget
will not exceed the Projected Completion Value with respect to such
Improvements.
7.8 Representations and Warranties of the Lessor Upon each Funding
--------------------------------------------------------------
Date. The Lessor hereby represents and warrants to each of the other parties
- ----
hereto as of each Funding Date as follows:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Lessor set forth herein and in each of the other Operative
Agreements are true and correct in all material respects on and as of such
Funding Date as if made on and as of such Funding Date. The Lessor is in
compliance with its respective obligations under the Operative Agreements.
(b) Authority of the Lessor. The execution and delivery of each
-----------------------
Operative Agreement delivered by the Lessor on such date and the performance of
the obligations of the Lessor under each Operative Agreement has been duly
authorized by all requisite action of the Lessor.
(c) Execution and Delivery by the Lessor. Each Operative Agreement
------------------------------------
delivered by the Lessor on such date has been duly executed and delivered by the
Lessor.
(d) Valid and Binding Obligations of the Lessor. Each Operative
-------------------------------------------
Agreement delivered by the Lessor on such date is a legal, valid and binding
obligation of the Lessor, enforceable against the Lessor in accordance with its
terms.
(e) Conditions Precedent contained in the Operative Agreements. All
----------------------------------------------------------
conditions precedent contained in this Agreement and in the other Operative
Agreements to be satisfied by the Lessor relating to the relevant Advance have
been satisfied in full.
7.9 Representations and Warranties of the Investors Upon Funding
------------------------------------------------------------
Dates. Each Investor hereby represents and warrants to each of the other
parties hereto as of each Funding Date that: (a) the representations and
warranties of such Investor set forth herein and in
<PAGE>
23
each of the other Operative Agreements are true and correct in all respects on
and as of such Funding Date as if made on and as of such Funding Date and (b)
such Investor is in compliance with its obligations under the Operative
Agreements.
8. PAYMENT OF CERTAIN EXPENSES
Lessee agrees, for the benefit of the Investors, the Trust Company, the
Trust, the Agent and each of the Lenders, to:
8.1 Transaction Expenses. (a) On the Initial Closing Date, pay, or
--------------------
cause to be paid, all reasonable fees, expenses and disbursements of counsel for
each of (i) the Lessor and the Trust Company, (ii) the Investors and (iii) the
Agent, the Arranger, the Co-Arrangers, the Syndication Agent and the
Documentation Agent, in connection with the transactions contemplated by the
Operative Agreements and incurred in connection with such Initial Closing Date,
including all Transaction Expenses, and all other expenses in connection with
such Initial Closing Date, including all expenses relating to all fees, taxes
and expenses for the recording, registration and filing of documents.
(a) On each Property Closing Date, pay, or cause to be paid, all fees,
expenses and disbursements of counsel for each of (i) the Lessor and the Trust
Company, (ii) the Investors and (iii) the Agent, the Arranger, the Co-Arrangers,
the Syndication Agent and the Documentation Agent, in connection with the
transactions contemplated by the Operative Agreements and incurred in connection
with such Property Closing Date, including all Transaction Expenses arising from
such Property Closing Date, and all other expenses in connection with such
Property Closing Date, including all expenses relating to each Appraisal, and
all fees, taxes and expenses for the recording, registration and filing of
documents.
8.2 Brokers' Fees and Stamp Taxes. Pay or cause to be paid brokers'
-----------------------------
fees and any and all stamp, transfer and other similar taxes, fees and excises,
if any, including any interest and penalties, which are payable in connection
with the transactions contemplated by this Agreement and the other Operative
Agreements.
8.3 Certain Fees and Expenses. Pay or cause to be paid (i) the
-------------------------
initial and annual Trust Company's fee and all reasonable expenses of the Trust
Company and any necessary co-trustees (including reasonable counsel fees and
expenses) or any successor owner trustee, for acting as trustee under the Trust
Agreement, (ii) all reasonable costs and expenses incurred by the Lessee, the
Agent, the Investors, the Trust Company or the Lessor in entering into any
future amendments or supplements with respect to any of the Operative
Agreements, whether or not such amendments or supplements are ultimately entered
into, or giving or withholding of waivers of consents hereto or thereto, which
have been requested by the Lessee, and (iii) all reasonable costs and expenses
incurred by the Lessor, the Lessee, the Investors, the Trust Company or the
Agent in connection with any purchase of any Property by the Lessee pursuant to
Section 20 of the Lease.
<PAGE>
24
8.4 Credit Agreement and Related Obligations. (a) Pay, on or prior
----------------------------------------
to the due date thereof, all costs, fees, indemnities, expenses and other
amounts (other than principal and interest on the Loans, but including breakage
costs and interest on overdue amounts pursuant to Section 2.13 of the Credit
Agreement or otherwise) required to be paid by the Lessor under any Operative
Agreement.
(a) Pay the Lessor promptly after receipt of notice therefor any
additional amounts payable to the Investors in respect of the Investor
Contribution under Sections 2.12, 2.13 and 2.14 of the Credit Agreement (it
being agreed that each Investor is, for purposes of this Agreement, a
beneficiary of the provisions of Sections 2.12, 2.13 and 2.14 of the Credit
Agreement). Each Investor hereby agrees that the provisions of Section 2.12(d)
of the Credit Agreement are incorporated herein by reference as though set forth
herein, except that the term "Lender" as used therein shall refer to "Investor."
8.5 Overdue Rate. If all or a portion of the Investor Yield, the
------------
Investor Contribution or any other amount owed to the Investors shall not be
paid within 5 days after such amount becomes due, such overdue amount shall bear
interest, payable on demand, at a rate per annum equal to the applicable Overdue
Rate, from the date of such non-payment until such amount is paid in full (as
well after as before judgment).
9. OTHER COVENANTS AND AGREEMENTS
9.1 Covenants of the Trust and the Investors. Each of the parties
----------------------------------------
hereby agrees that so long as this Agreement is in effect:
(a) Discharge of Liens. Each of the Investors, the Trust and the
------------------
Trust Company, in its individual capacity, will not create or permit to exist at
any time, and will, at its own cost and expense, promptly take such action as
may be necessary duly to discharge, or to cause to be discharged, all Lessor
Liens on the Property attributable to it or any of its Affiliates; provided,
--------
however, that the Investors, the Trust and the Trust Company shall not be
- -------
required to so discharge any such Lessor Lien while the same is being contested
in good faith by appropriate proceedings diligently prosecuted so long as such
proceedings shall not involve any material danger of impairment of the Liens of
the Security Documents or of the sale, forfeiture or loss of, and shall not
interfere with the use or disposition of, the Property or title thereto or any
interest therein or the payment of Rent.
(b) Trust Agreement. Without prejudice to any right under the Trust
---------------
Agreement of the Trust Company to resign, or the Investors' right under the
Trust Agreement to remove the institution acting as trustee, each of the
Investors and the Trust Company hereby agrees with the Lessee and the Agent (i)
not to terminate or revoke the trust created by the Trust Agreement except as
permitted by the Trust Agreement, (ii) not to amend, supplement, terminate or
revoke or otherwise modify any provision of the Trust Agreement without the
prior written consent of any party hereto adversely affected by such amendment
and (iii) to comply with all of
<PAGE>
25
the terms of the Trust Agreement, the nonperformance of which would adversely
affect such party.
(c) Successor Trust Company. The Trust Company or any successor may
-----------------------
resign or be removed by the Investors as trustee of the Trust, a successor
trustee may be appointed, and a corporation may become the trustee under the
Trust Agreement, only in accordance with the provisions of Article 8 of the
Trust Agreement and with the consent of the Lessee, which consent shall not be
unreasonably withheld or delayed.
(d) Indebtedness; Other Business. The Trust shall not contract for,
----------------------------
create, incur or assume any indebtedness, or enter into any business or other
activity, other than pursuant to or under the Operative Agreements.
(e) No Violation. The Investors will not instruct the Trust to take
------------
any action in violation of the terms of any Operative Agreement.
(f) No Voluntary Bankruptcy. Neither the Investors nor the Trust
-----------------------
shall (i) commence any case, proceeding or other action under any existing or
future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, arrangement, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (ii) seek
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial benefit of its creditors; and neither the
Investors nor the Trust shall take any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the acts set forth in
this paragraph.
(g) Change of Chief Place of Business. The Trust shall give prompt
---------------------------------
notice to the Lessee and the Agent if the Trust's chief place of business or
chief executive office, or the office where the records concerning the accounts
or contract rights relating to the Property are kept, shall cease to be located
at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19809-
0001 or if it shall change its name.
(h) Loan Documents. Provided that no Lease Default is continuing,
--------------
none of the Lenders, the Trust, the Lessor, the Agent nor the Investors shall
consent to or permit any amendment, supplement, waiver or other modification of
the terms and provisions of the Credit Agreement, the Notes or the Security
Documents, in each case without the prior written consent of the Lessee.
(i) Disposition of Assets. The Trust shall not convey, sell, lease,
---------------------
assign, transfer or otherwise dispose of any of its property, business or
assets, whether now owned or hereafter acquired, except to the extent expressly
authorized by the Operative Agreements.
(j) Compliance with Operative Agreements. The Trust shall at all
------------------------------------
times observe and perform all of the covenants, conditions and obligations
required to be performed by it under each Operative Agreement to which it is a
party.
<PAGE>
26
(k) Financial Statements. Upon the request of the Lessee, the Trustee
--------------------
shall cause to be prepared audited financial statements for the Lessor, which
shall be prepared by auditors selected by the Lessee and at the Lessee's sole
cost and expense.
9.2 Repayment of Certain Amounts on Maturity Date. The Investors,
---------------------------------------------
the Lessor and the Agent hereby agree that if (i) on the Maturity Date (after
giving effect to all payments made by the Lessee under the Lease and the
application of all sales proceeds pursuant to Section 8 of the Credit Agreement)
there remains any outstanding principal or accrued and unpaid interest under the
Tranche B Notes (the aggregate amount of such outstanding principal, the
"Tranche B Deficit") and (ii) during the Marketing Period the Lessor or the
- ------------------
Investors have received any Marketing Period Equity Return, then on the Maturity
Date the Investors shall pay to the Agent an amount up to the amount of the
Tranche B Deficit to be applied to reduce the Loan, but in no event greater than
the Marketing Period Equity Return received by it.
9.3 Amendment of Certain Documents. The Agent, for itself and on
------------------------------
behalf of the Lenders, hereby agrees for the benefit of the Trust and the
Investors that it will not amend, alter or otherwise modify, or consent to any
amendment, alteration or modification of, the Lease (including the definitions
of any terms used in such document) without the prior written consent of the
Trust and the Investors, as the case may be, if such amendment, alteration or
modification would materially and adversely affect the interests of the Trust or
the Investors. Provisions requiring consent include any amendment, alteration
or modification that would release the Lessee from any of its obligations in
respect of the payment of Basic Rent, Supplemental Rent, Termination Value,
Maximum Residual Guarantee Amount or the Purchase Option Price or any other
payments in respect of the Property as set forth in the Lease, or amend the
provisions of Section 8 of the Credit Agreement, or reduce the amount of, or
change the time or manner of payment of, obligations of the Lessee as set forth
in the Lease, or create or impose any obligation on the part of the Trust or the
Investors under the Lease, or extend or shorten the duration of the Term, or
modify the provisions of this Section 9.3.
9.4 Proceeds of Casualty. The Lessor and the Investors agree, for the
--------------------
benefit of the Agent and the Lenders, that if at any time either the Lessor or
any Investor receives any proceeds as a result, directly or indirectly, of any
Casualty or Condemnation with respect to the Property which the Lessor is
entitled to hold in accordance with the terms of Section 15 of the Lease, the
Lessor and the Investors agree that they will promptly deposit such amounts in
an account with the Agent for application in accordance with Section 15 of the
Lease. The Lessor and the Investors also agree that they will execute and
deliver such documents and instruments as the Agent may request in order to
grant the Agent, for the benefit of the Lenders, a valid and perfected, first
priority security interest in such proceeds.
9.5 Intercreditor Agreement. The Lessee, the Agent, the Lenders and
-----------------------
the Lessor hereby agree and confirm that the provisions of Section 8 of the
Credit Agreement are intended to constitute an intercreditor agreement and a
subordination agreement under Section 510 of the Bankruptcy Code or any similar
provision therein.
<PAGE>
27
9.6 Available Proceeds. (a) The Lessee agrees that the provisions of
------------------
subsections 3.4(b) of the Senior Secured Credit Agreement are made not only for
the benefit of the Senior Secured Lenders but also for the Lenders, and that the
Lessee agrees that to the extent amounts to be applied pursuant to subsection
3.4(b)(i), (ii), (iii) or (iv) of the Senior Secured Credit Agreement are not
applied to reduce the Senior Secured Revolving Credit Commitments (and pursuant
to Section 2.6(b) of the Credit Agreement, result in a reduction of the
Commitments) or prepay the Senior Secured Term Loans, such amounts not so
applied ("Available Proceeds") shall be paid to the Agent to be deposited into a
------------------
cash collateral account established upon terms mutually acceptable to the Agent
and the Lessee and held by the Agent pursuant to the Cash Collateral Agreement
to secure the Guaranteed Obligations.
(a) The Lessee agrees that to the extent payments are made pursuant
to subsection 3.3 of the Senior Secured Credit Agreement to collateralize the
Guaranteed Obligations, such amounts shall be paid to the Agent to be held
pursuant to the Cash Collateral Agreement to secure the Guaranteed Obligations.
10. CREDIT AGREEMENT
10.1 Lessee's Credit Agreement Rights. Notwithstanding anything to
--------------------------------
the contrary contained in the Credit Agreement, the Agent, the Lessee, the
Investors and the Lessor hereby agree that:
(a) the Lessee shall have the right to give the notices referred to
in Section 2.3 of the Credit Agreement;
(b) the Lessee shall have the right to convert or continue Loans in
accordance with Section 2.5 of the Credit Agreement;
(c) the Lessee shall receive copies of all notices delivered to the
Lessor under the Credit Agreement and the other Operative Agreements and such
notices shall not be effective until received;
(d) the Lessee shall have the right to select Interest Periods in
accordance with the terms of the Credit Agreement;
(e) the Lessee shall have the right to give notice of prepayment of
the Loans in accordance with the Credit Agreement, provided that if the Lessee
shall give notice of prepayment of the Loans, the Lessee shall prepay a pro rata
portion of the Investor Contribution;
(f) the Lessee shall have the right to cure, to the extent
susceptible to a cure, any Default or Event of Default of the Lessor under the
Credit Agreement;
(g) the Lessee shall have the right to approve any successor Agent
pursuant to Section 7.9 of the Credit Agreement;
<PAGE>
(h) the Lessee shall have the right, on behalf of the Lessor, to
select any person or persons (including the Lessee) to whom funds may be paid at
the discretion of the Lessor in accordance with Sections 8.1 and 8.2 of the
Credit Agreement;
(i) the Lessee shall have the right to consent to any assignment by a
Lender, if required pursuant to Section 9.5 of the Credit Agreement;
(j) the Lessee shall have the right to designate the portion of the
Loans on which interest is due and payable for purposes of the definitions of
"Allocated Interest" and "Allocated Investor Yield";
(k) the Lessee shall have the right to request that another lending
office be designated pursuant to Section 2.15 of the Credit Agreement;
(l) the Lessee shall have the obligation to notify the Agent of the
amounts or information specified in Section 5.8 of the Credit Agreement; and
(m) without limiting the foregoing clauses (a) through (l), and in
addition thereto, (x) the Lessor shall not exercise any right under the Credit
Agreement without giving the Lessee at least ten (10) Business Days' prior
written notice (or such shorter period as may be required but in no case less
than three (3) Business Days) and, following such notice, the Lessor shall take
such action, or forbear from taking such action, as the Lessee shall direct and
(y) the Lessee shall have the right to exercise any other right of the Lessor
under the Credit Agreement upon not less than two (2) Business Days' prior
written notice from the Lessee to the Lessor. Notwithstanding the foregoing,
the Investors shall retain the exclusive right to direct the Lessor with respect
to the exercise of the Excepted Rights.
11. TRANSFER OF INTEREST
11.1 Restrictions on Transfer. No Investor may, directly or
------------------------
indirectly, assign, convey or otherwise transfer any of its right, title or
interest in or to the Trust Estate or the Trust Agreement nor shall there be any
change in Control of any Investor without the consent of the Agent and the
Lessee, which consent shall not be unreasonably withheld or delayed. Any
transfer by any Investor as above provided, shall be effected pursuant to an
agreement in form and substance reasonably satisfactory to the Agent, such
Investor, the Trust Company, the Lessee and their respective counsel.
11.2 Effect of Transfer. From and after any transfer effected in
------------------
accordance with this Section 11, the transferor shall be released, to the extent
of such transfer, from its liability hereunder and under the other documents to
which it is a party in respect of obligations to be performed on or after the
date of such transfer; provided, however, that any transferor Investor shall
-------- -------
remain liable under the Trust Agreement to the extent that the transferee
Investor shall not have assumed the obligations of the transferor Investor
thereunder. Upon any transfer by the
<PAGE>
29
Trust or an Investor as above provided, any such transferee shall assume the
obligations of the Trust, and the Lessor or Investor, as the case may be, and
shall be deemed the "Trust", "Lessor" or "Investor", as the case may be, for all
purposes of such documents and each reference herein to the transferor shall
thereafter be deemed a reference to such transferee for all purposes, except as
provided in the preceding sentence. Notwithstanding any transfer of all or a
portion of the transferor's interest as provided in this Section 11, the
transferor shall be entitled to all benefits accrued and all rights vested prior
to such transfer including rights to indemnification under any such document.
12. INDEMNIFICATION
12.1 General Indemnity. (a) The Lessee, whether or not any of the
-----------------
transactions contemplated hereby shall be consummated, hereby assumes liability
for and agrees to defend, indemnify and hold harmless each Indemnified Person,
except as specifically provided in Section 12.1(b), on an After Tax Basis from
and against any Claims which may be imposed on, incurred by or asserted against
an Indemnified Person in any way relating to or arising or alleged to arise out
of (i) the financing, refinancing, purchase, acceptance, rejection, ownership,
design, construction, delivery, acceptance, nondelivery, leasing, subleasing,
possession, use, operation, repair, modification, transportation, condition,
sale, return, repossession (whether by summary proceedings or otherwise), or any
other disposition of the Property or any part thereof; (ii) any latent or other
defects in any Property whether or not discoverable by an Indemnified Person or
the Lessee; (iii) a violation of Environmental Laws, Environmental Claims or
other loss of or damage relating to the Property; (iv) the Operative Agreements,
or any transaction contemplated thereby; (v) any breach by the Lessee of any of
its representations or warranties under the Operative Agreements or failure by
the Lessee to perform or observe any covenant or agreement to be performed by it
under any of the Operative Agreements; and (vi) personal injury, death or
property damage relating to the Property, including Claims based on strict
liability in tort; but in any event excluding (v) Claims to the extent such
Claims are found by a final decision of a court of competent jurisdiction to
have arisen solely out of the gross negligence or willful misconduct of such
Indemnified Person, (w) Claims to the extent such Claims arise solely out of
events occurring after the expiration of the Term and after the Lessee's
discharge of all its obligations under the Lease, (x) any Taxes including any
Claim (or any portion of a Claim) made upon an Indemnified Person by a third
party that at its origin is based upon a Tax (other than amounts necessary to
make any payments hereunder on an After Tax Basis, where the Lessee is otherwise
specifically required to make such payments on an After Tax Basis), (y) Claims
to the extent such Claims arise solely from legal proceedings commenced against
an Indemnified Party by any security holder or creditor thereof arising out of
and based upon rights afforded any such security holder or creditor solely in
its capacity as such or (z) Claims to the extent such Claims arise solely from
legal proceedings commenced against an Indemnified Party by any Transferee. The
Lessee shall be entitled to control, and shall assume full responsibility for
the defense of any Claim; provided, however, that the Trust, the Trust Company,
-------- -------
the Agent and the Investors named in such Claim, may each retain separate
counsel at the expense of the Lessee in the event of and to the extent of a
conflict or a potential conflict. The Lessee and each Indemnified Person agree
to give each other prompt written notice of any Claim hereby indemnified against
but the giving
<PAGE>
of any such notice by an Indemnified Person shall not be a condition to the
Lessee's obligations under this Section 12.1, except to the extent failure to
give such notice materially prejudices Lessee's rights hereunder. After an
Indemnified Person has been fully indemnified for a Claim pursuant to this
Section 12.1, and so long as no Event of Default under the Lease shall have
occurred and be continuing, the Lessee shall be subrogated to any right of such
Indemnified Person with respect to such Claim. None of the Indemnified Persons
shall settle a Claim without the consent of the Lessee, which consent shall not
be unreasonably withheld or delayed.
(a) Except with respect to Claims imposed, incurred or asserted
pursuant to (i) clause (iii) of Section 12.1(a), (ii) a breach of the
representations made by Lessee pursuant to Section 7.5(m), or (iii) a violation
by Lessee of the covenants contained in Section 9.1 of the Lease and Section
2.7(a) of the Agency Agreement with respect to Environmental Laws or Section 9.2
of the Lease, the Lenders and the Agent shall not be deemed to be Indemnified
Parties for the purpose of Section 12.1 but only for the Construction Period and
only with respect to Construction Period Property.
12.2 General Tax Indemnity. (a) The Lessee shall pay and assume
---------------------
liability for, and does hereby agree to indemnify, protect and defend the
Property and all Tax Indemnities, and hold them harmless against, all
Impositions on an After Tax Basis.
(a) Provided that no Default or Event of Default has occurred and is
continuing, if any Tax Indemnitee obtains a refund or a reduction in a liability
(but only if such reduction relates to a Tax not otherwise indemnifiable
hereunder and has not been taken into account in determining the amount of a
payment on an After Tax Basis) as a result of any Imposition paid or reimbursed
by the Lessee (in whole or in part), such Tax Indemnitee shall promptly pay to
the Lessee the lesser of (x) the amount of such refund or reduction in liability
and (y) the amount previously so paid or advanced by the Lessee, in each case
net of reasonable expenses not already paid or reimbursed by the Lessee.
(b)(i) Subject to the terms of Section 12.2(g), the Lessee shall pay
or cause to be paid all Impositions directly to the taxing authorities where
feasible and otherwise to the Tax Indemnitee, as appropriate, and the Lessee
shall at its own expense, upon such Tax Indemnitee's reasonable request, furnish
to such Tax Indemnitee copies of official receipts or other satisfactory proof
evidencing such payment.
(i) In the case of Impositions for which no contest is conducted
pursuant to Section 12.2(g) and which the Lessee pays directly to the taxing
authorities, the Lessee shall pay such Impositions prior to the latest time
permitted by the relevant taxing authority for timely payment. In the case of
Impositions for which the Lessee reimburses a Tax Indemnitee, the Lessee shall
do so within twenty (20) days after receipt by the Lessee of demand by such Tax
Indemnitee describing in reasonable detail the nature of the Imposition and the
basis for the demand (including the computation of the amount payable), but in
no event shall the Lessee be required to pay such reimbursement prior to thirty
(30) days before the latest time permitted by the relevant taxing authority for
timely payment. In the case of Impositions for which a contest is conducted
pursuant to Section 12.2(g), the Lessee shall pay such Impositions or reimburse
<PAGE>
31
such Tax Indemnitee for such Impositions, to the extent not previously paid or
reimbursed pursuant to subsection (a), prior to the latest time permitted by the
relevant taxing authority for timely payment after conclusion of all contests
under Section 12.2(g).
(ii) Impositions imposed with respect to a Property for a billing
period during which the Lease expires or terminates with respect to such
Property (unless the Lessee has exercised the Purchase Option with respect to
the Property) shall be adjusted and prorated on a daily basis between the Lessee
and the Lessor, whether or not such Imposition is imposed before or after such
expiration or termination and each party shall pay or reimburse the other for
each party's pro rata share thereof.
(iii) At the Lessee's request, the amount of any indemnification
payment by the Lessee pursuant to subsection (a) shall be verified and certified
by an independent public accounting firm mutually acceptable to the Lessee and
the Tax Indemnitee. The fees and expenses of such independent public accounting
firm shall (i) in the case of the Trust Company or the Trustee, be paid by the
Lessee, and (ii) in the case of all other Tax Indemnities, be paid by the Lessee
unless such verification shall result in an adjustment in the Lessee's favor of
10% or more of the payment as computed by such Tax Indemnitee, in which case
such fee shall be paid by such Tax Indemnitee.
(c)(i) The Lessee shall be responsible for preparing and filing
any real and personal property or ad valorem tax returns in respect of the
Property. In case any other report or tax return shall be required to be made
with respect to any obligations of the Lessee under or arising out of subsection
(a) and of which the Lessee has knowledge, the Lessee, at its sole cost and
expense, shall notify the relevant Tax Indemnitee of such requirement and
(except if such Tax Indemnitee notifies the Lessee that such Person intends to
file such report or return) (A) to the extent required or permitted by and
consistent with Legal Requirements, make and file in its own name such return,
statement or report; and (B) in the case of any other such return, statement or
report required to be made in the name of such Tax Indemnitee, advise such Tax
Indemnitee of such fact and prepare such return, statement or report for filing
by such Tax Indemnitee or, where such return, statement or report shall be
required to reflect items in addition to any obligations of the Lessee under or
arising out of subsection (a), provide such Tax Indemnitee at the Lessee's
expense with information sufficient to permit such return, statement or report
to be properly made with respect to any obligations of the Lessee under or
arising out of subsection (a). Such Tax Indemnitee shall, upon the Lessee's
request and at the Lessee's expense, provide any data maintained by such Tax
Indemnitee (and not otherwise within the control of the Lessee) with respect to
the Property which the Lessee may reasonably require to prepare any required tax
returns or reports;
(d) If as a result of the payment or reimbursement by the
Lessee of any expenses of a Tax Indemnitee or the payment of any Transaction
Expenses incurred in connection with the transactions contemplated by the
Operative Agreements, any Tax Indemnity, shall suffer a net increase in any
federal, state or local income tax liability, the Lessee shall indemnify such
Tax Indemnitee (without duplication of any indemnification required by
subsection (a)) on an After Tax Basis for the amount of such increase. The
calculation of any
<PAGE>
32
such net increase shall take into account any current or future tax savings
realized or reasonably expected to be realized by such Tax Indemnitee, in
respect thereof, as well as any interest, penalties and additions to tax payable
by such Tax Indemnitee, in respect thereof;
(e) As between the Lessee and the Lessor, the Lessee shall be
responsible for, and the Lessee shall indemnify and hold harmless the Trust
Company in its individual capacity and as the trustee of Lessor (without
duplication of any indemnification required by subsection (a)) on an After Tax
Basis against, any obligation for United States withholding taxes imposed in
respect of the interest payable on the Notes to the extent, but only to the
extent, Lessor has actually paid funds to a taxing authority with respect to
such withholding taxes (and, if the Lessor receives a demand for such payment
from any taxing authority, the Lessee shall discharge such demand on behalf of
the Lessor);
(f)(i) If a written claim is made against any Tax Indemnitee or
if any proceeding shall be commenced against such Tax Indemnitee (including a
written notice of such proceeding), for any Impositions, such Tax Indemnitee
shall promptly notify Lessee in writing and shall not take action with respect
to such claim or proceeding without the consent of Lessee for thirty (30) days
after the receipt of such notice by Lessee; provided, that, in the case of any
--------
such claim or proceeding, if action shall be required by law or regulation to be
taken prior to the end of such 30-day period, such Tax Indemnitee shall, in such
notice to Lessee, inform Lessee, and no action shall be taken with respect to
such claim or proceeding without the consent of Lessee before the end of such
shorter period; provided, further, that the failure of such Tax Indemnitee to
-------- -------
give the notices referred to this sentence shall not diminish Lessee's
obligation hereunder except to the extent such failure precludes Lessee from
contesting all or part of such claim.
(i) If, within thirty (30) days of receipt of such notice from
the Tax Indemnitee (or such shorter period as the Tax Indemnitee has noticed
Lessee is required by law or regulation for the Tax Indemnitee to commence such
contest), Lessee shall request in writing that such Tax Indemnitee contest such
Imposition, the Tax Indemnitee shall, at the expense of Lessee, in good faith
conduct and control such contest (including, without limitation, by pursuit of
appeals) relating to the validity, applicability or amount of such impositions
(provided, however, that (A) if such contest can be pursued independently from
any other proceeding involving a tax liability of such Tax Indemnitee, the Tax
Indemnitee, at Lessee's request, shall allow Lessee to conduct and control such
contest and (B) in the case of any contest that Lessee is not entitled to
control, the Tax Indemnitee may request Lessee to conduct and control such
contest if possible or permissible under applicable law or regulation) by, in
the sole discretion of the Person conducting and controlling such contest, (1)
resisting payment thereof, (2) not paying the same except under protest, if
protest is necessary and proper, (3) if the payment be made, using reasonable
efforts to obtain a refund thereof in appropriate administrative and judicial
proceedings, or (4) taking such other action as is reasonably requested by
Lessee from time to time.
(ii) The party controlling any contest shall consult in good faith
with the non-controlling party and shall keep the non-controlling party
reasonably informed as to the conduct
<PAGE>
33
of such contest; provided that all decisions ultimately shall be made in the
--------
sole discretion of the controlling party. The parties agree that a Tax
Indemnitee may at any time decline to take further action with respect to the
contest of any Imposition and may settle such contest if such Tax Indemnitee
shall waive its rights to any indemnity from Lessee that otherwise would be
payable in respect of such claim (and any future claim by any taxing authority
with respect to other taxable periods that are based, in whole or in part, upon
the resolution of such claim) and shall pay to Lessee any amount previously paid
or advanced by Lessee pursuant to this Section 12.2 by way of indemnification or
advance for the payment of an Imposition, and no other then future liability of
the Lessee is likely with respect to such Imposition.
(iii) Notwithstanding the foregoing provisions of this Section 12.2, a
Tax Indemnitee shall not be required to take any action and Lessee shall not be
permitted to contest any Impositions in its own name or that of the Tax
Indemnitee unless (A) Lessee shall have agreed to pay and shall pay to such Tax
Indemnitee on demand and on an After Tax Basis all reasonable costs, losses and
expenses that such Tax Indemnitee actually incurs in connection with contesting
such Impositions, including, without limitation, all reasonable legal,
accounting and investigatory fees and disbursements, (B) in the case of a claim
that must be pursued in the name of an Tax Indemnitee (or an Affiliate thereof),
the amount of the potential indemnity (taking into account all similar or
logically related claims that have been or could be raised in any audit
involving such Tax Indemnitee for which Lessee may be liable to pay an indemnity
under this Section 12.2) is more than $100,000 and less than $1,000,000, unless
the pursuit of such contest is in a manner mutually satisfactory to the Tax
Indemnitee and the Lessee, but in no event shall such right prevent the Lessee
from prosecuting or continuing such contest, (C) the Tax Indemnitee shall have
reasonably determined that the action to be taken will not result in any
material danger of sale, forfeiture or loss of any Property, or any part thereof
or interest therein, will not interfere with the payment of Rent, and will not
result in risk of criminal liability, (D) if such contest shall involve the
payment of the Imposition prior to the contest, Lessee shall provide to the Tax
Indemnitee an interest-free advance in an amount equal to the Imposition that
the Tax Indemnitee is required to pay (with no additional net after-tax cost to
such Tax Indemnitee), (E) in the case of a claim that must be pursued in the
name of an Tax Indemnitee (or an Affiliate thereof), Lessee shall have provided
to such Tax Indemnitee an opinion of independent tax counsel selected by the
Lessee and reasonably satisfactory to such Tax Indemnitee stating that a
reasonable basis exists to contest such claim (or, in the case of an appeal of
an adverse determination, an opinion of such counsel to the effect that there is
substantial authority for the position asserted in such appeal) and (F) no Event
of Default shall have occurred and be continuing. In no event shall a Tax
Indemnitee be required to appeal an adverse judicial determination to the United
State Supreme Court. In addition, a Tax Indemnitee shall not be required to
contest any claim in its name (or that of an Affiliate) if the subject matter
thereof shall be of a continuing nature and shall have previously been decided
adversely by a court of competent jurisdiction pursuant to the contest
provisions of this Section 12.2, unless there shall have been a change in law
(or interpretation thereof) and the Tax Indemnitee shall have received, at the
Lessee's expense, an opinion of independent tax counsel selected by the Tax
Indemnitee and reasonably acceptable to the Lessee stating that as a result of
such change in law (or interpretation thereof), it is more likely than not that
the Tax Indemnitee will prevail in such contest.
<PAGE>
34
13. MISCELLANEOUS
13.1 Survival of Agreements. The representations, warranties,
----------------------
covenants, indemnities and agreements of the parties provided for in the
Operative Agreements, and the parties' obligations under any and all thereof,
shall survive the execution and delivery of this Agreement, the transfer of the
Property to the Trust, the construction of any Improvements, any disposition of
any interest of the Trust in the Property or the Improvements or any interest of
the Investor in the Trust, the payment of the Notes and any disposition thereof
and shall be and continue in effect notwithstanding any investigation made by
any party and the fact that any party may waive compliance with any of the other
terms, provisions or conditions of any of the Operative Agreements. Except as
otherwise expressly set forth herein or in other Operative Agreements, the
indemnities of the parties provided for in the Operative Agreements shall
survive the expiration or termination of any thereof.
13.2 No Broker, etc. Each of the parties hereto represents to the
---------------
others that it has not retained or employed any broker, finder or financial
adviser to act on its behalf in connection with this Agreement, nor has it
authorized any broker, finder or financial adviser retained or employed by any
other Person so to act, except for the Arranger and the Co-Arrangers, the fees
of which shall be paid by the Lessee. Any party who is in breach of this
representation shall indemnify and hold the other parties harmless from and
against any liability arising out of such breach of this representation.
13.3 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 shall be given in writing by nationally recognized courier service and
any such notice shall become effective five Business Days after being deposited
in the mails, certified or registered with appropriate postage prepaid or one
Business Day after delivery to a nationally recognized courier service
specifying overnight delivery and shall be directed to the address of such
Person as indicated:
If to the Lessee, to it at: 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
<PAGE>
35
If to the Lessor, to it at: Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
Telecopy: (302) 651-8882
Reference: HHC 1998-1 Trust
If to the Investors, to them at: BTD Harborside Inc.
1011 Centre Road, Suite 200
Wilmington, Delaware 19805
Attention: Donna Mitchell
Telecopy: (302) 636-3333
Morgan Stanley Senior Funding, Inc.
1585 Broadway
New York, New York 10036
Attention: Michael A. Hart
Telecopy: (212) 761-0587
CSL Leasing, Inc.
1201 Market Street - 9th Floor
Wilmington, Delaware 19801
Attention: Michael Handago
Telecopy: (302) 428-3390
If to the Agent, to it at: 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
CSL Leasing, Inc.
1201 Market Street - 9th Floor
Wilmington, Delaware 19801
Attention: Michael Hardago
Telecopy: (302) 428-3390
With a copy to: Chase New England Corporation
85 Wells Avenue, Suite 200
Boston, Massachusetts 02159
Attention: Roger A. Stone
<PAGE>
36
Telecopy: (617) 928-3057
From time to time any party may designate a new address for purposes of notice
hereunder by notice to each of the other parties hereto.
13.4 Counterparts. This Agreement may be executed by the parties
------------
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.
13.5 Amendments and Termination. Neither this Agreement nor any of
--------------------------
the terms hereof may be terminated, amended, supplemented, waived or modified
except by an instrument in writing signed by the party against which the
enforcement of the termination, amendment, supplement, waiver or modification
shall be sought. This Agreement may be terminated by an agreement signed in
writing by the Lessor, the Investors, the Lessee, the Agent and the Lenders.
Notwithstanding the foregoing provisions to the contrary, in the case of the
Lenders and the Investors, the action of the Required Lenders shall control,
except as otherwise provided in Section 9.1 of the Credit Agreement and Section
9.3 hereof and in the case of the Lessor, the action of the Lessor shall be
deemed to be the action of the Required Lenders and vice versa.
13.6 Headings, etc.. The Table of Contents and headings of the
--------------
various Sections and Subsections of this Agreement are for convenience of
reference only and shall not modify, define, expand or limit any of the terms or
provisions hereof.
13.7 Parties in Interest. Except as expressly provided herein, none
-------------------
of the provisions of this Agreement are intended for the benefit of any Person
except the parties hereto.
13.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
13.9 Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13.10 Liability Limited. The Lessee and the Investors each
-----------------
acknowledge and agree that the Trust Company is (except as otherwise expressly
provided herein or therein) entering into this Agreement and the other Operative
Agreements to which it is a party (other than the Trust Agreement), solely in
its capacity as trustee under the Trust Agreement and not in its individual
capacity and that Trust Company shall not be liable or accountable under any
circumstances whatsoever in its individual capacity for or on account of any
statements, representations, warranties, covenants or obligations stated to be
those of the Trust, except for its
<PAGE>
37
own gross negligence or willful misconduct and as otherwise expressly provided
herein or in the other Operative Agreements.
13.11 Rights of Lessee. Notwithstanding any provision of the
----------------
Operative Agreements, if at any time all obligations (i) of the Trust under the
Credit Agreement and the Security Documents and (ii) of the Lessee under the
Operative Agreements have in each case been satisfied or discharged in full,
then the Lessee shall be entitled to (a) terminate the Lease (to the extent not
previously terminated) and (b) receive all amounts then held under the Operative
Agreements and all proceeds with respect to the Properties. Upon the fulfillment
of the obligations contained in clauses (i) and (ii) above, the Lessor shall
transfer to the Lessee all of its right, title and interest in and to the
Properties (to the extent not previously transferred to the Lessee in accordance
with the Lease) and any amounts or proceeds referred to in the foregoing clause
(b) shall be paid over to the Lessee.
13.12 Further Assurances. The parties hereto shall promptly cause to
------------------
be taken, executed, acknowledged or delivered, at the sole expense of the
Lessee, all such further acts, conveyances, documents and assurances as the
other parties may from time to time reasonably request in order to carry out and
effectuate the intent and purposes of this Agreement, the other Operative
Agreements and the transactions contemplated hereby and thereby (including,
without limitation, the preparation, execution and filing of any and all Uniform
Commercial Code financing statements and other filings or registrations which
the parties hereto may from time to time request to be filed or effected). The
Lessee, at its own expense, shall take such action as may from time to time be
reasonably requested by the parties hereto in order to maintain and protect all
security interests provided for hereunder or under any other Operative
Agreement.
13.13 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their respective permitted
successors and assigns.
13.14 No Representation or Warranty. Nothing contained herein, in
-----------------------------
any other Operative Agreement or in any other materials delivered to the Lessee
in connection with the transactions contemplated hereby or thereby shall be
deemed a representation or warranty by the Agent or the Arranger or any of their
Affiliates as to the proper accounting treatment or tax treatment that should be
afforded to the Lease and the Lessor's ownership of the Properties and the Agent
expressly disclaims any representation or warranty with respect to such matters.
13.15 Highest Lawful Rate. It is the intention of the parties hereto
-------------------
to conform strictly to applicable usury laws and, anything herein to the
contrary notwithstanding, the obligations of the Lessee, the Lessor or the
Investors or any other party under any Operative Agreement, shall be subject to
the limitation that payments of interest or of other amounts constituting
interest shall not be required to the extent that receipt thereof would be in
excess of the Highest Lawful Rate, or otherwise contrary to provisions of law
applicable to the recipient limiting rates of interest which may be charged or
collected by the recipient. Accordingly, if the transactions or the amount paid
or otherwise agreed to be paid for the use, forbearance or detention of money
under this Agreement, the Lease and any other Operative Agreement would exceed
the Highest Lawful Rate or otherwise be usurious with respect to the recipient
of any
<PAGE>
38
such amount, then, in that event, notwithstanding anything to the contrary in
this Agreement, the Lease or any other Operative Agreement, it is agreed as
follows as to the recipient of any such amount:
(a) the provisions of this Section 13.15 shall govern and control
over any other provision in this Agreement, the Lease and any other Operative
Agreement and each provision set forth therein is hereby so limited;
(b) the aggregate of all consideration which constitutes interest
that is contracted for, charged or received under this Agreement, the Lease, or
any other Operative Agreement shall under no circumstances exceed the maximum
amount of interest allowed by any Requirement of Law (such maximum lawful
interest rate, if any, with respect to such Lender herein called the "Highest
-------
Lawful Rate"), and all amounts owed under this Agreement, the Lease and any
- ----------
other Operative Agreement shall be held subject to reduction and (i) the amount
of interest which would otherwise be payable to the recipient hereunder and
under the Lease, the Loan Documents and any other Operative Agreement, shall be
automatically reduced to the amount allowed under any Requirement of Law and
(ii) any unearned interest paid in excess of the Highest Lawful Rate shall be
credited to the payor by the recipient (or, if such consideration shall have
been paid in full, refunded to the payee);
(c) all sums paid, or agreed to be paid for the use, forbearance
and detention of the money under this Agreement, the Lease, or any other
Operative Agreement shall, to the extent permitted by any Requirement of Law, be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the actual rate of interest is
uniform throughout the full term thereof; and
(d) if at any time the interest, together with any other fees, late
charges and other sums payable pursuant to or in connection with this Agreement,
the Lease, and any other Operative Agreement executed in connection herewith or
therewith, and deemed interest under any Requirement of Law exceeds that amount
which would have accrued at the Highest Lawful Rate, the amount of interest and
any such fees, charges and sums to accrue to the recipient of such interest,
fees, charges and sums pursuant to the Operative Agreement shall be limited,
notwithstanding anything to the contrary in the Operative Agreement to that
amount which would have accrued at the Highest Lawful Rate for the recipient,
but any subsequent reductions, as applicable, shall not reduce the interest to
accrue pursuant to the Operative Agreement below the recipient's Highest Lawful
Rate until the total amount of interest payable to the recipient (including all
consideration which constitutes interest) equals the amount of interest which
would have been payable to the recipient (including all consideration which
constitutes interest), plus the amount of fees which would have been received
----
but for the effect of this Section 3.15.
13.16 Submission to Jurisdiction; Waivers. (a) Lessee hereby
-----------------------------------
irrevocably and unconditionally:
(i) submits for itself and its property in any legal action
or proceeding relating to this Agreement or any of the other Operative
Agreements to which it is a
<PAGE>
39
party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the courts of the
State of New York, the courts of the United States for the Southern
District of New York, and appellate courts from any thereof;
(ii) consents that any such action or proceeding may be
brought in such courts, and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any such
court or that such action or proceeding was brought in an inconvenient
court and agrees not to plead or claim the same;
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to such party at its address set forth in Section 13.3 or at such
other address of which the parties shall have been notified pursuant
thereto; and
(iv) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction.
(B) EACH PARTY HERETO UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (A) ABOVE AND ANY
COUNTERCLAIM THEREIN.
<PAGE>
40
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
HHC 1998-1 TRUST, by Wilmington Trust Company,
not individually but solely as Trustee
By: /s/ Robert P. Hines, Jr.
--------------------------------------
Title: Financial Services Officer
<PAGE>
41
HARBORSIDE OF DAYTON LIMITED PARTNERSHIP
By: Harborside Health I Corporation, its
general partner
By: /s/ Stephen L. Guillard
--------------------------------------
Title: President and Chief Executive
Officer
<PAGE>
42
BTD HARBORSIDE INC., as Investor
By: /s/ James H. Stallkamp
--------------------------------------
Title: President
<PAGE>
43
MORGAN STANLEY SENIOR FUNDING, INC., as
Investor and as a Lender
By: /s/ Michael Hart
--------------------------------------
Title: Principal
<PAGE>
44
CSL LEASING, INC., as Investor
By: /s/ Michael P. Handago
--------------------------------------
Title: Vice President
<PAGE>
45
THE CHASE MANHATTAN BANK, as Agent and as a
Lender
By: /s/ Robert Anastasio
--------------------------------------
Title: Vice President
<PAGE>
46
WILMINGTON TRUST COMPANY, in its individual
capacity, only to the extent expressly set
forth herein
By: /s/ Robert P. Hines, Jr.
--------------------------------------
Title: Financial Services Officer
<PAGE>
47
ARAB BANKING CORPORATION (B.S.C.)
By: /s/ Louise Bilbro
--------------------------------------
Title: Vice President
<PAGE>
48
BANKBOSTON, N.A.
By: /s/ Gregory R.D. Clark
--------------------------------------
Title: Managing Director
<PAGE>
49
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By: /s/ Douglas J. Weir
--------------------------------------
Title: Vice President
<PAGE>
50
CITICORP U.S.A., INC.
By: /s/ R. Bruce Hall
--------------------------------------
Title: Vice President
<PAGE>
51
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ David E. Yewer
---------------------------------------
Title: Vice President
By: /s/ Catherine K. MacDonald
---------------------------------------
Title: Vice President
<PAGE>
52
DRESDNER BANK AG, NEW YORK BRANCH AND GRAND
CAYMAN BRANCH
By: /s/ Andrew P. Nesi
---------------------------------------
Title: Vice President
By: /s/ Felix K. Camacho
---------------------------------------
Title: Assistant Treasurer
<PAGE>
53
THE FIRST NATIONAL BANK OF MARYLAND
By: /s/ Michael B. Stueck
---------------------------------------
Title: Vice President
<PAGE>
54
FIRST UNION NATIONAL BANK
By: /s/ Joseph H. Towell
---------------------------------------
Title: Senior Vice President
<PAGE>
55
FLEET NATIONAL BANK
By: /s/ Maryann S. Smith
---------------------------------------
Title: Vice President
<PAGE>
56
IMPERIAL BANK
By: /s/ Ray Vadalma
---------------------------------------
Title: Senior Vice President
<PAGE>
57
NATIONSBANK, N.A.
By: /s/ Kevin Wagley
---------------------------------------
Title: Vice President
<PAGE>
58
PROVIDENT BANK OF MARYLAND
By: /s/ Jennifer D. Patton
---------------------------------------
Title: Assistant Vice President
<PAGE>
59
STAR BANK, NATIONAL ASSOCIATION
By: /s/ William J. Goodwin
---------------------------------------
Title: Senior Vice President
<PAGE>
60
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ David Kaplowitz
---------------------------------------
Title: Vice President
<PAGE>
61
BANKERS TRUST COMPANY
By: /s/ Gina S. Thompson
--------------------------------------
Title: Vice President
<PAGE>
EXHIBIT 10.26
FINANCING ADVISORY AGREEMENT
This Agreement is made effective as of the 11th day of August, 1998,
by and between Investcorp International Inc., a Delaware corporation ("III") and
HH Acquisition Corp., a Delaware corporation ("HH").
WHEREAS, pursuant to the Agreement and Plan of Merger dated April 15,
1998 by and between Harborside Healthcare Corporation, a Delaware corporation
("Harborside") and HH, HH will be merged with and into Harborside, with
Harborside the surviving corporation (the "Recapitalization");
WHEREAS, HH intends to arrange borrowing facilities with one or more
financial institutions unaffiliated with III in the aggregate amount of
approximately $250 million (the "Financing");
WHEREAS, III and its officers, employees, agents and affiliates are
experienced in the field of obtaining debt financing and are willing to act as a
financial advisor to HH; and
WHEREAS, HH is desirous to avail itself of the assistance and
expertise of III in arranging the Financing;
NOW, THEREFORE, the parties do hereby agree as follows:
1. Services of III. III shall assist HH in arranging the Financing.
---------------
In connection therewith, III may, solely in its discretion and on behalf of HH:
(a) seek out financial institutions that may provide
the Financing;
(b) enter into negotiations with banks and other financial
institutions regarding the terms and conditions upon which the
Financing is to be provided;
(c) advise, conduct and participate in the negotiation and
drafting of any agreements, contracts, or other documents relating to
the placement of the Financing; and
(d) take all such other actions as it may deem necessary to
arrange for the Financing.
2. Fees. In consideration of the services contemplated by Section 1
----
hereof, HH shall pay to III a fee in the amount of $4,000,000, payable on the
closing of the Recapitalization.
3. Reimbursement. HH shall pay directly any commitment fees,
-------------
arrangement fees, or other actual out-of-pocket expenses incurred in connection
with the performance of III's services under this Agreement, including, but not
limited to, fees and disbursements of III's legal counsel.
<PAGE>
4. Cooperation and Information. HH shall cooperate with III in the
---------------------------
performance of its obligations hereunder and shall furnish III with such
information as III may request (all such information so furnished hereinafter
referred to as the "Information"). HH recognizes and confirms that III:
(a) will use and rely primarily on the Information and on
information available from generally recognized public sources in
performing the services contemplated by this Agreement without having
independently verified the same;
(b) does not assume responsibility for the accuracy or
completeness of the Information; and
(c) will not make an appraisal of any of the assets of HH or of
Harborside.
All Information so furnished to III will be kept confidential by III, except
such Information as is in the public domain or as HH agrees may be disclosed or
as III is required by law to disclose; provided, however, that III may provide
-------- -------
such Information as it deems necessary or appropriate to financial institutions
in connection with obtaining, negotiating or arranging the Financing in
accordance with the terms of this Agreement.
5. Termination. Subject to the provisions of Paragraph 6 hereof,
-----------
which shall survive any termination of this Agreement, this Agreement shall
terminate if the Recapitalization is not consummated on or before December 31,
1998, unless extended by the parties' mutual consent.
6. Indemnification. HH shall:
---------------
(a) indemnify III and hold it harmless against any losses,
claims, damages or liabilities to which III may become subject arising
in any manner out of or in connection with the rendering of services
by III hereunder, unless it is finally judicially determined that such
losses, claims, damages or liabilities arose primarily out of the
gross negligence or bad faith of III; and
(b) reimburse III immediately for any legal or other expenses
reasonably incurred by it in connection with investigating, preparing
to defend or defending any lawsuits or other proceedings arising in
any manner out of or in connection with the rendering of services by
III hereunder; provided, however, that in the event a final judicial
-------- -------
determination is made to the effect specified in subparagraph 6(a)
above, III will remit to HH any amounts reimbursed under this
subparagraph 6(b). HH agrees that (i) the indemnification and
reimbursement commitments set forth in this paragraph shall apply
whether or not III is a formal party to any such lawsuits, claims or
other proceedings, (ii) III is entitled to retain separate counsel of
its choice at the expense of HH in connection with any of the matters
to which such commitments relate, and (iii) such commitments shall
extend upon the terms set forth in this paragraph to any controlling
person, director, officer, employee or agent of III; provided,
--------
however, that to the extent that III retains separate counsel in
-------
connection with
2
<PAGE>
any matters set forth in this subparagraph 6(b), such counsel shall
coordinate its efforts with counsel to HH.
7. Amendments. No amendment or waiver of any provision of this
----------
Agreement, or consent to any departure by either party from any such provision,
shall be effective unless the same shall be in writing and signed by the parties
to this Agreement and then such amendment, waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
8. Notices. All notices hereunder shall, in the absence of receipted
-------
hand delivery, be deemed duly given when mailed, if the same shall be sent by
registered or certified mail, return receipt requested, and the mailing date
shall be deemed the date from which all time periods pertaining to a date of
notice shall run. Notices shall be addressed to the parties at the following
addresses:
If to III, to:
Investcorp International Inc.
280 Park Avenue, 37th Floor West
New York, New York 10017
Attention: President
with a copy to:
Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Attention: Peter L. Baumbusch, Esq.
If to HH, to:
HH Acquisition Corp.
c/o Gibson, Dunn & Crutcher LLP
200 Park Avenue, 47th Floor
New York, NY 10166-0193
Attention: Christopher J. O'Brien, President
with a copy to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue, 47th Floor
New York, NY 10166-0193
Attention: E. Michael Greaney, Esq.
9. Entire Agreement. This Agreement shall constitute the entire
----------------
Agreement between the parties with respect to the subject matter hereof, and
shall supersede all previous oral and written (and all contemporaneous oral)
negotiations, commitments, agreements and understandings relating thereto.
10. Applicable Law. This Agreement shall be construed and enforced
--------------
in accordance with the laws of the State of New York (without regard to the
conflicts of laws
3
<PAGE>
provisions thereof or of any other jurisdiction) and shall inure to the benefit
of, and be binding upon, III and HH and their respective successors and assigns.
11. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has caused this Financing
Advisory Agreement to be executed and delivered by its duly authorized officer
or agent as set forth below.
INVESTCORP INTERNATIONAL, INC.
By: /s/ Jon P. Hedley
--------------------------------
Name:
Title:
HH ACQUISITION CORP.
By: /s/ Christopher J. O'Brien
--------------------------------
Name: Christopher J. O'Brien
Title: President
4
<PAGE>
EXHIBIT 10.27
AGREEMENT FOR MANAGEMENT ADVISORY,
STRATEGIC PLANNING AND
CONSULTING SERVICES
THIS AGREEMENT is made effective as of the 11th day of August, 1998
(the "Effective Date"), by and between Investcorp International, Inc., a
Delaware corporation ("III"), and HH Acquisition Corp., a Delaware corporation
("HH").
WHEREAS, III, by and through its officers, employees, agents and
affiliates has developed in connection with the conduct of its business and
affairs various areas of expertise in the fields of management, finance,
marketing, and strategic planning; and
WHEREAS, HH desires to avail itself of the expertise of III in those
areas hereinabove enumerated and in which III is acknowledged to have expertise,
for a period of five (5) years from the effective date hereof, said 5-year
period being referred to as the "Term";
NOW, THEREFORE, the parties do hereby agree as follows:
1. Appointment. HH hereby appoints III to render management
-----------
advisory, strategic planning and consulting services to HH on an exclusive basis
during the Term as herein contemplated.
2. III. During the Term, III shall render to HH, by and through such
---
of its officers, employees, agents and affiliates as III, in its sole
discretion, shall designate from time to time, management advisory, strategic
planning and consulting services. Said services shall consist of advice
concerning management, finance, marketing, strategic planning, and such other
services as shall be requested from time to time by the Board of Directors of
HH. HH acknowledges and agrees that the services to be provided by III
hereunder do not encompass services that would be required in connection with an
acquisition, restructuring or initial public offering by HH, or a private sale
of the stock or assets of HH. Should HH desire to engage III to provide
financial advisory services in connection with any such type of transaction,
such engagement shall be subject to the negotiation of mutually acceptable fee
arrangements for such additional services, albeit the indemnification
obligations of HH as set forth in paragraph 7 of this Agreement shall apply to
any such additional services performed by III.
3. Fees. In consideration of III's performance of the above-
----
described services, HH shall pay to III, in cash, consulting services fees at
the rate of $1,200,000 per year for the duration of the Term (collectively, the
"Fee"). It is recognized that the services provided under this Agreement will
not be evenly distributed over time and that a significant portion of such
services will be performed early in the period of time covered by this
Agreement. It is also recognized that, subject to the terms of this Agreement,
HH is committed to pay the full amount payable hereunder, and the Fee, once
paid, is non-refundable. The full amount of the Fee for the entire Term shall
be paid on the Effective Date.
<PAGE>
4. Reimbursements. Within 15 calendar days of delivery of III's
--------------
invoice, HH shall reimburse III for its actual out-of-pocket expenses incurred
in connection with the performance of services pursuant to this Agreement.
5. Default. In the event that HH fails to pay any part of the Fee as
-------
set forth in Paragraph 3 above when and as due, and HH does not cure such
failure prior to the 10th day of the month in which such payment is due, then HH
shall be in default under this Agreement and III shall be entitled to receive
payment in full of the unpaid portion of the Fee upon making written demand upon
HH for such payment. Upon delivery of such written demand, III shall be excused
from rendering any further services pursuant to this Agreement. The aforesaid
right and privilege of III to withhold services is intended to be in addition to
any and all other remedies available because of HH's default, including III's
right to payment of all fees set forth herein. Further, in the event of a
default by HH, HH agrees to reimburse III for any and all costs and expenses
incurred by III, including, without limitation, reasonable counsel fees and
expenses, in connection with such default and any litigation or other
proceedings instituted for the collection of payments due hereunder.
6. Permissible Activities. Nothing herein shall in any way preclude
----------------------
III from engaging in any business activities or from performing services for its
own account or for the account of others.
7. Indemnification. HH shall indemnify and hold harmless III and its
---------------
directors, officers, employees, agents and controlling persons (each being an
"Indemnified Party") from and against any and all losses, claims, damages and
liabilities, joint or several, to which such Indemnified Party may become
subject under any applicable federal or state law, or otherwise, relating to or
arising out of the management, strategic planning and consulting services
contemplated by, this Agreement. HH shall reimburse any Indemnified Party for
all costs and expenses (including reasonable counsel fees and expenses) incurred
in connection with the investigation of, preparation for or defense of any
pending or threatened claim or any action or proceeding arising therefrom,
whether or not such Indemnified Party is a party. HH shall not be liable under
the foregoing indemnification provision to the extent that any loss, claim,
damage, liability or expense is found in a final judgment by a court of
competent jurisdiction to have resulted primarily from the bad faith or gross
negligence of III.
8. Amendments. No amendment or waiver of any provision of this
----------
Agreement, or consent to any departure by either party from any such provision,
shall in any event be effective unless the same shall be in writing and signed
by the parties to this Agreement and then such amendment, waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
9. Notices. Any and all notices hereunder shall, in the absence of
-------
receipted hand delivery, be deemed duly given when mailed, if the same shall be
sent by registered or certified mail, return receipt requested, and the mailing
date shall be deemed the date from which all time periods pertaining to a date
of notice shall run. Notices shall be addressed to the parties at the following
addresses:
2
<PAGE>
If to III, to:
Investcorp International, Inc.
280 Park Avenue
37th Floor
New York, New York 10017
Attention: President
with a copy to:
Gibson, Dunn & Crutcher
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Attention: Peter L. Baumbusch, Esq.
If to HH, to:
HH Acquisition Corp.
c/o Gibson, Dunn & Crutcher
200 Park Avenue
New York, New York 10166
Attention: Christopher J. O'Brien
10. Entire Agreement. This Agreement shall constitute the entire
----------------
agreement between the parties with respect to the subject matter hereof, and
shall supersede all previous oral and written (and all contemporaneous oral)
negotiations, commitments, agreements and understandings relating hereto.
11. Assignment. This Agreement shall be assignable by either party
----------
hereto provided that the non-assigning party consents in writing to such
assignment.
12. Applicable Law. This Agreement shall be construed and enforced
--------------
in accordance with the laws of Delaware and shall inure to the benefit of, and
be binding upon, III and HH and their respective successors and assigns.
13. No Continuing Waiver. The waiver by any party of any breach of
--------------------
this Agreement shall not operate or be construed to be a waiver of any
subsequent breach.
14. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
[The remainder of this page has been left blank intentionally]
3
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement for
Management Advisory, Strategic Planning and Consulting Services to be executed
and delivered as of the Effective Date by its duly authorized officer or agent
as set forth below.
INVESTCORP INTERNATIONAL, INC.
By: /s/ Jon P. Hedley
----------------------------------
Name:
Title:
HH ACQUISITION CORP.
By: /s/ Christopher J. O'Brien
----------------------------------
Name: Christopher J. O'Brien
Title: President
4
<PAGE>
EXHIBIT 12
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30, Pro Forma Pro Forma
-------------------------------------- ---------------- Year Ended Twelve Months Ended
1993 1994 1995 1996 1997 1997 1998 December 31, 1997 June 30, 1998
---- ---- ---- ---- ---- ---- ---- ----------------- -------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Income (loss) before income taxes
and extraordinary loss $1,985 $374 $1,234 $4,829 $11,150 $5,074 $6,349 $221 $343
Add:
Portion of rents representative of
the interest factor 175 346 636 3,408 4,489 1,770 4,874 6,573 6,666
Interest on indebtedness 4,694 4,876 5,721 5,473 6,424 3,245 3,608 18,891 19,267
Amortization of debt issuance costs 355 172 109 103 257 44 108 1,392 1,456
-------------------------------------- --------------- ----------------- -------------------
Income as adjusted 7,209 5,768 7,700 13,813 22,320 10,133 14,939 27,077 27,732
-------------------------------------- --------------- ----------------- -------------------
Fixed charges:
Portion of rents representative of
the interest factor 175 346 636 3,408 4,489 1,770 4,874 6,573 6,666
Interest on indebtedness 4,694 4,876 5,721 5,473 6,424 3,245 3,608 18,891 19,267
Amortization of debt issuance costs 355 172 109 103 257 44 108 1,392 1,456
Preferred stock dividend requirement -- -- -- -- -- -- -- 9,311 9,627
-------------------------------------- --------------- ----------------- -------------------
Fixed charges 5,224 5,394 6,466 8,984 11,170 5,059 8,590 36,166 37,016
-------------------------------------- --------------- ----------------- -------------------
Ratio of earnings to combined
fixed charges 1.4 1.1 1.2 1.5 2.0 2.0 1.7 0.7 0.7
====================================== =============== ================= ===================
Deficiency of earnings to combined
fixed charges and preferred
stock dividend -- -- -- -- -- -- -- (9,089) (9,284)
</TABLE>
<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
September 28, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
reports 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
September 25, 1998
<PAGE>
EXHIBIT 23.4
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
September 25, 1998
