<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER -- , 1997.
REGISTRATION STATEMENT NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
Form S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
EXTENDICARE HEALTH SERVICES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8051 98-0066268
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
105 WEST MICHIGAN STREET
MILWAUKEE, WISCONSIN 53203
(414) 271-9696
(Address, including zip code and telephone number, including area code,
of Registrant's principal executive offices)
SEE TABLE OF ADDITIONAL REGISTRANTS
------------------------------------
CT CORPORATION SYSTEM, 1633 BROADWAY, NEW YORK, NY 10019 (212) 664-1666
(Name, address, including zip code and telephone number, including area code, of
agent for service)
COPY TO:
CHRISTOPHER W. MORGAN
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
ROYAL BANK PLAZA, NORTH TOWER
200 BAY STREET, SUITE 1820
TORONTO, ONTARIO, CANADA M5J 2J4
(416) 777-4700
------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT (2) OFFERING PRICE (2) FEE
- -------------------------------------------------------------------------------------------------
9.35% Senior Subordinated
Notes Due 2007(1)......... US$200,000,000 100% US$200,000,000 US$59,000
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) The Guarantees by the Company's subsidiaries of the payment of
principal and interest on the Notes are also being registered hereby.
Pursuant to Rule 457(n), no registration fee is required with respect
to the Guarantees.
(2) Estimated solely for purposes of calculating the registration fee.
------------------------------------
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 BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
STATE OR OTHER PRIMARY STANDARD
JURISDICTION OR INDUSTRIAL I.R.S. EMPLOYER
INCORPORATION OR CLASSIFICATION IDENTIFICATION
NAME ORGANIZATION CODE NUMBER NUMBER
- ---- ---------------- ---------------- ---------------
<S> <C> <C> <C>
Adult Services Unlimited, Inc................... Pennsylvania 8051 23-2284465
Alternacare Plus Enterprises, Inc............... Ohio 8051 31-1204113
Arbor Health Care Company....................... Delaware 8051 34-1469604
Arbors East, Inc................................ Ohio 8051 34-1677616
Arbors at Ft. Wayne, Inc........................ Indiana 8051 31-1330028
Arbors at Toledo, Inc........................... Ohio 8051 34-1645103
Bay Geriatric Pharmacy, Inc..................... Florida 8051 59-1195042
Coventry Care, Inc.............................. Pennsylvania 8051 25-1212961
Edgewood Nursing Center, Inc.................... Pennsylvania 8051 25-1203766
Elder Crest, Inc................................ Pennsylvania 8051 25-1115979
Extendicare Great Trail, Inc.................... Delaware 8051 39-1893202
Extendicare Health Facilities, Inc.............. Wisconsin 8051 39-1045271
Extendicare Health Facility Holdings, Inc....... Delaware 8051 39-1441286
Extendicare Homes, Inc.......................... Delaware 8051 39-1441287
Extendicare of Indiana, Inc..................... Delaware 8051 39-1792004
Fir Lane Terrace Convalescent Center, Inc....... Washington 8051 91-1085334
Haven Crest, Inc................................ Pennsylvania 8051 25-1102724
Health Poconos, Inc............................. Pennsylvania 8051 23-2651850
Home Care Pharmacy, Inc. of Florida............. Florida 8051 59-2758082
Marshall Properties, Inc........................ Ohio 8051 38-2583847
Meadow Crest, Inc............................... Pennsylvania 8051 25-1412967
Northern Health Facilities, Inc................. Delaware 8051 39-1406172
Oak Hill Home of Rest and Care, Inc............. Pennsylvania 8051 25-1181655
Poly-Stat Computer Applications, Inc............ Ohio 8051 31-1316190
Poly-Stat Supply Corporation.................... Ohio 8051 31-1141419
Q.D. Pharmacy, Inc.............................. Michigan 8051 38-2420417
The Druggist, Inc............................... Ohio 8051 31-0959044
The Progressive Step Corporation................ Wisconsin 8051 39-1878099
United Professional Companies, Inc.............. Delaware 8051 39-1104974
United Professional Services, Inc............... Wisconsin 8051 39-1325589
United Rehabilitation Services, Inc............. Wisconsin 8051 39-1783897
</TABLE>
The address, including zip code and telephone number, including area code,
of each of the above Registrant's principal executive offices is: 105 West
Michigan Street, Milwaukee, Wisconsin 53203, (414) 271-9696.
<PAGE> 3
PROSPECTUS
$200,000,000
OFFER FOR
ALL OUTSTANDING 9.35% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR
9.35% SENIOR SUBORDINATED NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
OF
LOGO
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998 UNLESS EXTENDED.
------------------------
Extendicare Health Services, Inc., a Delaware corporation (the "Company")
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together constitute
the "Exchange Offer"), to exchange an aggregate principal amount of up to
$200,000,000 of 9.35% Senior Subordinated Notes Due 2007 (the "Exchange Notes")
of the Company, which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Statement (as defined
herein) of which this Prospectus constitutes a part, for a like principal amount
of 9.35% Senior Subordinated Notes Due 2007 (the "Outstanding Notes" and, with
the Exchange Notes, the "Notes") of the Company with the holders (the "Holders")
thereof.
The terms of the Exchange Notes are identical in all material respects to
the Outstanding Notes except for certain transfer restrictions and registration
rights relating to the Outstanding Notes and except that, if the Exchange Offer
is not consummated or a shelf registration statement is not declared effective
on or prior to April 6, 1998, the per annum interest rate of the Outstanding
Notes will increase by 0.5% per annum for the first 90 days following such date
and will increase by an additional 0.5% per annum beginning at each subsequent
90-day period until the Exchange Offer is consummated; provided, however, that
in no event will the interest rate borne by the Outstanding Notes be increased
by more than 1.5% per annum. The Exchange Notes are offered hereunder in order
to satisfy certain obligations of the Company under the Purchase Agreement dated
as of November 25, 1997 (the "Purchase Agreement") among the Company, the
existing Guarantors (as defined below) and the initial purchasers of the
Outstanding Notes (the "Initial Purchasers") and the Registration Rights
Agreement dated December 2, 1997 (the "Registration Rights Agreement") among the
Company, the existing Guarantors and the Initial Purchasers. The Exchange Notes
evidence the same debt as the Outstanding Notes and are issued under and are
entitled to the same benefits under the Indenture (as defined herein) as the
Outstanding Notes. In addition, the Exchange Notes and the Outstanding Notes are
treated as one series of securities under the Indenture.
The net proceeds from the offering of the Outstanding Notes, together with a
portion of the net proceeds of the financing described in the New Credit
Facilities (as defined herein), were used by the Company to fund the acquisition
(the "Acquisition") of all of the issued and outstanding common stock of Arbor
Health Care Company ("Arbor") by AHC Acquisition Corp., a wholly owned
subsidiary of the Company ("AHC Acquisition"). On October 3, 1997, Extendicare
Inc., the Company's indirect parent ("Extendicare"), and AHC Acquisition
commenced a tender offer (the "Tender Offer") for such stock. On November 25,
1997, over 99% of the issued and outstanding common stock of Arbor was tendered
pursuant to the Tender Offer. See "The Acquisition" and "Description of Other
Indebtedness -- New Credit Facilities." On November 26, 1997, the Company
effected a merger of AHC Acquisition with and into Arbor.
The Notes mature on December 15, 2007, unless previously redeemed. Interest
on the Notes is payable semiannually on June 15 and December 15, commencing June
15, 1998. The Notes are redeemable at the option of the Company, in whole or in
part, on or after December 15, 2002, at the redemption prices set forth herein,
plus accrued and unpaid interest thereon to the redemption date. In addition, at
any time on or prior to December 15, 2000, the Company may redeem up to 35% of
the sum of (i) the initial aggregate principal amount of the Notes and (ii) the
initial aggregate principal amount of any Additional Notes (as defined herein)
with the net proceeds of one or more Equity Offerings (as defined herein) at a
redemption price equal to 109.35% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of redemption; provided that at least
65% of the sum of (i) the initial aggregate principal amount of the Notes and
(ii) the initial aggregate principal amount of the Additional Notes remains
outstanding after such redemption. Upon a Change of Control (as defined herein),
the Company will be required to offer to repurchase all outstanding Notes at
101% of the principal amount thereof plus accrued and unpaid interest thereon,
if any, to the date of repurchase.
The Notes are unsecured senior subordinated obligations of the Company and
are subordinated in right of payment to all existing and future Senior
Indebtedness (as defined herein) of the Company, including indebtedness under
its New Credit Facilities (as defined). The Notes rank pari passu with all
existing and future senior subordinated indebtedness of the Company and rank
senior to all other existing and future subordinated indebtedness of the
Company. The Notes are fully and unconditionally guaranteed on an unsecured,
senior subordinated basis (the "Note Guarantees") by all existing and future
United States subsidiaries of the Company (collectively, the "Guarantors"). The
Notes are also effectively subordinated to all existing and future Senior
Indebtedness of the Guarantors. At September 30, 1997, on a pro forma basis
after giving effect to the Acquisition, the issuance of the Notes, the other
financing transactions described herein and the application of the net proceeds
therefrom, the aggregate amount of indebtedness (excluding intercompany
indebtedness) that would have effectively ranked senior to the Notes and the
Note Guarantees would have been approximately $521.7 million, and the Company
would have had additional availability of $108.2 million (net of letters of
credit) for borrowings under the New Credit Facilities, all of which would be
Senior Indebtedness, if borrowed.
(continued on following page)
SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE NOTES.
------------------
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 December , 1997.
<PAGE> 4
The Company is making the Exchange Offer in reliance on the position of the
staff of the Securities and Exchange Commission (the "Commission") as set forth
in certain no-action letters addressed to other parties in other transactions.
However, the Company has not sought its own no-action letter and there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer as in such other circumstances. Based upon
these interpretations by the staff of the Commission, the Company believes that
Exchange Notes issued pursuant to this Exchange Offer in exchange for
Outstanding Notes may be offered for resale, resold and otherwise transferred by
a holder thereof, other than (i) a broker-dealer who purchased such Outstanding
Notes directly from the Company for resale pursuant to Rule 144A or other
available exemptions under the Securities Act of 1933, as amended (the
"Securities Act") or (ii) a person that is an "affiliate" (as defined in Rule
405 of the Securities Act) of the Company without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holder's
business and that such holder is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of such
Exchange Notes. Holders of Outstanding Notes accepting the Exchange Offer for
the purpose of participating in a distribution of the Exchange Notes may not
rely on the position of the staff of the Commission as set forth in these
no-action letters and would have to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any secondary
resale transaction. A secondary resale transaction in the United States by a
holder who is using the Exchange Offer to participate in the distribution of
Exchange Notes must be covered by an effective registration statement containing
the selling securityholder information required by Item 507 of Regulation S-K
under the Securities Act.
Each broker-dealer (other than an "affiliate" of the Company) that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Outstanding Notes as a result of market-making
activities or other trading activities and will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Outstanding Notes where such Outstanding Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period (the "Exchange Offer
Registration Period") the longer of (A) the period until consummation of the
Exchange Offer and (B) two years after the effectiveness of the Registration
Statement (as defined herein) (unless, in the case of (B), all resales of
Exchange Notes covered by the Registration Statement have been made), the
Company will make this Prospectus, as amended or supplemented, available to any
such broker-dealer for use in connection with any such resale; provided,
however, that the Company shall not be required to maintain the effectiveness of
the Registration Statement for more than 60 days following the consummation of
the Exchange Offer unless the Company has been notified in writing on or prior
to the 60th day following the consummation of the Exchange Offer by one or more
broker-dealers that such holder has received Exchange Notes as to which it will
be required to deliver this Prospectus upon resale. See "Plan of Distribution".
Any broker-dealer who is an affiliate of the Company may not rely on such
no-action letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transactions. See "The Exchange Offer".
There is currently no market for the Exchange Notes. Although the Initial
Purchasers have informed the Company that they currently intend to make a market
in the Exchange Notes, they are not obligated to do so, and any such
market-making may be discontinued at any time without notice. Accordingly, there
can be no assurance as to the development or liquidity of any market for the
Exchange Notes. The Company does not intend to apply for listing of the Exchange
Notes on any securities exchange or for quotation through the National
Association of Securities Dealers Automated Quotation System ("NASDAQ").
Any Outstanding Notes not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the rights and preferences and
will be subject to the limitations applicable thereto under the Indenture.
Following consummation of the Exchange Offer, the holders of Outstanding Notes
will continue to be subject to the existing restrictions upon transfer thereof
and the Company will have no further obligation to such holders to provide for
the registration under the Securities Act of the Outstanding Notes held by them.
To the extent that Outstanding Notes are tendered and accepted in the Exchange
Offer, a
2
<PAGE> 5
holder's ability to sell untendered Outstanding Notes could be adversely
affected. It is not expected that an active market for the Outstanding Notes
will develop while they are subject to restrictions on transfer.
The Company will accept for exchange any and all Outstanding Notes that are
validly tendered and not withdrawn on or prior to 5:00 p.m., New York City time,
on the date the Exchange Offer expires, which will be , 1998 (the
"Expiration Date"), unless the Exchange Offer is extended by the Company, in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended. Tenders of Outstanding Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date, unless previously accepted for payment by the Company. The Exchange Offer
is not conditioned upon any minimum principal amount of Outstanding Notes being
tendered for exchange. However, the Exchange Offer is subject to certain
conditions which may be waived by the Company and to the terms and provisions of
the Registration Rights Agreement. The Exchange Notes will bear interest from
the last interest payment date of the Outstanding Notes to occur prior to the
issue date of the Exchange Notes or, if no such interest has been paid, from
December 2, 1997. Holders of the Outstanding Notes whose Outstanding Notes are
accepted for exchange will not receive interest on such Outstanding Notes for
any period subsequent to the last interest payment date to occur prior to the
issue date of the Exchange Notes or, if no such interest has been paid, from
December 2, 1997, and will be deemed to have waived the right to receive any
interest payment on the Outstanding Notes accrued from and after such date.
AVAILABLE INFORMATION
The Company will be subject to certain of the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, will file reports and other information with the
Commission. Such reports and other information filed by the Company can be
inspected and copied at public reference facilities maintained by the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices for the Commission: New York Regional Office, Seven
World Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional
Office, Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60611. Copies of such material can be obtained from the Commission at prescribed
rates through its Public Reference Section at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Indenture (as defined herein) provides
that whether or not the Company is subject to the reporting requirements of the
Exchange Act, the Company will furnish without cost to each holder of Notes and
file with the Commission and the Trustee copies of the annual reports, quarterly
reports and other documents which the Company would have been required to file
with the Commission pursuant to Section 13(a) and 15(d) of the Exchange Act or
any successor provision thereto if the Company were so required.
This Prospectus constitutes a part of a registration statement of Form S-4
(together with all amendments thereto, the "Registration Statement") filed by
the Company and the Guarantors with the Commission under the Securities Act.
This Prospectus, which forms a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the Commission. Separate financial statements of the Guarantors are not included
because (a) the Guarantors are wholly-owned and constitute all of the Company's
direct and indirect subsidiaries (other than inconsequential subsidiaries), (b)
the Guarantors have fully and unconditionally guaranteed the Exchange Notes on a
joint and several basis, (c) the Company has no operations separate from its
direct and indirect investments in the respective Guarantors, (d) the aggregate
assets, liabilities, earnings, and equity of the Guarantors are substantially
equivalent to the assets, liabilities, earnings, and equity of the Company on a
consolidated basis and (e) management of the Company has determined that the
separate financial statements and other disclosures concerning the Guarantors
are not material to investors. Reference is hereby made to the Registration
Statement and related exhibits and schedules filed therewith for further
information with respect to the Company and the Guarantors and the Exchange
Notes offered hereby. Statements contained herein concerning the provisions of
any document are not necessarily complete and, in each instance, reference is
made to the copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference.
------------------
3
<PAGE> 6
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed under the captions "Summary," "Risk
Factors," "Unaudited Pro Forma Condensed Consolidated Financial Information,"
"Management's Discussion and Analysis," "Business" and elsewhere in this
Prospectus contain certain forward-looking statements concerning the Company's
operations, economic performance and financial condition, including, among other
things, the Company's business strategy. These statements are based on the
Company's expectations and are subject to various risks and uncertainties.
Actual results could differ materially from those anticipated due to a number of
factors, including those identified under "Risk Factors" and elsewhere in this
Prospectus.
4
<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless the context indicates otherwise, the terms "Company" or "EHSI" refers to
Extendicare Health Services, Inc. and its subsidiaries. The issuance of the
Outstanding Notes and the consummation of the transactions contemplated in the
New Credit Facilities are hereinafter sometimes collectively referred to as the
"Financing Transactions." References herein to the "last twelve months" refers
to the last twelve months ended September 30, 1997. All figures are in thousands
of dollars as they relate to financial information, unless otherwise noted.
THE COMPANY
The Company is one of the largest providers of long-term care and related
medical specialty services in the United States. Through its geographically
clustered facilities, the Company offers a continuum of healthcare services,
including skilled nursing care, assisted living care and related medical
specialty services, such as subacute care and rehabilitative therapy,
institutional pharmacy supplies and services and medical equipment, supplies and
services. On September 30, 1997, the Company announced an agreement to acquire
Arbor Health Care Company, a prominent regionally based provider of long-term
care and related medical specialty services focused on providing subacute
medical services. The Acquisition enhances and complements the Company's
presence in the Ohio and Florida markets and solidifies the Company's position,
on a combined basis, as one of the top ten operators of long-term care
facilities in the United States, with 194 skilled nursing facilities (20,985
beds) and 38 assisted living and retirement facilities (1,480 units) located in
15 states. On a pro forma combined basis at September 30, 1997, the Company
would have owned approximately 85% of its facilities, enhancing its credit
quality and financial flexibility. In addition, on a pro forma combined basis
for the last twelve months, the Company would have generated revenues and
earnings before interest, taxes, depreciation and amortization ("EBITDA") of
$1.1 billion and $158.5 million, respectively, with occupancy rates averaging
approximately 88% and a strong quality mix (defined as non-Medicaid revenue) of
approximately 63%.
EHSI OVERVIEW
The Company provides high quality long-term care and related medical
specialty services through a total of 201 long-term care facilities with a total
resident capacity of 18,769 in 13 states as of September 30, 1997. The Company
has been able to achieve strong occupancy rates, a favorable payor mix and
sustained growth in total and same facility revenues throughout its network of
long-term care facilities. The Company had an average occupancy rate of
approximately 88% in its nursing facilities and in its assisted living and
retirement facilities for the nine months ended September 30, 1997. In addition,
the Company has improved its quality mix from 53% in 1992 to 64% for the nine
months ended September 30, 1997, primarily as the result of successful efforts
to shift its patient mix to higher acuity patients requiring subacute care
services. Payment coverage for such services is provided principally by the
Medicare program. In addition, since 1992, the Company has increased its
resident capacity by 12.6%. As a result of these factors, the Company has
experienced increased revenues and EBITDA, with compound annual growth rates of
11.4% and 16.3%, respectively, from 1992 to 1996. For the last twelve months,
the Company generated revenues and EBITDA of $873.7 million and $116.1 million,
respectively.
The Company's long-term care services include skilled nursing care,
assisted living care and related support services traditionally provided in
long-term care facilities. The Company's medical specialty services provide (i)
subacute care and rehabilitative therapy, (ii) pharmacy supplies and services,
and (iii) medical equipment, supplies and services to all its long-term care
facilities, as well as to non-affiliated long-term care facilities.
Long-term Care Services. The Company's nursing facilities provide a broad
range of geriatric, subacute care and rehabilitative therapy services,
including skilled nursing care and ancillary services, to persons who do
not require the more extensive and specialized services and supervision
provided by a hospital. The nursing facilities employ registered nurses,
licensed practical nurses, therapists, certified nursing
5
<PAGE> 8
assistants and qualified healthcare aides who provide care as prescribed by
each resident's attending physician in addition to a full range of personal
support. All nursing facilities provide daily dietary services, social
services and recreational activities, as well as basic services such as
housekeeping and laundry. The Company's assisted living facilities provide
homelike accommodations, meals and assistance in the activities of daily
living to seniors who do not require the level of nursing care provided by
a nursing facility. An assisted living facility enhances the value of an
existing nursing facility where the two facilities operate side by side,
and allows the Company to better serve the communities in which it operates
by providing a broader continuum of service. All of the Company's assisted
living facilities are within close proximity to its nursing facilities. At
September 30, 1997, the Company operated a total of 163 skilled nursing
facilities with 17,289 licensed beds in 13 states and 38 assisted living
and retirement facilities with 1,480 units in 10 states.
Medical Specialty Services. The Company also provides, through its network
of 27 regional service centers that comprise the UPC Health Network,
patient-centered, outcome-oriented subacute care and rehabilitative therapy
services to residents in its long-term care facilities and to other
non-affiliated facilities. The patients receiving such services are
generally those who are medically stable yet require specialized therapy
and other services that are more intensive than traditional nursing
facility care but less than acute hospital care. These services may include
wound care and respiratory, infusion and intravenous therapies. The Company
provides rehabilitative therapy services on an inpatient and outpatient
basis to clients who require, for example, physical or occupational
therapy, or speech-language pathology. The Company's subacute and
rehabilitation teams seek to return each patient to maximum functional
independence, with many patients typically being discharged within 30 to 90
days. The UPC Health Network also provides pharmacy supplies and services
to more than 30,000 beds (16,000 of which are not affiliated with the
Company) in nursing facilities, assisted living facilities and other
healthcare institutions through 11 locations in eight states. These
supplies and services include unit-dose medication distribution,
computerized patient documentation, full-service consultants and on-call
service. In addition, the UPC Health Network's retail and home health
operations distribute durable medical equipment and supplies, such as
wheelchairs, hospital beds, oxygen and diabetic supplies, and provide a
wide range of services such as intravenous therapy products and
respiratory, oxygen and enteral therapies.
ARBOR OVERVIEW
Arbor provides subacute medical services and traditional long-term care
services through its network of 31 licensed nursing centers (the "Arbor
Centers") and 3,696 beds as of September 30, 1997. The Arbor Centers are located
in five states, with approximately 89% of its bed capacity located in Florida
and Ohio. At September 30, 1997, Arbor had three facilities under construction,
totaling 276 beds, that are scheduled to open over the next 12 months. In
addition, at such date, Arbor held three certificate of need ("CON") approvals
for 275 beds in Florida, along with two additional CON approvals for 240 beds
that have been appealed by other providers and therefore are not yet final.
The Arbor Centers are designed to provide subacute and basic health care
services to diverse but related types of patients. Arbor Centers are generally
located in markets that require both services, with some Arbor Centers
allocating up to 50% of total bed capacity to subacute care. Arbor also operates
four institutional pharmacies which have experienced significant growth in the
last three years.
Subacute Services. Arbor's subacute units provide treatment programs
appropriate for medically stable patients who may require medical
rehabilitation, ventilator weaning and respiratory therapy, and complex
medical services such as cardiac recovery, infusion therapy, and wound
care. Such units concentrate on medically complex patients with high acuity
medical needs requiring greater skills and services than those associated
with the more general subacute population. Arbor's principal focus is on
developing higher revenue and higher margin specialized subacute units,
targeting predominantly commercial insurance and managed care organizations
(health maintenance organizations ("HMOs"), preferred provider
organizations ("PPOs") and indemnity insurers), which currently are the
most profitable payor sources. As of September 30, 1997, Arbor operated 30
subacute units, totaling 1,209 beds, within its 31 Arbor Centers.
6
<PAGE> 9
Basic Health Care Services. Arbor's basic health care services primarily
consist of general and restorative ("G&R") nursing care to patients with
chronic illnesses, diminished physical function, impaired cognition or
behavioral problems. Arbor's G&R nursing units also provide a step-down in
medical intensity for geriatric subacute patients who cannot be discharged
to their homes and need lower intensity nursing for extended periods of
time. Similarly, geriatric patients in G&R units who develop a need for
rehabilitative or higher intensity services can be transferred to a
subacute unit within the same Arbor Center. Arbor also operates assisted
living units in five of its Arbor Centers.
Other Services. Arbor's pharmacy division consists of four institutional
pharmacies and related services. The pharmacy division services
approximately 26,000 beds (22,500 of which are not affiliated with Arbor)
in three states. As of January 1, 1997, Arbor began providing outpatient
rehabilitation services with the acquisition of 10 outpatient
rehabilitation facilities in Pennsylvania and Florida and has subsequently
opened two additional outpatient rehabilitation facilities. These are
specialized facilities organized to deliver comprehensive, case managed,
interdisciplinary rehabilitation services under physician directive,
including physical therapy, occupational therapy, speech therapy,
psychological services and social work. Utilizing the same clinical models
that are currently used in Arbor's inpatient subacute units, the Company
believes these facilities will provide the cost advantages that allow Arbor
to offer low-cost rehabilitation services to managed care organizations.
Arbor provides subacute care in its primary Ohio and Florida markets
through a strategy of utilizing its skilled nursing facilities as a platform for
providing care to high acuity patients at low costs. At September 30, 1997,
approximately 62% of Arbor's revenue was generated from subacute care (including
pharmacy). Since 1992, Arbor has increased its occupancy from 88% to 91% for the
nine months ended September 30, 1997. Furthermore, Arbor has been effective at
increasing its quality mix from 62% in 1992 to 68% for the nine months ended
September 30, 1997 as a result of a high Medicare component, reflecting its
presence in subacute care. Arbor's focus on quality mix and high occupancy
levels has resulted in compound annual growth rates of 19.8% and 25.3% of
revenues and EBITDA, respectively, from 1992 to 1996. For the last twelve
months, Arbor generated revenues and EBITDA of $238.9 million and $38.2 million,
respectively.
INDUSTRY OVERVIEW
According to industry sources, long-term care spending was estimated at
approximately $120 billion in 1996, or approximately 11% of total national
health expenditures, with nursing facilities accounting for $84 billion of this
total. Approximately 1.7 million people reside in nursing facilities, while
another 5.7 million elderly persons require care and services in their homes or
in community-based settings. It is estimated that the number of elderly persons
requiring long-term care services will grow from approximately 7.3 million in
1995 to over 9 million in the year 2005. Of these totals, one-third or more are
expected to be comprised of nursing facility residents while the others are
expected to receive care in home or community-based settings. As home healthcare
and subacute care services become more accepted and demographics shift toward an
aging population with increased long-term care needs, it is estimated that
long-term care expenditures (defined as nursing facility expenditures plus home
care expenditures) will grow to $250 billion by the year 2005, representing 14%
of total national health expenditures.
The long-term care and post-acute care industries include rehabilitation
hospitals and facilities, skilled nursing facilities, assisted living
facilities, intermediate care facilities, and home health services. Each of
these segments has experienced rapid growth in the last ten years. The number of
rehabilitation hospitals has grown 149% since 1986, while rehabilitation units
within acute care hospitals have grown 71% since 1986. While the number of
freestanding nursing facilities has remained flat over the last ten years
(17,100 in 1986 vs. 17,400 in 1996), hospital-based skilled nursing facilities
have increased from 1,145 in 1990 to 2,088 in 1996 (an 80% increase). Home
health agencies have grown even more rapidly over the last five years. Between
1990 and 1995 the number of home health agencies grew 60% from 11,765 to 18,874.
In addition to an aging population, the long-term care industry is changing
as a result of several fundamental factors. First, the acquisition and
construction of additional skilled nursing facilities are subject to certain
restrictions on supply, including government-legislated moratoriums on new
capacity and licensing
7
<PAGE> 10
restrictions limiting the growth of services. Such restrictions on supply,
coupled with an aging population, are causing a decline in the availability of
long-term beds per person aged 85 years or older. Second, in response to rising
healthcare costs, governmental and private pay sources have adopted cost
containment measures that encourage reduced length of stays in acute care
hospitals. As a result, average acute care hospital stays have been shortened,
and many patients are discharged despite a continuing need for nursing or
specialty healthcare services. This trend has increased demand for long-term
care, home healthcare, outpatient facilities, hospices and assisted living
facilities. In addition, long-term care companies with an integrated network and
a broad range of services will be well positioned to contract with managed care
companies and other payors. Lastly, as a result of the growing number of
two-income families, many people are not able to care for elderly parents in
their homes. Two-income families are, however, better able to provide financial
support for elderly parents to receive the care they need in a nursing or
assisted living facility.
BUSINESS STRATEGY
The Company has experienced significant growth in revenues and EBITDA since
1992. The Company seeks to continue this growth through a strategy based on its
ongoing commitment to the provision of high-quality healthcare services while
positioning itself to take advantage of the changing healthcare environment. The
Company seeks to implement its strategy by: (i) selectively building and
acquiring skilled nursing facilities in markets with attractive regulatory,
reimbursement and demographic environments while maintaining the geographical
clustering of its facilities, (ii) developing assisted living and retirement
facilities on sites adjacent or in close proximity to its nursing facilities,
(iii) continually improving its quality mix by increasing its subacute care,
rehabilitative therapy and assisted living services, (iv) expanding the UPC
Health Network, (v) maintaining its focus on smaller urban communities and (vi)
continuing to emphasize ownership of assets.
THE ARBOR ACQUISITION
Consistent with the Company's strategy, the Company acquired Arbor for an
aggregate purchase price of $429 million, including the repayment of
approximately $109 million of Arbor's debt. The Acquisition solidifies the
Company's position as one of the top ten operators of long-term care facilities
in the United States and enhances and complements the Company's presence in
Florida and Ohio. In addition, the Acquisition provides the Company with eight
approved CONs for 791 new beds, 80 of which are in Ohio (which currently has a
moratorium on new CONs). The Company estimates that 431 of the 791 beds will be
constructed in 1998, representing four new facilities and one facility addition.
Two of the approved CONs for an aggregate of 240 new beds have been appealed by
other providers and therefore are not yet final. The Company intends to build
such additional facilities upon resolution of such appeals in the Company's
favor. The Acquisition will also provide the Company and Arbor with increased
access to managed care contracts, cross selling opportunities for their pharmacy
businesses and an extension of their group purchasing services. Furthermore,
given Arbor's size and the geographic overlap with the Company, annual cost
savings are anticipated to be achieved in staff related areas, corporate general
and administrative functions and pharmacy
overhead.
8
<PAGE> 11
The following table illustrates the sources and uses of funds for the
Acquisition, as of September 30, 1997, on a pro forma basis, assuming the
Acquisition and the Financing Transactions had occurred on such date (dollars in
thousands).
<TABLE>
<S> <C>
Sources of Funds
New Credit Facilities
Revolving Credit Facility(1)........................................ $ 59,830
Tranche A Term Loan Facility due 2003............................... 200,000
Tranche B Term Loan Facility due 2004............................... 200,000
Senior Subordinated Notes due 2007(2).................................. 200,000
Equity from Extendicare................................................ 44,600
--------
Total Sources....................................................... $ 704,430
========
Uses of Funds
Purchase price(3)...................................................... $ 320,400
Refinancing of existing debt(4)........................................ 359,030
Estimated transaction fees and expenses................................ 25,000
--------
Total Uses.......................................................... $ 704,430
========
</TABLE>
- ---------------
(1) The Revolving Credit Facility has a total availability of $200,000, leaving
unused borrowing capacity thereunder of approximately $108,170 (net of
letters of credit in the amount of $32,000).
(2) The net proceeds from the sale of the Outstanding Notes were used to repay
the Tranche C Loan Facility under the New Credit Facilities, which was used
to finance the Tender Offer.
(3) Includes the cost of 7,266,218 shares of Arbor stock at $45 per share, net
of approximately $6,500 of proceeds related to the exercise of Arbor stock
options.
(4) Includes refinancing of approximately $243,970 of the Company's indebtedness
and $108,660 of Arbor's indebtedness, and approximately $6,400 of debt
prepayment penalties, net of tax.
The Company is an indirect wholly owned subsidiary of Extendicare Inc.
("Extendicare"), which is based in Toronto, Canada. Extendicare is the sixth
largest (by total number of beds) operator of long-term care facilities and
hospitals in North America (United States and Canada), with resident capacity as
of September 30, 1997 of 28,411 in 281 facilities. All of Extendicare's U.S.
healthcare operations are conducted through the Company, which accounted for
approximately 76% of Extendicare's total revenues and 80% of total EBITDA in
fiscal 1996. In addition to operations in the United States, Extendicare
operates 60 nursing and retirement facilities and four hospitals in Canada and
15 nursing facilities and one hospital in the United Kingdom. Extendicare's
subordinate voting shares are listed for trading on The Toronto Stock Exchange,
the Montreal Exchange and the New York Stock Exchange. As of November 24, 1997,
Extendicare had a market capitalization of approximately $1.0 billion.
The Company is located at 105 West Michigan Street, Milwaukee, Wisconsin
53203. The Company's telephone number is (414) 271-9696.
9
<PAGE> 12
THE EXCHANGE OFFER
Securities Offered......... Up to $200,000,000 principal amount of 9.35% Senior
Subordinated Notes Due 2007, which have been
registered under the Securities Act. The terms of
the Exchange Notes are identical in all material
respects to the Outstanding Notes except for
certain transfer restrictions and registration
rights relating to the Outstanding Notes and except
that, if the Exchange Offer is not consummated or a
shelf registration statement is not declared
effective on or prior to April 6, 1998, the per
annum interest rate of the Outstanding Notes will
increase by 0.5% per annum for the first 90 days
following such date and will increase by an
additional 0.5% per annum beginning at each
subsequent 90-day period until the Exchange Offer
is consummated; provided, however, that in no event
will the interest rate borne by the Outstanding
Notes be increased by more than 1.5% per annum.
The Exchange Offer......... The Exchange Notes are being offered in exchange
for a like principal amount of Outstanding Notes.
The issuance of the Exchange Notes is intended to
satisfy obligations of the Company contained in the
Registration Rights Agreement. The Exchange Notes
evidence the same debt as the Outstanding Notes and
will be issued, and holders thereof are entitled to
the same benefits as holders of the Outstanding
Notes, under the Indenture (as defined herein).
Tenders, Expiration Date;
Withdrawal............... 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. Tenders of
Outstanding Notes may be withdrawn at any time
prior to the Expiration Date. Any Outstanding Notes
not accepted for exchange for any reason will be
returned without expense to the tendering holder
thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
See "The Exchange Offer" for a description of the
procedures for tendering the Outstanding Notes.
Federal Income Tax
Consequences............. The exchange pursuant to the Exchange Offer should
not result in income, gain or loss to the holders
of Notes who participate in the Exchange Offer or
to the Company for U.S. federal income tax
purposes. See "Certain Income Tax Considerations".
Use of Proceeds............ There will be no proceeds to the Company from the
exchange pursuant to the Exchange Offer.
Exchange Agent............. The Bank of Nova Scotia Trust Company of New York
is serving as Exchange Agent (the "Exchange Agent")
pursuant to the Exchange Offer.
10
<PAGE> 13
CONSEQUENCES OF EXCHANGING OUTSTANDING NOTES PURSUANT TO THE EXCHANGE OFFER
The Company is making the Exchange Offer in reliance on the position of the
staff of the Securities and Exchange Commission (the "Commission") as set forth
in certain no-action letters addressed to other parties in other transactions.
However, the Company has not sought its own no-action letter and there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer as in such other circumstances. Based upon
these interpretations by the staff of the Commission, the Company believes that
Exchange Notes issued pursuant to this Exchange Offer in exchange for
Outstanding Notes may be offered for resale, resold and otherwise transferred by
a holder thereof, other than (i) a broker-dealer who purchased such Outstanding
Notes directly from the Company for resale pursuant to Rule 144A or other
available exemptions under the Securities Act or (ii) a person that is an
"affiliate" (as defined in Rule 405 of the Securities Act) of the Company
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of such Exchange Notes. Holders of Outstanding
Notes accepting the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes may not rely on the position of the staff of
the Commission as set forth in these no-action letters and would have to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any secondary resale transaction. A secondary resale
transaction in the United States by a holder who is using the Exchange Offer to
participate in the distribution of Exchange Notes must be covered by an
effective registration statement containing the selling securityholder
information required by Item 507 of Regulation S-K under the Securities Act.
Each broker-dealer (other than an "affiliate" of the Company) that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Outstanding Notes as a result of market-making
activities or other trading activities and will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Outstanding Notes where such Outstanding
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for the
Exchange Offer Registration Period, the Company will make this Prospectus, as
amended or supplemented, available to any such broker-dealer for use in
connection with any such resale; provided, however, that the Company shall not
be required to maintain the effectiveness of the Registration Statement for more
than 60 days following the consummation of the Exchange Offer unless the Company
has been notified in writing on or prior to the 60th day following the
consummation of the Exchange Offer by one or more broker-dealers that such
holder has received Exchange Notes as to which it will be required to deliver
this Prospectus upon resale. See "Plan of Distribution". Any broker-dealer who
is an affiliate of the Company may not rely on such no-action letters and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale transactions. See "The
Exchange Offer".
11
<PAGE> 14
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
The terms of the Exchange Notes are identical in all material respects to
the Outstanding Notes except for certain transfer restrictions and registration
rights relating to the Outstanding Notes and except that, if the Exchange Offer
is not consummated or a shelf registration statement is not declared effective
on or prior to April 6, 1998, the per annum interest rate of the Outstanding
Notes will increase by 0.5% per annum for the first 90 days following such date
and will increase by an additional 0.5% per annum beginning at each subsequent
90-day period until the Exchange Offer is consummated; provided, however, that
in no event will the interest rate borne by the Outstanding Notes be increased
by more than 1.5% per annum. The Exchange Notes will bear interest from the last
interest payment date of the Outstanding Notes to occur prior to the issue date
of the Exchange Notes or, if no such interest has been paid, from December 2,
1997. Holders of the Outstanding Notes whose Outstanding Notes are accepted for
exchange will not receive interest on such Outstanding Notes for any period
subsequent to the last interest payment date to occur prior to the issue date of
the Exchange Notes or, if no such interest has been paid, from December 2, 1997,
and will be deemed to have waived the right to receive any interest payment on
the Outstanding Notes accrued from and after such date.
Issuer..................... Extendicare Health Services, Inc.
Securities Offered......... $200,000,000 aggregate principal amount of 9.35%
Senior Subordinated Notes Due 2007.
Maturity Date.............. December 15, 2007.
Interest Payment Dates..... June 15 and December 15, commencing June 15, 1998.
Note Guarantees............ The Notes are unconditionally guaranteed on a
senior subordinated basis by each of the existing
and future U.S. subsidiaries of the Company
(including Arbor and its U.S. subsidiaries but
excluding inactive subsidiaries as of the closing
date of the offering of the Outstanding Notes).
Each of the Note Guarantees (as defined herein) is
a guarantee of payment and not of collection. See
"Description of the Notes -- Notes Guarantees."
Subordination.............. The Notes are general unsecured obligations of the
Company, subordinated in right of payment to all
existing and future Senior Indebtedness of the
Company, which include borrowings under the New
Credit Facilities. The Notes are also effectively
subordinated to all existing and future Senior
Indebtedness of the Guarantors. At September 30,
1997, on a pro forma basis after giving effect to
the Acquisition, the Financing Transactions and the
application of the net proceeds therefrom, the
aggregate amount of indebtedness (excluding
intercompany indebtedness) that would have
effectively ranked senior to the Notes and the Note
Guarantees would have been approximately $521.7
million, and the Company would have had additional
availability of $108.2 million (net of letters of
credit of $32 million) under the New Credit
Facilities, all of which would be Senior
Indebtedness, if borrowed. The Note Guarantees are
subordinated in right of payment to all existing
and future Senior Indebtedness of the relevant
Guarantor. See "Description of the Notes --
Subordination;" and "Description of the Notes --
Subordination of Note Guarantees; Release of Note
Guarantees."
Optional Redemption........ On or after December 15, 2002, the Company may
redeem the Notes, in whole or in part, at the
redemption prices set forth herein, plus accrued
and unpaid interest, if any, to the date of
redemption. Notwithstanding the foregoing, at any
time or from time to time prior to December 15,
2000, the Company may redeem, on one or more
occasions, up to 35% of
12
<PAGE> 15
the sum of (i) the initial aggregate principal
amount of the Notes and (ii) the initial aggregate
principal amount of any Additional Notes with the
net proceeds of one or more Equity Offerings at a
redemption price equal to 109.35% of the principal
amount thereof, plus accrued interest, if any, to
the redemption date (subject to the right of
holders of record on the relevant record date to
receive interest due on an interest payment date);
provided that, immediately after giving effect to
such redemption, at least 65% of the sum of (i) the
initial aggregate principal amount of the Notes and
(ii) the initial aggregate principal amount of any
Additional Notes remain outstanding; provided
further that such redemptions shall occur within 60
days of the date of closing of each Equity
Offering. See "Description of the Notes -- Optional
Redemption."
Mandatory Redemption....... None, except at maturity on December 15, 2007.
Change of Control.......... Upon a Change of Control (as defined herein), the
Company will be required to make an offer to
repurchase all outstanding Notes at 101% of the
principal amount thereof plus accrued and unpaid
interest thereon to the date of repurchase. See
"Description of the Notes -- Repurchase at Option
of Holders -- Change of Control."
Covenants.................. The indenture pursuant to which the Notes are
issued (the "Indenture") restricts, among other
things, the Company's ability to incur additional
indebtedness, pay dividends or make certain other
restricted payments, incur liens to secure pari
passu or subordinated indebtedness, sell stock of
subsidiaries, apply net proceeds from certain asset
sales, merge or consolidate with any other person,
sell, assign, transfer, lease, convey or otherwise
dispose of substantially all of the assets of the
Company, enter into certain transactions with
affiliates, or incur indebtedness that is
subordinate in right of payment to any Senior
Indebtedness and senior in right of payment to the
Notes. See "Description of the Notes -- Certain
Covenants."
Use of Proceeds............ The Company will not receive any proceeds from the
Exchange Offer.
RISK FACTORS
For a discussion of certain matters that should be considered by
prospective investors in connection with this offering, see "Risk Factors."
13
<PAGE> 16
SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following presents summary unaudited pro forma condensed consolidated
financial information of the Company and Arbor for the last twelve months ended
September 30, 1997, the nine months ended September 30, 1997 and the year ended
December 31, 1996. The pro forma statements of operations give effect to the
Acquisition, the Financing Transactions and the acquisition of the assets of
Medi-Management, Inc. ("Medi-Management") as if each such transaction had
occurred at the beginning of each such period, respectively. The pro forma
balance sheet information was prepared as if the Acquisition and the Financing
Transactions had occurred on September 30, 1997. For further information
regarding the acquisition of the assets of Medi-Management, see "Management's
Discussion and Analysis -- The Company -- Acquisitions."
The summary unaudited pro forma condensed consolidated financial
information does not necessarily reflect the results of operations or the
financial positions of the Company and Arbor that actually would have resulted
had the Acquisition, the Financing Transactions and the acquisition of the
assets of Medi-Management been consummated as of the dates referred to above.
Accordingly, such information should not be viewed as fully representative of
the past performance of the Company or Arbor or indicative of future results.
The summary unaudited pro forma condensed consolidated financial information
should be read together with the Unaudited Pro Forma Condensed Consolidated
Financial Information, the EHSI Consolidated Financial Statements, the EHSI
Unaudited Interim Consolidated Financial Statements, the Arbor Consolidated
Financial Statements and the Arbor Unaudited Interim Consolidated Financial
Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
LAST TWELVE NINE MONTHS YEAR
MONTHS ENDED ENDED ENDED
SEPTEMBER SEPTEMBER 30, DECEMBER 31,
30, 1997 1997 1996
------------ ------------- ------------
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
<S> <C> <C> <C>
PRO FORMA INCOME STATEMENT DATA:
Revenues........................................... $1,135,564 $ 854,715 $1,066,110
Costs and expenses:
Operating........................................ 916,122 692,560 867,100
General and administrative....................... 47,309 35,729 42,942
Lease costs...................................... 13,677 10,434 13,223
Depreciation and amortization.................... 52,300 39,239 48,477
Interest, net.................................... 54,036 40,375 54,496
Other, net....................................... 258 132 494
---------- ----------- ----------
1,083,702 818,469 1,026,732
---------- ----------- ----------
Earnings from operations........................... 51,862 36,246 39,378
Earnings before minority interests and
extraordinary items.............................. $ 29,521 $ 20,680 $ 20,990
Net earnings before extraordinary items............ $ 28,657 $ 20,019 $ 20,554
Earnings per share before extraordinary items...... $ 30 $ 21 $ 22
Weighted average shares outstanding................ 947 947 947
PRO FORMA BALANCE SHEET DATA (AT PERIOD END):
Working capital.................................... $ 90,483
Total assets....................................... 1,219,666
Long-term debt..................................... 677,541
Shareholder's equity............................... 270,204
PRO FORMA OTHER DATA:
Property and equipment capital expenditures........ $ 77,052 $ 55,321 $ 77,044
Ratio of earnings to fixed charges(1).............. 1.8x 1.8x 1.6x
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
LAST TWELVE NINE MONTHS YEAR
MONTHS ENDED ENDED ENDED
SEPTEMBER SEPTEMBER 30, DECEMBER 31,
30, 1997 1997 1996
------------ ------------- ------------
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
<S> <C> <C> <C>
Operating Data:
Number of facilities (end of period)(2)
Nursing.......................................... 194 194 190
Assisted living and retirement................... 38 38 31
Resident capacity (end of period)(2)
Nursing (beds)................................... 20,985 20,985 20,764
Assisted living and retirement (units)........... 1,480 1,480 1,140
Average occupancy rate
Nursing.......................................... 89% 89% 89%
Assisted living and retirement(3)................ 87 87 86
Payor source as percentage of total revenue
Private pay...................................... 33% 33% 32%
Medicare......................................... 30 31 30
Medicaid......................................... 37 36 38
</TABLE>
- ---------------
(1) The ratio of earnings to fixed charges is calculated by dividing earnings
from operations before income taxes plus fixed charges (excluding
capitalized interest) by fixed charges (including capitalized interest).
Fixed charges consist of interest expense, including amortization of
deferred financing costs, and that portion of rental expense deemed to be
representative of the interest component of rental expense.
(2) Includes managed facilities.
(3) Reflects occupancy rate for assisted living and retirement facilities
following one year of operation as a Company facility.
15
<PAGE> 18
SUMMARY HISTORICAL FINANCIAL DATA
Set forth below and on the next three pages are summary historical
financial data for the Company and Arbor.
THE COMPANY -- HISTORICAL
The following table presents summary historical data of the Company as of
and for the years ended December 31, 1996, 1995, 1994, 1993 and 1992 and the
nine months ended September 30, 1997 and 1996. The financial information
presented for the fiscal years ended December 31, 1996, 1995, 1994, 1993 and
1992 has been derived from the consolidated financial statements of the Company
as audited by KPMG Peat Marwick LLP, independent certified public accountants
(together with the notes thereto and the accountants' report thereon, the "EHSI
Consolidated Financial Statements"). The financial information presented for the
nine months ended September 30, 1997 and 1996, has been derived from the
unaudited interim consolidated financial statements of the Company (together
with the notes thereto, the "EHSI Unaudited Interim Consolidated Financial
Statements") and, in the opinion of management of the Company, reflects a fair
presentation of the Company's financial information. The following information
should be read in conjunction with the EHSI Consolidated Financial Statements,
the EHSI Unaudited Interim Consolidated Financial Statements and "Management's
Discussion and Analysis -- The Company" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1997(1) 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Routine care and assisted living..... $413,633 $395,333 $526,486 $498,140 $470,310 $436,663 $417,048
Medical specialty.................... 243,001 213,928 290,515 242,339 188,419 154,543 112,155
Other................................ 6,799 4,844 7,346 6,649 6,265 6,065 5,566
-------- -------- -------- -------- -------- -------- --------
663,433 614,105 824,347 747,128 664,994 597,271 534,769
Costs and expenses:
Operating............................ 543,234 508,815 677,159 626,405 559,744 507,088 446,323
General and administrative........... 27,648 24,239 33,262 28,672 24,944 23,004 22,446
Lease costs.......................... 7,132 6,560 8,756 9,005 8,920 8,705 8,486
Depreciation and amortization........ 24,538 21,979 29,703 25,872 23,092 21,378 19,686
Interest, net........................ 13,633 14,011 18,477 14,776 13,083 12,094 12,703
-------- -------- -------- -------- -------- -------- --------
616,185 575,604 767,357 704,730 629,783 572,269 509,644
-------- -------- -------- -------- -------- -------- --------
Earnings from operations............... 47,248 38,501 56,990 42,398 35,211 25,002 25,125
Net earnings........................... $ 28,630 $ 22,859 $ 34,008 $ 25,521 $ 21,709 $ 22,306 $ 20,117
Earnings per share..................... $ 30 $ 24 $ 36 $ 27 $ 23 $ 24 $ 21
Dividends per share (dollars).......... -- -- -- -- $ 10.56 -- --
Weighted average shares outstanding.... 947 947 947 947 947 947 947
BALANCE SHEET DATA (AT PERIOD END):
Working capital........................ $ 60,764 $ 60,492 $ 38,555 $ 23,858 $ 30,033 $ 8,435
Total assets........................... 683,473 591,851 525,634 444,664 394,600 374,638
Long-term debt......................... 256,397 222,954 196,769 166,808 153,184 153,135
Shareholder's equity................... 233,834 201,521 167,513 141,992 130,283 117,586
OTHER DATA:
Ratio of earnings to fixed
charges(2)........................... 3.6x 3.2x 3.5x 3.1x 3.0x 2.4x 2.4x
Property and equipment capital
expenditures......................... $ 41,311 $ 36,896 $ 53,581 $ 56,469 $ 35,271 $ 18,779 $ 20,832
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1997(1) 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Number of facilities (end of period)(3)
Nursing.............................. 163 157 155 152 150 144 146
Assisted living and retirement....... 38 31 31 22 16 13 9
Resident capacity (end of period)(3)
Nursing (beds)....................... 17,289 17,120 16,644 16,551 16,425 15,833 16,195
Assisted living and retirement
(units)............................ 1,480 1,140 1,140 874 708 562 473
Average occupancy rate
Nursing.............................. 88% 89% 89% 89% 91% 93% 93%
Assisted living and retirement(4).... 87 88 86 88 89 90 89
Payor source as a percentage of total
revenue
Private pay.......................... 33% 32% 32% 33% 35% 36% 37%
Medicare............................. 31 30 30 26 22 19 16
Medicaid............................. 36 38 38 41 43 45 47
</TABLE>
- ---------------
(1) Includes the acquisition of the assets of Medi-Management on May 31, 1997
for approximately $24,000 and assumed debt of approximately $9,200. See
"Management's Discussion and Analysis -- The Company -- Acquisitions."
(2) The ratio of earnings to fixed charges is calculated by dividing earnings
from operations before income taxes plus fixed charges (excluding
capitalized interest) by fixed charges (including capitalized interest).
Fixed charges consist of interest expense, including amortization of
deferred financing costs, and that portion of rental expense deemed to be
representative of the interest component of rental expense.
(3) Includes managed facilities.
(4) Reflects occupancy rate for assisted living and retirement facilities
following one year of operation as a Company facility.
17
<PAGE> 20
ARBOR -- HISTORICAL
The following table presents summary historical data of Arbor as of and for
the fiscal years ended December 31, 1996, 1995, 1994, 1993 and 1992 and the nine
months ended September 30, 1997 and 1996. The financial information presented
for the fiscal years ended December 31, 1996, 1995, 1994, 1993 and 1992 has been
derived from the consolidated financial statements of Arbor as audited by Ernst
& Young LLP, independent auditors, except as noted below (together with the
notes thereto and the auditors' report thereon, the "Arbor Consolidated
Financial Statements"). The financial information presented for the nine months
ended September 30, 1997 and 1996, has been derived from the unaudited interim
consolidated financial statements of Arbor (together with the notes thereto, the
"Arbor Unaudited Interim Consolidated Financial Statements") and, in the opinion
of management of Arbor, reflects a fair presentation of Arbor's financial
information. The following information should be read in conjunction with the
Arbor Consolidated Financial Statements, the Arbor Unaudited Interim
Consolidated Financial Statements and "Management's Discussion and Analysis --
Arbor" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues
Subacute care.......................... $ 94,623 $ 82,971 $113,123 $100,945 $ 82,874 $ 62,008 $ 38,562
Basic care............................. 63,901 62,722 84,015 75,931 65,615 60,999 55,974
Pharmacy and other..................... 22,680 15,385 21,639 15,282 10,302 9,273 11,806
-------- -------- -------- -------- -------- -------- --------
Total net revenues....................... 181,204 161,078 218,777 192,158 158,791 132,280 106,342
Expenses
Operating.............................. 141,614 127,011 171,170 151,922 126,249 104,883 83,995
General corporate...................... 8,081 7,123 9,680 8,992 7,353 6,230 4,460
Operating lease rental................. 3,292 3,410 4,450 4,301 4,062 3,939 4,289
Interest............................... 6,106 5,161 7,108 5,822 4,642 5,043 4,700
Depreciation and amortization.......... 7,928 6,498 8,924 7,450 5,636 4,436 3,661
-------- -------- -------- -------- -------- -------- --------
Total expenses........................... 167,021 149,203 201,332 178,487 147,942 124,531 101,105
-------- -------- -------- -------- -------- -------- --------
Income from operations................... 14,183 11,875 17,445 13,671 10,849 7,749 5,237
Net income (unaudited pro forma for
1993 and 1992)(1)...................... $ 8,558 $ 6,956 $ 10,223 $ 8,452 $ 6,903 $ 4,884 $ 3,236
Net income per share (unaudited pro forma
for 1993 and 1992)(1).................. $ 1.22 $ 1.00 $ 1.47 $ 1.23 $ 1.01 $ 0.82 $ 0.60
Weighted average shares outstanding
(000's)................................ 7,035 6,970 6,969 6,881 6,842 5,986 5,408
BALANCE SHEET DATA (AT PERIOD END):
Working capital.......................... $ 18,325 $ 14,422 $ 4,207 $ 10,175 $ 11,857 $ 9,609
Total assets............................. 233,895 209,474 178,783 136,591 116,311 100,651
Long-term obligations, less current
maturities............................. 103,720 94,643 74,741 52,956 48,354 57,426
Stockholders' equity and redeemable
stock.................................. 75,102 66,016 55,628 46,485 39,575 19,098
OTHER DATA:
Ratio of earnings to fixed charges(2).... 2.9x 2.7x 2.9x 2.7x 2.7x 2.2x 1.8x
Property and equipment capital
expenditures........................... $ 14,010 $ 18,417 $ 23,463 $ 23,159 $ 18,549 $ 13,795 $ 18,119
OPERATING DATA:
Number of facilities (end of
period)(3)............................. 31 29 30 27 25 23 22
Resident capacity (end of period)(3)..... 3,696 3,458 3,578 3,244 2,996 2,767 2,637
Average occupancy rate(4)................ 91% 89% 89% 89% 88% 89% 88%
Payor source as a percentage of total
revenue
Private pay(5)......................... 36% 33% 34% 33% 35% 37% 41%
Medicare............................... 32 35 34 36 34 29 21
Medicaid............................... 32 32 32 31 31 34 38
</TABLE>
(footnotes on following page)
18
<PAGE> 21
(1) Unaudited pro forma net income resulted from pro forma income taxes which
include income taxes computed as if Marshall Properties, Inc. had been
included in Arbor's consolidated group for income tax purposes prior to its
acquisition and pooling of interests effective June 30, 1993.
(2) The ratio of earnings to fixed charges is calculated by dividing earnings
from operations before income taxes plus fixed charges (excluding
capitalized interest) by fixed charges (including capitalized interest).
Fixed charges consist of interest expense, including amortization of
deferred financing costs, and that portion of rental expense deemed to be
representative of the interest component of rental expense.
(3) Includes managed facilities.
(4) Represents total billed patient days divided by total available days with
respect to owned and leased facilities.
(5) Private revenues as classified by Arbor include reimbursement received from
individuals, HMOs, PPOs, indemnity insurers, and other charge-based sources,
the management of one center and in 1992 the development of facilities for
others.
19
<PAGE> 22
RISK FACTORS
In addition to other information contained in this Prospectus, holders of
Outstanding Notes should carefully consider the following factors before
tendering their Outstanding Notes in the Exchange Offer, although the risk
factors set forth below (other than "-- Consequences of Failure to Exchange")
are generally applicable whether or not the Outstanding Notes are exchanged.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Outstanding Notes who do not exchange their Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Outstanding Notes as set forth in the
legend thereon as a consequence of the issuance of the Outstanding Notes
pursuant to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Outstanding Notes 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 Company does not currently anticipate that it will register
Outstanding Notes under the Securities Act. In addition, the tender of
Outstanding Notes pursuant to the Exchange Offer may have an adverse effect upon
holders of, and may increase the volatility of the market price of, the
Outstanding Notes due to a reduction in liquidity. Based on interpretations by
the staff of the Commission, Exchange Notes issued pursuant to the Exchange
Offer in exchange for Outstanding Notes may be offered for resale, resold or
otherwise transferred by Holders thereof (other than any such Holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such Holders' business and such Holders have
no arrangement or understanding with any person to participate in the
distribution of Exchange Notes. Each Holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes. If any Holder is an affiliate of the Company, is
engaged in or intends to engage in or has any arrangement or understanding with
respect to the distribution of the Exchange Notes 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. Each broker-dealer (other than an "affiliate" of the
Company) that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Outstanding Notes as a
result of market-making activities or other trading activities and will deliver
a prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Outstanding Notes where
such Outstanding Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for the Exchange Offer Registration Period, the Company will make this
Prospectus, as amended or supplemented, available to any such broker-dealer for
use in connection with any such resale; provided, however, that the Company
shall not be required to maintain the effectiveness of the Registration
Statement for more than 60 days following the consummation of the Exchange Offer
unless the Company has been notified in writing on or prior to the 60th day
following the consummation of the Exchange Offer by one or more broker-dealers
that such holder has received Exchange Notes as to which it will be required to
deliver this Prospectus upon resale. See "Plan of Distribution". In addition, to
comply with the securities laws of certain jurisdictions, if applicable, the
Exchange Notes may not be offered or sold unless they have been registered or
qualified for sale in such jurisdictions or an exemption from registration or
qualification is available and is complied with. The Company does not currently
intend to register or qualify the sale of the Exchange Notes in any such
jurisdictions. See "The Exchange Offer; Registration Rights -- Consequences of
Failure to Exchange; Resale of Exchange Notes".
Issuance of the Exchange Notes in exchange for the Outstanding Notes
pursuant to the Exchange Offer will be made only after timely receipt by the
Exchange Agent of such Outstanding Notes, a properly
20
<PAGE> 23
completed and duly executed Letter of Transmittal and all other required
documents. Therefore, holders of the Outstanding Notes desiring to tender such
Outstanding Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. The Company is under no duty to give notification of
defects or irregularities with respect to tenders of Outstanding Notes for
exchange. Outstanding Notes that are not tendered or that are tendered but not
accepted by the Company for exchange, will, following consummation of the
Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof under the Securities Act and, upon consummation of the Exchange
Offer, certain registration rights under the Registration Rights Agreement will
terminate.
SUBSTANTIAL LEVERAGE
The Company is highly leveraged and has significant debt service
obligations. As of September 30, 1997, after giving pro forma effect to the
Acquisition and the Financing Transactions, the Company would have had
approximately $677.5 million of consolidated long-term indebtedness outstanding
which would have represented approximately 71% of its total capitalization. See
"Capitalization." Subject to certain limitations, the New Credit Facilities and
the Indenture permit the Company and its subsidiaries to incur additional
indebtedness.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including the following: (i) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions or general corporate purposes may be
impaired; (ii) a substantial portion of the Company's cash flow from operations
may be dedicated to the payment of principal and interest on its indebtedness,
thereby reducing the funds available to the Company for its operations; (iii)
all of the indebtedness incurred under the New Credit Facilities is scheduled to
become due prior to the time any principal payments are required on the Notes;
(iv) certain of the Company's borrowings are and will continue to be at variable
rates of interest, which causes the Company to be vulnerable to increases in
borrowing rates; and (v) certain of the Company's indebtedness contains
financial and other restrictive covenants which, if breached, could result in an
event of default under such indebtedness.
The ability of the Company to service its indebtedness, and to comply with
the financial and restrictive covenants contained in the New Credit Facilities
and the Indenture, is dependent upon the Company's future performance and
business growth which are subject to financial, economic, competitive,
regulatory and other factors affecting the Company, many of which are beyond its
control. There can be no assurance that the Company will be able to generate
sufficient cash flow to meet its debt service obligations. If the Company is
unable to generate sufficient funds to meet its debt service obligations, it may
be required to refinance some or all of such debt, sell assets or raise
additional equity. No assurance can be given that such refinancings, asset sales
or equity sales could be accomplished or, if accomplished, would raise
sufficient funds to meet its debt service obligations. The Company's high degree
of leverage and related financial covenants could have a material adverse effect
on its ability to withstand competitive pressures or adverse economic
conditions, make material acquisitions, obtain future financing or take
advantage of business opportunities that may arise. In addition, a downturn in
general economic conditions or in its business could have a material adverse
effect on the Company's ability to meet its debt service obligations or to
conduct its business in the ordinary course.
RESTRICTIVE COVENANTS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture restricts, among other things, the ability of the Company and
its subsidiaries to incur additional indebtedness, pay dividends or make certain
other restricted payments, incur liens to secure pari passu or subordinated
indebtedness, sell stock of subsidiaries, apply net proceeds from certain asset
sales, merge or consolidate with any other person, sell, assign, transfer,
lease, convey or otherwise dispose of substantially all of the assets of the
Company, enter into certain transactions with affiliates, or incur indebtedness
that is subordinate in right of payment to any Senior Indebtedness and senior in
right of payment to the Notes. In addition, the New Credit Facilities contain
more extensive and restrictive covenants and restrictions than the Indenture and
also require the Company to maintain specified financial ratios and satisfy
certain financial condition tests. The Company's ability to meet those financial
ratios and tests can be affected by events beyond its control, and there can be
no assurance that the Company will be able to maintain those
21
<PAGE> 24
ratios or meet those tests. A breach of any of these covenants could result in a
default under the New Credit Facilities and under the Indenture. Upon the
occurrence of an event of default under the New Credit Facilities, depending on
actions taken by the lenders under the New Credit Facilities, the Company could
be prohibited from making any payments of principal or interest on the Notes.
Furthermore, such lenders could elect to declare all amounts outstanding under
the New Credit Facilities, including accrued interest or other obligations, to
be immediately due and payable. If the Company were unable to repay those
amounts, such lenders could proceed against the collateral granted to them to
secure that indebtedness. If any Senior Indebtedness were to be accelerated,
there can be no assurance that the assets of the Company would be sufficient to
repay in full that indebtedness and the other indebtedness of the Company,
including the Notes. See "-- Subordination of Notes and Note Guarantees; Asset
Encumbrances; Holding Company Structure," "Description of Certain Indebtedness
- -- New Credit Facilities" and "Description of the Notes -- Subordination."
SUBORDINATION OF NOTES AND NOTE GUARANTEES; ASSET ENCUMBRANCES; HOLDING COMPANY
STRUCTURE
The Notes are subordinated in right of payment to all existing and future
Senior Indebtedness of the Company, including borrowings under the New Credit
Facilities. In addition, each Note Guarantee is similarly subordinated in right
of payment to all existing and future Senior Indebtedness of the relevant
Guarantor, including such Guarantor's guarantee of the Company's indebtedness
under the New Credit Facilities. The aggregate principal amount of Senior
Indebtedness of the Company, as of September 30, 1997, would have been $521.7
million on a pro forma basis after giving effect to the Acquisition, the
Financing Transactions and the application of the net proceeds therefrom and the
Company would have had additional availability of $108.2 million (net of letters
of credit in the amount of $32 million) under the New Credit Facilities, all of
which would be Senior Indebtedness if borrowed. The aggregate amount of Senior
Indebtedness of the Guarantors, as of September 30, 1997 on a pro forma basis
after giving effect to the Acquisition and the Financing Transactions, would
have been $505 million (including obligations of such Guarantors under
guarantees of $459.8 million of Senior Indebtedness of the Company under the New
Credit Facilities). Additional Senior Indebtedness may be incurred by the
Company and the Guarantors from time to time, subject to certain restrictions.
In the event of bankruptcy, liquidation or reorganization of the Company, the
assets of the Company and the Guarantors will be available to pay obligations on
the Notes only after all Senior Indebtedness of such entities has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on any
or all of the Notes then outstanding. In addition, under certain circumstances
the Company will not be permitted to pay its obligations under the Notes in the
event of a default under certain Senior Indebtedness. See "Description of the
Notes -- Subordination"; "Description of the Notes -- Subordination of Note
Guarantees; Release of Note Guarantees."
In addition to being subordinated to all existing and future Senior
Indebtedness of the Company, the Notes are not secured by any of the Company's
assets. The obligations of the Company under the New Credit Facilities are
secured by a security interest in the capital stock of the Company and its U.S.
subsidiaries. If the Company becomes insolvent or is liquidated, or if payment
under the New Credit Facilities is accelerated, the lenders under the New Credit
Facilities would be entitled to exercise the remedies available to a secured
lender under applicable law and pursuant to the New Credit Facilities.
Accordingly, such lenders will have a prior claim with respect to such assets.
The Company is a holding company and, accordingly, its cash flow and
ability to service debt, including the Notes, is dependent upon the earnings of
its subsidiaries and the payment of funds by those subsidiaries to the Company
in the form of loans, dividends or otherwise or pursuant to a Guarantor's
guarantee of the Notes. Moreover, while the Notes are guaranteed on a
subordinated, unsecured basis by the Guarantors, the Guarantors are obligors
with respect to substantial indebtedness, including in their capacity as
guarantors under the New Credit Facilities on a senior basis, and the capital
stock of the Guarantors is pledged to secure amounts borrowed thereunder. See
also "Risk Factors -- Fraudulent Conveyance Statutes."
22
<PAGE> 25
ABILITY TO SUCCESSFULLY INTEGRATE ARBOR
The integration and consolidation of Arbor into the Company following the
Acquisition will require substantial management, financial and other resources
and may pose risks with respect to results of operations and market share. While
the Company believes that it has sufficient financial and management resources
to accomplish the integration of Arbor, there can be no assurance in this regard
or that the Company will not experience difficulties with customers, personnel
or others. In addition, although the Company's management believes that the
Acquisition will enhance the competitive position and business prospects of the
Company, there can be no assurance that such benefits will be realized or that
the combination of the Company and Arbor will be successful.
As the Company adapts to the current healthcare environment and integrates
Arbor, it will make certain operational changes, including the consolidation of
operations, designed to improve the future profitability of the Company. There
can be no assurance, however, as to the timing or amount of any cost savings
that are actually realized as a result of such operational changes. These
operational changes may also result in significant disruption to the Company's
operations, which could have a material adverse effect on the Company's
business. See "Management's Discussion and Analysis -- The Company."
POTENTIAL ADVERSE EFFECT OF BALANCED BUDGET ACT OF 1997 AND OTHER HEALTHCARE
REFORMS
In recent years, an increasing number of legislative proposals have been
adopted at the federal and state levels for comprehensive reforms affecting the
payment for and availability of healthcare services, including a number of
proposals that would significantly limit reimbursement under Medicare and
Medicaid. In an effort to limit the United States federal budget deficit, the
Clinton Administration and Congress recently approved the Balanced Budget Act of
1997 (the "Balanced Budget Act"). The Balanced Budget Act seeks to achieve a
balanced federal budget by, among other things, reducing federal spending on the
Medicare and Medicaid programs. The law contains numerous changes in the
methodology of Medicare payments to skilled nursing facilities and, among other
things, repeals the federal payment standard for Medicaid nursing facilities and
hospitals. See "Business -- Sources of Revenue." There can be no assurance that
these changes will not adversely affect the Company.
The Company expects that there may continue to be numerous initiatives on
the federal and state levels for comprehensive reforms affecting the payment and
availability of healthcare services, including proposals that will further limit
reimbursement under Medicare and Medicaid. It is not clear at this time what
proposals, if any, will be adopted in addition to the Balanced Budget Act or, if
any such proposals are adopted, what effect such proposals will have on the
Company's business. See "-- Reimbursement by Third-Party Payors". 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 any adverse effect on the Company or that payments under
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. Concern about the potential effects of
the proposed reform measures has contributed to the volatility of prices of
securities of companies in the healthcare and related industries and may
similarly affect the price of the Notes in the future. See "-- Government
Regulation" and "Business -- Government Regulation."
RISKS RELATED TO MANAGED CARE STRATEGY
Managed care payors and traditional indemnity insurers have experienced
pressure from their policyholders to curb or reduce the growth in premiums paid
to such organizations for healthcare services. HMOs are applying pressure to
healthcare providers to reduce prices or to share in the financial risk of
providing care through alternate fee structures such as exceptional or fixed
case rates. Given the increasing importance of managed care in the healthcare
marketplace and the continued cost containment pressures for Medicare and
Medicaid, the Company is concentrating on developing managed care contracts.
Additionally, the Company is establishing a network of services to meet the
needs of managed care organizations. The success of the Company's managed care
strategy will depend in large part on its ability to increase demand for
post-acute services among managed care organizations, to obtain favorable
agreements with managed care organizations
23
<PAGE> 26
and to manage effectively its operations and healthcare delivery costs through
various methods, including utilization management and competitive pricing for
purchased services. There can be no assurance that pricing pressures faced by
healthcare providers will not have a significant adverse effect on the Company's
business, results of operations and financial condition.
GOVERNMENT REGULATION
The provision of institutional care through nursing facilities is subject
to regulation by various federal, state and local governmental authorities in
the United States. There can be no assurance that such authorities will not
impose additional restrictions on the Company's activities that might adversely
affect the Company's business.
Nursing facilities, assisted living facilities and other healthcare
businesses, including institutional pharmacy operations, are subject to annual
licensure and other regulatory requirements of state and local authorities. In
addition, in order for a nursing facility to be approved for payment under the
Medicare and Medicaid reimbursement programs, it must meet the participation
requirements of the Social Security Act and the regulations thereunder. The
regulatory requirements for nursing facility licensure and participation in
Medicare and Medicaid generally prescribe standards relating to provision of
services, resident rights, physical environment and administration. Nursing and
assisted living facilities are generally subject to unannounced annual
inspections by state or local authorities for purposes of relicensure and
nursing facilities for purposes of recertification under Medicare and Medicaid.
In 1987, the United States Congress passed the Omnibus Budget
Reconciliation Act which included extensive revisions to the Medicare and
Medicaid statutory requirements for nursing facilities. These provisions
prescribe an outcome-oriented approach to the provision of services and require
that each resident receive the necessary care and services to attain or maintain
the highest practicable physical, mental and psychosocial well-being in
accordance with the resident's individualized assessment and plan of care. The
rules also established requirements for survey, certification and enforcement
procedures. The Health Care Financing Administration of the Department of Health
and Human Services ("HCFA") promulgated regulations, effective July 1, 1995, to
implement the survey, certification and enforcement procedures. The survey
process is intended to review the actual provision of care and services, with an
emphasis on resident outcomes to determine whether the care provided meets the
assessed needs of the individual residents. Surveys are generally conducted on
an unannounced annual basis by state survey agencies. Remedies are assessed for
deficiencies based upon the scope and severity of the cited deficiencies. The
regulations specify that the remedies are intended to motivate facilities to
return to compliance and to facilitate the removal of chronically poor
performing facilities from the program. Remedies range from directed plans of
correction, directed in-service training and state monitoring for minor
deficiencies; denial of Medicare or Medicaid reimbursement for existing
residents or new admissions and civil money penalties up to $3,000 per day for
deficiencies that do not constitute immediate jeopardy to resident health and
safety; and appointment of temporary management, termination from the program
and civil money penalties of up to $10,000 for one or more deficiencies that
constitute immediate jeopardy to resident health or safety. The regulations
allow state survey agencies to identify alternative remedies that must be
approved by HCFA prior to implementation. From time to time, the Company
receives notices from federal and state regulatory agencies relating to alleged
deficiencies for failure to comply with all components of the regulations. While
the Company does not always agree with the positions taken by the agencies, the
Company reviews such notices and takes corrective action when appropriate. Due
to the fact that the new regulatory process provides the Company with limited
appeal rights, many alleged deficiencies are not challenged even if the Company
is not in agreement with the allegation.
The July 1995 regulation mandates that facilities which are not in
substantial compliance and do not correct deficiencies within a certain time
frame must be terminated from the Medicare and/or Medicaid programs. Generally,
the facility has no more than six months from deficiency identification to
correct the deficiency, but shorter time frames apply when immediate jeopardy to
the health or safety of the residents is alleged by the survey agency. While the
Company endeavors to comply with all applicable regulatory requirements, from
time to time certain of the Company's nursing facilities have been subject to
various
24
<PAGE> 27
sanctions and penalties as a result of deficiencies alleged by HCFA or state
survey agencies. While in certain instances denial of certification or licensure
revocation actions have been threatened, no such actions are currently pending.
There can be no assurance that the Company will not be subject to such sanctions
and penalties in the future.
The Company's acquisition and construction of additional nursing facilities
are subject to state regulation. All of the states in which the Company
currently operates (other than Idaho) have adopted CONs and other laws to
regulate expansion, which generally require that a state agency approve certain
acquisitions or physical plant changes and determine that a need exists prior to
the addition of beds or services, the implementation of the changes or the
occurrence of certain capital expenditures. Certain states have also passed
legislation, enacted rules and regulations and adopted policies that prohibit,
restrict or delay the issuance of CONs. In addition, in most states the
reduction of beds or the closure of a facility requires the approval of the
appropriate state regulatory agency and, if the Company were to determine to
reduce beds or close a facility, the Company could be adversely affected by a
failure to obtain or a delay in obtaining such approval. To the extent that CON
or other similar approvals are required for expansion of the Company's
operations, either through facility acquisitions, construction of new facilities
or additions to existing facilities, or expansion or provision of new services
or other changes, the Company's expansion proposals could be adversely affected
by the inability to obtain the necessary approvals, changes in the standards
applicable to such approvals and possible delays and expenses associated with
obtaining such approvals.
The Company is also subject to federal and state laws which govern
financial and other arrangements between healthcare providers. Such laws include
the illegal remuneration provisions of the Social Security Act, which make it a
felony to solicit, receive, offer to pay or pay any kickback, bribe or rebate in
return for referring a person for any item or service or in return for
purchasing, leasing, ordering or arranging for any good, facility, service or
item paid by federal health care programs. The Office of the Inspector General
("OIG") of the Department of Health and Human Services ("HHS"), the Department
of Justice and other federal agencies interpret these fraud and abuse provisions
liberally and enforce them aggressively. The recently enacted Balanced Budget
Act also includes numerous health fraud provisions, including: new exclusion
authority for the transfer of ownership or control interest in an entity to an
immediate family or household member in anticipation of, or following, a
conviction, assessment, or exclusion; increased mandatory exclusion periods for
multiple health fraud convictions, including permanent exclusion for those
convicted of three health care-related crimes; authority for the Secretary to
refuse to enter into Medicare agreements with convicted felons; new civil money
penalties for contracting with an excluded provider or violating the federal
anti-kickback statute; new surety bond and information disclosure requirements
for certain providers and suppliers; and an expansion of the mandatory and
permissive exclusions added by the Health Insurance Portability and
Accountability Act of 1996 to any federal health care program (other than the
Federal Employees Health Benefits Program). In the summer of 1995, OIG announced
a major anti-fraud demonstration project, "Operation Restore Trust". See
"Business -- Government Regulation -- Regulation of Certain Transactions." In
addition, some states restrict certain business relationships between physicians
and other providers of healthcare services. Many states prohibit business
corporations from providing, or holding themselves out as providers of, medical
care. Possible sanctions for violation of any of these restrictions or
prohibitions include loss of licensure or eligibility to participate in
reimbursement programs (including Medicare and Medicaid), asset forfeitures and
civil and criminal penalties. These laws vary from state to state, are often
vague and have seldom been interpreted by the courts or regulatory agencies. A
civil action to exclude a provider from the Medicaid and/or Medicare programs
may be brought. There are also other civil and criminal statutes applicable to
nursing facilities and other health care providers, such as those governing
false claims. The Company believes it is in compliance with the foregoing
statutes and regulations. However, there can be no assurance that government
officials responsible for enforcing these statutes will not assert that the
Company or certain transactions in which the Company is involved are in
violation of these statutes.
In its role as owner and/or operator of properties, the Company may be
responsible for investigating and remedying any hazardous substances that have
come to be located on the property, including such substances that may have
migrated off, or emitted, discharged, leaked, escaped or been transported from,
the property.
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Ancillary to the Company's operations are, in various combinations, 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 result in damage to 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. There can be no assurance
that the Company will not encounter such risks in the future, and such risks may
have a material adverse effect on the operations or financial condition of the
Company.
REIMBURSEMENT BY THIRD PARTY PAYORS
The sources and amounts of the Company's patient revenues derived from the
operation of its skilled nursing facilities are determined by a number of
factors including licensed bed capacity of its facilities, occupancy rate, the
mix of patients and the rates of reimbursement among payor categories (private,
Medicare and Medicaid). For the first nine months of fiscal 1997 and for fiscal
1996 and 1995, the Company derived approximately 36%, 38% and 41%, respectively,
of its total revenue from Medicaid, 31%, 30% and 26%, respectively, from
Medicare and 33%, 32%, and 33%, respectively, from private pay sources. On a pro
forma basis after giving effect to the Acquisition, for the first nine months of
1997 and fiscal 1996, the Company would have derived approximately 36% and 38%,
respectively, of its total revenue from Medicaid, approximately 31% and 30%,
respectively, from Medicare and approximately 33% and 32%, respectively, from
private pay sources. The Company typically receives a higher rate for services
to private pay and Medicare patients than for services to patients eligible for
assistance under state Medicaid programs. Changes in the mix of the Company's
patients among Medicaid, Medicare and private pay sources, and with respect to
different types of private pay sources, can significantly affect the revenue and
profitability of the Company's operations.
Both governmental and private third party payors such as insurance
companies and HMOs have employed cost containment measures designed to limit
payments made to healthcare providers such as the Company. These measures
include the adoption of initial and continuing recipient eligibility criteria
which may limit payment for services, the adoption of coverage criteria which
limit the services which will be reimbursed and the establishment of payment
ceilings which set the maximum reimbursement that a provider may receive for
services. Most recently, the Balanced Budget Act requires the establishment of a
prospective payment system ("PPS") for Medicare skilled nursing facilities under
which facilities will be paid a federal per diem rate for virtually all covered
nursing facility services. The law contains numerous other changes that will
adversely affect payment to Medicare and Medicaid providers. In addition, prior
to the enactment of the Balanced Budget Act, federal law required state Medicaid
programs to reimburse nursing facilities for the costs that are incurred by
efficiently and economically operated providers in order to meet quality and
safety standards. The Balanced Budget Act repealed this payment standard,
effective for services provided on or after October 1, 1997, thereby granting
states greater flexibility in establishing payment rates. There can be no
assurance that budget constraints or other factors will not cause states to
reduce Medicaid reimbursement to nursing facilities or that payments to nursing
facilities will be made on a timely basis. Any such efforts to reduce Medicaid
payment rates or failure of states to meet their Medicaid obligations on a
timely basis would have a material adverse effect on the Company. See "Business
- -- Sources of Revenue." Furthermore, governmental reimbursement programs,
including Medicare and Medicaid, are subject to statutory and regulatory
changes, retroactive rate adjustments, administrative ceilings and government
funding restrictions, all of which may materially increase or decrease the rate
of program payments to the Company for its services. There can be no assurance
that payments under governmental and private third party payor programs will
remain at levels comparable to present levels or will, in the future, be
sufficient to cover the costs allowable to patients eligible for reimbursement
pursuant to such programs. In addition, there can be no assurance that
facilities owned, leased or managed by the Company, or the provision of services
and supplies by the Company, now or in the future, will continue to meet the
requirements of participation in such programs. The Company could be adversely
affected by the continuing efforts of governmental and private third party
payors to restrain the amount of reimbursement for healthcare services. Efforts
to impose reduced allowances, greater discounts and more stringent cost controls
by governments and other payors are expected to continue.
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<PAGE> 29
Managed care organizations and other third party payors have continued to
consolidate to enhance their ability to influence the delivery of healthcare
services. These organizations are expanding their participation in the Medicare
risk HMO plans and thus are providing a significant amount of Medicare services
in certain regions. Changes announced in the Balanced Budget Act are expected to
support the expansion of Medicare risk HMO plans. These organizations generally
enter into service agreements with a limited number of providers for needed
services. In addition, under the Balanced Budget Act, Provider Service
Organizations ("PSOs") will be allowed to contract directly with Medicare in
1998, and receive payment based upon a capitated basis. The Company will have to
be active in regions which establish PSOs in order to ensure it remains an
active provider of service to the Medicare-funded PSOs. If the Company is not
successful in becoming a preferred or exclusive provider to these HMOs and PSOs
ensuring utilization of its contracts with such plans, its business could be
materially adversely affected.
RISKS ASSOCIATED WITH REIMBURSEMENT PROCESS
The Company's financial condition and results of operations may also be
affected by the revenue reimbursement process, which in the Company's industry
is complex and can involve lengthy delays between the time that revenue is
recognized and the time that reimbursement amounts are settled. Net revenues
realizable under third party payor agreements are subject to change due to
examination and retroactive adjustment by payors during the settlement process.
Payors may disallow, in whole or in part, requests for reimbursement based on
determinations that certain costs are not reimbursable or because additional
supporting documentation is necessary. The Company recognizes revenues from
third party payors and accrues estimated settlement amounts in the period in
which the related services are provided. The Company estimates these settlement
balances by making determinations based on its prior settlement experience and
its understanding of the applicable reimbursement rules and regulations. The
majority of third party payor balances are settled within two to three years
following provision of services. The Company's results of operations would be
materially and adversely affected if the amount actually received from third
party payors in any reporting period differed materially from the amounts
accrued in prior periods. The Company's financial condition and results of
operations may also be affected by the timing of reimbursement payments and rate
adjustments from third party payors. The Company has from, time to time,
experienced delays in receiving reimbursement from intermediaries.
For those services covered by the Medicare program, the Company is
currently reimbursed for its direct costs plus an allocation of indirect costs
up to a regional limit. The Company has submitted and will be required to submit
exception requests to recover the costs in excess of such regional limits from
Medicare. There is no assurance the Company will be able to recover such excess
costs under pending or any future requests. The failure to recover these excess
costs in the future would adversely affect the Company's financial position and
results of operations. The Company 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 Company if they assert that the Company has
overcharged the programs or failed to comply with program requirements. Such
payment agencies could seek to require the Company to repay any overcharges or
amounts billed in violation of program requirements, or could make deductions
from future amounts due to the Company. Such agencies could also impose fines,
criminal penalties or program exclusions.
POTENTIAL OBLIGATION FOR REIMBURSEMENTS PAID TO OPERATORS OF ACQUIRED FACILITIES
The Company's growth strategy relies heavily on the acquisition of
long-term and subacute care facilities. Regardless of the legal form of the
acquisition, the Medicare and Medicaid programs often require that the Company
assume certain obligations relating to the reimbursement paid to the former
operators of facilities acquired by the Company. For example, the Company may be
responsible for any final cost report settlements or findings in the examination
process which result in the recoupment from the Company of reimbursement
previously paid to the former owner if the former owner is unable to meet its
repayment obligations.
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<PAGE> 30
RISKS ASSOCIATED WITH RELATED PARTY TRANSACTIONS
Current Medicare regulations that apply to transactions between related
parties, such as the Company's subsidiaries, are relevant to the amount of
Medicare reimbursement that the Company is entitled to receive for goods and
services which are charged to the Medicare program. The amount charged on
related party transactions is dependent upon whether or not the related party
exception applies. For transactions between each provider and the applicable
related party which do not qualify for the related party exception, the
transaction is recorded at cost and no profit may be earned by the related
party. For transactions which do qualify for the related party exception, the
transaction is recorded at fair market value.
In order for transactions to qualify as an exception to the related party
rule which requires transactions to be recorded at cost, the following
conditions must be met: (i) the related party must be a bona fide organization;
(ii) a substantial part of the services of each such related party must be
transacted with non-affiliated entities, and there must be an open, competitive
market for such services; (iii) the services provided by each such entity
commonly are obtained by long-term care facilities from other organizations, and
are not a basic element of patient care provided by such facilities; and (iv)
the prices charged to the Company's long-term care facilities by such entities
are in line with the charges for such services in the open market, and no more
than the prices charged by such entities under comparable circumstances to
non-affiliated long-term care facilities.
The related party regulations do not indicate a specific level of services
that must be provided to non-affiliated entities in order to satisfy the
"substantial part" requirement of such regulations. In instances where this
issue has been litigated by others, no consensus has emerged as to the
appropriate threshold necessary to satisfy the "substantial part" requirement.
The Company believes that it satisfies the requirements for exception to the
related party rules in transactions between its long-term care facilities and
its UPC Health Network. If, upon audit by federal or state reimbursement
agencies, such agencies found that these regulations had not been satisfied for
these periods, and if, after appeal, such findings were sustained, the Company
could be required to refund the difference between its cost of providing these
services to any entity found to be subject to the related party regulations and
the higher amount actually received.
If the Company has failed or, in the future, fails to satisfy regulations
for the related party exception with respect to inter-corporate transactions,
the Medicare reimbursement that the Company received or will receive could be
reduced, and as a result, the Company's financial condition could be materially
and adversely affected. While the Company believes that it has satisfied, and
will continue to satisfy these regulations, there can be no assurance that its
position would prevail if contested by relevant reimbursement agencies.
Furthermore, the Company's ability to satisfy these regulations in the future
could be affected by a number of factors, including the interpretation of
Medicare regulations by federal or state reimbursement agencies and the
Company's ability to provide services to non-affiliated facilities.
GEOGRAPHIC CONCENTRATION
After giving effect to the Acquisition, the Company's long-term care
facilities will be located in Arkansas, Delaware, Florida, Idaho, Indiana,
Kentucky, Maryland, Minnesota, Ohio, Oregon, Pennsylvania, Texas, Washington,
West Virginia and Wisconsin. Any adverse change in the regulatory environment,
the reimbursement rates paid under the Medicaid program or in the supply and
demand for services in the states in which the Company operates, and
particularly in Florida, Ohio, Pennsylvania and Wisconsin (in each of which the
Company, on a pro forma basis after giving effect to the Acquisition, would have
derived more than 10% of its total net revenues for fiscal 1996 and the nine
months ended September 30, 1997), could have a material adverse effect on the
Company.
POSSIBLE INABILITY TO IMPLEMENT GROWTH STRATEGY
There can be no assurance that the Company will be able to continue its
growth or be able to implement its strategy to expand its nursing facility
operations, develop assisted living and retirement facilities, expand its
subacute care and rehabilitative therapy capabilities and expand the UPC Health
Network, including through acquisitions. Furthermore, there can be no assurance
that suitable acquisitions, for which other healthcare
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<PAGE> 31
companies (including those with greater financial resources than the Company)
may be competing, can be accomplished on terms favorable to the Company or that
financing, if necessary, can be obtained for such acquisitions on terms
favorable to the Company. The Company may not be able to effectively and
profitably integrate the operations of Arbor or future acquisitions or otherwise
achieve the intended benefits of such acquisitions. See "-- Ability to
Successfully Integrate Arbor." In addition, unforeseen expenses, difficulties,
complications or delays may be encountered in connection with the expansion of
operations, which could inhibit the Company's growth.
COMPETITION
The long-term care industry in the United States is highly competitive,
with companies offering a variety of similar services. The Company faces
competition locally and regionally from other healthcare providers, including
for-profit and not-for-profit organizations, home health agencies, institutional
pharmacies, medical supplies and service agencies, and rehabilitative therapy
providers. Significant competitive factors affecting the placement of residents
in nursing and assisted living facilities include quality of care, services
offered, reputation, physical appearance, location and, in the case of private
pay residents, cost of the services. Since there is little price competition
with respect to Medicaid and Medicare residents, the range of services provided
by the Company's nursing facilities and their locations affect a facility's
competitive position in its market. The Company's pharmacy and medical services
and supplies operation and its group purchasing operation also compete with
other similar operations ranging from small local operators to companies which
are national in scope and distribution capability. There can be no assurance
that the Company will not encounter increased competition which could adversely
affect its business, results of operations or financial condition.
The Company also competes with other providers in the acquisition and
development of additional facilities. Other competitors may accept a lower rate
of return and therefore present significant price competition. In addition,
tax-exempt not-for-profit organizations may finance acquisitions and capital
expenditures on a tax-exempt basis or receive charitable contributions
unavailable to the Company.
AVAILABILITY OF QUALIFIED PERSONNEL
Labor costs account for a large percentage of the Company's operating
expenses. In the past, the healthcare industry, including the Company's
long-term care facilities, has experienced a shortage of nurses to staff
healthcare operations, and, more recently, the healthcare industry has
experienced a shortage of therapists. The Company is not currently experiencing
a nursing or therapist shortage, but it competes with other healthcare providers
for the services of nurses, therapists and other professional and
non-professional employees. A nursing or therapist shortage could force the
Company to pay higher salaries and make greater use of higher cost temporary or
contract personnel.
DEPENDENCE ON KEY PERSONNEL
The Company's operations are dependent on the efforts, ability and
experience of its key executive officers. The Company's continued growth and
success depends on its ability to attract and retain skilled employees and on
the ability of its officers and key employees to successfully manage the
Company's operations. The loss of some or all of these key executive officers
and skilled employees could have a material adverse impact on the Company's
future results of operations.
LIABILITY, INSURANCE AND LEGAL PROCEEDINGS
The Company's business entails an inherent risk of liability. In recent
years, participants in the long-term care industry have become subject to an
increasing number of lawsuits arising from operations. The Company is from time
to time subject to such suits as a result of the nature of its business. The
Company currently maintains insurance policies in amounts and with such coverage
and deductibles as it deems appropriate, based on the nature and risks of its
business, historical experience and industry standards. There can be no
assurance, however, that claims will not arise which are in excess of the
Company's insurance coverage or are
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<PAGE> 32
not covered by the Company's insurance coverage. A successful claim against the
Company not covered by, or in excess of, the Company's insurance could have a
material adverse effect on the Company's financial condition and results of
operations. Claims against the Company, regardless of their merit or eventual
outcome, would require management to devote time to matters unrelated to the
operation of the Company's business and, due to publicity, may also have a
material adverse effect on the Company's ability to attract residents or expand
its business. In addition, the Company's insurance policies must be renewed
annually and there can be no assurance that the Company will be able to continue
to obtain liability insurance coverage in the future or, if available, that such
coverage will be available on acceptable terms.
FRAUDULENT CONVEYANCE STATUTES
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, the Company
or any Guarantor, at the time it incurred the indebtedness evidenced by the
Notes or its Note Guarantee, (i)(a) was or is insolvent or rendered insolvent by
reason of such occurrence or (b) was or is engaged in a business or transaction
for which the assets remaining with the Company or such Guarantor constituted
unreasonably small capital or (c) intended or intends to incur, or believed or
believes that it would incur, debts beyond its ability to pay such debts as they
mature, and (ii) the Company or such Guarantor received or receives less than
reasonably equivalent value or fair consideration for the incurrence of such
indebtedness, the Notes and the Note Guarantee, and any pledge or other security
interest securing such indebtedness, could be voided, or claims in respect of
the Notes or the Note Guarantees could be subordinated to all other debts of the
Company or such Guarantor, as the case may be. The voiding or subordination of
any such pledges or other security interests or of any of such indebtedness
could result in an Event of Default (as defined in the Indenture) with respect
to such indebtedness, which could result in acceleration thereof. In addition,
the payment of interest and principal by the Company pursuant to the Notes or
the payment of amounts by a Guarantor pursuant to a Note Guarantee could be
voided and required to be returned to the person making such payment, or to a
fund for the benefit of the creditors of the Company or such Guarantor, as the
case may be.
The measures of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company or a Guarantor would be considered
insolvent if (i) the sum of its debts, including contingent liabilities, were
greater than the fair saleable value of all of its assets at a fair valuation or
if the present fair saleable value of its assets were less than the amount that
would be required to pay its probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature or (ii) it could not
pay its debts as they become due.
On the basis of their historical financial information, recent operating
history as discussed in "Selected Consolidated Financial Information -- The
Company -- Historical" and "Management's Discussion and Analysis -- The Company"
and other factors, the Company and each Guarantor believes that, after giving
effect to the indebtedness incurred in connection with the offering of the
Outstanding Notes, it (i) will not be insolvent, will not have unreasonably
small capital for the businesses in which it is engaged and will not incur debts
beyond its ability to pay such debts as they mature and (ii) will have
sufficient assets to satisfy any probable money judgment against it in any
pending action. There can be no assurance, however, as to what standard a court
would apply in making such determinations.
ABSENCE OF PUBLIC MARKET
There is no existing market for the Exchange Notes and there can be no
assurance as to the liquidity of any markets that may develop from the Exchange
Notes, the ability of holders of the Exchange Notes to sell their Exchange
Notes, or the prices at which holders would be able to sell their Exchange
Notes. Future trading prices of the Exchange Notes will depend on many factors,
including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities. The Initial Purchasers
have advised the Company that they currently intend to make a market in the
Exchange Notes; however, the Initial Purchasers are not obligated to do so and
any market making may be discontinued at any time without notice. The Company
does not intend to apply for listing of the Exchange Notes offered hereby on any
securities exchange.
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THE ACQUISITION
Extendicare, AHC Acquisition and Arbor were parties to an agreement and
plan of merger, dated as of September 29, 1997 (the "Merger Agreement") pursuant
to which the parties agreed to proceed with the Tender Offer and the subsequent
merger of AHC Acquisition with and into Arbor (the "Merger"), with Arbor as the
surviving corporation. The Tender Offer was commenced on October 3, 1997 and
expired on November 25, 1997. Over 99% of the issued and outstanding common
shares of Arbor (the "Shares") were tendered pursuant to the Tender Offer. On
November 26, 1997, the Merger was consummated. The aggregate purchase price for
all of the outstanding Shares, and the payments to be made with respect to
unexercised options and warrants, was approximately $429.1 million (exclusive of
transaction costs and fees), including $108.7 million utilized to repay the
existing debt of Arbor.
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<PAGE> 34
USE OF PROCEEDS
The net proceeds received by the Company from the sale of the Outstanding
Notes were approximately $193.5 million, after deducting the estimated
underwriting discounts and offering expenses. Such net proceeds, together with
borrowings under the New Credit Facilities, were used (i) to finance the
Acquisition and (ii) to refinance existing indebtedness of the Company and of
Arbor and will be used, (i) to fund working capital, (ii) to finance capital
expenditures and (iii) for other general corporate purposes.
The following table illustrates the sources and uses of funds for the
Acquisition, as of September 30, 1997, on a pro forma basis, assuming the
Acquisition and the Financing Transactions had occurred on such date (dollars in
thousands).
<TABLE>
<S> <C>
Sources of Funds
New Credit Facilities
Revolving Credit Facility(1)..................................... $ 59,830
Tranche A Term Loan Facility due 2003............................ 200,000
Tranche B Term Loan Facility due 2004............................ 200,000
Senior Subordinated Notes due 2007(2)............................... 200,000
Equity contribution from Extendicare................................ 44,600
--------
Total Sources.................................................... $ 704,430
========
Uses of Funds
Purchase price(3)................................................... $ 320,400
Refinancing of existing debt(4)..................................... 359,030
Estimated transaction fees and expenses............................. 25,000
--------
Total Uses....................................................... $ 704,430
========
</TABLE>
- ---------------
(1) The Revolving Credit Facility has a total availability of $200,000, leaving
unused borrowing capacity thereunder of approximately $108,170 (net of
letters of credit in the amount of $32,000).
(2) The net proceeds from the sale of the Outstanding Notes were used to repay
the Tranche C Loan under the New Credit Facilities, which was used to
finance the Tender Offer.
(3) Includes the cost of 7,266,218 shares of Arbor stock at $45 per share, net
of approximately $6,500 of proceeds related to the exercise of Arbor stock
options.
(4) Includes refinancing of approximately $243,970 of the Company's indebtedness
and $108,660 of Arbor's indebtedness and approximately $6,400 of debt
prepayment penalties, net of tax. The indebtedness of the Company and of
Arbor to be repaid had a weighted average interest rate at September 30,
1997 of 7.43% and 7.46%, respectively, with maturities ranging from 1997 to
2015 and from 1997 to 2017, respectively.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby, the terms of which are identical in all material
respects to those of the Outstanding Notes. The Outstanding Notes surrendered in
exchange for the Exchange Notes will be cancelled and cannot be reissued. The
issuance of the Exchange Notes will not result in any change in the aggregate
indebtedness of the Company.
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<PAGE> 35
EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
Promptly after the Registration Statement of which this Prospectus
constitutes a part has been declared effective, the Company will offer the
Exchange Notes in exchange for surrender of the Outstanding Notes. The Company
will keep the Exchange Offer open for not less than 30 days and not more than 45
days (or longer if required by applicable law) after the date on which notice of
the Exchange Offer is mailed to the holders of the Outstanding Notes. For each
Outstanding Note validly tendered to the Company pursuant to the Exchange Offer
and not withdrawn by the holder thereof, the holder of such Outstanding Note
will receive an Exchange Note having a principal amount equal to the principal
amount of such surrendered Outstanding Note. Interest on each Exchange Note will
accrue from the last interest payment date on which interest was paid on the
Outstanding Note surrendered in exchange therefor or, if no interest has been
paid on such Outstanding Note, from the date of the original issue of the
Outstanding Notes. The Exchange Notes evidence the same debt as the Outstanding
Notes and are issued under and are entitled to the same benefits under the
Indenture as the Outstanding Notes. In addition, the Exchange Notes and the
Outstanding Notes are treated as one series of securities under the Indenture.
In the event that the Exchange Offer has not been consummated or a shelf
registration statement is not declared effective on or prior to April 6, 1997,
then the per annum interest rate on the Outstanding Notes will increase by 0.5%
for the first 90 days following April 6, 1997. Such interest rate will be
increased by an additional 0.5% per annum beginning at each subsequent 90-day
period until the Exchange Offer is consummated; provided, however, that in no
event will the interest rate borne by the Outstanding Notes be increased by more
than 1.5% per annum. Upon the consummation of the Exchange Offer or the
effectiveness of a shelf registration statement, as the case may be, the
interest rate borne by the Notes from the date of such consummation or
effectiveness, as the case may be, will be reduced to the original interest rate
of 9.35% per annum; provided, however, that, if after such reduction in interest
rate, a different event specified above occurs, the interest rate may again be
increased pursuant to the foregoing provisions.
PERIOD FOR TENDERING OUTSTANDING NOTES
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 Company will accept for exchange Outstanding Notes 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 period of
time for which the Exchange Offer is open is extended, the term "Expiration
Date" means the latest time and date to which the Exchange Offer is extended.
As of the date of this Prospectus, $200,000,000 aggregate principal amount
of Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1997, to all Holders of
Outstanding Notes known to the Company. The Company's obligation to accept
Outstanding Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions set forth under "-- Certain Conditions to the Exchange Offer"
below.
Outstanding Notes tendered in the Exchange Offer must be in denominations
of principal amount of $1,000 or any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Outstanding Notes 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 Company will give oral or written notice of any extension,
amendment, non-acceptance or termination to the Holders of the Outstanding Notes
as promptly as practicable, such notice in the case of any extension to be
issued by means of a press release or other public announcement no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
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<PAGE> 36
PROCEDURES FOR TENDERING OUTSTANDING NOTES
The tender to the Company of Outstanding Notes by a Holder thereof as set
forth below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering Holder and the Company 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
Outstanding Notes 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 The Bank of Nova Scotia
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 Outstanding Notes 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
Outstanding Notes, if such procedure is available, into the Exchange Agent's
account at DTC (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
OUTSTANDING NOTES, 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 OUTSTANDING NOTES SHOULD BE SENT
TO THE ISSUER.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Outstanding Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered Holder of the
Outstanding Notes who has not completed the box entitled "Special Issuance
Instructions" 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 made 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").
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Outstanding Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Outstanding Notes not properly tendered or to not
accept any particular Outstanding Notes which acceptance might, in the judgment
of the Company or its counsel, be unlawful. The Company also reserves the
absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Outstanding Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any Holder
who seeks to tender Outstanding Notes in the Exchange Offer). The interpretation
of the terms and conditions of the Exchange Offer as to any particular
Outstanding Notes either before or after the Expiration Date (including the
Letter of Transmittal and the instructions thereto) by the Company shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Outstanding Notes for exchange must be cured
within such reasonable period of time as the Company shall determine. Neither
the Company, the Exchange Agent nor any other person shall be under any duty to
give notification of any defect or irregularity with respect to any tender of
Outstanding Notes for exchange, nor shall any of them incur any liability for
failure to give such notification.
If Outstanding Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the Outstanding Notes 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
Company in its sole discretion, duly executed by the registered Holder with the
signature thereon guaranteed by an Eligible Institution.
34
<PAGE> 37
If the Letter of Transmittal or any Outstanding Notes 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 Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
In all cases, issuance of Exchange Notes for Outstanding Notes 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 Outstanding Notes
or a timely Book-Entry Confirmation of such Outstanding Notes in 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 Outstanding Notes are not accepted for any reason set forth in the
terms and conditions of the Exchange Offer or if Outstanding Notes are submitted
for a greater principal amount than the Holder desires to exchange, such
unaccepted or non-exchanged Outstanding Notes will be returned without expense
to the tendering Holder thereof (or, in the case of Outstanding Notes tendered
by book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry procedures described below, such
non-exchanged Outstanding Notes will be credited to an account maintained with
such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Outstanding Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility system may make book-entry delivery of Outstanding Notes by causing DTC
to transfer such Outstanding Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility in accordance with DTC's procedures for transfer.
However, although delivery of Outstanding Notes 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.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Outstanding Notes desires to tender such
Outstanding Notes and the Outstanding Notes are not immediately available, or
time will not permit such Holder's Outstanding Notes or other 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 received 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 Company (by telegram, telex, facsimile transmission, or mail or
hand delivery), setting forth the name and address of the Holder of Outstanding
Notes and the amount of Outstanding Notes tendered, stating that the tender is
being made thereby and guaranteeing that within five NYSE trading days after the
date of execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Outstanding Notes, 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
Outstanding Notes, 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 Outstanding Notes may be withdrawn at any time prior to the
Expiration Date.
35
<PAGE> 38
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 Outstanding Notes to be withdrawn, identify the
Outstanding Notes to be withdrawn (including the principal amount of such
Outstanding Notes), and (where certificates for Outstanding Notes have been
transmitted) specify the name in which such Outstanding Notes are registered, if
different from that of the withdrawing Holder. If certificates for Outstanding
Notes 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 Outstanding Notes
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
Outstanding Notes 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 Company, whose determination shall be
final and binding on all parties. Any Outstanding Notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Outstanding Notes which have been tendered for exchange but
which are not exchanged for any reason will be returned to the Holder thereof
without cost to such Holder (or, in the case of Outstanding Notes 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
Outstanding Notes will be credited to an account maintained with such Book-Entry
Transfer Facility for the Outstanding Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Outstanding Notes may be retendered by following one of the procedures
described under "-- Procedures for Tendering Outstanding Notes" 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 Company
shall not be required to accept for exchange, or to issue Exchange Notes in
exchange for, any Outstanding Notes and may terminate or amend the Exchange
Offer, if at any time before the acceptance of such Outstanding Notes for
exchange or the exchange of the Exchange Notes for such Outstanding Notes, any
of the following events shall occur:
(a) the Exchange Offer violates applicable law or any applicable
interpretation of the staff of the Commission;
(b) an action or proceeding shall have been instituted or threatened in
any court or by any governmental agency which might materially impair
the ability of the Company to proceed with the Exchange Offer, or a
material adverse development shall have occurred in any existing action
or proceeding with respect to the Company; or
(c) all governmental approvals shall not have been obtained, which
approvals the Company deems necessary for the consummation of the
Exchange Offer.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company 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 Company will not accept for exchange any Outstanding Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Outstanding Notes, 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.
36
<PAGE> 39
EXCHANGE AGENT
The Bank of Nova Scotia 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
the Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
Main Delivery to: The Bank of Nova Scotia Trust Company of New York, Exchange
Agent
By Mail, Hand or Overnight Delivery:
The Bank of Nova Scotia Trust Company of New York
One Liberty Plaza, 23rd Floor
New York, NY 10006
Attention: Pat Keane
Facsimile: (212) 225-5436
Confirm by Telephone: (212) 225-5427
DELIVERY OF THIS INSTRUMENT 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 Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
The Company will pay certain other expenses to be incurred in connection
with the Exchange Offer, including the fees and expenses of the Exchange Agent,
accounting and certain legal fees.
TRANSFER TAXES
Holders who tender their Outstanding Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that holders
who instruct the Company to register Exchange Notes in the name of, or request
that Outstanding Notes 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
Holders of Outstanding Notes who do not exchange their Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Outstanding Notes as set forth in the
legend thereon as a consequence of the issuance of the Outstanding Notes
pursuant to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Outstanding Notes 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 Company does not currently anticipate that it will register
Outstanding Notes under the Securities Act. To the extent that Outstanding Notes
are tendered and accepted in connection with the Exchange Offer, any trading
market for Outstanding Notes not tendered in connection with the Exchange Offer
could be adversely affected. The tender of Outstanding Notes pursuant to the
Exchange Offer may have an adverse effect upon, and increase the volatility of,
the market price of the Outstanding Notes due to a reduction in liquidity.
37
<PAGE> 40
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company: (i) as of September 30, 1997; (ii) on a pro forma basis to give effect
to the Acquisition and the financing under the New Credit Facilities; and (iii)
as adjusted to give effect to the offering of the Outstanding Notes and the
application of the estimated net proceeds therefrom as described in "Use of
Proceeds". For additional information, see the Unaudited Pro Forma Condensed
Consolidated Financial Information, the EHSI Consolidated Financial Statements
and the EHSI Unaudited Interim Consolidated Financial Statements included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term indebtedness and current maturities of long-term
debt..................................................... $ 49,397 $ 44,113 $ 44,113
======== ======== =========
Long-term debt
Bank credit facility..................................... 41,635 -- --
Notes payable............................................ 201,143 38,573 38,573
New Credit Facilities:
Revolving Credit Facility(1).......................... -- 59,830 59,830
Term Loan Facilities.................................. -- 573,000 373,000
Mortgages................................................ 13,619 6,138 6,138
Senior Subordinated Notes due 2007....................... -- -- 200,000
-------- -------- ---------
Total long-term debt.................................. 256,397 677,541 677,541
Minority interests......................................... 2,101 2,101 2,101
Shareholder's equity....................................... 233,834 270,204 270,204
-------- -------- ---------
Total capitalization.................................. $492,332 $949,846 $ 949,846
======== ======== =========
</TABLE>
- ---------------
(1) The Revolving Credit Facility has a total availability of $200,000, leaving
unused borrowing capacity thereunder of approximately $108,170 (net of
letters of credit in the amount of $32,000).
38
<PAGE> 41
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Consolidated Financial
Information is based on the historical financial information appearing elsewhere
in this Prospectus. The Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the twelve months ended September 30, 1997, for the nine months
ended September 30, 1997 and for the year ended December 31, 1996 give effect to
the Acquisition, the Financing Transactions and the acquisition of the assets of
Medi-Management as if they had occurred at the beginning of each such period.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet gives effect to the
Acquisition and the Financing Transactions as if such transactions had occurred
as of September 30, 1997.
The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable and are described in the
notes accompanying the Unaudited Pro Forma Condensed Consolidated Statements of
Operations and the Unaudited Pro Forma Condensed Consolidated Balance Sheet. The
Unaudited Pro Forma Condensed Consolidated Financial Information is provided for
informational purposes only and does not purport to represent what the Company's
results of operations or financial position would actually have been had the
transactions in fact occurred at such dates or to project the Company's results
of operations or financial position at or for any future date or period. The
Unaudited Pro Forma Condensed Consolidated Financial Information has been
prepared using the purchase method of accounting, whereby the total cost of the
Acquisition will be allocated to the tangible and intangible assets acquired and
liabilities assumed based upon their respective fair values at the effective
date of the Merger.
The Unaudited Pro Forma Condensed Consolidated Financial Information should
be read in conjunction with "Capitalization," "Management's Discussion and
Analysis," the EHSI Consolidated Financial Statements, the EHSI Unaudited
Interim Consolidated Financial Statements, the Arbor Consolidated Financial
Statements and the Arbor Unaudited Interim Consolidated Financial Statements
appearing elsewhere in this Prospectus.
39
<PAGE> 42
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-----------------------------------------------------
HISTORICAL HISTORICAL TRANSACTION PRO FORMA
EHSI ARBOR ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................... $ 14,866 $ 6,781 $ -- $ 21,647
Accounts receivable.......................... 172,429 50,676 -- 223,105
Other current assets......................... 11,808 7,459 -- 19,267
Deferred state income taxes.................. 1,575 -- -- 1,575
Due from shareholder - Deferred Federal
income taxes.............................. 8,716 2,218 -- 10,934
-------- -------- -------- ----------
Total current assets...................... 209,394 67,134 -- 276,528
PROPERTY AND EQUIPMENT, NET.................... 447,605 144,603 76,503(1) 668,711
GOODWILL....................................... 9,690 20,124 (20,124)(1) 252,849
243,159(1)
OTHER ASSETS................................... 16,784 2,034 5,760(1) 21,578
(3,000)(3)
-------- -------- -------- ----------
$ 683,473 $ 233,895 $ 302,298 $1,219,666
======== ======== ======== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Bank indebtedness............................ $ 16,587 $ -- $ -- $ 16,587
Notes payable................................ 18,913 -- (18,913)(2) --
Current maturities of long-term debt......... 13,897 4,940 8,689(2) 27,526
Accounts payable and accrued liabilities..... 96,808 27,089 -- 123,897
Other current liabilities.................... 767 16,780 (1,170)(3) 16,377
Due to shareholder and affiliates............ 1,658 -- -- 1,658
-------- -------- -------- ----------
Total current liabilities................. 148,630 48,809 (11,394) 186,045
LONG-TERM DEBT:
Existing long-term debt...................... 256,397 103,720 (315,406)(2) 44,711
New Credit Facilities........................ -- -- 432,830(2)(3) 432,830
Senior Subordinated Notes Due 2007........... -- -- 200,000(2) 200,000
OTHER LONG-TERM LIABILITIES.................... 11,339 -- -- 11,339
DUE TO SHAREHOLDER AND AFFILIATES:
Deferred Federal income taxes................ 23,018 6,264 35,000(1) 64,282
Other........................................ 3,484 -- -- 3,484
DEFERRED STATE INCOME TAXES.................... 4,670 -- -- 4,670
MINORITY INTERESTS............................. 2,101 -- -- 2,101
SHAREHOLDER'S EQUITY........................... 233,834 75,102 (75,102)(1) 270,204
(8,230)(3)
44,600(2)
-------- -------- -------- ----------
$ 683,473 $ 233,895 $ 302,298 $1,219,666
======== ======== ======== ==========
</TABLE>
See accompanying Notes To Unaudited Pro Forma Condensed Consolidated Balance
Sheet
40
<PAGE> 43
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
The Unaudited Pro Forma Condensed Consolidated Balance Sheet gives effect to
the Acquisition and the Financing Transactions as if such transactions had
occurred as of September 30, 1997. The Tender Offer, to acquire all of the
issued and outstanding shares of Arbor for $45.00 per share, was commenced on
October 3, 1997 and expired on November 25, 1997. Over 99% of the issued and
outstanding common shares of Arbor were tendered pursuant to the Tender Offer.
On November 26, 1997, the Company effected the Merger whereupon Arbor became an
indirect wholly owned subsidiary of the Company. The Acquisition has been
accounted for using the purchase method, whereby the total cost of the
Acquisition will be allocated to the tangible and intangible assets acquired and
liabilities assumed based upon their respective fair values at the effective
date of the Merger.
Proceeds of the New Credit Facilities and the Outstanding Notes together
with the $44,600 equity contribution from Extendicare were used to complete the
acquisition of Arbor for approximately $320,400, to pay transaction costs
related thereto of approximately $25,000, to refinance certain indebtedness of
the Company of approximately $243,970, to refinance indebtedness of Arbor of
approximately $108,660, and to finance approximately $6,400 of debt prepayment
penalties, net of tax. The balance of the Revolving Credit Facility of
approximately $108,170 (net of letters of credit in the amount of $32,000) is
available for working capital and general corporate purposes.
(1) Reflects the allocation of costs of the Acquisition in excess of the fair
value of the net assets acquired, and the elimination of Arbor's equity on
acquisition under purchase accounting. The excess purchase price will not be
deductible for tax purposes.
<TABLE>
<S> <C>
Purchase price....................................................... $320,400
Transaction costs and fees........................................... 25,000
--------
345,400
Elimination of:
Arbor shareholders' equity......................................... (75,102)
Arbor goodwill..................................................... 20,124
--------
Purchase price in excess of the net book value of the net assets
acquired........................................................... 290,422
Allocation to:
Deferred financing costs........................................... (5,760)
Property and equipment to adjust to fair value..................... (76,503)
Deferred taxes..................................................... 35,000
--------
Goodwill............................................................. $243,159
========
</TABLE>
(2) Reflects the New Credit Facilities, the Outstanding Notes, the contribution
of equity from Extendicare and the repayment of the portion of the existing
debt of both the Company and Arbor that is to be refinanced.
The balances outstanding under the New Credit Facilities are as follows:
<TABLE>
<S> <C>
Revolving Credit Facility............................................ $ 59,830
Tranche A Term Loan (including current maturities of $25,000)........ 200,000
Tranche B Term Loan (including current maturities of $2,000)......... 200,000
</TABLE>
(3) Reflects the estimated extraordinary loss, net of taxes, resulting from the
pre-payment of existing debt. The extraordinary loss includes pre-payment
penalties estimated at $10,600 and the elimination of deferred financing
costs associated with such debt prepaid of $3,000, net of taxes of $4,200
and $1,170, respectively.
41
<PAGE> 44
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------------
TRANSACTION ADJUSTMENTS
HISTORICAL HISTORICAL --------------------------- PRO FORMA
EHSI ARBOR MEDI-MANAGEMENT ARBOR(2) COMBINED
---------- ---------- --------------- -------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES....................... $ 824,347 $ 218,777 $22,986(1) $ -- $1,066,110
COSTS AND EXPENSES:
Operating.................... 677,159 171,170 18,771(1) -- 867,100
General and administrative... 33,262 9,680 -- -- 42,942
Lease costs.................. 8,756 4,450 17(1) -- 13,223
Depreciation and
amortization.............. 29,703 8,924 1,347(1) 8,503(3) 48,477
Interest, net................ 18,477 7,108 2,369(1) 26,542(4) 54,496
Other, net................... -- 494 -- -- 494
-------- -------- ------ ------ ---------
767,357 201,826 22,504 35,045 1,026,732
-------- -------- ------ ------ ---------
Earnings before income
taxes, minority
interests and
extraordinary items..... 56,990 16,951 482 (35,045) 39,378
PROVISION FOR INCOME TAXES..... 22,546 6,728 190(1) (11,076)(5) 18,388
-------- -------- ------ ------ ---------
Earnings before minority
interests and
extraordinary items..... 34,444 10,223 292 (23,969) 20,990
MINORITY INTERESTS............. 436 -- -- -- 436
-------- -------- ------ ------ ---------
Earnings before
extraordinary items..... $ 34,008 $ 10,223 $ 292 $(23,969) $ 20,554
======== ======== ====== ====== =========
EARNINGS PER SHARE BEFORE
EXTRAORDINARY ITEMS(6)....... $ 36 $ 22
======== =========
OTHER DATA:
Ratio of earnings to fixed
charges(7)................... 3.5x 1.6x
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statements
of Operations
42
<PAGE> 45
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
----------------------------------------------------------------------
TRANSACTION ADJUSTMENTS
HISTORICAL HISTORICAL --------------------------- PRO FORMA
EHSI ARBOR MEDI-MANAGEMENT ARBOR(2) COMBINED
---------- ---------- --------------- -------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES......................... $ 663,433 $ 181,204 $10,078(1) $ -- $ 854,715
COSTS AND EXPENSES:
Operating...................... 543,234 141,614 7,712(1) -- 692,560
General and administrative..... 27,648 8,081 -- -- 35,729
Lease costs.................... 7,132 3,292 10(1) -- 10,434
Depreciation and
amortization................ 24,538 7,928 571(1) 6,202(3) 39,239
Interest, net.................. 13,633 6,106 960(1) 19,676(4) 40,375
Other, net..................... -- 132 -- -- 132
-------- -------- ------ ------ ---------
616,185 167,153 9,253 25,878 818,469
-------- -------- ------ ------ ---------
Earnings before income
taxes, minority interests
and
extraordinary items....... 47,248 14,051 825 (25,878) 36,246
PROVISION FOR INCOME TAXES....... 17,957 5,493 289(1) (8,173)(5) 15,566
-------- -------- ------ ------ ---------
Earnings before minority
interests and
extraordinary items....... 29,291 8,558 536 (17,705) 20,680
MINORITY INTERESTS............... 661 -- -- -- 661
-------- -------- ------ ------ ---------
Earnings before
extraordinary items....... $ 28,630 $ 8,558 $ 536 $(17,705) $ 20,019
======== ======== ====== ====== =========
EARNINGS PER SHARE
BEFORE EXTRAORDINARY
ITEMS(6)....................... $ 30 $ 21
======== =========
OTHER DATA:
Ratio of earnings to fixed
charges(7)..................... 3.6x 1.8x
</TABLE>
See accompanying Notes To Unaudited Pro Forma Condensed Consolidated Statements
of Operations
43
<PAGE> 46
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
-----------------------------------------------------------------------
TRANSACTION ADJUSTMENTS
HISTORICAL HISTORICAL --------------------------- PRO FORMA
EHSI ARBOR MEDI-MANAGEMENT ARBOR(2) COMBINED
---------- ---------- --------------- -------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES........................ $ 873,675 $ 238,903 $22,986(1) $ -- $1,135,564
COSTS AND EXPENSES:
Operating..................... 711,578 185,773 18,771(1) -- 916,122
General and administrative.... 36,671 10,638 -- -- 47,309
Lease costs................... 9,328 4,332 17(1) -- 13,677
Depreciation and
amortization............... 32,262 10,354 1,347(1) 8,337(3) 52,300
Interest, net................. 18,099 8,053 2,369(1) 25,515(4) 54,036
Other, net.................... -- 258 -- -- 258
-------- -------- ------ ------ ---------
807,938 219,408 22,504 33,852 1,083,702
-------- -------- ------ ------ ---------
Earnings before income
taxes, minority interests
and
extraordinary items...... 65,737 19,495 482 (33,852) 51,862
PROVISION FOR INCOME TAXES...... 25,094 7,670 190(1) (10,613)(5) 22,341
-------- -------- ------ ------ ---------
Earnings before minority
interests and
extraordinary items...... 40,643 11,825 292 (23,239) 29,521
MINORITY INTERESTS.............. 864 -- -- -- 864
-------- -------- ------ ------ ---------
Earnings before
extraordinary items...... $ 39,779 $ 11,825 $ 292 $(23,239) $ 28,657
======== ======== ====== ====== =========
EARNINGS PER SHARE
BEFORE EXTRAORDINARY
ITEMS(6)...................... $ 42 $ 30
======== =========
OTHER DATA:
Ratio of earnings to fixed
charges(7).................... 3.8x 1.8x
</TABLE>
See accompanying Notes To Unaudited Pro Forma Condensed Consolidated Statements
of Operations
44
<PAGE> 47
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
The Unaudited Pro Forma Condensed Consolidated Statements of Operations for
the year ended December 31, 1996 and for the nine and twelve months ended
September 30, 1997 give effect to the Acquisition, the Financing Transactions
and the acquisition of the assets of Medi-Management as if they had occurred at
the beginning of each such period. The Acquisition has been accounted for using
the purchase method, whereby the total cost of the Acquisition will be allocated
to the tangible and intangible assets acquired and liabilities assumed based
upon their respective fair values at the effective date of the Merger.
(1) The Company acquired the assets of Medi-Management on May 31, 1997, for
approximately $24,000, and assumed historical debt of approximately $9,200.
The information presented represents the results of operations of
Medi-Management from January 1, 1996 through to December 31, 1996, from
January 1, 1997 through to May 31, 1997, and from October 1, 1996 through to
May 31, 1997 with respect to the results for the year ended 1996, and for
the nine and twelve months ended September 30, 1997, respectively.
(2) Management anticipates achieving annual general and administrative cost
savings of approximately $7,100 as a result of the elimination of
duplicative positions of Arbor, the closing of Arbor's corporate offices,
the elimination of costs associated with Arbor's airplane, the elimination
of various public company costs and the reduction of professional and
accounting fees. Management believes additional opportunities exist for cost
savings and revenue enhancements as a result of the Acquisition. However,
there can be no assurance that these cost savings or revenue enhancements
will be realized. There also can be no assurance that other costs and
expenses of the Company will not increase, thereby lowering or offsetting
management's estimated cost savings. The Company has not included an
estimate for cost savings in the determination of pro forma financial
information pursuant to the Securities and Exchange Commission regulations.
(3) Reflects the increase in amortization due to deferred financing costs of
$5,760, related to the refinancing of the Company's debt, and the increase
in depreciation and amortization of goodwill resulting from the preliminary
allocation of the purchase price in excess of the net book value of the
assets acquired to property and equipment and goodwill of approximately
$76,503 and $243,159, respectively. The property and equipment will be
depreciated over their useful lives. The goodwill will be amortized over 20
years for pharmacy operations and over 40 years for skilled nursing facility
operations.
Incremental Depreciation and Amortization Expense:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997
------------ ----------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Amortization of goodwill.............................. $7,579 $ 5,684 $ 7,579
Amortization of deferred financing costs.............. 915 686 915
------ ------ ------
8,494 6,370 8,494
Less amortization of intangible assets recorded by
Arbor and amortization of deferred financing costs
written off......................................... 1,858 1,568 2,024
------ ------ ------
Increase in amortization expense...................... 6,636 4,802 6,470
Increase in depreciation expense...................... 1,867 1,400 1,867
------ ------ ------
Pro forma adjustment.................................. $8,503 $ 6,202 $ 8,337
====== ====== ======
</TABLE>
45
<PAGE> 48
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(4) Reflects the estimated increase in interest expense resulting from the
Acquisition and the incurrence of indebtedness under the New Credit
Facilities and the Outstanding Notes to finance the Acquisition and repay a
portion of existing indebtedness of the Company and Arbor, offset partially
as a result of proceeds of the contribution of equity from Extendicare.
Incremental Interest Expense:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997
------------ ----------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest expense on the New Credit Facilities:
Revolving Credit Facility (LIBOR + 1.75%)........... $ 4,499 $ 3,374 $ 4,499
Tranche A (LIBOR + 1.75%)........................... 15,039 11,279 15,039
Tranche B (LIBOR + 2.00%)........................... 15,539 11,654 15,539
Interest expense on Outstanding Notes (9.35%)......... 18,700 14,025 18,700
Commitment fee on unused portion of Revolving Credit
Facility............................................ 526 395 526
Interest expense on debt retained..................... 2,252 1,690 2,252
------- ------- -------
Total estimated pro forma interest expense, with an
estimated weighted average rate of 8.02%............ 56,555 42,417 56,555
Less interest expense and amortization related to
retired debt........................................ 30,013 22,741 31,040
------- ------- -------
$ 26,542 $ 19,676 $ 25,515
======= ======= =======
</TABLE>
For purposes of the above pro forma interest calculations, LIBOR is assumed
to be 5.77%. Each .25% change in the interest rate of long-term debt would
change the Company's pro forma interest expense by $1,150.
(5) Represents income tax expense at an effective tax rate of 39.4% for the year
ended December 31, 1996, and 39.2% for the nine and twelve months ended
September 30, 1997, excluding the amortization of non-deductible goodwill.
The primary difference between the expense calculated at statutory rates and
the amounts reflected in the pro forma statements is attributable to
non-deductible goodwill and the provision for state income taxes.
(6) Earnings per share is computed using the weighted average outstanding shares
of 947 for the respective periods.
(7) The ratio of earnings to fixed charges is calculated by dividing earnings
from operations before income taxes plus fixed charges (excluding
capitalized interest) by fixed charges (including capitalized interest).
Fixed charges consist of interest expense, including amortization of
deferred financing costs, and that portion of rental expense deemed to be
representative of the interest component of rental expense.
46
<PAGE> 49
SELECTED FINANCIAL AND OPERATING DATA
Set forth below and on the next three pages are selected historical
financial data for the Company and Arbor.
THE COMPANY -- HISTORICAL
The following table presents selected consolidated financial and operating
data of the Company as of and for the years ended December 31, 1996, 1995, 1994,
1993 and 1992 and the nine months ended September 30, 1997 and 1996. The
financial information presented for the fiscal years ended December 31, 1996,
1995, 1994, 1993 and 1992 has been derived from the EHSI Consolidated Financial
Statements. The financial information presented for the nine months ended
September 30, 1997 and 1996, has been derived from the EHSI Unaudited Interim
Consolidated Financial Statements, and, in the opinion of management of the
Company, reflects a fair presentation of the Company's financial information.
The following information should be read in conjunction with the EHSI
Consolidated Financial Statements, the EHSI Unaudited Interim Consolidated
Financial Statements and "Management's Discussion and Analysis -- The Company"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1997(1) 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Routine care and assisted living.............. $413,633 $395,333 $526,486 $498,140 $470,310 $436,663 $417,048
Medical specialty............................. 243,001 213,928 290,515 242,339 188,419 154,543 112,155
Other......................................... 6,799 4,844 7,346 6,649 6,265 6,065 5,566
-------- -------- -------- -------- -------- -------- --------
663,433 614,105 824,347 747,128 664,994 597,271 534,769
Costs and expenses:
Operating..................................... 543,234 508,815 677,159 626,405 559,744 507,088 446,323
General and administrative.................... 27,648 24,239 33,262 28,672 24,944 23,004 22,446
Lease costs................................... 7,132 6,560 8,756 9,005 8,920 8,705 8,486
Depreciation and amortization................. 24,538 21,979 29,703 25,872 23,092 21,378 19,686
Interest, net................................. 13,633 14,011 18,477 14,776 13,083 12,094 12,703
-------- -------- -------- -------- -------- -------- --------
616,185 575,604 767,357 704,730 629,783 572,269 509,644
-------- -------- -------- -------- -------- -------- --------
Earnings from operations........................ 47,248 38,501 56,990 42,398 35,211 25,002 25,125
Net earnings.................................... $ 28,630 $ 22,859 $ 34,008 $ 25,521 $ 21,709 $ 22,306 $ 20,117
Earnings per share.............................. $ 30 $ 24 $ 36 $ 27 $ 23 $ 24 $ 21
Dividends per share (dollars)................... -- -- -- -- $ 10.56 -- --
Weighted average shares outstanding............. 947 947 947 947 947 947 947
BALANCE SHEET DATA (AT PERIOD END):
Working capital................................. $ 60,764 $ 60,492 $ 38,555 $ 23,858 $ 30,033 $ 8,435
Total assets.................................... 683,473 591,851 525,634 444,664 394,600 374,638
Long-term debt.................................. 256,397 222,954 196,769 166,808 153,184 153,135
Shareholder's equity............................ 233,834 201,521 167,513 141,992 130,283 117,586
OTHER DATA:
Ratio of earnings to fixed charges(2)........... 3.6x 3.2x 3.5x 3.1x 3.0x 2.4x 2.4x
Property and equipment capital expenditures..... $ 41,311 $ 36,896 $ 53,581 $ 56,469 $ 35,271 $ 18,779 $ 20,832
</TABLE>
47
<PAGE> 50
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1997(1) 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Number of facilities (end of period)(3)
Nursing....................................... 163 157 155 152 150 144 146
Assisted living and retirement................ 38 31 31 22 16 13 9
Resident capacity (end of period)(3)
Nursing (beds)................................ 17,289 17,120 16,644 16,551 16,425 15,833 16,195
Assisted living and retirement (units)........ 1,480 1,140 1,140 874 708 562 473
Average occupancy rate
Nursing....................................... 88% 89% 89% 89% 91% 93% 93%
Assisted living and retirement(4)............. 87 88 86 88 89 90 89
Payor source as a percentage of total revenue
Private pay................................... 33% 32% 32% 33% 35% 36% 37%
Medicare...................................... 31 30 30 26 22 19 16
Medicaid...................................... 36 38 38 41 43 45 47
</TABLE>
- ---------------
(1) Includes the acquisition of the assets of Medi-Management on May 31, 1997
for approximately $24,000 and assumed debt of approximately $9,200. See
"Management's Discussion and Analysis -- The Company -- Acquisitions."
(2) The ratio of earnings to fixed charges is calculated by dividing earnings
from operations before income taxes plus fixed charges (excluding
capitalized interest) by fixed charges (including capitalized interest).
Fixed charges consist of interest expense, including amortization of
deferred financing costs, and that portion of rental expense deemed to be
representative of the interest component of rental expense.
(3) Includes managed facilities.
(4) Reflects occupancy rate for assisted living and retirement facilities
following one year of operation as a Company facility.
48
<PAGE> 51
ARBOR -- HISTORICAL
The following table presents selected consolidated financial and operating
data of Arbor as of and for the fiscal years ended December 31, 1996, 1995,
1994, 1993 and 1992 and each of the nine months ended September 30, 1997 and
1996. The financial information presented for the fiscal years ended December
31, 1996, 1995, 1994, 1993 and 1992 has been derived from the Arbor Consolidated
Financial Statements. The financial information presented for the nine months
ended September 30, 1997 and 1996, has been derived from the Arbor Unaudited
Interim Consolidated Financial Statements, and, in the opinion of management of
Arbor, reflects a fair presentation of Arbor's financial information. The
following information should be read in conjunction with the Arbor Consolidated
Financial Statements, the Arbor Unaudited Interim Consolidated Financial
Statements and "Management's Discussion and Analysis -- Arbor" included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues
Subacute care................................. $ 94,623 $ 82,971 $113,123 $100,945 $ 82,874 $ 62,008 $ 38,562
Basic care.................................... 63,901 62,722 84,015 75,931 65,615 60,999 55,974
Pharmacy and other............................ 22,680 15,385 21,639 15,282 10,302 9,273 11,806
-------- -------- -------- -------- -------- -------- --------
Total net revenues.............................. 181,204 161,078 218,777 192,158 158,791 132,280 106,342
Expenses
Operating..................................... 141,614 127,011 171,170 151,922 126,249 104,883 83,995
General corporate............................. 8,081 7,123 9,680 8,992 7,353 6,230 4,460
Operating lease rental........................ 3,292 3,410 4,450 4,301 4,062 3,939 4,289
Interest...................................... 6,106 5,161 7,108 5,822 4,642 5,043 4,700
Depreciation and amortization................. 7,928 6,498 8,924 7,450 5,636 4,436 3,661
-------- -------- -------- -------- -------- -------- --------
Total expenses.................................. 167,021 149,203 201,332 178,487 147,942 124,531 101,105
-------- -------- -------- -------- -------- -------- --------
Income from operations.......................... 14,183 11,875 17,445 13,671 10,849 7,749 5,237
Net income (unaudited pro forma for 1993 and
1992)(1)...................................... $ 8,558 $ 6,956 $ 10,223 $ 8,452 $ 6,903 $ 4,884 $ 3,236
Net income per share (unaudited pro forma for
1993 and 1992)(1)............................. $ 1.22 $ 1.00 $ 1.47 $ 1.23 $ 1.01 $ 0.82 $ 0.60
Weighted average shares outstanding (000's)..... 7,035 6,970 6,969 6,881 6,842 5,986 5,408
BALANCE SHEET DATA (AT PERIOD END):
Working capital................................. $ 18,325 $ 14,422 $ 4,207 $ 10,175 $ 11,857 $ 9,609
Total assets.................................... 233,895 209,474 178,783 136,591 116,311 100,651
Long-term obligations, less current
maturities.................................... 103,720 94,643 74,741 52,956 48,354 57,426
Stockholders' equity and redeemable stock....... 75,102 66,016 55,628 46,485 39,575 19,098
OTHER DATA:
Ratio of earnings to fixed charges(2)........... 2.9x 2.7x 2.9x 2.7x 2.7x 2.2x 1.8x
Property and equipment capital expenditures..... $ 14,010 $ 18,417 $ 23,463 $ 23,159 $ 18,549 $ 13,795 $ 18,119
OPERATING DATA:
Number of facilities (end of period)(3)......... 31 29 30 27 25 23 22
Resident capacity (end of period)(3)............ 3,696 3,458 3,578 3,244 2,996 2,767 2,637
Average occupancy rate(4)....................... 91% 89% 89% 89% 88% 89% 88%
Payor source as a percentage of total revenue
Private pay(5)................................ 36% 33% 34% 33% 35% 37% 41%
Medicare...................................... 32 35 34 36 34 29 21
Medicaid...................................... 32 32 32 31 31 34 38
</TABLE>
- ---------------
(1) Unaudited pro forma net income resulted from pro forma income taxes which
include income taxes computed as if Marshall Properties, Inc. had been
included in Arbor's consolidated group for income tax purposes prior to its
acquisition and pooling of interests effective June 30, 1993.
(2) The ratio of earnings to fixed charges is calculated by dividing earnings
from operations before income taxes plus fixed charges (excluding
capitalized interest) by fixed charges (including capitalized interest).
Fixed charges consist of interest expense, including
49
<PAGE> 52
amortization of deferred financing costs, and that portion of rental expense
deemed to be representative of the interest component of rental expense.
(3) Includes managed facilities.
(4) Represents total billed patient days divided by total available days with
respect to owned and leased facilities.
(5) Private revenues as classified by Arbor include reimbursement received from
individuals, HMOs, PPOs, indemnity insurers, and other charge-based sources,
the management of one center and in 1992 the development of facilities for
others.
50
<PAGE> 53
MANAGEMENT'S DISCUSSION AND ANALYSIS
Except as otherwise indicated, the following discussion and analysis of the
results of operations and financial condition of the Company and Arbor covers
periods before completion of the Acquisition. Accordingly, the discussion and
analysis of such periods does not reflect the significant impact that the
Acquisition and the Financing Transactions will have on the Company after the
Merger. See "Unaudited Pro Forma Condensed Consolidated Financial Statements"
and "The Acquisition."
THE COMPANY
The Company is one of the largest providers of long-term care and related
services in the United States. The Company operated 163 nursing facilities
(17,289 operational beds) and 38 assisted living and retirement facilities
(1,480 units) at September 30, 1997. The Company's facilities are located in 13
states. The Company also operates an institutional pharmacy business, which at
September 30, 1997 serviced approximately 30,300 nursing facility beds in
regional markets throughout the United States.
The Company's revenues are derived through the provision of healthcare
services in its network of facilities, including long-term care services such as
skilled nursing care, assisted living care and related support services and
medical specialty services such as subacute care and rehabilitative therapy,
pharmacy supplies and services and medical equipment, supplies and services.
From 1994 to September 30, 1997, the percentage of the Company's revenue derived
from routine care and assisted living care has declined from 70.7% to 62.3%,
while the percentage of revenue derived from medical specialty services has
increased from 28.3% to 36.6%. The increase in the percentage of revenue
attributable to medical specialty services reflects the Company's focus on
expanding its provision of higher revenue specialized subacute care services.
The Company receives payment for its services and products from Federal
(Medicare) and State (Medicaid) funded cost reimbursement programs, as well as
from private payors. The private pay classification includes payments from
individuals, commercial insurers, health maintenance organizations, and other
fee-based payment sources, including Blue Cross Associations and the Veterans
Administration. The following table sets forth the Company's private pay,
Medicare and Medicaid sources of revenue by percentage of total revenue:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
------------ --------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Private pay............................................... 33% 32% 32% 33% 35%
Medicare.................................................. 31 30 30 26 22
Medicaid.................................................. 36 38 38 41 43
</TABLE>
Funds received by the Company under the Medicare and Medicaid programs are
subject to audit with respect to the application of various payment formulas and
such audits can result in retroactive adjustments to revenues. The Company is
reimbursed under the Medicare program for its direct costs plus an allocation of
indirect costs up to a regional limit. The costs of care for Medicare patients
receiving specialty medical services is often expected to exceed the regional
reimbursement limits. The Company in such cases files for routine cost limit
("RCL") exceptions in an attempt to recover such additional costs. There can be
no assurance that the Company will be able to recover such excess costs under
pending or future exception requests. In addition, on-going efforts by third
party payors to contain healthcare costs by limiting reimbursement rates,
increasing case management review and negotiating reduced contract pricing could
affect the Company's future revenues and profitability. Most recently, the
Balanced Budget Act requires the establishment of a prospective payment system
("PPS") for Medicare skilled nursing facilities under which facilities will be
paid a federal per diem rate for virtually all covered nursing facility services
in lieu of the current cost-based reimbursement rate. This change will reward
efficient providers and penalize those that are inefficient. The law contains
numerous other provisions that will adversely affect payments to providers. See
51
<PAGE> 54
"Risk Factors -- Potential Adverse Effect of Balanced Budget Act of 1997 and
Other Health Care Reforms," "-- Reimbursement by Third Party Payors," and "--
Risks Associated with Reimbursement Process."
On September 30, 1997, the Company announced its intent to purchase Arbor
through a cash purchase tender offer valued at approximately $320 million plus
assumed debt of approximately $109 million. After giving effect to the
Acquisition, the Company operates a total of 194 nursing facilities (20,985
operational beds) and 38 assisted living and retirement facilities (1,480
operational units) located in 15 states. In addition, the Acquisition augmented
the Company's provision of institutional pharmacy supplies and services and
rehabilitative therapy services. Substantially all of the Company's existing
long-term debt and bank lines of credit was refinanced in conjunction with the
Acquisition.
The following is a summary of other acquisitions and expansion through
construction made by the Company during the nine months ended September 30, 1997
and the years ended December 31, 1996 and 1995 as part of its growth strategy:
ACQUISITIONS
- - The Company acquired nine nursing facilities (890 operational beds), of
which two were previously leased, for $41.7 million during the first nine
months of 1997. Five of such facilities were acquired from Medi-Management
for a purchase price of approximately $24 million and the assumption of
$9.2 million of debt. The Company also acquired the assets of seven medical
specialty services related businesses for a total of $9.3 million during
such period.
- - The Company acquired four nursing facilities (652 operational beds) at
purchase prices totaling $23.5 million, which included two previously
leased facilities, during 1996. The operating assets of an institutional
pharmacy were also acquired for $0.4 million.
- - The Company acquired five nursing facilities (534 operational beds) for
$13.1 million during 1995, three of which had been operated under lease
agreements, and a 60 percent partnership interest in an institutional
pharmacy in Florida.
CONSTRUCTION
- - The Company completed construction of one nursing facility (74 operational
beds), two nursing facility additions (59 operational beds), seven assisted
living facilities (330 units), one assisted living facility addition (10
units) and five therapy additions through the first nine months of 1997.
- - The Company completed construction of three nursing facility additions (90
operational beds), six assisted living facilities (189 units) and twenty
therapy additions during 1996.
- - The Company completed construction of one nursing facility (60 operational
beds), two nursing facility additions (111 operational beds), five assisted
living facilities (127 units) and seventeen therapy additions during 1995.
The Company sold one nursing facility (179 operational beds) for $2.0
million and two nursing facilities (371 operational beds) for $6.5 million
during the nine months ended September 30, 1997 and the year ended December 31,
1996, respectively. The prices for the facilities approximated their net book
value. It also ceased operations at one of its leased facilities during 1996.
52
<PAGE> 55
RESULTS OF OPERATIONS
The following table sets forth details of revenues and earnings as a
percentage of total revenues:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
--------------- -------------------------
1997 1996 1996 1995 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues
Routine Care and Assisted Living............... 62.3% 64.4% 63.9% 66.7% 70.7%
Medical Specialty Services..................... 36.6 34.8 35.2 32.4 28.3
Other.......................................... 1.1 0.8 0.9 0.9 1.0
----- ----- ----- ----- -----
100.0 100.0 100.0 100.0 100.0
Operating and administrative costs............... 86.0 86.8 86.2 87.7 87.9
Property costs................................... 4.8 4.7 4.7 4.7 4.8
Interest, net.................................... 2.1 2.3 2.2 2.0 2.0
Earnings before taxes............................ 7.1 6.2 6.9 5.6 5.3
Income taxes..................................... 2.7 2.5 2.7 2.2 2.1
Net earnings..................................... 4.3% 3.7% 4.1% 3.4% 3.3%
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
REVENUES
Revenues in the nine months ended September 30, 1997 were $663.4 million,
representing an increase of $49.3 million (8.0%) from $614.1 million in the nine
months ended September 30, 1996. The majority of the Company's revenue was
derived from routine skilled nursing facility revenues (60.5%). The increase in
revenues of $49.3 million included increases in routine care and assisted living
revenues of $18.3 million, medical specialty services revenues of $29.1 million
and other revenues of $1.9 million.
The increase in routine care and assisted living facility revenues of $18.3
million included a net decrease of $7.1 million resulting from divestitures,
partially offset by the opening of a newly constructed facility and the
acquisition of five facilities effective June 1, 1997 and two facilities
effective September 1, 1997. The remaining increase in such revenues of $25.4
million (6.4%) was realized from facilities which the Company operated during
each of 1997 and 1996 ("same facilities"). Same facility revenues increased
between periods due to rate increases and the increased recognition of Medicare
program RCL exception amounts. An increased level of RCL revenues totalling $3.2
million was recognized during the nine months ended September 30, 1997
pertaining to prior years as the result of the Company attaining a level of
intermediary approval experience sufficient to enable it to reasonably estimate
the amount of exception request dollars subsequently approved. The amounts
recorded were at the actual amounts approved or 70% of filed amounts which
approximates the Company's most recent approval experience. The Company also
began in 1997 to recognize estimated RCL exception request amounts on a current
year basis. Approximately $2.4 million of estimated 1997 exception request
amounts have been recorded during the nine months ended September 30, 1997.
Partially offsetting the aforementioned increases was a decline in occupancy
between periods. Total occupancy, defined as patient days for nursing facilities
and units occupied for assisted living facilities, declined 0.9%. The lower
census between years is partially due to one less day in 1997 versus 1996 as a
result of the leap year effect in 1996. The one less day accounted for a 0.4%
decline in total occupancy. Occupancy percentages based on beds/units in
operation were 88.5% in 1997 and 88.9% in 1996.
The increase in medical specialty services revenues of $29.1 million
(13.6%) included $4.4 million from acquisitions during the nine months ended
September 30, 1997, net of divestitures. The remaining increase of $24.7 million
is due to a number of factors. Restorative therapy revenues increased $14.1
million due to the increased utilization of such services by patients and as a
result of the Company's ability to provide such services as a result of the
completion of 25 therapy addition construction projects in 1996 and the first
nine
53
<PAGE> 56
months of 1997. Pharmacy revenues increased approximately $10.4 million due to
price and product mix changes.
Pharmacy operations serviced an average of 30,204 nursing facility beds
during the nine months ended September 30, 1997 compared to 30,676 nursing
facility beds in the comparable period of 1996. Pharmacy operations were
servicing approximately 30,300 nursing facility beds at September 30, 1997. The
termination of a contract with a chain of nursing facilities resulted in the
decrease in beds serviced at September 30, 1997.
OPERATING AND GENERAL AND ADMINISTRATIVE COSTS
Operating and general and administrative costs increased $37.8 million or
7.1% between periods. The increase included decreases in costs relating to
divestitures, net of acquisitions and a newly constructed facility, of
approximately $4.9 million in the nine months ended September 30, 1997. The
remaining increase in operating and general and administrative costs of $42.7
million (8.1%) included wage-related increased costs of $28.2 million. The
increase in wage-related costs included an increase of $33.4 million to attract
and retain qualified personnel offset by a decrease in workmen's compensation
costs of $5.2 million due to lower premiums as the result of a change in
insurance carriers, favorable experience and loss prevention efforts. Remaining
increases, excluding wage-related costs, were increased medical specialty
services costs of $8.2 million, principally for therapy and pharmacy related
services and products, and $6.3 million related to other routine care and
general and administrative costs.
PROPERTY COSTS
Property costs, representing depreciation, amortization and lease costs,
increased $3.1 million (11.0%) to $31.7 million in the nine months ended
September 30, 1997 compared with the nine months ended September 30, 1996. The
increase is principally due to the overall increase in the number of facilities
operated by the Company and the construction of additions to the Company's
facilities.
INTEREST
Net interest expense decreased $0.4 million to $13.6 million in the nine
months ended September 30, 1997 compared to $14.0 million in the comparable
period in 1996. The effect of an increase in the average debt level to $253.4
million during the first nine months of 1997 from $234.1 million during the
first nine months of 1996 was offset by a decrease in the weighted average
interest rate of all non-current liabilities to approximately 7.78% in the first
nine months of 1997 compared to approximately 8.40% in the first nine months of
1996. Net interest expense was also affected by more favorable investment
earnings in the first nine months of 1997 compared to the first nine months of
1996.
INCOME TAXES
Income taxes in the nine months ended September 30, 1997 increased to $18.0
million from $15.4 million in the comparable period in 1996 as the result of
increased pre-tax earnings. The Company's effective tax rates were 38.0% in the
first nine months of 1997 and 40.0% in the first nine months of 1996.
NET EARNINGS
Net earnings in the first nine months of 1997 were $28.6 million, an
increase of $5.8 million (25.2%) over net earnings of $22.8 million in the nine
months ended September 30, 1996. EBITDA for the nine months ended September 30,
1997 was $85.4 million, an increase of $10.9 million (14.6%) over EBITDA of
$74.5 million in the nine months ended September 30, 1996. EBITDA for the three
months ended September 30, 1997 was $26.2 million, a decrease of $3.7 million
(12.4%) from EBITDA of $29.9 million for the three months ended June 30, 1997,
primarily due to the increased level of nonrecurring RCL revenues in the three
months ended June 30, 1997 as described above, an increased level of start-up
losses associated with new operations and a decrease in medical specialty
revenues resulting from patient mix changes between periods.
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YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES
Revenues in 1996 were $824.3 million, representing an increase of $77.2
million (10.3%) from $747.1 million in 1995. The majority of the Company's
revenue was derived from routine skilled nursing facility revenues (62.2%). The
increase in revenues of $77.2 million included increases in routine care and
assisted living revenues of $28.3 million, medical specialty services revenue of
$48.2 million and other revenues of $0.7 million.
The increase in routine care and assisted living facility revenues of $28.3
million included an increase of $17.5 million resulting from acquisitions, net
of divestitures, and the opening of newly constructed facilities. The remaining
increase in such revenues of $10.8 million (2.2%) was realized from same
facilities. Same facility revenues increased between years due to rate
increases. Partially offsetting the rate increases was a decline in occupancy.
Total occupancy declined 2.5% between years. Occupancy percentages based on
beds/units in operation were 88.8% and 89.3% in 1996 and 1995, respectively. The
lower census between years is due to several factors. Certain of the Company's
markets experienced the impact of alternative settings, such as assisted living
facilities or home healthcare services, for previously longer stay but less
medically needy residents. A decline in census in the state of Washington due to
the state's efforts to find alternative sources of placement for nursing
facility residents negatively impacted total census by 1.3%. Reported census
also decreased 0.5% as a result of extended evacuations at two facilities during
1996 due to a train derailment and a flood. Census was also negatively impacted
by a continuing higher proportion of residents which require shorter stays as
part of a rehabilitation condition. The shorter average length of stays creates
more turnover in facilities leaving gaps in occupied beds and the requirement
for more intensive marketing.
The increase in medical specialty service revenues of $48.2 million (19.9%)
between years included $5.5 million resulting from the acquisition of two
institutional pharmacy operations during 1996 and $6.2 million resulting from
acquisitions and the opening of newly constructed nursing facilities during 1996
and 1995. The remaining increase of $36.5 million is due to the increased
utilization of restorative therapy services by patients and as a result of the
Company's ability to provide such services. This ability results from the
completion of 37 therapy addition construction projects in 1996 and 1995.
Pharmacy operations serviced an average of 30,784 nursing facility beds in
1996 compared to 27,745 nursing facility beds in 1995. Pharmacy operations were
servicing in excess of 31,000 nursing facility beds at December 31, 1996.
OPERATING AND GENERAL AND ADMINISTRATIVE COSTS
Operating and general and administrative costs increased $55.3 million or
8.4% from 1995; however, such costs as a percentage of revenues declined for the
third consecutive year. The increase included increases in costs relating to
acquisitions, net of divestitures and newly constructed facilities of
approximately $23.9 million in 1996. The remaining increase in operating and
general and administrative costs of $31.4 million (4.8%) included wage-related
increased costs of $13.9 million. The increase in wage-related costs included an
increase of $25.5 million to attract and retain qualified personnel offset by a
decrease in workmen's compensation costs of $11.6 million due to favorable
experience under its retroactively rated insurance coverage plans resulting from
loss prevention efforts and lower premiums for such coverage in certain of the
states in which the Company operates. Remaining increases, excluding
wage-related costs, were increased medical specialty services costs of $14.2
million, principally for therapy and pharmacy related services and products, and
$3.3 million related to other routine care and general and administrative costs.
PROPERTY COSTS
Property costs, representing depreciation, amortization and lease costs,
increased $3.6 million (10.3%) to $38.5 million in 1996 compared with 1995. The
increase is principally due to the increase in the number of facilities
operating by the Company through acquisitions and construction and the
construction of therapy additions.
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INTEREST
Net interest expense increased $3.7 million to $18.5 million in 1996
compared to 1995 due to acquisitions and capital project expenditures. The
average debt level throughout 1996 was approximately $233.4 million compared
with approximately $184.5 million in 1995. The weighted average interest rate of
long-term debt at December 31, 1996 was approximately 7.56%.
INCOME TAXES
Income taxes in 1996 increased to $22.5 million from $16.8 million in 1995
as the result of increased pre-tax earnings. The Company's effective tax rates
were 39.6% in 1996 and 39.5% in 1995.
NET EARNINGS
Net earnings in 1996 were $34.0 million, an increase of $8.5 million (33%)
over 1995 net earnings of $25.5 million.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES
Revenues in 1995 were $747.1 million, representing an increase of $82.1
million (12.4%) from $665.0 million in 1994. The majority of the Company's
revenue was derived from routine skilled nursing facility revenues (65.4%). The
increase in revenues of $82.1 million included increases in routine care and
assisted living revenues of $27.8 million, medical specialty services revenues
of $53.9 million and other revenues of $0.4 million.
The increase in routine care and assisted living facility revenues of $27.8
million included a net increase of $8.1 million resulting from the acquisition
of ten nursing facilities and the opening of eight new assisted living
facilities during 1994 and 1995, partially offset by divestitures. The remaining
increase in such revenues of $19.7 million (4.2%) was realized from same
facilities. Same facility revenues increased $31.6 million between periods due
to rate increases. Partially offsetting the aforementioned increase was a
decline in occupancy. Total occupancy declined 2.7% between periods. The lower
census between years is primarily due to an increase in the number of patients
which require shorter stays as part of a subacute care rehabilitation condition
and the impacts of alternative patient care settings. Occupancy percentages
based on beds/units in operation were 89.5% in 1995 and 91.5% in 1994.
The increase in medical specialty services revenues of $53.9 million
(28.6%) between periods included $9.0 million from acquisitions during 1995 and
1994, net of divestitures in 1995 and 1994. The remaining increase of $44.9
million is due to a number of factors. Restorative therapy revenues increased
$32.4 million due to the increased utilization of such services by patients and
as a result of the Company's ability to provide such services as a result of the
completion of a number of therapy addition construction projects in 1995 and
1994. Pharmacy revenues increased approximately $9.5 million due to price and
product mix changes ($7.9 million) and an increase in the average number of beds
serviced between years from 25,000 in 1994 to 28,000 in 1995 ($1.6 million). The
remaining $3.0 million increase is primarily due to growth in other ancillary
revenues to nursing facility residents.
Pharmacy operations were servicing approximately 30,600 nursing facility
beds at December 31, 1995.
OPERATING AND GENERAL AND ADMINISTRATIVE COSTS
Operating and general and administrative costs increased $70.4 million or
12.0% between years. The increase included increases in costs relating to
acquisitions and new construction net of divestitures of approximately $13.2
million in 1995. The remaining increase in operating and general and
administrative costs of $57.2 million (9.8%) included wage-related increased
costs of $17.1 million. The increase in wage-related costs included an increase
of $21.1 million to attract and retain qualified personnel offset by a decrease
in workmen's compensation costs of $4.0 million due to favorable actuarial
adjustments on prior policy years and
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improved claim experience. Remaining increases, excluding wage-related costs,
were increased medical specialty services costs of $32.6 million, principally
for therapy and pharmacy related services and products, and $7.5 million related
to other routine care and general and administrative costs.
PROPERTY COSTS
Property costs, representing depreciation, amortization and lease costs,
increased $2.9 million (8.9%) to $34.9 million in 1995 compared with 1994. The
increase is principally due to the overall increase in the number of facilities
operated by the Company and the construction of bed and therapy additions to the
Company's facilities.
INTEREST
Net interest expense increased $1.7 million to $14.8 million in 1995
compared to $13.1 million in 1994 due primarily to the acquisition of nursing
facilities. The average debt level throughout 1995 was approximately $184.5
million compared with approximately $169.2 million in 1994. The weighted average
interest rate of all long-term debt at December 31, 1995 was approximately 8.1%.
INCOME TAXES
Income taxes in 1995 increased to $16.8 million from $13.9 million in 1994
as a result of increased pre-tax earnings. The Company's effective tax rate was
39.5% in 1995 compared to 39.0% in 1994.
NET EARNINGS
Net earnings in 1995 were $25.5 million, an increase of $3.8 million
(17.6%) over 1994 net earnings of $21.7 million.
ARBOR
Arbor provides subacute care services and basic health services for a
variety of patients at its Arbor Centers. Arbor also provides institutional
pharmacy services to both the Arbor Centers and non-affiliated facilities and
their residents.
Subacute care revenues increased from $38.6 million in 1992 to $113.1
million in 1996. Included in subacute care revenues are all room and board,
nursing, therapies, and medical supplies for subacute patients and pharmacy
charges for all Arbor patients. Arbor is primarily reimbursed for the care of
subacute patients by Medicare, managed care payors and commercial insurance.
Rates received vary by payor type. Arbor directs its marketing efforts to
attract patients reimbursed by managed care providers (principally HMOs and
PPOs), commercial insurers and Medicare. Subacute care beds increased from 551
in 1992 to 1,196 in 1996.
Arbor includes in basic health care revenues all room and board, nursing,
therapies and medical supplies for its geriatric, chronic care and assisted
living patients. Arbor receives payment for basic health care services primarily
from Medicaid and private pay sources. Revenues from basic care patients
increased from $56.0 million in 1992 to $84.0 million in 1996. Basic care
revenues have not increased as much as subacute care revenues because (i) rates
for subacute patients are considerably higher than for basic care patients; and
(ii) Arbor has converted existing basic care beds to subacute care beds. Basic
care beds increased from 1,938 in 1992 to 2,382 in 1996.
Arbor includes in pharmacy and other revenues those institutional pharmacy
and related ancillary sales made to non-affiliated facilities and their
residents, outpatient rehabilitation clinic revenue and, prior to June 1, 1995,
the revenue from management of one Arbor Center not owned by Arbor.
Operating expenses primarily include the costs incurred by the Arbor
Centers, pharmacies and, prior to June 1, 1995, costs of providing management
services. General corporate expenses are for the supervisory staff needed to
handle the general affairs of Arbor and to support its operations. Center
ownership costs include operating lease rentals, net interest expense, and
depreciation and amortization expense. Operating, general
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corporate and ownership costs increased since 1992 as Arbor increased the number
of Arbor Centers, acquired pharmacies and expanded subacute care services.
Arbor's pharmacy division consists of four institutional pharmacies and
related services. The pharmacy division services approximately 22,500
non-affiliated beds and approximately 3,500 of its own beds in Florida, Ohio and
Indiana. Pharmacy sales to Arbor's subacute and basic care patients are included
in subacute care revenue. Pharmacy sales to non-affiliated facilities and their
residents are included in pharmacy and other revenue. Sales to Arbor's Centers
for resale to their Medicare Part A, Veterans Administration and certain other
patients constitute intercompany transactions and are eliminated in
consolidation.
During 1996 Arbor developed and opened a 36-bed subacute unit addition to
an existing Arbor Center in February, a 79-bed Arbor Center in April, a 116-bed
Arbor Center in August, and a 120-bed Arbor Center in late December. Arbor
acquired two businesses that provide medical supplies and Medicare billing
services and purchased a 100-bed Arbor Center previously operated under a lease
agreement effective June, 1996 and September, 1996, respectively. During 1997,
Arbor acquired the net assets of three Comprehensive Rehabilitation Outpatient
Facilities ("CORFs") and opened two satellite locations which provide general,
job-related injury and geriatric rehabilitation to the northeastern Pennsylvania
and St. Augustine, Florida markets. Effective September 15, 1997, Arbor acquired
seven Rehabilitation Centers in the Jacksonville, Florida area. As at September
30, 1997, Arbor's five CORFs and seven Rehabilitation Centers serviced over
7,000 patients annually. As of September 30, 1997, Arbor operated 3,696 beds in
its 31 Arbor Centers located in five states. Refer to Note 3 of the Notes to
Arbor Unaudited Interim Consolidated Financial Statements.
Ongoing efforts by third party payors to contain health care costs by
limiting reimbursement rates, increasing case management review and negotiating
reduced contract pricing affect Arbor's revenues and profitability. During 1996,
Arbor introduced a plan to improve operating margins, reduce operating costs and
increase referrals from managed care organizations.
During the year ended December 31, 1996, Arbor introduced a plan to improve
operating margins, reduce operating costs and increase referrals from managed
care organizations, with a view to minimizing the effect of or potentially
maximizing the benefits from future changes anticipated in the Medicare payment
system and the expansion of managed care business. As anticipated, as operating
costs were reduced, Medicare revenues, which are cost-based, declined. The lower
operating costs reduced the growth rate of Medicare revenues in Mature Arbor
Centers (as defined below) during 1996. The effects of cost reductions are more
apparent in Mature Arbor Centers. Arbor began to focus its marketing efforts on
increasing revenues from managed care payors, which traditionally have provided
higher operating margins than Medicare. As a result, managed care and insurance
subacute revenues increased 21.3% from 1995 and represented 20.8% of subacute
care revenue in 1996 as compared to 19.2% in 1995.
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
net revenues represented by certain items reflected in Arbor's consolidated
statements of income.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
-------------- -----------------------
1997 1996 1996 1995 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues
Subacute care..................................... 52.2% 51.5% 51.7% 52.5% 52.2%
Basic care........................................ 35.3 38.9 38.4 39.5 41.3
Pharmacy and other................................ 12.5 9.6 9.9 8.0 6.5
----- ----- ----- ----- -----
Total net revenues.................................. 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Expenses
Operating......................................... 78.2 78.9 78.2 79.1 79.5
General corporate................................. 4.5 4.4 4.4 4.7 4.6
Operating lease rental............................ 1.8 2.1 2.0 2.2 2.6
Interest.......................................... 3.4 3.2 3.3 3.0 2.9
Depreciation and amortization..................... 4.4 4.1 4.1 3.8 3.6
Net other expense................................. 0.0 0.2 0.2 -- --
----- ----- ----- ----- -----
Total expenses...................................... 92.3 92.9 92.2 92.8 93.2
----- ----- ----- ----- -----
Income before income taxes.......................... 7.7 7.1 7.8 7.2 6.8
Income taxes........................................ 3.0 2.8 3.1 2.8 2.5
----- ----- ----- ----- -----
Net income.......................................... 4.7% 4.3% 4.7% 4.4% 4.3%
===== ===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Total net revenues for the nine months ended September 30, 1997 of $181.2
million increased $20.1 million, or 12.5%, from the nine months ended September
30, 1996. Internal growth generated 76% of the increase and the balance resulted
from 1996 and 1997 acquisitions. Revenues from Start-Up Centers (developed Arbor
Centers which have been in operation for less than 24 months as of the period
reported) provided 87% of the internal growth. Total occupancy increased to
90.8% from 89.2% in the comparable period of the prior year due to improved
occupancy in both Mature (Arbor Centers in operation for 24 months or more in
the period being reported upon) and Start-Up Centers. Subacute care revenues
increased $11.7 million, or 14.0%, due to more beds and improved occupancy
($17.4 million) partially offset by lower average rates ($5.7 million). The
decrease in subacute rates is due to changes in payor mix and the Company's
cost-reduction efforts, as described below. Managed care patients accounted for
19.2% of the total subacute patients serviced compared to 12.8% for the nine
months ended September 30, 1996. Basic care revenues increased $1.2 million, or
1.9%, due to more beds and improved occupancy ($1.9 million) offset by decreased
rates resulting from lower operating costs ($0.7 million). Pharmacy and other,
primarily outpatient, revenues increased $7.3 million, or 47.4%, due to the 1996
and 1997 acquisitions ($4.6 million) and increased sales volume ($2.7 million).
Operating expenses for the nine months ended September 30, 1997 of $141.6
million increased $14.6 million, or 11.5%, over the comparable period in 1996.
As a percent of revenue, operating costs decreased to 78.2% from 78.9% for the
comparable period in the prior year. Approximately 97% of the increase in
operating costs was due to Start-Up Centers and 1996 and 1997 acquisitions. The
remainder of the net increase was due to an increase in pharmacy operating costs
offset by a decrease in Mature Center costs. Compensation expenses for Arbor
Center staff of $65.4 million increased by $6.0 million, or 10.1%. Start-Up
Centers accounted for $5.4 million of the increase. The cost of providing
therapies, pharmaceuticals and medical supplies ("Ancillary Services") increased
$5.8 million due to Start-Up Centers, the 1996 and 1997 acquisitions and costs
associated with increased pharmacy sales offset in part by reduced costs at
Mature Centers. Mature Center Ancillary Services costs decreased 9.3% when
compared to the same period in the
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prior year as a result of Arbor's efforts in converting therapy to in-house
programs rather than purchasing from contract therapy providers. All other costs
in Mature and Start-Up Centers increased $2.8 million.
General corporate expenses increased $1.0 million, or 13.4%, due to costs
incurred to support internal growth and pursue strategic acquisitions.
Ownership costs increased $2.3 million, or 15.0%, primarily due to Start-Up
Centers and the 1997 acquisitions.
Net income increased by $1.6 million, or 23%, primarily as a result of the
foregoing factors.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total net revenues for the year ended December 31, 1996 of $218.8 million
increased $26.6 million, or 13.9%, from the year ended December 31, 1995.
Approximately 64.3% of the revenue increase during 1996 resulted from internal
growth and 35.7% from acquisitions made during 1995 and 1996. Internal revenue
growth came from Start-Up Arbor Centers. Subacute care revenues (which accounted
for 51.7% of total revenues) increased $12.2 million due to added beds and
improved occupancy. Basic care revenues increased $8.1 million ($2.8 million
from higher rates, $3.3 million from added beds and higher occupancy and $2.0
million from the Arbor Center acquired in May, 1995). Pharmacy and other
revenues increased $6.3 million, primarily due to the acquisition of an
institutional pharmacy on June 30, 1995.
Operating expenses for the year ended December 31, 1996 of $171.2 million
increased $19.2 million, or 12.7%, over the comparable period in 1995. However,
as a percent of revenue, operating costs decreased to 78.2% from 79.1% for the
comparable period in 1995, due primarily to the initial implementation of the
margin-driven strategy in Mature Arbor Centers and the effect of the pharmacy
acquisition made during 1995. Increased costs were due to the Start-Up Arbor
Centers and the 1995 acquisition while operating costs in Mature Arbor Centers
decreased 3.4% from 1995. Compensation expenses for Arbor Center staff of $78.1
million increased by $6.9 million, or 9.7%, over the comparable period in 1995.
The Start-Up Arbor Centers and the Arbor Center acquired in May, 1995 accounted
for $8.5 million of the increase in Arbor Center personnel compensation
expenses. These expenses in Mature Arbor Centers decreased by $1.6 million due
to the partial implementation of standardized staffing models. The cost of
providing Ancillary Services increased operating expenses by $8.6 million,
primarily due to the Start-Up Arbor Centers and the institutional pharmacy
acquired in 1995. Ancillary Services expenses in Mature Arbor Centers decreased
by $2.1 million primarily as a result of providing more therapy services
in-house rather than by contract. The net effect of other cost increases and
decreases reflected an overall net increase of $3.7 million primarily resulting
from the Start-Up Arbor Centers and the acquisition of one Arbor Center in May,
1995.
General corporate expenses for the year ended December 31, 1996 of $9.7
million increased $0.7 million, or 7.7%, over the comparable period in 1995.
This change was primarily caused by expenses for additional administrative
personnel and other related expenses needed to support the growing business.
Arbor Center ownership costs for the year ended December 31, 1996 of $20.5
million increased $2.9 million, or 16.6%, over the year ended December 31, 1995.
The increase in ownership costs is due to the Start-Up Arbor Centers and the
acquisition of one Arbor Center and an institutional pharmacy in 1995.
Net income increased by $1.8 million, or 21.0%, from the comparable period
in 1995, primarily as a result of the foregoing factors, notwithstanding an
increase in the effective income tax rate from 38.6% to 39.7%.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total net revenues for the year ended December 31, 1995 of $192.2 million
increased $33.4 million, or 21.0%, from the year ended December 31, 1994.
Approximately 76.9% of the revenue increase during 1995 resulted from internal
growth and 23.1% resulted from acquisitions made during 1995. Internal revenue
growth resulted from Mature Operations (Arbor Centers and pharmacies in
operation for 24 months or more in the period being reported upon), which
accounted for approximately 34.5% of the revenue growth, and Start-Up Arbor
Centers which provided approximately 42.4% of the increase in revenue. Subacute
care revenues
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(which accounted for 52.5% of total revenues) increased $18.1 million ($6.0
million from higher rates and $12.1 million from added beds and improved
occupancy). Basic care revenues increased $10.3 million ($3.4 million from
higher rates and $6.9 million from added beds and improved occupancy) and
pharmacy and other revenues increased $5.0 million, primarily due to the June
30, 1995 institutional pharmacy acquisition. Mature Operations provided $7.5
million of the subacute care revenue increase ($5.0 million due to higher rates)
and $3.7 million of the basic care revenue increase ($2.9 million due to higher
rates). The remaining revenue growth came from four Start-Up Arbor Centers and
the acquisition of one Arbor Center in May, 1995.
Operating expenses for the year ended December 31, 1995 of $151.9 million
increased $25.7 million, or 20.3%, over the comparable period in 1994. The
increased costs were primarily due to increased occupancy and utilization of
Ancillary Services in Mature Arbor Centers, the increased occupancy of four
Start-Up Arbor Centers, the acquisition of one Arbor Center in May, 1995, and
the June 30, 1995 institutional pharmacy acquisition. Arbor Center personnel
compensation expenses of $71.2 million increased by $9.0 million, or 14.4%, over
the comparable period in 1994. The increased occupancy of four Start-Up Arbor
Centers and the acquisition of one Arbor Center in May, 1995 accounted for $6.6
million of the increase in Arbor Center personnel compensation expenses, while
routine wage increases accounted for the remaining $2.4 million increase. The
cost of providing additional Ancillary Services increased operating expenses by
$15.0 million, while the net effect of other cost increases and decreases
reflected an overall net increase of $1.7 million primarily resulting from four
Start-Up Arbor Centers and the acquisition of one Arbor Center in May, 1995. As
a percent of revenue, operating costs decreased to 79.1% from 79.5% for the
comparable period in 1994, due primarily to the effect of the pharmacy
acquisition made during the year and increased occupancy at Start-Up Arbor
Centers.
General corporate expenses for the year ended December 31, 1995 of $9.0
million increased $1.6 million, or 22.3%, over the comparable period in 1994.
This change was primarily caused by expenses for additional administrative
personnel and other related expenses needed to support the growing business.
Arbor Center ownership costs for the year ended December 31, 1995 of $17.6
million increased $3.2 million, or 22.5%, over the year ended December 31, 1994.
The increase in ownership costs is due primarily to four Start-Up Arbor Centers
and the acquisition of one Arbor Center and an institutional pharmacy in 1995.
Net income increased by $1.5 million, or 22.4%, from the comparable period
in 1994, primarily as a result of the foregoing factors, notwithstanding an
increase in the effective income tax rate from 36.3% to 38.6% primarily as a
result of the discontinuance of the targeted jobs tax credit in 1995.
HISTORICAL LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
The Company had cash and cash equivalents of $14.9 million at September 30,
1997 and $18.7 million at December 31, 1996.
Cash flow generated from operations before working capital changes was
$61.1 million for the nine months ended September 30, 1997 compared with $54.5
million in the comparable period of 1996. Cash flow generated from operations
before working capital changes for the full year of 1996 was $77.4 million
compared with $58.6 million in 1995 and $48.0 million in 1994. The increase in
cash flow from operations before working capital changes is the result of
improvement in operating earnings.
The Company experienced an increase in working capital at September 30,
1997, excluding cash and borrowings included in current liabilities, of $14.8
million. The increase in working capital requirements is principally due to the
growth of accounts receivable. Accounts receivable at September 30, 1997 were
$172.4 million compared to $153.5 million at December 31, 1996, representing an
increase of $18.9 million. The increase in accounts receivable includes
increases within the nursing facility operations of $10.4 million and an
increase within the Company's UPC Health Network medical specialty services
operations of $8.5 million. Third-party payor settlement receivables increased
$10.1 million and billed patient care and other receivables increased $0.3
million within the nursing facility operations. The increase in settlement
receivables
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of $10.1 million between periods includes $6.5 million due to an increase in
Medicare RCL exception approvals expected, $1.3 million related to the timing of
reimbursement for current year estimated Medicare costs versus the level of
interim reimbursements received, and the growth of Medicaid program settlements
expected of $2.3 million. This increase in billed patient care receivables of
$0.3 million included an increase of $5.5 million due to increases in revenues
for billed services. This increase in revenues includes, in addition to rate and
medical specialty services volume increases, growth resulting from acquisitions
during the period. The increase in billed patient care receivables was
substantially offset by a decrease of $5.2 million principally due to
improvement in the collection of such receivables and the timing of the receipt
of remittance between periods. The increase in UPC Health Network receivables of
$8.5 million between periods includes $6.2 million due to growth in its product
lines with the remaining increase of $2.3 million resulting from acquisitions.
The Company's reserve for doubtful accounts increased $2.7 million between
periods to $12.1 million due to the overall growth in the amount of receivable
balances outstanding.
Property and equipment increased $61.5 million from December 31, 1996 to a
total of $447.6 million at September 30, 1997. The increase is the result of:
acquisitions of $43.5 million and capital expenditures and asset transfers of
$44.9 million, partially offset by depreciation expense of $23.7 million and
asset disposals of $3.2 million, including $2.0 million from the sale of a
nursing facility. Property and equipment capital expenditures during the nine
months ended September 30, 1997 included approximately $19.7 million related to
the construction of new facilities and bed and therapy unit additions to
existing facilities. The Company had under construction at September 30, 1997
one nursing facility, one nursing facility addition, four assisted living
facilities, one assisted living unit addition and two therapy unit additions at
a total cost of $20.9 million, of which $6.0 million was incurred prior to
September 30, 1997.
The Company in the first nine months of 1997 financed a portion of its
acquisitions in the first nine months of 1997 through bank financing as well as
the assumption of existing debt of the seller. The Company obtained $11.1
million of bank financing in the form of a five year term note with interest at
a floating rate equal to LIBOR plus 1.375%. Existing debt assumed in connection
with acquisitions totaled $14.7 million.
Total borrowings, including bank indebtedness, notes payable and both
current and long-term maturities of debt, totaled $305.8 million at September
30, 1997 for an increase of $44.1 million from December 31, 1996. The increase
is attributable to the growth in property and equipment due to acquisitions and
capital expenditures. The weighted average interest rate of all long-term debt
was 7.43% at September 30, 1997 and such debt had maturities ranging from 1997
to 2015. Certain debt agreements of the Company include covenants with respect
to the payment of dividends and reduction of capital. As of September 30, 1997,
$42.7 million was freely distributable under such covenants.
The Company had a $75 million revolving credit agreement and a $10 million
uncommitted line of credit with various banks at September 30, 1997. Borrowing
availability under these lines of credit totaled $16.1 million at September 30,
1997.
POST-MERGER LIQUIDITY AND CAPITAL RESOURCES
The Company substantially increased its indebtedness and interest expense
as a result of the borrowings under the New Credit Facilities and the
Acquisition. The Company arranged for New Credit Facilities totalling $800
million to finance the Acquisition and to refinance existing indebtedness of
both Arbor and the Company. The New Credit Facilities consist of a $200 million
Revolving Credit Facility, a $200 million Tranche A Term Loan Facility, a $200
million Tranche B Term Loan Facility and a $200 million Tranche C Loan Facility.
The Revolving Credit Facility and the Tranche A Term Loan Facility have a term
of six years. The Tranche B Term Loan Facility has a term of seven years. The
Tranche C Loan Facility was utilized to complete the Acquisition and was repaid
upon completion of the offering of the Outstanding Notes. At the time of closing
the Acquisition, Extendicare contributed an additional $44.6 million of equity
to the Company. On a pro forma basis, at September 30, 1997, after giving effect
to the Acquisition and borrowings under the New Credit Facilities, the Company
would have had $721.7 million in indebtedness (including current maturities).
The Company will have mandatory debt payments of approximately $27.4 million in
1998. See "Description of Certain Indebtedness."
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The principal source of liquidity for the Company is cash flow from
operations and approximately $108.2 million (net of letters of credit in the
amount of $32 million) in additional borrowing availability under the Revolving
Credit Facility. The Company contemplates incurring capital expenditures
(excluding any acquisitions) on a combined basis of approximately $26.3 million
for the last three months of 1997 and approximately $104.7 million in 1998. The
Company believes that internally generated cash flow, together with borrowings
under the Revolving Credit Facility, will be sufficient to meet the Company's
operational cash requirements and to fund its capital expenditure program.
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BUSINESS
GENERAL
The Company is one of the largest providers of long-term care and related
medical specialty services in the United States. Through its geographically
clustered facilities, the Company offers a continuum of healthcare services,
including skilled nursing care, assisted living care and related medical
specialty services, such as subacute care and rehabilitative therapy,
institutional pharmacy supplies and services and medical equipment, supplies and
services. On September 30, 1997, the Company announced an agreement to acquire
Arbor Health Care Company, a prominent regionally based provider of long-term
care and related medical specialty services focused on providing subacute
medical services. The Acquisition enhances and complements the Company's
presence in the Ohio and Florida markets and solidifies the Company's position,
on a combined basis, as one of the top ten operators of long-term care
facilities in the United States, with 194 skilled nursing facilities (20,985
beds) and 38 assisted living and retirement facilities (1,480 units) located in
15 states. On a pro forma combined basis at September 30, 1997, the Company
would have owned approximately 85% of its facilities, enhancing its credit
quality and financial flexibility. In addition, on a pro forma combined basis
for the last twelve months, the Company would have generated revenues and EBITDA
of $1.1 billion and $158.5 million, respectively, with occupancy rates averaging
approximately 88% and a strong quality mix of approximately 63%.
EHSI OVERVIEW
The Company provides high quality long-term care and related medical
specialty services through a total of 201 long-term care facilities with a total
resident capacity of 18,769 in 13 states as of September 30, 1997. The Company
has been able to achieve strong occupancy rates, a favorable payor mix and
sustained growth in total and same facility revenues throughout its network of
long-term care facilities. The Company had an average occupancy rate of
approximately 88% in its nursing facilities and in its assisted living and
retirement facilities for the nine months ended September 30, 1997. In addition,
the Company has improved its quality mix from 53% in 1992 to 64% for the nine
months ended September 30, 1997, primarily as the result of successful efforts
to shift its patient mix to higher acuity patients requiring subacute care
services. Payment coverage for such services is provided principally by the
Medicare program. In addition, since 1992, the Company has increased its
resident capacity by 12.6%. As a result of these factors, the Company has
experienced increased revenues and EBITDA, with compound annual growth rates of
11.4% and 16.3%, respectively, from 1992 to 1996. For the last twelve months,
the Company generated revenues and EBITDA of $873.7 million and $116.1 million,
respectively.
The Company's long-term care services include skilled nursing care,
assisted living care and related support services traditionally provided in
long-term care facilities. The Company's medical specialty services provide (i)
subacute care and rehabilitative therapy, (ii) pharmacy supplies and services,
and (iii) medical equipment, supplies and services to all its long-term care
facilities, as well as to non-affiliated long-term care facilities.
ARBOR OVERVIEW
Arbor provides subacute medical services and traditional long-term care
services through its network of 31 licensed nursing centers (the "Arbor
Centers") and 3,696 beds as of September 30, 1997. The Arbor Centers are located
in five states, with approximately 89% of its bed capacity located in Florida
and Ohio. At September 30, 1997, Arbor had three facilities under construction,
totaling 276 beds, that are scheduled to open over the next 12 months. In
addition, at such date, Arbor held three certificate of need ("CON") approvals
for 275 beds in Florida, along with two additional CON approvals for 240 beds
that have been appealed by other providers and therefore are not yet final.
The Arbor Centers are designed to provide subacute and basic health care
services to diverse but related types of patients. Arbor Centers are generally
located in markets that require both services, with some Arbor Centers
allocating up to 50% of total bed capacity to subacute care. Arbor also operates
four institutional pharmacies which have experienced significant growth in the
last three years.
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Subacute Services. Arbor's subacute units provide treatment programs
appropriate for medically stable patients who may require medical
rehabilitation, ventilator weaning and respiratory therapy, and complex
medical services such as cardiac recovery, infusion therapy, and wound
care. Such units concentrate on medically complex patients with high acuity
medical needs requiring greater skills and services than those associated
with the more general subacute population. Arbor's principal focus is on
developing higher revenue and higher margin specialized subacute units,
targeting predominantly commercial insurance and managed care organizations
(health maintenance organizations ("HMOs"), preferred provider
organizations ("PPOs") and indemnity insurers), which currently are the
most profitable payor sources. As of September 30, 1997, Arbor operated 30
subacute units, totaling 1,209 beds, within its 31 Arbor Centers.
Basic Health Care Services. Arbor's basic health care services primarily
consist of general and restorative ("G&R") nursing care to patients with
chronic illnesses, diminished physical function, impaired cognition or
behavioral problems. Arbor's G&R nursing units also provide a step-down in
medical intensity for geriatric subacute patients who cannot be discharged
to their homes and need lower intensity nursing for extended periods of
time. Similarly, geriatric patients in G&R units who develop a need for
rehabilitative or higher intensity services can be transferred to a
subacute unit within the same Arbor Center. Arbor also operates assisted
living units in five of its Arbor Centers.
Other Services. Arbor's pharmacy division consists of four institutional
pharmacies and related services. The pharmacy division services
approximately 26,000 beds (22,500 of which are not affiliated with Arbor)
in three states. As of January 1, 1997, Arbor began providing outpatient
rehabilitation services with the acquisition of 10 outpatient
rehabilitation facilities in Pennsylvania and Florida and has subsequently
opened two additional outpatient rehabilitation facilities. These are
specialized facilities organized to deliver comprehensive, case managed,
interdisciplinary rehabilitation services under physician directive,
including physical therapy, occupational therapy, speech therapy,
psychological services and social work. Utilizing the same clinical models
that are currently used in Arbor's inpatient subacute units, the Company
believes these facilities will provide the cost advantages that allow Arbor
to offer low-cost rehabilitation services to managed care organizations.
Arbor provides subacute care in its primary Ohio and Florida markets
through a strategy of utilizing its skilled nursing facilities as a platform for
providing care to high acuity patients at low costs. At September 30, 1997,
approximately 62% of Arbor's revenue was generated from subacute care (including
pharmacy). Since 1992, Arbor has increased its occupancy from 88% to 91% for the
nine months ended September 30, 1997. Furthermore, Arbor has been effective at
increasing its quality mix from 62% in 1992 to 68% for the nine months ended
September 30, 1997 as a result of a high Medicare component, reflecting its
presence in subacute care. Arbor's focus on quality mix and high occupancy
levels has resulted in compound annual growth rates of 19.8% and 25.3% of
revenues and EBITDA, respectively, from 1992 to 1996. For the last twelve
months, Arbor generated revenues and EBITDA of $238.9 million and $38.2 million,
respectively.
INDUSTRY OVERVIEW
According to industry sources, long-term care spending was estimated at
approximately $120 billion in 1996, or approximately 11% of total national
health expenditures, with nursing facilities accounting for $84 billion of this
total. Approximately 1.7 million people reside in nursing facilities, while
another 5.7 million elderly persons require care and services in their homes or
in community-based settings. It is estimated that the number of elderly persons
requiring long-term care services will grow from approximately 7.3 million in
1995 to over 9 million in the year 2005. Of these totals, one-third or more are
expected to be comprised of nursing facility residents while the others are
expected to receive care in home or community-based settings. As home healthcare
and subacute care services become more accepted and demographics shift toward an
aging population with increased long-term care needs, it is estimated that
long-term care expenditures (defined as nursing facility expenditures plus home
care expenditures) will grow to $250 billion by the year 2005, representing 14%
of total national health expenditures.
The long-term care and post-acute care industries include rehabilitation
hospitals and facilities, skilled nursing facilities, assisted living
facilities, intermediate care facilities, and home health services. Each of
these
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segments has experienced rapid growth in the last ten years. The number of
rehabilitation hospitals has grown 149% since 1986, while rehabilitation units
within acute care hospitals have grown 71% since 1986. While the number of
freestanding nursing facilities has remained flat over the last ten years
(17,100 in 1986 vs. 17,400 in 1996), hospital-based skilled nursing facilities
have increased from 1,145 in 1990 to 2,088 in 1996 (an 80% increase). Home
health agencies have grown even more rapidly over the last five years. Between
1990 and 1995 the number of home health agencies grew 60% from 11,765 to 18,874.
In addition to an aging population, the long-term care industry is changing
as a result of several fundamental factors which the Company believes that it is
well positioned to capitalize on, including the following:
SUPPLY/DEMAND IMBALANCE
Acquisition and construction of additional skilled nursing facilities are
subject to certain restrictions on supply including government-legislated
moratoriums on new capacity or licensing restrictions limiting the growth of
services. Such restrictions on supply, coupled with an aging population, is
causing a decline in the availability of long-term beds per person 85 years of
age or older. Additionally, advances in medical technology are enabling the
treatment of certain medical conditions outside the hospital setting. As a
result, patients requiring a higher degree of monitoring, more intensive and
specialized medical care, 24-hour per day nursing care, and a comprehensive
array of rehabilitative therapies are increasing, resulting in a need for
long-term care. The Company believes that such specialty care can be provided at
a significantly lower cost than in traditional acute care and rehabilitation
hospitals.
COST CONTAINMENT PRESSURES
As the number of people over age 65 continues to grow and as advances in
medicine and technology continue to increase life expectancies, healthcare costs
are expected to rise faster than the availability of resources from
government-sponsored healthcare programs. In response to such rising costs,
governmental and private pay sources in the United States have adopted cost
containment measures that encourage reduced length of stays in acute care
hospitals. As a result, average acute care hospital stays have been shortened,
and many patients are discharged despite a continuing need for nursing or
specialty healthcare services. This trend has increased demand for long-term
care, home healthcare, outpatient facilities, hospices and assisted living
facilities. In addition, long-term care companies with an integrated network and
a broad range of services will be in a good position to contract with managed
care companies and other payors. Furthermore, following changes in the
reimbursement to long-term care companies (i.e., development of PPS for skilled
nursing and tightened reimbursement levels as a result of increased managed care
penetration), information systems to understand clinical and financial data will
be critical for managed care contracting and internal cost management.
CHANGING FAMILY DYNAMICS
As a result of the growing number of two-income families, many people are
not able to care for elderly parents in their homes. Two-income families are,
however, better able to provide financial support for elderly parents to receive
the care they need in a nursing or assisted living facility.
BUSINESS STRATEGY
The Company has experienced significant growth in revenues and EBITDA over
the last four years. The Company seeks to continue this growth through a
strategy based on its ongoing commitment to the provision of high-quality
healthcare services while positioning itself to take advantage of the changing
healthcare environment. The Company geographically clusters its long-term care
facilities and services in order to offer its customers a broad range of
long-term care and ancillary services and improve operating efficiencies. The
Company seeks to implement its strategy by:
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EXPANDING NURSING FACILITY OPERATIONS
The Company is actively expanding its nursing facility operations through
the selective acquisition and construction of nursing facilities. Consistent
with its emphasis on geographical clustering, the Company prefers to expand in
areas which are in close proximity to its existing facilities, where (i)
management is already in place and has expertise relating to the regulatory and
reimbursement environments, (ii) it can participate as an active member of the
nursing facility association in the state, and (iii) its reputation is
established. In addition, ancillary services and those of the Company's UPC
Health Network can be provided from regional offices. In establishing new state
or regional clusters, the Company considers local demographic, regulatory and
reimbursement environments of a particular state or region.
As a result of CON licensing restrictions, growth of nursing facilities is
expected to be primarily through acquisition. From 1991 to September 30, 1997,
EHSI acquired 32 (11 previously leased) nursing facilities and has constructed
nine nursing facilities or nursing facility additions. The Company had under
construction, at September 30, 1997, one nursing facility addition (resident
capacity of 20) scheduled for completion in 1997, one nursing facility (resident
capacity of 120) scheduled for completion in 1998 and has approved the
construction of one nursing facility (resident capacity of approximately 40)
with expected completion in 1999.
DEVELOPING ASSISTED LIVING AND RETIREMENT FACILITIES
The Company will continue its active development and operation of assisted
living and retirement facilities. The Company generally locates its assisted
living and retirement facilities adjacent or in close proximity to its nursing
facilities, enabling the Company to utilize existing personnel, management
systems and land, as well as to take advantage of its established reputation.
Assisted living facilities allow the Company to serve its communities better by
providing a continuum of service that meets a wider variety of needs. In
addition, assisted living and retirement facilities generate revenues with a
higher private pay component than revenues from nursing facilities, thereby
improving operating margins. Since 1991, the Company has acquired one and
completed the construction of 23 assisted living facilities (resident capacity
of 862). The Company had under construction at September 30, 1997 an additional
four assisted living facilities and one assisted living unit addition (resident
capacity of 208) and has approved the construction of seven additional assisted
living facilities (resident capacity of approximately 322) through 1998.
INCREASING SUBACUTE CARE AND REHABILITATIVE THERAPY CAPABILITIES
The Company's subacute and rehabilitative therapy services increase the
proportion of the Company's revenues derived from Medicare, managed care, and
private payors. The Company's acquisition of Arbor is consistent with its plans
to expand its subacute care and rehabilitative capabilities. Arbor has
particular regional strengths in marketing subacute care to managed care groups
which the Company will extend to its subacute beds in other regions. A wide
range of rehabilitative equipment and services is provided in units on the same
site as nursing facilities. Since 1991, the Company completed the construction
of 57 expanded therapy units and had under construction at September 30, 1997 an
additional two such units for completion in 1997. The Company has further
approved the construction of three such units through 1998. The Company's 86
expanded therapy units include 55 units that have begun to provide service to
clients on an outpatient basis. Both the Company and Arbor have acquired
freestanding outpatient rehabilitative therapy units to provide services to the
general community.
EXPANDING THE UPC HEALTH NETWORK
The Company believes that considerable opportunity exists to expand its
provision of pharmacy and medical services and supplies through the UPC Health
Network. This business is primarily regional and is principally service driven.
The Company believes that by providing a broad range of well executed services
and support, it will be able to increase the volume of business with other
non-affiliated nursing facilities. As nursing facilities expand their range of
delivered services, this will provide additional opportunities for the UPC
Health Network.
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FOCUSING ON SMALLER URBAN COMMUNITIES
The Company intends to maintain its geographic focus on smaller urban
communities. The Company believes that it has established a reputation as a
community-oriented long-term care provider and has developed experience in
serving and marketing to smaller urban communities. The Company also believes
that operating in such communities results in a more stable workforce.
EMPHASIZING OWNERSHIP OF ASSETS
Unlike a number of other long-term care providers, the Company owns rather
than leases a substantial majority of its properties. See "-- Properties." The
Company believes ownership of such properties increases the Company's
flexibility in utilizing facilities, constructing additions for ancillary
services such as subacute care or rehabilitative therapy and adding assisted
living and retirement facilities adjacent to nursing facilities. In addition,
ownership of facilities enables the Company to control costs without regard to
escalating lease payments.
THE ARBOR ACQUISITION
Consistent with the Company's strategy, the Company acquired Arbor for an
aggregate purchase price of $429 million, including the repayment of
approximately $109 million of Arbor's debt. The Acquisition solidifies the
Company's position as one of the top ten operators of long-term care facilities
in the United States and enhances and complements the Company's presence in
Florida and Ohio. In addition, the Acquisition provides the Company with eight
approved CONs for 791 new beds, 80 of which are in Ohio (which currently has a
moratorium on new CONs). The Company estimates that 431 of the 791 beds will be
constructed in 1998, representing four new facilities and one facility addition.
Two of the approved CONs for an aggregate of 240 new beds have been appealed by
other providers and therefore are not yet final. The Company intends to build
such additional facilities upon resolution of such appeals in the Company's
favor. The Acquisition will also provide the Company and Arbor with increased
access to managed care contracts, cross selling opportunities for their pharmacy
businesses and an extension of their group purchasing services. Furthermore,
given Arbor's size and the geographic overlap with the Company, annual cost
savings are anticipated to be achieved in staff related areas, corporate general
and administrative functions and pharmacy overhead.
OPERATIONS
LONG-TERM CARE SERVICES
Nursing Care. Nursing facilities provide a broad range of long-term
geriatric and subacute care and rehabilitative therapy services, including
skilled nursing care and ancillary services, to persons who do not require the
more extensive and specialized services and supervision of a hospital. The
nursing facilities employ registered nurses, licensed practical nurses,
therapists, certified nursing assistants and qualified healthcare aides who
provide care as prescribed by each resident's attending physician and a full
range of personal support. All nursing facilities provide daily dietary
services, social services and recreational activities, as well as basic services
such as housekeeping and laundry.
The Company is continuing to expand the number and size of its nursing
facilities subject to the restrictions of state CON licensing. As of September
30, 1997, the Company operated 163 nursing facilities with 17,289 licensed beds
providing care in 13 states and Arbor operated 31 Arbor Centers with 3,696
licensed beds providing care in five states. See "-- Properties."
Assisted Living and Retirement Facilities. In its assisted living
facilities, the Company provides homelike accommodation, meals and assistance in
the activities of daily living to seniors who require some help, but not the
level of nursing care provided in a nursing facility. An assisted living
facility enhances the value of an existing nursing facility in those situations
where the two facilities operate side by side, and allows the Company to better
serve the communities in which it operates by providing a broader continuum of
service. All of the Company's assisted living facilities are within close
proximity to its nursing facilities. As of
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September 30, 1997, the Company operated 38 assisted living facilities with
resident capacity of 1,480 units and Arbor operated assisted living units in
five of its Arbor Centers with resident capacity of 185.
Due to the rapidly increasing segment of the U.S. population seeking
assisted living accommodation and the relative immaturity of the assisted living
market in the United States, the Company expects strong demand for these
services in the foreseeable future and intends to continue with its aggressive
construction program. The Company completed construction of and opened seven
assisted living facilities and one addition, with a total of 340 units, in the
first nine months of 1997, and had under construction at September 30, 1997 an
additional four assisted living facilities and one addition (capacity of 208
units).
Management Services. The Company also applies its operating expertise
through the management of nursing and assisted living facilities for others.
During 1996, the Company increased its facilities under management by eight. At
September 30, 1997, there were eight nursing facilities and five assisted living
facilities under management providing care to 1,120 residents.
MEDICAL SPECIALTY SERVICES
The Company also provides, through its network of 27 regional service
centers that comprise the UPC Health Network, a continuum of healthcare
services, programs and products to institutions and individuals of all ages.
Subacute Care and Rehabilitative Therapy. The UPC Health Network provides
patient-centered, outcome-oriented subacute care and rehabilitative therapy
services to residents in its long-term care facilities and to other
non-affiliated facilities. Patients requiring subacute care are medically
stable, yet require specialized therapy and other services that are more
intensive than traditional nursing facility care, but less than acute hospital
care. These services may include wound care and respiratory, infusion and
intravenous therapies. The Company provides rehabilitative therapy services on
an inpatient and outpatient basis to clients who require, for example, physical
or occupational therapy, or speech-language pathology. The Company's subacute
and rehabilitation teams seek to return each patient to maximum functional
independence with many patients typically being discharged within 30 to 90 days.
The U.S. healthcare system is applying pressure on acute and managed care
providers to discharge patients more rapidly to less intensive and low-cost care
environments. Subacute per diem rates are potentially 30% to 60% lower than
rates for similar services provided in acute care hospitals. This savings is
achieved in a less institutional setting than typically provided by a hospital.
The strong interdisciplinary approach to patient services, in conjunction with
the support services that the patient and family receive, are important in
optimizing clinical outcomes and level of satisfaction. In response to this
market trend, all of the Company's nursing facilities have expanded their
ability to provide patient-centered, outcome-oriented subacute and
rehabilitative care.
As of September 30, 1997, 86 of EHSI's nursing facilities operated expanded
therapy units, comprising 1,500 to 5,000 square feet of therapy space, 55 of
which were providing outpatient care. During 1996, 18 expanded therapy units
were added through construction and conversion of existing space. As of
September 30, 1997, Arbor operated 30 subacute units, totaling 1,209 beds,
within its 31 Arbor Centers. As of September 30, 1997, approximately 66 percent
of the therapists providing services in EHSI's therapy units were contracted for
by EHSI from third parties, compared with 80 percent at the end of 1995. The
Company expects that the percentage of therapy services provided by contract
therapists will continue to decline as it seeks to reduce its operating costs in
order to position itself for PPS.
Institutional Pharmacy. The Company provides pharmacy supplies and
services to more than 30,000 beds in nursing facilities, assisted living
facilities and other healthcare institutions through 11 locations in eight
states. The number of beds serviced by the Company's pharmacy operations
increased to 30,300 at September 30, 1997 from 15,000 at the end of 1992. These
include unit-dose medication distribution, computerized patient documentation,
full-service consultants and on-call service. Of the 30,300 beds serviced by the
Company, 16,000 are not affiliated with the Company. Each regional service
location is staffed with licensed, registered pharmacists and quality control
staff who are responsible for the maintenance of effective
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operations and compliance with regulations. The Acquisition includes Arbor's
four institutional pharmacies servicing approximately 26,000 beds, including
approximately 3,500 of its own beds.
Medical Services and Supplies. The UPC Health Network's retail and home
health operation distributes durable medical equipment and supplies, such as
wheelchairs, hospital beds, oxygen and diabetic supplies. It also provides a
wide range of services such as intravenous therapy products and respiratory,
oxygen and enteral therapies to hospitals, long-term care facilities and
individuals at home through 27 locations in 11 states. The UPC Health Network
operates a home health agency in southeastern Wisconsin that includes skilled
nursing and home healthcare services, as well as in-home physical, occupational
and speech therapy programs. The operation employs trained and experienced home
health nurses, nurses' aides and therapists.
Group Purchasing Services. UHF Purchasing Group, a division of the UPC
Health Network, provides purchasing services throughout the United States to
over 1,150 nursing facilities. Its program offers group purchasing of a complete
line of food, supplies and capital equipment at volume pricing from a wide range
of vendors.
QUALITY OF CARE
The focus of the Company's commitment to excellence is its belief in
treating residents with dignity and respect through the implementation of
rigorous standards that management and staff at all levels constantly assess and
update. A Vice-President of Quality Management leads a department which is
primarily responsible for establishing and auditing care and service delivery
systems and standards for the nursing facilities and assisted living facilities.
This department is also responsible for developing systems, programs and
standards for all professional disciplines and services provided to users of the
Company's services, including nursing, dietary, social services, activities,
ethical practices, mental health services, behavior management, quality
validation and continuous quality improvement. Training of employees at all
levels is an integral part of the Company's on-going efforts to improve and
maintain its quality. Each new nursing facility administrator or director of
nursing is required to attend two weeks of Company-provided training to ensure
that he or she has an understanding of all aspects of nursing facility
operations, including clinical, management and business operations. The Company
conducts additional training for these individuals and all other staff on a
regional or local basis.
MARKETING
Most of the Company's long-term care facilities are located in smaller
urban communities. The Company focuses its marketing efforts predominantly at
the local level. The Company believes that the selection of a long-term care
facility is strongly influenced by word of mouth advertising and referrals from
physicians, hospital discharge planners, community leaders, neighbors and family
members. The administrator of each long-term care facility is therefore a key
element of the Company's marketing strategy. Each administrator is responsible
for developing relationships with potential referral sources. The Company sets
overall marketing strategy and provides marketing direction and support to each
of its administrators with training and promotional materials.
MANAGEMENT AND FINANCIAL AND COST CONTROLS
The Company believes that strong management is essential to its success.
The members of its board of directors have served the Company on average more
than 15 years while its senior officers have an average 22 years experience in
the healthcare industry and 17 years of service with the Company.
Centralized accounting systems record each nursing facility results with
costs by category broken down on a cost per patient day basis all with
comparisons to budgets. Senior operating and financial management monitor costs
on a monthly basis.
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SOURCES OF REVENUE
The Company derives its revenue from Medicare, Medicaid and private pay
sources. The following table sets forth the allocation among these three payor
sources for the Company, Arbor and on a pro forma basis as if the Acquisition
had occurred at the beginning of each period presented:
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED DECEMBER
ENDED 31,
SEPTEMBER 30, --------------------
1997 1996 1995 1994
------------- ---- ---- ----
<S> <C> <C> <C> <C>
Payment Source:
Private pay
EHSI.................................................... 33% 32% 33% 35%
Arbor................................................... 36 34 33 35
Pro forma............................................... 33 32 33 35
Medicare
EHSI.................................................... 31% 30% 26% 22%
Arbor................................................... 32 34 36 34
Pro forma............................................... 31 30 28 24
Medicaid
EHSI.................................................... 36% 38% 41% 43%
Arbor................................................... 32 32 31 31
Pro forma............................................... 36 38 39 41
</TABLE>
Private Pay. The Company classifies payments from individuals who pay
directly for services without governmental assistance as private pay revenue.
The private-pay classification also includes revenues from commercial insurers,
HMOs, PPOs and other charge-based payment sources as well as revenue from HMO
Medicare risk plans. Blue Cross and Veterans Administration payments are
included in private pay and are made pursuant to renewable contracts with these
payors.
Medicare. Medicare is a health insurance program funded and administered
by the federal government primarily for individuals entitled to Social Security
who are age 65 or older. Medicare covers the first 20 days of stay in an SNF in
full, and the next 80 days above a daily coinsurance amount, after the
individual has qualified by a three-day hospital stay. The Medicare program
consists of two parts: Medicare Part A and Medicare Part B. Medicare Part A
covers inpatient services for hospitals, nursing facilities, and certain other
healthcare providers, and patients requiring daily professional skilled nursing
and other rehabilitative care. Medicare Part B covers services for suppliers of
certain medical items, outpatient services, and doctor's services. Payment for
Medicare Part A is made through either the traditional fee-for-services model,
or through a Medicare risk HMO ("Medicare Risk HMO") payment-per-enrollee
payment model. Currently, the Company's nursing facilities provide service to
Medicare through the traditional fee-for-service model. The Company's nursing
facilities receive interim payments during the year for each facility's expected
reimbursable costs under Part A, and for some programs delivered under Part B.
Reimbursement is based on the submission of a year end cost report which
reconciles interim payments made to final amounts to be paid. Under Part B, the
Company's nursing facilities and UPC Health Network bill carriers and
intermediaries based on reasonable charges, or a fixed fee schedule for
Medicare-covered services and products.
The Balanced Budget Act, signed into law on August 5, 1997, makes numerous
changes to the Medicare and Medicaid programs which could potentially affect the
Company. With respect to the Medicare program, the new law requires the
establishment of a PPS for SNF services, under which facilities will be paid a
federal per diem rate for virtually all covered services. The federal per diem
rate will be uniform for all facilities, except for an adjustment based upon
regional wage differentials. The PPS will be phased in over three cost reporting
periods, starting with cost reporting periods beginning on or after July 1,
1998. The Balanced Budget Act also institutes consolidated billing for SNF
services, under which payments for non-physician Part B services for
beneficiaries no longer eligible for Part A SNF care will be made to the
facility, regardless of whether the item or service was furnished by the
facility, by others under arrangement, or under any other
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contracting or consulting arrangement, effective for items or services furnished
on or after July 1, 1998. The law also contains provisions affecting outpatient
rehabilitation agencies and providers, including a 10 percent reduction in
operating and capital costs for 1998, a fee schedule for therapy services
beginning in 1999, and the application of per beneficiary therapy caps currently
applicable to independent therapists to all outpatient rehabilitation services,
beginning in 1999. Other provisions limit Medicare payments for certain drugs
and biologicals, durable medical equipment, parenteral and enteral nutrition
("PEN") nutrients and supplies. In addition, future payment to Medicare risk
plans will continue to be based upon a per-enrollee basis, and be based on a
combination of regional and federal factors. PSOs will be able to contract
directly with HCFA for Medicare risk contracts and receive payment on a
capitated basis. It is expected that PSOs will be created and will become active
competitors with HMOs in many regions. See "Risk Factors -- Potential Adverse
Effects of Balanced Budget Act of 1997 and Other Health Care Reforms" and "Risk
Factors -- Reimbursement by Third Party Payors."
Medicaid. Medicaid is a state-administered program financed by state funds
and matching federal funds. The program provides for medical assistance to the
indigent and certain other eligible persons. Medicaid reimbursement formulas are
established by each state with the approval of the federal government in
accordance with federal guidelines. All of the states in which the Company
operates currently use cost-based reimbursement systems which generally may be
categorized as prospective or retrospective in nature. Under a prospective
system, per diem rates are established based upon the historical cost of
providing services during a prior year, adjusted to reflect factors such as
inflation and any additional services which are required to be performed. Many
of the prospective payment systems under which the Company operates contain an
acuity measurement system which adjusts rates based on the care needs of the
patient. Retrospective systems operate much like the Medicare program. Nursing
facilities are paid on an interim basis for services provided, subject to
adjustments based on allowable costs, which are generally submitted on an annual
basis. Additional payment to a nursing facility by the state or repayment from a
nursing facility to the state can result from the submission of cost reports and
their ultimate settlement. The majority of the states in which the Company
operates nursing facilities use prospective systems.
The Balanced Budget Act repealed the federal payment standard (known as the
Boren Amendment), which required state Medicaid programs to pay rates that were
reasonable and adequate to meet the costs which must be incurred by efficiently
and economically operated nursing facilities. As a result, for Medicaid services
provided on or after October 1, 1997, states have considerable flexibility in
establishing payment rates. The Company is not able to predict whether any
states will adopt changes in their Medicaid reimbursement systems, or, if
adopted and implemented, what effect such initiatives would have on the Company.
Nevertheless, there can be no assurance that such changes in Medicaid
reimbursement to nursing facilities will not have an adverse effect on the
Company. The Balanced Budget Act also allows states to mandate enrollment in
managed care systems without seeking approval from the Secretary of HHS for
waivers from certain Medicaid requirements as long as certain standards are met.
Although historically these managed care programs have exempted institutional
care, no assurance can be given that these waiver projects ultimately will not
change the reimbursement system for long-term care facilities from
fee-for-service to managed care negotiated or capitated rates or otherwise
affect the levels of payment to the Company.
Funds received by the Company under Medicare and Medicaid are subject to
audit with respect to proper application of various payment formulas. Such
audits can result in retroactive adjustments to revenue. The Company believes
that the payment formulas applicable to it have been properly applied and that
any future adjustments will not have a material impact on its operations.
PROPERTIES
At September 30, 1997, the Company and Arbor operated 232 long-term care
facilities, serving 22,465 residents in 15 states. Of such facilities, 187 were
owned, 32 were leased, 13 were managed, and 28 of the leased properties had
purchase options and/or rights of first refusal.
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<PAGE> 75
The following table lists by state, on a combined basis, the nursing
facilities, assisted living and retirement facilities and hospitals owned,
leased or managed by the Company and Arbor at September 30, 1997:
<TABLE>
<CAPTION>
OWNED LEASED(1) MANAGED TOTAL
--------------------- --------------------- --------------------- ---------------------
RESIDENT RESIDENT RESIDENT RESIDENT
FACILITIES CAPACITY FACILITIES CAPACITY FACILITIES CAPACITY FACILITIES CAPACITY
---------- -------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Florida........................... 33 3,513 -- -- -- -- 33 3,513
Ohio.............................. 21 2,136 10 1,152 1 70 32 3,358
Pennsylvania...................... 21 2,225 -- -- 11 810 32 3,035
Wisconsin......................... 30 2,380 -- -- -- -- 30 2,380
Indiana........................... 16 1,514 4 462 1 240 21 2,216
Texas............................. 7 828 13 1,022 -- -- 20 1,850
Washington........................ 16 1,529 3 294 -- -- 19 1,823
Kentucky.......................... 18 1,511 -- -- -- -- 18 1,511
Minnesota......................... 11 1,424 -- -- -- -- 11 1,424
Oregon............................ 5 335 2 135 -- -- 7 470
Arkansas.......................... 4 281 -- -- -- -- 4 281
Idaho............................. 2 232 -- -- -- -- 2 232
Maryland.......................... 1 132 -- -- -- -- 1 132
Delaware.......................... 1 120 -- -- -- -- 1 120
West Virginia..................... 1 120 -- -- -- -- 1 120
-- --
--- ------ ----- ----- --- ------
Total............................. 187 18,280 32 3,065 13 1,120 232 22,465
=== ====== == ===== == ===== === ======
</TABLE>
- ---------------
(1) The average remaining life of the leases, including renewal options
exercisable solely by the Company or Arbor, as the case may be, is 11 years.
The UPC Health Network provides institutional pharmacy services through 11
additional leased locations in eight states as follows: Florida - 1; Indiana -
1; Kentucky - 1; Minnesota - 1; Pennsylvania - 2; Texas - 1; Washington - 2; and
Wisconsin - 2. Arbor provides institutional pharmacy services through two leased
locations in Florida, one leased location in Ohio and one leased location in
Michigan.
The Company had under construction at September 30, 1997, and also has
approved construction of, the following facilities and additions:
<TABLE>
<CAPTION>
ASSISTED LIVING NURSING FACILITY
FACILITIES NURSING FACILITY ADDITIONS
EXPANDED --------------------- --------------------- ---------------------
THERAPY NO. OF RESIDENT NO. OF RESIDENT NO. OF RESIDENT
UNITS FACILITIES CAPACITY FACILITIES CAPACITY FACILITIES CAPACITY
-------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Under construction at September 30, 1997
EHSI........................................ 2.... 4 208 1 120 1 20
Arbor....................................... -- -- -- 3 276 -- --
Additional construction approved
EHSI........................................ 3.... 7 322 1 40 -- --
Arbor....................................... -- -- -- 4 468 1 47
- -- - - --
--- ---
Total......................................... 5 11 530 9 904 2 67
= == === = === = ==
</TABLE>
COMPETITION
The long-term care industry in the United States is highly competitive with
companies offering a variety of similar services. The Company faces competition
locally and regionally from other healthcare providers, including for-profit and
not-for-profit organizations, home health agencies, institutional pharmacies,
medical supplies and services agencies, and rehabilitative therapy providers.
Significant competitive factors affecting the placement of residents in nursing
and assisted living facilities include quality of care, services offered,
reputation, physical appearance, location and, in the case of private-pay
residents, cost of the services. Since there is little price competition with
respect to Medicaid and Medicare residents, the range of services provided by
the Company's nursing facilities and their locations affect a facility's
competitive position in its market. The Company's pharmacy and medical services
and supplies operation and its group purchasing operation compete with other
similar operations ranging from small local operators to companies which are
national in scope and distribution capability. The Company focuses its marketing
efforts on the medical and healthcare communities in each location it serves.
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<PAGE> 76
The Company also competes with other providers in the acquisition and
development of additional facilities. Other competitors may accept a lower rate
of return and therefore present significant price competition. Also, tax-exempt
not-for-profit organizations may finance acquisitions and capital expenditures
on a tax-exempt basis or receive charitable contributions unavailable to the
Company.
GOVERNMENT REGULATION
General Regulatory Requirements. Nursing facilities, assisted living
facilities and other healthcare businesses, including institutional pharmacy
operations, are subject to annual licensure and other regulatory requirements of
state and local authorities. In addition, in order for a nursing facility to be
approved for payment under the Medicare and Medicaid programs, it must meet the
requirements for participation of the Social Security Act and the regulations
thereunder. The requirements for nursing facilities licensure and participation
in Medicare and Medicaid generally prescribe standards relating to provision of
services, resident rights, physical environment and administration. Nursing and
assisted living facilities are generally subject to unannounced annual
inspections by state or local authorities for purposes of relicensure and
nursing facilities for purposes of recertification under Medicare and Medicaid.
OBRA-1987. In 1987, the United States Congress passed the Omnibus Budget
Reconciliation Act which included extensive revisions to the Medicare and
Medicaid statutory requirements for nursing facilities. The provisions prescribe
an outcome-oriented approach to the provision of services and require that each
resident receive the necessary care and services to attain or maintain the
highest practicable physical, mental and psychosocial well-being in accordance
with the resident's individualized assessment and plan of care. The rules also
established requirements for survey, certification and enforcement procedures.
HCFA promulgated regulations, effective July 1, 1995, to implement the survey,
certification and enforcement procedures. The survey process is intended to
review the actual provision of care and services, with an emphasis on resident
outcomes to determine whether the care provided meets the assessed needs of the
individual residents. Surveys are generally conducted on an unannounced annual
basis by state survey agencies. Remedies are assessed for deficiencies based
upon the scope and severity of the cited deficiencies. The regulations specify
that the remedies are intended to motivate facilities to return to compliance
and to facilitate the removal of chronically poor performing facilities from the
program. Remedies range from directed plans of correction, directed in-service
training and state monitoring for minor deficiencies; denial of Medicare or
Medicaid reimbursement for existing residents or new admissions and civil money
penalties up to $3,000 per day for deficiencies that do not constitute immediate
jeopardy to resident health and safety; and appointment of temporary management,
termination from the program and civil money penalties of up to $10,000 for one
or more deficiencies that constitute immediate jeopardy to resident health or
safety. The regulations allow state survey agencies to identify alternative
remedies that must be approved by HCFA prior to implementation.
Effective with the implementation of the regulation, promulgated in July
1995, HCFA created a new concept that allows facilities with acceptable
regulatory histories to have an opportunity to correct their deficiencies by a
"date certain" and not impose sanctions unless they do not return to compliance.
Facilities with deficiencies constituting immediate jeopardy to resident health
and safety and those that are classified as poor performing facilities are not
given an opportunity to correct their deficiencies prior to the assessment of
remedies. From time to time, the Company receives notices from federal and state
regulatory agencies relating to alleged deficiencies for failure to comply with
all components of the regulations. While the Company does not always agree with
the positions taken by the agencies, the Company reviews such notices and takes
corrective action when appropriate. Due to the fact that the new regulatory
process provides the Company with limited appeal rights, many alleged
deficiencies are acknowledged even if the Company is not in agreement with the
allegation.
The July 1995 regulation mandates that facilities which are not in
substantial compliance and do not correct deficiencies within a certain time
frame must be terminated from the Medicare and/or Medicaid programs. Generally,
the facility has no more than six months from deficiency identification to
correct the deficiency, but has a shorter time frame when immediate jeopardy to
the health or safety of the residents is alleged by the survey agency. While the
Company endeavors to comply with all applicable regulatory requirements, from
time to time certain of the Company's nursing facilities have been subject to
various
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<PAGE> 77
remedies as a result of deficiencies alleged by HCFA or state survey agencies.
While in certain instances denial of certification or licensure revocation
actions have been threatened, no such actions are currently pending. There can
be no assurance that the Company will not be subject to such remedies in the
future.
Of the Company's nursing facilities surveyed to date under the new
regulation and for which a determination has been rendered, approximately 99
percent were found to be in substantial compliance at the initial or follow up
survey visit. The Company believes that this performance is comparable to the
performance of other similar multifacility corporations. The Company expects
that those of its facilities not in substantial compliance will ultimately
achieve this objective. The Company is unable to predict its compliance outcome
in the future and could be adversely affected if a substantial portion of its
facilities were determined not to be in compliance with applicable regulations.
The Company believes that it has appropriate systems and mechanisms in place to
monitor care and service delivery. The industry as a whole has raised with HCFA
its serious concern that the new survey, certification and enforcement process
does not appropriately measure performance against applicable requirements and
that the process is being applied inconsistently among survey sites. Fundamental
to the concern is the change in how surveyors perceive a deficient practice.
Prior to July 1995, a deficiency would be identified only if a pattern of less
than acceptable performance was observed. Under the present regulation, any lack
of perfection produces an alleged deficiency.
Restrictions on Acquisitions, Construction and Additions. The Company's
acquisition and construction of additional facilities are subject to state
regulation. All of the states in which the Company and Arbor currently operate
(other than Idaho) have adopted CON and other laws designed to regulate
expansion which generally require that a state agency approve certain
acquisitions or physical plant changes and determine that a need exists prior to
the addition of beds or services, the implementation of the changes or the
occurrence of certain capital expenditures. In certain states, such laws have
resulted in the prohibition, restriction or delay in the issuance of CONs.
Regulation of Certain Transactions. Federal law provides for exclusion of
practitioners, providers and related persons from participation in most federal
healthcare programs, including the Medicare and Medicaid programs, if the
individual or entity has been convicted of a criminal offense related to the
delivery of an item or service under these programs or if the individual or
entity has been convicted, under state or federal law, of a criminal offense
relating to neglect or abuse of residents in connection with the delivery of a
healthcare item or service. Further, individuals or entities may be, but are not
required to be, excluded from such programs under certain circumstances,
including but not limited to the following: conviction related to fraud;
conviction relating to obstruction of an investigation; conviction relating to a
controlled substance; licensure revocation or suspension; exclusion or
suspension from state or federal healthcare programs; filing claims for
excessive charges or unnecessary services or failure to furnish medically
necessary services; and ownership or control by an individual who has been
excluded from the Medicaid and/or Medicare programs, against whom a civil
monetary penalty related to the Medicaid and/or Medicare programs has been
assessed, or who has been convicted of the crimes described in this paragraph.
The illegal remuneration provisions of the Social Security Act make it a felony
to solicit, receive, offer to pay or pay any kickback, bribe or rebate in return
for referring a resident for any item or service, or in return for purchasing,
leasing, ordering or arranging for any good, facility, service or item, for
which payment may be made under the federal healthcare programs. A violation of
the illegal remuneration statute may result in the imposition of criminal
penalties, including imprisonment for up to five years, the imposition of a fine
of up to $25,000 or both. A civil action to exclude a provider from the Medicaid
and/or Medicare programs may also be brought. The recently enacted Balanced
Budget Act also includes numerous health fraud provisions, including: new
exclusion authority for the transfer of ownership or control interest in an
entity to an immediate family or household member in anticipation of, or
following, a conviction, assessment, or exclusion; increased mandatory exclusion
periods for multiple health fraud convictions, including permanent exclusion for
those convicted of three health care-related crimes; authority for the Secretary
to refuse to enter into Medicare agreements with convicted felons; new civil
money penalties for contracting with an excluded provider or violating the
federal anti-kickback statute; new surety bond and information disclosure
requirements for certain providers and suppliers; and an expansion of the
mandatory and permissive exclusions added by the Health Insurance Portability
and Accountability Act of 1996 to any federal health care program (other than
the Federal Employees Health Benefits Program). There are also
75
<PAGE> 78
other civil and criminal statutes applicable to the long-term care industry,
such as those governing false claims. The Company has contractual relationships
with some healthcare providers. Some states in which the Company operates also
have laws that govern financial arrangements between healthcare providers. The
Company believes that it is in compliance and that its practices are not in
violation of the foregoing statutes or regulations. The Company cannot
reasonably predict whether enforcement activities will increase at the federal
or state level or the effect of any such increase on its business.
In the summer of 1995, a major anti-fraud demonstration project, "Operation
Restore Trust" ("ORT") was announced by the OIG. A primary purpose for the
project is to scrutinize the activities of health care providers who are
reimbursed under the Medicare and Medicaid programs. Initial investigative
efforts have focused on skilled nursing facilities, home health and hospice
agencies, and durable medical equipment suppliers in Texas, Florida, New York,
Illinois and California. On May 20, 1997, HHS announced that Operation Restore
Trust will be expanded during the next two years to include 12 additional states
(Arizona, Colorado, Georgia, Louisiana, Massachusetts, Missouri, New Jersey,
Ohio, Pennsylvania, Tennessee, Virginia and Washington), as well as several
other types of health care services. Over the longer term, Operation Restore
Trust investigative techniques will be used in all 50 states, and will be
applied throughout the Medicare and Medicaid programs. Enforcement actions could
include criminal prosecutions, suit for civil penalties, and/or Medicare,
Medicaid or federal healthcare program exclusion. One of Arbor's facilities was
recently the subject of an ORT investigation, which resulted in a finding that
approximately $113,000 of charges for therapy services were inadequately
documented. Following this investigation, Arbor has adopted measures to
strengthen its documentation relating to reimbursable services. While the
Company does not believe that it is the target of any such investigation under
Operation Restore Trust, there can be no assurance that substantial amounts will
not be expended by the Company to cooperate with any such investigation or to
defend allegations arising therefrom. If it were found that any of the Company's
practices failed to comply with the anti-fraud provisions, the Company could be
materially adversely affected.
Cross Disqualification and Delicensure. In certain circumstances,
conviction of abusive or fraudulent behavior with respect to one facility may
subject other facilities under common control or ownership to disqualification
from participation in Medicaid or Medicare programs. Executive Order 12549
prohibits any corporation or facility from participating in federal contracts if
it or its "principals" have been debarred, suspended or are ineligible, or have
been voluntarily excluded, from participation in federal contracts. A principal
has been defined as an officer, director, owner, partner, key employee or other
person with primary management or supervisory responsibilities. In addition,
some state regulations provide that all facilities under common control or
ownership licensed within a state are subject to delicensure if any one or more
of such facilities are delicensed.
Environmental Laws and Regulations. Certain federal and state laws govern
the handling and disposal of medical, infectious and hazardous waste. Failure to
comply with those laws or the regulations promulgated thereunder could subject
an entity covered by these laws to fines, criminal penalties and other
enforcement actions. The Company has developed policies with respect to the
handling and disposal of medical, infectious and hazardous waste to assure
compliance by each of its facilities with those laws and regulations. The
Company believes that it is in material compliance with applicable laws and
regulations governing these requirements.
Federal regulations promulgated by the Occupational Safety and Health
Administration impose additional requirements on the Company with regard to
protecting employees from exposure to blood borne pathogens. The Company
believes that it has policies and procedures in place to preclude actions by
this regulatory body.
See also "-- Sources of Revenue" for a description of The Balanced Budget
Act.
EMPLOYEES
As of September 30, 1997, the Company employed approximately 20,300 people,
including approximately 4,300 registered and licensed practical nurses, 8,000
nursing assistants, 800 therapists, 139 pharmacists, 6,400 dietary, domestic,
maintenance and other staff, and 650 administrative employees who work at
corporate
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<PAGE> 79
offices and facilities. There are approximately 42 collective bargaining
agreements (six of which expire within 12 months of November 30, 1997) among
nine unions covering approximately 2,200 employees. The Company believes that
its relationship with its employees is good.
As of September 30, 1997, Arbor employed approximately 4,500 people,
approximately 4,360 of whom are employed in the Arbor Centers and institutional
pharmacies. Arbor's corporate staff consists of approximately 140 people, the
majority of whom are located at Arbor's headquarters in Lima, Ohio. Certain of
Arbor's employees in one Arbor Center in Ohio are covered by a collective
bargaining contract. The Company believes that Arbor has good relationships with
its employees.
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<PAGE> 80
MANAGEMENT
KEY EXECUTIVE OFFICERS
Set forth below are the names, ages and positions of certain key executive
officers of Extendicare as of September 30, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dr. Joy Durfee Calkin.............. 59 President and Chief Executive Officer
J. Wesley Carter................... 57 Chief Operating Officer
Stephen F. Dineley................. 46 Vice President, Finance and Chief Financial
Officer
Melvin A. Rhinelander.............. 47 Senior Vice-President, Corporate Services and
Secretary
Barry L. Stephens.................. 58 Senior Vice-President, Finance
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages and positions of the directors and
executive officers of the Company as of September 30, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Frederick Bernard Ladly............ 67 Director and Chairman
J. Wesley Carter................... 57 Chief Executive Officer, President and Director
Robert J. Abramowski............... 47 Vice President, Finance, Chief Financial Officer,
Treasurer and Assistant Secretary
Leland M. Austin, Jr............... 54 Executive Vice President, Operations, Assistant
Secretary and Director
Richard Leslie Bertrand............ 48 Senior Vice President, Reimbursement Services,
Assistant Secretary and Director
Roch Carter........................ 58 General Counsel and Assistant Secretary
Ronald P. Knox..................... 53 Senior Vice President, Operations
Hugh S. McManus.................... 56 Vice President, Administration and Legal Services
and Assistant Secretary
Melvin A. Rhinelander.............. 47 Secretary
L. William Wagner.................. 49 Vice President, Human Resources
</TABLE>
The respective terms of office of the directors of the Company are for
three years and until their respective successors are elected. All executive
officers of Extendicare and the Company serve at the discretion of the
respective boards of directors of such corporations.
DR. JOY DURFEE CALKIN joined Extendicare in 1995 as a member of the Board
of Directors. In August 1997, Dr. Calkin was appointed President and Chief
Executive Officer of Extendicare. Prior to her appointment with Extendicare, Dr.
Calkin was Vice President and Provost of the University of Calgary. She was also
a professor in the Faculty of Nursing, specializing in health systems management
and design as well as pediatric nursing. Dr. Calkin received her Ph.D in Health
Services Administration and is widely published in the healthcare field. Dr.
Calkin has over 28 years of healthcare experience.
J. WESLEY CARTER joined Extendicare in 1973 as Senior Vice President of
Finance. In 1978, Mr. Carter was appointed President and Chief Operating Officer
of the U.S. operations for the Company. Mr. Carter left Extendicare in 1981 to
take on the position of President at Manley Insurance Brokers Inc. In December
1994, Mr. Carter returned to Extendicare in his current capacity as Chief
Operating Officer. Mr. Carter was appointed President and Chief Executive
Officer of EHSI in September 1997. Mr. Carter has been a director of the Company
since 1994.
STEPHEN F. DINELEY joined Extendicare on September 1, 1997. Mr. Dineley has
23 years of accounting and finance experience and for the past 13 years has been
a partner with KPMG. While in public accounting, Mr. Dineley had extensive
experience with the healthcare industry and publicly-held clients.
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<PAGE> 81
MELVIN A. RHINELANDER has been with Extendicare for 20 years. He currently
holds the positions of Senior Vice-President, Corporate Services and Secretary
for Extendicare. In addition, he serves as Vice President and Secretary of
Extendicare (Canada) Inc. Mr. Rhinelander has been Secretary of the Company
since 1989.
BARRY L. STEPHENS has been with Extendicare for 12 years. He is currently
Senior Vice-President, Finance of Extendicare. Prior to September 1, 1997, Mr.
Stephens was Vice-President, Finance, Chief Financial Officer and Secretary.
Prior to July 1985, Mr. Stephens was a partner of Thorne Riddell, chartered
accountants, for 10 years.
FREDERICK B. LADLY was, prior to August 1997, Chief Executive Officer of
Extendicare and President and Chief Executive Officer of Extendicare prior to
January 1996. He has been Chairman of Extendicare (Canada) Inc. since December
1994, Vice-Chairman of Crown Life Insurance Company since May 1994 and was
President and Chief Executive Officer of Extendicare (Canada) Inc. prior to
December 1994. Mr. Ladly has been a director of the Company since 1989.
ROBERT J. ABRAMOWSKI joined EHSI in 1983 as Vice President and Controller.
In 1991, Mr. Abramowski was appointed Vice President of Finance and Chief
Financial Officer. Prior to joining EHSI, Mr. Abramowski was a member of the
Audit Division of Arthur Andersen & Co., an international public accounting
firm, for 11 years. While in public accounting, he worked extensively with the
healthcare industry and publicly-held clients.
LELAND M. AUSTIN, JR. joined EHSI in 1984 as Senior Vice President of
Operations. In 1985, he was appointed Executive Vice President of Operations.
Prior to joining EHSI he worked at Lutheran Hospitals where he held the
positions of Senior Vice President of Finance and Treasurer. Mr. Austin has 18
years of healthcare experience in hospitals, nursing homes and other related
healthcare businesses. Mr. Austin has been a director of the Company since 1989.
RICHARD LESLIE BERTRAND joined EHSI in 1995 as Senior Vice-President. Mr.
Bertrand has been with Extendicare in various financial capacities, including
Senior Vice President, since 1976. Mr. Bertrand has been a director of the
Company since 1989.
ROCH CARTER joined EHSI in 1974 as Legal Counsel. In 1985 he was appointed
General Counsel. Mr. Carter was formerly an attorney with the United States
Attorney's office in Milwaukee. Mr. Carter was also an attorney with the City of
Milwaukee and was in practice with Young and McManus, S.C. Mr. Carter has over
24 years experience in healthcare law and practice.
RONALD P. KNOX joined EHSI in 1982 with the acquisition of American Medical
Affiliates, as Associate Vice President of Eastern Field Operations. Mr. Knox
became Senior Vice President of Field Operations in 1985 and was promoted to
Vice President of EHSI in 1987. He was named Senior Vice President of Operations
in January of 1989. Prior to that, Mr. Knox served as the Assistant Vice
President of operations for American Medical Affiliates from 1972 until 1982.
Mr. Knox has 18 years of facility management experience and seven years of labor
relations/negotiation experience.
HUGH MCMANUS has served as Vice President of Administration and Legal
Services for EHSI since July 1992. Prior to that, he was a law partner of Young
and McManus, S.C., and the Vice-President, Administration and an officer of
Zilber, Ltd. He also held the position of adjunct professor of law at Marquette
University Law School from 1982 to 1992. Mr. McManus has over 22 years
experience in healthcare law and practice.
L. WILLIAM WAGNER joined EHSI in 1987 as Vice President of Human Resources.
Prior to that he served as Vice President of Human Resources for ARA Living
Centers and Director of Personnel for General Foods Corp. Mr Wagner has 15 years
of experience in healthcare and over 20 years of human resources experience.
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<PAGE> 82
EXECUTIVE COMPENSATION
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The Summary Compensation Table details compensation information for the
fiscal year ended December 31, 1996 for the Chief Executive Officer and the four
most highly compensated executive officers of EHSI (together, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
======================================================================================================================
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------------
------------------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS GRANTED COMPENSATION
WITH THE CORPORATION ($) (1) ($) ($) (#) ($) (2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
J. W. Carter(3) 300,000 165,000 -- -- 8,964
Chief Executive Officer
- ----------------------------------------------------------------------------------------------------------------------
G.W. Smith(4) 385,000 192,500 -- -- 62,380
President and Chief Operating Officer
- ----------------------------------------------------------------------------------------------------------------------
R. L. Bertrand 191,400 76,560 -- -- 33,316
Senior Vice President,
Reimbursement Services
- ----------------------------------------------------------------------------------------------------------------------
R. J. Abramowski 191,400 76,560 -- -- 31,732
Vice President, Finance, and
Chief Financial Officer
- ----------------------------------------------------------------------------------------------------------------------
L. M. Austin 207,700 83,080 -- -- 35,104
Executive Vice President, Operations
======================================================================================================================
</TABLE>
(1) Includes base salary and any amounts employee has contributed to the
Deferred Compensation Plan and 401(k) Plan.
(2) Includes amounts the Company has contributed to the Deferred Compensation
Plan, Mr. Carter's retirement arrangement, the 401(k) Plan, and the
Executive Life Insurance Plan.
(3) J.W. Carter's compensation is stated in Canadian dollars.
(4) Mr. Smith's employment with the Company terminated effective September 2,
1997.
STOCK OPTION PLANS
Extendicare's Stock Option Plan (the "Plan") provides for the granting,
from time to time, at the discretion of the Board of Directors of Extendicare
(the "Extendicare Board of Directors"), to certain directors, officers and
employees of the Extendicare group of companies, of options to purchase
Subordinate Voting Shares of Extendicare (the "Subordinate Voting Shares") for
cash. The Plan provides that the exercise price of any option granted shall not
be less than the closing price (or, if there is no closing price, the simple
average of the bid and ask price) for the Subordinate Voting Shares as quoted on
The Toronto Stock Exchange on the trading day prior to the date of grant. The
Plan contains provisions for appropriate adjustments in the event of corporate
reorganizations of Extendicare.
At December 31, 1996, a total of 5,769,400 Subordinate Voting Shares of
Extendicare were reserved under the Plan, of which 1,555,650 Subordinate Voting
Shares were under option and 4,213,750 were available for option. On February
24, 1997, the Extendicare Board of Directors approved an amendment to the Plan
to permit options to be exercised for a period of either five or ten years from
the date of the grant, as determined by the Extendicare Board of Directors at
the time the option is granted. The Plan formerly permitted options to be
exercised for a period not to exceed five years. The amendment to the Plan is
subject to regulatory approval.
80
<PAGE> 83
There were no options granted in 1996 to any of the Named Executive
Officers. The following table outlines stock options exercised during 1996 and
option values at December 31, 1996 for the Named Executive Officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
=========================================================================================================
VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SECURITIES AGGREGATE FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED ON VALUE (#) ($)(2)
EXERCISE REALIZED ------------------------- ------------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J.W. Carter -- -- 50,000 50,000 256,275 256,275
- ---------------------------------------------------------------------------------------------------------
G.W. Smith 35,000 316,449 52,500 62,500 407,303 317,379
- ---------------------------------------------------------------------------------------------------------
R.L. Bertrand -- -- 15,000 25,000 105,793 126,952
- ---------------------------------------------------------------------------------------------------------
R.J. Abramowski -- -- 11,250 18,750 79,345 95,214
- ---------------------------------------------------------------------------------------------------------
L.M. Austin 12,500 117,284 6,250 31,250 13,224 158,690
=========================================================================================================
</TABLE>
(1) Value received is based on converting the Canadian dollar value received to
the United States dollars using the inverse of the noon spot rate of
exchange as quoted by the Bank of Canada of Cdn$1.00 = US$0.7296 on December
31, 1996.
(2) Based upon the December 31, 1996 closing stock price of the Subordinate
Voting Shares, as reported on The Toronto Stock Exchange, of Cdn $16.15, and
converted to the United States dollar using the inverse of the noon spot
rate of exchange as quoted by the Bank of Canada Cdn$1.00 = US$0.7296 on
December 31, 1996.
RETIREMENT AGREEMENTS
J.W. Carter is covered by a retirement arrangement established by
Extendicare. The arrangement provides for a pension that will generate a benefit
at age 60 of 44% of Mr. Carter's best three consecutive years of basic salary
for employment with Extendicare. This benefit would increase by 2% for each
additional year of service with Extendicare over the age of 60. Retirement
benefits are payable as an annuity over the lifetime of the executive with a
portion continuing to be paid to the executive's spouse after the death of the
executive. The other Named Executive Officers are not participants in these
arrangements as they are participants in money purchase, 401K and deferred
compensation plans established for U.S. executives.
EMPLOYMENT CONTRACTS
None of the Named Executive Officers has an employment agreement with EHSI.
Mr. Carter has an employment contract with Extendicare which provides for
eighteen months' notice, or an amount equal to eighteen months' basic salary in
lieu of notice, for termination without cause.
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<PAGE> 84
DESCRIPTION OF OTHER INDEBTEDNESS
NEW CREDIT FACILITIES
The Company entered into a credit agreement on November 26, 1997 (the "New
Credit Agreement") with NationsBank, N.A. (the "Agent") individually and as
agent, and certain lenders (the "Lenders"), which provided the Company with new
senior secured credit facilities of up to $800 million (the "New Credit
Facilities"), consisting of a six year revolving credit facility (the "Revolving
Credit Facility") under which up to an aggregate principal amount of $200
million is available for borrowing, a six year $200 million term loan (the
"Tranche A Term Loan"), a 7 year $200 million term loan (the "Tranche B Term
Loan"), and a six year loan of up to $200 million (the "Tranche C Loan"). The
Tranche C Loan was repaid with the proceeds of the offering of the Outstanding
Notes. Proceeds of the New Credit Facilities were used to complete the
Acquisition, to pay transaction costs related thereto, and to refinance certain
indebtedness of the Company and certain of its subsidiaries and of Arbor and
certain of its subsidiaries. The balance of the Revolving Credit Facility is
available for working capital and general corporate purposes.
The following summaries of the material provisions of the New Credit
Agreement do not purport to be complete, and such provisions, including
definitions of certain terms, are qualified in their entirety by reference to
the New Credit Agreement. Capitalized terms used below and not defined in this
Prospectus have the meanings assigned to such terms in the New Credit Agreement.
GENERAL
The Revolving Credit Facility matures on December 31, 2003, at which time
all outstanding borrowings will be due. Up to $50 million of the Revolving
Credit Facility is available for the issuance of standby letters of credit. The
Tranche A Term Loan matures on December 31, 2003, and the Tranche B Term Loan
matures on December 31, 2004, and are payable in quarterly installments
beginning on March 31, 1998 as set forth below. The Company is also required to
make mandatory prepayments of principal upon the occurrence of certain events,
such as certain asset sales and certain issuances of securities. The Company is
permitted to make voluntary prepayments at any time.
The annual amortization schedule for principal on the Tranche A Term Loan
and the Tranche B Term Loan is as follows:
<TABLE>
<CAPTION>
TRANCHE A TRANCHE B
----------- ------------
<S> <C> <C>
Loan year 1............................ $25 million $ 2 million
Loan year 2............................ 30 million 2 million
Loan year 3............................ 30 million 2 million
Loan year 4............................ 35 million 2 million
Loan year 5............................ 40 million 2 million
Loan year 6............................ 40 million 2 million
Loan year 7............................ 188 million
</TABLE>
INTEREST RATE AND FEES
Borrowings under the New Credit Facilities bear interest based on LIBOR
plus a margin or the Base Rate plus a margin. The applicable margin range for
the LIBOR based loans is from .75% to 2.00% and for the Base Rate Loans is from
0% to 1.00%. Applicable margins are based on achieving certain leverage ratios.
At the date of the Acquisition, the applicable rates for the Revolving Credit
Facility, Tranche A Term Loan and Tranche B Term Loan were LIBOR plus 1.75% or
Base Rate plus .75% and for the Tranche C Loan the applicable rate was LIBOR
plus 2.00% or Base Rate plus 1.00%.
The New Credit Agreement provides that the Company will pay certain fees
and commissions to the Lenders, including a commitment fee and letter of credit
fees payable to the Lenders.
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<PAGE> 85
GUARANTEES AND SECURITY
Borrowings and other obligations under the New Credit Agreement are
guaranteed on a senior secured basis by Extendicare Holdings, Inc., the direct
parent of EHSI, and all existing and future domestic subsidiaries of the
Company.
Loans and other obligations under the New Credit Agreement and the
guarantees are secured by the pledge of stock of the Company and each of its
existing and future domestic subsidiaries.
COVENANTS; EVENTS OF DEFAULT
The New Credit Agreement contains a number of customary covenants,
including, among other things, (i) prohibitions and/or limitations on the
incurrence of debt, liens, payment of dividends or distributions, redemptions of
capital stock, investments, transactions with affiliates, mergers, acquisitions
and asset dispositions and (ii) financial covenants including fixed charge
coverage, leverage, and net worth ratios. The New Credit Agreement also contains
customary events of default, including an event of default if a "change of
control" occurs.
CONDITIONS
The New Credit Agreement contains a number of customary conditions to any
subsequent funding by the Lenders.
OTHER INDEBTEDNESS
In addition to the indebtedness described above, upon closing of the
Financing Transactions and application of the proceeds therefrom, the Company
had, on a consolidated basis, $45.2 million of other indebtedness which will
remain outstanding.
As of September 30, 1997, the Company had approximately $6.3 million in
mortgage notes outstanding. Such mortgage notes paid interest at rates ranging
from approximately 12.45% to 14.0% per annum and were due in 2014. The Company
also had $38.9 million of notes outstanding. Such notes accrued interest at
rates ranging from approximately 4.16% to 5.59% per annum and are due in 2015.
The mortgage notes and the notes contain certain financial covenants, including
maintenance of certain minimum financial ratios.
In addition, as of September 30, 1997, the Company had outstanding a $32
million interest rate swap agreement with a financial institution. The swap
agreement effectively changes the Company's interest rate exposure on $32
million of floating rate indebtedness to a fixed rate of 4.155% per annum during
the period the agreement is in effect, which is through October 8, 2000. See
Note 9 of the Notes to EHSI Consolidated Financial Statements.
83
<PAGE> 86
DESCRIPTION OF THE NOTES
GENERAL
The Outstanding Notes were issued, and the Exchange Notes will be issued,
pursuant to an Indenture (the "Indenture") among the Company, as issuer, AHC
Acquisition Corp. and each of the Company's other existing Restricted
Subsidiaries organized within the United States (including Arbor and its
Restricted Subsidiaries), as Guarantors, and The Bank of Nova Scotia Trust
Company of New York, as trustee (the "Trustee"), a copy of which has been filed
as an exhibit to the Registration Statement of which this Prospectus is a part.
The terms of the Exchange Notes are identical in all material respects to the
terms of the Outstanding Notes except that the Exchange Notes have been
registered under the Securities Act and are issued free from any covenant
regarding registration and except that, if the Exchange Offer is not consummated
by April 6, 1998, the interest rate borne by the Outstanding Notes will increase
0.5% per annum for the first 90 days following such date and will increase by an
additional 0.5% per annum beginning at each subsequent 90-day period until the
Exchange Offer is consummated; provided, however, that in no event will the
interest rate borne by the Outstanding Notes be increased by more than 1.5% per
annum. The Exchange Notes and the Outstanding Notes are treated as one series of
Notes under the Indenture and holders thereof are entitled to the benefit of the
Indenture. Accordingly, unless specifically stated to the contrary, the
following description applies equally to all Notes. The terms of the 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 Notes are subject to all such terms, and Holders of Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of certain 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. The definitions
of certain terms used in the following summary are set forth below under the
caption "Certain Definitions."
The Notes are unsecured senior subordinated general obligations of the
Company. The Notes are unconditionally guaranteed on a senior subordinated and
unsecured basis by AHC Acquisition Corp. and each of the Company's other
existing and future Restricted Subsidiaries organized within the United States
(each, a "Note Guarantee" and, collectively, the "Note Guarantees") (excluding
inactive subsidiaries as of the date of the Indenture but including Arbor and
its Restricted Subsidiaries) and each other Restricted Subsidiary of the Company
that guarantees the Company's obligations under the New Credit Agreement. The
Company will cause each future Restricted Subsidiary of the Company that
guarantees the Company's obligations under the New Credit Agreement or any other
Senior Indebtedness to enter into a supplemental indenture providing for a Note
Guarantee as required in the Indenture.
The Company will be able to designate any Restricted Subsidiary of the
Company as an Unrestricted Subsidiary, subject to certain limitations. If so
designated, any such Unrestricted Subsidiary will not be considered a Restricted
Subsidiary of the Company for any purpose and accordingly will not be subject to
the restrictive covenants set forth in the Indenture, including, without
limitation, the restrictions on the incurrence of Indebtedness by Restricted
Subsidiaries of the Company described herein, nor shall any Unrestricted
Subsidiary be a Guarantor. See the definition of "Unrestricted Subsidiary."
An Unrestricted Subsidiary shall continue to be an Unrestricted Subsidiary
only if it (a) has no Indebtedness other than Non-Recourse Debt; and (b) 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 Person's
financial condition or to cause such Person to achieve any specified levels of
operating results. If, at any time, any Unrestricted Subsidiary fails to meet
the foregoing requirements, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such
Unrestricted Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock," the
Company shall be in default of such covenant).
84
<PAGE> 87
PRINCIPAL, MATURITY AND INTEREST
The Notes are obligations of the Company, limited in aggregate principal
amount to $200 million and will mature on December 15, 2007. The Indenture
provides for the issuance of up to $100 million aggregate principal amount of
additional Notes having identical terms and conditions to the 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 Notes offered hereby and will vote on all matters with the Notes offered
hereby. For purposes of this "Description of the Notes," reference to the Notes
does not include Additional Notes. Interest on the Notes accrues at the rate of
9.35% per annum and is payable semiannually in arrears on June 15 and December
15, commencing on June 15, 1998, to Holders of record on the immediately
preceding May 31 and November 30. Interest on the Notes accrues from the most
recent date to which interest has been paid or, if no interest has been paid,
from December 2, 1997. Interest is computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium, if any, and interest on
the Notes is payable at the office or agency of the Company maintained for such
purpose within the City and State of New York or, at the option of the Company,
payment of interest may be made by check mailed to the Holders of the Notes at
their respective addresses set forth in the register of Holders of Notes;
provided that all payments with respect to Global Notes and Certificated
Exchange Notes (as such terms are defined below under the caption "Book Entry,
Delivery and Form") the Holders of which have given wire transfer instructions
to the Company 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 Company, the Company's office or agency in New York
will be in the office of the Trustee maintained for such purpose. The Notes will
be issued only in fully registered form, without coupons and in denominations of
$1,000 and integral multiples thereof.
NOTE GUARANTEES
Under the Note Guarantees, each Guarantor will fully and unconditionally,
jointly and severally, guarantee the performance and punctual payment when due,
whether at stated maturity, by acceleration or otherwise, of all Obligations of
the Company under the Indenture and the Notes. Each of the Guarantors will agree
to pay, in addition to any amount stated above, any and all expenses (including
reasonable counsel fees and expenses) incurred by the Trustee in enforcing any
rights under the Note Guarantees. Each of the Note Guarantees is limited in
amount to an amount not to exceed the maximum amount that can be guaranteed by
the relevant Guarantor without rendering such Note Guarantee as it relates to
such Guarantor voidable under applicable law relating to fraudulent conveyance
or fraudulent transfer or similar laws affecting the rights of creditors
generally. See "Risk Factors -- Fraudulent Conveyance Statutes."
Each of the Note Guarantees is a continuing guarantee and shall (a) remain
in full force and effect until payment in full of all of the Company's
Obligations under the Indenture and the Notes or upon such Guarantor's no longer
being a Restricted Subsidiary of the Company and being released from its
guarantee of Indebtedness of the Company under the New Credit Agreement and (b)
inure to the benefit of and be enforceable by the Trustee, the Holders and their
successors, transferees and assigns. Each of the Note Guarantees is a guarantee
of payment and not of collection. Each of the Company's current Restricted
Subsidiaries organized within the United States (including Arbor and its
Restricted Subsidiaries) is a Guarantor.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes is
subordinated in right of payment, as set forth in the Indenture, to the prior
indefeasible payment in full in cash of Senior Indebtedness, which includes
borrowings under the New Credit Agreement, whether outstanding on the date of
the Indenture or thereafter incurred.
Upon any 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,
85
<PAGE> 88
the holders of Senior Indebtedness will be entitled to receive indefeasible
payment in full in cash of all Obligations due in respect of such Senior
Indebtedness (including interest after the commencement of any such proceeding
at the rate specified in the applicable Senior Indebtedness) before the Holders
of Notes will be entitled to receive any payment with respect to the Notes, and
until all Obligations with respect to Senior Indebtedness are indefeasibly paid
in full in cash, any distribution to which the Holders of Notes would be
entitled shall be made to the holders of Senior Indebtedness (except that
Holders of Notes may receive securities that are subordinated at least to the
same extent as the Notes to Senior Indebtedness and to any securities issued in
exchange for Senior Indebtedness and Holders of Notes may recover payments made
from the trust described under the caption "Legal Defeasance and Covenant
Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except in such subordinated securities or from the trust described under the
caption "Legal Defeasance and Covenant Defeasance") if (i) a default in the
payment of the principal of, premium, if any, or interest on Designated Senior
Indebtedness occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Indebtedness which permits holders of the Designated Senior Indebtedness
as to which such default relates to accelerate its maturity and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from the Agent
Bank or the holders or the representative of the holders of any Designated
Senior Indebtedness. Payments on the 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 (b) in case of a nonpayment default, the earlier of the date on which
such nonpayment 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 Indebtedness has been accelerated. No new period of payment
blockage may be commenced by a Payment Blockage Notice unless and until 360 days
have elapsed since the first day of the effectiveness of the immediately prior
Payment Blockage Notice. No nonpayment 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
has been cured or waived for a period of not less than 90 days.
The Indenture requires that the Company promptly notify holders of Senior
Indebtedness if payment of the Notes is accelerated because of any Event of
Default.
As a result of the subordination provisions described above, in the event
of an insolvency, bankruptcy, reorganization or liquidation of the Company, or
upon the occurrence of a Change of Control or an Asset Sale requiring repurchase
by the Company of any Notes, there may not be sufficient assets remaining to
satisfy the claims of the Holders after satisfying the claims of creditors of
the Company who are holders of Senior Indebtedness and claims of creditors of
the Company's Restricted Subsidiaries. See "Risk Factors -- Subordination of
Notes." On a pro forma basis, after giving effect to the Acquisition and the
Financing Transactions, including the application of the net proceeds from the
issuance of the Notes, the principal amount of Senior Indebtedness outstanding
at September 30, 1997 would have been approximately $521.7 million and the
Company would have had additional availability of $108.2 million for borrowings
under the New Credit Facilities, all of which would be Senior Indebtedness, if
borrowed. The terms of the Indenture permit the Company and its Restricted
Subsidiaries to incur additional Indebtedness, subject to certain limitations,
including Indebtedness that may be secured by Liens on property of the Company
and its Restricted Subsidiaries. See the discussion below under the captions
"Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock" and "Certain Covenants -- Liens."
SUBORDINATION OF NOTE GUARANTEES; RELEASE OF NOTE GUARANTEES
The Note Guarantees are subordinated in right of payment, as set forth in
the Indenture, to the prior indefeasible payment in full in cash of Senior
Indebtedness of the Company and Senior Indebtedness of the relevant Guarantor,
which include guarantees by each Guarantor of Indebtedness of the Company under
the New Credit Agreement, whether outstanding on the date of the Indenture or
thereafter incurred.
Upon any distribution to creditors of a 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
86
<PAGE> 89
property, an assignment for the benefit of creditors or any marshaling of such
Guarantor's assets and liabilities, the holders of Senior Indebtedness of such
Guarantor will be entitled to receive indefeasible payment in full in cash of
all Obligations due in respect of such Senior Indebtedness (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Senior Indebtedness of such Guarantor) before the Holders of Notes
will be entitled to receive any payment with respect to the relevant Note
Guarantee, and until all Obligations with respect to Senior Indebtedness of such
Guarantor and Senior Indebtedness of the Company are paid in full in cash, any
payment that would have been made under such Note Guarantee shall be made to the
holders of Senior Indebtedness of such Guarantor (except that Holders of Notes
may receive (i) Capital Stock of such Guarantor (other than Disqualified Stock)
and (ii) securities that are subordinated at least to the same extent as such
Note Guarantee to Senior Indebtedness of such Guarantor and to any securities
issued in exchange for Senior Indebtedness of such Guarantor).
Such Guarantor also may not make any payment upon or in respect of its Note
Guarantee (except in such subordinated securities of such Guarantor) if (i) a
default in the payment of the principal of, premium, if any, or interest on
Designated Senior Indebtedness of the relevant Guarantor or Designated Senior
Indebtedness of the Company occurs and is continuing beyond any applicable
period of grace or (ii) any other default occurs and is continuing with respect
to Designated Senior Indebtedness of such Guarantor or Designated Senior
Indebtedness of the Company which permits holders of the Designated Senior
Indebtedness of such Guarantor or Designated Senior Indebtedness of the Company
as to which such default relates to accelerate its maturity and the Trustee
receives a Payment Blockage Notice from the holders or the representative of the
holders of any Designated Senior Indebtedness of such Guarantor or Designated
Senior Indebtedness of the Company. Any payments under any Note Guarantee 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 (b) in the case of a nonpayment
default, the earlier of the date on which such nonpayment 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 Indebtedness of
the relevant Guarantor has been accelerated. No new period of payment blockage
may be commenced by a Payment Blockage Notice unless and until 360 days have
elapsed since the effectiveness of the immediately prior Payment Blockage
Notice. No nonpayment 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.
As a result of the subordination provisions described above, in the event
of an insolvency, bankruptcy, reorganization or liquidation of a Guarantor,
there may not be sufficient assets remaining to satisfy the claims of the
Holders with respect to the relevant Note Guarantee after satisfying the claims
of creditors of such Guarantor who are holders of Senior Indebtedness of such
Guarantor. As of September 30, 1997, on a pro forma basis after giving effect to
the Acquisition and the Financing Transactions, including the application of the
net proceeds from the issuance of the Notes, the Guarantors would have had $505
million in the aggregate of outstanding Senior Indebtedness, $459.8 million of
which consists of guarantees of the New Credit Agreement. The terms of the
Indenture permit Restricted Subsidiaries of the Company to incur additional
Indebtedness, subject to certain limitations, including Indebtedness that may be
secured by Liens on property of the Restricted Subsidiaries. See the discussion
below under the captions "Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock" and "Certain Covenants -- Liens."
The Indenture provides that upon (i) a sale or other disposition to a
Person not an Affiliate of the Company of all or substantially all of the assets
of any Guarantor, by way of merger, consolidation or otherwise, or a sale or
other disposition to a Person not an Affiliate of the Company of all of the
Capital Stock of any Guarantor, by way of merger, consolidation or otherwise,
which transaction is carried out in accordance with the covenants described
below under the captions "Repurchase at the Option of Holders -- Asset Sales" or
"Certain Covenants -- Merger, Consolidation or Sale of Assets" or (ii) the
release of any Guarantor from its obligations as a guarantor under the New
Credit Agreement, so long as (a) no Default or Event of Default shall have
occurred and be continuing at the time of, or would occur after giving effect on
a pro forma basis to, such release, (b) the Company is permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described below
under the caption "Incurrence of Indebtedness and issuance of Preferred Stock"
on the date on which such release
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<PAGE> 90
occurs, and (c) the amount of Indebtedness outstanding under the New Credit
Agreement for at least 30 days prior to the time of such release is at least
$200 million, such Guarantor will be deemed automatically and unconditionally
released and discharged from all of its obligations under its Note Guarantee
without any further action on the part of the Trustee or any holder of the
Notes; provided that any such termination shall occur only to the extent that
all obligations of such Guarantor under all of its guarantees of, and under all
of its pledges of assets or other security interests which secure any
Indebtedness of the Company shall also terminate upon such sale, disposition or
release.
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to December 15,
2002. Thereafter, the Notes are subject to redemption 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, if any, thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on December 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
December 15, 2002.............................................. 104.675%
December 15, 2003.............................................. 103.117%
December 15, 2004.............................................. 101.558%
December 15, 2005 and thereafter............................... 100.00%
</TABLE>
Notwithstanding the foregoing, at any time or from time to time prior to
December 15, 2000, the Company may redeem, on one or more occasions, up to 35%
of the sum of (i) the initial aggregate principal amount of the Notes and (ii)
the initial aggregate principal amount of any Additional Notes with the net
proceeds of one or more Equity Offerings at a redemption price equal to 109.35%
of the principal amount thereof, plus accrued interest, if any, to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on an interest payment date); provided that,
immediately after giving effect to such redemption, at least 65% of the sum of
(x) the initial aggregate principal amount of the Notes and (y) the initial
aggregate principal amount of any Additional Notes remains outstanding; provided
further that such redemptions shall occur within 60 days of the date of closing
of each Equity Offering.
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, by such method as the
Trustee deems fair and appropriate; provided that no Notes 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 Notes to be redeemed at its registered address. 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
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. On and after
the redemption date, interest ceases to accrue on Notes or portions of them
called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes and Additional Notes, if
any, pursuant to the offer described below (the "Change of Control Offer") at
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<PAGE> 91
an offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest thereon (the "Change of Control Purchase
Price") to the date of purchase (the "Change of Control Payment Date"). Within
30 days after the date of any Change of Control, the Company will mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase Notes and Additional Notes, if any,
pursuant to the procedures required by the Indenture and described in such
notice. The Change of Control Payment Date shall be a business day not less than
30 days nor more than 60 days after such notice is mailed.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes and Additional Notes, if any, or
portions thereof properly tendered pursuant to the Change of Control Offer, (2)
deposit with the Paying Agent an amount equal to the Change of Control Purchase
Price in respect of all Notes and Additional Notes, if any, or portions thereof
so tendered and (3) deliver or cause to be delivered to the Trustee the Notes
and Additional Notes, if any, so tendered together with an officers' certificate
stating the aggregate principal amount of Notes or portions thereof being
purchased by the Company. The Paying Agent will promptly mail to each Holder of
Notes and Additional Notes, if any, so tendered the Change of Control Payment
for such Notes and Additional Notes, and the Trustee will promptly authenticate
and mail (or cause to be transferred by book entry) to each Holder a new Note
equal in principal amount to any unpurchased portion of the Notes surrendered,
if any; provided that each such new Note will be in a principal amount of $1,000
or an integral multiple thereof. The Indenture will provide that, prior to
complying with the provisions of this covenant, but in any event within 30 days
following a Change of Control, the Company will either repay all outstanding
Senior Indebtedness or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Indebtedness to permit the repurchase of
Notes and Additional Notes, if any, required by this covenant. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the Notes and
Additional Notes, if any, to require that the Company repurchase or redeem the
Notes and Additional Notes in the event of a takeover, recapitalization or
similar restructuring. Although the existence of a Holder's right to require the
Company to repurchase the Notes and Additional Notes, if any, in respect of a
Change of Control may deter a third party from acquiring the Company in a
transaction that constitutes a Change of Control, the provisions of the
Indenture relating to a Change of Control in and of themselves may not afford
Holders of the Notes and Additional Notes, if any, protection in the event of a
highly leveraged transaction, reorganization, recapitalization, restructuring,
merger or similar transaction involving the Company that may adversely affect
Holders, if such transaction is not the type of transaction included within the
definition of a Change of Control.
The New Credit Agreement provides that certain change of control events
with respect to the Company would constitute a default thereunder. Any future
credit agreements or other agreements relating to Senior Indebtedness to which
the Company becomes a party may contain similar restrictions and provisions. In
the event a Change of Control occurs at a time when the Company is prohibited
from purchasing Notes and Additional Notes, if any, the Company could seek the
consent of its lenders to the purchase of Notes and Additional Notes or could
attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Notes and Additional Notes, if any. In
such case, the Company's failure to purchase tendered Notes and Additional Notes
would constitute an Event of Default under the Indenture which would, in turn,
constitute a default under the New Credit Agreement. In such circumstances, the
subordination provisions in the Indenture would likely restrict payments to the
Holders of Notes and Additional Notes.
The meaning of the phrase "all or substantially all" as used in the
definition of "Change of Control" with respect to a sale of assets varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of the Company, and
therefore it may be unclear whether a Change of Control has occurred and whether
the Notes and Additional Notes, if any, are subject to a Change of Control
Offer.
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Restrictions in the Indenture described herein on the ability of the
Company and its Restricted Subsidiaries to incur additional Indebtedness, to
grant Liens on its or their property, to make Restricted Payments and to make
Asset Sales may also make more difficult or discourage a takeover of the
Company, whether favored or opposed by the management of the Company.
Consummation of any such transaction in certain circumstances may require
redemption or repurchase of the Notes and Additional Notes, if any, and there
can be no assurance that the Company or the acquiring party will have sufficient
financial resources to effect such redemption or repurchase. In certain
circumstances, such restrictions and the restrictions on transactions with
Affiliates may make more difficult or discourage any leveraged buyout of the
Company or any of its Restricted Subsidiaries. While such restrictions cover a
variety of arrangements which have traditionally been used to effect highly
leveraged transactions, the Indenture may not afford the Holders of Notes and
Additional Notes, if any, protection in all circumstances from the adverse
aspects of a highly leveraged transaction, reorganization, restructuring, merger
or similar transaction.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, engage in an Asset
Sale unless (i) the Company (or such Restricted Subsidiary) receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (evidenced in each case by a
resolution of the Board of Directors of such entity set forth in an officers'
certificate delivered to the Trustee) 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 principal amount of any Indebtedness
for money borrowed (as reflected on the Company's consolidated balance sheet) of
the Company or any Restricted Subsidiary that (x) is assumed by any transferee
of any such assets or other property in such Asset Sale or (y) with respect to
the sale or other disposition of all of the Capital Stock of any Restricted
Subsidiary, remains the liability of such Subsidiary subsequent to such sale or
other disposition, but only to the extent that such assumption, sale or other
disposition, as the case may be, is effected on a basis under which there is no
further recourse to the Company or any of its Restricted Subsidiaries with
respect to such liability, shall be deemed to be cash for purposes of this
provision.
The Company may apply, and may permit its Restricted Subsidiaries to apply,
an amount equal to Net Proceeds of an Asset Sale, at its option, within 365 days
after the consummation of such an Asset Sale (a) to permanently reduce
Indebtedness under the New Credit Agreement (and to correspondingly reduce the
commitments, if any, with respect thereto) or to permanently reduce other Senior
Indebtedness of the Company or any Guarantor or (b) to acquire another business
or any substantial part of another business or other long-term assets, or to
make a capital expenditure, in each case, in, or used or useful in, the same or
a similar line of business as the Company or any of its Restricted Subsidiaries
was engaged in on the date of the Indenture or any reasonable extensions or
expansions thereof (including the Capital Stock of another Person engaged in
such business, provided such other Person is, or immediately after giving effect
to any such acquisition shall become, a Wholly Owned Restricted Subsidiary of
the Company). Pending the final application of any such Net Proceeds, the
Company may temporarily reduce Senior Revolving Debt or otherwise invest such
Net Proceeds temporarily in Cash Equivalents. Any Net Proceeds from Asset Sales
that are not applied within 365 days after the consummation of an Asset Sale as
provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $15.0
million, the Company will be required to make an offer to all Holders of Notes
and Additional Notes, if any (an "Asset Sale Offer"), to purchase, on a pro rata
basis, the principal amount of Notes and Additional Notes, if any, equal in
amount to the Excess Proceeds (and not just the amount thereof that exceeds
$15.0 million), at a purchase price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon to the date of
purchase, in accordance with the procedures set forth in the Indenture. If the
aggregate principal amount of Notes and Additional Notes, if any, surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes and Additional 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, subject to any subsequent Asset Sale.
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In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under the caption "Certain
Covenants -- Merger, Consolidation or Sale of Assets" below, the successor
corporation shall be deemed to have sold the properties and assets of the
Company and its Restricted Subsidiaries not so transferred for purposes of this
covenant, and shall comply with the provisions of this covenant with respect to
such deemed sale as if it were an Asset Sale. In addition, the fair market value
of such properties and assets of the Company or its Restricted Subsidiaries
deemed to be sold shall be deemed to be Net Proceeds for purposes of this
covenant.
If at any time any non-cash consideration received by the Company or any
Restricted Subsidiary in connection with any Asset Sale is converted into or
sold or otherwise disposed of for cash, then such conversion or disposition
shall be deemed to constitute an Asset Sale hereunder and the Net Proceeds
thereof shall be applied in accordance with this covenant.
The Company will comply with the requirements of Section 14(e) of, and Rule
14e-1 under, the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes and Additional Notes, if any, as a result of a
Change of Control or an Asset Sale.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any distribution of any kind or character (whether in cash,
securities or other property) on account of any class of the Company's or any of
its Restricted Subsidiaries' Equity Interests or to holders thereof (including,
without limitation, any payment to stockholders of the Company in connection
with a merger or consolidation involving the Company), other than (a) dividends
or distributions payable solely in Equity Interests (other than Disqualified
Stock) of the Company or (b) dividends or distributions payable solely to the
Company or any Wholly Owned Restricted Subsidiary of the Company and, if such
Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary of the
Company, payable simultaneously to its minority shareholders on a pro rata
basis; (ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of the Company, any Restricted Subsidiary of the Company or any
Unrestricted Subsidiary or any other Affiliate of the Company (other than any
such Equity Interests owned by the Company or any Wholly Owned Restricted
Subsidiary of the Company); (iii) make any principal payment on, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness of the
Company or any Guarantor that is pari passu with or subordinated to the Notes or
the Guarantees prior to any scheduled repayment date, mandatory sinking fund
payment date or final maturity date (other than the Notes), except at final
maturity, other than through the purchase, redemption or acquisition by the
Company of Indebtedness of the Company or any of its Restricted Subsidiaries
through the issuance in exchange therefor of Equity Interests (other than
Disqualified Stock); 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) 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, the Company would have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made by the Company and its
Restricted Subsidiaries on or after the date of the Indenture
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(excluding Restricted Payments permitted by clauses (ii), (iii) and (iv) of
the next succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture 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 after the date of the Indenture of Equity Interests of
the Company or of debt securities of the Company that have been converted
into such Equity Interests (other than Equity Interests (or convertible
debt securities) sold to a Restricted Subsidiary of the Company or an
Unrestricted Subsidiary and other than Disqualified Stock or debt
securities that have been converted into Disqualified Stock) or from a
contribution to the capital of the Company, plus (iii) an amount equal to
the net reduction in Restricted Investments by the Company and its
Restricted Subsidiaries, subsequent to the date of the Indenture, upon the
disposition, liquidation or repayment (including by way of dividends)
thereof, but only to the extent such amounts are not included in
Consolidated Net Income and not to exceed in the case of any Restricted
Investment, the amount of the Restricted Investment previously made by the
Company and its Restricted Subsidiaries, plus (iv) $10 million.
The foregoing clauses (b) and (c), however, will not prohibit (i) the
payment of any dividend on any class of Capital Stock of the Company or any
Restricted Subsidiary of the Company within 60 days after the date of
declaration thereof, if on the date on which such dividend was declared such
payment would have complied with the provisions of the Indenture; (ii) the
making of any Restricted Investment in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Restricted Subsidiary of the
Company or to any Unrestricted Subsidiary) of Equity Interests of the Company
(other than Disqualified Stock) or from a contribution to the capital of the
Company; provided that any net cash proceeds that are utilized for any such
Restricted Investment, and any Net Income resulting therefrom, shall be excluded
from clause (c) of the preceding paragraph; (iii) the redemption, repurchase,
retirement or other acquisition of any Equity Interests of the Company in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Restricted Subsidiary of the Company or to any Unrestricted
Restricted Subsidiary) of other Equity Interests of the Company (other than any
Disqualified Stock) or from a contribution to the capital of the Company;
provided that any net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition, and any Net Income resulting
therefrom, shall be excluded from clause (c) of the preceding paragraph; or (iv)
the defeasance, redemption or repurchase of pari passu or subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness or the substantially concurrent sale (other than to a
Restricted Subsidiary of the Company) of Equity Interests of the Company (other
than Disqualified Stock) or from a contribution to the capital of the Company;
provided that any net cash proceeds that are utilized for any such defeasance,
redemption or repurchase, and any Net Income resulting therefrom, shall be
excluded from clause (c) of the preceding paragraph.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an officers' certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
Not later than the date of making any Restricted Payment that itself or together
with Restricted Payments not previously reported pursuant to the requirements of
this sentence exceeds $1.0 million, the Company shall deliver to the Trustee an
officers' certificate stating that all such Restricted Payments are permitted
and setting forth the basis upon which the calculations required by the covenant
described under this caption were computed, which calculations may be based upon
the Company's latest available financial statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guaranty or otherwise become directly or indirectly liable, contingently
or otherwise, with respect to (collectively, "incur") any Indebtedness
(including Acquired
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Indebtedness) and that the Company 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 Company and any Guarantor may incur
Indebtedness (including Acquired Indebtedness) and the Company may issue shares
of Disqualified Stock if: (i) the Fixed Charge 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
Indebtedness is incurred or such Disqualified Stock is issued would have been
equal to at least 2.25 to 1, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued, as
the case may be, at the beginning of such four-quarter period; and (ii) no
Default or Event of Default shall have occurred and be continuing or would occur
as a consequence thereof.
The foregoing limitations on the incurrence of Indebtedness will not apply
to:
(i) the incurrence by the Company of Indebtedness under the New Credit
Agreement (and the incurrence by the Guarantors of guarantees thereof) in an
aggregate principal amount at any time outstanding (with letters of credit
being deemed to have a principal amount equal to the maximum potential
liability of the Company and its Restricted Subsidiaries thereunder) not to
exceed $600 million (after giving effect to the repayment of the Tranche C
Loan under the New Credit Agreement with the proceeds of the offering of the
Outstanding Notes), less the aggregate amount of all Net Proceeds of Asset
Sales applied to permanently reduce the outstanding amount or the commitments
with respect to such Indebtedness pursuant to the covenant described above
under the caption "-- Asset Sales";
(ii) the incurrence by the Company and the Guarantors of Indebtedness
represented by the Notes (other than the Additional Notes) and the Note
Guarantees;
(iii) the incurrence by the Company and the Guarantors of the Existing
Indebtedness;
(iv) the incurrence by the Company of Permitted Refinancing Indebtedness in
exchange for, or the net proceeds of which are used to refund, refinance or
replace any Indebtedness that is permitted to be incurred under clauses (ii)
and (iii) above;
(v) the incurrence by the Company or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among the Company and any of its Wholly
Owned Restricted Subsidiaries or between or among any Wholly Owned Restricted
Subsidiaries; provided that, in the case of Indebtedness of the Company, such
obligations shall be unsecured and subordinated in all respects to the
Company's obligations pursuant to the Notes; and provided, however, that (a)
any subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than the Company or a Wholly
Owned Restricted Subsidiary of the Company and (b) any sale or other transfer
of any such Indebtedness to a Person that is not either the Company or a
Wholly Owned Restricted Subsidiary of the Company shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be;
(vi) the incurrence by the Company or any Guarantor of Hedging Obligations;
(vii) the incurrence by the Company or any Guarantor of Indebtedness
represented by Capital Lease Obligations, mortgage financings or Purchase
Money Obligations, in each case incurred for the purpose of financing all or
any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of the Company or such
Guarantor or any Permitted Refinancing Indebtedness thereof, in an aggregate
principal amount not to exceed 3.5% of Consolidated Tangible Assets at any
time outstanding;
(viii) the incurrence by the Company and any Guarantor of Indebtedness
represented by Guarantees of Indebtedness of such Guarantor or the Company, as
applicable, permitted under the first paragraph of this covenant or clause
(iv) of this covenant; and
(ix) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other clause of
this paragraph) in an aggregate principal amount at any time outstanding not
to exceed $25 million.
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For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness outstanding or to be incurred meets the criteria of
more than one of the types of Indebtedness described in the aforementioned
clauses, the Company, in its sole discretion, may classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
LIENS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien on any of its assets, now owned or hereafter
acquired, securing any Indebtedness other than Senior Indebtedness, unless the
Notes, in the case of the Company, or the Note Guarantees, in the case of the
Guarantors, are secured equally and ratably with such other Indebtedness;
provided that, if such Indebtedness is by its terms expressly subordinate to the
Notes or the Note Guarantees, the Lien securing such subordinate or junior
Indebtedness shall be subordinate and junior to the Lien securing the Notes or
the Note Guarantees with the same relative priority as such subordinated or
junior Indebtedness shall have with respect to the Notes or the Note Guarantees.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Indenture provides that the Company 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 encumbrance or restriction on
the ability of any Restricted Subsidiary of the Company to (i)(a) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries on its Capital Stock or with respect to any other interest or
participation in, or measured by, its profits, or (b) pay any Indebtedness or
other obligation owed to the Company or any of its Restricted Subsidiaries, (ii)
make loans or advances to the Company or any of its Restricted Subsidiaries,
(iii) sell, lease or transfer any of its properties or assets to the Company or
any of its Restricted Subsidiaries, or (iv) guarantee the obligations of the
Company evidenced by the Notes or any renewals, refinancings, replacements,
refundings or extensions thereof, except for such encumbrances or restrictions
existing under or by reason of (A) Existing Indebtedness as in effect on the
date of the Indenture, (B) the New Credit Agreement as in effect on the date of
the Indenture, and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are no more restrictive
with respect to such dividend and other payment restrictions than those
contained in the New Credit Agreement as in effect on the date of the Indenture,
(C) the Indenture, the Notes and the Note Guarantees, (D) applicable law, (E)
any instrument governing Acquired Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Acquired Indebtedness
was incurred 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, provided that in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred, (F) any
document or instrument governing Indebtedness incurred pursuant to clause (vii)
of the second paragraph under the caption "Incurrence of Indebtedness and
Issuance of Preferred Stock," provided that any such restriction contained
therein relates only to the asset or assets constructed or acquired in
connection therewith, (G) any instrument that is a lease, license, conveyance or
contract or similar property or asset entered into or acquired in the ordinary
course of business and consistent with past practices that restricts in a
customary manner the subletting, assignment or transfer of any property, or (H)
Permitted Refinancing Indebtedness of Indebtedness described in Clauses (A), (B)
and (D) hereof, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive than
those contained in the agreements governing the Indebtedness being refinanced,
(I) secured Indebtedness otherwise permitted to be incurred pursuant to the
provisions described above under the caption "-- Liens" the terms of which limit
the right of the debtor to dispose of the assets securing such Indebtedness or
(J) any agreement entered into for the direct or indirect sale or disposition of
all or substantially all of the Capital Stock or assets of such Restricted
Subsidiary, provided that the transaction contemplated thereby shall be
consummated not later than 90 days after the date of such agreement.
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LIMITATION ON LAYERING DEBT
The Indenture provides that the Company and each Guarantor will not incur,
create, issue, assume, guarantee or otherwise become liable for any Indebtedness
or guarantee, as applicable, that is subordinate or junior in right of payment
to any Senior Indebtedness and senior in any respect in right of payment to the
Notes or such Guarantor's Note Guarantee, respectively.
LINE OF BUSINESS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, engage to any material extent in any business
other than the ownership, operation and management of Nursing Facilities and
Related Businesses.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company will not, and the Company will not
permit any Restricted Subsidiary of the Company to, in a single transaction or
series of related transactions consolidate or merge with or into (other than the
consolidation or merger of a Wholly Owned Restricted Subsidiary of the Company
with another Wholly Owned Restricted Subsidiary of the Company or into the
Company) (whether or not the Company or such Restricted Subsidiary is the
surviving corporation), or directly and/or indirectly through its Restricted
Subsidiaries sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of the properties or assets of the Company and its
Restricted Subsidiaries (determined on a consolidated basis for the Company and
its Restricted Subsidiaries taken as a whole) in one or more related
transactions to, another corporation, Person or entity unless
(i) either (a) the Company, in the case of a transaction involving the
Company, or such Restricted Subsidiary, in the case of a transaction
involving a Restricted Subsidiary of the Company, is the surviving
corporation or (b) in the case of a transaction involving the Company or
such Restricted Subsidiary, the entity or the Person formed by or surviving
any such consolidation or merger (if other than the Company or such
Restricted Subsidiary) 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 of America, any
state thereof or the District of Columbia and expressly assumes all the
obligations of the Company under the Notes and the Indenture or such
Restricted Subsidiary under the relevant Note Guarantee and the Indenture,
as the case may be, pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee;
(ii) immediately after such transaction no Default or Event of Default
exists;
(iii) in the case of a transaction involving the Company, the Company
or, if other than the Company, the entity or Person formed by or surviving
any such consolidation or merger, 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, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
the first paragraph of the covenant described above under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock";
(iv) if, as a result of any such transaction, property or assets of
the Company or a Guarantor would become subject to a Lien securing
Indebtedness not permitted by the terms of the Indenture described above
under the caption "-- Liens," the Company, any such Guarantor or the
surviving entity, as the case may be, shall have secured the Notes and the
relevant Note Guarantee, as required by such provisions; and
(v) the Company shall have delivered to the Trustee an officers'
certificate and, except in the case of a merger of a Restricted Subsidiary
of the Company into the Company or into a Wholly Owned Restricted
Subsidiary of the Company, an opinion of counsel, each stating that such
consolidation, merger, conveyance, lease or disposition and any
supplemental indenture with respect thereto, comply
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with all of the terms of this covenant and that all conditions precedent
provided for in this provision relating to such transaction or series of
transactions have been complied with.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, after the date of the
Indenture, in any one transaction or a series of related transactions, sell,
lease, transfer or otherwise dispose of any of its properties, assets or
services to, or make any payment to, or purchase any property, assets or
services from, or enter into or make any agreement, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), other than Exempt Affiliate Transactions, unless (i) such
Affiliate Transaction is on terms that are no less favorable to the Company or
the relevant Restricted Subsidiary than those that would have been obtained in a
comparable arm's length transaction by the Company or such Restricted Subsidiary
with a Person that is not an Affiliate and (ii) the Company delivers to the
Trustee (a) with respect to any Affiliate Transaction entered into after the
date of the Indenture involving aggregate consideration in excess of $5.0
million, a resolution of the Board of Directors of the Company 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 disinterested members of the Board of Directors of the Company
or, if there are no disinterested members of the Board of Directors at the time,
a written opinion issued by an independent financial advisor of national
standing that such Affiliate Transaction is fair to the Company or such
Restricted Subsidiary, as the case may be, from a financial point of view and
(b) with respect to any Affiliate Transaction involving aggregate consideration
in excess of $10.0 million, a written opinion issued by an independent financial
advisor of national standing that such Affiliate Transaction is fair to the
Company or such Restricted Subsidiary, as the case may be, from a financial
point of view.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
The Company (a) will not permit any Restricted Subsidiary to issue any
Capital Stock (other than to the Company or a Wholly Owned Restricted
Subsidiary) and (b) will not, and will not permit any Restricted Subsidiary to,
transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any
Restricted Subsidiary to any Person (other than the Company or a Wholly Owned
Restricted Subsidiary); provided, however, that this covenant will not prohibit
(i) the sale or other disposition of all, but not less than all, of the issued
and outstanding Capital Stock of a Restricted Subsidiary owned by the Company
and its Restricted Subsidiaries in compliance with the other provisions of the
Indenture, or (ii) the ownership by directors of director's qualifying shares or
the ownership by foreign nationals of Capital Stock of any Restricted
Subsidiary, to the extent mandated by applicable law.
The Company will not permit any Restricted Subsidiary to issue any
Preferred Stock.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Holders of Notes, and file with the Trustee, (a) prior to
the filing of a registration statement with respect to the Exchange Offer or a
Shelf Registration Statement, the information specified in Rule 144A(d)(4) under
the Securities Act and (b) after the filing of a registration statement with
respect to the Exchange Offer or a Shelf Registration Statement, within 15 days
after it is or would have been required to file such with the Commission (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such Forms, including a "Management's
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Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. In addition, whether or not required by the rules
and regulations of the Commission, at any time after the Company files a
registration statement with respect to the Exchange Offer or a Shelf
Registration Statement, the Company will file a copy of all such information and
reports with the Commission for public availability (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, the Company has
agreed that, for so long as any Notes remain outstanding, it will furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information specified in Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, the
Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) default in payment when due of the principal of or premium, if
any, on the Notes (whether or not prohibited by the subordination provisions of
the Indenture); (iii) failure by the Company to comply with the provisions
described under the captions "Repurchase at Option of Holders -- Change of
Control," "Repurchase at Option of Holders -- Asset Sales," "Certain Covenants
- -- Restricted Payments," "-- Incurrence of Indebtedness and Issuance of
Preferred Stock" or "-- Merger, Consolidation or Sale of Assets"; (iv) failure
by the Company to consummate the merger of AHC Acquisition Corp. with and into
Arbor Health Care Company not later than the 90th day after the Closing Date;
(v) failure by the Company to comply with any of its other agreements or
covenants in the Indenture or the Notes for 60 days after written notice by the
Trustee or Holders of at least 25% of the aggregate principal amount of the
Notes outstanding; (vi) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or
is created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of such Indebtedness at final maturity thereof (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
as to which there has been a Payment Default or the maturity of which has been
so accelerated, exceeds in the aggregate $20 million; (vii) failure by the
Company or any of its Restricted Subsidiaries to pay final judgments (not fully
covered by insurance) which exceed in the aggregate $20 million, which judgments
are not paid, discharged or stayed for a period of 60 days; (viii) certain
events of bankruptcy, insolvency or reorganization with respect to the Company
or any of its Restricted Subsidiaries; and (ix) the Note Guarantee of any
Guarantor is held in any judicial proceeding to be unenforceable or invalid or
ceases for any reason to be in full force and effect (other than in accordance
with the terms of the Indenture) or any Guarantor or any Person acting on behalf
of any Guarantor denies or disaffirms such Guarantor's obligations under its
Note Guarantee (other than by reason of a release of such Guarantor from its
Note Guarantee in accordance with the terms of the Indenture).
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of all of the then
outstanding Notes may declare all the Notes to be due and payable immediately.
After such acceleration, but before a judgment or decree based on acceleration,
the Holders of a majority in aggregate principal amount of outstanding Notes
may, under certain circumstances, rescind and annul such acceleration if all
Events of Default, other than the non-payment of principal, interest or premium
that have become due solely because of such acceleration, have been cured or
waived as provided in the Indenture. Notwithstanding the foregoing, in the case
of an Event of Default arising from certain events of bankruptcy or insolvency
with respect to the Company or any Restricted Subsidiary of the Company, all
outstanding Notes will become due and payable without further action or notice.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise
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of any trust or power. The Indenture provides that if a Default occurs and is
continuing, generally the Trustee must give notice of such Default to the
Holders within 90 days after the occurrence of such Default. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or premium, if any, or interest) if it determines that withholding
notice is in their interest.
The Holders of a majority in aggregate principal amount 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 Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest or premium, or the principal of, any Note except a Payment Default
resulting from an acceleration that has been rescinded or in respect of a
provision that cannot be amended or waived without the consent of the Holder
affected. See "Amendment, Supplement and Waiver."
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and upon becoming aware of any Default
or Event of Default, the Company is required to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or 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 of any Guarantor, as such, shall have any liability
for any obligations of such Guarantor under its Note Guarantee or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder of Notes by accepting a Note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Notes and the Note Guarantees. Such waiver may not be effective
to waive liabilities under the federal securities laws and it is the view of the
Commission that such waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
At its option and at any time, the Company may elect to have all of the
obligations of the Company and the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance") except for (i) the rights of Holders of
outstanding Notes to receive payments in respect of the principal of, premium,
if any, and interest on such Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the Company's obligations under
the Registration Rights Agreement, (iv) the rights, powers, trusts, duties and
immunities of the Trustee, and the Company's obligations in connection therewith
and (v) the Legal Defeasance provisions of the Indenture. In addition, the
Company may, at its option and at any time, elect to have the obligations of the
Company released with respect to certain covenants that are described in the
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 Notes. In the event Covenant Defeasance occurs, certain events (not
including nonpayment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, U.S. Government Obligations,
or a combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the outstanding Notes on the
stated maturity or on the applicable redemption date, as the case may be, and
the Company must specify whether the Notes are being defeased to maturity or to
a particular redemption date; (ii) in the case of Legal Defeasance, the Company
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the
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Company has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of the Indenture, 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 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 Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that 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) 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 Company or any of its
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound; (vi) the Company must deliver to the Trustee
an officers' certificate stating that the deposit was not made by the Company
with the intent of preferring the Holders of Notes over other creditors of the
Company or the Guarantors or with the intent of defeating, hindering, delaying
or defrauding creditors of the Company, the Guarantors or others; (vii) the
Company must have delivered an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and (viii) the Company must deliver to
the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent relating to Legal Defeasance or Covenant
Defeasance, as the case may be, have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Trustee will act as paying agent and registrar for the Notes. The Company,
the Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents as well as
certifications, legal opinions and other information and the Company may require
a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
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 or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for the
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for the Notes).
Without the consent of each Holder affected, an amendment or waiver may
not: (i) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or premium on or
change the fixed maturity of any Note or alter the provisions with respect to
the redemption 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,
(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
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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, (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of Holders of Notes
to receive payments of principal of or premium, if any, or interest on the
Notes, (vii) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under the caption "--
Repurchase at the Option of Holders"), (viii) modify the ranking or priority of
the Notes or the Note Guarantee of any Guarantor, (ix) release any Guarantor
from any of its obligations under its Note Guarantee or the Indenture other than
in accordance with the terms of the Indenture or (x) make any change in the
foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company 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, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect 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.
Notwithstanding the foregoing, neither the Company nor the Trustee may
amend any provisions of the Indenture or the Notes concerning (i) the
subordination of the Notes and the Note Guarantees or (ii) legal defeasance or
convenant defeasance without, in either case, the prior written consent of the
Agent Bank, acting on behalf of the Lenders under the New Credit Agreement.
PAYMENTS FOR CONSENT
Neither the Company nor any of its Restricted Subsidiaries shall, directly
or indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any terms or provisions of the Notes,
unless such consideration is offered to be paid or agreed to be paid to all
Holders of the Notes which so consent, waive or agree to amend in the time frame
set forth in the solicitation documents relating to such consent, waiver or
agreement.
CONCERNING THE TRUSTEE
The Bank of Nova Scotia Trust Company of New York, will be the Trustee
under the Indenture. The Trustee's current address is One Liberty Plaza, 23rd
Floor, New York, New York 10006.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not have been 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. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Notes, unless such Holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Extendicare Health
Services, Inc., 105 W. Michigan Street, 9th Floor, Milwaukee, Wisconsin 53203,
Attention: Robert J. Abramowski, Vice President of Finance and Chief Financial
Officer.
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BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Exchange Notes will be issued in the form of
a global note (the "Global Note"). The Global Note will be deposited with, or on
behalf of, the Depository and registered in the name of the Depository or its
nominee. Investors may hold their beneficial interests in the Global Note
directly through the Depository if they have an account with the Depository or
indirectly through organizations which have accounts with the Depository.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934 (the "Exchange Act"). The Depository was created to hold securities
of institutions that have accounts with the Depository ("participants") and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in the
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. The Depository's participants include securities
brokers and dealers (which may include the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to the
Depository's book-entry system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
The Depository will credit, on its book-entry registration and transfer
system, the respective principal amounts of the Exchange Notes represented by
the Global Note to the accounts of participants. Ownership of beneficial
interests in the Global Note will be limited to participants or persons that may
hold interests through participants. Ownership of beneficial interests in the
Global Note will be shown on, and the transfer of those ownership interests will
be effected only through, records maintained by the Depository (with respect to
participants' interests) and such participants (with respect to the owners of
beneficial interests in the Global Note other than participants). The laws of
some jurisdictions may require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and laws
may impair the ability to transfer or pledge beneficial interests in the Global
Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related Exchange Notes
for all purposes of such Exchange Notes and the Indenture. Except as set forth
below, owners of beneficial interests in the Global Note will not be entitled to
have the Exchange Notes represented by the Global Note registered in their
names, will not receive or be entitled to receive physical delivery of
certificated Exchange Notes in definitive form and will not be considered to be
the owners or holders of any Exchange Notes under the Global Note. Accordingly,
each person owning a beneficial interest in the Global Note must rely on the
procedures of the Depository and, if such person is not a participant, on the
procedures of the participant through which such person owns its interests, to
exercise any right of a holder of Exchange Notes under the Global Note. The
Company understands that under existing industry practice, in the event an owner
of a beneficial interest in the Global Note desires to take any action that the
Depository, as the holder of the Global Note, is entitled to take, the
Depositary would authorize the participants to take such action, and that the
participants would authorize beneficial owners owning through such participants
to take such action or would otherwise act upon the instructions of beneficial
owners owning through them.
Payment of principal of and interest on Exchange Notes represented by the
Global Note registered in the name of and held by the Depository or its nominee
will be made to the Depository or its nominee, as the case may be, as the
registered owner and holder of the Global Note.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on the Global Note, will credit
participants' accounts with payment in amounts proportionate to their respective
beneficial interests in the principal amount of the Global Note as shown on the
records of the Depository or its nominee. The Company also expects that payments
by participants to owners of beneficial interests in the Global Note held
through such participants will be governed by standing instructions and
customary practices and will be the responsibility of such participants. The
Company will not have any
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responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in the Global Note
for any Exchange Note or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests or for other aspects of the
relationship between the Depository and its participants or the relationship
between such participants and the owners of beneficial interests in the Global
Note owning through such participants.
Unless and until it is exchanged in whole or in part for certificated
Exchange Notes in definitive form, the Global Note may not be transferred except
as a whole by the Depository to a nominee of such Depository or by a nominee of
such Depository to such Depository or another nominee of such Depository.
Beneficial owners of Exchange Notes registered in the name of the
Depository or its nominee will be entitled to be issued, upon request, Exchange
Notes in definitive certificated form.
CERTIFICATED NOTES
The Exchange Notes represented by the Global Note are exchangeable for
certificated Exchange Notes ("Certificated Exchange Notes") in definitive form
of like tenor as such Exchange Notes in denominations of $1,000 and integral
multiples thereof if (i) the Depository notifies the Company that it is
unwilling or unable to continue as Depository for the Global Note or if at any
time the Depository ceases to be a clearing agency registered under the Exchange
Act, (ii) the Company in its discretion at any time determines not to have any
of the Exchange Notes represented by the Global Note or (iii) a default
entitling the holders of the New Notes to accelerate the maturity thereof has
occurred and is continuing. Any Exchange Note that is exchangeable pursuant to
the preceding sentence is exchangeable for Certificated Exchange Notes issuable
in authorized denominations and registered in such names as the Depository shall
direct.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers or interests in the Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by the
Depository or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
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.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
any Indebtedness or Disqualified Stock of any other Person existing at the time
such other Person is merged with or into or becomes a Restricted Subsidiary of
such specified Person, including, without limitation, Indebtedness incurred in
connection with, or in contemplation of, such other Person merging with or into
or becoming a Restricted Subsidiary of such specified Person, and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such specified
Person, and in either case for purposes of the Indenture, shall be deemed to be
incurred by such specified Person at the time such other Person is merged with
or into or becomes a Restricted Subsidiary of such specified Person or at the
time such asset is acquired by such specified Person, as the case may be.
"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 or (ii) any other Person who is a director or
executive officer of (a) such specified Person or (b) any Person described in
the preceding clause (i). 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 Bank" means NationsBank, N.A. and its successors under the New
Credit Agreement, in its capacity as agent.
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"Asset Sale" means with respect to any Person, the sale, lease, conveyance
or other disposition, by such Person of any of its assets (including, without
limitation, (w) a sale and leaseback, (x) the issuance, sale or other transfer
of any Equity Interests in any Restricted Subsidiary of the Company, (y) the
sale or transfer of Equity Interests in any Unrestricted Subsidiary and (z) the
receipt of proceeds of insurance paid on account of the loss of or damage to any
asset and awards of compensation for any asset taken by condemnation, eminent
domain or similar proceeding, and including the receipt of proceeds of business
interruption insurance), in each case, in one or a series of related
transactions, that have a fair market value in excess of $1,000,000 or for Net
Proceeds in excess of $1,000,000; provided that notwithstanding the foregoing,
the term "Asset Sale" shall not include: (a) the sale, lease, conveyance,
disposition or other transfer of all or substantially all of the assets of the
Company, in accordance with the terms of the covenant described under the
caption "Certain Covenants -- Merger, Consolidation or Sale of Assets," (b) the
sale or lease of equipment, inventory, accounts receivable or other assets in
the ordinary course of business consistent with past practice, (c) a transfer of
assets by the Company to a Wholly Owned Restricted Subsidiary of the Company or
by a Wholly Owned Restricted Subsidiary of the Company to the Company or to
another Wholly Owned Restricted Subsidiary of the Company, (d) an issuance of
Equity Interests by a Wholly Owned Restricted Subsidiary of the Company to the
Company or to another Wholly Owned Restricted Subsidiary of the Company,
provided that the consideration paid by the Company or such Wholly Owned
Restricted Subsidiary of the Company for such Equity Interests shall be deemed
to be an Investment, (e) the sale or other disposition of cash or Cash
Equivalents, (f) a Restricted Payment that is permitted by the covenant
described above under the caption "-- Restricted Payments," (g) sales of
property or equipment that have become worn out, obsolete or damaged, or (h) the
designation of any Restricted Subsidiary as an Unrestricted Subsidiary or the
contribution to the capital of any Unrestricted Subsidiary in accordance with
the applicable provisions of the Indenture.
"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, capital stock, (ii)
in the case of an association or business entity, any and all shares, interests,
participations, rights or other equivalents (however designated) of capital
stock, (iii) in the case of partnership, partnership interests (whether general
or limited) and (iv) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Cash Equivalent" means (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof) having maturities not more than six months
from the date of acquisition, (b) U.S. dollar denominated (or foreign currency
fully hedged) time deposits, certificates of deposit, Eurodollar time deposits
or Eurodollar certificates of deposit of (i) any domestic commercial bank of
recognized standing having capital and surplus in excess of $500 million or (ii)
any bank whose short-term commercial paper rating from S&P is at least A-1 or
the equivalent thereof or from Moody's is at least P-1 or the equivalent thereof
(any such bank being an "Approved Lender"), in each case with maturities of not
more than six months from the date of acquisition, and (c) commercial paper
issued by any Approved Lender (or by the parent company thereof) and maturing
within six months of the date of acquisition.
"Change of Control" means such time as either:
(i) any Person or group (within the meaning of Section 13(d) or 14(d)
of the Exchange Act) other than the Permitted Holders that has become,
directly or indirectly, the beneficial owner, by way of merger,
consolidation or otherwise, of (A) 35% or more of the voting power of the
Voting Stock of Extendicare on a fully-diluted basis and the Permitted
Holders beneficially own, directly or indirectly, Voting Stock of
Extendicare that represents a lesser percentage of the aggregate voting
power of all classes of Voting Stock of Extendicare, voting together as a
single class, than such person or group, or (B) 50% or more of the voting
power of the Voting Stock of the Company on a fully diluted basis, after
giving effect to the conversion and exercise of all outstanding warrants,
options and other securities of the
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Company convertible or exercisable for Voting Stock of the Company (in each
case, whether or not such securities are then currently convertible or
exercisable); or
(ii) the sale, lease or transfer to any Person or Group of all or
substantially all of the assets of (A) the Company, other than in
compliance with the terms of the covenant described above under the caption
"Certain Covenants -- Merger, Consolidation or Sale of Assets," or (B)
Extendicare, other than to the Permitted Holders;
(iii) during any period of two consecutive calendar years, individuals
who at the beginning of such period constituted the Board of Directors of
Extendicare or the Company, together with any new members of such Board of
Directors whose election by such Board of Directors or whose nomination for
election by the stockholders of Extendicare or the Company, as applicable
was approved by a vote of a majority of the members of such Board of
Directors then still in office who either were directors at the beginning
of such period or whose election or nomination for election was previously
so approved, cease for any reason to constitute a majority of the directors
of Extendicare or the Company then in office; or
(iv) Extendicare or the Company consolidates or amalgamates with or
merges with or into another Person or any Person consolidates or
amalgamates with, or merges with or into, Extendicare or the Company (in
the case of the Company, whether or not in compliance with the terms of the
Indenture), in any such event pursuant to a transaction in which
immediately after the consummation thereof Persons owning a majority of the
Voting Stock of Extendicare or the Company, as applicable, immediately
prior to such consummation shall cease to own a majority of the Voting
Stock of Extendicare or the Company, as applicable, or the surviving entity
if other than Extendicare or the Company.
"Consolidated EBITDA" means, with respect to any Person for any period, the
sum of, without duplication, (i) the Consolidated Net Income of such Person and
its Restricted Subsidiaries for such period, plus (ii) the Fixed Charges for
such period, plus (iii) provision for taxes based on income or profits for such
period (to the extent such income or profits were included in computing
Consolidated Net Income for such period), plus (iv) consolidated depreciation,
amortization and other noncash charges of such Person and its Restricted
Subsidiaries required to be reflected as expenses on the books and records of
such Person, minus (v) cash payments with respect to any nonrecurring, noncash
charges previously added back pursuant to clause (iv), and excluding (vi) the
impact of foreign currency translations. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization and other noncash charges of, a Restricted Subsidiary of a Person
shall be added to Consolidated Net Income to compute Consolidated EBITDA only to
the extent (and in the same proportion) that the Net Income of such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to such Person by such Restricted Subsidiary
without prior approval (unless such approval has been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Restricted Subsidiary or its stockholders.
"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 (but not loss) 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 actually paid in cash to the referent Person or a Wholly Owned
Restricted Subsidiary thereof, (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
(unless such approval has been obtained) or, directly or indirectly, 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, (iii) solely for purposes of the
covenant entitled "Certain Covenants -- Restricted Payments," 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 and (iv) the cumulative effect
of a change in accounting principles shall be excluded.
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"Consolidated Tangible Assets" means, as of the date of determination, the
total assets, less goodwill and other intangibles (other than patents,
trademarks, copyrights, licenses and other intellectual property), shown on the
balance sheet of the Company and its Restricted Subsidiaries as of the most
recent date for which such a balance sheet is available, determined on a
consolidated basis in accordance with GAAP less all write-ups (other than
writeups in connection with acquisitions) subsequent to the date of the
Indenture in the book value of any asset (except any such intangible assets)
owned by the Company or any of its Restricted Subsidiaries. At September 30,
1997, on a pro forma basis giving effect to the Acquisition, the Consolidated
Tangible Assets of the Company were approximately $967 million.
"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 Indebtedness" means (i) so long as the Senior Bank Debt
is outstanding, the Senior Bank Debt and (ii) any other Senior Indebtedness
permitted under the Indenture the principal amount of which is $50 million or
more and that has been designated by the Company as "Designated Senior
Indebtedness."
"Disqualified Stock" means (a) with respect to any Person, Capital Stock of
such Person 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
matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the Holder thereof, in whole or in
part, on or prior to the date which is one year after the date on which the
Notes mature and (b) with respect to any Restricted Subsidiary of such Person
(including with respect to any Restricted Subsidiary of the Company), any
Capital Stock other than any common stock with no preference, privileges, or
redemption or repayment provisions.
"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), whether outstanding prior
to, on or after the date of the Indenture.
"Equity Offering" means a public or private offering of Capital Stock
(other than Disqualified Stock) of the Company and shall be deemed to include,
without limitation, any capital contribution (whether or not against the
issuance of additional Capital Stock of the Company) by Extendicare or its
subsidiaries (other than the Company) to the Company.
"Exempt Affiliate Transactions" means (a) transactions between or among the
Company and/or its Wholly Owned Restricted Subsidiaries, (b) advances to
officers of the Company or any Restricted Subsidiary of the Company in the
ordinary course of business to provide for the payment of reasonable expenses
incurred by such persons in the performance of their responsibilities to the
Company or such Restricted Subsidiary or in connection with any relocation, (c)
fees and compensation paid to and indemnity provided on behalf of directors,
officers or employees of the Company or any Restricted Subsidiary of the Company
in the ordinary course of business, (d) any employment agreement that is in
effect on the date of the Indenture in the ordinary course of business and any
such agreement entered into by the Company or a Restricted Subsidiary of the
Company after the date of the Indenture in the ordinary course of business of
the Company or such Restricted Subsidiary, (e) any Restricted Payment that is
not prohibited by the covenant set forth under the caption "Certain Covenants --
Restricted Payments" above (f) payment of premiums to and the receipt of
proceeds of insurance from, Laurier Indemnity Company and Laurier Indemnity
Company, Ltd. and (g) payments to or receipts from Extendicare Holdings, Inc.
pursuant to any tax sharing agreement entered into for the purpose of preparing
a consolidated tax return of Extendicare Holdings, Inc.
"Existing Indebtedness" means the Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the New Credit Agreement)
in existence on the date of the Indenture, until such amounts are repaid.
"Extendicare" means Extendicare Inc., the Company's indirect parent.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person and its Restricted
Subsidiaries for such period to the Fixed Charges of
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such Person and its Restricted Subsidiaries for such period. In the event that
the Company or any of its Restricted Subsidiaries incurs, assumes, guarantees or
repays or redeems any Indebtedness (other than revolving credit borrowings) or
issues or redeems preferred stock subsequent to the commencement of the
four-quarter reference period for which the Fixed Charge Coverage Ratio is being
calculated but on or prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee, repayment or redemption of
Indebtedness, 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, (i) acquisitions that
have been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period, and (ii) the
Consolidated EBITDA attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period (net of any interest income)
including, without limitation, 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, but excluding amortization of deferred
financing charges for such period, (ii) the consolidated interest expense of
such Person and its Restricted Subsidiaries that was capitalized during such
period, (iii) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries (whether or
not such guarantee or Lien is called upon) and (iv) the product of (a) all cash
dividend payments (and noncash dividend payments in the case of a Person that is
a Restricted Subsidiary) on any series of preferred stock of such Person payable
to a party other than the Company or a Wholly Owned Restricted Subsidiary,
multiplied by (b)a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, on a consolidated
basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of 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 of the United States that are applicable to the circumstances as of
the date of determination;
"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, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means AHC Acquisition Corp., each other existing Restricted
Subsidiary of the Company organized within the United States, each Restricted
Subsidiary of the Company organized within the United States formed or acquired
(and each other Person that becomes a Restricted Subsidiary of the Company)
after the date of the Indenture and each other Restricted Subsidiary of the
Company organized within the United States that guarantees the Company's
obligations under the New Credit Agreement or any other Senior Indebtedness;
provided that Arbor Health Care Company and its Restricted Subsidiaries shall
not become Guarantors until the consummation of the Merger.
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"Hedging Obligations" means, with respect to any Person, the obligations of
such Person entered into in the ordinary course of business under (i) interest
rate swap agreements, interest rate cap agreements and interest rate collar
agreements and other similar financial agreements or arrangements designed to
protect such Person against, or manage the exposure of such Person to,
fluctuations in interest rates, and (ii) forward exchange agreements, currency
swap, currency option and other similar financial agreements or arrangements
designed to protect such Person against, or manage the exposure of such Person
to, fluctuations in foreign currency exchange rates.
"Indebtedness" means, with respect to any Person, 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 or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable
incurred in the ordinary course of business, 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, as well as all Indebtedness of others secured by a Lien on
any asset of such Person (whether or not such Indebtedness is assumed by such
Person) and, to the extent not otherwise included, the guarantee by such Person
of any Indebtedness of any other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or indirect
loans (including guarantees of Indebtedness or other obligations), advances or
capital contributions (excluding advances to officers and employees of the type
specified in clause (b) of the definition of Exempt Affiliate Transactions),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP,
provided that an acquisition of assets, Equity Interests or other securities by
the Company or any of its Restricted Subsidiaries for consideration consisting
solely of Equity Interests (other than Disqualified Stock) of the Company or
Extendicare shall not be deemed to be an Investment, and provided further that
Investments shall not be deemed to include extensions of trade credit by the
Company or any of its Restricted Subsidiaries on commercially reasonable terms
in accordance with normal trade practices.
"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, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions) or
(b) the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, 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, without limitation, legal, accounting
and investment banking fees, and sales commissions), taxes paid or payable as a
result thereof, and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"New Credit Agreement" means that certain credit agreement, dated as of the
date of the Indenture, by and among the Company and NationsBank, N.A., as agent,
and the lenders parties thereto, including any
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related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
increased, renewed, refunded, replaced, restated or refinanced from time to
time.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Restricted Subsidiary) would permit (upon notice,
lapse of time or both) any holder of any other Indebtedness of the Company or
any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Nursing Facility" means a nursing facility, hospital, outpatient clinic,
assisted living center, long-term care facility, subacute care facility or
retirement facility that is used or useful in the provision of healthcare
services.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Holders" means, as of the date of determination, Kingfield
Investments Limited and Scotia Investments Limited and their respective
Affiliates (in each case, so long as controlled by (i) in the case of Kingfield
Investments Limited, H. Michael Burns or his Permitted Transferees and (ii) in
the case of Scotia Investments Limited, members of the family of the late R. A.
Jodrey or his Permitted Transferees).
"Permitted Investments" means (a) any Investments in the Company; (b) any
Investments in Cash Equivalents; (c) Investments made as a result of the receipt
of noncash 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"; (d) Investments outstanding as of the
date of the Indenture; (e) Investments in Wholly Owned Restricted Subsidiaries
of the Company and any entity that (i) is engaged in the same or a similar line
of business as the Company or any of its Restricted Subsidiaries was engaged in
on the date of the Indenture or any Related Businesses and (ii) as a result of
such Investment, becomes a Wholly Owned Restricted Subsidiary of the Company or
such entity is merged or consolidated with or into, or transfer or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Restricted Subsidiary of the Company (or, if the Investment in the
entity is by means of a tender offer for Capital Stock of such entity, Capital
Stock is acquired in an amount sufficient under the laws of the jurisdiction of
incorporation of such entity to cause the subsequent merger of such entity with
the Company or a Wholly Owned Restricted Subsidiary, provided that such merger
is completed within 90 days of the completion of the tender offer); (f) Hedging
Obligations to the extent permitted under clause (vi) of the second paragraph of
the covenant described above under the caption "-- Incurrence of Indebtedness
and Issuance of Preferred Stock"; (g) other Investments in any Person having an
aggregate fair market value (measured on the date each such Investment was made
and without giving effect to subsequent changes in value), when taken together
with all other Investments made pursuant to this clause (g) that are at the time
outstanding, not to exceed $7.0 million; (h) loans and advances to employees
made in the ordinary course of business; (i) Investments in prepaid expenses,
negotiable instruments held for collection, and lease, utility and worker's
compensation, performance and other similar deposits; and (j) Investments made
in exchange for accounts receivable arising in the ordinary course of business
which have not been collected for 270 days and which are, in the good faith of
the Company and its Restricted Subsidiaries, substantially uncollectible.
"Permitted Transferees" means, with respect to any Person: (i) the referent
Person's parents, spouse, siblings, children (natural or adopted), grandchildren
or other issue; (ii) trusts the primary beneficiaries of which are any of the
foregoing persons or any charitable organization designated by any of them,
which trusts are controlled, directly or indirectly, by the referent Person and
any of the persons under clauses (i) or (iv); (iii) corporations, partnerships,
limited liability companies and other persons if at least 80% of the economic
interest in any such person is owned by the Referent Person and any of the
persons under clause (i) or any
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charitable organization designated by any of them; and (iv) in the case of any
person in clause (i), the heirs, executors, administrators or personal
representatives upon the death of such person or upon the incompetency or
disability of such person for the purposes of the protection and management of
such individual's assets.
"Permitted Refinancing Indebtedness" means any Indebtedness 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 Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount of such Permitted Refinancing
Indebtedness does not exceed the principal amount of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded plus the lesser of
the amount of any premium required to be paid in connection with such
refinancings pursuant to the terms of such indebtedness or the amount of any
premium reasonably determined by the Company as necessary to accomplish such
refinancing (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness 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 Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or by the Restricted Subsidiary of the Company that is the obligor
on the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, trust unincorporated
organization or government or any agency or political subdivision thereof.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, partnership interests, participations, rights in or other equivalents
(however designated) of such person's preferred or preference stock, whether now
outstanding or issued after the Closing Date, and including, without limitation,
all classes and series of preferred or preference stock of such person.
"Purchase Money Obligations" of any Person means any obligations of such
Person to any seller or any other Person incurred or assumed to finance the
construction and/or acquisition of real or personal property to be used in the
business of such Person or any of its Subsidiaries in an amount that is not more
than 100% of the cost of such property, and incurred within 90 days after the
date of such construction or acquisition (excluding accounts payable to trade
creditors incurred in the ordinary course of business); provided, however, that
any Lien on such Indebtedness shall not extend to any property other than the
property so acquired or constructed.
"Related Businesses" means the business conducted by the Company and its
Restricted Subsidiaries as of the date of the Indenture and any and all
healthcare service businesses that in the good faith judgment of the Board of
Directors of the Company are materially related businesses, which shall include
the operation of Nursing Facilities, long-term and specialty healthcare
services, skilled nursing care, subacute care, rehabilitation programs,
therapies, pharmaceutical services, participation in provider service
organizations, health care information services business, distribution of
medical supplies, geriatric care and home healthcare or other businesses which
provide ancillary services to residents in long-term and specialty healthcare
facilities.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary of the referent Person.
"Senior Bank Debt" means the Obligations outstanding under the New Credit
Agreement.
"Senior Indebtedness" means (i) the Senior Bank Debt and (ii) any other
Indebtedness permitted to be incurred by the Company or any Guarantor under the
terms of the Indenture, unless the instrument under
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which such Indebtedness is incurred expressly provides that it is subordinated
in right of payment to any Indebtedness for money borrowed. Notwithstanding
anything to the contrary in the foregoing, Senior Indebtedness will not include
(w) any liability for federal, state, local or other taxes owed or owing, (x)
any Indebtedness of the Company to any of its Restricted Subsidiaries or other
Affiliates, (y) any trade payables or (z) any Indebtedness to the extent that it
is incurred in violation of the Indenture.
"Senior Revolving Debt" means revolving credit borrowings and letters of
credit under the New Credit Agreement and/or any successor facility or
facilities.
"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).
"Unrestricted Subsidiary" means (i) any Person that (a) at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of
Directors of the Company in the manner provided below and (b) would, but for
such designation, be a Restricted Subsidiary of the Company and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company
may designate any Restricted Subsidiary of the Company to be an Unrestricted
Subsidiary unless at the time of designation, such Subsidiary or any Subsidiary
of such Subsidiary owns any Capital Stock or Indebtedness of, or owns or holds
any Lien on any property of, the Company or any Restricted Subsidiary of the
Company; provided, however, that the amount of the Investment by the Company or
any of its Restricted Subsidiaries in such Unrestricted Subsidiary would be
permitted under " -- Certain Covenants -- Restricted Payments" as a "Restricted
Payment" after giving effect to the designation; and provided further that any
Indebtedness incurred by any Unrestricted Subsidiary shall be Non-Recourse Debt.
The Board of Directors of the Company may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided, however, that immediately after giving
pro forma effect to such designation (1) the Company could incur $1.00 of
additional Indebtedness pursuant to the Consolidated Interest Coverage Ratio
test in " -- Certain Covenants -- Limitation on Indebtedness" and (2) no Default
or Event of Default shall have occurred and be continuing. Any such designation
by the Board of Directors of the Company shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the board resolution giving effect to
such designation and an officers' certificate certifying that such designation
complies with the foregoing provisions.
"U.S. Government Obligations" means (i) securities that are (a) direct
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (b) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or redeemable at the
option of the issuer thereof; and (ii) depositary receipts issued by a bank (as
defined in Section 3(a)(2) of the Securities Act) as custodian with respect to
any U.S. Government Obligation which is specified in clause (i) above and held
by such bank for the account of the holder of such depositary receipt, or with
respect to any specific payment of principal or interest on any U.S. Government
Obligation which is so specified and held, provided that (except as required by
law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depositary receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal or interest of the U.S. Government Obligation evidenced by such
depositary receipt.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the product
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal, including
110
<PAGE> 113
payments 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 Indebtedness.
"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.
111
<PAGE> 114
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations to persons who acquired the Outstanding Notes on original
issuance for cash and who hold the Exchange Notes subsequent to the Exchange
Offer. It does not purport to be a complete analysis of all the potential tax
considerations relating thereto. This summary is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), proposed, temporary and final Treasury
Regulations, Internal Revenue Service ("IRS") rulings and judicial decisions now
in effect, all of which are subject to change (possibly with retroactive effect)
or different interpretations. This summary is not intended to be wholly
applicable to all categories of investors, some of which, such as dealers in
securities, banks, financial institutions, insurance companies and tax-exempt
organizations, may be subject to special rules. In addition, this summary is
limited to persons that will hold the Notes as a "capital asset" within the
meaning of Section 1221 of the Code. Further, this summary does not address the
effect of any applicable United States federal estate tax or any state, local or
other tax laws. ACCORDINGLY, INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED
STATES FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL
AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL, OR FOREIGN
TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
The exchange of an Outstanding Note by a holder for an Exchange Note should
not constitute a taxable exchange and thus should not result in income, gain or
loss to holders of Notes who participate in the Exchange Offer or to the
Company. Such holders should have the same adjusted basis and holding period in
the Exchange Notes immediately after the exchange as the holders had in the
Outstanding Notes immediately prior to the exchange.
As used herein, the term "United States Holder" means a beneficial owner of
the Outstanding Notes or Exchange Notes that is, for United States federal
income tax purposes (i) a citizen or resident of the United States, (ii) a
corporation or other entity created or organized under the laws of the United
States or any political subdivision thereof, (iii) an estate the income of which
its subject to federal income taxation regardless of its source, or (iv) a trust
subject to the primary supervision of a U.S. court and the control of one or
more U.S. fiduciaries. A "Foreign Holder" is any holder of Outstanding Notes or
Exchange Notes that is not a United States Holder.
UNITED STATES HOLDERS
STATED INTEREST
A United States Holder of a Note will be required to include interest on a
Note in gross income for Federal income tax purposes in accordance with the
holder's method of tax accounting.
SALE, EXCHANGE OR REDEMPTION OF A NOTE
Upon a taxable sale, exchange or redemption of a Note, a United States
Holder generally will recognize capital gain or loss equal to the difference
between the amount realized (other than any amount received attributable to
accrued interest on a Note that was not previously included in gross income,
which amount will be treated as interest income) and the holder's tax basis in
the Note. Such capital gain or loss will be long-term capital gain or loss if
the Holder's holding period in the Note is more than one year at the time of
such disposition. In general, in the case of a non-corporate United States
Holder, capital gains recognized on Notes held (i) one year or less will be
taxed at ordinary income tax rates, (ii) more than one year but 18 months or
less will be taxed at a maximum rate of 28% and (iii) more than 18 months will
be taxed at a maximum rate of 20%. In addition, holders should consult their own
tax advisers regarding the availability and effect of a certain tax election to
mark-to-market Notes held on January 1, 2001.
112
<PAGE> 115
FOREIGN HOLDERS
Payments of principal and interest on the Notes to a Foreign Holder
generally will not be subject to United States Federal withholding tax provided
that (a) the holder does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote, (b) the holder is not a controlled foreign corporation that is related to
the Company through stock ownership and (c) either (1) the beneficial owner of
the Note, under penalties of perjury, provides the Company or its agent with its
name and address and certifies that it is not a United States person or (2) a
securities clearing organization, bank, or other financial institution that
holds customers' securities in the ordinary course of its trade or business (a
"financial institution") certifies to the Company or its agent, under penalties
of perjury, that such a statement has been received from the beneficial owner by
it or another financial institution and furnishes to the Company or its agent a
copy thereof.
A Foreign Holder that does not qualify for the exception from withholding
tax described above would generally be subject to the United States withholding
tax at a flat rate of 30% (or a lower applicable treaty rate) on payments of
interest, unless the Foreign Holder's income from the Notes is effectively
connected with a U.S. trade or business of the holder. A Foreign Holder
generally will be taxed in the same manner as a United States corporation or
resident with respect to such income if it is effectively connected with the
conduct of a trade or business in the United States. Such effectively connected
income received by a Foreign Holder which is a corporation may in certain
circumstances be subject to an additional "branch profits tax" at a 30% rate or,
if applicable, a lower treaty rate.
A Foreign Holder generally will not be subject to United States Federal
income or withholding tax on gain realized on the sale, exchange or redemption
of the Notes unless (i) the holder is an individual who was present in the
United States for 183 days or more during the taxable year and certain other
requirements are met, or (ii) the gain is effectively connected with the conduct
of a trade or business of the holder in the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Note and payments of the proceeds
of the sale of a Note to certain noncorporate United States Holders, and a 31%
backup withholding tax may apply to such payment if the United States Holder (i)
fails to furnish or certify his correct taxpayer identification number ("TIN")
to the payor in the manner required, (ii) is notified by the IRS that he has
failed to report payments of interest or dividends properly or (iii) under
certain circumstances, fails to certify that he has not been notified by the IRS
that he is subject to backup withholding for failure to report interest or
dividend payments.
The payment of interest on the Notes to Foreign Holders generally will not
be subject to information reporting and backup withholding if the Company (or
its paying agent) has received the certification described in (c) above under
the caption "Foreign Holders" and neither the Company nor its paying agent has
actual knowledge that the holder is a United States person. The proceeds paid to
a Foreign Holder upon the sale of a Note by or through a United States office of
a broker will be subject to information reporting and backup withholding unless
the holder provides the certification described in (c) above or otherwise
establishes an exception. The proceeds paid to a Foreign Holder upon the sale of
a Note by or through a foreign office of a broker generally will not be subject
to a backup withholding tax. However, such proceeds will be subject to
information reporting if the broker is (i) a United States person, (ii) a
"controlled foreign corporation" for United States federal income tax purposes,
or (iii) a foreign person 50% or more of whose gross income for certain periods
is effectively connected with the conduct of a trade or business in the United
States, unless the broker has documentary evidence in its files that the holder
is not a United States person and the broker has no knowledge to the contrary.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.
113
<PAGE> 116
The IRS recently issued Treasury Regulations, generally effective for
payments made after December 31, 1998, concerning the withholding of tax and
reporting for certain amounts paid to non-resident individuals and foreign
corporations. Among other things, these Treasury Regulations may require Foreign
Holders to furnish new certification of their foreign status after December 31,
1998. Prospective purchasers of Notes should consult their tax advisors
concerning the applicability and effect of such Treasury Regulations on an
investment in the Notes.
PLAN OF DISTRIBUTION
The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, holders of Outstanding Notes in any jurisdiction in
which the Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver this
Prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer who holds Outstanding Notes acquired for its own account as a
result of market-making activities or other trading activities (an "Exchanging
Dealer") in connection with resales of Exchange Notes received in exchange for
Outstanding Notes. For a period (the "Exchange Offer Registration Period") the
longer of (A) the period until consummation of the Exchange Offer and (B) two
years after the effectiveness of the Registration Statement (unless, in the case
of (B), all resales of Exchange Notes covered by the Registration Statement have
been made), the Company will make this Prospectus, as amended or supplemented,
available to any Exchanging Dealer for use in connection with any such resale;
provided, however, that the Company shall not be required to maintain the
effectiveness of the Registration Statement for more than 60 days following the
consummation of the Exchange Offer unless the Company has been notified in
writing on or prior to the 60th day following the consummation of the Exchange
Offer by one or more broker-dealers that such holder has received Exchange Notes
as to which it will be required to deliver this Prospectus upon resale. In
addition, until , 1998, (90 days after the date of this Prospectus),
all dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.
The Company will not receive any proceeds from the exchange of Outstanding
Notes for Exchange Notes by broker-dealers. Exchange Notes 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 Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, or 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 broker-dealers who may receive compensation in the form of commissions
or concessions from any such broker-dealer and/or the purchasers of any Exchange
Notes. Any broker-dealer that resells Exchange Notes that were received by it
for its own account pursuant to the Exchange Offer and any person that
participates in the distribution of such Exchange Notes may be deemed an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such broker-dealers 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 Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions or concessions of any broker-dealers and will indemnify
the holders of the Outstanding Notes (including Exchanging Dealers)
participating in the Exchange Offer against certain liabilities, including
liabilities under the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer agrees that, upon receipt of
notice from the Company of (i) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose; (ii) the receipt by the Company of any
notification with respect to the suspension of the qualification of the Notes
included therein for sale in any jurisdiction or the initiation or
114
<PAGE> 117
threatening of any proceeding for such purpose; or (iii) the happening of any
event that requires the making of any changes in the Registration Statement or
this Prospectus so that, as of such date, the Registration Statement or this
Prospectus does not include an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein (in the case of
this Prospectus, in light of the circumstances under which they were made) not
misleading (which notice the Company agrees to advise to any broker-dealer that
has provided in writing to the Company a telephone or facsimile number and
address for notices), such broker-dealer will suspend the use of this Prospectus
until the Company has amended or supplemented this Prospectus to correct such
misstatement or omission and has furnished copies of the amended or supplemented
Prospectus to such broker-dealer or until it is advised is writing by the
Company that the use of this Prospectus may be resumed and has received copies
of any amendments or supplements thereto. If the Company gives any such notice
to suspend the use of the Prospectus, it will extend the Exchange Offer
Registration Period by the number of days during the period from and including
the date of the giving of such notice to and including the date when
broker-dealers shall have received (x) copies of the supplemented or amended
Prospectus necessary to permit resales of Exchange Notes or (y) the advice in
writing.
LEGAL MATTERS
Certain legal matters will be passed upon on behalf of the Company by
Skadden, Arps, Slate, Meagher & Flom LLP, Toronto, Ontario and New York, New
York.
EXPERTS
The consolidated financial statements of the Company included in this
Prospectus and in the Registration Statement as of December 31, 1996 and 1995
and for each of the years in the three-year period ended December 31, 1996 have
been included in the Prospectus herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere in the Prospectus and in the Registration
Statement, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of Arbor Health Care Company at
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
115
<PAGE> 118
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
EXTENDICARE HEALTH SERVICES, INC.
Independent Auditor's Report...................................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1995......................... F-3
Consolidated Statements of Net Earnings for the Years Ended
December 31, 1996, 1995 and 1994............................................... F-4
Consolidated Statements of Changes in Shareholder's Equity for the Years Ended
December 31, 1996, 1995 and 1994............................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994............................................... F-6
Notes to Consolidated Financial Statements........................................ F-7
Consolidated Balance Sheets at September 30, 1997 (unaudited) and December 31,
1996........................................................................... F-19
Unaudited Consolidated Statements of Net Earnings for the Three and Nine Months
Ended September 30, 1997 and 1996.............................................. F-20
Unaudited Consolidated Statements of Changes in Shareholder's Equity for the Nine
Months Ended September 30, 1997 and the Year Ended December 31, 1996........... F-21
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996.................................................... F-22
Notes to Unaudited Interim Consolidated Financial Statements...................... F-23
ARBOR HEALTH CARE COMPANY
Report of Independent Auditors.................................................... F-26
Consolidated Balance Sheets at December 31, 1996 and 1995......................... F-27
Consolidated Statements of Income for the Years Ended December 31, 1996, 1995 and
1994........................................................................... F-28
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994............................................... F-29
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994............................................... F-30
Notes to Consolidated Financial Statements........................................ F-31
Consolidated Balance Sheets at September 30, 1997 (unaudited) and December 31,
1996........................................................................... F-40
Unaudited Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 1997 and 1996.................................................... F-41
Unaudited Consolidated Statements of Stockholders' Equity for the Nine Months
Ended September 30, 1997 and the Year Ended December 31, 1996.................. F-42
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996.................................................... F-43
Notes to Unaudited Interim Consolidated Financial Statements...................... F-44
</TABLE>
F-1
<PAGE> 119
INDEPENDENT AUDITORS' REPORT
The Board of Directors
EXTENDICARE HEALTH SERVICES, INC.:
We have audited the accompanying consolidated balance sheets of Extendicare
Health Services, Inc. (f/k/a United Health, Inc.) and subsidiaries (the Company)
as of December 31, 1996 and 1995, and the related consolidated statements of net
earnings, changes in shareholder's equity, and cash flows for the years ended
December 31, 1996, 1995 and 1994. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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 consolidated 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 financial position of Extendicare Health Services,
Inc. and subsidiaries at December 31, 1996 and 1995, and the results of their
operations and cash flows for the years ended December 31, 1996, 1995 and 1994
in conformity with generally accepted accounting principles.
Milwaukee, Wisconsin KPMG PEAT MARWICK LLP
February 3, 1997,
except for note 16 which is as of December 2, 1997.
F-2
<PAGE> 120
EXTENDICARE HEALTH SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 18,715 $ 11,704
Accounts receivable, less allowance for uncollectible receivables
of $9,303 and $7,196, respectively.............................. 153,548 134,186
Inventories........................................................ 5,027 4,824
Supplies and prepaid expenses...................................... 3,770 3,807
Deferred state income taxes........................................ 910 1,337
Debt service trust funds........................................... 709 663
Due from shareholder --
Deferred Federal income taxes................................... 5,594 7,704
------- -------
Total current assets............................................ 188,273 164,225
PROPERTY AND EQUIPMENT, NET.......................................... 386,082 345,074
OTHER ASSETS......................................................... 17,496 16,335
------- -------
$591,851.. $525,634
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Bank indebtedness.................................................. $ 22,279 $ 19,136
Notes payable...................................................... 6,000 6,000
Current maturities of long-term debt............................... 10,461 12,700
Accounts payable................................................... 28,656 34,705
Accrued liabilities................................................ 55,777 52,060
Income taxes payable............................................... 627 1,064
Due to shareholder and affiliates.................................. 3,981 5
------- -------
Total current liabilities....................................... 127,781 125,670
LONG-TERM DEBT....................................................... 222,954 196,769
OTHER LONG-TERM LIABILITIES.......................................... 9,139 8,772
DUE TO SHAREHOLDER AND AFFILIATES
Deferred Federal income taxes...................................... 21,857 18,570
Other.............................................................. 3,484 3,484
DEFERRED STATE INCOME TAXES.......................................... 4,414 4,291
MINORITY INTEREST.................................................... 701 565
SHAREHOLDER'S EQUITY:
Common stock, $1.00 par value, 1,000 shares authorized, 947 shares
issued and outstanding.......................................... 1 1
Additional paid-in capital......................................... 150,254 150,254
Retained earnings.................................................. 51,266 17,258
------- -------
Total shareholder's equity...................................... 201,521 167,513
------- -------
$591,851.. $525,634
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 121
EXTENDICARE HEALTH SERVICES, INC.
CONSOLIDATED STATEMENTS OF NET EARNINGS
FOR THE YEARS ENDING DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Routine care and assisted living....................... $526,486 $498,140 $470,310
Medical specialty...................................... 290,515 242,339 188,419
Other.................................................. 7,346 6,649 6,265
-------- -------- --------
824,347 747,128 664,994
COSTS AND EXPENSES:
Operating.............................................. 677,159 626,405 559,744
General and administrative............................. 33,262 28,672 24,944
Lease costs............................................ 8,756 9,005 8,920
Depreciation and amortization.......................... 29,703 25,872 23,092
Interest, net.......................................... 18,477 14,776 13,083
-------- -------- --------
767,357 704,730 629,783
-------- -------- --------
Earnings from operations............................... 56,990 42,398 35,211
GAIN ON SALE OF PROPERTY AND EQUIPMENT................... -- -- 350
PROVISION FOR INCOME TAXES............................... 22,546 16,761 13,852
-------- -------- --------
Earnings before minority interest...................... 34,444 25,637 21,709
MINORITY INTEREST........................................ (436) (116) --
-------- -------- --------
Net earnings........................................... $ 34,008 $ 25,521 $ 21,709
======== ======== ========
EARNINGS PER SHARE....................................... $ 36 $ 27 23
======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING...................... 947 947 947
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 122
EXTENDICARE HEALTH SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
----------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT)
------ ------ ---------- ---------
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1993.......................... 947 $ 1 $ 150,254 $ (19,972)
Cash dividends, $10.56 per share................. -- -- -- (10,000)
Net earnings..................................... -- -- -- 21,709
--
--- -------- -------
BALANCE DECEMBER 31, 1994.......................... 947 $ 1 150,254 (8,263)
Net earnings..................................... -- -- -- 25,521
--
--- -------- -------
BALANCE DECEMBER 31, 1995.......................... 947 $ 1 150,254 17,258
Net earnings..................................... -- -- -- 34,008
--
--- -------- -------
BALANCE DECEMBER 31, 1996.......................... 947 $ 1 $ 150,254 $ 51,266
=== == ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 123
EXTENDICARE HEALTH SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings............................................. $ 34,008 $ 25,521 $ 21,709
Adjustments to reconcile net earnings to net cash
provided from operating activities:
Depreciation and amortization.......................... 29,703 25,872 23,092
Provision for uncollectible accounts receivable........ 7,293 3,892 3,593
Deferred income taxes.................................. 5,947 3,209 --
Gain on sales of property and equipment................ -- -- (350)
Minority interest...................................... 436 116 --
Changes in assets and liabilities:
Accounts receivable.................................... (22,407) (33,716) (24,662)
Inventories............................................ (149) (344) (431)
Supplies and prepaid expenses.......................... 57 (603) 120
Debt service trust funds............................... (46) 12 39
Bank indebtedness...................................... 3,143 3,846 8,105
Accounts payable....................................... (5,750) 7,515 3,674
Accrued liabilities.................................... (2,044) 10,588 (2,079)
Income taxes payable................................... (437) 864 246
Deferred income taxes.................................. -- -- 3,735
Current due to shareholder and affiliates.............. 3,976 (156) (108)
-------- -------- --------
Cash provided from operating activities................ 53,730 46,616 36,683
INVESTING ACTIVITIES:
Collections of long-term notes receivable.............. -- -- 7,856
Payments for acquisitions.............................. (23,850) (13,144) (29,110)
Payments for purchases of property and equipment....... (53,581) (56,469) (35,271)
Proceeds from sales of property and equipment.......... 6,929 196 4,430
Changes in other long-term assets...................... (1,487) (1,208) (504)
-------- -------- --------
Cash used for investing activities..................... (71,989) (70,625) (52,599)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt............... 62,141 50,089 21,469
Payments of long-term debt............................. (36,571) (18,257) (11,319)
Proceeds from issuance of short-term borrowings........ -- -- 8,194
Payments of short-term borrowings...................... -- (2,194) --
Payments of dividends.................................. -- -- (10,000)
Distribution of minority interest earnings............. (300) -- --
-------- -------- --------
Cash provided from financing activities................ 25,270 29,638 8,344
-------- -------- --------
Increase (decrease) in cash and cash equivalents......... 7,011 5,629 (7,572)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............. 11,704 6,075 13,647
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR................... $ 18,715 $ 11,704 $ 6,075
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 124
EXTENDICARE HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1 -- CORPORATE NAME CHANGE
Effective July 1, 1997, "Extendicare Health Services, Inc." (the "Company")
was adopted as the Company's name. The Company's name had been United Health,
Inc. prior to the change.
2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The more significant accounting policies of the Company and its subsidiary
companies are as follows:
NATURE OF OPERATIONS
The Company at December 31, 1996 operated 155 health care facilities with
16,644 operational beds that provide nursing, rehabilitative, sub-acute and
other specialized medical services in thirteen states. The
Company also operated 31 assisted living facilities totaling 1,140 units in
eight states which provide varying levels of assistance in daily living
activities to its residents. The Company also provides patients with
pharmaceutical and medical products as well as technical medical support at home
in such areas as infusion and respiratory therapy, ventilator use and other home
health services.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include those of the Company and its
subsidiaries and partnerships in which the Company has a majority interest. All
significant intercompany accounts and transactions with subsidiaries have been
eliminated from the consolidated financial statements.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents for purposes of the
consolidated statements of cash flows.
ACCOUNTS RECEIVABLE
Accounts receivable are recorded at the net realizable value expected to be
received from Federal and state assistance programs, other third party payors or
from individual patients. Receivables from government agencies represent the
only concentrated group of credit risk for the Company.
Management does not believe that there are any credit risks associated with
these government agencies other than possible funding delays. Accounts
receivable other than from government agencies consist of receivables from
various payors that are subject to differing economic conditions and do not
represent any concentrated credit risks to the Company. Furthermore, management
continually monitors and adjusts its reserves associated with these receivables.
INVENTORIES
Inventories are stated at the lower of cost, using the LIFO (last-in,
first-out) method, or market.
F-7
<PAGE> 125
EXTENDICARE HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Provisions for depreciation are computed using the straight-line method at rates
based upon the following estimated useful lives:
<TABLE>
<S> <C>
Buildings................................. varying periods not exceeding 40 years
Furniture and equipment................... varying periods not exceeding 15 years
Leasehold improvements.................... the shorter of the term of the applicable
leases or the useful life of the
improvement
</TABLE>
Maintenance and repairs are charged to expense as incurred. When property
or equipment is retired or disposed of the cost and related accumulated
depreciation are removed from the accounts and the resulting gain or loss is
included in earnings.
DEFERRED COSTS
Direct loan origination costs are deferred and amortized over the life of
the related debt. The costs of acquiring leasehold rights are deferred and
amortized over the term of the lease including renewal options. These deferred
costs are stated at original cost less accumulated amortization.
GOODWILL
Goodwill represents the cost of acquired net assets in excess of their fair
market values. Amortization of goodwill is computed using the straight-line
method over a period of forty years in connection with the acquisitions of
health care facilities and ten to fifteen years for other acquisitions.
LONG-LIVED ASSETS
The Company periodically assesses the recoverability of long-lived assets,
including property and equipment and intangibles, when there are indications of
potential impairment based on estimates of undiscounted future cash flows. The
amount of any impairment is calculated by comparing the estimated fair market
value with the carrying value of the related asset. Management considers such
factors as current results, trends and future prospects, in addition to other
economic factors, in performing this analysis. Management believes that the
Company's long-lived assets are stated at recorded amounts that are not in
excess of their respective fair market values as of December 31, 1996.
LEASES
Leases that substantially transfer all of the benefits and risks of
ownership of property to the Company are accounted for as capital leases. An
asset is recorded at the time a capital lease is entered into together with its
related long-term obligation to reflect its purchase and financing. Property and
equipment recorded under capital leases are depreciated on the same basis as
previously described. Rental payments under operating leases are expensed as
incurred.
REVENUES
Revenues consist primarily of patient care revenues which are reported at
the net amounts realizable from residents, third party payors and others for
services provided.
The Company derived approximately 68%, 67% and 65% of its revenues in 1996,
1995 and 1994, respectively, from services provided under various Federal
(Medicare) and state (Medicaid) medical assistance programs. Reimbursement under
these programs is based, in part, on cost reimbursement principles
F-8
<PAGE> 126
EXTENDICARE HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
and is subject to audit and potential retroactive adjustment. Provisions for
estimated third party payor settlements are provided in the period the related
services are rendered and are adjusted, if necessary, as final settlements are
determined. Adjustments relating to prior years' recorded revenues increased
revenues by $8,012, $2,593 and $495 in 1996, 1995 and 1994, respectively.
Accounts receivable at December 31, 1996 and 1995 include estimated
settlements from third party payors of $31,955 and $30,641, respectively.
The Company's cost of care for its Medicare patients sometimes exceeds
regional reimbursement limits established by Medicare. The Company as of
December 31, 1996 had outstanding formal waiver requests for 35 cost reports
covering applicable facility costs through December 31, 1995. Action has not
been taken yet by the Health Care Financing Administration ("HCFA") on such
requests. The Company anticipates that additional waiver requests will be filed
with HCFA for selected facilities for 1996 once facility cost reports are
prepared subsequent to December 31, 1996. The Company as of December 31, 1996
has not recorded as revenue the excess amounts represented through the waiver
requests due to not having received intermediary approval of such requests and
having limited approval experience as to the actual dollar amounts of such
requests being subsequently approved and realized.
Limitations on Medicare and Medicaid reimbursement for health care services
are continually proposed. Changes in applicable laws and regulations could have
an adverse effect on the levels of reimbursement from governmental, private, and
other sources.
INCOME TAXES
The Company accounts for income taxes using an asset and liability approach
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
3 -- NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement No.
128, Earnings per Share, which is required to be adopted for financial
statements issued for periods ending after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new requirements for
calculating basic earnings per share, the dilutive effect of stock options will
be excluded. The impact of Statement No. 128 on the calculation of earnings per
share is not expected to have any impact on the 1997 and prior years' financial
statements. In addition, the FASB has issued Statement No. 129 (Disclosure of
Information about Capital Structure), Statement No. 130 (Reporting Comprehensive
Income), and Statement No. 131 (Disclosures about Segments of an Enterprise and
Related Information), which are not anticipated to have a material effect on the
Company.
4 -- ACQUISITIONS AND DISPOSITIONS
The Company acquired in 1996 for cash the property and equipment of four
nursing facilities, including two facilities which it had operated under lease
agreements, and the assets of an institutional pharmacy.
F-9
<PAGE> 127
EXTENDICARE HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The Company acquired in 1995 for cash the property and equipment of five
nursing facilities including three facilities which it had operated under lease
agreements. The Company also entered into a pharmacy partnership arrangement
during 1995 in which it is the majority owner.
The Company acquired in 1994 the property and equipment of four nursing
facilities and one assisted living facility. The Company also acquired in 1994
all of the issued and outstanding stock of a company and its subsidiaries
engaged in operating five health care facilities. Certain operating assets of a
respiratory care services company were also acquired during 1994.
The cost of the assets acquired in 1996, 1995 and 1994 was $23,850,
$13,144, and $32,155, respectively, and included the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Consideration:
Cash........................................................ $23,850 $13,144 $29,110
Long-term debt assumed...................................... -- -- 3,045
------- ------- -------
$23,850 $13,144 $32,155
======= ======= =======
Assets acquired:
Net current assets
(liabilities)............................................. $ 198 $ (17) $ 867
Property and equipment.................................... 23,379 12,214 30,288
Other net assets.......................................... 273 947 1,000
------- ------- -------
$23,850 $13,144 $32,155
======= ======= =======
</TABLE>
Acquisitions in 1996, 1995 and 1994 have been accounted for using the
purchase method and, accordingly, the results of the acquired operations are
included in the accompanying financial statements since their dates of
acquisition. The pro forma unaudited results of operations for the years ended
December 31, 1996, 1995 and 1994, assuming the purchases had been consummated
January 1, 1994, are not materially different from the reported results of
operations.
The Company in 1996 sold two health care facilities, ceased operation at
one of its leased facilities and reached agreement to sell a facility for which
the transaction was consummated in 1997. Sales proceeds of $6,550 were received
from the sale of assets relating to the facilities in 1996 and $2,000 in 1997.
No significant gain or loss was realized upon the disposal of the aforementioned
facilities.
The Company in 1994 sold two health care facilities in a cash transaction
with sales proceeds totaling $4,185. A gain on sale of $350 was realized from
the sale of these facilities.
5 -- INVENTORIES
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Pharmacy................................................................. $3,978 $3,282
Medical supplies......................................................... 1,930 2,274
------ ------
5,908 5,556
Excess of replacement cost over LIFO carrying value...................... (881) (732)
------ ------
$5,027 $4,824
====== ======
</TABLE>
F-10
<PAGE> 128
EXTENDICARE HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
6 -- OTHER ASSETS
Other assets, net of related amortization, if applicable, consisted of the
following at December 31:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Goodwill............................................................... $ 3,963 $ 3,951
Deferred financing costs............................................... 3,289 3,114
Debt service and capital expenditure trust funds....................... 2,444 2,362
Security deposits...................................................... 2,024 1,509
Leasehold rights....................................................... 1,097 1,383
Other.................................................................. 4,679 4,016
------ ------
$17,496 $16,335
====== ======
</TABLE>
Accumulated amortization as of December 31, 1996 and 1995 was $4,062 and
$4,371, respectively.
7 -- PROPERTY AND EQUIPMENT
Property and equipment less related accumulated depreciation and
amortization as of December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Land and land improvements........................................... $ 29,910 $ 27,296
Buildings and improvements........................................... 394,195 353,566
Furniture and equipment.............................................. 85,429 74,299
Leasehold improvements............................................... 17,438 12,838
Construction in progress............................................. 17,494 17,447
--------- ---------
544,466 485,446
Less accumulated depreciation........................................ 158,384 140,372
--------- ---------
$ 386,082 $ 345,074
========= =========
</TABLE>
Leases that meet the criteria of capital leases have been capitalized and
the related buildings and equipment have been included in the consolidated
balance sheets at December 31 as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Buildings and equipment.................................................. $ 1,977 $ 1,871
Less accumulated amortization............................................ 1,499 1,470
-------- --------
- -
$ 478 $ 401
========= =========
</TABLE>
Interest is capitalized in connection with the construction of facilities
and is amortized over the estimated useful life of the facilities. Interest
capitalized in 1996 and 1995 was $384 and $679, respectively.
8 -- BANK INDEBTEDNESS, NOTES PAYABLE AND LINES OF CREDIT
Bank indebtedness consists of amounts outstanding under the Company's
control disbursement arrangements.
The Company has an uncommitted line of credit with a bank in the amount of
$6,000. The uncommitted line of credit permits borrowings with maturities due no
later than April 30, 1997 with interest at competitive
F-11
<PAGE> 129
EXTENDICARE HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
bid pricing. The Company does not pay any fees for the uncommitted line and
therefore the availability of the line is at the discretion of the bank. The
Company had notes payable of $6,000 outstanding under the uncommitted line at
December 31, 1996 at an interest rate of 7.70%.
The Company and its subsidiaries have a credit agreement with four banks to
provide up to $75,000 in aggregate borrowings including $25,000 on an unsecured
basis for working capital purposes and $50,000 on a partially secured basis for
the acquisition, expansion, or renovation of facilities and to refinance
existing long-term indebtedness. The credit facility at December 31, 1996 was
fully available for borrowing purposes. Borrowings outstanding under the credit
agreement at December 31, 1996 totaled $22,434 at a weighted average interest
rate of 7.85%.
The credit agreement permits the Company to have its banks issue up to
$10,000 of letters of credit out of the secured portion of the agreement. The
Company had $6,365 of letters of credit outstanding at December 31, 1996.
The credit agreement has an initial maturity date of April 30, 1999.
Amounts outstanding at the initial maturity date up to $50,000 the secured
portion of the credit agreement may, at the Company's option, be converted to a
five-year term loan. Such term loan would be repayable as to principal in
quarterly installments with a final payment of principal equal to 45% of the
initial term loan amount plus accrued interest for the five-year period.
Interest on borrowings outstanding under the credit agreement may, at the
Company's option, be equal to (1) the prime rate; (2) fixed rates; or (3) LIBOR
plus 1.0% for working capital borrowings and LIBOR plus 1.25% for other
borrowings. The credit agreement also provides for bid pricing by each of the
participant banks. Interest on any subsequent term loans may be at (1) prime
rate plus .50%; (2) a fixed rate; or (3) LIBOR plus 1.5%.
The Company pays a commitment fee on the unused portion of the credit
agreement at an annual rate of .25%.
Information concerning borrowings under lines of credit available for
working capital purposes during 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Maximum amount outstanding....................................... $30,999 $30,999
Average amount outstanding....................................... 21,016 21,224
Weighted average interest rate on amounts outstanding during the
year........................................................... 6.37% 7.02%
</TABLE>
The average amounts outstanding and the weighted average interest rates
were calculated using the weighted average amounts outstanding during each
month.
F-12
<PAGE> 130
EXTENDICARE HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
9 -- ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Salaries and wages, fringe benefits and payroll taxes................ $31,840 $27,847
Medicaid program..................................................... 5,670 4,360
Real estate and other taxes.......................................... 3,362 3,117
Workmen's compensation............................................... 2,876 7,564
Interest............................................................. 1,480 1,344
Other................................................................ 10,549 7,828
------- -------
$55,777 $52,060
======= =======
</TABLE>
10 -- LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Promissory notes payable, 7.43% to 10.75%, maturing through 2010..... $137,053 $107,156
Industrial Development Bonds at variable interest rates ranging from
4.15% to 9.75%, maturing through 2014.............................. 41,275 41,910
Bank loans at variable interest rates ranging from 7.25 to 8.25%,
maturing through 2000.............................................. 19,988 20,079
Line of credit at variable interest rates............................ 22,434 26,774
Mortgages, 6.9% to 10.0%, maturing through 2010...................... 12,393 13,223
Other................................................................ 272 327
-------- --------
233,415 209,469
Less current maturities.............................................. 10,461 12,700
-------- --------
$222,954 $196,769
======== ========
</TABLE>
Principal payments on long-term debt due within the next five years and
thereafter are as follows:
<TABLE>
<S> <C>
1997...................................................................... $ 10,461
1998...................................................................... 28,675
1999...................................................................... 9,096
2000...................................................................... 12,615
2001...................................................................... 6,622
After 2001................................................................ 165,946
--------
$233,415
========
</TABLE>
Interest paid was $19,355, $16,629 and $13,901 in 1996, 1995 and 1994,
respectively.
The Company is a party to an interest rate swap agreement with a bank to
reduce the impact of changes in interest rates on certain of its floating rate
long-term debt. The interest rate swap agreement matures in October 2000. The
agreement effectively changes the Company's interest rate exposure on $32,000 of
floating rate Industrial Development Bonds due in 2014 to a fixed rate of 4.155%
during the period the swap agreement is in effect. The differential between the
fixed rate and the variable rate interest to be paid or received will be accrued
as interest rates change and recognized over the life of the agreement. The
Company may be exposed
F-13
<PAGE> 131
EXTENDICARE HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
to credit loss in the event of non-performance by the bank under the swap
agreement, but does not anticipate such non-performance.
A substantial portion of the Company's property and equipment is mortgaged
or pledged as security under various debt agreements. The payment of dividends
and redemption of the Company's common stock are substantially restricted under
the Company's debt agreements.
The debt agreements also require the maintenance of certain financial
ratios including maintenance of consolidated net working capital, capital funds
and funded debt to capital funds, all as defined.
11 -- LEASE COMMITMENTS
The Company at December 31, 1996 was committed under non-cancelable
operating leases requiring future minimum rentals as follows:
<TABLE>
<S> <C>
1997.................................................................... $ 7,371
1998.................................................................... 6,704
1999.................................................................... 6,310
2000.................................................................... 4,589
2001.................................................................... 2,964
After 2001.............................................................. 23,846
--------
$51,784
========
</TABLE>
Operating lease costs were $8,756, $9,005 and $8,920 for the years ended
1996, 1995 and 1994, respectively. These leases expire on various dates
extending to the year 2012 and in many cases contain renewal options.
12 -- COMMITMENTS AND CONTINGENCIES
The Company as of December 31, 1996 had capital expenditure purchase
commitments outstanding of approximately $20,617.
The Company periodically is a defendant in actions brought against it in
connection with its operations. Management believes that none of these actions
will have a material adverse effect on the financial position or results of
operations of the Company on the basis of information furnished by legal
counsel.
13 -- TRANSACTIONS WITH SHAREHOLDER AND AFFILIATES
The Company is an indirect wholly-owned subsidiary of Extendicare Inc.
(Extendicare) a Canadian publicly-held Company. The following is a summary of
the Company's transactions with Extendicare or its affiliates in 1996, 1995 and
1994:
INSURANCE
The Company insures certain risks with an affiliated insurance subsidiary
of Extendicare. The consolidated statements of net earnings for 1996, 1995 and
1994 include expenses of $8,383, $21,373, and $25,261, respectively, related to
the cost of these coverages.
The Company experienced favorable actuarial adjustments for prior years
under its retroactively-rated workmen's compensation coverage in the amounts of
$9,878, $3,580 and $1,460 in 1996, 1995 and 1994, respectively.
F-14
<PAGE> 132
EXTENDICARE HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
OTHER PAYABLES
The Company at December 31, 1996 and 1995 had a non-interest bearing
payable to an affiliated company of Extendicare of $3,484 with no specific due
date.
OTHER TRANSACTIONS
The following is a summary of the Company's other transactions with its
shareholder and affiliated companies for 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------ ------
<S> <C> <C> <C>
Due to shareholder and affiliates at beginning of
year.................................................. $ 5 $ 161 $ 269
Net charge (payment).................................... 3,976 (156) (108)
-------- ------ ------
Due to shareholder and affiliates at end of year........ $3,981 $ 5 $ 161
======== ====== ======
</TABLE>
Net charges (payments) represent primarily charges (payments) from (to)
shareholder and affiliates for income taxes paid on behalf of (by) the Company.
14 -- EMPLOYEE BENEFIT PLANS
The Company maintains a defined contribution retirement 401(K) savings
plan, which is made available to substantially all of the Company's employees.
The Company pays a matching contribution of 25% of every qualifying dollar
contributed by plan participants, net of any forfeitures. Expenses incurred by
the Company were $860, $763, and $705 in 1996, 1995 and 1994, respectively.
The Company maintains a nonfunded deferred compensation plan offered to all
corporate employees, in which participants may defer up to 10% of their base
salary. The Company will match up to 50% of the amount deferred. The Company
also maintains a non-qualified deferred compensation plan covering certain
executive employees. Expenses incurred for Company contributions under such
plans were $887, $802 and $278 in 1996, 1995 and 1994, respectively. The
liability for the deferred compensation plans of $7,990 and $7,012 at December
31, 1996 and 1995, respectively, is included in other long-term liabilities.
15 -- INCOME TAXES
The Company's results of operations are included in the consolidated
Federal tax return of its U.S. parent company. Accordingly, Federal current and
deferred income taxes payable are transferred to the Company's parent company.
The provisions for income taxes have been calculated as if the Company were a
separately taxed entity for each of the periods presented in the accompanying
financial statements.
F-15
<PAGE> 133
EXTENDICARE HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The provisions for income taxes for 1996, 1995 and 1994 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Federal:
Current................................................... $13,325 $10,584 $ 7,914
Deferred.................................................. 5,342 3,436 3,527
------- ------- -------
Total Federal.......................................... 18,667 14,020 11,441
State:
Current................................................... 3,385 3,032 2,309
Deferred.................................................. 494 (291) 102
------- ------- -------
Total State............................................ 3,879 2,741 2,411
------- ------- -------
Total..................................................... $22,546 $16,761 13,852
======= ======= =======
</TABLE>
The differences between the effective tax rates on earnings before
provision for income taxes and the United States Federal income tax rate are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Statutory Federal income tax rate................................ 35.0% 35.0% 35.0%
Increase (decrease) in tax rate resulting from:
State income taxes, net of Federal income tax benefit.......... 4.4 4.2 4.4
Other, net..................................................... .2 .3 (.5)
---- ---- ----
Effective tax rate............................................... 39.6% 39.5% 38.9%
==== ==== ====
</TABLE>
The components of the net state deferred tax assets and liabilities as of
December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Deferred tax assets:
Employee benefit accruals.............................................. $1,221 $1,537
Accounts receivable reserves........................................... 481 406
Other liabilities...................................................... 230 136
------ ------
Total deferred tax assets........................................... 1,932 2,079
Deferred tax liabilities:
Depreciation........................................................... 4,768 4,415
Miscellaneous.......................................................... 668 618
------ ------
Total deferred tax liabilities...................................... 5,436 5,033
------ ------
Net deferred tax liability............................................. $3,504 $2,954
====== ======
</TABLE>
The Company paid state income taxes of $3,774, $2,364 and $1,964 in 1996,
1995 and 1994, respectively. The Company also made payments for Federal income
taxes to its U.S. parent of $9,311, $10,740 and $8,015 in 1996, 1995 and 1994,
respectively.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion of all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which these temporary differences become deductible. Management has considered
the scheduled reversal of deferred tax
F-16
<PAGE> 134
EXTENDICARE HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
liabilities in making this assessment and believes it is more likely than not,
the Company will realize the benefits of these deductible differences.
16 -- DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments at
December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Accounts receivable, less reserves............ $153,548 $ 151,797 $134,186 $ 133,179
Debt service and capital expenditure trust
funds....................................... 3,153 3,161 3,025 3,047
Other assets.................................. 5,505 5,505 4,499 4,508
Interest rate swap............................ -- (26) -- (83)
Long-term debt:
Practicable to estimate fair value.......... 241,406 226,459 216,481 209,612
Not practicable to estimate fair value........ 1,148 -- 1,760 --
-------- -------- -------- --------
242,554 226,459 218,241 209,612
Long-term due to affiliate.................... 3,484 3,484 3,484 3,484
</TABLE>
The carrying values of accounts receivable approximate fair values due to
their short maturities with the exception of certain settlement receivables from
third party payors which are anticipated to be collected beyond one year. The
fair value of these settlement receivables are estimated based on discounted
cash flows at management's estimated current borrowing rates.
The fair value of debt service and capital expenditure trust funds is
estimated based on quoted market prices for the same or similar issues of the
underlying investments.
Other financial instrument assets consist principally of investments valued
at quoted market rates.
The fair value of the interest rate swap is based on its quoted market
price as provided by the financial institution which is the counterpart to the
swap.
The fair value of long-term debt is estimated based on approximate
borrowing rates currently available to the Company for debt equal to the
existing debt maturities. For other long-term debt, principally refundable
escrows, it is not practicable of estimate fair value.
17 -- SUBSEQUENT EVENTS
The Company, AHC Acquisition Corp., a wholly owned subsidiary of the
Company ("AHC Acquisition") and Arbor Health Care Company ("Arbor") were parties
to an agreement and plan of merger, dated as of September 29, 1997, pursuant to
which the parties agreed to proceed with a tender offer for all the issued and
outstanding common shares of Arbor (the "Tender Offer") for $45.00 per share and
the subsequent merger of AHC Acquisition with and into Arbor (the "Merger"),
with Arbor as the surviving corporation. The Tender Offer was commenced on
October 3, 1997, and expired on November 25, 1997. On November 26, 1997, the
Merger was consummated. The aggregate purchase price for all the outstanding
common shares of Arbor, and the payments to be made with respect to unexercised
options and warrants, was approximately $429,000 (exclusive of transaction costs
and fees), including approximately $109,000 of debt of Arbor. The acquisition of
Arbor has been accounted for as a purchase.
F-17
<PAGE> 135
EXTENDICARE HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
On November 26, 1997, the Company entered into a credit agreement which
provided the Company with new senior secured credit facilities of up to $800,000
(the "New Credit Facilities"). On December 2, 1997, the Company issued $200,000
of 9.35% Senior Subordinated Notes Due 2007, the proceeds from which were used
to repay $200,000 of the New Credit Facilities. The Company previously received
an equity contribution from Extendicare of $44,600. The proceeds from the New
Credit Facilities and equity contribution were used to finance the acquisition
of Arbor and to refinance existing indebtedness of Arbor of approximately
$109,000 and of the Company of approximately $244,000 (including the existing
bank credit facility) and will be used to fund working capital, to finance
capital expenditures and for other general corporate purposes.
During the period May 30, 1997 to September 1, 1997, the Company acquired
the property and equipment of nine nursing facilities (890 operational beds),
two of which had previously been leased by the Company. The facilities were
acquired at a total cost of approximately $41,746. The Company also acquired,
during the period January 1, 1997 to September 1, 1997, the assets of seven
medical specialty services related businesses for approximately $9,344.
F-18
<PAGE> 136
EXTENDICARE HEALTH SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 14,866 $ 18,715
Accounts receivable, less allowance for uncollectible
receivables of $12,058 and $9,303 respectively.............. 172,429 153,548
Inventories.................................................... 7,055 5,027
Supplies and prepaid expenses.................................. 3,757 3,770
Deferred state income taxes.................................... 1,575 910
Debt service trust funds....................................... 996 709
Due from shareholder --
Deferred Federal income taxes............................... 8,716 5,594
-------- --------
Total current assets........................................... 209,394 188,273
PROPERTY AND EQUIPMENT, NET.................................... 447,605 386,082
OTHER ASSETS................................................... 26,474 17,496
-------- --------
$ 683,473 $591,851
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Bank indebtedness.............................................. $ 16,587 $ 22,279
Notes payable.................................................. 18,913 6,000
Current maturities of long-term debt........................... 13,897 10,461
Accounts payable............................................... 28,896 28,656
Accrued liabilities............................................ 67,912 55,777
Income taxes payable........................................... 767 627
Due to shareholder and affiliates.............................. 1,658 3,981
-------- --------
Total current liabilities...................................... 148,630 127,781
LONG-TERM DEBT................................................... 256,397 222,954
OTHER LONG-TERM LIABILITIES...................................... 11,339 9,139
DUE TO SHAREHOLDER AND AFFILIATES
Deferred Federal income taxes.................................. 23,018 21,857
Other.......................................................... 3,484 3,484
DEFERRED STATE INCOME TAXES...................................... 4,670 4,414
MINORITY INTERESTS............................................... 2,101 701
SHAREHOLDER'S EQUITY:
Common stock, $1.00 par value, 1,000 shares authorized, 947
shares issued and outstanding............................... 1 1
Additional paid-in capital..................................... 153,937 150,254
Retained earnings.............................................. 79,896 51,266
-------- --------
Total shareholder's equity.................................. 233,834 201,521
-------- --------
$ 683,473 $591,851
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 137
EXTENDICARE HEALTH SERVICES, INC.
CONSOLIDATED STATEMENTS OF NET EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Routine care and assisted living............ $141,409.. $133,469 $413,633 $395,333
Medical specialty........................... 81,419 73,304 243,001 213,928
Other....................................... 2,386 1,928 6,799 4,844
-------- -------- -------- --------
225,214.. 208,701 663,433 614,105
COSTS AND EXPENSES:
Operating................................... 187,420 172,146 543,234 508,815
General and administrative.................. 9,036 7,916 27,648 24,239
Lease costs................................. 2,560 2,135 7,132 6,560
Depreciation and amortization............... 8,137 7,480 24,538 21,979
Interest, net............................... 4,761 4,750 13,633 14,011
-------- -------- -------- --------
211,914.. 194,427 616,185 575,604
-------- -------- -------- --------
Earnings from operations.................... 13,300 14,274 47,248 38,501
PROVISION FOR INCOME TAXES.................... 4,887 5,720 17,957 15,409
-------- -------- -------- --------
Earnings before minority interests.......... 8,413 8,554 29,291 23,092
MINORITY INTERESTS............................ (259) (87) (661) (233)
-------- -------- -------- --------
Net earnings................................ $ 8,154 $ 8,467 $ 28,630 $ 22,859
======== ======== ======== ========
EARNINGS PER SHARE............................ $ 9 $ 9 $ 30 $ 24
======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING........... 947 947 947 947
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 138
EXTENDICARE HEALTH SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
------ ------ ---------- --------
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1995...................... 947 $ 1 $150,254 $17,258
Net earnings................................. -- -- -- 34,008
--- --- -------- -------
BALANCE DECEMBER 31, 1996...................... 947 $ 1 150,254 51,266
Contribution of assets from affiliate
(unaudited)............................... -- -- 3,683 --
Net earnings (unaudited)..................... -- -- -- 28,630
--- --- -------- -------
BALANCE SEPTEMBER 30, 1997 (unaudited)......... 947 $ 1 $153,937 $79,896
=== === ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 139
EXTENDICARE HEALTH SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings......................................................... $ 28,630 $ 22,859
Adjustments to reconcile net earnings to net cash provided from
operating activity:
Depreciation and amortization...................................... 24,538 21,979
Provision for uncollectible accounts receivable.................... 6,178 4,703
Deferred income taxes.............................................. 1,045 4,752
Minority interests................................................. 661 233
Changes in assets and liabilities:
Accounts receivable................................................ (23,972) (25,906)
Inventories........................................................ (731) 472
Supplies and prepaid expenses...................................... 159 198
Debt service trust funds........................................... (286) (139)
Bank indebtedness.................................................. (5,693) 1,036
Accounts payable................................................... (475) (3,593)
Accrued liabilities................................................ 11,903 4,079
Income taxes payable............................................... 140 (663)
Deferred income taxes.............................................. 20 --
Current due to shareholder and affiliates.......................... (5,654) 2,875
-------- --------
Cash provided from operating activities......................... 36,463 32,885
INVESTING ACTIVITIES:
Payments for acquisitions.......................................... (36,085) (23,850)
Payments for purchases of property and equipment................... (41,311) (36,896)
Proceeds from sales of property and equipment...................... 3,182 308
Changes in other long-term assets.................................. (3,276) (1,225)
-------- --------
Cash used for investing activities.............................. (77,490) (61,663)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt........................... 30,276 62,141
Proceeds from issuance of short-term borrowings.................... 12,913 --
Payments of short-term borrowings.................................. -- (6,000)
Payments of long-term debt......................................... (5,931) (23,143)
Distribution of minority interest earnings......................... (80) (155)
-------- --------
Cash provided from financing activities......................... 37,178 32,843
-------- --------
Increase (decrease) in cash and cash equivalents..................... (3,849) 4,065
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....................... 18,715 11,704
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................. $ 14,866 $ 15,769
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 140
EXTENDICARE HEALTH SERVICES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1 -- ORGANIZATION AND BASIS OF PRESENTATION
Extendicare Health Services, Inc. (the "Company") as of September 30, 1997
operated 163 health care facilities with 17,289 operational beds that provide
nursing, rehabilitative, sub-acute and other specialized medical services in
thirteen states. The Company also currently operates 38 assisted living
facilities totaling 1,480 units in 10 states which provide varying levels of
assistance in daily living activities to its residents. The Company, through its
UPC Health Network, provides patients in approximately 30,300 nursing facility
beds with pharmaceutical and medical products as well as technical medical
support at home in such areas as infusion and respiratory therapy, ventilator
use and other home health services.
The financial information as of September 30, 1997 and for the nine months
ended September 30, 1997 and 1996 is unaudited and has been prepared in
conformity with the accounting principles and practices as reflected in the
Company's audited annual financial statements. The unaudited financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position as of September
30, 1997 and the operating results and cash flows for the nine months ended
September 30, 1997 and 1996. Results for interim periods are not necessarily
indicative of those to be expected for the year.
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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and for the year ended December 31, 1996, included herein.
2 -- NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement No.
128, Earnings per Share, which is required to be adopted for financial
statements issued for periods ending after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new requirements for
calculating basic earnings per share, the dilutive effect of stock options will
be excluded. The impact of Statement No. 128 on the calculation of earnings per
share is not expected to have any impact on the 1997 and prior years' financial
statements. In addition, the FASB has issued Statement No. 129 (Disclosure of
Information about Capital Structure), Statement No. 130 (Reporting Comprehensive
Income), and Statement No. 131 (Disclosures about Segments of an Enterprise and
Related Information), which are not anticipated to have a material effect on the
Company.
3 -- ACQUISITIONS
The Company acquired during the nine months ended September 30, 1997 the
property and equipment of nine nursing facilities (890 operational beds), of
which two were previously leased by the Company. The facilities were acquired at
a total cost of approximately $41,746. The Company also acquired the assets of
seven medical specialty services related businesses for approximately $9,344.
F-23
<PAGE> 141
EXTENDICARE HEALTH SERVICES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The cost of the assets acquired during the first nine months of 1997
totaled $51,090 and included the following:
<TABLE>
<S> <C>
Consideration:
Cash..................................................................... $36,085
Long-term debt assumed................................................... 14,655
Amount due to seller..................................................... 350
-------
$51,090
=======
Assets Acquired:
Net current assets....................................................... $ 1,907
Property and equipment................................................... 43,543
Other net assets......................................................... 5,640
-------
$51,090
=======
</TABLE>
The above acquisitions have been accounted for using the purchase method
and, accordingly, the results of the acquired operations are included in the
accompanying financial statements since their dates of acquisitions.
The Company during 1997 disposed of a facility with sales proceeds totaling
$2,000. There was no significant gain or loss on the disposal of this facility.
4 -- CONTRIBUTION OF ASSETS FROM AFFILIATE
An affiliate of the Company during 1997 contributed net assets totaling
$3,683 to the Company as part of a restructuring program. The net assets consist
principally of land and a building held for sale.
5 -- COMMITMENTS AND CONTINGENCIES
The Company as of September 30, 1997 had capital expenditures purchase
commitments outstanding of approximately $20,605.
There are numerous legislative and executive initiatives at the federal and
state levels for comprehensive reforms affecting the payment for and
availability of health care services, including without limitation at the
federal level the implementation of a prospective payment system for the
Medicare Program. The Company is unable to predict the impact of health care
reform proposals on the Company; however, it is possible that such proposals
could have a material adverse effect on the Company. Any changes in
reimbursement levels under Medicaid and Medicare and any changes in applicable
government regulations could significantly affect the profitability of the
Company. Various cost containment measures adopted by governmental pay sources
have begun to limit the scope and amount of reimbursable health care expenses.
Additional measures, including measures that have already been proposed in
states in which the Company operates, may be adopted in the future as federal
and state governments attempt to control escalating health care costs. There can
be no assurance that recently enacted or currently proposed or future health
care legislation or other changes in the administration or interpretation of
governmental health care programs will not have a material adverse effect on the
Company. In particular, changes to the Medicare reimbursement program that have
been enacted could materially adversely affect the Company's revenues derived
from medical specialty services.
F-24
<PAGE> 142
EXTENDICARE HEALTH SERVICES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The Company is from time to time subject to claims and suits arising in the
ordinary course of business. In the opinion of management, the ultimate
resolution of pending legal proceedings will not have a material effect on the
Company's consolidated financial statements.
6 -- SUBSEQUENT EVENTS
The Company, AHC Acquisition Corp., a wholly owned subsidiary of the
Company ("AHC Acquisition") and Arbor Health Care Company ("Arbor") were parties
to an agreement and plan of merger, dated as of September 29, 1997 pursuant to
which the parties agreed to proceed with a tender offer for all of the issued
and outstanding common shares of Arbor (the "Tender Offer") for $45.00 per share
and the subsequent merger of AHC Acquisition with and into Arbor (the "Merger"),
with Arbor as the surviving corporation. The Tender Offer was commenced on
October 3, 1997, and expired on November 25, 1997. On November 26, 1997, the
Merger was consummated. The aggregate purchase price for all the outstanding
common shares of Arbor, and the payments to be made with respect to unexercised
options and warrants, was approximately $429,000 (exclusive of transaction costs
and fees), including approximately $109,000 of debt of Arbor. The acquisition of
Arbor has been accounted for as a purchase.
On November 26, 1997, the Company entered into a credit agreement which
provided the Company with new senior secured credit facilities of up to $800,000
(the "New Credit Facilities"). On December 2, 1997, the Company issued $200,000
of 9.35% Senior Subordinated Notes Due 2007 (the "Outstanding Notes"), the
proceeds from which were used to repay $200,000 of the New Credit Facilities.
The Company previously received an equity contribution from Extendicare of
$44,600. The proceeds from the New Credit Facilities and equity contribution
were used to finance the acquisition of Arbor and to refinance existing
indebtedness of Arbor of approximately $109,000 and of the Company of
approximately $244,000 (including the existing bank credit facility) and will be
used to fund working capital, to finance capital expenditures and for other
general corporate purposes.
F-25
<PAGE> 143
REPORT OF INDEPENDENT AUDITORS
Board of Directors
ARBOR HEALTH CARE COMPANY
We have audited the accompanying consolidated balance sheets of Arbor
Health Care Company and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. 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 Arbor Health
Care Company and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Toledo, Ohio
February 7, 1997
F-26
<PAGE> 144
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................................... $ 5,761 $ 6,394
Accounts receivable, less allowances of $1,948 and $1,285,
respectively.................................................... 44,019 36,207
Supply inventories................................................. 2,963 2,779
Other current assets............................................... 3,503 2,986
Deferred income taxes.............................................. 1,972 1,320
-------- --------
Total current assets................................................. 58,218 49,686
Property and equipment
Land and improvements.............................................. 25,337 19,966
Buildings and improvements......................................... 95,017 73,845
Equipment and furnishings.......................................... 40,477 30,411
Leasehold improvements............................................. 5,970 7,247
Construction in process............................................ 2,599 12,985
-------- --------
169,400 144,454
Less allowances for depreciation and amortization.................. 33,564 27,470
-------- --------
Total property and equipment......................................... 135,836 116,984
Other assets
Goodwill, less amortization of $926 and $281, respectively......... 13,034 10,483
Deferred costs, less amortization of $3,475 and $3,242,
respectively.................................................... 2,205 1,438
Sundry............................................................. 181 192
-------- --------
Total other assets................................................... 15,420 12,113
-------- --------
$209,474 $178,783
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable...................................................... $ 4,526 $ 4,496
Accounts payable................................................... 11,121 15,889
Accrued payroll and related items.................................. 11,522 11,043
Other liabilities.................................................. 13,465 8,094
Current maturities of long-term obligations........................ 3,162 5,957
-------- --------
Total current liabilities............................................ 43,796 45,479
Long-term obligations, less current maturities....................... 94,643 74,741
Deferred income taxes................................................ 5,019 2,935
Stockholders' equity
Preferred stock, $.01 par value
Authorized -- 2,000,000 shares, none issued or outstanding
Series A Junior Participating Cumulative Preferred Stock, $.01 par
value
Authorized -- 10,000 shares, none issued or outstanding
Common stock, $.03 par value
Authorized -- 20,000,000 shares
Issued and outstanding -- 6,904,054 and 6,891,992,
respectively................................................... 207 207
Additional paid-in capital......................................... 30,300 30,135
Retained earnings.................................................. 35,509 25,286
-------- --------
Total stockholders' equity........................................... 66,016 55,628
-------- --------
$209,474 $178,783
======== ========
</TABLE>
See accompanying notes
F-27
<PAGE> 145
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net revenues
Subacute care............................................. $113,123 $100,945 $ 82,874
Basic care................................................ 84,015 75,931 65,615
Pharmacy and other........................................ 21,639 15,282 10,302
-------- -------- --------
Total net revenues.......................................... 218,777 192,158 158,791
Expenses
Operating................................................. 171,170 151,922 126,249
General corporate......................................... 9,680 8,992 7,353
Operating lease rental.................................... 4,450 4,301 4,062
Interest.................................................. 7,108 5,822 4,642
Depreciation and amortization............................. 8,924 7,450 5,636
-------- -------- --------
Total expenses.............................................. 201,332 178,487 147,942
Other expense (income)
Loss on disposal of property.............................. 766 248 231
Interest and sundry....................................... (272) (332) (215)
-------- -------- --------
Total other expense (income)................................ 494 (84) 16
-------- -------- --------
Income before income taxes.................................. 16,951 13,755 10,833
Income taxes................................................ 6,728 5,303 3,930
-------- -------- --------
Net income.................................................. $ 10,223 $ 8,452 $ 6,903
======== ======== ========
Net income per share........................................ $ 1.47 $ 1.23 $ 1.01
======== ======== ========
Weighted average shares outstanding......................... 6,969 6,881 6,842
======== ======== ========
</TABLE>
See accompanying notes
F-28
<PAGE> 146
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------- ---------- -------- -------
<S> <C> <C> <C> <C>
Balances at January 1, 1994.......................... $ 204 $ 29,548 $ 9,823 $39,575
Net income........................................... 6,903 6,903
Stock options exercised -- 1,826 shares.............. 7 7
---- ------ ------ ------
Balances at December 31, 1994........................ 204 29,555 16,726 46,485
Net income........................................... 8,452 8,452
Issuance of 74,905 shares of common stock related to
acquisitions....................................... 3 498 108 609
Stock options exercised -- 14,451 shares............. 82 82
---- ------ ------ ------
Balances at December 31, 1995........................ 207 30,135 25,286 55,628
Net income........................................... 10,223 10,223
Stock options exercised -- 12,062 shares............. 165 165
---- ------ ------ ------
Balances at December 31, 1996........................ $ 207 $ 30,300 $ 35,509 $66,016
==== ====== ====== ======
</TABLE>
See accompanying notes
F-29
<PAGE> 147
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Operating activities
Net income..................................................... $10,223 $ 8,452 $ 6,903
Adjustments to reconcile net income to net cash provided by
operating activities
Provision for depreciation................................... 7,504 6,397 5,056
Amortization................................................. 1,718 1,296 902
Provision for deferred income taxes.......................... 1,432 464 102
Provision for losses on accounts receivable.................. 2,993 2,219 1,554
Loss on disposal of property................................. 766 248 231
Changes in operating assets and liabilities
Accounts receivable....................................... (10,405) (1,854) (8,514)
Supply inventories........................................ (41) (404) (416)
Other current assets...................................... (537) (1,175) (1,236)
Deferred costs............................................ (1,068) (708) (758)
Accounts payable.......................................... (4,951) 4,416 1,223
Accrued payroll and related items......................... 450 3,065 1,009
Other liabilities......................................... 5,300 65 410
------- ------- -------
Net cash provided by operating activities...................... 13,384 22,481 6,466
Investing activities
Expenditures for property and equipment...................... (23,463) (23,159) (18,549)
Cash paid to acquire businesses, net of cash received........ (6,753) (11,686)
Sundry and other............................................. 19 111 209
------- ------- -------
Net cash used in investing activities.......................... (30,197) (34,734) (18,340)
Financing activities
Net borrowings (repayments) under line of credit agreements
to finance development projects and acquisitions.......... (1,206) 19,196 12,759
Net borrowings of working capital under line of credit
agreements................................................ 30 2,919 263
Borrowings on long-term obligations.......................... 27,000 107 54
Repayments of long-term obligations.......................... (9,035) (9,148) (2,685)
Deferred financing costs..................................... (774) (65) (17)
Issuance of stock............................................ 165 83 7
------- ------- -------
Net cash provided by financing activities...................... 16,180 13,092 10,381
------- ------- -------
Net increase (decrease) in cash and cash equivalents........... (633) 839 (1,493)
Cash and cash equivalents at beginning of year................. 6,394 5,555 7,048
------- ------- -------
Cash and cash equivalents at end of year....................... $ 5,761 $ 6,394 $ 5,555
======= ======= =======
</TABLE>
See accompanying notes
F-30
<PAGE> 148
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
1. ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Arbor Health Care Company ("Arbor") is a Delaware corporation organized on
April 4, 1985, and does business principally in Ohio and Florida. The
consolidated financial statements include the accounts of Arbor and its
subsidiaries, all of which are wholly owned (the "Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
The Company owns, operates, and develops nursing centers (the "Centers")
that provide subacute and basic health care services and operates three
institutional pharmacies. Subacute care generally is provided to patients who
have been discharged from an acute care hospital and require additional care in
specialized clinical programs before being discharged. The Company includes in
its subacute care revenues all room and board, nursing, therapies, and medical
supplies for its subacute patients and pharmacy charges for all its patients.
Basic care generally is provided to geriatric and chronic care patients
requiring routine nursing or assisted living services.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers short-term investments consisting of highly liquid
debt instruments with a maturity of three months or less when purchased and
money market funds to be cash equivalents.
ACCOUNTS RECEIVABLE AND NET REVENUES
Accounts receivable and subacute and basic care net revenues are recorded
when the related patient services are provided at established billing rates or
at amounts estimated by management to be reimbursable by Medicare, Medicaid and
other third-party payors under the provisions of reimbursement formulae in
effect. Final settlement of amounts earned is subject to review by appropriate
governmental authorities or their agents. In the opinion of management, adequate
provision has been made for any adjustments that may result from such reviews.
Differences between amounts accrued and final settlements, if any, are recorded
in operations in the year of settlement.
Pharmacy and other revenues include amounts related to institutional
pharmacy sales made to non-related facilities and their residents and the
management of one Center through May, 1995.
A significant portion of the Company's revenue is derived from patients
under the Medicaid and Medicare programs. For the years ended December 31, 1996,
1995, and 1994, the Company derived approximately 35%, 36%, and 34% of its
revenues from Medicare and approximately 32%, 30%, and 31% of its revenues from
Medicaid, respectively. There have been and the Company expects that there will
continue to be proposals to limit Medicare and Medicaid reimbursement for
long-term and rehabilitative care services. The Company cannot predict at this
time whether such proposals will be adopted or, if adopted and implemented, what
effect they will have on the Company.
SUPPLY INVENTORIES
Supply inventories, consisting primarily of pharmaceutical and medical
supplies, are valued at the lower of cost (first-in, first-out) or market.
F-31
<PAGE> 149
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1996
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property includes costs of
acquiring, constructing or renovating Centers, other facilities and equipment.
The Company provides for depreciation and obsolescence at rates which are
sufficient to amortize the carrying amounts of such assets over their estimated
useful lives using the straight-line method.
GOODWILL
Goodwill resulted from businesses acquired and is amortized on a
straight-line basis over twenty years. Contingent payments made in connection
with acquisitions are recorded as goodwill. The carrying value of goodwill is
reviewed if the facts and circumstances suggest that it may be impaired. If this
review indicates that goodwill will not be recoverable, as determined based on
the undiscounted cash flows of the entity acquired over the remaining
amortization period, the Company's carrying value of the goodwill will be
reduced by the estimated shortfall of cash flows.
DEFERRED COSTS
Deferred costs include the costs of obtaining financing and Center
preopening costs. Such costs are amortized by the straight-line method using the
following periods: financing costs over the term of the related debt and Center
preopening costs over twenty-four months.
FINANCIAL INSTRUMENTS
The Company believes the carrying amount of cash and equivalents, accounts
receivable (net of allowances), other current assets, notes and accounts
payable, accrued payroll and other liabilities approximates fair value due to
the short maturity of those instruments.
The fair value of the Company's long-term obligations is estimated based on
the quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities and carrying
value approximates fair value.
INCOME TAXES
Income taxes are accounted for under Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." This statement requires
the recognition of deferred tax liabilities and assets for the expected future
tax consequences of temporary differences between the carrying amounts and the
tax basis of assets and liabilities.
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees
and outside directors of the Company with an exercise price equal to the fair
value of the shares at the date of grant. As permitted by SFAS No. 123,
"Accounting for Stock-Based Compensation", the Company applies Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" and
related interpretations in accounting for its stock option plans and,
accordingly, does not recognize compensation expense for its options granted.
NET INCOME PER SHARE
Net income per share is based on the weighted average shares of Common
Stock outstanding plus common stock equivalents from stock options, after giving
effect to the conversion of preferred stock.
RECLASSIFICATION
Certain amounts in prior year financial statements have been reclassified
to conform with the 1996 presentation.
F-32
<PAGE> 150
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1996
2. ACQUISITIONS
On September 19, 1996, the Company acquired Arbors at Waterville, a 100-bed
Center that it has operated under an operating lease agreement since 1989. The
Company financed a portion of the $5.8 million purchase with $4.6 million from
its acquisition/development lines of credit. Raymond James Financial, Inc.
("RJFI") owns two subsidiaries that are the controlling partners in a
partnership that is the general partner in a partnership that owned the center.
A director of the Company is an officer, director and major stockholder of RJFI.
Effective June 30, 1996, the Company acquired all of the outstanding stock of
Poly-Stat Supply Corporation and Poly-Stat Computer Applications, Inc. The
Poly-Stat businesses provide enteral feeding, urological, ostomy, tracheostomy,
surgical dressing and oxygen supplies and Medicare billing services to nursing
homes. The purchase price of approximately $1.2 million for the Poly-Stat
businesses included approximately $1.0 million in cash and $0.2 million in
promissory notes. In addition, the Company must make a $1.0 million contingent
payment if certain earnings targets are attained over the next five years.
On May 31, 1995, the Company acquired substantially all of the assets of
the Arbors at Fairlawn ("Fairlawn") for approximately $6.7 million in cash and
assumed certain liabilities of $3.8 million. Fairlawn is a 150-bed nursing and
assisted living facility which the Company had operated under a management
agreement since its opening in 1986. A principal stockholder of the Company was
a principal stockholder in the corporate general partner of the partnership that
previously owned Fairlawn. On June 30, 1995, the Company acquired all of the
outstanding stock of The Druggist, Inc. ("Druggist") for approximately $10.5
million, including $.5 million in Common Stock (24,968 shares) and $4.8 million
in seller financing. The Druggist provides institutional pharmacy and
respiratory services to nursing homes and correctional facilities in Ohio.
Additional consideration of up to $2.5 million may be required for the Druggist
acquisition if certain earnings targets are attained through December 31, 1999.
The Arbors at Waterville, Poly-Stat businesses, Fairlawn and Druggist
acquisitions have been accounted for as purchases, and results of operations are
included from the dates of acquisition. The 1996 purchase prices which included
approximately $6,753,000 paid in cash, seller-financed debt of approximately
$193,000 and debt assumed of approximately $157,000 were allocated primarily to
property and equipment ($5,006,000), goodwill ($1,834,000), and working capital
($263,000). The 1995 purchase prices which included approximately $11,686,000
paid in cash, seller-financed debt and common stock issued of $5,250,000 and
debt assumed of approximately $4,380,000 were allocated primarily to goodwill
($12,126,000), property and equipment ($8,618,000), and working capital
($572,000).
The Company exchanged 49,937 shares of its Common Stock for all of the
outstanding shares of Alternacare Plus Enterprises, Inc. ("Alternacare") on June
30, 1995. Alternacare provides medical and enteral feeding supplies, and
Medicare billing services. This transaction was accounted for as an immaterial
pooling of interests; thus, prior years' financial statements of the Company
have not been restated and results of operations are included from the date of
acquisition.
The pro forma unaudited results of operations for the years ended December
31, 1996 and 1995, assuming the purchases had been consummated as of January 1,
1995, are not materially different from the reported results of operations.
On June 30, 1994 Arbor exchanged 428,571 shares of its Common Stock for all
of the outstanding shares of two related institutional pharmacy corporations,
Bay Geriatric Pharmacy, Inc. ("Bay") and Home Care Pharmacy, Inc. of Florida
("Home Care").These transactions have been accounted for as poolings of
interests, and the Company has included the accounts of Bay and Home Care in
consolidation as if they had always been subsidiaries.
Effective January 1, 1997, the Company acquired substantially all of the
assets and assumed certain liabilities of Adult Services Unlimited, Inc.
("ASUI") and Health Poconos, Inc. ("HPI") for approximately
F-33
<PAGE> 151
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1996
$3.2 million, including $1.7 million in seller financing. ASUI and HPI are
Comprehensive Outpatient Rehabilitation Facilities that provide general,
job-related injury and geriatric rehabilitation to the northeastern Pennsylvania
market. The acquisitions will be treated as purchases for accounting and
financial reporting purposes. The pro forma unaudited results of operations for
the year ended December 31, 1996, assuming the purchase had been consummated as
of January 1, 1996, are not materially different from the reported results of
operations.
3. NOTES PAYABLE AND OTHER CURRENT LIABILITIES
The Company has short-term working capital lines of credit of $4,650,000
with three banks. Interest rates range from London Interbank Offered Rates
("LIBOR") plus 1.50% to prime, and commitment fees of up to .25% are calculated
on any unused portion. There were borrowings under the lines at December 31,
1996 and 1995 of $4,525,766 and, $4,496,188 respectively, at a weighted average
interest rate of 8.08% and 8.34%, respectively.
Accrued payroll and related items include $2,651,205 and $1,950,768 accrued
for wages and $2,336,065 and $2,928,871 accrued for workers compensation as of
December 31, 1996 and 1995, respectively. Other liabilities include $6,510,450
and $1,454,363 owed under various Medicare and Medicaid programs as of December
31, 1996 and 1995, respectively.
F-34
<PAGE> 152
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1996
4. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to banks
Collateralized by real estate or leasehold improvements and/or
equipment and/or accounts receivable, payable in monthly
installments and lump sums ranging to July 2013
Interest fixed from 7.16% to 10.75%.................................. $30,849 $20,702
Interest variable from 6.74% to 9.25%................................ 21,041 8,281
Uncollateralized, payable in monthly installments to January 1998,
interest at LIBOR plus 1.75%...................................... 330 710
Acquisition/development credit facilities
Collateralized by real estate and/or equipment....................... -- 4,829
Uncollateralized, payable in monthly installments and lump sums to
December 2003, interest from LIBOR plus 1.75% to LIBOR plus
2.00%............................................................. 32,748 29,126
Notes payable to non-financial institutions, collateralized by real
estate or leasehold improvements and/or equipment and/or accounts
receivable, payable in monthly installments and lump sums to May
2002, interest from 9.00% to 10.50%.................................. 7,160 7,272
Note payable to stockholder, uncollateralized, payable in semi-annual
installments and lump sums to July 2000, interest at 8.00%........... 4,425 4,750
Industrial development revenue bonds, collateralized by real estate and
equipment and/or accounts receivable, payable in monthly installments
and lump sums to May 1999, interest variable of 3.82%................ 905 4,710
Other.................................................................. 347 318
------- -------
97,805 80,698
Less current maturities................................................ 3,162 5,957
------- -------
$94,643 $74,741
======= =======
</TABLE>
The Company has acquisition/development credit facilities with three banks
which provide for borrowings up to $43,750,000 and $42,500,000 at December 31,
1996 and 1995, respectively. Commitment fees of up to .25% are calculated on the
unused portion. Terms of the credit facilities provide that, at their option,
the banks may request a first mortgage and/or security interest in the property
financed. As of December 31, 1996 and 1995 commitments under these credit
facilities were $32,845,000 and $37,600,000 and outstanding balances were
$32,748,000, and $33,954,860, respectively.
The Company has letter of credit facilities aggregating $4,233,131
available with four banks. Standby letters of credit of $2,635,021 were issued
and outstanding at December 31, 1996. Additionally, the Company has
collateralized Industrial Development Revenue Bonds with letters of credit of
$917,611. Outstanding letters of credit are subject to annual renewal and
issuance fees from 1.0% to 1.5%.
Certain of the Company's borrowing agreements contain covenants which,
among other things, require the maintenance of minimum net worth and certain
financial ratios, and prohibit cash dividends in excess of $400,000 annually.
The Company is in compliance with all provisions of the agreements.
F-35
<PAGE> 153
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1996
Maturities of long-term obligations as of December 31, 1996 are as follows
(in thousands):
<TABLE>
<S> <C>
1997....................................................................... $ 3,162
1998....................................................................... 3,631
1999....................................................................... 19,713
2000....................................................................... 18,588
2001....................................................................... 12,259
Thereafter................................................................. 40,452
-------
$97,805
=======
</TABLE>
Interest paid amounted to $8,188,000, $5,988,000, and $4,736,000, for the
years ended December 31, 1996, 1995, and 1994, respectively. Interest
capitalized amounted to $591,000, $631,000, and $348,000 for the years ended
December 31, 1996, 1995, and 1994, respectively.
5. LEASES
The Company operates certain Centers pursuant to the terms of operating
leases. Each of the operating leases contains one or more of the following
options: (a) the Company can, after the initial lease term, purchase the
property at the fair value of the property; or (b) the Company can, at the end
of the initial lease term, renew the lease (in some cases at the original terms
and in others at the fair rental value) ranging from one to five periods of five
to seven years. Certain of the leases require the Company to provide a letter of
credit to the lessor sufficient to cover from three months' to one year's lease
payments. Rental payments under operating leases are based on minimum rentals
plus contingent rentals derived from several factors, including the consumer
price index and increases in revenues. Operating lease rental expense included
contingent rentals of $623,545, $614,431, and $601,789 for the years ended
December 31, 1996, 1995, and 1994, respectively.
Future minimum lease payments under operating leases as of December 31,
1996 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1997..................................................................... $ 3,483
1998..................................................................... 3,177
1999..................................................................... 3,005
2000..................................................................... 2,853
2001..................................................................... 775
Thereafter............................................................... --
-------
Total minimum lease payments............................................. $13,293
=======
</TABLE>
6. STOCK OPTION PLANS
In 1985 and 1995 the Company adopted stock option plans (the 1985 Plan and
1995 Plan) for key employees and directors. The 1995 Plan authorizes the
issuance of 332,197 shares of common stock, including 132,197 shares which were
previously reserved for issuance under the 1985 Plan. No further options may be
granted under the 1985 Plan. Options granted to eligible employees under the
plans may be incentive stock options under the provisions of the Internal
Revenue Code or nonstatutory options. Options granted to members of the Board of
Directors are nonstatutory options. The options which have been granted under
the plans provide that each employee option award will become exercisable in
five equal installments on the first
F-36
<PAGE> 154
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1996
five anniversaries of the grant date. The options which have been granted to the
outside directors will become exercisable in three equal installments on the
first three anniversaries of the grant date. Options granted under the plans
expire no later than ten years after the grant date. At December 31, 1996, there
were 396,996 shares reserved for issuance under the plans.
In 1996 the Company adopted a stock option plan (the 1996 Plan) for
non-employee directors. The 1996 Plan authorized the issuance of 42,000 shares
of common stock. Under the terms of the plan, in May, 1996 each of the Company's
five non-employee directors was granted an option to purchase 1,000 shares of
common stock. Additional options to purchase 1,000 shares of common stock
automatically will be granted to non-employee directors on the date of each
future annual meeting of stockholders. The non-statutory options become
exercisable in three equal installments on the first three anniversaries of the
grant date and expire ten years after the grant date. At December 31, 1996,
42,000 shares were reserved for issuance under the 1996 Plan.
The effect on net income and net income per share had compensation expense
been computed in accordance with the fair value provisions of SFAS No. 123 is
immaterial for each of the years ended December 31, 1996 and 1995, however, the
effects on future years are not presently determinable.
A summary of the Company's stock option activity and related information
for the years ended December 31 follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------ ------------------
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
-------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1.................. 281,528 $16.83 160,365 $14.80 51,962 $ 5.48
Granted................................... 134,000 20.25 200,000 17.31 111,667 18.81
Exercised................................. (12,062) 13.63 (14,451) 5.75 (1,826) 3.60
Canceled.................................. (117,267) 17.27 (64,386) 15.73 (1,438) 4.43
-------- ------- -------
Outstanding at December 31................ 286,199 18.39 281,528 16.83 160,365 14.80
======== ======= =======
Exercisable at December 31................ 55,999 15.15 27,602 12.28 24,260 5.89
======== ======= =======
</TABLE>
7. STOCKHOLDER RIGHTS AGREEMENT
On November 14, 1996, the Company adopted a Stockholder Rights Agreement
(the "Agreement") under which each outstanding share of Company common stock
will carry with it the right to buy one one-thousandth (1/1000th) of a share of
a new series of junior participating cumulative preferred stock at an exercise
price of $100 per right, subject to antidilution adjustments. If a person or
group other than an exempt person acquires 15% or more of the Company's
outstanding voting stock or announces a tender or exchange offer that would
result in ownership of 15% or more of the Company's voting stock, then each
right will become exercisable (except by such acquiring person). An exempt
person includes the Company, any employee benefit plan of the Company and
persons who beneficially held 15% or more of the Company's common stock at the
time of adoption of the Agreement and their affiliates. Thereafter, in the event
of a merger or combination, sale of assets or earnings power, each right then
outstanding will entitle its holder to purchase for $100, subject to
antidilution adjustments, a number of the acquiring party's common stock having
a market value of twice that amount. The Company may redeem all rights for $0.01
per right at any time prior to the acquisition of 15% or more of the Company's
stock by a person or group. The rights will expire on November 14, 2006.
F-37
<PAGE> 155
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1996
8. INCOME TAXES
The Company's income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current provision:
Federal......................................................... $4,463 $4,052 $3,230
State and local................................................. 833 787 598
------ ------ ------
5,296 4,839 3,828
Deferred provision:
Federal......................................................... 1,218 399 56
State and local................................................. 214 65 46
------ ------ ------
1,432 464 102
------ ------ ------
$6,728 $5,303 $3,930
====== ====== ======
</TABLE>
Total income taxes differed from the amounts computed by applying the
federal income tax statutory rates to income before income taxes as a result of
the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Expected federal income tax expense............................... $5,891 $4,677 $3,683
Increase (reduction) in income taxes:
State and local income taxes, net of federal income tax
benefit...................................................... 683 562 425
Tax credits..................................................... (7) (68) (282)
Other........................................................... 161 132 104
------ ------ ------
Total income tax expense.......................................... $6,728 $5,303 $3,930
====== ====== ======
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1996 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
Accrued liabilities and reserves......................................... $1,194 $ 771
Allowance for doubtful accounts.......................................... 718 486
Other.................................................................... 60 63
------ ------
Total deferred tax assets.................................................. $1,972 $1,320
====== ======
Deferred tax liabilities
Tax depreciation in excess of book depreciation.......................... $4,317 $2,519
Other.................................................................... 702 416
------ ------
Total deferred tax liabilities............................................. $5,019 $2,935
====== ======
</TABLE>
Total income tax payments during the years ended December 31, 1996, 1995,
and 1994 were approximately $6,482,000, $5,615,000 and $3,494,000, respectively.
F-38
<PAGE> 156
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1996
9. CONCENTRATION OF CREDIT RISK
The Company has concentrations of credit risk in the following receivables:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Medicare program......................................................... $11,979 $10,416
Medicaid programs........................................................ $ 9,142 $ 7,209
</TABLE>
10. EMPLOYEE BENEFIT PLANS
The Company has defined contribution plans under Section 401(k) of the
Internal Revenue Code covering eligible employees. Employees may elect to defer
up to 17% of their gross pay and the Company makes matching contributions
subject to certain limitations. The Company's contributions to the plans
amounted to $514,609, $411,206, and $298,997, for the years ended December 31,
1996, 1995, and 1994, respectively.
The Company offers health insurance benefits principally under a
self-insured plan but has purchased insurance to limit both individual and
aggregate claim exposure. Employees who were enrolled in the Company's health
insurance plan prior to retirement are eligible to elect to continue in the plan
for up to 36 months after retirement under COBRA. Claims paid on behalf of
individual retirees are limited by insurance and were not material in 1996,
1995, and 1994.
The Company entered into agreements with certain key executives that
provide, in the event of termination of employment within one year of a change
of control of the Company, for termination payments including (a) cash severance
benefits based on current salary and in certain cases prior year bonus; (b)
acceleration of any unvested stock options; and (c) payment of COBRA insurance
premiums.
11. QUARTERLY RESULTS OF OPERATION FOR YEARS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL NET OPERATING NET INCOME
QUARTER ENDED REVENUES MARGIN NET INCOME PER SHARE
- ------------- --------- --------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
December 31, 1996............................. $57,699 $10,857 $3,267 $.47
September 30, 1996............................ 55,961 9,670 2,690 .39
June 30, 1996................................. 52,641 8,677 2,243 .32
March 31, 1996................................ 52,476 8,229 2,023 .29
December 31, 1995............................. 52,288 9,282 2,690 .39
September 30, 1995............................ 49,602 8,445 2,299 .33
June 30, 1995................................. 46,700 7,133 1,838 .27
March 31, 1995................................ $43,568 $ 6,468 $1,625 $.24
</TABLE>
Operating margin represents earnings before depreciation and amortization,
interest, operating lease rentals and income taxes.
F-39
<PAGE> 157
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except for share data)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1997 1996
------------ -----------
(NOTE 1)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................................ $ 6,781 $ 5,761
Accounts receivable, less allowances of $2,099 and $1,948,
respectively.................................................. 50,676 44,019
Supply inventories............................................... 3,839 2,963
Other current assets............................................. 3,620 3,503
Deferred income taxes............................................ 2,218 1,972
-------- --------
Total current assets............................................... 67,134 58,218
Property and equipment
Land and improvements............................................ 25,418 25,337
Buildings and improvements....................................... 95,825 95,017
Equipment and furnishings........................................ 44,119 40,477
Leasehold improvements........................................... 7,524 5,970
Construction in process.......................................... 11,825 2,599
-------- --------
184,711 169,400
Less allowances for depreciation and amortization................ 40,108 33,564
-------- --------
Total property and equipment....................................... 144,603 135,836
Other assets
Goodwill, less amortization of $1,582 and $926, respectively..... 20,124 13,034
Deferred costs, less amortization of $3,407 and $3,475,
respectively.................................................. 1,718 2,205
Sundry........................................................... 316 181
-------- --------
Total other assets................................................. 22,158 15,420
-------- --------
$233,895 $ 209,474
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable.................................................... $ -- $ 4,526
Accounts payable................................................. 12,252 11,121
Accrued payroll and related items................................ 14,837 11,522
Other liabilities................................................ 16,780 13,465
Current maturities of long-term obligations...................... 4,940 3,162
-------- --------
Total current liabilities.......................................... 48,809 43,796
Long-term obligations, less current maturities..................... 103,720 94,643
Deferred income taxes.............................................. 6,264 5,019
Stockholders' equity
Preferred stock, $.01 par value, Authorized -- 2,000,000 shares
None issued or outstanding.................................... -- --
Series A Junior Participating Cumulative Preferred Stock, $.01
par value
Authorized -- 10,000 shares, None issued or outstanding....... -- --
Common stock, $.03 par value, Authorized -- 20,000,000 shares
Issued and outstanding -- 6,937,427 and 6,904,054 shares,
respectively................................................. 208 207
Additional paid-in capital....................................... 30,827 30,300
Retained earnings................................................ 44,067 35,509
-------- --------
Total stockholders' equity......................................... 75,102 66,016
-------- --------
$233,895 $ 209,474
======== ========
</TABLE>
See accompanying notes
F-40
<PAGE> 158
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues
Subacute care............................... $ 32,144 $ 29,165 $ 94,623 $ 82,971
Basic care.................................. 21,113 21,110 63,901 62,722
Pharmacy and other.......................... 8,118 5,686 22,680 15,385
-------- -------- -------- --------
Total net revenues............................ 61,375 55,961 181,204 161,078
Expenses
Operating................................... 47,624 43,578 141,614 127,011
General corporate........................... 2,573 2,430 8,081 7,123
Operating lease rental...................... 1,150 1,157 3,292 3,410
Net interest................................ 2,022 1,884 6,106 5,161
Depreciation and amortization............... 2,710 2,216 7,928 6,498
-------- -------- -------- --------
Total expenses................................ 56,079 51,265 167,021 149,203
Other expense (income)
Loss on disposal of property................ 61 315 306 498
Interest and sundry......................... (62) (32) (174) (130)
-------- -------- -------- --------
Total other expense (income).................. (1) 283 132 368
-------- -------- -------- --------
Income before income taxes.................... 5,297 4,413 14,051 11,507
Income taxes.................................. 2,049 1,723 5,493 4,551
-------- -------- -------- --------
Net income.................................... $ 3,248 $ 2,690 $ 8,558 $ 6,956
======== ======== ======== ========
Net income per share.......................... $ 0.46 $ 0.39 $ 1.22 $ 1.00
======== ======== ======== ========
Weighted average shares outstanding........... 7,090 6,954 7,035 6,970
======== ======== ======== ========
</TABLE>
See accompanying notes
F-41
<PAGE> 159
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- -------
<S> <C> <C> <C> <C>
Balances at January 1, 1996.......................... $207 $ 30,135 $ 25,286 $55,628
Net income........................................... 10,223 10,223
Stock options exercised -- 12,062 shares............. 165 165
----- -------- -------- -------
Balances at December 31, 1996........................ 207 30,300 35,509 66,016
Net income........................................... 8,558 8,558
Stock options exercised -- 31,832 shares............. 1 483 484
Employee Stock Purchase Plan -- 1,541 shares......... 44 44
----- -------- -------- -------
Balances at September 30, 1997....................... $208 $ 30,827 $ 44,067 $75,102
===== ======== ======== =======
</TABLE>
See accompanying notes
F-42
<PAGE> 160
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
------------------
1997 1996
------- -------
<S> <C> <C>
Operating activities
Net income............................................................. $ 8,558 $ 6,956
Adjustments to reconcile net income to net cash provided by operating
activities
Provision for depreciation.......................................... 6,670 5,432
Amortization........................................................ 1,435 1,304
Provision for deferred income taxes................................. 999 1,534
Provision for losses on accounts receivable......................... 2,285 1,447
Loss on disposal of property........................................ 305 498
Changes in operating assets and liabilities
Accounts receivable............................................... (7,816) (5,770)
Supply inventories................................................ (668) (71)
Other current assets.............................................. (1,076) (1,257)
Deferred costs.................................................... (262) (850)
Accounts payable.................................................. 874 (3,960)
Accrued payroll and related items................................. 3,189 2,927
Other liabilities (income tax payments of $3,857 and $4,766,
respectively).................................................... 3,151 1,521
------ ------
Net cash provided by operating activities................................ 17,644 9,711
Investing activities
Expenditures for property and equipment................................ (14,010) (18,417)
Cash paid to acquire businesses, net of cash received.................. (5,514) (6,775)
Sundry and other....................................................... (105) 38
------ ------
Net cash used in investing activities.................................... (19,629) (25,154)
Financing activities
Net repayments under line of credit agreements to finance development
projects and acquisitions........................................... (1,076) (5,214)
Net borrowings (repayments) of working capital under line of credit
agreements.......................................................... (4,526) (2,827)
Borrowings on long-term obligations.................................... 11,750 27,000
Repayments of long-term obligations.................................... (3,603) (6,014)
Deferred financing costs............................................... (68) (759)
Issuance of stock...................................................... 528 64
------ ------
Net cash provided by financing activities................................ 3,005 12,250
------ ------
Net increase (decrease) in cash and cash equivalents..................... 1,020 (3,193)
Cash and cash equivalents at beginning of period......................... 5,761 6,394
------ ------
Cash and cash equivalents at end of period............................... $ 6,781 $ 3,201
====== ======
</TABLE>
See accompanying notes
F-43
<PAGE> 161
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated balance sheet of Arbor Health Care Company and
subsidiaries (the "Company") at December 31, 1996 has been derived from the
audited consolidated financial statements at that date. The consolidated balance
sheet of the Company at September 30, 1997, and the consolidated statements of
income and cash flows for the periods ended September 30, 1997 and 1996, have
been prepared by the Company, without audit, in accordance with the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows at September 30, 1997 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996. The results of operations and cash
flows for the period ended September 30, 1997 are not necessarily indicative of
the operating results or cash flows for the full year.
2. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement No.
128, Earnings per Share, which is required to be adopted for financial
statements issued for periods ending after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new requirements for
calculating basic earnings per share, the dilutive effect of stock options will
be excluded. The impact of Statement No. 128 on the calculation of earnings per
share is not expected to be material. In addition, the FASB has issued Statement
No. 129 (Disclosure of Information about Capital Structure), Statement No. 130
(Reporting Comprehensive Income), and Statement No. 131 (Disclosures about
Segments of an Enterprise and Related Information), which are not anticipated to
have a material effect on the Company.
3. MERGER
On September 29, 1997, the Company entered into a definitive merger
agreement with Extendicare Inc. ("Extendicare") pursuant to which Extendicare,
through an indirect wholly-owned United States subsidiary, commenced a tender
offer (the "Tender Offer") for any and all of the Company's outstanding shares
at a price of $45.00 per share in cash. Under the merger agreement, the Tender
Offer will be followed by a merger (the "Merger") in which shares of the Company
not purchased in the Tender Offer will be converted into the right to receive
cash in the amount of $45.00 per share.
Extendicare's Tender Offer commenced on October 3, 1997 and expired on
November 25, 1997. Over 99% of the issued and outstanding common shares of the
Company were tendered pursuant to the Tender Offer. On November 26, 1997, the
Merger was consummated and the Company became an indirect subsidiary of
Extendicare. For additional information regarding the merger agreement, refer to
Extendicare's Schedule 14D-1 filed October 3, 1997, and amended on October 30,
1997; and the Company's Schedule 14D-9 filed October 6, 1997.
4. ACQUISITIONS
The Company acquired all of the assets of seven outpatient rehabilitation
centers in the Jacksonville, Florida area and one Comprehensive Outpatient
Rehabilitation Facility ("CORF") in St. Augustine, Florida effective September
1, 1997 and July 15, 1997, respectively. Effective August 1, 1997, the Company
acquired all of the outstanding stock of an institutional pharmacy in the
Detroit, Michigan area. The combined
F-44
<PAGE> 162
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
purchase price of these acquisitions was $5.4 million, including $1.4 million in
seller financing. Combined additional consideration of up to $1.5 million may be
required for the Jacksonville, Florida area rehabilitation centers and Detroit,
Michigan area pharmacy if certain earnings targets are attained through December
31, 1999 and December 31, 2001, respectively. The Company entered into an
operating lease agreement, effective September 1, 1997, for a 116-bed nursing
facility in Ohio. These acquisitions and the leased facility generated
approximately $10.6 million in combined 1996 revenues.
Effective January 1, 1997, the Company acquired substantially all of the
assets and assumed certain liabilities of Adult Services Unlimited, Inc.
("ASUI") and Health Poconos, Inc. ("HPI") for approximately $3.2 million,
including $1.7 million in seller financing. ASUI and HPI are CORFs in the
northeastern Pennsylvania market. In 1996, the two facilities had combined
revenues of approximately $2.8 million.
On September 19, 1996, the Company acquired Arbors at Waterville, a 100-bed
Center that it has operated under an operating lease agreement since 1989. The
Company financed a portion of the $5.8 million purchase with $4.6 million from
its acquisition/development lines of credit. Raymond James Financial, Inc.
("RJFI") owns two subsidiaries that are the controlling partners in a
partnership that is the general partner in a partnership that owned the Center.
A director of the Company is an officer, director and major stockholder of RJFI.
Effective June 30, 1996, the Company acquired all of the outstanding stock
of Poly-Stat Supply Corporation and Poly-Stat Computer Applications, Inc. The
Poly-Stat businesses provide medical supplies and Medicare billing services to
nursing homes. The purchase price of approximately $1.2 million for the
Poly-Stat businesses included $1.0 million in cash and $0.2 million in
promissory notes. In addition, the Company must make a $1.0 million contingent
payment if certain earnings targets are attained through December 31, 2000.
The 1997 and 1996 acquisitions have been accounted for as purchases and
results of operations are included from the dates of acquisition. The 1997
purchase prices which included approximately $5,578,000 paid in cash,
seller-financed debt of approximately $3,050,000 and debt assumed of
approximately $772,000 were allocated primarily to goodwill ($7,742,000),
working capital ($904,000) and property and equipment ($754,000). The 1996
purchase prices which included approximately $6,753,000 paid in cash,
seller-financed debt of approximately $193,000 and debt assumed of approximately
$157,000 were allocated primarily to property and equipment ($5,006,000),
goodwill ($1,834,000) and working capital ($263,000). The pro forma unaudited
results of operations for the nine months ended September 30, 1997 and 1996,
assuming the purchases had been consummated as of January 1, 1996, are not
materially different from the reported results of operations.
F-45
<PAGE> 163
======================================================
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE NOTES BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Available Information.................. 3
Summary................................ 5
Risk Factors........................... 20
The Acquisition........................ 31
Use of Proceeds........................ 32
Exchange Offer......................... 33
Capitalization......................... 38
Unaudited Pro Forma Condensed
Consolidated Financial Information... 39
Selected Financial and Operating
Data................................. 47
Management's Discussion and Analysis... 51
Business............................... 64
Management............................. 78
Executive Compensation................. 80
Description of Other Indebtedness...... 82
Description of the Notes............... 84
Certain Federal Income Tax
Considerations....................... 112
Plan of Distribution................... 114
Legal Matters.......................... 115
Experts................................ 115
Index to Financial Statements.......... F-1
</TABLE>
======================================================
======================================================
LOGO
$200,000,000
9.35% SENIOR SUBORDINATED NOTES
DUE 2007
-----------------------------------------
PROSPECTUS
-----------------------------------------
, 1997
======================================================
<PAGE> 164
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VIII of the Company's By-Laws contains a provision, authorized by
Section 145 of the Delaware General Corporation Law which provides that the
Company shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Company) by reason of the fact that such person is or
was a director or officer of the Company) by reason of the fact that such person
is or was a director or officer of the Company, or is or was a director or
officer of the Company serving at the request of the Company as a director or
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had reasonable
cause to believe that such person's conduct was unlawful. In addition, the
Company shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the Company to procure a judgment in its favor by reason of the fact
that such person is or was a director or officer of the Company, or is or was a
director or officer of the Company serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Company; except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Company unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Article FIFTH of the Company's Restated Certificate of Incorporation
contains a provision, authorized by Section 102(b)(7) of the Delaware General
Corporation Law, which provides that no director shall be personally liable to
the Company or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. Any repeal or modification of Article FIFTH by the
stockholders of the Company shall not adversely affect any right or protection
of a director of the Company existing at the time of such repeal or modification
with respect to acts or omissions occurring prior to such repeal or
modification.
[A policy of directors' and officers' liability insurance is maintained by
the Company which insures directors and officers for losses as a result of
claims against the directors and officers of the Company in their capacity as
directors and officers and also reimburses the Company for payments made
pursuant to the indemnity provisions described above.]
II-1
<PAGE> 165
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
3.1 Certificate of Incorporation of Extendicare Health Services, Inc.
3.2 By-Laws of Extendicare Health Services, Inc.
4.1 Indenture, dated as of December 2, 1997, by and among the Company, the Guarantors
and the Bank of Nova Scotia Trust Company of New York, as Trustee (Including forms
of the Outstanding Notes and Exchange Notes).
4.2 Form of Outstanding Note (contained in Exhibit 4.1).
4.3 Form of Exchange Note (contained in Exhibit 4.1).
4.4 Registration Rights Agreement, dated as of December 2, 1997, by and among the
Company, the Guarantors and the Initial Purchasers.
+5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to the legality of the
securities being registered.
10.1 Credit Agreement dated as of November 26, 1997 among the Company, Extendicare
Holdings, Inc. and the Subsidiary Guarantors (as defined therein) and NationsBank,
N.A., as Agent, and the Lenders (as defined therein).
10.2 Agreement and Plan of Merger, dated as of September 29, 1997, by and among
Extendicare Inc., AHC Acquisition Corp. and Arbor Health Care Company.
12.1 Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of the Company.
23.1 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Ernst & Young LLP.
24.1 Powers of Attorney for the Company (contained on the signature pages of this
Registration Statement).
25.1 Statement of Eligibility of Trustee on Form T-1.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letters to DTC Participants.
99.4 Form of Letter to Clients and Form of Instruction to Book-Entry Transfer
Participant.
</TABLE>
- ---------------
+ to be filed by amendment
(b) Financial Statement Schedules
The following financial statement schedule of the Company is filed
herewith:
II. Valuation and Qualifying Accounts
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) That, for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
II-2
<PAGE> 166
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
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.
(c) 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 10(a)(3) of the
Securities Act of 1933;
(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.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(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.
(d) That, for the purpose 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.
(e) 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.
(f) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form
(including information contained in documents filed subsequent to the effective
date of the Registration Statement through the date of responding to the
request), within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means; and to
arrange or provide for a facility in the United States for the purpose of
responding to such requests; and
(g) 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registration 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 direct, 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.
II-3
<PAGE> 167
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Milwaukee, Wisconsin, on
.
EXTENDICARE HEALTH SERVICES, INC.
By:
J. Wesley Carter
President and Chief Executive
Officer
POWERS OF ATTORNEY
Each person whose signature appears below constitutes and appoints each of
J. Wesley Carter and Robert J. Abramowski his true and lawful attorney-in-fact
and agent, each acting alone, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all Amendments (including post-effective 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, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
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 and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
Chairman and Director
- -------------------------------------
Frederick Bernard Ladly
Chief Executive Officer, President
- ------------------------------------- and Director (principal executive
J. Wesley Carter officer)
Vice President-Finance, Chief
- ------------------------------------- Financial Officer, Treasurer and
Robert J. Abramowski Assistant Secretary (principal
financial officer and principal
accounting officer)
Director
- -------------------------------------
Leland M. Austin, Jr.
Director
- -------------------------------------
Richard Leslie Bertrand
</TABLE>
II-4
<PAGE> 168
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the following
registrants have duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Milwaukee,
Wisconsin, on .
ADULT SERVICES UNLIMITED, INC.
ALTERNACARE PLUS ENTERPRISES, INC.
ARBOR HEALTH CARE COMPANY
ARBORS EAST, INC.
ARBORS AT FT. WAYNE, INC.
ARBORS AT TOLEDO, INC.
BAY GERIATRIC PHARMACY, INC.
COVENTRY CARE, INC.
EDGEWOOD NURSING CENTER, INC.
ELDER CREST, INC.
EXTENDICARE GREAT TRAIL, INC.
EXTENDICARE HEALTH FACILITIES, INC.
EXTENDICARE HEALTH FACILITY HOLDINGS,
INC.
EXTENDICARE HOMES, INC.
EXTENDICARE OF INDIANA, INC.
FIR LANE TERRACE CONVALESCENT CENTER,
INC.
HAVEN CREST, INC.
HEALTH POCONOS, INC.
HOME CARE PHARMACY, INC. OF FLORIDA
MARSHALL PROPERTIES, INC.
MEADOW CREST, INC.
NORTHERN HEALTH FACILITIES, INC.
OAK HILL HOME OF REST AND CARE, INC.
POLY-STAT COMPUTER APPLICATIONS, INC.
POLY-STAT SUPPLY CORPORATION
Q.D. PHARMACY, INC.
THE DRUGGIST, INC.
THE PROGRESSIVE STEP CORPORATION
UNITED PROFESSIONAL COMPANIES, INC.
UNITED PROFESSIONAL SERVICES, INC.
UNITED REHABILITATION SERVICES, INC.
By: _________________________________
Robert J. Abramowski
Vice President-Finance,
Chief Financial Officer
and Assistant Secretary
II-5
<PAGE> 169
POWERS OF ATTORNEY
Each person whose signature appears below constitutes and appoints each of
J. Wesley Carter and Robert J. Abramowski his true and lawful attorney-in-fact
and agent, each acting alone, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all Amendments (including post-effective 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, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
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 and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
President, Chief Executive Officer
- ------------------------------------- and Director (principal executive
J. Wesley Carter officer)
Vice President-Finance, Chief
- ------------------------------------- Financial Officer and Assistant
Robert J. Abramowski Secretary (principal financial
officer and
principal accounting officer)
- ------------------------------------- Director
Leland M. Austin, Jr.
Director
- -------------------------------------
Melvin A. Rhinelander
</TABLE>
II-6
<PAGE> 170
INDEPENDENT AUDITORS' REPORT
The Board of Directors
EXTENDICARE HEALTH SERVICES, INC.
Under date of February 3, 1997, except for footnote 16 which is as of
December 2, 1997, we reported on the consolidated balance sheets of Extendicare
Health Services, Inc. (f/k/a United Health, Inc.) and subsidiaries (the Company)
as of December 31, 1996 and 1995, and the related consolidated statements of net
earnings, changes in shareholder's equity, and cash flows for each of the years
in the three-year period ended December 31, 1996, which are included in the
prospectus and the registration statement. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule in the registration statement. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Milwaukee, Wisconsin
December 2, 1997
S-1
<PAGE> 171
EXTENDICARE HEALTH SERVICES, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PROVISIONS ACCOUNTS
BALANCE AT FOR LOSSES WRITTEN OFF BALANCE AT
BEGINNING ON ACCOUNTS NET OF END OF
ALLOWANCE FOR DOUBTFUL ACCOUNTS OF PERIOD RECEIVABLE RECOVERIES PERIOD
- ------------------------------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1994................... $4,453 $ 3,593 $ 2,019 $6,027
Year ended December 31, 1995................... $6,027 $ 3,892 $ 2,723 $7,196
Year ended December 31, 1996................... $7,196 $ 7,293 $ 5,186 $9,303
</TABLE>
See accompanying independent auditors' report.
S-2
<PAGE> 172
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ------------
<C> <S> <C>
3.1 Certificate of Incorporation of Extendicare Health Services, Inc.
3.2 By-Laws of Extendicare Health Services, Inc.
4.1 Indenture, dated as of December 2, 1997, by and among the Company, the
Guarantors and the Bank of Nova Scotia Trust Company of New York, as
Trustee (Including forms of the Outstanding Notes and Exchange Notes).
4.2 Form of Outstanding Note (contained in Exhibit 4.1).
4.3 Form of Exchange Note (contained in Exhibit 4.1).
4.4 Registration Rights Agreement, dated as of December 2, 1997, by and
among the Company, the Guarantors and the Initial Purchasers.
+5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to the legality
of the securities being registered.
10.1 Credit Agreement dated as of November 26, 1997 among the Company,
Extendicare Holdings, Inc. and the Subsidiary Guarantors (as defined
therein) and NationsBank, N.A., as Agent, and the Lenders (as defined
therein).
10.2 Agreement and Plan of Merger, dated as of September 29, 1997, by and
among Extendicare Inc., AHC Acquisition Corp. and Arbor Health Care
Company.
12.1 Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of the Company.
23.1 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit
5.1).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Ernst & Young LLP.
24.1 Powers of Attorney for the Company (contained on the signature pages of
this Registration Statement).
25.1 Statement of Eligibility of Trustee on Form T-1.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letters to DTC Participants.
99.4 Form of Letter to Clients and Form of Instruction to Book-Entry Transfer
Participant.
</TABLE>
- ---------------
+ to be filed by amendment
<PAGE> 1
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
EXTENDICARE HEALTH SERVICES, INC.
------------------------------------
Pursuant to Sections 242 and 245 of
the General Corporation Law
of the State of Delaware
----------------------------------
EXTENDICARE HEALTH SERVICES, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), DOES HEREBY
CERTIFY as follows:
1. The name of the Corporation is Extendicare Health Services, Inc.
2. The original Certificate of Incorporation of the Corporation was filed
under the name Crowntek Holdings, Inc. with the Secretary of State of the State
of Delaware on April 13, 1984 and was amended on each of October 25, 1984,
April 29, 1986, November 24, 1986, November 9, 1988, March 27, 1989 and
June 24, 1997 (the "Existing Certificate").
3. This Restated Certificate of Incorporation restates and integrates and
further amends the Existing Certificate of Incorporation.
4. This Restated Certificate of Incorporation was duly adopted by the
stockholder of the Corporation in accordance with Sections 242 and 245 of the
General Corporation Law of the State of Delaware (the "GCL").
5. The text of the Existing Certificate of Incorporation of the
Corporation is hereby restated and further amended to read as hereinafter set
forth in full.
FIRST: The name of the Corporation is Extendicare Health Services, Inc.
<PAGE> 2
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware as set forth in Title 8 of the Delaware code (the
"GCL").
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is as follows:
(a) 1,000 shares of one class of stock with a par value of $1.00 per
share, designated as common stock;
(b) 1,000 shares of a second class of stock with a par value of $1.00
per share, designated as Class "A" Preference Stock; and
(c) 1,000 shares of a third class of stock with a par value of $1.00
per share, designated as Class "B" Preference Stock.
The Class "A" Preference Stock and the Class "B" Preference Stock may be
issued from time to time in one or more series. The Board of Directors is
authorized to fix or alter the rights thereto and to increase or decrease the
number of shares of any series subsequent to the issue of shares of that series,
but not below the number of shares of such series then outstanding. In case the
number of shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status which they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
2
<PAGE> 3
(1) The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the stockholders to
make, alter, amend, change, add to or repeal the By-Laws of the Corporation.
(3) The number of directors of the Corporation shall be as from time to
time fixed by, or in the manner provided in, the By-Laws of the Corporation.
Election of directors need not be by written ballot unless the By-Laws so
provide.
(4) No director shall be personally liable to the Corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the GCL or (iv) for any transaction from which the
director derived an improper personal benefit. Any repeal or modification of
this Article FIFTH by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification with respect to acts or omissions occurring
prior to such repeal or modification.
(5) In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, subject, nevertheless, to the provisions of the GCL, this
Certificate of Incorporation, and any By-Laws adopted by the stockholders;
provided, however, that no By-Laws hereafter adopted by the stockholders shall
invalidate any prior act of the directors
3
<PAGE> 4
which would have been valid if such By-Laws had not been adopted.
SIXTH: Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the GCL) outside the State of Delaware at
such place or places as may be designated from time to time by the Board of
Directors or in the By-Laws of the Corporation.
SEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, Extendicare Health Services, Inc. has caused this
Restated Certificate of Incorporation to be signed by J. Wesley Carter, its
President, this 28th day of December, 1997.
EXTENDICARE HEALTH SERVICES, INC.
By: /s/ J. Wesley Carter
--------------------------
Name: J. Wesley Carter
Title: President
4
<PAGE> 1
Exhibit 3.2
BY-LAWS
OF
Extendicare Health Services, Inc.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be in the City of Wilmington, County of Newcastle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors.
<PAGE> 2
Section 2. Annual Meetings. The Annual Meetings of Stockholders for the
election of directors shall be held on such date and at such time as shall be
designated from time to time by the Board of Directors. Any other proper
business may be transacted at the Annual Meeting of Stockholders.
Section 3. Special Meetings. Unless otherwise required by law or by the
certificate of incorporation of the Corporation, as amended and restated from
time to time (the "Certificate of Incorporation"), Special Meetings of
Stockholders, for any purpose or purposes, may be called by either (i) the
Chairman, if there be one, or (ii) the President, (iii) any Vice President, if
there be one, (iv) the Secretary or (v) any Assistant Secretary, if there be
one, and shall be called by any such officer at the request in writing of (i)
the Board of Directors, (ii) a committee of the Board of Directors that has been
duly designated by the Board of Directors and whose powers and authority include
the power to call such meetings or (iii) stockholders owning a majority of the
capital stock of the Corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting. At a
Special Meeting of Stockholders, only such business shall be
2
<PAGE> 3
conducted as shall be specified in the notice of meeting (or any supplement
thereto).
Section 4. Notice. Whenever stockholders are required or permitted to take
any action at a meeting, a written notice of the meeting shall be given which
shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. Unless
otherwise required by law, the written notice of any meeting shall be given not
less than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at such meeting.
Section 5. Adjournments. Any meeting of the stockholders may be adjourned
from time to time to reconvene at the same or some other place, and notice need
not be given of any such adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given
3
<PAGE> 4
to each stockholder of record entitled to vote at the meeting.
Section 6. Quorum. Unless otherwise required by law or the Certificate of
Incorporation, the holders of a majority of the capital stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business. A quorum, once established, shall not be broken by the
withdrawal of enough votes to leave less than a quorum. If, however, such quorum
shall not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, in the manner
provided in Section 5, until a quorum shall be present or represented.
Section 7. Voting. Unless otherwise required by law, the Certificate of
Incorporation or these Bylaws, any question brought before any meeting of
stockholders, other than the election of directors, shall be decided by the
vote of the holders of a majority of the total number of votes of the capital
stock represented and entitled to vote thereat, voting as a single class.
Unless otherwise provided in the Certificate of Incorpo-
4
<PAGE> 5
ration, and subject to Section 5 of Article V hereof, each stockholder
represented at a meeting of stockholders shall be entitled to cast one vote for
each share of the capital stock entitled to vote thereat held by such
stockholder. Such votes may be cast in person or by proxy but no proxy shall be
voted on or after three years from its date, unless such proxy provides for a
longer period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in such officer's
discretion, may require that any votes cast at such meeting shall be cast by
written ballot.
Section 8. Consent of Stockholders in Lieu of Meeting. Unless otherwise
provided in the Certificate of Incorporation, any action required or permitted
to be taken at any Annual or Special Meeting of Stockholders of the Corporation,
may be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the Corporation by
5
<PAGE> 6
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand of by certified or
registered mail, return receipt requested. Every written consent shall bear the
date of signature of each stockholder who signs the consent and no written
consent shall be effective to take the corporate action referred to therein
unless, within sixty days of the earliest dated consent delivered in the manner
required by this Section 8 to the Corporation, written consents signed by a
sufficient number of holders to take action are delivered to the Corporation by
delivery to its registered office in the state of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing and who, if the action had been taken at a meeting, would
have been entitled to notice of the meeting if the record date for such meeting
had been the
6
<PAGE> 7
date that written consents signed by a sufficient number of holders to take
the action were delivered to the Corporation as provided above in this section.
Section 9. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder of the Corporation who is present.
Section 10. Stock Ledger. The stock ledger of the Corporation shall be the
only evidence as to who are
7
<PAGE> 8
the stockholders entitled to examine the stock ledger, the list required by
Section 9 of this Article II or the books of the Corporation, or to vote in
person or by proxy at any meeting of stockholders.
Section 11. Conduct of Meetings. The Board of Directors of the Corporation
may adopt by resolution such rules and regulations for the conduct of the
meeting of the stockholders as it shall deem appropriate. Except to the extent
inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of the stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) the determination of when the polls
shall open and close for any given matter to be voted on at the meeting; (iii)
rules and procedures for maintaining order at the meeting and the safety of
those present; (iv) limitations on attendance at or participation in the
meeting to stockholders of
8
<PAGE> 9
record of the corporation, their duly authorized and constituted proxies or
such other persons as the chairman of the meeting shall determine; (v)
restrictions on entry to the meeting after the time fixed for the commencement
thereof; and (vi) limitations on the time allotted to questions or comments by
participants.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The Board of Directors shall
consist of not less than one nor more than fifteen members, the exact number of
which shall initially be fixed by the Incorporator and thereafter from time to
time by the Board of Directors. Except as provided in Section 2 of this Article
III, directors shall be elected by a plurality of the votes cast at the Annual
Meetings of Stockholders and each director so elected shall hold office until
the next Annual Meeting of Stockholders and until such director's successor is
duly elected and qualified, or until such director's earlier death, resignation
or removal. Any director may resign at any time upon written notice to the
Corporation. Directors need not be stockholders.
9
<PAGE> 10
Section 2. Vacancies. Unless otherwise required by law or the Certificate
of Incorporation, vacancies arising through death, resignation, removal, an
increase in the number of directors or otherwise may be filled only by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until the
next annual election and until their successors are duly elected and qualified,
or until their earlier death, resignation or removal.
Section 3. Duties and Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws required to be exercised or done by the stockholders.
Section 4. Meetings. The Board of Directors may hold meetings, both regular
and special, either within or without the State of Delaware. Regular meetings of
the Board of Directors may be held without notice at such time and at such place
as may from time to time be determined by the Board of Directors. Special
meetings of the Board of Directors may be called by the
10
<PAGE> 11
Chairman, if there be one, the President, or by any director. Notice thereof
stating the place, date and hour of the meeting shall be given to each director
either by mail not less than forty-eight (48) hours before the date of the
meeting, by telephone or telegram on twenty-four (24) hours' notice, or on such
shorter notice as the person or persons calling such meeting may deem necessary
or appropriate in the circumstances.
Section 5. Quorum. Except as otherwise required by law or the Certificate
of Incorporation, at all meetings of the Board of Directors, a majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting of the time and place of the adjourned meeting,
until a quorum shall be present.
Section 6. Actions by Written Consent. Unless otherwise provided in the
Certificate of Incorporation, or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
11
<PAGE> 12
committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or committee.
Section 7. Meetings by Means of Conference Telephone. Unless otherwise
provided in the Certificate of Incorporation, members of the Board of Directors
of the Corporation, or any committee thereof, may participate in a meeting of
the Board of Directors or such committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to
this Section 7 shall constitute presence in person at such meeting.
Section 8. Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors
of the Corporation. The Board of Directors may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a
designation by the Board of Directors of an alternate
12
<PAGE> 13
member to replace the absent or disqualified member, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
such member or members constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any
absent or disqualified member. Any committee, to the extent permitted by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it.
Each committee shall keep regular minutes and report to the Board of Directors
when required.
Section 9. Compensation. The directors may be paid their expenses, if any,
of attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
as director, payable in cash or securities. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or stand-
13
<PAGE> 14
ing committees may be allowed like compensation for attending committee
meetings.
Section 10. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof which authorizes
the contract or transaction, or solely because the director or officer's vote is
counted for such purpose if (i) the material facts as to the director or
officer's relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to the director or officer's relationship or interest and as to the
contract or transaction are disclosed or are known to
14
<PAGE> 15
the stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
(iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee thereof or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, also may choose a
Chairman of the Board of Directors (who must be a director) and one or more
Vice Presidents, Assistant Secretaries, Assistant Treasurers and other
officers. Any number of offices may be held by the same person, unless
otherwise prohibited by law or the Certificate of Incorporation. The officers
of the Corporation need not be stockholders of the Corporation nor, except
in the case of the
15
<PAGE> 16
Chairman of the Board of Directors, need such officers be directors of the
Corporation.
Section 2. Election. The Board of Directors, at its first meeting held
after each Annual Meeting of the Stockholders (or action by written consent of
stockholders in lieu of the Annual Meeting of Stockholders), shall elect the
officers of the Corporation who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors; and all officers of the Corporation
shall hold office until their successors are chosen and qualified, or until
their earlier death, resignation or removal. Any officer elected by the Board
of Directors may be removed at any time by the affirmative vote of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the
16
<PAGE> 17
President or any Vice President or any other officer authorized to do so by the
Board of Directors and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and power incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may, by resolution, from time
to time confer like powers upon any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of the Board of
Directors, if there be one, shall preside at all meetings of the stockholders
and of the Board of Directors. The Chairman of the Board of Directors shall be
the Chief Executive Officer of the Corporation, unless the Board of Directors
designates the President as the Chief Executive Officer, and, except where by
law the signature of the President is required, the Chairman of the Board of
Directors shall possess the same power as the President to sign all contracts,
certificates and other instruments of the Corporation which
17
<PAGE> 18
may be authorized by the Board of Directors. During the absence or disability
of the President, the Chairman of the Board of Directors shall exercise all the
powers and discharge all the duties of the President. The Chairman of the Board
of Directors shall also perform such other duties and may exercise such other
powers as may from time to time be assigned by these By-Laws or by the Board of
Directors.
Section 5. President. The President shall, subject to the control of the
Board of Directors and, if there be one, the Chairman of the Board of
Directors, have general supervision of the Business of the Corporation and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. The President shall execute all bonds, mortgages, contracts and
other instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-Laws, the Board of Directors
or the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board
18
<PAGE> 19
of Directors. If there be no Chairman of the Board of Directors, or if the
Board of Directors shall otherwise designate, the President shall be the Chief
Executive Officer of the Corporation. The President shall also perform such
other duties and may exercise such other powers as may from time to time be
assigned to such officer by these By-Laws or by the Board of Directors.
Section 6. Vice Presidents. At the request of the President or in the
President's absence or in the event of the President's inability or refusal to
act (and if there be no Chairman of the Board of Directors), the Vice
President, or the Vice Presidents if there is more than one (in the order
designated by the Board of Directors), shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. Each Vice President shall perform such
other duties and have such other powers as the Board of Directors from time to
time may prescribe. If there be no Chairman of the Board of Directors and no
Vice President, the Board of Directors shall designate the officer of the
Corporation who, in the absence of the President or in the event of the
inability or refusal of the President to act, shall perform the duties of the
President, and when so acting,
19
<PAGE> 20
shall have all the powers of and be subject to all the restrictions upon the
President.
Section 7. Secretary. The Secretary shall attend all meetings of the Board
of Directors and all meetings of stockholders and record all the proceedings
thereat in a book or books to be kept for that purpose; the Secretary shall
also perform like duties for committees of the Board of Directors when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors, the
Chairman of the Board of Directors or the President, under whose supervision
the Secretary shall be. If the Secretary shall be unable or shall refuse to
cause to be given notice of all meetings of the stockholders and special
meetings of the Board of Directors, and if there be no Assistant Secretary,
then either the Board of Directors or the President may choose another officer
to cause such notice to be given. The Secretary shall have custody of the seal
of the Corporation and the Secretary or any Assistant Secretary, if there be
one, shall have authority to affix the same to any instrument requiring it and
when so affixed, it may be attested by the signa-
20
<PAGE> 21
ture of the Secretary or by the signature of any such Assistant Secretary. The
Board of Directors may give general authority to any other officer to affix the
seal of the Corporation and to attest to the affixing by such officer's
signature. The Secretary shall see that all books, reports, statements,
certificates and other documents and records required by law to be kept or filed
are properly kept or filed, as the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all transactions as Treasurer and
of the financial condition of the Corporation. If required by the Board of
Directors, the Treasurer shall give the Corporation a bond in such sum and with
such
21
<PAGE> 22
surety or sureties as shall be satisfactory to the Board of Directors for the
faithful performance of the duties of the office of the Treasurer and for the
restoration to the Corporation, in case of the Treasurer's death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in the Treasurer's possession or under the
Treasurer's control belonging to the Corporation.
Section 9. Assistant Secretaries. Assistant Secretaries, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Secretary, and in the absence of the Secretary or in the
event of the Secretary's disability or refusal to act, shall perform the duties
of the Secretary, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of the
22
<PAGE> 23
Treasurer's disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of Directors,
an Assistant Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of the office of Assistant Treasurer and
for the restoration to the Corporation, in case of the Assistant Treasurer's
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in the Assistant Treasurer's
possession or under the Assistant Treasurer's control belonging to the
Corporation.
Section 11. Other Officers. Such other officers as the Board of Directors
may choose shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.
23
<PAGE> 24
Article V
STOCK
Section 1. Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed, in the name of the Corporation
(i) by the Chairman of the Board of Directors, the President or a Vice
President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned such stockholder in the Corporation.
Section 2. Signatures. Any or all of the signatures on a certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the
24
<PAGE> 25
person claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or the owner's legal
representative, to advertise the same in such manner as the Board of Directors
shall require and/or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed
or the issuance of such new certificate.
Section 4. Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these By-Laws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the
certificate or by such person's attorney lawfully constituted in writing and
upon the surrender of the certificate therefor, which shall be cancelled before
a new certificate shall be issued. No transfer of stock shall be valid as
against the Corporation for any purpose until it shall have been entered in the
stock records of
25
<PAGE> 26
the Corporation by an entry showing from and to whom transferred.
Section 5. Record Date.
(a) In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the board of directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors, and which record date shall not be more
than sixty nor less than ten days before the date of such meeting. If no record
date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; providing, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
26
<PAGE> 27
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which record date shall not be more than ten days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is required by law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken
is delivered to the Corporation by delivery to its registered office in this
State, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and
prior action by the Board of Directors is re-
27
<PAGE> 28
quired by law, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting shall be at the close of
business on the day on which the Board of Directors adopts the resolutions
taking such prior action.
(c) In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
Section 6. Record Owners. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, and to hold liable for calls
and assessments a person registered on
28
<PAGE> 29
its books as the owner of shares, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise required by law.
Article VI
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed by
the person or persons entitled to
29
<PAGE> 30
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Attendance of a person at a meeting, present in person or
represented by proxy, shall constitute a waiver of notice of such meeting,
except where the person attends the meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the requirements of the DGCL and the provisions of
the Certificate of Incorporation, if any, may be declared by the Board of
Directors at any regular or special meeting of the Board of Directors (or any
action by written consent in lieu thereof in accordance with Section 6 of
Article III hereof), and may be paid in cash, in property, or in shares of
the Corporation's capital stock. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such
sum or sums as the Board of Directors from time to time, in its absolute
discretion, deems proper as a reserve or re-
30
<PAGE> 31
serves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for any proper purpose, and the
Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
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ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings other
than Those by or in the Right of the Corporation. Subject to Section 3 of
this Article VIII, the Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation)
by reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving
at the request of the Corporation as a director or officer, employee or agent
of another corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe such
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<PAGE> 33
person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in
the Right of the Corporation. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor by reason of
the fact that such person is or was a director or officer of the Corporation, or
is or was a director or officer of the Corporation serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against expenses (including attorneys' fees)
33
<PAGE> 34
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation; except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification under this
Article VIII (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification of
the director or officer is proper in the circumstances because such person has
met the applicable standard of conduct set forth in Section 1 or Section 2 of
this Article VIII, as the case may be. Such determination shall be made (i) by a
majority vote of the
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directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (ii) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion or (iii) by the
stockholders. To the extent, however, that a director or officer of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith, without the necessity of authorization in the specific case.
Section 4. Good Faith Defined. For purposes of any determination under
Section 3 of this Article VIII, a person shall be deemed to have acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Corporation, or, with respect to any criminal action
or proceeding, to have had no reasonable cause to believe such person's conduct
was unlawful, if such person's action is based on the records or books of
account of the Corporation or another enterprise, or on information supplied to
such person by the officers of the Corporation or another
35
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enterprise in the course of their duties, or on the advice of legal counsel
for the Corporation or another enterprise or on information or records given or
reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section 4 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this Section 4 shall
not be deemed to be exclusive or to limit in any way the circumstances in which
a person may be deemed to have met the applicable standard of conduct set forth
in Section 1 or 2 of this Article VIII, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to the Court of Chancery in the State of Delaware for
indemnification to the extent otherwise permissible under Sections 1 and 2 of
this
36
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Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer is
proper in the circumstances because such person has met the applicable
standards of conduct set forth in Section 1 or 2 of this Article VIII, as the
case may be. Neither a contrary determination in the specific case under
Section 3 of this Article VIII nor the absence of any determination thereunder
shall be a defense to such application or create a presumption that the
director or officer seeking indemnification has not met any applicable standard
of conduct. Notice of any application for indemnification pursuant to this
Section 5 shall be given to the Corporation promptly upon the filing of such
application. If successful, in whole or in part, the director or officer
seeking indemnification shall also be entitled to be paid the expense of
prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a director or
officer in defending any civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it
37
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shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement of Expenses.
The indemnification and advancement of expenses provided by or granted pursuant
to this Article VIII shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
the Certificate of Incorporation, any By-Law, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to the
fullest extent permitted by law. The provisions of this Article VIII shall not
be deemed to preclude the indemnification of any person who is not specified in
Section 1 or 2 of this Article VIII but whom the Corporation has the power or
obligation to indemnify under the provisions of the General Corporation Law of
the State of Delaware, or otherwise.
38
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Section 8. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director of officer of the Corporation, or is or
was a director of officer of the Corporation serving a the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against any liability asserted against such person and incurred by such
person in any such capacity, or arising out of such person's status as such,
whether or not the Corporation would have the power or the obligation to
indemnify such person against such liability under the provisions of this
Article VIII.
Section 9. Certain Definitions. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer
of such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent
corporation as
39
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a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article VIII, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by, or granted pursuant
40
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to, this Article VIII shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
Section 11. Limitation on Indemnification. Notwithstanding anything
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 hereof),
the Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The Corporation may,
to the extent authorized from time to time by the Board of Directors, provide
rights to indemnification and to the advancement of expenses to employees and
agents of the Corporation similar to those conferred in this Article VIII to
directors and officers of the Corporation.
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ARTICLE IX
AMENDMENTS
Section 1. Amendments. these by-Laws may be altered, amended or repealed,
in whole or in part, or new By-Laws may be adopted by the stockholders or by
the Board of Directors, provided, however, that notice of such alteration,
amendment, repeal or adoption of new By-Laws be contained in the notice of such
meeting of stockholders or Board of Directors as the case may be. All such
amendments must be approved by either the holders of a majority of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors then in office.
Section 2. Entire Board of Directors. As used in this Article IX and in
these By-Laws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
***
Adopted as of: December 28, 1997.
42
<PAGE> 1
Exhibit 4.1
===============================================================================
EXTENDICARE HEALTH SERVICES, INC.,
Issuer,
THE GUARANTORS NAMED HEREIN,
Guarantors
and
THE BANK OF NOVA SCOTIA
TRUST COMPANY OF NEW YORK
Trustee
____________________
INDENTURE
Dated as of December 2, 1997
_____________________
$200,000,000
9.35% Senior Subordinated Notes Due 2007
===============================================================================
<PAGE> 2
EXTENDICARE HEALTH SERVICES, INC.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF DECEMBER 2, 1997
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<S> <C>
Section 310(a)(1) ............................... 607
(a)(2) ............................... 607
(b) ............................... 608
Section 312(c) ............................... 701
Section 314(a) ............................... 703
(a)(4) ............................... 1008(a)
(c)(1) ............................... 103
(c)(2) ............................... 103
(e) ............................... 103
Section 315(b) ............................... 601
Section 316(a)(last
sentence) ............................... 101 ("Outstanding")
(a)(1)(A) ............................... 502, 512
(a)(1)(B) ............................... 513
(b) ............................... 508
(c) ............................... 105(d)
Section 317(a)(1) ............................... 503
(a)(2) ............................... 504
(b) ............................... 1003
Section 318(a) ............................... 114
</TABLE>
____________________
Note: This reconciliation and tie shall not, for any purpose be deemed part of
this Indenture.
<PAGE> 3
TABLE OF CONTENTS
Page
<TABLE>
<S> <C>
PARTIES ................................................................... 1
RECITALS OF THE COMPANY ................................................... 1
</TABLE>
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
<TABLE>
<S> <C>
SECTION 101. Definitions ................................................. 2
Acquired Indebtedness ..................................................... 2
Act ....................................................................... 2
Additional Notes .......................................................... 3
Affiliate ................................................................. 3
Agent Bank ................................................................ 3
Arbor ..................................................................... 3
Asset Sale ................................................................ 3
Board of Directors ........................................................ 4
Board Resolution .......................................................... 4
Business Day .............................................................. 4
Capital Lease Obligation .................................................. 4
Capital Stock ............................................................. 4
Cash Equivalent ........................................................... 4
Change of Control ......................................................... 4
Closing Date .............................................................. 5
Commission ................................................................ 5
Common Stock .............................................................. 6
Company ................................................................... 6
Company Request or Company Order .......................................... 6
Consolidated EBITDA ....................................................... 6
Consolidated Net Income ................................................... 6
Consolidated Tangible Assets .............................................. 7
Corporate Trust Office .................................................... 7
corporation ............................................................... 7
Default ................................................................... 7
Defaulted Interest ........................................................ 7
Depositary ................................................................ 7
</TABLE>
____________________
Note: This table of contents shall not, for any purpose, be deemed to be a
part of this Indenture.
<PAGE> 4
ii
Page
<TABLE>
<S> <C>
Designated Senior Indebtedness ............................................ 7
Disqualified Stock ........................................................ 8
Equity Interests .......................................................... 8
Equity Offering ........................................................... 8
Event of Default .......................................................... 8
Exchange Act .............................................................. 8
Exchange Notes ............................................................ 8
Exchange Offer ............................................................ 8
Exchange Offer Registration Statement ..................................... 8
Exempt Affiliate Transactions ............................................. 8
Existing Indebtedness ..................................................... 9
Extendicare ............................................................... 9
Federal Bankruptcy Code ................................................... 9
Fixed Charge Coverage Ratio ............................................... 9
Fixed Charges ............................................................. 10
GAAP ...................................................................... 10
guarantee ................................................................. 10
Guarantor ................................................................. 10
Hedging Obligations ....................................................... 11
Indebtedness .............................................................. 11
Indenture ................................................................. 11
Initial Notes ............................................................. 11
Interest Payment Date ..................................................... 11
Investments ............................................................... 11
Lender .................................................................... 12
Lien ...................................................................... 12
Maturity .................................................................. 12
Moody's ................................................................... 12
Net Income ................................................................ 12
Net Proceeds .............................................................. 12
New Credit Agreement ...................................................... 13
Non-payment Event Default ................................................. 13
Non-Recourse Debt ......................................................... 13
Non-U.S. Person ........................................................... 13
Note Guarantee ............................................................ 13
Notes ..................................................................... 13
Obligations ............................................................... 13
Officers' Certificate ..................................................... 13
Opinion of Counsel ........................................................ 14
Outstanding ............................................................... 14
Paying Agent .............................................................. 15
Payment Event of Default .................................................. 15
</TABLE>
<PAGE> 5
iii
Page
<TABLE>
<S> <C>
Permitted Holders ......................................................... 15
Permitted Investments ..................................................... 15
Permitted Transferees ..................................................... 16
Permitted Refinancing Indebtedness......................................... 16
Person .................................................................... 16
Predecessor Note .......................................................... 17
Preferred Stock ........................................................... 17
Purchase Money Obligations ................................................ 17
QIB ....................................................................... 17
Qualified Stock ........................................................... 17
Redemption Date ........................................................... 17
Redemption Price .......................................................... 17
Register and Note Registrar ............................................... 17
Registrar ................................................................. 17
Registration Rights Agreement ............................................. 17
Registration Statement .................................................... 18
Regular Record Date ....................................................... 18
Regulation S .............................................................. 18
Related Businesses ........................................................ 18
Restricted Investment ..................................................... 18
Restricted Subsidiary ..................................................... 18
Rule 144A ................................................................. 18
Sale and Leaseback Transaction ............................................ 18
Securities Act ............................................................ 18
Senior Bank Debt .......................................................... 18
Senior Indebtedness ....................................................... 18
Senior Revolving Debt ..................................................... 19
Shelf Registration Statement .............................................. 19
S&P ....................................................................... 19
Special Record Date ....................................................... 19
Stated Maturity ........................................................... 19
Subordinated Indebtedness ................................................. 19
Subsidiary ................................................................ 19
Trust Indenture Act or TIA ................................................ 20
Trustee ................................................................... 20
Unrestricted Subsidiary ................................................... 20
U.S. Government Obligations ............................................... 20
Voting Stock .............................................................. 21
Weighted Average Life to Maturity ......................................... 21
Wholly Owned Restricted Subsidiary ........................................ 21
SECTION 102. Incorporation by Reference of Trust Indenture Act ........... 21
SECTION 103. Compliance Certificates and Opinions ........................ 22
</TABLE>
<PAGE> 6
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Page
<TABLE>
<S> <C>
SECTION 104. Form of Documents Delivered to Trustee ...................... 22
SECTION 105. Acts of Holders ............................................. 23
SECTION 106. Notices, etc., to Trustee, Company and Subsidiary
Guarantors ................................................ 24
SECTION 107. Notice to Holders; Waiver ................................... 25
SECTION 108. Effect of Headings and Table of Contents .................... 26
SECTION 109. Successors and Assigns ...................................... 26
SECTION 110. Separability Clause ......................................... 26
SECTION 111. Benefits of Indenture ....................................... 26
SECTION 112. Governing Law ............................................... 26
SECTION 113. Legal Holidays .............................................. 26
SECTION 114. Conflict of Any Provision of Indenture with Trust Indenture
Act ....................................................... 27
</TABLE>
ARTICLE TWO
NOTE FORMS
<TABLE>
<S> <C>
SECTION 201. Forms Generally ............................................. 27
SECTION 202. Restrictive Legends ......................................... 28
</TABLE>
ARTICLE THREE
THE NOTES
<TABLE>
<S> <C>
SECTION 301. Title and Terms ............................................. 30
SECTION 302. Denominations ............................................... 31
SECTION 303. Execution, Authentication, Delivery and Dating .............. 31
SECTION 304. Temporary Notes ............................................. 33
SECTION 305. Registration, Registration of Transfer and Exchange ......... 33
SECTION 306. Book-Entry Provisions for U.S. Global Note .................. 34
SECTION 307. Special Transfer Provisions ................................. 36
SECTION 308. Mutilated, Destroyed, Lost and Stolen Notes ................. 39
SECTION 309. Payment of Interest; Interest Rights Preserved .............. 40
SECTION 310. Persons Deemed Owners ....................................... 42
SECTION 311. Cancellation ................................................ 42
SECTION 312. Issuance of Additional Notes ................................ 42
SECTION 313. Computation of Interest ..................................... 43
</TABLE>
ARTICLE FOUR
SATISFACTION AND DISCHARGE
<PAGE> 7
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Page
<TABLE>
<S> <C>
SECTION 401. Satisfaction and Discharge of Indenture ..................... 43
SECTION 402. Application of Trust Money .................................. 44
</TABLE>
ARTICLE FIVE
REMEDIES
<TABLE>
<S> <C>
SECTION 501. Events of Default ........................................... 44
SECTION 502. Acceleration of Maturity; Rescission and Annulment .......... 46
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee ................................................... 47
SECTION 504. Trustee May File Proofs of Claim ............................ 48
SECTION 505. Trustee May Enforce Claims Without Possession of Notes ...... 49
SECTION 506. Application of Money Collected .............................. 49
SECTION 507. Limitation on Suits ......................................... 49
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest ...................................... 50
SECTION 509. Restoration of Rights and Remedies .......................... 50
SECTION 510. Rights and Remedies Cumulative .............................. 50
SECTION 511. Delay or Omission Not Waiver ................................ 51
SECTION 512. Control by Holders .......................................... 51
SECTION 513. Waiver of Past Defaults ..................................... 51
SECTION 514. Waiver of Stay or Extension Laws ............................ 52
SECTION 515. Waiver of Personal Liability of Directors, Officers,
Employees and Stockholders ................................ 52
</TABLE>
ARTICLE SIX
THE TRUSTEE
<TABLE>
<S> <C>
SECTION 601. Duties of Trustee ........................................... 52
SECTION 602. Notice of Defaults .......................................... 53
SECTION 603. Certain Rights of Trustee ................................... 54
SECTION 604. Trustee Not Responsible for Recitals or Issuance of Notes ... 55
SECTION 605. May Hold Notes .............................................. 55
SECTION 606. Money Held in Trust ......................................... 56
SECTION 607. Compensation and Reimbursement .............................. 56
SECTION 608. Corporate Trustee Required; Eligibility ..................... 57
SECTION 609. Resignation and Removal; Appointment of Successor ........... 57
SECTION 610. Acceptance of Appointment by Successor ...................... 59
SECTION 611. Merger, Conversion, Consolidation or Succession to
Business .................................................. 59
</TABLE>
<PAGE> 8
vi
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE
Page
<TABLE>
<S> <C>
SECTION 701. Disclosure of Names and Addresses of Holders ................ 60
SECTION 702. Reports by Trustee ......................................... 60
</TABLE>
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE
<TABLE>
<S> <C>
SECTION 801. Company May Consolidate, etc., Only on Certain Terms ........ 60
SECTION 802. Successor Substituted ...................................... 62
</TABLE>
ARTICLE NINE
SUPPLEMENTS AND AMENDMENTS TO INDENTURE
AND NOTE GUARANTEES
<TABLE>
<S> <C>
SECTION 901. Without Consent of Holders .................................. 62
SECTION 902. With Consent of Holders ..................................... 63
SECTION 903. Execution of Supplemental Indentures ........................ 64
SECTION 904. Effect of Supplemental Indentures ........................... 65
SECTION 905. Conformity with Trust Indenture Act ......................... 65
SECTION 906. Reference in Notes to Supplemental Indentures ............... 65
SECTION 907. Notice of Supplemental Indentures ........................... 65
</TABLE>
ARTICLE TEN
COVENANTS
<TABLE>
<S> <C>
SECTION 1001. Payment of Principal, Premium, if any, and Interest ........ 65
SECTION 1002. Maintenance of Office or Agency ............................ 66
SECTION 1003. Money for Note Payments to Be Held in Trust ................ 66
SECTION 1004. Corporate Existence ........................................ 68
SECTION 1005. Payment of Taxes and Other Claims .......................... 68
SECTION 1006. Maintenance of Properties .................................. 68
SECTION 1007. Insurance .................................................. 68
SECTION 1008. Statement by Officers As to Default ........................ 69
SECTION 1010. Limitation on Incurrence of Indebtedness and Issuance of
Preferred Stock .......................................... 70
</TABLE>
<PAGE> 9
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Page
<TABLE>
<S> <C>
SECTION 1011. Limitation on Restricted Payments .......................... 71
SECTION 1012. Limitation on Issuances and Sales of Capital Stock of
Restricted Subsidiaries .................................. 74
SECTION 1013. Limitation on Transactions with Affiliates ................. 74
SECTION 1014. Limitation on Liens ........................................ 75
SECTION 1015. Purchase of Notes upon a Change of Control ................. 75
SECTION 1016. Limitation on Certain Asset Sales .......................... 77
SECTION 1017. Unrestricted Subsidiaries .................................. 79
SECTION 1018. Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries ........................ 80
SECTION 1019. Waiver of Certain Covenants ................................ 81
SECTION 1020. Payment for Consent ........................................ 81
SECTION 1021. Limitation on Layering Debt ................................ 81
SECTION 1022. Line of Business ........................................... 82
</TABLE>
ARTICLE ELEVEN
REDEMPTION OF NOTES
<TABLE>
<S> <C>
SECTION 1101. Right of Redemption ........................................ 82
SECTION 1102. Applicability of Article ................................... 82
SECTION 1103. Election to Redeem; Notice to Trustee ...................... 83
SECTION 1104. Selection by Trustee of Notes to Be Redeemed ............... 83
SECTION 1105. Notice of Redemption ....................................... 83
SECTION 1106. Deposit of Redemption Price ................................ 84
SECTION 1107. Notes Payable on Redemption Date ........................... 84
SECTION 1108. Notes Redeemed in Part ..................................... 85
</TABLE>
ARTICLE TWELVE
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
<TABLE>
<S> <C>
SECTION 1201. Company Option to Effect Legal Defeasance or Covenant
Defeasance ............................................... 85
SECTION 1202. Legal Defeasance and Discharge ............................. 85
SECTION 1203. Covenant Defeasance ........................................ 86
SECTION 1204. Conditions to Legal Defeasance or Covenant Defeasance ...... 86
SECTION 1205. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions ............ 88
SECTION 1206. Reinstatement .............................................. 88
</TABLE>
ARTICLE THIRTEEN
<PAGE> 10
viii
GUARANTEES
Page
<TABLE>
<S> <C>
SECTION 1301. Note Guarantees ............................................ 89
SECTION 1302. Execution and Delivery of Note Guarantee ................... 90
SECTION 1303. Severability ............................................... 91
SECTION 1304. Seniority of Guarantees .................................... 91
SECTION 1305. Limitation of Guarantor's Liability ........................ 91
SECTION 1306. Contribution ............................................... 91
SECTION 1307. Release of a Guarantor ..................................... 92
SECTION 1308. Benefits Acknowledged ...................................... 93
SECTION 1309. Issuance of Guarantees by Certain New Restricted
Subsidiaries ............................................. 93
</TABLE>
ARTICLE FOURTEEN
SUBORDINATION
<TABLE>
<S> <C>
SECTION 1401. Notes Subordinate to Senior Indebtedness ................... 93
SECTION 1402. Payment over by the Company of Proceeds upon
Dissolution, etc ......................................... 94
SECTION 1403. Suspension of Payment on Notes When Senior Indebtedness
of the Company in Default ................................ 95
SECTION 1404. Payment Over by Guarantors of Proceeds upon
Dissolution, etc ......................................... 96
SECTION 1405. Suspension of Payment on Note Guarantees When Senior
Indebtedness of Guarantor in Default ..................... 97
SECTION 1406. Payment Permitted If No Default ............................ 98
SECTION 1407. Subrogation to Rights of Holders of Senior Indebtedness .... 98
SECTION 1408. Provisions Solely to Define Relative Rights ................ 98
SECTION 1409. Trustee to Effectuate Subordination ........................ 99
SECTION 1410. No Waiver of Subordination Provisions ...................... 99
SECTION 1411. Notice to Trustee .......................................... 99
SECTION 1412. Reliance on Judicial Order or Certificate of Liquidating
Agent .................................................... 100
SECTION 1413. Rights of Trustee As a Holder of Senior Indebtedness;
Preservation of Trustees Rights .......................... 100
SECTION 1414. Article Applicable to Paying Agents ........................ 101
SECTION 1415. No Suspension of Remedies .................................. 101
SECTION 1416. Trust Moneys Not Subordinated .............................. 101
SECTION 1417. Trustee Not Fiduciary for Holders of Senior Indebtedness ... 101
</TABLE>
<PAGE> 11
ix
EXHIBITS
Page
<TABLE>
<S> <C>
Exhibit A - Form of Note .................................................. A-1
Exhibit B - Form of Note Guarantee ........................................ B-1
Exhibit C - Form of Certificate to Be Delivered in Connection with Transfers
to Non-QIB Institutional Accredited Investors ................. C-1
Exhibit D - Form of Certificate to Be Delivered in Connection with Transfers
Pursuant to Regulation S ...................................... D-1
</TABLE>
<PAGE> 12
INDENTURE, dated as of December 2, 1997 among Extendicare Health Services,
Inc., a corporation duly organized and existing under the laws of the State of
Delaware (herein called the "Company"), the Guarantors (as hereinafter defined)
and The Bank of Nova Scotia Trust Company of New York, a trust company duly
organized and existing under the laws of New York, trustee (herein called the
"Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of and issue of 9.35% Senior
Subordinated Notes Due 2007 (herein called the "Initial Notes"), and 9.35%
Series B Senior Subordinated Notes Due 2007 (the "Exchange Notes" and, together
with the Initial Notes, the "Notes") of substantially the tenor and amount
hereinafter set forth, and to provide therefor the Company has duly authorized
the execution and delivery of this Indenture.
Each of the Guarantors has duly authorized its guarantee of the Notes, and
to provide therefor each of them has duly authorized the execution and delivery
of this Indenture.
Upon the issuance of the Exchange Notes, if any, or the effectiveness of
the Shelf Registration Statement (as defined herein), this Indenture will be
subject to the provisions of the Trust Indenture Act of 1939, as amended, that
are required to be part of this Indenture and shall, to the extent applicable,
be governed by such provisions.
All things necessary have been done to make the Notes, when executed by
the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a
valid agreement of the Company and the Guarantors, each in accordance with
their respective terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes by
the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
<PAGE> 13
2
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311, shall have the
meanings assigned to them in the rules of the Commission adopted under
the Trust Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
Certain terms, used principally in Article Two, Eight, Ten and Twelve are
defined in that Article.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
any Indebtedness or Disqualified Stock of any other Person existing at the time
such other Person is merged with or into or becomes a Restricted Subsidiary of
such specified Person, including, without limitation, Indebtedness incurred in
connection with, or in contemplation of, such other Person merging with or into
or becoming a Restricted Subsidiary of such specified Person, and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such specified
Person, and in either case for purposes of this Indenture, shall be deemed to
be incurred by such specified Person at the time such other Person is merged
with or into or becomes a Restricted Subsidiary of such specified Person or at
the time such asset is acquired by such specified Person, as the case may be.
"Act", when used with respect to any Holder, has the meaning specified
in Section 105.
<PAGE> 14
3
"Additional Notes" has the meaning specified in Section 312.
"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 or (ii) any other Person who is a director
or executive officer of (a) such specified Person or (b) any Person described
in the preceding clause (i). 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 Bank" means NationsBank, N.A. and its successors under the New
Credit Agreement, in its capacity as agent.
"Arbor" means Arbor Health Care Company, a Delaware corporation.
"Asset Sale" means with respect to any Person, the sale, lease,
conveyance or other disposition, by such Person of any of its assets
(including, without limitation, (w) a sale and leaseback, (x) the issuance,
sale or other transfer of any Equity Interests in any Restricted Subsidiary of
the Company, (y) the sale or transfer of Equity Interests in any Unrestricted
Subsidiary and (z) the receipt of proceeds of insurance paid on account of the
loss of or damage to any asset and awards of compensation for any asset taken
by condemnation, eminent domain or similar proceeding, and including the
receipt of proceeds of business interruption insurance), in each case, in one
or a series of related transactions, that have a fair market value in excess of
$1,000,000 or for Net Proceeds in excess of $1,000,000; provided that
notwithstanding the foregoing, the term "Asset Sale" shall not include: (a)
the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company, in accordance with the terms of
Section 801, (b) the sale or lease of equipment, inventory, accounts receivable
or other assets in the ordinary course of business consistent with past
practice, (c) a transfer of assets by the Company to a Wholly Owned Restricted
Subsidiary of the Company or by a Wholly Owned Restricted Subsidiary of the
Company to the Company or to another Wholly Owned Restricted Subsidiary of the
Company, (d) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary of the Company to the Company or to another Wholly Owned Restricted
Subsidiary of the Company, provided that the consideration paid by the Company
or such Wholly Owned Restricted Subsidiary of the Company for such Equity
Interests shall be deemed to be an Investment, (e) the sale or other
disposition of cash or Cash Equivalents, (f) a Restricted Payment that is
permitted by Section 1011, (g) sales of property or equipment that have become
worn out, obsolete or damaged, or (h) the designation of any Restricted
Subsidiary as an Unrestricted Subsidiary or the contribution to the capital of
any Unrestricted Subsidiary in accordance with the applicable provisions of
this Indenture.
<PAGE> 15
4
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary 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 each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
are authorized or obligated by law, regulation or executive order 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, capital stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
capital stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalent" means (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof) having maturities not more than six
months from the date of acquisition, (b) U.S. dollar denominated (or foreign
currency fully hedged) time deposits, certificates of deposit, Eurodollar time
deposits or Eurodollar certificates of deposit of (i) any domestic commercial
bank of recognized standing having capital and surplus in excess of $500
million or (ii) any bank whose short-term commercial paper rating from S&P is
at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the
equivalent thereof (any such bank being an "Approved Lender"), in each case
with maturities of not more than six months from the date of acquisition, and
(c) commercial paper issued by any Approved Lender (or by the parent company
thereof) and maturing within six months of the date of acquisition.
"Change of Control" means such time as either:
(i) any Person or group (within the meaning of Section 13(d) or
14(d) of the Exchange Act) other than the Permitted Holders has become,
directly or indirectly, the beneficial owner, by way of merger,
consolidation or otherwise, of (A) 35% or more of the voting power of the
Voting Stock of Extendicare on a
<PAGE> 16
5
fully-diluted basis and the Permitted Holders beneficially own, directly
or indirectly, Voting Stock of Extendicare that represents a lesser
percentage of the aggregate voting power of all classes of Voting Stock
of Extendicare, voting together as a single class, than such person or
group, or (B) 50% or more of the voting power of the Voting Stock of the
Company on a fully diluted basis, after giving effect to the conversion
and exercise of all outstanding warrants, options and other securities of
the Company convertible or exercisable for Voting Stock of the Company
(in each case, whether or not such securities are then currently
convertible or exercisable); or
(ii) the sale, lease or transfer to any Person or Group of all or
substantially all of the assets of (A) the Company, other than in
compliance with the terms of Section 801 or (B) Extendicare, other than
to the Permitted Holders; or
(iii) during any period of two consecutive calendar years,
individuals who at the beginning of such period constituted the Board of
Directors of Extendicare or the Company, together with any new members of
such Board of Directors whose election by such Board of Directors or
whose nomination for election by the stockholders of Extendicare or the
Company, as applicable, was approved by a vote of a majority of the
members of such Board of Directors then still in office who either were
directors at the beginning of such period or whose election or nomination
for election was previously so approved, cease for any reason to
constitute a majority of the directors of Extendicare or the Company then
in office; or
(iv) Extendicare or the Company consolidates or amalgamates with or
merges with or into another Person or any Person consolidates or
amalgamates with, or merges with or into, Extendicare or the Company (in
the case of the Company, whether or not in compliance with the terms of
this Indenture ), in any such event pursuant to a transaction in which
immediately after the consummation thereof Persons owning a majority of
the Voting Stock of Extendicare or the Company, as applicable,
immediately prior to such consummation shall cease to own a majority of
the Voting Stock of Extendicare or the Company, as applicable, or the
surviving entity if other than Extendicare or the Company.
"Closing Date" means the date on which the Initial Notes are originally
issued under this Indenture.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Notes Exchange Act of 1934, or, if at
any time after the execution of this Indenture such Commission is not existing
and performing the duties now assigned to it under the Trust Indenture Act,
then the body performing such duties at such time.
<PAGE> 17
6
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations and other equivalents (however designated, whether
voting or non-voting) of such Person's Common Stock, whether now outstanding or
issued after the date of this Indenture, and includes, without limitation, all
series and classes of such Common Stock.
"Company" means the Person named as the "Company" in the first paragraph
of this Indenture, until a successor Person shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall
mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated EBITDA" means, with respect to any Person for any period,
the sum of, without duplication, (i) the Consolidated Net Income of such Person
and its Restricted Subsidiaries for such period, plus (ii) the Fixed Charges
for such period, plus (iii) provision for taxes based on income or profits for
such period (to the extent such income or profits were included in computing
Consolidated Net Income for such period), plus (iv) consolidated depreciation,
amortization and other noncash charges of such Person and its Restricted
Subsidiaries required to be reflected as expenses on the books and records of
such Person, minus (v) cash payments with respect to any nonrecurring, noncash
charges previously added back pursuant to clause (iv), and excluding (vi) the
impact of foreign currency translations. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization and other noncash charges of, a Restricted Subsidiary of a Person
shall be added to Consolidated Net Income to compute Consolidated EBITDA only
to the extent (and in the same proportion) that the Net Income of such
Restricted Subsidiary was included in calculating the Consolidated Net Income
of such Person and only if a corresponding amount would be permitted at the
date of determination to be dividended to such Person by such Restricted
Subsidiary without prior approval (unless such approval has been obtained),
pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to that Restricted Subsidiary or its stockholders.
"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 (but not loss) 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 actually paid in cash to the referent Person or a Wholly Owned
Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary
shall be excluded to the extent that the declaration or payment of dividends or
similar distributions
<PAGE> 18
7
by that Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (unless such
approval has been obtained) or, directly or indirectly, 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, (iii) solely for purposes of Section 1011, 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 and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Tangible Assets" means, as of the date of determination,
the total assets, less goodwill and other intangibles (other than patents,
trademarks, copyrights, licenses and other intellectual property), shown on the
balance sheet of the Company and its Restricted Subsidiaries as of the most
recent date for which such a balance sheet is available, determined on a
consolidated basis in accordance with GAAP less all write-ups (other than
writeups in connection with acquisitions) subsequent to the date of this
Indenture in the book value of any asset (except any such intangible assets)
owned by the Company or any of its Restricted Subsidiaries.
"Corporate Trust Office" means the principal corporate trust office of
the Trustee, at which at any particular time its corporate trust business shall
be administered, which office at the date of execution of this Indenture is
located at One Liberty Plaza, 23rd Floor, New York, New York 10006, except
that with respect to presentation of Notes for payment or for registration of
transfer or exchange, such term shall mean the office or agency of the Trustee
at which, at any particular time, its corporate trust and agency business shall
be conducted.
"corporation" includes corporations, associations, companies and
business trusts.
"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.
"Defaulted Interest" has the meaning specified in Section 309.
"Depositary" means The Depository Trust Company, its nominees and
successors.
"Designated Senior Indebtedness" means (i) so long as the Senior Bank
Debt is outstanding, the Senior Bank Debt and (ii) any other Senior
Indebtedness permitted under this Indenture the principal amount of which is
$50 million or more and that has been designated by the Company as "Designated
Senior Indebtedness."
<PAGE> 19
8
"Disqualified Stock" means (a) with respect to any Person, Capital Stock
of such Person 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 matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the Holder thereof,
in whole or in part, on or prior to the date which is one year after the date
on which the Notes mature and (b) with respect to any Restricted Subsidiary of
such Person (including with respect to any Restricted Subsidiary of the
Company), any Capital Stock other than any Common Stock with no preference,
privileges, or redemption or repayment provisions.
"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), whether outstanding
prior to, on or after the date of this Indenture.
"Equity Offering" means a public or private offering of Capital Stock
(other than Disqualified Stock) of the Company and shall be deemed to include,
without limitation, any capital contribution (whether or not against the
issuance of additional Capital Stock of the Company) by Extendicare or its
subsidiaries (other than the Company) to the Company.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
"Exchange Notes" has the meaning stated in the first recital of this
Indenture and refers to any Exchange Notes containing terms substantially
identical to the Initial Notes (except that such Exchange Notes shall not
contain terms with respect to the interest rate step-up provision and transfer
restrictions) that are issued and exchanged for the Initial Notes pursuant to
the Registration Right Agreement and this Indenture.
"Exchange Offer" means the exchange offer that may be effected pursuant
to the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Registration Rights Agreement.
"Exempt Affiliate Transactions" means (a) transactions between or among
the Company and/or its Wholly Owned Restricted Subsidiaries, (b) advances to
officers of the Company or any Restricted Subsidiary of the Company in the
ordinary course of business to provide for the payment of reasonable expenses
incurred by such persons in the performance of their responsibilities to the
Company or such Restricted Subsidiary or in connection with any relocation, (c)
fees and compensation paid to and indemnity provided on behalf of
<PAGE> 20
9
directors, officers or employees of the Company or any Restricted Subsidiary of
the Company in the ordinary course of business, (d) any employment agreement
that is in effect on the date of this Indenture in the ordinary course of
business and any such agreement entered into by the Company or a Restricted
Subsidiary of the Company after the date of this Indenture in the ordinary
course of business of the Company or such Restricted Subsidiary, (e) any
Restricted Payment that is not prohibited by Section 1011, (f) payment of
premiums to and the receipt of proceeds of insurance from, Laurier Indemnity
Company and Laurier Indemnity Company, Ltd. and (g) payments to or receipts
from Extendicare Holdings, Inc. pursuant to any tax sharing agreement entered
into for the purpose of preparing a consolidated tax return of Extendicare
Holdings, Inc.
"Existing Indebtedness" means the Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the New Credit
Agreement) in existence on the date of this Indenture, until such amounts are
repaid.
"Extendicare" means Extendicare Inc., the Company's indirect parent.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of the
United States Code, as amended from time to time.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person and its Restricted
Subsidiaries for such period to the Fixed Charges 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 or repays or redeems
any Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the four-quarter reference
period for which the Fixed Charge Coverage Ratio is being calculated but on or
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee, repayment or redemption of Indebtedness, 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, (i) acquisitions that have been made
by the Company or any of its Restricted Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period, and (ii) the Consolidated EBITDA
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date shall be
excluded, and (iii) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to
<PAGE> 21
10
such Fixed Charges will not be obligations of the referent Person or any of its
Restricted Subsidiaries following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of (i) the consolidated interest expense of such
Person and its Restricted Subsidiaries for such period (net of any interest
income) including, without limitation, 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, but excluding amortization
of deferred financing charges for such period, (ii) the consolidated interest
expense of such Person and its Restricted Subsidiaries that was capitalized
during such period, (iii) any interest expense on Indebtedness of another
Person that is guaranteed by such Person or one of its Restricted Subsidiaries
or secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries (whether or not such guarantee or Lien is called upon) and (iv)
the product of (a) all cash dividend payments (and noncash dividend payments in
the case of a Person that is a Restricted Subsidiary) on any series of
preferred stock of such Person payable to a party other than the Company or a
Wholly Owned Restricted Subsidiary, multiplied by (b) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person, expressed
as a decimal, on a consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of 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 of the United States that are applicable to the circumstances as of
the date of determination.
"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, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means each existing Restricted Subsidiary of the Company
organized within the United States (excluding inactive subsidiaries as of the
date hereof), each Restricted Subsidiary of the Company organized within the
United States formed or acquired (and each other Person that becomes a
Restricted Subsidiary of the Company) after the date of this Indenture and each
other Restricted Subsidiary of the Company organized within the United States
that guarantees the Company's obligations under the New Credit Agreement or any
other Senior Indebtedness; provided, that the definition of "Guarantors"
<PAGE> 22
11
shall exclude any inactive Restricted Subsidiary of the Company prior to the
date of the merger of AHC Acquisition Corp. with and into Arbor pursuant to a
Merger Agreement dated as of September 29, 1997 among Extendicare Inc., Arbor
and AHC Acquisition Corp.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person entered into in the ordinary course of business under (i)
interest rate swap agreements, interest rate cap agreements and interest rate
collar agreements and other similar financial agreements or arrangements
designed to protect such Person against, or manage the exposure of such Person
to, fluctuations in interest rates, and (ii) forward exchange agreements,
currency swap, currency option and other similar financial agreements or
arrangements designed to protect such Person against, or manage the exposure of
such Person to, fluctuations in foreign currency exchange rates.
"Indebtedness" means, with respect to any Person, 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 or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable
incurred in the ordinary course of business, 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, as well as all Indebtedness of others secured by a Lien
on any asset of such Person (whether or not such Indebtedness is assumed by
such Person) and, to the extent not otherwise included, the guarantee by such
Person of any Indebtedness of any other Person.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Initial Notes" has the meaning stated in the first recital of this
Indenture.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Notes.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding advances to officers and employees
of the type specified in clause (b) of the definition of Exempt Affiliate
Transactions), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities and all other items that are
or would be classified as investments on a balance sheet prepared in accordance
with GAAP, provided
<PAGE> 23
12
that an acquisition of assets, Equity Interests or other securities by the
Company or any of its Restricted Subsidiaries for consideration consisting
solely of Equity Interests (other than Disqualified Stock) of the Company or
Extendicare shall not be deemed to be an Investment, and provided further that
Investments shall not be deemed to include extensions of trade credit by the
Company or any of its Restricted Subsidiaries on commercially reasonable terms
in accordance with normal trade practices.
"Lender" shall mean a lender under the New Credit Agreement.
"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, any lease
in the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Maturity", when used with respect to any Note, means the date on which
the principal of such Note or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions)
or (b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries and (ii) any extraordinary or
nonrecurring gain (but not loss), together with any related provision for taxes
on such extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, 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, without limitation, legal, accounting
and investment banking fees, and sales commissions), taxes paid or payable as a
result thereof, and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
<PAGE> 24
13
"New Credit Agreement" means that certain credit agreement, dated as of
the date of this Indenture, by and among the Company and NationsBank, N.A., as
agent, and the lenders parties thereto, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, increased,
renewed, refunded, replaced, restated or refinanced from time to time.
"Non-payment Event Default" means any event (other than a Payment Event
of Default) the occurrence of which entitles one or more Persons to accelerate
the maturity of any Designated Senior Indebtedness.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise), or (c) constitutes the lender; (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Restricted Subsidiary) would permit
(upon notice, lapse of time or both) any holder of any other Indebtedness of
the Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (iii) as to which the lenders have been
notified in writing that they will not have any recourse to the stock or assets
of the Company or any of its Restricted Subsidiaries.
"Non-U.S. Person" means a Person that is not a "U.S. Person" as defined
in Regulation S.
"Note Guarantee" means with respect to each Guarantor, the unconditional
guarantee by such Guarantor, pursuant to Article Thirteen.
"Notes" has the meaning stated in the first recital of this Indenture
and more particularly means any Notes authenticated and delivered under this
Indenture. For all purposes of this Indenture, the term "Notes" shall include
any Exchange Notes to be issued and exchanged for any Notes pursuant to the
Registration Rights Agreement and this Indenture and, for purposes of this
Indenture, all Initial Notes and Exchange Notes shall vote together as one
series of Notes under this Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed by the Chairman, the
Chief Executive Officer, President or any Vice President, and by the Chief
Financial Officer,
<PAGE> 25
14
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of
the Company, or any Guarantor, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, including an employee of the Company, and who shall be
acceptable to the Trustee.
"Outstanding", when used with respect to Notes, means, as of the date of
determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(a) Notes theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation; and
(b) Notes, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set
aside and segregated in trust by the Company (if the Company shall act as
its own Paying Agent) for the Holders of such Notes; provided that, if
such Notes are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to
the Trustee has been made; and
(c) Notes, except to the extent provided in Sections 1202 and 1203,
with respect to which the Company has effected defeasance and/or covenant
defeasance as provided in Article Twelve; and
(d) Notes which have been paid pursuant to Section 308 or in
exchange for or in lieu of which other Notes have been authenticated and
delivered pursuant to this Indenture, other than any such Notes in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Notes are held by a bona fide purchaser in
whose hands the Notes are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in making
such calculation or in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which the Trustee knows to be
so owned shall be so disregarded. Notes so owned which have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so
<PAGE> 26
15
to act with respect to such Notes and that the pledgee is not the Company or
any other obligor upon the Notes or any Affiliate of the Company or such other
obligor.
"Paying Agent" means The Bank of Nova Scotia Trust Company of New York
and any successor (including the Company acting as Paying Agent) authorized by
the Company to pay the principal of (and premium, if any) or interest on any
Notes on behalf of the Company.
"Payment Default" has the meaning specified in Section 501.
"Payment Event of Default" has the meaning specified in Section 1403.
"Permitted Holders" means, as of the date of determination, Kingfield
Investments Limited and Scotia Investments Limited and their respective
Affiliates (in each case, so long as controlled by (i) in the case of Kingfield
Investments Limited, H. Michael Burns or his Permitted Transferees and (ii) in
the case of Scotia Investments Limited, members of the family of the late R. A.
Jodrey or his Permitted Transferees).
"Permitted Investments" means (a) any Investments in the Company; (b)
any Investments in Cash Equivalents; (c) 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 1016; (d) Investments outstanding as of the date
of this Indenture ; (e) Investments in Wholly Owned Restricted Subsidiaries of
the Company and any entity that (i) is engaged in the same or a similar line of
business as the Company or any of its Restricted Subsidiaries was engaged in on
the date of this Indenture or any Related Businesses and (ii) as a result of
such Investment, becomes a Wholly Owned Restricted Subsidiary of the Company or
such entity is merged or consolidated with or into, or transfer or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Restricted Subsidiary of the Company (or, if the Investment in the
entity is by means of a tender offer for Capital Stock of such entity, Capital
Stock is acquired in an amount sufficient under the laws of the jurisdiction of
incorporation of such entity to cause the subsequent merger of such entity with
the Company or a Wholly Owned Restricted Subsidiary, provided that such merger
is completed within 90 days of the completion of the tender offer); (f) Hedging
Obligations to the extent permitted under clause (vi) of Section 1010(b) ; (g)
other Investments in any Person having an aggregate fair market value (measured
on the date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (g) that are at the time outstanding, not to
exceed $7.0 million; (h) loans and advances to employees made in the ordinary
course of business; (i) Investments in prepaid expenses, negotiable instruments
held for collection, and lease, utility and worker's compensation, performance
and other similar deposits; and (j) Investments made in exchange for accounts
receivable arising in the ordinary course of
<PAGE> 27
16
business which have not been collected for 270 days and which are, in the good
faith of the Company and its Restricted Subsidiaries, substantially
uncollectible.
"Permitted Transferees" means, with respect to any Person: (i) the
referent Person's parents, spouse, siblings, children (natural or adopted),
grandchildren or other issue; (ii) trusts the primary beneficiaries of which
are any of the foregoing persons or any charitable organization designated by
any of them, which trusts are controlled, directly or indirectly, by the
referent Person and any of the persons under clauses (i) or (iv); (iii)
corporations, partnerships, limited liability companies and other persons if at
least 80% of the economic interest in any such person is owned by the referent
Person and any of the persons under clause (i) or any charitable organization
designated by any of them; and (iv) in the case of any person in clause (i),
the heirs, executors, administrators or personal representatives upon the death
of such person or upon the incompetency or disability of such person for the
purposes of the protection and management of such individual's assets.
"Permitted Refinancing Indebtedness" means any Indebtedness 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 Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount of such Permitted Refinancing
Indebtedness does not exceed the principal amount of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded plus the lesser
of the amount of any premium required to be paid in connection with such
refinancings pursuant to the terms of such indebtedness or the amount of any
premium reasonably determined by the Company as necessary to accomplish such
refinancing (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Notes, such Permitted Refinancing Indebtedness 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 Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary of the
Company that is the obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint stock company, trust
unincorporated organization or government or any agency or political
subdivision thereof.
<PAGE> 28
17
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 308 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Note shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Note.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, partnership interests, participations, rights in or other
equivalents (however designated) of such person's preferred or preference
stock, whether now outstanding or issued after the Closing Date, and including,
without limitation, all classes and series of preferred or preference stock of
such person.
"Purchase Money Obligations" of any Person means any obligations of such
Person to any seller or any other Person incurred or assumed to finance the
construction and/or acquisition of real or personal property to be used in the
business of such Person or any of its Subsidiaries in an amount that is not
more than 100% of the cost of such property, and incurred within 90 days after
the date of such construction or acquisition (excluding accounts payable to
trade creditors incurred in the ordinary course of business); provided,
however, that any Lien on such Indebtedness shall not extend to any property
other than the property so acquired or constructed.
"QIB" means a "Qualified Institutional Buyer" under Rule 144A.
"Qualified Stock" of any person means any and all Capital Stock of such
person, other than Disqualified Stock.
"Redemption Date", when used with respect to any Note to be redeemed, in
whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
"Redemption Price", when used with respect to any Note to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Register" and "Note Registrar" have the respective meanings specified
in Section 305.
"Registrar" means The Bank of Nova Scotia Trust Company of New York and
any successor authorized by the Company to act as Registrar.
"Registration Rights Agreement" means the Registration Rights Agreement
between the Company, the Guarantors and the Initial Purchasers named therein,
dated as of December 2, 1997 relating to the Notes.
<PAGE> 29
18
"Registration Statement" means the Registration Statement as defined in
the Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the May 31 or November 30 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Related Businesses" means the business conducted by the Company and its
Restricted Subsidiaries as of the date of this Indenture and any and all
healthcare service businesses that in the good faith judgment of the Board of
Directors of the Company are materially related businesses, which shall include
the operation of Nursing Facilities, long-term and specialty healthcare
services, skilled nursing care, subacute care, rehabilitation programs,
therapies, pharmaceutical services, participation in provider service
organizations, health care information services business, distribution of
medical supplies, geriatric care and home healthcare or other businesses which
provide ancillary services to residents in long-term and specialty healthcare
facilities.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary of the referent Person.
"Rule 144A" means Rule 144A under the Securities Act.
"Sale and Leaseback Transaction" means any transaction or series of
related transactions pursuant to which a person sells or transfers any property
or asset in connection with the leasing, or the resale against installment
payments, of such property or asset to the seller or transferor.
"Securities Act" means the Securities Act of 1933, as amended from time
to time, and the rules and regulations thereunder.
"Senior Bank Debt" means the Obligations outstanding under the New
Credit Agreement.
"Senior Indebtedness" means (i) the Senior Bank Debt and (ii) any other
Indebtedness permitted to be incurred by the Company or any Guarantor under the
terms of this Indenture, unless the instrument under which such Indebtedness is
incurred expressly provides that it is subordinated in right of payment to any
Indebtedness for money borrowed.
<PAGE> 30
19
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
will not include (w) any liability for federal, state, local or other taxes
owed or owing, (x) any Indebtedness of the Company to any of its Restricted
Subsidiaries or other Affiliates, (y) any trade payables or (z) any
Indebtedness to the extent that it is incurred in violation of this Indenture .
"Senior Revolving Debt" means revolving credit borrowings and letters of
credit under the New Credit Agreement and/or any successor facility or
facilities.
"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Registration Rights Agreement.
"S&P" means Standard & Poor's Ratings Services, a division of The McGraw
Hill, Companies, and its successors
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 309.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness or any installment of interest
thereon is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Guarantor that is subordinated in right of payment to the Notes or the Note
Guarantee issued by such Guarantor, as the case may be.
"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).
"Subsidiary Guarantor" shall have the same meaning as Guarantor.
<PAGE> 31
20
"Tranche C Loan" means a loan made under the $200,000,000 Tranche C Loan
Facility under the New Credit Agreement.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as
in force at the date as of which this Indenture was executed, except as
provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this Indenture until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall
mean such successor Trustee.
"Unrestricted Subsidiary" means (i) any Person that (a) at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of
Directors of the Company in the manner provided below and (b) would, but for
such designation, be a Restricted Subsidiary of the Company and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the
Company may designate any Restricted Subsidiary of the Company to be an
Unrestricted Subsidiary unless at the time of designation, such Subsidiary or
any Subsidiary of such Subsidiary owns any Capital Stock or Indebtedness of, or
owns or holds any Lien on any property of, the Company or any Restricted
Subsidiary of the Company; provided, however, that the amount of the Investment
by the Company or any of its Restricted Subsidiaries in such Unrestricted
Subsidiary would be permitted under Section 1011 as a "Restricted Payment"
after giving effect to the designation; and provided further that any
Indebtedness incurred by any Unrestricted Subsidiary shall be Non-Recourse
Debt. The Board of Directors of the Company may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving pro forma effect to such designation (1) the Company could incur
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test in Section 1010 and (2) no Default or Event of Default shall have occurred
and be continuing. Any such designation by the Board of Directors of the
Company shall be evidenced to the Trustee by promptly filing with the Trustee a
copy of the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complies with the foregoing
provisions.
"U.S. Government Obligations" means (i) securities that are (a) direct
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (b) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or redeemable at the
option of the issuer thereof; and (ii) depositary receipts issued by a bank (as
defined in Section 3(a)(2) of the Securities Act) as custodian with respect to
any U.S. Government Obligation which is specified in clause (i) above and held
by such bank for the account of the holder of such depositary receipt, or with
respect to any specific payment of principal or interest on any U.S. Government
Obligation which is so specified and held, provided that
<PAGE> 32
21
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depositary receipt from
any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of principal or interest of the U.S.
Government Obligation evidenced by such depositary receipt.
"Voting Stock" means all classes of Capital Stock of such corporation
then outstanding and normally entitled to vote in the election of directors.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the product obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payments 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 Indebtedness.
"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 102. Incorporation by Reference of Trust Indenture Act.
(a) This Indenture is expressly made subject to the Trust Indenture Act as
if this Indenture were, on the date hereof, subject to the Trust Indenture Act
under the provisions of such statute and such provisions are incorporated by
reference in this Indenture.
(b) Whenever this Indenture refers to a provision of the Trust Indenture
Act, the provision is incorporated by reference in and made a part of this
Indenture. The following Trust Indenture Act terms used in this Indenture have
the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means the Company or any other
obligor on the Notes.
<PAGE> 33
22
All other Trust Indenture Act terms used in this Indenture that are
defined by the Trust Indenture Act, defined by reference in the Trust Indenture
Act to another statute or defined by a rule of the Commission and not otherwise
defined herein shall have the meanings assigned to them therein.
SECTION 103. Compliance Certificates and Opinions.
Upon any application or request by the Company and the Guarantors to the
Trustee to take any action under any provision of this Indenture, the Company
and the Guarantors shall furnish to the Trustee an Officers' Certificate
stating that all conditions precedent, if any, provided for in this Indenture
(including any covenant compliance which constitutes a condition precedent)
relating to the proposed action have been complied with and an Opinion of
Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with, except that in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than pursuant to Section
1008(a)) shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) 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;
(c) a statement that, in the opinion of each 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
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 104. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with
<PAGE> 34
23
respect to some matters and one or more other such Persons as to other matters,
and any such Person may certify or give an opinion as to such matters in one or
several documents.
Any certificate or opinion of an officer of the Company and/or the
Guarantors may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Company or such Guarantor, as the case may be, stating that the information
with respect to such factual matters is in the possession of the Company or
such Guarantor, as the case may be, unless such counsel knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 105. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Holders in Person or by agents duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or
of a writing appointing any such agent shall be sufficient for any purpose of
this Indenture and conclusive in favor of the Trustee, the Company and the
Guarantors, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of the signer's authority. The fact and date of the execution of any such
instrument or writing, or the authority of the Person executing the same, may
also be proved in any other manner that the Trustee deems sufficient.
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24
(c) The principal amount and serial numbers of Notes held by any Person,
and the date of holding the same, shall be proved by the Register.
(d) If the Company or any Guarantor shall solicit from the Holders of
Notes any request, demand, authorization, direction, notice, consent, waiver or
other Act, the Company or any such Guarantor (as the case may be), may, at its
option, by or pursuant to a Board Resolution, fix in advance a record date for
the determination of Holders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other Act, but the Company
or any such Guarantor (as the case may be) shall have no obligation to do so.
Notwithstanding TIA Section 316(c), such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
earlier than the date 30 days prior to the first solicitation of Holders
generally in connection therewith and not later than the date such solicitation
is completed. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given
before or after such record date, but only the Holders of record at the close
of business on such record date shall be deemed to be Holders for the purposes
of determining whether Holders of the requisite proportion of Outstanding Notes
have authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other Act, and for that purpose the
Outstanding Notes shall be computed as of such record date; provided that no
such authorization, agreement or consent by the Holders on such record date
shall be deemed effective unless it shall become effective pursuant to the
provisions of this Indenture not later than eleven months after the record
date.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Note shall bind every future Holder of the
same Note and the Holder of every Note issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done,
omitted or suffered to be done by the Trustee or the Company and/or the
Guarantors in reliance thereon, whether or not notation of such action is made
upon such Note.
SECTION 106. Notices, etc., to Trustee, Company and Subsidiary Guarantors.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(a) the Trustee by any Holder, the Company or any Guarantor shall be
sufficient for every purpose hereunder if made, given, furnished or filed
in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporate Trust Department, or
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25
(b) the Company by the Trustee, any Holder or any Guarantor shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to the
Company addressed to it at 105 West Michigan Street, 9th Floor,
Milwaukee, Wisconsin 53203, Attention: Robert J. Abramowski, Vice
President, Finance and Chief Financial Officer or at any other address
previously furnished in writing to the Trustee or such Guarantor (as the
case may be) by the Company, or
(c) any Guarantor by any Holder, the Trustee or the Company shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to
Guarantor addressed to it at 105 West Michigan Street, 9th Floor,
Milwaukee, Wisconsin 53203, Attention: Robert J. Abramowski, or at any
other address previously furnished in writing to the Trustee or the
Company (as the case may be) by such Guarantor.
SECTION 107. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to Holders by the
Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Register, not later than the latest date, and not earlier than
the earliest date, prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail such notice,
nor any defect in any notice so mailed, to any particular Holder shall affect
the sufficiency of such notice with respect to other Holders. Any notice
mailed to a Holder in the manner herein prescribed shall be conclusively deemed
to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular mail
service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice for every purpose hereunder.
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SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company and the
Guarantors shall bind their respective successors and assigns, whether so
expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Notes 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 111. Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied, shall give
to any Person, other than the parties hereto, any Paying Agent, any Note
Registrar and their successors hereunder, the Holders any benefit or any legal
or equitable right, remedy or claim under this Indenture.
SECTION 112. Governing Law.
This Indenture and the Notes shall be governed by, and construed in
accordance with, the law of the State of New York. Upon the issuance of the
Exchange Notes, if any, or the effectiveness of the Shelf Registration
Statement, this Indenture shall be subject to the provisions of the Trust
Indenture Act of 1939, as amended, that are required to be part of this
Indenture and shall, to the extent applicable, be governed by such provisions.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, date
established for payment of Defaulted Interest pursuant to Section 309, Stated
Maturity or Maturity with respect to any Note shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Notes) payment
of principal (or premium, if any) or interest need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the Interest Payment Date, Redemption Date, date
established for payment of Defaulted Interest pursuant to Section 309, Stated
Maturity or Maturity; provided that no interest shall accrue for the period
from and after such Interest Payment Date, Redemption Date, date established
for payment of Defaulted
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27
Interest pursuant to Section 309, Stated Maturity or Maturity, Change in
Control Purchase Date or Asset Sale Purchase Date, as the case may be, to the
next succeeding Business Day.
SECTION 114. Conflict of Any Provision of Indenture with Trust Indenture
Act.
If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with the duties imposed by Trust Indenture Act Sections
310 to 318, inclusive, or conflicts with any provision (an "incorporated
provision") required by or deemed to be included in this Indenture by operation
of such Trust Indenture Act Sections, such imposed duties or incorporated
provision shall control. If any provision of this Indenture modifies or
excludes any provision of the Trust Indenture Act that may be so modified or
excluded, the latter provision shall be deemed to apply to this Indenture as so
modified or excluded, as the case may be.
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally.
The Initial Notes shall be known as the "9.35% Senior Subordinated Notes
due 2007" and the Exchange Notes shall be known as the "9.35% Series B Senior
Subordinated Notes due 2007", in each case, of the Company. The Notes and the
Trustee's certificate of authentication shall be in substantially the form
annexed hereto as Exhibit A. The Notes may have such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture and may have letters, notations or other marks of identification
and such notations, legends or endorsements required by law, stock exchange
agreements to which the Company is subject or usage. Any portion of the text
of any Note may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Note. The Company shall approve the form
of the Notes and any notation, legend or endorsement on the Notes. Each Note
shall be dated the date of its authentication.
The definitive Notes shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as
determined by the officers of the Company executing such Notes, as evidenced by
their execution of such Notes.
The terms and provisions contained in the form of the Notes 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.
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28
Initial Notes offered and sold in reliance on Rule 144A shall be issued
initially in the form of a permanent global Note substantially in the form set
forth in Exhibit A (the "U.S. Global Note") deposited with, or on behalf of,
the Depositary or 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 of the U.S. Global Note 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, as hereinafter
provided.
Initial Notes offered and sold to "accredited investors" (as defined in
Rule 501(a)(1), (2), (3) and (7) under the Securities Act) who are not
qualified Institutional Buyers shall initially be issued in the form of
permanent certificated Notes ("Certificated Notes") in registered form in
substantially the form of Exhibit A hereto.
Initial Notes offered and sold in reliance on Regulation S shall be issued
initially in the form of temporary global Notes in registered form
substantially in the form set forth in Exhibit A (the "Temporary Offshore
Global Notes"). The Temporary Offshore Global Notes will be registered in the
name of, and held by, a temporary certificate holder designated by NationsBanc
Montgomery Securities, Inc. until the termination of the "restricted period"
(as defined in Regulation S) with respect to the offer and sale of the Initial
Notes as notified to the Trustee by the Company (the "Offshore Notes Exchange
Date"). At any time following the Offshore Notes Exchange Date, upon receipt
by the Trustee and the Company of a certificate substantially in the form of
Exhibit D hereto, the Company shall execute, and the Trustee shall authenticate
and deliver, one or more permanent certificated Notes in registered form
substantially in the form set forth in Exhibit A (the "Permanent Offshore
Physical Notes"), in exchange for the surrender of Temporary Offshore Global
Notes of like tenor and amount.
The Temporary Offshore Global Notes and the Permanent Offshore Physical
Notes are sometimes collectively referred to as the "Physical Notes."
SECTION 202. Restrictive Legends.
Unless and until (i) an Initial Note is sold under an effective
Registration Statement or (ii) an Initial Note is exchanged for an Exchange
Note in connection with an effective Registration Statement, in each case
pursuant to the Registration Rights Agreement, each certificate representing a
Note shall contain a legend substantially to the following effect (the "Private
Placement Legend") on the face thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED,
<PAGE> 40
29
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE
HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS TWO YEARS
AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON
WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS
SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION
TERMINATION DATE") ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
(C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER
IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES
TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3)
OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE
SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR
FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE
COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (i) PURSUANT TO CLAUSE (D) PRIOR TO THE END OF THE 40-DAY
RESTRICTED PERIOD WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES
ACT OR PURSUANT TO CLAUSES (E) OR (F) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY
TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT
A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS
COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. THIS
LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE.
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30
Each U.S.Global Note, whether or not an Initial Note, 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 TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY
OR SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.),
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 SECURITY 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
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF THE INDENTURE.
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms.
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $200,000,000, except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Notes pursuant to Section 304, 305, 306, 307, 308,
906, 1015, 1016 or 1108, pursuant to an Exchange Offer or pursuant to Section
312.
The Initial Notes shall be known and designated as the "9.35% Senior
Subordinated Notes Due 2007" and the Exchange Notes shall be known and
designated as the "9.35% Series B Senior Subordinated Notes Due 2007" of the
Company. Their Stated Maturity shall be December 15, 2007, and they shall bear
interest at the rate of 9.35% per
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31
annum from December 2, 1997, or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, payable semiannually on June
and December in each year, commencing June 15, 1998, until the principal
thereof is paid or duly provided for, to the Person in whose name the Note (or
any predecessor Note) is registered at the close of business on the May 31 or
November 30 next preceding such Interest Payment Date.
The principal of (and premium, if any), and interest on the Notes shall be
payable, and the Notes shall be exchangeable and transferable, at the office or
agency of the Company in The City of New York maintained for such purposes
(which initially shall be the office of the Trustee located at One Liberty
Plaza, 23rd Floor, New York, New York 10006) or, at the option of the Company,
interest may be paid by check mailed to the address of the Person entitled
thereto as such address shall appear on the Register; provided that all
payments with respect to the U.S. Global Note and the Certificated Notes the
Holders of which have given wire transfer instructions to the Company will be
required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof.
Notes that remain outstanding after the consummation of the Exchange Offer
and Exchange Notes issued in connection with the Exchange Offer will be treated
as a single class of securities under this Indenture.
The Notes shall be redeemable as provided in Article Eleven.
SECTION 302. Denominations.
The Notes shall be issuable only in registered form without coupons and
only in denominations of $1,000 and any integral multiple thereof; provided
that Certificated Notes originally purchased by or transferred to institutional
"accredited investors" (as defined in Rule 501(a), (1), (2), (3) or (7) under
the Securities Act) who are not "qualified institutional buyers" (as defined in
Rule 144A) will be subject to a minimum denomination of $250,000.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Notes shall be executed on behalf of the Company by its Chairman, its
President or a Vice President, under its corporate seal reproduced thereon and
attested by its Secretary or an Assistant Secretary. The signature of any of
these officers on the Notes may be manual or facsimile signatures of the
present or any future such authorized officer and may be imprinted or otherwise
reproduced on the Notes.
Notes bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Company shall bind the Company,
notwithstanding that
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32
such individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Notes or did not hold such offices at the
date of such Notes.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Initial Notes executed by the Company to the
Trustee for authentication, together with a Company Order for the
authentication and delivery of such Initial Notes directing the Trustee to
authenticate the Notes and certifying that all conditions precedent to the
issuance of Notes contained herein have been fully complied with, and the
Trustee in accordance with such Company Order shall authenticate and deliver
such Initial Notes. On Company Order, the Trustee shall authenticate for
original issue Exchange Notes in an aggregate principal amount not to exceed
the sum of $200,000,000 plus the aggregate principal amount of any Additional
Notes issued; provided that such Exchange Notes shall be issuable only upon the
valid surrender for cancellation of Initial Notes of a like aggregate principal
amount in accordance with an Exchange Offer pursuant to the Registration Rights
Agreement. In each case, the Trustee shall be entitled to receive an Officers'
Certificate and an Opinion of Counsel of the Company that it may reasonably
request in connection with such authentication of Notes. Such order shall
specify the amount of Notes to be authenticated and the date on which the
original issue of Initial Notes or Exchange Notes is to be authenticated.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be valid
or obligatory for any purpose unless there appears on such Note a certificate
of authentication substantially in the form provided for in Exhibit A duly
executed by the Trustee by manual signature of an authorized officer, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder and is
entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be consolidated or
merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Notes authenticated or
delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to time, at the request of the successor
Person, be exchanged for other Notes executed in the name of the successor
Person with such changes in phraseology and form as may be appropriate, but
otherwise in substance of like tenor as the Notes surrendered for such exchange
and of like principal amount; and the Trustee, upon Company Request of the
successor Person, shall authenticate and deliver Notes as specified in such
request for the
<PAGE> 44
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purpose of such exchange. If Notes shall at any time be authenticated and
delivered in any new name of a successor Person pursuant to this Section in
exchange or substitution for or upon registration of transfer of any Notes,
such successor Person, at the option of the Holders but without expense to
them, shall provide for the exchange of all Notes at the time Outstanding for
Notes authenticated and delivered in such new name.
SECTION 304. Temporary Notes.
Pending the preparation of definitive Notes, the Company may execute, and
upon Company Order the Trustee shall authenticate and deliver, temporary Notes
which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Notes in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Notes may determine, as conclusively evidenced by their
execution of such Notes.
If temporary Notes are issued, the Company will cause definitive Notes to
be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 1002, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Notes,
the Company shall execute and the Trustee shall authenticate and deliver in
exchange therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects
be entitled to the same benefits under this Indenture as definitive Notes.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Register") in which, subject to such reasonable regulations
as it may prescribe, the Company shall provide for the registration of Notes
and of transfers of Notes. The Register shall be in written form or any other
form capable of being converted into written form within a reasonable time. At
all reasonable times, the Register shall be open to inspection by the Trustee.
The Trustee is hereby initially appointed as security registrar (the "Note
Registrar") for the purpose of registering Notes and transfers of Notes as
herein provided.
Subject to the provisions of Section 307, upon surrender for registration
of transfer of any Note at the office or agency of the Company designated
pursuant to Section 1002, the Company shall execute, and the Trustee shall
authenticate and deliver, in
<PAGE> 45
34
the name of the designated transferee or transferees, one or more new Notes of
any authorized denomination or denominations of a like aggregate principal
amount.
At the option of the Holder, Notes may be exchanged for other Notes of any
authorized denomination and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange (including an exchange of Initial Notes
for Exchange Notes), the Company shall execute, and the Trustee shall
authenticate and deliver, the Notes which the Holder making the exchange is
entitled to receive; provided that no exchange of Initial Notes for Exchange
Notes shall occur until an Exchange Offer Registration Statement shall have
been declared effective by the Commission and that the Initial Notes to be
exchanged for the Exchange Notes shall be cancelled by the Trustee.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Company, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Note Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Note Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment in certain
circumstances of a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any registration of transfer or exchange
of Notes, other than exchanges pursuant to Section 304, 906, 1015, 1016 or 1108
not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of
or exchange any Note during a period beginning at the opening of business 15
days before the selection of Notes to be redeemed under Section 1104 and ending
at the close of business on the day of such mailing of the relevant notice of
redemption, or (ii) to register the transfer of or exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part.
SECTION 306. Book-Entry Provisions for U.S. Global Note.
(a) The U.S. Global Note initially shall (i) be registered in the name of
Cede & Co., as nominee of the Depositary (such nominee being referred to herein
as the "U.S. Global Note Holder"), (2) be deposited with, or on behalf of, the
Depositary or with
<PAGE> 46
35
the Trustee, as custodian for such Depositary, and (iii) bear legends as set
forth in Section 202.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any U.S. Global Note held
on their behalf by the Depositary, or the Trustee as its custodian, or under
the U.S. Global Note, 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 U.S. Global Note 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 shall 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 Note.
(b) Transfers of the U.S. Global Note shall be limited to transfers of
such U.S. Global Note in whole, but not in part, to the Depositary, its
successors or their respective nominees. Interests of beneficial owners in the
U.S. Global Note may be transferred in accordance with the rules and procedures
of the Depositary and the provisions of Section 307. In addition, if (i) the
Company notifies the Trustee in writing that the Depositary is no longer
willing or able to act as a depositary and the Company is unable to locate a
qualified successor within 90 days or (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Certificated
Notes in exchange for beneficial interests in the U.S. Global Note, then, upon
surrender by the U.S. Global Note Holder of its U.S. Global Note, Certificated
Notes will be issued to each person that the U.S. Global Note Holder and the
Depositary identify as being the beneficial owner of the related Notes.
(c) In connection with any exchange of a portion of the beneficial
interest in the U.S. Global Note for Certificated Notes to beneficial owners
pursuant to subsection (b) of this Section, the Note Registrar shall reflect on
its books and records the date and a decrease in the principal amount of the
U.S. Global Note in an amount equal to the principal amount of the beneficial
interest in the U.S. Global Note to be exchanged, and the Company shall
execute, and the Trustee shall authenticate and deliver, one or more
Certificated Notes of like tenor and amount.
(d) Any Certificated Note delivered in exchange for an interest in the
U.S. Global Note pursuant to subsection (c) or subsection (d) of this Section
shall, except as otherwise provided by paragraph (a)(i)(x) and paragraph (f) of
Section 307, bear the applicable legend regarding transfer restrictions
applicable to the Certificated Note set forth in Section 202.
<PAGE> 47
36
(e) The Holder of the U.S. Global Note 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 Notes.
SECTION 307. Special Transfer Provisions.
Unless and until (i) an Initial Note is sold under an effective
Registration Statement, or (ii) an Initial Note is exchanged for an Exchange
Note in connection with an effective Registration Statement, in each case
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 an Initial Note to any institutional "accredited investor"
(as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the
Securities Act) which is not a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Initial Note,
whether or not such Initial Note bears the Private Placement Legend, if
(x) the requested transfer is at least two years after the original issue
date of the Initial Notes or (y) the proposed transferee has delivered to
the Registrar a certificate substantially in the form of Exhibit C
hereto.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Note, upon receipt by the
Registrar of (x) the documents, if any, required by paragraph (i) and (y)
instructions given in accordance with the Depositary's and the
Registrar's procedures therefor, the Registrar shall reflect on its books
and records the date and a decrease in the principal amount of the U.S.
Global Note in an amount equal to the principal amount of the beneficial
interest in the U.S. Global Note to be transferred, and the Company shall
execute, and the Trustee shall authenticate and deliver, one or more
Certificated Notes of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with respect
to the registration of any proposed transfer of an Initial Note to a QIB
(excluding Non-U.S. Persons):
(i) If the Note to be transferred consists of Certificated Notes,
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 Initial Note 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 Initial Note stating, or has
<PAGE> 48
37
otherwise advised the Company and the Registrar in writing, that it is
purchasing the Initial Note for its own account or an account with
respect to which it exercises sole investment discretion and that it, or
the Person on whose behalf it is acting with respect to 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, and the Initial
Note to be transferred consists of Certificated Notes, upon receipt by
the Registrar of instructions given in accordance with the Depositary's
and the Registrar's procedures therefor, the Registrar shall reflect on
its books and records the date and an increase in the principal amount of
the U.S. Global Note in an amount equal to the principal amount of the
Certificated Notes, as the case may be, to be transferred, and the
Trustee shall cancel the Certificated Note so transferred.
(c) Transfers by Non-U.S. Persons on or Prior to January 12, 1998. The
following provisions shall apply with respect to registration of any proposed
transfer of an Initial Note by a Non-U.S. Person on or prior to January 12,
1998:
(i) The Registrar shall register the transfer of any Initial Note
(x) if the proposed transferee is a Non-U.S. Person (as certified in the
Exhibit D hereto delivered by the transferor) and the proposed transferor
has delivered to the Registrar a certificate substantially in the form of
Exhibit 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
Initial Note 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 Initial Note stating, or has otherwise
advised the Company and the Registrar in writing, that it is purchasing
the Initial Note for its own account or an account with respect to which
it exercises sole investment discretion and that it, or the Person on
whose behalf it is acting with respect to 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. Unless clause (ii) below is applicable, the
Company shall execute, and the Trustee shall authenticate and deliver,
one or more Temporary Offshore Physical Securities of like tenor and
amount.
<PAGE> 49
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(ii) 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 therefor, the Registrar shall reflect on
its books and records the date and an increase in the principal amount of
the U.S. Global Note in an amount equal to the principal amount of the
Temporary Offshore Global Note to be transferred, and the Trustee shall
reduce the amount of the Temporary Offshore Global Note by the amount so
transferred.
(d) Transfers by Non-U.S. Persons on or After January 12, 1998. The
following provisions shall apply with respect to any transfer of an Initial
Note by a Non-U.S. Person on or after January 12, 1998:
(i) (x) If the Initial Note to be transferred is a Permanent
Offshore Physical Note, the Registrar shall register such transfer, (y)
if the Initial Note to be transferred is a Temporary Offshore Global
Note, upon receipt of a certificate substantially in the form of Exhibit
D from the proposed transferor, the Registrar shall register such
transfer and (z) in the case of either clause (x) or (y), unless clause
(ii) below is applicable, the Company shall execute, and the Trustee
shall authenticate and deliver, one or more Permanent Offshore Physical
Notes of like tenor and amount.
(ii) 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 therefor, the Registrar shall reflect on
its books and records the date and an increase in the principal amount of
the U.S. Global Note in an amount equal to the principal amount of the
Temporary Offshore Global Note or Permanent Offshore Physical Note to be
transferred, and the Trustee shall cancel the Permanent Offshore Physical
Note so transferred.
(e) Transfers to Non-U.S. Persons at Any Time. The following provisions
shall apply with respect to any transfer of an Initial Note to a Non-U.S.
Person:
(i) Prior to January 12, 1998, the Registrar shall register any
proposed transfer of an Initial Note to a Non-U.S. Person (as certified
in the Exhibit D hereto delivered by the transferor) upon receipt of a
certificate substantially in the form of Exhibit D hereto from the
proposed transferor and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Temporary Offshore Global Notes of
like tenor and amount.
(ii) On and after January 12, 1998, the Registrar shall register any
proposed transfer to any Non-U.S. Person (as certified in the Exhibit D
hereto delivered by the transferor) (w) if the Initial Note to be
transferred is a Permanent
<PAGE> 50
39
Offshore Physical Note, (x) if the Initial Note to be transferred is an
interest in the Temporary Offshore Global Note, upon receipt of a
certificate substantially in the form of Exhibit D from the proposed
transferor, (y) if the Initial Note to be transferred is a U.S. Physical
Note or an interest in the U.S. Global Note, upon receipt of a
certificate substantially in the form of Exhibit D from the proposed
transferor and (z) in the case of either clause (w), (x) or (y), the
Company shall execute, and the Trustee shall authenticate and deliver,
one or more Permanent Offshore Physical Notes of like tenor and amount.
(iii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Note, upon receipt by the
Registrar of (x) the document, if any, required by paragraph (i), and (y)
instructions in accordance with the Depositary's and the Registrar's
procedures therefor, the Registrar shall reflect on its books and records
the date and a decrease in the principal amount of the U.S. Global Note
in an amount equal to the principal amount of the beneficial interest in
the U.S. Global Note to be transferred and the Company shall execute, and
the Trustee shall authenticate and deliver, one or more Permanent
Offshore Physical Notes of like tenor and amount.
(f) Private Placement Legend. Upon the transfer, exchange or replacement
of Notes not bearing the Private Placement Legend, the Registrar shall deliver
Notes that do not bear the Private Placement Legend. Upon the transfer,
exchange or replacement of Notes bearing the Private Placement Legend, the
Registrar shall deliver only Notes that bear the Private Placement Legend
unless either (i) the circumstances contemplated by the sixth paragraph of
Section 201 or paragraph (a)(i)(x) of this Section 307 exist or (ii) there is
delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the
Company 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 Note bearing the Private Placement
Legend, each Holder of such a Note acknowledges the restrictions on transfer of
such Note set forth in this Indenture and in the Private Placement Legend and
agrees that it will transfer such Note only as provided in this Indenture.
The Registrar shall retain until such time as no Notes remain Outstanding
copies of all letters, notices and other written communications received
pursuant to Section 306 or this Section 307. 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 308. Mutilated, Destroyed, Lost and Stolen Notes.
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If (i) any mutilated Note is surrendered to the Trustee or the Registrar,
or (ii) the Company and the Trustee receive evidence to their satisfaction of
the destruction, loss or theft of any Note, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them
to save each of them harmless, then, in the absence of notice to the Company or
the Trustee that such Note has been acquired by a bona fide purchaser, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Note or in lieu of any such
destroyed, lost or stolen Note, a new Note of like tenor and principal amount,
bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become or
is about to become due and payable, the Company in its discretion may, instead
of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any mutilated,
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the mutilated, destroyed,
lost or stolen Note shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
SECTION 309. Payment of Interest; Interest Rights Preserved.
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name such Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest at the office or agency
of the Company in The City of New York maintained for such purposes (which
initially shall be the office of the Trustee located at One Liberty Plaza, 23rd
Floor, New York, New York 10006) pursuant to Section 1002 or, at the option of
the Company, interest may be paid by check mailed to the address of the Person
entitled thereto pursuant to 310 as such address appears in the Register;
provided that all payments with respect to the U.S. Global Note and
Certificated Notes the Holders of which have given wire transfer instructions
to the Trustee (or other Paying Agent) by the Regular
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41
Record Date shall be required to be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof.
Any interest on any Note which is payable, but is not punctually paid or
duly provided for, on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the Regular Record Date by virtue of having been such
Holder, and such defaulted interest and (to the extent lawful) interest on such
defaulted interest at the rate borne by the Notes (such defaulted interest and
interest thereon herein collectively called "Defaulted Interest") may be paid
by the Company, at its election in each case, as provided in clause (a) or (b)
below:
(a) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Notes (or their respective Predecessor
Notes) are registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Note and the
date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted Interest
as in this clause provided. Thereupon the Trustee shall fix a Special
Record Date for the payment of such Defaulted Interest which shall be not
more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special Record Date, and in the name
and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor
to be given in the manner provided for in Section 107, not less than 10
days prior to such Special Record Date. Notice of the proposed payment
of such Defaulted Interest and the Special Record Date therefor having
been so given, such Defaulted Interest shall be paid to the Persons in
whose names the Notes (or their respective Predecessor Notes) are
registered at the close of business on such Special Record Date and shall
no longer be payable pursuant to the following clause (b).
(b) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such
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 clause,
such manner of payment shall be deemed practicable by the Trustee.
<PAGE> 53
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Subject to the foregoing provisions of this Section, each Note delivered
under this Indenture upon registration of transfer of or in exchange for or in
lieu of any other Note shall carry the rights to interest accrued and unpaid,
and to accrue, which were carried by such other Note.
If the Company shall be required to pay any additional interest pursuant
to the terms of the Registration Rights Agreement, it shall deliver an
Officer's Certificate to the Trustee setting forth the new interest rate and
the period for which such rate is applicable.
SECTION 310. Persons Deemed Owners.
Prior to the due presentment of a Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Note is registered as the owner of such Note for the
purpose of receiving payment of principal of (and premium, if any) and (subject
to Sections 305 and 309) interest on such Note and for all other purposes
whatsoever, whether or not such Note be overdue, and none of the Company, the
Trustee or any agent of the Company or the Trustee shall be affected by notice
to the contrary.
SECTION 311. Cancellation.
All Notes surrendered for payment, redemption, registration of transfer or
exchange shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Company may have acquired in
any manner whatsoever, and may deliver to the Trustee (or to any other Person
for delivery to the Trustee) for cancellation any Notes previously
authenticated hereunder which the Company has not issued and sold, and all
Notes so delivered shall be promptly cancelled by the Trustee. If the Company
shall so acquire any of the Notes, however, such acquisition shall not operate
as a redemption or satisfaction of the indebtedness represented by such Notes
unless and until the same are surrendered to the Trustee for cancellation. No
Notes shall be authenticated in lieu of or in exchange for any Notes cancelled
as provided in this Section, except as expressly permitted by this Indenture.
All cancelled Notes held by the Trustee shall be disposed of by the Trustee in
accordance with its customary procedures and certification of their disposal
delivered to the Company unless by Company Order the Company shall direct that
cancelled Notes be returned to it.
SECTION 312. Issuance of Additional Notes.
The Company may, subject to Article Ten of this Indenture, issue up to
$100,000,000 aggregate principal amount of additional Notes having identical
terms and conditions as the Notes offered hereby, except that interest may
begin accruing from a date
<PAGE> 54
43
other than the date hereof (the "Additional Notes"). Any Additional Notes
will be part of the same issue as the Notes offered hereby and will vote on all
matters with the Notes offered hereby.
SECTION 313. Computation of Interest.
Interest on the Notes shall be computed on the basis of a 360-day year of
twelve 30-day months.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. 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 Notes, as expressly provided for herein or pursuant hereto) and
the Trustee, at the expense of the Company, will execute proper instruments
acknowledging satisfaction and discharge of this Indenture when:
(a) either (i) all the Notes theretofore authenticated and delivered
(other than mutilated, destroyed, lost or stolen Notes that have been
replaced or paid and Notes that have been subject to defeasance under
Article Twelve) 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 at the expense, of
the Company, and the Company, in the case of (A), (B) or (C) above, 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 Indebtedness 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 the case of Notes
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 the Company; and
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(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided herein relating to the satisfaction and discharge of
this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee under Section 607 and, if
money shall have been deposited with the Trustee pursuant to subclause
(ii) of clause (a) of this Section, the obligations of the Trustee under
Section 402 and the last paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be 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):
(1) default in the payment of any interest on any Note when it
becomes due and payable, and continuance of such default for a period of
30 days;
(2) default in the payment of the principal of (or premium, if any,
on) any Note when due;
(3) failure to perform or comply with Sections 801, 1010, 1011, 1015
and 1016, in each case, within the time periods specified in this
Indenture;
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(4) failure by the Company to consummate the merger of AHC
Acquisition Corp. with and into Arbor not later than the 90th day after
the date of this Indenture;
(5) default in the performance, or breach, of any covenant or
agreement of the Company or any Guarantor contained in this Indenture or
the Notes (other than a default in the performance, or breach, of a
covenant or agreement that is specifically dealt with elsewhere herein),
and continuance of such default or breach for a period of 60 days after
there has been given to the Company by the Trustee or to the Company and
the Trustee by the Holders of at least 25% in aggregate principal amount
of the Notes then outstanding a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder;
(6) (i) an event of default has occurred under any mortgage,
indenture or instrument under which there may be issued or by which there
may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether
such Indebtedness or guarantee now exists, or is created after the date
of this Indenture, which default (i) is caused by a failure to pay
principal of such Indebtedness at final maturity thereof (a "Payment
Default") or (ii) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness as to which there has been a Payment Default or the maturity
of which has been so accelerated, exceeds in the aggregate $20 million;
(7) failure by the Company or any of its Restricted Subsidiaries to
pay one or more final judgments the uninsured portion of which exceeds in
the aggregate $20,000,000, which judgment or judgments are not paid,
discharged or stayed for a period of 60 days;
(8) any Note Guarantee is held in any judicial proceeding to be
unenforceable or invalid or ceases to be in full force and effect (other
than in accordance with the terms of this Indenture) or any such
Guarantor denies that it has any further liability under any Note
Guarantee, or gives notice to such effect (other than by reason of the
termination of this Indenture or the release of any such Note Guarantee
in accordance with this Indenture);
(9) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Restricted Subsidiary a
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustments or composition of or in respect
of the Company or any
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Restricted Subsidiary under the Federal Bankruptcy Code or any other
applicable federal or state law, or appointing a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the
Company or any Restricted Subsidiary or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and in effect for a
period of 90 consecutive days; or
(10) the institution by the Company or any Restricted Subsidiary of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by
it to the institution of bankruptcy or insolvency proceedings against it,
or the filing by it of a petition or answer or consent seeking
reorganization or relief under the Federal Bankruptcy Code or any other
applicable federal or state law, or the consent by it to the filing of
any such petition or to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the
Company or any Restricted Subsidiary or of any substantial part of its
property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than as specified in Section 501(9) or
501(10)) occurs and is continuing, the Trustee or the Holders of not less than
25% in aggregate principal amount of the Notes then outstanding may, and the
Trustee at the request of such Holders will, declare the principal of and
accrued interest on all of the outstanding Notes immediately due and payable
and, upon any such declaration, such principal and such interest will become
due and payable immediately.
If an Event of Default specified in Section 501(9) or 501(10) occurs and
is continuing, then the principal of and accrued interest on all of the
outstanding Notes will ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder
of Notes.
At any time after a declaration of acceleration under this Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the Holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may
rescind such declaration and its consequences if (i) the Company has paid or
deposited with the Trustee a sum sufficient to pay (A) all overdue interest on
all Notes, (B) all unpaid principal of (and premium, if any, on) any
outstanding Notes that has become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Notes, (C) to the
extent that payment of such interest is lawful, interest upon overdue interest
and overdue principal at the rate borne by the Notes and (D) all sums paid or
advanced by the Trustee under this Indenture and the reasonable
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compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel; and (ii) all Events of Default, other than the non-payment of
amounts of principal of (or premium, if any, on) or interest on the Notes that
have become due solely by such declaration of acceleration, have been cured or
waived. No such rescission will affect any subsequent default or impair any
right consequent thereon.
Notwithstanding the preceding paragraph, in the event of a declaration of
acceleration in respect of the Notes because an Event of Default specified in
Section 501(6) shall have occurred and be continuing and provided no judgment
or decree for payment of the money due has been obtained by the Trustee, such
declaration of acceleration shall be automatically annulled if the Indebtedness
that is the subject of such Event of Default has been discharged or the holders
thereof have rescinded their declaration of acceleration in respect of such
Indebtedness, and written notice of such discharge or rescission, as the case
may be, shall have been given to the Trustee by the Company and countersigned
by the holders of such Indebtedness or a trustee, fiduciary or agent for such
holders, within 30 days after such declaration of acceleration in respect of
the Notes, and no other Event of Default has occurred during such 30-day period
which has not been cured or waived during such period.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company and each of the Guarantors covenants that if
(a) default is made in the payment of any installment of interest on
any Note when such interest becomes due and payable and such default
continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or premium,
if any, on) any Note at the Maturity thereof,
the Company and each Guarantor, subject to Section 1305, will, upon demand of
the Trustee, pay to the Trustee for the benefit of the Holders of such Notes,
the whole amount then due and payable on such Notes for principal (and premium,
if any) and interest, and interest on any overdue principal (and premium, if
any) and, to the extent that payment of such interest shall be legally
enforceable, upon any overdue installment of interest, at the rate borne by the
Notes, and, in addition thereto, such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
If the Company or any Guarantor, as the case may be, fails to pay such
amounts forthwith upon such demand, the Trustee, in its own name as trustee of
an express
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trust, may institute a judicial proceeding for the collection of the sums so
due and unpaid, may prosecute such proceeding to judgment or final decree and
may enforce the same against the Company, such Guarantor or any other obligor
upon the Notes and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company, such Guarantor or
any other obligor upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the Notes
(including the Guarantors) or the property of the Company or of such other
obligor or their creditors, the Trustee (irrespective of whether the principal
of the Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have
made any demand on the Company for the payment of overdue principal, premium,
if any, or interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Notes
and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim
for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same,
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such 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
the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 607.
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Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Notes.
All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name and
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Notes in respect of which such judgment
has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Notes and the notation thereon of
the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Notes in respect
of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Notes for principal (and premium, if any)
and interest, respectively; and
THIRD: The balance, if any, to the Company or any other obligors of
the Notes, including the Guarantors, as their interests may appear, or as
a court of competent jurisdiction may direct.
SECTION 507. Limitation on Suits.
No Holder of any of the Notes has any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture or for the appointment of
a receiver or trustee or for any other remedy thereunder, unless such Holder
has previously given written
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notice to the Trustee of a continuing Event of Default, the Holders of at least
25% in aggregate principal amount of the outstanding Notes have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding, the Trustee has failed to institute any such proceeding within 60
days after receipt of such notice, request and offer of indemnity and the
Trustee, within such 60-day period, has not received directions inconsistent
with such written request from Holders of a majority in aggregate principal
amount of the outstanding Notes. Such limitations do not apply, however, to a
suit instituted by a Holder of a Note for the enforcement of the payment of the
principal of, premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note. A Holder may not use this
Indenture to prejudice the rights of another Holder or to obtain a preference
or priority over another Holder.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium
and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Note shall have the right, which is absolute and unconditional, to receive
payment, as provided herein (including, if applicable, Article Twelve) and in
such Note of the principal of (and premium, if any) and (subject to Section
309) interest on such Note on the respective Stated Maturities expressed in
such Note (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Guarantors, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall
continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Notes in the last paragraph of Section
308, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or
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employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by
law to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 512. Control by Holders.
The Holders of not less than a majority in principal amount of the
Outstanding Notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, provided that
(a) such direction shall not be in conflict with any rule of law or
with this Indenture,
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(c) the Trustee need not take any action which might conflict with
law or this Indenture or involve it in personal liability or be unjustly
prejudicial to the Holders not consenting.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal amount of
the outstanding Notes may, by notice to the Trustee, on behalf of the Holders
of all of the Notes, waive any existing Default or Event of Default and its
consequences under this Indenture, except a continuing Default or Event of
Default in the payment of the principal of (and premium, if any) or interest on
any Note (except for such a default resulting from an acceleration that has
been rescinded), or in respect of a covenant or provision that under this
Indenture cannot be modified or amended without the consent of the Holder of
each outstanding Note.
Upon any such waiver, such Default or Event of Default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
cured, for every
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purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
The Company and each Guarantor covenants (to the extent that it may
lawfully do so) that it will not 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 it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 515. Waiver of Personal Liability of Directors, Officers,
Employees and Stockholders.
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes or 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 of any Guarantor, as such, shall have any
liability for any obligations of such Guarantor under its Note Guarantee or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes and the Note Guarantees. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the Commission that such waiver is against public policy.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture,
and use the same degree of care and skill in its exercise, as a prudent man
would exercise or use under the circumstances in the conduct of his own
affairs.
(b) Except during the continuance of an Event of Default:
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(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need
perform only those duties that are specifically set forth in
this Indenture and no others, and no implied covenants or
obligations shall be read into this Indenture against the
Trustee; and
(ii) 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,
in the case of any such certificates or opinions which by any
provisions hereof are specifically required to be furnished
to the Trustee, 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 liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a responsible officer, unless
it is proved that the Trustee was negligent in ascertaining
the pertinent facts; and
(iii) 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 512
hereof.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b) and (c) of this Section.
SECTION 602. Notice of Defaults.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee shall mail to each Holder of the Notes notice of
the Default or Event of Default within 90 days after the occurrence thereof.
However, except in the case of a Default or an Event of Default in payment of
principal of (and premium, if any, on) or interest on any Notes, the Trustee
may withhold the notice to the Holders of the Notes if a
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committee of its trust officers in good faith determines that withholding such
notice is in the interests of the Holders of the Notes.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of TIA Sections 315(a) through 315(d):
(a) the Trustee may conclusively rely and shall be protected in
acting or refraining from acting, pursuant to the terms of this Indenture
or otherwise, upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order with
sufficient detail as may be requested by the Trustee and any resolution
of the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate and/or an
Opinion of Counsel;
(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities (including fees and
expenses of its agents and counsel) which might be incurred by it in
compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into,
and may conclusively rely upon, the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other evidence
of indebtedness or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into
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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;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care
by it hereunder;
(h) the Trustee shall not be liable for any action taken, suffered
or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this
Indenture; and
(i) except during the continuance of an Event of Default, the
Trustee need perform only those duties as are specifically set forth in
this Indenture.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any 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 for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 604. Trustee Not Responsible for Recitals or Issuance of Notes.
The recitals contained herein and in the Notes, except for the Trustee's
certificates of authentication, shall be taken as the statements of the Company
and the Guarantors, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture, the Notes or any Note Guarantee, except that the
Trustee represents that it is duly authorized to execute and deliver this
Indenture, authenticate the Notes and perform its obligations hereunder and,
upon the effectiveness of the Registration Statement, that the statements made
by it in a Statement of Eligibility on Form T-1 supplied to the Company are
true and accurate, subject to the qualifications set forth therein. The
Trustee shall not be accountable for the use or application by the Company of
Notes or the proceeds thereof.
SECTION 605. May Hold Notes.
The Trustee, any Paying Agent, any Note Registrar or any other agent of
the Company or of the Trustee, in its individual or other capacity, may become
the owner or pledgee of Notes and, subject to TIA Sections 310(b) and 311, may
otherwise deal with the Company with the same rights it would have if it were
not Trustee, Paying Agent, Note Registrar or such other agent.
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SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under
no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company or any Guarantor, as the case may be.
SECTION 607. Compensation and Reimbursement.
The Company agrees:
(a) to pay to the Trustee (in its capacity as Trustee, Paying Agent
and Registrar) from time to time reasonable compensation for all services
rendered by it hereunder (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(c) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence or bad faith
on its part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of
defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder. The
Trustee shall notify the Company promptly of any claim for which it may
seek indemnity. Failure by the Trustee to so notify the Company shall
not relieve the Company of its obligations hereunder. The Company shall
defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel. The Company need not pay
for any settlement made without its consent, which consent shall not be
unreasonably withheld.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a claim prior to the Notes
upon all
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property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of (and premium, if any) or interest on
particular Notes.
When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 501(9) or (10), the expenses (including
the reasonable charges and expenses of its counsel) of and the compensation for
such services are intended to constitute expenses of administration under any
applicable Federal or State bankruptcy, insolvency or other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 608. Corporate Trustee Required; Eligibility.
There shall be at all times a Trustee hereunder which shall be eligible to
act as Trustee under TIA Section 310(a)(1). Each successor Trustee shall have
a combined capital and surplus of at least $50,000,000. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of Federal, State, territorial or District of Columbia supervising
or examining authority, then for the purposes of this Section, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
SECTION 609. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 610.
(b) The Trustee may resign at any time by giving written notice thereof to
the Company. If the instrument of acceptance by a successor Trustee required
by Section 610 shall not have been delivered to the Trustee within 30 days
after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of not
less than a majority in principal amount of the Outstanding Notes, delivered to
the Trustee and to the Company.
(d) If at any time:
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(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months,
except when the Trustee's duty to resign is stayed in accordance with the
provisions of TIA Section 310(b), or
(2) the Trustee shall cease to be eligible under Section 608 and
shall fail to resign after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Note for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation, winding-up or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee.
If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of
the Holders of a majority in principal amount of the Outstanding Notes
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided subject to
TIA Section 315(e), any Holder who has been a bona fide Holder of a Note for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee to the Holders of Notes
in the manner provided for in Section 107. Each notice shall include the name
of the successor Trustee and the address of its Corporate Trust Office.
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SECTION 610. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act,
deed or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder subject to the retiring Trustee's rights as provided under
the last sentence of Section 607. Upon request of any such successor Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 611. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes. In case at
that time any of the Notes shall not have been authenticated, any successor
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee. In all such cases such
certificates shall have the full force and effect which this Indenture provides
that the certificate of authentication of the Trustee shall have for the
certificate of authentication of the Trustee shall have; provided, however,
that the right to adopt the certificate of authentication of any predecessor
Trustee or to authenticate Notes in the name of any predecessor Trustee shall
apply only to its successor or successors by merger, conversion or
consolidation.
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ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE
SECTION 701. Disclosure of Names and Addresses of Holders.
Every Holder of Notes, by receiving and holding the same, agrees with the
Company and the Trustee that none of the Company or the Trustee or any agent of
either of them shall be held accountable by reason of the disclosure of any
such information as to the names and addresses of the Holders in accordance
with TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of
mailing any material pursuant to a request made under TIA Section 312(b).
SECTION 702. Reports by Trustee.
Within 60 days after November 15 of each year commencing with the first
November 15 after the first issuance of Notes, the Trustee shall transmit to
the Holders, in the manner and to the extent provided in TIA Section 313(c), a
brief report dated as of such November 15 if required by TIA Section 313(a).
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE
SECTION 801. Company May Consolidate, etc., Only on Certain Terms.
The Company shall not, and the Company shall not permit any Restricted
Subsidiary of the Company to, in a single transaction or series of related
transactions consolidate or merge, with or into (other than the consolidation
or merger of a Wholly Owned Restricted Subsidiary of the Company with another
Wholly Owned Restricted Subsidiary of the Company or into the Company) (whether
or not the Company or such Restricted Subsidiary is the surviving corporation),
or directly and/or indirectly through its Restricted Subsidiaries sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company or such Restricted Subsidiary (determined
on a consolidated basis for the Company and its Restricted Subsidiaries taken
as a whole) in one or more related transactions to, another corporation, Person
or entity unless:
(a) either (i) the Company, in the case of a transaction involving
the Company, or such Restricted Subsidiary, in the case of a transaction
involving a
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Restricted Subsidiary, is the surviving corporation or (ii) in the case
of a transaction involving the Company or such Restricted Subsidiary, the
entity or the Person formed by or surviving any such consolidation or
merger (if other than the Company or such Restricted Subsidiary) or to
which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made (the "Surviving Entity") is a
corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia and expressly assumes all
the obligations of the Company under the Notes and this Indenture or such
Restricted Subsidiary under the relevant Note Guarantee and this
Indenture, as the case may be, pursuant to a supplemental indenture in a
form reasonably satisfactory to the Trustee;
(b) immediately after such transaction no Default or Event of
Default exists;
(c) in the case of a transaction involving the Company, the Company
or, if other than the Company, the entity or Person formed by or
surviving any such consolidation or merger, 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, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of Section 1010;
(d) if, as a result of any such transaction, property or assets of
the Company or a Guarantor would become subject to a Lien securing
Indebtedness not permitted by Section 1014, the Company, any such
Guarantor or the surviving entity, as the case may be, shall have secured
the Notes and the relevant Note Guarantee, as required by such
provisions; and
(e) the Company shall have delivered to the Trustee an Officers'
Certificate and, except in the case of a merger of a Restricted
Subsidiary into the Company or into a Wholly Owned Restricted Subsidiary,
an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, lease or disposition and any supplemental indenture with
respect thereto, comply with all of the terms of this Section 801 and
that all conditions precedent provided for in this provision relating to
such transaction or series of transactions have been complied with.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be
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deemed to be the transfer of all or substantially all of the properties and
assets of the Company.
SECTION 802. Successor Substituted.
In the event of any transaction described in and complying with the
conditions listed in Section 801 in which the Company or a Guarantor is not the
continuing obligor under this Indenture, the Surviving Entity will succeed to,
and be substituted for, and may exercise every right and power of, the Company
or such Guarantor under this Indenture, and thereafter the Company or such
Guarantor will, except in the case of a lease, be discharged from all its
obligations and covenants under this Indenture and the Notes.
ARTICLE NINE
SUPPLEMENTS AND AMENDMENTS TO INDENTURE
AND NOTE GUARANTEES
SECTION 901. Without Consent of Holders.
Without the consent of any Holders, the Company and any affected
Guarantor, each when authorized by a Board Resolution, and the Trustee may
amend or supplement this Indenture, the Notes or any Note Guarantee without the
consent of any Holder of a Note:
(a) to evidence the succession of another person to the Company or
any Guarantor and the assumption by any such successor of the covenants
of the Company or any Guarantor in this Indenture and in the Notes in
accordance with Article Eight; or
(b) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company; or
(c) to add any additional Events of Default; or
(d) to provide for uncertificated Notes in addition to or in place
of the Certificated Notes; or
(e) to evidence and provide for the acceptance of appointment under
this Indenture by a successor Trustee; or
(f) to secure the Notes or any Note Guarantee; or
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(g) to cure any ambiguity, to correct or supplement any provision in
this Indenture that may be defective or inconsistent with any other
provision in this Indenture, or to make any other provisions with respect
to matters or questions arising under this Indenture, provided that such
actions pursuant to this clause do not adversely affect the interests of
the Holders in any material respect; or
(h) to comply with any requirements of the Commission in order to
effect and maintain the qualification of this Indenture under the Trust
Indenture Act; or
(i) to release any Guarantor from its Note Guarantee in accordance
with the provisions of this Indenture (including in connection with a
sale of all of the Capital Stock of such Guarantor).
Notwithstanding the foregoing, neither the Company nor the Trustee may
amend any provisions of this Indenture or the Notes concerning (i) the
subordination of the Notes and the Note Guarantees or (ii) Legal Defeasance (as
defined in Section 1202) or Covenant Defeasance (as defined in Section 1203)
without, in either case, the prior written consent of the Agent Bank, acting on
behalf of the Lenders under the New Credit Agreement.
SECTION 902. With Consent of Holders.
With the consent of the Holders of not less than a majority in aggregate
Outstanding principal amount of the Notes (including consents obtained in
connection with a tender offer or exchange offer for the Notes), by Act of said
Holders delivered to the Company, any affected Guarantor and the Trustee, the
Company and the Guarantor, each when authorized by a Board Resolution, and the
Trustee may amend or supplement in any manner this Indenture or any Note
Guarantee or modify in any manner the rights of the Holders under this
Indenture or any Note Guarantee; provided, however, that no such supplement,
amendment or modification may, without the consent of the Holder of each
Outstanding Note affected thereby:
(a) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which any Note or
any premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment after the Stated
Maturity thereof (or, in the case of redemption, on or after the
redemption date);
(b) reduce the percentage in principal amount of outstanding Notes,
the consent of whose Holders is required for any amendment, supplement or
waiver of
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compliance with certain provisions of, or certain defaults and their
consequences provided for under, this Indenture;
(c) 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);
(d) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders to receive payments of
principal or premium, if any, or interest on the Notes;
(e) modify the ranking or priority of the Notes or the Note
Guarantee of any Guarantor;
(f) release any Guarantor from any of its obligations under its Note
Guarantee or this Indenture other than in accordance with the terms of
this Indenture;
(g) waive a redemption payment with respect to any Note (other than
a payment to Holders required by the provisions of Sections 1015 and
1016, following a Change in Control or an Asset Sale Offer,
respectively); or
(h) make any change in the foregoing amendment and waiver provisions
of this Section 902.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any amended or supplemental indenture, the Trustee
shall, subject to this Section 903, join with the Company in the execution of
such amended or supplemental indenture authorized or permitted by the terms of
this Indenture. In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustees own
rights, duties or immunities under this Indenture or otherwise.
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SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every
Holder of Notes theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and shall if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for
in such supplemental indenture. If the Company shall so determine, new Notes
so modified as to conform, in the opinion of the Trustee and the Company, to
any such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding Notes.
SECTION 907. Notice of Supplemental Indentures.
Promptly after the execution by the Company, any affected Guarantor and
the Trustee of any supplemental indenture or Note Guarantee pursuant to the
provisions of Section 902, the Company shall give notice thereof to the Holders
of each Outstanding Note affected, in the manner provided for in Section 107,
setting forth in general terms the substance of such supplemental indenture or
Note Guarantee.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and Interest.
The Company covenants and agrees for the benefit of the Holders that it
will duly and punctually pay the principal of (and premium, if any) and
interest on the Notes in accordance with the terms of the Notes and this
Indenture.
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SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in The City of New York, an office or agency
where Notes may be presented or surrendered for payment, where Notes may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may
be served. The Corporate Trust Office located at One Liberty Plaza, 23rd
Floor, New York, New York 10006 of the Trustee shall be such office or agency
of the Company, unless the Company shall designate and maintain some other
office or agency for one or more of such purposes. The Company will give
prompt written notice to the Trustee of any change in the location of any such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations,
surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies (in or outside of The City of New York) where the Notes may be
presented or surrendered for any or all such purposes and may from time to time
rescind any such designation; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in The City of New York for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and any change in the location of any such other office or
agency.
SECTION 1003. Money for Note Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will, on
or before each due date of the principal of (or premium, if any) or interest on
any of the Notes, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal of (or premium, if any)
or interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and will promptly notify the Trustee
of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the Notes,
it will, on or before each due date of the principal of (or premium, if any) or
interest on any Notes, deposit with a Paying Agent a sum sufficient to pay the
principal (and premium, if any) or interest so becoming due, such sum to be
held in trust for the benefit of the Persons entitled to such principal,
premium or interest, and (unless such Paying Agent is the Trustee) the Company
will promptly notify the Trustee of such action or any failure so to act.
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The Company will cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of
(and premium, if any) or interest on Notes in trust for the benefit of
the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal
(and premium, if any) or interest; and
(c) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
sums.
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 (or premium, if any)
or interest on any Note and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Note 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 a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in the Borough of Manhattan, The City of New York, 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 publication, any unclaimed balance of
such money then remaining will be repaid to the Company.
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SECTION 1004. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and
each Subsidiary; provided, however, that the Company shall not be required to
preserve any such right or franchise if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 1006. Maintenance of Properties.
The Company will cause all properties owned by the Company or any
Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that nothing in this
Section shall prevent the Company from discontinuing the maintenance of any of
such properties if such discontinuance is, in the judgment of the Company,
desirable in the conduct of its business or the business of any Subsidiary and
not disadvantageous in any material respect to the Holders.
SECTION 1007. Insurance.
The Company will at all times keep all of its and its Subsidiaries'
properties which are of an insurable nature insured with insurers, believed by
the Company to be responsible, against loss or damage to the extent that
property of similar character is usually so insured by corporations similarly
situated and owning like properties.
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SECTION 1008. Statement by Officers As to Default.
(a) The Company and each Guarantor will deliver to the Trustee, within 120
days after the end of each fiscal year, a brief certificate from the principal
executive officer, principal financial officer or principal accounting officer
as to his or her knowledge of compliance by the Company and such Guarantor with
all conditions and covenants under this Indenture. For purposes of this
Section 1008(a), such compliance shall be determined without regard to any
period of grace or requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this Indenture,
or if the trustee for or the holder of any other evidence of Indebtedness of
the Company or any Guarantor gives any notice or takes any other action with
respect to a claimed default (other than with respect to Indebtedness in the
principal amount of less than $2,000,000), the Company shall deliver to the
Trustee by registered or certified mail or by telegram, telex or facsimile
transmission an Officers' Certificate specifying such event, notice or other
action within five Business Days of becoming aware of its occurrence.
SECTION 1009. Reports
Whether or not required by the rules and regulations of the Commission, so
long as any Notes are outstanding, the Company will furnish to the Holders of
Notes, and file with the Trustee, (a) prior to the filing of a registration
statement with respect to the Exchange Offer or a Shelf Registration Statement,
the information specified in Rule 144A(d)(4) under the Securities Act and (b)
after the filing of a registration statement with respect to the Exchange Offer
or a Shelf Registration Statement, within 15 days after it is or would have
been required to file such with the Commission (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the Commission at any time after
the Company files a registration statement with respect to the Exchange Offer
or a Shelf Registration Statement, the Company will file a copy of all such
information and reports with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available
to securities analysts and prospective investors upon request. In addition,
the Company has agreed that, for so long as any Notes remain outstanding, it
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information specified in Rule 144A(d)(4)
under the Securities Act.
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SECTION 1010. Limitation on Incurrence of Indebtedness and Issuance
of Preferred Stock.
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create, incur, issue, assume, guaranty or otherwise
become directly or indirectly liable, contingently or otherwise, with respect
to (collectively, "incur") any Indebtedness (including Acquired Indebtedness)
and the Company shall not issue any Disqualified Stock and shall not permit any
of its Restricted Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company and any Guarantor may incur Indebtedness
(including Acquired Indebtedness) and the Company may issue shares of
Disqualified Stock if: (a) the Fixed Charge 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 Indebtedness is incurred or such Disqualified Stock is issued would
have been equal to at least 2.25 to 1, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period; and
(b) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof.
(b) The foregoing limitations on the incurrence of Indebtedness will not
apply to:
(i) the incurrence by the Company of Indebtedness under the New
Credit Agreement (and the incurrence by the Guarantors of guarantees
thereof) in an aggregate principal amount at any time outstanding (with
letters of credit being deemed to have a principal amount equal to the
maximum potential liability of the Company and its Restricted
Subsidiaries thereunder) not to exceed $600 million (after giving effect
to the repayment of the Tranche C Loan with the proceeds of the sale of
the Notes), less the aggregate amount of all Net Proceeds of Asset Sales
applied to permanently reduce the outstanding amount or the commitments
with respect to such Indebtedness pursuant to Section 1016;
(ii) the incurrence by the Company and the Guarantors of
Indebtedness represented by the Notes (other than the Additional Notes)
and the Note Guarantees;
(iii) the incurrence by the Company and the Guarantors of the
Existing Indebtedness;
(iv) the incurrence by the Company of Permitted Refinancing
Indebtedness in exchange for, or the net proceeds of which are used to
refund, refinance or replace, any Indebtedness that is permitted to be
incurred under clauses (ii) and (iii) above;
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(v) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company
and any of its Wholly Owned Restricted Subsidiaries or between or among
any Wholly Owned Restricted Subsidiaries; provided that, in the case of
Indebtedness of the Company, such obligations shall be unsecured and
subordinated in all respects to the Company's obligations pursuant to the
Notes; and provided, however, that (a) any subsequent issuance or
transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company and (b) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary of the Company shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be;
(vi) the incurrence by the Company or any Guarantor of Hedging
Obligations;
(vii) the incurrence by the Company or any Guarantor of Indebtedness
represented by Capital Lease Obligations, mortgage financings or Purchase
Money Obligations, in each case incurred for the purpose of financing all
or any part of the purchase price or cost of construction or improvement
of property, plant or equipment used in the business of the Company or
such Guarantor or any Permitted Refinancing Indebtedness thereof, in an
aggregate principal amount not to exceed 3.5% of Consolidated Tangible
Assets at any time outstanding;
(viii) the incurrence by the Company and any Guarantor of
Indebtedness represented by guarantees of Indebtedness of such Guarantor
or the Company, as applicable, permitted under subsection (a) of this
Section 1010 or subsection (b)(iv) of this Section 1010; and
(ix) the incurrence by the Company and its Restricted Subsidiaries
of Indebtedness (in addition to Indebtedness permitted by any other
clause of this subsection (b)) in an aggregate principal amount at any
time outstanding not to exceed $25 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness outstanding or to be incurred meets the criteria
of more than one of the types of Indebtedness described in the aforementioned
clauses, the Company, in its sole discretion, may classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
SECTION 1011. Limitation on Restricted Payments.
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The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any distribution of any kind
or character (whether in cash, securities or other property) on account
of any class of the Company's or any of its Restricted Subsidiaries'
Equity Interests or to holders thereof (including, without limitation,
any payment to stockholders of the Company in connection with a merger or
consolidation involving the Company), other than (i) dividends or
distributions payable solely in Equity Interests (other than Disqualified
Stock) of the Company or (ii) dividends or distributions payable solely
to the Company or any Wholly Owned Restricted Subsidiary of the Company
and, if such Restricted Subsidiary is not a Wholly Owned Restricted
Subsidiary of the Company, payable simultaneously to its minority
shareholders on a pro rata basis; (b) purchase, redeem or otherwise
acquire or retire for value any Equity Interests of the Company, any
Restricted Subsidiary of the Company or any Unrestricted Subsidiary or
any other Affiliate of the Company (other than any such Equity Interests
owned by the Company or any Wholly Owned Restricted Subsidiary of the
Company); (c) make any principal payment on, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness of the Company
or any Guarantor that is pari passu with or subordinated to the Notes or
the Note Guarantees prior to any scheduled repayment date, mandatory
sinking fund payment date or final maturity date (other than the Notes),
except at final maturity, other than through the purchase, redemption or
acquisition by the Company of Indebtedness of the Company or any of its
Restricted Subsidiaries through the issuance in exchange therefor of
Equity Interests (other than Disqualified Stock); or (d) make any
Restricted Investment (all such payments and other actions set forth in
clauses (a) through (d) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to
such Restricted Payment:
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(ii) 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, the
Company would have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in subsection (a) of Section 1010; and
(iii) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments declared or made by the
Company and its Restricted Subsidiaries on or after the date of
this Indenture (excluding
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Restricted Payments permitted by clauses (b), (c) and (d) of
the next succeeding paragraph), is less than the sum of (A) 50% of
the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first fiscal
quarter commencing after the date of this Indenture 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 (B) 100% of the aggregate
net cash proceeds received by the Company from the issue or sale
after the date of this Indenture of Equity Interests of the Company
or of debt securities of the Company that have been converted into
such Equity Interests (other than Equity Interests (or convertible
debt securities) sold to a Restricted Subsidiary of the Company or
an Unrestricted Subsidiary and other than Disqualified Stock or
debt securities that have been converted into Disqualified Stock)
or from a contribution to the capital of the Company, plus (C) an
amount equal to the net reduction in Restricted Investments by the
Company and its Restricted Subsidiaries, subsequent to the date of
this Indenture, upon the disposition, liquidation or repayment
(including by way of dividends) thereof, but only to the extent
such amounts are not included in Consolidated Net Income and not to
exceed in the case of any Restricted Investment, the amount of the
Restricted Investment previously made by the Company and its
Restricted Subsidiaries, plus (D) $10 million.
The foregoing clauses (ii) and (iii), however, will not prohibit (a) the
payment of any dividend on any class of Capital Stock of the Company or any
Restricted Subsidiary of the Company within 60 days after the date of
declaration thereof, if on the date on which such dividend was declared such
payment would have complied with the provisions of this Indenture; (b) the
making of any Restricted Investment in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Restricted Subsidiary of the
Company or to any Unrestricted Subsidiary) of Equity Interests of the Company
(other than Disqualified Stock) or from a contribution to the capital of the
Company; provided that any net cash proceeds that are utilized for any such
Restricted Investment, and any Net Income resulting therefrom, shall be
excluded from clause (iii) of the preceding paragraph; (c) the redemption,
repurchase, retirement or other acquisition of any Equity Interests of the
Company in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Restricted Subsidiary of the Company or to any
Unrestricted Restricted Subsidiary) of other Equity Interests of the Company
(other than any Disqualified Stock) or from a contribution to the capital of
the Company; provided that any net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition, and any Net Income
resulting therefrom, shall be excluded from clause (iii) of the preceding
paragraph; or (d) the defeasance, redemption or repurchase of pari passu or
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness or the
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substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of Equity Interests of the Company (other than Disqualified Stock) or
from a contribution to the capital of the Company; provided that any net cash
proceeds that are utilized for any such defeasance, redemption or repurchase,
and any Net Income resulting therefrom, shall be excluded from clause (iii) of
the preceding paragraph.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company or
such Restricted Subsidiary, as the case may be, pursuant to the Restricted
Payment. Not later than the date of making any Restricted Payment that itself
or together with Restricted Payments not previously reported pursuant to the
requirements of this sentence exceeds $1.0 million, the Company shall deliver
to the Trustee an Officers' Certificate stating that all such Restricted
Payments are permitted and setting forth the basis upon which the calculations
required by this Section 1011 were computed, which calculations may be based
upon the Company's latest available financial statements.
SECTION 1012. Limitation on Issuances and Sales of Capital Stock of
Restricted Subsidiaries.
The Company (a) shall not permit any Restricted Subsidiary to issue any
Capital Stock (other than to the Company or a Wholly Owned Restricted
Subsidiary) and (b) shall not, and shall not permit any Restricted Subsidiary
to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of
any Restricted Subsidiary to any Person (other than the Company or a Wholly
Owned Restricted Subsidiary); provided, however, that this covenant will not
prohibit (i) the sale or other disposition of all, but not less than all, of
the issued and outstanding Capital Stock of a Restricted Subsidiary owned by
the Company and its Restricted Subsidiaries in compliance with the other
provisions of this Indenture, or (ii) the ownership by directors of director's
qualifying shares or the ownership by foreign nationals of Capital Stock of any
Restricted Subsidiary, to the extent mandated by applicable law.
The Company shall not permit any Restricted Subsidiary to issue any
Preferred Stock.
SECTION 1013. Limitation on Transactions with Affiliates.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, after the date of this Indenture, in any one
transaction or a series of related transactions, sell, lease, transfer or
otherwise dispose of any of its properties, assets or services to, or make any
payment to, or purchase any property, assets or services from,
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or enter into or make any agreement, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), other than Exempt Affiliate Transactions, unless (i) such
Affiliate Transaction is on terms that are no less favorable to the Company or
the relevant Restricted Subsidiary than those that would have been obtained in
a comparable arm's length transaction by the Company or such Restricted
Subsidiary with a Person that is not an Affiliate and (ii) the Company delivers
to the Trustee (a) with respect to any Affiliate Transaction entered into after
the date of this Indenture involving aggregate consideration in excess of $5.0
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 disinterested members of the Board of Directors or, if there are no
disinterested members of the Board of Directors at the time, a written opinion
issued by an independent financial advisor of national standing that such
Affiliate Transaction is fair to the Company or such Restricted Subsidiary, as
the case may be, from a financial point of view and (b) with respect to any
Affiliate Transaction involving aggregate consideration in excess of $10.0
million, a written opinion issued by an independent financial advisor of
national standing that such Affiliate Transaction is fair to the Company or
such Restricted Subsidiary, as the case may be, from a financial point of view.
SECTION 1014. Limitation on Liens.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or suffer to exist any Lien on
any of its assets, now owned or hereafter acquired, securing any Indebtedness
other than Senior Indebtedness, unless the Notes, in the case of the Company,
or the Note Guarantees, in the case of the Guarantors, are secured equally and
ratably with such other Indebtedness; provided that, if such Indebtedness is by
its terms expressly subordinate to the Notes or the Note Guarantees, the Lien
securing such subordinate or junior Indebtedness shall be subordinate and
junior to the Lien securing the Notes or the Note Guarantees with the same
relative priority as such subordinated or junior Indebtedness shall have with
respect to the Notes or the Note Guarantees.
SECTION 1015. Purchase of Notes upon a Change of Control.
(a) If a Change of Control occurs at any time, then, each Holder of Notes
or Additional Notes shall have the right to require that the Company purchase
such Holder's Notes or Additional Notes, as applicable, in whole or in part in
integral multiples of $1,000, at a purchase price in cash equal to 101% of the
principal amount of such Notes or Additional Notes, plus accrued and unpaid
interest, if any (the "Change of Control Purchase Price"), to the date of
purchase ("Change of Control Payment Date"), pursuant to the offer described
below (the "Change of Control Offer").
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(b) Within 30 days following any Change of Control the Company shall
notify the Trustee thereof and give written notice of such Change of Control to
each Holder of Notes or Additional Notes by first-class mail, postage prepaid,
at its address appearing in the security register, stating:
(i) that a Change of Control has occurred, that the Change of
Control Offer is being made pursuant to this Section 1015 and that all
Notes validly tendered will be accepted for payment;
(ii) the Change of Control Purchase Price and the Change of Control
Payment Date, which shall be a Business Day no earlier than 30 days nor
later than 60 days from the date such notice is mailed or such later date
as is necessary to comply with requirements under the Exchange Act;
(iii) that any Note not tendered shall continue to accrue interest;
(iv) that, unless the Company defaults in the payment of the
purchase price, any Notes accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Payment Date;
(v) that Holders electing to have any Note purchased pursuant to the
Change of Control Offer will be required to surrender such Note, together
with the form entitled "Option of the Holder to Elect Purchase" on the
reverse side of such Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Business
Day immediately preceding the Change of Control Payment Date;
(vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name
of such Holder, the principal amount of Notes delivered for purchase and
a statement that such Holder is withdrawing his election to have such
Notes purchased; and
(vii) that Holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered; provided that each Note purchased and each new
Note issued shall be in a principal amount of $1,000 or integral
multiples thereof.
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(c) On the Change of Control Payment Date, the Company shall, to the
extent lawful:
(i) accept for payment Notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(ii) deposit with the Paying Agent money sufficient to pay the
Change of Control Purchase Price of all Notes, and Additional Notes, if
any, or portions thereof so accepted; and
(iii) deliver, or cause to be delivered, to the Trustee, all Notes
and Additional Notes, if any, or portions thereof so accepted together
with an Officers' Certificate specifying the aggregate principal amount
of Notes, and Additional Notes, if any, or portions thereof accepted for
payment by the Company.
The Paying Agent shall promptly mail, to the Holders of Notes so accepted,
payment in an amount equal to the Change of Control Purchase Price, and the
Trustee shall promptly authenticate and mail to (or cause to be transferred by
book entry) such Holders who hold Certificated Notes a new Certificated Note
equal in principal amount to any unpurchased portion of the Notes surrendered;
provided that each Note purchased and each new Note issued shall be in a
principal amount of $1,000 or integral multiples thereof (and a minimum of
$250,000 in the case of institutional "accredited investors" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act). The
Company will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date. For purposes
of this Section 1015, the Trustee shall act as Paying Agent.
(d) Prior to complying with this Section 1015, but in any event within 30
days following a Change of Control, the Company will either repay all
outstanding Senior Indebtedness or obtain the requisite consents, if any, under
all agreements governing outstanding Senior Indebtedness to permit the
repurchase of Notes and Additional Notes, if any, required by this Section
1015.
(e) The Company shall comply with the applicable tender offer rules
including Rule-14e under the Exchange Act, and any other applicable securities
laws and regulations in connection with a Change of Control Offer. To the
extent that provisions of any applicable securities laws or regulations
conflict with provisions of this Section 1015, the Company shall comply with
such securities laws and regulations and shall not be deemed to have breached
its obligations under this Section 1015 by virtue thereof.
SECTION 1016. Limitation on Certain Asset Sales.
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(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, engage in an Asset Sale unless (i) the Company (or
such Restricted Subsidiary) receives consideration at the time of such Asset
Sale at least equal to the fair market value of the assets sold or otherwise
disposed of (evidenced in each case by a resolution of the board of directors
of such entity set forth in an Officers' Certificate delivered to the Trustee)
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 principal amount of any Indebtedness for money borrowed (as reflected
on the Company's consolidated balance sheet) of the Company or any Restricted
Subsidiary that (x) is assumed by any transferee of any such assets or other
property in such Asset Sale or (y) with respect to the sale or other
disposition of all of the Capital Stock of any Restricted Subsidiary, remains
the liability of such Subsidiary subsequent to such sale or other disposition,
but only to the extent that such assumption, sale or other disposition, as the
case may be, is effected on a basis under which there is no further recourse to
the Company or any of its Restricted Subsidiaries with respect to such
liability, shall be deemed to be cash for purposes of this provision.
(b) The Company may apply, and may permit its Restricted Subsidiaries to
apply, an amount equal to Net Proceeds of an Asset Sale, at its option, within
365 days after the consummation of such an Asset Sale (i) to permanently reduce
Indebtedness under the New Credit Agreement (and to correspondingly reduce the
commitments, if any, with respect thereto) or to permanently reduce other
Senior Indebtedness of the Company or any Guarantor or (ii) to acquire another
business or any substantial part of another business or other long-term assets,
or to make a capital expenditure, in each case, in, or used or useful in, the
same or a similar line of business as the Company or any of its Restricted
Subsidiaries was engaged in on the date of this Indenture or any reasonable
extensions or expansions thereof (including the Capital Stock of another Person
engaged in such business, provided such other Person is, or immediately after
giving effect to any such acquisition shall become, a Wholly Owned Restricted
Subsidiary of the Company). Pending the final application of any such Net
Proceeds, the Company may temporarily reduce Senior Revolving Debt or otherwise
invest such Net Proceeds temporarily in Cash Equivalents. Any Net Proceeds
from Asset Sales that are not applied within 365 days after the consummation of
an Asset Sale as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $15.0 million,
the Company will be required to make an offer to all Holders of Notes and
Additional Notes, if any (an "Asset Sale Offer"), to purchase, on a pro rata
basis, the principal amount of Notes and Additional Notes, if any, equal in
amount to the Excess Proceeds (and not just the amount thereof that exceeds
$15.0 million), at a purchase price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon to the date
of purchase, in accordance with the procedures set forth in this Indenture .
If the aggregate
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principal amount of Notes and Additional Notes, if any, surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes and Additional 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, subject to any subsequent Asset Sale.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under Section 801, the
successor corporation shall be deemed to have sold the properties and assets of
the Company and its Restricted Subsidiaries not so transferred for purposes of
this Section 1016, and shall comply with the provisions of this Section 1016
with respect to such deemed sale as if it were an Asset Sale. In addition, the
fair market value (as determined by the board of directors of the Company or
such Restricted Subsidiary and evidenced in an Officer's Certificate) of such
properties and assets of the Company or its Restricted Subsidiaries deemed to
be sold shall be deemed to be Net Proceeds for purposes of this Section 1016.
If at any time any non-cash consideration received by the Company or any
Restricted Subsidiary in connection with any Asset Sale is converted into or
sold or otherwise disposed of for cash, then such conversion or disposition
shall be deemed to constitute an Asset Sale hereunder and the Net Proceeds
thereof (such amount as certified to the Trustee by the Company in an Officers'
Certificate) shall be applied in accordance with this Section 1016.
SECTION 1017. Unrestricted Subsidiaries.
(a) The Board of Directors of the Company may designate any Restricted
Subsidiary of the Company to be an Unrestricted Subsidiary unless at the time
of designation, such Subsidiary or any Subsidiary of such Subsidiary owns any
Capital Stock or Indebtedness of, or owns or holds any Lien on any property of,
the Company or any Restricted Subsidiary of the Company; provided, however,
that the amount of the Investment by the Company or any of its Restricted
Subsidiaries in such Unrestricted Subsidiary would be permitted under Section
1011 as a "Restricted Payment" after giving effect to the designation; and
provided further that any Indebtedness incurred by any Unrestricted Subsidiary
shall be Non-Recourse Debt. An Unrestricted Subsidiary shall continue to be an
Unrestricted Subsidiary only if it (a) has no Indebtedness other than
Non-Recourse Debt; and (b) 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 Person's financial condition or to cause such Person to
achieve any specified levels of operating results. If, at any time, any
Unrestricted Subsidiary fails to meet the foregoing requirements, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture
and any Indebtedness of such Unrestricted Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary of the
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Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under Section 1010, the Company shall be in default of
Section 1010).
(b) The Board of Directors of the Company may designate any Unrestricted
Subsidiary as a Restricted Subsidiary; provided that (i) no Default or Event of
Default has occurred and is continuing following such designation and (ii) the
Company could incur at least $1.00 of additional Indebtedness pursuant to the
first paragraph of Section 1010 (treating any Indebtedness of such Unrestricted
Subsidiary as the incurrence of Indebtedness by a Restricted Subsidiary).
SECTION 1018. Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary of the Company to (i) (a) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries on its
Capital Stock or with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any Indebtedness or other obligation owed
to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries, (iii) sell,
lease or transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, or (iv) guarantee the obligations of the Company
evidenced by the Notes or any renewals, refinancings, replacements, refundings
or extensions thereof, except for such encumbrances or restrictions existing
under or by reason of (A) Existing Indebtedness as in effect on the date of
this Indenture, (B) the New Credit Agreement as in effect on the date of this
Indenture, and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings are no more
restrictive with respect to such dividend and other payment restrictions than
those contained in the New Credit Agreement as in effect on the date of this
Indenture, (C) this Indenture, the Notes and the Note Guarantees, (D)
applicable law, (E) any instrument governing Acquired Indebtedness or Capital
Stock of a Person acquired by the Company or any of its Restricted Subsidiaries
as in effect at the time of such acquisition (except to the extent such
Acquired Indebtedness was incurred 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, provided that in the case of
Indebtedness, such Indebtedness was permitted by the terms of this Indenture to
be incurred, (F) any document or instrument governing Indebtedness incurred
pursuant to clause (vii) of subsection (b) under Section 1010, provided that
any such restriction contained therein relates only to the asset or assets
constructed or acquired in connection therewith, (G) any instrument that is a
lease, license, conveyance or contract or similar property or
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asset entered into or acquired in the ordinary course of business and
consistent with past practices that restricts in a customary manner the
subletting, assignment or transfer of any property, (H) Permitted Refinancing
Indebtedness of Indebtedness described in clauses (A), (B) and (D) hereof,
provided that the restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are no more restrictive than those contained
in the agreements governing the Indebtedness being refinanced, (I) secured
Indebtedness otherwise permitted to be incurred pursuant to the provisions
described above under Section 1014 the terms of which limit the right of the
debtor to dispose of the assets securing such Indebtedness or (J) any agreement
entered into for the direct or indirect sale or disposition of all or
substantially all of the Capital Stock or assets of such Restricted Subsidiary,
provided that the transaction contemplated thereby shall be consummated not
later than 90 days after the date of such agreement.
SECTION 1019. Waiver of Certain Covenants.
The Company or any Guarantor may omit in any particular instance to comply
with any term, provision or condition set forth in Section 803 or Sections 1007
through 1022, inclusive, if before or after the time for such compliance the
Holders of at least a majority in principal amount of the Outstanding Notes, by
Act of such Holders, waive such compliance in such instance with such term,
provision or condition, but no such waiver shall extend to or affect such term,
provision or condition except to the extent so expressly waived, and, until
such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such term, provision or condition shall
remain in full force and effect.
SECTION 1020. Payment for Consent.
Neither the Company nor any of its Restricted Subsidiaries shall, directly
or indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of this
Indenture or the Notes unless such consideration is offered to be paid or is
paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
SECTION 1021. Limitation on Layering Debt.
The Company and each Guarantor shall not incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness or guarantee, as
applicable, that is subordinate or junior in right of payment to any Senior
Indebtedness and senior in any respect in right of payment to the Notes or such
Guarantor's Note Guarantee, respectively.
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SECTION 1022. Line of Business.
The Company shall not and shall not cause or permit any of its Restricted
Subsidiaries to engage to any material extent in any business other than the
ownership, operation and management of Nursing Facilities and Related
Businesses.
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption.
(a) The Notes may be redeemed at the option of the Company, as a whole or
from time to time in part, at any time on or after December 15, 2002, subject
to the conditions and at the Redemption Prices specified in the form of Note,
together with accrued interest, if any, to the Redemption Date.
(b) In addition, at any time or from time to time prior to December 15,
2000, the Company may redeem, on one or more occasions, up to 35% of the sum of
(i) the initial aggregate principal amount of the Notes and (ii) the initial
aggregate principal amount of any Additional Notes on one or more occasions
with the net proceeds of one or more Equity Offerings at a redemption price
equal to 109.35% of the principal amount thereof, plus accrued interest, if
any, to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on an interest payment date);
provided that, immediately after giving effect to such redemption, at least 65%
of the sum of (x) the initial aggregate principal amount of the Notes and (y)
the initial aggregate principal amount of any Additional Notes remains
outstanding; provided further that such redemptions shall occur within 60 days
of the date of closing of each Equity Offering.
(c) The Company is not required to make mandatory redemption or sinking
fund payments with respect to the Notes.
SECTION 1102. Applicability of Article.
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
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SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Notes pursuant to Section 1101
shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Notes to be redeemed and shall deliver to the Trustee
such documentation and records as shall enable the Trustee to select the Notes
to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.
If less than all the Notes are to be redeemed, selection of Notes for
redemption shall 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, by such method as the Trustee shall
deem fair and appropriate and which may provide for the selection for
redemption of portions of the principal of Notes; provided, however, that no
such partial redemption shall reduce the portion of the principal amount of a
Note not redeemed to less than $1,000. The Company shall notify the Trustee of
any national securities exchange on which the Notes may be listed.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Notes selected for partial
redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to redemption of Notes shall relate, in the case of any
Note redeemed or to be redeemed only in part, to the portion of the principal
amount of such Note which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given in the manner provided for in Section
107 not less than 30 nor more than 60 days prior to the Redemption Date, to
each Holder of Notes to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 1107, if any,
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(3) if less than all Outstanding Notes are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Notes to be redeemed,
(4) in case any Note is to be redeemed in part only, the notice
which relates to such Note shall state that on and after the Redemption
Date, upon surrender of such Note, the Holder will receive, without
charge, a new Note or Notes of authorized denominations for the principal
amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
1107) will become due and payable upon each such Note, or the portion
thereof, to be redeemed, and that interest thereon will cease to accrue
on and after said date,
(6) the place or places where such Notes are to be surrendered for
payment of the Redemption Price and accrued interest, if any, and
(7) the CUSIP number.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the Trustee
or with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 1003) an amount of money
sufficient to pay the Redemption Price of, and accrued interest on, all the
Notes which are to be redeemed on that date.
SECTION 1107. Notes Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Notes so to be
redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such Notes
shall cease to bear interest. Upon surrender of any such Note for redemption
in accordance with said notice, such Note shall be paid by the Company at the
Redemption Price, together with accrued interest, if any, to the Redemption
Date; provided, however, that installments of interest whose Stated Maturity is
on or prior to the Redemption Date shall be payable to the Holders of such
Notes, or one or more
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Predecessor Notes, registered as such at the close of business on the relevant
Regular Record Dates according to their terms and the provisions of Section
309.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate borne by the Notes.
SECTION 1108. Notes Redeemed in Part.
Any Note which is to be redeemed only in part shall be surrendered at the
office or agency of the Company maintained for such purpose pursuant to Section
1002 (with, if the Company or the Trustee so requires, due endorsement by, or a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or such Holders attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Note without service charge, a
new Note or Notes, of any authorized denomination as requested by such Holder,
in aggregate principal amount equal to and in exchange for the unredeemed
portion of the principal of the Note so surrendered.
ARTICLE TWELVE
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company Option to Effect Legal Defeasance or Covenant
Defeasance.
The Company may, at its option and at any time, with respect to the Notes,
elect to have either Section 1202 or Section 1203 be applied to all Outstanding
Notes upon compliance with the conditions set forth below in this Article
Twelve.
SECTION 1202. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 1201 of the option applicable to
this Section 1202, the Company and the Guarantors shall be deemed to have been
discharged from its obligations with respect to all Outstanding Notes and the
Note Guarantees on the date the conditions set forth in Section 1204 are
satisfied (hereinafter, "Legal Defeasance"). For this purpose, such Legal
Defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented by the Outstanding Notes and the Note
Guarantees, which shall thereafter be deemed to be "Outstanding" only for the
purposes of Section 1205 and the other Sections of this Indenture referred to
in (A) and (B) below, and to have satisfied all its other obligations under
such Notes and this Indenture insofar as
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such Notes are concerned (and the Trustee, at the expense of the Company, shall
execute proper instruments acknowledging the same), except for the following
which shall survive until otherwise terminated or discharged hereunder: (A)
the rights of Holders of outstanding Notes to receive payments in respect of
the principal of (and premium, if any, on) and interest on such Notes when such
payments are due from the trust described in Section 1204, (B) the Company's
obligations under Sections 304, 305, 308, 1002 and 1003, (C) the Company's
obligations under the Registration Rights Agreement, (D) the rights, powers,
trusts, duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (E) this Article Twelve. Subject to compliance with
this Article Twelve, the Company may exercise its option under this Section
1202 notwithstanding the prior exercise of its option under Section 1203 with
respect to the Notes.
SECTION 1203. Covenant Defeasance.
Upon the Company's exercise under Section 1201 of the option applicable to
this Section 1203, the Company and any Guarantor shall be released from its
obligations under any covenant contained in Section 801 and Section 803 and in
Sections 1006 through 1018 and Sections 1021 and 1022 with respect to the
Outstanding Notes on and after the date the conditions set forth below are
satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter
be deemed not to be "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 covenants, but shall continue to be deemed
"Outstanding" for all other purposes hereunder. For this purpose, such
Covenant Defeasance means that, with respect to the Outstanding Notes, the
Company and any Guarantor may omit to comply with and shall have no liability
in respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant 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 501(5),
but, except as specified above, the remainder of this Indenture and such Notes
shall be unaffected thereby.
SECTION 1204. Conditions to Legal Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section
1202 or Section 1203 to the Outstanding Notes:
(1) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Notes, cash in U.S. dollars, U.S.
Government Obligations, or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any,
and interest on the outstanding Notes on the Stated Maturity or on the
applicable redemption date, as the case may be, and the Company
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must specify whether the Notes are being defeased to maturity or
to a particular redemption date;
(2) in the case of an election under Section 1202 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that (A)
the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of this
Indenture, 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 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;
(3) in the case of an election under Section 1203 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that 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;
(4) 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) 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;
(5) 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 Restricted Subsidiaries is a party or by which the Company
or any of its Restricted Subsidiaries is bound;
(6) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of Notes over other creditors of the Company or
the Guarantors or with the intent of defeating, hindering, delaying or
defrauding creditors of the Company, the Guarantors or others;
(7) the Company must have delivered an Opinion of Counsel to the
effect that after the 91st day following the deposit, the trust funds
will not be subject to the
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effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally; and
(8) the Company must deliver to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
relating to Legal Defeasance or Covenant Defeasance, as the case may be,
have been complied with.
SECTION 1205. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all money
and U.S. Government Obligations (including the proceeds thereof) deposited with
the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1205, the "Trustee") pursuant to Section 1204 in respect of the
Outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Notes of all sums due and to become due thereon in respect of principal
(and premium, if any) and interest, but such money need not be segregated from
other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 1204 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of the Outstanding Notes.
Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1204 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent Legal Defeasance or
Covenant Defeasance, as applicable, in accordance with this Article.
SECTION 1206. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1205 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 Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 1202 or 1203, as the case may be,
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until such time as the Trustee or Paying Agent is permitted to apply all such
money in accordance with Section 1205; provided, however, that if the Company
makes any payment of principal of (or premium, if any) or interest on any Note
following the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Notes to receive such payment from the
money held by the Trustee or Paying Agent.
ARTICLE THIRTEEN
GUARANTEES
SECTION 1301. Note Guarantees.
Each Guarantor hereby jointly and severally, fully, unconditionally and
irrevocably guarantees the Notes and obligations of the Company hereunder and
thereunder, and guarantees to each Holder of a Note authenticated and delivered
by the Trustee and to the Trustee on behalf of such Holder, that: (a) the
principal of (and premium, if any) and interest on the Notes will be paid in
full when due, whether at Stated Maturity, by acceleration, call for redemption
or otherwise (including, without limitation, the amount that would become due
but for the operation of the automatic stay under Section 362(a) of the Federal
Bankruptcy Code), together with interest on the overdue principal, if any, and
interest on any overdue interest, to the extent lawful, and all other
obligations of the Company to the Holders or the Trustee hereunder or
thereunder will be paid in full or performed, all in accordance with the terms
hereof and thereof; and (b) in case of any extension of time of payment or
renewal of any Notes or of any such other obligations, the same will be paid in
full when due or performed in accordance with the terms of the extension or
renewal, whether at Stated Maturity, by acceleration or otherwise, subject,
however, in the case of clauses (a) and (b) above, to the limitations set forth
in Section 1306 hereof. Each of the Note Guarantees shall be a guarantee of
payment and not of collection.
Each Guarantor hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of
the Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise constitute
a legal or equitable discharge or defense of a Guarantor.
Each Guarantor hereby waives the benefits of diligence, presentment,
demand for payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company or any other Person, protest, notice and all demands whatsoever and
covenants that the Note Guarantee of such Guarantor will not be discharged as
to any Note except by complete performance of the
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obligations contained in such Note and such Note Guarantee or as provided for
in this Indenture. Each of the Guarantors hereby agrees that, in the event of
a default in payment of principal (or premium, if any) or interest on such
Note, whether at its Stated Maturity, by acceleration, call for redemption,
purchase or otherwise, legal proceedings may be instituted by the Trustee on
behalf of, or by, the Holder of such Note, subject to the terms and conditions
set forth in this Indenture, directly against each of the Guarantors to enforce
such Guarantor's Note Guarantee without first proceeding against the Company or
any other Guarantor. Each Guarantor agrees that if, after the occurrence and
during the continuance of an Event of Default, the Trustee or any of the
Holders are prevented by applicable law from exercising their respective rights
to accelerate the maturity of the Notes, to collect interest on the Notes, or
to enforce or exercise any other right or remedy with respect to the Notes,
such Guarantor will pay to the Trustee for the account of the Holders, upon
demand therefor, the amount that would otherwise have been due and payable had
such rights and remedies been permitted to be exercised by the Trustee or any
of the Holders.
If any Holder or the Trustee is required by any court or otherwise to
return to the Company or any Guarantor, or any custodian, trustee, liquidator
or other similar official acting in relation to either the Company or any
Guarantor, any amount paid by any of them to the Trustee or such Holder, the
Note Guarantee of each of the Guarantors, to the extent theretofore discharged,
shall be reinstated in full force and effect. Each Guarantor further agrees
that, as between each Guarantor, on the one hand, and the Holders and the
Trustee, on the other hand, (x) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article Five hereof for the purposes
of the Note Guarantee of such Guarantor, notwithstanding any stay, injunction
or other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Article Five hereof, such obligations (whether or not due and
payable) shall forthwith become due and payable by each Guarantor for the
purpose of the Note Guarantee of such Guarantor.
SECTION 1302. Execution and Delivery of Note Guarantee.
To further evidence the Note Guarantee set forth in Section 1301, each
Guarantor hereby agrees that such Note Guarantee, substantially in the form
included in Exhibit B of this Indenture, shall be endorsed on each Note
authenticated and delivered by the Trustee. Such Note Guarantee shall be
executed by manual or facsimile signature on behalf of each Guarantor by its
Chairman, any Vice Chairman, its President or a Vice President and attested by
its Secretary or Assistant Secretary, and shall have been duly authorized by
all requisite corporate action. The validity and enforceability of any Note
Guarantee shall not be affected by the fact that it is not affixed to any
particular Note.
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Each Guarantor hereby agrees that its respective Note Guarantee set forth
in Section 1301 shall remain in full force and effect notwithstanding any
failure to endorse on each note a notation of such Note Guarantee.
The delivery of any Note by the Trustee, after the authentication thereof
hereunder, shall constitute due delivery of any Note Guarantee set forth in
this Indenture on behalf of the Guarantors.
SECTION 1303. Severability.
In case any provision of any Note Guarantee 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 1304. Seniority of Guarantees.
The obligations of each Guarantor to the Holders of Notes and to the
Trustee pursuant to such Guarantor's Note Guarantee and this Indenture are
unsecured senior subordinated obligations of such Guarantor ranking pari passu
in right of payment with all existing and future senior subordinated
obligations of such Guarantor.
SECTION 1305. Limitation of Guarantor's Liability.
Each Guarantor and by its acceptance hereof each Holder confirms that it
is the intention of all such parties that the guarantee by each Guarantor
pursuant to its Note Guarantee not constitute a fraudulent transfer or
conveyance for purposes of the Federal Bankruptcy Code, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or
state law or the provisions of its local law relating to fraudulent transfer or
conveyance. To effectuate the foregoing intention, the Holders and such
Guarantor hereby irrevocably agree that the obligations of such Guarantor under
its Note Guarantee shall be limited to the maximum amount that will not, after
giving effect to all other contingent and fixed liabilities of such Guarantor
and after giving effect to any collections from or payments made by or on
behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Note Guarantee or pursuant to Section 1306 hereof, result
in the obligations of such Guarantor under its Note Guarantee constituting such
fraudulent transfer or conveyance.
SECTION 1306. Contribution.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under a
Guarantee, such Funding Guarantor shall be
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entitled to a contribution from all other Guarantors in a pro rata amount based
on the Adjusted Net Assets of each Guarantor (including the Funding Guarantor)
for all payments, damages and expenses incurred by that Funding Guarantor in
discharging the Company's obligations with respect to the Notes or any other
Guarantor's obligations with respect to the Note Guarantee of such Guarantor.
"Adjusted Net Assets" of such Guarantor at any date shall mean the lesser of
(x) the amount by which the fair value of the property of such Guarantor
exceeds the total amount of liabilities, including, without limitation,
contingent liabilities (after giving effect to all other fixed and contingent
liabilities incurred or assumed on such date), but excluding liabilities under
the Guarantee of such Guarantor at such date and (y) the amount by which the
present fair salable value of the assets of such Guarantor at such date exceeds
the amount that will be required to pay the probable liability of such
Guarantor on its debts (after giving effect to all other fixed and contingent
liabilities incurred or assumed on such date), excluding debt in respect of the
Note Guarantee of such Guarantor, as they become absolute and matured.
SECTION 1307. Release of a Guarantor.
(a) A Guarantor will be deemed automatically and unconditionally released
and discharged from all of its obligations under its Note Guarantee and its
guarantee of Indebtedness of the Company under the New Credit Agreement without
any further action on the part of the Trustee or any Holder of the Notes upon
(i) a sale or other disposition to a Person not an Affiliate of the Company of
all of the Capital Stock of, or all or substantially all of the assets of, such
Guarantor, by way of merger, consolidation or otherwise, which transaction is
carried out in accordance with Section 801 and 1016; or (ii) the release of any
Guarantor from its obligations as a guarantor under the New Credit Agreement,
so long as (a) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect on a pro forma
basis to, such release, (b) the Company is permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in subsection (a) of Section 1010 on the date on which such release
occurs, and (c) the amount of Indebtedness outstanding under the New Credit
Agreement for at least 30 days prior to the time of such release is at least
$200 million of its obligations; provided that any such termination shall occur
(x) only to the extent that all obligations of such Guarantor under all of its
guarantees of, and under all of its pledges of assets or other security
interests which secure any Indebtedness of the Company shall also terminate
upon such sale, disposition or release and (y) only if the Trustee is furnished
with written notice of such release together with an Officer's Certificate
from such Guarantor to the effect that all of the conditions to release in this
Section 1307(a) have been satisfied.
(b) Any Guarantor that is designated by the Board of Directors of the
Company as an Unrestricted Subsidiary in accordance with the terms of this
Indenture may, at such time, at the option of the Board of Directors, be
released and relieved of its obligations under its Note Guarantee and its
guarantee of Indebtedness of the Company under
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the New Credit Agreement. The Trustee shall deliver an appropriate instrument
evidencing such release upon receipt of a Company Request accompanied by an
Officers' Certificate certifying as to the compliance with this Section 1307.
Any Guarantor not so released shall remain liable for the full amount of
principal of and interest on the Notes as provided in its Note Guarantee.
(c) Concurrently with the Legal Defeasance of the Notes under Section 1202
hereof, or the Covenant Defeasance of the Notes under Section 1203 hereof, the
Guarantors shall be released from all their obligations under their Note
Guarantees under this Article Thirteen.
SECTION 1308. Benefits Acknowledged.
Each Guarantor acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by this Indenture and
that its guarantee and waivers pursuant to its Guarantee are knowingly made in
contemplation of such benefits.
SECTION 1309. Issuance of Guarantees by Certain New Restricted
Subsidiaries.
The Company shall provide to the Trustee, on the date that any Person
becomes a Restricted Subsidiary, a supplemental indenture to this Indenture,
executed by such new Restricted Subsidiary, providing for a full and
unconditional guarantee on a senior subordinated basis by such new Restricted
Subsidiary of the Company's obligations under the Notes and this Indenture to
the same extent as that set forth in this Indenture, provided that any such
Restricted Subsidiary that is organized outside the United States shall not be
required to provide a Note Guarantee so long as such Restricted Subsidiary has
not guaranteed any other Indebtedness of the Company or of any other Restricted
Subsidiary.
ARTICLE FOURTEEN
SUBORDINATION
SECTION 1401. Notes Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder, by its acceptance
thereof, likewise covenants and agrees, for the benefit of the Holders, from
time to time, of Senior Indebtedness that, to the extent and in the manner
hereinafter set forth in this Article, the Indebtedness represented by the
Notes and the payment of the principal of (and premium, if any) and interest on
each and all of the Notes are hereby expressly made subordinate and subject in
right of payment as provided in this Article to the prior payment in full in
cash of all Senior Indebtedness, whether outstanding on the date of this
Indenture or thereafter
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incurred; provided, however, that the Notes, the Indebtedness represented
thereby and the payment of the principal of (and premium, if any) and interest
on the Notes in all respects shall rank equally with, or prior to, all existing
and future unsecured indebtedness (including, without limitation, Indebtedness)
of the Company that is subordinated to Senior Indebtedness.
SECTION 1402. Payment over by the Company of Proceeds upon
Dissolution, etc.
Upon any 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,
(1) the holders of Senior Indebtedness of the Company shall be
entitled to receive payment in full in cash of all Obligations due in
respect of such Senior Indebtedness (including interest after the
commencement of any such proceeding at the rate specified in the
applicable Senior Indebtedness) before the Holders will be entitled to
receive any payment with respect to the Notes, and until all Obligations
with respect to Senior Indebtedness are paid in full in cash, any
distribution to which the Holders would be entitled shall be made to the
holders of Senior Indebtedness (except that Holders may receive
securities that are subordinated at least to the same extent as the Notes
to Senior Indebtedness ("Permitted Junior Securities") and any securities
issued in exchange for Senior Indebtedness and Holders may recover
payments made from the trust described in Section 1204); and
(2) in the event that, notwithstanding the foregoing provisions of
this Section, the Trustee or any Holder shall have received any payment
or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, in respect of principal of (and
premium, if any) or interest on the Notes before all Senior Indebtedness
is paid in full or payment thereof provided for (such provision with
respect to Senior Indebtedness under the New Credit Agreement being
satisfactory to each Lender), and if such fact shall at or prior to the
time of such payment or distribution, have been made known to the Trustee
or such Holder, as the case may be, by the Agent Bank, then and in such
event such payment or distribution (other than a payment or distribution
in the form of Permitted Junior Securities or out of the trust described
in Section 1204) shall be paid over or delivered forthwith to the trustee
in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent
or other Person making payment or distribution of assets of the Company
for application to the payment of all Senior Indebtedness remaining
unpaid, to the extent necessary to pay all Senior Indebtedness in full,
after giving effect to any concurrent payment or distribution to or for
the holders of Senior Indebtedness.
<PAGE> 106
95
The consolidation of the Company with, or the merger of the Company into,
another Person or the liquidation or dissolution of the Company following the
conveyance, transfer or lease of its properties and assets substantially as an
entirety to another Person upon the terms and conditions set forth in Article
Eight shall not be deemed a dissolution, winding up, liquidation,
reorganization, assignment for the benefit of creditors or marshalling of
assets and liabilities of the Company for the purposes of this Section if the
Person formed by such consolidation or into which the Company is merged or the
Person which acquires by conveyance, transfer or lease such properties and
assets substantially as an entirety, as the case may be, shall, as a part of
such consolidation, merger, conveyance, transfer or lease, comply with the
conditions set forth in Article Eight.
SECTION 1403. Suspension of Payment on Notes When Senior Indebtedness
of the Company in Default.
(a) Unless Section 1402 shall be applicable, the Company shall not make
any payment upon or in respect of the Notes (except in such Permitted Junior
Securities or from the trust described in Section 1204) if
(i) a default in the payment of the principal of, premium, if
any, or interest on Designated Senior Indebtedness occurs and is
continuing beyond any applicable period of grace (a "Payment Event
of Default") which is notified to the Trustee in writing from the
Company, the Agent or any other representative of holders of
Designated Senior Indebtedness, or
(ii) any Non-payment Event of Default occurs and is continuing
with respect to Designated Senior Indebtedness which permits
holders of the Designated Senior Indebtedness as to which such
default relates to accelerate its maturity and the Trustee receives
a notice of such default (a "Payment Blockage Notice") from the
Agent Bank or the holders or the representative of the holders of
any Designated Senior Indebtedness.
(b) Payments on the Notes may and shall be resumed (a) in the case of a
Payment Event of Default, upon the date on which such default is cured or
waived and (b) in case of a Non-payment Event of Default, the earlier of the
date on which such Non-payment Event of 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 Indebtedness has been accelerated.
No new period of payment blockage may be commenced by a Payment Blockage
Notice unless and until 360 days have elapsed since the first day of the
effectiveness of the immediately prior Payment Blockage Notice. No Non-payment
Event of 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 has been cured or
waived for a period of not less than 90 days.
<PAGE> 107
96
SECTION 1404. Payment Over by Guarantors of Proceeds upon
Dissolution, etc.
Upon any 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,
(1) the holders of Senior Indebtedness of such Guarantor shall be
entitled to receive indefeasible payment in full in cash of all
Obligations due in respect of such Senior Indebtedness (including
interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Indebtedness) before the Holders will
be entitled to receive any payment with respect to the respective Note
Guarantee, and until all Obligations with respect to Senior Indebtedness
of such Guarantor and Senior Indebtedness of the Company are paid in full
in cash, any distribution to which the Holders would be entitled shall be
made to the holders of such Senior Indebtedness (except that Holders may
receive (i) Capital Stock of such Guarantor (other than Disqualified
Stock) and (ii) Permitted Junior Securities and any securities issued in
exchange for such Senior Indebtedness); and
(2) in the event that, notwithstanding the foregoing provisions of
this Section, the Trustee or any Holder shall have received any payment
or distribution of assets of such Guarantor of any kind or character,
whether in cash, property or securities, in respect of principal of (and
premium, if any) or interest on the Notes before all Senior Indebtedness
of such Guarantor is paid in full or payment thereof provided for (such
provision with respect to Senior Indebtedness under the New Credit
Agreement being satisfactory to each Lender), and if such fact shall at
or prior to the time of such payment or distribution, have been made
known to the Trustee or such Holder, as the case may be, by the Agent
Bank, then and in such event such payment or distribution (other than a
payment or distribution in the form of Permitted Junior Securities) shall
be paid over or delivered forthwith to the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee, agent or other Person
making payment or distribution of assets of such Subsidiary for
application to the payment of all Senior Indebtedness of such Guarantor
remaining unpaid, to the extent necessary to pay all such Senior
Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
The consolidation of any Guarantor with, or the merger of any Guarantor
into, another Person or the liquidation or dissolution of any Guarantor
following the conveyance, transfer or lease of its properties and assets
substantially as an entirety to another Person upon the terms and conditions
set forth in Article Eight shall not be deemed a
<PAGE> 108
97
dissolution, winding up, liquidation, reorganization, assignment for the
benefit of creditors or marshalling of assets and liabilities of such Guarantor
for the purposes of this Section if the Person formed by such consolidation or
into which such Guarantor is merged or the Person which acquires by conveyance,
transfer or lease such properties and assets substantially as an entirety, as
the case may be, shall, as a part of such consolidation, merger, conveyance,
transfer or lease, comply with the conditions set forth in Article Eight.
SECTION 1405. Suspension of Payment on Note Guarantees When Senior
Indebtedness of Guarantor in Default.
(a) Unless Section 1404 shall be applicable, a Guarantor shall not make
any payment upon or in respect of such Guarantor's Note Guarantee (except in
such Permitted Junior Securities) if
(i) a Payment Event of Default on Designated Senior
Indebtedness of such Guarantor or Designated Senior Indebtedness of
the Company occurs and is continuing beyond any applicable period
of grace which is notified to the Trustee in writing from such
Guarantor, the Agent or any other representative of holders of
Designated Senior Indebtedness, or
(ii) any Non-payment Event of Default occurs and is continuing
with respect to Designated Senior Indebtedness of such Guarantor or
Designated Senior Indebtedness of the Company which permits holders
of the Designated Senior Indebtedness of such Guarantor or
Designated Senior Indebtedness of the Company as to which such
default relates to accelerate its maturity and the Trustee receives
a Payment Blockage Notice from the Agent Bank or the holders or the
representative of the holders of such Designated Senior
Indebtedness.
(b) Payments on the Note Guarantees may and shall be resumed (a) in the
case of a Payment Event of Default, upon the date on which such default is
cured or waived and (b) in case of a Non-payment Event of Default, the earlier
of the date on which such Non-payment Event of 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 Indebtedness has been
accelerated. No new period of payment blockage may be commenced by a Payment
Blockage Notice unless and until 360 days have elapsed since the first day of
the effectiveness of the immediately prior Payment Blockage Notice. No
Non-payment Event of 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 has
been cured or waived for a period of not less than 90 days.
<PAGE> 109
98
SECTION 1406. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture, in any
of the Notes or in any Note Guarantee shall prevent the Company or any
Guarantors, as applicable, at any time except during the pendency of any case,
proceeding, dissolution, liquidation or other winding up, assignment for the
benefit of creditors or other marshalling of assets and liabilities of the
Company or any Guarantor referred to in Section 1402 or 1404 or under the
conditions described in Section 1403 or 1405, from making payments at any time
of principal of (and premium, if any, on) or interest on the Notes or under a
Guarantee, as applicable.
SECTION 1407. Subrogation to Rights of Holders of Senior
Indebtedness.
Subject to the payment in full of all Senior Indebtedness, the Holders
shall be subrogated (equally and ratably with the holders of all indebtedness
of the Company or any Guarantor which by its express terms is subordinated to
Senior Indebtedness of the Company or such Guarantor to the same extent as the
Notes or the Note Guarantees are subordinated and which is entitled to like
rights of subrogation) to the rights of the holders of such Senior Indebtedness
to receive payments and distributions of cash, property and securities
applicable to the Senior Indebtedness until the principal of (and premium, if
any) and interest on the Notes shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of Senior Indebtedness
of any cash, property or securities to which the Holders or the Trustee would
be entitled except for the provisions of this Article, and no payments over
pursuant to the provisions of this Article to the holders of Senior
Indebtedness by Holders or the Trustee, shall, as among the Company, the
Guarantors, their respective creditors other than holders of Senior
Indebtedness, and the Holders of the Notes, be deemed to be a payment or
distribution by the Company or any Guarantor to or on account of the Senior
Indebtedness.
SECTION 1408. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the purpose
of defining the relative rights of the Holders of the Notes on the one hand and
the holders of Senior Indebtedness on the other hand. Nothing contained in
this Article or elsewhere in this Indenture or in the Notes is intended to or
shall (a) impair, as between the Company, or any Guarantor as applicable, and
the Holders, the obligation of the Company or such Guarantor, which is absolute
and unconditional, to pay to the Holders the principal of (and premium, if any)
and interest on the Notes as and when the same shall become due and payable in
accordance with their terms; or (b) affect the relative rights against the
Company or any Guarantor of the Holders and creditors of the Company or such
Guarantor other than the holders of Senior Indebtedness; or (c) prevent the
Trustee or any Holder from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if
any, under this Article of the holders of Senior Indebtedness.
<PAGE> 110
99
SECTION 1409. Trustee to Effectuate Subordination.
Each Holder of a Note by his acceptance thereof authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
effectuate the subordination provided in this Article and appoints the Trustee
his attorney-in-fact for any and all such purposes.
SECTION 1410. No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or any Guarantor, or by any act or failure to act, in good faith, by any such
holder, or by any non-compliance by the Company or any Guarantor with the
terms, provisions and covenants of this Indenture, regardless of any knowledge
thereof any such holder may have or be otherwise charged with.
(b) Without in any way limiting the generality of paragraph (a) of this
Section, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Notes, without incurring responsibility to the Holders and without impairing or
releasing the subordination provided in this Article or the obligations
hereunder of the Holders to the holders of Senior Indebtedness, do any one or
more of the following: (1) change the manner, place or terms of payment or
extend the time of payment of, or renew or alter, Senior Indebtedness or any
instrument evidencing the same or any agreement under which Senior Indebtedness
is outstanding; (2) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness; (3) release any
Person liable in any manner for the collection of Senior Indebtedness; and (4)
exercise or refrain from exercising any rights against the Company, any
Guarantor and any other Person.
SECTION 1411. Notice to Trustee.
(a) The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Notes. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Notes, unless and
until the Trustee shall have received written notice thereof from the Company,
the Agent or a holder of Senior Indebtedness or from any trustee, fiduciary or
agent therefor; and, prior to the receipt of any such written notice, the
Trustee, subject to TIA Sections 315(a) through 315(d), shall be entitled in
all respects to assume that no such facts exist; provided, however, that, if
the Trustee shall not have received the notice provided for in this Section at
least three Business Days prior to the date upon which by the
<PAGE> 111
100
terms hereof any money may become payable for any purpose (including, without
limitation, the payment of the principal of (and premium, if any) or interest
on any Note), then, anything herein contained to the contrary notwithstanding,
the Trustee shall have full power and authority to receive such money and to
apply the same to the purpose for which such money was received and shall not
be affected by any notice to the contrary which may be received by it within
three Business Days prior to such date.
(b) Subject to TIA Sections 315(a) through 315(d), the Trustee shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor) to establish that such notice has been given by a
holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor). In
the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article 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.
SECTION 1412. Reliance on Judicial Order or Certificate of
Liquidating Agent.
Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee, subject to TIA Sections 315(a) through 315(d), and
the Holders shall be entitled to rely upon any order or decree entered by any
court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee for the benefit of
creditors, agent or other Person making such payment or distribution, delivered
to the Trustee or to the Holders, for the purpose of ascertaining the Persons
entitled to participate in such payment or distribution, the holders of Senior
Indebtedness and other indebtedness 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.
SECTION 1413. Rights of Trustee As a Holder of Senior Indebtedness;
Preservation of Trustees Rights.
<PAGE> 112
101
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article with respect to any Senior Indebtedness which may at
any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. Nothing in this Article shall apply to claims of,
or payments to, the Trustee under or pursuant to Section 607.
SECTION 1414. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee; provided,
however, that Section 1413 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
SECTION 1415. No Suspension of Remedies.
Nothing contained in this Article shall limit the right of the Trustee or
the Holders to take any action to accelerate the maturity of the Notes pursuant
to Article Five or to pursue any rights or remedies hereunder or under
applicable law, except as provided in Article Five.
SECTION 1416. Trust Moneys Not Subordinated.
Notwithstanding anything contained herein to the contrary, payments from
cash or the proceeds of U.S. Government Obligations held in trust under Article
Twelve hereof by the Trustee (or other qualifying trustee) and which were
deposited in accordance with the terms of Article Twelve hereof and not in
violation of Section 1403 hereof for the payment of principal of (and premium,
if any) and interest on the Notes shall not be subordinated to the prior
payment of any Senior Indebtedness or subject to the restrictions set forth in
this Article Fourteen, and none of the Holders shall be obligated to pay over
any such amount to the Company or any holder of Senior Indebtedness or any
other creditor of the Company.
SECTION 1417. Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to the holders
of Senior Indebtedness and shall not be liable to any such holders if it shall
in good faith mistakenly pay over or distribute to Holders or to the Company or
to any other Person cash, property or securities to which any holders of Senior
Indebtedness shall be entitled by virtue of this Article or otherwise.
<PAGE> 113
102
This Indenture may be signed in any number of counterparts each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same Indenture.
<PAGE> 114
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and the Company has caused its corporate seal to be hereunto
affixed and attested, all as of the day and year first above written.
EXTENDICARE HEALTH SERVICES, INC.
[SEAL] By: ___________________________________
Name:
Title:
Attest: ___________________
Secretary
ADULT SERVICES UNLIMITED, INC.
AHC ACQUISITION CORP.
ALTERNACARE PLUS ENTERPRISES, INC.
ARBOR HEALTH CARE COMPANY
ARBORS EAST, INC.
ARBORS AT FT. WAYNE, INC.
ARBORS AT TOLEDO, INC.
BAY GERIATRIC PHARMACY, INC.
COVENTRY CARE, INC.
EDGEWOOD NURSING CENTER, INC.
ELDER CREST, INC.
EXTENDICARE GREAT TRAIL, INC.
EXTENDICARE HEALTH FACILITIES, INC.
EXTENDICARE HEALTH FACILITY HOLDINGS, INC.
EXTENDICARE HOMES, INC.
EXTENDICARE OF INDIANA, INC.
FIR LANE TERRACE CONVALESCENT CENTER, INC.
HAVEN CREST, INC.
HEALTH POCONOS, INC.
HOME CARE PHARMACY, INC. OF FLORIDA
MARSHALL PROPERTIES, INC.
MEADOW CREST, INC.
NORTHERN HEALTH FACILITIES, INC.
OAK HILL HOME OF REST AND CARE, INC.
Q.D. PHARMACY, INC.
POLY-STAT COMPUTER APPLICATIONS, INC.
<PAGE> 115
POLY-STAT SUPPLY CORPORATION
THE DRUGGIST INC.
THE PROGRESSIVE STEP CORPORATION
UNITED PROFESSIONAL COMPANIES, INC.
UNITED PROFESSIONAL SERVICES, INC.
UNITED REHABILITATION SERVICES, INC.
Each, a Subsidiary Guarantor
By: ___________________________________
Name:
Title:
Attest: __________________
Secretary
THE BANK OF NOVA SCOTIA TRUST COMPANY OF
NEW YORK,
as Trustee
By: ___________________________________
Name:
Title:
<PAGE> 116
Exhibit A
---------
[FACE OF NOTE]
EXTENDICARE HEALTH SERVICES, INC.
9.35% [Series B]** Senior Subordinated Note Due 2007
CUSIP _________
No. _______ $_________________
EXTENDICARE HEALTH SERVICES, INC., a Delaware corporation (the "Company",
which term includes any successor under the Indenture hereinafter referred to),
for value received, promises to pay to ___________, or its registered assigns,
the principal sum of _________________________________ ($___________), on
December 15, 2007.
<TABLE>
<S> <C>
[Initial Interest Rate: 9.35% per annum.]*
[Interest Rate: 9.35% per annum.]**
Interest Payment Dates: June 15 and December 15 of each year
commencing June 15, 1998.
Regular Record Dates: May 31 and November 30 of each year.
</TABLE>
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
- -------------------------
*Include only for Initial Notes.
**Include only for Exchange Notes.
A-1
<PAGE> 117
IN WITNESS WHEREOF, the Company has caused this Note to be executed under
its corporate seal.
<TABLE>
<S> <C>
Date: ______________ EXTENDICARE HEALTH
SERVICES, INC.
By: __________________________
Title:
Attest: _______________________
Secretary
</TABLE>
A-2
<PAGE> 118
Form of Trustee's Certificate of Authentication
This is one of the 9.35% [Series B]** Senior Subordinated Notes due 2007
described in the within-mentioned Indenture.
<TABLE>
<S> <C>
Date: _______________ THE BANK OF NOVA SCOTIA TRUST
COMPANY OF NEW YORK,
as Trustee
By: _____________________________
Authorized Signatory
</TABLE>
________________________
** Include only for Exchange Notes.
A-3
<PAGE> 119
[REVERSE SIDE OF NOTE]
EXTENDICARE HEALTH SERVICES, INC.
9.35% [Series B]** Senior Subordinated Note due 2007
1. Principal and Interest.
The Company will pay the principal of this Note on December 15, 2007.
The Company promises to pay interest on the principal amount of this Note
on each Interest Payment Date, as set forth below, at the rate of [9.35% per
annum (subject to adjustment as provided below)]* [9.35% per annum, except that
interest accrued on this Note pursuant to the penultimate paragraph of this
Section 1 for periods prior to the applicable Exchange Date (as such term is
defined in the Registration Rights Agreement referred to below) will accrue at
the rate or rates borne by the Notes from time to time during such periods].**
Interest will be payable semiannually (to the Holders of record of the
Notes (or any predecessor Notes) at the close of business on the June 15 or
December 15 immediately preceding the Interest Payment Date) on each Interest
Payment Date, commencing June 15, 1998.
[If (a) the Company fails to file the Exchange Registration Statement
required by the Registration Rights Agreement on or prior to the 45th calendar
day following the Closing Date or (b) the Exchange Offer is not consummated or
a Shelf Registration Statement is not declared effective on or prior to the
135th calendar day following the Closing Date, the interest rate borne by the
Notes will be increased by 0.5 percent per annum for the first 30 days
following the 45-day period referred to in clause (a) above or the first 90-day
period following the 135-day period referred to in the case of clause (b)
above. Such interest will increase by an additional 0.5 percent per annum at
the beginning of each subsequent 30-day period in the case of clause (a) above
or 90-day period in the case of clause (b) above; provided, however, that in no
event will the interest rate borne by the Notes be increased by more than 1.5
percent. Upon the filing of the Exchange Offer Registration Statement, the
consummation of the Exchange Offer or the effectiveness of a Shelf Registration
Statement, as the case may be, the interest rate borne by the Notes from
- -------------------------
*Include only for Initial Notes.
**Include only for Exchange Notes.
A-4
<PAGE> 120
the date of such filing, consummation or effectiveness, as the case may be,
will be reduced to 9.35%; provided, however, that, if after any such reduction
in interest rate, a different event specified in clause (a) or (b) above
occurs, the interest rate may again be increased pursuant to the foregoing
provisions.]
Interest on this Note will accrue from the most recent date to which
interest has been paid [on this Note or the Note surrendered in exchange
herefor]** or, if no interest has been paid, from December 2, 1997; provided
that, if there is no existing default in the payment of interest and if this
Note is authenticated between a Regular Record Date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue
from such Interest Payment Date. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and premium, if any,
and interest on overdue installments of interest, to the extent lawful, at a
rate per annum equal to the rate of interest applicable to the Notes.
2. Method of Payment.
The Company will pay interest (except defaulted interest) on the principal
amount of the Notes on each June 15 and December 15 to the persons who are
Holders (as reflected in the Register at the close of business on the May 31
and November 30 immediately preceding the Interest Payment Date), in each case,
even if the Note is cancelled on registration of transfer or registration of
exchange after such record date.
The principal of (and premium, if any), and interest on the Notes shall be
payable, and the Notes shall be exchangeable and transferable, at the office or
agency of the Company in The City of New York maintained for such purposes,
(which initially shall be the office of the Trustee located at One Liberty
Plaza, 23rd Floor, New York, New York 10006) or, at the option of the Company,
interest may be paid by check mailed to the address of the Person entitled
thereto as such address shall appear on the Register; provided that all
payments with respect to the U.S. Global Note and the Certificated Notes the
Holder of which have given wire transfer instructions to the Company will be
required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof.
____________________
** Include only for Exchange Notes.
A-5
<PAGE> 121
3. Paying Agent and Registrar.
Initially, the Trustee will act as Paying Agent and Registrar. The
Company may change any Paying Agent or Registrar upon written notice thereto.
The Company, any Subsidiary or any Affiliate of any of them may act as Paying
Agent, Registrar or co-registrar.
4. Note Guarantees.
This Note is initially entitled to the benefits of the Note Guarantee made
by the Guarantors as described in the Indenture and may thereafter be entitled
to Note Guarantees made by other Guarantors for the benefit of the Holders of
Notes. Each present Guarantor has, and each future Guarantor will, irrevocably
and unconditionally, jointly and severally, guarantee on a senior subordinated
basis the punctual payment when due, whether at Stated Maturity, by
acceleration, in connection with a Change of Control Offer, an Asset Sale Offer
or redemption, or otherwise, of all obligations of the Company under the
Indenture and this Note, whether for payment of principal of, premium, if any,
or interest, if any, on the Notes, expenses, indemnification or otherwise. A
Guarantor shall be released from its Note Guarantee upon the terms and subject
to the conditions set forth in the Indenture.
5. Subordination.
This Note and the Note Guarantees are subordinated in right of payment, as
set forth in the Indenture, to the prior payment in full of all existing and
future Senior Indebtedness. Each of the Company and the Guarantors agrees, and
each Holder by accepting a Note agrees, to the subordination provisions set
forth in the Indenture, authorizes the Trustee to give them effect and appoints
the Trustee as attorney-in-fact for such purposes.
6. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of December 2,
1997 (the "Indenture"), between the Company, the Guarantors and The Bank of
Nova Scotia Trust Company of New York, as trustee (the "Trustee"). Capitalized
terms herein are used as defined in the Indenture unless otherwise indicated.
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act. The Notes are
subject to all such terms, and Holders are referred to the Indenture and the
Trust Indenture Act for a statement of all such terms. To the extent permitted
by applicable law, in the event of any inconsistency between the terms of this
Note and the terms of the Indenture, the terms of the Indenture shall control.
The Notes are general unsecured obligations of the Company.
A-6
<PAGE> 122
7. Redemption.
Optional Redemption. The Notes may be redeemed at the option of the
Company, in whole or in part, at any time and from time to time on or after
December 15, 2002, at the following Redemption Prices (expressed in percentages
of principal amount), plus accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date to receive interest due on an Interest Payment Date that is
on or prior to the Redemption Date), if redeemed during the 12-month period
beginning December 15 of each of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
- ---- ----------
<S> <C>
December 15, 2002 ................. 104.675%
December 15, 2003 ................. 103.117%
December 15, 2004 ................. 101.558%
December 15, 2005 and thereafter .. 100.00%
</TABLE>
In addition, at any time or from time to time prior to December 15, 2000,
the Company may redeem up to 35% of the sum of (i) the initial aggregate
principal amount of the Notes and (ii) the initial aggregate principal amount
of any Additional Notes on one or more occasions with the net proceeds of one
or more Equity Offerings at a redemption price equal to 109.35% of the
principal amount thereof, plus accrued interest, if any, to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on an interest payment date); provided that, immediately
after giving effect to such redemption, at least 65% of the sum of (x) the
initial aggregate principal amount of the Notes and (y) the initial aggregate
principal amount of any Additional Notes remains outstanding; provided further
that such redemptions shall occur within 60 days of the date of closing of each
Equity Offering.
Notice of a redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder to be redeemed at such
Holder's last address as it appears in the Register. Notes in original
denominations larger than $1,000 may be redeemed in part in integral multiples
of $1,000. On and after the Redemption Date, interest ceases to accrue on
Notes or portions of Notes called for redemption, unless the Company defaults
in the payment of the Redemption Price.
8. Repurchase upon a Change in Control and Asset Sales.
(a) If a Change of Control occurs at any time, then, each Holder of Notes
or Additional Notes shall have the right to require that the Company purchase
such Holder's Notes or Additional Notes, as applicable, in whole or in part in
integral multiples of $1,000, at a purchase price in cash equal to 101% of the
principal amount of such Notes or
A-7
<PAGE> 123
Additional Notes, plus accrued and unpaid interest, if any, to the date of
purchase, pursuant to the offer described in the Indenture (the "Change of
Control Offer") and (b) upon Asset Sales, the Company may be obligated to make
offers to purchase Notes with a portion of the Net Cash Proceeds of such Asset
Sales at a redemption price of 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase in accordance with
the procedures set forth in the Indenture.
9. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons, in denominations of
$1,000 and multiples of $1,000 in excess thereof; provided that Certificated
Notes originally purchased by or transferred to institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act) who are not "qualified institutional buyers" (as defined in Rule 144A
under the Securities Act) will be subject to a minimum denomination of
$250,000. A Holder may register the transfer or exchange of Notes in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer or exchange of any Notes selected for
redemption (except the unredeemed portion of any Note being redeemed in part).
Also, it need not register the transfer or exchange of any Notes for a period
of 15 days before a selection of Notes to be redeemed is made.
10. Persons Deemed Owners.
A Holder may be treated as the owner of a Note for all purposes.
11. Unclaimed Money.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company at its request. After that, Holders entitled to the
money must look to the Company for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity.
If the Company irrevocably deposits, or causes to be deposited, with the
Trustee money or U.S. Government Obligations sufficient to pay the then
outstanding principal of, premium, if any, and accrued interest on the Notes to
redemption or maturity,
A-8
<PAGE> 124
the Company will be discharged from the Indenture and the Notes, except in
certain circumstances for certain sections thereof.
13. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may be amended
or supplemented with the consent of the Holders of at least a majority in
aggregate principal amount of the Notes then outstanding, and any existing
default or compliance with any provision may be waived with the consent of the
Holders of a majority in aggregate principal amount of the Notes then
outstanding. Without notice to or the consent of any Holder, the parties
thereto may amend or supplement the Indenture or the Notes to, among other
things, cure any ambiguity, defect or inconsistency.
14. Restrictive Covenants.
The Indenture contains certain covenants, including, without limitation,
covenants with respect to the following matters: (i) Indebtedness; (ii)
Restricted Payments; (iii) issuances and sales of Restricted Subsidiary Capital
Stock; (iv) transactions with Affiliates; (v) Liens; (vi) certain Asset Sales;
(vii) dividends and other payment restrictions affecting Restricted
Subsidiaries; (viii) mergers and certain transfers of assets. Within 120 days
after the end of each fiscal year, the Company must report to the Trustee on
compliance with such limitations.
15. Successor Persons.
When a successor person or other entity assumes all the obligations of its
predecessor under the Notes and the Indenture, the predecessor person will be
released from those obligations.
16. Remedies for Events of Default.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee or the Holders of not less than 25% in principal amount
of the Notes then outstanding may declare all the Notes to be immediately due
and payable. If a bankruptcy or insolvency default with respect to the Company
or any of its Significant Subsidiaries occurs and is continuing, the Notes
automatically become immediately due and payable. Holders may not enforce the
Indenture or the Notes except as provided in the Indenture. The Trustee may
require indemnity satisfactory to it before it enforces the Indenture or the
Notes. Subject to certain limitations, Holders of at least a majority in
principal amount of the Notes then outstanding may direct the Trustee in its
exercise of any trust or power.
A-9
<PAGE> 125
17. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other capacity,
may become the owner or pledgee of Notes and may make loans to, accept deposits
from, perform services for, and otherwise deal with, the Company and its
Affiliates as if it were not the Trustee.
18. No Recourse Against Certain Others
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes or 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 of any Guarantor, as such, shall have any
liability for any obligations of such Guarantor under its Note Guarantee or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes and the Note Guarantees.
19. Authentication.
This Note shall not be valid until the Trustee manually signs the
certificate of authentication on the other side of this Note.
20. Governing Law.
The Notes shall be governed by, and construed in accordance with, the law
of the State of New York.
21. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to Extendicare Health
Services, Inc.,
A-10
<PAGE> 126
105 W. Michigan Street, 9th Floor, Milwaukee, Wisconsin 53203, Attention:
Robert J. Abramowski, Vice President, Finance and Chief Financial Officer.
A-11
<PAGE> 127
[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 Note and all rights thereunder, hereby irrevocably constituting and
appointing
attorney to transfer such Note on the books of the Company with full power of
substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES
EXCEPT PERMANENT OFFSHORE PHYSICAL
CERTIFICATES]
In connection with any transfer of this Note occurring prior to the date
which is the earlier of the date of an effective Registration Statement or
December 1, 1999, the undersigned confirms that without utilizing any general
solicitation or general advertising that:
[Check One]
-----------
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended, provided
by Rule 144A thereunder.
or
- --
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents are being set forth in this Note furnished
which and the Indenture. comply with the conditions of transfer
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless
A-12
<PAGE> 128
and until the conditions to any such transfer of registration set forth herein
and in Section 307 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.
Signature Guarantee:
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note
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, as amended, 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
A-13
<PAGE> 129
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to Section
1015 or Section 1016 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 1015 or Section 1016 of the Indenture, state the amount (in
original principal amount) below:
$_____________________.
Date:
Your Signature:
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
A-14
<PAGE> 130
Exhibit B
---------
FORM OF SUBSIDIARY GUARANTEE
Each Guarantor hereby jointly and severally, absolutely, unconditionally
and irrevocably guarantees the Notes and obligations of the Company hereunder
and thereunder, and guarantees to each Holder of a Note authenticated and
delivered by the Trustee and to the Trustee on behalf of such Holder, that:
(a) the principal of (and premium, if any) and interest on the Notes will be
paid in full when due, whether at Stated Maturity, by acceleration, call for
redemption or otherwise (including, without limitation, the amount that would
become due but for the operation of the automatic stay under Section 362(a) of
the Federal Bankruptcy Code), together with interest on the overdue principal,
if any, and interest on any overdue interest, to the extent lawful, and all
other obligations of the Company to the Holders or the Trustee hereunder or
thereunder will be paid in full or performed, all in accordance with the terms
hereof and thereof; and (b) in case of any extension of time of payment or
renewal of any Notes or of any such other obligations, the same will be paid in
full when due or performed in accordance with the terms of the extension or
renewal, whether at Stated Maturity, by acceleration or otherwise, subject,
however, in the case of clauses (a) and (b) above, to the limitations set forth
in Section 1306 of the Indenture.
The obligations of the Guarantors to the Holders of the Notes and to the
Trustee pursuant to this Note Guarantee and the Indenture are expressly set
forth in Article Thirteen of the Indenture, and reference is hereby made to
such Indenture for the precise terms of this Note Guarantee. The terms of
Article Thirteen of the Indenture are incorporated herein by reference.
This is a continuing guarantee and shall remain in full force and effect
and shall be binding upon each Guarantor and its respective successors and
assigns to the extent set forth in the Indenture until full and final payment
of all of the Company's obligations under the Notes and the Indenture and shall
inure to the benefit of the successors and assigns of the Trustee and the
Holders of Notes and, in the event of any transfer or assignment of rights by
any Holder of Notes or the Trustee, the rights and privileges herein conferred
upon that party shall automatically extend to and be vested in such transferee
or assignee, all subject to the terms and conditions hereof. This is a
guarantee of payment and not a guarantee of collection.
In certain circumstances more fully described in the Indenture, any
Guarantor may be released from its liability under this Subsidiary Guarantee,
and any such release will be effective whether or not noted herein.
This Subsidiary Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Senior Subordinated Note upon
which this
<PAGE> 131
Subsidiary Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized officers.
Capitalized terms used herein have the same meanings given in the
Indenture unless otherwise indicated.
B-2
<PAGE> 132
IN WITNESS WHEREOF, each Subsidiary Guarantor has caused its Note
Guarantee to be duly executed.
<TABLE>
<S> <C>
Date: December 2, 1997 ADULT SERVICES UNLIMITED, INC.
AHC ACQUISITION CORP.
ALTERNACARE PLUS ENTERPRISES, INC.
ARBOR HEALTH CARE COMPANY
ARBORS EAST, INC. ARBORS AT FT. WAYNE, INC.
ARBORS AT TOLEDO, INC.
BAY GERIATRIC PHARMACY, INC. COVENTRY CARE, INC.
EDGEWOOD NURSING CENTER, INC.
ELDER CREST, INC.
EXTENDICARE GREAT TRAIL, INC.
EXTENDICARE HEALTH FACILITIES, INC.
EXTENDICARE HEALTH FACILITY HOLDINGS, INC.
EXTENDICARE HOMES, INC.
EXTENDICARE OF INDIANA, INC.
FIR LANE TERRACE CONVALESCENT CENTER, INC.
HAVEN CREST, INC.
HEALTH POCONOS, INC.
HOME CARE PHARMACY, INC. OF FLORIDA
MARSHALL PROPERTIES, INC.
MEADOW CREST, INC.
NORTHERN HEALTH FACILITIES, INC.
OAK HILL HOME OF REST AND CARE, INC.
POLY-STAT COMPUTER APPLICATIONS, INC.
POLY-STAT SUPPLY CORPORATION
Q.D. PHARMACY, INC.
THE DRUGGIST INC.
THE PROGRESSIVE STEP CORPORATION
UNITED PROFESSIONAL COMPANIES, INC.
UNITED PROFESSIONAL SERVICES, INC.
UNITED REHABILITATION SERVICES, INC.
Each, a Subsidiary Guarantor
By ____________________________________
Name:
Title:
</TABLE>
Attest: _________________________
Secretary
B-3
<PAGE> 133
Exhibit C
---------
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Institutional Accredited Investors
___________________, ____
Extendicare Health Services, Inc.
105 W. Michigan Street, 9th Floor
Milwaukee, Wisconsin 53203
Attention: Robert J. Abramowski
Re: Extendicare Health Services, Inc. (the "Company")
9.35% Senior Subordinated Notes due 2007 (the "Notes")
------------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of $____________ aggregate
principal amount of the Notes:
1. We understand that the Notes have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and may not be
sold except as permitted in the following sentence. We agree on our own
behalf and on behalf of any investor account for which we are purchasing
the Notes to offer, sell or otherwise transfer such Notes prior to the
date which is two years after the later of the date of original issue and
the last date on which the Company or any affiliate of the Company was
the owner of such Notes, or any predecessor thereto (the "Resale
Restriction Termination Date") only (a) to the Company, (b) pursuant to a
registration statement which has been declared effective under the
Securities Act, (c) for so long as the Notes are eligible for resale
pursuant to Rule 144A under the Securities Act, to a person we reasonably
believe is a qualified institutional buyer under Rule 144A (a "QIB") that
purchases for its own account or for the account of a QIB to whom notice
is given that the transfer is being made in reliance on Rule 144A, (d)
pursuant to offers and sales to non-U.S. Persons that occur outside the
United States within the meaning of Regulations S under the Securities
Act, (e) to an institutional "accredited investor" within the meaning of
subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act
that is acquiring the Notes for its own account or for the account of
such an institutional "accredited investor" for investment purposes and
not with a
<PAGE> 134
view to, or for offer or sale in connection with, any distribution
thereof in violation of the Securities Act or (f) pursuant to any other
available exemption from the registration requirements of the Securities
Act, subject in each of the foregoing cases to any requirement of law
that the disposition of our property and the property of such investor
account or accounts be at all times within our or their control and to
compliance with any applicable state securities laws. The foregoing
restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. If any resale or other transfer of the
Notes is proposed to be made pursuant to clause (e) above prior to the
Resale Restriction Termination Date, the transferor shall deliver a
letter from the transferee substantially in the form of this letter to
the Trustee, which shall provide, among other things, that the transferee
is an institutional "accredited investor" within the meaning of
subparagraph (a)(1), (2), (3) or (7) or Rule 501 under the Securities Act
and that it is acquiring such Notes for investment purposes and not for
distribution in violation of the Securities Act. We acknowledge that the
Company and the Trustee reserve the right prior to any offer, sale or
other transfer prior to the Resale Restriction Termination Date of the
Notes pursuant to clauses (d), (e) and (f) above to require the delivery
of an Opinion of Counsel, certifications and/or other information
satisfactory to the Company and the Trustee.
2. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
purchasing for our own account or for the account of such an
institutional "accredited investor," and we are acquiring the Notes for
investment purposes and not with a view to, or for offer or sale in
connection with, any distribution in violation of the Securities Act and
we 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 Notes, and we and any accounts for which we are acting are each able
to bear the economic risk of our or its investment.
3. We are acquiring the Notes purchased by us for our own account or
for one or more accounts as to each of which we exercise sole investment
discretion.
C-2
<PAGE> 135
4. You are entitled to rely upon this letter and you are irrevocably
authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with
respect to the matters covered hereby.
Very truly yours,
By:
(NAME OF PURCHASER)
Date:
Upon transfer, the Notes should be registered in the name of the new
beneficial owner as follows:
Name:
Address:
Taxpayer ID Number:
C-3
<PAGE> 136
Exhibit D
---------
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
-----------------------------------
_________________, ___
Extendicare Health Services, Inc.
105 West Michigan Street
9th Floor
Milwaukee, Wisconsin 53203
c/o
The Bank of Nova Scotia Trust
Company of New York
One Liberty Plaza
New York, NY 10006
Attention: Corporate Trust Division
Re: Extendicare Health Services, Inc. (the "Company")
9.35% Senior Subordinated Notes Due 2007 (the "Notes")
------------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $________ aggregate principal
amount of the Notes, we confirm that such sale has been effected pursuant to
and in accordance with Regulation S under the Securities Act of 1933, as
amended, and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United States
and the proposed transferee is a Non-U.S. Person (as defined in the Indenture
pursuant to which the Notes were issued);
(2) either (a) 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 or (b)
the transaction was executed in, on or through the facilities of a designated
off-shore securities market and neither we nor any person acting on our behalf
knows that the transaction has been pre-arranged with a buyer in the United
States;
<PAGE> 137
(3) no directed selling efforts have been made 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, as amended.
In addition, if the sale is made during a restricted period and the
provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are applicable
thereto, we confirm that such sale has been made in accordance with the
applicable provisions of Rule 903(c)(3) or Rule 904(c)(1), as the case may be.
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 Transferor]
By:
Authorized Signature
D-2
<PAGE> 1
Exhibit 4.4
EXTENDICARE HEALTH SERVICES
$200,000,000
9.35% SENIOR SUBORDINATED NOTES DUE 2007
REGISTRATION RIGHTS AGREEMENT
New York, New York
December 2, 1997
NationsBanc Montgomery Securities, Inc.
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255-0001
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Extendicare Health Services, a Delaware corporation (the "Company"),
proposes to issue and sell (the "Initial Placement") to NationsBanc Montgomery
Securities, Inc., Bear, Stearns & Co. Inc. and Smith Barney Inc. (the "Initial
Purchasers"), upon the terms set forth in a purchase agreement dated as of
November 25, 1997 (the "Purchase Agreement"), its 9.35% Senior Subordinated
Notes due 2007 (the "Notes"). The Notes are to be unconditionally guaranteed
on an unsecured senior subordinated basis by all existing and future United
States subsidiaries of the Company, excluding subsidiaries which are inactive
as of the date hereof, as guarantors (the "Guarantors" and, individually, each
a "Guarantor"). As an inducement to the Initial Purchasers to enter into the
Purchase Agreement and purchase the Notes and in satisfaction of a condition to
your obligations under the Purchase Agreement, the Company and the Guarantors
agree with you for the benefit of the holders from time to time of the Notes
(including the Initial Purchasers) (each of the foregoing a "Holder" and
together the "Holders"), as follows:
<PAGE> 2
2
1. Definitions. Capitalized terms used herein without definition shall
have their respective meanings set forth in the Purchase Agreement. As used in
this Agreement, the following capitalized defined terms shall have the
following meanings:
"Affiliate" of any specified person means any other person that,
directly or indirectly, is in control of, is controlled by, or is under
common control with, such specified person. For purposes of this
definition, control of a person means the power, direct or indirect, to
direct or cause the direction of the management and policies of such
person whether by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Closing Date" has the meaning set forth in the Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Company" has the meaning set forth in the preamble hereto.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Exchange Notes" means debt securities issued by the Company and
guaranteed by the Guarantors, identical in all material respects to the
Notes (except that (i) interest thereon shall accrue from the last date
on which interest was paid on the Notes or, if no such interest has been
paid, from December 2, 1997 and (ii) the interest rate step-up provisions
and the transfer restrictions pertaining to the Notes will be modified or
eliminated, as appropriate, in the Exchange Notes), to be issued under
the Indenture.
"Exchange Offer" means the proposed offer to the Holders to issue
and deliver to such Holders, in exchange for the Notes, a like principal
amount of Exchange Notes.
"Exchange Offer Registration Period" means the longer of (A) the
period until the consummation of the Exchange Offer and (B) two years
after effectiveness of the Exchange Offer Registration Statement,
exclusive of any period during which any stop order shall be in effect
suspending the effectiveness of the Exchange Offer Registration
Statement; provided, however, that in the event that all resales of
Exchange Notes (including, subject to the time periods set forth herein,
any resales by Exchanging Dealers) covered by such Exchange Offer
Registration Statement have been made, the Exchange Offer Registration
Statement need not remain continuously effective for the period set forth
in clause (B) above.
<PAGE> 3
3
"Exchange Offer Registration Statement" means a registration
statement of the Company on an appropriate form under the Securities Act
with respect to the Exchange Offer, all amendments and supplements to
such registration statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and
all material incorporated by reference therein.
"Exchanging Dealer" means any Holder (which may include the Initial
Purchasers) that is a broker-dealer, electing to exchange Notes acquired
for its own account as a result of market-making activities or other
trading activities for Exchange Notes.
"Final Memorandum" has the meaning set forth in the Purchase
Agreement.
"Guarantees" has the meaning set forth in the Purchase Agreement.
"Guarantors" has the meaning set forth in the preamble hereto.
"Holder" has the meaning set forth in the preamble hereto.
"Indenture" means the indenture relating to the Notes and the
Exchange Notes, to be dated as of the Closing Date, among the Company,
AHC Acquisition Corp. and all existing and future United States
subsidiaries of the Company, as Guarantors, and The Bank of Nova Scotia
Trust Company of New York, as trustee, as the same may be amended,
supplemented, waived or otherwise modified from time to time in
accordance with the terms thereof.
"Initial Placement" has the meaning set forth in the preamble
hereto.
"Initial Purchasers" has the meaning set forth in the Purchase
Agreement.
"Losses" has the meaning set forth in Section 6(d) hereto.
"Majority Holders" means the Holders of a majority of the aggregate
principal amount of Notes registered under a Registration Statement.
"Managing Underwriters" means the investment banker or investment
bankers and manager or managers that shall administer an underwritten
offering under a Shelf Registration Statement.
"Notes" has the meaning set forth in the preamble hereto.
<PAGE> 4
4
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A under the
Securities Act), as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Notes or
the Exchange Notes covered by such Registration Statement, and all
amendments and supplements to the Prospectus, including post-effective
amendments.
"Purchase Agreement" has the meaning set forth in the preamble
hereto.
"Registration Statement" means any Exchange Offer Registration
Statement or Shelf Registration Statement that covers any of the Notes or
the Exchange Notes (including the Guarantees thereon) pursuant to the
provisions of this Agreement, amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto, and all
material incorporated by reference therein.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Shelf Registration" means a registration effected pursuant to
Section 3 hereof.
"Shelf Registration Period" has the meaning set forth in Section
3(b) hereof.
"Shelf Registration Statement" means a "shelf" registration
statement of the Company pursuant to the provisions of Section 3 hereof,
which covers some or all of the Notes or Exchange Notes, as applicable
(including the Guarantees thereon), on an appropriate form under Rule 415
under the Securities Act, or any similar rule that may be adopted by the
Commission, amendments and supplements to such registration statement,
including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"Trustee" means the trustee with respect to the Notes or Exchange
Notes, as applicable, under the Indenture.
"underwriter" means any underwriter of Notes in connection with an
offering thereof under a Shelf Registration Statement.
2. Exchange Offer; Resales of Exchange Notes by Exchanging Dealers;
Private Exchange.
<PAGE> 5
5
(a) The Company and the Guarantors shall prepare and, on or prior to the
45th calendar day following the Closing Date, shall file with the Commission
the Exchange Offer Registration Statement with respect to the Exchange Offer.
The Company and the Guarantors shall use their best efforts (i) to cause the
Exchange Offer Registration Statement to be declared effective under the
Securities Act on or prior to the 90th calendar day following the Closing Date
and remain effective until the closing of the Exchange Offer and (ii) to
consummate the Exchange Offer on or prior to the 135th calendar day following
the Closing Date.
(b) Upon the effectiveness of the Exchange Offer Registration Statement,
the Company and the Guarantors shall promptly commence the Exchange Offer, it
being the objective of such Exchange Offer to enable each Holder electing to
exchange Notes for Exchange Notes (provided that such Holder represents to the
Company and its counsel in writing that at the time of the consummation of the
Exchange Offer, such Holder (x) is not an "affiliate" of the Company within the
meaning of the Securities Act, (y) is not a broker-dealer that acquired the
Notes in a transaction other than as a part of its market-making or other
trading activities and (z) if such Holder is not a broker-dealer, acquires the
Exchange Notes in the ordinary course of such Holder's business, is not
participating in the distribution of the Exchange Notes and has no arrangements
or understandings with any person to participate in the distribution of the
Exchange Notes) to resell such Exchange Notes from and after their receipt
without any limitations or restrictions under the Securities Act and without
material restrictions under the securities laws of a substantial proportion of
the several states of the United States.
(c) In connection with the Exchange Offer, the Company shall 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, stating, in addition to such other disclosures as are required by
applicable law:
(i) that the Exchange Offer is being made pursuant to this Agreement
and that all Notes validly tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange;
(iii) that any Note not tendered will remain outstanding and
continue to accrue interest, but will not retain any rights under this
Agreement;
(iv) that Holders electing to have a Note exchanged pursuant to the
Exchange Offer will be required to surrender such Note, together with the
enclosed letters of transmittal, to the institution and at the address
(located in the Borough of Manhattan, The City of New York) specified in
the notice prior to the close of business on the last day of acceptance
for exchange; and
<PAGE> 6
6
(v) that Holders will be entitled to withdraw their election, not
later than the close of business on the last day of acceptance for
exchange, by sending to the institution and at the address (located in
the Borough of Manhattan, The City of New York) specified in the notice a
telegram, telex, facsimile transmission or letter setting forth the name
of such Holder, the principal amount of Notes delivered for exchange and
a statement that such Holder is withdrawing his election to have such
Notes exchanged; and shall keep the Exchange Offer open for acceptance
for not less than 30 days and not more than 45 days (or longer if
required by applicable law) after the date notice thereof is mailed to
the Holders; utilize the services of a depositary for the Exchange Offer
with an address in the Borough of Manhattan, The City of New York; and
comply in all respects with all applicable laws relating to the Exchange
Offer.
(d) As soon as practicable after the close of the Exchange Offer, the
Company shall:
(i) accept for exchange all Notes duly tendered and not validly
withdrawn pursuant to the Exchange Offer;
(ii) deliver to the Trustee for cancellation all Notes so accepted
for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver to each
Holder Exchange Notes equal in principal amount to the Notes of such
Holder so accepted for exchange.
(e) The Initial Purchasers, the Company and the Guarantors acknowledge
that, pursuant to interpretations by the staff of the Commission of Section 5
of the Securities Act, and in the absence of an applicable exemption therefrom,
each Exchanging Dealer is required to deliver a Prospectus in connection with a
sale of any Exchange Notes received by such Exchanging Dealer pursuant to the
Exchange Offer in exchange for Notes acquired for its own account as a result
of market-making activities or other trading activities. Accordingly, the
Company and the Guarantors shall:
(i) include the information set forth in Annex A hereto on the cover
of the Exchange Offer Registration Statement, in Annex B hereto in the
forepart of the Exchange Offer Registration Statement in a section
setting forth details of the Exchange Offer, in Annex C hereto in the
underwriting or plan of distribution section of the Prospectus forming a
part of the Exchange Offer Registration Statement, and in Annex D hereto
in the letter of transmittal delivered pursuant to the Exchange Offer;
and
<PAGE> 7
7
(ii) use its best efforts to keep the Exchange Offer Registration
Statement continuously effective under the Securities Act during the
Exchange Offer Registration Period for delivery of the prospectus
included therein by Exchanging Dealers in connection with sales of
Exchange Notes received pursuant to the Exchange Offer, as contemplated
by Section 4(h) below; provided, however, that the Company shall not be
required to maintain the effectiveness of the Exchange Offer Registration
Statement for more than 60 days following the consummation of the
Exchange Offer unless the Company has been notified in writing on or
prior to the 60th day following the consummation of the Exchange Offer by
one or more Exchanging Dealers that such Holder has received Exchange
Notes as to which it will be required to deliver a prospectus upon
resale.
(f) In the event that the Initial Purchasers determine that they are not
eligible to participate in the Exchange Offer with respect to the exchange of
Notes constituting any portion of an unsold allotment, upon the effectiveness
of the Shelf Registration Statement as contemplated by Section 3 hereof and at
the request of the Initial Purchasers, the Company shall issue and deliver to
the Initial Purchasers, or to the party purchasing Exchange Notes registered
under the Shelf Registration Statement from the Initial Purchasers, in exchange
for such Notes, a like principal amount of Exchange Notes. The Company shall
use its best efforts to cause the CUSIP Service Bureau to issue the same CUSIP
number for such Exchange Notes as for Exchange Notes issued pursuant to the
Exchange Offer.
(g) The Company and the Guarantors shall use their best efforts to
complete the Exchange Offer as provided above and shall comply with the
applicable requirements of the Securities Act, the Exchange Act and other
applicable laws and regulations in connection with the Exchange Offer. The
Exchange Offer shall not be subject to any conditions, other than that (i) the
Exchange Offer does not violate applicable law or any applicable interpretation
of the staff of the Commission, (ii) no action or proceeding shall have been
instituted or threatened in any court or by any governmental agency which might
materially impair the ability or the Company to proceed with the Exchange
Offer, and no material adverse development shall have occurred in any existing
action or proceeding with respect to the Company and (iii) all governmental
approvals shall have been obtained, which approvals the Company deems necessary
for the consummation of the Exchange Offer. The Company shall inform the
Initial Purchasers of the names and addresses of the Holders to whom the
Exchange Offer is made, and the Initial Purchasers shall have the right,
subject to applicable law, to contact such Holders and otherwise facilitate the
tender of Notes in the Exchange Offer.
3. Shelf Registration. If (i) because of any change in law or applicable
interpretations thereof by the Commission's staff, the Company determines upon
advice of its outside counsel that it is not permitted to effect the Exchange
Offer as contemplated by
<PAGE> 8
8
Section 2 hereof, or (ii) for any reason other than those specified clause (i)
above, the Exchange Offer is not consummated within 135 days of the Closing
Date unless the Exchange Offer has commenced, in which case, the Exchange Offer
is not consummated within 30 days after the date on which the Exchange Offer
was commenced, or (iii) any Initial Purchaser so requests with respect to Notes
held by it within 120 days following consummation of the Exchange Offer, or
(iv) any Holder (other than the Initial Purchasers) is not eligible to
participate in the Exchange Offer or has participated in the Exchange Offer and
has received Exchange Notes that are not freely tradeable (for reasons other
than those outlined in Section 2(b) hereof) and so notifies the Company within
60 days after such Holder first becomes aware of such restrictions or (v) in
the case where the Initial Purchasers participate in the Exchange Offer or
acquire Exchange Notes pursuant to Section 2(f) hereof, the Initial Purchasers
do not receive freely tradeable Exchange Notes in exchange for Notes
constituting any portion of an unsold allotment (it being understood that, for
purposes of this Section 3, (x) the requirement that the Initial Purchasers
deliver a Prospectus containing the information required by Items 507 and/or
508 of Regulation S-K under the Securities Act in connection with sales of
Exchange Notes acquired in exchange for such Notes shall result in such
Exchange Notes being not "freely tradeable" and (y) the requirement that an
Exchanging Dealer deliver a Prospectus in connection with sales of Exchange
Notes acquired in the Exchange Offer in exchange for Notes acquired as a result
of market-making activities or other trading activities shall not result in
such Exchange Notes being not "freely tradeable"), the following provisions
shall apply:
(a) The Company and the Guarantors shall, as promptly as practicable
(but in any event on or prior to 60 days after such filing obligation
arises), file with the Commission a Shelf Registration Statement relating
to the offer and sale of the Notes or the Exchange Notes, as applicable,
by the Holders from time to time in accordance with the methods of
distribution elected by such Holders and set forth in such Shelf
Registration Statement and Rule 415 under the Securities Act, provided
that, with respect to Exchange Notes received by the Initial Purchasers
in exchange for Notes constituting any portion of an unsold allotment,
the Company and the Guarantors may, if permitted by current
interpretations by the Commission's staff, file a post-effective
amendment to the Exchange Offer Registration Statement containing the
information required by Regulation S-K Items 507 and/or 508, as
applicable, in satisfaction of its obligations under this paragraph (a)
with respect thereto, and any such Exchange Offer Registration Statement,
as so amended, shall be referred to herein as, and governed by the
provisions herein applicable to, a Shelf Registration Statement.
(b) The Company and the Guarantors shall use their best efforts to
cause the Shelf Registration Statement to be declared effective under the
Securities Act as promptly as possible after filing such Shelf
Registration Statement pursuant to this Section 3 and to keep such Shelf
Registration Statement continuously effective in
<PAGE> 9
9
order to permit the Prospectus contained therein to be usable by Holders
for a period of two years from the date the Shelf Registration Statement
is declared effective by the Commission or such shorter period that will
terminate when all the Notes or Exchange Notes, as applicable, covered by
the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement (in any such case, such period being called the
"Shelf Registration Period"). The Company shall be deemed not to have
used its best efforts to keep the Shelf Registration Statement effective
during the requisite period if it voluntarily takes any action that would
result in Holders of Notes covered thereby not being able to offer and
sell such Notes during that period, unless (i) such action is required by
applicable law, (ii) the Company complies with this Agreement or (iii)
such action is taken by the Company in good faith and for valid business
reasons (not including avoidance of the Company's obligations hereunder),
including the acquisition or divestiture of assets, so long as the
Company promptly thereafter complies with the requirements of Section
4(l) hereof, if applicable.
(c) No holder of Notes may include any of its Notes in any Shelf
Registration Statement pursuant to this Agreement unless and until such
holder furnishes to the Company in writing, within 20 days after receipt
of a request therefor, such information as the Company may reasonably
request for use in connection with any Shelf Registration Statement or
Prospectus or preliminary prospectus included therein. No Holder shall
be entitled to remedies pursuant to Section 5 hereof unless and until
such Holder shall have provided all such reasonably requested
information. Each Holder as to which any Shelf Registration Statement is
being effected will be required to agree to furnish promptly to the
Company all information required to be disclosed in order to make
information previously furnished to the Company by such Holder not
materially misleading.
4. Registration Procedures. In connection with any Shelf Registration
Statement and, to the extent applicable, any Exchange Offer Registration
Statement, the following provisions shall apply:
(a) The Company and the Guarantors shall, within a reasonable time
prior to the filing of any Registration Statement, any Prospectus, any
amendment to a Registration Statement or amendment or supplement to a
Prospectus or any document which is to be incorporated by reference into
a Registration Statement or a Prospectus after initial filing of a
Registration Statement, provide copies of such document to the Initial
Purchasers and their counsel (and, in the case of a Shelf Registration
Statement, the Holders and their counsel) and make such representatives
of the Company and the Guarantors as shall be reasonably requested by the
Initial Purchasers or their counsel (and, in the case of a Shelf
Registration Statement, the Majority Holders or their counsel) available
for discussion of such document, and shall not at any time file or make
any amendment to the Registration Statement, any
<PAGE> 10
10
Prospectus or any amendment of or supplement to a Registration Statement
or a Prospectus or any document which is to be incorporated by reference
into a Registration Statement or a Prospectus, of which the Initial
Purchasers and their counsel (and, in the case of a Shelf Registration
Statement, the Holders and their counsel) shall not have previously been
advised and furnished a copy or to which the Initial Purchasers or their
counsel (and, in the case of a Shelf Registration Statement, the Holders
or their counsel) shall object, except for any amendment or supplement or
document (a copy of which has been previously furnished to the Initial
Purchasers and their counsel (and, in the case of a Shelf Registration
Statement, the Majority Holders and their counsel)) which counsel to the
Company and the Guarantors shall advise the Company and the Guarantors,
in the form of a written legal opinion, is required in order to comply
with applicable law; each of the Initial Purchasers agrees that, if it
receives timely notice and drafts under this clause (a), it will not take
actions or make objections pursuant to this clause (a) such that the
Company and the Guarantors are unable to comply with their obligations
under Section 2.
(b) The Company and the Guarantors shall:
(i) use their reasonable best efforts to prepare any
Registration Statement and any amendment thereto and any Prospectus
contained therein and any amendment or supplement thereto to comply
in all material respects with the Securities Act and the rules and
regulations thereunder;
(ii) use their reasonable best efforts to prepare any
Registration Statement and any amendment thereto that 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) use their reasonable best efforts to prepare any
Prospectus forming part of any Registration Statement, including
any amendment or supplement to such Prospectus, that 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
light of the circumstances under which they were made, not
misleading.
(c) (1) The Company shall advise the Initial Purchasers and, in the
case of a Shelf Registration Statement, the Holders of Notes covered
thereby, and, if requested by the Initial Purchasers or any such Holder,
confirm such advice in writing:
<PAGE> 11
11
(i) when a Registration Statement and any amendment thereto
has been filed with the Commission and when the Registration
Statement or any post-effective amendment thereto has become
effective; and
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus
included therein or for additional information.
(2) During the Shelf Registration Period or the Exchange Offer
Registration Period, as applicable, the Company shall advise the Initial
Purchasers and, in the case of a Shelf Registration Statement, the
Holders of Notes covered thereby, and, in the case of an Exchange Offer
Registration Statement, any Exchanging Dealer that has provided in
writing to the Company a telephone or facsimile number and address for
notices, and, if requested by the Initial Purchasers or any such Holder
or Exchanging Dealer, confirm such advice in writing:
(i) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(ii) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Notes
included therein for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
(iii) of the happening of any event that requires the making
of any changes in the Registration Statement or the Prospectus so
that, as of such date, the Registration Statement or the Prospectus
does not include an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein (in
the case of the Prospectus, in light of the circumstances under
which they were made) not misleading (which advice shall be
accompanied by an instruction to suspend the use of the Prospectus
until the requisite changes have been made).
(d) The Company and the Guarantors shall use their reasonable best
efforts to obtain the withdrawal of any order suspending the
effectiveness of any Registration Statement at the earliest possible
time.
(e) The Company shall furnish to each Holder of Notes covered by any
Shelf Registration Statement, without charge, at least one copy of such
Shelf Registration Statement and any post-effective amendment thereto,
including financial
<PAGE> 12
12
statements and schedules, and, if the Holder so requests in writing, all
exhibits thereto (including those incorporated by reference).
(f) The Company shall, during the Shelf Registration Period, deliver
to each Holder of Notes covered by 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 Company consents to the use of the Prospectus or any
amendment or supplement thereto by each of the selling Holders of Notes
in connection with the offering and sale of the Notes covered by the
Prospectus or any amendment or supplement thereto, subject to paragraph
(i) of this Section 4.
(g) The Company shall furnish to each Exchanging Dealer that so
requests, without charge, at least one copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, any documents incorporated
by reference therein and, if the Exchanging Dealer so requests in
writing, all exhibits thereto (including those incorporated by
reference).
(h) The Company shall, during the Exchange Offer Registration
Period, promptly deliver to each Exchanging Dealer, without charge, as
many copies of the Prospectus included in such Exchange Offer
Registration Statement and any amendment or supplement thereto as such
Exchanging Dealer may reasonably request for delivery by such Exchanging
Dealer in connection with a sale of Exchange Notes received by it
pursuant to the Exchange Offer; and the Company consents to the use of
the Prospectus or any amendment or supplement thereto by any such
Exchanging Dealer in connection with the offering and sale of the
Exchange Notes, as provided in Section 2(e) above, subject to paragraph
(i) of this Section 4.
(i) Each Holder of Notes and each Exchange Dealer agrees by its
acquisition of such Notes or Exchange Notes to be sold by such Exchange
Dealer, as the case may be, that, upon actual receipt of any notice from
the Company of the happening of any event of the kind described in
paragraphs (c)(2)(i), (c)(2)(ii), or (c)(2)(iii) of this Section 4, such
Holder will forthwith discontinue disposition of such Notes covered by
such Registration Statement or Prospectus or Exchange Notes to be sold by
such Holder or Exchange Dealer, as the case may be, until such Holder's
or Exchange Dealer's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 4(l) hereof, or until it is advised in
writing by the Company that the use of the applicable Prospectus may be
resumed, and has received copies of any amendments or supplements
thereto. In the event that the Company shall give any such notice, the
Exchange Offer Registration Period shall be extended by the number of
days during such periods from and including the date of the giving of
such notice to and including the date when each seller of Exchange Notes
covered by such
<PAGE> 13
13
Registration Statement or Exchange Notes to be sold by such Exchange
Dealer, as the case may be, shall have received (x) the copies of the
supplemented or amended Prospectus contemplated by Section 4(l) hereof or
(y) the advice in writing.
(j) Prior to the Exchange Offer or any other offering of Notes
pursuant to any Registration Statement, the Company and the Guarantors
shall register or qualify or cooperate with the Holders of Notes included
therein and their respective counsel in connection with the registration
or qualification of such Notes for offer and sale under the securities or
blue sky laws of such states as any such Holders reasonably request in
writing and do any and all other acts or things necessary or advisable to
enable the offer and sale in such states of the Notes covered by such
Registration Statement; provided, however, that the Company and the
Guarantors will not be required to qualify as a foreign corporation or as
a dealer in securities in any jurisdiction in which it is not then so
qualified, to file any general consent to service of process or to take
any action that would subject it to general service of process in any
such jurisdiction where it is not then so subject or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is
not otherwise so subject.
(k) The Company shall cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing Notes to be
sold pursuant to any Registration Statement free of any restrictive
legends and in denominations of $1,000 or an integral multiple thereof
and registered in such names as Holders may request prior to sales of
Notes pursuant to such Registration Statement.
(l) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) of this Section 4, the Company and the Guarantors shall
promptly prepare and file a post-effective amendment to any Registration
Statement or an amendment or supplement to the related Prospectus or any
other required document so that, as thereafter delivered to purchasers of
the Notes included therein, the Prospectus will not include an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading. Notwithstanding the foregoing, the
Company shall not be required to amend or supplement a Shelf Registration
Statement, any related Prospectus or any document incorporated therein by
reference, for a period not to exceed an aggregate of 30 days in any
calendar year, if (i) an event occurs and is continuing as a result of
which the Shelf Registration would, in the Company's good faith judgment,
contain 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 and
(ii) the Company determines in their good faith judgment that the
disclosure of such event at such time would have a material adverse
effect on the business, operations, or prospects of the
<PAGE> 14
14
Company or the disclosure otherwise related to a pending material business
transaction that has not yet been publicly disclosed.
(m) Not later than the effective date of any such Registration
Statement hereunder, the Company shall provide a CUSIP number for the
Notes or Exchange Notes, as the case may be, registered under such
Registration Statement, and provide the Trustee with printed certificates
for such Notes or Exchange Notes, in a form eligible for deposit with The
Depository Trust Company.
(n) The Company shall use its reasonable best efforts to comply with
all applicable rules and regulations of the Commission and shall 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.
(o) The Company shall cause the Indenture to be qualified under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), in a
timely manner.
(p) The Company may require each Holder of Notes to be sold pursuant
to any Shelf Registration Statement to furnish to the Company such
information regarding the Holder and the distribution of such Notes as
the Company may from time to time reasonably require for inclusion in
such Registration Statement.
(q) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf Registration
Statement, such information as the Managing Underwriters, if any, and
Majority Holders reasonably agree should be included therein, and shall
make all required filings of such Prospectus supplement or post-effective
amendment promptly upon notification of the matters to be incorporated in
such Prospectus supplement or post-effective amendment.
(r) In the case of any Shelf Registration Statement, the Company and
the Guarantors shall enter into such agreements (including underwriting
agreements) and take all other appropriate actions in order to expedite
or to facilitate the registration or the disposition of any Notes
included therein, and in connection therewith, if an underwriting
agreement is entered into, cause the same to contain indemnification
provisions and procedures no less favorable than those set forth in
Section 6 (or such other provisions and procedures acceptable to the
Majority Holders and the Managing Underwriters, if any) with respect to
all parties to be indemnified pursuant to Section 6.
<PAGE> 15
15
(s) In the case of any Shelf Registration Statement, the Company and
the Guarantors shall:
(i) make reasonably available for inspection by the Holders of
Notes to be registered thereunder, any underwriter participating in
any disposition pursuant to such Shelf Registration Statement, and
any attorney, accountant or other agent retained by the Holders or
any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and any
of its subsidiaries;
(ii) cause the Company's and the Guarantors' officers,
directors and employees to supply all relevant information
reasonably requested by the Holders or any such underwriter,
attorney, accountant or agent in connection with any such
Registration Statement as is customary for similar due diligence
examinations and make such representatives of the Company and the
Guarantors as shall be reasonably requested by the Initial
Purchasers or Managing Underwriters, if any, available for
discussion of any such Registration Statement; provided, however,
that any information that is designated in writing by the Company
or the Guarantors, in good faith, as confidential at the time of
delivery of such information shall be kept confidential by the
Holders or any such underwriter, attorney, accountant or agent,
unless such disclosure is made in connection with a court
proceeding or required by law, provided that, the Company must be
given prior written notice of the disclosure of such information,
or such information becomes available to the public generally or
through a third party without an accompanying obligation of
confidentiality other than as a result of a disclosure of such
information by any such Holder, underwriter, attorney, accountant
or agent;
(iii) make such representations and warranties to the Holders
of Notes registered thereunder and the underwriters, if any, in
form, substance and scope as are customarily made by issuers to
underwriters in similar underwritten offerings as may be reasonably
requested by them;
(iv) obtain opinions of counsel to the Company and the
Guarantors and updates thereof (which counsel and opinions (in
form, scope and substance) shall be reasonably satisfactory to the
Managing Underwriters, if any) addressed to each selling Holder and
the underwriters, if any, covering such matters as are customarily
covered in opinions requested in similar underwritten offerings and
such other matters as may be reasonably requested by such Holders
and underwriters;
<PAGE> 16
16
(v) obtain "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company and the
Guarantors (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and
financial data are, or are required to be, included in the
Registration Statement), addressed to the underwriters, if any, and
use reasonable efforts to have such letter addressed to the selling
Holders of Notes registered thereunder (to the extent consistent
with Statement on Auditing Standards No. 72 of the American
Institute of Certified Public Accountants (AICPA) ("SAS 72")), in
customary form and covering matters of the type customarily covered
in "cold comfort" letters in connection with similar underwritten
offerings, or if the provision of such "cold comfort" letters is
not permitted by SAS No. 72 or if requested by the Initial
Purchasers or their counsel in lieu of a "cold comfort" letter, an
agreed-upon procedures letter under Statement on Auditing Standards
No. 35 of the AICPA, covering matters requested by the Initial
Purchasers or their counsel; and
(vi) deliver such documents and certificates as may be
reasonably requested by the Majority Holders and the Managing
Underwriters, if any, and customarily delivered in similar
offerings, including those to evidence compliance with Section 4(l)
and with any conditions contained in the underwriting agreement or
other agreement entered into by the Company.
The foregoing actions set forth in clauses (iii), (iv), (v) and (vi)
of this Section 4(s) shall be performed at (A) the effectiveness of such
Shelf Registration Statement and each post-effective amendment thereto
and (B) each closing under any underwriting or similar agreement as and
to the extent required thereunder.
(t) The Company and the Guarantors shall, in the case of a Shelf
Registration, use their reasonable best efforts to cause all Notes to be
listed on any securities exchange or any automated quotation system on
which similar securities issued by the Company are then listed if
requested by the Majority Holders, to the extent such Notes satisfy
applicable listing requirements.
(u) The Company and the Guarantors shall use their best efforts to
cause the Exchange Notes or Notes, as the case may be, to be rated by two
nationally recognized statistical rating organizations (as such term is
defined in Rule 436(g)(2) under the 1933 Act).
5. Registration Expenses; Remedies. (a) The Company and the Guarantors
shall bear all expenses incurred in connection with the performance of their
obligations under Sections 2, 3 and 4 hereof, including without limitation:
(i) all
<PAGE> 17
17
Commission, stock exchange or National Association of Securities Dealers, Inc.
registration and filing fees, (ii) all fees and expenses incurred in connection
with compliance with state securities or blue sky laws (including reasonable
fees and disbursements of counsel for any underwriters or Holders in connection
with blue sky qualification of any of the Exchange Notes or Notes), (iii) all
expenses of any persons in preparing or assisting in preparing, word
processing, printing and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting agreements,
securities sales agreements and other documents relating to the performance of
and compliance with this Agreement, (iv) all rating agency fees, if any, (v)
all fees and disbursements relating to the qualification of the Indenture under
applicable securities laws, (vi) the fees and disbursements of the Trustee and
its counsel, (vii) the fees and disbursements of counsel for the Company and
the Guarantors and, in the case of a Shelf Registration Statement, the
reasonable fees and disbursements of one counsel for the Holders (which counsel
shall be selected by the Majority Holders and which counsel may also be counsel
for the Initial Purchasers) and in the case of any Exchange Offer Registration
Statement, the reasonable fees and expenses of counsel to the Initial
Purchasers acting in connection therewith and (viii) the fees and disbursements
of the independent public accountants of the Company and the Guarantors,
including the expenses of any special audits or "cold comfort" letters required
by or incident to such performance and compliance, but excluding fees and
expenses of counsel to the underwriters (other than fees and expenses set forth
in clause (ii) above) or the Holders and underwriting discounts and commissions
and transfer taxes, if any, relating to the sale or disposition of Notes by a
Holder.
(b) The Notes provide that in the event that either (i) the Exchange Offer
Registration Statement is not filed with the Commission on or prior to the 45th
calendar day following the Closing Date or (ii) the Exchange Offer is not
consummated or a Shelf Registration Statement is not declared effective on or
prior to the 135th calendar day following the Closing Date, the interest rate
borne by the Notes will be increased by .50% per annum following the first 30
days following the 45-day period referred to in clause (i) above or the first
90 days following the 135-day period referred to in clause (ii) above. Such
interest will be increased by an additional .50% per annum at the beginning of
each subsequent 30-day period in the case of clause (i) above or 90-day period
in the case of clause (ii) above; provided, however, that in no event will the
interest rate borne by the Notes be increased by more than 1.5% per annum.
Upon the filing of the Exchange Offer Registration Statement, the consummation
of the Exchange Offer or the effectiveness of a Shelf Registration Statement,
as the case may be, the interest rate borne by the Notes from the date of such
filing, consummation or effectiveness, as the case may be, will be reduced to
the original interest rate; provided, however, that, if after such reduction in
interest rate, a different event specified in clause (i) or (ii) above occurs,
the interest rate may again be increased pursuant to the foregoing provisions.
<PAGE> 18
18
(c) Without limiting the remedies available to the Initial Purchasers and
the Holders, the Company and the Guarantors acknowledge that any failure by the
Company and the Guarantors to comply with their respective obligations under
Sections 2 and 3 hereof may result in material irreparable injury to the
Initial Purchasers or the Holders for which there is no adequate remedy at law,
that it will not be possible to measure damages for such injuries precisely and
that, in the event of any such failure, the Initial Purchasers or any Holder
may obtain such relief as may be required to specifically enforce the Company's
and the Guarantors' obligations under Sections 2 and 3 hereof.
6. Indemnification and Contribution. (a) In connection with any
Registration Statement, the Company and each Guarantor jointly and severally
agree to indemnify and hold harmless each Holder of Notes covered thereby
(including the Initial Purchasers and, with respect to any Prospectus delivery
as contemplated by Sections 2(e) and 4(h) hereof, each Exchanging Dealer) the
directors, officers, employees and agents of such Holder and each person who
controls such Holder within the meaning of either the Securities Act or the
Exchange Act, against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the
Securities Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained
in such Registration Statement as originally filed or in any amendment thereof,
or in any preliminary Prospectus or Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of the Prospectus, in
light of the circumstances under which they were made) not misleading, and
agrees to reimburse each such indemnified party, as incurred, for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage or liability (or action in respect
thereof); provided, however, that the Company and each Guarantor will not be
liable in any case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any such indemnified party specifically for inclusion therein; provided
further, however, that the Company and each Guarantor will not be liable in any
case with respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary Prospectus or Prospectus, or in
any amendment thereof or supplement thereto to the extent that any such loss,
claim, damage or liability (or action in respect thereof) resulted from the
fact that any indemnified party sold Notes or Exchange Notes to a person to
whom there was not sent or given, at or prior to the written confirmation of
such sale, a copy of the Prospectus as then amended or supplemented, if the
Company had previously complied with the provisions of Section 4(c)(2) and 4(f)
or 4(h) hereof and if the untrue statement contained in or omission from such
preliminary Prospectus or Prospectus was corrected in the
<PAGE> 19
19
Prospectus as then amended or supplemented. This indemnity agreement will be
in addition to any liability that the Company or any Guarantor may otherwise
have.
The Company and each Guarantor also agree jointly and severally to
indemnify or contribute to Losses of, as provided in Section 6(d) hereof, any
underwriters of Notes registered under a Shelf Registration Statement, their
employees, officers, directors and agents and each person who controls such
underwriters on the same basis as that of the indemnification of the Initial
Purchasers and the selling Holders provided in this Section 6(a) and shall, if
requested by any Holder, enter into an underwriting agreement reflecting such
agreement, as provided in Section 4(r) hereof.
(b) Each Holder of Notes covered by a Registration Statement (including
each Initial Purchaser and, with respect to any Prospectus delivery as
contemplated by Sections 2(e) and 4(h) hereof, each Exchanging Dealer)
severally agrees to indemnify and hold harmless (i) the Company and each
Guarantor, (ii) each of the directors of the Company and each Guarantor, (iii)
each of the officers of the Company and the Guarantors who signs such
Registration Statement and (iv) each Person who controls the Company or any
Guarantor within the meaning of either the Securities Act or the Exchange Act
to the same extent as the foregoing indemnity from the Company and each
Guarantor to each such Holder, but only with respect to written information
furnished to the Company by or on behalf of such Holder specifically for
inclusion in the documents referred to in the foregoing indemnity. This
indemnity agreement will be in addition to any liability that any such Holder
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 6 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
this Section 6, notify the indemnifying party in writing of the commencement
thereof; but the failure so to notify the indemnifying party (i) will not
relieve the indemnifying party from liability under paragraph (a) or (b) above
unless and to the extent it did not otherwise learn of such action and such
failure results in the forfeiture by the indemnifying party of substantial
rights and defenses, and (ii) will not, in any event, relieve the indemnifying
party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to appoint counsel (including local
counsel) of the indemnifying party's choice at the indemnifying party's expense
to represent the indemnified party in any action for which indemnification is
sought (in which case the indemnifying party shall not thereafter be
responsible for the fees and expenses of any separate counsel retained by the
indemnified party or parties except as set forth below); provided, however,
that such counsel shall be reasonably satisfactory to the indemnified party.
Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees,
<PAGE> 20
20
costs and expenses of such separate counsel (and local counsel) if (i) the use
of counsel chosen by the indemnifying party to represent the indemnified party
would present such counsel with a conflict of interest, (ii) the actual or
potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties that are different from or additional to those
available to the indemnifying party, (iii) the indemnifying party shall not
have employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the institution of
such action or (iv) the indemnifying party shall authorize the indemnified
party to employ separate counsel at the expense of the indemnifying party. It
is understood that the indemnifying party shall not, 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. An indemnifying party will not,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b) of
this Section 6 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in
connection with investigating or defending the same) (collectively "Losses") to
which such indemnified party may be subject in such proportion as is
appropriate to reflect the relative benefits received by such indemnifying
party, on the one hand, and such indemnified party, on the other hand, from the
Initial Placement and the Registration Statement that resulted in such Losses;
provided, however, that in no case shall any Initial Purchaser or any
subsequent Holder of any Note or Exchange Note be responsible, in the
aggregate, for any amount in excess of the purchase discount or commission
applicable to such Note, or in the case of an Exchange Note, applicable to the
Note that was exchangeable into such Exchange Note, as set forth on the cover
page of the Final Memorandum, nor shall any underwriter be responsible for any
amount in excess of the underwriting discount or commission applicable to the
Notes purchased by such underwriter under the Registration Statement that
resulted in such Losses. If the allocation provided by the immediately
preceding sentence is unavailable for any reason, the indemnifying party and
the indemnified party shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of such
indemnifying party, on the one hand, and such indemnified party, on the other
hand,
<PAGE> 21
21
in connection with the statements or omissions that resulted in such Losses as
well as any other relevant equitable considerations. Benefits received by the
Company and the Guarantors shall be deemed to be equal to the sum of (x) the
total net proceeds from the Initial Placement (before deducting expenses) as
set forth on the cover page of the Final Memorandum and (y) the total amount of
additional interest that the Company was not required to pay as a result of
registering the Notes covered by the Registration Statement that resulted in
such losses. Benefits received by the Initial Purchasers shall be deemed to be
equal to the total purchase discounts and commissions as set forth on the cover
page of the Final Memorandum, and benefits received by any other Holders shall
be deemed to be equal to the value of receiving Notes or Exchange Notes, as
applicable, registered under the Securities Act. Benefits received by any
underwriter shall be deemed to be equal to the total underwriting discounts and
commissions, as set forth on the cover page of the Prospectus forming a part of
the Registration Statement that resulted in such Losses. Relative fault shall
be determined by reference to whether any alleged untrue statement or omission
relates to information provided by the indemnifying party, on the one hand, or
by the indemnified party, on the other hand. The parties agree that it would
not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation that did not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (d), 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. For purposes of this Section 6, each person who controls a
Holder within the meaning of either the Securities Act or the Exchange Act and
each director, officer, employee and agent of such Holder shall have the same
rights to contribution as such Holder, and each person who controls the Company
or any Guarantor within the meaning of either the Securities Act or the
Exchange Act, each officer of the Company or any Guarantor who shall have
signed the Registration Statement and each director of the Company and each
Guarantor shall have the same rights to contribution as the Company and each
Guarantor, subject in each case to the applicable terms and conditions of this
paragraph (d).
(e) The provisions of this Section 6 will remain in full force and effect,
regardless of any investigation made by or on behalf of any Holder or the
Company or any Guarantor or any of the officers, directors or controlling
persons referred to in Section 6 hereof, and will survive the sale by a Holder
of Notes covered by a Registration Statement.
7. Miscellaneous.
(a) No Inconsistent Agreement. The Company and the Guarantors have not,
as of the date hereof, entered into, nor shall any of them, on or after the
date hereof, enter into, any agreement that conflicts with the rights granted
to the Holders herein or otherwise conflicts with the provisions hereof.
<PAGE> 22
22
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, qualified, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of the
Holders of at least a majority of the then outstanding aggregate principal
amount of Notes (or, after the consummation of any Exchange Offer in accordance
with Section 2 hereof, of Exchange Notes); provided that, with respect to any
matter that directly or indirectly affects the rights of the Initial Purchasers
hereunder, the Company shall obtain the written consent of the Initial
Purchasers. Notwithstanding the foregoing (except the foregoing proviso), a
waiver or consent to departure from the provisions hereof with respect to a
matter that relates exclusively to the rights of Holders whose Notes 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 the Majority
Holders, determined on the basis of Notes being sold rather than registered
under such Registration Statement.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telex, telecopier, or air courier guaranteeing overnight delivery:
(i) if to a Holder, at the most current address given by such Holder
to the Company in accordance with the provisions of this Section 7(c),
which address initially is, with respect to each Holder, the address of
such Holder maintained by the Registrar under the Indenture, with a copy
in like manner to NationsBanc Montgomery Securities, Inc.;
(ii) if to the Initial Purchasers, at NationsBank Corporate Center,
100 North Tryon Street, Charlotte, North Carolina 28255-0001; and
(iii) if to the Company or any Guarantor, c/o the Company at 105
West Michigan Street, Milwaukee, Wisconsin 53203, Attention: Robert J.
Abramowski, Vice President of Finance and Chief Financial Officer.
All such notices and communications shall be deemed to have been duly
given when received. The Initial Purchasers, on the one hand, or the Company
or any Guarantor, on the other, by notice to the other party or parties may
designate additional or different addresses for subsequent notices or
communications.
(d) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties,
including, without the need for an express assignment or any consent by the
Company or any Guarantor thereto, subsequent Holders of Notes and/or Exchange
Notes. The Company and the Guarantors hereby agree to extend the benefits of
this Agreement to any Holder of Notes and/or
<PAGE> 23
23
Exchange Notes and any such Holder may specifically enforce the provisions of
this Agreement as if an original party hereto.
(e) Counterparts. This Agreement may be executed in any number of
counterparts 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.
(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) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired or affected
thereby, it being intended that all of the rights and privileges of the parties
shall be enforceable to the fullest extent permitted by law.
(i) Notes Held by the Company, etc. Whenever the consent or approval of
Holders of a specified percentage of principal amount of Notes or Exchange
Notes is required hereunder, Notes or Exchange Notes, as applicable, held by
the Company or its Affiliates (other than subsequent Holders of Notes or
Exchange Notes if such subsequent Holders are deemed to be Affiliates solely by
reason of their holdings of such Notes or Exchange Notes) shall not be counted
in determining whether such consent or approval was given by the Holders of
such required percentage.
<PAGE> 24
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Guarantors and you.
Very truly yours,
EXTENDICARE HEALTH SERVICES, INC.
By:________________________
Name:
Title:
THE GUARANTORS LISTED ON SCHEDULE I
By:________________________
Name:
Title:
<PAGE> 25
The foregoing Agreement is hereby
accepted as of the date first above written.
NATIONSBANC MONTGOMERY
SECURITIES, INC.
By:_____________________
Name:
Title:
BEAR, STEARNS & CO. INC.
By:_____________________
Name:
Title:
SMITH BARNEY INC.
By:_____________________
Name:
Title:
<PAGE> 26
Schedule I
ADULT SERVICES UNLIMITED, INC.
AHC ACQUISITION CORP.
ALTERNACARE PLUS ENTERPRISES, INC.
ARBOR HEALTH CARE COMPANY
ARBORS EAST, INC. ARBORS AT FT. WAYNE, INC.
ARBORS AT TOLEDO, INC.
BAY GERIATRIC PHARMACY, INC. COVENTRY CARE, INC.
EDGEWOOD NURSING CENTER, INC.
ELDER CREST, INC.
EXTENDICARE GREAT TRAIL, INC.
EXTENDICARE HEALTH FACILITIES, INC.
EXTENDICARE HEALTH FACILITY HOLDINGS, INC.
EXTENDICARE HOMES, INC.
EXTENDICARE OF INDIANA, INC.
FIR LANE TERRACE CONVALESCENT CENTER, INC.
HAVEN CREST, INC.
HEALTH POCONOS, INC.
HOME CARE PHARMACY, INC. OF FLORIDA
MARSHALL PROPERTIES, INC.
MEADOW CREST, INC.
NORTHERN HEALTH FACILITIES, INC.
OAK HILL HOME OF REST AND CARE, INC.
POLY-STAT COMPUTER APPLICATIONS, INC.
POLY-STAT SUPPLY CORPORATION
Q.D. PHARMACY, INC.
THE DRUGGIST, INC.
THE PROGRESSIVE STEP CORPORATION
UNITED PROFESSIONAL COMPANIES, INC.
UNITED PROFESSIONAL SERVICES, INC.
UNITED REHABILITATION SERVICES, INC.
<PAGE> 27
ANNEX A
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amend or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Notes where such Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, starting on the
Expiration Date (as defined herein) and ending on the close of business one
year after the Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
<PAGE> 28
ANNEX B
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
<PAGE> 29
ANNEX C
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, starting
on the Expiration Date and ending on the close of business one year after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until such date all dealers effecting transactions in the Exchange
Notes may be required to deliver a prospectus.
<PAGE> 30
ANNEX D
If the undersigned is a broker-dealer that will receive Exchange Notes for
its own account in exchange for Notes, it represents that the Notes to be
exchanged for the Exchange Notes were acquired by it as a result of
market-making activities or other trading activities and acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
<PAGE> 1
Exhibit 10.1
[EXECUTION COPY]
CREDIT AGREEMENT
Dated as of November 26, 1997
among
EXTENDICARE HEALTH SERVICES, INC.,
as Borrower,
EXTENDICARE HOLDINGS, INC.
and
CERTAIN SUBSIDIARIES OF THE BORROWER
FROM TIME TO TIME PARTY HERETO,
as Guarantors,
THE SEVERAL LENDERS
FROM TIME TO TIME PARTY HERETO
and
NATIONSBANK, N. A.,
as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1 DEFINITIONS............................................. 1
1.1 Definitions............................................... 1
1.2 Computation of Time Periods............................... 28
1.3 Accounting Terms.......................................... 29
SECTION 2 CREDIT FACILITIES....................................... 29
2.1 Revolving Loans........................................... 29
2.2 Letter of Credit Subfacility.............................. 31
2.3 Tranche A Term Loan....................................... 36
2.4 Tranche B Term Loan....................................... 39
2.5 Tranche C Term Loan....................................... 41
2.6 Regulation U and Regulation G............................. 43
SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES.......... 44
3.1 Default Rate.............................................. 44
3.2 Extension and Conversion.................................. 45
3.3 Prepayments............................................... 45
3.4 Termination and Reduction of Revolving Committed Amount... 47
3.5 Fees...................................................... 48
3.6 Capital Adequacy.......................................... 49
3.7 Limitation on Eurodollar Loans............................ 50
3.8 Illegality................................................ 50
3.9 Requirements of Law....................................... 50
3.10 Treatment of Affected Loans.............................. 51
3.11 Taxes.................................................... 52
3.12 Compensation............................................. 54
3.13 Pro Rata Treatment....................................... 55
3.14 Sharing of Payments...................................... 56
3.15 Payments, Computations, Etc.............................. 56
3.16 Evidence of Debt......................................... 58
3.17 Mandatory Assignment..................................... 59
SECTION 4 GUARANTY................................................ 59
4.1 The Guaranty.............................................. 59
4.2 Obligations Unconditional................................. 60
4.3 Reinstatement............................................. 61
4.4 Certain Additional Waivers................................ 61
4.5 Remedies.................................................. 61
4.6 Rights of Contribution.................................... 62
4.7 Continuing Guarantee...................................... 63
4.8 Limitation of Liability of Parent......................... 63
SECTION 5 CONDITIONS.............................................. 63
5.1 Closing Conditions........................................ 63
5.2 Conditions to all Extensions of Credit.................... 67
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 6 REPRESENTATIONS AND WARRANTIES.......................... 68
6.1 Financial Condition....................................... 68
6.2 No Material Change........................................ 69
6.3 Organization and Good Standing............................ 69
6.4 Power; Authorization; Enforceable Obligations............. 70
6.5 No Conflicts.............................................. 70
6.6 No Default................................................ 71
6.7 Ownership................................................. 71
6.8 Indebtedness.............................................. 71
6.9 Litigation................................................ 71
6.10 Taxes.................................................... 71
6.11 Compliance with Law...................................... 71
6.12 ERISA.................................................... 72
6.13 Subsidiaries............................................. 73
6.14 Governmental Regulations, Etc............................ 74
6.15 Purpose of Loans and Letters of Credit................... 75
6.16 Reimbursement from Third Party Payors.................... 75
6.17 Fraud and Abuse.......................................... 75
6.18 Environmental Matters.................................... 76
6.19 Intellectual Property.................................... 77
6.20 Solvency................................................. 77
6.21 Investments.............................................. 77
6.22 Disclosure............................................... 77
6.23 No Burdensome Restrictions............................... 77
6.24 Brokers' Fees............................................ 78
6.25 Labor Matters............................................ 78
6.26 Nature of Business....................................... 78
6.27 Representations and Warranties from Merger Agreement..... 78
SECTION 7 AFFIRMATIVE COVENANTS................................... 78
7.1 Information Covenants..................................... 78
7.2 Preservation of Existence and Franchises.................. 81
7.3 Books and Records......................................... 82
7.4 Compliance with Law....................................... 82
7.5 Payment of Taxes and Other Indebtedness................... 82
7.6 Insurance................................................. 82
7.7 Maintenance of Property................................... 83
7.8 Performance of Obligations................................ 83
7.9 Use of Proceeds........................................... 83
7.10 Audits/Inspections....................................... 83
7.11 Financial Covenants...................................... 83
7.12 Additional Credit Parties................................ 85
7.13 Pledged Assets........................................... 86
7.14 Interest Rate Protection................................. 86
7.15 Consummation of Merger................................... 86
SECTION 8 NEGATIVE COVENANTS...................................... 87
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
8.1 Indebtedness............................................. 87
8.2 Liens.................................................... 88
8.3 Nature of Business....................................... 88
8.4 Consolidation, Merger, Dissolution, etc.................. 88
8.5 Asset Dispositions....................................... 89
8.6 Investments.............................................. 89
8.7 Restricted Payments...................................... 89
8.8 Prepayments of Indebtedness, etc......................... 90
8.9 Transactions with Affiliates............................. 90
8.10 Fiscal Year; Organizational Documents................... 91
8.11 Limitation on Restricted Actions........................ 91
8.12 Ownership of Subsidiaries; Limitations on Parent........ 91
8.13 Sale Leasebacks......................................... 92
8.14 Growth Capital Expenditures............................. 92
8.15 No Further Negative Pledges............................. 92
8.16 No Foreign Subsidiaries................................. 93
SECTION 9 EVENTS OF DEFAULT...................................... 93
9.1 Events of Default........................................ 93
9.2 Acceleration; Remedies................................... 96
SECTION 10 AGENCY PROVISIONS..................................... 97
10.1 Appointment, Powers and Immunities...................... 97
10.2 Reliance by Agent....................................... 97
10.3 Defaults................................................ 98
10.4 Rights as a Lender...................................... 98
10.5 Indemnification......................................... 98
10.6 Non-Reliance on Agent and Other Lenders................. 99
10.7 Successor Agent......................................... 99
SECTION 11 MISCELLANEOUS......................................... 99
11.1 Notices................................................. 99
11.2 Right of Set-Off; Adjustments........................... 101
11.3 Benefit of Agreement.................................... 101
11.4 No Waiver; Remedies Cumulative.......................... 103
11.5 Expenses; Indemnification............................... 103
11.6 Amendments, Waivers and Consents........................ 104
11.7 Counterparts............................................ 106
11.8 Headings................................................ 106
11.9 Survival................................................ 106
11.10 Governing Law; Submission to Jurisdiction; Venue....... 106
11.11 Severability........................................... 107
11.12 Entirety............................................... 107
11.13 Binding Effect; Termination............................ 107
11.14 Confidentiality........................................ 108
11.15 Source of Funds........................................ 108
11.16 Conflict............................................... 109
</TABLE>
iii
<PAGE> 5
SCHEDULES
<TABLE>
<S> <C>
Schedule 1.1A Existing Letters of Credit
Schedule 1.1B Investments
Schedule 1.1C Liens
Schedule 2.1(a) Lenders
Schedule 5.1(d)(i) Form of Opinion of Skadden Arps Slate Meagher & Flom
Schedule 5.1(d)(ii) Form of Local Corporate Counsel Opinion
Schedule 5.1(g) Corporate Structure
Schedule 6.4 Required Consents, Authorizations, Notices and Filings
Schedule 6.5 Conflicts
Schedule 6.9 Litigation
Schedule 6.12 ERISA
Schedule 6.13 Subsidiaries
Schedule 6.14(d) Revocation, Suspension or Limitation of Licenses, Permits and Franchises
Schedule 6.15 Purpose of Loans and Letters of Credit
Schedule 6.18 Environmental Disclosures
Schedule 6.19 Intellectual Property
Schedule 6.24 Brokers' Fees
Schedule 6.25 Labor Matters
Schedule 7.6 Insurance
Schedule 8.1 Indebtedness
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit 1.1A Form of Pledge Agreement
Exhibit 2.1(b)(i) Form of Notice of Borrowing
Exhibit 2.1(e) Form of Revolving Note
Exhibit 2.3(f) Form of Tranche A Term Note
Exhibit 2.4(f) Form of Tranche B Term Note
Exhibit 2.5(e) Form of Tranche C Term Note
Exhibit 3.2 Form of Notice of Extension/Conversion
Exhibit 7.1(c) Form of Officer's Compliance Certificate
Exhibit 7.12 Form of Joinder Agreement
Exhibit 11.3(b) Form of Assignment and Acceptance
</TABLE>
iv
<PAGE> 6
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of November 26, 1997 (as amended,
modified, restated or supplemented from time to time, the "Credit Agreement"),
is by and among EXTENDICARE HEALTH SERVICES, INC., a Delaware corporation (the
"Borrower"), EXTENDICARE HOLDINGS, INC., a Delaware corporation (the "Parent"),
the Subsidiaries Guarantors (as defined herein), the Lenders (as defined
herein) and NATIONSBANK, N. A., as Agent for the Lenders (in such capacity, the
"Agent").
W I T N E S S E T H
WHEREAS, the Borrower has requested that the Lenders provide an $800
million credit facility for the purposes hereinafter set forth; and
WHEREAS, the Lenders have agreed to make the requested credit facility
available to the Borrower on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS
1.1 DEFINITIONS.
As used in this Credit Agreement, the following terms shall have the
meanings specified below:
"Acquisition", by any Person, means the acquisition by such Person
of the Capital Stock or all or substantially all of the Property of
another Person, whether or not involving a merger or consolidation with
such Person.
"Additional Credit Party" means each Person that becomes a
Subsidiary Guarantor after the Closing Date by execution of a Joinder
Agreement.
"Adjusted Base Rate" means the Base Rate plus the Applicable
Percentage.
"Adjusted Consolidated Rental Expense" means, as of the date of
determination, Consolidated Rental Expense for the twelve month period
ending on such date multiplied by eight.
"Adjusted Eurodollar Rate" means the Eurodollar Rate plus the
Applicable Percentage. The Adjusted Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the
Eurodollar Reserve Requirement.
<PAGE> 7
"Adjusted Senior Funded Indebtedness" means, at any time, the sum of
(i) total Funded Indebtedness (other than Subordinated Indebtedness) of
the Consolidated Parties on a consolidated basis plus (ii) Adjusted
Consolidated Rental Expense.
"Adjusted Total Funded Indebtedness" means, at any time, the sum of
(i) total Funded Indebtedness (including without limitation Subordinated
Indebtedness) of the Consolidated Parties on a consolidated basis plus
(ii) Adjusted Consolidated Rental Expense.
"Affiliate" means, with respect to any Person, any other Person (i)
directly or indirectly controlling or controlled by or under direct or
indirect common control with such Person or (ii) directly or indirectly
owning or holding ten percent (10%) or more of the Capital Stock in such
Person. For purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the
foregoing.
"Agency Services Address" means NationsBank, N. A., 101 North Tryon
Street, NC1-001-15-04, Charlotte, North Carolina 28255, Attn: Agency
Services, or such other address as may be identified by written notice
from the Agent to the Borrower.
"Agent" shall have the meaning assigned to such term in the heading
hereof, together with any successors or assigns.
"AHC" means AHC Acquisition Corp., a Delaware corporation and a
wholly-owned indirect subsidiary of the Borrower.
"Agent's Fee Letter" means that certain letter agreement, dated as
of September 29, 1997, between the Agent and the Borrower, as amended,
modified, restated or supplemented from time to time.
"Agent's Fees" shall have the meaning assigned to such term in
Section 3.5(d).
"Applicable Lending Office" means, for each Lender, the office of
such Lender (or of an Affiliate of such Lender) as such Lender may from
time to time specify to the Agent and the Borrower by written notice as
the office by which its Eurodollar Loans are made and maintained.
"Applicable Percentage" means, for purposes of calculating the
applicable interest rate for any day for any Revolving Loan, any Tranche
A Term Loan, any Tranche B Term Loan or any Tranche C Term Loan, the
applicable rate of the Unused Fee for any day for purposes of Section
3.5(b), the applicable rate of the Standby Letter of Credit Fee for any
day for purposes of Section 3.5(c)(i) or the applicable rate of the Trade
Letter of Credit Fee for any day for purposes of Section 3.5(c)(ii), the
appropriate applicable percentage corresponding to the Total Leverage
Ratio in effect as of the most recent Calculation Date:
2
<PAGE> 8
<TABLE>
<CAPTION>
TOTAL
PRICING LEVERAGE APPLICABLE PERCENTAGE APPLICABLE PERCENTAGE FOR
LEVEL RATIO FOR EURODOLLAR LOANS BASE RATE LOANS
REVOLVING LOANS, REVOLVING LOANS,
TRANCHE A TERM TRANCHE A TERM
LOANS AND LOANS AND
TRANCHE C TRANCHE B TRANCHE C TRANCHE B
TERM LOANS TERM LOANS TERM LOANS TERM LOANS
<S> <C> <C> <C> <C> <C>
I < 3.0 to 1.0 0.75% 1.75% 0% 0.75%
II < 3.5 to 1.0 1.00% 1.75% 0% 0.75%
but
> 3.0 to 1.0
III < 4.0 to 1.0 1.25% 1.75% 0.25% 0.75%
but
> 3.5 to 1.0
IV < 4.5 to 1.0 1.50% 2.00% 0.50% 1.00%
but
> 4.0 to 1.0
V < 5.0 to 1.0 1.75% 2.00% 0.75% 1.00%
but
> 4.5 to 1.0
VI > 5.0 to 1.00 2.00% 2.00% 1.00% 1.00%
</TABLE>
<TABLE>
<CAPTION>
APPLICABLE APPLICABLE
PERCENTAGE FOR PERCENTAGE FOR APPLICABLE
STANDBY LETTER OF TRADE LETTER OF PERCENTAGE FOR
CREDIT FEE CREDIT FEE UNUSED FEES
<S> <C> <C> <C>
I 0.75% 0.375% 0.25%
II 1.00% 0.50% 0.25%
III 1.25% 0.625% 0.3125%
IV 1.50% 0.75% 0.3125%
V 1.75% 0.875% 0.375%
VI 2.00% 1.00% 0.50%
</TABLE>
The Applicable Percentages shall be determined and adjusted quarterly on
the date (each a "Calculation Date") five Business Days after the earlier
of (a) the date by which the Borrower is required to provide the officer's
certificate in accordance with the provisions of Section 7.1(c) for the
most recently ended fiscal quarter of the Consolidated Parties and (b) the
date the Borrower actually provides such officer's certificate; provided,
however, that (i) the initial Applicable Percentages shall be based on
Pricing Level V (as shown above) and shall remain at Pricing Level V until
the Calculation Date for the fiscal quarter of the Borrower and its
Subsidiaries occurring with respect to the June 30, 1998 financial
statements, and, thereafter, the Pricing Level shall be determined by the
Total Leverage Ratio as of the last day of the most recently ended fiscal
quarter of the Consolidated Parties preceding the applicable Calculation
Date, and (ii) if the Borrower fails to provide the officer's certificate
to the Agency Services Address as required by Section 7.1(c) for the last
day of the most recently ended fiscal quarter of the Consolidated Parties
preceding the applicable Calculation Date, the Applicable Percentage from
such Calculation Date shall be based on Pricing Level VI until such time
as an appropriate officer's certificate is provided, whereupon the Pricing
Level shall be determined by the Total Leverage Ratio as of the last day
of the most recently ended fiscal quarter of the Consolidated Parties
preceding such Calculation Date. Each Applicable Percentage shall be
effective from one Calculation Date until the next Calculation Date. Any
adjustment in the Applicable Percentages shall be applicable to all
existing Loans as well as any new Loans made or issued.
"Application Period", in respect of any Asset Disposition, shall
have the meaning assigned to such term in Section 8.5.
"Arbor" means Arbor Health Care Company, a Delaware corporation.
"Asset Disposition" means (i) the disposition of any or all of the
assets (including without limitation the Capital Stock of a Subsidiary)
of the Parent or any Consolidated Party
3
<PAGE> 9
whether by sale, lease, transfer or otherwise or (ii) any asset sale as
such term is defined in any agreement creating Subordinated Indebtedness.
The term "Asset Disposition" shall not include (a) the sale of inventory
in the ordinary course of business for fair consideration, (b) the sale
or disposition of machinery and equipment no longer used or useful in the
conduct of such Person's business or (c) any Equity Issuance.
"Asset Disposition Prepayment Event" means, with respect to any
Asset Disposition other than an Excluded Asset Disposition, the failure
of the Borrower to apply (or cause to be applied) the Net Cash Proceeds
of such Asset Disposition to the purchase, acquisition or construction of
Eligible Assets during the Application Period for such Asset Disposition.
"Banque Paribas" means Banque Paribas and its successors.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the
United States Code, as amended, modified, succeeded or replaced from time
to time.
"Bankruptcy Event" means, with respect to any Person, the occurrence
of any of the following with respect to such Person: (i) a court or
governmental agency having jurisdiction in the premises shall enter a
decree or order for relief in respect of such Person (A) in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, (B) appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property or
(C) ordering the winding up or liquidation of its affairs; or (ii) there
shall be commenced against such Person an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or any case, proceeding or other action for the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of such Person or for any substantial part of its
Property or for the winding up or liquidation of its affairs, and such
involuntary case or other case, proceeding or other action shall remain
undismissed, undischarged or unbonded for a period of sixty (60)
consecutive days; or (iii) such Person shall commence a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for relief in an
involuntary case under any such law, or consent to the appointment or
taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of such Person or for any
substantial part of its Property or make any general assignment for the
benefit of creditors; or (iv) such Person shall be unable to, or shall
admit in writing its inability to, pay its debts generally as they become
due.
"Base Rate" means, for any day, the rate per annum equal to the
higher of (a) the Federal Funds Rate for such day plus one-half of one
percent (0.5%) or (b) the Prime Rate for such day. Any change in the
Base Rate due to a change in the Prime Rate or the Federal Funds Rate
shall be effective on the effective date of such change in the Prime Rate
or Federal Funds Rate.
4
<PAGE> 10
"Base Rate Loan" means any Loan bearing interest at a rate determined
by reference to the Base Rate.
"Borrower" means the Person identified as such in the heading hereof,
together with any permitted successors and assigns.
"Business Day" means a day other than a Saturday, Sunday or other
day on which commercial banks in Charlotte, North Carolina or New York,
New York are authorized or required by law to close, except that, when
used in connection with a Eurodollar Loan, such day shall also be a day
on which dealings between banks are carried on in U.S. dollar deposits in
London, England.
"Calculation Date" has the meaning set forth in the definition of
"Applicable Percentage" set forth in this Section 1.1.
"Capital Lease" means, as applied to any Person, any lease of any
Property (whether real, personal or mixed) by that Person as lessee
which, in accordance with GAAP, is or should be accounted for as a
capital lease on the balance sheet of that Person.
"Capital Stock" means (i) in the case of a corporation, capital
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of capital stock, (iii) in the case of a partnership,
partnership interests (whether general or limited), (iv) in the case of a
limited liability company, membership interests and (v) any other
interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof) having maturities
of not more than twelve months from the date of acquisition, (b) readily
marketable direct obligations of any state of the United States of
America or any political subdivision of any such state given on the date
of such investment a credit rating of at least Aa by Moody's or AA by
S&P, in each case due within twelve months of the date of acquisition;
(c) time deposits, certificates of deposit, Eurocurrency through or
bankers' acceptances of (i) any Lender, (ii) any domestic commercial bank
of recognized standing having capital and surplus in excess of
$250,000,000 or (iii) any bank whose short-term commercial paper rating
from S&P is at least A-1 or the equivalent thereof or from Moody's is at
least P-1 or the equivalent thereof (any such bank being an "Approved
Bank"), in each case with maturities of not more than twelve months from
the date of acquisition, (d) commercial paper and variable or fixed rate
notes issued by any Approved Bank (or by the parent company thereof) or
any variable rate notes issued by, or guaranteed by, any domestic
corporation rated A-1 (or the equivalent thereof) or better by S&P or P-1
(or the equivalent thereof) or better by Moody's and maturing within
twelve months of the date of acquisition, (e) repurchase agreements
entered into by any Person with a bank or trust company (including any of
the Lenders) or recognized securities
5
<PAGE> 11
dealer having capital and surplus in excess of $250,000,000 for direct
obligations issued by or fully guaranteed by the United States of America
in which such Person shall have a perfected first priority security
interest (subject to no other Liens) and having, on the date of purchase
thereof, a fair market value of at least 100% of the amount of the
repurchase obligations, (f) commercial paper of any corporation doing
business in and incorporated under the laws of the United States of any
state thereof given on the date of acquisition the highest credit rating
by Moody's and S&P, in each case due within 270 days or less after the
date of acquisition and (g) Investments, classified in accordance with
GAAP as current assets, in money market investment programs registered
under the Investment Company Act of 1940, as amended, which are
administered by reputable financial institutions having capital of at
least $500,000,000 and the portfolios of which are limited to Investments
of the character described in the foregoing subdivisions (a) through (f).
"Change of Control" means any of the following events: (a) the
failure of the Parent to own all of the Capital Stock of the Borrower,
(b) the failure of Extendicare to own, directly or indirectly, at least
66-2/3% of the Voting Stock of the Parent, (c) Scotia Investments Limited
and Kingfield Investments Limited shall, for any reason, beneficially
own, directly or indirectly, Voting Stock of Extendicare that represents
a lesser percentage of the aggregate voting power of all classes of
Voting Stock of Extendicare, voting together as a single class, than any
other Person or any other two or more Persons acting in concert, (d) any
Person (other than Scotia Investments Limited and Kingfield Investments
Limited) or any two or more Persons acting in concert (but without
including Scotia Investments Limited and Kingfield Investments Limited
whether or not acting alone, in concert with one another pursuant to a
shareholders agreement or in concert with any other Person(s)) shall have
acquired beneficial ownership, directly or indirectly, of, or shall have
acquired by contract or otherwise, or shall have entered into a contract
or arrangement that, upon consummation, will result in its or their
acquisition of, control over 35% or more of the votes attributable to the
Voting Stock of Extendicare, (e) during any period of up to 24
consecutive months, commencing after the Closing Date, individuals who at
the beginning of such 24 month period were directors of Extendicare
(together with any new director whose election by the Board of Directors
of Extendicare or whose nomination for election by the shareholders of
Extendicare was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning
of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of
the directors of Extendicare then in office or (f) the occurrence of a
"Change of Control" under and as defined in any indenture or other
agreement governing or evidencing any Subordinated Indebtedness. As used
herein, "beneficial ownership" shall have the meaning provided in Rule
13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute thereto, as interpreted by the rules and regulations
issued thereunder, in each case as in effect from time to time.
References to sections of the Code shall be construed also to refer to
any successor sections.
6
<PAGE> 12
"Collateral" means a collective reference to the collateral which is
identified in, and at any time will be covered by, the Collateral
Documents.
"Collateral Documents" means a collective reference to the Pledge
Agreement and such other documents executed and delivered in connection
with the attachment and perfection of the Agent's security interests and
liens arising thereunder.
"Commitment" means (i) with respect to each Lender, the Revolving
Commitment of such Lender, the Tranche A Term Loan Commitment, the
Tranche B Term Loan Commitment and the Tranche C Term Loan Commitment of
such Lender and (ii) with respect to the Issuing Lender, the LOC
Commitment.
"Consolidated Cash Taxes" means, for any period for the Consolidated
Parties on a consolidated basis, the aggregate of all taxes for such
period to the extent paid in cash, as determined in accordance with GAAP.
"Consolidated EBITDA" means, for any period, the sum of (i)
Consolidated Net Income for such period, plus (ii) an amount which, in
the determination of Consolidated Net Income for such period, has been
deducted for (A) Consolidated Interest Expense, (B) total federal, state,
local and foreign income, value added and similar taxes, (C) depreciation
and amortization expense and (D) all other non-cash charges, all as
determined in accordance with GAAP.
"Consolidated EBITDAR" means, for any period, the sum of (i)
Consolidated EBITDA for such period, plus (ii) an amount which, in the
determination of Consolidated Net Income for such period, has been
deducted for Consolidated Rental Expense, all as determined in accordance
with GAAP.
"Consolidated Growth Capital Expenditures" means, for any period for
the Consolidated Parties on a consolidated basis, all capital
expenditures for such period, as determined in accordance with GAAP,
representing the purchase price of equipment, or the costs of
construction or purchase price for, or other costs associated with the
acquisition construction or expansion of, a facility.
"Consolidated Interest Expense" means, for any period, interest
expense (including the amortization of debt discount and premium, the
interest component under Capital Leases and the implied interest
component under Synthetic Leases) of the Consolidated Parties on a
consolidated basis for such period, as determined in accordance with
GAAP.
"Consolidated Maintenance Capital Expenditures" means, for any
period for the Consolidated Parties on a consolidated basis, all capital
expenditures for such period, as determined in accordance with GAAP,
other than any capital expenditure representing the purchase price for,
or other costs associated with the acquisition, construction or expansion
of, a facility.
7
<PAGE> 13
"Consolidated Net Income" means, for any period, net income
(excluding extraordinary and unusual items) after taxes for such period
of the Consolidated Parties on a consolidated basis, as determined in
accordance with GAAP.
"Consolidated Net Worth" means, as of any date, shareholders' equity
or net worth of the Consolidated Parties on a consolidated basis, as
determined in accordance with GAAP.
"Consolidated Parties" means a collective reference to the Borrower
and its Subsidiaries, and "Consolidated Party" means any one of them.
"Consolidated Rental Expense" means, for any period, rental expense
under Operating Leases of the Consolidated Parties on a consolidated
basis for such period, as determined in accordance with GAAP.
"Consolidated Scheduled Funded Debt Payments" means, as of the end
of each fiscal quarter of the Consolidated Parties, for the Consolidated
Parties on a consolidated basis, the sum of all scheduled payments of
principal on Funded Indebtedness (other than Funded Indebtedness retired
in connection with the Refinancing) for the applicable period ending on
such date (including the principal component of payments due on Capital
Leases during the applicable period ending on such date); it being
understood that Scheduled Funded Debt Payments shall not include
voluntary prepayments or the mandatory prepayments required pursuant to
Section 3.3.
"Consolidated Total Assets" means, at any time, total assets of the
Consolidated Parties on a consolidated basis at such time, as determined
in accordance with GAAP.
"Consolidated Working Capital" means, at any time, the excess of (i)
current assets of the Consolidated Parties on a consolidated basis at
such time over (ii) current liabilities of the Consolidated Parties on a
consolidated basis at such time, all as determined in accordance with
GAAP.
"Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to Section 3.2 hereof of a Eurodollar Loan from one
Interest Period to the next Interest Period.
"Convert", "Conversion", and "Converted" shall refer to a conversion
pursuant to Section 3.2 or Sections 3.7 through 3.12, inclusive, of a
Base Rate Loan into a Eurodollar Loan.
"Credit Documents" means a collective reference to this Credit
Agreement, the Notes, the LOC Documents, each Joinder Agreement, the
Agent's Fee Letter, the Collateral Documents and all other related
agreements and documents issued or delivered hereunder or thereunder or
pursuant hereto or thereto (in each case as the same may be amended,
modified, restated, supplemented, extended, renewed or replaced from time
to time), and "Credit Document" means any one of them.
8
<PAGE> 14
"Credit Parties" means a collective reference to the Borrower and
the Guarantors, and "Credit Party" means any one of them.
"Credit Party Obligations" means, without duplication, (i) all of
the obligations of the Credit Parties to the Lenders (including the
Issuing Lender) and the Agent, whenever arising, under this Credit
Agreement, the Notes, the Collateral Documents or any of the other Credit
Documents (including, but not limited to, any interest accruing after the
occurrence of a Bankruptcy Event with respect to any Credit Party,
regardless of whether such interest is an allowed claim under the
Bankruptcy Code) and (ii) all liabilities and obligations, whenever
arising, owing from the Borrower to any Lender, or any Affiliate of a
Lender, arising under any Hedging Agreement.
"Debt Issuance" means the issuance of any Indebtedness for borrowed
money by the Parent or any Consolidated Party other than Indebtedness
permitted by Section 8.1; provided, however, that the first $200,000,000
in principal amount of Subordinated Indebtedness issued by the Borrower
as permitted by Section 8.1(f)(i) shall constitute a "Debt Issuance".
"Default" means any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that (a) has
failed to make a Loan or purchase a Participation Interest required
pursuant to the terms of this Credit Agreement within one Business Day of
when due, (b) other than as set forth in (a) above, has failed to pay to
the Agent or any Lender an amount owed by such Lender pursuant to the
terms of this Credit Agreement within one Business Day of when due,
unless such amount is subject to a good faith dispute or (c) has been
deemed insolvent or has become subject to a bankruptcy or insolvency
proceeding or with respect to which (or with respect to any of assets of
which) a receiver, trustee or similar official has been appointed.
"Dollars" and "$" means dollars in lawful currency of the United
States of America.
"Domestic Subsidiary" means, with respect to any Person, any
Subsidiary of such Person that is incorporated or organized under the
laws of any State of the United States or the District of Columbia.
"Eligible Assets" means another business or any substantial part of
another business or other long-term assets, in each case, in, or used or
useful in, the same or a similar line of business as the Consolidated
Parties were engaged in on the Closing Date or any reasonable extensions
or expansions thereof.
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a
Lender; a (iii) Related Fund; and (iv) any other Person approved by the
Agent (such approval not to be unreasonably withheld or delayed) and,
unless an Event of Default has occurred and is continuing at the time any
assignment is effected in accordance with Section 11.3, the
9
<PAGE> 15
Borrower (such approval not to be unreasonably withheld or delayed by the
Borrower and such approval to be deemed given by the Borrower if no
objection is received by the assigning Lender and the Agent from the
Borrower within two Business Days after notice of such proposed
assignment has been provided by the assigning Lender to the Borrower);
provided, however, that neither the Borrower nor an Affiliate of the
Borrower shall qualify as an Eligible Assignee.
"Environmental Laws" means any and all lawful and applicable
Federal, state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders, decrees, permits, concessions,
grants, franchises, licenses, agreements or other governmental
restrictions relating to the environment or to emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals,
or industrial, toxic or hazardous substances or wastes into the
environment including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
or handling of pollutants, contaminants, chemicals, or industrial, toxic
or hazardous substances or wastes.
"Equity Issuance" means any issuance by the Parent or any
Consolidated Party to any Person other than a Credit Party of (a) shares
of its Capital Stock, (b) any shares of its Capital Stock pursuant to the
exercise of options or warrants or (c) any shares of its Capital Stock
pursuant to the conversion of any debt securities to equity. The term
"Equity Issuance" shall not include any Asset Disposition or any capital
contribution in any Credit Party for which no Capital Stock of such
Credit Party is issued.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute thereto, as interpreted by the
rules and regulations thereunder, all as the same may be in effect from
time to time. References to sections of ERISA shall be construed also to
refer to any successor sections.
"ERISA Affiliate" means an entity which is under common control with
the Parent or any Consolidated Party within the meaning of Section
4001(a)(14) of ERISA, or is a member of a group which includes the Parent
or any Consolidated Party and which is treated as a single employer under
Sections 414(b) or (c) of the Code.
"ERISA Event" means (i) with respect to any Plan, the occurrence of
a Reportable Event or the substantial cessation of operations (within the
meaning of Section 4062(e) of ERISA); (ii) the withdrawal by the Parent,
any Consolidated Party or any ERISA Affiliate from a Multiple Employer
Plan during a plan year in which it was a substantial employer (as such
term is defined in Section 4001(a)(2) of ERISA), or the termination of a
Multiple Employer Plan; (iii) the distribution of a notice of intent to
terminate or the actual termination of a Plan pursuant to Section
4041(a)(2) or 4041A of ERISA; (iv) the institution of proceedings to
terminate or the actual termination of a Plan by the PBGC under Section
4042 of ERISA; (v) any event or condition which might constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of
a trustee to administer, any Plan; (vi) the complete or partial
withdrawal of the Parent, any Consolidated Party or any ERISA Affiliate
from a
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Multiemployer Plan; (vii) the conditions for imposition of a lien under
Section 302(f) of ERISA exist with respect to any Plan; or (vii) the
adoption of an amendment to any Plan requiring the provision of security
to such Plan pursuant to Section 307 of ERISA.
"Eurodollar Loan" means any Loan that bears interest at a rate based
upon the Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) determined by the Agent to be equal to the
quotient obtained by dividing (a) the Interbank Offered Rate for such
Eurodollar Loan for such Interest Period by (b) 1 minus the Eurodollar
Reserve Requirement for such Eurodollar Loan for such Interest Period.
"Eurodollar Reserve Requirement" means, at any time, the maximum
rate at which reserves (including, without limitation, any marginal,
special, supplemental, or emergency reserves) are required to be
maintained under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) by member
banks of the Federal Reserve System against "Eurocurrency liabilities"
(as such term is used in Regulation D). Without limiting the effect of
the foregoing, the Eurodollar Reserve Requirement shall reflect any other
reserves required to be maintained by such member banks with respect to
(i) any category of liabilities which includes deposits by reference to
which the Adjusted Eurodollar Rate is to be determined, or (ii) any
category of extensions of credit or other assets which include Eurodollar
Loans.
"Event of Default" means such term as defined in Section 9.1.
"Excluded Asset Disposition" means (a) any Asset Disposition by any
Consolidated Party provided that (i) the net book value of the assets
sold or otherwise disposed of in such transaction does not exceed
$1,000,000 and (ii) the aggregate net book value of all of the assets
sold or otherwise disposed of in all such transactions during any fiscal
year of the Consolidated Parties shall not exceed $15,000,000, (b) any
other Asset Disposition by any Consolidated Party to any Credit Party
other than the Parent if (i) the Credit Parties shall cause to be
executed and delivered such documents, instruments and certificates as
the Agent may request so as to cause the Credit Parties to be in
compliance with the terms of Section 7.13 after giving effect to such
Asset Disposition and (ii) after giving effect to such Asset Disposition,
no Default or Event of Default exists and (c) the sale by the Parent of
all or any portion of the Capital Stock or all or any portion of the
Property of any Unconsolidated Subsidiary; provided, however,
notwithstanding the foregoing, the term "Excluded Asset Disposition"
shall not include any Asset Disposition which, pursuant to the terms of
any indenture or other agreement governing or evidencing any Subordinated
Indebtedness of the Borrower, would be required to be applied to the
prepayment of any Indebtedness of the Borrower.
"Executive Officer" of any Person means any of the chief executive
officer, chief operating officer, president, vice president, chief
financial officer or treasurer of such Person.
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"Existing Letters of Credit" means the letters of credit issued by
Banque Paribas and described by date of issuance, letter of credit
number, undrawn amount, name of beneficiary and date of expiry on
Schedule 1.1A hereto.
"Extendicare" means Extendicare Inc., a corporation existing under
the laws of Canada.
"Fees" means all fees payable pursuant to Section 3.5.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business
Day next succeeding such day; provided that (a) if such day is not a
Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Business Day as so published on
the next succeeding Business Day, and (b) if no such rate is so published
on such next succeeding Business Day, the Federal Funds Rate for such day
shall be the average rate charged to the Agent (in its individual
capacity) on such day on such transactions as determined by the Agent.
"Fixed Charge Coverage Ratio" means, as of the end of each fiscal
quarter of the Consolidated Parties for the twelve month period ending on
such date, the ratio of (a) the sum of (i) Consolidated EBITDAR for the
applicable period minus (ii) Consolidated Maintenance Capital
Expenditures for the applicable period minus (iii) Consolidated Cash
Taxes for the applicable period to (b) the sum of (i) Consolidated
Interest Expense for the applicable period plus (ii) Consolidated
Scheduled Funded Debt Payments for the applicable period plus (iii)
Consolidated Rental Expense for the applicable period plus (iv)
Restricted Payments made by the Consolidated Parties on a consolidated
basis for the applicable period.
"Foreign Subsidiary" means, with respect to any Person, any
Subsidiary of such Person which is not a Domestic Subsidiary of such
Person.
"Funded Indebtedness" means, with respect to any Person, without
duplication, (a) all Indebtedness of such Person other than Indebtedness
of the types referred to in clause (e), (f), (g) and (m) of the
definition of "Indebtedness" set forth in this Section 1.1, (b) all
Indebtedness of another Person of the type referred to in clause (a)
above secured by (or for which the holder of such Funded Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien
on, or payable out of the proceeds of production from, Property owned or
acquired by such Person, whether or not the obligations secured thereby
have been assumed, (c) all Guaranty Obligations of such Person with
respect to Indebtedness of the type referred to in clause (a) above of
another Person and (d) Indebtedness of the type referred to in clause (a)
above of any partnership or unincorporated joint venture in which such
Person is legally obligated or has a reasonable expectation of being
liable with respect thereto.
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"GAAP" means generally accepted accounting principles in the United
States applied on a consistent basis and subject to the terms of Section
1.3.
"Governmental Authority" means any Federal, state, local or foreign
court or governmental agency, authority, instrumentality or regulatory
body.
"Guarantors" means a collective reference to the Parent, each of the
Subsidiary Guarantors and each other Subsidiary of the Borrower
guarantying any Subordinated Indebtedness, together with their successors
and permitted assigns, and "Guarantor " means any one of them.
"Guaranty Obligations" means, with respect to any Person, without
duplication, any obligations of such Person (other than endorsements in
the ordinary course of business of negotiable instruments for deposit or
collection) guaranteeing or intended to guarantee any Indebtedness of any
other Person in any manner, whether direct or indirect, and including
without limitation any obligation, whether or not contingent, (i) to
purchase any such Indebtedness or any Property constituting security
therefor, (ii) to advance or provide funds or other support for the
payment or purchase of any such Indebtedness or to maintain working
capital, solvency or other balance sheet condition of such other Person
(including without limitation keep well agreements, maintenance
agreements, comfort letters or similar agreements or arrangements) for
the benefit of any holder of Indebtedness of such other Person, (iii) to
lease or purchase Property, securities or services primarily for the
purpose of assuring the holder of such Indebtedness, or (iv) to otherwise
assure or hold harmless the holder of such Indebtedness against loss in
respect thereof. The amount of any Guaranty Obligation hereunder shall
(subject to any limitations set forth therein) be deemed to be an amount
equal to the outstanding principal amount (or maximum principal amount,
if larger) of the Indebtedness in respect of which such Guaranty
Obligation is made.
"Hedging Agreements" means any interest rate protection agreement or
foreign currency exchange agreement between the Borrower and any Lender,
or any Affiliate of a Lender, and entered into in order to manage
existing or anticipated interest rate or exchange rate risks and not for
speculative purposes.
"Indebtedness" means, with respect to any Person, without
duplication, (a) all obligations of such Person for borrowed money, (b)
all obligations of such Person evidenced by bonds, debentures, notes or
similar instruments, or upon which interest payments are customarily
made, (c) all obligations of such Person under conditional sale or other
title retention agreements relating to Property purchased by such Person
(other than trade or other accounts payable in the ordinary course of
business and customary reservations or retentions of title under
agreements with suppliers entered into in the ordinary course of
business), (d) all obligations of such Person issued or assumed as the
deferred purchase price of Property or services purchased by such Person
(other than trade debt incurred in the ordinary course of business and
due within six months of the incurrence thereof) which would appear as
liabilities on a balance sheet of such Person, (e) all obligations of
such Person under take-or-pay or similar arrangements or under
commodities agreements, (f) all Indebtedness of others secured
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<PAGE> 19
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on, or payable out of
the proceeds of production from, Property owned or acquired by such
Person, whether or not the obligations secured thereby have been assumed,
(g) all Guaranty Obligations of such Person, (h) the principal portion of
all obligations of such Person under Capital Leases, (i) all net
obligations of such Person under Hedging Agreements, (j) the maximum
amount of all standby letters of credit issued or bankers' acceptances
facilities created for the account of such Person and, without
duplication, all drafts drawn thereunder (to the extent unreimbursed),
(k) all preferred Capital Stock issued by such Person and required by the
terms thereof to be redeemed, or for which mandatory sinking fund
payments are due, by a fixed date, (l) the principal portion of all
obligations of such Person under Synthetic Leases and (m) the
Indebtedness of any partnership or unincorporated joint venture in which
such Person is a general partner or a joint venturer and with respect to
which Indebtedness such Person has a legal obligation.
"Interbank Offered Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750
(or any successor page) as the London interbank offered rate for deposits
in Dollars at approximately 11:00 a.m. (London time) two Business Days
prior to the first day of such Interest Period for a term comparable to
such Interest Period. If for any reason such rate is not available, the
term "Interbank Offered Rate" shall mean, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO
Page as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the
first day of such Interest Period for a term comparable to such Interest
Period; provided, however, if more than one such rate is specified on
Reuters Screen LIBO Page, the applicable rate shall be the arithmetic
mean of all such rates (rounded upwards, if necessary, to the nearest
1/100 of 1%).
"Interest Payment Date" means (a) as to Base Rate Loans, the last
day of each fiscal quarter of the Borrower and the Maturity Date, and (b)
as to Eurodollar Loans, the last day of each applicable Interest Period
and the Maturity Date, and in addition where the applicable Interest
Period for a Eurodollar Loan is greater than three months, then also the
date three months from the beginning of the Interest Period and each
three months thereafter.
"Interest Period" means, as to Eurodollar Loans, a period of one,
two, three or six months' duration, as the Borrower may elect,
commencing, in each case, on the date of the borrowing (including
continuations and conversions thereof); provided, however, (a) if any
Interest Period would end on a day which is not a Business Day, such
Interest Period shall be extended to the next succeeding Business Day
(except that where the next succeeding Business Day falls in the next
succeeding calendar month, then on the next preceding Business Day), (b)
no Interest Period shall extend beyond the Maturity Date, (c) with regard
to the Tranche A Term Loans, no Interest Period shall extend beyond any
Principal Amortization Payment Date unless the portion of Tranche A Term
Loans comprised of Base Rate Loans together with the portion of Tranche A
Term Loans comprised of Eurodollar Loans with Interest Periods expiring
prior to the date such Principal Amortization Payment is due, is at least
equal to the
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amount of such Principal Amortization Payment due on such date, (d) with
regard to the Tranche B Term Loans, no Interest Period shall extend
beyond any Principal Amortization Payment Date unless the portion of
Tranche B Term Loans comprised of Base Rate Loans together with the
portion of Tranche B Term Loans comprised of Eurodollar Loans with
Interest Periods expiring prior to the date such Principal Amortization
Payment is due, is at least equal to the amount of such Principal
Amortization Payment due on such date, (e) with regard to the Tranche C
Term Loans, no Interest Period shall extend beyond any Principal
Amortization Payment Date unless the portion of Tranche C Term Loans
comprised of Base Rate Loans together with the portion of Tranche C Term
Loans comprised of Eurodollar Loans with Interest Periods expiring prior
to the date such Principal Amortization Payment is due, is at least equal
to the amount of such Principal Amortization Payment due on such date and
(f) where an Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month in which the Interest
Period is to end, such Interest Period shall end on the last Business Day
of such calendar month.
"Investment" in any Person means (a) the acquisition (whether for
cash, property, services, assumption of Indebtedness, securities or
otherwise) of assets, shares of Capital Stock, bonds, notes, debentures,
partnership, joint ventures or other ownership interests or other
securities of such other Person or (b) any deposit with, or advance, loan
or other extension of credit to, such Person (other than deposits made in
connection with the purchase of equipment or other assets in the ordinary
course of business) or (c) any other capital contribution to or
investment in such Person, including, without limitation, any Guaranty
Obligations (including any support for a letter of credit issued on
behalf of such Person) incurred for the benefit of such Person, but
excluding any Restricted Payment to such Person.
"Issuing Lender" means (i) with respect to each Existing Letter of
Credit, Banque Paribas and (ii) with respect to each other Letter of
Credit, NationsBank.
"Issuing Lender Fees" shall have the meaning assigned to such term
in Section 3.5(c)(iii).
"Joinder Agreement" means a Joinder Agreement substantially in the
form of Exhibit 7.12 hereto, executed and delivered by an Additional
Credit Party in accordance with the provisions of Section 7.12.
"Lender" means any of the Persons identified as a "Lender" on the
signature pages hereto, and any Person which may become a Lender by way
of assignment in accordance with the terms hereof, together with their
successors and permitted assigns.
"Letter of Credit" means (i) any letter of credit issued by the
Issuing Lender for the account of the Borrower in accordance with the
terms of Section 2.2 and (ii) any Existing Letter of Credit..
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, security interest, encumbrance, lien (statutory or
otherwise), preference, priority or charge of
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any kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any financing or
similar statement or notice filed under the Uniform Commercial Code as
adopted and in effect in the relevant jurisdiction or other similar
recording or notice statute, and any lease in the nature thereof).
"Loan" or "Loans" means the Revolving Loans, the Tranche A Term
Loans, the Tranche B Term Loans and/or the Tranche C Term Loans (or a
portion of any Revolving Loan, any Tranche A Term Loan, Tranche B Term
Loan or any Tranche C Term Loan bearing interest based on the Base Rate
or the Eurodollar Rate), individually or collectively, as appropriate.
"LOC Commitment" means the commitment of the Issuing Lender to issue
Letters of Credit in an aggregate face amount at any time outstanding
(together with the amounts of any unreimbursed drawings thereon) of up to
the LOC Committed Amount.
"LOC Committed Amount" shall have the meaning assigned to such term
in Section 2.2.
"LOC Documents" means, with respect to any Letter of Credit, such
Letter of Credit, any amendments thereto, any documents delivered in
connection therewith, any application therefor, and any agreements,
instruments, guarantees or other documents (whether general in
application or applicable only to such Letter of Credit) governing or
providing for (i) the rights and obligations of the parties concerned or
at risk or (ii) any collateral security for such obligations.
"LOC Obligations" means, at any time, the sum of (i) the maximum
amount which is, or at any time thereafter may become, available to be
drawn under Letters of Credit then outstanding, assuming compliance with
all requirements for drawings referred to in such Letters of Credit plus
(ii) the aggregate amount of all drawings under Letters of Credit honored
by the Issuing Lender but not theretofore reimbursed by the Borrower.
"Material Adverse Effect" means a material adverse effect on (i) the
condition (financial or otherwise), operations, business, assets,
liabilities or prospects of the Parent and the Consolidated Parties taken
as a whole, (ii) the ability of any Credit Party to perform any material
obligation under the Credit Documents to which it is a party or (iii) the
material rights and remedies of the Lenders under the Credit Documents.
"Material Domestic Subsidiary" means (i) each of the corporations
described as a "Material Domestic Subsidiary" on Schedule 6.13 and (ii)
any other direct or indirect Domestic Subsidiary of the Borrower which at
any time on or after the Closing Date has total assets (as determined in
accordance with GAAP) equal to or greater than $1,000,000, provided that
the aggregate total assets (as determined in accordance with GAAP) at any
time of all Subsidiaries of the Borrower excluded from this definition of
"Material Subsidiary" shall not exceed $5,000,000.
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"Materials of Environmental Concern" means any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or
any hazardous or toxic substances, materials or wastes, defined or
regulated as such in or under any Environmental Laws, including, without
limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde
insulation.
"Maturity Date" means (i) as to the Revolving Loans and Letters of
Credit (and the related LOC Obligations), the Tranche A Term Loan and the
Tranche C Term Loan, December 31, 2003 and (ii) as to the Tranche B Term
Loan, December 31, 2004.
"Medicaid Regulations" shall mean, collectively, (i) all federal
statues (whether set forth in Title XIX of the Social Security Act, 42
USC Section Section 1396 et seq., or elsewhere) affecting the medical
assistance program established by Title XIX of the Social Security Act,
and any statutes succeeding thereto; (ii) all applicable provisions of
all federal rules, regulations, manuals and orders of all Governmental
Authorities promulgated pursuant to or in connection with the statutes
described in clause (i) above and all federal administrative,
reimbursement and other guidelines of all Governmental Authorities having
the force of law promulgated pursuant to or in connection with the
statutes described in clause (i) above; (iii) all state statutes and
plans for medical assistance enacted in connection with the statutes and
provisions described in clauses (i) and (ii) above; and (iv) all
applicable provisions of all rules, regulations, manuals and orders of
all Governmental Authorities promulgated pursuant to or in connection
with the statutes described in clause (iii) above and all state
administrative, reimbursement and other guidelines of all Governmental
Authorities having the force of law promulgated pursuant to or in
connection with the statutes described in clause (iii) above, in each
case as may be amended, supplemented or otherwise modified from time to
time.
"Medicare Regulations" shall mean, collectively, all federal
statutes (whether set forth in Title XVIII of the Social Security Act, 42
USC Section Section 1396 et seq., or elsewhere) affecting the health
insurance program for the aged and disabled established by Title XVIII of
the Social Security Act and any statutes succeeding thereto; together
with all applicable provisions of all rules, regulations, manuals and
orders and administrative, reimbursement and other guidelines having the
force of law of all Governmental Authorities (including without
limitation, Health and Human Services ("HHS"), HCFA, and Office of the
Inspector General for HHS, or any Person succeeding to the functions of
any of the foregoing) promulgated pursuant to or in connection with any
of the foregoing having the force of law, in each case as may be amended,
supplemented or otherwise modified from time to time.
"Merger Agreement" means the Agreement and Plan of Merger by and
among Extendicare, AHC and Arbor, dated as of September 29, 1997, as it
may be amended on or prior to the Closing Date.
"Merger Date" means the effective date of the merger of AHC into
Arbor (with Arbor as the surviving corporation) pursuant to the terms of
the Merger Agreement.
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"Moody's" means Moody's Investors Service, Inc., or any successor or
assignee of the business of such company in the business of rating
securities.
"Multiemployer Plan" means a Plan which is a multiemployer plan as
defined in Sections 3(37) or 4001(a)(3) of ERISA.
"Multiple Employer Plan" means a Plan which the Parent, any
Consolidated Party or any ERISA Affiliate and at least one employer other
than the Parent, the Consolidated Parties or any ERISA Affiliate are
contributing sponsors.
"NationsBank" means NationsBank, N. A. and its successors.
"Net Cash Proceeds" means the aggregate cash proceeds received by
the Parent or any Consolidated Parties in respect of any Asset
Disposition, Equity Issuance or Debt Issuance, net of (a) direct costs
(including, without limitation, legal, accounting and investment banking
fees, and sales commissions) and (b) taxes paid or payable as a result
thereof; it being understood that "Net Cash Proceeds" shall include,
without limitation, any cash received upon the sale or other disposition
of any non-cash consideration received by the Parent or any Consolidated
Parties in any Asset Disposition, Equity Issuance or Debt Issuance.
"Note" or "Notes" means the Revolving Notes, the Tranche A Term
Notes, the Tranche B Term Notes and/or the Tranche C Term Notes,
individually or collectively, as appropriate.
"Notice of Borrowing" means a written notice of borrowing in
substantially the form of Exhibit 2.1(b)(i), as required by Section
2.1(b)(i), Section 2.3(b), Section 2.4(b) or Section 2.5(b).
"Notice of Extension/Conversion" means the written notice of
extension or conversion in substantially the form of Exhibit 3.2, as
required by Section 3.2.
"OSHA" shall mean the Occupational Safety and Health Act, as amended
from time to time, and all rules and regulations from time to time
promulgated thereunder.
"Operating Lease" means, as applied to any Person, any lease
(including, without limitation, leases which may be terminated by the
lessee at any time) of any Property (whether real, personal or mixed)
which is not a Capital Lease other than any such lease in which that
Person is the lessor.
"Other Taxes" means such term as is defined in Section 3.11.
"Parent" means the Person identified as such in the heading hereof,
together with any permitted successors and assigns.
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"Participation Interest" means a purchase by a Lender of a
participation in Letters of Credit or LOC Obligations as provided in
Section 2.2 or in any Loans as provided in Section 3.14.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any successor thereof.
"Permitted Acquisition" means an Acquisition by the Borrower or any
Subsidiary of the Borrower for the fair market value of the Capital Stock
or Property acquired, provided that (i) the Capital Stock or Property
acquired in such Acquisition relates to the health care industry, (ii)
the Agent shall have received all items in respect of the Capital Stock
acquired in such Acquisition required to be delivered by the terms of
Section 7.12 and/or Section 7.13, (iii) in the case of an Acquisition of
the Capital Stock of another Person, the board of directors (or other
comparable governing body) of such other Person shall have duly approved
such Acquisition, (iv) the Borrower shall have delivered to the Agent a
Pro Forma Compliance Certificate demonstrating that, upon giving effect
to such Acquisition on a Pro Forma Basis, the Credit Parties shall be in
compliance with all of the covenants set forth in Section 7.11, (v) the
representations and warranties made by the Credit Parties in any Credit
Document shall be true and correct in all material respects at and as if
made as of the date of such Acquisition (after giving effect thereto)
except to the extent such representations and warranties expressly relate
to an earlier date, (vi) if the aggregate consideration (including any
assumption of liabilities (other than current working capital liabilities
not constituting Indebtedness), but excluding consideration consisting of
any Capital Stock of the Borrower or capital contributed by Extendicare)
for any such transaction is greater than $75 million, then the Required
Lenders shall have approved such Acquisition in their sole reasonable
discretion and (vii) unless the Required Lenders shall otherwise agree in
writing in their sole reasonable discretion to a greater amount, the
aggregate consideration (including any assumption of liabilities (other
than current working capital liabilities not constituting Indebtedness),
but excluding consideration consisting of any Capital Stock of the
Borrower or capital contributed by Extendicare) paid by the Consolidated
Parties for all Acquisitions during any fiscal year, taken together with
Consolidated Growth Capital Expenditures for such fiscal year, shall not
exceed (A) for fiscal year 1998 (including the period from the Closing
Date through the last day of fiscal year 1997), $150 million (excluding
for purposes hereof the Acquisition of Arbor), (B) for each of fiscal
years 1999 and 2000, $175 million and (C) for each fiscal year
thereafter, $200 million.
"Permitted Investments" means Investments which are either (i) cash
and Cash Equivalents; (ii) accounts receivable created, acquired or made
by any Consolidated Party in the ordinary course of business and payable
or dischargeable in accordance with customary trade terms; (iii)
Investments consisting of Capital Stock, obligations, securities or other
property received by any Consolidated Party in settlement of accounts
receivable (created in the ordinary course of business) from bankrupt
obligors; (iv) Investments existing as of the Closing Date and set forth
in Schedule 1.1B; (v) Guaranty Obligations permitted by Section 8.1; (vi)
transactions permitted by Section 8.9; (vii) advances or loans made by
any Consolidated Party to directors, officers, employees, agents,
customers or suppliers that do not
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exceed $2,500,000 in the aggregate at any one time outstanding for all of
the Consolidated Parties; (viii) Investments of the Parent in any
Unconsolidated Subsidiary; (ix) Investments in any Credit Party other
than the Parent, (x) Permitted Acquisitions; (xi) other Investments made
pursuant to an employee benefit program having an aggregate fair market
value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with
all other Investments made pursuant to this clause (xi) that are at the
time outstanding, not to exceed $7,000,000; and (xii) the Acquisition of
Arbor by AHC pursuant to the Tender Offer and the Merger Agreement.
"Permitted Liens" means:
(i) Liens in favor of the Agent to secure the Credit Party
Obligations;
(ii) Liens (other than Liens created or imposed under ERISA) for
taxes, assessments or governmental charges or levies not yet due or Liens
for taxes being contested in good faith by appropriate proceedings for
which adequate reserves determined in accordance with GAAP have been
established (and as to which the Property subject to any such Lien is not
yet subject to foreclosure, sale or loss on account thereof);
(iii) to the extent arising in the ordinary course of business, (a)
statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and suppliers, (b) Liens incident to the
maintenance of real property and (c) other Liens imposed by law or
pursuant to customary reservations or retentions of title, provided that,
in the case of each of clauses (a), (b) and (c) above, such Liens secure
only amounts not yet due and payable or, if due and payable, are unfiled
and no other action has been taken to enforce the same or are being
contested in good faith by appropriate proceedings for which adequate
reserves determined in accordance with GAAP have been established (and as
to which the Property subject to any such Lien is not yet subject to
foreclosure, sale or loss on account thereof);
(iv) Liens (other than Liens created or imposed under ERISA)
incurred or deposits made by any Consolidated Party in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security, or to secure the
performance of tenders, statutory obligations, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(v) Liens in connection with attachments or judgments (including
judgment or appeal bonds) provided that the judgments secured shall,
within 30 days after the entry thereof, have been discharged or execution
thereof stayed pending appeal, or shall have been discharged within 30
days after the expiration of any such stay;
(vi) easements, rights-of-way, restrictions (including zoning
restrictions), minor defects or irregularities in title and other similar
charges or encumbrances not, in any material respect, impairing the use
of the encumbered Property for its intended purposes;
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(vii) Liens on Property securing purchase money Indebtedness
(including Capital Leases) to the extent permitted under Section 8.1(c),
provided that any such Lien attaches to such Property concurrently with
or within 90 days after the acquisition thereof;
(viii) leases or subleases granted to others not interfering in any
material respect with the business of any Consolidated Party;
(ix) any interest of title of a lessor under, and Liens arising from
UCC financing statements (or equivalent filings, registrations or
agreements in foreign jurisdictions) relating to, leases permitted by
this Credit Agreement;
(x) Liens deemed to exist in connection with Investments in
repurchase agreements permitted under Section 8.6;
(xi) normal and customary rights of setoff upon deposits of cash in
favor of banks or other depository institutions;
(xii) Liens existing as of the Closing Date and set forth on
Schedule 1.1C; provided that no such Lien shall at any time be extended
to or cover any Property other than the Property subject thereto on the
Closing Date; and
(xiii) rights reserved to or vested in any Governmental Authority
with respect to the use of any real property or with respect to any
right, power, franchise, grant, license or permit.
"Person" means any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other
enterprise (whether or not incorporated) or any Governmental Authority.
"Plan" means any employee benefit plan (as defined in Section 3(3)
of ERISA) which is covered by ERISA and with respect to which the Parent,
any Consolidated Party or any ERISA Affiliate is (or, if such plan were
terminated at such time, would under Section 4069 of ERISA be deemed to
be) an "employer" within the meaning of Section 3(5) of ERISA.
"Pledge Agreement" means the pledge agreement dated as of the
Closing Date in the form of Exhibit 1.1A to be executed in favor of the
Agent by each of the Credit Parties, as amended, modified, restated or
supplemented from time to time.
"Prime Rate" means the per annum rate of interest established from
time to time by NationsBank as its prime rate, which rate may or may not
be the lowest rate of interest charged by NationsBank to its customers.
"Principal Amortization Payment" means a principal payment on the
Tranche A Term Loans as set forth in Section 2.3(d) or on the Tranche B
Term Loans as set forth in Section 2.4(d).
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"Principal Amortization Payment Date" means the date a Principal
Amortization Payment is due.
"Principal Office" means the principal office of NationsBank,
presently located at Charlotte, North Carolina.
"Pro Forma Basis" means, with respect to any transaction, that such
transaction shall be deemed to have occurred (for purposes of calculating
compliance in respect of such transaction with each of the financial
covenants set forth in Section 7.11 as of the most recent fiscal quarter
end preceding the date of such transaction with respect to which the
Agent has received the Required Financial Information) as of the first
day of the four fiscal-quarter period ending as of such fiscal quarter
end. As used herein, "transaction" shall mean (i) any merger or
consolidation as referred to in Section 8.4, (ii) any Asset Disposition
as referred to in Section 8.5, (iii) any Investment as referred to in
Section 8.6 or (iv) any Restricted Payment as referred to in Section 8.7.
With respect to any transaction of the type described in clause (i)
above regarding Indebtedness which has a floating or formula rate, the
implied rate of interest for such Indebtedness for the applicable period
for purposes of this definition shall be determined by utilizing the rate
which is or would be in effect with respect to such Indebtedness as at
the relevant date of determination. With respect to any transaction of
the type described in clause (ii) or (iv) above, any Indebtedness
incurred by the Borrower or any of its Subsidiaries in order to
consummate such transaction (A) shall be deemed to have been incurred on
the first day of the applicable period four fiscal-quarter period and (B)
if such Indebtedness has a floating or formula rate, then the implied
rate of interest for such Indebtedness for the applicable period for
purposes of this definition shall be determined by utilizing the rate
which is or would be in effect with respect to such Indebtedness as at
the relevant date of determination. In connection with any calculation
of the financial covenants set forth in Section 7.11 upon giving effect
to a transaction on a Pro Forma Basis for purposes of Section 8.4,
Section 8.5, Section 8.6 or Section 8.7, as applicable:
(A) for purposes of any such calculation in respect of any
Asset Disposition as referred to in Section 8.5, (1) income
statement items (whether positive or negative) attributable to the
Property disposed of in such Asset Disposition shall be excluded
and (2) any Indebtedness which is retired in connection with such
Asset Disposition shall be excluded and deemed to have been retired
as of the first day of the applicable period;
(B) for purposes of any such calculation in respect of any
merger or consolidation as referred to in Section 8.4 or any
Investment as referred to in Section 8.6, (1) any Indebtedness
incurred by the Borrower or any of its Subsidiaries in connection
with such transaction shall be deemed to have been incurred as of
the first day of the applicable period and (2) income statement
items (whether positive or negative) attributable to the Property
acquired in such transaction or to the Investment comprising such
transaction, as applicable, shall be included to the extent
relating to the relevant period; and
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(C) for purposes of any such calculation, the principles set
forth in the second paragraph of Section 1.3 shall be applicable.
"Pro Forma Compliance Certificate" means a certificate of the chief
financial officer of the Borrower delivered to the Agent in connection
with (i) any merger or consolidation as referred to in Section 8.4, (ii)
any Asset Disposition as referred to in Section 8.5, (iii) any Investment
as referred to in Section 8.6 or (iii) any Restricted Payment as referred
to in Section 8.7, as applicable, and containing reasonably detailed
calculations, upon giving effect to the applicable transaction on a Pro
Forma Basis, of the Fixed Charge Coverage Ratio, the Senior Leverage
Ratio, the Total Leverage Ratio and the Consolidated Net Worth
requirement as of the most recent fiscal quarter end preceding the date
of the applicable transaction with respect to which the Agent shall have
received the Required Financial Information.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Real Properties" shall have the meaning assigned to such term in
Section 6.18(a).
"Refinancing" shall have the meaning given such term in Section
6.15.
"Register" shall have the meaning given such term in Section
11.3(c).
"Regulation G, T, U, or X" means Regulation G, T, U or X,
respectively, of the Board of Governors of the Federal Reserve System as
from time to time in effect and any successor to all or a portion
thereof.
"Related Fund" means, with respect to any Lender that is a fund that
invests in loans, any other fund that invests in loans and is managed by
the same investment advisor as such Lender or by an Affiliate of such
investment advisor.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or
disposing into the environment (including the abandonment or discarding
of barrels, containers and other closed receptacles containing any
Materials of Environmental Concern).
"Reportable Event" means any of the events set forth in Section
4043(c) of ERISA, other than those events as to which the notice
requirement has been waived by regulation.
"Required Financial Information" means, with respect to the
applicable Calculation Date, (i) the financial statements of the
Consolidated Parties required to be delivered pursuant to Section 7.1(a)
or (b) for the fiscal period or quarter ending as of such Calculation
Date, and (ii) the certificate of the chief financial officer of the
Borrower
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required by Section 7.1(c) to be delivered with the financial statements
described in clause (i) above.
"Required Lenders" means, at any time, Lenders which are then in
compliance with their obligations hereunder (as determined by the Agent)
and holding in the aggregate at least 51% of (i)(A) if prior to the
Merger Date, the Revolving Commitments (and Participation Interests
therein), the outstanding Tranche A Term Loans (and Participation
Interests therein), the unfunded portion of the Tranche A Term Loan
Committed Amount, the outstanding Tranche B Term Loans (and Participation
Interests therein) and the outstanding Tranche C Term Loans (and
Participation Interests therein) and (B) if after the Merger Date, the
Revolving Commitments (and Participation Interests therein), the
outstanding Tranche A Term Loans (and Participation Interests therein),
the outstanding Tranche B Term Loans (and Participation Interests
therein) and the outstanding Tranche C Term Loans (and Participation
Interests therein) or (ii) if the Commitments have been terminated, the
outstanding Loans and Participation Interests (including the
Participation Interests of the Issuing Lender in any Letters of Credit).
"Requirement of Law" means, as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents
of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or to which any of its material
property is subject.
"Restricted Payment" means (i) any dividend or other distribution,
direct or indirect, on account of any shares of any class of Capital
Stock of the Parent or any Consolidated Party, now or hereafter
outstanding, (ii) any redemption, retirement, sinking fund or similar
payment, purchase or other acquisition for value, direct or indirect, of
any shares of any class of Capital Stock of the Parent or any
Consolidated Party, now or hereafter outstanding, (iii) any payment made
to retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire shares of any class of Capital Stock
of the Parent or any Consolidated Party, now or hereafter outstanding,
and (iv) any payment or prepayment of principal of, premium, if any, or
interest on, redemption, purchase, retirement, defeasance, sinking fund
or similar payment with respect to, any Subordinated Indebtedness.
"Revolving Commitment" means, with respect to each Lender, the
commitment of such Lender in an aggregate principal amount at any time
outstanding of up to such Lender's Revolving Commitment Percentage of the
Revolving Committed Amount, (i) to make Revolving Loans in accordance
with the provisions of Section 2.1(a) and (ii) to purchase Participation
Interests in Letters of Credit in accordance with the provisions of
Section 2.2(c).
"Revolving Commitment Percentage" means, for any Lender, the
percentage identified as its Revolving Commitment Percentage on Schedule
2.1(a), as such percentage may be modified in connection with any
assignment made in accordance with the provisions of Section 11.3.
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"Revolving Committed Amount" shall have the meaning assigned to such
term in Section 2.1(a).
"Revolving Loans" shall have the meaning assigned to such term in
Section 2.1(a).
"Revolving Note" or "Revolving Notes" means the promissory notes of
the Borrower in favor of each of the Lenders evidencing the Revolving
Loans provided pursuant to Section 2.1(e), individually or collectively,
as appropriate, as such promissory notes may be amended, modified,
restated, supplemented, extended, renewed or replaced from time to time.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc., or any successor or assignee of the business of such division
in the business of rating securities.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party,
providing for the leasing to the Parent or any Consolidated Party of any
Property, whether owned by the Parent or such Consolidated Party, as
applicable, as of the Closing Date or later acquired, which has been or
is to be sold or transferred by the Parent or such Consolidated Party, as
applicable, to such Person or to any other Person from whom funds have
been, or are to be, advanced by such Person on the security of such
Property.
"Senior Leverage Ratio" means, for the twelve month period ending on
the last day of any fiscal quarter of the Consolidated Parties, the ratio
of (a) Adjusted Senior Funded Indebtedness on the last day of such period
to (b) Consolidated EBITDAR for such period.
"Single Employer Plan" means any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan or a Multiple Employer
Plan.
"Solvent" or "Solvency" means, with respect to any Person as of a
particular date, that on such date (i) such Person is able to realize
upon its assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (ii) such Person does not intend to, and does not believe that
it will, incur debts or liabilities beyond such Person's ability to pay
as such debts and liabilities mature in their ordinary course, (iii) such
Person is not engaged in a business or a transaction, and is not about to
engage in a business or a transaction, for which such Person's Property
would constitute unreasonably small capital after giving due
consideration to the prevailing practice in the industry in which such
Person is engaged or is to engage, (iv) the fair value of the Property of
such Person is greater than the total amount of liabilities, including,
without limitation, contingent liabilities, of such Person and (v) the
present fair salable value of the assets of such Person is not less than
the amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured. In computing
the amount of contingent liabilities at any time, it is intended that
such liabilities will be computed at the amount which, in light of all
the facts and circumstances existing at such time, represents the amount
that can reasonably be expected to become an actual or matured liability.
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"Standby Letter of Credit Fee" shall have the meaning assigned to
such term in Section 3.5(c)(i).
"Subordinated Indebtedness" means any Indebtedness incurred by the
Borrower after the Closing Date and which by its terms is specifically
subordinated in right of payment to the prior payment of the obligations
of the Credit Parties under this Credit Agreement and the other Credit
Documents on terms and conditions satisfactory to the Required Lenders.
"Subsidiary" means, as to any Person at any time, (a) any
corporation more than 50% of whose Capital Stock of any class or classes
having by the terms thereof ordinary voting power to elect a majority of
the directors of such corporation (irrespective of whether or not at such
time, any class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at such
time owned by such Person directly or indirectly through Subsidiaries,
and (b) any partnership, association, joint venture or other entity of
which such Person directly or indirectly through Subsidiaries owns at
such time more than 50% of the Capital Stock.
"Subsidiary Guarantor" means each of the Persons identified as a
"Subsidiary Guarantor" on the signature pages hereto and each Additional
Credit Party which may hereafter execute a Joinder Agreement, together
with their successors and permitted assigns, and "Subsidiary Guarantor"
means any one of them
"Synthetic Lease" means any synthetic lease, tax retention operating
lease, off-balance sheet loan or similar off-balance sheet financing
product where such transaction is considered borrowed money indebtedness
for tax purposes but is classified as an Operating Lease.
"Taxes" means such term as is defined in Section 3.11.
"Tender Offer" means the tender offer by AHC to purchase all the
shares of Capital Stock of Arbor pursuant to the terms of the Offer to
Purchase filed with the Securities and Exchange Commission by Extendicare
and AHC as of October 3, 1997.
"Total Leverage Ratio" means, for the twelve month period ending on
the last day of any fiscal quarter of the Consolidated Parties, the ratio
of (a) Adjusted Total Funded Indebtedness on the last day of such period
to (b) Consolidated EBITDAR for such period.
"Trade Letter of Credit Fee" shall have the meaning assigned to such
term in Section 3.5(c)(ii).
"Tranche A Term Loan" shall have the meaning assigned to such term
in Section 2.3(a).
"Tranche A Term Loan Commitment" means, with respect to each Lender,
the commitment of such Lender to make its portion of the Tranche A Term
Loan in a principal
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amount equal to such Lender's Tranche A Term Loan Commitment Percentage
of the Tranche A Term Loan Committed Amount.
"Tranche A Term Loan Commitment Percentage" means, for any Lender,
the percentage identified as its Tranche A Term Loan Commitment
Percentage on Schedule 2.1(a), as such percentage may be modified in
connection with any assignment made in accordance with the provisions of
Section 11.3.
"Tranche A Term Loan Committed Amount" shall have the meaning
assigned to such term in Section 2.3(a).
"Tranche A Term Note" or "Tranche A Term Notes" means the promissory
notes of the Borrower in favor of each of the Lenders evidencing the
Tranche A Term Loans provided pursuant to Section 2.3(f), individually or
collectively, as appropriate, as such promissory notes may be amended,
modified, restated, supplemented, extended, renewed or replaced from time
to time.
"Tranche B Term Loan" shall have the meaning assigned to such term
in Section 2.4(a).
"Tranche B Term Loan Commitment" means, with respect to each
Lender, the commitment of such Lender to make its portion of the Tranche B
Term Loan in a principal amount equal to such Lender's Tranche B Term Loan
Commitment Percentage of the Tranche B Term Loan Committed Amount.
"Tranche B Term Loan Commitment Percentage" means, for any Lender,
the percentage identified as its Tranche B Term Loan Commitment
Percentage on Schedule 2.1(a), as such percentage may be modified in
connection with any assignment made in accordance with the provisions of
Section 11.3.
"Tranche B Term Loan Committed Amount" shall have the meaning
assigned to such term in Section 2.4(a).
"Tranche B Term Note" or "Tranche B Term Notes" means the promissory
notes of the Borrower in favor of each of the Lenders evidencing the
Tranche B Term Loans provided pursuant to Section 2.4(f), individually
or collectively, as appropriate, as such promissory notes may be amended,
modified, restated, supplemented, extended, renewed or replaced from time
to time.
"Tranche C Term Loan" shall have the meaning assigned to such term
in Section 2.5(a).
"Tranche C Term Loan Commitment" means, with respect to NationsBank,
the commitment of such Lender to make its portion of the Tranche C Term
Loan in a principal amount equal to such Lender's Tranche C Term Loan
Commitment Percentage of the Tranche
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C Term Loan Committed Amount.
"Tranche C Term Loan Commitment Percentage"
means, for any Lender, the percentage identified as its Tranche C Term
Loan Commitment Percentage on Schedule 2.1(a), as such percentage may be
modified in connection with any assignment made in accordance with the
provisions of Section 11.3.
"Tranche C Term Loan Committed Amount" shall have the meaning
assigned to such term in Section 2.5(a).
"Tranche C Term Note" or "Tranche C Term Notes" means the promissory
notes of the Borrower in favor of each of the Lenders evidencing the
Tranche C Term Loans provided pursuant to Section 2.5(e), individually or
collectively, as appropriate, as such promissory notes may be amended,
modified, restated, supplemented, extended, renewed or replaced from time
to time.
"Unconsolidated Subsidiary" means any Subsidiary of the Parent which
is not a Consolidated Party.
"Unused Fee" shall have the meaning assigned to such term in Section
3.5(b).
"Unused Fee Calculation Period" shall have the meaning assigned to
such term in Section 3.5(b).
"Unused Revolving Committed Amount" means, for any period, the
amount by which (a) the then applicable Revolving Committed Amount
exceeds (b) the daily average sum for such period of (i) the outstanding
aggregate principal amount of all Revolving Loans plus (ii) the
outstanding aggregate principal amount of all LOC Obligations.
"Untendered Arbor Shares" means shares of Capital Stock of Arbor not
purchased by AHC on the Closing Date pursuant to the Tender Offer.
"Upfront Fee" shall have the meaning assigned to such term in
Section 3.5(a).
"Voting Stock" means, with respect to any Person, Capital Stock
issued by such Person the holders of which are ordinarily, in the absence
of contingencies, entitled to vote for the election of directors (or
persons performing similar functions) of such Person, even though the
right so to vote has been suspended by the happening of such a
contingency.
"Wholly Owned Subsidiary" of any Person means any Subsidiary 100% of
whose Voting Stock is at the time owned by such Person directly or
indirectly through other Wholly Owned Subsidiaries.
1.2 COMPUTATION OF TIME PERIODS.
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For purposes of computation of periods of time hereunder, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding."
1.3 ACCOUNTING TERMS.
Except as otherwise expressly provided herein, all accounting terms used
herein shall be interpreted, and all financial statements and certificates and
reports as to financial matters required to be delivered to the Lenders
hereunder shall be prepared, in accordance with GAAP applied on a consistent
basis. All calculations made for the purposes of determining compliance with
this Credit Agreement shall (except as otherwise expressly provided herein) be
made by application of GAAP applied on a basis consistent with the most recent
annual or quarterly financial statements delivered pursuant to Section 7.1 (or,
prior to the delivery of the first financial statements pursuant to Section
7.1, consistent with the financial statements as at December 31, 1996);
provided, however, if (a) the Borrower shall object to determining such
compliance on such basis at the time of delivery of such financial statements
due to any change in GAAP or the rules promulgated with respect thereto or (b)
the Agent or the Required Lenders shall so object in writing within 60 days
after delivery of such financial statements, then such calculations shall be
made on a basis consistent with the most recent financial statements delivered
by the Borrower to the Lenders as to which no such objection shall have been
made.
Notwithstanding the above, the parties hereto acknowledge and agree that, for
purposes of all calculations made in determining compliance with the financial
covenants set forth in Section 7.11 (including without limitation for purposes
of the definitions of "Applicable Percentage" and "Pro Forma Basis" set forth
in Section 1.1), (i)(A) income statement items (whether positive or negative)
attributable to the Property disposed of in any Asset Disposition as
contemplated by Section 8.5, as applicable, shall be excluded to the extent
relating to any period occurring prior to the date of such transaction and (B)
Indebtedness which is retired in connection with any such Asset Disposition
shall be excluded and deemed to have been retired as of the first day of the
applicable period and (ii) income statement items (whether positive or
negative) attributable to any Property acquired in any Investment transaction
contemplated by Section 8.6 shall be included to the extent relating to any
period applicable in such calculations occurring after the date of such
transaction (and, notwithstanding the foregoing, during the first four fiscal
quarters following the date of such transaction, shall be included on an
annualized basis).
SECTION 2
CREDIT FACILITIES
2.1 REVOLVING LOANS.
(a) Revolving Commitment. Subject to the terms and conditions
hereof and in reliance upon the representations and warranties set forth
herein, each Lender severally agrees to make available to the Borrower
such Lender's Revolving Commitment Percentage of revolving credit loans
requested by the Borrower in Dollars ("Revolving Loans") from time to
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time from the Closing Date until the Maturity Date, or such earlier date
as the Revolving Commitments shall have been terminated as provided
herein for the purposes hereinafter set forth; provided, however, that
the sum of the aggregate principal amount of outstanding Revolving Loans
shall not exceed TWO HUNDRED MILLION DOLLARS ($200,000,000) (as such
aggregate maximum amount may be reduced from time to time as provided in
Section 3.4, the "Revolving Committed Amount"); provided, further, (A)
with regard to each Lender individually, such Lender's outstanding
Revolving Loans shall not exceed such Lender's Revolving Commitment
Percentage of the Revolving Committed Amount, and (B) the aggregate
principal amount of outstanding Revolving Loans plus LOC Obligations
outstanding shall not exceed the Revolving Committed Amount. Revolving
Loans may consist of Base Rate Loans or Eurodollar Loans, or a
combination thereof, as the Borrower may request; provided, however, that
no more than 15 Eurodollar Loans shall be outstanding under this Credit
Agreement at any time. For purposes hereof, Eurodollar Loans with
different Interest Periods shall be considered as separate Eurodollar
Loans, even if they begin on the same date, although borrowings,
extensions and conversions may, in accordance with the provisions hereof,
be combined at the end of existing Interest Periods to constitute a new
Eurodollar Loan with a single Interest Period. Revolving Loans hereunder
may be repaid and reborrowed in accordance with the provisions hereof.
(b) Revolving Loan Borrowings.
(i) Notice of Borrowing. The Borrower shall request a
Revolving Loan borrowing by written notice (or telephonic notice
promptly confirmed in writing) to the Agent not later than 11:00
A.M. (Charlotte, North Carolina time) on the Business Day of the
requested borrowing in the case of Base Rate Loans, and not later
than 12:00 Noon (Charlotte, North Carolina time) on the third
Business Day prior to the date of the requested borrowing in the
case of Eurodollar Loans. Each such request for borrowing shall be
irrevocable and shall specify (A) that a Revolving Loan is
requested, (B) the date of the requested borrowing (which shall be
a Business Day), (C) the aggregate principal amount to be borrowed,
and (D) whether the borrowing shall be comprised of Base Rate
Loans, Eurodollar Loans or a combination thereof, and if Eurodollar
Loans are requested, the Interest Period(s) therefor. If the
Borrower shall fail to specify in any such Notice of Borrowing (I)
an applicable Interest Period in the case of a Eurodollar Loan,
then such notice shall be deemed to be a request for an Interest
Period of one month, or (II) the type of Revolving Loan requested,
then such notice shall be deemed to be a request for a Base Rate
Loan hereunder. The Agent shall give notice to each affected
Lender promptly upon receipt of each Notice of Borrowing pursuant
to this Section 2.1(b)(i), the contents thereof and each such
Lender's share of any borrowing to be made pursuant thereto.
(ii) Minimum Amounts. Each Eurodollar Loan or Base Rate Loan
that is a Revolving Loan shall be in a minimum aggregate principal
amount of $3,000,000 and integral multiples of $1,000,000 in excess
thereof (or the remaining amount of the Revolving Committed Amount,
if less).
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(iii) Advances. Each Lender will make its Revolving
Commitment Percentage of each Revolving Loan borrowing available to
the Agent for the account of the Borrower as specified in Section
3.15(a), or in such other manner as the Agent may specify in
writing, by 2:00 P.M. (Charlotte, North Carolina time) on the date
specified in the applicable Notice of Borrowing in Dollars and in
funds immediately available to the Agent. Such borrowing will then
be made available to the Borrower by the Agent by crediting the
account of the Borrower on the books of such office with the
aggregate of the amounts made available to the Agent by the Lenders
and in like funds as received by the Agent.
(c) Repayment. The principal amount of all Revolving Loans shall be
due and payable in full on the Maturity Date, unless accelerated sooner
pursuant to Section 9.2.
(d) Interest. Subject to the provisions of Section 3.1,
(i) Base Rate Loans. During such periods as Revolving Loans
shall be comprised in whole or in part of Base Rate Loans, such
Base Rate Loans shall bear interest at a per annum rate equal to
the Adjusted Base Rate.
(ii) Eurodollar Loans. During such periods as Revolving Loans
shall be comprised in whole or in part of Eurodollar Loans, such
Eurodollar Loans shall bear interest at a per annum rate equal to
the Adjusted Eurodollar Rate.
Interest on Revolving Loans shall be payable in arrears on each
applicable Interest Payment Date (or at such other times as may be
specified herein).
(e) Revolving Notes. The Revolving Loans made by each Lender shall
be evidenced by a duly executed promissory note of the Borrower to such
Lender in an original principal amount equal to such Lender's Revolving
Commitment Percentage of the Revolving Committed Amount and in
substantially the form of Exhibit 2.1(e).
2.2 LETTER OF CREDIT SUBFACILITY.
(a) Issuance. Subject to the terms and conditions hereof and of the
LOC Documents, if any, and any other terms and conditions which the
Issuing Lender may reasonably require and in reliance upon the
representations and warranties set forth herein, the Issuing Lender
agrees to issue, and each Lender severally agrees to participate in the
issuance by the Issuing Lender of, standby and trade Letters of Credit in
Dollars from time to time from the Closing Date until the Maturity Date
as the Borrower may request, in a form acceptable to the Issuing Lender;
provided, however, that (i) the LOC Obligations outstanding shall not at
any time exceed SEVENTY-FIVE MILLION DOLLARS ($75,000,000) (the "LOC
Committed Amount") and (ii) the sum of the aggregate principal amount of
outstanding Revolving Loans plus LOC Obligations outstanding shall not at
any time exceed the Revolving Committed Amount. No Letter of Credit
shall (x) have an original expiry date more than one year from the date
of issuance or (y) as originally issued or as extended, have an expiry
date
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extending beyond the Maturity Date. Each Letter of Credit shall comply
with the related LOC Documents. The issuance and expiry dates of each
Letter of Credit shall be a Business Day.
(b) Notice and Reports. The request for the issuance of a Letter of
Credit shall be submitted by the Borrower to the Issuing Lender at least
three (3) Business Days prior to the requested date of issuance. The
Issuing Lender will, at least quarterly and more frequently upon request,
disseminate to each of the Lenders a detailed report specifying the
Letters of Credit which are then issued and outstanding and any activity
with respect thereto which may have occurred since the date of the prior
report, and including therein, among other things, the beneficiary, the
face amount and the expiry date, as well as any payment or expirations
which may have occurred.
(c) Participation. Each Lender, upon issuance of a Letter of Credit
(or, in the case of each Existing Letter of Credit, on the Closing
Date),, shall be deemed to have purchased without recourse a
Participation Interest from the Issuing Lender in such Letter of Credit
and the obligations arising thereunder and any collateral relating
thereto, in each case in an amount equal to its pro rata share of the
obligations under such Letter of Credit (based on the respective
Revolving Commitment Percentages of the Lenders) and shall absolutely,
unconditionally and irrevocably assume and be obligated to pay to the
Issuing Lender and discharge when due, its pro rata share of the
obligations arising under such Letter of Credit. Without limiting the
scope and nature of each Lender's Participation Interest in any Letter of
Credit, to the extent that the Issuing Lender has not been reimbursed as
required hereunder or under any such Letter of Credit, each such Lender
shall pay to the Issuing Lender its pro rata share of such unreimbursed
drawing in same day funds on the day of notification by the Issuing
Lender of an unreimbursed drawing pursuant to the provisions of
subsection (d) below. The obligation of each Lender to so reimburse the
Issuing Lender shall be absolute and unconditional and shall not be
affected by the occurrence of a Default, an Event of Default or any other
occurrence or event. Any such reimbursement shall not relieve or
otherwise impair the obligation of the Borrower to reimburse the Issuing
Lender under any Letter of Credit, together with interest as hereinafter
provided.
(d) Reimbursement. In the event of any drawing under any Letter of
Credit, the Issuing Lender will promptly notify the Borrower. Unless the
Borrower shall immediately notify the Issuing Lender that the Borrower
intends to otherwise reimburse the Issuing Lender for such drawing, the
Borrower shall be deemed to have requested that the Lenders make a
Revolving Loan in the amount of the drawing as provided in subsection (e)
below on the related Letter of Credit, the proceeds of which will be used
to satisfy the related reimbursement obligations. The Borrower promises
to reimburse the Issuing Lender on the day of drawing under any Letter of
Credit (either with the proceeds of a Revolving Loan obtained hereunder
or otherwise) in same day funds. If the Borrower shall fail to reimburse
the Issuing Lender as provided hereinabove, the unreimbursed amount of
such drawing shall bear interest at a per annum rate equal to the
Adjusted Base Rate for Revolving Loans plus 2%. The Borrower's
reimbursement obligations hereunder shall be absolute and unconditional
under all circumstances irrespective of any rights of setoff,
counterclaim or defense to payment the Borrower may claim or have against
the Issuing Lender, the Agent, the Lenders, the
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<PAGE> 38
beneficiary of the Letter of Credit drawn upon or any other Person,
including without limitation any defense based on any failure of the
Borrower or any other Credit Party to receive consideration or the
legality, validity, regularity or unenforceability of the Letter of
Credit. The Issuing Lender will promptly notify the other Lenders of the
amount of any unreimbursed drawing and each Lender shall promptly pay to
the Agent for the account of the Issuing Lender in Dollars and in
immediately available funds, the amount of such Lender's pro rata share
of such unreimbursed drawing. Such payment shall be made on the day such
notice is received by such Lender from the Issuing Lender if such notice
is received at or before 2:00 P.M. (Charlotte, North Carolina time)
otherwise such payment shall be made at or before 11:00 A.M. (Charlotte,
North Carolina time) on the Business Day next succeeding the day such
notice is received. If such Lender does not pay such amount to the
Issuing Lender in full upon such request, such Lender shall, on demand,
pay to the Agent for the account of the Issuing Lender interest on the
unpaid amount during the period from the date of such drawing until such
Lender pays such amount to the Issuing Lender in full at a rate per annum
equal to, if paid within two (2) Business Days of the date that such
Lender is required to make payments of such amount pursuant to the
preceding sentence, the Federal Funds Rate and thereafter at a rate equal
to the Base Rate. Each Lender's obligation to make such payment to the
Issuing Lender, and the right of the Issuing Lender to receive the same,
shall be absolute and unconditional, shall not be affected by any
circumstance whatsoever and without regard to the termination of this
Credit Agreement or the Commitments hereunder, the existence of a Default
or Event of Default or the acceleration of the obligations of the
Borrower hereunder and shall be made without any offset, abatement,
withholding or reduction whatsoever. Simultaneously with the making of
each such payment by a Lender to the Issuing Lender, such Lender shall,
automatically and without any further action on the part of the Issuing
Lender or such Lender, acquire a Participation Interest in an amount
equal to such payment (excluding the portion of such payment constituting
interest owing to the Issuing Lender) in the related unreimbursed drawing
portion of the LOC Obligation and in the interest thereon and in the
related LOC Documents, and shall have a claim against the Borrower with
respect thereto.
(e) Repayment with Revolving Loans. On any day on which the
Borrower shall have requested, or been deemed to have requested, a
Revolving Loan advance to reimburse a drawing under a Letter of Credit,
the Agent shall give notice to the Lenders that a Revolving Loan has been
requested or deemed requested by the Borrower to be made in connection
with a drawing under a Letter of Credit, in which case a Revolving Loan
advance comprised of Base Rate Loans (or Eurodollar Loans to the extent
the Borrower has complied with the procedures of Section 2.1(b)(i) with
respect thereto) shall be immediately made to the Borrower by all Lenders
(notwithstanding any termination of the Commitments pursuant to Section
9.2) pro rata based on the respective Revolving Commitment Percentages of
the Lenders (determined before giving effect to any termination of the
Commitments pursuant to Section 9.2) and the proceeds thereof shall be
paid directly to the Issuing Lender for application to the respective LOC
Obligations. Each such Lender hereby irrevocably agrees to make its pro
rata share of each such Revolving Loan immediately upon any such request
or deemed request in the amount, in the manner and on the date specified
in the preceding sentence notwithstanding (i) the amount of such
borrowing may not comply with the minimum amount for advances of
Revolving Loans otherwise required hereunder, (ii) whether any
33
<PAGE> 39
conditions specified in Section 5.2 are then satisfied, (iii) whether a
Default or an Event of Default then exists, (iv) failure for any such
request or deemed request for Revolving Loan to be made by the time
otherwise required hereunder, (v) whether the date of such borrowing is a
date on which Revolving Loans are otherwise permitted to be made
hereunder or (vi) any termination of the Commitments relating thereto
immediately prior to or contemporaneously with such borrowing. In the
event that any Revolving Loan cannot for any reason be made on the date
otherwise required above (including, without limitation, as a result of
the commencement of a proceeding under the Bankruptcy Code with respect
to the Borrower or any Credit Party), then each such Lender hereby agrees
that it shall forthwith purchase (as of the date such borrowing would
otherwise have occurred, but adjusted for any payments received from the
Borrower on or after such date and prior to such purchase) from the
Issuing Lender such Participation Interests in the outstanding LOC
Obligations as shall be necessary to cause each such Lender to share in
such LOC Obligations ratably (based upon the respective Revolving
Commitment Percentages of the Lenders (determined before giving effect to
any termination of the Commitments pursuant to Section 9.2)), provided
that at the time any purchase of Participation Interests pursuant to this
sentence is actually made, the purchasing Lender shall be required to pay
to the Issuing Lender, to the extent not paid to the Issuer by the
Borrower in accordance with the terms of subsection (d) above, interest
on the principal amount of Participation Interests purchased for each day
from and including the day upon which such borrowing would otherwise have
occurred to but excluding the date of payment for such Participation
Interests, at the rate equal to, if paid within two (2) Business Days of
the date of the Revolving Loan advance, the Federal Funds Rate, and
thereafter at a rate equal to the Base Rate. Simultaneously with the
making of each such payment by a Lender to the Issuing Lender, such
Lender shall, automatically and without any further action on the part of
the Issuing Lender or such Lender, acquire a Participation Interest in an
amount equal to such payment (excluding the portion of such payment
constituting interest owing to the Issuing Lender) in the related
unreimbursed drawing portion of the LOC Obligation and in the interest
thereon and in the related LOC Documents, and shall have a claim against
the Borrower with respect thereto.
(f) Designation of Consolidated Parties as Account Parties.
Notwithstanding anything to the contrary set forth in this Credit
Agreement, including without limitation Section 2.2(a), a Letter of
Credit issued hereunder may contain a statement to the effect that such
Letter of Credit is issued for the account of a Consolidated Party other
than the Borrower, provided that notwithstanding such statement, the
Borrower shall be the actual account party for all purposes of this
Credit Agreement for such Letter of Credit and such statement shall not
affect the Borrower's reimbursement obligations hereunder with respect to
such Letter of Credit.
(g) Renewal, Extension. The renewal or extension of any Letter of
Credit shall, for purposes hereof, be treated in all respects the same as
the issuance of a new Letter of Credit hereunder.
(h) Uniform Customs and Practices. The Issuing Lender may have the
Letters of Credit be subject to The Uniform Customs and Practice for
Documentary Credits, as published
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<PAGE> 40
as of the date of issue by the International Chamber of Commerce (the
"UCP"), in which case the UCP may be incorporated therein and deemed in
all respects to be a part thereof.
(i) Indemnification; Nature of Issuing Lender's Duties.
(i) In addition to its other obligations under this Section
2.2, the Borrower hereby agrees to pay, and protect, indemnify and
save each Lender harmless from and against, any and all claims,
demands, liabilities, damages, losses, costs, charges and expenses
(including reasonable attorneys' fees) that such Lender may incur
or be subject to as a consequence, direct or indirect, of (A) the
issuance of any Letter of Credit or (B) the failure of the Issuing
Lender or such Lender to honor a drawing under a Letter of Credit
as a result of any act or omission, whether rightful or wrongful,
of any present or future de jure or de facto government or
Governmental Authority (all such acts or omissions, herein called
"Government Acts").
(ii) As between the Borrower and the Lenders (including the
Issuing Lender), the Borrower shall assume all risks of the acts,
omissions or misuse of any Letter of Credit by the beneficiary
thereof. No Lender (including the Issuing Lender) shall be
responsible: (A) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party
in connection with the application for and issuance of any Letter
of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged;
(B) for the validity or sufficiency of any instrument transferring
or assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, that may prove to be invalid or ineffective for
any reason; (C) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable,
telegraph, telex or otherwise, whether or not they be in cipher;
(D) for any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under a Letter of
Credit or of the proceeds thereof; and (E) for any consequences
arising from causes beyond the control of such Lender, including,
without limitation, any Government Acts. None of the above shall
affect, impair, or prevent the vesting of the Issuing Lender's
rights or powers hereunder.
(iii) In furtherance and extension and not in limitation of
the specific provisions hereinabove set forth, any action taken or
omitted by any Lender (including the Issuing Lender), under or in
connection with any Letter of Credit or the related certificates,
if taken or omitted in good faith, shall not put such Lender under
any resulting liability to the Borrower or any other Credit Party.
It is the intention of the parties that this Credit Agreement shall
be construed and applied to protect and indemnify each Lender
(including the Issuing Lender) against any and all risks involved
in the issuance of the Letters of Credit, all of which risks are
hereby assumed by the Borrower (on behalf of itself and each of the
other Credit Parties), including, without limitation, any and all
Government Acts. No Lender (including the Issuing Lender) shall,
in any way, be liable for any failure by such Lender or anyone else
to pay any
35
<PAGE> 41
drawing under any Letter of Credit as a result of any Government
Acts or any other cause beyond the control of such Lender.
(iv) Nothing in this subsection (h) is intended to limit the
reimbursement obligations of the Borrower contained in subsection
(d) above. The obligations of the Borrower under this subsection
(h) shall survive the termination of this Credit Agreement. No act
or omission of any current or prior beneficiary of a Letter of
Credit shall in any way affect or impair the rights of the Lenders
(including the Issuing Lender) to enforce any right, power or
benefit under this Credit Agreement.
(v) Notwithstanding anything to the contrary contained in this
subsection (h), the Borrower shall have no obligation to indemnify
any Lender (including the Issuing Lender) in respect of any
liability incurred by such Lender (A) to the extent arising out of
the gross negligence or willful misconduct of such Lender, as
determined by a court of competent jurisdiction, or (B) caused by
such Lender's failure to pay under any Letter of Credit after
presentation to it of a request strictly complying with the terms
and conditions of such Letter of Credit, as determined by a court
of competent jurisdiction, unless such payment is prohibited by any
law, regulation, court order or decree.
(j) Responsibility of Issuing Lender. It is expressly understood and
agreed that the obligations of the Issuing Lender hereunder to the
Lenders are only those expressly set forth in this Credit Agreement and
that the Issuing Lender shall be entitled to assume that the conditions
precedent set forth in Section 5.2 have been satisfied unless it shall
have acquired actual knowledge that any such condition precedent has not
been satisfied; provided, however, that nothing set forth in this Section
2.2 shall be deemed to prejudice the right of any Lender to recover from
the Issuing Lender any amounts made available by such Lender to the
Issuing Lender pursuant to this Section 2.2 in the event that it is
determined by a court of competent jurisdiction that the payment with
respect to a Letter of Credit constituted gross negligence or willful
misconduct on the part of the Issuing Lender.
(k) Conflict with LOC Documents. In the event of any conflict
between this Credit Agreement and any LOC Document (including any letter
of credit application), this Credit Agreement shall control.
2.3 TRANCHE A TERM LOAN.
(a) Tranche A Term Commitment. Subject to the terms and conditions
hereof and in reliance upon the representations and warranties set forth
herein each Lender severally agrees to make available to the Borrower on
the Closing Date such Lender's Tranche A Term Loan Commitment Percentage
of a term loan in Dollars (the "Tranche A Term Loan") in an aggregate
principal amount of TWO HUNDRED MILLION DOLLARS ($200,000,000) (the
"Tranche A Term Loan Committed Amount"), for the purposes hereinafter set
forth. The Tranche A Term Loan may consist of Base Rate Loans or
Eurodollar Loans, or a combination thereof, as the Borrower may request;
provided, however, that no more than 15 Eurodollar
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<PAGE> 42
Loans shall be outstanding under this Credit Agreement at any time. For
purposes hereof, Eurodollar Loans with different Interest Periods shall
be considered as separate Eurodollar Loans, even if they begin on the
same date, although borrowings, extensions and conversions may, in
accordance with the provisions hereof, be combined at the end of existing
Interest Periods to constitute a new Eurodollar Loan with a single
Interest Period. Amounts repaid on the Tranche A Term Loan may not be
reborrowed.
(b) Borrowing Procedures. The Borrower shall submit an appropriate
Notice of Borrowing to the Agent not later than 12:00 Noon (Charlotte,
North Carolina time) on the Closing Date, with respect to the portion of
the Tranche A Term Loan initially consisting of a Base Rate Loan, or on
the third Business Day prior to the Closing Date, with respect to the
portion of the Tranche A Term Loan initially consisting of one or more
Eurodollar Loans, which Notice of Borrowing shall be irrevocable and
shall specify (i) that the funding of a Tranche A Term Loan is requested
and (ii) whether the funding of the Tranche A Term Loan shall be
comprised of Base Rate Loans, Eurodollar Loans or a combination thereof,
and if Eurodollar Loans are requested, the Interest Period(s) therefor.
If the Borrower shall fail to deliver such Notice of Borrowing to the
Agent by 12:00 Noon (Charlotte, North Carolina time) on the third
Business Day prior to the Closing Date, then the full amount of the
Tranche A Term Loan shall be disbursed on the Closing Date as a Base Rate
Loan. Each Lender shall make its Tranche A Term Loan Commitment
Percentage of the Tranche A Term Loan available to the Agent for the
account of the Borrower at the office of the Agent specified in Schedule
2.1(a), or at such other office as the Agent may designate in writing, by
1:00 P.M. (Charlotte, North Carolina time) on the Closing Date in Dollars
and in funds immediately available to the Agent.
(c) Minimum Amounts. Each Eurodollar Loan or Base Rate Loan that is
part of the Tranche A Term Loan shall be in an aggregate principal amount
that is not less than $5,000,000 and integral multiples of $1,000,000 (or
the then remaining principal balance of the Tranche A Term Loan, if
less).
(d) Repayment of Tranche A Term Loan. The principal amount of the
Tranche A Term Loan shall be repaid in twenty-four (24) consecutive
quarterly installments as follows, unless accelerated sooner pursuant to
Section 9.2:
37
<PAGE> 43
<TABLE>
<CAPTION>
TRANCHE A TERM LOAN
PRINCIPAL AMORTIZATION PRINCIPAL
PAYMENT DATES AMORTIZATION
PAYMENT
<S> <C>
March 31, 1998, June 30, $ 6,250,000
1998, September 30, 1998
and December 31, 1998
March 31, 1999, June 30, $ 7,500,000
1999, September 30, 1999,
December 31, 1999, March 31,
2000, June 30, 2000, September
30, 2000 and December 31, 2000
March 31, 2001, June 30, 2001, $ 8,750,000
September 30, 2001 and December 31,
2001
March 31, 2002, June 30, 2002 $10,000,000
September 30, 2002, December 31, 2002,
March 31, 2003, June 30, 2003,
September 30, 2003 and December 31,
2003
</TABLE>
(e) Interest. Subject to the provisions of Section 3.1, the Tranche
A Term Loan shall bear interest at a per annum rate equal to:
(i) Base Rate Loans. During such periods as the Tranche A Term
Loan shall be comprised in whole or in part of Base Rate Loans,
such Base Rate Loans shall bear interest at a per annum rate equal
to the Adjusted Base Rate.
(ii) Eurodollar Loans. During such periods as the Tranche A
Term Loan shall be comprised in whole or in part of Eurodollar
Loans, such Eurodollar Loans shall bear interest at a per annum
rate equal to the Adjusted Eurodollar Rate.
Interest on the Tranche A Term Loan shall be payable in arrears on each
applicable Interest Payment Date (or at such other times as may be
specified herein).
(f) Tranche A Term Notes. The portion of the Tranche A Term Loan
made by each Lender shall be evidenced by a duly executed promissory note
of the Borrower to such Lender in an original principal amount equal to
such Lender's Tranche A Term Loan Commitment Percentage of the Tranche A
Term Loan and substantially in the form of Exhibit 2.3(f).
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<PAGE> 44
2.4 TRANCHE B TERM LOAN.
(a) Tranche B Term Commitment. Subject to the terms and conditions
hereof and in reliance upon the representations and warranties set forth
herein, each Lender severally agrees to make available to the Borrower on
the Closing Date such Lender's Tranche B Term Loan Commitment Percentage
of a term loan in Dollars (the "Tranche B Term Loan") in the aggregate
principal amount of TWO HUNDRED MILLION DOLLARS ($200,000,000) (the
"Tranche B Term Loan Committed Amount") for the purposes hereinafter set
forth. The Tranche B Term Loan may consist of Base Rate Loans or
Eurodollar Loans, or a combination thereof, as the Borrower may request;
provided, however, that no more than 15 Eurodollar Loans shall be
outstanding under this Credit Agreement at any time. For purposes
hereof, Eurodollar Loans with different Interest Periods shall be
considered as separate Eurodollar Loans, even if they begin on the same
date, although borrowings, extensions and conversions may, in accordance
with the provisions hereof, be combined at the end of existing Interest
Periods to constitute a new Eurodollar Loan with a single Interest
Period. Amounts repaid on the Tranche B Term Loan may not be reborrowed.
(b) Borrowing Procedures. The Borrower shall submit an appropriate
Notice of Borrowing to the Agent not later than 12:00 Noon (Charlotte,
North Carolina time) on the Closing Date, with respect to the portion of
the Tranche B Term Loan initially consisting of a Base Rate Loan, or on
the third Business Day prior to the Closing Date, with respect to the
portion of the Tranche B Term Loan initially consisting of one or more
Eurodollar Loans, which Notice of Borrowing shall be irrevocable and
shall specify (i) that the funding of a Tranche B Term Loan is requested
and (ii) whether the funding of the Tranche B Term Loan shall be
comprised of Base Rate Loans, Eurodollar Loans or a combination thereof,
and if Eurodollar Loans are requested, the Interest Period(s) therefor.
If the Borrower shall fail to deliver such Notice of Borrowing to the
Agent by 12:00 Noon (Charlotte, North Carolina time) on the third
Business Day prior to the Closing Date, then the full amount of the
Tranche B Term Loan shall be disbursed on the Closing Date as a Base Rate
Loan. Each Lender shall make its Tranche B Term Loan Commitment
Percentage of the Tranche B Term Loan available to the Agent for the
account of the Borrower at the office of the Agent specified in Schedule
2.1(a), or at such other office as the Agent may designate in writing, by
2:00 P.M. (Charlotte, North Carolina time) on the Closing Date in Dollars
and in funds immediately available to the Agent.
(c) Minimum Amounts. Each Eurodollar Loan or Base Rate Loan that is
part of the Tranche B Term Loan shall be in an aggregate principal amount
that is not less than $5,000,000 and integral multiples of $1,000,000 (or
the then remaining principal balance of the Tranche B Term Loan, if
less).
(d) Repayment of Tranche B Term Loan. The principal amount of the
Tranche B Term Loan shall be repaid in twenty-eight (28) consecutive
quarterly installments as follows, unless accelerated sooner pursuant to
Section 9.2:
39
<PAGE> 45
<TABLE>
<CAPTION> TRANCHE B TERM LOAN
PRINCIPAL AMORTIZATION PRINCIPAL
PAYMENT DATES AMORTIZATION
PAYMENT
<S> <C>
March 31, 1998, June 30, 1998, $ 500,000
September 30, 1998, December 31, 1998,
March 31, 1999, June 30, 1999,
September 30, 1999, December 31, 1999,
March 31, 2000, June 30, 2000,
September 30, 2000, December 31, 2000,
March 31, 2001, June 30, 2001,
September 30, 2001, December 31, 2001,
March 31, 2002, June 30, 2002,
September 30, 2002, December 31, 2002,
March 31, 2003, June 30, 2003,
September 30, 2003 and December 31,
2003
March 31, 2004, June 30, 2004, $47,000,000
September 30, 2004 and December 31,
2004
</TABLE>
(e) Interest. Subject to the provisions of Section 3.1, the Tranche
B Term Loan shall bear interest at a per annum rate equal to:
(i) Base Rate Loans. During such periods as the Tranche B Term
Loan shall be comprised in whole or in part of Base Rate Loans,
such Base Rate Loans shall bear interest at a per annum rate equal
to the Adjusted Base Rate.
(ii) Eurodollar Loans. During such periods as the Tranche B
Term Loan shall be comprised in whole or in part of Eurodollar
Loans, such Eurodollar Loans shall bear interest at a per annum
rate equal to the Adjusted Eurodollar Rate.
Interest on the Tranche B Term Loan shall be payable in arrears on each
applicable Interest Payment Date (or at such other times as may be
specified herein).
(f) Tranche B Term Notes. The portion of the Tranche B Term Loan
made by each Lender shall be evidenced by a duly executed promissory note
of the Borrower to such Lender in an original principal amount equal to
such Lender's Tranche B Term Loan
40
<PAGE> 46
Commitment Percentage of the Tranche B Term Loan and substantially in the
form of Exhibit 2.4(f).
2.5 TRANCHE C TERM LOAN.
(a) Tranche C Term Commitment. Subject to the terms and conditions
hereof and in reliance upon the representations and warranties set forth
herein, each Lender severally agrees to make available to the Borrower on
the Closing Date such Lender's Tranche C Term Loan Commitment Percentage
of two (2) advances on a term loan in Dollars (the "Tranche C Term Loan")
in the aggregate principal amount for both such advances of up to TWO
HUNDRED MILLION DOLLARS ($200,000,000) (the "Tranche C Term Loan
Committed Amount") for the purposes hereinafter set forth. The first
advance on the Tranche C Term Loan shall be made on the Closing Date and
shall be in the amount of $187,000,000. Unless the Tranche C Term Loan
Commitments shall have been earlier terminated as provided herein, the
second and final advance on the Tranche C Term Loan shall (subject to and
upon the terms and conditions hereof (including without limitation the
terms and conditions set forth in Section 5)), be available on and after
the Closing Date through and including December 15, 1997 and shall be in
an amount of $13,000,000. The Tranche C Term Loan may consist of Base
Rate Loans or Eurodollar Loans, or a combination thereof, as the Borrower
may request; provided, however, that no more than 15 Eurodollar Loans
shall be outstanding under this Credit Agreement at any time. For
purposes hereof, Eurodollar Loans with different Interest Periods shall
be considered as separate Eurodollar Loans, even if they begin on the
same date, although borrowings, extensions and conversions may, in
accordance with the provisions hereof, be combined at the end of existing
Interest Periods to constitute a new Eurodollar Loan with a single
Interest Period. Amounts repaid on the Tranche C Term Loan may not be
reborrowed.
(b) Tranche C Term Loan Advances.
(i) Notice of Borrowing. The Borrower shall request a Tranche C
Term Loan advance by written notice (or telephone notice promptly
confirmed in writing) to the Agent not later than 11:00 A.M.
(Charlotte, North Carolina time) on the Business Day of the
requested borrowing in the case of Base Rate Loans, and not later
than 12:00 Noon (Charlotte, North Carolina time) on the third
Business Day prior to the date of the requested borrowing in the
case of Eurodollar Loans. Each such request for borrowing shall be
irrevocable and shall specify (A) that a Tranche C Term Loan
advance is requested, (B) the date of the requested advance (which
shall be a Business Day and either the Closing Date or the Merger
Date), (C) the aggregate principal amount to be advanced and (D)
whether the advance shall be comprised of Base Rate Loans or
Eurodollar Loans or a combination thereof, and if Eurodollar Loans
are requested, the Interest Period(s) therefor. If the Borrower
shall fail to specify in any such Notice of Borrowing (I) an
applicable Interest Period in the case of a Eurodollar Loan, then
such notice shall be deemed to be a request for an Interest Period
of one month or (II) the type of Tranche C Term Loan advance
requested, then such notice shall be deemed to be a request for a
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<PAGE> 47
Base Rate Loan hereunder. The Agent shall give notice to each
affected Lender promptly upon receipt of each Notice of Borrowing
pursuant to this Section 2.3(b)(i), the contents thereof and each
such Lender's share of any borrowing to be made pursuant thereto.
(ii) Minimum Amounts. Each Eurodollar Loan or Base Rate Loan that
is part of the Tranche C Term Loan shall be in an aggregate
principal amount that is not less than $5,000,000 and integral
multiples of $1,000,000 (or the then remaining principal balance of
the Tranche C Term Loan, if less).
(iii) Advances. Each Lender will make its Tranche C Term Loan
Commitment Percentage of each Tranche C Term Loan advance available
to the Agent for the account of the Borrower as specified in
Section 3.15(a), or in such other manner as the Agent may specify
in writing, by 2:00 P.M. (Charlotte, North Carolina time) on the
date specified in the applicable Notice of Borrowing in Dollars and
in funds immediately available to the Agent. Such advance will
then be made available to the Borrower by the Agent by crediting
the account of the Borrower on the books of such office with the
aggregate of the amounts made available to the Agent by the Lenders
and in like funds as received by the Agent.
(c) Repayment of Tranche C Term Loan. The principal amount of the
Tranche C Term Loan shall be repaid in full on the Maturity Date, unless
accelerated sooner pursuant to Section 9.2.
(d) Interest. Subject to the provisions of Section 3.1, the Tranche
C Term Loan shall bear interest at a per annum rate equal to:
(i) Base Rate Loans. During such periods as the Tranche C Term
Loan shall be comprised in whole or in part of Base Rate Loans,
such Base Rate Loans shall bear interest at a per annum rate equal
to the Adjusted Base Rate.
(ii) Eurodollar Loans. During such periods as the Tranche C
Term Loan shall be comprised in whole or in part of Eurodollar
Loans, such Eurodollar Loans shall bear interest at a per annum
rate equal to the Adjusted Eurodollar Rate.
Interest on the Tranche C Term Loan shall be payable in arrears on each
applicable Interest Payment Date (or at such other times as may be
specified herein).
(e) Tranche C Term Notes. The portion of the Tranche C Term Loan
made by each Lender shall be evidenced by a duly executed promissory note
of the Borrower to such Lender in an original principal amount equal to
such Lender's Tranche C Term Loan Commitment Percentage of the Tranche C
Term Loan and substantially in the form of Exhibit 2.5(e).
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2.6 REGULATION U AND REGULATION G.
(a) The Borrower and the Lenders agree that certain proceeds of the
Revolving Loans, the Tranche A Term Loans and the Tranche B Term Loans
shall be used to purchase shares of capital stock of Arbor (the "Acquired
Shares") which are margin stock within the meaning of Regulation U and
Regulation G (all such Revolving Loans, Tranche A Term Loans and Tranche
B Term Loans used to purchase the Acquired Shares being referred to in
this Section 2.6 as "Purpose Loans" and all other Loans being referred to
in this Section 2.6 as "Non-Purpose Loans"). Accordingly, the Loans made
under this Credit Agreement by each Lender shall at all times be treated
for purposes of Regulation U and Regulation G as three separate
extensions of credit (the "X Credit", the "Y Credit" and the "Z Credit"
of such Lender and, collectively, the "X Credits", the "Y Credits" and
the "Z Credits"), as follows:
(i) the principal amount of the X Credit and the principal amount of
the Y Credit of such Lender shall each be an amount equal to fifty
percent (50%) of the principal amount of the Purpose Loans advanced by
such Lender.
(ii) the principal amount of the Z Credit of such Lender shall be an
amount equal to the aggregate of the Tranche A Term Loans, Tranche B Term
Loans, Revolving Loans and LOC Obligations made or participated in by
such Lender which are Non-Purpose Loans.
(b) The benefits of the provisions of this Credit Agreement and the other
Credit Documents, to the extent that any such provisions relate to the Acquired
Shares held by any Consolidated Party or the proceeds thereof and to the extent
of the Lenders' interests in such margin stock within the meaning of Regulation
U or Regulation G, shall be allocated first to the benefit and security of the
payment of the principal of and interest on the X Credits of the Lenders and of
all other amounts payable by the Borrower under this Credit Agreement in
connection with the X Credits (collectively, the "X Credit Amounts"), and only
after the payment in full of such principal and interest and other amounts, to
the benefit and security of (i) the payment of the principal of and interest on
the Y Credits of the Lenders and of all other amounts payable by the Borrower
under this Credit Agreement in connection with the Y Credits (collectively, the
"Y Credit Amounts") and (ii) the payment of principal of and interest on the Z
Credits of the Lenders and of all other amounts payable by the Borrower under
this Credit Agreement in connection with the Z Credits (collectively, the "Z
Credit Amounts").
(c) The benefits of the provisions of this Credit Agreement and the other
Credit Documents, to the extent that any such provisions relate to assets other
than the Acquired Shares held by any Consolidated Party or the proceeds thereof
and to the extent of the Lenders' interests in such assets, shall be allocated
first to the equal and ratable benefit and security of the payment of the Y
Credit Amounts and the Z Credit Amounts and, only after the payment in full of
all Y Credit Amounts and Z Credit Amounts, to the benefit and security of the
payment of the X Credit Amounts.
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(d) Each Lender will mark its records irrevocably to identify the X Credit
of such Lender with the benefits and security described in paragraph (b) of
this Section 2.6 and the Y Credit and Z Credit of such Lender with the benefits
and security described in paragraph (c) of this Section 2.6 and, solely for the
purposes of complying with Regulation U and Regulation G, the X, Y and Z
Credits shall be treated as separate loans.
(e) Except as otherwise specifically provided in this Credit Agreement or
the other Credit Documents (but in any event subject to the requirements of
Regulation U and Regulation G), (i) all payments and prepayments by the
Borrower of the Loans with proceeds of Acquired Shares shall be applied (A)
first to the payment or prepayment of the Purpose Loans and (B) second to the
payment or prepayment of the Non-Purpose Loans, and (ii) all payments and
prepayments by the Borrower of the Loans with funds derived from assets other
than the Acquired Shares, which are subject to the provisions referred to in
paragraph (c) of this Section 2.6, shall be applied (A) first to the equal and
ratable payment or prepayment of the Y Credit Amounts and Z Credit Amounts and
(B) second to the payment or prepayment of the X Credit Amounts.
(f) The Borrower will furnish to each Lender, prior to the making of any
Loan, such information and documents as such Lender may require to distinguish
between Purpose Loans and Non-Purpose Loans and to determine the X, Y and Z
Portions thereof, and from time to time such other information and documents as
such Lender may require to comply with paragraphs (d) and (e) of this Section
2.6 and to further determine compliance with Regulation U and Regulation G and
such documents as such Lender may require to comply with Regulation U and
Regulation G.
(g) Each Lender shall be responsible for its own compliance with and
administration of the provisions of this Section 2.6 and the Agent (in its
capacity as such) shall have no responsibility for any determinations or
allocations (including, without limitation, any allocations of payments or
prepayments) made or to be made by any Lender as required by such provisions.
(h) Each Lender represents severally and for itself that it has required
as much direct and indirect security for its Y Credit and Z Credit as such
Lender typically would require in good faith and exercising sound banking
judgment in other similar transactions, and that it is not relying on the value
of the Acquired Shares in making its decision to extend the Y Credit and the Z
Credit.
SECTION 3
OTHER PROVISIONS RELATING TO CREDIT FACILITIES
3.1 DEFAULT RATE.
Upon the occurrence, and during the continuance, of an Event of Default,
the principal of and, to the extent permitted by law, interest on the Loans and
any other amounts owing hereunder or under
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the other Credit Documents shall bear interest, payable on demand, at a per
annum rate 2% greater than the rate which would otherwise be applicable (or if
no rate is applicable, whether in respect of interest, fees or other amounts,
then the Base Rate plus 2%).
3.2 EXTENSION AND CONVERSION.
Subject to the terms of Section 5.2, the Borrower shall have the option,
on any Business Day, to extend existing Loans into a subsequent permissible
Interest Period or to convert Loans into Loans of another interest rate type;
provided, however, that (i) except as provided in Section 3.8, Eurodollar Loans
may be converted into Base Rate Loans only on the last day of the Interest
Period applicable thereto, (ii) Eurodollar Loans may be extended, and Base Rate
Loans may be converted into Eurodollar Loans, only if no Default or Event of
Default is in existence on the date of extension or conversion, (iii) Loans
extended as, or converted into, Eurodollar Loans shall be subject to the terms
of the definition of "Interest Period" set forth in Section 1.1 and shall be in
such minimum amounts as provided in, with respect to Revolving Loans, Section
2.1(b)(ii), with respect to the Tranche A Term Loan, Section 2.3(c), with
respect to the Tranche B Term Loan, Section 2.4(c), or, with respect to the
Tranche C Term Loan, Section 2.5(b)(ii), (iv) no more than 15 Eurodollar Loans
shall be outstanding under this Credit Agreement at any time (it being
understood that, for purposes hereof, Eurodollar Loans with different Interest
Periods shall be considered as separate Eurodollar Loans, even if they begin on
the same date, although borrowings, extensions and conversions may, in
accordance with the provisions hereof, be combined at the end of existing
Interest Periods to constitute a new Eurodollar Loan with a single Interest
Period) and (v) any request for extension or conversion of a Eurodollar Loan
which shall fail to specify an Interest Period shall be deemed to be a request
for an Interest Period of one month. Each such extension or conversion shall
be effected by the Borrower by giving a Notice of Extension/Conversion (or
telephonic notice promptly confirmed in writing) to the office of the Agent
specified in specified in Schedule 2.1(a), or at such other office as the Agent
may designate in writing, prior to 12:00 Noon (Charlotte, North Carolina time)
on the Business Day of, in the case of the conversion of a Eurodollar Loan into
a Base Rate Loan, and on the third Business Day prior to, in the case of the
extension of a Eurodollar Loan as, or conversion of a Base Rate Loan into, a
Eurodollar Loan, the date of the proposed extension or conversion, specifying
the date of the proposed extension or conversion, the Loans to be so extended
or converted, the types of Loans into which such Loans are to be converted and,
if appropriate, the applicable Interest Periods with respect thereto. Each
request for extension or conversion shall be irrevocable and shall constitute a
representation and warranty by the Borrower of the matters specified in
subsections (b), (c), (d), (e) and (f) of Section 5.2. In the event the
Borrower fails to request extension or conversion of any Eurodollar Loan in
accordance with this Section, or any such conversion or extension is not
permitted or required by this Section, then such Eurodollar Loan shall be
automatically converted into a Base Rate Loan at the end of the Interest Period
applicable thereto. The Agent shall give each Lender notice as promptly as
practicable of any such proposed extension or conversion affecting any Loan.
3.3 PREPAYMENTS.
(a) Voluntary Prepayments. The Borrower shall have the right to
prepay Loans in whole or in part from time to time; provided, however,
that each partial prepayment of Loans shall be in a minimum principal
amount of $5,000,000 (or the then outstanding balance of such
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Loan, if less) and integral multiples of $1,000,000. Subject to the
foregoing terms, amounts prepaid under this Section 3.3(a) shall be
applied as the Borrower may elect; provided that if the Borrower fails to
specify a voluntary prepayment then such prepayment shall be applied
first to Revolving Loans and then ratably to the Tranche A Term Loan, the
Tranche B Term Loan and the Tranche C Term Loan (in each case ratably to
the remaining Principal Amortization Payments thereof), in each case
first to Base Rate Loans and then to Eurodollar Loans in direct order of
Interest Period maturities. One or more holders of the Tranche B Term
Loans may decline to accept a voluntary prepayment under this Sections
3.3(a) to the extent there are sufficient Tranche A Term Loans
outstanding to be paid with such prepayment, in which case such declined
prepayments shall be allocated pro rata among the Tranche A Term Loans
and the Tranche B Term Loans held by Lenders accepting such prepayment.
All prepayments under this Section 3.3(a) shall be subject to Section
3.12, but otherwise without premium or penalty, and be accompanied by
interest on the principal amount prepaid through the date of prepayment.
(b) Mandatory Prepayments.
(i) Revolving Committed Amount. If at any time, the sum of
the aggregate principal amount of outstanding Revolving Loans plus
LOC Obligations outstanding shall exceed the Revolving Committed
Amount, the Borrower immediately shall (A) prepay the Revolving
Loans in an amount sufficient to eliminate such excess and (B) if
any such excess remains after all Revolving Loans have been repaid,
shall cash collateralize the LOC Obligations, in an amount
sufficient to eliminate such excess.
(ii) Asset Dispositions. Immediately upon the occurrence of
any Asset Disposition Prepayment Event, the Borrower shall prepay
the Loans in an aggregate amount equal to 100% of the Net Cash
Proceeds of the related Asset Disposition not applied (or caused to
be applied) during the related Application Period to the purchase,
acquisition or construction by the Consolidated Parties of Eligible
Assets as contemplated by the terms of Section 8.5(e) (such
prepayment to be applied as set forth in clause (v) below).
(iii) Debt Issuances. Immediately upon receipt by the Parent
or any Consolidated Party of proceeds from any Debt Issuance, the
Borrower shall prepay the Loans in an aggregate amount equal to
100% of the Net Cash Proceeds of such Debt Issuance to the Lenders
(such prepayment to be applied as set forth in clause (v) below).
(iv) Issuances of Equity. Immediately upon receipt by the
Parent or any Consolidated Party of proceeds from any Equity
Issuance, the Borrower shall prepay the Loans in an aggregate
amount equal to 100% of the Net Cash Proceeds of such Equity
Issuance to the Lenders (such prepayment to be applied as set forth
in clause (v) below).
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(v) Application of Mandatory Prepayments. All amounts
required to be paid pursuant to this Section 3.3(b) shall be
applied as follows: (A) with respect to all amounts prepaid
pursuant to Section 3.3(b)(i), to Revolving Loans and (after all
Revolving Loans have been repaid) to a cash collateral account in
respect of LOC Obligations and (B) with respect to all amounts
prepaid pursuant to Section 3.3(b)(ii), (iii) or (iv), first pro
rata to the Tranche A Term Loan and the Tranche B Term Loan (in
each case ratably to the remaining Principal Amortization Payments
thereof) and (2) second to the Revolving Loans and (after all
Revolving Loans have been repaid) to a cash collateral account in
respect of LOC Obligations; provided, however, with respect to any
prepayment pursuant to Section 3.3(b)(iii) with proceeds from the
issuance of any Subordinated Indebtedness, such prepayment shall be
applied first to the Tranche C Term Loan until the Tranche C Term
Loan shall have been paid in full. One or more holders of the
Tranche B Term Loans may decline to accept a mandatory prepayment
under Sections 3.3(b)(ii), (iii) or (iv) to the extent there are
sufficient Tranche A Term Loans outstanding to be paid with such
prepayment, in which case such declined prepayments shall be
allocated pro rata among the Tranche A Term Loans and the Tranche B
Term Loans held by Lenders accepting such prepayments. Within the
parameters of the applications set forth above, prepayments shall
be applied first to Base Rate Loans and then to Eurodollar Loans in
direct order of Interest Period maturities. All prepayments under
this Section 3.3(b) shall be subject to Section 3.12 and be
accompanied by interest on the principal amount prepaid through the
date of prepayment.
3.4 TERMINATION AND REDUCTION OF REVOLVING COMMITTED AMOUNT.
(a) Voluntary Reductions. The Borrower may from time to time
permanently reduce or terminate the Revolving Committed Amount in whole
or in part (in minimum aggregate amounts of $5,000,000 or in integral
multiples of $1,000,000 in excess thereof (or the full remaining amount
of the then applicable Revolving Committed Amount, if less) upon five
Business Days' prior written notice to the Agent; provided, however, no
such termination or reduction shall be made which would cause the
aggregate principal amount of outstanding Revolving Loans plus LOC
Obligations outstanding to exceed the Revolving Committed Amount, unless,
concurrently with such termination or reduction, the Revolving Loans are
repaid to the extent necessary to eliminate such excess. The Agent shall
promptly notify each affected Lender of receipt by the Agent of any
notice from the Borrower pursuant to this Section 3.4(a).
(b) Mandatory Reductions.
(i) Unless and until the Revolving Committed Amount shall have
been reduced to $150,000,000, the Revolving Committed Amount
automatically shall be permanently reduced on the date, and by the
amount, of any application of prepayment proceeds to the Revolving
Loans in accordance with the terms of Section 3.3(b)(v).
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(ii) The Tranche C Term Loan Committed Amount automatically
shall be permanently reduced on December 15, 1997 by the amount by
which the Tranche C Term Loan Committed Amount exceeds the
aggregate outstanding principal balance on the Tranche C Term Loan
as of December 15, 1997 (after giving effect to the advance on the
Tranche C Term Loan, if any, to be made on such date).
(c) Maturity Date. The Revolving Commitments of the Lenders and the
LOC Commitment of the Issuing Lender shall automatically terminate on the
Maturity Date.
(d) General. The Borrower shall pay to the Agent for the account of
the Lenders in accordance with the terms of Section 3.5(b), on the date
of each termination or reduction of the Revolving Committed Amount, the
Unused Fee accrued through the date of such termination or reduction on
the amount of the Revolving Committed Amount so terminated or reduced.
3.5 FEES.
(a) Upfront Fees. The Borrower agrees to pay to the Agent for the
benefit of the Lenders in immediately available funds on or before the
Closing Date an upfront fee (the "Upfront Fee") in the amount provided in
the Agent's Fee Letter.
(b) Unused Fee. In consideration of the Revolving Commitments of
the Lenders hereunder, the Borrower agrees to pay to the Agent for the
account of each Lender a fee (the "Unused Fee") on the Unused Revolving
Committed Amount computed at a per annum rate for each day during the
applicable Unused Fee Calculation Period (hereinafter defined) at a rate
equal to the Applicable Percentage in effect from time to time. The
Unused Fee shall commence to accrue on the Closing Date and shall be due
and payable in arrears on the last business day of each March, June,
September and December (and any date that the Revolving Committed Amount
is reduced as provided in Section 3.4(a) and the Maturity Date) for the
immediately preceding quarter (or portion thereof) (each such quarter or
portion thereof for which the Unused Fee is payable hereunder being
herein referred to as an "Unused Fee Calculation Period"), beginning with
the first of such dates to occur after the Closing Date.
(c) Letter of Credit Fees.
(i) Standby Letter of Credit Issuance Fee. In consideration
of the issuance of standby Letters of Credit hereunder, the
Borrower promises to pay to the Agent for the account of each
Lender a fee (the "Standby Letter of Credit Fee") on such Lender's
Revolving Commitment Percentage of the average daily maximum amount
which is or may become available to be drawn under each such
standby Letter of Credit computed at a per annum rate for each day
from the date of issuance to the date of expiration equal to the
Applicable Percentage. The Standby Letter of Credit Fee will be
payable quarterly in arrears on the last
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Business Day of each March, June, September and December for the
immediately preceding quarter (or a portion thereof).
(ii) Trade Letter of Credit Drawing Fee. In consideration of
the issuance of trade Letters of Credit hereunder, the Borrower
promises to pay to the Agent for the account of each Lender a fee
(the "Trade Letter of Credit Fee") equal to the Applicable
Percentage on such Lender's Revolving Commitment Percentage of the
amount of each drawing under any such trade Letter of Credit. The
Trade Letter of Credit Fee will be payable on each date of drawing
under a trade Letter of Credit.
(iii) Issuing Lender Fees. In addition to the Standby Letter
of Credit Fee payable pursuant to clause (i) above and the Trade
Letter of Credit Fee payable pursuant to clause (ii) above, the
Borrower promises to pay to the Issuing Lender for its own account
without sharing by the other Lenders the Borrower promises to pay
to the Issuing Lender for its own account without sharing by the
other Lenders (A) a standby Letter of Credit fronting fee of 0.125%
on the average daily maximum amount available to be drawn under
each standby Letter of Credit computed at a per annum rate for each
day from the date of issuance to the date of expiration, such
fronting fee to be payable quarterly in arrears on the last day of
each March, June, September and December for the immediately
preceding quarter (or a portion thereof) and (B) the customary
charges from time to time of the Issuing Lender with respect to the
issuance, amendment, transfer, administration, cancellation and
conversion of, and drawings under, such Letters of Credit
(collectively, the "Issuing Lender Fees").
(d) Administrative Fees. The Borrower agrees to pay to the Agent,
for its own account and NationsBanc Montgomery Securities, Inc., as
applicable, the fees referred to in the Agent's Fee Letter (collectively,
the "Agent's Fees").
3.6 CAPITAL ADEQUACY.
If any Lender has determined, after the date hereof, that the adoption or
the becoming effective of, or any change in, or any change by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof in the interpretation or administration of, any
applicable law, rule or regulation regarding capital adequacy, or compliance by
such Lender with any request or directive regarding capital adequacy (whether
or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on such Lender's capital or assets as a consequence of its commitments or
obligations hereunder to a level below that which such Lender could have
achieved but for such adoption, effectiveness, change or compliance (taking
into consideration such Lender's policies with respect to capital adequacy),
then, upon notice from such Lender to the Borrower, the Borrower shall be
obligated to pay to such Lender such additional amount or amounts as will
compensate such Lender for such reduction. Each
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determination by any such Lender of amounts owing under this Section shall,
absent manifest error, be conclusive and binding on the parties hereto.
3.7 LIMITATION ON EURODOLLAR LOANS.
If on or prior to the first day of any Interest Period for any Eurodollar
Loan:
(a) the Agent determines (which determination shall be conclusive)
that by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Interest Period; or
(b) the Required Lenders determine (which determination shall be
conclusive) and notify the Agent that the Eurodollar Rate will not
adequately and fairly reflect the cost to the Lenders of funding Eurodollar
Loans for such Interest Period;
then the Agent shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the Lenders shall be under no obligation to
make additional Eurodollar Loans, Continue Eurodollar Loans, or to Convert Base
Rate Loans into Eurodollar Loans and the Borrower shall, on the last day(s) of
the then current Interest Period(s) for the outstanding Eurodollar Loans,
either prepay such Eurodollar Loans or Convert such Eurodollar Loans into Base
Rate Loans in accordance with the terms of this Credit Agreement.
3.8 ILLEGALITY.
Notwithstanding any other provision of this Credit Agreement, in the event
that it becomes unlawful for any Lender or its Applicable Lending Office to
make, maintain, or fund Eurodollar Loans hereunder, then such Lender shall
promptly notify the Borrower thereof and such Lender's obligation to make or
Continue Eurodollar Loans and to Convert Base Rate Loans into Eurodollar Loans
shall be suspended until such time as such Lender may again make, maintain, and
fund Eurodollar Loans (in which case the provisions of Section 3.10 shall be
applicable).
3.9 REQUIREMENTS OF LAW.
If, after the date hereof, the adoption of any applicable law, rule, or
regulation, or any change in any applicable law, rule, or regulation, or any
change in the interpretation or administration thereof by any Governmental
Authority, central bank, or comparable agency charged with the interpretation
or administration thereof, or compliance by any Lender (or its Applicable
Lending Office) with any request or directive (whether or not having the force
of law) of any such Governmental Authority, central bank, or comparable agency:
(i) shall subject such Lender (or its Applicable Lending Office) to
any tax, duty, or other charge with respect to any Eurodollar Loans, its
Notes, or its obligation to make Eurodollar Loans, or change the basis of
taxation of any amounts payable to such Lender (or its Applicable Lending
Office) under this Credit Agreement or its Notes in
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respect of any Eurodollar Loans (other than taxes imposed on the overall
net income of such Lender by the jurisdiction in which such Lender has
its principal office or such Applicable Lending Office);
(ii) shall impose, modify, or deem applicable any reserve, special
deposit, assessment, or similar requirement (other than the Eurodollar
Reserve Requirement utilized in the determination of the Eurodollar Rate)
relating to any extensions of credit or other assets of, or any deposits
with or other liabilities or commitments of, such Lender (or its
Applicable Lending Office), including the Commitment of such Lender
hereunder; or
(iii) shall impose on such Lender (or its Applicable Lending Office)
or on the United States market for certificates of deposit or the London
interbank market any other condition affecting this Credit Agreement or
its Notes or any of such extensions of credit or liabilities or
commitments;
and the result of any of the foregoing is to increase the cost to such Lender
(or its Applicable Lending Office) of making, Converting into, Continuing, or
maintaining any Eurodollar Loans or to reduce any sum received or receivable by
such Lender (or its Applicable Lending Office) under this Credit Agreement or
its Notes with respect to any Eurodollar Loans, then the Borrower shall pay to
such Lender on demand such amount or amounts as will compensate such Lender for
such increased cost or reduction. If any Lender requests compensation by the
Borrower under this Section 3.9(a), the Borrower may, by notice to such Lender
(with a copy to the Agent), suspend the obligation of such Lender to make or
Continue Eurodollar Loans, or to Convert Base Rate Loans into Eurodollar Loans,
until the event or condition giving rise to such request ceases to be in effect
(in which case the provisions of Section 3.10 shall be applicable); provided
that such suspension shall not affect the right of such Lender to receive the
compensation so requested. Each Lender shall promptly notify the Borrower and
the Agent of any event of which it has knowledge, occurring after the date
hereof, which will entitle such Lender to compensation pursuant to this Section
3.9 and will designate a different Applicable Lending Office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the judgment of such Lender, be otherwise disadvantageous to
it. Any Lender claiming compensation under this Section 3.9 shall furnish to
the Borrower and the Agent a statement setting forth the additional amount or
amounts to be paid to it hereunder which shall be conclusive in the absence of
manifest error. In determining such amount, such Lender may use any reasonable
averaging and attribution methods.
3.10 TREATMENT OF AFFECTED LOANS.
If the obligation of any Lender to make any Eurodollar Loan or to
Continue, or to Convert Base Rate Loans into, Eurodollar Loans shall be
suspended pursuant to Section 3.7 or 3.8 hereof, such Lender's Eurodollar Loans
shall be automatically Converted into Base Rate Loans on the last day(s) of the
then current Interest Period(s) for such Eurodollar Loans (or, in the case of a
Conversion required by Section 3.7 hereof, on such earlier date as such Lender
may specify to the Borrower with a copy to the Agent) and, unless and until
such Lender gives notice
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as provided below that the circumstances specified in Section 3.7 or 3.8 hereof
that gave rise to such Conversion no longer exist:
(a) to the extent that such Lender's Eurodollar Loans have been so
Converted, all payments and prepayments of principal that would otherwise
be applied to such Lender's Eurodollar Loans shall be applied instead to
its Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued by such
Lender as Eurodollar Loans shall be made or Continued instead as Base
Rate Loans, and all Base Rate Loans of such Lender that would otherwise
be Converted into Eurodollar Loans shall remain as Base Rate Loans.
If such Lender gives notice to the Borrower (with a copy to the Agent) that the
circumstances specified in Section 3.7, 3.8 or 3.9 hereof that gave rise to the
Conversion of such Lender's Eurodollar Loans pursuant to this Section 3.10 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans made by other Lenders are
outstanding, such Lender's Base Rate Loans shall be automatically Converted, on
the first day(s) of the next succeeding Interest Period(s) for such outstanding
Eurodollar Loans, to the extent necessary so that, after giving effect thereto,
all Loans held by the Lenders holding Eurodollar Loans and by such Lender are
held pro rata (as to principal amounts, interest rate basis, and Interest
Periods) in accordance with their respective Commitments.
3.11 TAXES.
(a) Any and all payments by the Borrower to or for the account of
any Lender or the Agent hereunder or under any other Credit Document
shall be made free and clear of and without deduction for any and all
present or future taxes, duties, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, in the
case of each Lender and the Agent, taxes imposed on its income, and
franchise taxes imposed on it in lieu of income taxes, by the
jurisdiction under the laws of which such Lender (or its Applicable
Lending Office) or the Agent (as the case may be) is organized or any
political subdivision thereof (all such non-excluded taxes, duties,
levies, imposts, deductions, charges, withholdings, and liabilities being
hereinafter referred to as "Taxes"). If the Borrower shall be required
by law to deduct any Taxes from or in respect of any sum payable under
this Credit Agreement or any other Credit Document to any Lender or the
Agent, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to
additional sums payable under this Section 3.11) such Lender or the Agent
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, (iii)
the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law, and (iv)
the Borrower shall furnish to the Agent, at its address referred to in
Section 11.1, the original or a certified copy of a receipt evidencing
payment thereof.
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(b) In addition, the Borrower agrees to pay any and all present or
future stamp or documentary taxes and any other excise or property taxes
or charges or similar levies which arise from any payment made under this
Credit Agreement or any other Credit Document or from the execution or
delivery of, or otherwise with respect to, this Credit Agreement or any
other Credit Document (hereinafter referred to as "Other Taxes").
(c) The Borrower agrees to indemnify each Lender and the Agent for
the full amount of Taxes and Other Taxes (including, without limitation,
any Taxes or Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section 3.11) paid by such Lender or the Agent
(as the case may be) and any liability (including penalties, interest,
and expenses) arising therefrom or with respect thereto other than any
penalties, interest or expense to the extent arising from the failure of
such Lender or the Agent to pay such Taxes or Other Taxes on a timely
basis.
(d) Each Lender organized under the laws of a jurisdiction outside
the United States, on or prior to the date of its execution and delivery
of this Credit Agreement in the case of each Lender listed on the
signature pages hereof and on or prior to the date on which it becomes a
Lender in the case of each other Lender, and from time to time thereafter
if requested in writing by the Borrower or the Agent (but only so long as
such Lender remains lawfully able to do so), shall provide the Borrower
and the Agent with (i) (a) if such Lender is a "bank" within the meaning
of Section 881(c)(3)(A) of the Code, Internal Revenue Service Form 1001
or 4224, as appropriate, or any successor form prescribed by the Internal
Revenue Service, certifying that such Lender is entitled to benefits
under an income tax treaty to which the United States is a party which
reduces the rate of withholding tax on payments of interest or certifying
that the income receivable pursuant to this Credit Agreement is
effectively connected with the conduct of a trade or business in the
United States, or (b) if such Lender is not a "bank" within the meaning
of Section 881(c)(3)(A) of the Code and which intends to claim exemption
form U.S. Federal withholding taxes under Section 871(h) or 881(c) of the
Code with respect to payments of "portfolio interest", a Form W-8, or any
subsequent versions thereof or successors thereto (and, if such non-U.S.
Lender delivers a Form W-8, a certificate representing that such non-U.S.
Lender is not a bank for purposes of Section 881(c) of the Code, is not a
10 percent shareholder (within the meaning of Section 871(h)(3)(B) of the
Code) of the Borrower and is not a controlled foreign corporation related
to the Borrower (within the meaning of Section 864(d)(4) of the Code)),
properly completed and duly executed by such non-U.S. Lender claiming
complete exemption from, or a reduced rate of, U.S. Federal withholding
tax on payments of interest by the Borrower under this Credit Agreement
and the other Credit Documents, (ii) Internal Revenue Service Form W-8 or
W-9, as appropriate, or any successor form prescribed by the Internal
Revenue Service, and (iii) any other form or certificate required by any
taxing authority (including any certificate required by Sections 871(h)
and 881(c) of the Internal Revenue Code), certifying that such Lender is
entitled to an exemption from or a reduced rate of tax on payments
pursuant to this Credit Agreement or any of the other Credit Documents.
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(e) For any period with respect to which a Lender has failed to
provide the Borrower and the Agent with the appropriate form pursuant to
Section 3.11(d) (unless such failure is due to a change in treaty, law,
or regulation occurring subsequent to the date on which a form originally
was required to be provided), such Lender shall not be entitled to
indemnification under Section 3.11(a) or 3.11(b) with respect to Taxes
imposed by the United States; provided, however, that should a Lender,
which is otherwise exempt from or subject to a reduced rate of
withholding tax, become subject to Taxes because of its failure to
deliver a form required hereunder, the Borrower shall take such steps as
such Lender shall reasonably request to assist such Lender to recover
such Taxes.
(f) If the Borrower is required to pay additional amounts to or for
the account of any Lender pursuant to this Section 3.11, then such Lender
will agree to use reasonable efforts to change the jurisdiction of its
Applicable Lending Office so as to eliminate or reduce any such
additional payment which may thereafter accrue if such change, in the
judgment of such Lender, is not otherwise disadvantageous to such Lender.
(g) Within thirty (30) days after the date of any payment of Taxes,
the Borrower shall furnish to the Agent the original or a certified copy
of a receipt evidencing such payment.
(h) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 3.11 shall survive the repayment of the Loans,
LOC Obligations and other obligations under the Credit Documents and the
termination of the Commitments hereunder.
3.12 COMPENSATION.
Upon the request of any Lender, the Borrower shall pay to such Lender such
amount or amounts as shall be sufficient (in the reasonable opinion of such
Lender) to compensate it for any loss, cost, or expense (including loss of
anticipated profits) incurred by it as a result of:
(a) any payment, prepayment, or Conversion of a Eurodollar Loan for
any reason (including, without limitation, the acceleration of the Loans
pursuant to Section 9.2) on a date other than the last day of the
Interest Period for such Loan; or
(b) any failure by the Borrower for any reason (including, without
limitation, the failure of any condition precedent specified in Section 5
to be satisfied) to borrow, Convert, Continue, or prepay a Eurodollar
Loan on the date for such borrowing, Conversion, Continuation, or
prepayment specified in the relevant notice of borrowing, prepayment,
Continuation, or Conversion under this Credit Agreement.
With respect to Eurodollar Loans, such indemnification may include an amount
equal to the excess, if any, of (a) the amount of interest which would have
accrued on the amount so prepaid, or not so borrowed, converted or continued,
for the period from the date of such prepayment or of such failure to borrow,
convert or continue to the last day of the applicable Interest Period (or,
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in the case of a failure to borrow, convert or continue, the Interest Period
that would have commenced on the date of such failure) in each case at the
applicable rate of interest for such Eurodollar Loans provided for herein
(excluding, however, the Applicable Percentage included therein, if any) over
(b) the amount of interest (as reasonably determined by such Lender) which
would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable period with leading banks in the interbank Eurodollar
market. The covenants of the Borrower set forth in this Section 3.12 shall
survive the repayment of the Loans, LOC Obligations and other obligations under
the Credit Documents and the termination of the Commitments hereunder.
3.13 PRO RATA TREATMENT.
Except to the extent otherwise provided herein:
(a) Loans. Each Loan, each payment or (subject to the terms of
Section 3.3) prepayment of principal of any Loan or reimbursement
obligations arising from drawings under Letters of Credit, each payment
of interest on the Loans or reimbursement obligations arising from
drawings under Letters of Credit, each payment of Unused Fees, each
payment of the Standby Letter of Credit Fee, each payment of the Trade
Letter of Credit Fee, each reduction of the Revolving Committed Amount
and each conversion or extension of any Loan, shall be allocated pro rata
among the Lenders in accordance with the respective principal amounts of
their outstanding Loans and Participation Interests.
(b) Advances. No Lender shall be responsible for the failure or
delay by any other Lender in its obligation to make its ratable share of
a borrowing hereunder; provided, however, that the failure of any Lender
to fulfill its obligations hereunder shall not relieve any other Lender
of its obligations hereunder. Unless the Agent shall have been notified
by any Lender prior to the date of any requested borrowing that such
Lender does not intend to make available to the Agent its ratable share
of such borrowing to be made on such date, the Agent may assume that such
Lender has made such amount available to the Agent on the date of such
borrowing, and the Agent in reliance upon such assumption, may (in its
sole discretion but without any obligation to do so) make available to
the Borrower a corresponding amount. If such corresponding amount is not
in fact made available to the Agent, the Agent shall be able to recover
such corresponding amount from such Lender. If such Lender does not pay
such corresponding amount forthwith upon the Agent's demand therefor, the
Agent will promptly notify the Borrower, and the Borrower shall
immediately pay such corresponding amount to the Agent. The Agent shall
also be entitled to recover from the Lender or the Borrower, as the case
may be, interest on such corresponding amount in respect of each day from
the date such corresponding amount was made available by the Agent to the
Borrower to the date such corresponding amount is recovered by the Agent
at a per annum rate equal to (i) from the Borrower at the applicable rate
for the applicable borrowing pursuant to the Notice of Borrowing and (ii)
from a Lender at the Federal Funds Rate.
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3.14 SHARING OF PAYMENTS.
The Lenders agree among themselves that, in the event that any Lender
shall obtain payment in respect of any Loan, LOC Obligations or any other
obligation owing to such Lender under this Credit Agreement through the
exercise of a right of setoff, banker's lien or counterclaim, or pursuant to a
secured claim under Section 506 of Title 11 of the United States Code or other
security or interest arising from, or in lieu of, such secured claim, received
by such Lender under any applicable bankruptcy, insolvency or other similar law
or otherwise, or by any other means, in excess of its pro rata share of such
payment as provided for in this Credit Agreement, such Lender shall promptly
purchase from the other Lenders a Participation Interest in such Loans, LOC
Obligations and other obligations in such amounts, and make such other
adjustments from time to time, as shall be equitable to the end that all
Lenders share such payment in accordance with their respective ratable shares
as provided for in this Credit Agreement. The Lenders further agree among
themselves that if payment to a Lender obtained by such Lender through the
exercise of a right of setoff, banker's lien, counterclaim or other event as
aforesaid shall be rescinded or must otherwise be restored, each Lender which
shall have shared the benefit of such payment shall, by repurchase of a
Participation Interest theretofore sold, return its share of that benefit
(together with its share of any accrued interest payable with respect thereto)
to each Lender whose payment shall have been rescinded or otherwise restored.
The Borrower agrees that any Lender so purchasing such a Participation Interest
may, to the fullest extent permitted by law, exercise all rights of payment,
including setoff, banker's lien or counterclaim, with respect to such
Participation Interest as fully as if such Lender were a holder of such Loan,
LOC Obligations or other obligation in the amount of such Participation
Interest. Except as otherwise expressly provided in this Credit Agreement, if
any Lender or the Agent shall fail to remit to the Agent or any other Lender an
amount payable by such Lender or the Agent to the Agent or such other Lender
pursuant to this Credit Agreement on the date when such amount is due, such
payments shall be made together with interest thereon for each date from the
date such amount is due until the date such amount is paid to the Agent or such
other Lender at a rate per annum equal to the Federal Funds Rate. If under any
applicable bankruptcy, insolvency or other similar law, any Lender receives a
secured claim in lieu of a setoff to which this Section 3.14 applies, such
Lender shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders under this
Section 3.14 to share in the benefits of any recovery on such secured claim.
3.15 PAYMENTS, COMPUTATIONS, ETC.
(a) Except as otherwise specifically provided herein, all payments
hereunder shall be made to the Agent in Dollars in immediately available
funds, without offset, deduction, counterclaim or withholding of any
kind, at the Agent's office specified in Schedule 2.1(a) not later than
2:00 P.M. (Charlotte, North Carolina time) on the date when due.
Payments received after such time shall be deemed to have been received
on the next succeeding Business Day. The Agent may (but shall not be
obligated to) debit the amount of any such payment which is not made by
such time to any ordinary deposit account of the Borrower maintained with
the Agent (with notice to the Borrower). The Borrower shall, at the time
it makes any payment under this Credit Agreement, specify to
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the Agent the Loans, LOC Obligations, Fees, interest or other amounts
payable by the Borrower hereunder to which such payment is to be applied
(and in the event that it fails so to specify, or if such application
would be inconsistent with the terms hereof, the Agent shall distribute
such payment to the Lenders in such manner as the Agent may determine to
be appropriate in respect of obligations owing by the Borrower hereunder,
subject to the terms of Section 3.13(a)). The Agent will distribute such
payments to such Lenders, if any such payment is received prior to 2:00
P.M. (Charlotte, North Carolina time) on a Business Day in like funds as
received prior to the end of such Business Day and otherwise the Agent
will distribute such payment to such Lenders on the next succeeding
Business Day. Whenever any payment hereunder shall be stated to be due
on a day which is not a Business Day, the due date thereof shall be
extended to the next succeeding Business Day (subject to accrual of
interest and Fees for the period of such extension), except that in the
case of Eurodollar Loans, if the extension would cause the payment to be
made in the next following calendar month, then such payment shall
instead be made on the next preceding Business Day. Except as expressly
provided otherwise herein, all computations of interest and fees shall be
made on the basis of actual number of days elapsed over a year of 360
days, except with respect to computation of interest on Base Rate Loans
which (unless the Base Rate is determined by reference to the Federal
Funds Rate) shall be calculated based on a year of 365 or 366 days, as
appropriate. Interest shall accrue from and include the date of
borrowing, but exclude the date of payment.
(b) Allocation of Payments After Event of Default. Notwithstanding
any other provisions of this Credit Agreement to the contrary, after the
occurrence and during the continuance of an Event of Default, all amounts
collected or received by the Agent or any Lender on account of the Credit
Party Obligations or any other amounts outstanding under any of the
Credit Documents or in respect of the Collateral shall be paid over or
delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation reasonable attorneys' fees) of the
Agent in connection with enforcing the rights of the Lenders under the
Credit Documents and any protective advances made by the Agent with
respect to the Collateral under or pursuant to the terms of the
Collateral Documents;
SECOND, to payment of any fees owed to the Agent;
THIRD, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation, reasonable attorneys' fees) of
each of the Lenders in connection with enforcing its rights under the
Credit Documents or otherwise with respect to the Credit Party
Obligations owing to such Lender;
FOURTH, to the payment of all of the Credit Party Obligations
consisting of accrued fees and interest;
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FIFTH, to the payment of the outstanding principal amount of the
Credit Party Obligations (including the payment or cash collateralization
of the outstanding LOC Obligations);
SIXTH, to all other Credit Party Obligations and other obligations
which shall have become due and payable under the Credit Documents and
not repaid pursuant to clauses "FIRST" through "FIFTH" above; and
SEVENTH, to the payment of the surplus, if any, to whoever may be
lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in
the numerical order provided until exhausted prior to application to the
next succeeding category; (ii) each of the Lenders shall receive an
amount equal to its pro rata share (based on the proportion that the then
outstanding Loans and LOC Obligations held by such Lender bears to the
aggregate then outstanding Loans and LOC Obligations) of amounts
available to be applied pursuant to clauses "THIRD", "FOURTH", "FIFTH"
and "SIXTH" above; and (iii) to the extent that any amounts available for
distribution pursuant to clause "FIFTH" above are attributable to the
issued but undrawn amount of outstanding Letters of Credit, such amounts
shall be held by the Agent in a cash collateral account and applied (A)
first, to reimburse the Issuing Lender from time to time for any drawings
under such Letters of Credit and (B) then, following the expiration of
all Letters of Credit, to all other obligations of the types described in
clauses "FIFTH" and "SIXTH" above in the manner provided in this Section
3.15(b).
3.16 EVIDENCE OF DEBT.
(a) Each Lender shall maintain an account or accounts evidencing
each Loan made by such Lender to the Borrower from time to time,
including the amounts of principal and interest payable and paid to such
Lender from time to time under this Credit Agreement. Each Lender will
make reasonable efforts to maintain the accuracy of its account or
accounts and to promptly update its account or accounts from time to
time, as necessary.
(b) The Agent shall maintain the Register pursuant to Section
11.3(c), and a subaccount for each Lender, in which Register and
subaccounts (taken together) shall be recorded (i) the amount, type and
Interest Period of each such Loan hereunder, (ii) the amount of any
principal or interest due and payable or to become due and payable to
each Lender hereunder and (iii) the amount of any sum received by the
Agent hereunder from or for the account of the Borrower and each Lender's
share thereof. The Agent will make reasonable efforts to maintain the
accuracy of the subaccounts referred to in the preceding sentence and to
promptly update such subaccounts from time to time, as necessary.
(c) The entries made in the accounts, Register and subaccounts
maintained pursuant to subsection (b) of this Section 3.16 (and, if
consistent with the entries of the
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Agent, subsection (a)) shall be prima facie evidence of the existence and
amounts of the obligations of the Borrower therein recorded absent
manifest error; provided, however, that the failure of any Lender or the
Agent to maintain any such account, such Register or such subaccount, as
applicable, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay the Loans made by such Lender in
accordance with the terms hereof.
3.17 MANDATORY ASSIGNMENT.
In the event that any Lender delivers to the Borrower a demand for payment
in accordance with Section 3.6, 3.9 or 3.11 or a notification in accordance
with Section 3.8 that such Lender is suspending its obligation or obligations
to make or Continue Eurodollar Loans and to Convert Base Rate Loans into
Eurodollar Loans, then, provided that no Default or Event of Default has
occurred and is continuing at such time, the Borrower may, at its own expense
(such expense to include the administrative fee payable to the Agent under
Section 11.3(b)), require such Lender to transfer and assign in whole, without
recourse (in accordance with and subject to the terms and conditions of Section
11.3), all of its interests, rights and obligations under this Credit Agreement
to an Eligible Assignee which shall assume such assigned obligations; provided
that (i) such assignment shall not conflict with any law, rule or regulation or
order of any court or any Governmental Authority and (ii) the Borrower or such
assignee shall have paid to the assigning Lender in immediately available funds
the principal of and interest accrued to the date of such payment on the Loans
made by it hereunder and all other amounts owed to it hereunder (including
Section 3.12).
SECTION 4
GUARANTY
4.1 THE GUARANTY.
Each of the Guarantors hereby jointly and severally guarantees to each
Lender, each Affiliate of a Lender that enters into a Hedging Agreement, and
the Agent as hereinafter provided the prompt payment of the Credit Party
Obligations in full when due (whether at stated maturity, as a mandatory
prepayment, by acceleration, as a mandatory cash collateralization or
otherwise) strictly in accordance with the terms thereof. The Guarantors
hereby further agree that if any of the Credit Party Obligations are not paid
in full when due (whether at stated maturity, as a mandatory prepayment, by
acceleration, as a mandatory cash collateralization or otherwise), the
Guarantors will, jointly and severally, promptly pay the same, without any
demand or notice whatsoever, and that in the case of any extension of time of
payment or renewal of any of the Credit Party Obligations, the same will be
promptly paid in full when due (whether at extended maturity, as a mandatory
prepayment, by acceleration, as a mandatory cash collateralization or
otherwise) in accordance with the terms of such extension or renewal.
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Notwithstanding any provision to the contrary contained herein or in any
other of the Credit Documents or Hedging Agreements, the obligations of each
Subsidiary Guarantor hereunder shall be limited to an aggregate amount equal to
the largest amount that would not render its obligations hereunder subject to
avoidance under Section 548 of the Bankruptcy Code or any comparable provisions
of any applicable state law.
4.2 OBLIGATIONS UNCONDITIONAL.
The obligations of the Guarantors under Section 4.1 are joint and several,
absolute and unconditional, irrespective of the value, genuineness, validity,
regularity or enforceability of any of the Credit Documents or Hedging
Agreements, or any other agreement or instrument referred to therein, or any
substitution, release, impairment or exchange of any other guarantee of or
security for any of the Credit Party Obligations, and, to the fullest extent
permitted by applicable law, irrespective of any other circumstance whatsoever
which might otherwise constitute a legal or equitable discharge or defense of a
surety or guarantor, it being the intent of this Section 4.2 that the
obligations of the Guarantors hereunder shall be absolute and unconditional
under any and all circumstances. Each Guarantor agrees that such Guarantor
shall have no right of subrogation, indemnity, reimbursement or contribution
against the Borrower or any other Guarantor of the Credit Party Obligations for
amounts paid under this Section 4 until such time as the Lenders (and any
Affiliates of Lenders entering into Hedging Agreements) have been paid in full,
all Commitments under this Credit Agreement have been terminated and no Person
or Governmental Authority shall have any right to request any return or
reimbursement of funds from the Lenders in connection with monies received
under the Credit Documents or Hedging Agreements. Without limiting the
generality of the foregoing, it is agreed that, to the fullest extent permitted
by law, the occurrence of any one or more of the following shall not alter or
impair the liability of any Guarantor hereunder which shall remain absolute and
unconditional as described above:
(a) at any time or from time to time, without notice to any
Guarantor, the time for any performance of or compliance with any of the
Credit Party Obligations shall be extended, or such performance or
compliance shall be waived;
(b) any of the acts required or permitted by any of the provisions
of any of the Credit Documents, any Hedging Agreement or any other
agreement or instrument referred to in the Credit Documents or Hedging
Agreements shall be done or omitted;
(c) the maturity of any of the Credit Party Obligations shall be
accelerated, or any of the Credit Party Obligations shall be modified,
supplemented or amended in any respect, or any right under any of the
Credit Documents, any Hedging Agreement or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements
shall be waived or any other guarantee of any of the Credit Party
Obligations or any security therefor shall be released, impaired or
exchanged in whole or in part or otherwise dealt with;
(d) any Lien granted to, or in favor of, the Agent or any Lender or
Lenders as security for any of the Credit Party Obligations shall fail to
attach or be perfected; or
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(e) any of the Credit Party Obligations shall be determined to be
void or voidable (including, without limitation, for the benefit of any
creditor of any Guarantor) or shall be subordinated to the claims of any
Person (including, without limitation, any creditor of any Guarantor).
With respect to its obligations hereunder, each Guarantor hereby expressly
waives diligence, presentment, demand of payment, protest and all notices
whatsoever, and any requirement that the Agent or any Lender exhaust any right,
power or remedy or proceed against any Person under any of the Credit
Documents, any Hedging Agreement or any other agreement or instrument referred
to in the Credit Documents or Hedging Agreements, or against any other Person
under any other guarantee of, or security for, any of the Credit Party
Obligations.
4.3 REINSTATEMENT.
The obligations of the Guarantors under this Section 4 shall be
automatically reinstated if and to the extent that for any reason any payment
by or on behalf of any Person in respect of the Credit Party Obligations is
rescinded or must be otherwise restored by any holder of any of the Credit
Party Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and each Guarantor agrees that it will indemnify
the Agent and each Lender on demand for all reasonable costs and expenses
(including, without limitation, fees and expenses of counsel) incurred by the
Agent or such Lender in connection with such rescission or restoration,
including any such costs and expenses incurred in defending against any claim
alleging that such payment constituted a preference, fraudulent transfer or
similar payment under any bankruptcy, insolvency or similar law.
4.4 CERTAIN ADDITIONAL WAIVERS.
Without limiting the generality of the provisions of this Section 4, each
Guarantor hereby specifically waives the benefits of N.C. Gen. Stat. Section
Section 26-7 through 26-9, inclusive, to the extent applicable. Each
Guarantor further agrees that such Guarantor shall have no right of recourse to
security for the Credit Party Obligations, except through the exercise of
rights of subrogation pursuant to Section 4.2 and through the exercise of
rights of contribution pursuant to Section 4.6.
4.5 REMEDIES.
The Guarantors agree that, to the fullest extent permitted by law, as
between the Guarantors, on the one hand, and the Agent and the Lenders, on the
other hand, the Credit Party Obligations may be declared to be forthwith due
and payable as provided in Section 9.2 (and shall be deemed to have become
automatically due and payable in the circumstances provided in said Section
9.2) for purposes of Section 4.1 notwithstanding any stay, injunction or other
prohibition preventing such declaration (or preventing the Credit Party
Obligations from becoming automatically due and payable) as against any other
Person and that, in the event of such declaration (or the Credit Party
Obligations being deemed to have become automatically due and
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payable), the Credit Party Obligations (whether or not due and payable by any
other Person) shall forthwith become due and payable by the Guarantors for
purposes of Section 4.1.
4.6 RIGHTS OF CONTRIBUTION.
The Guarantors hereby agree as among themselves that, if any Guarantor
shall make an Excess Payment (as defined below), such Guarantor shall have a
right of contribution from each other Guarantor in an amount equal to such
other Guarantor's Contribution Share (as defined below) of such Excess Payment.
The payment obligations of any Guarantor under this Section 4.6 shall be
subordinate and subject in right of payment to the prior payment in full to the
Agent and the Lenders of the Guaranteed Obligations, and none of the Guarantors
shall exercise any right or remedy under this Section 4.6 against any other
Guarantor until payment and satisfaction in full of all of such Guaranteed
Obligations. For purposes of this Section 4.6, (a) "Guaranteed Obligations"
shall mean any obligations arising under the other provisions of this Section
4; (b) "Excess Payment" shall mean the amount paid by any Guarantor in excess
of its Pro Rata Share of any Guaranteed Obligations; (c) "Pro Rata Share" shall
mean, for any Guarantor in respect of any payment of Guaranteed Obligations,
the ratio (expressed as a percentage) as of the date of such payment of
Guaranteed Obligations of (i) the amount by which the aggregate present fair
salable value of all of its assets and properties exceeds the amount of all
debts and liabilities of such Guarantor (including contingent, subordinated,
unmatured, and unliquidated liabilities, but excluding the obligations of such
Guarantor hereunder) to (ii) the amount by which the aggregate present fair
salable value of all assets and other properties of the Borrower and all of the
Guarantors exceeds the amount of all of the debts and liabilities (including
contingent, subordinated, unmatured, and unliquidated liabilities, but
excluding the obligations of the Borrower and the Guarantors hereunder) of the
Borrower and all of the Guarantors; provided, however, that, for purposes of
calculating the Pro Rata Shares of the Guarantors in respect of any payment of
Guaranteed Obligations, any Guarantor that became a Guarantor subsequent to the
date of any such payment shall be deemed to have been a Guarantor on the date
of such payment and the financial information for such Guarantor as of the date
such Guarantor became a Guarantor shall be utilized for such Guarantor in
connection with such payment; and (d) "Contribution Share" shall mean, for any
Guarantor in respect of any Excess Payment made by any other Guarantor, the
ratio (expressed as a percentage) as of the date of such Excess Payment of (i)
the amount by which the aggregate present fair salable value of all of its
assets and properties exceeds the amount of all debts and liabilities of such
Guarantor (including contingent, subordinated, unmatured, and unliquidated
liabilities, but excluding the obligations of such Guarantor hereunder) to (ii)
the amount by which the aggregate present fair salable value of all assets and
other properties of the Borrower and all of the Guarantors other than the maker
of such Excess Payment exceeds the amount of all of the debts and liabilities
(including contingent, subordinated, unmatured, and unliquidated liabilities,
but excluding the obligations of the Borrower and the Guarantors hereunder) of
the Borrower and all of the Guarantors other than the maker of such Excess
Payment; provided, however, that, for purposes of calculating the Contribution
Shares of the Guarantors in respect of any Excess Payment, any Guarantor that
became a Guarantor subsequent to the date of any such Excess Payment shall be
deemed to have been a Guarantor on the date of such Excess Payment and the
financial information for such Guarantor as of the date such Guarantor became a
Guarantor shall be utilized for such Guarantor
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in connection with such Excess Payment. This Section 4.6 shall not be deemed
to affect any right of subrogation, indemnity, reimbursement or contribution
that any Guarantor may have under applicable law against the Borrower in
respect of any payment of Guaranteed Obligations. Notwithstanding the
foregoing, all rights of contribution against any Guarantor shall terminate
from and after such time, if ever, that such Guarantor shall be relieved of its
obligations pursuant to Section 8.4.
4.7 CONTINUING GUARANTEE.
The guarantee in this Section 4 is a continuing guarantee, and shall apply
to all Credit Party Obligations whenever arising.
4.8 LIMITATION OF LIABILITY OF PARENT.
Notwithstanding any provision to the contrary set forth in this Section 4,
in no event shall the Parent be liable or obligated, pursuant to the terms of
this Credit Agreement, for the liabilities of the Borrower under the Credit
Documents, except as may be specifically provided in the Pledge Agreement.
Nothing herein contained shall limit or be construed to (i) limit the
obligations and liabilities of the Parent in accordance with the terms of the
Pledge Agreement or (ii) affect or diminish any rights of any Person against
any other Person arising from misappropriation or misapplication of any funds
or for such other Person's fraud, gross negligence or willful misconduct. The
provisions of this Section 4.8 shall survive the termination of this Credit
Agreement.
SECTION 5
CONDITIONS
5.1 CLOSING CONDITIONS.
The obligation of the Lenders to enter into this Credit Agreement and to
make the initial Loans or the Issuing Lender to issue the initial Letter of
Credit, whichever shall occur first, shall be subject to satisfaction of the
following conditions (in form and substance acceptable to the Lenders):
(a) Executed Credit Documents. Receipt by the Agent of duly
executed copies of: (i) this Credit Agreement; (ii) the Notes; (iii) the
Collateral Documents and (iv) all other Credit Documents, each in form
and substance acceptable to the Agent in its sole discretion.
(b) Corporate Documents. Receipt by the Agent of the following:
(i) Charter Documents. Copies of the articles or certificates
of incorporation or other charter documents of each Credit Party
certified to be true
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and complete as of a recent date by the appropriate Governmental
Authority of the state or other jurisdiction of its incorporation
and certified by a secretary or assistant secretary of such Credit
Party to be true and correct as of the Closing Date.
(ii) Bylaws. A copy of the bylaws of each Credit Party
certified by a secretary or assistant secretary of such Credit
Party to be true and correct as of the Closing Date.
(iii) Resolutions. Copies of resolutions of the Board of
Directors of each Credit Party approving and adopting the Credit
Documents to which it is a party, the transactions contemplated
therein and authorizing execution and delivery thereof, certified
by a secretary or assistant secretary of such Credit Party to be
true and correct and in force and effect as of the Closing Date.
(iv) Good Standing. Copies of certificates of good standing,
existence or its equivalent with respect to each Credit Party
certified as of a recent date by the appropriate Governmental
Authorities of the state or other jurisdiction of incorporation and
each other jurisdiction in which the failure to so qualify and be
in good standing would be reasonably likely to have a Material
Adverse Effect.
(v) Incumbency. An incumbency certificate of each Credit
Party certified by a secretary or assistant secretary to be true
and correct as of the Closing Date.
(c) Financial Statements. Receipt by the Agent and the Lenders of
(i) a satisfactory pro forma consolidated balance sheet (as of September
30, 1997) and income statement (for the four fiscal quarters ended
September 30, 1997) of the Borrower giving effect to the acquisition of
Arbor and the transactions contemplated by the Merger Agreement and
reflecting estimated purchase price accounting adjustments, (which pro
forma income statement shall indicate a Consolidated EBITDA of a least
$160 million) and (ii) such other information relating to the Borrower
and its Subsidiaries or Arbor as the Agent may reasonably require in
connection with the structuring and syndication of credit facilities of
the type described herein.
(d) Opinion of Counsel.
(i) a legal opinion of Skadden Arps Slate Meagher & Flom,
general counsel for the Credit Parties, substantially in the form
of Schedule 5.1(d)(i); and
(ii) a legal opinion of special local counsel for each Credit
Party not incorporated in the State of New York or Delaware,
substantially in the form of Schedule 5.1(d)(ii).
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(e) Environmental Information. The Agent shall be satisfied with
any available environmental assessment reports and related documents of a
recent date with respect to all Real Properties and all other material
real property owned or leased by the Parent, any Consolidated Party,
Arbor or any of Arbor's Subsidiaries.
(f) Personal Property Collateral. The Agent shall have received:
(i) all stock certificates evidencing the Capital Stock
pledged to the Agent pursuant to the Pledge Agreement, together
with duly executed in blank undated stock powers attached thereto;
and
(ii) duly executed consents as are necessary, in the Agent's
sole discretion, to perfect the Lenders' security interest in the
Collateral.
(g) Corporate Structure. The corporate capital and ownership
structure of the Parent and the Consolidated Parties (after giving effect
to consummation of the Tender Offer on the Closing Date) shall be as
described in Schedule 5.1(g).
(h) Equity Investment. Receipt by the Agent of evidence that a cash
equity investment of at least $45 million shall have been made in the
Borrower by the Parent on terms that are satisfactory to the Agent.
(i) Government Consent. Receipt by the Agent of evidence that all
governmental, shareholder and material third party consents (including,
without limitation, (i) Hart-Scott-Rodino clearance and (ii) the consent
of any existing lender, lessor and/or bondholder to the extent that any
such Indebtedness to such Person is to remain in place after the Closing
Date) and approvals necessary or desirable in connection with the
acquisition of Arbor and the related financings and other transactions
contemplated hereby and expiration of all applicable waiting periods
without any action being taken by any authority that would be reasonably
likely to restrain, prevent or impose any material adverse conditions on
the acquisition of Arbor or such other transactions or that would be
reasonably likely to seek or threaten any of the foregoing, and no law or
regulation shall be applicable which in the judgment of the Agent would
be reasonably likely to have such effect.
(j) Material Adverse Effect. No material adverse change shall have
occurred since December 31, 1996 in the condition (financial or
otherwise), business, management or prospects of the Parent and the
Consolidated Parties taken as a whole or Arbor and Arbor's Subsidiaries
taken as a whole.
(k) Litigation. There shall not exist (i) any order, decree,
judgment, ruling or injunction which restrains the consummation of the
acquisition of Arbor in the manner contemplated by the Merger Agreement
or (ii) any pending or threatened action, suit, investigation or
proceeding against the Parent, any Consolidated Party, Arbor or any of
Arbor's Subsidiaries that would be reasonably likely to have a Material
Adverse Effect.
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(l) Other Indebtedness. Receipt by the Agent of evidence that,
after the acquisition of Arbor, the Parent and the Consolidated Parties
shall have no Funded Indebtedness other than (i) the Indebtedness under
the Credit Documents and (ii) the Indebtedness described on Schedule 8.1
(including Indebtedness of Arbor).
(m) Merger Agreement and Tender Offer. There shall not have been
any material modification, amendment, supplement or waiver to the Merger
Agreement or any other document executed in connection with the Tender
Offer (together with the Merger Agreement, the "Purchase Documents")
without the prior written consent of the Agent, including, but not
limited to, any modification, amendment, supplement or waiver relating to
the amount or type of consideration to be paid in connection with the
acquisition of Arbor and the contents of all disclosure schedules and
exhibits, and the acquisition of at least 51% of the outstanding shares
of capital stock of Arbor shall have been consummated in accordance with
the terms of the Tender Offer (without waiver or modification of any
conditions precedent, representations or warranties of the buyer
thereunder, unless approved in writing by the Agent) and the purchase
price paid for said shares of Arbor shall not exceed $45 per share. The
Agent shall have received final Purchase Documents, together with all
exhibits and schedules thereto, certified by an officer of the Borrower.
(n) Change in Market. The absence of any material disruption of, or
a material adverse change in, financial, banking or capital market
conditions in the U.S. and Canada.
(o) Officer's Certificates. The Agent shall have received a
certificate or certificates executed by an Executive Officer of the
Borrower as of the Closing Date stating that (A) the Parent and each
Consolidated Party is in compliance with all existing financial
obligations, (B) all governmental, shareholder and third party consents
and approvals, if any, with respect to the Credit Documents and the
transactions contemplated thereby have been obtained, (C) no action,
suit, investigation or proceeding is pending or threatened in any court
or before any arbitrator or governmental instrumentality that purports to
affect the Parent or any Consolidated Party or any transaction
contemplated by the Credit Documents, if such action, suit, investigation
or proceeding would be reasonably likely to have a Material Adverse
Effect, (D) the transactions contemplated by the Tender Offer have been
consummated in accordance with the terms thereof and (E) immediately
after giving effect to consummation of the Tender Offer on the Closing
Date and the initial borrowings under the Credit Documents (1) each of
the Credit Parties is Solvent, (2) no Default or Event of Default exists,
(3) all representations and warranties contained herein and in the other
Credit Documents are true and correct in all material respects, and (4)
the Credit Parties are in compliance with each of the financial covenants
set forth in Section 7.11.
(p) Fees and Expenses. Payment by the Credit Parties of all fees
and expenses owed by them to the Lenders and the Agent, including,
without limitation, payment to the Agent of the fees set forth in the Fee
Letter.
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(q) Refinancing. The Agent shall have received evidence to its
satisfaction that the Borrower shall have refinanced all but $75 million
of its existing Indebtedness as of the Closing Date with the proceeds of
the initial Loans made hereunder.
(r) Other. Receipt by the Lenders of such other documents,
instruments, agreements or information as reasonably requested by any
Lender, including, but not limited to, information regarding litigation,
tax, accounting, labor, insurance, pension liabilities (actual or
contingent), real estate leases, material contracts, debt agreements,
property ownership and contingent liabilities of the Parent, the
Consolidated Parties, Arbor or any of Arbor's Subsidiaries.
5.2 CONDITIONS TO ALL EXTENSIONS OF CREDIT.
The obligations of each Lender to make, convert or extend any Loan and of
the Issuing Lender to issue or extend any Letter of Credit (including the
initial Loans and the initial Letters of Credit) are subject to satisfaction of
the following conditions in addition to satisfaction on the Closing Date of the
conditions set forth in Section 5.1:
(a) The Borrower shall have delivered (i) in the case of any
Revolving Loan, any portion of the Tranche A Term Loan, any portion of
the Tranche B Term Loan or any portion of the Tranche C Term Loan, an
appropriate Notice of Borrowing or Notice of Extension/Conversion or (ii)
in the case of any Letter of Credit, the Issuing Lender shall have
received an appropriate request for issuance in accordance with the
provisions of Section 2.2(b);
(b) The representations and warranties set forth in Section 6 shall,
subject to the limitations set forth therein, be true and correct in all
material respects as of such date (except for those which expressly
relate to an earlier date);
(c) There shall not have been commenced against any Credit Party an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or any case, proceeding or other
action for the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of such Person or
for any substantial part of its Property or for the winding up or
liquidation of its affairs, and such involuntary case or other case,
proceeding or other action shall remain undismissed, undischarged or
unbonded;
(d) No Default or Event of Default shall exist and be continuing
either prior to or after giving effect thereto;
(e) No development or event which has had or would be reasonably
likely to have a Material Adverse Effect shall have occurred since
December 31, 1996;
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(f) Immediately after giving effect to the making of such Loan (and
the application of the proceeds thereof) or to the issuance of such
Letter of Credit, as the case may be, (i) the sum of the aggregate
principal amount of outstanding Revolving Loans plus LOC Obligations
outstanding shall not exceed the Revolving Committed Amount, and (ii) the
LOC Obligations shall not exceed the LOC Committed Amount; and
(g) With respect to the second advance of the Tranche A Term Loan as
provided in Section 2.3(a), (i) the merger of AHC into Arbor shall have
been consummated in accordance with Section 7.15 and pursuant to the
terms of the Merger Agreement and (ii) the Agent shall have received
satisfactory evidence that all existing Indebtedness of Arbor other than
(A) the Indebtedness under the Credit Documents and (B) the Indebtedness
described on Schedule 8.1 has been paid in full.
The delivery of each Notice of Borrowing, each Notice of Extension/Conversion
and each request for a Letter of Credit pursuant to Section 2.2(b) shall
constitute a representation and warranty by the Borrower of the correctness of
the matters specified in subsections (b), (c), (d), (e) and (f) above, and the
delivery of the Notice of Borrowing with respect to the second advance of the
Tranche A Term Loan shall constitute a representation and warranty by the
Borrower of the correctness of the matters specified in subsection (g) above.
SECTION 6
REPRESENTATIONS AND WARRANTIES
The Credit Parties hereby represent to the Agent and each Lender that:
6.1 FINANCIAL CONDITION.
(a) The audited consolidated and consolidating balance sheet of the
Consolidated Parties as of December 31, 1996 and the audited consolidated
and consolidating statements of earnings and statements of cash flows for
the years ended December 31, 1995 and December 31, 1996 have heretofore
been furnished to each Lender. Such financial statements (including the
notes thereto) (i) have been audited by KPMG Peat Marwick LLP, (ii) have
been prepared in accordance with GAAP consistently, applied throughout
the periods covered thereby and (iii) present fairly (on the basis
disclosed in the footnotes to such financial statements) the consolidated
financial condition, results of operations and cash flows of the
Consolidated Parties as of such date and for such periods. The unaudited
interim balance sheets of the Consolidated Parties as at the end of, and
the related unaudited interim statements of earnings and of cash flows
for, each quarterly period ended after December 31, 1996 and prior to the
Closing Date have heretofore been furnished to each Lender. Such interim
financial statements for each such quarterly period, (i) have been
prepared in accordance with GAAP consistently applied throughout the
periods covered thereby and (ii) present fairly (on the basis disclosed
in the footnotes to such financial statements) the consolidated and
consolidating
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financial condition, results of operations and cash flows of the
Consolidated Parties as of such date and for such periods. During the
period from December 31, 1996 to and including the Closing Date, there
has been no sale, transfer or other disposition by the Parent or any
Consolidated Party of any material part of the business or property of
the Parent and the Consolidated Parties, taken as a whole, and no
purchase or other acquisition by any of them of any business or property
(including any capital stock of any other person) material in relation to
the consolidated financial condition of the Consolidated Parties, taken
as a whole, in each case, which, is not reflected in the foregoing
financial statements or in the notes thereto and has not otherwise been
disclosed in writing to the Lenders on or prior to the Closing Date.
(b) The pro forma consolidated balance sheet of the Consolidated
Parties as of September 30, 1997 giving effect to the Acquisition in
accordance with the terms of the Merger Agreement and reflecting
estimated purchase price accounting adjustments, has heretofore been
furnished to each Lender. Such pro forma balance sheet is based upon
reasonable assumptions made known to the Lenders and upon information not
known by any Credit Party to be incorrect or misleading in any material
respect.
(c) The financial statements delivered to the Lenders pursuant to
Section 7.1(a) and (b), (i) have been prepared in accordance with GAAP
(except as may otherwise be permitted under Section 7.1(a) and (b)) and
(ii) present fairly (on the basis disclosed in the footnotes to such
financial statements) the consolidated and consolidating financial
condition, results of operations and cash flows of the Consolidated
Parties as of such date and for such periods.
6.2 NO MATERIAL CHANGE.
Since December 31, 1996 (with respect to the Parent, the Borrower and the
Subsidiaries of the Borrower other than Arbor and the Subsidiaries of Arbor)
and since the Closing Date (with respect to Arbor and the Subsidiaries of
Arbor), (a) there has been no development or event relating to or affecting the
Parent or a Consolidated Party which has had or would be reasonably likely to
have a Material Adverse Effect and (b) except for the Acquisition of Arbor by
the Borrower pursuant to the Tender Offer and the Merger Agreement and except
as otherwise permitted under this Credit Agreement, no dividends or other
distributions (other than a dividend in an aggregate amount of $1,639,000 paid
upon the Capital Stock in the Borrower on October 31, 1997) have been declared,
paid or made upon the Capital Stock in the Parent or a Consolidated Party nor
has any of the Capital Stock in the Parent or a Consolidated Party been
redeemed, retired, purchased or otherwise acquired for value.
6.3 ORGANIZATION AND GOOD STANDING.
Each of the Parent and the Consolidated Parties (a) is duly organized,
validly existing and is in good standing under the laws of the jurisdiction of
its incorporation or organization, (b) has the corporate or other necessary
power and authority, and the legal right, to own and operate its property, to
lease the property it operates as lessee and to conduct the business in which
it is
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currently engaged and (c) is duly qualified as a foreign entity and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, other than in such jurisdictions where the failure to be so
qualified and in good standing would not be reasonably likely to have a
Material Adverse Effect.
6.4 POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
Each of the Credit Parties has the corporate or other necessary power and
authority, and the legal right, to make, deliver and perform the Credit
Documents to which it is a party, and in the case of the Borrower, to obtain
extensions of credit hereunder, and has taken all necessary corporate action to
authorize the borrowings and other extensions of credit on the terms and
conditions of this Credit Agreement and to authorize the execution, delivery
and performance of the Credit Documents to which it is a party. No consent or
authorization of, filing with, notice to or other similar act by or in respect
of, any Governmental Authority or any other Person is required to be obtained
or made by or on behalf of any Credit Party in connection with the borrowings
or other extensions of credit hereunder or with the execution, delivery,
performance, validity or enforceability of the Credit Documents to which such
Credit Party is a party, except for (i) consents, authorizations, notices and
filings described in Schedule 6.4, all of which have been obtained or made or
have the status described in such Schedule 6.4 and (ii) filings to perfect the
Liens created by the Collateral Documents. This Credit Agreement has been, and
each other Credit Document to which any Credit Party is a party will be, duly
executed and delivered on behalf of the Credit Parties. This Credit Agreement
constitutes, and each other Credit Document to which any Credit Party is a
party when executed and delivered will constitute, a legal, valid and binding
obligation of such Credit Party enforceable against such party in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles (whether enforcement is sought by proceedings in equity or at law).
6.5 NO CONFLICTS.
Except as disclosed in Schedule 6.5, neither the execution and delivery of
the Credit Documents, nor the consummation of the transactions contemplated
therein, nor performance of and compliance with the terms and provisions
thereof by such Credit Party will (a) violate or conflict with any provision of
its articles or certificate of incorporation or bylaws or other organizational
or governing documents of such Person, (b) materially violate, contravene or
conflict with any Requirement of Law or any other law, regulation (including,
without limitation, Regulation U, Regulation G or Regulation X), order, writ,
judgment, injunction, decree or permit applicable to it, (c) violate,
contravene or conflict with contractual provisions of, or cause an event of
default under, any indenture, loan agreement, mortgage, deed of trust, contract
or other agreement or instrument to which it is a party or by which it may be
bound, the violation of which would be reasonably to have a Material Adverse
Effect, or (d) result in or require the creation of any Lien (other than those
contemplated in or created in connection with the Credit Documents) upon or
with respect to its properties.
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6.6 NO DEFAULT.
Neither the Parent nor any Consolidated Party is in default in any respect
under any contract, lease, loan agreement, indenture, mortgage, security
agreement or other agreement or obligation to which it is a party or by which
any of its properties is bound which default would be reasonably likely to have
a Material Adverse Effect. No Default or Event of Default has occurred or
exists except as previously disclosed in writing to the Lenders.
6.7 OWNERSHIP.
Each of the Parent and the Consolidated Parties is the owner of, and has
good and marketable title to, all of its respective assets and none of such
assets (except for any Capital Stock or Property of an Unconsolidated
Subsidiary) is subject to any Lien other than Permitted Liens.
6.8 INDEBTEDNESS.
Except as otherwise permitted under Section 8.1, neither the Parent nor
any Consolidated Party has any Indebtedness.
6.9 LITIGATION.
Except as disclosed in Schedule 6.9, there are no actions, suits or legal,
equitable, arbitration or administrative proceedings, pending or, to the
knowledge of any Credit Party, threatened against the Parent or any
Consolidated Party which would be reasonably likely to have a Material Adverse
Effect.
6.10 TAXES.
Each of the Parent and the Consolidated Parties has filed, or caused to be
filed, all tax returns (federal, state, local and foreign) required to be filed
and paid (a) all amounts of taxes shown thereon to be due (including interest
and penalties) and (b) all other taxes, fees, assessments and other
governmental charges (including mortgage recording taxes, documentary stamp
taxes and intangibles taxes) owing by it, except for such taxes (i) which are
not yet delinquent, (ii) that are being contested in good faith and by proper
proceedings, and against which adequate reserves are being maintained in
accordance with GAAP, (iii) for which such Credit Party has been fully
indemnified in a manner reasonably acceptable to the Agent or (iv) such minor
taxes involving not more than $50,000 in potential liability in any particular
instance (or more than $500,000 in the aggregate) imposed by any state or
political subdivision thereof or by the United States government or any
political subdivision thereof. No Credit Party is aware as of the Closing Date
of any proposed tax assessments against the Parent or any Consolidated Party.
6.11 COMPLIANCE WITH LAW.
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Each of the Parent and the Consolidated Parties is in compliance with all
Requirements of Law and all other laws, rules, regulations, orders and decrees
(including without limitation Environmental Laws) applicable to it, or to its
properties, unless such failure to comply would not be reasonably likely to
have a Material Adverse Effect. No Requirement of Law would be reasonably
likely to cause a Material Adverse Effect.
6.12 ERISA.
Except as disclosed and described in Schedule 6.12 attached hereto:
(a) During the five-year period prior to the date on which this
representation is made or deemed made: (i) no ERISA Event has occurred,
and, to the best knowledge of the Credit Parties, no event or condition
has occurred or exists as a result of which any ERISA Event could
reasonably be expected to occur, with respect to any Plan; (ii) no
"accumulated funding deficiency," as such term is defined in Section 302
of ERISA and Section 412 of the Code, whether or not waived, has occurred
with respect to any Plan; (iii) each Plan has been maintained, operated,
and funded in compliance with its own terms and in material compliance
with the provisions of ERISA, the Code, and any other applicable federal
or state laws; and (iv) no lien in favor of the PBGC or a Plan has arisen
or is reasonably likely to arise on account of any Plan.
(b) The actuarial present value of all "benefit liabilities" (as
defined in Section 4001(a)(16) of ERISA), whether or not vested, under
each Single Employer Plan, as of the last annual valuation date prior to
the date on which this representation is made or deemed made (determined,
in each case, in accordance with Financial Accounting Standards Board
Statement 87, utilizing the actuarial assumptions used in such Plan's
most recent actuarial valuation report), did not exceed as of such
valuation date the fair market value of the assets of such Plan.
(c) Neither the Parent, any Consolidated Party nor any ERISA
Affiliate has incurred, or, to the best knowledge of the Credit Parties,
could be reasonably expected to incur, any withdrawal liability under
ERISA to any Multiemployer Plan or Multiple Employer Plan. Neither the
Parent, any Consolidated Party nor any ERISA Affiliate would become
subject to any withdrawal liability under ERISA if the Parent, any
Consolidated Party or any ERISA Affiliate were to withdraw completely
from all Multiemployer Plans and Multiple Employer Plans as of the
valuation date most closely preceding the date on which this
representation is made or deemed made. Neither the Parent, any
Consolidated Party nor any ERISA Affiliate has received any notification
that any Multiemployer Plan is in reorganization (within the meaning of
Section 4241 of ERISA), is insolvent (within the meaning of Section 4245
of ERISA), or has been terminated (within the meaning of Title IV of
ERISA), and no Multiemployer Plan is, to the best knowledge of the Credit
Parties, reasonably expected to be in reorganization, insolvent, or
terminated.
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(d) No prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) or breach of fiduciary responsibility
has occurred with respect to a Plan which has subjected or may subject
the Parent, any Consolidated Party or any ERISA Affiliate to any
liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section
4975 of the Code, or under any agreement or other instrument pursuant to
which the Parent, any Consolidated Party or any ERISA Affiliate has
agreed or is required to indemnify any person against any such liability.
(e) Neither the Parent, any Consolidated Party nor any ERISA
Affiliates has any material liability with respect to "expected
post-retirement benefit obligations" within the meaning of the Financial
Accounting Standards Board Statement 106. Each Plan which is a welfare
plan (as defined in Section 3(1) of ERISA) to which Sections 601-609 of
ERISA and Section 4980B of the Code apply has been administered in
compliance in all material respects of such sections.
(f) Neither the execution and delivery of this Credit Agreement nor
the consummation of the financing transactions contemplated thereunder
will involve any transaction which is subject to the prohibitions of
Sections 404, 406 or 407 of ERISA or in connection with which a tax could
be imposed pursuant to Section 4975 of the Code. The representation by
the Credit Parties in the preceding sentence is made in reliance upon and
subject to the accuracy of the Lenders' representation in Section 11.15
with respect to their source of funds and is subject, in the event that
the source of the funds used by the Lenders in connection with this
transaction is an insurance company's general asset account, to the
application of Prohibited Transaction Class Exemption 95-60, 60 Fed. Reg.
35,925 (1995), compliance with the regulations issued under Section
401(c)(1)(A) of ERISA, or the issuance of any other prohibited
transaction exemption or similar relief, to the effect that assets in an
insurance company's general asset account do not constitute assets of an
"employee benefit plan" within the meaning of Section 3(3) of ERISA of a
"plan" within the meaning of Section 4975(e)(1) of the Code.
6.13 SUBSIDIARIES.
Set forth on Schedule 6.13 is a complete and accurate list of all
Subsidiaries of each Credit Party and each of its Subsidiaries (except, in the
case of the Parent, only information regarding the Borrower shall be set
forth). Information on Schedule 6.13 includes jurisdiction of incorporation,
the number of shares of each class of Capital Stock outstanding, the number and
percentage of outstanding shares of each class owned (directly or indirectly)
by such Credit Party; and the number and effect, if exercised, of all
outstanding options, warrants, rights of conversion or purchase and all other
similar rights with respect thereto. The outstanding Capital Stock of all such
Subsidiaries is validly issued, fully paid and non-assessable and is owned by
each such Credit Party, directly or indirectly, free and clear of all Liens
(other than those arising under or contemplated in connection with the Credit
Documents). Other than as set forth in Schedule 6.13, no Consolidated Party
has outstanding any securities convertible into or exchangeable for its Capital
Stock nor does any such Person have outstanding any rights to subscribe for or
to purchase or any options for the purchase of, or any agreements providing for
the issuance
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(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to its Capital Stock.
6.14 GOVERNMENTAL REGULATIONS, ETC.
(a) Except as described in Section 2.6, no part of the Letters of
Credit or proceeds of the Loans will be used, directly or indirectly, for
the purpose of purchasing or carrying any "margin stock" within the
meaning of Regulation G or Regulation U, or for the purpose of purchasing
or carrying or trading in any securities. The Borrower will furnish to
the Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form U-1 referred to in Regulation
U or FR Form G-3 referred to in Regulation G. No indebtedness being
reduced or retired out of the proceeds of the Loans was or will be
incurred for the purpose of purchasing or carrying any margin stock
within the meaning of Regulation U or Regulation G or any "margin
security" within the meaning of Regulation T. "Margin stock" within the
meaning of Regulation U and Regulation G does not constitute more than
25% of the value of the consolidated assets of the Consolidated Parties.
None of the transactions contemplated by this Credit Agreement
(including, without limitation, the direct or indirect use of the
proceeds of the Loans) will violate or result in a violation of the
Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, or regulations issued pursuant thereto, or Regulation
G, T, U or X.
(b) Neither the Parent nor any Consolidated Party is subject to
regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act or the Investment Company Act of 1940, each as amended.
In addition, neither the Parent nor any Consolidated Party is (i) an
"investment company" registered or required to be registered under the
Investment Company Act of 1940, as amended, and is not controlled by such
a company, or (ii) a "holding company", or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a
"subsidiary" of a "holding company", within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
(c) No director, executive officer or principal shareholder of the
Parent or any Consolidated Party is a director, executive officer or
principal shareholder of any Lender. For the purposes hereof the terms
"director", "executive officer" and "principal shareholder" (when used
with reference to any Lender) have the respective meanings assigned
thereto in Regulation O issued by the Board of Governors of the Federal
Reserve System.
(d) Each of the Parent and the Consolidated Parties has obtained and
holds in full force and effect, all franchises, licenses, permits,
certificates or determinations of need, certificates, authorizations,
qualifications, accreditations, easements, rights of way and other
rights, consents and approvals which are necessary for the ownership of
its respective Property and to the conduct of its respective businesses
as presently conducted, none of which have been revoked or suspended or
otherwise limited, nor, except as set forth on Schedule 6.14(d), is the
Parent or any Consolidated Party aware of any action to revoke, suspend,
or limit the same.
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(e) Neither the Parent nor any Consolidated Party is in violation of
any applicable statute, regulation or ordinance of the United States of
America, or of any state, city, town, municipality, county or any other
jurisdiction, or of any agency thereof (including without limitation,
environmental laws and regulations), which violation would be reasonably
likely to have a Material Adverse Effect.
(f) Each of the Parent and the Consolidated Parties is current with
all material reports and documents, if any, required to be filed with any
state or federal securities commission or similar agency and is in full
compliance in all material respects with all applicable rules and
regulations of such commissions.
6.15 PURPOSE OF LOANS AND LETTERS OF CREDIT.
The proceeds of the Loans hereunder shall be used solely by the Borrower
(i) to refinance the outstanding principal balance of certain existing Funded
Indebtedness of the Borrower and its Subsidiaries set forth on Schedule 6.15
and certain existing Funded Indebtedness of Arbor and its Subsidiaries set
forth on Schedule 6.15 (collectively, the "Refinancing"), (ii) to pay fees and
expenses in connection with the acquisition of Arbor and the Refinancing in an
aggregate amount not to exceed $30 million, (iii) to finance the purchase of
shares (and options to exercise such shares) of Arbor pursuant to the Tender
Offer and the consummation of the Merger pursuant to the Merger Agreement and
(iv) for working capital and general corporate purposes. The Letters of Credit
shall be used only for or in connection with appeal bonds, reimbursement
obligations arising in connection with industrial revenue, surety and
reclamation bonds, reinsurance, domestic or international trade transactions
and obligations not otherwise aforementioned relating to transactions entered
into by the applicable account party in the ordinary course of business.
6.16 REIMBURSEMENT FROM THIRD PARTY PAYORS.
Each of the Parent and the Consolidated Parties is in compliance with the
written material reimbursement policies, rules and regulations of third party
payors such as Medicare, Medicaid, private insurance companies, health
maintenance organizations, preferred provider organizations, managed care
systems and other third party payors, including, without limitation,
adjustments under any capitation arrangement, fee schedule, discount formula or
cost-based reimbursement the failure to comply with which would be reasonably
likely to have a Material Adverse Effect.
6.17 FRAUD AND ABUSE.
Neither the Parent nor any Consolidated Party, nor any stockholder,
officer or director, acting on behalf of the Parent or any Consolidated Party,
has engaged on behalf of the Parent or any Consolidated Party in any of the
following, except where there would likely be no Material Adverse Effect: (i)
knowingly and willfully making or causing to be made a false statement or
representation of a material fact in any applications for any benefit or
payment under Medicare or Medicaid programs; (ii) knowingly and willfully
making or causing to be made any false statement or representation of a
material fact for use in determining rights to any benefit or payment under
Medicare or Medicaid programs; (iii) any knowing and willful failure by any
Consolidated Party to disclose to the appropriate
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government contractor any material overpayment or other improper payment
received from the Medicare and Medicaid program; or (iv) any knowing and
willful violation of the Federal and State anti-kick-back or fraud and abuse
laws, the regulations promulgated thereunder, or the Stark I and II laws, and
regulations promulgated thereunder.
6.18 ENVIRONMENTAL MATTERS.
Except as disclosed and described in Schedule 6.18 attached hereto:
(a) Each of the facilities and properties owned, leased or operated
by the Parent or any Consolidated Party (the "Real Properties") and all
operations at the Real Properties are in compliance with all applicable
Environmental Laws, and there is no material violation of any
Environmental Law with respect to the Real Properties or the businesses
operated by the Parent or the Consolidated Parties (the "Businesses"),
and there are no conditions relating to the Businesses or Real Properties
that would be reasonably likely to give rise to any material liability
under any applicable Environmental Laws.
(b) None of the Real Properties contains, or has previously
contained, any Materials of Environmental Concern at, on or under the
Real Properties in amounts or concentrations that constitute or
constituted a material violation of, or would be reasonably likely to
give rise to material liability under, Environmental Laws.
(c) Neither the Parent nor any Consolidated Party has received any
written or verbal notice of, or inquiry from any Governmental Authority
regarding, any violation, alleged violation, non-compliance, liability or
potential liability regarding environmental matters or compliance with
Environmental Laws with regard to any of the Real Properties or the
Businesses, nor does the Parent or any Consolidated Party have knowledge
or reason to believe that any such notice will be received or is being
threatened.
(d) Materials of Environmental Concern have not been transported or
disposed of from the Real Properties, or generated, treated, stored or
disposed of at, on or under any of the Real Properties or any other
location, in each case by or on behalf of the Parent or any Consolidated
Party in violation of, or in a manner that would be reasonably likely to
give rise to material liability under, any applicable Environmental Law.
(e) No judicial proceeding or governmental or administrative action
is pending or, to the best knowledge of any Credit Party, threatened,
under any Environmental Law to which the Parent or any Consolidated Party
is or will be named as a party, nor are there any consent decrees or
other decrees, consent orders, administrative orders or other orders, or
other administrative or judicial requirements outstanding under any
Environmental Law with respect to the Parent, the Consolidated Parties,
the Real Properties or the Businesses.
(f) There has been no release or, threat of release of Materials of
Environmental Concern at or from the Real Properties, or arising from or
related to the
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operations (including, without limitation, disposal) of the Parent or any
Consolidated Party in connection with the Real Properties or otherwise in
connection with the Businesses, in violation of or in amounts or in a
manner that would be reasonably likely to give rise to material liability
under Environmental Laws.
6.19 INTELLECTUAL PROPERTY.
Each of the Parent and the Consolidated Parties owns, or has the legal
right to use, all trademarks, tradenames, copyrights, technology, know-how and
processes (the "Intellectual Property") necessary for each of them to conduct
its business as currently conducted except for those the failure to own or have
such legal right to use would not be reasonably likely to have a Material
Adverse Effect. Except as provided on Schedule 6.19, no claim has been
asserted and is pending by any Person challenging or questioning the use of any
such Intellectual Property or the validity or effectiveness of any such
Intellectual Property, nor does any Credit Party know of any such claim, and to
the Credit Parties' knowledge the use of such Intellectual Property by the
Parent or any Consolidated Party does not infringe on the rights of any Person,
except for such claims and infringements that in the aggregate, would not be
reasonably likely to have a Material Adverse Effect.
6.20 SOLVENCY.
Each Credit Party is and, after consummation of the transactions
contemplated by this Credit Agreement (including without limitation the
acquisition of Arbor by the Borrower), will be Solvent.
6.21 INVESTMENTS.
All Investments of each of the Parent and the Consolidated Parties are
Permitted Investments.
6.22 DISCLOSURE.
Neither this Credit Agreement nor any financial statements delivered to
the Lenders nor any other document, certificate or statement furnished to the
Lenders by or on behalf of the Parent or any Consolidated Party in connection
with the transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained therein or herein not misleading.
6.23 NO BURDENSOME RESTRICTIONS.
Neither the Parent not any Consolidated Party is a party to any agreement
or instrument or subject to any other obligation or any charter or corporate
restriction or any provision of any applicable law, rule or regulation which,
individually or in the aggregate, would be reasonably likely to have a Material
Adverse Effect.
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6.24 BROKERS' FEES.
Except as disclosed and described in Schedule 6.24 attached hereto,
neither the Parent nor any Consolidated Party has any obligation to any Person
in respect of any finder's, broker's, investment banking or other similar fee
in connection with any of the transactions contemplated under the Credit
Documents.
6.25 LABOR MATTERS.
Except as disclosed and described in Schedule 6.25 attached hereto, there
are no collective bargaining agreements or Multiemployer Plans covering the
employees of the Parent or any Consolidated Party as of the Closing Date and,
except for matters the aggregate cost of which to the Consolidated Parties does
not exceed $2,500,000, neither the Parent nor any Consolidated Party has
suffered any strikes, walkouts, work stoppages or other material labor
difficulty within the last five years which have had or would be reasonably
likely to have a Material Adverse Effect.
6.26 NATURE OF BUSINESS.
As of the Closing Date, each of the Parent and the Consolidated Parties is
engaged in the businesses within the health care industry, including providing
long-term care in owned, leased and managed long-term care and retirement
facilities, providing ancillary services to those in residence at such
long-term care facilities and providing assisted living and home care products
and services.
6.27 REPRESENTATIONS AND WARRANTIES FROM MERGER AGREEMENT.
As of the Closing Date, each of the representations and warranties made in
the Merger Agreement by Extendicare and AHC and Arbor is true and correct in
all material respects.
SECTION 7
AFFIRMATIVE COVENANTS
Each Credit Party hereby covenants and agrees that, so long as this Credit
Agreement is in effect or any amounts payable hereunder or under any other
Credit Document shall remain outstanding, and until all of the Commitments
hereunder shall have terminated:
7.1 INFORMATION COVENANTS.
The Borrower will furnish, or cause to be furnished, to the Agent and each
of the Lenders:
(a) Annual Financial Statements. As soon as available, and in any
event within 90 days after the close of each fiscal year of the
Consolidated Parties, a consolidated
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balance sheet and income statement of the Consolidated Parties, as of the
end of such fiscal year, together with related consolidated statements of
operations and retained earnings and of cash flows for such fiscal year,
setting forth in comparative form consolidated figures for the preceding
fiscal year, all such financial information described above to be in
reasonable form and detail and audited by independent certified public
accountants of recognized national standing reasonably acceptable to the
Agent and whose opinion shall be to the effect that such financial
statements have been prepared in accordance with GAAP (except for changes
with which such accountants concur) and shall not be limited as to the
scope of the audit or qualified as to the status of the Consolidated
Parties as a going concern.
(b) Quarterly Financial Statements. As soon as available, and in
any event within 45 days after the close of each fiscal quarter of the
Consolidated Parties (other than the fourth fiscal quarter, in which case
90 days after the end thereof) a consolidated and consolidating balance
sheet and income statement of the Consolidated Parties, as of the end of
such fiscal quarter, together with related consolidated and consolidating
statements of operations and retained earnings and of cash flows for such
fiscal quarter in each case setting forth in comparative form
consolidated and consolidating figures for the corresponding period of
the preceding fiscal year, all such financial information described above
to be in reasonable form and detail and reasonably acceptable to the
Agent, and accompanied by a certificate of the chief financial officer of
the Borrower to the effect that such quarterly financial statements
fairly present in all material respects the financial condition of the
Consolidated Parties and have been prepared in accordance with GAAP,
subject to changes resulting from audit and normal year-end audit
adjustments.
(c) Officer's Certificate. At the time of delivery of the financial
statements provided for in Sections 7.1(a) and 7.1(b) above, a
certificate of the chief financial officer of the Borrower substantially
in the form of Exhibit 7.1(c), (i) demonstrating compliance with the
financial covenants contained in Section 7.11 by calculation thereof as
of the end of each such fiscal period and (ii) stating that no Default or
Event of Default exists, or if any Default or Event of Default does
exist, specifying the nature and extent thereof and what action the
Credit Parties propose to take with respect thereto.
(d) Annual Business Plan and Budgets. Within 30 days after the end
of each fiscal year of the Borrower, beginning with the fiscal year
ending December 31, 1998, an annual business plan and budget of the
Consolidated Parties containing, among other things, pro forma financial
statements for the next fiscal year and each fiscal quarter thereof.
(e) Compliance With Certain Provisions of the Credit Agreement.
Within 90 days after the end of each fiscal year of the Borrower, a
certificate containing information regarding the amount of all Asset
Dispositions, Debt Issuances and Equity Issuances that were made during
the prior fiscal year.
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(f) Accountant's Certificate. Within the period for delivery of the
annual financial statements provided in Section 7.1(a), a certificate of
the accountants conducting the annual audit stating that they have
reviewed this Credit Agreement and stating further whether, in the course
of their audit, they have become aware of any Default or Event of Default
and, if any such Default or Event of Default exists, specifying the
nature and extent thereof.
(g) Auditors' Reports. Promptly upon receipt thereof, a copy of any
other report or "management letter" submitted by independent accountants
to any Consolidated Party in connection with any annual, interim or
special audit of the books of such Person.
(h) Reports. Promptly upon transmission or receipt thereof, (i)
copies of any filings and registrations with, and reports to or from, the
Securities and Exchange Commission, or any successor agency, and copies
of all financial statements, proxy statements, notices and reports as any
Consolidated Party shall send to a holder of any Indebtedness owed by any
Consolidated Party in its capacity as such a holder and (ii) upon the
request of the Agent, all reports and written information to and from the
United States Environmental Protection Agency, or any state or local
agency responsible for environmental matters, the United States
Occupational Health and Safety Administration, or any state or local
agency responsible for health and safety matters, or any successor
agencies or authorities concerning environmental, health or safety
matters.
(i) Notices. Upon obtaining knowledge thereof, the Borrower will
give written notice to the Agent promptly of (i) the occurrence of an
event or condition consisting of a Default or Event of Default,
specifying the nature and existence thereof and what action the Credit
Parties propose to take with respect thereto, and (ii) the occurrence of
any of the following with respect to the Parent or any Consolidated Party
(A) the pendency or commencement of any litigation, arbitral or
governmental proceeding against such Person which if adversely determined
is reasonably likely to have a Material Adverse Effect, (B) the
institution of any proceedings (including but not limited to
investigations) against such Person with respect to, or the receipt of
notice by such Person of potential liability or responsibility for
violation, or alleged violation of any federal, state or local law, rule
or regulation of any Governmental Authority, including but not limited
to, Environmental Laws, the violation of which would be reasonably likely
to have a Material Adverse Effect, (C) any notice or determination
concerning the imposition of any material withdrawal liability by a
Multiemployer Plan against such Person or any ERISA Affiliate, the
determination that a Multiemployer Plan is, or is expected to be, in
reorganization within the meaning of Title IV of ERISA or the termination
of any Plan or (D) receipt by any Borrower or any of its Subsidiaries of
(1) any notice of loss of Joint Commission on Accreditation of Healthcare
Organizations accreditation, loss of participation under any material
reimbursement program or loss of applicable and material health care
licenses at any facility owned or leased or managed by the Borrower or
any of its Subsidiaries that would be reasonably likely to have a
Material Adverse Effect; and (2) any other material deficiency notice,
compliance order or adverse report issued by any Governmental Authority
or accreditation commission having jurisdiction over licensing,
accreditation or operation of any such facility or by any Governmental
Authority or private
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insurance company pursuant to a provider agreement, which, if not
promptly complied with or cured, would be reasonably likely to result in
a Material Adverse Effect.
(j) ERISA. Upon obtaining knowledge thereof, the Borrower will give
written notice to the Agent promptly (and in any event within five
business days) of: (i) of any event or condition, including, but not
limited to, any Reportable Event, that constitutes, or might reasonably
lead to, an ERISA Event; (ii) with respect to any Multiemployer Plan, the
receipt of notice as prescribed in ERISA or otherwise of any material
withdrawal liability assessed against the Borrower or any of its ERISA
Affiliates, or of a determination that any Multiemployer Plan is in
reorganization or insolvent (both within the meaning of Title IV of
ERISA); (iii) the failure to make full payment on or before the due date
(including extensions) thereof of all amounts which the Parent, any
Consolidated Party or any ERISA Affiliate is required to contribute to
each Plan pursuant to its terms and as required to meet the minimum
funding standard set forth in ERISA and the Code with respect thereto; or
(iv) any change in the funding status of any Plan that would be
reasonably likely to have a Material Adverse Effect, together with a
description of any such event or condition or a copy of any such notice
and a statement by the chief financial officer of the Borrower briefly
setting forth the details regarding such event, condition, or notice, and
the action, if any, which has been or is being taken or is proposed to be
taken by the Credit Parties with respect thereto. Promptly upon request,
the Credit Parties shall furnish the Agent and the Lenders with such
additional information concerning any Plan as may be reasonably
requested, including, but not limited to, copies of each annual
report/return (Form 5500 series), as well as all schedules and
attachments thereto required to be filed with the Department of Labor
and/or the Internal Revenue Service pursuant to ERISA and the Code,
respectively, for each "plan year" (within the meaning of Section 3(39)
of ERISA).
(k) Environmental. The Credit Parties will cause the Consolidated
Parties to conduct and complete all investigations, studies, sampling,
and testing and all remedial, removal, and other actions necessary to
address all Materials of Environmental Concern on , from or affecting any
of the Real Properties to the extent necessary to be in compliance with
all Environmental Laws and with the validly issued orders and directives
of all Governmental Authorities with jurisdiction over such Real
Properties to the extent any failure would be reasonably likely to have a
Material Adverse Effect.
(l) Other Information. With reasonable promptness upon any such
request, such other information regarding the business, properties or
financial condition of the Parent or any Consolidated Party as the Agent
or the Required Lenders may reasonably request.
7.2 PRESERVATION OF EXISTENCE AND FRANCHISES.
Except as a result of or in connection with a dissolution, merger or
disposition of a Subsidiary permitted under Section 8.4 or Section 8.5, the
Credit Parties will cause each of the
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Parent and the Consolidated Parties to do all things necessary to preserve and
keep in full force and effect its existence, rights, franchises and authority.
7.3 BOOKS AND RECORDS.
The Credit Parties will cause each of the Parent and the Consolidated
Parties to keep complete and accurate books and records of its transactions in
accordance with good accounting practices on the basis of GAAP (including the
establishment and maintenance of appropriate reserves).
7.4 COMPLIANCE WITH LAW.
The Credit Parties will cause each of the Parent and the Consolidated
Parties to comply with all laws, rules, regulations and orders, and all
applicable restrictions imposed by all Governmental Authorities, applicable to
it and its Property, including but not limited to the Social Security Act,
Medicare Regulations, Medicaid Regulations, OSHA and applicable State license
and certificate of need or determination of need laws and regulations if
noncompliance with any such law, rule, regulation, order or restriction would
be reasonably likely to have a Material Adverse Effect. The Credit Parties
will cause each of the Consolidated Parties to implement a compliance program
meeting applicable U.S. sentencing guidelines within 60 days of the Closing
Date.
7.5 PAYMENT OF TAXES AND OTHER INDEBTEDNESS.
The Credit Parties will cause each of the Parent and the Consolidated
Parties to pay and discharge (a) all taxes, assessments and governmental
charges or levies imposed upon it, or upon its income or profits, or upon any
of its properties, before they shall become delinquent, (b) all lawful claims
(including claims for labor, materials and supplies) which, if unpaid, would
likely give rise to a Lien upon any of its properties, and (c) except as
prohibited hereunder, all of its other Indebtedness as it shall become due;
provided, however, that neither the Parent nor any Consolidated Party shall be
required to pay any such tax, assessment, charge, levy, claim or Indebtedness
which is being contested in good faith by appropriate proceedings and as to
which adequate reserves therefor have been established in accordance with GAAP,
unless the failure to make any such payment (i) would be reasonably likely to
give rise to an immediate right to foreclose on a Lien securing such amounts or
(ii) would be reasonably likely to have a Material Adverse Effect.
7.6 INSURANCE.
The Credit Parties will cause each of the Parent and the Consolidated
Parties to at all times maintain in full force and effect insurance (including
worker's compensation insurance, liability insurance, casualty insurance and
business interruption insurance) in such amounts, covering such risks and
liabilities and with such deductibles or self-insurance retentions as are in
accordance with normal industry practice (or as otherwise required by the
Collateral Documents). The Agent shall be named as loss payee or mortgagee, as
its interest may appear, and/or additional insured with respect to any such
insurance providing coverage in respect of any
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Collateral, and each provider of any such insurance shall agree, by endorsement
upon the policy or policies issued by it or by independent instruments
furnished to the Agent, that it will give the Agent thirty (30) days prior
written notice before any such policy or policies shall be altered or canceled,
and that no act or default of the Parent, any Consolidated Party or any other
Person shall affect the rights of the Agent or the Lenders under such policy or
policies. The present insurance coverage of the Parent and the Consolidated
Parties is outlined as to carrier, policy number, expiration date, type and
amount on Schedule 7.6.
7.7 MAINTENANCE OF PROPERTY.
The Credit Parties will cause each of the Parent and the Consolidated
Parties to maintain and preserve its properties and equipment material to the
conduct of its business in good repair, working order and condition, normal
wear and tear and casualty and condemnation excepted, and will make, or cause
to be made, in such properties and equipment from time to time all repairs,
renewals, replacements, extensions, additions, betterments and improvements
thereto as may be needed or proper, to the extent and in the manner customary
for companies in similar businesses.
7.8 PERFORMANCE OF OBLIGATIONS.
The Credit Parties will cause each of the Parent and the Consolidated
Parties to perform in all material respects all of its obligations under the
terms of all material agreements, indentures, mortgages, security agreements or
other debt instruments to which it is a party or by which it is bound.
7.9 USE OF PROCEEDS.
The Borrower will use the proceeds of the Loans and will use the Letters
of Credit solely for the purposes set forth in Section 6.15.
7.10 AUDITS/INSPECTIONS.
The Credit Parties will cause each of the Parent and the Consolidated
Parties to permit, upon reasonable notice and during normal business hours,
representatives appointed by the Agent, including, without limitation,
independent accountants, agents, attorneys, and appraisers to visit and inspect
its property, including its books and records, its accounts receivable and
inventory, its facilities and its other business assets, and to make
photocopies or photographs thereof and to write down and record any information
such representative obtains and shall permit the Agent or its representatives
to investigate and verify the accuracy of information provided to the Lenders
and to discuss all such matters with the officers, employees and
representatives of such Person; provided, however, that so long as no Event of
Default is then continuing, such inspections shall be limited to once per
calendar year.
7.11 FINANCIAL COVENANTS.
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(a) Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio,
as of the last day of each fiscal quarter of the Consolidated Parties,
shall be greater than or equal to:
(i) as of December 31, 1997, March 31, 1998, June 30, 1998,
September 30, 1998, December 31, 1998, March 31, 1999, June 30,
1999 and September 30, 1999, 1.30 to 1.00;
(ii) as of December 31, 1999, March 31, 2000, June 30, 2000
and September 30, 2000, 1.35 to 1.00;
(iii) as of December 31, 2000, March 31, 2001, June 30, 2001
and September 30, 2001, 1.40 to 1.00;
(iv) as of December 31, 2001, March 31, 2002, June 30, 2002,
September 30, 2002, December 31, 2002, March 31, 2003, June 30,
2003 and September 30, 2003, 1.45 to 1.00; and
(v) as of December 31, 2003 and the last day of each fiscal
quarter of the Consolidated Parties thereafter, 1.50 to 1.00.
(b) Senior Leverage Ratio. The Senior Leverage Ratio, as of the
last day of each fiscal quarter of the Consolidated Parties after the
Tranche C Term Loan has been paid in full, shall be less than or equal
to:
(i) as of December 31, 1997, March 31, 1998, June 30, 1998 and
September 30, 1998, 4.00 to 1.00;
(ii) as of December 31, 1998, March 31, 1999, June 30, 1999
and September 30, 1999, 3.75 to 1.00;
(iii) as of December 31, 1999, March 31, 2000, June 30, 2000
and September 30, 2000, 3.50 to 1.00;
(iv) as of December 31, 2000, March 31, 2001, June 30, 2001
and September 30, 2001, 3.25 to 1.00; and
(v) as of December 31, 2001, and the last day of each fiscal
quarter of the Consolidated Parties thereafter, 3.00 to 1.00.
(c) Total Leverage Ratio. The Total Leverage Ratio, as of the last
day of each fiscal quarter of the Consolidated Parties, shall be less
than or equal to:
(i) until the Tranche C Term Loan has been paid in full:
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(A) as of December 31, 1997, March 31, 1998, June 30,
1998 and September 30, 1998, 5.50 to 1.00;
(B) as of, December 31, 1998, March 31, 1999, June 30,
1999 and September 30, 1999, 5.25 to 1.00;
(C) as of December 31, 1999, March 31, 2000, June 30,
2000 and September 30, 2000, 4.375 to 1.00;
(D) as of December 31, 2000, March 31, 2001, June 30,
2001 and September 30, 2001, 4.00 to 1.00; and
(E) as of December 31, 2001, and the last day of each
fiscal quarter of the Consolidated Parties thereafter, 3.50
to 1.00.
(ii) after the Tranche C Term Loan has been paid in full:
(A) as of December 31, 1997, March 31, 1998, June 30,
1998 and September 30, 1998, 5.50 to 1.00;
(B) as of, December 31, 1998, March 31, 1999, June 30,
1999 and September 30, 1999, 5.25 to 1.00;
(C) as of December 31, 1999, March 31, 2000, June 30,
2000 and September 30, 2000, 4.75 to 1.00;
(D) as of December 31, 2000, March 31, 2001, June 30,
2001 and September 30, 2001, 4.25 to 1.00; and
(E) as of December 31, 2001, and the last day of each
fiscal quarter of the Consolidated Parties thereafter, 3.75
to 1.00.
(d) Consolidated Net Worth. At all times Consolidated Net Worth
shall be greater than or equal to the sum of $192,000,000 {85% of
consolidated net worth as of 9/30/97 minus deferred financing costs
prepayment penalties net of taxes}, increased on a cumulative basis (i)
as of the end of each fiscal quarter of the Consolidated Parties,
commencing with the fiscal quarter ending September 30, 1997 by an amount
equal to 50% of Consolidated Net Income (to the extent positive) for the
fiscal quarter then ended and (ii) as of the date that any Equity
Issuance is consummated, by an amount equal to 100% of the Net Cash
Proceeds of such Equity Issuance.
7.12 ADDITIONAL CREDIT PARTIES.
As soon as practicable and in any event within 30 days after (i) any
Person becomes a direct or indirect Material Domestic Subsidiary of the
Borrower or (ii) any indirect or direct
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Subsidiary of the Borrwer which is not a Guarantor hereunder becomes a
guarantor with respect to any Subordinated Indebtedness, the Borrower shall
provide the Agent with written notice thereof setting forth information in
reasonable detail describing all of the assets of such Person and shall (a)
cause such Person to execute a Joinder Agreement in substantially the same form
as Exhibit 7.12, (b) cause 100% of the Capital Stock of such Person to be
delivered to the Agent (together with undated stock powers signed in blank) and
pledged to the Agent pursuant to an appropriate pledge agreement(s) in
substantially the form of the Pledge Agreement and otherwise in form acceptable
to the Agent and (c) cause such Person to deliver such other documentation as
the Agent may reasonably request in connection with the foregoing, including,
without limitation, appropriate UCC-1 financing statements, certified
resolutions and other organizational and authorizing documents of such Person,
favorable opinions of counsel to such Person (which shall cover, among other
things, the legality, validity, binding effect and enforceability of the
documentation referred to above) and other items of the types required to be
delivered pursuant to Section 5.1(c), all in form, content and scope reasonably
satisfactory to the Agent.
7.13 PLEDGED ASSETS.
The Credit Parties will cause 100% of the Capital Stock in the Borrower
and in each direct or indirect Subsidiary of the Borrower to be subject at all
times to a first priority, perfected Lien in favor of the Agent pursuant to the
terms and conditions of the Collateral Documents or such other security
documents as the Agent shall reasonably request.
7.14 INTEREST RATE PROTECTION.
Within 180 days following the Closing Date, the Borrower shall enter into
interest rate protection agreements protecting against fluctuations in interest
rates as to which the material terms are reasonably satisfactory to the Agent,
which agreements shall provide coverage in an amount equal to at least (i) if
Subordinated Indebtedness in an aggregate principal amount of at least $200
million is outstanding, $75 million or (ii) in all other cases, $275 million.
Said interest rate protection agreements shall be for a duration of at least 3
years.
7.15 CONSUMMATION OF MERGER.
Within 5 Business Days following the Closing Date (or, if less than 90% of
the shares of Arbor acquired by AHC pursuant to the Tender Offer, within 90
days following the Closing Date), the Merger Date shall have occurred pursuant
to the Merger Agreement and the price paid for any remaining shares of capital
stock of Arbor shall not exceed $45 per share. At such time, AHC shall be
merged into Arbor and all existing Funded Indebtedness of Arbor shall be
refinanced using proceeds of the second advance under the Tranche A Term Loan.
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SECTION 8
NEGATIVE COVENANTS
Each Credit Party hereby covenants and agrees that, so long as this Credit
Agreement is in effect or any amounts payable hereunder or under any other
Credit Document shall remain outstanding, and until all of the Commitments
hereunder shall have terminated:
8.1 INDEBTEDNESS.
The Credit Parties will not permit the Parent or any Consolidated Party to
contract, create, incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness arising under this Credit Agreement and the other
Credit Documents;
(b) Indebtedness of the Borrower and its Subsidiaries set forth in
Schedule 8.1 (and renewals, refinancings and extensions thereof on terms
and conditions no less favorable to such Person than such existing
Indebtedness);
(c) purchase money Indebtedness (including Capital Leases or
Synthetic Leases) hereafter incurred by the Borrower or any of its
Subsidiaries to finance the purchase of fixed assets provided that (i)
the total of all such Indebtedness for all such Persons taken together
shall not exceed an aggregate principal amount of $75,000,000 at any one
time outstanding (including any such Indebtedness referred to in
subsection (b) above); (ii) such Indebtedness when incurred shall not
exceed the purchase price of the asset(s) financed; and (iii) no such
Indebtedness shall be refinanced for a principal amount in excess of the
principal balance outstanding thereon at the time of such refinancing;
(d) obligations of the Borrower in respect of (i) Hedging Agreements
and (ii) any other interest rate protection agreement or foreign currency
exchange agreement entered into with any Person which is not a Lender in
order to manage existing or anticipated interest rate or exchange rate
risks and not for speculative purposes;
(e) intercompany Indebtedness arising out of loans and advances
permitted under Section 8.6; and
(f) (i) Subordinated Indebtedness of the Borrower in an aggregate
principal amount of up to $300,000,000; and
(ii) Guaranty Obligations of any Subsidiary Guarantor with
respect to any Indebtedness of the Borrower permitted under Section
8.1(f)(i).
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8.2 LIENS.
The Credit Parties will not permit the Parent or any Consolidated Party to
contract, create, incur, assume or permit to exist any Lien with respect to any
of its Property, whether now owned or after acquired, except for Permitted
Liens.
8.3 NATURE OF BUSINESS.
The Credit Parties will not permit the Parent or any Consolidated Party to
substantively and materially alter the character or conduct of the business
conducted by such Person as of the Closing Date.
8.4 CONSOLIDATION, MERGER, DISSOLUTION, ETC.
Except in connection with an Asset Disposition permitted by the terms of
Section 8.5, the Credit Parties will not permit the Parent or any Consolidated
Party to enter into any transaction of merger or consolidation or liquidate,
wind up or dissolve itself (or suffer any liquidation or dissolution); provided
that, notwithstanding the foregoing provisions of this Section 8.4, (a) the
Borrower may merge or consolidate with any of its Subsidiaries provided that
(i) the Borrower shall be the continuing or surviving corporation, (ii) the
Credit Parties shall cause to be executed and delivered such documents,
instruments and certificates as the Agent may request so as to cause the Credit
Parties to be in compliance with the terms of Section 7.13 after giving effect
to such transaction and (iii) the Borrower shall have delivered to the Agent a
Pro Forma Compliance Certificate demonstrating that, upon giving effect on a
Pro Forma Basis to such transaction, no Default or Event of Default would
exist, (b) any Credit Party other than the Parent or the Borrower may merge or
consolidate with any other Credit Party other than the Parent or the Borrower
provided that (i) the Credit Parties shall cause to be executed and delivered
such documents, instruments and certificates as the Agent may request so as to
cause the Credit Parties to be in compliance with the terms of Section 7.13
after giving effect to such transaction and (ii) the Borrower shall have
delivered to the Agent a Pro Forma Compliance Certificate demonstrating that,
upon giving effect on a Pro Forma Basis to such transaction, no Default or
Event of Default would exist, (c) any Consolidated Party which is not a Credit
Party may be merged or consolidated with or into any Credit Party other than
the Parent provided that (i) such Credit Party shall be the continuing or
surviving corporation, (ii) the Credit Parties shall cause to be executed and
delivered such documents, instruments and certificates as the Agent may request
so as to cause the Credit Parties to be in compliance with the terms of Section
7.13 after giving effect to such transaction and (iii) the Borrower shall have
delivered to the Agent a Pro Forma Compliance Certificate demonstrating that,
upon giving effect on a Pro Forma Basis to such transaction, no Default or
Event of Default would exist, (d) any Consolidated Party which is not a Credit
Party may be merged or consolidated with or into any other Consolidated Party
which is not a Credit Party provided the Borrower shall have delivered to the
Agent a Pro Forma Compliance Certificate demonstrating that, upon giving effect
on a Pro Forma Basis to such transaction, no Default or Event of Default would
exist and (e) any Wholly-Owned Subsidiary of the Borrower may dissolve,
liquidate or wind up its affairs at any time.
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8.5 ASSET DISPOSITIONS.
The Credit Parties will not permit the Parent or any Consolidated Party to
make any Asset Disposition (including, without limitation, any Sale and
Leaseback Transaction) other than Excluded Asset Dispositions unless (a) the
consideration paid in connection therewith is cash or Cash Equivalents, (b) if
such transaction is a Sale and Leaseback Transaction, such transaction is
permitted by the terms of Section 8.13, (c) such transaction does not involve
the sale or other disposition of a minority equity interest in any Consolidated
Party, (d) the aggregate net book value of all of the assets sold or otherwise
disposed of in all such transactions during any fiscal year of the Consolidated
Parties shall not exceed $35,000,000, (e) the Borrower shall have delivered to
the Agent a Pro Forma Compliance Certificate demonstrating that, upon giving
effect on a Pro Forma Basis to such transaction, no Default or Event of Default
would exist hereunder, and (f) no later than 30 days prior to such Asset
Disposition, the Agent and the Lenders shall have received a certificate of an
officer of the Borrower specifying the anticipated or actual date of such Asset
Disposition, briefly describing the assets to be sold or otherwise disposed of
and setting forth the net book value of such assets, the aggregate
consideration and the Net Cash Proceeds to be received for such assets in
connection with such Asset Disposition, and thereafter the Borrower shall,
within the period of 365 days following the consummation of such Asset
Disposition (with respect to any such Asset Disposition, the "Application
Period"), apply (or cause to be applied) an amount equal to the Net Cash
Proceeds of such Asset Disposition to (i) the purchase, acquisition or, in the
case of improvements to real property, construction of Eligible Assets or (ii)
to the prepayment of the Loans in accordance with the terms of Section
3.3(b)(ii).
Upon the sale of Capital Stock of a Consolidated Party permitted by this
Section 8.5, the Agent shall deliver to the Borrower, upon the Borrower's
request and at the Borrower's expense, such documentation as is reasonably
necessary to evidence the release of the Agent's security interest, if any, in
such Capital Stock, including, without limitation, amendments or terminations
of UCC financing statements, if any, the return of stock certificates, if any,
and the release of such Consolidated Party from all of its obligations, if any,
under the Credit Documents; provided however, the Agent shall not be obligated
to take any of the foregoing actions unless such Consolidated Party has been
released under all of its obligations arising under agreements evidencing
Subordinated Indebtedness.
8.6 INVESTMENTS.
The Credit Parties will not permit the Parent or any Consolidated Party to
make Investments in or to any Person, except for Permitted Investments.
8.7 RESTRICTED PAYMENTS.
The Credit Parties will not permit the Parent or any Consolidated Party
to, directly or indirectly, declare, order, make or set apart any sum for or
pay any Restricted Payment, except (a) to make dividends payable solely in the
same class of Capital Stock of such Person, (b) to make dividends or other
distributions payable to any Credit Party other than the Parent (directly or
indirectly through Subsidiaries), (c) the Borrower may pay cash dividends to
the Parent, and the
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Parent may pay corresponding cash dividends to its shareholders, during any
fiscal year provided that (i) the Total Leverage Ratio for the immediately
preceding fiscal quarter is less than 2.5 to 1.0 and (ii) the Borrower shall
have delivered to the Agent a Pro Forma Compliance Certificate demonstrating
that, upon giving effect on a Pro Forma Basis to such Restricted Payment, no
Default or Event of Default would exist hereunder, (d) as permitted by Section
8.8, (e) the Parent may make a dividend or other distribution to its
shareholders of (i) the Capital Stock of any Unconsolidated Subsidiary and (ii)
any Property or cash distributed to the Parent by an Unconsolidated Subsidiary,
(f) other Restricted Payments by the Parent in an aggregate amount not to
exceed $5,000,000 during any fiscal year of the Borrower, (g) provided that no
Default or Event of Default has occurred and is continuing at such time or
would be directly or indirectly caused as a result thereof, to make interest
payments in respect of any Subordinated Indebtedness, including payment of
accrued interest and premium, if any, payable in connection with a redemption
of Subordinated Indebtedness permitted under Section 8.8 and (h) the
Acquisition of Arbor by the Borrower pursuant to the Tender Offer and the
Merger Agreement.
8.8 PREPAYMENTS OF INDEBTEDNESS, ETC.
If any Default or Event of Default has occurred and is continuing or would
be directly or indirectly caused as a result thereof, the Credit Parties will
not permit the Parent or any Consolidated Party to (a) after the issuance
thereof, amend or modify (or permit the amendment or modification of) any of
the terms of any Indebtedness if such amendment or modification would add or
change any terms in a manner adverse to the issuer of such Indebtedness, or
shorten the final maturity or average life to maturity or require any payment
to be made sooner than originally scheduled or increase the interest rate
applicable thereto or change any subordination provision thereof, or (b) (i)
make (or give any notice with respect thereto) any voluntary or optional
payment or prepayment or redemption or acquisition for value of (including
without limitation, by way of depositing money or securities with the trustee
with respect thereto before due for the purpose of paying when due), refund,
refinance or exchange of any other Indebtedness (including without limitation
any Subordinated Indebtedness) or (ii) make (or give any notice with respect
thereto) any voluntary or optional payment or prepayment, redemption,
acquisition for value or defeasance of (including without limitation, by way of
depositing money or securities with the trustee with respect thereto before due
for the purpose of paying when due), refund, refinance or exchange of any
Subordinated Indebtedness.
8.9 TRANSACTIONS WITH AFFILIATES.
The Credit Parties will not permit the Parent or any Consolidated Party to
enter into or permit to exist any transaction or series of transactions with
any officer, director, shareholder, Subsidiary or Affiliate of such Person
other than (a) advances of working capital to any Credit Party other than the
Parent, (b) transfers of cash and assets to any Credit Party other than the
Parent, (c) transactions permitted by Section 8.1, Section 8.4, Section 8.5,
Section 8.6, or Section 8.7, (d) normal compensation and reimbursement of
expenses of officers and directors and (e) except as otherwise specifically
limited in this Credit Agreement, other transactions which are entered into in
the ordinary course of such Person's business on terms and conditions
substantially
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as favorable to such Person as would be obtainable by it in a comparable
arms-length transaction with a Person other than an officer, director,
shareholder, Subsidiary or Affiliate.
8.10 FISCAL YEAR; ORGANIZATIONAL DOCUMENTS.
The Credit Parties will not permit the Parent or any Consolidated Party to
change its fiscal year or amend, modify or change its articles of incorporation
(or corporate charter or other similar organizational document) or bylaws (or
other similar document) without the prior written consent of the Required
Lenders.
8.11 LIMITATION ON RESTRICTED ACTIONS.
The Credit Parties will not permit any Consolidated Party to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective
any encumbrance or restriction on the ability of any such Person to (a) pay
dividends or make any other distributions to any Credit Party on its Capital
Stock or with respect to any other interest or participation in, or measured
by, its profits, (b) pay any Indebtedness or other obligation owed to any
Credit Party, (c) make loans or advances to any Credit Party, (d) sell, lease
or transfer any of its properties or assets to any Credit Party, or (e) act as
a Guarantor and pledge its assets pursuant to the Credit Documents or any
renewals, refinancings, exchanges, refundings or extension thereof, except (in
respect of any of the matters referred to in clauses (a)-(d) above) for such
encumbrances or restrictions existing under or by reason of (i) this Credit
Agreement and the other Credit Documents, (ii) any indenture or other agreement
governing or evidencing any Subordinated Indebtedness, in each case as
originally approved by the Required Lenders, (iii) applicable law, (iv) any
document or instrument governing Indebtedness incurred pursuant to Section
8.1(c), provided that any such restriction contained therein relates only to
the asset or assets constructed or acquired in connection therewith or (v) any
Permitted Lien or any document or instrument governing any Permitted Lien,
provided that any such restriction contained therein relates only to the asset
or assets subject to such Permitted Lien.
8.12 OWNERSHIP OF SUBSIDIARIES; LIMITATIONS ON PARENT.
Notwithstanding any other provisions of this Credit Agreement to the
contrary:
(a) The Credit Parties will not permit the Parent or any Consolidated
Party to (i) permit any Person to own any Capital Stock of any Subsidiary
of the Borrower (other than the Borrower or any Wholly-Owned Subsidiary of
the Borrower and, with respect to Arbor prior to the Merger Date,
shareholders of Arbor that have not tendered their shares in connection
with the Tender Offer), (ii) permit any Subsidiary of the Borrower to issue
Capital Stock (except to the Borrower or to a Wholly-Owned Subsidiary of
the Borrower), (iii) permit, create, incur, assume or suffer to exist any
Lien thereon, in each case (A) except to qualify directors where required
by applicable law, (B) except as a result of or in connection with a
dissolution, merger or disposition of a Subsidiary permitted under Section
8.4 or Section 8.5 or (C) except for Permitted Liens and (iv)
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notwithstanding anything to the contrary contained in clause (ii) above,
permit any Subsidiary of the Borrower to issue any shares of preferred
Capital Stock.
(b) The Parent shall not (i) hold any assets other than the Capital
Stock of the Borrower and the other direct Subsidiaries of the Parent, (ii)
have any liabilities other than (A) the liabilities under the Credit
Documents, (B) tax liabilities in the ordinary course of business, (C)
loans and advances permitted under Section 8.9 and (D) corporate,
administrative and operating expenses in the ordinary course of business
and (iii) engage in any business other than (A) owning the Capital Stock of
the Borrower and its other Subsidiaries and activities incidental or
related thereto and (B) acting as a Guarantor hereunder and pledging the
Capital Stock of the Borrower to the Agent, for the benefit of the Lenders,
pursuant to the Pledge Agreement.
8.13 SALE LEASEBACKS.
The Credit Parties will not permit the Parent or any Consolidated Party
to, directly or indirectly, enter into any Sale and Leaseback Transaction
pursuant to which the Parent or such Consolidated Party, as applicable, shall
become liable as lessee or as guarantor or other surety in respect of the
related lease.
8.14 GROWTH CAPITAL EXPENDITURES.
The Credit Parties will not permit Consolidated Growth Capital
Expenditures for any fiscal year, taken together with the aggregate
consideration (including any assumption of liabilities (other than current
working capital liabilities not constituting Indebtedness), but excluding
consideration consisting of any Capital Stock of the Borrower or capital
contributed by Extendicare) paid by the Consolidated Parties for all Permitted
Acquisitions during such fiscal year, to exceed (i) for fiscal year 1998
(including the period from the Closing Date through the last day of fiscal year
1997), $150 million (excluding for purposes hereof the Acquisition of Arbor),
(ii) for each of fiscal years 1999 and 2000, $175 million and (iii) for each
fiscal year thereafter, $200 million.
8.15 NO FURTHER NEGATIVE PLEDGES.
The Credit Parties will not permit the Parent or any Consolidated Party to
enter into, assume or become subject to any agreement prohibiting or otherwise
restricting the creation or assumption of any Lien upon its properties or
assets, whether now owned or hereafter acquired, or requiring the grant of any
security for such obligation if security is given for some other obligation,
except (a) pursuant to this Credit Agreement and the other Credit Documents,
(b) pursuant to any indenture or other agreement governing or evidencing any
Subordinated Indebtedness, in each case as originally approved by the Required
Lenders, (c) pursuant to any document or instrument governing Indebtedness
incurred pursuant to Section 8.1(c), provided that any such restriction
contained therein relates only to the asset or assets constructed or acquired
in connection therewith and (d) in connection with any Permitted Lien or any
document or instrument governing any Permitted Lien, provided that any such
restriction contained therein relates only to the asset or assets subject to
such Permitted Lien.
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8.16 NO FOREIGN SUBSIDIARIES.
The Credit Parties will not permit any Consolidated Party to create, acquire or
permit to exist any direct or indirect Foreign Subsidiary.
SECTION 9
EVENTS OF DEFAULT
9.1 EVENTS OF DEFAULT.
An Event of Default shall exist upon the occurrence of any of the
following specified events (each an "Event of Default"):
(a) Payment. Any Credit Party shall
(i) default in the payment when due of any principal of any of
the Loans or of any reimbursement obligations arising from drawings
under Letters of Credit, or
(ii) default, and such default shall continue for three (3) or
more Business Days, in the payment when due of any interest on the
Loans or on any reimbursement obligations arising from drawings under
Letters of Credit, or of any Fees or other amounts owing hereunder,
under any of the other Credit Documents or in connection herewith or
therewith; or
(b) Representations. Any representation, warranty or statement made
or deemed to be made by any Credit Party herein, in any of the other Credit
Documents, or in any statement or certificate delivered or required to be
delivered pursuant hereto or thereto shall prove untrue in any material
respect on the date as of which it was deemed to have been made; or
(c) Covenants. Any Credit Party shall
(i) default in the due performance or observance of any term,
covenant or agreement contained in Sections 7.2, 7.4, 7.9, 7.11, 7.12,
7.13, 7.15 or 8.1 through 8.16, inclusive;
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(ii) default in the due performance or observance of any term,
covenant or agreement contained in Sections 7.1(a), (b) (c) or (d) and
such default shall continue unremedied for a period of at least 5 days
after the earlier of a responsible officer of a Credit Party becoming
aware of such default or notice thereof by the Agent; or
(iii) default in the due performance or observance by it of any
term, covenant or agreement (other than those referred to in
subsections (a), (b), (c)(i) or (c)(ii) of this Section 9.1) contained
in this Credit Agreement and such default shall continue unremedied
for a period of at least 30 days after the earlier of a responsible
officer of a Credit Party becoming aware of such default or notice
thereof by the Agent; or
(d) Other Credit Documents. (i) Any Credit Party shall default in the
due performance or observance of any term, covenant or agreement in any of
the other Credit Documents (subject to applicable grace or cure periods, if
any), or (ii) except as a result of or in connection with a dissolution,
merger or disposition of a Subsidiary permitted under Section 8.4 or
Section 8.5, any Credit Document shall fail to be in full force and effect
or to give the Agent and/or the Lenders the Liens, rights, powers and
privileges purported to be created thereby, or any Credit Party shall so
state in writing; or
(e) Guaranties. Except as the result of or in connection with a
dissolution, merger or disposition of a Subsidiary permitted under Section
8.4 or Section 8.5, the guaranty given by any Guarantor hereunder
(including any Additional Credit Party) or any provision thereof shall
cease to be in full force and effect, or any Guarantor (including any
Additional Credit Party) hereunder or any Person acting by or on behalf of
such Guarantor shall deny or disaffirm such Guarantor's obligations under
such guaranty, or any Guarantor shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed
or observed pursuant to any guaranty; or
(f) Bankruptcy, etc. Any Bankruptcy Event shall occur with respect to
the Parent or any Consolidated Party; or
(g) Defaults under Other Agreements.
(i) The Parent or any Consolidated Party shall default in the
performance or observance (beyond the applicable grace period with
respect thereto, if any) or any material obligation or condition of
any contract or lease material to the Parent and the Consolidated
Parties taken as a whole; or
(ii) With respect to any Indebtedness (including without
limitation any Subordinated Indebtedness but not including
Indebtedness outstanding under this Credit Agreement) in excess of
$5,000,000 in the aggregate for the Parent and the Consolidated
Parties taken as a whole, (A) the Parent or any Consolidated Party
shall default in any payment (beyond the applicable grace period with
respect
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thereto, if any) with respect to any such Indebtedness, or (B) the
occurrence and continuance of a default in the observance or
performance relating to such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or
any other event or condition shall occur or condition exist, the
effect of which default or other event or condition is to cause, or
permit, the holder or holders of such Indebtedness (or trustee or
agent on behalf of such holders) to cause (determined without regard
to whether any notice or lapse of time is required), any such
Indebtedness to become due prior to its stated maturity; or (C) any
such Indebtedness shall be declared due and payable, or required to be
prepaid other than by a regularly scheduled required prepayment, prior
to the stated maturity thereof; or
(h) Judgments. One or more judgments or decrees shall be entered
against one or more of the Parent and the Consolidated Parties involving a
liability of $5,000,000 or more in the aggregate (to the extent not paid or
fully covered by insurance provided by a carrier who has acknowledged
coverage and has the ability to perform) and any such judgments or decrees
shall not have been vacated, discharged or stayed or bonded pending appeal
within 30 days from the entry thereof; or
(i) ERISA. Any of the following events or conditions, if such event
or condition would be reasonably likely to have a Material Adverse Effect:
(i) any "accumulated funding deficiency," as such term is defined in
Section 302 of ERISA and Section 412 of the Code, whether or not waived,
shall exist with respect to any Plan, or any lien shall arise on the assets
of the Parent, any Consolidated Party or any ERISA Affiliate in favor of
the PBGC or a Plan; (ii) an ERISA Event shall occur with respect to a
Single Employer Plan, which is, in the reasonable opinion of the Agent,
likely to result in the termination of such Plan for purposes of Title IV
of ERISA; (iii) an ERISA Event shall occur with respect to a Multiemployer
Plan or Multiple Employer Plan, which is, in the reasonable opinion of the
Agent, likely to result in (A) the termination of such Plan for purposes of
Title IV of ERISA, or (B) the Parent, any Consolidated Party or any ERISA
Affiliate incurring any liability in connection with a withdrawal from,
reorganization of (within the meaning of Section 4241 of ERISA), or
insolvency or (within the meaning of Section 4245 of ERISA) such Plan; or
(iv) any prohibited transaction (within the meaning of Section 406 of ERISA
or Section 4975 of the Code) or breach of fiduciary responsibility shall
occur which may subject the Parent, any Consolidated Party or any ERISA
Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of
ERISA or Section 4975 of the Code, or under any agreement or other
instrument pursuant to which the Parent, any Consolidated Party or any
ERISA Affiliate has agreed or is required to indemnify any person against
any such liability; or
(j) Ownership. There shall occur a Change of Control; or
(k) Medicaid, Medicare, Etc. The Borrower or any Subsidiary, to the
extent, if any, presently participating or required by law to participate,
in Medicaid or Medicare programs is excluded from or shall otherwise fail
to be eligible for any reason to
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participate in Medicaid or Medicare programs or to accept assignments or
rights to reimbursement under Medicaid Regulations or Medicare Regulations,
such failure could reasonably be expected to have a Material Adverse
Effect, and such failure shall also continue beyond the completion of any
appeal process diligently pursued by the Borrower or such Subsidiary in
good faith.
9.2 ACCELERATION; REMEDIES.
Upon the occurrence of an Event of Default, and at any time thereafter
unless and until such Event of Default has been waived by the requisite Lenders
(pursuant to the voting requirements of Section 11.6) or cured to the
satisfaction of the requisite Lenders (pursuant to the voting procedures in
Section 11.6), the Agent shall, upon the request and direction of the Required
Lenders, by written notice to the Credit Parties take any or all of the
following actions:
(a) Termination of Commitments. Declare the Commitments terminated
whereupon the Commitments shall be immediately terminated.
(b) Acceleration. Declare the unpaid principal of and any accrued
interest in respect of all Loans, any reimbursement obligations arising
from drawings under Letters of Credit and any and all other indebtedness or
obligations of any and every kind owing by the Borrower to the Agent and/or
any of the Lenders hereunder to be due whereupon the same shall be
immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower.
(c) Cash Collateral. Direct the Borrower to pay (and the Borrower
agrees that upon receipt of such notice, or upon the occurrence of an Event
of Default under Section 9.1(f), it will immediately pay) to the Agent
additional cash, to be held by the Agent, for the benefit of the Lenders,
in a cash collateral account as additional security for the LOC Obligations
in respect of subsequent drawings under all then outstanding Letters of
Credit in an amount equal to the maximum aggregate amount which may be
drawn under all Letters of Credits then outstanding.
(d) Enforcement of Rights. Enforce any and all rights and interests
created and existing under the Credit Documents including, without
limitation, all rights and remedies existing under the Collateral
Documents, all rights and remedies against a Guarantor and all rights of
set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section
9.1(f) shall occur, then the Commitments shall automatically terminate and all
Loans, all reimbursement obligations arising from drawings under Letters of
Credit, all accrued interest in respect thereof, all accrued and unpaid Fees
and other indebtedness or obligations owing to the Agent and/or any of the
Lenders hereunder automatically shall immediately become due and payable
without the giving of any notice or other action by the Agent or the Lenders.
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SECTION 10
AGENCY PROVISIONS
10.1 APPOINTMENT, POWERS AND IMMUNITIES.
Each Lender hereby irrevocably appoints and authorizes the Agent to act as
its agent under this Credit Agreement and the other Credit Documents with such
powers and discretion as are specifically delegated to the Agent by the terms
of this Credit Agreement and the other Credit Documents, together with such
other powers as are reasonably incidental thereto. The Agent (which term as
used in this sentence and in Section 10.5 and the first sentence of Section
10.6 hereof shall include its Affiliates and its own and its Affiliates'
officers, directors, employees, and agents): (a) shall not have any duties or
responsibilities except those expressly set forth in this Credit Agreement and
shall not be a trustee or fiduciary for any Lender; (b) shall not be
responsible to the Lenders for any recital, statement, representation, or
warranty (whether written or oral) made in or in connection with any Credit
Document or any certificate or other document referred to or provided for in,
or received by any of them under, any Credit Document, or for the value,
validity, effectiveness, genuineness, enforceability, or sufficiency of any
Credit Document, or any other document referred to or provided for therein or
for any failure by any Credit Party or any other Person to perform any of its
obligations thereunder; (c) shall not be responsible for or have any duty to
ascertain, inquire into, or verify the performance or observance of any
covenants or agreements by any Credit Party or the satisfaction of any
condition or to inspect the property (including the books and records) of any
Credit Party or any of its Subsidiaries or Affiliates; (d) shall not be
required to initiate or conduct any litigation or collection proceedings under
any Credit Document; and (e) shall not be responsible for any action taken or
omitted to be taken by it under or in connection with any Credit Document,
except for its own gross negligence or willful misconduct. The Agent may
employ agents and attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
with reasonable care.
10.2 RELIANCE BY AGENT.
The Agent shall be entitled to rely upon any certification, notice,
instrument, writing, or other communication (including, without limitation, any
thereof by telephone or telecopy) believed by it to be genuine and correct and
to have been signed, sent or made by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel (including counsel for
any Credit Party), independent accountants, and other experts selected by the
Agent. The Agent may deem and treat the payee of any Note as the holder
thereof for all purposes hereof unless and until the Agent receives and accepts
an Assignment and Acceptance executed in accordance with Section 11.3(b)
hereof. As to any matters not expressly provided for by this Credit Agreement,
the Agent shall not be required to exercise any discretion or take any action,
but shall be required to act or to refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the instructions of the
Required Lenders, and such instructions shall be binding on all of the Lenders;
provided, however, that the Agent shall not be required to take any action that
exposes the Agent to personal liability or that is contrary to any Credit
Document
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or applicable law or unless it shall first be indemnified to its satisfaction
by the Lenders against any and all liability and expense which may be incurred
by it by reason of taking any such action.
10.3 DEFAULTS.
The Agent shall not be deemed to have knowledge or notice of the
occurrence of a Default or Event of Default unless the Agent has received
written notice from a Lender or the Borrower specifying such Default or Event
of Default and stating that such notice is a "Notice of Default". In the event
that the Agent receives such a notice of the occurrence of a Default or Event
of Default, the Agent shall give prompt notice thereof to the Lenders. The
Agent shall (subject to Section 10.2 hereof) take such action with respect to
such Default or Event of Default as shall reasonably be directed by the
Required Lenders, provided that, unless and until the Agent shall have received
such directions, the Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interest of the
Lenders.
10.4 RIGHTS AS A LENDER.
With respect to its Commitment and the Loans made by it, NationsBank (and
any successor acting as Agent) in its capacity as a Lender hereunder shall have
the same rights and powers hereunder as any other Lender and may exercise the
same as though it were not acting as the Agent, and the term "Lender" or
"Lenders" shall, unless the context otherwise indicates, include the Agent in
its individual capacity. NationsBank (and any successor acting as Agent) and
its Affiliates may (without having to account therefor to any Lender) accept
deposits from, lend money to, make investments in, provide services to, and
generally engage in any kind of lending, trust, or other business with any
Credit Party or any of its Subsidiaries or Affiliates as if it were not acting
as Agent, and NationsBank (and any successor acting as Agent) and its
Affiliates may accept fees and other consideration from any Credit Party or any
of its Subsidiaries or Affiliates for services in connection with this Credit
Agreement or otherwise without having to account for the same to the Lenders.
10.5 INDEMNIFICATION.
The Lenders agree to indemnify the Agent (to the extent not reimbursed
under Section 11.5 hereof, but without limiting the obligations of the Borrower
under such Section) ratably in accordance with their respective Commitments or,
if the Commitments have been terminated, ratably in accordance with their
respective outstanding Loans and Participation Interests (including the
Participation Interests of the Issuing Lender in any Letters of Credit), for
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses (including attorneys' fees), or disbursements
of any kind and nature whatsoever that may be imposed on, incurred by or
asserted against the Agent (including by any Lender) in any way relating to or
arising out of any Credit Document or the transactions contemplated thereby or
any action taken or omitted by the Agent under any Credit Document; provided
that no Lender shall be liable for any of the foregoing to the extent they
arise from the gross negligence or willful misconduct of the Person to be
indemnified. Without limitation of the foregoing, each Lender agrees to
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reimburse the Agent promptly upon demand for its ratable share of any costs or
expenses payable by the Borrower under Section 11.5, to the extent that the
Agent is not promptly reimbursed for such costs and expenses by the Borrower.
The agreements in this Section 10.5 shall survive the repayment of the Loans,
LOC Obligations and other obligations under the Credit Documents and the
termination of the Commitments hereunder.
10.6 NON-RELIANCE ON AGENT AND OTHER LENDERS.
Each Lender agrees that it has, independently and without reliance on the
Agent or any other Lender, and based on such documents and information as it
has deemed appropriate, made its own credit analysis of the Credit Parties and
their Subsidiaries and decision to enter into this Credit Agreement and that it
will, independently and without reliance upon the Agent or any other Lender,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own analysis and decisions in taking or not taking
action under the Credit Documents. Except for notices, reports, and other
documents and information expressly required to be furnished to the Lenders by
the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the affairs,
financial condition, or business of any Credit Party or any of its Subsidiaries
or Affiliates that may come into the possession of the Agent or any of its
Affiliates.
10.7 SUCCESSOR AGENT.
The Agent may resign at any time by giving notice thereof to the Lenders
and the Borrower. Upon any such resignation, the Required Lenders shall have
the right to appoint a successor Agent. If no successor Agent shall have been
so appointed by the Required Lenders and shall have accepted such appointment
within thirty (30) days after the retiring Agent's giving of notice of
resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent which shall be a commercial bank organized under the laws of
the United States of America having combined capital and surplus of at least
$500,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor, such successor shall thereupon succeed to and become vested with all
the rights, powers, discretion, privileges, and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Section 10 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting
as Agent.
SECTION 11
MISCELLANEOUS
11.1 NOTICES.
Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (a) when
delivered, (b) when transmitted via telecopy
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(or other facsimile device) to the number set out below, (c) the Business Day
following the day on which the same has been delivered prepaid to a reputable
national overnight air courier service, or (d) the third Business Day following
the day on which the same is sent by certified or registered mail, postage
prepaid, in each case to the respective parties at the address, in the case of
the Borrower, Guarantors and the Agent, set forth below, and, in the case of
the Lenders, set forth on Schedule 2.1(a), or at such other address as such
party may specify by written notice to the other parties hereto:
if to the Borrower or the Guarantors:
Extendicare Health Services, Inc.
105 West Michigan Street, 9th Floor
Milwaukee, Wisconsin 53203
Attn: Chief Financial Officer
Telephone: (414) 347-4401
Telecopy: (414) 347-4424
with a copy to:
Extendicare Inc.
3000 Steeles Avenue East, Suite 700
Markham, Ontario L3R 9W2
Attn: Chief Financial Officer
Telephone: (905) 470-5579
Telecopy: (905) 470-4003
if to the Agent:
NationsBank, N. A.
Independence Center, 15th Floor
NC1-001-15-04
101 North Tryon Street
Charlotte, North Carolina 28255
Attn: Agency Services
Telephone: (704) 388-3916
Telecopy: (704) 386-9923
with a copy to:
NationsBank, N. A.
NationsBank Corporate Center
100 N. Tryon Street, 8th Floor
Charlotte, NC 28255
Telephone: (704) 388-6000
Telecopy: (704) 388-6002
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Attn: Michael A. (Trey) Crabb, III
11.2 RIGHT OF SET-OFF; ADJUSTMENTS.
Upon the occurrence and during the continuance of any Event of Default,
each Lender (and each of its Affiliates) is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender (or
any of its Affiliates) to or for the credit or the account of any Credit Party
against any and all of the obligations of such Person now or hereafter existing
under this Credit Agreement, under the Notes, under any other Credit Document
or otherwise, irrespective of whether such Lender shall have made any demand
under hereunder or thereunder and although such obligations may be unmatured.
Each Lender agrees promptly to notify any affected Credit Party after any such
set-off and application made by such Lender; provided, however, that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Lender under this Section 11.2 are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) that such Lender may have.
11.3 BENEFIT OF AGREEMENT.
(a) This Credit Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of
the parties hereto; provided that none of the Credit Parties may assign or
transfer any of its interests and obligations without prior written consent
of the Lenders; provided further that the rights of each Lender to
transfer, assign or grant participations in its rights and/or obligations
hereunder shall be limited as set forth in this Section 11.3.
(b) Each Lender may assign to one or more Eligible Assignees all or a
portion of its rights and obligations under this Credit Agreement
(including, without limitation, all or a portion of its Loans, its Notes,
and its Commitment); provided, however, that
(i) each such assignment shall be to an Eligible Assignee;
(ii) except in the case of an assignment to another Lender or an
assignment of all of a Lender's rights and obligations under this
Credit Agreement, any such partial assignment shall be in an amount at
least equal to $5,000,000 (or, if less, the remaining amount of the
Commitment being assigned by such Lender) or an integral multiple of
$1,000,000 in excess thereof;
(iii) each such assignment by a Lender shall be of a constant,
and not varying, percentage of all of its rights and obligations under
this Credit Agreement and the Notes; and
(iv) the parties to such assignment shall execute and deliver to
the Agent for its acceptance an Assignment and Acceptance in the form
of Exhibit
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11.3(b) hereto, together with any Note subject to such assignment
and a processing fee of $3,500.
Upon execution, delivery, acceptance and recordation of such Assignment
and Acceptance, the assignee thereunder shall be a party hereto and, to
the extent of such assignment, have the obligations, rights, and benefits
of a Lender hereunder and the assigning Lender shall, to the extent of
such assignment, relinquish its rights and be released from its
obligations under this Credit Agreement (except as set forth in Section
11.9). Upon the consummation of any assignment pursuant to this Section
11.3(b), the assignor, the Agent and the Borrower shall make appropriate
arrangements so that, if required, new Notes are issued to the assignor
and the assignee. If the assignee is not incorporated under the laws of
the United States of America or a state thereof, it shall deliver to the
Borrower and the Agent certification as to exemption from deduction or
withholding of Taxes in accordance with Section 3.11.
(c) The Agent shall maintain at its address referred to in Section
11.1 a copy of each Assignment and Acceptance delivered to and accepted
by it and a register for the recordation of the names, addresses and any
U.S. taxpayer identification numbers of the Lenders and the Commitment
of, and principal amount of the Loans owing to (the "Ownership
Information"), each Lender from time to time (the "Register"). Any
transfer of an ownership interest in any Loan, including any right to
principal or interest payable with respect to the Loan, shall be subject
to and conditioned upon the due recordation of such transfer and the
Ownership Information with respect to the transferee in the Register and
such transfer shall be effective only upon such recordation (and not
prior thereto). The entries in the Register shall be conclusive and
binding for all purposes, absent manifest error, and the Borrower, the
Agent and the Lenders may treat each Person whose name is recorded in the
Register as a Lender hereunder for all purposes of this Credit Agreement.
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 the
parties thereto, together with any Note subject to such assignment and
payment of the processing fee, the Agent shall, if such Assignment and
Acceptance has been completed and is in substantially the form of Exhibit
11.3(b) hereto, (i) accept such Assignment and Acceptance, (ii) record
the information contained therein in the Register and (iii) give prompt
notice thereof to the parties thereto.
(e) Each Lender may sell participations to one or more Persons in
all or a portion of its rights and obligations under this Credit
Agreement (including all or a portion of its Commitment and its Loans);
provided, however, that (i) such Lender's obligations under this Credit
Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, (iii) the participant shall be entitled to the benefit of
the yield protection provisions contained in Sections 3.7 through 3.12,
inclusive, and the right of set-off contained in Section 11.2, and (iv)
the Borrower shall continue to deal solely and directly with such Lender
in connection
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with such Lender's rights and obligations under this Credit Agreement,
and such Lender shall retain the sole right to enforce the obligations of
the Borrower relating to its Loans and its Notes and to approve any
amendment, modification, or waiver of any provision of this Credit
Agreement (other than amendments, modifications, or waivers decreasing
the amount of principal of or the rate at which interest is payable on
such Loans or Notes, extending any scheduled principal payment date or
date fixed for the payment of interest on such Loans or Notes, or
extending its Commitment).
(f) Notwithstanding any other provision set forth in this Credit
Agreement, any Lender may at any time assign and pledge all or any
portion of its Loans and its Notes to any Federal Reserve Bank as
collateral security pursuant to Regulation A and any Operating Circular
issued by such Federal Reserve Bank. No such assignment shall release
the assigning Lender from its obligations hereunder.
(g) Any Lender may furnish any information concerning the Borrower
or any of its Subsidiaries in the possession of such Lender from time to
time to assignees and participants (including prospective assignees and
participants), subject, however, to the provisions of Section 11.14
hereof.
11.4 NO WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of the Agent or any Lender in exercising
any right, power or privilege hereunder or under any other Credit Document and
no course of dealing between the Agent or any Lender and any of the Credit
Parties shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or under any other Credit
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights and
remedies provided herein are cumulative and not exclusive of any rights or
remedies which the Agent or any Lender would otherwise have. No notice to or
demand on any Credit Party in any case shall entitle the Borrower or any other
Credit Party to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Agent or the Lenders
to any other or further action in any circumstances without notice or demand.
11.5 EXPENSES; INDEMNIFICATION.
(a) The Borrower agrees to pay on demand all reasonable costs and expenses
of the Agent in connection with the syndication, preparation, execution,
delivery, administration, modification, and amendment of this Credit Agreement,
the other Credit Documents, and the other documents to be delivered hereunder,
including, without limitation, the reasonable fees and expenses of counsel for
the Agent (including the cost of internal counsel) with respect thereto and
with respect to advising the Agent as to its rights and responsibilities under
the Credit Documents. The Borrower further agrees to pay on demand all
reasonable costs and expenses of the Agent and the Lenders, if any (including,
without limitation, reasonable attorneys' fees and expenses and the cost of
internal counsel), in connection with the enforcement (whether through
negotiations,
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legal proceedings, or otherwise) of the Credit Documents and the other
documents to be delivered hereunder.
(b) The Borrower agrees to indemnify and hold harmless the Agent and each
Lender and each of their Affiliates and their respective officers, directors,
employees, agents, and advisors (each, an "Indemnified Party") from and against
any and all claims, damages, losses, liabilities, costs, and expenses
(including, without limitation, reasonable attorneys' fees) that may be
incurred by or asserted or awarded against any Indemnified Party, in each case
arising out of or in connection with or by reason of (including, without
limitation, in connection with any investigation, litigation, or proceeding or
preparation of defense in connection therewith and whether or not the
Indemnified Party is a party thereto) the Credit Documents, any of the
transactions contemplated herein or the actual or proposed use of the proceeds
of the Loans, except to the extent such claim, damage, loss, liability, cost,
or expense is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence or
willful misconduct. In the case of an investigation, litigation or other
proceeding to which the indemnity in this Section 11.5 applies, such indemnity
shall be effective whether or not such investigation, litigation or proceeding
is brought by the Borrower, its directors, shareholders or creditors or an
Indemnified Party or any other Person or any Indemnified Party is otherwise a
party thereto and whether or not the transactions contemplated hereby are
consummated.
(c) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 11.5 shall survive the repayment of the Loans, LOC Obligations and
other obligations under the Credit Documents and the termination of the
Commitments hereunder.
11.6 AMENDMENTS, WAIVERS AND CONSENTS.
Neither this Credit Agreement nor any other Credit Document nor any of the
terms hereof or thereof may be amended, changed, waived, discharged or
terminated unless such amendment, change, waiver, discharge or termination is
in writing and entered into by, or approved in writing by, the Required Lenders
and the Borrower, provided, however, that:
(i) without the consent of each Lender affected thereby, neither
this Credit Agreement nor any other Credit Document may be amended to
(a) extend the final maturity of any Loan or of any
reimbursement obligation, or any portion thereof, arising from
drawings under Letters of Credit, or extend or waive any Principal
Amortization Payment of any Loan, or any portion thereof,
(b) reduce the rate or extend the time of payment of interest
(other than as a result of waiving the applicability of any
post-default increase in interest rates) thereon or Fees hereunder,
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(c) reduce or waive the principal amount of any Loan or of any
reimbursement obligation, or any portion thereof, arising from
drawings under Letters of Credit,
(d) increase the Commitment of a Lender over the amount
thereof in effect (it being understood and agreed that a waiver of
any Default or Event of Default or mandatory reduction in the
Commitments shall not constitute a change in the terms of any
Commitment of any Lender),
(e) except as the result of or in connection with an Asset
Disposition permitted by Section 8.5, release all or substantially
all of the Collateral,
(f) except as the result of or in connection with a
dissolution, merger or disposition of a Consolidated Party
permitted under Section 8.4, release the Borrower or substantially
all of the other Credit Parties from its or their obligations under
the Credit Documents (including, without limitation, the
obligations of each Guarantor set forth in Section 4),
(g) amend, except, modify or waive any provision of this
Section 11.6 or Section 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13,
3.14, 3.15, 9.1(a), 11.2, 11.3, 11.5 or 11.9,
(h) reduce any percentage specified in, or otherwise modify,
the definition of Required Lenders, or
(i) consent to the assignment or transfer by the Borrower or
all or substantially all of the other Credit Parties of any of its
or their rights and obligations under (or in respect of) the Credit
Documents except as permitted thereby;
(ii) without the consent of Lenders holding in the aggregate more
than 50% of the outstanding Tranche A Term Loans, more than 50% of the
outstanding Tranche B Term Loans and more than 50% of the outstanding
Tranche C Term Loans, the time for or the amount or the manner of
application of proceeds of any mandatory prepayment required by Section
3.3(b)(ii), (iii), (iv) or (v) hereof may not be extended;
(iii) without the consent of the Agent, no provision of Section 10
may be amended;
(iv) without the consent of the Issuing Lender, no provision of
Section 2.2 may be amended.
Notwithstanding the fact that the consent of all the Lenders is required
in certain circumstances as set forth above, (x) each Lender is entitled
to vote as such Lender sees fit on any bankruptcy reorganization plan
that affects the Loans, and each Lender
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acknowledges that the provisions of Section 1126(c) of the Bankruptcy
Code supersedes the unanimous consent provisions set forth herein and (y)
the Required Lenders may consent to allow a Credit Party to use cash
collateral in the context of a bankruptcy or insolvency proceeding.
11.7 COUNTERPARTS.
This Credit Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall constitute one and the same instrument. It shall not be necessary in
making proof of this Credit Agreement to produce or account for more than one
such counterpart for each of the parties hereto. Delivery by facsimile by any
of the parties hereto of an executed counterpart of this Credit Agreement shall
be as effective as an original executed counterpart hereof and shall be deemed
a representation that an original executed counterpart hereof will be
delivered.
11.8 HEADINGS.
The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Credit Agreement.
11.9 SURVIVAL.
All indemnities set forth herein, including, without limitation, in
Section 2.2(i), 3.6, 3.9, 3.11, 3.12, 10.5 or 11.5 shall survive the execution
and delivery of this Credit Agreement, the making of the Loans, the issuance of
the Letters of Credit, the repayment of the Loans, LOC Obligations and other
obligations under the Credit Documents and the termination of the Commitments
hereunder, and all representations and warranties made by the Credit Parties
herein shall survive delivery of the Notes and the making of the Loans
hereunder.
11.10 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE.
(a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE
GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK. Any legal action or proceeding with respect to
this Credit Agreement or any other Credit Document shall be brought in
the courts of the State of New York, New York County or of the United
States in the District Court for the Southern District of New York, and,
by execution and delivery of this Credit Agreement, each of the Credit
Parties hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the nonexclusive jurisdiction of
such courts. Each of the Credit Parties further irrevocably consents to
the service of process out of any of the aforementioned courts in any
such action or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, to it at the address set out for
notices pursuant to Section 11.1, such service to become effective three
(3) days after
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such mailing. Nothing herein shall affect the right of the Agent or any
Lender to serve process in any other manner permitted by law or to
commence legal proceedings or to otherwise proceed against any Credit
Party in any other jurisdiction.
(b) Each of the Credit Parties hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue of
any of the aforesaid actions or proceedings arising out of or in
connection with this Credit Agreement or any other Credit Document
brought in the courts referred to in subsection (a) above and hereby
further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has
been brought in an inconvenient forum.
(C) TO THE EXTENT PERMITTED BY LAW, EACH OF THE AGENT, THE LENDERS,
THE BORROWER AND THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF
OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS
OR THE TRANSACTIONS CONTEMPLATED HEREBY.
11.11 SEVERABILITY.
If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
11.12 ENTIRETY.
This Credit Agreement together with the other Credit Documents represent
the entire agreement of the parties hereto and thereto, and supersede all prior
agreements and understandings, oral or written, if any, including any
commitment letters or correspondence relating to the Credit Documents or the
transactions contemplated herein and therein.
11.13 BINDING EFFECT; TERMINATION.
(a) This Credit Agreement shall become effective at such time on or
after the Closing Date when it shall have been executed by the Borrower,
the Guarantors and the Agent, and the Agent shall have received copies
hereof (telefaxed or otherwise) which, when taken together, bear the
signatures of each Lender, and thereafter this Credit Agreement shall be
binding upon and inure to the benefit of the Borrower, the Guarantors,
the Agent and each Lender and their respective successors and assigns.
(b) The term of this Credit Agreement shall be until no Loans, LOC
Obligations or any other amounts payable hereunder or under any of the
other Credit Documents shall remain outstanding, no Letters of Credit
shall be outstanding, all of the
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Credit Party Obligations have been irrevocably satisfied in full and all
of the Commitments hereunder shall have expired or been terminated.
11.14 CONFIDENTIALITY.
The Agent and each Lender (each, a "Lending Party") agrees to keep
confidential any information furnished or made available to it by any Credit
Party pursuant to this Credit Agreement that in good faith is marked
confidential; provided that nothing herein shall prevent any Lending Party from
disclosing such information (a) to any other Lending Party or any Affiliate of
any Lending Party or any Approved Fund, or any officer, director, employee,
agent, auditor or advisor of any Lending Party or Affiliate of any Lending
Party, (b) as required by any law, rule, legal process or regulation, (c) upon
the order of any court or administrative agency, (d) upon the request or demand
of any regulatory agency or authority, (e) that is or becomes available to the
public or that is or becomes available to any Lending Party other than as a
result of a disclosure by any Lending Party prohibited by this Credit
Agreement, (f) in connection with any litigation to which such Lending Party or
any of its Affiliates may be a party, (g) to the extent necessary in connection
with the exercise of any remedy under this Credit Agreement or any other Credit
Document, and (h) subject to provisions substantially similar to those
contained in this Section 11.14, to any actual or proposed participant or
assignee or to any direct or indirect contractual counterparties in swap
agreements or to the professional advisors of such swap counterparties.
Notwithstanding anything to the contrary contained herein, in no event shall
any patient records or patient-related information be disclosed by any Lending
Party except pursuant to clause (b) or (c) of the preceding sentence, and, in
the case of such disclosure, the applicable Lending Party will use reasonable
best efforts to promptly notify the Borrower and will cooperate with the
Borrower in obtaining a protective order or other confidential treatment of
the related patient records or patient-related information.
11.15 SOURCE OF FUNDS.
Each of the Lenders hereby represents and warrants to the Borrower that at
least one of the following statements is an accurate representation as to the
source of funds to be used by such Lender in connection with the financing
hereunder:
(a) no part of such funds constitutes assets allocated to any separate
account maintained by such Lender in which any employee benefit plan (or
its related trust) has any interest;
(b) to the extent that any part of such funds constitutes assets
allocated to any separate account maintained by such Lender, such Lender
has disclosed to the Borrower the name of each employee benefit plan whose
assets in such account exceed 10% of the total assets of such account as of
the date of such purchase (and, for purposes of this subsection (b), all
employee benefit plans maintained by the same employer or employee
organization are deemed to be a single plan);
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(c) to the extent that any part of such funds constitutes assets of
an insurance company's general account, such insurance company has
complied with all of the requirements of the regulations issued under
Section 401(c)(1)(A) of ERISA; or
(d) such funds constitute assets of one or more specific benefit
plans which such Lender has identified in writing to the Borrower.
As used in this Section 11.15, the terms "employee benefit plan" and "separate
account" shall have the respective meanings assigned to such terms in Section 3
of ERISA.
11.16 CONFLICT.
To the extent that there is a conflict or inconsistency between any
provision hereof, on the one hand, and any provision of any Credit Document, on
the other hand, this Credit Agreement shall control.
[Signature Page to Follow]
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IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Credit Agreement to be duly executed and delivered as of the date first
above written.
BORROWER: EXTENDICARE HEALTH SERVICES, INC.,
a Delaware corporation
By:_______________________________
Name:_____________________________
Title:____________________________
PARENT: EXTENDICARE HOLDINGS, INC.,
a Wisconsin corporation
By:_______________________________
Name:_____________________________
Title:____________________________
SUBSIDIARY
GUARANTORS: EXTENDICARE HEALTH FACILITY
HOLDINGS, INC.,
a Delaware corporation
By:______________________________
Name:____________________________
Title:___________________________
EXTENDICARE HEALTH FACILITIES, INC.,
a Wisconsin corporation
By:______________________________
Name:____________________________
Title:___________________________
COVENTRY CARE, INC.,
a Pennsylvania corporation
By:______________________________
Name:____________________________
Title:___________________________
[Signatures Continued.]
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NORTHERN HEALTH FACILITIES, INC.,
a Delaware corporation
By:_______________________________
Name:_____________________________
Title:____________________________
EXTENDICARE HOMES, INC.,
a Delaware corporation
By:_______________________________
Name:_____________________________
Title:____________________________
UNITED PROFESSIONAL COMPANIES, INC.,
a Delaware corporation
By:_______________________________
Name:_____________________________
Title:____________________________
THE PROGRESSIVE STEP CORPORATION,
a Wisconsin corporation
By:_______________________________
Name:_____________________________
Title:____________________________
EXTENDICARE OF INDIANA, INC.,
a Delaware corporation
By:_______________________________
Name:_____________________________
Title:____________________________
UNITED REHABILITATION SERVICES, INC.,
a Wisconsin corporation
By:_______________________________
Name:_____________________________
Title:____________________________
[Signatures Continued.]
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EDGEWOOD NURSING CENTER, INC.,
a Pennsylvania corporation
By:_______________________________
Name:_____________________________
Title:____________________________
ELDER CREST, INC.,
a Pennsylvania corporation
By:_______________________________
Name:_____________________________
Title:____________________________
HAVEN CREST, INC.,
a Pennsylvania corporation
By:_______________________________
Name:_____________________________
Title:____________________________
MEADOW CREST, INC.,
a Pennsylvania corporation
By:_______________________________
Name:_____________________________
Title:____________________________
OAK HILL HOME OF REST AND CARE, INC.,
a Pennsylvania corporation
By:_______________________________
Name:_____________________________
Title:____________________________
EXTENDICARE GREAT TRAIL, INC.,
a Delaware corporation
By:_______________________________
Name:_____________________________
Title:____________________________
[Signatures Continued.]
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FIR LANE TERRACE CONVALESCENT
CENTER, INC.,
a Washington corporation
By:_______________________________
Name:_____________________________
Title:____________________________
UNITED PROFESSIONAL SERVICES, INC.,
a Wisconsin corporation
By:_______________________________
Name:_____________________________
Title:____________________________
ARBOR HEALTH CARE COMPANY,
a Delaware corporation
By:_______________________________
Name:_____________________________
Title:____________________________
ADULT SERVICES UNLIMITED, INC.,
a Pennsylvania corporation
By:_______________________________
Name:_____________________________
Title:____________________________
ALTERNACARE PLUS ENTERPRISES, INC.,
an Ohio corporation
By:_______________________________
Name:_____________________________
Title:____________________________
ARBORS EAST, INC.,
an Ohio corporation
By:_______________________________
Name:_____________________________
Title:____________________________
[Signatures Continued.]
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ARBORS AT FT. WAYNE, INC.,
an Indiana corporation
By:_______________________________
Name:_____________________________
Title:____________________________
ARBORS AT TOLEDO, INC.,
an Ohio corporation
By:_______________________________
Name:_____________________________
Title:____________________________
BAY GERIATRIC PHARMACY, INC.,
a Florida corporation
By:_______________________________
Name:_____________________________
Title:____________________________
THE DRUGGIST, INC.,
an Ohio corporation
By:_______________________________
Name:_____________________________
Title:____________________________
HEALTH POCONOS, INC.,
a Pennsylvania corporation
By:_______________________________
Name:_____________________________
Title:____________________________
[Signatures Continued.]
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HOME CARE PHARMACY, INC. OF
FLORIDA,
a Florida corporation
By:_______________________________
Name:_____________________________
Title:____________________________
MARSHALL PROPERTIES, INC.,
an Ohio corporation
By:_______________________________
Name:_____________________________
Title:____________________________
POLY-STAT COMPUTER
APPLICATIONS, INC.
an Ohio corporation
By:_______________________________
Name:_____________________________
Title:____________________________
POLY-STAT SUPPLY CORPORATION,
an Ohio corporation
By:_______________________________
Name:_____________________________
Title:____________________________
Q.D. PHARMACY, INC.,
a Michigan corporation
By:_______________________________
Name:_____________________________
Title:____________________________
AHC ACQUISITION CORP.,
a Delaware corporation
By:_______________________________
Name:_____________________________
Title:____________________________
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LENDERS: NATIONSBANK, N. A.,
individually in its capacity as a
Lender and in its capacity as Agent
By:_______________________________
Name:_____________________________
Title:____________________________
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ROYAL BANK OF CANADA
By:_______________________________
Name:_____________________________
Title:____________________________
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FIRSTAR BANK MILWAUKEE, N.A.
By:_______________________________
Name:_____________________________
Title:____________________________
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CREDIT LYONNAIS NEW YORK BRANCH
By:_______________________________
Name:_____________________________
Title:____________________________
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BANQUE PARIBAS
By:_______________________________
Name:_____________________________
Title:____________________________
By:_______________________________
Name:_____________________________
Title:____________________________
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THE BANK OF NOVA SCOTIA
By:_______________________________
Name:_____________________________
Title:____________________________
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KEY CORPORATE CAPITAL INC.
By:_______________________________
Name:_____________________________
Title:____________________________
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LASALLE NATIONAL BANK
By:_______________________________
Name:_____________________________
Title:____________________________
S-8
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TORONTO DOMINION (TEXAS), INC.
By:_______________________________
Name:_____________________________
Title:____________________________
S-9
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FIRST NATIONAL BANK OF CHICAGO
By:_______________________________
Name:_____________________________
Title:____________________________
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BANK OF MONTREAL
By:_______________________________
Name:_____________________________
Title:____________________________
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THE BANK OF NEW YORK
By:_______________________________
Name:_____________________________
Title:____________________________
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BANK ONE, N.A.
By:_______________________________
Name:_____________________________
Title:____________________________
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THE FUJI BANK, LTD., CHICAGO BRANCH
By:_______________________________
Name:_____________________________
Title:____________________________
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THE SUMITOMO BANK, LIMITED
By:_______________________________
Name:_____________________________
Title:____________________________
By:_______________________________
Name:_____________________________
Title:____________________________
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FIRST BANK NATIONAL ASSOCIATION
By:_______________________________
Name:_____________________________
Title:____________________________
S-16
<PAGE> 137
BANK OF TOKYO-MITSUBISHI
TRUST COMPANY
By:_______________________________
Name:_____________________________
Title:____________________________
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<PAGE> 138
COMERICA BANK
By:_______________________________
Name:_____________________________
Title:____________________________
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<PAGE> 139
AMSOUTH BANK
By:_______________________________
Name:_____________________________
Title:____________________________
S-19
<PAGE> 140
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By:_______________________________
Name:_____________________________
Title:____________________________
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THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:_______________________________
Name:_____________________________
Title:____________________________
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PILGRIM AMERICA PRIME RATE TRUST
By:_______________________________
Name:_____________________________
Title:____________________________
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BANKBOSTON, N.A.
By:_______________________________
Name:_____________________________
Title:____________________________
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<PAGE> 144
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
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PARIBAS CAPITAL FUNDING LLC
By:_______________________________
Name:_____________________________
Title:____________________________
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CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company,
its Investment Manager
By:_______________________________
Name:_____________________________
Title:____________________________
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KZH-CRESCENT CORPORATION
By:_______________________________
Name:_____________________________
Title:____________________________
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ROYALTON COMPANY
By: Pacific Investment Management
Company, as its Investment Advisor
By:_______________________________
Name:_____________________________
Title:____________________________
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JACKSON NATIONAL LIFE INSURANCE
COMPANY
By: PPM America, Inc., as attorney-in-fact,
on behalf of Jackson National Life
Insurance Company
By:_______________________________
Name:_____________________________
Title:____________________________
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OCTAGON CREDIT INVESTORS LOAN
PORTFOLIO
(a unit of The Chase Manhattan Bank)
By:_______________________________
Name:_____________________________
Title:____________________________
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KZH HOLDING CORPORATION III
By:_______________________________
Name:_____________________________
Title:____________________________
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THE ING CAPITAL SENIOR SECURED
HIGH INCOME FUND, L.P.
By:_______________________________
Name:_____________________________
Title:____________________________
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KZH-ING-2 CORPORATION
By:_______________________________
Name:_____________________________
Title:____________________________
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<PAGE> 154
DEEPROCK & COMPANY
By: Eaton Van Management, as
Investment Advisor
By:_______________________________
Name:_____________________________
Title:____________________________
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SCHEDULE 1.1A
EXISTING LETTERS OF CREDIT
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SCHEDULE 1.1B
INVESTMENTS
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SCHEDULE 1.1C
LIENS
1
<PAGE> 158
SCHEDULE 2.1(A)
LENDER ADDRESSES AND COMMITMENTS
1
<PAGE> 159
SCHEDULE 5.1(D)(I)
FORM OF OPINION OF SKADDEN ARPS SLATE MEAGHER & FLOM
1
<PAGE> 160
SCHEDULE 5.1(d)(ii)
FORM OF LOCAL CORPORATE COUNSEL OPINION
1
<PAGE> 161
SCHEDULE 6.4
REQUIRED CONSENTS, AUTHORIZATIONS, NOTICES AND FILINGS
1
<PAGE> 162
SCHEDULE 6.9
LITIGATION
1
<PAGE> 163
SCHEDULE 6.12
ERISA
1
<PAGE> 164
SCHEDULE 6.13
SUBSIDIARIES
1
<PAGE> 165
SCHEDULE 6.14(D)
REVOCATION, SUSPENSION OR LIMITATION OF LICENSES, PERMITS AND FRANCHISES
1
<PAGE> 166
SCHEDULE 6.18
ENVIRONMENTAL DISCLOSURES
1
<PAGE> 167
SCHEDULE 6.19
INTELLECTUAL PROPERTY
1
<PAGE> 168
SCHEDULE 6.20(A)
MORTGAGED PROPERTIES
1
<PAGE> 169
SCHEDULE 6.20(B)
COLLATERAL LOCATIONS
1
<PAGE> 170
SCHEDULE 6.20(C)
CHIEF EXECUTIVE OFFICES/
PRINCIPAL PLACES OF BUSINESS
1
<PAGE> 171
SCHEDULE 7.6
INSURANCE
1
<PAGE> 172
SCHEDULE 8.1
INDEBTEDNESS
1
<PAGE> 173
EXHIBIT 1.1A
FORM OF PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement") is entered into as of
November 26, 1997 among EXTENDICARE HEALTH SERVICES, INC., a Delaware
corporation (the "Borrower"), EXTENDICARE HOLDINGS, INC. (the "Parent") and
certain Subsidiaries of the Borrower (individually a "Guarantor", and
collectively the "Guarantors"; together with the Borrower and the Parent,
individually a "Pledgor", and collectively the "Pledgors") and NATIONSBANK,
N.A., in its capacity as agent (in such capacity, the "Agent") for the lenders
from time to time party to the Credit Agreement described below (the
"Lenders").
RECITALS
WHEREAS, pursuant to that certain Credit Agreement dated as of the date
hereof (as amended, modified, extended, renewed or replaced from time to time,
the "Credit Agreement") among the Borrower, the Guarantors, the Lenders and the
Agent, the Lenders have agreed to make Loans and issue Letters of Credit upon
the terms and subject to the conditions set forth therein; and
WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement and the obligations of the Lenders to make their respective Loans and
to issue Letters of Credit under the Credit Agreement that the Pledgors shall
have executed and delivered this Pledge Agreement to the Agent for the ratable
benefit of the Lenders.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to such terms in the Credit Agreement.
For purposes of this Pledge Agreement, the term "Lender" shall include any
Affiliate of any Lender which has entered into a Hedging Agreement with the
Borrower.
2. Pledge and Grant of Security Interest. To secure the prompt payment
and performance in full when due, whether by lapse of time or otherwise, of the
Pledgor Obligations (as defined in Section 3 hereof), each Pledgor hereby
pledges and assigns to the Agent, for the benefit of the Lenders, and grants to
the Agent, for the benefit of the Lenders, a continuing security interest in
any and all right, title and interest of such Pledgor in and to the following,
whether now owned or existing or owned, acquired, or arising hereafter
(collectively, the "Pledged Collateral"):
(a) Pledged Shares. 100% (or, if less, the full amount owned by
such Pledgor) of the issued and outstanding shares of capital stock owned
by such Pledgor of each Material Domestic Subsidiary set forth on
Schedule 2(a) attached hereto, in each
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case together with the certificates (or other agreements or instruments),
if any, representing such shares, and all options and other rights,
contractual or otherwise, with respect thereto (collectively, together
with the shares of capital stock described in Section 2(b) and 2(c)
below, the "Pledged Shares"), including, but not limited to, the
following:
(i) all shares or securities representing a dividend on any of
the Pledged Shares, or representing a distribution or return of
capital upon or in respect of the Pledged Shares, or resulting from
a stock split, revision, reclassification or other exchange
therefor, and any subscriptions, warrants, rights or options issued
to the holder of, or otherwise in respect of, the Pledged Shares;
and
(ii) without affecting the obligations of the Pledgors under
any provision prohibiting such action hereunder or under the Credit
Agreement, in the event of any consolidation or merger involving
the issuer of any Pledged Shares and in which such issuer is not
the surviving corporation, all shares of each class of the capital
stock of the successor corporation formed by or resulting from such
consolidation or merger.
(b) Additional Shares. 100% (or, if less, the full amount owned by
such Pledgor) of the issued and outstanding shares of capital stock owned
by such Pledgor of any Person which hereafter becomes a Material Domestic
Subsidiary, including, without limitation, the certificates representing
such shares.
(c) Other Equity Interests. Any and all other Capital Stock owned
by each Pledgor in any Material Domestic Subsidiary.
(d) Proceeds. All proceeds and products of the foregoing, however
and whenever acquired and in whatever form.
Without limiting the generality of the foregoing, it is hereby
specifically understood and agreed that a Pledgor may from time to time
hereafter deliver additional shares of stock to the Agent as collateral
security for the Pledgor Obligations. Upon delivery to the Agent, such
additional shares of stock shall be deemed to be part of the Pledged Collateral
of such Pledgor and shall be subject to the terms of this Pledge Agreement
whether or not Schedule 2(a) is amended to refer to such additional shares.
3. Security for Pledgor Obligations. The security interest created hereby
in the Pledged Collateral of each Pledgor constitutes continuing collateral
security for all of the following, whether now existing or hereafter incurred
(collectively, the "Pledgor Obligations"):
(a) In the case of the Borrower, the prompt performance and
observance by the Borrower of all obligations of the Borrower under the
Credit Agreement, the Notes, this Pledge Agreement and the other Credit
Documents to which the Borrower is a party;
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(b) In the case of the Guarantors, the prompt performance and
observance by such Guarantor of all obligations of such Guarantor under
the Credit Agreement, this Pledge Agreement and the other Credit
Documents to which such Guarantor is a party, including, without
limitation, its guaranty obligations arising under Section 4 of the
Credit Agreement; and
(c) All liabilities arising under Hedging Agreements and all
obligations and liabilities incurred in connection with collecting and
enforcing the Pledgor Obligations.
4. Delivery of the Pledged Collateral. Each Pledgor hereby agrees that:
(a) Each Pledgor shall deliver to the Agent (i) simultaneously with
or prior to the execution and delivery of this Pledge Agreement, all
certificates representing the Pledged Shares of such Pledgor and (ii)
promptly upon the receipt thereof by or on behalf of a Pledgor, all other
certificates and instruments constituting Pledged Collateral of a
Pledgor. Prior to delivery to the Agent, all such certificates and
instruments constituting Pledged Collateral of a Pledgor shall be held in
trust by such Pledgor for the benefit of the Agent pursuant hereto. All
such certificates shall be delivered in suitable form for transfer by
delivery or shall be accompanied by duly executed instruments of transfer
or assignment in blank, substantially in the form provided in Exhibit
4(a) attached hereto.
(b) Additional Securities. If such Pledgor shall receive by virtue
of its being or having been the owner of any Pledged Collateral, any (i)
stock certificate, including without limitation, any certificate
representing a stock dividend or distribution in connection with any
increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, stock splits,
spin-off or split-off, promissory notes or other instrument; (ii) option
or right, whether as an addition to, substitution for, or an exchange
for, any Pledged Collateral or otherwise; (iii) dividends payable in
securities; or (iv) distributions of securities in connection with a
partial or total liquidation, dissolution or reduction of capital,
capital surplus or paid-in surplus, then such Pledgor shall receive such
stock certificate, instrument, option, right or distribution in trust for
the benefit of the Agent, shall segregate it from such Pledgor's other
property and shall deliver it forthwith to the Agent in the exact form
received together with any necessary endorsement and/or appropriate stock
power duly executed in blank, substantially in the form provided in
Exhibit 4(a), to be held by the Agent as Pledged Collateral and as
further collateral security for the Pledgor Obligations.
(c) Financing Statements. Each Pledgor shall execute and deliver to
the Agent such UCC or other applicable financing statements as may be
reasonably requested by the Agent in order to perfect and protect the
security interest created hereby in the Pledged Collateral of such
Pledgor.
5. Representations and Warranties. Each Pledgor hereby represents and
warrants to the Agent, for the benefit of the Lenders, that:
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(a) Authorization of Pledged Shares. The Pledged Shares are duly
authorized and validly issued, are fully paid and nonassessable and are
not subject to the preemptive rights of any Person. All other shares of
stock constituting Pledged Collateral will be duly authorized and validly
issued, fully paid and nonassessable and not subject to the preemptive
rights of any Person.
(b) Title. Each Pledgor has good and indefeasible title to the
Pledged Collateral of such Pledgor and will at all times be the legal and
beneficial owner of such Pledged Collateral free and clear of any Lien,
other than Permitted Liens. There exists no "adverse claim" within the
meaning of Section 8-302 of the Uniform Commercial Code as in effect in
the State of New York (the "UCC") with respect to the Pledged Shares of
such Pledgor.
(c) Exercising of Rights. The exercise by the Agent of its rights
and remedies hereunder will not violate any law or governmental
regulation or any material contractual restriction binding on or
affecting a Pledgor or any of its property.
(d) Pledgor's Authority. No authorization, approval or action by,
and no notice or filing with any Governmental Authority or with the
issuer of any Pledged Stock is required either (i) for the pledge made by
a Pledgor or for the granting of the security interest by a Pledgor
pursuant to this Pledge Agreement or (ii) for the exercise by the Agent
or the Lenders of their rights and remedies hereunder (except as may be
required by laws affecting the offering and sale of securities) or as may
be required with respect to the Agent or any Lender.
(e) Security Interest/Priority. This Pledge Agreement creates a
valid security interest in favor of the Agent for the benefit of the
Lenders, in the Pledged Collateral. The taking possession by the Agent
of the certificates representing the Pledged Shares and all other
certificates and instruments constituting Pledged Collateral will perfect
and establish the first priority of the Agent's security interest in the
Pledged Shares and, when properly perfected by filing or registration, in
all other Pledged Collateral represented by such Pledged Shares and
instruments securing the Pledgor Obligations. Except as set forth in
this Section 5(e), no action is necessary to perfect or otherwise protect
such security interest.
(f) No Other Shares. Other than as set forth on Schedule 2(a)
attached hereto, no Pledgor owns any shares of stock in any Material
Domestic Subsidiary.
6. Covenants. Each Pledgor hereby covenants, that so long as any of the
Pledgor Obligations remain outstanding or any Credit Document or Hedging
Agreement is in effect or any Letter of Credit shall remain outstanding, and
until all of the Commitments shall have been terminated, such Pledgor shall:
(a) Books and Records. Mark its books and records (and shall cause
the issuer of the Pledged Shares of such Pledgor to mark its books and
records) to reflect the
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security interest granted to the Agent, for the benefit of the Lenders,
pursuant to this Pledge Agreement.
(b) Defense of Title. Warrant and defend title to and ownership of
the Pledged Collateral of such Pledgor at its own expense against the
claims and demands of all other parties claiming an interest therein,
keep the Pledged Collateral free from all Liens, except for Permitted
Liens, and not sell, exchange, transfer, assign, lease or otherwise
dispose of Pledged Collateral of such Pledgor or any interest therein,
except as permitted under the Credit Agreement and the other Credit
Documents.
(c) Further Assurances. Promptly execute and deliver at its expense
all further instruments and documents and take all further action that
may be necessary and desirable or that the Agent may reasonably request
in order to (i) perfect and protect the security interest created hereby
in the Pledged Collateral of such Pledgor (including without limitation
any and all action necessary to satisfy the Agent that the Agent has
obtained a first priority perfected security interest in any capital
stock); (ii) enable the Agent to exercise and enforce its rights and
remedies hereunder in respect of the Pledged Collateral of such Pledgor;
and (iii) otherwise effect the purposes of this Pledge Agreement,
including, without limitation and if requested by the Agent, delivering
to the Agent irrevocable proxies in respect of the Pledged Collateral of
such Pledgor.
(d) Amendments. Not make or consent to any amendment or other
modification or waiver with respect to any of the Pledged Collateral of
such Pledgor or enter into any agreement or allow to exist any
restriction with respect to any of the Pledged Collateral of such Pledgor
other than pursuant hereto or as may be permitted under the Credit
Agreement.
(e) Compliance with Securities Laws. File all reports and other
information now or hereafter required to be filed by such Pledgor with
the United States Securities and Exchange Commission and any other state,
federal or foreign agency in connection with the ownership of the Pledged
Collateral of such Pledgor.
7. Advances by Lenders. On failure of any Pledgor to perform any of the
covenants and agreements contained herein, the Agent may, at its sole option
and in its sole discretion, perform the same and in so doing may expend such
sums as the Agent may reasonably deem advisable in the performance thereof,
including, without limitation, the payment of any insurance premiums, the
payment of any taxes, a payment to obtain a release of a Lien or potential
Lien, expenditures made in defending against any adverse claim and all other
expenditures which the Agent or the Lenders may make for the protection of the
security hereof or which may be compelled to make by operation of law. All
such sums and amounts so expended shall be repayable by the Pledgors on a joint
and several basis promptly upon timely notice thereof and demand therefor,
shall constitute additional Pledgor Obligations and shall bear interest from
the date said amounts are expended at the default rate specified in Section 3.1
of the Credit Agreement for Revolving Loans that are Base Rate Loans. No such
performance of any covenant or agreement by the Agent or the Lenders on behalf
of any Pledgor, and no such advance or expenditure therefor, shall relieve the
Pledgors of any default under the terms of
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this Pledge Agreement, the other Credit Documents or any Hedging Agreement.
The Lenders may make any payment hereby authorized in accordance with any bill,
statement or estimate procured from the appropriate public office or holder of
the claim to be discharged without inquiry into the accuracy of such bill,
statement or estimate or into the validity of any tax assessment, sale,
forfeiture, tax lien, title or claim except to the extent such payment is being
contested in good faith by a Pledgor in appropriate proceedings and against
which adequate reserves are being maintained in accordance with GAAP.
8. Events of Default. The occurrence of an event which under the Credit
Agreement would constitute an Event of Default shall be an Event of Default
hereunder (an "Event of Default").
9. Remedies.
(a) General Remedies. Upon the occurrence of an Event of Default
and during the continuation thereof, the Agent and the Lenders shall
have, in respect of the Pledged Collateral of any Pledgor, in addition to
the rights and remedies provided herein, in the Credit Documents, in the
Hedging Agreements or by law, the rights and remedies of a secured party
under the UCC or any other applicable law.
(b) Sale of Pledged Collateral. Upon the occurrence of an Event of
Default and during the continuation thereof, without limiting the
generality of this Section and without notice, the Agent may, in its sole
discretion, sell or otherwise dispose of or realize upon the Pledged
Collateral, or any part thereof, in one or more parcels, at public or
private sale, at any exchange or broker's board or elsewhere, at such
price or prices and on such other terms as the Agent may deem
commercially reasonable, for cash, credit or for future delivery or
otherwise in accordance with applicable law. To the extent permitted by
law, any Lender may in such event, bid for the purchase of such
securities. Each Pledgor agrees that, to the extent notice of sale shall
be required by law and has not been waived by such Pledgor, any
requirement of reasonable notice shall be met if notice, specifying the
place of any public sale or the time after which any private sale is to
be made, is personally served on or mailed, postage prepaid, to such
Pledgor, in accordance with the notice provisions of Section 11.1 of the
Credit Agreement at least 10 days before the time of such sale. The
Agent shall not be obligated to make any sale of Pledged Collateral of
such Pledgor regardless of notice of sale having been given. The Agent
may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
(c) Private Sale. Upon the occurrence of an Event of Default and
during the continuation thereof, the Pledgors recognize that the Agent
may deem it impracticable to effect a public sale of all or any part of
the Pledged Shares or any of the securities constituting Pledged
Collateral and that the Agent may, therefore, determine to make one or
more private sales of any such securities to a restricted group of
purchasers who will be obligated to agree, among other things, to acquire
such securities for their own account,
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<PAGE> 179
for investment and not with a view to the distribution or resale thereof.
Each Pledgor acknowledges that any such private sale may be at prices
and on terms less favorable to the seller than the prices and other terms
which might have been obtained at a public sale and, notwithstanding the
foregoing, agrees that such private sale shall be deemed to have been
made in a commercially reasonable manner and that the Agent shall have no
obligation to delay sale of any such securities for the period of time
necessary to permit the issuer of such securities to register such
securities for public sale under the Securities Act of 1933. Each
Pledgor further acknowledges and agrees that any offer to sell such
securities which has been (i) publicly advertised on a bona fide basis in
a newspaper or other publication of general circulation in the financial
community of New York, New York (to the extent that such offer may be
advertised without prior registration under the Securities Act of 1933),
or (ii) made privately in the manner described above shall be deemed to
involve a "public sale" under the UCC, notwithstanding that such sale may
not constitute a "public offering" under the Securities Act of 1933, and
the Agent may, in such event, bid for the purchase of such securities.
(d) Retention of Pledged Collateral. In addition to the rights and
remedies hereunder, upon the occurrence of an Event of Default, the Agent
may, after providing the notices required by Section 9-505(2) of the UCC
or otherwise complying with the requirements of applicable law of the
relevant jurisdiction, retain all or any portion of the Pledged
Collateral in satisfaction of the Pledgor Obligations. Unless and until
the Agent shall have provided such notices, however, the Agent shall not
be deemed to have retained any Pledged Collateral in satisfaction of any
Pledgor Obligations for any reason.
(e) Nonrecourse Obligation of Parent. The Pledgor Obligations of
the Parent hereunder shall be limited to the property and interests
pledged by the Parent to secure such Pledgor Obligations hereunder.
10. Rights of the Agent.
(a) Power of Attorney. In addition to other powers of attorney
contained herein, each Pledgor hereby designates and appoints the Agent,
on behalf of the Lenders, and each of its designees or agents as
attorney-in-fact of such Pledgor, irrevocably and with power of
substitution, with authority to take any or all of the following actions
upon the occurrence and during the continuance of an Event of Default:
(i) to demand, collect, settle, compromise, adjust and give
discharges and releases concerning the Pledged Collateral of such
Pledgor, all as the Agent may reasonably determine;
(ii) to commence and prosecute any actions at any court for
the purposes of collecting any of the Pledged Collateral of such
Pledgor and enforcing any other right in respect thereof;
-7-
<PAGE> 180
(iii) to defend, settle or compromise any action brought and,
in connection therewith, give such discharge or release as the
Agent may deem reasonably appropriate;
(iv) to pay or discharge taxes, liens, security interests, or
other encumbrances levied or placed on or threatened against the
Pledged Collateral of such Pledgor;
(v) to direct any parties liable for any payment under any of
the Pledged Collateral to make payment of any and all monies due
and to become due thereunder directly to the Agent or as the Agent
shall direct;
(vi) to receive payment of and receipt for any and all monies,
claims, and other amounts due and to become due at any time in
respect of or arising out of any Pledged Collateral of such
Pledgor;
(vii) to sign and endorse any drafts, assignments, proxies,
stock powers, verifications, notices and other documents relating
to the Pledged Collateral of such Pledgor;
(viii) to settle, compromise or adjust any suit, action or
proceeding described above and, in connection therewith, to give
such discharges or releases as the Agent may deem reasonably
appropriate;
(ix) execute and deliver all assignments, conveyances,
statements, financing statements, renewal financing statements,
pledge agreements, affidavits, notices and other agreements,
instruments and documents that the Agent may determine necessary in
order to perfect and maintain the security interests and liens
granted in this Pledge Agreement and in order to fully consummate
all of the transactions contemplated therein;
(x) to exchange any of the Pledged Collateral of such Pledgor
or other property upon any merger, consolidation, reorganization,
recapitalization or other readjustment of the issuer thereof and,
in connection therewith, deposit any of the Pledged Collateral of
such Pledgor with any committee, depository, transfer agent,
registrar or other designated agency upon such terms as the Agent
may determine;
(xi) to vote for a shareholder resolution, or to sign an
instrument in writing, sanctioning the transfer of any or all of
the Pledged Shares of such Pledgor into the name of the Agent or
one or more of the Lenders or into the name of any transferee to
whom the Pledged Shares of such Pledgor or any part thereof may be
sold pursuant to Section 10 hereof; and
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<PAGE> 181
(xii) to do and perform all such other acts and things as the
Agent may reasonably deem to be necessary, proper or convenient in
connection with the Pledged Collateral of such Pledgor.
This power of attorney is a power coupled with an interest and shall be
irrevocable (i) for so long as any of the Pledgor Obligations remain
outstanding, any Credit Document or any Hedging Agreement is in effect or
any Letter of Credit shall remain outstanding and (ii) until all of the
Commitments shall have been terminated. The Agent shall be under no duty
to exercise or withhold the exercise of any of the rights, powers,
privileges and options expressly or implicitly granted to the Agent in
this Pledge Agreement, and shall not be liable for any failure to do so
or any delay in doing so. The Agent shall not be liable for any act or
omission or for any error of judgment or any mistake of fact or law in
its individual capacity or its capacity as attorney-in-fact except acts
or omissions resulting from its gross negligence or willful misconduct.
This power of attorney is conferred on the Agent solely to protect,
preserve and realize upon its security interest in Pledged Collateral.
(b) Performance by the Agent of Pledgor's Obligations. If any
Pledgor fails to perform any agreement or obligation contained herein,
the Agent itself may perform, or cause performance of, such agreement or
obligation, and the expenses of the Agent incurred in connection
therewith shall be payable by the Pledgors on a joint and several basis
pursuant to Section 13 hereof.
(c) Assignment by the Agent. To the extent provided in the Credit
Agreement, the Agent may from time to time assign the Pledgor Obligations
and any portion thereof and/or the Pledged Collateral and any portion
thereof, and the assignee shall be entitled to all of the rights and
remedies of the Agent under this Pledge Agreement in relation thereto.
(d) The Agent's Duty of Care. Other than the exercise of reasonable
care to assure the safe custody of the Pledged Collateral while being
held by the Agent hereunder, the Agent shall have no duty or liability to
preserve rights pertaining thereto, it being understood and agreed that
Pledgors shall be responsible for preservation of all rights in the
Pledged Collateral of such Pledgor, and the Agent shall be relieved of
all responsibility for Pledged Collateral upon surrendering it or
tendering the surrender of it to the Pledgors. The Agent shall be deemed
to have exercised reasonable care in the custody and preservation of the
Pledged Collateral in its possession if such Pledged Collateral is
accorded treatment substantially equal to that which the Agent accords
its own property, which shall be no less than the treatment employed by a
reasonable and prudent agent in the industry, it being understood that
the Agent shall not have responsibility for (i) ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders
or other matters relating to any Pledged Collateral, whether or not the
Agent has or is deemed to have knowledge of such matters; or (ii) taking
any necessary steps to preserve rights against any parties with respect
to any Pledged Collateral.
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<PAGE> 182
(e) Voting Rights in Respect of the Pledged Collateral.
(i) So long as no Event of Default shall have occurred and be
continuing, to the extent permitted by law, each Pledgor may
exercise any and all voting and other consensual rights pertaining
to the Pledged Collateral of such Pledgor or any part thereof for
any purpose not inconsistent with the terms of this Pledge
Agreement or the Credit Agreement; and
(ii) Upon the occurrence and during the continuance of an
Event of Default, all rights of a Pledgor to exercise the voting
and other consensual rights which it would otherwise be entitled to
exercise pursuant to paragraph (i) of this Section shall cease and
all such rights shall thereupon become vested in the Agent which
shall then have the sole right to exercise such voting and other
consensual rights.
(f) Dividend Rights in Respect of the Pledged Collateral.
(i) So long as no Event of Default shall have occurred and be
continuing and subject to Section 4(b) hereof, each Pledgor may
receive and retain any and all dividends (other than stock
dividends and other dividends constituting Pledged Collateral which
are addressed hereinabove) or interest paid in respect of the
Pledged Collateral to the extent such dividends or interest, as
applicable, are allowed under the Credit Agreement.
(ii) Upon the occurrence and during the continuance of an
Event of Default:
(A) all rights of a Pledgor to receive the dividends and
interest payments which it would otherwise be authorized to
receive and retain pursuant to paragraph (i) of this Section
shall cease and all such rights shall thereupon be vested in
the Agent which shall then have the sole right to receive and
hold as Pledged Collateral such dividends and interest
payments; and
(B) all dividends and interest payments which are
received by a Pledgor contrary to the provisions of paragraph
(A) of this Section shall be received in trust for the
benefit of the Agent, shall be segregated from other property
or funds of such Pledgor, and shall be forthwith paid over to
the Agent as Pledged Collateral in the exact form received,
to be held by the Agent as Pledged Collateral and as further
collateral security for the Pledgor Obligations.
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<PAGE> 183
(g) Release of Pledged Collateral. The Agent may release any of the
Pledged Collateral from this Pledge Agreement or may substitute any of
the Pledged Collateral for other Pledged Collateral without altering,
varying or diminishing in any way the force, effect, lien, pledge or
security interest of this Pledge Agreement as to any Pledged Collateral
not expressly released or substituted, and this Pledge Agreement shall
continue as a first priority lien on all Pledged Collateral not expressly
released or substituted.
11. Rights of Required Lenders. All rights of the Agent hereunder, if not
exercised by the Agent, may be exercised by the Required Lenders.
12. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, any payments in respect of the Pledgor
Obligations and any proceeds of any Pledged Collateral, when received by the
Agent or any of the Lenders in cash or its equivalent, will be applied in
reduction of the Pledgor Obligations in the order set forth in Section 3.15(b)
of the Credit Agreement, and each Pledgor irrevocably waives the right to
direct the application of such payments and proceeds and acknowledges and
agrees that the Agent shall have the continuing and exclusive right to apply
and reapply any and all such payments and proceeds in the Agent's sole
discretion, notwithstanding any entry to the contrary upon any of its books and
records.
13. Costs of Counsel. At all times hereafter, the Pledgors agree to
promptly pay upon demand any and all reasonable costs and expenses of the Agent
or the Lenders, (a) as required under Section 11.5 of the Credit Agreement and
(b) as necessary to protect the Pledged Collateral or to exercise any rights or
remedies under this Pledge Agreement or with respect to any Pledged Collateral.
All of the foregoing costs and expenses shall constitute Pledgor Obligations
hereunder.
14. Continuing Agreement.
(a) This Pledge Agreement shall be a continuing agreement in every
respect and shall remain in full force and effect so long as any of the
Pledgor Obligations remain outstanding or any Credit Document or Hedging
Agreement is in effect or any Letter of Credit shall remain outstanding,
and until all of the Commitments thereunder shall have terminated (other
than any obligations with respect to the indemnities and the
representations and warranties set forth in the Credit Documents). Upon
such payment and termination, this Pledge Agreement shall be
automatically terminated and the Agent and the Lenders shall, upon the
request and at the expense of the Pledgors, forthwith release all of its
liens and security interests hereunder and shall executed and deliver all
UCC termination statements and/or other documents reasonably requested by
the Pledgors evidencing such termination. Notwithstanding the foregoing
all releases and indemnities provided hereunder shall survive termination
of this Pledge Agreement.
(b) This Pledge Agreement shall continue to be effective or be
automatically reinstated, as the case may be, if at any time payment, in
whole or in part, of any of the Pledgor Obligations is rescinded or must
otherwise be restored or returned by the Agent
-11-
<PAGE> 184
or any Lender as a preference, fraudulent conveyance or otherwise under
any bankruptcy, insolvency or similar law, all as though such payment had
not been made; provided that in the event payment of all or any part of
the Pledgor Obligations is rescinded or must be restored or returned, all
reasonable costs and expenses (including without limitation any
reasonable legal fees and disbursements) incurred by the Agent or any
Lender in defending and enforcing such reinstatement shall be deemed to
be included as a part of the Pledgor Obligations.
15. Amendments; Waivers; Modifications. This Pledge Agreement and the
provisions hereof may not be amended, waived, modified, changed, discharged or
terminated except as set forth in Section 11.6 of the Credit Agreement.
16. Successors in Interest. This Pledge Agreement shall create a
continuing security interest in the Collateral and shall be binding upon each
Pledgor, its successors and assigns and shall inure, together with the rights
and remedies of the Agent and the Lenders hereunder, to the benefit of the
Agent and the Lenders and their successors and permitted assigns; provided,
however, that none of the Pledgors may assign its rights or delegate its duties
hereunder without the prior written consent of each Lender or the Required
Lenders, as required by the Credit Agreement. To the fullest extent permitted
by law, each Pledgor hereby releases the Agent and each Lender, and its
successors and assigns, from any liability for any act or omission relating to
this Pledge Agreement or the Collateral, except for any liability arising from
the gross negligence or willful misconduct of the Agent, or such Lender, or its
officers, employees or agents.
17. Notices. All notices required or permitted to be given under this
Pledge Agreement shall be in conformance with Section 11.1 of the Credit
Agreement.
18. Counterparts. This Pledge Agreement may be executed in any number of
counterparts, each of which where so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Pledge Agreement to produce or
account for more than one such counterpart.
19. Headings. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Pledge Agreement.
20. Governing Law; Submission to Jurisdiction; Venue.
(a) THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Any legal action or
proceeding with respect to this Pledge Agreement may be brought in the
courts of the State of New York or of the United States in New York City,
and, by execution and delivery of this Pledge Agreement, each Pledgor
hereby irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of such courts. Each
Pledgor further irrevocably consents
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<PAGE> 185
to the service of process out of any of the aforementioned courts in any
such action or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, to it at the address for notices
pursuant to Section 11.1 of the Credit Agreement, such service to become
effective 30 days after such mailing. Nothing herein shall affect the
right of the Agent to serve process in any other manner permitted by law
or to commence legal proceedings or to otherwise proceed against any
Pledgor in any other jurisdiction.
(b) Each Pledgor hereby irrevocably waives any objection which it
may now or hereafter have to the laying of venue of any of the aforesaid
actions or proceedings arising out of or in connection with this Pledge
Agreement brought in the courts referred to in subsection (a) hereof and
hereby further irrevocably waives and agrees not to plead or claim in any
such court that any such action or proceeding brought in any such court
has been brought in an inconvenient forum.
21. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH
OF THE PARTIES TO THIS PLEDGE AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS PLEDGE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
22. Severability. If any provision of any of the Pledge Agreement is
determined to be illegal, invalid or unenforceable, such provision shall be
fully severable and the remaining provisions shall remain in full force and
effect and shall be construed without giving effect to the illegal, invalid or
unenforceable provisions.
23. Entirety. This Pledge Agreement, the other Credit Documents and the
Hedging Agreements represent the entire agreement of the parties hereto and
thereto, and supersede all prior agreements and understandings, oral or
written, if any, including any commitment letters or correspondence relating to
the Credit Documents, the Hedging Agreements or the transactions contemplated
herein and therein.
24. Survival. All representations and warranties of the Pledgors
hereunder shall survive the execution and delivery of this Pledge Agreement,
the other Credit Documents and the Hedging Agreements, the delivery of the
Notes and the making of the Loans and the issuance of the Letters of Credit
under the Credit Agreement.
25. Other Security. To the extent that any of the Pledgor Obligations are
now or hereafter secured by property other than the Pledged Collateral
(including, without limitation, real and other personal property owned by a
Pledgor), or by a guarantee, endorsement or property of any other Person, then
the Agent and the Lenders shall have the right to proceed against such other
property, guarantee or endorsement upon the occurrence of any Event of Default,
and the Agent and the Lenders have the right, in their sole discretion, to
determine which rights, security, liens, security interests or remedies the
Agent and the Lenders shall at any time pursue, relinquish, subordinate, modify
or take with respect thereto, without in any way modifying or affecting any of
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<PAGE> 186
them or any of the Agent's and the Lenders' rights or the Pledgor Obligations
under this Pledge Agreement, under any other of the Credit Documents or under
any Hedging Agreement.
26. Joint and Several Obligations of Pledgors.
(a) Each of the Pledgors is accepting joint and several liability
hereunder in consideration of the financial accommodation to be provided
by the Lenders under the Credit Agreement, for the mutual benefit,
directly and indirectly, of each of the Pledgors and in consideration of
the undertakings of each of the Pledgors to accept joint and several
liability for the obligations of each of them.
(b) Each of the Pledgors jointly and severally hereby irrevocably
and unconditionally accepts, not merely as a surety but also as a
co-debtor, joint and several liability with the other Pledgors with
respect to the payment and performance of all of the Pledgor Obligations
arising under this Pledge Agreement, the other Credit Documents and the
Hedging Agreements, it being the intention of the parties hereto that all
the Pledgor Obligations shall be the joint and several obligations of
each of the Pledgors without preferences or distinction among them.
(c) Notwithstanding any provision to the contrary contained herein
or in any other of the Credit Documents, to the extent the obligations of
a Guarantor shall be adjudicated to be invalid or unenforceable for any
reason (including, without limitation, because of any applicable state or
federal law relating to fraudulent conveyances or transfers) then the
obligations of each Guarantor hereunder shall be limited to the maximum
amount that is permissible under applicable law (whether federal or state
and including, without limitation, the Bankruptcy Code).
[remainder of page intentionally left blank]
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<PAGE> 187
Each of the parties hereto has caused a counterpart of this Pledge
Agreement to be duly executed and delivered as of the date first above written.
BORROWER: EXTENDICARE HEALTH SERVICES, INC.,
a Delaware corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
GUARANTORS: EXTENDICARE HOLDINGS, INC.,
a Wisconsin corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
EXTENDICARE HEALTH FACILITY
HOLDINGS, INC.,
a Delaware corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
EXTENDICARE HEALTH FACILITIES, INC.,
a Wisconsin corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
COVENTRY CARE, INC.,
a Pennsylvania corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
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<PAGE> 188
NORTHERN HEALTH FACILITIES, INC.,
a Delaware corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
EXTENDICARE HOMES, INC.,
a Delaware corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
UNITED PROFESSIONAL COMPANIES, INC.,
a Delaware corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
THE PROGRESSIVE STEP CORPORATION,
a Wisconsin corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
EXTENDICARE OF INDIANA, INC.,
a Delaware corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
UNITED REHABILITATION SERVICES, INC.,
a Wisconsin corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
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<PAGE> 189
EDGEWOOD NURSING CENTER, INC.,
a Pennsylvania corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
ELDER CREST, INC.,
a Pennsylvania corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
HAVEN CREST, INC.,
a Pennsylvania corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
MEADOW CREST, INC.,
a Pennsylvania corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
OAK HILL HOME OF REST AND CARE, INC.,
a Pennsylvania corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
EXTENDICARE GREAT TRAIL, INC.,
a Delaware corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
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<PAGE> 190
FIR LANE TERRACE CONVALESCENT
CENTER, INC.,
a Washington corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
UNITED PROFESSIONAL SERVICES, INC.,
a Wisconsin corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
ARBOR HEALTH CARE COMPANY,
a Delaware corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
ADULT SERVICES UNLIMITED, INC.,
a Pennsylvania corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
ALTERNACARE PLUS ENTERPRISES, INC.,
an Ohio corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
ARBORS EAST, INC.,
an Ohio corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
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<PAGE> 191
ARBORS AT FT. WAYNE, INC.,
an Indiana corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
ARBORS AT TOLEDO, INC.,
an Ohio corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
BAY GERIATRIC PHARMACY, INC.,
a Florida corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
THE DRUGGIST, INC.,
an Ohio corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
HEALTH POCONOS, INC.,
a Pennsylvania corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
HOME CARE PHARMACY, INC. OF
FLORIDA,
a Florida corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
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<PAGE> 192
MARSHALL PROPERTIES, INC.,
an Ohio corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
POLY-STAT COMPUTER
APPLICATIONS, INC.
an Ohio corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
POLY-STAT SUPPLY CORPORATION,
an Ohio corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
Q.D. PHARMACY, INC.,
a Michigan corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
AHC ACQUISITION CORP.,
a Delaware corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
Accepted and agreed to in Charlotte, North Carolina as of the date first
above written.
NATIONSBANK, N.A., as Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
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<PAGE> 193
Schedule 2(a)
to
Pledge Agreement
dated as of November 26, 1997
in favor of NationsBank, N.A.
as Agent
PLEDGED STOCK
PLEDGOR: EXTENDICARE HEALTH
SERVICES, INC. (F/K/A UNITED HEALTH, INC.)
<TABLE>
<CAPTION>
Number of Certificate Percentage
Name of Subsidiary Shares Number Ownership
- ------------------ --------- ----------- ----------
<S> <C> <C> <C>
United Holdings, Inc., n/k/a
Extendicare Health Facility
Holdings, Inc. 308 4 100%
United Health Development Corporation,
n/k/a The Progressive Step Corporation 1000 1 100%
Union Prescription Centers, Inc.,
n/k/a United Professional Companies, Inc. 10 3 100%
Union Prescription Centers, Inc.,
n/k/a United Professional Companies, Inc. 1 4 100%
</TABLE>
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<PAGE> 194
PLEDGOR: EXTENDICARE HOLDINGS, INC.
<TABLE>
<CAPTION>
Number of Certificate Percentage
Name of Subsidiary Shares Number Ownership
- ------------------ --------- ----------- ----------
<S> <C> <C> <C>
United Health, Inc., n/k/a
Extendicare Health Services, Inc. 947 10 100%
</TABLE>
PLEDGOR: EXTENDICARE HEALTH FACILITY
HOLDINGS, INC. (F/K/A UNITED HOLDINGS, INC.)
<TABLE>
<CAPTION>
Number of Certificate Percentage
Name of Subsidiary Shares Number Ownership
- ------------------ --------- ----------- ----------
<S> <C> <C> <C>
Unicare Health Facilities, Inc., n/k/a
Extendicare Health Facilities, Inc. 100 13 100%
Unicare Homes, Inc., n/k/a
Extendicare Homes, Inc. 500 1 100%
Unicare Homes, Inc, n/k/a
Extendicare Homes, Inc. 500 2 100%
Unicare of Indiana, Inc., n/k/a
Extendicare of Indiana, Inc. 10 1 100%
Unicare Ancillary Services, Inc., n/k/a
United Rehabilitation Services, Inc. 1 1 100%
</TABLE>
PLEDGOR: EXTENDICARE HEALTH FACILITIES,
INC. (F/K/A UNICARE HEALTH FACILITIES, INC.)
<TABLE>
<CAPTION>
Number of Certificate Percentage
Name of Subsidiary Shares Number Ownership
- ------------------ --------- ----------- ----------
<S> <C> <C> <C>
Coventry Care, Inc. 508,268 6 100%
Class A
Common
Northern Health Facilities, Inc. 100 1 100%
</TABLE>
-2-
<PAGE> 195
PLEDGOR: COVENTRY CARE, INC.
<TABLE>
<CAPTION>
Number of Certificate Percentage
Name of Subsidiary Shares Number Ownership
- ------------------ --------- ----------- ----------
<S> <C> <C> <C>
Envir-Care Centers, Inc., n/k/a
Edgewood Nursing Center, Inc. 20 1 100%
Elder Crest, Inc. 1000 1 100%
Haven Crest, Inc. 3600 1 100%
Common
Voting Stock
Haven Crest, Inc. 13,680 2 100%
Class A
Common Stock
Meadow Crest, Inc. 100 1 100%
Oak Hill Home of Rest and Care, Inc. 2500 1 100%
</TABLE>
PLEDGOR: NORTHERN HEALTH FACILITIES, INC.
<TABLE>
<CAPTION>
Number of Certificate Percentage
Name of Subsidiary Shares Number Ownership
- ------------------ --------- ----------- ----------
<S> <C> <C> <C>
Extendicare Great Trail, Inc. 10 1 100%
</TABLE>
PLEDGOR: EXTENDICARE HOMES, INC.
(F/K/A UNICARE HOMES, INC.)
<TABLE>
<CAPTION>
Number of Certificate Percentage
Name of Subsidiary Shares Number Ownership
- ------------------ --------- ----------- ----------
<S> <C> <C> <C>
Fir Lane Terrace Convalescent
Center, Inc. 5000 3 100%
</TABLE>
-3-
<PAGE> 196
PLEDGOR: UNITED PROFESSIONAL COMPANIES, INC.
(F/K/A UNION PRESCRIPTION CENTERS, INC.)
<TABLE>
<CAPTION>
Number of Certificate Percentage
Name of Subsidiary Shares Number Ownership
- ------------------ --------- ----------- ----------
<S> <C> <C> <C>
UHF Purchasing Services, Inc., n/k/a
United Professional Services, Inc. 500 5 100%
</TABLE>
PLEDGOR: ARBOR HEALTH CARE COMPANY
<TABLE>
<CAPTION>
Number of Certificate Percentage
Name of Subsidiary Shares Number Ownership
- ------------------ --------- ----------- ----------
<S> <C> <C> <C>
Adult Services Unlimited, Inc. 900 2 100%
Alternacare Plus Enterprises, Inc. 100 4 100%
Arbors East, Inc. 100 1 100%
Arbors at Fort Wayne, Inc. 100 1 100%
Arbors at Toledo, Inc. 100 1 100%
Bay Geriatric Pharmacy, Inc. 200 16 100%
The Druggist, Inc. 100 2 100%
Health Poconos, Inc. 100 2 100%
Home Care Pharmacy, Inc. of Florida 1176.46 11 100%
Marshall Properties, Inc. 950 A-3 100%
Class A
Marshall Properties, Inc. 50 B-2 100%
Class B
Poly-Stat Computer Applications, Inc. 500 4 100%
Poly-Stat Supply Corporation 700 3 100%
Q.D. Pharmacy, Inc. 2000 6 100%
</TABLE>
-4-
<PAGE> 197
Exhibit 4(a)
to
Pledge Agreement
dated as of November 26, 1997
in favor of NationsBank, N.A.
as Agent
Irrevocable Stock Power
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to
the following shares of capital stock of _____________________, a ____________
corporation:
No. of Shares Certificate No.
------------- ---------------
and irrevocably appoints __________________________________ its agent and
attorney-in-fact to transfer all or any part of such capital stock and to take
all necessary and appropriate action to effect any such transfer. The agent
and attorney-in-fact may substitute and appoint one or more persons to act for
him. The effectiveness of a transfer pursuant to this stock power shall be
subject to any and all transfer restrictions referenced on the face of the
certificates evidencing such interest or in the certificate of incorporation or
bylaws of the subject corporation, to the extent they may from time to time
exist.
_______________,
a ______________ corporation
By: _____________________________
Name: ___________________________
Title: __________________________
1
<PAGE> 198
EXHIBIT 2.1(B)(I)
FORM OF NOTICE OF BORROWING
NationsBank, N. A.,
as Agent for the Lenders
101 North Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Ladies and Gentlemen:
The undersigned, EXTENDICARE HEALTH SERVICES, INC. (the "Borrower"),
refers to the Credit Agreement dated as of November 26, 1997 (as amended,
modified, restated or supplemented from time to time, the "Credit Agreement"),
among the Borrower, the Guarantors, the Lenders and NationsBank, N. A., as
Agent. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Credit Agreement. The Borrower
hereby gives notice pursuant to Section 2.1 of the Credit Agreement that it
requests a Revolving Loan advance under the Credit Agreement, and in connection
therewith sets forth below the terms on which such Loan advance is requested to
be made:
(A) Date of Borrowing (which is a Business Day) _______________________
(B) Principal Amount of Borrowing _______________________
(C) Interest rate basis _______________________
(D) Interest Period and the last day thereof _______________________
In accordance with the requirements of Section 5.2, the Borrower hereby
reaffirms the representations and warranties set forth in the Credit Agreement
as provided in subsection (b) of such Section, and confirms that the matters
referenced in subsections (c), (d), (e) and (f) (and, if this Notice of
Borrowing is being delivered with respect to the second advance of the Tranche
A Term Loan, subsection (g)) of such Section, are true and correct.
EXTENDICARE HEALTH SERVICES, INC.
By: ___________________________
Name: _________________________
Title: ________________________
-1-
<PAGE> 199
EXHIBIT 2.1(E)
FORM OF REVOLVING NOTE
$_________________ November 26, 1997
FOR VALUE RECEIVED, EXTENDICARE HEALTH SERVICES, INC., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of
__________________________, its successors and assigns (the "Lender"), at the
office of NationsBank, N. A., as Agent (the "Agent"), at 101 North Tryon
Street, Independence Center, NC1-001-15-04, Charlotte, North Carolina 28255
(or at such other place or places as the holder hereof may designate), at the
times set forth in the Credit Agreement dated as of the date hereof among the
Borrower, the Guarantors, the Lenders and the Agent (as it may be as amended,
modified, restated or supplemented from time to time, the "Credit Agreement";
all capitalized terms not otherwise defined herein shall have the meanings set
forth in the Credit Agreement), but in no event later than the Maturity Date,
in Dollars and in immediately available funds, the principal amount of
________________________DOLLARS ($____________) or, if less than such principal
amount, the aggregate unpaid principal amount of all Revolving Loans made by
the Lender to the Borrower pursuant to the Credit Agreement, and to pay
interest from the date hereof on the unpaid principal amount hereof, in like
money, at said office, on the dates and at the rates selected in accordance
with Section 2.1(d) of the Credit Agreement.
Upon the occurrence and during the continuance of an Event of Default, the
balance outstanding hereunder shall bear interest as provided in Section 3.1 of
the Credit Agreement. Further, in the event the payment of all sums due
hereunder is accelerated under the terms of the Credit Agreement, this Note,
and all other indebtedness of the Borrower to the Lender shall become
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or accelerated
maturity, the Borrower agrees to pay, in addition to the principal and
interest, all costs of collection, including reasonable attorneys' fees.
This Note and the Loans evidenced hereby may be transferred in whole or in
part only by registration of such transfer on the Register maintained by or on
behalf of the Borrower as provided in Section 11.3(c) of the Credit Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed
by its duly authorized officer as of the day and year first above written.
EXTENDICARE HEALTH SERVICES, INC.
By: __________________________
Name: ________________________
Title: _______________________
1
<PAGE> 200
EXHIBIT 2.3(F)
FORM OF TRANCHE A TERM NOTE
$_________________ November 26, 1997
FOR VALUE RECEIVED, EXTENDICARE HEALTH SERVICES, INC., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of
__________________________, its successors and assigns (the "Lender"), at the
office of NationsBank, N. A., as Agent (the "Agent"), at 101 North Tryon
Street, Independence Center, NC1-001-15-04, Charlotte, North Carolina 28255
(or at such other place or places as the holder hereof may designate), at the
times set forth in the Credit Agreement dated as of the date hereof among the
Borrower, the Guarantors, the Lenders and the Agent (as it may be as amended,
modified, restated or supplemented from time to time, the "Credit Agreement";
all capitalized terms not otherwise defined herein shall have the meanings set
forth in the Credit Agreement), but in no event later than the Maturity Date,
in Dollars and in immediately available funds, the principal amount of
________________________DOLLARS ($____________), and to pay interest from the
date hereof on the unpaid principal amount hereof, in like money, at said
office, on the dates and at the rates selected in accordance with Section
2.3(e) of the Credit Agreement.
Upon the occurrence and during the continuance of an Event of Default, the
balance outstanding hereunder shall bear interest as provided in Section 3.1 of
the Credit Agreement. Further, in the event the payment of all sums due
hereunder is accelerated under the terms of the Credit Agreement, this Note,
and all other indebtedness of the Borrower to the Lender shall become
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or accelerated
maturity, the Borrower agrees to pay, in addition to the principal and
interest, all costs of collection, including reasonable attorneys' fees.
This Note and the Loans evidenced hereby may be transferred in whole or in
part only by registration of such transfer on the Register maintained by or on
behalf of the Borrower as provided in Section 11.3(c) of the Credit Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed
by its duly authorized officer as of the day and year first above written.
EXTENDICARE HEALTH SERVICES, INC.
By: __________________________
Name: ________________________
Title: _______________________
1
<PAGE> 201
EXHIBIT 2.4(F)
FORM OF TRANCHE B TERM NOTE
$_________________ November 26, 1997
FOR VALUE RECEIVED, EXTENDICARE HEALTH SERVICES, INC., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of
__________________________, its successors and assigns (the "Lender"), at the
office of NationsBank, N. A., as Agent (the "Agent"), at 101 North Tryon
Street, Independence Center, NC1-001-15-04, Charlotte, North Carolina 28255
(or at such other place or places as the holder hereof may designate), at the
times set forth in the Credit Agreement dated as of the date hereof among the
Borrower, the Guarantors, the Lenders and the Agent (as it may be as amended,
modified, restated or supplemented from time to time, the "Credit Agreement";
all capitalized terms not otherwise defined herein shall have the meanings set
forth in the Credit Agreement), but in no event later than the Maturity Date,
in Dollars and in immediately available funds, the principal amount of
________________________DOLLARS ($____________), and to pay interest from the
date hereof on the unpaid principal amount hereof, in like money, at said
office, on the dates and at the rates selected in accordance with Section
2.4(e) of the Credit Agreement.
Upon the occurrence and during the continuance of an Event of Default, the
balance outstanding hereunder shall bear interest as provided in Section 3.1 of
the Credit Agreement. Further, in the event the payment of all sums due
hereunder is accelerated under the terms of the Credit Agreement, this Note,
and all other indebtedness of the Borrower to the Lender shall become
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or accelerated
maturity, the Borrower agrees to pay, in addition to the principal and
interest, all costs of collection, including reasonable attorneys' fees.
This Note and the Loans evidenced hereby may be transferred in whole or in
part only by registration of such transfer on the Register maintained by or on
behalf of the Borrower as provided in Section 11.3(c) of the Credit Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed
by its duly authorized officer as of the day and year first above written.
EXTENDICARE HEALTH SERVICES, INC.
By: __________________________
Name: ________________________
Title: _______________________
1
<PAGE> 202
EXHIBIT 2.5(E)
FORM OF TRANCHE C TERM NOTE
$_________________ November 26, 1997
FOR VALUE RECEIVED, EXTENDICARE HEALTH SERVICES, INC., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of
__________________________, its successors and assigns (the "Lender"), at the
office of NationsBank, N. A., as Agent (the "Agent"), at 101 North Tryon
Street, Independence Center, NC1-001-15-04, Charlotte, North Carolina 28255
(or at such other place or places as the holder hereof may designate), at the
times set forth in the Credit Agreement dated as of the date hereof among the
Borrower, the Guarantors, the Lenders and the Agent (as it may be as amended,
modified, restated or supplemented from time to time, the "Credit Agreement";
all capitalized terms not otherwise defined herein shall have the meanings set
forth in the Credit Agreement), but in no event later than the Maturity Date,
in Dollars and in immediately available funds, the principal amount of
________________________DOLLARS ($____________), and to pay interest from the
date hereof on the unpaid principal amount hereof, in like money, at said
office, on the dates and at the rates selected in accordance with Section
2.5(d) of the Credit Agreement.
Upon the occurrence and during the continuance of an Event of Default, the
balance outstanding hereunder shall bear interest as provided in Section 3.1 of
the Credit Agreement. Further, in the event the payment of all sums due
hereunder is accelerated under the terms of the Credit Agreement, this Note,
and all other indebtedness of the Borrower to the Lender shall become
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or accelerated
maturity, the Borrower agrees to pay, in addition to the principal and
interest, all costs of collection, including reasonable attorneys' fees.
This Note and the Loans evidenced hereby may be transferred in whole or in
part only by registration of such transfer on the Register maintained by or on
behalf of the Borrower as provided in Section 11.3(c) of the Credit Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed
by its duly authorized officer as of the day and year first above written.
EXTENDICARE HEALTH SERVICES, INC.
By: __________________________
Name: ________________________
Title: _______________________
1
<PAGE> 203
EXHIBIT 3.2
FORM OF NOTICE OF EXTENSION/CONVERSION
NationsBank, N. A.,
as Agent for the Lenders
101 North Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Ladies and Gentlemen:
The undersigned, EXTENDICARE HEALTH SERVICES, INC. (the "Borrower"),
refers to the Credit Agreement dated as of November 26, 1997 (as amended,
modified, restated or supplemented from time to time, the "Credit Agreement"),
among the Borrower, the Guarantors, the Lenders and NationsBank, N. A., as
Agent. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Credit Agreement. The Borrower
hereby gives notice pursuant to Section 3.2 of the Credit Agreement that it
requests an extension or conversion of a [Revolving Loan] [Tranche A Term Loan]
[Tranche B Term Loan] [Tranche C Term Loan] outstanding under the Credit
Agreement, and in connection therewith sets forth below the terms on which such
extension or conversion is requested to be made:
(A) Loan Type/Tranche _______________________
(B) Date of Extension or Conversion
(which is the last day of the
the applicable Interest Period) _______________________
(C) Principal Amount of Extension or Conversion _______________________
(D) Interest rate basis _______________________
(E) Interest Period and the last day thereof ______________________
1
<PAGE> 204
In accordance with the requirements of Section 5.2, the Borrower hereby
reaffirms the representations and warranties set forth in the Credit Agreement
as provided in subsection (b) of such Section, and confirms that the matters
referenced in subsections (c), (d), (e) and (f) of such Section, are true and
correct.
EXTENDICARE HEALTH SERVICES, INC.
By: __________________________
Name: ________________________
Title: _______________________
2
<PAGE> 205
EXHIBIT 7.1(C)
FORM OF OFFICER'S COMPLIANCE CERTIFICATE
For the fiscal quarter ended _________________, 19___.
I, ______________________, [Title] of EXTENDICARE HEALTH SERVICES, INC.
(the "Borrower") hereby certify that, to the best of my knowledge and belief,
with respect to that certain Credit Agreement dated as of November 26, 1997 (as
amended, modified, restated or supplemented from time to time, the "Credit
Agreement"; all of the defined terms in the Credit Agreement are incorporated
herein by reference) among the Borrower, the Guarantors, the Lenders and
NationsBank, N. A., as Agent:
a. The company-prepared financial statements which accompany
this certificate are true and correct in all material respects and
have been prepared in accordance with GAAP applied on a consistent
basis, subject to changes resulting from normal year-end audit
adjustments; and
b. Since ___________ (the date of the last similar
certification, or, if none, the Closing Date) no Default or Event of
Default has occurred under the Credit Agreement.
Delivered herewith are detailed calculations demonstrating compliance by
the Credit Parties with the financial covenants contained in Section 7.11 of
the Credit Agreement as of the end of the fiscal period referred to above.
This ______ day of ___________, 19__.
EXTENDICARE HEALTH SERVICES, INC.
By: __________________________
Name: ________________________
Title: _______________________
1
<PAGE> 206
Attachment to Officer's Certificate
COMPUTATION OF FINANCIAL COVENANTS
2
<PAGE> 207
EXHIBIT 7.12
FORM OF JOINDER AGREEMENT
THIS JOINDER AGREEMENT (the "Agreement"), dated as of _____________, 19__,
is by and between _____________________, a ___________________ (the
"Subsidiary"), and NATIONSBANK, N. A., in its capacity as Agent under that
certain Credit Agreement (as it may be amended, modified, restated or
supplemented from time to time, the "Credit Agreement"), dated as of November
26, 1997, by and among EXTENDICARE HEALTH SERVICES, INC., a Delaware
corporation (the "Borrower"), the Guarantors, the Lenders and NationsBank, N.
A., as Agent. All of the defined terms in the Credit Agreement are
incorporated herein by reference.
The Subsidiary is an Additional Credit Party, and, consequently, the
Credit Parties are required by Section 7.12 of the Credit Agreement to cause
the Subsidiary to become a "Guarantor".
Accordingly, the Subsidiary hereby agrees as follows with the Agent, for
the benefit of the Lenders:
1. The Subsidiary hereby acknowledges, agrees and confirms that, by its
execution of this Agreement, the Subsidiary will be deemed to be a party to the
Credit Agreement and a "Guarantor" for all purposes of the Credit Agreement,
and shall have all of the obligations of a Guarantor thereunder as if it had
executed the Credit Agreement. The Subsidiary hereby ratifies, as of the date
hereof, and agrees to be bound by, all of the terms, provisions and conditions
applicable to the Guarantors contained in the Credit Agreement. Without
limiting the generality of the foregoing terms of this paragraph 1, the
Subsidiary hereby (i) jointly and severally together with the other Guarantors,
guarantees to each Lender and the Agent, as provided in Section 4 of the Credit
Agreement, the prompt payment and performance of the Credit Party Obligations
in full when due (whether at stated maturity, as a mandatory prepayment, by
acceleration or otherwise) strictly in accordance with the terms thereof.
2. The Subsidiary hereby acknowledges, agrees and confirms that, by its
execution of this Agreement, the Subsidiary will be deemed to be a party to the
Pledge Agreement, and shall have all the obligations of a "Pledgor" thereunder
as if it had executed the Pledge Agreement. The Subsidiary hereby ratifies, as
of the date hereof, and agrees to be bound by, all the terms, provisions and
conditions contained in the Pledge Agreement. Without limiting the generality
of the foregoing terms of this paragraph 3, the Subsidiary hereby pledges and
assigns to the Agent, for the benefit of the Lenders, and grants to the Agent,
for the benefit of the Lenders, a continuing security interest in any and all
right, title and interest of the Subsidiary in and to Pledged Shares (as such
term is defined in Section 2 of the Pledge Agreement) listed on Schedule 1
attached hereto and the other Pledged Collateral (as such term is defined in
Section 2 of the Pledge Agreement).
1
<PAGE> 208
3. The address of the Subsidiary for purposes of all notices and other
communications is ____________________, ____________________________, Attention
of ______________ (Facsimile No. ____________).
4. The Subsidiary hereby waives acceptance by the Agent and the Lenders of
the guaranty by the Subsidiary under Section 4 of the Credit Agreement upon the
execution of this Agreement by the Subsidiary.
5. This Agreement may be executed in two or more counterparts, each of
which shall constitute an original but all of which when taken together shall
constitute one contract.
6. This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Subsidiary has caused this Joinder Agreement to be
duly executed by its authorized officers, and the Agent, for the benefit of the
Lenders, has caused the same to be accepted by its authorized officer, as of
the day and year first above written.
[SUBSIDIARY]
By: ___________________________
Name: _________________________
Title: ________________________
Acknowledged and accepted:
NATIONSBANK, N. A., as Agent
By: __________________________
Name: ________________________
Title: _______________________
2
<PAGE> 209
SCHEDULE 1
TO FORM OF JOINDER AGREEMENT
[Pledged Shares]
3
<PAGE> 210
EXHIBIT 11.3(B)
FORM OF ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of November 26, 1997,
as amended and modified from time to time thereafter (the "Credit Agreement")
among EXTENDICARE HEALTH SERVICES, INC., the other Credit Parties party
thereto, the Lenders party thereto and NationsBank, N.A., as Agent. Terms
defined in the Credit Agreement are used herein with the same meanings.
The "Assignor" and the "Assignee" referred to on Schedule 1 agree as
follows:
1. The Assignor hereby sells and assigns to the Assignee, without recourse
and without representation or warranty except as expressly set forth herein,
and the Assignee hereby purchases and assumes from the Assignor, an interest in
and to the Assignor's rights and obligations under the Credit Agreement and the
other Credit Documents as of the date hereof equal to the percentage interest
specified on Schedule 1 of all outstanding rights and obligations under the
Credit Agreement and the other Credit Documents. After giving effect to such
sale and assignment, the Assignee's Commitment and the amount of the Loans
owing to the Assignee will be as set forth on Schedule 1.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit
Documents or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Credit Documents or any other instrument or
document furnished pursuant thereto; (iii) makes no representation or warranty
and assumes no responsibility with respect to the financial condition of any
Credit Party or the performance or observance by any Credit Party of any of its
obligations under the Credit Documents or any other instrument or document
furnished pursuant thereto; and (iv) attaches the Notes held by the Assignor
and requests that the Agent exchange such Notes for new Notes payable to the
order of the Assignee in an amount equal to the Commitment assumed by the
Assignee pursuant hereto and to the Assignor in an amount equal to the
Commitment retained by the Assignor, if any, as specified on Schedule 1.
<PAGE> 211
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 7.1 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon the Agent, the Assignor or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Credit
Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers and discretion under the Credit Agreement as are delegated to the
Agent by the terms thereof, together with such powers and discretion as are
reasonably incidental thereto; (v) agrees that it will perform in accordance
with their terms all of the obligations that by the terms of the Credit
Agreement are required to be performed by it as a Lender; and (vi) attaches any
U.S. Internal Revenue Service or other forms required under Section 3.11.
4. Following the execution of this Assignment and Acceptance, it will be
delivered to the Agent for acceptance and recording by the Agent. The
effective date for this Assignment and Acceptance (the "Effective Date") shall
be the date of acceptance hereof by the Agent, unless otherwise specified on
Schedule 1.
5. Upon such acceptance and recording by the Agent, as of the Effective
Date, (i) the Assignee shall be a party to the Credit Agreement and, to the
extent provided in this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and (ii) the Assignor shall, to the extent
provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Agent, from and after the
Effective Date, the Agent shall make all payments under the Credit Agreement
and the Notes in respect of the interest assigned hereby (including, without
limitation, all payments of principal, interest and commitment fees with
respect thereto) to the Assignee. The Assignor and Assignee shall make all
appropriate adjustments in payments under the Credit Agreement and the Notes
for periods prior to the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of New York.
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different 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. Delivery of an executed
counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall
be effective as delivery of a manually executed counterpart of this Assignment
and Acceptance.
5
<PAGE> 212
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Assignment and Acceptance to be executed by their officers thereunto duly
authorized as of the date hereof.
____________________, as Assignor
By: ______________________________
Name: ____________________________
Title: ___________________________
_____________________, as Assignee
By: ______________________________
Name: ____________________________
Title: ___________________________
Notice address of Assignee:
<<Assignee>>
__________________________________
__________________________________
Attn: ____________________________
Telephone: (___) ________________
Telecopy: (___) ________________
CONSENTED TO:
NATIONSBANK, N.A., *
as Agent
By: _________________________
Name: _______________________
Title: ______________________
EXTENDICARE HEALTH SERVICES, INC.*
By: _________________________
Name: _______________________
Title: ______________________
___________
* Required if the Assignee is an Eligible Assignee solely by reason of clause
(iii) of the definition of "Eligible Assignee."
* Required if the Assignee is an Eligible Assignee solely by reason of clause
(iii) of the definition of "Eligible Assignee."
6
<PAGE> 213
SCHEDULE 1
to
ASSIGNMENT AND ACCEPTANCE
<TABLE>
<S> <C>
(a) Date of Assignment:
(b) Legal Name of Assignor:
(c) Legal Name of Assignee:
(d) Effective Date of Assignment*:
(e) Revolving Commitment Percentage Assigned
(expressed as a percentage set forth to at least 8 decimals) %
(f) Revolving Commitment Percentage of Assignee
after giving effect to this Assignment and Acceptance
as of the Effective Date (set forth to at least 8 decimals) %
(g) Revolving Commitment Percentage of Assignor
after giving effect to this Assignment and Acceptance
as of the Effective Date (set forth to at least 8 decimals) %
(h) Revolving Committed Amount as of Effective Date $_____________
(i) Dollar Amount of Assignor's Revolving Commitment
Percentage as of the Effective Date (the amount set
forth in (h) multiplied by the percentage set forth in (g)) $_____________
(j) Dollar Amount of Assignee's Revolving Commitment
Percentage as of the Effective Date (the amount set
forth in (h) multiplied by the percentage set forth in (f)) $_____________
(k) Tranche A Term Loan Commitment Percentage Assigned
(expressed as a percentage set forth to at least 8 decimals) %
(l) Tranche A Term Loan Commitment Percentage of Assignee
after giving effect to this Assignment and Acceptance
on the Effective Date (set forth to at least 8 decimals) %
(m) Tranche A Term Loan Commitment Percentage of Assignor
after giving effect to this Assignment and Acceptance
on the Effective Date (set forth to at least 8 decimals) %
(n) Outstanding Balance of Tranche A Term Loan as of
the Effective Date $_____________
</TABLE>
___________
*This date should be no earlier than five Business Days after delivery of this
Assignment and Acceptance to the Agent.
7
<PAGE> 214
<TABLE>
<S> <C>
(o) Principal Amount of Assignor's portion of the Tranche A
Term Loan after giving effect to this Assignment and
Acceptance on Effective Date (the amount set forth
in (n) multiplied by the percentage set forth in (m)) $_____________
(p) Principal Amount of Assignee's portion of the Tranche A
Term Loan after giving effect to this Assignment and
Acceptance on Effective Date (the amount set forth in (n)
multiplied by the percentage set forth in (l)) $_____________
(q) Tranche B Term Loan Commitment Percentage Assigned
(expressed as a percentage set forth to at least 8 decimals) %
(r) Tranche B Term Loan Commitment Percentage of Assignee
after giving effect to this Assignment and Acceptance
on the Effective Date (set forth to at least 8 decimals) %
(s) Tranche B Term Loan Commitment Percentage of Assignor
after giving effect to this Assignment and Acceptance
on the Effective Date (set forth to at least 8 decimals) %
(t) Outstanding Balance of Tranche B Term Loan as of
the Effective Date $_____________
(u) Principal Amount of Assignor's portion of the Tranche B
Term Loan after giving effect to this Assignment and
Acceptance on Effective Date (the amount set forth
in (t) multiplied by the percentage set forth in (s)) $_____________
(v) Principal Amount of Assignee's portion of the Tranche B
Term Loan after giving effect to this Assignment and
Acceptance on Effective Date (the amount set forth in (t)
multiplied by the percentage set forth in (q)) $_____________
(w) Tranche C Term Loan Commitment Percentage Assigned
(expressed as a percentage set forth to at least 8 decimals) %
(x) Tranche C Term Loan Commitment Percentage of Assignee
after giving effect to this Assignment and Acceptance
on the Effective Date (set forth to at least 8 decimals) %
(y) Tranche C Term Loan Commitment Percentage of Assignor
after giving effect to this Assignment and Acceptance
on the Effective Date (set forth to at least 8 decimals) %
(z) Outstanding Balance of Tranche C Term Loan as of
the Effective Date $_____________
(aa) Principal Amount of Assignor's portion of the Tranche C
Term Loan after giving effect to this Assignment and
</TABLE>
8
<PAGE> 215
<TABLE>
<S> <C>
Acceptance on Effective Date (the amount set forth
in (z) multiplied by the percentage set forth in (y)) $_____________
(bb) Principal Amount of Assignee's portion of the Tranche C
Term Loan after giving effect to this Assignment and
Acceptance on Effective Date (the amount set forth in (z)
multiplied by the percentage set forth in (w)) $_____________
</TABLE>
9
<PAGE> 1
Exhibit 10.2
__________________________________________________
AGREEMENT AND PLAN OF MERGER
by and among
EXTENDICARE INC.,
AHC ACQUISITION CORP.
and
ARBOR HEALTH CARE COMPANY
dated as of
September 29, 1997
__________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I THE OFFER AND MERGER....................................... 1
Section 1.1 The Offer.................................................. 1
Section 1.2 Company Actions............................................ 3
Section 1.3 SEC Documents.............................................. 4
Section 1.4 Directors.................................................. 6
Section 1.5 The Merger................................................. 7
Section 1.6 Effective Time............................................. 8
Section 1.7 Closing.................................................... 8
Section 1.8 Stockholders' Meeting...................................... 8
Section 1.9 Merger Without Meeting of Stockholders..................... 9
ARTICLE II CONVERSION OF SECURITIES................................... 10
Section 2.1 Conversion of Capital Stock................................ 10
Section 2.2 Exchange of Certificates................................... 11
Section 2.3 Dissenters' Rights......................................... 12
Section 2.4 Company Stock Plans........................................ 13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............. 14
Section 3.1 Organization............................................... 14
Section 3.2 Capitalization............................................. 15
Section 3.3 Authorization; Validity of Agreement; Company Action....... 17
Section 3.4 Consents and Approvals; No Violations...................... 18
Section 3.5 SEC Reports and Financial Statements....................... 19
Section 3.6 Absence of Certain Changes................................. 20
Section 3.7 No Undisclosed Liabilities................................. 21
Section 3.8 Litigation................................................. 22
Section 3.9 Information in Proxy Statement............................. 22
Section 3.10 No Default; Compliance with Applicable Laws................ 22
Section 3.11 Intellectual Property...................................... 25
Section 3.12 Taxes...................................................... 25
Section 3.13 Opinion of Financial Adviser............................... 28
Section 3.14 Title to Properties........................................ 28
Section 3.15 Employee Benefit Plan...................................... 28
Section 3.16 Insurance.................................................. 30
Section 3.17 No Excess Parachute Payments............................... 30
Section 3.18 Environmental Matters...................................... 31
Section 3.19 Labor Matters.............................................. 33
Section 3.20 Finders and Investment Bankers............................. 34
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER. 34
i
<PAGE> 3
Section 4.1 Organization............................................... 34
Section 4.2 Authorization; Validity of Agreement; Necessary Action..... 35
Section 4.3 Consents and Approvals; No Violations...................... 35
Section 4.4 Information in Proxy Statement............................. 36
ARTICLE V COVENANTS.................................................. 36
Section 5.1 Interim Operations of the Company.......................... 36
Section 5.2 Access; Confidentiality.................................... 40
Section 5.3 Additional Agreements...................................... 41
Section 5.4 Consents and Approvals..................................... 41
Section 5.5 No Solicitation............................................ 42
Section 5.6 Publicity.................................................. 44
Section 5.7 Notification of Certain Matters............................ 44
Section 5.8 Indemnification............................................ 45
ARTICLE VI CONDITIONS................................................. 46
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. 46
ARTICLE VII TERMINATION................................................ 47
Section 7.1 Termination................................................ 47
Section 7.2 Effect of Termination...................................... 49
ARTICLE VIII MISCELLANEOUS.............................................. 49
Section 8.1 Fees and Expenses.......................................... 49
Section 8.2 Amendment and Modification................................. 50
Section 8.3 Nonsurvival of Representations and Warranties.............. 50
Section 8.4 Notices.................................................... 50
Section 8.5 Interpretation............................................. 51
Section 8.6 Counterparts............................................... 51
Section 8.7 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership.................................................. 51
Section 8.8 Severability............................................... 52
Section 8.9 Governing Law.............................................. 52
Section 8.10 Assignment................................................. 52
Section 8.11 Transfer and Similar Taxes................................. 52
ANNEX A Certain Conditions of the Offer............................ A-1
</TABLE>
ii
<PAGE> 4
Index of Defined Terms
----------------------
<TABLE>
<S> <C>
Defined Term Section No.
- ------------- -----------
Acquisition Proposal ........................ 5.5(a)
Appointment Date ............................ 5.1
Balance Sheet ............................... 3.14
By-laws ..................................... 1.5
Certificate of Incorporation ................ 1.5
Certificate of Merger ....................... 1.6
Certificates ................................ 2.2(b)
Closing ..................................... 1.7
Closing Date ................................ 1.7
Company ..................................... Recitals
Company Agreements .......................... 3.4
Company Benefit Plans ....................... 3.6(vii)
Company Disclosure Schedule ................. Art. III
Company Nursing Facilities .................. 3.10(b)
Company Option Plans ........................ 2.4
Company Options ............................. 2.4
Company SEC Documents ....................... 3.5
Confidentiality Agreement ................... 5.2
Current Company SEC Documents................ 3.6
DGCL ........................................ 1.2(a)
Director Option Plan ........................ 2.4
Dissenting Stockholders ..................... 2.1(c)
Effective Time .............................. 1.6
Employee Stock Purchase Plan................. 3.2(a)
Environmental Law ........................... 3.18(ii)
ERISA ....................................... 3.15
Exchange Act ................................ 1.1
Excess parachute payments ................... 8.11
Fully diluted basis ......................... 1.1
GAAP ........................................ 3.5
Governmental Entity ......................... 3.4
Hazardous Substance ......................... 3.18(iii)
HSR Act ..................................... 3.4
Indemnified Party ........................... 5.8
Intellectual Property Rights................. 3.1l
Liens ....................................... 3.2(b)
Merger ...................................... 1.5
Merger Consideration ........................ 2.1(c)
Minimum Condition ........................... 1.1
Offer ....................................... 1.1
Offer Documents ............................. 1.3(a)
Offer Price ................................. 1.1
Offer to Purchase ........................... 1.1
Parent ...................................... Recitals
Paying Agent ................................ 2.2(a)
</TABLE>
i
<PAGE> 5
<TABLE>
<S> <C>
Defined Term Section No.
- ------------- -----------
Permits ..................................... 3.10(b)
Plans ....................................... 3.15
Primary Company Executives .................. 3.17
Preferred Stock ............................. 3.2
Proxy Statement ............................. 1.8(a)(ii)
Purchaser ................................... Recitals
Raymond James ............................... 1.2(a)
Rights ...................................... 3.2
Rights Agreement ............................ 3.2
Schedule 14D-1 .............................. 1.3(a)
Schedule 14D-9 .............................. 1.3(a)
SEC ......................................... 1.3(a)
Secretary of State .......................... 1.6
Securities Act .............................. 3.5
Shares ...................................... 1.1
Special Meeting ............................. 1.8(a)(i)
Stockholder Agreements ...................... Recitals
Subsidiary .................................. 3.1
Superior Proposal ........................... 5.5(a)
Surviving Corporation ....................... 1.5
Taxes ....................................... 3.12(b)(i)(A)
Tax Return .................................. 3.12(b)(i)(B)
Termination Fee ............................. 8.1
Transactions ................................ 1.2(a)
Voting Debt ................................. 3.2
1991 Option Plan ............................ 2.4
1995 Option Plan ............................ 2.4
</TABLE>
ii
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of September 29, 1997 (this
"Agreement"), by and among Extendicare Inc., a corporation existing under the
laws of Canada ("Parent"), AHC Acquisition Corp., a Delaware corporation and an
indirect wholly owned subsidiary of Parent (the "Purchaser"), and Arbor Health
Care Company, a Delaware corporation (the "Company").
WHEREAS, the Board of Directors of each of Parent, the Purchaser and the
Company has approved, and deems it advisable and in the best interests of its
respective stockholders to consummate, the acquisition of the Company by Parent
upon the terms and subject to the conditions set forth herein;
WHEREAS, concurrently with the execution of this Agreement, and as an
inducement to Parent and the Purchaser to enter into this Agreement, certain
stockholders of the Company have each entered into a Stockholder Agreement,
dated as of the date hereof (collectively, the "Stockholder Agreements"), among
Parent, the Purchaser and the stockholder named therein providing, among other
things, that each such stockholder will vote in favor of the Merger (as defined
in Section 1.5 hereof) and will grant a proxy to Parent for that purpose;
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE OFFER AND MERGER
Section 1.1 The Offer. As promptly as practicable (but in no event later
than five business days after the public announcement of the execution hereof),
the Purchaser shall commence (within the meaning of Rule 14d-2 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) a tender
offer (the "Offer") for any and all of the outstanding shares of Common Stock,
par value $.03 per share (the "Shares"), of the
<PAGE> 7
Company at a price of U.S.$45.00 per Share, net to the seller in cash (such
price, or such other price per Share as may be paid in the Offer, being
referred to herein as the "Offer Price") and, subject to there being validly
tendered and not withdrawn prior to the expiration of the Offer, that number of
Shares which represents at least a majority of the Shares outstanding on a
fully diluted basis (the "Minimum Condition") and to the other conditions set
forth in Annex A hereto, shall consummate the Offer in accordance with its
terms ("fully diluted basis" means issued and outstanding Shares and Shares
subject to issuance under Company Option Plans (as defined in Section 2.4) and
Shares subject to issuance upon exercise of outstanding warrants, calls,
subscriptions or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock of the Company or
securities convertible or exchangeable for such capital stock).
The obligations of the Purchaser to commence the Offer and to accept for
payment and to pay for any Shares validly tendered on or prior to the
expiration of the Offer and not properly withdrawn shall be subject only to the
Minimum Condition and the other conditions set forth in Annex A hereto. The
Offer shall be made by means of an offer to purchase (the "Offer to Purchase")
containing the terms set forth in this Agreement, the Minimum Condition and the
conditions set forth in Annex A hereto.
The Purchaser shall not amend or waive the Minimum Condition and shall not
decrease the Offer Price or decrease the number of Shares sought or amend any
other condition of the Offer in any manner adverse to the holders of the Shares
(other than with respect to insignificant changes or amendments and subject to
the penultimate sentence of this Section 1.1) without the written consent of
the Company (such consent to be authorized by the Board of Directors of the
Company (the "Company Board") or a duly authorized committee thereof);
provided, however, that if on the initial scheduled expiration date of the
Offer, which shall be 20 business days after the date the Offer is commenced,
all conditions to the Offer shall not have been satisfied or waived, the
Purchaser may, from time to time, in its sole discretion, extend the expiration
date; provided, however, that the Purchaser shall, if the Company, Parent and
the Purchaser
2
<PAGE> 8
have not obtained the approvals of any Governmental Entity (as defined in
Section 3.4) as required under Section 5.4, extend the expiration date for a
period of the lesser of (i) 2 business days after the date that all such
approvals have been obtained and (ii) 35 days after such initial scheduled
expiration date. In addition, the Offer Price may be increased, and the Offer
may be extended to the extent required by law in connection with such increase
in each case without the consent of the Company. The Purchaser shall, on the
terms and subject to the prior satisfaction or waiver of the conditions of the
Offer, accept for payment and pay for Shares validly tendered as soon as it is
permitted to do so under applicable law; provided, however, that if,
immediately prior to the initial expiration date of the Offer (as it may be
extended), the Shares validly tendered and not withdrawn pursuant to the Offer
equal less than 90% of the outstanding Shares, the Purchaser may extend the
Offer for a period not to exceed 10 business days, notwithstanding that all
conditions to the Offer are satisfied as of such initial expiration date of the
Offer.
Section 1.2 Company Actions.
(a) The Company hereby approves of and consents to the Offer and
represents that the Company Board, at a meeting duly called and held, has (i)
unanimously determined that each of this Agreement, the Offer and the Merger (as
defined in Section 1.5) are fair to and in the best interests of the
stockholders of the Company, (ii) received the opinion of Raymond James &
Associates, Inc. ("Raymond James"), financial advisor to the Company, to the
effect that the Offer and the Merger are fair to the stockholders of the Company
from a financial point of view, (iii) approved this Agreement and the
Stockholder Agreements and the transactions contemplated hereby and thereby,
including the Offer and the Merger (collectively, the "Transactions"), and such
approval constitutes approval of the Offer, this Agreement, the Stockholder
Agreements and the Transactions for purposes of Section 203 of the Delaware
General Corporation Law, as amended (the "DGCL"), such that Section 203 of the
DGCL will not apply to the Transactions and (iv) resolved to recommend that the
stockholders of the Company accept the Offer, tender their Shares thereunder to
the Purchaser and approve and adopt this Agreement and the Merger; provided,
that such recommendation may be withdrawn,
3
<PAGE> 9
modified or amended if, in the opinion of the Company Board, only after receipt
of written advice from independent legal counsel, failure to withdraw, modify
or amend such recommendation would result in the Company Board violating its
fiduciary duties to the Company's stockholders under applicable law. The
Company represents that the actions set forth in this Section 1.2(a) and all
other actions it has taken in connection herewith and therewith are sufficient
to render the relevant provisions of such Section 203 of the DGCL inapplicable
to the Offer, the Merger and the Stockholders Agreements.
(b) In connection with the Offer, the Company will promptly furnish
or cause to be furnished to the Purchaser mailing labels, security position
listings and any available listing or computer file containing the names and
addresses of all recordholders of the Shares as of a recent date, and shall
furnish the Purchaser with such additional information (including, but not
limited to, updated lists of holders of the Shares and their addresses, mailing
labels and lists of security positions) and assistance as the Purchaser or its
agents may reasonably request in communicating the Offer to the record and
beneficial holders of the Shares.
Section 1.3 SEC Documents.
(a) As soon as practicable on the date the Offer is commenced, Parent
and the Purchaser shall file with the United States Securities and Exchange
Commission (the "SEC") a Tender Offer Statement on Schedule 14D-1 with respect
to the Offer (together with all amendments and supplements thereto and including
the exhibits thereto, the "Schedule 14D-1") (the Schedule 14D-1, together with
all amendments and supplements thereto and including the exhibits thereto,
including the Offer to Purchase, being collectively the "Offer Documents").
Concurrently with the commencement of the Offer, the Company shall file with the
SEC a Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto and including schedules, annexes and the
exhibits thereto, the "Schedule 14D-9"), which shall, subject to the fiduciary
duties of the Company Board under applicable law and to the provisions of this
Agreement, contain the recommendation referred to in clause (iv) of Section
1.2(a) hereof.
4
<PAGE> 10
(b) Parent and the Purchaser will take all steps necessary to ensure
that the Offer Documents, and the Company will take all steps necessary to
ensure that the Schedule 14D-9, will comply in all material respects with the
provisions of applicable federal securities laws and, on the date filed with the
SEC and on the date first published, sent or given to the Company's
stockholders, shall not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading, except that Parent and the Purchaser make no
representation with respect to information furnished by the Company for
inclusion in the Offer Documents and the Company makes no representation with
respect to information furnished by Parent or the Purchaser for inclusion in the
Schedule 14D-9. The Company agrees that the information supplied in writing by
the Company for inclusion in the Offer Documents will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Parent and the
Purchaser agree that the information supplied in writing by the Parent or the
Purchaser for inclusion in the Schedule 14D-9 will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Each of Parent
and the Purchaser will take all steps necessary to cause the Offer Documents,
and the Company will take all steps necessary to cause the Schedule 14D-9, to be
filed with the SEC and to be disseminated to holders of the Shares, in each case
as and to the extent required by applicable federal securities laws. Each of
Parent and the Purchaser, on the one hand, and the Company, on the other hand,
will promptly correct any information provided by it for use in the Offer
Documents and the Schedule 14D-9 if and to the extent that it shall have become
false or misleading in any material respect and the Purchaser will take all
steps necessary to cause the Offer Documents, and the Company will take all
steps necessary to cause the Schedule 14D-9, as so corrected to be filed with
the SEC and to be disseminated to holders of the Shares, in each case as and to
the extent required by applicable
5
<PAGE> 11
federal securities laws. The Company, on the one hand, and Parent and the
Purchaser on the other hand, and their respective counsel shall be given the
opportunity to review the Offer Documents and the Schedule 14D-9 before they
are filed with the SEC. In addition, each party hereto will provide the other
parties and their counsel in writing with any comments, whether written or
oral, which they may receive from time to time from the SEC or its staff with
respect to the Offer Documents or the Schedule 14D-9 promptly after the receipt
of such comments.
Section 1.4 Directors.
(a) Promptly upon the purchase of, and payment for, any Shares by
Parent or any of its subsidiaries which represents at least a majority of the
outstanding Shares (on a fully diluted basis, as defined in Section 1.1), Parent
shall be entitled to designate such number of directors, rounded up to the next
whole number, on the Company Board such that the percentage of its designees on
the Company Board (including persons previously designated by Parent or its
affiliates to the Company Board) shall equal the percentage of the outstanding
Shares beneficially owned by Parent and its affiliates. In furtherance thereof,
the Company shall, upon request of the Parent, use its best efforts promptly to
cause Parent's designees to be so elected to the Company Board, and in
furtherance thereof, to the extent necessary, increase the size of the Company
Board. At such time, the Company shall also cause persons designated by Parent
to constitute at least the same percentage (rounded up to the next whole number)
as is on the Company Board of (i) each committee of the Company Board, (ii) each
board of directors (or similar body) of each subsidiary of the Company and (iii)
each committee (or similar body) of each such board. Notwithstanding the
foregoing, until the Effective Time (as defined in Section 1.6 hereof), the
Company shall use all reasonable efforts to have at least two members of the
Company Board who are neither (i) officers of Parent or the Company, nor (ii)
designees, stockholders or affiliates of Parent. The Company shall promptly
take all actions required pursuant to Section
6
<PAGE> 12
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order to
fulfill its obligations under this Section 1.4(a), including mailing to
stockholders the information required by such Section 14(f) and Rule 14f-1 (or,
at Parent's request, furnishing such information to Parent for inclusion in the
Offer Documents initially filed with the SEC and distributed to the
stockholders of the Company) as is necessary to enable Parent's designees to be
elected to the Company Board. Parent or the Purchaser will supply the Company
any information with respect to either of them and their nominees, officers,
directors and affiliates required by such Section 14(f) and Rule 14f-1. The
provisions of this Section 1.4(a) are in addition to and shall not limit any
rights which the Purchaser, Parent or any of their affiliates may have as a
holder or beneficial owner of Shares as a matter of law with respect to the
election of directors or otherwise.
(b) From and after the time, if any, that Parent's designees
constitute a majority of the Company Board, any amendment of this Agreement,
any termination of this Agreement by the Company, any extension of time for
performance of any of the obligations of Parent or the Purchaser hereunder, any
waiver of any condition or any of the Company's rights hereunder or other action
by the Company hereunder may be effected only by the action of a majority of the
directors of the Company then in office who were not officers of Parent or
designees, stockholders or affiliates of Parent, which action shall be deemed to
constitute the action of any committee specifically designated by the Company
Board to approve the actions and transactions contemplated hereby and the full
Company Board; provided, that if there shall be no such directors, such actions
may be effected by majority vote of the entire Company Board.
Section 1.5 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.6 hereof), the Company
and the Purchaser shall consummate a merger (the "Merger") pursuant to which (i)
the Purchaser shall be merged with and into the Company and the separate
corporate existence of the Purchaser shall thereupon cease, (ii) the Company
shall be the successor or surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and shall continue to be
governed by the laws of the State of Delaware, and (iii) the separate corporate
existence of the Company with all its rights, privileges, immunities, powers and
franchises shall
7
<PAGE> 13
continue unaffected by the Merger, except as set forth in this Section 1.5.
Pursuant to the Merger, (x) the Restated Certificate of Incorporation of
the Company (the "Certificate of Incorporation"), as in effect immediately prior
to the Effective Time, shall be the initial certificate of incorporation of the
Surviving Corporation until thereafter amended as provided by law and such
Certificate of Incorporation, and (y) the Restated By-laws of the Company (the
"By-laws"), as in effect immediately prior to the Effective Time, shall be the
initial By-laws of the Surviving Corporation until thereafter amended as
provided by law, by the Certificate of Incorporation or by such By-laws. The
Merger shall have the effects specified in the DGCL.
The directors and officers of the Purchaser at the Effective Time shall be
the initial directors and officers, respectively, of the Surviving Corporation
until their successors shall have been duly elected or appointed or qualified or
until their earlier death, resignation or removal in accordance with the
Certificate of Incorporation and the By-laws.
Section 1.6 Effective Time. Parent, the Purchaser and the Company will
cause a Certificate of Merger, or, if applicable, a Certificate of Ownership and
Merger (as applicable, the "Certificate of Merger"), to be executed and filed on
the date of the Closing (as defined in Section 1.7) (or on such other date as
Parent and the Company may agree) with the Secretary of State of the State of
Delaware (the "Secretary of State") as provided in the DGCL. The Merger shall
become effective on the date on which the Certificate of Merger has been duly
filed with the Secretary of State or at such later time as is agreed upon by the
parties and specified in the Certificate of Merger, and such effective time is
hereinafter referred to as the "Effective Time."
Section 1.7 Closing. The closing of the Merger (the "Closing") shall take
place at 9:00 a.m., local time, on a date to be specified by the parties, which
shall be no later than the second business day after satisfaction or waiver of
all of the conditions set forth in Article VI hereof (the "Closing Date"), at
the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919
8
<PAGE> 14
Third Avenue, New York, New York, 10022 unless another date or place is agreed
to in writing by the parties hereto.
Section 1.8 Stockholders' Meeting.
(a) If required by applicable law in order to consummate the Merger,
the Company, acting through the Company Board, shall, in accordance with
applicable law:
(i) duly call, give notice of, convene and hold a special meeting of
its stockholders (the "Special Meeting"), as promptly as practicable
following the acceptance for payment and purchase of Shares by the
Purchaser pursuant to the Offer, for the purpose of considering and taking
action upon the approval of the Merger and the adoption of this Agreement;
(ii) prepare and file with the SEC a preliminary proxy or information
statement relating to the Merger and this Agreement and use its best
efforts (x) to obtain and furnish the information required to be included
by the SEC in the Proxy Statement(as hereinafter defined) and, after
consultation with Parent, to respond promptly to any comments made by the
SEC with respect to the preliminary proxy or information statement and
cause a definitive proxy or information statement, including any amendment
or supplement thereto (the "Proxy Statement") to be mailed to its
stockholders, provided that no amendment or supplement to the Proxy
Statement will be made by the Company without consultation with Parent and
its counsel and (y) to obtain the necessary approvals of the Merger and
this Agreement by its stockholders; and
(iii) subject to the fiduciary obligations of the Company Board under
applicable law as advised by independent counsel, include in the Proxy
Statement the recommendation of the Company Board that stockholders of the
Company vote in favor of the approval of the Merger and the adoption of
this Agreement.
9
<PAGE> 15
(b) Parent shall vote, or cause to be voted, all of the Shares then
owned by it, the Purchaser or any of its other subsidiaries and affiliates in
favor of the approval of the Merger and the adoption of this Agreement.
Section 1.9 Merger Without Meeting of Stockholders. Notwithstanding
Section 1.8 hereof, in the event that Parent, the Purchaser and any other
subsidiaries of Parent shall acquire in the aggregate at least 90% of the
outstanding shares of each class of capital stock of the Company, pursuant to
the Offer or otherwise, the parties hereto shall, at the request of Parent and
subject to Article VI hereof, take all necessary and appropriate action to cause
the Merger to become effective as soon as practicable after such acquisition,
without a meeting of stockholders of the Company, in accordance with Section 253
of the DGCL.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders of any
Shares or any shares of capital stock of the Purchaser:
(a) Purchaser Capital Stock. Each issued and outstanding share of
capital stock of the Purchaser shall be converted into and become one fully paid
and nonassessable share of common stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Purchaser-Owned Stock. All
Shares that are owned by the Company or any wholly-owned subsidiary of the
Company and any Shares owned by the Parent or any wholly-owned subsidiary of the
Parent shall be cancelled and retired and shall cease to exist and no
consideration shall be delivered in exchange therefor.
(c) Exchange of Shares. Each issued and outstanding Share (other
than Shares to be cancelled in accordance with Section 2.1(b) and any Shares
which are held by stockholders exercising appraisal rights pursuant
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to Section 262 of the DGCL ("Dissenting Stockholders")) shall be converted into
the right to receive the Offer Price, payable to the holder thereof, without
interest (the "Merger Consideration"), upon surrender of the certificate
formerly representing such Share in the manner provided in Section 2.2. All
such Shares, when so converted, shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each
holder of a certificate representing any such Shares shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration therefor upon the surrender of such certificate in accordance
with Section 2.2.
Section 2.2 Exchange of Certificates.
(a) Paying Agent. Prior to the Effective Time, Parent shall
designate a bank or trust company to act as agent for the holders of the Shares
in connection with the Merger (the "Paying Agent") to receive in trust the funds
to which holders of the Shares shall become entitled pursuant to Section 2.1(c).
Parent shall, from time to time, make available to the Paying Agent funds in
amounts and at times necessary for the payment of the Merger Consideration as
provided herein. All interest earned on such funds shall be paid to Parent.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates, which immediately prior to the Effective Time
represented outstanding Shares (the "Certificates"), whose Shares were converted
pursuant to Section 2.1 into the right to receive the Merger Consideration (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon receipt of the
Certificates by the Paying Agent and shall be in such form and have such other
provisions as Parent and the Company may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for payment of the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Paying Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly executed,
the holder of such Certificate shall be entitled to receive in exchange therefor
the Merger
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Consideration for each Share formerly represented by such Certificate and the
Certificate so surrendered shall forthwith be cancelled. If payment of the
Merger Consideration is to be made to a person other than the person in whose
name the surrendered Certificate is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or shall
be otherwise in proper form for transfer and that the person requesting such
payment shall have paid any transfer and other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered
holder of the Certificate surrendered or shall have established to the
satisfaction of the Surviving Corporation that such tax either has been paid or
is not applicable. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive the Merger Consideration in cash as contemplated by
this Section 2.2. The right of any stockholder to receive the Merger
Consideration shall be subject to and reduced by any applicable withholding
obligation.
(c) Transfer Books; No Further Ownership Rights in the Shares. At
the Effective Time, the stock transfer books of the Company shall be closed and
thereafter there shall be no further registration of transfers of the Shares on
the records of the Company. From and after the Effective Time, the holders of
Certificates evidencing ownership of the Shares outstanding immediately prior to
the Effective Time shall cease to have any rights with respect to such Shares,
except as otherwise provided for herein or by applicable law. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be cancelled and exchanged as provided in this Article II.
(d) Termination of Fund; No Liability. At any time following six
months after the Effective Time, the Surviving Corporation shall be entitled to
require the Paying Agent to deliver to it any funds (including any interest
received with respect thereto) which had been made available to the Paying Agent
and which have not been disbursed to holders of Certificates, and thereafter
such holders shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat or other similar laws) only as general creditors
thereof with respect to the Merger Consideration payable
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upon due surrender of their Certificates, without any interest thereon.
Notwithstanding the foregoing, none of Parent, the Surviving Corporation or the
Paying Agent shall be liable to any holder of a Certificate for Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
Section 2.3 Dissenters' Rights. If any Dissenting Stockholder shall be
entitled to be paid the "fair value" of such holder's Shares, as provided in
Section 262 of the DGCL, the Company shall give the Parent notice thereof and
the Parent shall have the right to participate in all negotiations and
proceedings with respect to any such demands. Neither the Company nor the
Surviving Corporation shall, except with the prior written consent of the
Parent, voluntarily make any payment with respect to, or settle or offer to
settle, any such demand for payment. If any Dissenting Stockholder shall fail
to perfect or shall have effectively withdrawn or lost the right to dissent, the
Shares held by such Dissenting Stockholder shall thereupon be treated as though
such Shares had been converted into the Merger Consideration pursuant to Section
2.1.
Section 2.4 Company Stock Plans. The Company shall, effective as of the
Effective Time, (i) cause each outstanding employee or director stock option to
purchase Shares (the "Company Options") granted under the Arbor Health Care
Company 1996 Stock Option Plan for Non-Employee Directors (the "Director Option
Plan") the Arbor Health Care Company 1995 Stock Option Plan, as amended by
Amendment No. 1 (the "1995 Option Plan") and the First Amended and Restated
Incentive Stock Option Plan dated November 26, 1991 (the "1991 Option Plan" and,
together with the Director Option Plan and the 1995 Option Plan, the "Company
Option Plans"), whether or not then exercisable or vested, to become fully
exercisable and vested, (ii) cause each Company Option that is then outstanding,
exercisable and vested to be cancelled and (iii) in consideration of such
cancellation, and except to the extent that Parent or the Purchaser and the
holder of any such Company Options otherwise agree, cause the Company (or, at
Parent's option, the Purchaser) to pay to such holders of Company Options an
amount in respect thereof equal to the product of (A) the excess, if any, of the
Offer Price over the exercise price of each such Company
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Option and (B) the number of Shares previously subject to the Company Options
immediately prior to its cancellation (such payment to be net of withholding
taxes). The Company shall take all actions necessary to cause the Company's
employees and directors to consent, to the extent required, to the transactions
contemplated by this Section 2.4 no later than immediately prior to the time
the Purchaser accepts Shares for payment pursuant to the Offer.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and the Purchaser that all of
the statements contained in this Article III are true and correct as of the date
of this Agreement (or, if made as of a specified date, as of such date), and
will be true and correct in all material respects as of the Closing Date as
though made on the Closing Date, except as set forth in the schedule attached to
this Agreement setting forth exceptions to the Company's representations and
warranties set forth herein (the "Company Disclosure Schedule"). The Company
Disclosure Schedule will be arranged in sections corresponding to the sections
of this Agreement to be modified by such disclosure schedule, provided that any
disclosure made in any section of the Company Disclosure Schedule shall be
deemed incorporated in all other sections thereof.
Section 3.1 Organization. Each of the Company and its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization and has all requisite
corporate power and authority and all necessary governmental approvals to own,
lease and operate its properties and to carry on its business as now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power, authority, and governmental approvals would not
have a material adverse effect on the Company and its subsidiaries, taken as a
whole. As used in this Agreement, a "subsidiary" of any entity shall mean all
corporations or other entities in which such entity owns a majority of the
issued and outstanding capital stock or equity or similar interests. As used in
this Agreement,
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any reference to any event, change or effect being material or having a
material adverse effect on or with respect to any entity (or group of entities
taken as a whole) means such event, change or effect as is materially adverse
to (i) the consolidated financial condition, businesses, prospects or results
of operations of such entity (or, if used with respect thereto, of such group
of entities taken as a whole) or (ii) the ability of such entity (or group) to
consummate the Transactions. The Company and each of its subsidiaries is duly
qualified or licensed to do business and in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary,
except where the failure to be so duly qualified or licensed and in good
standing would not individually or in the aggregate have a material adverse
effect on the Company and its subsidiaries, taken as a whole. Except as set
forth in Section 3.1 of the Company Disclosure Schedule, the Company does not
own (i) any equity interest in any corporation or other entity or (ii)
marketable securities where the Company's equity interest in any entity exceeds
five percent of the outstanding equity of such entity on the date hereof.
Section 3.2 Capitalization. (a) The authorized capital stock of the
Company consists of 20,000,000 Shares and 2,000,000 shares of preferred stock,
par value $.01 per share, including 10,000 shares of Series A Junior
Participating Cumulative Preferred Stock, par value $.01 per share
(collectively, the Preferred Stock"). As of September 26, 1997, (i) 6,937,161
Shares are issued and outstanding, (ii) no Shares are issued and held in the
treasury of the Company, (iii) no shares of Preferred Stock are issued and
outstanding, (iv) 327,766 Shares are issuable pursuant to options granted under
the Company Option Plans and (v) 2,000 Shares are issuable pursuant to the Arbor
Health Care Company Employee Stock Purchase Plan (the "Employee Stock Purchase
Plan"). All the outstanding shares of the Company's capital stock are, and all
Shares which may be issued pursuant to the exercise of outstanding Company
Options will be, when issued in accordance with the respective terms thereof,
duly authorized, validly issued, fully paid and non-assessable. There are no
bonds, debentures, notes or other indebtedness having general voting rights (or
convertible into securities having such rights) ("Voting
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Debt") of the Company or any of its subsidiaries issued and outstanding.
Except as set forth above, and except for the rights (the "Rights") issuable
pursuant to the Rights Agreement dated as of November 14, 1996 (the "Rights
Agreement"), between the Company and Keybank, National Association, as rights
agent (a true and complete copy of which has been delivered to Parent), and the
securities issuable upon the exercise of such Rights, (i) there are no shares
of capital stock of the Company authorized, issued or outstanding and (ii)
there are no existing options, warrants, calls, pre-emptive rights,
subscriptions or other rights, agreements, arrangements or commitments of any
character, relating to the issued or unissued capital stock of the Company or
any of its subsidiaries, obligating the Company or any of its subsidiaries to
issue, transfer or sell or cause to be issued, transferred or sold any shares
of capital stock or Voting Debt of, or other equity interest in, the Company or
any of its subsidiaries or securities convertible into or exchangeable for such
shares or equity interests, or obligating the Company or any of its
subsidiaries to grant, extend or enter into any such option, warrant, call,
subscription or other right, agreement, arrangement or commitment and (iii)
there are no outstanding contractual obligations of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any Shares, or the
capital stock of the Company, or any subsidiary or affiliate of the Company or
to provide funds to make any investment (in the form of a loan, capital
contribution or otherwise) in any subsidiary or any other entity.
(b) Section 3.2(b) of the Company Disclosure Schedule lists each
subsidiary of the Company and the ownership interest therein of the Company. All
of the outstanding shares of capital stock of each of the Company's subsidiaries
are beneficially owned by the Company, directly or indirectly, and all such
shares have been validly issued and are fully paid and nonassessable and are
owned by either the Company or one of its subsidiaries free and clear of all
liens, charges, claims or encumbrances ("Liens").
(c) There are no voting trusts or other agreements or understandings
to which the Company or any of its subsidiaries is a party with respect to the
voting
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of the capital stock of the Company or any of the subsidiaries.
(d) None of the Company or its subsidiaries is required to redeem,
repurchase or otherwise acquire shares of capital stock of the Company, or any
of its subsidiaries.
Section 3.3 Authorization; Validity of Agreement; Company Action. (a) The
Company has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by the Company of this Agreement, and the
consummation by it of the transactions contemplated hereby, have been duly
authorized by the Company Board and, except for obtaining the approval of its
stockholders as contemplated by Section 1.8 hereof, no other corporate action on
the part of the Company is necessary to authorize the execution and delivery by
the Company of this Agreement and the consummation by it of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Company and, subject to the approval of its stockholders as contemplated by
Section 1.8 hereof, and assuming due and valid authorization, execution and
delivery hereof by Parent and the Purchaser, is a valid and binding obligation
of the Company enforceable against the Company in accordance with its terms
except as may be limited by (a) bankruptcy, insolvency, reorganization or other
laws now or hereafter in effect relating to creditors' rights generally and (b)
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity). The affirmative vote of the holders of a
majority of the outstanding Shares, voting together as a single class, are the
only votes of the holders of any class or series of the Company's capital stock
necessary to approve this Agreement and the transactions contemplated hereby.
(b) The Company Board has duly and validly approved the transactions
contemplated hereby for the purposes of Section 203 of the DGCL. Accordingly,
the provisions of Section 203 of the DGCL will not apply to the transactions
contemplated by this Agreement. No other state takeover statute or similar
statute or regulation applies or purports to apply to the Offer, the Merger or
the other transactions contemplated hereby.
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(c) The Company Board has taken all necessary action so that (i) the
Rights will not be exercisable, trade separately, or be otherwise affected by
the Offer, the Merger or the other transactions contemplated hereby, (ii) none
of Parent and its affiliates will be deemed to be an "Acquiring Person" for
purposes thereof and (iii) a "Distribution Date" shall not occur by virtue of
the Offer, the Merger or the other transactions contemplated hereby. The
Company will take any action reasonably requested by Parent to ensure and
confirm that the Company, Parent and their respective affiliates will not have
any obligations in connection with the Rights or the Rights Agreement in
connection with the Offer, the Merger and the other transactions contemplated
hereby.
Section 3.4 Consents and Approvals; No Violations. Except for the
notices, filings and consents set forth in Section 3.4 of the Company Disclosure
Schedule (including, if applicable, such notices, filings and consents
applicable to the Company and its subsidiaries as may be required under any
environmental, health or safety law or regulation, under federal and state laws,
rules and regulations applicable to health care providers reimbursed under the
federal Medicare and state Medicaid programs, under any certificate of need law
or regulation, or under any state licensure law or regulation) and the filings,
permits, orders, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange Act, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), state securities or blue sky laws, and the DGCL, neither the execution,
delivery or performance of this Agreement by the Company nor the consummation by
the Company of the transactions contemplated hereby nor compliance by the
Company with any of the provisions hereof will (i) conflict with or result in
any breach of any provision of the Certificate of Incorporation or the By-laws
or similar organizational documents of the Company or of any of its
subsidiaries, (ii) require any notice to, filing with, or permit, order,
authorization, consent or approval of, any court, arbitral tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency (a "Governmental Entity"), (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amend-
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ment, cancellation or acceleration) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, Medicare or Medicaid
provider agreement, license, contract, agreement or other instrument or
obligation to which the Company or any of its subsidiaries is a party or by
which any of them or any of their properties or assets may be bound
(collectively, the "Company Agreements") or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company, any
of its subsidiaries or any of their properties or assets, excluding from the
foregoing clauses (ii), (iii) and (iv) such violations, breaches or defaults
which would not, individually or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole. Section 3.4 of
the Company Disclosure Schedule sets forth a list of any notices, filings,
consents and approvals required to be obtained under the Company Agreements in
connection with this Agreement prior to the consummation of the transactions
contemplated by this Agreement.
Section 3.5 SEC Reports and Financial Statements. The Company has filed
with the SEC, and has heretofore made available to Parent, true and complete
copies of, all forms, reports, schedules, statements and other documents
required to be filed by it since January 1, 1995 under the Securities Act of
1933, as amended (the "Securities Act") or the Exchange Act (collectively, the
"Company SEC Documents"). As of their respective dates or, if amended, as of
the date of the last such amendment, the Company SEC Documents, including,
without limitation, any financial statements or schedules included therein (a)
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (b) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be, and
the applicable rules and regulations of the SEC thereunder. None of the
Company's subsidiaries is required to file any forms, reports or other documents
with the SEC. The financial statements of the Company included in the Company
SEC Documents have been prepared from, and are in accordance with, the books and
records of the Company and its consolidated subsidiaries, comply in all material
respects with applicable accounting requirements
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and with the published rules and regulations of the SEC with respect thereto,
have been prepared in accordance with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly present
the consolidated financial position and the consolidated results of operations
and cash flows (and changes in financial position, if any) of the Company and
its consolidated subsidiaries as of the respective dates and for the respective
periods indicated therein. None of the subsidiaries of the Company is subject
to the informational reporting requirements of Section 13 of the Exchange Act.
Section 3.6 Absence of Certain Changes. Except as disclosed in the
Company SEC Documents filed with the SEC since January 1, 1997 (the "Current
Company SEC Documents") or in Section 3.6 of the Company's Disclosure Schedule,
since December 31, 1996:
(i) the Company and its subsidiaries have conducted their respective
businesses only in the ordinary and usual course;
(ii) neither the Company nor any of its subsidiaries has taken any of
the actions contemplated by Section 5.1 hereof other than in the ordinary
course of business and consistent with past practice;
(iii) there has not been any event, change, effect or development
which, individually or in the aggregate, has had or is, so far as
reasonably can be foreseen, likely to have, a material adverse effect on
the Company and its subsidiaries, taken as a whole (without regard,
however, to changes in conditions generally applicable to the long-term and
subacute care industry, institutional pharmacy and outpatient therapy
clinic business or general economic conditions);
(iv) there has not been any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or property)
with respect to any shares of the Company's capital stock;
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(v) there has not been any split, combination or reclassification of
any of the Company's capital stock or any issuance or the authorization of
any issuance of any other securities in exchange or in substitution for
shares of the Company's capital stock;
(vi) there has not been (A) any granting by the Company or any of its
subsidiaries to any executive officer or other key employee of the Company
or any of its subsidiaries of any increase in compensation, except in the
ordinary course of business consistent with prior practice or as required
under employment agreements in effect as of December 31, 1996, (B) any
granting by the Company or any of its subsidiaries to any such executive
officer of any increase in severance or termination pay, except as was
required under any employment, severance or termination agreements in
effect as of December 31, 1996 or (C) any entry by the Company or any of
its subsidiaries into any employment, severance or termination agreement
with any such executive officer or key employee;
(vii) there has not been any adoption or amendment in any material
respect by the Company or any of its subsidiaries of any collective
bargaining agreement or any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase,
stock option, phantom stock, retirement, vacation, severance, disability,
death benefit, hospitalization, medical or other plan, arrangement or
understanding (whether or not legally binding) providing benefits to any
current or former employee, officer or director of the Company or any of
its subsidiaries (collectively, "Company Benefit Plans").
(viii) there has not been any change in accounting methods,
principles or practices by the Company or any of its subsidiaries
materially affecting its assets, liabilities or business, except insofar as
may have been required by a change in GAAP.
Section 3.7 No Undisclosed Liabilities. Except (a) as disclosed in the
Current Company SEC Docu-
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ments, including any exhibits to the Current Company SEC Documents, and (b) for
liabilities and obligations (x) incurred in the ordinary course of business and
consistent with past practice (y) pursuant to the terms of this Agreement or
(z) as set forth in Section 3.7 of the Company Disclosure Schedule, since
January 1, 1997, neither the Company nor any of its subsidiaries has incurred
any liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, that have had, or would be reasonably likely to have,
a material adverse effect on the Company and its subsidiaries, taken as a
whole, or would be required by GAAP to be reflected on a consolidated balance
sheet of the Company and its subsidiaries (including the notes thereto).
Section 3.8 Litigation. Except as disclosed in the Current Company SEC
Documents or in Section 3.8 of the Company Disclosure Schedule, there is no
suit, claim, action, proceeding, including, without limitation, arbitration
proceedings or alternative dispute resolution proceedings, or investigation
pending before any Governmental Entity or, to the best knowledge of the Company,
threatened against the Company or any of its subsidiaries that, individually or
in the aggregate, could reasonably be expected to have a material adverse effect
on the Company and its subsidiaries, taken as a whole. Except as disclosed in
the Current Company SEC Documents or in Section 3.8 of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is subject to any
outstanding order, judgment, writ, injunction, rule or decree of any
Governmental Entity or arbitrator that, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
Section 3.9 Information in Proxy Statement. The Proxy Statement, if
required by Section 1.8 hereof (or any amendment thereof or supplement thereto),
will, at the date mailed to Company stockholders and at the time of the meeting
of Company stockholders to be held in connection with stockholder approval of
the Merger, not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading, except that no representation is made by the Company with
respect to statements made therein based on
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information supplied by Parent or the Purchaser for inclusion in the Proxy
Statement. The Proxy Statement will comply in all material respects with the
provisions of the Exchange Act and the rules and regulations promulgated
thereunder by the SEC.
Section 3.10 No Default; Compliance with Applicable Laws. (a) Except as
disclosed in Section 3.10 of the Company's Disclosure Schedule, the business of
the Company and each of its subsidiaries is not being conducted in default or
violation of any term, condition or provision of (i) its respective Certificate
of Incorporation or By-laws, (ii) any Company Agreement or (iii) any federal,
state, local or foreign statute, law, ordinance, rule, regulation, judgment,
decree, order, concession, grant, franchise, permit or license or other
governmental authorization or approval applicable to the Company or any of its
subsidiaries, excluding from the foregoing clauses (ii) and (iii), defaults or
violations which would not, individually or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole. Except as
disclosed in Section 3.10 of the Company's Disclosure Schedule, as of the date
of this Agreement, no investigation or review by any Governmental Entity or
other entity with respect to the Company or any of its subsidiaries is pending
or, to the best knowledge of the Company, threatened, nor has any Governmental
Entity or other entity indicated an intention to conduct the same.
(b) Except as set forth in Section 3.10 of the Company Disclosure
Schedule, the Company and each of its subsidiaries possess all certificates,
franchises, licenses, permits, authorizations and approvals issued to or granted
by Governmental Entities (collectively, "Permits") necessary to conduct their
business as such business is currently conducted (including certifications for
participation or enrollment in the Medicare and Medicaid programs for each of
the nursing and subacute care facilities owned or operated by the Company and/or
any of its subsidiaries ("Company Nursing Facilities"), and current and valid
provider contracts with the Medicare and Medicaid programs for each Company
Nursing Facility), except for such Permits, the lack of possession of which
would not reasonably be expected to have a material adverse effect on the
Company and its subsidiaries, taken as a whole. Except as set forth in Section
3.10 of the Compa-
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ny Disclosure Schedule, (i) all such Permits are validly held by the Company or
its subsidiaries, and the Company and each of its subsidiaries have complied in
all respects with all terms and conditions thereof (and in particular, the
Company Nursing Facilities are in substantial compliance with the terms and
conditions of participation of the Medicare and Medicaid programs), except for
such instances where the failure to validly hold such Permits or the failure to
have complied with such Permits has not, and is not reasonably expected to
have, a material adverse effect on the Company and its subsidiaries, taken as a
whole, (ii) none of such Permits will be subject to suspension, modification,
revocation or nonrenewal as a result of the execution and delivery of this
Agreement or the consummation of the Transactions, other than such Permits, the
suspension, modification or nonrenewal of which, in the aggregate, have not had
and would not reasonably be expected to have a material adverse effect on the
Company and its subsidiaries, taken as a whole and (iii) neither the Company
nor any of its subsidiaries has received any written warning, notice, notice of
violation or probable violation, survey report, statement of deficiencies,
notice of revocation, or other written communication from or on behalf of any
Governmental Entity that remains unresolved or which has resulted in any
restriction on the permissible operations of the Company or any of its
subsidiaries, alleging (A) any violation of any such Permit or of any law,
rule, regulation or provider agreement or (B) that the Company or any of its
subsidiaries requires any Permit required for its business, as such business is
currently conducted, that is not currently held by it, which violation or
failure to hold a Permit would have a material adverse effect on the Company
and its subsidiaries, taken as a whole. The Company has delivered to Parent
true and complete copies of the most recent survey reports, statements of
deficiencies and plans of correction filed with any Governmental Entity with
respect to the operations of any Company Nursing Facility. The Company and
each of its subsidiaries have filed all required cost reports with respect to
Medicaid and Medicare. The Company has delivered to Parent all such cost
reports, audits and schedules prepared or issued by, or filed with, any
Governmental Entity or private payor with respect to the operations of each
Company Nursing Facility for the last twelve (12) months and each such report
is complete and accurate in all material respects. Section 3.10 of the
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Company Disclosure Schedule sets forth the status of any open cost reporting
periods, pending reimbursement appeals, and reimbursement payment rates for the
last twelve (12) months with respect to any Governmental Entity or other third
party payor. There is no outstanding claim, and the Company does not know of
any basis for any claims against the Company or any of its subsidiaries by any
third party payors. Neither the Company, nor any of its subsidiaries, have
received any notices that Medicare or Medicaid has any claim or claims against
any of them which could result in consolidated net offsets against future
reimbursements in excess of that provided for in the consolidated financial
statements of the Company. Neither the Company, nor any of its subsidiaries,
nor, to the best knowledge of the Company or its subsidiaries, any person who
provides professional services for or on behalf of the Company and/or any of
its subsidiaries, has engaged in any activities which are prohibited under
federal Medicare or federal and state Medicaid statutes, as amended, or the
regulations promulgated pursuant thereto, or related state or local statutes or
regulations, and, to the knowledge of the Company, no investigations or other
adverse actions are being taken by Medicare and/or Medicaid, and all schedules
and/or reports have been filed with Medicare and Medicaid.
Section 3.11 Intellectual Property. The Company and its subsidiaries own,
or are licensed or otherwise have the rights to use, all patents, trademarks,
trade names, copyrights, technology, trade secrets, know-how and processes
(collectively, "Intellectual Property Rights") material to or necessary for the
conduct of their respective businesses, as presently conducted. No claims are
pending by any person against the Company or any of its subsidiaries as to the
use of any Intellectual Property Rights and, to the Company's best knowledge,
the use by the Company or any of its subsidiaries of all Intellectual Property
Rights does not infringe on the rights of any person. To the Company's best
knowledge, no third person is infringing on the Intellectual Property Rights of
the Company or any of its subsidiaries.
Section 3.12 Taxes. (a) The Company and each of its subsidiaries have
timely filed (or have had timely filed on their behalf) all Tax Returns (as
hereinafter
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defined) required by applicable law to be filed by any of them on or prior to
or as of the Effective Time of the Merger. All such Tax Returns are, or will
be at the time of filing, true, complete and correct in all material respects.
(b) The Company and each of its subsidiaries have paid (or have had
paid on their behalf) or, where payment is not yet due, have established in
accordance with GAAP (or have had established on their behalf and for their sole
benefit and recourse) an adequate accrual for the payment of all Taxes due with
respect to any period ending on or prior to the date hereof. The Company and
each of its subsidiaries have complied in all respects with all applicable laws,
rules and regulations relating to the payment and withholding of Taxes and have,
within the time and manner prescribed by law, withheld and paid over to the
proper governmental authorities all amounts required to be so withheld and paid
over under applicable laws.
(c) No deficiencies for any Taxes have been proposed, asserted or
assessed against the Company or any of its subsidiaries. There are no
outstanding requests, agreements, consents or waivers to extend the statutory
period of limitations applicable to the assessment of any Taxes or deficiencies
against the Company or any of its subsidiaries, and no power of attorney
granted by either the Company or any of its subsidiaries with respect to any
Taxes is currently in force.
(d) There are no Liens for Taxes upon the assets of the Company or
any of its subsidiaries except Liens for Taxes not yet due.
(e) There are no United States Federal, state, local or foreign
audits or other administrative proceedings or court proceedings presently
pending with regard to any Taxes or Tax Returns of the Company or any of its
subsidiaries.
(f) Except as set forth in Section 3.12 of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party to any
agreement or arrangement (written or oral) providing for the allocation or
sharing of Taxes.
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(g) Neither the Company nor any of its subsidiaries has made any
change in accounting methods, received a ruling from any taxing authority or
signed an agreement with any taxing authority likely to have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(h) All transactions that could give rise to an understatement of the
Federal income tax liability of the Company or any of its subsidiaries within
the meaning of Section 6662(d) of the Code are adequately disclosed on Tax
Returns in accordance with Section 6662(d)(2)(B) of the Code if there is or was
no substantial authority for the treatment giving rise to such understatement.
(i) Except as disclosed in Section 3.12 of the Company Disclosure
Schedule, no excess loss accounts or deferred intercompany gains as defined in
the consolidated return regulations promulgated under the Code (the "Treasury
Regulations") exist with respect to the Company or the subsidiaries.
(j) The Federal income tax net operating loss carryovers available to
the Company and its subsidiaries, and their expiration dates, are set forth in
Section 3.12 of the Company Disclosure Schedule. Except as set forth in Section
3.12 of the Company Disclosure Schedule, as of the date of this Agreement, the
net operating loss and credit carryovers are not subject to limitations imposed
by Sections 382, 383 or 384 of the Code (or any predecessor thereto) or
otherwise (including Sections 1.1502-21 and 1502-22 of the Treasury
Regulations).
(k) Neither the Company nor any of its subsidiaries has filed a
consent to application of Section 341 of the Code, or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of the Code) owned by the Company or
any of its subsidiaries.
(l) The Company is a corporation within the meaning of Section
7701(a)(3) of the Code.
(m) For purposes of this Agreement, the following terms shall have
the following meanings:
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(A) "Taxes" shall mean any and all taxes, charges, fees, levies or
other assessments, including, without limitation, income, gross receipts,
excise, real or personal property, sales, withholding, social security,
occupation, use, service, service use, license, net worth, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the
Internal Revenue Service or any taxing authority (whether domestic or
foreign including, without limitation, any state, county, local or foreign
government or any subdivision or taxing agency thereof (including a United
States possession)), whether computed shall include any interest, fines,
penalties or additional amounts attributable to, or imposed upon, or with
respect to, any such amounts.
(B) "Tax Returns" shall mean any report, return document, declaration
or other information or filing required to be supplied to any taxing
authority or jurisdiction (foreign or domestic) with respect to Taxes,
including, without limitation, information returns, any documents with
respect to or accompanying payments of estimated Taxes, or with respect to
or accompanying requests for the extension of time in which to file any
such report, return, document, declaration or other information.
Section 3.13 Opinion of Financial Adviser. The Company Board has received
the opinion of Raymond James, dated the date of this Agreement, that, as of such
date, the Offer Price and the Merger Consideration are fair from a financial
point of view to the Company's stockholders, a signed copy of which opinion has
been delivered to Parent.
Section 3.14 Title to Properties. The Company and its subsidiaries have
good, valid and marketable title to the properties and assets reflected on the
most recent consolidated balance sheet included in the Current Company SEC
Documents (the "Balance Sheet") (other than properties and assets disposed of in
the ordinary course of business since the date of the Balance Sheet), and all
such properties and assets are free and clear of any Liens, except as described
in the Current Company SEC
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Documents and the financial statements included therein or in Section 3.14 of
the Company Disclosure Schedule and other than Liens for current taxes not yet
due and other Liens or title imperfections that do not have, and are not
reasonably likely to have, a material adverse effect on the Company and its
subsidiaries, taken as a whole.
Section 3.15 Employee Benefit Plan. (a) The Company and each of its
subsidiaries have complied, and currently are in compliance, in all material
respects with the applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") the Code and all other applicable
laws with respect to each compensation or benefit plan, agreement, policy,
practice, program or arrangement (whether or not subject to ERISA) maintained by
the Company or any of its subsidiaries for the benefit of any employee, former
employee, independent contractor or director of the Company and its subsidiaries
(including, without limitation, any employment agreements or any pension,
savings, profit-sharing, bonus, medical, insurance, disability, severance,
equity-based or deferred compensation plans) (collectively, the "Plans"). The
Company has provided or made available a current, accurate and complete copy of
each Plan to Parent and, to the extent applicable to the Plans, (A) copies of
any funding instruments, (B) summary plan descriptions (C) Forms 5500 for the
last three years and (D) IRS determination letters.
(b) Each of the Plans that is intended to qualify under Section
401(a) of the Code, does so qualify, is exempt from taxation pursuant to Section
501(a) of the Code and has received a favorable determination letter from the
IRS.
(c) Neither the Company nor any of its subsidiaries has maintained,
adopted or established, contributed or been required to contribute to, or
otherwise participated in or been required to participate in, any employee
benefit plan or other program or arrangement subject to Title IV of ERISA
(including, without limitation, a "multiemployer plan" (as defined in Section
3(37) of ERISA) and a defined benefit plan (as defined in Section 3(35) of
ERISA)).
(d) No Plan, other than a Plan which is an employee pension benefit
plan (within the meaning of
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Section 3(2)(A) of ERISA), provides benefits, including, without limitation,
death, health or medical benefits (whether or not insured), with respect to
current or former employees of the Company beyond their retirement or other
termination of service with the Company (other than (A) coverage mandated by
applicable law, (B) deferred compensation benefits accrued as liabilities on
the books of the Company, or (iii) benefits the full cost of which is borne by
the current or former employee (or his or her beneficiary)).
(e) Except as set forth in Section 3.15 of the Company Disclosure
Schedule, neither the Company nor its subsidiaries has incurred any withdrawal
liability with respect to any Plan that is a multiemployer plan.
(f) No reportable event (within the meaning of Section 4043 of ERISA)
or prohibited transaction (within the meaning of Section 4975 of the Code or
Section 406 of ERISA) has occurred with respect to any Plan that could have a
material adverse effect on the Company and its subsidiaries, taken as a whole.
(g) There are no pending or, to the knowledge of the Company,
threatened actions, claims or lawsuits by any individuals or entities with
respect to any Plan (other than for routine benefit claims) that could have a
material adverse effect on the Company and its subsidiaries, taken as a whole.
(h) Except as set forth in Section 3.15 of the Company Disclosure
Schedule, no payments or benefits (nor acceleration of vesting or exercisability
of any benefits) under any Plan are triggered (in whole or in part) as a result
of the transactions contemplated by this Agreement.
(i) No Plan provides for any stock option that is exercisable into
the stock of any of the subsidiaries of the Company.
Section 3.16 Insurance. The Company maintains, and has maintained,
without interruption, during the past three years, policies or binders of
insurance covering such risks, and events, including personal injury, property
damage and general liability, in amounts
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the Company reasonably believes adequate for its business and operations.
Section 3.17 No Excess Parachute Payments. Other than payments that may
be made to the persons listed in Section 3.17 of the Company Disclosure Schedule
(the "Primary Company Executives"), any amount that could be received (whether
in cash or property or the vesting of property) as a result of any of the
Transactions (whether alone or in combination with a qualifying termination of
employment) by any employee, officer or director of the Company or any of its
affiliates who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or Company Benefit Plan
currently in effect would not be characterized as an "excess parachute payment"
(as such term is defined in Section 280G(b)(1) of the Code). Set forth in
Section 3.17 of the Company Disclosure Schedule is (i) the estimated maximum
amount that could be paid to each Primary Company Executive as a result of the
Transactions under all employment, severance and termination agreements, other
compensation arrangements and Company Benefit Plans currently in effect
(together with a qualifying termination of employment); and (ii) the "base
amount" (as such term is defined in Section 280G(b)(3) of the Code) for each
Primary Company Executive calculated as of the date of this Agreement.
Section 3.18 Environmental Matters. (i) Except as disclosed in the
Current Company SEC Documents or as set forth in Section 3.18 of the
Company Disclosure Schedule, (A) the Company and each of its subsidiaries
have conducted their respective businesses in compliance with all
applicable Environmental Laws (as hereinafter defined) and are currently in
compliance with all such laws, including, without limitation, having all
permits, licenses and other approvals and authorizations necessary for the
operation of their respective businesses as presently conducted, (B) none
of the properties currently or formerly owned or operated by the Company or
any of its subsidiaries contains any Hazardous Substance (as hereinafter
defined) in amounts exceeding the levels permitted by applicable
Environmental Laws, (C) neither the Company nor any of its subsidiaries has
received any notices, demand letters or requests for information from
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any Governmental Entity or third party indicating that the Company or any
of its subsidiaries may be in violation of, or liable under, any
Environmental Law in connection with the ownership or operation of their
businesses, including, without limitation, liability relating to sites not
owned or operated by the Company or any of its subsidiaries, (D) there are
no civil, criminal or administrative actions, suits, demands, claims,
hearings, investigations or proceedings, pending or threatened, against the
Company or any of its subsidiaries relating to any violation of or
liability under, or alleged violation of or liability under, any
Environmental Law, (E) all reports that are required to be filed by the
Company or any of its subsidiaries concerning the release of any Hazardous
Substance or the threatened or actual violation of any Environmental Law
have been so filed, (F) no Hazardous Substance has been disposed of,
released or transported in violation of or under circumstances that could
create liability under any applicable Environmental Law from any properties
owned by the Company or any of its subsidiaries as a result of any activity
of the Company or any of its subsidiaries during the time such properties
were owned, leased or operated by the Company or any of its subsidiaries,
(G) neither the Company, any of its subsidiaries nor any of their
respective properties are subject to any material liabilities or
expenditures (fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim
asserted or arising under any Environmental Law, except for violations of
the foregoing clauses (A) through (G) that, singly or in the aggregate,
would not reasonably be expected to have a material adverse effect on the
Company and its subsidiaries, taken as a whole, and (H) the Company has
provided Parent with each environmental audit, test or analysis performed
within the last three years of any property currently or formerly owned or
operated by the Company or any of its subsidiaries (x) which involves any
condition of environmental impairment which would give rise to a material
adverse effect on the Company and its subsidiaries, taken as a whole and
(y) of which the Company has knowledge.
(ii) As used herein, "Environmental Law" means any United States
Federal, territorial, state, local or foreign law, statute, ordinance,
rule, regulation, code, license, permit, authorization, approval, consent,
legal
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doctrine, order, judgment, decree, injunction, requirement or agreement
with any governmental entity relating to (x) the protection, preservation
or restoration of the environment (including, without limitation, air,
water vapor, surface water, groundwater, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource)
or to human health or safety or (y) the exposure to, or the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances. The
term "Environmental Law" includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of
1980, the Superfund Amendments and Reauthorization Act, the Federal Water
Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean
Water Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto), the Federal
Solid Waste Disposal Act and the Federal Toxic Substances Control Act, the
Federal Insecticide, Fungicide and Rodenticide Act, and the Federal
Occupational Safety and Health Act of 1970, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and
tort doctrines such as negligence, nuisance, trespass and strict liability)
that may impose liability or obligations for injuries or damages due to, or
threatened as a result of, the presence of, effects of or exposure to any
Hazardous Substance.
(iii) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as
hazardous, toxic, radioactive, or dangerous, or otherwise regulated, under
any Environmental Law. Hazardous Substance includes any substance to which
exposure is regulated by any government authority or any Environmental Law
including, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos, or asbestos containing material,
urea formaldehyde foam insulation, lead or polychlorinated byphenyls.
Section 3.19 Labor Matters. Except as set forth in Section 3.19 of the
Company Disclosure Schedule,
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neither the Company nor any of its subsidiaries is a party to, or bound by, any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization. There is no unfair labor practice or
labor arbitration proceeding pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries relating to its
business, except for any such proceeding which would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole. To the
knowledge of the executive officers of the Company, there are no organizational
efforts with respect to the formation of a collective bargaining unit presently
being made or threatened involving employees of the Company or any of its
subsidiaries.
Section 3.20 Finders and Investment Bankers. Neither the Company nor any
of its officers or directors has employed any investment banker, business
consultant, financial advisor, broker or finder in connection with the
transactions contemplated by this Agreement, except for Raymond James (the fees
of which will be paid by the Company), or incurred any liability for any
investment banking, business consultancy, financial advisory, brokerage or
finders' fees or commissions in connection with the Transactions, except for
fees payable to Raymond James. The Company has provided Parent with a true and
correct copy of the fee letter between the Company and Raymond James.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER
Parent and the Purchaser represent and warrant to the Company that all of
the statements contained in this Article IV are true and correct as of the date
of this Agreement (or, if made as of a specified date, as of such date), and
will be true and correct in all material respects as of the Closing Date as
though made on the Closing Date.
Section 4.1 Organization. Each of Parent and the Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of Canada and Delaware, respectively, and has all requisite corpo-
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rate or other power and authority and all necessary governmental approvals to
own, lease and operate its properties and to carry on its business as now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power, authority, and governmental approvals would not
have a material adverse effect on Parent and its subsidiaries, taken as a
whole. Parent and each of its subsidiaries is duly qualified or licensed to do
business and in good standing in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except where the failure to be so
duly qualified or licensed and in good standing would not, in the aggregate,
have a material adverse effect on Parent and its subsidiaries, taken as a
whole.
Section 4.2 Authorization; Validity of Agreement; Necessary Action. Each
of Parent and the Purchaser has full corporate power and authority to execute
and deliver this Agreement and to consummate the Transactions. The execution,
delivery and performance by Parent and the Purchaser of this Agreement, and the
consummation of the Merger and of the Transactions, have been duly authorized
by the Board of Directors of Parent and the Board of Directors of the Purchaser
and by Parent as the sole stockholder of the Purchaser and no other corporate
action on the part of Parent and the Purchaser is necessary to authorize the
execution and delivery by Parent and the Purchaser of this Agreement and the
consummation of the Transactions. This Agreement has been duly executed and
delivered by each of the Parent and the Purchaser and, assuming due and valid
authorization, execution and delivery hereof by the Company, is a valid and
binding obligation of each of Parent and the Purchaser, as the case may be,
enforceable against each of them in accordance with its respective terms except
as may be limited by (a) bankruptcy, insolvency, reorganization or other laws
now or hereafter in effect relating to creditors' rights generally and (b)
general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
Section 4.3 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the
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HSR Act, state securities or blue sky laws and the DGCL, neither the execution,
delivery or performance of this Agreement by Parent or the Purchaser nor the
consummation by Parent or the Purchaser of the Transactions nor compliance by
Parent or the Purchaser with any of the provisions hereof will (i) conflict
with or result in any breach of any provision of the articles of incorporation
or by-laws of Parent or the certificate of incorporation or by-laws of the
Purchaser, (ii) require any filing with, or permit, authorization, consent or
approval of, any Governmental Entity with respect to the business carried on by
Parent or its subsidiaries as of the date hereof, (iii) result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Parent, or any of its subsidiaries or the
Purchaser is a party or by which any of them or any of their respective
properties or assets may be bound or (iv) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Parent, any of its
subsidiaries or any of their properties or assets, excluding from the foregoing
clauses (ii),(iii) and (iv) such violations, breaches or defaults which would
not, individually or in the aggregate, have a material adverse effect on
Parent, its subsidiaries and the Purchaser taken as a whole.
Section 4.4 Information in Proxy Statement. None of the information
supplied by Parent or the Purchaser specifically for inclusion or incorporation
by reference in the Proxy Statement, if required by Section 1.8 hereof, will,
at the date mailed to Company stockholders and at the time of the meeting of
Company stockholders to be held in connection with Company stockholder approval
of the Merger, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading.
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ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company. The Company covenants and
agrees that, except (i) as expressly contemplated by this Agreement, (ii) as
set forth in Section 5.1 of the Company Disclosure Schedule or (iii) as agreed
in writing by Parent, after the date hereof, and prior to the time the
directors of the Purchaser have been elected to, and shall constitute a
majority of, the Company Board pursuant to Section 1.4 hereof (the "Appointment
Date"):
(a) the business of the Company and its subsidiaries shall be
conducted only in the ordinary and usual course and, to the extent consistent
therewith, each of the Company and its subsidiaries shall use its best efforts
to preserve its business organization intact and maintain its existing relations
with customers, suppliers, employees, creditors and business partners;
(b) the Company shall not, directly or indirectly, amend or propose
to amend its Certificate of Incorporation or By-laws or similar organizational
documents;
(c) the Company shall not, and it shall not permit any of its
subsidiaries to: (i)(A) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to the Company's
capital stock or that of its subsidiaries, or (B) redeem, purchase or otherwise
acquire directly or indirectly any shares of the capital stock of the Company or
of its subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities; (ii) authorize for
issuance, issue, sell, pledge, deliver or agree to commit to issue, sell, pledge
or deliver (whether through the issuance or granting of any options, warrants,
calls, subscriptions, stock appreciation rights or other rights or other
agreements) or otherwise encumber any shares of capital stock of any class of
the Company or of its subsidiaries or any securities convertible into or
exchangeable for shares of capital stock of any class of the Company or of its
subsidiaries other than Shares issued upon the exercise of Company Options
outstanding on the date hereof in
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accordance with the Company Option Plans as in effect on the date hereof or
Shares for which there are accrued payments through September 30, 1997 in
accordance with the Employee Stock Purchase Plan as in effect on the date
hereof; or (iii) split, combine or reclassify the outstanding capital stock of
the Company or of any of its subsidiaries or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares in the
capital stock of the Company or of any of its subsidiaries;
(d) except for those acquisitions specifically set forth and
described in Section 5.1(d) of the Company Disclosure Schedule, the Company
shall not, and it shall not permit any of its subsidiaries to, acquire or agree
to acquire (i) by merging or consolidating with, or by purchasing a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, limited liability company, joint venture, association
or other business organization or division thereof or (ii) any assets, outside
of the ordinary course of business, that individually is in excess of $5 million
or in the aggregate in excess of $10 million;
(e) the Company shall not, and it shall not permit any of its
subsidiaries to, sell, lease, license, mortgage or otherwise encumber or subject
to any Lien or otherwise dispose of any assets of the Company or of its
subsidiaries other than (i) sales and dispositions of interests or rights with
respect to property having an aggregate fair market value on the date of this
Agreement of less than $5 million, in each case only if in the ordinary course
of business and consistent with past practice or (ii) encumbrances and Liens
that are incurred in the ordinary course of business and consistent with past
practice;
(f) neither the Company nor any of its subsidiaries shall: (i) grant
any increase in the compensation payable or to become payable by the Company or
any of its subsidiaries to any of its executive officers or key employees or
(ii)(A) adopt any new, or (B) amend or otherwise increase, or accelerate the
payment or vesting of the amounts payable or to become payable under any
existing, bonus, incentive compensation, deferred compensation, severance,
profit sharing, stock option, stock purchase, insurance, pension, retirement or
other employ-
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ee benefit plan agreement or arrangement, including without limitation, the
Company Option Plans; or (iii) enter into any employment or severance agreement
with or, except in accordance with the existing written policies of the
Company, grant any severance or termination pay to any officer, director or
employee of the Company or any its subsidiaries;
(g) neither the Company nor any of its subsidiaries shall: (i)
modify, amend or terminate any of its or its subsidiaries' material contracts or
waive, release or assign any material rights or claims, except in the ordinary
course of business and consistent with past practice (ii) enter into any other
agreements, commitments or contracts that are material to the Company and its
subsidiaries taken as a whole, other than in the ordinary course of business and
consistent with past practice, or otherwise make any material change that is
adverse to the Company (including by way of termination) in (A) any existing
agreement, commitment or arrangement that is material to the Company and its
subsidiaries taken as a whole or (B) the conduct of the business or operations
of the Company and its subsidiaries;
(h) neither the Company nor any of its subsidiaries shall: (i) incur
or assume any long-term debt, or except in the ordinary course of business in
amounts consistent with past practice, incur or assume any short-term
indebtedness; (ii) incur or modify any material indebtedness or other liability;
(iii) issue or sell any debt securities or warrants or other rights to acquire
any debt securities of the Company or of any of its subsidiaries; (iv) enter
into any "keep well" or other arrangement to maintain any financial condition of
another person; (v) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person, except in the ordinary course of business and consistent with
past practice; (vi) make any loans, advances or capital contributions to, or
investments in, any other person (other than to wholly owned subsidiaries of the
Company); or (vii) enter into any material commitment or transaction (including,
but not limited to, any material capital expenditure or purchase or lease of
assets or real estate other than the purchase of products for inventory and
supplies in the ordinary course of business); provided that this Section 5.1(h)
shall not
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prevent the financings of the acquisitions described in Section 5.1(d) of the
Company Disclosure Schedule;
(i) neither the Company nor any of its subsidiaries shall change any
of the accounting methods used by it unless required by GAAP;
(j) neither the Company nor any of its subsidiaries shall, without
the prior written consent of Parent, pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction of
any such claims, liabilities or obligations, in the ordinary course of business
and consistent with past practice, of claims, liabilities or obligations
reflected or reserved against in, or contemplated by, the consolidated financial
statements (or the notes thereto) of the Company and its consolidated
subsidiaries;
(k) neither the Company nor any of its subsidiaries will take, or
agree to commit to take, any action that would or is reasonably likely to result
in any of the conditions to the Offer set forth in Annex A or any of the
conditions to the Merger set forth in Article VI not being satisfied, or would
make any representation or warranty of the Company contained herein inaccurate
in any respect at, or as of any time prior to, the Effective Time, or that would
materially impair the ability of the Company to consummate the Offer or the
Merger in accordance with the terms hereof or materially delay such
consummation;
(l) neither the Company nor any of its subsidiaries shall make any
Tax election or settle or compromise any Tax liability or refund, except to the
extent already provided in the Current Company SEC Documents;
(m) neither the Company nor any of its subsidiaries shall permit any
material insurance policy naming it as a beneficiary or a loss payable payee to
be cancelled or terminated without notice to Parent, except in the ordinary
course of business and consistent with past practice;
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(n) neither the Company nor any of its subsidiaries will adopt a plan
of complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or any of
its subsidiaries (other than the Merger); and
(o) neither the Company nor any of its subsidiaries will enter into
an agreement, contract, commitment or arrangement to do any of the foregoing, or
to authorize, recommend, propose or announce an intention to do any of the
foregoing.
Section 5.2 Access; Confidentiality. Upon reasonable notice, the Company
shall (and shall cause each of its subsidiaries to) afford to the officers,
employees, accountants, counsel, financing sources and other representatives of
Parent, reasonable access, during normal business hours during the period prior
to the Appointment Date, to all its properties, books, contracts, commitments
and records and, during such period, the Company shall (and shall cause each of
its subsidiaries to) furnish promptly to the Parent (a) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of federal securities laws and
(b) all other information concerning its business, properties and personnel as
Parent may reasonably request. After the Appointment Date the Company shall
provide Parent and such persons as Parent shall designate with all such
information, at such time as Parent shall request. Unless otherwise required by
law and until the Appointment Date, Parent will hold any such information which
is non-public in confidence in accordance with the provisions of a letter
agreement dated September 10, 1997 between the Company and the Parent (the
"Confidentiality Agreement"). The parties agree that the access and assistance
to be provided pursuant to this Section 5.2 shall not be such as to unreasonably
interfere with the operation of the Company's business.
Section 5.3 Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto shall use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations, or
to remove any injunctions or other impediments or delays, legal or otherwise,
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to consummate and make effective the Merger and the other transactions
contemplated by this Agreement. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of the Company and Parent shall
use all reasonable efforts to take, or cause to be taken, all such necessary
actions.
Section 5.4 Consents and Approvals. (a) Each of the Company, Parent and
the Purchaser will take all reasonable actions necessary to comply promptly with
all legal requirements which may be imposed on it with respect to this Agreement
and the Transactions (which actions shall include, without limitation,
furnishing all information required under the HSR Act and in connection with
approvals of or filings with any other Governmental Entity) and will promptly
cooperate with and furnish information to each other in connection with any such
requirements imposed upon any of them or any of their subsidiaries in connection
with this Agreement and the Transactions. Each of the Company, Parent and the
Purchaser will, and will cause its subsidiaries to, take all reasonable actions
necessary to obtain (and will cooperate with each other in obtaining) any
consent, authorization, order or approval of, or any exemption by, any
Governmental Entity or other public or private third party required to be
obtained or made by Parent, the Purchaser, the Company or any of their
subsidiaries in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement.
(b) The Company and Parent shall take all reasonable actions
necessary to file as soon as practicable notifications under the HSR Act and to
respond as promptly as practicable to any inquiries received from the Federal
Trade Commission and the Antitrust Division of the Department of Justice for
additional information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any Governmental Entity
in connection with antitrust matters.
Section 5.5 No Solicitation. (a) Neither the Company nor any of its
subsidiaries or affiliates shall (and the Company shall use its best efforts to
cause its officers, directors, employees, representatives and agents, including,
but not limited to, investment bankers, attorneys and accountants, not to),
directly or
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indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than Parent, any of its affiliates or
representatives) concerning any proposal or offer to acquire all or a
substantial part of the business and properties of the Company or any of its
subsidiaries or any capital stock of the Company or any of its subsidiaries,
whether by merger, tender offer, exchange offer, sale of assets, sale of shares
of capital stock or debt securities or similar transactions involving the
Company or any subsidiary, division or operating or principal business unit of
the Company (collectively, an "Acquisition Proposal"). Notwithstanding the
foregoing, the Company may furnish information concerning its business,
properties or assets to any corporation, partnership, person or other entity or
group pursuant to appropriate confidentiality agreements, and may negotiate and
participate in discussions and negotiations with such entity or group
concerning an Acquisition Proposal (x) if such entity or group has on an
unsolicited basis submitted a bona fide written proposal to the Company Board
relating to any such transaction which the Company Board determines in good
faith represents a superior transaction to the Offer and the Merger and which
is not conditioned upon obtaining additional financing and (y) if, in the
opinion of the Company Board, only after receipt of advice from independent
legal counsel to the Company, the failure to provide such information or access
or to engage in such discussions or negotiations would cause the Company Board
to violate its fiduciary duties to the Company's stockholders under applicable
law (an Acquisition Proposal which satisfies clauses (x) and (y) being referred
to herein as a "Superior Proposal"). The Company will immediately communicate
to Parent the terms of any proposal, discussion, negotiation or inquiry (and
will disclose any written materials received by the Company in connection with
such proposal, discussion negotiation, or inquiry) and the identity of the
party making such proposal or inquiry which it may receive in respect of any
such transaction.
(b) Except as set forth herein, neither the Company Board nor any
committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent or the Purchaser, the approval or
recommendation by the Company Board or any such com-
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<PAGE> 49
mittee of the Offer, this Agreement or the Merger, (ii) approve or recommend,
or propose to approve or recommend, any Acquisition Proposal or (iii) enter
into any agreement with respect to any Acquisition Proposal. Notwithstanding
the foregoing, prior to the time of acceptance for payment of Shares in the
Offer, the Company Board may (subject to the terms of this and the following
sentence) withdraw or modify its approval or recommendation of the Offer, this
Agreement or the Merger, approve or recommend a Superior Proposal, or enter
into an agreement with respect to a Superior Proposal, in each case at any time
after the second business day following Parent's receipt of written notice
advising Parent that the Company Board has received a Superior Proposal,
specifying the material terms and conditions of such Superior Proposal and
identifying the person making such Superior Proposal; provided that the Company
Board shall have determined, only after receipt of advice from outside legal
counsel to the Company, that the failure to take such action would cause the
Company Board to violate its fiduciary duties to the Company's stockholders
under applicable law; provided further that the Company shall not enter into an
agreement with respect to a Superior Proposal unless the Company shall have
furnished Parent with written notice not later than noon (New York time) one
day in advance of any date that it intends to enter into such agreement and
shall have caused its financial and legal advisors to negotiate with Parent to
make such adjustments in the terms and conditions of this Agreement as would
enable the Company to proceed with the transactions contemplated herein on such
adjusted terms. In addition, if the Company proposes to enter into an
agreement with respect to any Acquisition Proposal, it shall concurrently with
entering into such agreement pay, or cause to be paid, to Parent the
Termination Fee (as defined in Section 8.1) subject to the provisions of
Section 8.1.
Section 5.6 Publicity. The initial press release with respect to the
execution of this Agreement shall be a joint press release acceptable to Parent
and the Company. Thereafter, so long as this Agreement is in effect, neither
the Company, Parent nor any of their respective affiliates shall issue or cause
the publication of any press release or other announcement with respect to the
Merger, this Agreement or the other transactions contemplated hereby without
the prior consultation of the other party, except as may be required by law
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or by any listing agreement with a national securities exchange or trading
market.
Section 5.7 Notification of Certain Matters. The Company shall give
prompt notice to Parent and Parent shall give prompt notice to the Company, of
(i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at or prior
to the Effective Time and (ii) any material failure of the Company, Parent or
the Purchaser, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 5.7
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
Section 5.8 Indemnification. For six years after the Effective Time,
Parent shall cause the Surviving Corporation (or any successor to the Surviving
Corporation) to indemnify, defend and hold harmless the present and former
officers and directors of the Company and its subsidiaries (each an
"Indemnified Party") against all losses, claims, damages, liabilities, fees and
expenses (including reasonable fees and disbursements of counsel and judgments,
fines, losses, claims, liabilities and amounts paid in settlement (provided
that any such settlement is effected with the written consent of the Parent or
the Surviving Corporation)) arising out of actions or omissions occurring at or
prior to the Effective Time to the full extent permitted under Delaware law,
subject to the terms of the Company's Certificate of Incorporation, By-laws and
indemnification agreements, all as in effect at the date hereof, including
provisions relating to advancement of expenses incurred in the defense of any
action or suit; provided that, in the event any claim or claims are asserted or
made within such six year period, all rights to indemnification in respect of
any such claim or claims shall continue until disposition of any and all such
claims; provided further, that any determination required to be made with
respect to whether an Indemnified Party's conduct complies with the standards
set forth under Delaware law, the Certificate of Incorporation, the By-Laws or
such agreements, as the case may be, shall be made by independent counsel
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<PAGE> 51
mutually acceptable to Parent and the Indemnified Party and; provided further,
that nothing herein shall impair any rights or obligations of any present or
former directors or officers of the Company.
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject
to the satisfaction on or prior to the Closing Date of each of the following
conditions, any and all of which may be waived in whole or in part by the
Company, Parent or the Purchaser, as the case may be, to the extent permitted
by applicable law:
(a) Stockholder Approval. This Agreement shall have been approved
and adopted by the requisite vote of the stockholders of the Company, if
required by applicable law and the Certificate of Incorporation, in order to
consummate the Merger;
(b) Statutes; Consents. No law, statute, rule, order, decree or
regulation shall have been enacted or promulgated by any Governmental Entity of
competent jurisdiction which declares this Agreement invalid or unenforceable in
any material respect or which prohibits completion of the Offer or consummation
of the Merger, and all governmental consents, orders and approvals (including,
without limitation, those identified in Section 5.4(a) of the Schedule attached
to this Agreement) required for the completion of the Offer or consummation of
the Merger and the other transactions contemplated hereby shall have been
obtained and shall be in effect at the Effective Time;
(c) Injunctions. There shall be no order or injunction of any
Governmental Entity in effect precluding, restraining, enjoining or prohibiting
completion of the Offer or consummation of the Merger;
(d) Purchase of Shares in Offer. Parent, the Purchaser or their
affiliates shall have purchased Shares pursuant to the Offer; and
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(e) HSR Approval. The applicable waiting period under the HSR Act
shall have expired or been terminated.
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated and the Merger
contemplated herein may be abandoned at any time prior to the Effective Time,
whether before or after stockholder approval thereof:
(a) By the mutual written consent of the Board of Directors of Parent
and the Company Board.
(b) By either of the Board of Directors of Parent or the Company
Board:
(i) if the Offer shall have expired without any Shares being
purchased therein; provided, however, that the right to terminate this
Agreement under this Section 7.1(b)(i) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of Parent or the Purchaser, as the
case may be, to purchase the Shares pursuant to the Offer on or prior to
the date on which the Offer shall have expired; or
(ii) if any Governmental Entity shall have issued an order, decree or
ruling or taken any other action (which order, decree, ruling or other
action the parties hereto shall use their reasonable efforts to lift), in
each case permanently restraining, enjoining or otherwise prohibiting the
Transactions and such order, decree, ruling or other action shall have
become final and non-appealable.
(c) By the Company Board:
(i) if, prior to the purchase of the Shares pursuant to the Offer,
Parent or the Purchaser breaches or fails in any material respect to
perform or comply with any of its material covenants and agreements
contained herein or breaches its
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representations and warranties in any material respect; or
(ii) in connection with entering into a definitive agreement in
accordance with Section 5.5(b), provided it has complied with all
provisions thereof, including the notice provisions therein, and that it
makes simultaneous payment of the Termination Fee; or
(iii) if Parent or the Purchaser shall have terminated the Offer
without Parent or the Purchaser, as the case may be, purchasing any Shares
pursuant thereto; provided that the Company may not terminate this
Agreement pursuant to this Section 7.1(c)(iii) if the Company is in
material breach of this Agreement; or
(iv) if Parent, the Purchaser or any of their affiliates shall have
failed to commence the Offer on or prior to the fifth business day
following the date of the initial public announcement of the Offer;
provided, that the Company may not terminate this Agreement pursuant to
this Section 7.1(c)(iv) if the Company is in material breach of this
Agreement.
(d) By the Board of Directors of the Parent or the Board of Directors of
the Purchaser:
(i) if prior to the purchase of the Shares pursuant to the Offer, the
Company Board (A) shall have withdrawn, or modified or changed in a manner
adverse to Parent or the Purchaser, its approval or recommendation of the
Offer, this Agreement or the Merger, or (B) shall have approved or
recommended an Acquisition Proposal, or (C) shall have executed an
agreement in principle (or similar agreement) or definitive agreement
providing for a tender offer or exchange offer for any shares of capital
stock of the Company, or a merger, consolidation or other business
combination with a person or entity other than Parent, the Purchaser or
their affiliates (or the Company Board resolves to do any of the
foregoing); or
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(ii) if Parent or the Purchaser shall have terminated the Offer
without Parent or the Purchaser purchasing any Shares thereunder, provided
that Parent or the Purchaser may not terminate this Agreement pursuant to
this Section 7.1(d)(ii) if Parent or the Purchaser has failed to purchase
the Shares in the Offer in violation of the material terms thereof; or
(iii) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of the
conditions set forth in Annex A hereto, Parent, the Purchaser, or any of
their affiliates shall have failed to commence the Offer on or prior to the
fifth business day following the date of the initial public announcement of
the Offer.
Section 7.2 Effect of Termination. In the event of the termination of
this Agreement as provided in Section 7.1, written notice thereof by the
terminating party shall forthwith be given to the other party or parties
specifying the provision hereof pursuant to which such termination is made, and
this Agreement shall forthwith become null and void, and there shall be no
liability on the part of Parent, the Company, their respective stockholders and
affiliates, or the respective officers and directors thereof, except as set
forth in Section 8.1 and pursuant to the Confidentiality Agreement; provided,
however, that nothing herein shall relieve any party from liability for fraud or
for any material breach of this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Fees and Expenses. All costs and expenses incurred in
connection with this Agreement and the consummation of the Transactions shall be
paid by the party incurring such expenses. Notwithstanding the foregoing, if
(x) this Agreement is terminated pursuant to Section 7.1(c)(ii) or 7.1(d)(i)
hereof or (y) prior to the termination of this Agreement an Acquisition Proposal
shall have been made and within 12 months of such termination an Acquisition
Proposal shall have been consummat-
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ed or the Company shall have entered into an agreement with respect to, or
shall have approved or recommended, an Acquisition Proposal, then the Company
shall pay to Parent (concurrently with such termination, in the case of clause
(x) above, and not later than the consummation of such later Acquisition
Proposal, in the case of clause (y) above) an amount equal to U.S.$10 million
(the "Termination Fee"). In addition, if the Offer is terminated pursuant to
paragraph (g) of Annex A hereto, Parent will pay to the Company an amount equal
to all out-of-pocket fees and expenses of the Company incurred in connection
with this Agreement and the Offer (including legal and investment banking fees
and expenses) to a maximum of U.S. $1 million.
Section 8.2 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the stockholders of the Company
contemplated hereby, by written agreement of the parties hereto (which in the
case of the Company shall include approvals as contemplated in Section 1.4(b)),
at any time prior to the Closing Date with respect to any of the terms
contained herein; provided, however, that after the approval of this Agreement
by the stockholders of the Company, no such amendment, modification or
supplement shall reduce the amount, or change the form, of the Merger
Consideration.
Section 8.3 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time.
Section 8.4 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by an overnight courier service, such
as Federal Express, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or the Purchaser, to:
Extendicare Inc.
3000 Steeles Avenue East
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Suite 700
Markham, Ontario
L3R 9W2
Attention: Joy D. Calkin
Telephone: (905) 470-4000
Facsimile: (905) 470-4003
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022-3897
Attention: Milton G. Strom
Telephone No.: (212) 735-2300
Telecopy No.: (212) 735-3618
(b) if to the Company, to:
Arbor Health Care Company
1100 Shawnee Road
Box 840
Lima, Ohio 45802
Attention: Pier C. Borra
Telephone: (419) 227-3000
Facsimile: (419) 227-3499
with a copy to:
Shumaker, Loop & Kendrick, LLP
Barnett Plaza - Suite 2800
101 East Kennedy Boulevard
Tampa, Florida 33602
Attention: Gregory C. Yadley
Telephone No.: (813) 229-7600
Telecopy No.: (813) 229-1660
Section 8.5 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", "includes" or "including"
are used in this Agreement they shall be deemed to be followed by the words
"without limitation". As used in this Agreement, the term "affiliate(s)" shall
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have the meaning set forth in Rule l2b-2 promulgated under the Exchange Act.
Section 8.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties.
Section 8.7 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement and the Confidentiality Agreement (including the
documents and the instruments referred to herein and therein): (a) constitute
the entire agreement and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, and (b) except as provided in Section 5.8 and Schedule 3.15 hereto, is
not intended to confer upon any person other than the parties hereto any rights
or remedies hereunder.
Section 8.8 Severability. Any term or provision of this Agreement that
is held by a court of competent jurisdiction or other authority to be invalid,
void or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction or other authority declares that any term or provision
hereof is invalid, void or unenforceable, the parties agree that the court
making such determination shall have the power to reduce the scope, duration,
area or applicability of the term or provision, to delete specific words or
phrases, or to replace any invalid, void or unenforceable term or provision
with a term or provision that is valid and enforceable and that comes closest
to expressing the intention of the invalid or unenforceable term or provision.
Section 8.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of law thereof.
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Section 8.10 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that the Purchaser may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect wholly owned subsidiary of Parent. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors
and assigns.
Section 8.11 Transfer and Similar Taxes. Notwithstanding any other
provision of this Agreement to the contrary, each of the Company's stockholders
shall be responsible for the payment of any sales, use, privilege, transfer,
documentary, gains, stamp, duties, recording and similar Taxes and fees
(including any penalties, interest and additions to such fees), except for
taxes relating to "excess parachute payments" with respect to persons referred
to in Schedule 3.17 of the Company Disclosure Schedule, incurred in connection
with such stockholder's sale of Shares to the Purchaser pursuant to this
Agreement and for the accurate filing of all necessary Tax Returns and other
documentation with respect to any transfer Tax.
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IN WITNESS WHEREOF, Parent, the Purchaser and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized
as of the date first written above.
EXTENDICARE INC.
By: /s/ Barry L. Stephens
------------------------------------------
Name: Barry L. Stephens
Title: Senior Vice President, Finance
AHC ACQUISITION CORP.
By: /s/ Stephen F. Dineley
------------------------------------------
Name: Stephen F. Dineley
Title: Vice President &
Chief Financial Officer
ARBOR HEALTH CARE COMPANY
By: /s/ Pier C. Borra
------------------------------------------
Name: Pier. C. Borra
Title: Chairman, President and
Chief Executive Officer
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ANNEX A
Certain Conditions of the Offer. Notwithstanding any other provisions of
the Offer, and in addition to (and not in limitation of) the Purchaser's rights
to extend and amend the Offer at any time in its sole discretion (subject to
the provisions of this Agreement), the Purchaser shall not be required to
accept for payment or, subject to any applicable rules and regulations of the
SEC, including Rule 14e-1(c) under the Exchange Act (relating to the
Purchaser's obligation to pay for or return tendered Shares promptly after
termination or withdrawal of the Offer), pay for, and may delay the acceptance
for payment of or, subject to the restriction referred to above, the payment
for, any tendered Shares, and may terminate or amend the Offer as to any Shares
not then paid for, if (i) any applicable waiting period under the HSR Act has
not expired or terminated, (ii) the Minimum Condition has not been satisfied,
(iii) the Company, the Parent and the Purchaser, as required, have not obtained
all necessary material consents, approvals, orders, authorizations,
registrations, declarations, permits or filings required to be obtained by it
in connection with this Agreement and the transactions contemplated hereby or
(iv) at any time on or after the date of the Merger Agreement and before the
time of payment for any such Shares, any of the following events shall occur or
shall be determined by the Purchaser to have occurred:
(a) there shall be threatened or pending any suit, action or
proceeding by any Governmental Entity against the Purchaser, Parent, the Company
or any subsidiary of the Company (i) seeking to prohibit or impose any material
limitations on Parent's or the Purchaser's ownership or operation (or that of
any of their respective subsidiaries or affiliates) of all or a material portion
of their or the Company's businesses or assets, or to compel Parent or the
Purchaser or their respective subsidiaries and affiliates to dispose of or hold
separate any material portion of the business or assets of the Company or Parent
and their respective subsidiaries, in each case taken as a whole, (ii)
challenging the acquisition by Parent or the
A-1
<PAGE> 61
Purchaser of any Shares under the Offer, the Merger or pursuant to the
Stockholder Agreements, seeking to restrain or prohibit the making or
consummation of the Offer or the Merger or the performance of any of the other
Transactions (including the voting provisions thereunder), or seeking to
obtain from the Company, Parent or the Purchaser any damages that are
material in relation to the Company and its subsidiaries taken as a whole,
(iii) seeking to impose material limitations on the ability of the Purchaser,
or render the Purchaser unable, to accept for payment, pay for or purchase
some or all of the Shares pursuant to the Offer and the Merger, (iv) seeking
to impose material limitations on the ability of the Purchaser or Parent
effectively to exercise full rights of ownership of the Shares,
including, without limitation, the right to vote the Shares purchased by it on
all matters properly presented to the Company's stockholders, or (v) which
otherwise is reasonably likely to have a material adverse affect on the
Company and its subsidiaries, taken as a whole;
(b) there shall be any statute, rule, regulation, judgment, order
or injunction enacted, entered, enforced, promulgated, or deemed applicable,
pursuant to an authoritative interpretation by or on behalf of a Government
Entity, to the Offer or the Merger, or any other action shall be taken by any
Governmental Entity, other than the application to the Offer or the Merger of
applicable waiting periods under HSR Act, that is reasonably likely to result,
directly or indirectly, in any of the consequences referred to in clauses (i)
through (iv) of paragraph (a) above;
(c) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock Exchange,
The Toronto Stock Exchange or in the Nasdaq Stock Market, for a period in
excess of 24 hours (excluding suspensions or limitations resulting solely
from physical damage or interference with such exchanges not related to
market conditions), (ii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or Canada
(whether or not mandatory), (iii) a commencement of a war directly or
indirectly involving the United States or Canada, (iv) any limitation
(whether or not mandatory) by any United States or Canadian governmental
authority on the extension of credit generally by banks or other financial
institutions, (v) a change in general financial, bank or capital market
conditions which materially adversely affects the ability of financial
institutions in the United States or Canada to extend credit or syndicate
loans or (vi) in the case of any of the foregoing existing at the time of the
commencement of the Offer, a material acceleration or worsening thereof;
A-2
<PAGE> 62
(d) (i) the representations and warranties of the Company set forth
in this Agreement shall not be true and correct in any material respect as of
the date of this Agreement and as of consummation of the Offer as though made
on or as of such date, (ii) the Company shall have failed to comply with its
covenants and agreements under this Agreement in all material respects or (iii)
there shall have occurred any events or changes which have had or will have a
material adverse effect on the Company and its subsidiaries taken as a whole;
(e) (i) the Company Board shall have withdrawn, or modified or
changed in a manner adverse to Parent or the Purchaser (including by amendment
of the Schedule 14D-9) its approval or recommendation of the Offer, this
Agreement, or the Merger, or approved or recommended any Acquisition Proposal,
(ii) the Company shall have entered into any agreement with respect to any
Superior Proposal in accordance with Section 5.5(b) of this Agreement or (iii)
the Company Board, upon request of the Purchaser, shall fail to reaffirm its
recommendation of the Offer, this Agreement or the Merger;
(f) this Agreement shall have terminated in accordance with its terms;
or
(g) there shall have occurred after the date hereof any material
adverse change in the business, assets, liabilities (actual or contingent),
operations, condition, financial or otherwise) or prospects of Extendicare
Health Services, Inc., an indirect wholly owned subsidiary of Parent ("EHSI"),
and its subsidiaries, taken as a whole, and Nationsbank, N.A. or Nationsbanc
Capital Markets, Inc. shall have declined to participate in the financing to be
provided to EHSI as set forth in their letter to Parent dated September 29,
1997.
which in the sole judgment of Parent or the Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
the Purchaser) giving rise to such condition makes it inadvisable to proceed
with the Offer and/or with such acceptance for payment of or payment for Shares.
The foregoing conditions are for the sole benefit of Parent and the
Purchaser and may be waived by Parent or the Purchaser, in whole or in part at
any time and from time
A-3
<PAGE> 63
to time in the sole discretion of Parent or the Purchaser. The failure by
Parent or the Purchaser 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.
A-4
<PAGE> 1
EXHIBIT 12.1
EXTENDICARE HEALTH SERVICES, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997
---------- ----------------- -------------------
<S> <C> <C> <C>
Fixed charges
Interest, net $ 54,496 $ 40,375 $ 54,036
add: interest income 1,084 1,155 1,498
capitalized interest 975 755 1,021
deferred financing charges 976 732 977
--------- ---------------- ------------------
Interest on indebtedness 57,531 43,017 57,532
Proportion of rents representative
of the interest factors 3,967 3,130 4,103
--------- ---------------- ------------------
$ 61,498 $ 46,147 $ 61,635
========= ================ ==================
Earnings before income taxes,
minority interests and extraordinary
items $ 39,378 $ 36,246 $ 51,862
add: fixed charges above 61,498 46,147 61,635
deduct: capitalized interest above (975) (755) (1,021)
--------- ---------------- ------------------
Earnings for computation purposes $ 99,901 $ 81,638 $112,476
========= ================ ==================
Ratio 1.6x 1.8x 1.8x
========= ================ ==================
</TABLE>
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF
EXTENDICARE HEALTH SERVICES, INC.
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
- ---- ---------------
<S> <C>
Adult Services Unlimited, Inc................................... Pennsylvania
Alternacare Plus Enterprises, Inc............................... Ohio
Arbor Health Care Company....................................... Delaware
Arbors East, Inc................................................ Ohio
Arbors at Ft. Wayne, Inc........................................ Indiana
Arbors at Toledo, Inc........................................... Ohio
Bay Geriatric Pharmacy, Inc..................................... Florida
BCI Dissolution Corp............................................ Pennsylvania
CSI Software, Inc............................................... Massachusetts
Conves-Care, Inc................................................ Washington
Coventry Care, Inc.............................................. Pennsylvania
Coventry Care Development, Inc.................................. Pennsylvania
Dreshco, Inc.................................................... Pennsylvania
Edgewood Nursing Center, Inc.................................... Pennsylvania
Elder Crest, Inc................................................ Pennsylvania
Extendicare Great Trail, Inc.................................... Delaware
Extendicare Health Facilities, Inc.............................. Wisconsin
Extendicare Health Facility Holdings, Inc....................... Delaware
Extendicare Homes, Inc.......................................... Delaware
Extendicare of Indiana, Inc..................................... Delaware
Fir Lane Terrace Convalescent Center, Inc....................... Washington
Haven Crest, Inc................................................ Pennsylvania
Health Poconis, Inc............................................. Pennsylvania
Home Care Pharmacy, Inc. of Florida............................. Florida
Marshall Properties, Inc........................................ Ohio
Meadow Crest, Inc............................................... Pennsylvania
Northern Health Facilities, Inc................................. Delaware
Oak Hill Home of Rest and Care, Inc............................. Pennsylvania
Poly-Stat Computer Applications, Inc............................ Ohio
Poly-Stat Supply Corporation.................................... Ohio
Q.D. Pharmacy, Inc.............................................. Michigan
The Druggist, Inc............................................... Ohio
The Progressive Step Corporation................................ Wisconsin
Union Prescription Centers of Michigan, Inc..................... Michigan
United Professional Companies, Inc.............................. Delaware
United Professional Services, Inc............................... Wisconsin
United Rehabilitation Services, Inc............................. Wisconsin
Waltham Corp.................................................... Pennsylvania
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Summary Historical Financial Data" and "Experts"
in the prospectus.
KPMG PEAT MARWICK LLP
Milwaukee, Wisconsin
December 29, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 7, 1997, with respect to the financial
statements of Arbor Health Care Company included in the Registration Statement
(Form S-4 No. 333- ) and related Prospectus of Extendicare Health Services,
Inc. for the registration of $200,000,000 of its 9.35% Senior Subordinated Notes
due 2007.
ERNST & YOUNG LLP
Toledo, Ohio
December 24, 1997
<PAGE> 1
Exhibit 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305 (B) (2)__________
THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5691211
(State of Incorporation (I.R.S. employer
If not a U.S. national bank) Identification number)
One Liberty Plaza
New York, N.Y. 10006
(Address of principal (Zip code)
Executive office)
------------------------------
EXTENDICARE HEALTH SERVICES, INC.
(Exact name of obligor as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
98-0066268
(I.R.S. employer identification no.)
105 West Michigan Street
Milwaukee, Wisconsin 53203
(Address of principal executive offices) (Postal Code)
------------------------------
SENIOR SUBORDINATED NOTES
(Title of the indenture securities)
<PAGE> 2
-2-
Item 1. General Information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject. Federal Reserve Bank of New York
33 Liberty Street New York, N. Y. 10045
State of New York Banking Department
State House, Albany, N.Y.
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliation with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the Trustee.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of eligibility.
Exhibit 1 -Copy of the Organization Certificate of the Trustee as now
in effect.
(Exhibit 1 to T-1 to Registration Statement No. 333-6688).
Exhibit 2 -Copy of the Certificate of Authority of the Trustee to
commerce business.
(Exhibit 2 to T-1 to Registration Statement No. 333-6688).
Exhibit 3 -None; authorization to exercise corporate trust powers is
contained in the documents identified above as
Exhibit 1 and 2.
Exhibit 4 -Copy of the existing By-Laws of the Trustee.(Exhibit 4 to
T-1 to Registration Statement No. 333-6688).
Exhibit 5 -No Indenture referred to in Item 4.
Exhibit 6 -The consent of the Trustee required by Section 321 (b) of
the Trust Indenture Act of 1939. (Exhibit 6 to T-1 to
Registration Statement No. 333-27685).
Exhibit 7 -Copy of the latest Report of Condition of the Trustee
as of September 30, 1997
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, The Bank of Nova Scotia Trust Company of New York, a corporation
organized and existing under the laws of the State of New York, has duly
caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of New York, and
State of New York, on the ____ day of December, 1997.
THE BANK OF NOVA SCOTIA TRUST
COMPANY OF NEW YORK
By: /S/ George E. Timmes
------------------------
George E. Timmes
Vice President
<PAGE> 4
Exhibit 7 to Exhibit 25.1
<TABLE>
<S> <C>
Legal Title of Bank: The Bank of Nova Scotia Trust Company of New York
Address:
City, State, Zip New York, NY 10006
FDIC Certificate Number _______________________
</TABLE>
Consolidated Report of Condition for Insured Commercial and State-Chartered
Savings Banks for September 30, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
Schedule RC -- Balance Sheet
<TABLE>
<CAPTION>
--------------
C100
--------------
Dollar Amounts
in Thousands
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions:
a. Noninterest-bearing balances and currency and coin(1)(2) ..................... RCON 0081 408 1.a.
b. Interest-bearing balances(3) ................................................. RCON 0071 None 1.b.
2. Securities:
a. Held-to-maturity securities (from Schedule RC-8, column A) ................... RCON 1754 1,880 2.a.
b. Available-for-sale securities (from Schedule RC-8, column D) ................. RCON 1773 None 2.b.
3. Federal funds sold(4) and securities purchased under agreements to resell ....... RCON 1350 2,400 3.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C) ................ RCON 2122 4.a.
b. LESS: Allowance for loan and lease losses .................................... RCON 3123 4.b.
c. LESS: Allocated transfer risk reserve ........................................ RCON 3128 4.c.
d. Loans and leases, net of unearned income, allowance, and reserve
(item 4.a minus 4.b and 4.c) ................................................. RCON 2125 None 4.d.
5. Trading assets .................................................................. RCON 3545 None 5.
6. Premises and fixed assets (including capitalized leases) ........................ RCON 2145 16 6.
7. Other real estate owned (from Schedule RC-M) .................................... RCON 2150 None 7.
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M) ............................................................ RCON 2130 None 8.
9. Customers' liability to this bank on acceptances outstanding .................... RCON 2155 None 9.
10. Intangible assets (from Schedule RC-M) .......................................... RCON 2143 None 10.
11. Other assets (from Schedule RC-F) ............................................... RCON 2160 110 11.
12. a. Total assets (sum of items 1 through 11) ..................................... RCON 2170 4,814 12.a.
b. Losses deferred pursuant to 12 U.S.C. 1823(j) ................................ RCON 0306 None 12.b.
c. Total assets and losses deferred pursuant to 12 U.S.C. 1823(j)
(sum of items 12.a and 12.b) ................................................. RCON 0307 4,814 12.c.
</TABLE>
__________
(1) Includes cash items in process of collection and unposted debits.
(2) The amount reported in this item must be greater than or equal to the sum
of Schedule RC-M, items 3.a and 3.b.
(3) Includes time certificates of deposit not held for trading.
(4) Report "term federal funds sold" in Schedule RC, item 4.a, "Loans and
losses, net of unearned income," and in Schedule RC-C, part 1.
<PAGE> 5
Schedule RC - Continued
<TABLE>
<CAPTION>
---------------- ---------------
Dollar Amounts
in Thousands Mil Thou
---------------- ---------------
<S> <C> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E) RCON 2200 2,404 13.a.
(1) Noninterest-bearing(1)............................................... RCON 6631 1,500 13.a.(1)
(2) Interest-bearing..................................................... RCON 6636 904 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs............
(1) Noninterest-bearing..................................................
(2) Interest-bearing.....................................................
14. Federal funds purchased(2) and securities sold under agreements to
repurchase.................................................................. RCON 2800 NONE 14.
15. a. Demand notes issued to the U.S. Treasury................................. RCON 2840 NONE 15.a.
b. Trading liabilities...................................................... RCON 3548 NONE 15.b.
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
a. With a remaining maturity of one year or less............................ RCON 2332 NONE 16.a.
b. With a remaining maturity of more than one year through three years...... RCON A547 NONE 16.b.
c. With a remaining maturity of more than three years....................... RCON A548 NONE 16.c.
17. Not applicable
18. Bank's liability on acceptances executed and outstanding.................... RCON 2920 NONE 18.
19. Subordinated notes and debentures(3)........................................ RCON 3200 NONE 19.
20. Other liabilities (from Schedule RC-G)...................................... RCON 2930 46 20.
21. Total liabilities (sum of items 13 through 20).............................. RCON 2948 2,450 21.
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus............................... RCON 3838 NONE 23.
24. Common stock................................................................ RCON 3230 1,000 24.
25. Surplus (exclude all surplus related to preferred stock).................... RCON 3839 1,000 25.
26. a. Undivided profits and capital reserves................................... RCON 3832 364 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities... RCON 3434 NONE 26.b.
27. Cumulative foreign currency translation adjustments.........................
28. a. Total equity capital (sum of items 23 through 27)........................ RCON 3210 2,364 28.a.
b. Losses deferred pursuant to 12 U.S.C. 1823(j)............................ RCON 0306 NONE 28.b.
c. Total equity capital and losses deferred pursuant to 12 U.S.C. 1823(j)
(sum of items 28.a and 28.b)............................................. RCON 3559 2,364 28.c.
29. Total liabilities, equity capital, and losses deferred pursuant to
12 U.S.C. 1823(j) (sum of items 21 and 28.c)................................ RCON 2257 4,814 29.
---------------------
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best NUMBER
describes the most comprehensive level of auditing work performed for the ---------------------
bank by independent external auditors as of any date during 1996............ RCON XXXX 1 M.1.
---------------------
</TABLE>
<TABLE>
<S> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by
with generally accepted auditing standards by a other external auditors (may be required by state
certified public accounting firm which submits a chartering authority)
report on the bank 5 = Review of the bank's financial statements by
2 = Independent audit of the bank's parent holding external auditors
company conducted in accordance with generally 6 = Compilation of the bank's financial statements by
accepted auditing standards by a certified public external auditors
accounting firm which submits a report on the 7 = Other audit procedures (excluding tax preparation
consolidated holding company (but not on the bank work)
separately) 8 = No external audit work
3 = Directors' examination of the bank conducted in
accordance with generally accepted auditing standards
by a certified public accounting firm (may be
required by state chartering authority)
</TABLE>
- ---------------
(1) Includes total demand deposits and noninterest-bearing time
and savings deposits.
(2) Report "term federal funds purchased" in Schedule RC, item 16,
"Other borrowed money,"
(3) Includes limited-life preferred stock and related surplus.
<PAGE> 1
LETTER OF TRANSMITTAL
EXTENDICARE HEALTH SERVICES, INC.
OFFER FOR
ALL OUTSTANDING 9.35% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR
9.35% SENIOR SUBORDINATED NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
PURSUANT TO THE PROSPECTUS, DATED , 1997
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
TENDERED SECURITIES MAY BE WITHDRAWN AT ANY TIME PRIOR TO
5:00 P.M., NEW YORK CITY TIME ON THE EXPIRATION DATE.
To: The Bank of Nova Scotia Trust Company of New York, the Exchange Agent
By Mail, Hand or Overnight Courier: By Facsimile: (212) 225-5436
One Liberty Plaza, 23rd Floor
New York, NY 10006
Attention: Pat Keane
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus dated , 1997 (the "Prospectus") of Extendicare Health
Services, Inc. (the "Issuer"), and this Letter of Transmittal (the "Letter"),
which together constitute the Issuer's offer (the "Exchange Offer") to exchange
an aggregate principal amount of up to $200,000,000 of 9.35% Senior Subordinated
Notes Due 2007 (the "Exchange Notes") of the Issuer, which have been registered
under the Securities Act of 1933, as amended, for a like principal amount of the
Issuer's issued and outstanding 9.35% Senior Subordinated Notes Due 2007 (the
"Outstanding Notes" and, with the Exchange Notes, the "Notes"). Capitalized
terms used but not defined herein have the meanings given to them in the
Prospectus.
For each Outstanding Note accepted for exchange and not validly withdrawn,
the holder of such Outstanding Note will receive an Exchange Note having a
principal amount equal to that of the surrendered Outstanding Note. If the
Exchange Offer is not consummated or a shelf registration statement is not
declared effective on or prior to April 6, 1998, the per annum interest rate of
the Outstanding Notes will increase by 0.5% per annum for the first 90 days
following such date and will increase by an additional 0.5% per annum beginning
at each subsequent 90-day period until the Exchange Offer is consummated;
provided, however, that in no event will the interest rate borne by the Notes be
increased by more than 1.5% per annum.
The Exchange Notes will bear interest from the last interest payment date
of the Outstanding Notes to occur prior to the issue date of the Exchange Notes
at the same rate and upon the same terms as the Outstanding Notes. Holders whose
Outstanding Notes are accepted for exchange will not receive interest on such
Outstanding Notes for any period subsequent to the last interest payment date of
the Outstanding Notes to occur prior to the issue date of the Exchange Notes or,
if no such interest has been paid, from December 2, 1997, and will be deemed to
have waived the right to receive any payment in respect of interest on the
Outstanding Notes accrued from and after such date.
<PAGE> 2
Pursuant to the Registration Rights Agreement, dated December 2, 1997, by
and among the Issuer, the existing Guarantors and the Initial Purchasers (the
"Registration Rights Agreement"), the Issuer has agreed to keep the Exchange
Offer open for not less than 30 days and not more than 45 days after the date
notice thereof is mailed to the holders of the Outstanding Notes (or longer if
required by applicable law). The Issuer shall notify the holders of the
Outstanding Notes of any extension by means of a press release or other public
announcement prior to 9:00 A.M. New York City time, on the next business day
after the previously scheduled Expiration Date, in which event the term
"Expiration Date" shall mean the latest time and date to which the Exchange
Offer is extended.
The Exchange Offer is not conditioned upon any minimum principal amount of
Outstanding Notes being tendered for exchange. However, the Exchange Offer is
subject to certain conditions. Please see the Prospectus under the section
entitled "EXCHANGE OFFER -- Certain Conditions to the Exchange Offer".
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of holders of Outstanding Notes in any jurisdiction in which the
making or acceptance of the Exchange Offer would not be in compliance with the
laws of such jurisdiction.
This Letter is to be completed by a holder of Outstanding Notes either if
certificates are to be forwarded herewith or if a tender of certificates for
Outstanding Notes, if available, is to be made by book-entry transfer to the
account maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in
"EXCHANGE OFFER -- Procedures for Tendering Outstanding Notes" section of the
Prospectus. Holders of Outstanding Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or confirmation of
the book-entry tender of their Outstanding Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and
deliver all other documents required by this Letter to the Exchange Agent on or
prior to the Expiration Date, may tender their Outstanding Notes according to
the guaranteed delivery procedures set forth in the Prospectus under the section
entitled "EXCHANGE OFFER -- Guaranteed Delivery Procedures". Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
The Undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer. Holders who wish to tender their Outstanding Notes must
complete this Letter of Transmittal in its entirety.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOX
<PAGE> 3
List below the Outstanding Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
Outstanding Notes should be listed on a separate signed schedule affixed hereto.
DESCRIPTION OF OUTSTANDING NOTES
(SEE INSTRUCTIONS 2, 3, AND 8)
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES)
OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)
- --------------------------------------------------------------------------------------------------------------------
1 2 3
---------------------------------------------------------------------------------------
PRINCIPAL AMOUNT OF
OUTSTANDING NOTES TENDERED(2) (MUST
AGGREGATE PRINCIPAL BE IN DENOMINATIONS OF PRINCIPAL
TITLE OF SECURITIES AND AMOUNT OF AMOUNT OF $1,000
CERTIFICATE NUMBER(S)(1) OUTSTANDING NOTES OR INTEGRAL MULTIPLES THEREOF)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Total
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Certificate numbers not required if Outstanding Notes are being tendered by
book-entry transfer.
(2) Unless otherwise indicated, a holder will be deemed to have tendered ALL of
the Outstanding Notes represented in column 2.
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s): ___________________________________________
Window Ticket Number (if any): _____________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Name of Institution which guaranteed delivery: _____________________________
If delivered by book-entry transfer, complete the following:
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
<PAGE> 4
[ ] 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:_______________________________________________________________
_______________________________________________________________________
You are entitled to as many copies as you may reasonably request and if you
need more than 10 copies, please so indicate by noting the number of copies
required below.
<PAGE> 5
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Issuer the aggregate principal amount of
Outstanding Notes indicated above. The undersigned has completed, executed and
delivered this Letter to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
Subject to, and effective upon, the acceptance for exchange of the
Outstanding Notes tendered hereby, the undersigned hereby transfers to, or upon
the order of, the Issuer all right, title and interest in and to such
Outstanding Notes as are being tendered hereby. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent its agent and
attorney-in-fact (with full knowledge that the Exchange Agent also acts as the
agent of the Issuer) with respect to the tendered Outstanding Notes with full
power of substitution to (i) deliver certificates for such Outstanding Notes to
the Issuer and deliver all accompanying evidences of transfer and authenticity
to, or upon the order of, the Issuer, (ii) present such Outstanding Notes for
transfer on the books of the Issuer and (iii) receive for the account of the
Issuer all benefits and otherwise exercise all rights of the beneficial
ownership of such Outstanding Notes, all in accordance with the terms of the
Exchange Offer. The power of attorney granted in this paragraph shall be deemed
to be irrevocable from and after the Expiration Date and coupled with an
interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, and transfer the Outstanding Notes tendered
hereby and that the Issuer will acquire such Notes free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim when
the same are accepted by the Issuer. The undersigned hereby further represents
that (i) any Exchange Notes acquired in exchange for Outstanding Notes tendered
hereby will have been acquired in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such person is the undersigned,
(ii) neither the holder of such Outstanding Notes nor any such other person has
an arrangement or understanding with any person to participate in the
distribution of such Exchange Notes and (iii) neither the holder of such
Outstanding Notes nor any such other person is an "affiliate", as described in
Rule 405 under the Securities Act of 1933 (the "1933 Act"), of the Issuer.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission"), as set forth in no-action letters issued to third
parties, that the Exchange Notes issued in exchange for the Outstanding Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any such holder that is an
"affiliate" of the Issuer within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holder's business and such holders have no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes. However, the undersigned acknowledges that the Issuer
has not sought its own no-action letter and there can be no assurance that the
staff of the Commission would make a similar determination with respect to the
Exchange Offer as in such other circumstances.
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 the
Exchange Notes and that it has no arrangement or understanding with respect to
the distribution of the Exchange Notes. If the undersigned is a broker-dealer
that will receive Exchange Notes for its own account in exchange for Outstanding
Notes, it represents that the Outstanding Notes to be exchanged for Exchange
Notes were acquired by it as a result of market-making activities or other
trading activities and acknowledges that it will deliver a prospectus meeting
the requirements of the 1933 Act in connection with any resale of such Exchange
Notes pursuant to the Exchange Offer; 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 1933 Act.
<PAGE> 6
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Issuer to be necessary or
desirable to complete the assignment, transfer and sale of the Outstanding Notes
tendered hereby. All authority conferred or agreed to be conferred in this
Letter and every obligation of the undersigned hereunder shall be binding upon
the successors, assigns, heirs, executors, administrators, trustees in
bankruptcy and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned. This
tender may be withdrawn only in accordance with the procedures set forth in the
instructions contained in this Letter or in the Prospectus under "EXCHANGE OFFER
- -- Withdrawal Rights".
For the purposes of the Exchange Offer, the Issuer shall be deemed to have
accepted validly tendered Outstanding Notes when, as and if the Issuer has given
oral and written notice thereof to the Exchange Agent.
If any tendered Outstanding Notes are not accepted for exchange pursuant to
the Exchange Offer for any reason, certificates for any such unaccepted
Outstanding Notes will be returned (or, in the case of Outstanding Notes
tendered by book-entry transfer through the Book-Entry Transfer Facility, will
be promptly credited to an account maintained at the Book-Entry Transfer
Facility), without expense, to the undersigned at the address shown below or at
a different address as may be indicated herein under the "Special Delivery
Instructions" as promptly as practicable after the Expiration Date.
The undersigned understands that tenders of Outstanding Notes pursuant to
the procedures described under the section entitled "EXCHANGE OFFER --
Procedures for Tendering Outstanding Notes" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Issuer upon the terms and subject to the conditions of the Exchange
Offer.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please issue the Exchange Notes (and, if applicable,
substitute certificates representing Outstanding Notes for any Outstanding Notes
not exchanged) in the name(s) of the undersigned or, in the case of a book-entry
delivery of Outstanding Notes, please credit the account indicated above
maintained at the Book-Entry Transfer Facility. Similarly, unless otherwise
indicated under the box entitled "Special Delivery Instructions" below, please
send the Exchange Notes (and, if applicable, substitute certificates
representing Outstanding Notes for any Outstanding Notes not exchanged) to the
undersigned at the address shown above in the box entitled "Description of
Outstanding Notes". In the event that both "Special Issuance Instructions" and
"Special Delivery Instructions" are completed, please issue the certificates
representing the Exchange Notes issued in exchange for the Outstanding Notes
accepted for exchange in the name(s) of, and return any certificates for
Outstanding Notes not tendered or not exchanged to, the person(s) so indicated.
The undersigned understands that the Issuer has no obligations pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to transfer
any Outstanding Notes from the name of the registered holder(s) thereof if the
Issuer does not accept for exchange any of the Outstanding Notes so tendered.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OUTSTANDING
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE
OUTSTANDING NOTES AS SET FORTH IN SUCH BOX ABOVE.
<PAGE> 7
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if certificates for Outstanding Notes not exchanged
and/or Exchange Notes are to be issued in the name of someone other than the
person or person(s) whose signature(s) appear(s) on this Letter below, or if
Outstanding Notes delivered by book-entry transfer which are not accepted for
exchange are to be returned by credit to an account maintained at the
Book-Entry Transfer Facility other than the account indicated above.
Issue: Exchange Notes and/or Outstanding Notes to:
Name ________________________________________________________________________
(Please Type or Print)
_____________________________________________________________________________
(Please Type or Print)
Address _____________________________________________________________________
_____________________________________________________________________________
(Zip Code)
_____________________________________________________________________________
Employer Identification
or Social Security Number
(Complete Substitute Form W-9)
[ ] Credit non-accepted Outstanding Notes delivered by book-entry transfer to
the Book-Entry Transfer Facility account set forth below:
_____________________________________________________________________________
(Book-entry Transfer Facility Account Number,
if applicable)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if certificates for Outstanding Notes not exchanged
and/or Exchange Notes are to be sent to someone other than the person or
persons whose signature(s) appear(s) on this Letter above or to such person or
persons at an address other than shown in the box entitled "Description of
Outstanding Notes" on this Letter above.
Mail: Exchange Notes and/or Outstanding Notes to:
Name ________________________________________________________________________
(Please Type or Print)
_____________________________________________________________________________
(Please Type or Print)
Address _____________________________________________________________________
_____________________________________________________________________
(Zip Code)
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE
(TOGETHER WITH THE CERTIFICATES FOR OUTSTANDING NOTES OR A BOOK-ENTRY
CONFIRMATION AND ANY OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED
DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M. NEW YORK
CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE
<PAGE> 8
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
I hereby TENDER the Outstanding Notes described above in the box entitled
"Description of Outstanding Notes" pursuant to the terms of the Exchange Offer.
Dated: _________________________________________________________________ , 1997
<TABLE>
<S> <C>
X ______________________________________ _____________________________ , 1997
X ______________________________________ _____________________________ , 1997
Signature(s) of Owner(s) Date
</TABLE>
Area Code and Telephone Number ________________________________________________
If a holder is tendering any Outstanding Notes, this Letter must be signed
by the registered holder(s) as the name(s) appear(s) on the certificate(s) for
the Outstanding Notes or on a security position listing or by any person(s)
authorized to become registered holder(s) by endorsements and documents
transmitted herewith. If signature is by a trustee, executor, administrator,
guardian, officer or other person acting in a fiduciary or representative
capacity, please set forth full title. See Instruction 4.
Name(s): ______________________________________________________________________
(Please Type or Print)
_______________________________________________________________________________
Capacity: _____________________________________________________________________
Address: ______________________________________________________________________
_______________________________________________________________________________
(Include Zip Code)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 4)
Signature(s) Guaranteed by an Eligible Institution:____________________________
(Authorized Signature)
_______________________________________________________________________________
(Title)
_______________________________________________________________________________
(Name of Firm)
_______________________________________________________________________________
(Area Code and Telephone Number)
Dated: _________________________________________________________________ , 1997
<PAGE> 9
IMPORTANT TAX INFORMATION
Under U.S. federal income tax laws, a registered holder of Notes is
required to provide the Trustee (as defined in the Prospectus) (as payor) with
such holder's correct Taxpayer Identification Number ("TIN") on Substitute Form
W-9 below or otherwise establish a basis for exemption from backup withholding.
If such holder is an individual, the TIN is his U.S. social security number. If
the Trustee is not provided with the correct TIN, a $50 penalty may be imposed
by the Internal Revenue Service, and payments made to such holder with respect
to Notes may be subject to backup withholding.
Certain holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Trustee a properly completed Internal Revenue Service Form W-8, signed under
penalties of perjury, attesting to that holder's exempt status. A Form W-8 can
be obtained from the Trustee.
If backup withholding applies, the Trustee is required to withhold 31% of
any payments made to the holder or other payee. Backup withholding is not an
additional federal income tax. Rather, the federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments made with respect to Notes, the
holder is required to provide the Trustee with: (i) the holder's correct TIN by
completing the form below, certifying that the TIN provided on Substitute Form
W-9 is correct (or that such holder is awaiting a TIN) and that (A) such holder
is exempt from backup withholding, (B) the holder has not been notified by the
Internal Revenue Service that the holder is subject to backup withholding as a
result of failure to report all interest or dividends or (C) the Internal
Revenue Service has notified the holder that the holder is no longer subject to
backup withholding; and (ii) if applicable, an adequate basis for exemption.
<PAGE> 10
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE "IMPORTANT TAX INFORMATION" ABOVE)
PAYOR'S NAME: THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF
<TABLE>
<CAPTION>
<S> <C> <C>
ANY PAYMENTS MADE TO YOU UNDER THE NOTES
- ---------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE Social Security Number
FORM W-9 BOX AT RIGHT AND CERTIFY BY SIGNING AND
DATING BELOW OR _______________________________
Employer Identification Number
- ---------------------------------------------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY PART II -- Certification -- Under penalties of perjury, I PART 3
INTERNAL REVENUE SERVICE certify that:
(1) The number shown on this form is my correct Taxpayer Awaiting
Identification Number (or I am waiting for a number to be TIN [ ]
issued to me);
(2) I am not subject to backup withholding because (i) I am
exempt from backup withholding, (ii) I have not been notified
by the Internal Revenue Service ("IRS") that I am subject
to backup withholding as a result of failure to report
all interest or dividends, or (iii) the IRS has notified
me that I am no longer subject to backup withholding; and
(3) any other information provided on this form is true and
correct.
---------------------------------------------------------------------------------
Certificate instructions: -- You must cross out item (2) in Part II above if you
PAYOR'S REQUEST FOR TAXPAYER have been notified by the IRS that you are subject to backup withholding because
IDENTIFICATION NUMBER ("TIN") of underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS stating that you are no longer subject
to backup withholding, do not cross out item (2).
SIGNATURE _______________________________________________________________________
DATE ____________________________________
NAME ____________________________________________________________________________
(Please Print)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF
SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. It is understood
that if I do not provide a taxpayer identification number within 60 days, 31%
of all reportable payments made to me thereafter will be withheld until I
provide such a number.
_______________________________________________________________________________
________________________________________________________________________ , 1997
Signature and Date
_______________________________________________________________________________
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR
OUTSTANDING NOTES (IF APPLICABLE) AND ALL OTHER REQUIRED DOCUMENTS) MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
<PAGE> 11
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
This letter must be used to forward, and must accompany, all certificates
for Outstanding Notes tendered pursuant to the Exchange Offer.
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE
EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND CERTIFICATES.
This letter is to be completed by holders either if certificates are to be
forwarded herewith or if tenders are to be made pursuant to the procedures for
delivery by book-entry transfer set forth in the "EXCHANGE OFFER -- Book-Entry
Transfer" section of the Prospectus. Certificates for all physically tendered
Outstanding Notes, or Book-Entry Confirmation, as the case may be, as well as a
properly completed and duly executed Letter (or manually signed facsimile
hereof) and any other documents required by this Letter, must be received by the
Exchange Agent at the address set forth herein on or prior to the Expiration
Date, or the tendering holder must comply with the guaranteed delivery
procedures set forth below. Outstanding Notes tendered hereby must be in
denominations of $1,000 or integral multiples thereof.
The method of delivery of this Letter, the Outstanding Notes and all other
required documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received and confirmed by the
Exchange Agent. If Outstanding Notes are sent by mail, it is suggested that the
mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date. No Letters or Outstanding Notes should be sent to the Issuer.
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available, or (ii) cannot deliver their
Outstanding Notes, this Letter or any other documents required hereby to the
Exchange Agent prior to the Expiration Date or (iii) who cannot comply with the
procedures for book-entry tender on a timely basis must tender their Outstanding
Notes according to the guaranteed delivery procedures set forth in the
Prospectus. Pursuant to such procedures: (i) such tender must be made through an
Eligible Institution (as defined below); (ii) prior to the Expiration Date, the
Exchange Agent must have received from the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by mail, hand
delivery or facsimile transmission (immediately followed by mail or hand
delivery)) setting forth the name and address of the holder, the certificate
number(s) of such Outstanding Notes (except in the case of book-entry tenders)
and the principal amount of Outstanding Notes tendered, stating that the tender
is being made thereby and guaranteeing that, within five business days after the
Expiration Date, this Letter (or a facsimile hereof) together with the
certificate(s) representing the Outstanding Notes (except in the case of
book-entry tenders) and any other required documents will be deposited by the
Eligible Institution with the Exchange Agent; and (iii) such properly completed
and executed Letter (or facsimile hereof), as well as all other documents
required by this Letter and the certificate(s) representing all tendered
Outstanding Notes in proper form for transfer or a Book-Entry Confirmation with
respect to such Outstanding Notes, must be received by the Exchange Agent within
five business days after the Expiration Date, all as provided in the Prospectus
under the section entitled "EXCHANGE OFFER -- Guaranteed Delivery Procedures".
Any holder who wishes to tender his Outstanding Notes pursuant to the guaranteed
delivery procedures described above must ensure that the Exchange Agent receives
the Notice of Guaranteed Delivery prior to 5:00 p.m., New York City time, on the
Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed
Delivery will be sent to holders who wish to tender their Outstanding Notes
according to the guaranteed delivery procedures set forth above. As used in this
Letter, "Eligible Institution" shall mean a firm which is a member of a
registered securities exchange or a member of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an office
or correspondent in the United States or which is otherwise an "eligible
<PAGE> 12
guarantor institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended.
All questions as to the validity, eligibility (including time of receipt),
acceptance and withdrawal of tendered Outstanding Notes will be determined by
the Issuer in its sole discretion, which determination will be final and
binding. The Issuer reserves the absolute right to reject any and all
Outstanding Notes not properly tendered or any Outstanding Notes the Issuer's
acceptance of which would, in the opinion of counsel for the Issuer, be
unlawful. The Issuer also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Outstanding Notes. The
Issuer's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this Letter) shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Outstanding Notes must be cured within such 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 defects or irregularities with respect to
tenders of Outstanding Notes, nor shall any of them incur any liability for
failure to give such notification. Tenders of Outstanding Notes will not be
deemed to have been made until such defects or irregularities have been cured or
waived. Any Outstanding Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in this Letter, as soon as practicable following the
Expiration Date.
See "EXCHANGE OFFER" in the Prospectus.
2. TENDER BY HOLDER.
Only a holder of Outstanding Notes may tender such Outstanding Notes in the
Exchange Offer. Any beneficial owner whose Outstanding Notes are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender should contact the registered holder promptly and
instruct such registered holder to tender on behalf of such beneficial owner. If
such beneficial owner wishes to tender on such owner's own behalf, such owner
must, prior to completing and executing this Letter and delivering such owner's
Outstanding Notes, either make appropriate arrangements to register ownership of
the Outstanding Notes in such owner's name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may take
considerable time.
3. PARTIAL TENDERS AND WITHDRAWALS.
Tenders of Outstanding Notes will be accepted only in denominations of
$1,000 or integral multiples thereof. If less than all of a holder's Outstanding
Notes are to be tendered, the tendering holder(s) should fill in the aggregate
principal amount of Outstanding Notes to be tendered in the box above entitled
"Description of Outstanding Notes -- Principal Amount of Outstanding Notes
Tendered". A reissued certificate representing the balance of nontendered
Outstanding Notes will be sent to such tendering holder (except in the case of
book-entry tenders), unless otherwise provided in the appropriate box on this
Letter, promptly after the Expiration Date. ALL OF THE OUTSTANDING NOTES
DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS
OTHERWISE INDICATED.
Any holder who has tendered Outstanding Notes may withdraw the tender by
delivering written notice of withdrawal to the Issuer prior to 5:00 p.m., New
York City time, on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent at its
address set forth on the first page of this Letter. Any such notice of
withdrawal must (i) specify the name of the person having deposited the
Outstanding Notes to be withdrawn (the "Depositor"); (ii) identify the
Outstanding Notes to be withdrawn (including the certificate number or numbers
and principal amount of such Outstanding Notes (except in the case of book-entry
tenders)); (iii) be signed by the holder in the same manner as the original
signature on this Letter by which such Outstanding Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee (as defined in the Prospectus) register
the transfer of such Outstanding Notes into the name of the person withdrawing
the tender, and (iv) specify the name in which any such Outstanding Notes are to
be registered, if different from that of the Depositor. If Outstanding Notes
have been delivered or otherwise identified to the Exchange
<PAGE> 13
Agent, the name of the registered holder and the certificate numbers of the
particular Outstanding Notes withdrawn must also be furnished to the Exchange
Agent as aforesaid prior to the physical release of the withdrawn Outstanding
Notes. If the Outstanding Notes have been tendered pursuant to the procedures
for book-entry tender set forth in the Prospectus, a notice of withdrawal must
specify, in lieu of certificate numbers, the name and account number at the
Book-Entry Transfer Facility to be credited with the withdrawn Outstanding
Notes. Outstanding Notes properly withdrawn will thereafter be deemed not
validly tendered for purposes of the Exchange Offer; provided, however, that
withdrawn Outstanding Notes may be retendered by again following one of the
procedures herein at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. All questions as to the validity, form and eligibility
(including time of receipt) of notice of withdrawal will be determined by the
Issuer, whose determinations will be final and binding on all parties. Neither
the Issuer, the Exchange Agent nor any other person will be under any duty to
give notification of any defects or irregularities in any notice of withdrawal
or incur any liability for failure to give any such notification. See "EXCHANGE
OFFER -- Withdrawal Rights" in the Prospectus.
4. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURE.
If this Letter is signed by the registered holder of the Outstanding Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificates (if applicable) without any change whatsoever.
If any tendered Outstanding Notes are owned of record by two or more joint
owners, all such owners must sign this Letter.
If any tendered Outstanding Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
When this Letter is signed by the registered holder or holders of the
Outstanding Notes specified herein and tendered hereby, no endorsements of
certificates or separate bond powers are required. If, however, the Exchange
Notes are to be issued, or any untendered Outstanding Notes are to be reissued,
to a person other than the registered holder, then endorsements of any
certificates transmitted hereby or separate bond powers are required.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder(s) appear(s) on the
certificate(s).
If this Letter or any certificates or bond powers 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.
Endorsements on certificates for Outstanding Notes or signatures on bond
powers required by this Instruction 4 must be guaranteed by an Eligible
Institution.
Signatures on this Letter need not be guaranteed by an Eligible
Institution, provided the Outstanding Notes are tendered: (i) by a registered
holder of such Outstanding Notes (which term, for purposes of the Exchange
Offer, includes any participant in the Book-Entry Transfer Facility system whose
name appears on a security position listing as the holder of such Outstanding
Notes) who has not completed the box entitled "Special Issuance Instructions" on
this Letter, or (ii) for the account of an Eligible Institution.
5. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Outstanding Notes should indicate in the applicable
box the name and address in or to which Exchange Notes issued pursuant to the
Exchange Offer and/or substitute certificates evidencing Outstanding Notes not
exchanged are to be issued or sent, if different from the name or address of the
Person signing this Letter. In the case of issuance in a different name, the
employer identification or social security
<PAGE> 14
number of the person named must also be indicated. Holders tendering Outstanding
Notes by book-entry transfer may request that Outstanding Notes not exchanged be
credited to such account maintained at the Book-Entry Transfer Facility as such
holder may designate hereon. If no such instructions are given, such Outstanding
Notes not exchanged will be returned to the name or address of the person
signing this Letter.
6. WAIVER OF CONDITIONS.
Subject to the terms and conditions set forth in the Prospectus, the Issuer
reserves the absolute right to waive satisfaction of any or all conditions
enumerated in the Prospectus.
7. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Outstanding Notes, by execution of this
Letter, shall waive any right to receive notice of the acceptance of their
Outstanding Notes for exchange.
Neither the Issuer, the Exchange Agent nor any other person is obligated to
give notice of defects or irregularities with respect to any tender of
Outstanding Notes, nor shall any of them incur any liability for failure to give
any such notice.
8. MUTILATED, LOST, STOLEN OR DESTROYED OUTSTANDING NOTES.
Any holder whose Outstanding Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
9. REQUEST FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address indicated on the first page of this Letter.
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
FOR
EXTENDICARE HEALTH SERVICES, INC.
As set forth in the Prospectus dated , 1997 (the "Prospectus") of
Extendicare Health Services, Inc. (the "Issuer") and in the accompanying Letter
of Transmittal and instructions thereto (the "Letter of Transmittal"), this form
or one substantially equivalent hereto must be used to accept the Issuer's
Exchange Offer (the "Exchange Offer") to exchange its outstanding 9.35% Senior
Subordinated Notes Due 2007 (the "Outstanding Notes") for its 9.35% Senior
Subordinated Notes Due 2007 (the "Exchange Notes"), which have been registered
under the Securities Act of 1933, as amended, if the Letter of Transmittal or
any other documents required thereby cannot be delivered to the Exchange Agent,
or the procedure for book-entry transfer cannot be completed, prior to 5:00
P.M., New York City time, on the Expiration Date (as defined herein). This form
may be delivered by an Eligible Institution by hand or transmitted by facsimile
transmission, overnight courier or mail to the Exchange Agent as set forth
below. Capitalized terms used but not defined herein have the meaning given to
them in the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF OUTSTANDING NOTES MAY
BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE EXPIRATION DATE.
Delivery To: The Bank of Nova Scotia Trust Company of New York, as Exchange
Agent
If by Mail, Hand or Overnight Courier:
The Bank of Nova Scotia Trust Company of New York
One Liberty Plaza, 23rd Floor
New York, New York 10006
Attention: Pat Keane
or
If by Facsimile:
(for Eligible Institutions only)
(212) 225-5436
Confirm by Telephone:
(212) 225-5427
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION VIA A FACSIMILE,
OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal to be used to tender Outstanding Notes is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the Letter
of Transmittal.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to the Issuer, upon the terms and subject to
the conditions set forth in the Prospectus and the Letter of Transmittal (which
together constitute the "Exchange Offer"), receipt of which is hereby
acknowledged, the principal amount of Outstanding Notes set forth below pursuant
to the guaranteed delivery procedures described under "EXCHANGE OFFER --
Guaranteed Delivery Procedures" in the Prospectus.
The undersigned understands that tenders of Outstanding Notes will be
accepted only in principal amounts equal to $1,000 or integral multiples
thereof. The undersigned understands that tenders of Outstanding Notes pursuant
to the Exchange Offer may only be withdrawn prior to 5:00 P.M., New York City
time, on the Expiration Date pursuant to the procedures described under
"EXCHANGE OFFER -- Withdrawal Rights" in the Prospectus. Tenders of Outstanding
Notes may also be withdrawn if the Exchange Offer is terminated without any such
Outstanding Notes being purchased thereunder or as otherwise provided in the
Prospectus.
All authority thereto conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, executors, administrators, successors,
assigns, trustees in bankruptcy and other legal representatives of the
undersigned.
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW.
<TABLE>
<S> <C>
Principal Amount of Outstanding Notes Name(s) of Holder(s)
________________________________________ ________________________________________
________________________________________
Please Print or Type
Address ________________________________
________________________________________
Area Code and Telephone No.
________________________________________
Signature(s) ___________________________
________________________________________
Dated: _________________________________
The Depository Trust Company
Account No. ____________________________
</TABLE>
<PAGE> 3
This Notice of Guaranteed Delivery must be signed by (i) the Holders(s) of
Outstanding Notes exactly as its (their) name(s) appear on a security position
listing maintained by DTC as the owner of Outstanding Notes or (ii) by person(s)
authorized to become Holder(s) by documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information:
<TABLE>
<S> <C>
PLEASE PRINT NAME(S) AND ADDRESS(ES) OF PERSON SIGNING ABOVE
Name(s)
-----------------------------------------------------------------------------
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Capacity:
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Address(es):
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</TABLE>
<PAGE> 4
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., or a commercial bank
or trust company having an office or correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), hereby
guarantees that delivery to the Exchange Agent of a confirmation of the
book-entry transfer of such Outstanding Notes into the Exchange Agent's account
at The Depository Trust Company, pursuant to the procedures for book-entry
transfer set forth in the Prospectus, with delivery of either a properly
completed and duly executed Letter of Transmittal (or manually signed facsimile
thereof) with any required signatures and any other documents required by the
Letter of Transmittal, will be received by the Exchange Agent within five New
York Stock Exchange trading days after the Expiration Date.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL
AND OUTSTANDING NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME
PERIOD SET FORTH HEREIN AND THAT FAILURE TO DO SO COULD RESULT IN FINANCIAL LOSS
TO THE UNDERSIGNED.
<TABLE>
<S> <C>
Name of Firm _______________________________ _________________________________
Authorized Signature
Address ____________________________________ Name ____________________________
Please Print or Type
____________________________________________
Zip Code Title ___________________________
Area Code and Telephone No.
____________________________________________ Date ____________________________
Dated: ____________, 1997
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR OUTSTANDING NOTES WITH THIS FORM.
CERTIFICATES FOR OUTSTANDING NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
<PAGE> 1
OFFER FOR
ALL OUTSTANDING 9.35% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR
9.35% SENIOR SUBORDINATED NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
OF
EXTENDICARE HEALTH SERVICES, INC.
To The Depository Trust Company Participants:
We are enclosing herewith the materials listed below relating to the offer
by Extendicare Health Services, Inc. (the "Issuer") to exchange its 9.35% Senior
Subordinated Notes Due 2007 (the "Exchange Notes"), pursuant to an offering
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for a like principal amount of its issued and outstanding 9.35% Senior
Subordinated Notes Due 2007 (the "Outstanding Notes") upon the terms and subject
to the conditions set forth in the Issuer's Prospectus dated , 1997,
and the related Letter of Transmittal (which together constitute the "Exchange
Offer").
Enclosed herewith are copies of the following documents;
1. Prospectus dated , 1997;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Book-Entry Transfer Participant from Owner; and
5. Letter which may be sent to your clients for whose account you hold
Outstanding Notes in your name or in the name of your nominee, to
accompany the instruction form referred to above, for obtaining such
client's instruction with regard to the Exchange Offer.
WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS
EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of
Outstanding Notes being tendered.
To participate in the Exchange Offer, a beneficial holder must cause a DTC
Participant to tender such holder's Outstanding Notes to The Bank of Nova Scotia
Trust Company of New York's (the "Exchange Agent") account maintained at the
Depository Trust Company ("DTC") for the benefit of the Exchange Agent through
DTC's Automated Tender Offer Program ("ATOP"), including transmission of a
computer-generated message that acknowledges and agrees to be bound by the terms
of the Letter of Transmittal. By complying with DTC's ATOP procedures with
respect to the Exchange Offer, the DTC Participant confirms on behalf of itself
and the beneficial owners of tendered Outstanding Notes all provisions of the
Letter of Transmittal applicable to it and such beneficial owners as fully as if
it completed, executed and returned the Letter of Transmittal to the Exchange
Agent.
Pursuant to the Letter of Transmittal, each holder of Outstanding Notes
will represent to the Issuer that (i) the Exchange Notes acquired in the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is such holder,
(ii) neither the holder of the Outstanding Notes nor any such other person has
an arrangement or understanding with any person to participate in the
distribution of such Exchange Notes, (iii) if the holder is not a broker-dealer
or is a broker-dealer but will not receive Exchange Notes for its own account in
exchange for Outstanding Notes, neither the holder nor any such other person is
engaged in or intends to participate in a distribution of the Exchange Notes or
has any arrangement or understanding with respect to the distribution of the
Exchange Notes and (iv) neither the holder nor any such person is an "affiliate"
of the Issuer within the meaning of Rule 405 under the Securities Act. If the
tendering holder is a broker-dealer that will receive Exchange Notes
<PAGE> 2
for its own account pursuant to the Exchange Offer, you represent on behalf of
such broker-dealer that the Outstanding Notes to be exchanged for the Exchange
Notes were acquired by it as a result of market-making activities or other
trading activities, and acknowledge on behalf of such broker-dealer that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. By acknowledging that it will
deliver and by delivering a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes, such
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The enclosed Instruction to the Book Entry Transfer Participant from Owner
contains an authorization by the beneficial owners of the Outstanding Notes for
you to make the foregoing representations.
The Issuer will not pay any fee or commission to any broker or dealer or to
any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Outstanding Notes pursuant to the Exchange Offer. The
Company will pay or cause to be paid any transfer taxes payable on the transfer
of Outstanding Notes to it, except as otherwise provided in Instruction 5 of the
enclosed Letter of Transmittal.
Additional copies of the enclosed material may be obtained from The Bank of
Nova Scotia Trust Company of New York, One Liberty Plaza, 23rd Floor, New York,
NY 10006, Attention: Pat Keane.
Very truly yours,
EXTENDICARE HEALTH SERVICES, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF EXTENDICARE HEALTH SERVICES, INC. OR THE BANK OF NOVA SCOTIA TRUST
COMPANY OF NEW YORK OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT
ON THEIR BEHALF IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS
ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
<PAGE> 1
OFFER FOR
ALL OUTSTANDING 9.35% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR
9.35% SENIOR SUBORDINATED NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
OF
EXTENDICARE HEALTH SERVICES, INC.
To Our Clients:
We are enclosing herewith a Prospectus, dated , 1997 of
Extendicare Health Services, Inc. (the "Issuer") and a related Letter of
Transmittal (which together constitute the "Exchange Offer") relating to the
offer by the Issuer to exchange its 9.35% Senior Subordinated Notes Due 2007
(the "Exchange Notes"), pursuant to an offering registered under the Securities
Act of 1933, as amended (the "Securities Act"), for a like principal amount of
its issued and outstanding 9.35% Senior Subordinated Notes Due 2007 (the
"Outstanding Notes") upon the terms and subject to the conditions set forth in
the Exchange Offer.
PLEASE NOTE THAT THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of
Outstanding Notes being tendered.
We are the participant in the book-entry transfer facility of Outstanding
Notes held by us for your account. A tender of such Outstanding Notes can be
made only by us as the participant in the book-entry transfer facility and
pursuant to your instructions. The Letter of Transmittal is furnished to you for
your information only and cannot be used by you to tender Outstanding Notes held
by us for your account.
We request instructions as to whether you wish to tender any or all of the
Outstanding Notes held by us for your account pursuant to the terms and
conditions of the Exchange Offer. We also request that you confirm that we may
on your behalf make the representations contained in the Letter of Transmittal
that are to be made with respect to you as beneficial owner.
Pursuant to the Letter of Transmittal, each holder of Outstanding Notes
will represent to the Issuer that (i) the Exchange Notes acquired in the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, (ii) the holder of the Outstanding Notes
has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes, (iii) if the holder is not a broker-dealer
or is a broker-dealer but will not receive Exchange Notes for its own account in
exchange for Outstanding Notes, the holder is not engaged in and does not intend
to participate in a distribution of the Exchange Notes and that it has no
arrangement or understanding with respect to the distribution of the Exchange
Notes and (iv) the holder is not an "affiliate" of the Issuer within the meaning
of Rule 405 under the Securities Act. If the tendering holder is a broker-dealer
that will receive Exchange Notes for its own account pursuant to the Exchange
Offer, we will represent on behalf of such broker-dealer that the Outstanding
Notes to be exchanged for the Exchange Notes were acquired by it as a result of
market-making activities or other trading activities, and acknowledge on behalf
of such broker-dealer that it will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such Exchange Notes. By
acknowledging that it will deliver and by delivering a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes, such broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
Very truly yours,
<PAGE> 2
INSTRUCTION TO
BOOK-ENTRY TRANSFER PARTICIPANT FROM OWNER
OF
EXTENDICARE HEALTH SERVICES INC.
9.35% SENIOR SUBORDINATED NOTES DUE 2007
To Participant of the
Book Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1997 of Extendicare Health Services Inc. (the "Issuer") and a
related Letter of Transmittal (which together constitute the "Exchange Offer").
Capitalized terms used but not defined herein have the meanings ascribed to them
in the Prospectus.
This will instruct you, the book-entry transfer facility participant, as to
the action to be taken by you relating to the Exchange Offer with respect to the
Outstanding Notes held by you for the account of the undersigned.
The aggregate face amount of the Outstanding Notes held by you for the
account of the undersigned is (fill in amount):
$ of the 9.35% Senior Subordinated Notes Due 2007.
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate statement):
A. ____ To TENDER the following Outstanding Notes held by you for the
account of the undersigned (insert principal amount of Outstanding Notes to
be tendered):
$ of the 9.35% Senior Subordinated Notes Due 2007, and
not to tender other Outstanding Notes, if any, held
by you for the account or the undersigned;
OR
B. ____ NOT to tender any Outstanding Notes held by you for the account of
the undersigned.
If the undersigned instructs you to tender the Outstanding Notes held by
you for the account of the undersigned, it is understood that you are authorized
to make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in the
Letter of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations, that (i) the
Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the undersigned, (ii) the undersigned has no
arrangement nor understanding with any person to participate in the distribution
of such Exchange Notes, (iii) if the undersigned is not a broker-dealer or is a
broker-dealer but will not receive Exchange Notes for its own account in
exchange for Outstanding Notes, the undersigned is not engaged in and does not
intend to participate in a distribution of the Exchange Notes and that it has no
arrangement or understanding with respect to the distribution of the Exchange
Notes and (iv) the undersigned is not an "affiliate" of the Issuer within the
meaning of Rule 405 under the Securities Act. If the undersigned is a
broker-dealer (whether or not it is also an "affiliate") that will receive
Exchange Notes for its own account pursuant to the Exchange Offer, it represents
that such Outstanding Notes to be exchanged for the Exchange Notes were acquired
by it as a result of market-making activities or other trading activities, and
it acknowledges that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such Exchange Notes. By
acknowledging that it will deliver and by delivering a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE> 3
SIGN HERE
Name of beneficial owner(s): __________________________________________________
Signature(s): _________________________________________________________________
Name(s) (please print): _______________________________________________________
Address: ______________________________________________________________________
Telephone Number: _____________________________________________________________
Taxpayer identification or Social Security Number:
_______________________________________________________________________________
Date: _________________________________________________________________________
