<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
DATE OF REPORT: APRIL 3, 1998
DATE OF EARLIEST EVENT
REPORTED: FEBRUARY 12, 1998
</TABLE>
MAGELLAN HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter).
<TABLE>
<S> <C> <C>
DELAWARE 1-6639 58-1076737
(State of incorporation) (Commission File Number) (IRS Employer Identification
No.)
</TABLE>
<TABLE>
<S> <C>
3414 PEACHTREE ROAD, N.E., SUITE 1400, ATLANTA, 30326
GEORGIA
(Address of principal executive offices) (Zip Code)
</TABLE>
(404) 841-9200
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On February 12, 1998, a wholly-owned subsidiary of the Registrant, MBC
Merger Corporation, merged with Merit Behavioral Care Corporation ("Merit")
whereby Merit became a wholly-owned subsidiary of the the Registrant (the
"Company" or "Magellan").
The Company acquired all of the outstanding stock of Merit for approximately
$448.9 million in cash plus the repayment of Merit's debt. The Company will
account for the Merit acquisition using the purchase method of accounting. Merit
manages behavioral healthcare programs for approximately 21.0 million covered
lives across all segments of the healthcare industry, including HMOs, Blue
Cross/Blue Shield organizations and other insurance companies, corporations and
labor unions, federal, state and local government agencies, and various state
Medicaid programs.
In connection with the consummation of the Merit acquisition, the Company
consummated certain related transactions (together with the Merit acquisition,
collectively, the "Transactions"), as follows: (i) the Company terminated its
credit agreement; (ii) the Company repaid all loans outstanding pursuant to and
terminated Merit's existing credit agreement (the "Merit Existing Credit
Agreement"); (iii) the Company completed a tender offer for its 11 1/4% Series A
Senior Subordinated Notes due 2004 (the "Magellan Outstanding Notes"); (iv)
Merit completed a tender offer for its 11 1/2% Senior Subordinated Notes due
2005 (the "Merit Outstanding Notes"); (v) the Company entered into a new senior
secured bank credit agreement (the "New Credit Agreement") with The Chase
Manhattan Bank and a syndicate of financial institutions, providing for credit
facilities of up to $700.0 million; and (vi) the Company issued $625.0 million
in 9% Senior Subordinated Notes due 2008 (the "Notes") (collectively, the
"Transactions").
The following table sets forth the sources and uses of funds for the
Transactions (in millions):
<TABLE>
<S> <C>
SOURCES:
Cash and cash equivalents......................................... $ 59.3
New Credit Agreement:
Revolving Facility (1).......................................... 20.0
Term Loan Facility.............................................. 550.0
The Notes......................................................... 625.0
---------
Total sources................................................... $ 1,254.3
---------
---------
USES:
Cash paid to Merit shareholders................................... $ 448.9
Repayment of Merit Existing Credit Agreement (2).................. 196.4
Purchase of Magellan Outstanding Notes (3)........................ 432.1
Purchase of Merit Outstanding Notes (4)........................... 121.6
Transaction costs (5)............................................. 55.3
---------
Total uses........................................................ $ 1,254.3
---------
---------
</TABLE>
- ------------------------
(1) The Revolving Facility provides for borrowings of up to $150.0 million. The
Company had approximately $112.5 million available for borrowing pursuant to
the Revolving Facility after consummating the Transactions, excluding
approximately $17.5 million of availability reserved for certain letters of
credit.
(2) Includes principal amount of $193.6 million and accrued interest of $2.7
million.
(3) Includes principal amount of $375.0 million, tender premium of $43.4 million
and accrued interest of $13.7 million.
2
<PAGE>
(4) Includes principal amount of $100.0 million, tender premium of $18.9 million
and accrued interest of $2.8 million.
(5) Transaction costs include, among other things, costs paid at closing
associated with the tender offers for the Magellan Outstanding Notes and the
Merit Outstanding Notes, the Notes, the Merit acquisition and the New Credit
Agreement.
The total consideration in the Merit acquisition was determined through
arm's length negotiations between representatives of Magellan and Merit. No
directors or officers of Magellan and its affiliates or Merit and its affiliates
had any material relationship prior to the Merit acquisition.
Magellan and its provider business affiliates and Merit and its behavioral
managed care affiliates transacted business in the ordinary course prior to the
Merit acquisition.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
FINANCIAL STATEMENTS
The following Merit Financial Statements, together with the independent
public accountants' reports thereon, are included herein:
1) Audited Consolidated Balance Sheets as of September 30, 1997 and 1996;
2) Audited Consolidated Statements of Operations for the years ended September
30, 1997, 1996 and 1995;
3) Audited Consolidated Statements of Stockholder's Equity for the years ended
September 30, 1997, 1996 and 1995;
4) Audited Consolidated Statements of Cash Flows for the years ended September
30, 1997, 1996 and 1995;
5) Unaudited Consolidated Balance Sheet as of December 31, 1997;
6) Unaudited Consolidated Statements of Operations for the three months ended
December 31, 1997 and 1996;
7) Unaudited Consolidated Statements of Cash Flows for the three months ended
December 31, 1997 and 1996.
3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Merit Behavioral Care Corporation
We have audited the accompanying consolidated balance sheets of Merit
Behavioral Care Corporation (the "Company") as of September 30, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended September 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 Merit Behavioral Care
Corporation as of September 30, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
1997, in conformity with generally accepted accounting principles.
As discussed in Note 4 to the financial statements, effective October 1,
1995, the Company changed its method of accounting for deferred contract
start-up costs related to new contracts or expansion of existing contracts.
Deloitte & Touche LLP
November 14, 1997
New York, New York
4
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER
31, SEPTEMBER 30,
--------------------
1997 1997 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 75,827 $ 87,368 $ 47,375
Accounts receivable, net of allowance for doubtful
accounts of $1,711 at December 31, 1997 (unaudited) and
$2,603 and $1,996 at September 30, 1997 and 1996....... 49,917 41,884 28,383
Short-term marketable securities......................... 4,109 4,111 --
Deferred income taxes.................................... 6,616 6,616 2,296
Other current assets..................................... 7,300 13,129 2,481
----------- --------- ---------
Total current assets................................. 143,769 153,108 80,535
Property, plant and equipment, net....................... 82,427 83,312 67,880
Goodwill and other intangibles, net of accumulated
amortization of $89,047 at December 31, 1997
(unaudited) and $82,637 and $59,781 at September 30,
1997 and 1996.......................................... 187,597 195,192 162,849
Restricted cash and investments.......................... 3,880 3,727 5,668
Deferred financing costs, net of accumulated amortization
of $2,871 at December 31, 1997 (unaudited) and $2,484
and $1,142 at September 30, 1997 and 1996.............. 10,246 10,634 11,362
Other assets............................................. 23,552 22,772 16,507
----------- --------- ---------
Total assets............................................. $ 451,471 $ 468,745 $ 344,801
----------- --------- ---------
----------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................................... $ 7,217 $ 11,347 $ 5,888
Claims payable........................................... 106,957 102,834 57,611
Deferred revenue......................................... 8,747 8,131 6,577
Accrued interest......................................... 2,336 5,161 5,008
Current portion of long-term debt........................ 1,263 6,498 500
Other current liabilities................................ 15,307 18,386 13,079
----------- --------- ---------
Total current liabilities............................ 141,827 152,357 88,663
Long-term debt........................................... 318,002 323,002 253,500
Deferred income taxes.................................... 13,525 15,388 30,669
Other long-term liabilities.............................. 5,034 3,862 1,451
COMMITMENTS AND CONTINGENCIES (SEE NOTE 11)
STOCKHOLDERS' EQUITY:
Common stock (40,000,000 shares authorized, $0.01 par
value, 29,396,158 shares issued at December 31, 1997
(unaudited) and 29,396,158 and 28,398,800 shares issued
at September 30, 1997 and 1996)........................ 294 294 284
Additional paid in capital............................... 10,193 8,949 (9,756)
Accumulated deficit...................................... (30,979) (28,307) (14,435)
Notes receivable from officers........................... (6,425) (6,800) (5,470)
----------- --------- ---------
(26,917) (25,864) (29,377)
Less common stock in treasury (21,000 shares)............ -- -- (105)
----------- --------- ---------
Total stockholders' equity............................. (26,917) (25,864) (29,482)
----------- --------- ---------
Total liabilities and stockholders' equity............... $ 451,471 $ 468,745 $ 344,801
----------- --------- ---------
----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, YEARS ENDED SEPTEMBER 30,
-------------------------- -------------------------------------
1997 1996 1997 1996 1995
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenue....................................... $ 177,217 $ 128,625 $ 555,717 $ 457,830 $ 361,549
Expenses:
Direct service costs........................ 145,997 102,932 449,563 361,684 286,001
Selling, general and administrative......... 22,091 16,579 67,450 64,523 49,823
Amortization of intangibles................. 7,231 6,799 26,897 25,869 21,373
Restructuring charge........................ -- -- -- 2,995 --
Income from joint ventures.................. (1,649) -- -- -- --
------------ ------------ ----------- ----------- -----------
173,670 126,310 543,910 455,071 357,197
Operating income.............................. 3,547 2,315 11,807 2,759 4,352
Other income (expense):
Interest income and other................... 1,074 780 3,497 2,838 1,498
Interest expense............................ (7,216) (6,186) (25,063) (23,826) --
Loss on disposal of subsidiary.............. -- -- (6,925) -- --
Merger costs and special charges............ (545) -- (1,314) (3,972) --
------------ ------------ ----------- ----------- -----------
(6,687) (5,406) (29,805) (24,960) 1,498
(Loss) income before income taxes and
cumulative effect of accounting change...... (3,140) (3,091) (17,998) (22,201) 5,850
(Benefit) provision for income taxes.......... (468) (219) (4,126) (5,332) 4,521
------------ ------------ ----------- ----------- -----------
(Loss) income before cumulative effect of
accounting change........................... (2,672) (2,872) (13,872) (16,869) 1,329
Cumulative effect of accounting change for
deferred contract start-up costs, net of tax
benefit of $757............................. -- -- -- (1,012) --
------------ ------------ ----------- ----------- -----------
Net (loss) income............................. $ (2,672) $ (2,872) $ (13,872) $ (17,881) $ 1,329
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
Pro forma net (loss) income assuming the new
method of accounting for deferred contract
start-up costs was applied retroactively.... $ (2,672) $ (2,872) $ (13,872) $ (16,869) $ 317
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED NOTES
COMMON STOCK ADDITIONAL EARNINGS RECEIVABLE COMMON
-------------------------- PAID IN (ACCUMULATED FROM STOCK IN
SHARES AMOUNT CAPITAL DEFICIT) OFFICERS TREASURY
------------- ----------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SEPTEMBER 30, 1994.............. 1,000,000 $ 10 $ 118,877 $ 2,117 $ -- $ --
Net income.............................. -- -- -- 1,329 -- --
------------- ----- ------------ -------------- ----------- -----
BALANCE SEPTEMBER 30, 1995.............. 1,000,000 10 118,877 3,446 -- --
Recapitalization from merger:
Redemption of common stock............ (915,754) (9) (258,129) -- -- --
Merger with MDC Acquisition Corp...... 415,023 4 104,996 -- -- --
Stock dividend........................ 24,763,531 247 (247) -- -- --
Issuance of stock to management....... 3,156,000 32 15,748 -- (5,800) --
Deferred taxes associated with
merger.............................. -- -- 7,594 -- -- --
Tax benefit from exercise of Merck stock
options............................... -- -- 1,505 -- -- --
Repayment of notes receivable........... -- -- -- -- 265 --
Cancellation of note receivable......... (20,000) -- (100) -- 100 --
Repurchase of common stock.............. -- -- -- -- -- (600)
Sale of common stock.................... -- -- -- -- (35) 495
Net loss................................ -- -- -- (17,881) -- --
------------- ----- ------------ -------------- ----------- -----
BALANCE SEPTEMBER 30, 1996.............. 28,398,800 284 (9,756) (14,435) (5,470) (105)
Issuance of stock for CMG acquisition... 739,358 7 5,538 -- -- --
Tax benefit from exercise of Merck stock
options............................... -- -- 11,630 -- -- --
Repayment of notes receivable........... -- -- -- -- 250 --
Repurchase of common stock.............. -- -- -- -- -- (30)
Sale of common stock.................... 258,000 3 1,537 -- (1,580) 135
Net loss................................ -- -- -- (13,872) -- --
------------- ----- ------------ -------------- ----------- -----
BALANCE SEPTEMBER 30, 1997.............. 29,396,158 $ 294 $ 8,949 $ (28,307) $ (6,800) $ --
------------- ----- ------------ -------------- ----------- -----
------------- ----- ------------ -------------- ----------- -----
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, YEARS ENDED SEPTEMBER 30,
-------------------------- -------------------------------
1997 1996 1997 1996 1995
------------ ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income.................................... $ (2,672) $ (2,872) $ (13,872) $ (17,881) $ 1,329
Adjustments to reconcile net (loss) income to net
cash provided by (used for) operating activities:
Income from joint ventures....................... (1,649) -- -- -- --
Loss on sale of subsidiary....................... -- -- 6,925 -- --
Cumulative effect of accounting change........... -- -- -- 1,012 --
Depreciation and amortization.................... 11,028 9,907 39,400 36,527 28,150
Amortization of deferred financing costs......... 387 335 1,342 1,142 --
Deferred taxes and other......................... (619) (369) (4,409) (6,068) 379
Restructuring charge............................. -- -- -- 2,995 --
Changes in operating assets and liabilities, net of
the effect of acquisitions:
Accounts receivable.............................. (8,033) (6,492) (9,781) 265 (8,545)
Other current assets............................. 1,094 (1,336) (2,854) 536 (995)
Deferred contract start-up costs................. (335) (637) (6,067) (4,816) (6,231)
Accounts payable and accrued liabilities......... (5,295) (4,526) 16,224 14,864 11,982
------------ ------------ --------- --------- ---------
Net cash provided by (used for) operating
activities......................................... (6,094) (5,990) 26,908 28,576 26,069
------------ ------------ --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment....... (3,073) (5,554) (23,951) (23,808) (31,529)
Cash used for acquisitions, net of cash
acquired....................................... -- -- (35,645) (12,676) (9,580)
Investments in and advances to joint ventures.... (541) (850) (2,595) (2,931) (14,860)
Repayments of advances from joint ventures....... 1,859 180 675 420 --
Sales (purchases) of marketable securities....... -- -- (4,111) 1,143 3,533
Long-term restrictions removed from (placed on)
cash........................................... (153) 47 1,941 (2,183) (211)
Proceeds from sale of subsidiary and property,
plant and equipment............................ 4,867 -- -- -- --
Change in non-current assets and other........... 1,454 773 1,558 (1,282) (1,503)
------------ ------------ --------- --------- ---------
Net cash provided by (used for) investing
activities..................................... 4,413 (5,404) (62,128) (41,317) (54,150)
------------ ------------ --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from capital contribution............... -- -- -- 114,980 --
Borrowings from parent........................... -- -- -- -- 32,882
Proceeds from bridge loan........................ -- -- -- 75,000 --
Proceeds from revolving credit facility.......... 25,000 40,000 187,500 163,500 --
Proceeds from senior term loans.................. -- -- 80,000 120,000 --
Proceeds from sale of notes...................... -- -- -- 100,000 --
Redemption of common stock....................... -- -- -- (258,138) --
Repayment of due to parent....................... -- -- -- (67,878) --
Repayment of bridge loan......................... -- -- -- (75,000) --
Repayment of senior term loans................... (5,235) (500) (500) -- --
Repayment of revolving credit facility........... (30,000) (35,000) (191,500) (129,500) --
Payment of financing costs....................... -- -- (602) (12,504) --
Other............................................ 375 250 315 125 --
------------ ------------ --------- --------- ---------
Net cash provided by (used for) financing
activities..................................... (9,860) 4,750 75,213 30,585 32,882
------------ ------------ --------- --------- ---------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS..... (11,541) (6,644) 39,993 17,844 4,801
Cash and cash equivalents at beginning of year....... 87,368 47,375 47,375 29,531 24,730
------------ ------------ --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR............. $ 75,827 $ 40,731 $ 87,368 $ 47,375 $ 29,531
------------ ------------ --------- --------- ---------
------------ ------------ --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
1. ORGANIZATION
Merit Behavioral Care Corporation (the "Company") was incorporated in the
State of Delaware in March 1993 as a wholly-owned subsidiary of Medco
Containment Services, Inc. ("Medco"). The Company manages behavioral healthcare
programs for payors across all segments of the healthcare industry, including
health maintenance organizations, Blue Cross/Blue Shield organizations and other
insurance companies, corporations and labor unions, federal, state and local
governmental agencies, and various state Medicaid programs. Behavioral
healthcare involves the treatment of a variety of behavioral health conditions
such as emotional and mental health problems, substance abuse and other personal
concerns that require counseling, outpatient therapy or more intensive treatment
services.
On November 18, 1993, Merck & Co., Inc. ("Merck") acquired all of the
outstanding shares of Medco (See Note 3).
On October 6, 1995, the Company completed a merger (the "Merger") with MDC
Acquisition Corp. ("MDC"), a company formed by Kohlberg Kravis Roberts & Co.,
L.P. ("KKR"), whereby MDC was merged with and into the Company. In connection
with the Merger, the Company changed its name from Medco Behavioral Care
Corporation to Merit Behavioral Care Corporation (See Note 2).
2. MERGER
Prior to the Merger, the Company was a wholly-owned subsidiary of Merck &
Co., Inc. ("Merck"). As a result of the Merger, KKR and Company management and
related entities obtained approximately 85% of the post-Merger common stock of
the Company. In connection with the Merger, Merck received $326,016 in cash
(which reflects various final purchase price adjustments) and retained
approximately 15% of the common stock of the post-Merger Company. The Merger was
accounted for as a recapitalization which resulted in a charge to equity of
$258,138 to reflect the redemption of common stock. In conjunction with the
Merger, the Company paid a stock dividend of approximately 49.6 shares for each
share of the Company's stock then outstanding.
The Merger was financed with $114,980 of new cash equity, consisting of
$105,000 from affiliates of KKR and $9,980 from Company management and related
entities ("Management"). Management acquired an additional $5,800 of equity
which was funded by loans from the Company. The balance of the transaction was
funded with a $75,000 bridge loan (the "Bridge Loan") provided by an affiliate
of KKR and $155,000 of initial borrowings under a $205,000 senior credit
facility among the Company, The Chase Manhattan Bank, N.A. and Bankers Trust
Company (the "Senior Credit Facility"). The aforementioned proceeds were
utilized to redeem common stock for $258,138, repay amounts due Merck of
$67,878, and pay certain fees and expenses related to the Merger. Of the total
fees and expenses, $5,500 was paid to KKR.
3. BASIS OF PRESENTATION
On November 18, 1993, Merck acquired all the outstanding shares of Medco in
a transaction accounted for by the purchase method. As a result of this
acquisition, a new basis of accounting was established and as such, the
appraised value of the Company's assets and liabilities was recognized as of
November 18, 1993.
9
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BASIS OF PRESENTATION (CONTINUED)
The appraisal determined that identified intangible assets, consisting
principally of customer contracts, had an appraised value of $112,000 and
related deferred taxes of $47,800 at the acquisition date. These identified
intangible assets are being amortized on a straight line basis over a weighted
average life of 12 years. Based on the allocation of the purchase price to the
net tangible and identified intangible assets and liabilities of the Company, an
excess of the allocated purchase price over the fair value of net assets
acquired of approximately $47,988 was recorded as goodwill. Such goodwill is
being amortized on a straight line basis over 40 years.
The unaudited consolidated financial statements of the Company as of
December 31, 1997 and for the three-month periods ended December 31, 1997 and
1996, were prepared by the Company without audit. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. In the opinion of management, all necessary adjustments (consisting
only of normal recurring adjustments) have been made to present fairly the
consolidated financial position and results of operations and cash flows for
these periods. The results of operations for the period ended December 31, 1997
are not necessarily indicative of the expected results for the year ending
September 30, 1998.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investment instruments with an original
maturity of three months or less to be the equivalent of cash for purposes of
balance sheet presentation.
Included in cash and cash equivalents at September 30, 1997 and 1996 is
$11,020 and $11,713, respectively, of cash held under the terms of certain
customer contracts that require a claims fund to be established and segregated
for the purpose of paying customer behavioral healthcare claims. Under these
arrangements, a reconciliation process is typically conducted annually between
the customer and the Company to determine the amount of unexpended funds, if
any, accruing to the Company. This cash is unavailable to the Company for
purposes other than the payment of customer claims until such reconciliation
process has been completed. The amount of cash held under such arrangements in
excess of anticipated customer claims at September 30, 1997 and 1996 was $6,197
and $4,267, respectively.
10
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company held surplus cash balances of $29,325 and $13,715 as of
September 30, 1997 and 1996, respectively, as required by contracts with various
state and local governmental entities. In addition, at September 30, 1997 and
1996, the Company held surplus cash balances of $3,137 and $1,214, respectively,
as required by various other contracts. These contracts require the segregation
of such cash as financial assurance that the Company can meet its obligations
thereunder.
The Company has a subsidiary organized in the State of Missouri that is
licensed to do business as a foreign corporation in the State of California and
is subject to regulation by the Department of Corporations of the State of
California. Pursuant to these regulatory requirements, certain amounts of cash
are required to be retained for the use of this subsidiary. Included in cash and
cash equivalents at September 30, 1997 and 1996 is $0 and $900, respectively,
under such requirements.
SHORT-TERM MARKETABLE SECURITIES
Short-term marketable securities consist of treasury notes and certificates
of deposit, carried at amortized cost which approximates fair value. All of the
Company's short-term marketable securities are classified as held-to-maturity.
The Company held short-term marketable securities in the amount of $4,011 at
September 30, 1997 as required by the Company's contract with a governmental
entity.
RESTRICTED CASH
At September 30, 1997 and 1996, $6,623 and $7,168, respectively, of cash and
marketable securities were held by subsidiaries of the Company that are
organized and regulated under state law as insurance companies. Such insurance
companies are required to maintain certain minimum statutory deposits and
reserves with respect to the payment of future claims. The amount of cash in
excess of the liabilities of such subsidiaries and not available for dividend to
the Company without prior regulatory approval was $3,559 and $5,510 at September
30, 1997 and 1996, respectively. As a result, such amounts of cash held by these
subsidiaries have been classified as a long-term asset in the accompanying
consolidated balance sheets.
All of the Company's long-term marketable investments are classified as
held-to-maturity; in addition, such investments are carried at amortized cost
which approximates fair value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. For financial reporting
purposes, depreciation is provided principally on a straight line basis over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Machinery and equipment....................................... 5 Years
Integrated managed care information system.................... 7 Years
Furniture and fixtures........................................ 15 Years
Life of
Leasehold improvements........................................ lease
</TABLE>
Expenditures for maintenance, repairs and renewals of minor items are
charged to operations as incurred. Major betterments are capitalized.
The integrated managed care information system (the "System") represents
costs incurred in the development and adaptation of AMISYS software for use in
the Company's business. In addition to
11
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
purchased hardware and software costs, the payroll and related benefits of
employees who are exclusively engaged in the development and deployment of the
System are capitalized. The System was substantially complete in October 1995 at
which time the Company began installing the System in various area and regional
offices in the Company's service delivery system. As the System is installed in
an office, the office is allocated a ratable portion of the total cost of the
System, at which time the allocated cost is depreciated over an estimated useful
life of 7 years.
GOODWILL AND OTHER INTANGIBLES
The Company amortizes costs in excess of the net assets of businesses
acquired on a straight line basis over periods not to exceed 40 years.
Contingent consideration is charged to goodwill when paid and is amortized over
the remaining life of such goodwill, not to exceed 40 years. The Company
periodically reviews the carrying value of goodwill to assess recoverability and
other than temporary impairments.
Goodwill and intangible assets consisted of the following at September 30,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Customer Contracts.................................................. $ 88,074 $ 80,000
Provider Network.................................................... 12,000 12,000
Trade Names and other............................................... 20,000 20,000
Goodwill............................................................ 157,755 110,630
----------- -----------
$ 277,829 $ 222,630
----------- -----------
----------- -----------
</TABLE>
DEFERRED CONTRACT START-UP COSTS
The Company defers contract start-up costs related to new contracts or
expansion of existing contracts that require the implementation of separate,
dedicated service delivery teams, provider networks and delivery systems or the
establishment of a local clinical organization in a new geographic area to
service the new program. The Company defers only costs which (i) are separately
identified, incremental and segregated from ordinary operating expenses; (ii)
provide a direct, quantifiable benefit to future periods; and (iii) are fully
recoverable from contract revenues directly attributable to such benefit. The
incremental costs deferred by the Company include, among other things,
consulting fees, salary costs, travel costs, office costs and network and
reporting system development costs. Consulting fees deferred by the Company
relate primarily to the recruitment, credentialling and contracting of the
particular customer's provider network. The salary costs relate primarily to
employees of the Company dedicated to clinical protocol design, network
development activities and program reporting and information systems
customization for the specific customer. These contract start-up costs are
capitalized and amortized on a straight line basis over the initial term of the
related contract. The amortization periods range from one to five years, with a
weighted-average life at September 30, 1997 and 1996 of 4.3 and 3.3 years,
respectively. Amortization of deferred contract start-up costs was $3,096,
$2,848, and $1,315 for the periods ended September 30, 1997, 1996, and 1995,
respectively. During the periods ended September 30, 1997, 1996, and 1995, the
Company deferred contract start-up costs of $6,067, $4,816, and $6,231,
respectively. Other non-current assets include $9,036 and $6,077 of unamortized
deferred contract start-up costs at September 30, 1997 and 1996, respectively.
12
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Effective October 1, 1995, the Company changed its method of accounting for
deferred start-up costs related to new contracts or expansion of existing
contracts (i) to expense costs relating to start-up activities incurred after
commencement of services under the contract, and (ii) to limit the amortization
period for deferred start-up costs to the initial contract period. Prior to
October 1, 1995, the Company capitalized start-up costs related to the
completion of the provider networks and reporting systems beyond commencement of
contracts and, in limited instances, amortized the start-up costs over a period
that included the initial renewal term associated with the contract. Under the
new policy, the Company does not defer contract start-up costs after contract
commencement, or amortize start-up costs beyond the initial contract period. The
change was made to increase the focus on controlling costs associated with
contract start-ups.
The pro forma effect of the change, had the Company adopted this new
accounting policy in prior years, is to decrease total assets by $1,769 and
decrease total liabilities by $757 as of September 30, 1995, and to increase
costs and expenses by $1,769 ($1,012 after taxes) for the year ended September
30, 1995. The effect of the change on fiscal 1996 and 1997 cannot be reasonably
estimated.
REVENUE RECOGNITION
Typically, the Company charges each of its customers a flat monthly
capitation fee for each beneficiary enrolled in such customer's behavioral
health managed care plan or Employee Assistance Program ("EAP"). This capitation
fee is generally paid to the Company in the current month. Contract revenue
billed in advance of performing related services is deferred and recognized
ratably over the period to which it applies. For a number of the Company's
behavioral health managed care programs, the capitation fee is divided into
outpatient and inpatient fees, which are recognized separately.
Outpatient revenue is recognized monthly as it is received; inpatient
revenue is recognized monthly and is in most cases (i) paid to the Company
monthly (in cases where the Company is responsible for the payment of inpatient
claims) or in certain cases (ii) retained by the customer for payment of
inpatient claims. When the customer retains the inpatient revenue, actual
inpatient costs are periodically reconciled to amounts retained and the Company
receives the excess of the amounts retained over the cost of services, or
reimburses the customer if the cost of services exceeds the amounts retained. In
certain instances, such excess or deficiency is shared between the Company and
the customer. A significant portion of the Company's revenue is derived from
capitated contracts.
DIRECT SERVICE COSTS
Direct service costs are comprised principally of expenses associated with
managing, supervising and providing the Company's services, including
third-party network provider charges, various charges associated with the
Company's staff offices, inpatient facility charges, costs associated with
members of management principally engaged in the Company's clinical operations
and their support staff, and rent for certain offices maintained by the Company
in connection with the delivery of services. Direct service costs are recognized
in the month in which services are expected to be rendered. Network provider and
facility charges for authorized services that have not been reported and billed
to the Company (known as incurred but not reported expenses, or "IBNR") are
estimated and accrued based on historical experience, current enrollment
statistics, patient census data, adjudication decisions and other information.
Such costs are included in the caption "Claims payable" in the accompanying
consolidated balance sheets.
13
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred taxes are provided for the expected future income tax consequences
of events that have been recognized in the Company's financial statements.
Deferred tax assets and liabilities are determined based on the temporary
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities using enacted tax rates in effect in the years in
which the temporary differences are expected to reverse.
LONG-LIVED ASSETS
The Financial Accounting Standards Board issued SFAS No. 121, ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF,
in March 1995. The general requirements of this statement are applicable to the
properties and intangible assets of the Company and require impairment to be
considered whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the sum of expected
future cash flows (undiscounted and without interest charges) is less than the
carrying amount of the asset, an impairment loss is recognized. The Company
adopted this standard on October 1, 1996. No impairment losses have been
identified by the Company.
STOCK-BASED COMPENSATION PLANS
During fiscal 1997, the Company adopted SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION ("SFAS 123"). The new standard defines a fair value
method of accounting for stock options and similar equity instruments. Under the
fair value method, compensation cost is measured at the grant date based on the
fair value of the award and is recognized over the service period, which is
usually the vesting period. As permitted by SFAS 123, however, the Company has
elected to continue to recognize and measure compensation for its stock rights
and stock option plans in accordance with the existing provisions of Accounting
Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB
25"). See Note 16 for pro forma disclosures of net loss as if the fair
value-based method prescribed by SFAS No. 123 had been applied.
DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reported in the consolidated balance sheets for cash and
cash equivalents, accounts receivable, accounts payable and accrued liabilities
approximates fair value because of the immediate or short-term maturity of these
financial instruments. The Company's short-term marketable securities and
long-term marketable investments are carried at amortized cost which
approximates fair value. The carrying amount of loans made to certain joint
ventures engaged in the development of Medicaid programs (Note 9) approximates
fair value which was estimated by discounting future cash flows using rates at
which similar loans would be made to borrowers with similar credit ratings. The
carrying value for the variable rate debt outstanding under the Senior Credit
Facility (as described in Note 6) approximates the fair value. The fair value of
the Company's senior subordinated notes (see Note 6) is estimated to be $109,000
at September 30, 1997 (based on quoted market prices) which compares to the
carrying value of $100,000.
14
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade receivables. Concentrations of
credit risk with respect to trade receivables are limited due to the large
number of customers comprising the Company's customer base and the dispersion of
such customers across different businesses and geographic regions.
5. PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment consisted of the following at September 30:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Machinery and equipment............................................. $ 58,988 $ 44,896
Integrated managed care information system.......................... 38,914 28,349
Furniture and fixtures.............................................. 16,665 12,795
Leasehold improvements.............................................. 3,443 2,977
----------- ----------
118,010 89,017
Accumulated depreciation and amortization........................... (34,698) (21,137)
----------- ----------
$ 83,312 $ 67,880
----------- ----------
----------- ----------
</TABLE>
Depreciation and amortization related to property, plant and equipment was
$12,503, $10,658, and $6,776 for the periods ended September 30, 1997, 1996, and
1995, respectively.
6. LONG TERM DEBT
Long-term debt consisted of the following at September 30:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revolving Loans..................................................... $ 30,000 $ 34,000
Senior Term Loan A.................................................. 70,000 70,000
Senior Term Loan B.................................................. 129,500 50,000
Notes............................................................... 100,000 100,000
----------- -----------
329,500 254,000
Less current portion................................................ (6,498) (500)
----------- -----------
$ 323,002 $ 253,500
----------- -----------
----------- -----------
</TABLE>
SENIOR CREDIT FACILITY--In October 1995, the Company entered into a credit
agreement (the "Credit Agreement"), which provided for secured borrowings from a
syndicate of lenders. The Senior Credit Facility consisted initially of (i) a
six and one-half year revolving credit facility (the "Revolving Credit
Facility") providing for up to $85,000 in revolving loans, which includes
borrowing capacity available for letters of credit of up to $20,000, and (ii) a
term loan facility providing for up to $120,000 in term loans, consisting of a
$70,000 senior term loan with a maturity of six and one-half years ("Senior Term
Loan A"), and a $50,000 senior term loan with a maturity of eight years ("Senior
Term Loan B"). On September 12, 1997, the Senior Term Loan B was increased by
$80,000 to $130,000 with the maturity extended one and one-half years. The
additional borrowings from Senior Term Loan B were primarily obtained to fund
the
15
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG TERM DEBT (CONTINUED)
acquisition of CMG Health, Inc. ("CMG"), as discussed in Note 8. At September
30, 1997, $30,000 of revolving loans and five letters of credit totaling $8,313
were outstanding under the Revolving Credit Facility, and approximately $46,687
was available for future borrowing. At September 30, 1996, $34,000 of revolving
loans and three letters of credit totaling $425 were outstanding under the
Revolving Credit Facility, and approximately $50,575 was available for future
borrowings.
In October 1996, a scheduled repayment of $500 was made on Senior Term Loan
B. The annual amortization schedule of the Senior Term Loans is $6,498 in 1998,
$10,000 in 1999, $12,500 in 2000, $20,000 in 2001, $25,000 in 2002 and $125,502
thereafter. The Senior Term Loans are subject to mandatory prepayment (i) with
the proceeds of certain asset sales and (ii) on an annual basis with 50% of the
Company's Excess Cash Flow (as defined in the Credit Agreement) for so long as
the ratio of the Company's Total Debt (as defined in the Credit Agreement) to
annual Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"
as defined in the Credit Agreement) is greater than 3.5 to 1.0. Proceeds in the
amount of $4,735 received in October 1997 as a result of the disposal of one of
the Company's subsidiaries (See Note 17) have been classified as current in
accordance with the mandatory prepayment loan provision. At September 30, 1997,
approximately $662 has been classified as current in accordance with mandatory
prepayment requirements for Excess Cash Flow.
The Company is charged a commitment fee calculated at an EBITDA-dependent
rate ranging from 0.250% to 0.500% per annum of the commitment under the
Revolving Credit Facility in effect on each day. The Company is charged a letter
of credit fee calculated at an EBITDA-dependent rate ranging from 0.375% to
1.750% per annum of the face amount of each letter of credit and a fronting fee
calculated at a rate equal to 0.250% per annum of the face amount of each letter
of credit. Loans under the Credit Agreement bear interest at EBITDA-dependent
floating rates, which are, at the Company's option, based upon (i) the higher of
the Federal funds rate plus 0.5%, or bank prime rates, or (ii) Eurodollar rates.
Rates on borrowing outstanding under the Senior Credit Facility averaged 8.1%
and 8.3% for the years ended September 30, 1997 and 1996, respectively.
NOTES--On November 22, 1995, the Company issued $100,000 aggregate principal
amount of 11 1/2% senior subordinated notes due 2005 (the "Private Notes"), the
net proceeds of which were applied to repay the Bridge Loan (including accrued
interest) and a portion of the Revolving Credit Facility. On March 20, 1996, the
Company exchanged the Private Notes for $100,000 aggregate principal amount of
11 1/2% Senior Subordinated Notes due 2005 that are registered under the
Securities Act of 1933 (the "Notes"). The Notes are senior subordinated,
unsecured obligations of the Company.
The Company may be obligated to purchase at the holders' option all or a
portion of the Notes upon a change of control or asset sale, as defined in the
indenture for the Notes (the "Notes Indenture"). The Notes are not redeemable at
the Company's option prior to November 15, 2000, except that at any time on or
prior to November 15, 1998, under certain conditions the Company may redeem up
to 35% of the initial principal amount of the Notes originally issued with the
net proceeds of a public offering of the common stock of the Company. The
redemption price is equal to 111.50% of the principal amount if the redemption
is on or prior to November 15, 1997, and 110.50% if the redemption is on or
prior to November 15, 1998. From and after November 15, 2000, the Notes will be
subject to redemption at the option of the Company, in whole or in part, at
various redemption prices, declining from 105.75% of the principal amount to par
on and after November 15, 2004. The Notes mature on November 15, 2005.
16
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG TERM DEBT (CONTINUED)
The Credit Agreement and the Notes Indenture contain restrictive covenants
that, among other things and under certain conditions, limit the ability of the
Company to incur additional indebtedness, to acquire (including a limitation on
capital expenditures) or to dispose of assets or operations, to incur liens on
its property or assets, to make advances, investments and loans, and to pay any
dividends. The Company must also satisfy certain financial covenants and tests.
Borrowings under the Credit Agreement are secured by a first priority lien
on the capital stock of certain of the Company's subsidiaries.
7. NOTES RECEIVABLE FROM OFFICERS
In October 1995, the Company loaned several officers an aggregate of $5,800
for the purchase of common stock of the Company; subsequent to the Merger,
additional loans totaling $1,615 were made to officers for the purchase of
shares of common stock. Each loan is represented by a promissory note which
bears interest at a rate of 6.5% per annum.
These notes are full recourse obligations of the officers, are
collateralized by the pledge of common stock of the Company held by such
officers and may be prepaid in part or in full without notice or penalty. Notes
receivable totaling $250 and $265 were repaid during the periods ended September
30, 1997 and 1996, respectively. Also a note for $100 was canceled in January
1996 for receipt of shares of common stock. The remaining outstanding notes are
due as follows: $20 in 1998 and $6,780 in 2001. The notes are shown as a
reduction of stockholders' equity in the accompanying consolidated balance
sheets.
8. ACQUISITIONS
On September 12, 1997, the Company paid an initial $48,740 and issued
739,358 shares of Company common stock to acquire all of the capital stock of
CMG, a Maryland-based provider of managed behavioral healthcare services. The
acquisition was accounted for as a purchase transaction. The consolidated
financial statements of the Company include the operating results of CMG from
the date of the acquisition. The purchase price for CMG was allocated to the net
assets acquired based upon their estimated fair values. The Company common stock
issued in the acquisition was assigned a value of $7.50 per share based on a
valuation analysis performed by an independent third party. The excess of the
purchase price over the net tangible assets acquired amounted to $64,715 and is
being amortized over periods up to 40 years using the straight-line method. The
purchase price allocation was based on preliminary estimates and may be revised
upon final valuation. The Company is obligated to make contingent payments to
the former shareholders of CMG if the financial results of certain contracts
exceed specified base-line amounts. Such contingent payments are subject to an
aggregate maximum of $23,500. Any such additional payments will be recorded as
goodwill.
The following summary of the unaudited pro forma consolidated results of
operations of the Company for the years ended September 30, 1997 and 1996
assumes the CMG acquisition occurred as of the beginning of the respective
periods. The pro forma results include the combined historical results of the
Company and CMG, and pro forma adjustments to reflect (i) interest expense
associated with the debt incurred to finance the acquisition, (ii) changes to
depreciation and amortization related to the allocation of the cost of CMG to
the assets acquired and liabilities assumed and (iii) reductions of salaries,
benefits and certain other costs included in the historical results of CMG which
will be eliminated as a result of the acquisition. These pro forma results have
been prepared for comparative
17
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. ACQUISITIONS (CONTINUED)
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the acquisition occurred at the beginning
of the respective periods, or which may result in the future.
<TABLE>
<CAPTION>
UNAUDITED
------------------------
<S> <C> <C>
1997 1996
----------- -----------
Revenue............................................................. $ 653,477 $ 522,857
Net loss............................................................ (15,048) (16,939)
</TABLE>
In August 1996, the Company paid approximately $340 to acquire Orion Life
Insurance Company ("Orion"), a Delaware life and health insurance company. Orion
holds insurance licenses in 17 states and provides the Company with the ability
to underwrite future business in those states should a customer require that a
licensed insurance entity underwrite its behavioral health program.
On December 19, 1995, the Company paid an initial $50 with a subsequent
payment of $2,950 in January 1996 to acquire ProPsych, Inc. ("ProPsych"), a
Florida-based behavioral health managed care company. As of September 30, 1996,
the Company recorded additional goodwill in the amount of $400 for a final
contingent payment made to the former shareholders of ProPsych in November 1996.
On October 5, 1995, the Company paid an initial $8,730 to acquire Choate
Health Management, Inc. and certain related entities ("Choate"), a
Massachusetts-based integrated behavioral healthcare organization. The Company
made a contingent consideration payment of $1,278 to the former shareholders of
Choate in July 1996; such payment was recorded as goodwill. In June 1997, the
Company and the former Choate shareholders signed an agreement which provided
for the settlement of the contingent consideration related to Choate. Such
agreement required no further payments by the Company. Choate was sold by the
Company in September 1997 (See Note 17).
In September 1995, a contingent payment of $8,550 was made to the former
shareholders of BenesYs, a subsidiary of the Company, in full settlement of any
and all contingent consideration due to such former shareholders. In April 1995,
a final payment of $650 was made related to the acquisition of the clinical
protocols of the Washton Institute.
9. JOINT VENTURES
CMG, which was acquired on September 12, 1997, is a 50% partner in CHOICE
Behavioral Health Partnership ("Choice"), a managed behavioral healthcare
company. The Company reports its investment in Choice using the equity method.
Although the Company reports its share of earnings from the joint venture, the
financial statements of Choice are not consolidated with those of the Company.
All revenue of the joint venture is from a contract for the Civilian Health and
Medical Program of the Uniformed Services ("CHAMPUS") with Humana, Inc.
18
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. JOINT VENTURES (CONTINUED)
Summarized financial information of the joint venture, representing 100% of
its business, as of September 30, 1997 and for the period from September 12,
1997 through September 30, 1997, is as follows:
<TABLE>
<S> <C> <C> <C>
Current Assets............. $ 38,286 Net Revenues............... $ 3,333
Cost of Providing
Non-Current Assets......... 700 Services................... 2,973
--------- ---------
Total Assets........... $ 38,986
---------
---------
Gross Profit............... 360
Total Liabilities.......... $ 37,141
Partners' Capital.......... 1,845 Other Expenses............. 106
--------- ---------
Total Liabilities & P.C.... $ 38,986 Net Income................. $ 254
--------- ---------
--------- ---------
</TABLE>
In March 1994, the Company entered into a joint venture partnership with
Community Sector Systems, Inc. ("CSS"), a software development company, to
market a proprietary clinical information, communications and case documentation
software package. The Company contributed $125 in capital, loaned $1,375 to CSS
in 1994 and made an additional loan of $300 to CSS in 1995. In December 1996,
the Company converted the $1,375 loan and the accrued interest receivable on the
loan of $369 into an equity interest in CSS, and made an additional capital
contribution of $500. Additionally, in February 1997 the Company contributed
capital of $350 and loaned CSS $150. As of September 30, 1997, the Company has a
net loan receivable from CSS of $450 and an equity investment in CSS of $2,719.
In April 1995, the Company entered into a contractual arrangement with
Community Health Network of Connecticut, Inc. ("CHN"), an organization
consisting of 11 not-for-profit health centers in Connecticut, under which the
Company has agreed to provide CHN with up to a total of $4,000 in unsecured debt
to help finance CHN's Medicaid program development costs. As of September 30,
1997 and 1996, the Company had net advances to CHN outstanding of $1,732 and
$2,079, respectively.
Also, in April 1995, the Company entered into a joint venture with
Neighborhood Health Providers, LLC ("NHP"), an organization consisting of five
hospitals located in Brooklyn and Queens, New York, under which the Company
agreed to fund a portion of NHP's Medicaid program development costs in the form
of $1,500 in unsecured debt. As of September 30, 1997 and 1996, the Company had
net advances of $1,500 to NHP.
In September 1995, the Company paid $12,010 to Empire Blue Cross and Blue
Shield ("Empire") for the right to provide behavioral health managed care
services to approximately 750,000 Empire enrollees in the State of New York for
a period of eight years. In connection therewith, the Company formed a limited
liability company (the "Empire Joint Venture") with the Company and Empire
receiving ownership interests of 80% and 20%, respectively. The payment was
charged to goodwill and is being amortized over the life of the underlying
contract.
In January 1996, the Company formed a joint venture with the hospital
sponsors of NHP under the name Royal Health Care LLC ("Royal"), in which the
Company and NHP each holds a 50% equity interest. Royal has management services
contracts with certain organizations including NHP and Empire Community Delivery
Systems LLC ("ECDS"). During fiscal 1996, the Company made an equity
contribution and an unsecured working capital loan to Royal in the amounts of
$200 and $228, respectively. During fiscal 1997, the Company made an additional
capital contribution of $100 to Royal.
19
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. JOINT VENTURES (CONTINUED)
ECDS, which was formed in fiscal 1996, is a joint venture company in which
the Company, NHP and Empire hold interests of approximately 16.7%, 16.7%, and
66.6%, respectively. The Company made capital contributions to ECDS in 1997 and
1996 of $667 and $458, respectively. Also, in 1997 and 1996 the Company provided
loans to NHP, the proceeds of which were used to fund NHP's capital
contributions to ECDS, of $667 and $458, respectively. The loans to NHP are
secured by NHP's interest in ECDS. Empire and ECDS have entered into an
agreement under which ECDS will exclusively manage and operate, on behalf of
Empire, health care benefit programs (covering all services except behavioral
healthcare and vision care) in the five New York City boroughs for Medicaid
beneficiaries enrolled in Empire plans. Each of Empire and Royal will provide
specified administrative and management services to ECDS to support its delivery
of services to Empire under such agreement. Moreover, each of ECDS and Royal
will hold specified equity interests in certain independent practice
associations (IPAs) providing treatment services to the Empire Medicaid
beneficiaries. In addition, Empire has entered into an agreement with the Empire
Joint Venture to exclusively provide, on behalf of Empire, all behavioral
healthcare services in New York City to such Empire Medicaid enrollees. The
Royal and ECDS joint ventures and related agreements have five year terms, with
up to three five-year renewals (subject to applicable regulatory approvals).
Each such venture and agreement also contains customary termination provisions.
The receivables from, and the investments in, CSS, NHP, CHN, Royal and ECDS
are reflected in "other assets" in the accompanying balance sheets.
20
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
Prior to the Merger, the Company filed a consolidated federal income tax
return with Merck. Though no formal tax sharing agreement existed between the
Company and Merck, the Company computed federal income taxes on a separate
return basis and recorded such taxes in the caption "Due to parent".
The components of income tax expense (benefit) for the periods ended
September 30, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.................................................... $ -- $ -- $ 3,030
State...................................................... 283 736 1,112
--------- --------- ---------
283 736 4,142
--------- --------- ---------
Deferred:
Federal.................................................... (4,848) (5,495) 200
State...................................................... 439 (573) 179
--------- --------- ---------
(4,409) (6,068) 379
--------- --------- ---------
Total........................................................ $ (4,126) $ (5,332) $ 4,521
--------- --------- ---------
--------- --------- ---------
</TABLE>
The differences between the U.S. federal statutory tax rate and the
Company's effective tax rate are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
U.S. federal statutory tax rate.................................. (35.0)% (35.0)% 35.0%
State income taxes (net of federal benefit)...................... 0.6 0.4 14.4
Capital loss..................................................... 6.9 -- --
Merger expenses.................................................. -- 5.8 --
Goodwill......................................................... 3.1 2.3 13.1
Expenses without tax benefit..................................... 1.6 2.0 13.9
Other............................................................ (0.1) 0.5 0.9
--------- --------- ---
Effective tax rate............................................... (22.9)% (24.0)% 77.3%
--------- --------- ---
--------- --------- ---
</TABLE>
At September 30, 1997 and 1996, the Company had $46,733 and $23,707,
respectively, of deferred income tax assets and $55,505 and $52,080,
respectively, of deferred income tax liabilities which have
21
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
been netted for presentation purposes. The significant components of these
amounts are shown on the balance sheet as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
CURRENT NON CURRENT CURRENT NON CURRENT
ASSET LIABILITY ASSET LIABILITY
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Provision for estimated expenses........ $ 7,023 $ 507 $ 2,630 $ 2,161
Capitalized expenses.................... (407) (1,224) (334) (1,436)
Net operating loss carryforwards........ -- 28,502 -- 9,170
Accelerated depreciation................ -- (20,194) -- (14,605)
Intangible asset differences............ -- (22,979) -- (25,959)
--------- ----------- --------- -----------
$ 6,616 $ (15,388) $ 2,296 $ (30,669)
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
Management believes that the deferred tax assets will be fully realized
based on future reversals of existing taxable temporary differences and
projected operating results of the Company. As a result, no valuation allowance
has been provided. At September 30, 1997, the Company had U.S. federal net
operating loss carryforwards of approximately $76,630 for tax purposes.
Approximately $5,920 of the carryforwards expire in 2010, $21,460 expire in 2011
and $49,250 expire in 2012.
11. COMMITMENTS AND CONTINGENCIES
A. LEASES
The Company leases office facilities and equipment under various
noncancelable operating leases.
At September 30, 1997, the minimum aggregate rental commitments under
noncancelable leases, excluding renewal options, are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 13,469
1999.............................................................. 11,606
2000.............................................................. 9,892
2001.............................................................. 8,699
2002.............................................................. 6,382
Thereafter........................................................ 18,219
---------
Minimum lease payments............................................ 68,267
Less amounts representing sublease income......................... (2,060)
---------
$ 66,207
---------
---------
</TABLE>
Several of the leases contain escalation provisions due to increased
maintenance costs and taxes. Scheduled rent increases are amortized on a
straight-line basis over the lease term. Total rent expense for the periods
ended September 30, 1997, 1996 and 1995 amounted to $15,842, $13,059 and
$10,115, respectively.
22
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
B. EMPLOYMENT AGREEMENTS
The Company and certain of its subsidiaries have employment agreements with
various officers and certain other management personnel that provide for salary
continuation for a specified number of months under certain circumstances. The
aggregate commitment for future salaries at September 30, 1997, excluding
bonuses, was approximately $2,735.
C. LEGAL PROCEEDINGS
In October 1996, a group of eight plaintiffs purporting to represent an
uncertified class of psychiatrists and clinical social workers brought an action
under the federal antitrust laws in the United States District Court for the
Southern District of New York against nine behavioral health managed care
organizations, including the Company (collectively, "Defendants"). The complaint
alleges that Defendants violated section 1 of the Sherman Act by engaging in a
conspiracy to fix the prices at which Defendants purchase services from mental
healthcare providers such as plaintiffs. The complaint further alleges that
Defendants engaged in a group boycott to exclude mental healthcare providers
from Defendants' networks in order to further the goals of the alleged
conspiracy. The complaint also challenges the propriety of Defendents'
capitation arrangements with their respective customers, although it is unclear
from the complaint whether plaintiffs allege that Defendants unlawfully
conspired to enter into capitation arrangements with their respective customers.
The complaint seeks treble damages against Defendants in an unspecified amount
and a permanent injunction prohibiting Defendants from engaging in the alleged
conduct which forms the basis of the complaint, plus costs and attorneys' fees.
In January 1997, Defendants filed a motion to dismiss the complaint. On July 21,
1997, a court-appointed magistrate judge issued a report and recommendation to
the District Court recommending that Defendants' motion to dismiss the complaint
with prejudice be granted. On August 5, 1997, plaintiffs filed objections to the
magistrate judge's report and recommendation; such objections have not yet been
heard. The Company intends to vigorously defend itself in this litigation. No
amounts are recorded on the books of the Company in anticipation of a loss as a
result of this contingency.
The Company is engaged in various other legal proceedings that have arisen
in the ordinary course of its business. The Company believes that the ultimate
outcome of such proceedings will not have a material effect on the Company's
financial position, liquidity or results of operations.
D. INSURANCE
Under the Company's professional liability insurance policy, coverage is
limited to the period in which a claim is asserted, rather than when the
incident giving rise to such claim occurred. The Company has obtained
professional liability insurance through October 6, 1998; however, in the event
the Company was unable to obtain professional liability insurance at the
expiration of the current policy period, it is possible that the Company would
be uninsured for claims asserted after the expiration of the current policy
period. Historical experience of the Company does not indicate that losses, if
any, arising from claims asserted after the expiration of the current
professional liability policy period would have a material effect on the
Company's financial position, liquidity or results of operations.
23
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
E. CHAMPUS CONTRACT
On April 1, 1997, the Company began providing mental health and substance
abuse services, as a subcontractor, to beneficiaries of CHAMPUS in the
Southwestern and Midwestern United States, designated as CHAMPUS Regions 7 and
8. The fixed monthly amounts that the Company receives for medical costs and
records as revenue are subject to a one-time retroactive adjustment scheduled to
be determined in August 1998 based upon actual healthcare utilization during the
period known as the "data collection period". The data collection period is the
year ended March 31, 1997. Because of the inherent uncertainty surrounding
factors included in the determination of the final retroactive adjustment,
management has not been able to quantify a range of potential adjustment, and
accordingly no adjustments have been recorded as of September 30, 1997. As a
result, the amount of recorded revenue and income from the CHAMPUS contract may
differ significantly from the amount that would have been recorded had the
actual factors been known.
12. RELATED PARTY TRANSACTIONS
During the period ended September 30, 1997, the Company paid consulting fees
and board fees to KKR totaling approximately $500. During the period ended
September 30, 1996, the Company paid consulting fees and board fees to KKR
totaling approximately $5,900; of such amount, $5,500 related to the Merger and
associated financing transactions.
Prior to the merger, Medco disbursed funds on behalf of the Company for the
payment of certain of the Company's U.S. federal, state and local income taxes
and certain acquisition transactions described in Note 8.
Included in expense for the periods ended September 30, 1997, 1996 and 1995
are charges totaling $1,467, $1,218 and $703, respectively, related to a
prescription drug benefit program administered by Medco.
The average balance due to the parent (Medco) for fiscal 1995 was $40,996;
such balance was repaid in full on October 6, 1995 in connection with the
Merger. A summary of intercompany activity with the parent is as follows:
<TABLE>
<S> <C>
Due to parent, October 1, 1994................................... $ 37,931
Allocation of costs from parent.................................. 379
Intercompany purchases........................................... 659
Income taxes paid by parent...................................... 3,795
Cash transfer from parent........................................ 28,049
---------
Due to parent, September 30,1995................................. 70,813
Adjustment to income taxes paid by parent........................ (2,935)
Repayment made in connection with the Merger..................... (67,878)
---------
Due to parent, September 30,1996................................. $ --
---------
---------
</TABLE>
13. RESTRUCTURING CHARGE
The Company recorded a pre-tax restructuring charge of $2,995 related to a
plan, adopted and approved in the fourth quarter of 1996, to restructure its
staff offices by exiting certain geographic
24
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. RESTRUCTURING CHARGE (CONTINUED)
markets and streamlining the field and administrative management organization of
Continuum Behavioral Healthcare Corporation, a subsidiary of the Company. This
decision was in response to the results of underperforming locations affected by
the lack of sufficient patient flow in the geographic areas serviced by these
offices and the Company's ability to purchase healthcare services at lower rates
from the network. In addition, it was determined that the Company would be able
to expand beneficiary access to specialists and other providers, thereby
achieving more cost-effective treatment, and to favorably shift a portion of the
economic risk, in some cases, of providing outpatient healthcare to the provider
through the use of case rates and other alternative reimbursement methods. The
restructuring charge was comprised primarily of accruals for employee severance,
real property lease terminations and write-off of certain assets in geographic
markets which were being exited. The restructuring plan was substantially
completed during fiscal 1997.
14. MAJOR CUSTOMERS
For fiscal 1997, revenue derived from a state Medicaid contract accounted
for approximately 12% of the Company's operating revenues. For fiscal 1996 and
1995, no customer accounted for more than 10% of the Company's operating
revenues.
15. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) savings plan covering substantially all employees
who have completed one year of active employment during which 1,000 hours of
service has been credited. Under the plan, an employee may elect to contribute
on a pre-tax basis to a retirement account up to 15% of the employee's
compensation up to the maximum annual contributions permitted by the Internal
Revenue Code. The Company matches employee contributions at the rate of 50% (25%
for periods prior to January 1, 1997) of the employee's contributions to the
401(k) savings plan, up to a maximum of 6% of an employee's annual compensation.
The Company's 401(k) savings plan contribution recognized as expense for the
periods ended September 30, 1997, 1996 and 1995 was $1,289, $542 and $330,
respectively.
16. STOCK OPTIONS AND AWARDS
Effective October 1, 1996, the Company adopted SFAS No. 123. As permitted by
the standard, the Company has elected to continue following the guidance of APB
25 for measurement and recognition of stock-based transactions with employees.
Accordingly, no compensation cost has been recognized for the Company's option
plans. Had the determination of compensation cost for these plans been based on
the fair value as of the grant dates for awards under these plans, the Company's
net loss for the years ending September 30, 1997 and 1996 would have increased
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net loss:
As reported........................................................ $ (13,872) $ (17,881)
Pro forma (unaudited).............................................. (15,729) (19,428)
</TABLE>
The resulting compensation expense may not be representative of compensation
expense to be incurred on a pro forma basis in future years.
25
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. STOCK OPTIONS AND AWARDS (CONTINUED)
In October 1995, the Company adopted the 1995 Stock Purchase and Option Plan
for Employees of Merit Behavioral Care Corporation and Subsidiaries (the "1995
Option Plan"). The 1995 Option Plan permits the issuance of common stock and the
grant of up to 8,561,000 non-qualified stock options (the "1995 Options") to
purchase shares of common stock to key employees of the Company. The exercise
price of 1995 Options will not be less than 50% of the fair market value per
share of common stock on the date of such grant. Such options vest at the rate
of 20% per year over a period of five years. An option's maximum term is 10
years.
In January 1996, the Company adopted a second stock option plan, the Merit
Behavioral Care Corporation Employee Stock Option Plan ("1996 Employee Option
Plan"). The 1996 Employee Option Plan covers all employees not included in the
1995 Option Plan whose employment commenced prior to January 1, 1997. The 1996
Employee Option Plan permits the grant of up to 1,000,000 non-qualified stock
options (the "1996 Employee Options") to purchase shares of common stock. The
1996 Employee Options vest on the fourth anniversary of the date of grant,
provided that the employee remains employed with the Company on such date. The
1996 Employee Options are exercisable after an initial public offering of common
stock of the Company meeting certain requirements. An option's maximum term is
10 years.
The fair value of each option grant is estimated on the date of grant by
using the Black-Scholes option-pricing model. The following weighted-average
assumptions were used for grants in the years ending September 30, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Expected dividend yield..................................................... 0.00% 0.00%
Expected volatility......................................................... 1.00% 1.00%
Risk-free interest rates.................................................... 6.44% 6.08%
Expected option lives (years)............................................... 7.0 7.0
</TABLE>
Information regarding the Company's stock option plans is summarized below:
<TABLE>
<CAPTION>
1995 OPTION PLAN 1996 EMPLOYEE OPTION PLAN
-------------------------------- -------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
----------- ------------------- ---------- -------------------
<S> <C> <C> <C> <C>
Outstanding at October 1, 1995................. -- --
Granted........................................ 5,698,000 $ 5.00 835,175 $ 7.50
Canceled....................................... (585,000) $ 5.00 (119,625) $ 7.50
----------- ----------
Outstanding at September 30, 1996.............. 5,113,000 $ 5.00 715,550 $ 7.50
Granted........................................ 1,327,075 $ 7.22 254,400 $ 7.50
Exercised...................................... (3,000) $ 5.00 -- --
Canceled....................................... (202,000) $ 5.74 (212,300) $ 7.50
----------- ----------
Outstanding at September 30, 1997.............. 6,235,075 $ 5.45 757,650 $ 7.50
----------- ----------
----------- ----------
</TABLE>
The weighted-average fair values of options granted during fiscal 1997 and
1996 for the 1995 Option Plan were $1.42 and $1.72, respectively. The
weighted-average fair values of options granted during fiscal 1997 and 1996 for
the 1996 Employee Option Plan were $0.87 and $0.01, respectively.
26
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. STOCK OPTIONS AND AWARDS (CONTINUED)
The following table summarizes information about stock options outstanding
as of September 30, 1997:
<TABLE>
<CAPTION>
1995 OPTION PLAN 1996 EMPLOYEE OPTION PLAN
----------------- -----------------------------
<S> <C> <C>
Range of exercise price.......................................... $ 5.00-$7.50 $ 7.50
Weighted-average remaining contracted life (years)............... 8.38 8.51
</TABLE>
As of September 30, 1997, 993,600 shares pertaining to the 1995 Option Plan
were exercisable with an exercise price of $5.00. No shares were exercisable for
the 1996 Employee Option Plan as of September 30, 1997.
Prior to the Merger, employees of the Company participated in stock option
plans administered by Merck. Pursuant to these plans, options were granted at
the fair market value of Merck common stock on the date of grant and generally
vest over a period of five years. The Company realizes an income tax benefit
when Company employees exercise either (a) nonqualified Merck stock options; or
(b) Merck incentive stock options, assuming the underlying common stock is sold
within one year from the date that the incentive stock option was exercised.
This benefit results in a decrease in tax liabilities and an increase in
additional paid in capital. During 1997 and 1996, the Company recorded tax
benefits of $11,630 and $1,505, respectively, from the exercise of Merck
options. Information regarding the options outstanding under these plans held by
employees of the Company at September 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
SHARES OPTION PRICE PER SHARE
---------------------- ---------------------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
--------- ----------- ------------------- ------------------
Vested........................................ 497,353 905,504 $ 3.78 to $25.87 $ 3.78 to $35.75
Unvested...................................... 127,472 391,169 $ 21.93 to $22.24 $ 3.78 to $35.75
--------- -----------
Total......................................... 624,825 1,296,673
--------- -----------
--------- -----------
</TABLE>
Through September 30, 1995, employees of the Company participated in an
Employee Stock Purchase Plan administered by Merck. The stock plan permitted
employees of the Company to purchase Merck common stock at the end of each
quarter at a price equal to 85% of the fair market value at that date.
17. DISPOSAL OF SUBSIDIARY
In September 1997, the Company sold Choate for approximately $4,775 ($4,735
of which was received in October 1997). The Company recognized a loss of
approximately $6,925 relating to the transaction.
18. MERGER COSTS AND SPECIAL CHARGES
In fiscal 1997, the Company recognized approximately $733 of expenses
associated with uncompleted acquisition transactions. Also, the Company incurred
other special charges of approximately $581 related to nonrecurring employee
benefit costs associated with the exercise of stock options by employees of the
Company under plans administered by Merck. A significant number of these stock
options, which were granted prior to the Merger, required exercise by September
30, 1997.
27
<PAGE>
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. SUPPLEMENTAL INFORMATION
Supplemental cash flow information and noncash investing and financing
activities are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Cash (received) paid for income taxes........................................ $ (596) $ 1,100 $ 2,167
Cash paid for interest....................................................... 23,568 17,676 --
Supplemental Noncash Investing and Financing Activities:
Record deferred taxes associated with the Merger............................. -- 7,594 --
Exercise of Merck stock options.............................................. 11,630 1,505 --
Acquisitions:
Fair value of assets acquired, other than cash............................. 82,412 14,360 --
Liabilities assumed........................................................ (41,622) (2,962) --
----------- --------- ---------
Total consideration paid................................................... 40,790 11,398 --
Stock consideration paid................................................... (5,545) -- --
----------- --------- ---------
Cash consideration paid.................................................... 35,245 11,398 --
Contingent consideration................................................... 400 1,278 9,580
----------- --------- ---------
Cash used for acquisitions, net of cash acquired............................... $ 35,645 $ 12,676 $ 9,580
----------- --------- ---------
----------- --------- ---------
</TABLE>
20. RECENTLY ISSUED ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which will
be effective for the Company beginning October 1, 1998. SFAS No. 131 redefines
how operating segments are determined and requires disclosure of certain
financial and descriptive information about a company's operating segments. The
Company has not yet completed its analysis with respect to which operating
segments of its business it will provide such information
21. SUBSEQUENT EVENT
On February 12, 1998, the Company's outstanding stock was aquired by
Magellan Health Services, Inc. for approximately $448.9 million in cash plus the
repayment of the Company's existing debt. In addition, all options outstanding
under the 1995 Option Plan and the 1996 Employee Option Plan vested upon closing
of the transaction.
28
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The Unaudited Pro Forma Consolidated Financial Information set forth below
is based on the historical presentation of the consolidated financial statements
of Magellan, and the historical operating results of Human Affairs
International, Incorporated ("HAI"), Allied Health Group, Inc. ("Allied"), Merit
and CMG Health, Inc. ("CMG") and the historical financial position of Merit. The
Unaudited Pro Forma Consolidated Statements of Operations for the year ended
September 30, 1997 and the three months ended December 31, 1997 give effect to
the Crescent Transactions (as defined), the HAI acquisition, the Allied
acquisition, the Green Spring Minority Shareholder Conversion (as defined),
Merit's acquisition of CMG and the Transactions as if they had been consummated
on October 1, 1996. The Unaudited Pro Forma Consolidated Balance Sheet as of
December 31, 1997 gives effect to the Green Spring Minority Shareholder
Conversion and the Transactions as if they had been consummated on December 31,
1997.
The Unaudited Pro Forma Consolidated Statements of Operations do not give
effect to hospital acquisitions and closures during the year ended September 30,
1997 as such transactions and events are not considered material to the pro
forma presentation. The Unaudited Pro Forma Consolidated Statement of Operations
presentation assumes that the net proceeds from the Crescent Transactions, after
debt repayment of approximately $200 million, were fully utilized to fund the
HAI acquisition and the Allied acquisition. The Unaudited Pro Forma Consolidated
Statement of Operations for the year ended September 30, 1997 excludes the
non-recurring losses incurred by the Company as a result of the Crescent
Transactions.
The Unaudited Pro Forma Consolidated Financial Information does not purport
to be indicative of the results that actually would have been obtained if the
operations had been conducted as presented and they are not necessarily
indicative of operating results to be expected in future periods. The business
of the Company's 50% owned hospital business, Charter Behavioral Health Systems,
LLC ("CBHS"), is seasonal in nature with a reduced demand for certain services
generally occurring in the first fiscal quarter around major holidays, such as
Thanksgiving and Christmas, and during the summer months comprising the fourth
fiscal quarter. Accordingly, the Unaudited Pro Forma Statement of Operations for
the three months ended December 31, 1997 is not necessarily indicative of the
pro forma results expected for a full year. The Unaudited Pro Forma Statement of
Operations excludes approximately $60.0 million of cost savings on an annual
basis that the Company expects to achieve within eighteen months following
consummation of the Merit acquisition. The Unaudited Pro Forma Consolidated
Financial Information and notes thereto should be read in conjunction with the
historical consolidated financial statements and notes thereto of Magellan and
Merit, which appear elsewhere herein.
The following is a description of each of the transactions (other than the
Transactions, which are described elsewhere herein) reflected in the pro forma
presentation:
CRESCENT TRANSACTIONS. The Crescent Transactions, which were consummated on
June 17, 1997, resulted in, among other things: (i) the sale of substantially
all of the Company's domestic acute care psychiatric hospitals and residential
treatment facilities (the "Psychiatric Hospital Facilities") to Crescent Real
Estate Equities Limited Partnership ("Crescent") for $417.2 million (before
costs of approximately $16.0 million); (ii) the creation of CBHS; (iii) the
Company's entry into the healthcare franchising business; and (iv) the issuance
by Magellan of 2,566,622 warrants to Crescent and Crescent Operating, Inc.
("COI") (1,283,311 warrants each) with an exercise price of $30 per share. CBHS
leases the Psychiatric Hospital Facilities from Crescent under a twelve-year
operating lease (the "Facilities Lease") (subject to renewal) for $41.7 million
annually, subject to adjustment, with a 5% escalator, compounded annually plus
certain additional rent. The warrants issued to Crescent and COI have been
valued at $25.0 million in the Company's balance sheet. The Company accounts for
its 50% investment in CBHS under the equity method of accounting, which
significantly reduces the revenues and related operating expenses presented in
the Unaudited Pro Forma Consolidated Statements of Operations. "Divested
29
<PAGE>
Operations--Crescent Transactions" in the Unaudited Pro Forma Consolidated
Statements of Operations represents the results of operations of the businesses
that are operated by CBHS.
The Company incurred a loss before income taxes, minority interest and
extraordinary items of approximately $59.9 million as a result of the Crescent
Transactions, which was recorded during fiscal 1997.
HAI ACQUISITION. On December 4, 1997, the Company consummated the purchase
of HAI, formerly a unit of Aetna U.S. Healthcare ("Aetna"), for approximately
$122.1 million. HAI manages the care of over 16.0 million covered lives,
primarily through EAPs and other managed behavioral healthcare plans. The
Company funded the acquisition of HAI with cash on hand and accounted for the
acquisition of HAI using the purchase method of accounting. The Company may be
required to make additional contingent payments of up to $60 million annually to
Aetna over the five-year period subsequent to closing. The amount and timing of
the payments will be contingent upon net increases in the number of HAI's
covered lives in specified products. The maximum contingent payments are $300.0
million.
ALLIED ACQUISITION. On December 5, 1997, the Company purchased the assets
of Allied and certain affiliates for approximately $70.0 million, of which $50.0
million was paid to the seller at closing with the remaining $20.0 million
placed in escrow. Allied provides specialty risk-based products and
administrative services to a variety of insurance companies and other customers,
including Blue Cross of New Jersey, CIGNA and NYLCare, for its 3.4 million
members. Allied has over 80 physician networks across the eastern United States.
Allied's networks include physicians specializing in cardiology, oncology and
diabetes. The Company funded the Allied acquisition with cash on hand. The
Company accounted for the Allied acquisition using the purchase method of
accounting. The escrowed amount of the purchase price is payable in one-third
increments if Allied achieves specified earnings targets during each of the
three years following the closing. Additionally, the purchase price may be
increased during the three-year period by up to $40.0 million, if Allied's
performance exceeds specified earnings targets. The maximum purchase price
payable is $110.0 million.
GREEN SPRING MINORITY SHAREHOLDER CONVERSION. The minority shareholders of
Green Spring Health Services, Inc. ("Green Spring") converted their interests in
Green Spring into an aggregate of 2,831,516 shares of Company Common Stock
during January 1998 (the "Green Spring Minority Shareholder Conversion"). As a
result of the Green Spring Minority Shareholder Conversion, the Company owns
100% of Green Spring. The Company accounted for the Green Spring Minority
Shareholder Conversion as a purchase of minority interest at the fair value of
the consideration paid.
MERIT ACQUISITION OF CMG. On September 12, 1997, Merit acquired all of the
outstanding capital stock of CMG for approximately $48.7 million in cash and
approximately 739,000 shares of Merit common stock. In connection with Merit's
acquisition of CMG, the Company may be required to make contingent payments to
the former shareholders of CMG if the financial results of certain contracts
exceed specified base-line amounts. Such contingent payments are subject to an
aggregate maximum of $23.5 million.
30
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DIVESTED
OPERATIONS--
MAGELLAN CRESCENT PRO FORMA PRO FORMA
AS REPORTED TRANSACTIONS HAI ALLIED ADJUSTMENTS COMBINED MERIT CMG
----------- ------------ -------- -------- ----------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue............... $1,210,696 $(555,324) $116,736 $143,889 $41,578(1) $957,575 $555,717 $101,356
----------- ------------ -------- -------- ----------- --------- -------- --------
Salaries, cost of care and
other operating
expenses................ 978,513 (426,862) 88,002 137,873 (7,797)(2) 769,729 504,510 99,434
Bad debt expense.......... 46,211 (42,720) 0 0 0 3,491 0 0
Depreciation and
amortization............ 44,861 (20,073) 312 362 6,164(3) 31,626 39,400 1,987
Interest, net............. 45,377 (3,233) (1,604) (725) (6,833)(4) 32,982 21,566 (516)
Stock option expense...... 4,292 0 0 0 0 4,292 0 0
Equity in loss of CBHS.... 8,122 0 0 0 12,028(5) 20,150 0 0
Loss on Crescent
Transactions............ 59,868 0 0 0 (59,868)(6) 0 0 0
Unusual items............. 357 (2,500) 0 0 0 (2,143) 8,239 1,200
----------- ------------ -------- -------- ----------- --------- -------- --------
1,187,601 (495,388) 86,710 137,510 (56,306) 860,127 573,715 102,105
----------- ------------ -------- -------- ----------- --------- -------- --------
Income (loss) before
income taxes and
minority interest....... 23,095 (59,936) 30,026 6,379 97,884 97,448 (17,998) (749)
Provision for (benefit
from) income taxes...... 9,238 (23,974) 11,480 0 41,705(7) 38,449 (4,126) (443)
----------- ------------ -------- -------- ----------- --------- -------- --------
Income (loss) before
minority interest....... 13,857 (35,962) 18,546 6,379 56,179 58,999 (13,872) (306)
Minority interest......... 9,102 0 0 0 0 9,102 0 0
----------- ------------ -------- -------- ----------- --------- -------- --------
Net income (loss)......... $ 4,755 $ (35,962) $ 18,546 $ 6,379 $56,179 $ 49,897 $(13,872) $ (306)
----------- ------------ -------- -------- ----------- --------- -------- --------
----------- ------------ -------- -------- ----------- --------- -------- --------
Average number of common
shares
outstanding--basic...... 28,781 28,781
----------- ---------
----------- ---------
Average number of common
shares
outstanding--diluted.... 29,474 29,474
----------- ---------
----------- ---------
Net income per common
share--basic............ $ 0.17 $ 1.73
----------- ---------
----------- ---------
Net income per common
share--diluted.......... $ 0.16 $ 1.69
----------- ---------
----------- ---------
<CAPTION>
THE
MERIT/CMG MERIT/CMG TRANSACTIONS
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED ADJUSTMENTS CONSOLIDATED
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenue............... $(13,042)(8) $644,031 $ 0 $1,601,606
----------- ---------- ------------ ------------
Salaries, cost of care and
other operating
expenses................ (18,075)(9) 585,869 (500)(14) 1,355,098
Bad debt expense.......... 0 0 0 3,491
Depreciation and
amortization............ 2,365(10) 43,752 (6,416)(15) 68,962
Interest, net............. 4,390(11) 25,440 37,967(16) 96,389
Stock option expense...... 0 0 0 4,292
Equity in loss of CBHS.... 0 0 0 20,150
Loss on Crescent
Transactions............ 0 0 0 0
Unusual items............. (6,925)(12) 2,514 (1,314)(17) (943)
----------- ---------- ------------ ------------
(18,245) 657,575 29,737 1,547,439
----------- ---------- ------------ ------------
Income (loss) before
income taxes and
minority interest....... 5,203 (13,544) (29,737) $ 54,167
Provision for (benefit
from) income taxes...... 2,095(13) (2,474) (5,942)(18) 30,033
----------- ---------- ------------ ------------
Income (loss) before
minority interest....... 3,108 (11,070) (23,795) 24,134
Minority interest......... 0 0 (6,835)(19) 2,267
----------- ---------- ------------ ------------
Net income (loss)......... $ 3,108 $(11,070) $(16,960) $ 21,867
----------- ---------- ------------ ------------
----------- ---------- ------------ ------------
Average number of common
shares
outstanding--basic...... 2,832(19) 31,613
------------ ------------
------------ ------------
Average number of common
shares
outstanding--diluted.... 2,832(19) 32,306
------------ ------------
------------ ------------
Net income per common
share--basic............ $ 0.69
------------
------------
Net income per common
share--diluted.......... $ 0.68
------------
------------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Operations
31
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MAGELLAN PRO FORMA
AS REPORTED HAI ALLIED ADJUSTMENTS
----------- ------- ------- -----------
<S> <C> <C> <C> <C>
Net revenue................................................. $216,097 $19,528 $30,945 $(2,143)(1)
----------- ------- ------- -----------
Salaries, cost of care and other operating expenses......... 175,621 15,031 31,068 (1,392)(2)
Bad debt expense............................................ 1,070 0 0 0
Depreciation and amortization............................... 6,969 34 100 1,075(3)
Interest, net............................................... 7,401 (256) (92) 1,816(4)
Stock option expense........................................ (3,959) 0 0 0
Equity in loss of CBHS...................................... 11,488 0 0 0
Unusual items............................................... 0 0 0 0
----------- ------- ------- -----------
198,590 14,809 31,076 1,499
----------- ------- ------- -----------
Income (loss) before income taxes and minority interest..... 17,507 4,719 (131) (3,642)
Provision for (benefit from) income taxes................... 7,003 1,879 0 (1,509)(7)
----------- ------- ------- -----------
Income (loss) before minority interest...................... 10,504 2,840 (131) (2,133)
Minority interest........................................... 2,876 0 0 0
----------- ------- ------- -----------
Net income (loss)........................................... $ 7,628 $ 2,840 $ (131) $(2,133)
----------- ------- ------- -----------
----------- ------- ------- -----------
Average number of common shares outstanding--basic.......... 28,969
-----------
-----------
Average number of common shares outstanding--diluted........ 29,784
-----------
-----------
Net income per common share--basic.......................... $ 0.26
-----------
-----------
Net income per common share--diluted........................ $ 0.26
-----------
-----------
<CAPTION>
THE TRANSACTIONS
PRO FORMA PRO FORMA PRO FORMA
COMBINED MERIT ADJUSTMENTS CONSOLIDATED
--------- -------- ---------------- ------------
<S> <C> <C> <C> <C>
Net revenue................................................. $264,427 $178,866 $ 0 $443,293
--------- -------- ------- ------------
Salaries, cost of care and other operating expenses......... 220,328 164,291 (1,915)(14) 382,704
Bad debt expense............................................ 1,070 0 0 1,070
Depreciation and amortization............................... 8,178 11,028 (1,736)(15) 17,470
Interest, net............................................... 8,869 6,142 9,674(16) 24,685
Stock option expense........................................ (3,959) 0 0 (3,959)
Equity in loss of CBHS...................................... 11,488 0 0 11,488
Unusual items............................................... 0 545 (545)(17) 0
--------- -------- ------- ------------
245,974 182,006 5,478 433,458
--------- -------- ------- ------------
Income (loss) before income taxes and minority interest..... 18,453 (3,140) (5,478) 9,835
Provision for (benefit from) income taxes................... 7,373 (468) (703)(18) 6,202
--------- -------- ------- ------------
Income (loss) before minority interest...................... 11,080 (2,672) (4,775) 3,633
Minority interest........................................... 2,876 0 (2,358)(19) 518
--------- -------- ------- ------------
Net income (loss)........................................... $ 8,204 $ (2,672) $(2,417) $ 3,115
--------- -------- ------- ------------
--------- -------- ------- ------------
Average number of common shares outstanding--basic.......... 28,969 2,832(19) 31,801
--------- ------- ------------
--------- ------- ------------
Average number of common shares outstanding--diluted........ 29,784 2,832(19) 32,616
--------- ------- ------------
--------- ------- ------------
Net income per common share--basic.......................... $ 0.28 $ 0.10
--------- ------------
--------- ------------
Net income per common share--diluted........................ $ 0.28 $ 0.10
--------- ------------
--------- ------------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Operations
32
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(1) Adjustments to net revenue for the year ended September 30, 1997 represent
franchise fees payable by CBHS to the Company (the "Franchise Fees")
pursuant to the franchise agreement between them (the "Master Franchise
Agreement") of $55.5 million for the 259 days ended June 16, 1997 (prior to
consummation of the Crescent Transactions) less a $13.9 million decrease in
HAI revenue resulting from renegotiated contractual rates with Aetna as a
direct result of the acquisition of HAI by the Company. Adjustment to net
revenue for the three months ended December 31, 1997 represents the effect
of renegotiated contractual rates with Aetna for the two months prior to
consummation of the HAI acquisition.
The pro forma presentation assumes that all Franchise Fees due from CBHS
were paid when due. Based on projections of fiscal 1998 operations prepared
by management of CBHS, the Company believes that CBHS will be unable to pay
the full amount of the Franchise Fees it is contractually obligated to pay
during fiscal 1998. The Company currently estimates that CBHS will be able
to pay approximately $58.0 million to $68.0 million of the Franchise Fees in
fiscal 1998, a $10.0 million to $20.0 million shortfall relative to amounts
payable under the Master Franchise Agreement. The Company may be required to
record bad debt expense related to Franchise Fees receivable from CBHS, if
any, in fiscal 1998 or future periods if CBHS's operating performance does
not improve to levels achieved prior to the consummation of the Crescent
Transactions. If CBHS defaults in payment of the Franchise Fees, the Company
will pursue all remedies available to it under the Master Franchise
Agreement.
33
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(2) Adjustments to salaries, cost of care and other operating expenses represent
the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
TRANSACTION DESCRIPTION 1997 1997
- ----------- ----------------------------------- -------------------- ---------------------
<S> <C> <C> <C>
Crescent Fees payable to CBHS by the Company
for the management of less than
wholly-owned hospital-based joint
ventures controlled by the Company
for the 259 days ended June 16,
1997............................... $ 7,564 $ --
Crescent Reduction of corporate overhead
that was transferred to CBHS for
the 259 days ended June 16, 1997... (2,845) --
HAI Elimination of Aetna overhead
allocations........................ (17,162) (2,044)
HAI Bonus expense previously reflected
in Aetna's financial statements.... 1,138 200
HAI Costs absorbed by HAI previously
incurred by Aetna including
information technology, human
resources and legal................ 5,110 852
Allied Reduction of shareholders'/
executives' compensation to revised
contractual level pursuant to the
Allied purchase agreement.......... (648) (197)
Allied Reduction of certain consulting
agreement costs to revised
contractual level pursuant to the
Allied purchase agreement.......... (954) (203)
-------- -------
$ (7,797) $ (1,392)
-------- -------
-------- -------
</TABLE>
34
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(3) Adjustments to depreciation and amortization represent the following (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
TRANSACTION DESCRIPTION 1997 1997
- ------------- ------------------------------------ -------------------- ---------------------
<S> <C> <C> <C>
Crescent Elimination of amortization related
to impaired intangible assets....... $ (177) $ --
HAI Purchase price allocation (i)....... 3,948 676
Allied Purchase price allocation (ii)...... 2,393 399
------- -------
$ 6,164 $ 1,075
------- -------
------- -------
</TABLE>
---------------------------------
(i) Represents $4.0 million estimated fair value of property and
equipment depreciated over an estimated useful life of 5 years, $83.3
million of goodwill amortized over an estimated useful life of 40
years and $20.7 million estimated fair value of other intangible
assets (primarily client lists) amortized over an estimated useful
life of 15 years less historical depreciation and amortization.
(ii) Represents $50.7 million of goodwill amortized over an estimated
useful life of 40 years and $16.9 million estimated fair value of
other intangible assets (primarily client lists and treatment
protocols) amortized over an estimated useful life of 15 years.
The allocation of the HAI and Allied purchase prices to equipment, goodwill
and identifiable intangible assets and estimated useful lives are based on
the Company's preliminary valuations, which are subject to change upon
receiving independent appraisals for such assets.
Subsequent to the consummation of the HAI acquisition, the Company may be
required to make additional contingent payments of up to $60 million
annually during the five years following the consummation of the HAI
acquisition to Aetna for aggregate potential contingent payments of $300
million. These contingent payments, if any, would be recorded as goodwill
and identifiable intangible assets, which would result in estimated
additional annual amortization of $11 million to $13 million in future
periods if all the contingent payments are made.
The Company may also be required to make contingent payments to the former
owners of Allied of up to $60 million during the three years subsequent to
consummation of the Allied acquisition, of which $20 million is in escrow.
These contingent payments, if any, would be recorded as goodwill, which
would result in estimated additional annual amortization of $1.5 million.
(4) Adjustments to interest, net, represent reductions in interest expense as a
result of the repayment of outstanding borrowings under the Magellan
Existing Credit Agreement with the proceeds from the Crescent Transactions
offset by forgone interest income as a result of using cash on hand to fund
the HAI and Allied acquisitions.
(5) Adjustment to equity in loss of CBHS represents the Company's 50% interest
in CBHS' pro forma loss for the 259 day period ended June 16, 1997. The
Company's investment in CBHS is accounted for under the equity method of
accounting. The Condensed Pro Forma Statement of Operations of CBHS for the
year ended September 30, 1997 is as follows (in thousands):
35
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
CBHS
OPERATIONS--
DIVESTED 106 DAYS ENDED PRO FORMA PRO FORMA
OPERATIONS SEPTEMBER 30, 1997 ADJUSTMENTS CONSOLIDATED
----------- -------------------- ------------ -------------
<S> <C> <C> <C> <C>
Net revenue............. $ 555,324 $ 213,730 $ 2,565(i) $ 771,619
----------- ---------- ------------ -------------
Salaries, supplies and
other operating
expenses.............. 426,862 210,277 103,723 (ii 740,862
Bad debt expense........ 42,720 17,437 0 60,157
Depreciation and
amortization.......... 20,073 668 (17,333) ii) 3,408
Interest, net........... 3,233 1,592 167 (iv 4,992
Unusual items........... 2,500 0 0 2,500
----------- ---------- ------------ -------------
495,388 229,974 86,557 811,919
----------- ---------- ------------ -------------
Income (loss) before
income taxes.......... 59,936 (16,244) (83,992) (40,300)
Provision for income
taxes................. 23,974 0 (23,974)(v) 0
----------- ---------- ------------ -------------
Net income (loss)..... $ 35,962 $ (16,244) $ (60,018) $ (40,300)
----------- ---------- ------------ -------------
----------- ---------- ------------ -------------
</TABLE>
----------------------------------------
(i) Fees from the Company for the management of less than
wholly-owned hospital-based joint ventures controlled by the
Company (see note 2) less non-recurring accounts receivable
collection fees receivable from the Company (see note 6) of
approximately $5.0 million during the 106 days ended September
30, 1997.
(ii) Adjustments to salaries, supplies and other operating
expenses represent the following (in thousands):
<TABLE>
<CAPTION>
259 DAYS
ENDED
JUNE 16, 1997
--------------
<S> <C>
Franchise Fees (see note 1)............................................... $ 55,463
Rent expense under the Facilities Lease................................... 44,665
Additional corporate overhead............................................. 3,595
--------------
$ 103,723
--------------
--------------
</TABLE>
(iii) Adjustment to depreciation and amortization represents the
decrease in depreciation expense as a result of the sale of
property and equipment to Crescent by the Company and the
elimination of amortization expense related to impaired
intangible assets.
(iv) Adjustment to interest, net, represents the following (in
thousands):
<TABLE>
<CAPTION>
259 DAYS
ENDED
JUNE 16, 1997
--------------
<S> <C>
Interest expense on debt repaid by the Company............................ $ (3,233)
Interest expense for the 259 days ended June 16, 1997 for estimated
average borrowings of $60 million at an assumed interest rate of 8% per
annum..................................................................... 3,400
--------------
$ 167
--------------
--------------
</TABLE>
36
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(v) CBHS is a limited liability company. Accordingly, provision
for income taxes is eliminated as the tax consequences of CBHS
ownership will pass through to the Company and COI, the other
50% owner of CBHS.
(6) Adjustment to loss on Crescent Transactions represents the elimination of
the non-recurring losses incurred by the Company as a result of the Crescent
Transactions as follows (in thousands):
<TABLE>
<S> <C>
Accounts receivable collection fees(i)............................ $ 21,400
Impairment losses on intangible assets(ii)........................ 14,408
Exit costs and construction obligation(iii)....................... 12,549
Loss on the sale of property and equipment........................ 11,511
---------
$ 59,868
---------
---------
</TABLE>
----------------------------------------
(i) Accounts receivable collection fees represent the reduction
in the net realizable value of accounts receivable for
estimated collection fees on hospital-based receivables
retained by the Company. The Company paid CBHS a fee equal to
5% of collections for the first 120 days after consummation of
the Crescent Transactions and estimated bad debt agency fees of
40% for receivables collected subsequent to 120 days after the
consummation of the Crescent Transaction.
(ii) The impairment loss on intangible assets resulted from
reducing the book value of the Company's investment in CBHS to
its approximate fair value at the consummation date of the
Crescent Transactions. The impairment losses represent the
reductions in the carrying amount of goodwill and other
intangible assets related to the divested or contributed CBHS
operations.
(iii) Represents approximately $5.0 million of incremental costs
to perform finance and accounting functions transferred to CBHS
and approximately $7.5 million for the Company's obligation to
replace CBHS' Philadelphia hospital.
(7) Adjustments to provision for income taxes represent the tax expense related
to the pro forma adjustments at the Company's historic effective tax rate of
40% and the imputed income tax expense on the operating results of Allied,
which was an S-corporation for income tax purposes and historically did not
provide for income taxes.
(8) Adjustment to net revenue represents the elimination of the fiscal 1997
revenues of Choate Health Management, Inc. ("Choate"), which was sold by
Merit in fiscal 1997.
(9) Adjustment to salaries, cost of care and other operating expenses represents
the elimination of salaries, benefits and other costs of $5.5 million for
duplicate CMG personnel and facilities that were eliminated as a direct
result of Merit's acquisition of CMG and the elimination of fiscal 1997
expenses of $12.6 million for Choate, which was sold by Merit in fiscal
1997.
(10) Adjustment to depreciation and amortization represents the effect of
Merit's purchase price allocation related to the CMG acquisition.
(11) Adjustment to interest, net, represents the effect of increased borrowing
by Merit related to the CMG acquisition.
(12) Adjustments to unusual items, net, represents the elimination of
non-recurring losses on Merit's sale of Choate.
(13) Adjustment to provision for income taxes represents the tax effect of the
Merit/CMG pro forma adjustments.
37
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(14) Adjustment to salaries, cost of care and other operating expenses
represents the elimination of fees paid by Merit to its former owner and the
elimination of salaries, benefits and other costs of $1.7 million for the
three months ended December 31, 1997 for duplicate CMG personnel and
facilities that have been announced as a direct result of Merit's
acquisition of CMG. The adjustment excludes approximately $60.0 million of
cost savings on an annual basis that the Company expects to achieve within
eighteen months following consummation of the Merit acquisition.
(15) Adjustments to depreciation and amortization represent the effect of the
Merit purchase price allocation and the Green Spring Minority Shareholder
Conversion as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1997
-------------- --------------
<S> <C> <C>
Estimated fair value of property and equipment of $52.4
million depreciated over an estimated useful life of 5
years...................................................... $ 10,485 $ 2,622
Estimated goodwill of $599.5 million amortized over an
estimated useful life of 40 years.......................... 14,989 3,746
Estimated fair value of other intangible assets (primarily
client lists and provider networks) of $121.3 million
amortized over an estimated useful life of 15 years........ 8,084 2,021
-------------- --------------
Total estimated depreciation and amortization................ 33,558 8,389
Elimination of Merit and CMG historical and pro forma
depreciation and amortization (i).......................... (40,655) (10,296)
Effect of Green Spring Minority Shareholder Conversion....... 681 171
-------------- --------------
$ (6,416) $ (1,736)
-------------- --------------
-------------- --------------
</TABLE>
----------------------------------------
(i) Excludes amortization of deferred start-up costs of
approximately $3.1 million and $0.7 million for the year ended
September 31, 1997 and the three moths ended December 31, 1997,
respectively, which will be a continuing cost of the Company
after the Merit acquisition.
The allocation of the Merit purchase price to property and equipment,
goodwill and identifiable intangible assets and estimated useful lives are
based on the Company's preliminary valuations, which are subject to change
upon receiving independent appraisals for such assets.
38
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(16) Adjustments to interest, net, represent the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
DESCRIPTION 1997 1997
- --------------------------------------------------- -------------------- -------------------
<S> <C> <C>
Elimination of Merit and CMG historical and pro
forma interest expense........................... $ (29,959) $ (7,216)
Elimination of historical interest expense for the
Magellan Outstanding Notes....................... (42,188) (10,547)
Elimination of the Company's historical deferred
financing cost amortization...................... (1,214) (610)
Tranche A Term Loan interest expense (i)........... 14,392 3,667
Tranche B Term Loan interest expense (i)........... 14,850 3,781
Tranche C Term Loan interest expense (i)........... 15,308 3,896
Revolving Facility interest expense (i)............ 1,570 400
Foregone interest income--cash proceeds utilized in
the Merit acquisition at 5.5% per annum.......... 4,712 1,178
The Notes at an interest rate of 9.0%.............. 56,250 14,063
Amortization of deferred financing costs of $34.2
million over a weighted average life of
approximately 8.1 years.......................... 4,245 1,062
-------- --------
$ 37,967 $ 9,674
-------- --------
-------- --------
</TABLE>
----------------------------------------
(i) Assumes borrowings are one month LIBOR based, which is
consistent with the Company's past borrowing practices. Average
one month LIBOR was approximately 5.60% and 5.75% during the
year ended September 30, 1997 and the three months ended
December 31, 1997, respectively. Each Term Loan is
approximately $183.3 million and the Revolving Facility
borrowing is $20.0 million. Interest rates utilized to compute
pro forma adjustments are as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1997
----------------------- ---------------------
<S> <C> <C>
Tranche A Term Loan and Revolving
Facility (LIBOR plus 2.25%)............ 7.85% 8.00%
Tranche B Term Loan (LIBOR plus 2.50%)... 8.10% 8.25%
Tranche C Term Loan (LIBOR plus 2.75%)... 8.35% 8.50%
</TABLE>
39
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(17) Adjustments to unusual items represent the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DESCRIPTION SEPTEMBER 30, 1997 DECEMBER 31, 1997
- --------------------------------------------------- -------------------- -------------------
<S> <C> <C>
Elimination of Merit's transaction costs related to
Merit's attempt to acquire HAI................... $ (733) $ --
Elimination of non-recurring employee benefit costs
related to stock options which were eliminated
upon consummation of the Acquisition............. (581) (57)
Elimination of Merit's transaction costs related
primarily to the Transactions.................... -- (488)
------- -------
$ (1,314) $ (545)
------- -------
------- -------
</TABLE>
(18) Adjustment to provision for income taxes represents the tax benefit related
to the pro forma adjustments, excluding annual non-deductible goodwill
amortization of $14.9 million related to the Merit acquisition and the Green
Spring Minority Shareholder Conversion, at the Company's historic effective
tax rate of 40%.
(19) Adjustments to minority interest and average number of common shares
outstanding (primary and fully diluted) represents the effect of the Green
Spring Minority Shareholder Conversion.
40
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE
TRANSACTIONS
MAGELLAN PRO FORMA PRO FORMA
ASSETS AS REPORTED MERIT ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 170,459 $ 75,827 $ (85,677)(1) $ 160,609
Accounts receivable, net............................ 140,219 49,917 0 190,136
Deferred income taxes............................... 0 6,616 0 6,616
Other current assets................................ 34,438 11,409 0 45,847
------------ ----------- ------------- -------------
Total current assets.............................. 345,116 143,769 (85,677) 403,208
Assets restricted for settlement of unpaid claims and
other long-term liabilities......................... 73,020 0 0 73,020
Property and equipment:
Land................................................ 11,687 0 0 11,687
Buildings and improvements.......................... 72,102 3,596 0 75,698
Equipment........................................... 74,319 117,151 (68,320)(2) 123,150
------------ ----------- ------------- -------------
158,108 120,747 (68,320) 210,535
Accumulated depreciation............................ (41,169) (38,320) 38,320(2) (41,169)
------------ ----------- ------------- -------------
116,939 82,427 (30,000) 169,366
Construction in progress............................ 995 0 0 995
------------ ----------- ------------- -------------
Total property and equipment...................... 117,934 82,427 (30,000) 170,361
Other long-term assets................................ 42,932 27,432 (8,624)(3) 61,740
Deferred income taxes................................. 2,178 0 69,351(4) 71,529
Investments in CBHS................................... 5,390 0 0 5,390
Goodwill, net......................................... 242,968 141,787 462,227(5) 846,982
Other intangible assets, net.......................... 67,576 56,056 101,188(5) 224,820
------------ ----------- ------------- -------------
$ 897,114 $ 451,471 $ 508,465 $ 1,857,050
------------ ----------- ------------- -------------
------------ ----------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 37,663 $ 7,217 $ 0 $ 44,880
Accrued liabilities................................. 192,426 133,347 9,941(6) 335,714
Current maturities of long-term debt and capital
lease obligations................................. 3,604 1,263 (1,263)(7) 3,604
------------ ----------- ------------- -------------
Total current liabilities....................... 233,693 141,827 8,678 384,198
Long-term debt and capital lease obligations.......... 391,550 318,002 501,998(7) 1,211,550
Reserve for unpaid claims............................. 40,201 0 0 40,201
Deferred tax liabilities.............................. 0 13,525 (13,525)(4) 0
Deferred credits and other long-term liabilities...... 15,023 5,034 (3,262)(8) 16,795
Minority interest..................................... 64,785 0 (39,512)(8) 25,273
Commitments and contingencies
Stockholders' equity:
Common stock........................................ 8,387 294 414(9) 9,095
Additional paid-in capital.......................... 338,961 3,768 56,412(9) 399,141
Retained earnings (accumulated deficit)............. (122,327) (30,979) (2,738)(9) (156,044)
Warrants outstanding................................ 25,050 0 0 25,050
Common stock in treasury............................ (95,187) 0 0 (95,187)
Cumulative foreign currency adjustments............. (3,022) 0 0 (3,022)
------------ ----------- ------------- -------------
Total stockholders' equity........................ 151,862 (26,917) 54,088 179,033
------------ ----------- ------------- -------------
$ 897,114 $ 451,471 $ 508,465 1,857,050
------------ ----------- ------------- -------------
------------ ----------- ------------- -------------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet
41
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Adjustments to cash and cash equivalents represent the following (in
thousands):
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
Term Loan Facility borrowings................................................... $ 550,000
Revolving Facility borrowings................................................... 20,000
Proceeds from the Notes......................................................... 625,000
Repayment of Existing Merit Credit Agreement.................................... (219,265)
Repayment of Merit Outstanding Notes............................................ (100,000)
Repayment of Magellan Outstanding Notes......................................... (375,000)
Cash paid to Merit shareholders................................................. (448,867)
Transaction costs and accrued interest payments................................. (137,545)
------------
$ (85,677)
------------
------------
</TABLE>
(2) Adjustments to equipment and accumulated depreciation accounts represent the
changes necessary to adjust Merit's property and equipment to fair value.
See note 15 to Unaudited Pro Forma Consolidated Statement of Operations.
(3) Adjustment to other long-term assets represents the reclassification of
deferred start-up costs to identifiable intangible assets.
(4) Adjustments to deferred income tax assets and liabilities represent the tax
consequences of the Transactions related primarily to basis differences and
recognition of net operating loss carry forwards.
(5) Adjustments to goodwill and other intangible assets represent the following
(in thousands):
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
- --------------------------------------------------------------------------------- -----------
<S> <C>
Merit purchase price allocation.................................................. $ 457,715
Green Spring Minority Shareholder Conversion..................................... 4,512
-----------
Goodwill pro forma adjustment................................................ $ 462,227
-----------
-----------
Merit purchase price allocation.................................................. $ 75,455
Write-off of Merit deferred financing costs...................................... (10,246)
Write-off of the Company's deferred financing costs.............................. (11,811)
Deferred financing costs related to the Transactions............................. 34,188
Green Spring Minority Shareholder Conversion..................................... 13,602
-----------
Other intangible asset pro forma adjustment.................................. $ 101,188
-----------
-----------
</TABLE>
See note 15 to the Unaudited Pro Forma Consolidated Statements of
Operations.
(6) Adjustments to accrued liabilities represent the following (in thousands):
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
- --------------------------------------------------------------------------------- -----------
<S> <C>
Payment of Merit accrued interest................................................ $ (2,338)
Payment of the Company's accrued interest........................................ (8,721)
Accrued severance and related costs (i).......................................... 21,000
-----------
$ 9,941
-----------
-----------
- ------------------------
</TABLE>
(i) Includes the initial estimates of costs of severance, lease
terminations, relocation and other related costs for the integration
of Merit into the Company's existing managed care operations. This
amount is subject to change based on finalization of the Company's
integration plan.
42
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
(7) Adjustments to long-term debt and capital lease obligations (including the
current portion) represent the following (in thousands):
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
- --------------------------------------------------------------------------------- -----------
<S> <C>
Term Loan Facility borrowings.................................................... $ 550,000
Revolving Facility borrowings.................................................... 20,000
The Notes........................................................................ 625,000
Repayment of Existing Merit Credit Agreement..................................... (219,265)
Repayment of Merit Outstanding Notes............................................. (100,000)
Repayment of Magellan Outstanding Notes.......................................... (375,000)
-----------
$ 500,735
-----------
-----------
</TABLE>
(8) Adjustments to deferred credits and other long-term liabilities and minority
interest represent the effect of the Green Spring Minority Shareholder
Conversion.
(9) Adjustments to the stockholders' equity accounts represent the elimination
of Merit's historical stockholders' equity accounts, the increase in
accumulated deficit related to the $33.7 million extraordinary loss on the
early extinguishment of the Magellan Existing Credit Agreement and the
Magellan Outstanding Notes and the effect of issuing 2,831,516 shares of
Company Common Stock in the Green Spring Minority Shareholder Conversion,
which was valued using the closing price of Company Common Stock on December
31, 1997, of $21.50.
43
<PAGE>
EXHIBITS
<TABLE>
<S> <C>
2(a) Agreement and Plan of Merger, dated October 24, 1997, among the Company, Merit
Behavioral Care Corporation and MBC Merger Corporation, which was filed as Exhibit
2(g) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 1997, and is incorporated herein by reference.
4(a) Indenture, dated as of February 12, 1998, between the Company and Marine Midland
Bank, as Trustee, relating to the 9% Senior Subordinated Notes due February 15, 2008
of the Company.
4(b) Purchase Agreement, dated February 5, 1998, between the Company and Chase Securities
Inc.
4(c) Exchange and Registration Rights Agreement, dated February 12, 1998 between the
Company and Chase Securities Inc.
4(d) Credit Agreement, dated as of February 12, 1998, among the Company, certain of the
Company's subsidiaries listed therein and The Chase Manhattan Bank, as administrative
agent.
23(a) Consent of Deloitte & Touche LLP to incorporation of the financial statements of
Merit Behavioral Care Corporation included herein in the Registrant's Registration
Statement on Form S-3 (File No. 333-20371).
23(b) Consent of Deloitte & Touche LLP to incorporation of the financial statements of
Merit Behavioral Care Corporation included herein in the Registrant's Registration
Statement on Form S-3 (File No. 333-01217).
99(a) Press release, dated October 27, 1997.*
99(b) Press release, dated February 12, 1998.*
</TABLE>
- ------------------------
* Filed on February 27, 1998.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: April 2, 1998 Magellan Health Services, Inc.
By: /s/ CRAIG L. MCKNIGHT
----------------------------------------------------------------------
Executive Vice President and
Chief Financial Officer
45
<PAGE>
Exhibit 4(a)
MAGELLAN HEALTH SERVICES, INC.
9% Senior Subordinated Notes due 2008
---------------------------------
INDENTURE
Dated as of February 12, 1998
---------------------------------
MARINE MIDLAND BANK,
Trustee
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
<S> <C>
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Other Definitions. . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 1.03. Incorporation by Reference of Trust Indenture Act. . . . . . . . 23
SECTION 1.04. Rules of Construction. . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 2
The Securities
SECTION 2.01. Form and Dating. . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.02. Execution and Authentication . . . . . . . . . . . . . . . . . . 24
SECTION 2.03. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . 25
SECTION 2.04. Paying Agent To Hold Money in Trust. . . . . . . . . . . . . . . 26
SECTION 2.05. Securityholder Lists . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.06. Transfer and Exchange. . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.07. Replacement Securities . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.08. Outstanding Securities . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.09. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.10. Cancelation. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.11. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.12. CUSIP Numbers. . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 3.02. Selection of Securities To Be Redeemed . . . . . . . . . . . . . 30
SECTION 3.03. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 3.04. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . 32
SECTION 3.05. Deposit of Redemption Price. . . . . . . . . . . . . . . . . . . 32
SECTION 3.06. Securities Redeemed in Part. . . . . . . . . . . . . . . . . . . 32
</TABLE>
i
<PAGE>
<TABLE>
Page
<S> <C>
ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities. . . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.02. Provisions of Reports and Other Information. . . . . . . . . . . 33
SECTION 4.03. Limitation on Additional Indebtedness. . . . . . . . . . . . . . 33
SECTION 4.04. Limitation on Restricted Payments. . . . . . . . . . . . . . . . 36
SECTION 4.05. Limitation on Payment Restrictions Affecting Restricted
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 4.06. Limitation on Use of Proceeds from Asset Sales . . . . . . . . . 43
SECTION 4.07. Limitation on Transactions with Affiliates . . . . . . . . . . . 46
SECTION 4.08. Change of Control. . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 4.09. Compliance Certificate . . . . . . . . . . . . . . . . . . . . . 50
SECTION 4.10. Further Instruments and Acts . . . . . . . . . . . . . . . . . . 50
SECTION 4.11. Limitation on Liens. . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE 5
Successor Company
SECTION 5.01. Merger, Consolidation or Sale of Assets. . . . . . . . . . . . . 50
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 6.04. Waiver of Past Defaults. . . . . . . . . . . . . . . . . . . . . 55
SECTION 6.05. Control by Majority. . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 6.06. Limitation on Suits. . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 6.07. Rights of Holders to Receive Payment . . . . . . . . . . . . . . 56
SECTION 6.08. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . 56
SECTION 6.09. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . 57
SECTION 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 6.11. Undertaking for Costs. . . . . . . . . . . . . . . . . . . . . . 58
SECTION 6.12. Waiver of Stay or Extension Laws . . . . . . . . . . . . . . . . 58
</TABLE>
ii
<PAGE>
<TABLE>
Page
<S> <C>
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee. . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 7.02. Rights of Trustee. . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 7.03. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . 60
SECTION 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 7.05. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 7.06. Reports by Trustee to Holders. . . . . . . . . . . . . . . . . . 61
SECTION 7.07. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . 61
SECTION 7.08. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . 62
SECTION 7.09. Successor Trustee by Merger. . . . . . . . . . . . . . . . . . . 64
SECTION 7.10. Eligibility; Disqualification. . . . . . . . . . . . . . . . . . 64
SECTION 7.11. Preferential Collection of Claims Against Company. . . . . . . . 64
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities; Defeasance . . . . . . . . 64
SECTION 8.02. Conditions to Defeasance . . . . . . . . . . . . . . . . . . . . 66
SECTION 8.03. Application of Trust Money . . . . . . . . . . . . . . . . . . . 67
SECTION 8.04. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 8.05. Indemnity for Government Obligations . . . . . . . . . . . . . . 67
SECTION 8.06. Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders . . . . . . . . . . . . . . . . . . . 68
SECTION 9.02. With Consent of Holders. . . . . . . . . . . . . . . . . . . . . 69
SECTION 9.03. Compliance with Trust Indenture Act. . . . . . . . . . . . . . . 70
SECTION 9.04. Revocation and Effect of Consents and Waivers. . . . . . . . . . 70
SECTION 9.05. Notation on or Exchange of Securities. . . . . . . . . . . . . . 71
SECTION 9.06. Trustee to Sign Amendments . . . . . . . . . . . . . . . . . . . 71
SECTION 9.07. Payment for Consent. . . . . . . . . . . . . . . . . . . . . . . 71
</TABLE>
iii
<PAGE>
<TABLE>
Page
<S> <C>
ARTICLE 10
Subordination
SECTION 10.01. Agreement To Subordinate. . . . . . . . . . . . . . . . . . . . 72
SECTION 10.02. Liquidation, Dissolution, Bankruptcy. . . . . . . . . . . . . . 72
SECTION 10.03. Default on Senior Indebtedness. . . . . . . . . . . . . . . . . 73
SECTION 10.04. Acceleration of Payment of Securities . . . . . . . . . . . . . 74
SECTION 10.05. When Distribution Must Be Paid Over . . . . . . . . . . . . . . 74
SECTION 10.06. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 10.07. Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 10.08. Subordination May Not Be Impaired by Company. . . . . . . . . . 75
SECTION 10.09. Rights of Trustee and Paying Agent. . . . . . . . . . . . . . . 75
SECTION 10.10. Distribution or Notice to Representative. . . . . . . . . . . . 76
SECTION 10.11. Article 10 Not To Prevent Events of Default or Limit Right
To Accelerate . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 10.12. Trust Moneys Not Subordinated . . . . . . . . . . . . . . . . . 76
SECTION 10.13. Trustee Entitled To Rely. . . . . . . . . . . . . . . . . . . . 76
SECTION 10.14. Trustee to Effectuate Subordination . . . . . . . . . . . . . . 77
SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Indebtedness . . . 77
SECTION 10.16. Reliance by Holders of Senior Indebtedness on Subordination
Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 10.17. Trustee's Compensation Not Prejudiced . . . . . . . . . . . . . 77
ARTICLE 11
Miscellaneous
SECTION 11.01. Trust Indenture Act Controls. . . . . . . . . . . . . . . . . . 78
SECTION 11.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 11.03. Communication by Holders with Other Holders . . . . . . . . . . 79
SECTION 11.04. Certificate and Opinion as to Conditions Precedent. . . . . . . 79
SECTION 11.05. Statements Required in Certificate or Opinion . . . . . . . . . 79
SECTION 11.06. When Securities Disregarded . . . . . . . . . . . . . . . . . . 80
SECTION 11.07. Rules by Trustee, Paying Agent and Registrar. . . . . . . . . . 80
SECTION 11.08. Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 11.09. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 80
</TABLE>
iv
<PAGE>
<TABLE>
Page
<S> <C>
SECTION 11.10. No Personal Liability of Directors, Officers, Employees
and Stockholders. . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 11.11. Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 11.12. Multiple Originals. . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 11.13. Table of Contents; Headings . . . . . . . . . . . . . . . . . . 81
Appendix A-Provisions Relating to Initial Securities,
Private Exchange Securities and Exchange
Securities
Exhibit A- Form of Initial Security
Exhibit B- Form of Exchange Security
Exhibit C- Form of Transferee Letter of Representation
</TABLE>
v
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
TIA Indenture
Section Section
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.08; 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 4.02; 4.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 11.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last
sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.06
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
</TABLE>
N.A. means Not Applicable.
_____________________
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
vi
<PAGE>
INDENTURE dated as of February 12, 1998, between MAGELLAN
HEALTH SERVICES, INC., a Delaware corporation (the "Company"),
and MARINE MIDLAND BANK, a New York banking corporation and trust
company, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other parties and
for the equal and ratable benefit of the Holders of (i) the Company's 9% Senior
Subordinated Notes due 2008 issued on the date hereof (the "Initial
Securities"), (ii) if and when issued as provided in the Exchange and
Registration Rights Agreement of even date herewith (the "Registration
Agreement"), the Company's 9% Senior Subordinated Notes due 2008 issued in the
Registered Exchange Offer (as defined in Appendix A hereto (the "Appendix")) in
exchange for any Initial Securities (the "Exchange Securities") and (iii) if and
when issued as provided in the Registration Agreement, the Private Exchange
Securities (as defined in the Appendix, and together with the Initial Securities
and any Exchange Securities issued hereunder, the "Securities") issued in the
Private Exchange (as defined in the Appendix). Except as otherwise provided
herein, the Securities will be limited to $625,000,000 in aggregate principal
amount outstanding.
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. A Person shall be deemed to "control"
(including the correlative meanings, the terms "controlling", "controlled by",
and "under common control with") another Person if the controlling Person
(a) possesses, directly or indirectly, the power to direct or cause the
direction of the management or policies of the controlled Person, whether
through ownership of voting securities, by agreement or otherwise, or (b) owns,
directly or indirectly, 10% or more of any class of the issued and outstanding
equity securities of the controlled Person.
"Asset Sale" means, with respect to any Person, the sale, lease,
conveyance, disposition or other transfer
<PAGE>
2
by such Person of any of its assets (including by way of a sale-and-leaseback
and including the sale or other transfer of any Equity Interests in any
Restricted Subsidiary) which results in proceeds with a fair market value of
$1 million or more. However, the following shall not constitute an Asset
Sale: (i) unless part of a disposition including other assets or operations,
(A) dispositions of Cash, Cash Equivalents and Investment Grade Securities,
(B) payments on or in respect of non-Cash proceeds of Asset Sales, and
(C) dispositions of Investments by foreign subsidiaries of the Company in Cash
and instruments or securities or in certificates of deposit (or comparable
instruments) with banks or similar institutions; (ii) the lease of space in the
ordinary course of business and in a manner consistent with either past
practices or the healthcare industry generally; or (iii) the issuance or sale by
the Company of any Equity Interests in the Company.
"Average Life" means, as of the date of determination, with respect to
any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the
sum of the products of the numbers of years from the date of determination to
the dates of each successive scheduled principal payment (assuming the exercise
by the obligor of such Indebtedness of all unconditional (other than as to the
giving of notice) extension options of each such scheduled payment date) of such
Indebtedness or redemption or similar payment with respect to such Preferred
Stock multiplied by the amount of such principal payment by (ii) the sum of all
such principal payments.
"Bank Indebtedness" means any and all amounts payable under or in
respect of the New Credit Agreement (and any substitutes, refundings,
refinancings and replacements thereof, in whole or in part) and all related
documentation, as amended from time to time, including principal, premium (if
any), interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not a claim for post-filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, Guarantees and all other amounts
payable thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
<PAGE>
3
"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
which would at such time be so required to be capitalized on the balance sheet
in accordance with GAAP.
"Capital Stock" means any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock (including,
without limitation, common and preferred stock), excluding warrants, options or
similar instruments or other rights to acquire Capital Stock.
"Cash" means money or currency or a credit balance in a Deposit
Account.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency,
instrumentality or sponsored corporation thereof which are rated at least A or
the equivalent thereof by Standard and Poor's Ratings Services ("S&P") or at
least A-2 or the equivalent thereof by Moody's Investor Services, Inc.
("Moody's") (or if at such time neither is issuing ratings, then a comparable
rating of another nationally recognized rating agency), and in each case having
maturities of not more than one year from the date of acquisition, (ii) time
deposits, certificates of deposit, Eurodollar time deposits, and overnight bank
deposits with any commercial bank of recognized standing, having capital and
surplus in excess of $250 million and the commercial paper of the holding
company of which is rated at least A-2 or the equivalent thereof by S&P or at
least P-2 or the equivalent thereof by Moody's (or if at such time neither is
issuing ratings, then a comparable rating of another nationally recognized
rating agency), or, if no such commercial paper rating is available, a long-term
debt rating of at least A or the equivalent thereof by S&P or at least A-2 or
the equivalent thereof by Moody's (or if at such time neither is issuing
ratings, then a comparable rating of another nationally recognized rating
agency), (iii) repurchase obligations with a term of not more than 92 days for
underlying securities of the types described in clause (i) above entered into
with any commercial bank meeting the qualifications specified in
clause (ii) above, (iv) other investment instruments offered or sponsored by
financial institutions having capital and surplus in excess of $250 million and
the commercial paper of the holding company of which is rated at least A-2 or
the equivalent thereof by S&P or at least P-2 or the equivalent thereof by
Moody's (or if at such time neither is issuing
<PAGE>
4
ratings, then a comparable rating of another nationally recognized rating
agency), or, if no such commercial paper rating is available, a long-term debt
rating of at least A or the equivalent thereof by S&P or at least A-2 or the
equivalent thereof by Moody's (or if at such time neither is issuing ratings,
then a comparable rating of another nationally recognized rating agency),
(v) readily marketable direct obligations issued by any state of the United
States of America or any political subdivision thereof having one of the two
highest rating categories obtainable from either Moody's or S&P (or if at such
time neither is issuing ratings, then a comparable rating of another nationally
recognized rating agency), (vi) commercial paper rated at least A-2 or the
equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's
(or if at such time neither is issuing ratings, then a comparable rating of
another nationally recognized rating agency), in each case maturing within one
year after the date of acquisition and (vii) other money market investments with
a weighted average maturity of less than one year in an aggregate amount not to
exceed $10 million at any time outstanding.
"Change of Control" means (a) the sale, lease, transfer or other
disposition in one or more related transactions of all or substantially all of
the Company's assets, or the sale of substantially all of the Capital Stock or
assets of the Company's Subsidiaries that constitutes a sale of substantially
all of the Company's assets, to any Person or group (as such term is used in
Section 13(d)(3) of the Exchange Act), (b) the merger or consolidation of the
Company with or into another corporation, or the merger of another corporation
into the Company or any other transaction, with the effect, in any such case,
that the stockholders of the Company immediately prior to such transaction hold
50% or less of the total voting power entitled to vote in the election of
directors, managers or trustees of the surviving corporation or, in the case of
a triangular merger, the parent corporation of the surviving corporation
resulting from such merger, consolidation or such other transaction, (c) any
Person (except for the parent corporation of the surviving corporation in a
triangular merger) or group acquires beneficial ownership of a majority in
interest of the voting power or voting Capital Stock of the Company, or (d) the
liquidation or dissolution of the Company; provided, however, that in no event
shall the sale of any Equity Interests in, or assets of, Charter Behavioral
Health Systems, LLC, Charter Advantage, LLC, or Charter System, LLC, be deemed
to constitute a sale of all or substantially all of the Company's assets.
<PAGE>
5
"Closing Date" means the date of this Indenture.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the indenture securities.
"Consolidated Cash Interest Coverage Ratio" means the ratio of
(i) Consolidated Net Income plus the sum of Consolidated Interest Expense,
income tax expense, depreciation expense, amortization expense and other
non-cash charges of the Company and its Restricted Subsidiaries (to the extent
such items were deducted in computing Consolidated Net Income of the Company)
(collectively, "EBITDA") for the preceding four fiscal quarters to (ii) the
Consolidated Cash Interest Expense of the Company and its Restricted
Subsidiaries for the preceding four fiscal quarters; provided that (without
duplication) (A) if the Company or any of its Restricted Subsidiaries incurs,
assumes, Guarantees, repays or redeems any Indebtedness subsequent to the
commencement of the period for which the Consolidated Cash Interest Coverage
Ratio is being calculated but prior to the event for which the calculation of
the Consolidated Cash Interest Coverage Ratio is made or if the transaction
giving rise to the need to calculate the Consolidated Cash Interest Coverage
Ratio is an incurrence, assumption, Guarantee, repayment or redemption of
Indebtedness, then the Consolidated Cash Interest Coverage Ratio will be
calculated giving pro forma effect to any such incurrence, assumption,
Guarantee, repayment or redemption of Indebtedness, as if the same had occurred
at the beginning of the applicable period, (B) if the Company or any Restricted
Subsidiary shall have made any Material Asset Sale subsequent to the
commencement of the period for which the Consolidated Cash Interest Coverage
Ratio is being calculated but prior to the event for which the calculation of
the Consolidated Cash Interest Coverage Ratio is made, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets that are the subject of such Material Asset Sale for
such period or increased by an amount equal to the EBITDA (if negative) directly
attributable thereto for such period and Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest Expense
for such period directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary
<PAGE>
6
repaid, repurchased, defeased or otherwise discharged with respect to the
Company and its continuing Restricted Subsidiaries in connection with such
Material Asset Sale (or, if the Equity Interests of any Restricted Subsidiary
are sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent the
Company and its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale), (C) if the Company or any Restricted Subsidiary
(by merger or otherwise) shall have made an Investment in any Restricted
Subsidiary (or any Person that becomes a Restricted Subsidiary) or an
acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
Investment or acquisition of assets constitutes all or substantially all of an
operating unit of a business subsequent to the commencement of the period for
which the Consolidated Cash Interest Coverage Ratio is being calculated but
prior to the event for which the calculation of the Consolidated Cash Interest
Coverage Ratio is made, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto (including the
incurrence, assumption, Guarantee, repayment or redemption of any Indebtedness
and any pro forma expense and cost reductions that are directly attributable to
such transaction), as if such Investment or acquisition occurred at the
beginning of the applicable period and (D) if subsequent to the commencement of
the period for which the Consolidated Cash Interest Coverage Ratio is being
calculated but prior to the event for which the calculation of the Consolidated
Cash Interest Coverage Ratio is made any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) shall have made any Material
Asset Sale or any Investment or acquisition of assets that would have required
an adjustment pursuant to clause (B) or (C) above if made by the Company or a
Restricted Subsidiary during such period, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto as if such Material Asset Sale, Investment or acquisition of assets
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is given for a transaction, the pro forma calculation
shall be made in good faith by a responsible financial or accounting officer of
the Company. In making such calculations on a pro forma basis, interest
attributable to Indebtedness bearing a floating interest rate shall be computed
as if the rate in effect on the date of computation had been the applicable rate
for the entire period.
<PAGE>
7
"Consolidated Cash Interest Expense" of any Person means, for any
period for which the determination thereof is to be made, the Consolidated
Interest Expense of such Person less, to the extent incurred, assumed or
Guaranteed by such Person and its Subsidiaries in such period and included in
such Consolidated Interest Expense, (i) deferred financing costs and (ii) other
noncash interest expense; provided, however, that amortization of original issue
discount shall be included in Consolidated Cash Interest Expense.
"Consolidated Interest Expense" of any Person means, for any period
for which the determination thereof is to be made, the total interest expense of
such Person and its consolidated Restricted Subsidiaries, plus, without
duplication, to the extent incurred, assumed or Guaranteed by such Person and
its Subsidiaries in such period but not included in such interest expense,
(A)(i) all commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financing, (ii) all but the
principal component of rentals in respect of Capital Lease Obligations, paid,
accrued or scheduled to be paid or accrued by such Person during such period,
(iii) capitalized interest, (iv) amortization of original issue discount and
deferred financing costs, (v) noncash interest expense, (vi) interest accruing
on any Indebtedness of any other Person to the extent such Indebtedness is
Guaranteed by such Person or any of its Restricted Subsidiaries; provided that
payment of such amounts by the Company or any Restricted Subsidiary is being
made to, or is sought by, the holders of such Indebtedness pursuant to such
guarantee, (vii) net costs (benefits) associated with Hedging Obligations
relating to interest rate protection (including amortization of fees),
(viii) Preferred Stock dividends in respect of all Preferred Stock of the
Subsidiaries of such Person and Redeemable Stock of such Person held by Persons
other than such Person or a Wholly-owned Subsidiary of such Person, and (ix) the
cash contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than such Person) in connection with Indebtedness incurred,
assumed or Guaranteed by such plan or trust, all as determined in accordance
with GAAP, less (B) interest expense of the type described in clause (A) above
attributable to Unrestricted Subsidiaries of such Person to the extent the
related Indebtedness is not Guaranteed or paid by such Person or any Restricted
Subsidiary of such Person.
<PAGE>
8
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP, plus
the sum of the amount allocated to excess reorganization value, employee stock
ownership plan expense and consolidated stock option expense (to the extent such
items were taken into account in computing the Net Income of such Person and its
Subsidiaries); provided, however, that:
(i) the Net Income of any Person that is not a Restricted Subsidiary
or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions
actually paid in Cash to the referent Person or its Restricted
Subsidiaries;
(ii) 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;
(iii) the cumulative effect of a change in accounting principles shall
be excluded; and
(iv) any net income (loss) of any Restricted Subsidiary of such Person
if such Restricted Subsidiary of such Person is subject to restrictions,
directly or indirectly, on the payment of dividends or the making of
distributions by such Restricted Subsidiary, directly or indirectly, to
such Person that violate Section 4.05 (without giving effect to
clause (6) thereof with respect to any Indebtedness) shall be excluded,
except that (A) such Person's equity in the net income of any such
Restricted Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of Cash that could have
been distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend or otherwise
(subject, in the case of a dividend or distribution that could have been
made to another Restricted Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income.
Notwithstanding the foregoing, for the purposes of Section 4.04 only,
there shall be excluded from Consolidated Net Income any dividends, repayments
of loans or advances or other transfers of assets or other amounts from or in
<PAGE>
9
respect of Unrestricted Subsidiaries to such Person or a Restricted Subsidiary
of such Person to the extent such dividends, repayments or transfers or other
amounts increase the amount of Restricted Payments permitted pursuant to
Section 4.04(a)(2)(F).
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Deposit Account" means a demand, savings, passbook, money market or
like account with or sponsored by a commercial bank, financial institution,
investment bank or brokerage firm, savings and loan association or like
organization or a government securities dealer, other than an account evidenced
by a negotiable certificate of deposit.
"Disinterested Director" means, with respect to any specific
transaction, any director of the Company that does not have a direct or indirect
interest (other than any interest resulting solely from such director's
ownership of Equity Interests in the Company) in such transaction.
"Equity Interests" means (a) Capital Stock, warrants, options or
similar instruments or other rights to acquire Capital Stock (but excluding any
debt security which is convertible into, or exchangeable for, Capital Stock),
and (b) limited and general partnership interests, interests in limited
liability companies, joint venture interests and other ownership interests in
any Person.
"Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act or a private primary offering of common stock of the
Company.
"ESOP" means the Employee Stock Ownership Plan of the Company as
established on September 1, 1988, and effective as of January 1, 1988, as from
time to time amended, and/or the trust created in accordance with such plan
pursuant to the Trust Agreement between the Company and the trustee named
therein, executed as of September 1, 1988, as amended, as the context in which
the term "ESOP" is used permits.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
<PAGE>
10
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
as in effect on the Closing Date.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by arrangements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include (i) endorsements
for collection or deposit in the ordinary course of business or (ii) obligations
under preferred provider arrangements with Charter Behavioral Health Systems,
LLC and its Affiliates related to the purchase of minimum amounts of behavioral
healthcare services at market rates. The term "Guarantee" used as a verb has a
corresponding meaning.
"Healthcare Service Business" means a business, the majority of whose
revenues are derived from providing or arranging to provide or administering,
managing or monitoring healthcare services or any business or activity that is
reasonably similar thereto or a reasonable extension, development or expansion
thereof or ancillary thereto.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) currency exchange or interest rate swap
agreements, currency exchange or interest rate cap agreements and currency
exchange or interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in currency
exchange or interest rates.
"Holder" or "Securityholder" means the Person in whose name a Security
is registered on the Registrar's books.
<PAGE>
11
"Incur" means, for the purposes of Section 4.03, to create, issue,
assume, guarantee, incur or otherwise become directly or indirectly liable with
respect to any Indebtedness. The term "Incurrence" when used as a noun shall
have a correlative meaning.
"Indebtedness" of any Person means, without duplication at the date of
determination thereof:
(i) the principal of and premium (if any) in respect of indebtedness
of such Person for borrowed money (including in respect of obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments) or for the deferred purchase price of property or services
(other than (a) trade payables on terms of 365 days or less incurred in the
ordinary course of business, (b) deferred earn-out and other
performance-based payment obligations incurred in connection with
acquisitions of Healthcare Service Businesses and (c) obligations under
preferred provider arrangements with Charter Behavioral Health Systems, LLC
and its Affiliates related to the purchase of minimum amounts of behavioral
healthcare services at market rates), all as determined in accordance with
GAAP;
(ii) all Capital Lease Obligations of such Person;
(iii) all Guarantees of such Person in respect of Indebtedness of
others;
(iv) the aggregate amount of all unreimbursed drawings in respect of
letters of credit or other similar instruments issued for the account of
such Person (less the amount of Cash, Cash Equivalents or Investment Grade
Securities on deposit securing reimbursement obligations in respect of such
letters of credit or similar instruments);
(v) all indebtedness, obligations or other liabilities of such Person
or of others for borrowed money secured by a Lien on any property of such
Person, whether or not such indebtedness, obligations or liabilities are
assumed by such Person;
(vi) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Redeemable Stock and, with
respect to any Subsidiary of the Company, any Preferred Stock (but
excluding, in each case, any accrued dividends); and
<PAGE>
12
(vii) to the extent not otherwise included in this definition actual
(rather than notional) liabilities under Hedging Obligations of such
Person;
provided, however, that all or any portion of Indebtedness that
becomes the subject of a defeasance (whether a "legal" defeasance or a
"covenant" or "in substance" defeasance) shall, at all times that such
defeasance remains in effect, cease to be treated as Indebtedness for purposes
of this Indenture.
"Indenture" means this Indenture as amended or supplemented from time
to time.
"Investment" means, when used with respect to any Person, any direct
or indirect advance, loan or other extension of credit (other than the creation
of receivables in the ordinary course of business) or capital contribution by
such Person (by means of transfers of cash or property (other than Equity
Interests in the Company) to others or payments for property or services for the
account or use of others, or otherwise) to any other Person, or any direct or
indirect purchase or other acquisition by such Person of a beneficial interest
in capital stock, bonds, notes, debentures or other securities issued by any
other Person, or any Guarantee by such Person of the Indebtedness of any other
Person (in which case such Guarantee shall be deemed an Investment in such other
Person in an amount equal to the aggregate amount of Indebtedness so
guaranteed). For purposes of the definition of "Unrestricted Subsidiary" and
Section 4.04, (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in
such Subsidiary at the time of such redesignation less (y) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in the case of property with a fair market value of up to $15 million,
as determined in good faith by a responsible financial officer of the Company,
and in the case of property with a fair market value in excess
<PAGE>
13
of $15 million, as determined in good faith by the Board of Directors.
"Investment Grade Securities" means (i) securities issued or directly
and fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P, Baa3 or higher by
Moody's or Class (2) or higher by NAIC or the equivalent of such rating by such
rating organization, or, if no rating of S&P, Moody's or NAIC then exists, the
equivalent of such rating by any other nationally recognized securities rating
agency, but excluding any debt securities or instruments constituting loans or
advances among the Company and its Subsidiaries, and (iii) investments in any
fund that invests exclusively in investments of the type described in
clauses (i) and (ii) which fund may also hold immaterial amounts of Cash or Cash
Equivalents pending investment and/or distribution.
"Issue Date" means the date on which the Initial Securities are
originally issued.
"Lien" means any mortgage, pledge, security interest, charge,
hypothecation, collateral assignment, deposit arrangement, encumbrance, lien
(statutory or otherwise), or security agreement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing and the filing of any financing statement, other than
notice or precautionary filings not perfecting a security interest, under the
Uniform Commercial Code or comparable law of any jurisdiction, domestic or
foreign, in respect of any of the foregoing).
"Material Asset Sale" means any Asset Sale exceeding $25 million of
all or substantially all of an operating unit of a business.
"NAIC" means National Association of Insurance Commissioners.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of Cash or Cash Equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not the interest, component thereof) when received in the
form of Cash or Cash Equivalents (except to the extent such obligations are
financed or sold with
<PAGE>
14
recourse to the Company or any Restricted Subsidiary of the Company), casualty
loss insurance proceeds, condemnation awards and proceeds from the conversion of
other property received when converted to Cash or Cash Equivalents, net of
(i) brokerage commissions and other fees and expenses related to such Asset
Sale, (ii) provision for all taxes as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Subsidiaries,
taken as a whole, (iii) payments made to repay Indebtedness or any other
obligation outstanding at the time of such Asset Sale that either, (A) in the
case of a sale of all of the Equity Interests in any Restricted Subsidiary, is a
direct obligation of such Restricted Subsidiary or (B) is secured by the asset
subject to such sale or was incurred to finance the acquisition or construction
of, improvements on, or operations related to, the assets subject to such sale
and (iv) appropriate amounts to be provided by the Company or any Restricted
Subsidiary of the Company as a reserve against any liabilities associated with
such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under indemnification obligations associated with such
Asset Sale, all as determined in conformity with GAAP.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP, excluding, however, any gain
or loss, together with any related provision for taxes on such gain or loss,
realized in connection with any Asset Sale (including, without limitation,
dispositions pursuant to Sale/Leaseback Transactions) not in the ordinary course
of business, and excluding any extraordinary, unusual, non-recurring or similar
type of gain or loss, together with any related provision for taxes.
"New Credit Agreement" means (a) the Credit Agreement, to be dated as
of the Closing Date, among the Company, the banks and other financial
institutions named therein and The Chase Manhattan Bank, as Administrative
Agent, and (b) each note, guaranty, mortgage, pledge agreement, security
agreement, indemnity, subrogation and contribution agreement, and other
instruments and documents from time to time entered into pursuant to or in
respect of either such credit agreement or any such guaranty, as each such
credit agreement and other documents may be amended, restated, supplemented,
extended, renewed, increased, replaced, substituted, refunded, refinanced or
otherwise modified from time to time, in whole or in part.
<PAGE>
15
"Non-Recourse Indebtedness" shall mean any Indebtedness of the Company
or any of its Restricted Subsidiaries if the holder of such Indebtedness has no
recourse, direct or indirect, absolute or contingent, to the general assets of
the Company or any of its Restricted Subsidiaries.
"Officer" means the Chairman of the Board, the Chief Executive
Officer, the Chief Financial Officer, the President, any Vice President, the
Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Asset Swap" means any one or more transactions in which the
Company or any of its Restricted Subsidiaries exchanges assets for consideration
consisting of Equity Interests in or assets of a Person engaged in a Healthcare
Service Business, or assets of a Person the Company or any of its Restricted
Subsidiaries intends to use in a Healthcare Service Business, and, to the extent
necessary to equalize the value of the assets being exchanged, cash; provided
that cash does not exceed 30% of the sum of the amount of the cash and the fair
market value of the Equity Interests or assets received or given by the Company
and its Restricted Subsidiaries in such transaction.
"Permitted Investments" means (a) any Investment in the Company, any
Restricted Subsidiary or any Permitted Joint Venture of the Company or of a
Restricted Subsidiary that in each case is a Healthcare Service Business;
(b) any Investment in Cash and Cash Equivalents or Investment Grade Securities;
(c) any Investment by the Company or any Restricted Subsidiary of the Company in
a Person that is engaged in the Healthcare Service Business if as a result of
such Investment (i) such Person becomes a Restricted Subsidiary or a Permitted
Joint Venture of the Company or of a Restricted Subsidiary or (ii) such Person,
in one transaction or a series of related transactions, is merged, consolidated
or amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary or a
Permitted Joint Venture of the Company or of a Restricted Subsidiary; (d) any
Investment in securities or other assets not
<PAGE>
16
constituting Cash or Cash Equivalents and received in connection with an Asset
Sale made pursuant to Section 4.06 or any other disposition of assets not
constituting an Asset Sale; (e) any Investment existing on the Closing Date;
(f) any transaction to the extent it constitutes an Investment that is permitted
by and made in accordance with Section 4.07(b)(ii); (g) any Investment in
Healthcare Service Businesses having an aggregate fair market value, taken
together with all other Investments made pursuant to this clause (g) that are at
that time outstanding (and not including any Investments outstanding on the
Closing Date), not to exceed 5% of Total Assets of the Company at the time of
such Investment (with the fair market value of each Investment being measured at
the time made and without giving effect to subsequent changes in value); (h) any
Investment by Restricted Subsidiaries in other Restricted Subsidiaries and
Investments by Subsidiaries of the Company that are not Restricted Subsidiaries
in Subsidiaries of the Company that are not Restricted Subsidiaries;
(i) advances to employees in the ordinary course of business not in excess of
$7.5 million outstanding at any one time; (j) any Investment acquired by the
Company or any of its Restricted Subsidiaries (i) in exchange for any other
Investment or accounts receivable held by the Company or any such Restricted
Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other Investment or
accounts receivable or (ii) as a result of a foreclosure by the Company or any
of its Restricted Subsidiaries with respect to any secured Investment or other
transfer of title with respect to any secured Investment in default; (k) Hedging
Obligations; (l) Investments the payment for which consists exclusively of
Equity Interests (other than Redeemable Stock) of the Company; (m) Investments
made in connection with Permitted Asset Swaps; and (n) additional Investments
having an aggregate fair market value, taken together with all other Investments
made pursuant to this clause (n) that are at that time outstanding, not to
exceed $30 million at the time of such Investment (with fair market value of
each Investment being measured at the time made and without giving effect to
subsequent changes in value).
"Permitted Joint Venture" means, with respect to any Person, (i) any
corporation, association, limited liability company or other business entity
(other than a partnership) (A) of which 50% or more of the total voting power of
shares of Capital Stock or other Equity Interests entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time of determination owned or
<PAGE>
17
controlled, directly or indirectly, by such Person or one or more of the
Restricted Subsidiaries of that Person or a combination thereof and (B) which is
either managed or controlled by such Person or any of its Restricted
Subsidiaries and (ii) any partnership of which (x) 50% or more of the general or
limited partnership interests are owned or controlled, directly or indirectly,
by such Person or one or more of the Restricted Subsidiaries of that Person or a
combination thereof and (y) which is either managed or controlled by such Person
or any of its Restricted Subsidiaries, and which in the case of each of
clauses (i) and (ii) is engaged in a Healthcare Service Business; provided,
however, that none of Charter Behavioral Health Systems, LLC or any of its
Affiliates shall in any event be deemed to be a Permitted Joint Venture of the
Company or of a Restricted Subsidiary (provided that for the purposes of this
proviso the Company and its Subsidiaries shall not be considered Affiliates of
Charter Behavioral Health Systems, LLC).
"Person" means any individual, corporation, partnership, joint
venture, incorporated or unincorporated association, joint-stock company,
limited liability company, trust, unincorporated organization or government or
other agency or political subdivision thereof or other entity of any kind.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Security means the principal of the Security plus the
premium, if any, payable on the Security that is due or overdue at the relevant
time.
"Prior Purchase Money Obligations" means purchase money obligations
relating to property acquired by the Company or any of its Restricted
Subsidiaries in the ordinary course of business that existed prior to the
acquisition of such property by the Company or any of its Restricted
Subsidiaries and that impose restrictions of the nature described in
Section 4.05 on the property so acquired.
"Redeemable Stock" means any Equity Interest which, by its terms (or
by the terms of any security into
<PAGE>
18
which it is convertible or for which it is exchangeable or exercisable), or upon
the happening of any event, (i) matures or is mandatorily redeemable pursuant to
a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for
Indebtedness or Redeemable Stock or (iii) is redeemable at the option of the
holder thereof, in whole or in part, in each case on or prior to four months
after the stated maturity of the Securities.
"Refinance" means, in respect of any Indebtedness, to extend,
refinance, renew, replace, substitute or refund, or to issue other Indebtedness
in exchange for, in whole or in part, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Representative" means the trustee, agent or representative (if any)
for an issue of Specified Senior Indebtedness.
"Restricted Subsidiary" means each of the Subsidiaries of the Company
that has not been designated an Unrestricted Subsidiary.
"Rights Plan" means the Company's Share Purchase Rights Plan, dated
July 21, 1992, as amended, restated, supplemented or otherwise modified from
time to time.
"Sale/Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person, other than leases between the Company and a
Wholly-owned Subsidiary or between Wholly-owned Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness secured by a Lien.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means the principal of and premium, if any, and
interest on (such interest on Senior Indebtedness, wherever referred to in this
Indenture, is deemed to include interest accruing after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law in accordance with and
at the rate (including
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19
any rate applicable upon any default or event of default, to the extent lawful)
specified in any document evidencing the Senior Indebtedness, whether or not the
claim for such interest is allowed as a claim after such filing in any
proceeding under such bankruptcy law) and other amounts (including, but not
limited to, fees, expenses, reimbursement obligations in respect of letters of
credit and indemnities) due or payable from time to time on or in connection
with any Indebtedness of the Company Incurred pursuant to Section 4.03(a) or
permitted under clauses (i), (ii), (iv), (vi), (vii), (viii), (ix), (x) and (xi)
of Section 4.03(b), in each case whether outstanding on the Closing Date or
thereafter Incurred, unless, in the case of any particular Indebtedness, the
instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall not be senior in
right of payment to the Securities. Notwithstanding anything to the contrary in
the foregoing, Senior Indebtedness shall not include (a) any Indebtedness of the
Company to any of its Subsidiaries or other Affiliates, (b) any Indebtedness
incurred after the Closing Date that is contractually subordinated in right of
payment to any Senior Indebtedness, (c) amounts owed (except to banks and other
financial institutions) for goods, materials or services purchased in the
ordinary course of business or for compensation to employees, (d) any liability
for Federal, state, local or other taxes owed or owing by the Company, (e) any
obligations with respect to any Capital Stock, or (f) any Indebtedness Incurred
in violation of this Indenture, except where at the time of such Incurrence, a
responsible financial officer of the Company has delivered a certification as to
its compliance at such time with Section 4.03(a), and the holder of such
Indebtedness or its trustee, agent or representative is not aware of facts or
circumstances such that such Person could not rely in good faith on such
certification.
"Senior Subordinated Indebtedness" means the Securities and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Securities and is not subordinated by its terms to
any Indebtedness or other obligation of the Company which is not Senior
Indebtedness.
"Specified Senior Indebtedness" means (i) Bank Indebtedness under the
New Credit Agreement and any replacements, refinancings, refundings, and
substitute facility or facilities thereof, and additional facility or facilities
permitted by Section 4.03(b)(i), and (ii) each single issue of other Senior
Indebtedness having an
<PAGE>
20
outstanding principal balance of $50 million or more and which is specifically
designated by the Company in the instrument evidencing or governing such Senior
Indebtedness as "Specified Senior Indebtedness" for purposes of this Indenture.
"Stated Maturity" means, with respect to any Indebtedness, the date or
dates specified in such Indebtedness as the fixed date or dates on which the
payment of principal of such Indebtedness is due and payable, including pursuant
to any mandatory redemption provision, it being understood that if an issue of
Indebtedness has more than one fixed date on which the payment of principal is
due and payable, each such fixed date shall be a separate Stated Maturity with
respect to the principal amount of Indebtedness due on such date.
"Subordinated Obligation" means any Indebtedness of the Company
(whether outstanding on the Closing Date or thereafter incurred, assumed or
Guaranteed) that is subordinate or junior in right of payment to the Securities
pursuant to a written agreement.
"Subsidiary" means with respect to any Person, (i) any corporation,
association, limited liability company or other business entity (other than a
partnership) of which more than 50% of the total voting power of the Equity
Interests entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof is at the time of
determination owned or controlled, directly or indirectly, by such Person or one
or more of the other Subsidiaries of that Person or a combination thereof,
(ii) any partnership of which more than 50% of the general or limited
partnership interests are 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 (iii) any Permitted Joint Venture of such Person.
"Total Assets" means, with respect to any Person, the total
consolidated assets of such Person and its Restricted Subsidiaries, as shown on
the most recent balance sheet of such Person.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date of this Indenture.
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21
"Trustee" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
which at the time of determination is an Unrestricted Subsidiary (as designated
by the Board of Directors of the Company, as provided below) and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company
may designate any Subsidiary of the Company (including any Subsidiary and any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Equity Interests or Indebtedness (other than any
Indebtedness incurred in connection with services performed in the ordinary
course of business by such Subsidiary for the Company or any of its Restricted
Subsidiaries) of, or owns, or holds any Lien on, any property of, the Company or
any Restricted Subsidiary of the Company, provided that (a) any Unrestricted
Subsidiary must be an entity of which shares of the Capital Stock or other
Equity Interests (including partnership interests) entitled to cast at least a
majority of the votes that may be cast by all shares or Equity Interests having
ordinary voting power for the election of directors or other governing body are
owned, directly or indirectly, by the Company, (b) such designation complies
with Section 4.04 and (c) each of (I) the Subsidiary to be designated and (II)
its Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided, however, that immediately after giving
effect to such designation (x) the Company could Incur $1.00 of additional
Indebtedness pursuant to Section 4.03(a) and (y) no Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate
<PAGE>
22
certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" means, with respect to any Person, any class or series
of Capital Stock of such Person that is ordinarily entitled to vote in the
election of directors thereof at a meeting of stockholders called for such
purpose, without the occurrence of any additional event or contingency.
"Wholly-owned Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which 95% or more of the outstanding Equity
Interests of such Restricted Subsidiary are owned by such Person (either
directly or indirectly through Wholly-owned Subsidiaries).
SECTION 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
---- ----------
<S> <C>
"Acceleration Notice". . . . . . . . . . . . . . . . . . . . . . . . . 6.02
"Affiliate Transaction . . . . . . . . . . . . . . . . . . . . . . . . 4.07(a)
"Bankruptcy Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Blockage Notice . . . . . . . . . . . . . . . . . . . . . . . . . . .10.03
"Change of Control Offer . . . . . . . . . . . . . . . . . . . . . . . 4.08(a)
"Change of Control Payment Date" . . . . . . . . . . . . . . . . . . . 4.08(b)
"covenant defeasance option" . . . . . . . . . . . . . . . . . . . . . 8.01(b)
"Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Excess Proceeds". . . . . . . . . . . . . . . . . . . . . . . . . . . 4.06(a)
"Excess Proceeds Offer". . . . . . . . . . . . . . . . . . . . . . . . 4.06(a)
"Excess Proceeds Offer Payment Date" . . . . . . . . . . . . . . . . . 4.06(b)
"Excess Proceeds Purchase Price" . . . . . . . . . . . . . . . . . . . 4.06(a)
"legal defeasance option". . . . . . . . . . . . . . . . . . . . . . . 8.01(b)
"Legal Holiday . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.08
"pay the Securities. . . . . . . . . . . . . . . . . . . . . . . . . .10.03
"Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Payment Blockage Period . . . . . . . . . . . . . . . . . . . . . . .10.03
"protected purchaser . . . . . . . . . . . . . . . . . . . . . . . . . 2.07
"Refinancing Indebtedness. . . . . . . . . . . . . . . . . . . . . . . 4.03(b)
"Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
</TABLE>
<PAGE>
23
"Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . 4.04(a)
"Successor Company . . . . . . . . . . . . . . . . . . . . . . . . . . 5.01(a)
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
This Indenture is subject to the mandatory provisions of the TIA, which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Holder or Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Indebtedness shall not be deemed to be subordinate or
junior to Secured Indebtedness merely by virtue of its nature as unsecured
Indebtedness;
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24
(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would be
shown on a balance sheet of the issuer dated such date prepared in
accordance with GAAP;
(8) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation value of such Preferred Stock or (ii) the maximum
mandatory redemption or mandatory repurchase price with respect to such
Preferred Stock, whichever is greater.
ARTICLE 2
The Securities
SECTION 2.01. Form and Dating. Provisions relating to the Initial
Securities, the Private Exchange Securities and the Exchange Securities are set
forth in the Appendix, which is hereby incorporated in and expressly made a part
of this Indenture. The (i) Initial Securities and the Trustee's certificate of
authentication and (ii) Private Exchange Securities and the Trustee's
certificate of authentication shall each be substantially in the form of
Exhibit A hereto, which is hereby incorporated in and expressly made a part of
this Indenture. The Exchange Securities and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit B hereto, which is
hereby incorporated in and expressly made a part of this Indenture. The
Securities may have notations, legends or endorsements required by law, stock
exchange rule, agreements to which the Company is subject, if any, or usage
(provided that any such notation, legend or endorsement shall be in a form
acceptable to the Company). Each Security shall be dated the date of its
authentication.
SECTION 2.02. Execution and Authentication. One or more Officers
shall sign the Securities for the Company by manual or facsimile signature.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall be
valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be
<PAGE>
25
conclusive evidence that the Security has been authenticated under this
Indenture.
The Trustee shall authenticate and make available for delivery
Securities as set forth in the Appendix.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Securities. Any such appointment shall be
evidenced by an instrument signed by a Trust Officer, a copy of which shall be
furnished to the Company. Unless limited by the terms of such appointment, an
authenticating agent may authenticate Securities whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as
any Registrar, Paying Agent or agent for service of notices and demands.
SECTION 2.03. Registrar and Paying Agent. The Company shall maintain
an office or agency where Securities may be presented for registration of
transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange. The
Company may have one or more co-registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent, and the
term "Registrar" includes any co-registrars. The Company initially appoints the
Trustee as (i) Registrar and Paying Agent in connection with the Securities, and
(ii) the Securities Custodian (as defined in the Appendix) with respect to the
Global Securities (as defined in the Appendix).
The Company shall enter into an appropriate agency agreement with any
Registrar or Paying Agent not a party to this Indenture, which shall incorporate
the terms of the TIA. The agreement shall implement the provisions of this
Indenture that relate to such agent. The Company shall notify the Trustee of
the name and address of any such agent. If the Company fails to maintain a
Registrar or Paying Agent, the Trustee shall act as such and shall be entitled
to appropriate compensation therefor pursuant to Section 7.07. The Company or
any of its domestically organized Wholly-owned Subsidiaries may act as Paying
Agent or Registrar.
The Company may remove any Registrar or Paying Agent upon written
notice to such Registrar or Paying Agent and to the Trustee; provided, however,
that no such removal
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26
shall become effective until (1) acceptance of an appointment by a successor as
evidenced by an appropriate agreement entered into by the Company and such
successor Registrar or Paying Agent, as the case may be, and delivered to the
Trustee or (2) notification to the Trustee that the Trustee shall serve as
Registrar or Paying Agent until the appointment of a successor in accordance
with clause (1) above. The Registrar or Paying Agent may resign at any time
upon written notice; provided, however, that the Trustee may resign as Paying
Agent or Registrar only if the Trustee also resigns as Trustee in accordance
with Section 7.08.
SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to 11:00
a.m. on each due date of the principal and interest on any Security, the Company
shall deposit with the Paying Agent (or if the Company or a Subsidiary is acting
as Paying Agent, segregate and hold in trust for the benefit of the Persons
entitled thereto) a sum sufficient to pay such principal and interest when so
becoming due. The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that the Paying Agent shall hold in trust for the
benefit of Securityholders or the Trustee all money held by the Paying Agent for
the payment of principal of or interest on the Securities and shall notify the
Trustee of any default by the Company in making any such payment. If the
Company or a Subsidiary of the Company acts as Paying Agent, it shall segregate
the money held by it as Paying Agent and hold it as a separate trust fund. The
Company at any time may require a Paying Agent to pay all money held by it to
the Trustee and to account for any funds disbursed by the Paying Agent. Upon
complying with this Section, the Paying Agent shall have no further liability
for the money delivered to the Trustee.
SECTION 2.05. Securityholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish, or cause the Registrar to furnish, to the
Trustee, in writing at least five Business Days before each interest payment
date and at such other times as the Trustee may request in writing, a list in
such form and as of such date as the Trustee may reasonably require of the names
and addresses of Securityholders.
SECTION 2.06. Transfer and Exchange. The Securities shall be issued
in registered form and shall be transferable only upon the surrender of a
Security for registration of transfer. When a Security is presented to the
Registrar with a request to register a transfer, the
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27
Registrar shall register the transfer as requested if the requirements of
Section 8-401(a)(l) of the Uniform Commercial Code are met. When Securities are
presented to the Registrar with a request to exchange them for an equal
aggregate principal amount of Securities of other denominations, the Registrar
shall make the exchange as requested if the same requirements are met. To
permit registration of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Securities at the Registrar's request. Upon any
transfer or exchange, the Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements or transfer documents and to
pay any taxes required by law or permitted by this Indenture.
The Company shall not be required to make and the Registrar need not
register transfers or exchanges of Securities selected for redemption (except,
in the case of Securities to be redeemed in part, the portion thereof not to be
redeemed) or any Securities for a period of 15 days before a selection of
Securities to be redeemed.
Prior to the due presentation for registration of transfer of any
Security, the Company, the Trustee, the Paying Agent or the Registrar may deem
and treat the Person in whose name a Security is registered as the absolute
owner of such Security for the purpose of receiving payment of principal of and
interest, if any, on such Security and for all other purposes whatsoever,
whether or not such Security is overdue, and none of the Company, the Trustee,
the Paying Agent or the Registrar shall be affected by notice to the contrary.
Any Holder of a Global Security shall, by acceptance of such Global
Security, agree that transfers of beneficial interest in such Global Security
may be effected only through a book-entry system maintained by (i) the Holder of
such Global Security (or its agent) or (ii) any Holder of a beneficial interest
in such Global Security, and that ownership of a beneficial interest in such
Global Security shall be required to be reflected in a book entry.
All Securities issued upon any transfer or exchange pursuant to the
terms of this Indenture will evidence the same debt and will be entitled to the
same benefits under this Indenture as the Securities surrendered upon such
transfer or exchange.
SECTION 2.07. Replacement Securities. If a mutilated Security is
surrendered to the Registrar or if the
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28
Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the Holder (i) notifies the Company or the Trustee
within a reasonable time after he has notice of such loss, destruction or
wrongful taking and the Registrar has not registered a transfer prior to
receiving such notification, (ii) makes such request to the Company or the
Trustee prior to the Security being acquired by a protected purchaser as defined
in Section 8-303 of the Uniform Commercial Code (a "protected purchaser") and
(iii) satisfies any other reasonable requirements of the Trustee and the Company
including, without limitation, the requirements of Section 8-405 of the Uniform
Commercial Code. If required by the Trustee or the Company, such Holder shall
furnish an indemnity bond sufficient in the reasonable judgment of the Trustee
and the Company to protect the Company, the Trustee, the Paying Agent and the
Registrar from any loss that any of them may suffer if a Security is replaced.
The Company and the Trustee may charge the Holder for their expenses in
replacing a Security. In the event any such mutilated, lost, destroyed or
wrongfully taken Security has become or is about to become due and payable, the
Company in its discretion may pay such Security instead of issuing a new
Security in replacement thereof.
Every replacement Security is an additional obligation of the Company.
The provisions of this Section 2.07 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, lost, destroyed or wrongfully taken
Securities.
SECTION 2.08. Outstanding Securities. Securities outstanding at any
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancelation and those described in this Section
as not outstanding. A Security does not cease to be outstanding because the
Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a protected purchaser.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or maturity date money sufficient to pay
all principal and
<PAGE>
29
interest payable on that date with respect to the Securities (or portions
thereof) to be redeemed or maturing, as the case may be, and the Paying Agent is
not prohibited from paying such money to the Securityholders on that date
pursuant to the terms of this Indenture, then on and after that date such
Securities (or portions thereof) cease to be outstanding and interest on them
ceases to accrue.
SECTION 2.09. Temporary Securities. In the event that Definitive
Securities (as defined in the Appendix) are to be issued under the terms of this
Indenture, until such Definitive Securities are ready for delivery, the Company
may prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of Definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate Definitive Securities and deliver them in exchange for temporary
Securities upon surrender of such temporary Securities at the office or agency
of the Company, without charge to the Holder.
SECTION 2.10. Cancelation. The Company at any time may deliver
Securities to the Trustee for cancelation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel all
Securities surrendered for registration of transfer, exchange, payment or
cancelation and deliver canceled Securities to the Company pursuant to written
direction by an Officer. The Company may not issue new Securities to replace
Securities it has redeemed, paid or delivered to the Trustee for cancelation.
The Trustee shall not authenticate Securities in place of canceled Securities
other than pursuant to the terms of this Indenture.
SECTION 2.11. Defaulted Interest. If the Company defaults in a
payment of interest on the Securities, the Company shall pay the defaulted
interest (plus interest on such defaulted interest to the extent lawful) in any
lawful manner. The Company may pay the defaulted interest to the Persons who
are Securityholders on a subsequent special record date. The Company shall fix
or cause to be fixed any such special record date and payment date to the
reasonable satisfaction of the Trustee and shall promptly mail or cause to be
mailed to each Securityholder a notice that states the special record date, the
payment date and the amount of defaulted interest to be paid.
<PAGE>
30
SECTION 2.12. CUSIP Numbers. The Company in issuing the Securities
may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided, however, that any such notice may state that no representation is made
as to the correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee. If the Company elects to redeem
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date, the principal amount of Securities to
be redeemed and the paragraph of the Securities pursuant to which the redemption
will occur.
The Company shall give each notice to the Trustee provided for in this
Section at least 35 days before the redemption date unless the Trustee consents
to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption will comply with the conditions herein. If fewer than all the
Securities are to be redeemed, the record date relating to such redemption shall
be selected by the Company and given to the Trustee, which record date shall be
not fewer than 15 days after the date of notice to the Trustee. Any such notice
may be canceled at any time prior to notice of such redemption being mailed to
any Holder and shall thereby be void and of no effect.
SECTION 3.02. Selection of Securities To Be Redeemed. If less than
all of the Securities are to be redeemed at any time, selection of the
Securities for redemption shall be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Securities are listed or, if the Securities are not listed on a national
securities exchange, on a pro rata basis. The Trustee shall make the selection
from outstanding Securities not previously called for redemption. The Trustee
may select for redemption portions of the principal of Securities that have
denominations larger than $1,000. Securities and portions
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of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of
$1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or portions of
Securities to be redeemed.
SECTION 3.03. Notice of Redemption. At least 30 days but not more
than 60 days before a date for redemption of Securities, the Company shall mail
a notice of redemption by first-class mail to each Holder of Securities to be
redeemed at such Holder's registered address.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the certificate numbers and principal amounts of the particular Securities
to be redeemed;
(6) that, unless the Company defaults in making such redemption
payment or the Paying Agent is prohibited from making such payment pursuant
to the terms of this Indenture, interest on Securities (or portion thereof)
called for redemption ceases to accrue on and after the redemption date;
(7) the paragraph of the Securities pursuant to which the Securities
called for redemption are being redeemed;
(8) the CUSIP number, if any, printed on the Securities being
redeemed; and
(9) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
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At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest, if any, to the redemption
date; provided, however, that if the redemption date is after a regular record
date and on or prior to the interest payment date, the accrued interest shall be
payable to the Securityholder of the redeemed Securities registered on the
relevant record date. Failure to give notice or any defect in the notice to any
Holder shall not affect the validity of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. Prior to 11:00 a.m. on
the redemption date, the Company shall deposit with the Paying Agent (or, if the
Company or a Subsidiary is the Paying Agent, shall segregate and hold in trust)
money sufficient to pay the redemption price of and accrued interest on all
Securities to be redeemed on that date other than Securities or portions of
Securities called for redemption that have been delivered by the Company to the
Trustee for cancelation.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in principal amount to the unredeemed portion of the Security surrendered.
ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities. The Company shall promptly pay
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the case
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33
may be, is not prohibited from paying such money to the Securityholders on that
date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.02. Provisions of Reports and Other Information. At all
times while any Security is outstanding, the Company shall timely file with the
SEC and provide a copy to the Trustee and to each Securityholder all such
reports and other information as required by Section 13 or 15(d) of the Exchange
Act, including, without limitation, Forms 10-K, 10-Q and 8-K. At such time as
the Company is not subject to the reporting requirements of the Exchange Act,
promptly after the same would be required to be filed with the SEC if the
Company then were subject to Section 13 or 15(d) of the Exchange Act, the
Company shall file with the Trustee and supply to each Holder and, upon request,
to any prospective purchaser of Securities, without cost, copies of its
financial statements and certain other reports or information comparable to that
which the Company would have been required to report pursuant to Sections 13 and
15(d) of the Exchange Act, including, without limitation, the information that
would be required by Forms 10-K, 10-Q and 8-K. The Company also shall comply
with the other provisions of TIA Section 314(a).
SECTION 4.03. Limitation on Additional Indebtedness. (a) The
Company shall not, and shall not permit any of its Restricted Subsidiaries,
directly or indirectly, to create or Incur any Indebtedness; provided, however,
the Company may Incur Indebtedness if, after giving pro forma effect to the
Incurrence of such Indebtedness and the application of any of the proceeds
therefrom to repay Indebtedness, the Consolidated Cash Interest Coverage Ratio
of the Company for the four most recent consecutive fiscal quarters for which
financial statements are available prior to the date such additional
Indebtedness is Incurred shall be at least (i) 2.00 to 1.00x if such
Indebtedness is Incurred on or prior to the second anniversary of the Closing
Date and (ii) 2.25 to 1.00x if such Indebtedness is Incurred thereafter. Any
Indebtedness or Capital Stock of a Person existing at the time such Person
becomes a Subsidiary of the Company (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Person at the
time it becomes a Subsidiary of the Company.
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(b) Notwithstanding Section 4.03(a), the Company and its Restricted
Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness under the New Credit Agreement and any replacements,
refundings, refinancings and substitute facility or facilities thereof, in
whole or in part, and additional facility or facilities (provided that
Indebtedness under the New Credit Agreement and any such replacements,
refundings, refinancings and substitute and additional facility or
facilities, including unused commitments, shall not at any time exceed
$700 million in aggregate outstanding principal amount (including the
available undrawn amount of any letters of credit issued under the New
Credit Agreement and any such replacements, refundings, refinancings, and
substitute and additional facility or facilities));
(ii) Indebtedness of the Company and its Restricted Subsidiaries,
which Indebtedness is in existence on the Closing Date (including any
existing or future Guarantees of the Company's 11.25% Series A Senior
Subordinated Notes due 2004, but excluding Indebtedness permitted by
clause (i) above);
(iii) Indebtedness represented by the Securities;
(iv) Indebtedness of the Company and its Restricted Subsidiaries
Incurred in exchange for, or the proceeds of which are used to Refinance,
in whole or in part, Indebtedness (subject to the following proviso,
"Refinancing Indebtedness") permitted by clauses (ii) and (iii) of this
Section 4.03(b); provided, however, that (A) the principal amount of such
Refinancing Indebtedness shall not exceed the principal amount of
Indebtedness (including unused commitments) so Refinanced (plus costs of
issuance), (B) such Refinancing Indebtedness ranks, relative to the
Securities, no more senior than the Indebtedness being Refinanced thereby
(excluding the effect of the granting of security for any Senior
Indebtedness), (C) such Refinancing Indebtedness bears interest at a market
rate, (D) such Refinancing Indebtedness (1) shall have an Average Life
equal to or greater than the Average Life of the Indebtedness being
Refinanced and (2) shall not have a Stated Maturity prior to the Stated
Maturity of the Indebtedness being Refinanced, (E) such Refinancing
Indebtedness shall not include (x) Indebtedness of a Restricted Subsidiary
(other than
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Guarantees by a Restricted Subsidiary of (i) Senior Indebtedness or
(ii) Refinancing Indebtedness the proceeds of which are used to Refinance
Indebtedness that was Guaranteed by such Restricted Subsidiary) that
Refinances Indebtedness of the Company or (y) Indebtedness of the Company
or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary;
(v) Indebtedness of the Company or any Restricted Subsidiary to any
Restricted Subsidiary or to the Company; provided, however, that any
subsequent issuance or transfer of any Capital Stock or any other event
that results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of any such Indebtedness (except to
the Company or a Restricted Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the issuer thereof;
(vi) Indebtedness arising from Guarantees, letters of credit, and bid,
performance or surety bonds or similar bonds or instruments securing any
obligations of the Company or any Restricted Subsidiary Incurred in the
ordinary course of business, which Guarantees, letters of credit, bonds or
similar instruments do not secure other Indebtedness;
(vii) Indebtedness (including Capital Lease Obligations) Incurred by
the Company or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal) (whether through the
direct purchase, lease or improvement of assets or purchase of the Equity
Interests of any Person owning such assets) in an aggregate principal
amount outstanding not to exceed 5% of Total Assets of the Company at the
time of any Incurrence thereof (including any Refinancing Indebtedness with
respect thereto);
(viii) Non-Recourse Indebtedness Incurred in connection with the
acquisition of real and/or personal property by the Company or its
Restricted Subsidiaries; provided that such Indebtedness was in existence
prior to the time of such acquisition and was not Incurred by the Person
from whom such property was acquired in contemplation of such acquisition
or in order to provide all or any portion of the funds or credit support
utilized to consummate such acquisition;
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(ix) Guarantees of any Senior Indebtedness;
(x) Indebtedness under Hedging Obligations entered into for bona fide
hedging purposes of the Company and not for speculative purposes; provided,
however, that such Hedging Obligations do not increase the Indebtedness of
the Company outstanding at any time other than as a result of fluctuations
in foreign currency exchange rates or interest rates, as applicable, or by
reason of fees, indemnities and compensation payable thereunder; and
(xi) Indebtedness other than that permitted pursuant to clauses (i)
through (x) of this Section 4.03(b) provided that the aggregate outstanding
amount of such additional Indebtedness does not at any time exceed
$50 million, all or any portion of which Indebtedness, notwithstanding
clause (i) above, may be Incurred pursuant to the New Credit Agreement and
any replacements, refinancings, refundings, and substitute facility or
facilities thereof, in whole or in part, and additional facility or
facilities.
(c) The Company shall not Incur any Indebtedness pursuant to Section
4.03(a) or 4.03(b) if such Indebtedness is subordinate or junior in ranking in
any respect to any Senior Indebtedness unless such Indebtedness is Senior
Subordinated Indebtedness or is expressly subordinated in right of payment to
Senior Subordinated Indebtedness.
SECTION 4.04. Limitation on Restricted Payments. (a) The Company
shall not, and shall not permit any of its Restricted Subsidiaries to, directly
or indirectly, (i) declare or pay any dividend or make any distribution on or in
respect of the Company's or any of its Restricted Subsidiaries' Capital Stock or
other Equity Interests, including any such payment in connection with any merger
or consolidation (other than dividends or distributions payable to the Company
or any of its Restricted Subsidiaries or payable in shares of Capital Stock or
other Equity Interests of the Company other than Redeemable Stock);
(ii) purchase, repurchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any of its Subsidiaries from any Person
(other than from the Company or any of its Restricted Subsidiaries);
(iii) purchase, repurchase, redeem, prepay, defease or otherwise acquire or
retire for value (A) any Subordinated Obligations prior to scheduled maturity,
repayment or sinking fund payment or (B) any Indebtedness of any Unrestricted
Subsidiary; or (iv) make any Investment other than a Permitted Investment
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(the foregoing actions set forth in clauses (i) through (iv) being referred to
as "Restricted Payments"), if at the time the Company or such Restricted
Subsidiary makes such Restricted Payment:
(1) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof; or
(2) such Restricted Payment (the amount so expended, if other than in
cash and if greater than $20 million, to be determined in good faith by the
Board of Directors, whose determination shall be conclusive and evidenced
by a resolution of the Board of Directors), together with the aggregate of
all other Restricted Payments made on or after the Closing Date, exceeds
the sum of:
(A) $15 million;
(B) 50% of the Consolidated Net Income of the Company accrued on
a cumulative basis for the period beginning on the first day of the
first month following the Closing Date and ending on the last day of
the last month immediately preceding the month in which such
Restricted Payment occurs (or, if aggregate cumulative Consolidated
Net Income for such period is a deficit, minus 100% of such deficit);
(C) 100% of the aggregate net cash proceeds received by the
Company after the Closing Date from the issuance or sale of Capital
Stock or other Equity Interests of the Company (other than such
Capital Stock or other Equity Interests issued or sold to a Subsidiary
of the Company or an employee stock ownership plan or similar trust
established by the Company or any of its Subsidiaries and other than
Redeemable Stock);
(D) the aggregate net cash proceeds received on or after the
Closing Date by the Company from the issuance or sale of debt
securities of the Company that have subsequently been converted into
or exchanged for Capital Stock or other Equity Interests of the
Company (other than Redeemable Stock) plus the aggregate net cash
proceeds received by the Company at the time of such conversion or
exchange less the amount of any cash or other property distributed by
the Company or
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any Restricted Subsidiary upon such conversion or exchange;
(E) 100% of the aggregate net cash proceeds received by the
Company after the Closing Date upon the exercise of options, warrants
or similar instruments or rights (whether issued prior to or after the
Closing Date) to purchase the Company's Capital Stock (other than
Redeemable Stock); and
(F) 100% of the aggregate net cash proceeds received by the
Company or any Restricted Subsidiary after the Closing Date from
(i) the sale or other disposition of Investments (other than Permitted
Investments) made by the Company and its Restricted Subsidiaries in an
Unrestricted Subsidiary or (ii) a dividend from, or the sale of the
stock of, an Unrestricted Subsidiary; or
(3) the Company would not be permitted to Incur $1.00 of additional
Indebtedness pursuant to Section 4.03(a).
(b) The provisions of Section 4.04(a) shall not prohibit:
(i) so long as no Default or Event of Default has occurred and is
continuing or would result therefrom, the payment of any dividend within
60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of this
Indenture;
(ii) to the extent required under applicable law, rule, order or
regulation or if the failure to do so would create a material risk of
disqualification of the ESOP under the Internal Revenue Code, the
acquisition by the Company of its common stock from the ESOP or from
participants and beneficiaries of the ESOP;
(iii) the acquisition or retirement of Capital Stock of the Company
held by any future, present or former employee, director or consultant of
the Company or any Subsidiary of the Company pursuant to any management or
employee equity, stock option or other benefit plan or any other agreement
in an amount not to exceed $5 million in any fiscal year;
(iv) the acquisition by the Company or any of its Restricted
Subsidiaries of Equity Interests of the
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Company or such Restricted Subsidiary, if the exclusive consideration for
such acquisition is the issuance by the Company or such Restricted
Subsidiary of its Equity Interests (other than Redeemable Stock);
(v) the purchase, redemption or acquisition by the Company of rights
under the Rights Plan prior to such time as such rights have become
exercisable not to exceed $2 million in the aggregate;
(vi) the redemption, repurchase, acquisition or retirement of
Indebtedness of the Company or its Restricted Subsidiaries being
concurrently Refinanced by Refinancing Indebtedness permitted under
Section 4.03;
(vii) the purchase, repayment, redemption, prepayment, defeasance,
acquisition or retirement of any Indebtedness, if the exclusive
consideration therefor is the issuance by the Company of its Equity
Interests (other than Redeemable Stock);
(viii) the redemption, repurchase, acquisition or retirement of Equity
Interests in a Permitted Joint Venture of the Company or of a Restricted
Subsidiary, provided that (A) if the Company or any of its Restricted
Subsidiaries incurs Indebtedness in connection with such redemption,
repurchase, acquisition or retirement, after giving effect to such
incurrence and such redemption, repurchase, acquisition or retirement, the
Company could Incur $1.00 of additional Indebtedness pursuant to
Section 4.03(a) and (B) no Default or Event of Default has occurred and is
continuing or would result therefrom;
(ix) dividend payments to the holders of interests in Permitted Joint
Ventures of the Company or of a Restricted Subsidiary, ratably in
accordance with their respective Equity Interests or, if not ratably, then
in accordance with the priorities set forth in the respective
organizational documents for, and agreements among holders of Equity
Interests in, such Permitted Joint Ventures;
(x) the acquisition or retirement of options, warrants and similar
instruments and rights upon the exercise thereof;
(xi) any purchase, redemption or other acquisition of Equity Interests
of a Healthcare Service Business
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which is required by applicable law, regulation, rule, order, approval,
license, permit or similar restriction (in each case issued by a
governmental authority) to be purchased, redeemed or otherwise acquired by
the Company or one of its Restricted Subsidiaries;
(xii) the acquisition or retirement for value of any Equity Interests
of the Company, or the making of any Investments in Charter Behavioral
Health Systems, LLC or any Subsidiaries of Charter Behavioral Health
Systems, LLC consisting of loans, advances, or other extensions of credit,
in any case as acquired, retired or made as part of the consideration for
the sale by the Company of Equity Interests in Charter Behavioral Health
Systems, LLC and certain Subsidiaries and joint ventures of the Company and
related transactions, where the aggregate value of such Equity Interests of
the Company and the aggregate amount of such Investments do not
collectively exceed a total of $40 million; or
(xiii) other Restricted Payments (excluding Investments that were
Restricted Payments when made but are no longer outstanding at the time of
determination of Restricted Payments permitted by this clause (xiii), but
not excluding Investments made in accordance with this clause (xiii) that
are subsequently sold or otherwise disposed of, to the extent such sale or
other disposition increases the amount of Restricted Payments permitted to
be made in accordance with Section 4.04(a)(2)(F)) made after the Closing
Date in an aggregate amount not to exceed $25 million.
(c) The Company shall deliver to the Trustee within 60 days after the
end of each of the Company's first three fiscal quarters (and 120 days after the
end of the Company's fiscal year) in which a Restricted Payment is made under
Section 4.04(a), an Officers' Certificate setting forth each Restricted Payment
made in such fiscal quarter, stating that each such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
Section 4.04 were computed, which calculations may be based on the Company's
financial statements included in filings required under the Exchange Act for
such quarter or such year. For purposes of calculating the aggregate amount of
Restricted Payments that are permitted under Section 4.04(a)(2), the amounts
expended for Restricted Payments permitted under clauses (ii) through (xiii) of
Section 4.04(b) shall be excluded.
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SECTION 4.05. Limitation on Payment Restrictions Affecting Restricted
Subsidiaries. The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, from and after the Closing Date, directly or indirectly, create
or otherwise cause or permit to exist or become effective or enter into any
consensual encumbrance or consensual restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions on
its Equity Interests, the Equity Interests of any of its Restricted Subsidiaries
or on any other interest or participation in, or measured by, its profits, which
interest or participation is owned by the Company or any of its Restricted
Subsidiaries; (ii) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries; (iii) make loans or advances to the Company or any of
its Restricted Subsidiaries; or (iv) sell, lease or transfer any of its
properties or assets to the Company or any of its Restricted Subsidiaries
except, in each case, for such encumbrances or restrictions existing under or by
reason of:
(1) applicable law, regulation, rule, order, approval, license, permit
or similar restriction, in each case issued by a governmental authority;
(2) this Indenture and the Securities;
(3) contractual encumbrances or restrictions in effect on the Closing
Date, including, without limitation, pursuant to the New Credit Agreement
and its related documentation;
(4) in the case of clause (iv) of this Section 4.05, by reason of
customary non-assignment or subletting provisions in leases entered into in
the ordinary course of business;
(5) Prior Purchase Money Obligations;
(6) Indebtedness or Capital Stock of Restricted Subsidiaries that are
acquired by or merged with or into the Company or any of its Restricted
Subsidiaries after the Closing Date; provided that such Indebtedness or
Capital Stock is in existence prior to the time of such acquisition or
merger and was not incurred, assumed or issued by the Person so acquired or
merged in contemplation of such acquisition or merger or to provide all or
any portion of the funds or credit support utilized to consummate such
acquisition or merger; provided further that such restrictions only
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apply to such Restricted Subsidiary and its Subsidiaries;
(7) contracts for the sale of assets not otherwise prohibited by this
Indenture, including without limitation customary restrictions with respect
to a Subsidiary pursuant to an agreement that has been entered into for the
sale or disposition of all or substantially all of the Capital Stock or
assets of such Subsidiary;
(8) in the case of clause (iv) of this Section 4.05, Secured
Indebtedness otherwise permitted to be Incurred pursuant to Section 4.03
and Section 4.11 that limits the right of the debtor to sell, lease,
transfer or otherwise dispose of the assets securing such Indebtedness;
(9) customary provisions contained in leases or other agreements
entered into in the ordinary course of business or in Indebtedness
permitted to be Incurred subsequent to the Closing Date pursuant to
Section 4.03, in each case which do not limit the ability of any Restricted
Subsidiary to take any of the actions described in clauses (i) through (iv)
of this Section 4.05 with respect to a material amount of dividends,
distributions, Indebtedness, loans, advances or sales, leases or transfers
of properties or assets, as applicable;
(10) provisions in joint venture agreements and other similar
agreements in each case related to Permitted Joint Ventures of the Company
or of a Restricted Subsidiary that are materially similar to customary
provisions entered into by parties to joint ventures in the Healthcare
Service Business at the time of such joint venture or similar agreement;
(11) restrictions on cash or other deposits or net worth or similar
type restrictions imposed by customers under contracts entered into in the
ordinary course of business; and
(12) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of the contracts, instruments or obligations
referred to in clauses (1) through (11) of this Section 4.05, in whole or
in part, provided that such amendments, modifications, restatements,
renewals,
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increases, supplements, refundings, replacements or refinancings are not
materially more restrictive with respect to such dividend and other payment
restrictions than those contained in the dividend or other payment
restrictions prior to such amendment, modification, restatement, renewal,
increase, supplement, refunding, replacement or refinancing.
SECTION 4.06. Limitation on Use of Proceeds from Asset Sales.
(a) The Company and its Restricted Subsidiaries shall not, directly or
indirectly, consummate any Asset Sale with or to any Person other than the
Company or a Restricted Subsidiary, unless (i) the Company or such Restricted
Subsidiary, as the case may be, receives consideration at the time of any such
Asset Sale at least equal to the fair market value of the asset sold or
otherwise disposed of, (ii) at least 70% of the net proceeds from such Asset
Sale are received in Cash at closing (unless (A) such Asset Sale is a lease, or
(B) such Asset Sale is in connection with the creation of, Investment in, or
issuance or sale of Equity Interests by, a Permitted Joint Venture of the
Company or of a Restricted Subsidiary or other Permitted Investment) and
(iii) with respect to any Asset Sale involving the Equity Interest of any
Restricted Subsidiary (unless such Restricted Subsidiary is, or as a result of
such Asset Sale would be, a Permitted Joint Venture of the Company or of a
Restricted Subsidiary or other Permitted Investment), the Company shall sell all
of the Equity Interests of such Restricted Subsidiary it owns. Within 365 days
after the receipt of Net Cash Proceeds in respect of any Asset Sale, the Company
must use all such Net Cash Proceeds either to invest in properties and assets
used in a Healthcare Service Business (including, without limitation, a capital
investment in any Person which becomes a Restricted Subsidiary) or to reduce
Senior Indebtedness; provided that when any non-Cash proceeds are liquidated,
such proceeds (to the extent they are Net Cash Proceeds) will be deemed to be
Net Cash Proceeds at that time. When the aggregate amount of Excess Proceeds
(as defined below) exceeds $20 million, the Company shall make an offer (the
"Excess Proceeds Offer") to apply the Excess Proceeds to repurchase the
Securities at a purchase price equal to 100% of the principal amount of such
Securities, plus accrued and unpaid interest to the date of purchase (the
"Excess Proceeds Purchase Price"), in accordance with the terms contemplated in
Section 4.06(b). To the extent that the aggregate principal amount of the
Securities (plus accrued interest thereon) tendered pursuant to the Excess
Proceeds Offer is less than the Excess Proceeds, the Company may use such
deficiency, or a portion thereof, for general corporate
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purposes. If the aggregate principal amount of the Securities surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Company shall select
the Securities to be purchased in accordance with the procedures described under
Section 3.02. "Excess Proceeds" shall mean any Net Cash Proceeds from an Asset
Sale that is not invested or used to reduce Senior Indebtedness as provided in
the second sentence of this paragraph. Notwithstanding the foregoing, any Asset
Sale which results in Net Cash Proceeds of less than $5 million and all Asset
Sales (including any Asset Sale which results in Net Cash Proceeds of less than
$5 million) in any twelve consecutive-month period which result in Net Cash
Proceeds of less than $10 million in the aggregate shall not be subject to the
requirement of Section 4.06(a)(ii).
(b) Within 10 days following the occurrence of an event which
mandates an Excess Proceeds Offer under Section 4.06(a), the Company shall mail
a notice (along with any other instructions determined by the Company,
consistent with this Section 4.06, that a Holder must follow in order to have
its Securities purchased) to the Trustee and to each Holder stating:
(1) that the Excess Proceeds Offer is being made pursuant to this
Section 4.06 and that all Securities tendered and not subsequently
withdrawn will be accepted for payment and paid for by the Company;
(2) the Excess Proceeds Purchase Price and the purchase date (which
shall not be less than 30 days nor more than 60 days after the date such
notice is mailed) (the "Excess Proceeds Offer Payment Date");
(3) that any Security not tendered shall continue to accrue interest
and shall continue to be governed by the terms of this Indenture in all
respects;
(4) that, unless the Company defaults in the payment thereof, all
Securities accepted for payment pursuant to the Excess Proceeds Offer shall
cease to accrue interest on and after the Excess Proceeds Offer Payment
Date;
(5) that Holders electing to have any Securities purchased pursuant to
an Excess Proceeds Offer will be required to surrender the Securities to be
purchased to the Paying Agent at the address specified in the notice prior
to the close of business on the Business Day next
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45
preceding the respective Excess Proceeds Offer Payment Date;
(6) that Holders will be entitled to withdraw their election on the
terms and conditions set forth in such notice; and
(7) that Holders whose Securities are being purchased only in part
will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered; provided that each Security
purchased and each such new Security issued shall be in a principal amount
of $1,000 or integral multiples thereof.
(c) Holders electing to have a Security purchased shall be required
to surrender the Security, with an appropriate form duly completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the Business Day next preceding the Excess Proceeds Offer Payment
Date. Holders shall be entitled to withdraw their election if the Trustee or
the Company receives not later than one Business Day prior to the purchase date
a telegram, telex, facsimile transmission or letter setting forth the name of
the Holder, the principal amount of the Security which was delivered for
purchase by the Holder and a statement that such Holder is withdrawing his
election to have such Security purchased.
(d) On (or, in the case of clause (ii) of this Section 4.06(d), at
the Company's election, before) the Excess Proceeds Offer Payment Date, the
Company shall (i) accept for payment all Securities or portions thereof tendered
and not theretofore withdrawn and which are selected for repurchase pursuant to
the Excess Proceeds Offer, (ii) deposit with the Paying Agent immediately
available funds sufficient to pay the Excess Proceeds Purchase Price of all
Securities or portions thereof accepted for payment, and (iii) deliver or cause
to be delivered to the Trustee all Securities so tendered, together with an
Officers' Certificate specifying the Securities or portions thereof tendered to
the Company or the Paying Agent. The Paying Agent shall promptly mail or
deliver to each holder of Securities so tendered payment in an amount equal to
the Excess Proceeds Purchase Price for such Securities, and the Trustee shall
promptly authenticate and mail or deliver to such Holder one or more
certificates evidencing new Securities equal in aggregate principal amount to
any unpurchased portion of the Securities surrendered; provided that each such
new Security shall be
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46
in a principal amount of $1,000 or integral multiples thereof.
(e) The Company shall comply with the requirements of Regulation 14E
and Rule 13e-4 (other than the filing requirements of such rule) 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 Securities pursuant to an Excess Proceeds Offer. To the
extent that the provisions of any such securities laws or regulations conflict
with provisions of this Section, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section by virtue thereof.
SECTION 4.07. Limitation on Transactions with Affiliates. (a) The
Company shall not, and shall not permit any of its Restricted Subsidiaries to,
directly or indirectly, enter into or conduct any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") (i) on
terms that are materially less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the time of
such transaction in arm's-length dealings with a Person who is not such an
Affiliate and (ii) that, in the event such Affiliate Transaction involves an
aggregate amount in excess of $15 million, is not in writing and has not been
approved by a majority of the Disinterested Directors. In addition, if such
Affiliate Transaction involves an amount in excess of $30 million, a fairness
opinion must be provided by a nationally recognized appraisal or investment
banking firm.
(b) The provisions of Section 4.07(a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to Section 4.04, (ii) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of Directors,
(iii) loans or advances to employees in the ordinary course of business in
accordance with past practices of the Company, but in any event not to exceed
$7.5 million in the aggregate outstanding at any one time, (iv) the payment of
reasonable fees to directors of the Company and its Subsidiaries who are not
employees of the Company or its Subsidiaries, (v) any transaction between the
Company and a Restricted Subsidiary or between Restricted Subsidiaries or (vi)
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47
arrangements in existence as of the date hereof with Persons that employ staff
providers and which provide service exclusively on behalf of the Company and its
Subsidiaries, which arrangements are not material to the Company and its
Subsidiaries taken as a whole.
SECTION 4.08. Change of Control. (a) Upon the occurrence of a
Change of Control, each Holder shall have the right to require that the Company
repurchase all or any part of such Holder's Securities (the "Change of Control
Offer") at a purchase price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date), in accordance with
the terms contemplated in Section 4.08(b); provided, however, that
notwithstanding the occurrence of a Change in Control, the Company shall not be
obligated to purchase the Securities pursuant to this Section 4.08 in the event
that it has exercised its right to redeem all the Securities under paragraph 5
of the Securities. In the event that at the time of such Change of Control the
terms of the Bank Indebtedness restrict or prohibit the repurchase of Securities
pursuant to this Section 4.08, then prior to the mailing of the notice to
Holders provided for in Section 4.08(b), the Company shall (i) repay in full all
Bank Indebtedness or offer to repay in full all Bank Indebtedness and repay the
Bank Indebtedness of each lender who has accepted such offer or (ii) (x) obtain
any requisite consent under the agreements governing the Bank Indebtedness to
permit the repurchase of Securities as provided for in this Section 4.08 or (y)
deliver to the Trustee an Officers' Certificate stating that no such consent is
required.
(b) Within 10 days following any Change of Control (except as
provided in the proviso to the first sentence of Section 4.08(a)), the Company
shall mail a notice (along with any other instructions determined by the
Company, consistent with this Section 4.08, that a Holder must follow in order
to have its Securities purchased) to the Trustee and to each Holder stating:
(1) that the Change of Control Offer is being made pursuant to
Section 4.08 of this Indenture and that all Securities tendered and not
subsequently withdrawn shall be accepted for payment and paid for by the
Company;
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48
(2) the purchase price and the purchase date (which shall not be less
than 30 days nor more than 60 days after the date such notice is mailed)
(the "Change of Control Payment Date");
(3) that any Security not tendered shall continue to accrue interest
and shall continue to be governed by the terms of this Indenture in all
respects;
(4) that, unless the Company defaults in the payment thereof, all
Securities accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest on and after the Change of Control Payment
Date;
(5) that Holders electing to have any Securities purchased pursuant to
a Change of Control Offer will be required to surrender the Securities to
be purchased to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day next preceding the
Change of Control Payment Date;
(6) that Holders shall be entitled to withdraw their election on the
terms and conditions set forth in such notice;
(7) that Holders whose Securities are being purchased only in part
shall be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered; provided that each Security
purchased and each such new Security issued shall be in a principal amount
of $1,000 or integral multiples thereof; and
(8) the circumstances and relevant facts as determined by the Company
regarding such Change of Control.
(c) Holders electing to have a Security purchased shall be required
to surrender the Security, with an appropriate form duly completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the Business Day next preceding the Change of Control Payment Date.
Holders shall be entitled to withdraw their election if the Trustee or the
Company receives not later than one Business Day prior to the purchase date a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Security which was delivered for purchase by
the Holder and
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49
a statement that such Holder is withdrawing his election to have such Security
purchased.
(d) On (or, in the case of clause (ii) of this Section 4.08(d), at
the Company's election, before) the Change of Control Payment Date, the Company
shall (i) accept for payment all Securities or portions thereof tendered and not
theretofore withdrawn, pursuant to the Change of Control Offer, (ii) deposit
with the Paying Agent immediately available funds sufficient to pay the purchase
price of all Securities or portions thereof accepted for payment, and
(iii) deliver or cause to be delivered to the Trustee all Securities so
tendered, together with an Officers' Certificate specifying the Securities or
portions thereof tendered to the Company or the Paying Agent. The Paying Agent
shall promptly mail or deliver to each Holder of Securities so tendered payment
in an amount equal to the purchase price for such Securities, and the Trustee
shall promptly authenticate and mail or deliver to such Holder one or more
certificates evidencing new Securities equal in aggregate principal amount to
any unpurchased portion of the Securities surrendered; provided that each such
new Security shall be in a principal amount of $1,000 or integral multiples
thereof. The Company shall publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
(e) Notwithstanding the foregoing provisions of this Section, the
Company will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in
Section 4.08(b) applicable to a Change of Control Offer made by the Company and
purchases all Securities validly tendered and not withdrawn under such Change of
Control Offer.
(f) The Company shall comply with the requirements of Regulation 14E
and Rule 13e-4 (other than the filing requirements of such rule) under the
Exchange Act, and any other securities laws and regulations thereunder that are
applicable in connection with the repurchase of the Securities resulting from a
Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Section by virtue thereof.
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50
SECTION 4.09. Compliance Certificate. The Company shall deliver to
the Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate stating that in the course of the performance by the
signers of their duties as Officers of the Company they would normally have
knowledge of any Default and whether or not the signers know of any Default that
occurred during such period. If they do, the certificate shall describe the
Default, its status and what action the Company is taking or proposes to take
with respect thereto. The Company also shall comply with Section 314(a)(4) of
the TIA.
SECTION 4.10. Further Instruments and Acts. Upon request of the
Trustee, the Company shall execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.11. Limitation on Liens. The Company shall not, and shall
not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, assume or suffer to exist any Lien on any of their respective
assets, now owned or hereafter acquired, securing any Indebtedness that is pari
passu with or subordinated in right of payment to the Securities, unless the
Securities are equally and ratably secured; provided that if such Indebtedness
is by its terms expressly subordinate or junior in right of payment to the
Securities, the Lien securing such subordinate or junior Indebtedness shall be
subordinate and junior to the Lien securing the Securities with the same
relative priority as such subordinated or junior Indebtedness shall have with
respect to the Securities. The Company and its Restricted Subsidiaries may at
any time, directly or indirectly, create, incur, assume or suffer to exist any
Lien on any of their respective assets, now owned or hereafter acquired,
securing any Senior Indebtedness permitted under Section 4.03.
ARTICLE 5
Successor Company
SECTION 5.01. Merger, Consolidation or Sale of Assets. (a) The
Company shall not consolidate with, merge with or into, or transfer all or
substantially all of its assets (in one transaction or a series of related
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51
transactions) to, any Person or permit any party to merge with or into it
unless:
(i) the Company shall be the continuing Person, or the Person (if
other than the Company) (the "Successor Company") formed by such
consolidation or into or with which the Company is merged or to which the
properties and assets of the Company are transferred shall be a corporation
organized and existing under the laws of the United States or any State
thereof or the District of Columbia and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all of the obligations of the Company under
the Securities and this Indenture and this Indenture remains in full force
and effect;
(ii) immediately before and immediately after giving effect to such
transaction (and treating any Indebtedness which becomes an obligation of
the Company, the Successor Company or any Restricted Subsidiary as a result
of such transaction as having been incurred by the Company, the Successor
Company or such Restricted Subsidiary at the time of such transaction), no
Event of Default or Default shall have occurred and be continuing;
(iii) except in the case of a merger of the Company with a
Wholly-owned Subsidiary (which does not have assets or liabilities in
excess of $1 million) of a newly-formed holding company for the sole
purpose of forming a holding company structure, the Company or the
Successor Company, as applicable, could, after giving pro forma effect to
such transaction, Incur $1.00 of Indebtedness pursuant to Section 4.03(a);
and
(iv) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture (provided that the Opinion of Counsel will not
be required to cover compliance with any financial tests or financial
covenants).
(b) Notwithstanding clauses (ii) and (iii) of Section 5.01(a),
(a) any Restricted Subsidiary may consolidate with, merge into or transfer all
or part of its properties and assets to the Company or another Restricted
Subsidiary and (b) the Company may merge with an Affiliate
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52
incorporated solely for the purpose of reincorporating the Company in another
jurisdiction.
(c) The Successor Company shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under this Indenture, and
the predecessor Company in the case of a conveyance, transfer or lease of all or
substantially all its assets shall be released from all obligations under this
Indenture, including, without limitation, any obligation to pay the principal of
and interest on the Securities.
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default. An "Event of Default" occurs if:
(1) the Company defaults in any payment of interest on any Security
when the same becomes due and payable, whether or not such payment shall be
prohibited by Article 10, and such default continues for a period of
30 days;
(2) the Company (i) defaults in the payment of the principal of any
Security when the same becomes due and payable at its Stated Maturity, upon
redemption, upon acceleration or otherwise, whether or not such payment
shall be prohibited by Article 10 or (ii) fails to redeem or purchase
Securities when required pursuant to this Indenture or the Securities,
whether or not such redemption or purchase shall be prohibited by Article
10;
(3) the Company fails to comply with Section 5.01;
(4) the Company fails to comply in any respect with any of its
agreements in the Securities or this Indenture (other than those referred
to in (1), (2) or (3) above) and such failure continues for 30 days after
receipt of the notice specified in the penultimate paragraph of this
Section 6.01;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company or
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53
any of its Restricted Subsidiaries) whether such Indebtedness is now
existing or hereafter created, which default results from the failure to
pay any such Indebtedness at its stated final maturity or results in the
acceleration of such Indebtedness prior to its stated final maturity and
the aggregate principal amount of such Indebtedness is at least
$20 million, or the principal amount of such Indebtedness, together with
the principal amount of any other such Indebtedness the maturity of which
has been accelerated, aggregates $35 million or more;
(6) the Company or any Restricted Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(7) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Restricted
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any Restricted
Subsidiary or for any substantial part of its property; or
(C) orders the winding up or liquidation of the Company or any
Restricted Subsidiary;
or any similar relief is granted under any foreign laws, and in each case
the order or decree remains unstayed and in effect for 60 days;
(8) the Company or any Restricted Subsidiary fails to pay final
judgments aggregating in excess of
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54
$20 million which judgments are not paid, discharged or stayed within
60 days after their entry.
The foregoing shall constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
A Default under clause (4) is not an Event of Default until the
Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding Securities notify the Company of the Default and the Company does
not cure such Default within the time specified after receipt of such notice.
Such notice must be in writing and specify the Default, demand that it be
remedied and state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after
becoming aware of the occurrence thereof, written notice in the form of an
Officers' Certificate of any Event of Default and any event which with the
giving of notice or the lapse of time would become an Event of Default, its
status and what action the Company is taking or proposes to take with respect
thereto.
SECTION 6.02. Acceleration. If an Event of Default (other than an
Event of Default specified in Section 6.01(6) or (7) with respect to the
Company) occurs and is continuing, the Trustee by notice to the Company, or the
Holders of at least 25% of the principal amount of the Securities then
outstanding, by written notice to the Company (and to the Trustee if such notice
is given by such Holders) (the "Acceleration Notice"), may, and the Trustee at
the request of such Holders shall, declare all unpaid principal of, and accrued
interest on, such Securities to be due and payable immediately. Upon a
declaration of acceleration, such principal and accrued interest shall be due
and payable. If an Event of Default specified in Section 6.01(6) or (7) with
respect to the Company occurs, all unpaid principal of and accrued interest on
the Securities then outstanding shall ipso facto become and be immediately due
and payable without any declaration or other
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55
act on the part of the Company, the Trustee or any Holder. The Holders of a
majority of the aggregate principal amount of the Securities outstanding by
notice to the Trustee may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of acceleration. No such rescission
shall affect any subsequent Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
aggregate principal amount of the outstanding Securities by notice to the
Trustee may waive an existing Default or Event of Default and its consequences,
except (i) a Default in the payment of the principal of or interest on a
Security or (ii) a Default in respect of a provision that under Section 9.02
cannot be amended without the consent of each Securityholder affected. When a
Default or Event of Default is waived, it is cured and ceases to exist, but no
waiver shall extend to any subsequent or other Default or impair any consequent
right.
SECTION 6.05. Control by Majority. The Holders of a majority in
principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.01, that the Trustee determines is unduly prejudicial to
the rights of other Securityholders or would involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
proper by the Trustee that is not inconsistent with such direction. Prior to
taking any
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56
action hereunder, the Trustee shall be entitled to indemnification by the
Securityholders satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
SECTION 6.06. Limitation on Suits. Except to enforce the right to
receive payment of principal or interest when due, no Securityholder may pursue
any remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the Securities
outstanding make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee indemnity or security
satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 30 days after
receipt thereof and the offer of indemnity or security; and
(5) during such 30-day period the Holders of a majority of the
aggregate principal amount of the outstanding Securities do not give the
Trustee a direction which is inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder to receive
payment of principal of and liquidated damages and interest on the Securities
held by such Holder, on or after the respective due dates expressed in the
Securities, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default
specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together
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57
with interest on any unpaid interest to the extent lawful) and the amounts
provided for in Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, any Subsidiary,
their creditors or their property and, unless prohibited by law or applicable
regulations, may vote on behalf of the Holders in any election of a trustee in
bankruptcy or other Person performing similar functions, and may become a
member, voting or nonvoting, of any committee of creditors appointed in any such
judicial proceedings. Any Custodian in any such judicial proceeding is hereby
authorized by each Holder to make payments to the Trustee and, in the event that
the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and its counsel, and any other amounts due the Trustee under Section 7.07.
SECTION 6.10. Priorities. If the Trustee collects any money or
property pursuant to this Article 6, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to Holders of Senior Indebtedness of the Company to the
extent required by Article 10;
THIRD: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, and any liquidated damages
without preference or priority of any kind, according to the amounts due
and payable on the Securities for principal, any liquidated damages and
interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the Trustee shall mail to each Securityholder and the Company a notice
that states the record date, the payment date and amount to be paid.
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58
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of
more than 10% in principal amount of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the
extent it may lawfully do so) shall 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 (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or impede the execution
of any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been enacted.
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the
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59
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
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SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any
document believed by it to be genuine and to have been signed or presented by
the proper person. The Trustee need not investigate any fact or matter
stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel (provided that the Opinion of
Counsel will not be required to cover compliance with any financial tests or
financial covenants). The Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on the Officers' Certificate
or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute
wilful misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or opinion of
counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder
in good faith and in accordance with the advice or opinion of such counsel.
(f) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other paper or document unless requested in writing to do
so by the Holders of not less than a majority in principal amount of the
Securities at the time outstanding, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as it
may see fit, and, if the Trustee shall determine to make such further inquiry
or investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney, upon reasonable
notice to the Company and during normal business hours.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become
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the owner or pledgee of Securities and may otherwise deal with the Company or
its Affiliates with the same rights it would have if it were not Trustee.
Any Paying Agent, Registrar, co-registrar or co-paying agent may do the same
with like rights. However, the Trustee must comply with Sections 7.10 and
7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement of the Company in this Indenture or in any
document issued in connection with the sale of the Securities or in the
Securities other than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default or an Event of Default
occurs and is continuing and if it is known to the Trustee, the Trustee shall
mail to each Securityholder notice of the Default or Event of Default within
90 days after it becomes known to the Trustee, unless such Default or Event
of Default has been cured or waived. Except in the case of a Default or an
Event of Default in the payment of principal of or interest on any Security,
the Trustee may withhold the notice if and so long as a committee of its
Trust Officers in good faith determines that withholding the notice is in the
interest of the Securityholders.
SECTION 7.06. Reports by Trustee to Holders. As promptly as practicable
after each February 1 beginning with the February 1 following the date of
this Indenture, and in any event prior to April 1 in each year, the Trustee
shall mail to each Securityholder a brief report dated as of February 1 that
complies with Section 313(a) of the TIA. The Trustee shall also comply with
Section 313(b) of the TIA.
A copy of each report at the time of its mailing to Securityholders shall
be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any
delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to the
Trustee from time to time reasonable compensation for its services. The
Trustee's compensation shall not be limited by any law on compensation
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of a trustee of an express trust. The Company shall reimburse the Trustee
upon request for all reasonable out-of-pocket expenses incurred or made by
it, including costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and
expenses, disbursements and advances of the Trustee's agents, counsel,
accountants and experts. The Company shall indemnify the Trustee against any
and all loss, liability or expense (including reasonable attorneys' fees)
incurred by or in connection with the administration of this trust and the
performance of its duties hereunder. The Trustee shall notify the Company of
any claim for which it may seek indemnity promptly upon obtaining actual
knowledge thereof; provided, however, that any failure so to notify the
Company shall not relieve the Company of its indemnity obligations hereunder.
The Company shall defend the claim and the indemnified party shall provide
reasonable cooperation at the Company's expense in the defense. Such
indemnified parties may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel; provided, however, that the
Company shall not be required to pay such fees and expenses if it assumes
such indemnified parties' defense and, in such indemnified parties'
reasonable judgment, there is no conflict of interest between the Company and
such parties in connection with such defense. The Company need not reimburse
any expense or indemnify against any loss, liability or expense incurred by
an indemnified party through such party's own wilful misconduct, negligence
or bad faith.
To secure the Company's payment obligations in this Section, the Trustee
shall have a lien prior to the Securities on all money or property held or
collected by the Trustee other than money or property held in trust to pay
principal of and interest and any liquidated damages on particular Securities.
The Company's payment obligations pursuant to this Section shall survive
the satisfaction or discharge of this Indenture, any rejection or termination
of this Indenture under any bankruptcy law or the resignation or removal of
the Trustee. When the Trustee incurs expenses after the occurrence of a
Default specified in Section 6.01(6) or (7) with respect to the Company, the
expenses are intended to constitute expenses of administration under the
Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign at any
time by so notifying the Company. The Holders of a majority in principal
amount of the
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63
Securities may remove the Trustee by so notifying the Trustee and may appoint
a successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders of a
majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being
referred to herein as the retiring Trustee), the Company shall promptly
appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under
this Indenture. The successor Trustee shall mail a notice of its succession
to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders
of 10% in principal amount of the Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder may
petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this Section,
the Company's obligations under Section 7.07 shall continue for the benefit
of the retiring Trustee.
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SECTION 7.09. Successor Trustee by Merger. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion or
consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of
the successor to the Trustee; and in all such cases such certificates shall
have the full force that certificates of the Trustee are provided anywhere in
the Securities or in this Indenture.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all
times satisfy the requirements of TIA Section 310(a). The Trustee shall
have a combined capital and surplus of at least $100,000,000 as set forth in
its most recent published annual report of condition. The Trustee shall
comply with TIA Section 310(b); provided, however, that there shall be
excluded from the operation of TIA Section 310(b)(1) any indenture or
indentures under which other securities or certificates of interest or
participation in other securities of the Company are outstanding if the
requirements for such exclusion set forth in TIA Section 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or
been removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities; Defeasance. (a)
When (i) the Company delivers to the Trustee all outstanding Securities
(other than Securities replaced pursuant to Section 2.07) for
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65
cancelation or (ii) all outstanding Securities have become due and payable,
whether at maturity or as a result of the mailing of a notice of redemption
pursuant to Article 3 hereof and the Company irrevocably deposits with the
Trustee funds or U.S. Government Obligations on which payment of principal
and interest when due will be sufficient to pay at maturity or upon
redemption all outstanding Securities, including interest thereon to maturity
or such redemption date (other than Securities replaced pursuant to Section
2.07), and if in either case the Company pays all other sums payable
hereunder by the Company, then this Indenture shall, subject to Section
8.01(c), cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture on demand of the Company
accompanied by an Officers' Certificate and an Opinion of Counsel that the
conditions precedent to satisfaction and discharge have been satisfied
(provided that the Opinion of Counsel will not be required to cover
compliance with any financial tests or financial covenants) and at the cost
and expense of the Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any time may
terminate (i) all of its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.02,
4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11 and 5.01 and the
operation of Sections 6.01(3), 6.01(4), 6.01(5), 6.01(6) (with respect to
Subsidiaries of the Company only), 6.01(7) (with respect to Subsidiaries of
the Company only) and 6.01(8) ("covenant defeasance option"). The Company
may exercise its legal defeasance option notwithstanding its prior exercise
of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the
Company exercises its covenant defeasance option, payment of the Securities
may not be accelerated because of an Event of Default specified in Section
6.01(3), 6.01(4), 6.01(5), 6.01(6) (with respect to Subsidiaries of the
Company only), 6.01(7) (with respect to Subsidiaries of the Company only) or
6.01(8).
Upon satisfaction of the conditions set forth herein and upon request of
the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's obligations
in Sections 2.03, 2.04, 2.05,
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2.06, 2.07, 2.08, 7.07, 7.08 and in this Article 8 shall survive until the
Securities have been paid in full. Thereafter, the Company's obligations in
Sections 7.07, 8.04 and 8.05 shall survive.
SECTION 8.02. Conditions to Defeasance. The Company may exercise its
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee, for
the benefit of the Holders, cash in U.S. Dollars, U.S. Government
Obligations, or a combination thereof, in such amounts as shall be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of and interest on
the outstanding Securities on the stated maturity of such principal or
installment of interest or upon redemption;
(2) the Company shall have delivered to the Trustee an Opinion of
Counsel stating that the Holders of the outstanding Securities will not
recognize income, gain or loss for Federal income tax purposes as a
result of such defeasance and shall 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 defeasance had not occurred, which such opinion,
in the case of legal defeasance, shall also state that (A) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling to such effect or (B) since the Closing Date there has
been a change in the applicable Federal income tax laws or regulations
to such effect or (C) there exists controlling precedent to such effect;
(3) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit;
(4) such defeasance shall not result in a breach or violation of or
constitute a default under any material agreement or instrument to which
the Company is a party or by which it is bound; and
(5) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to such defeasance have been satisfied.
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Before or after a deposit, the Company may make arrangements satisfactory
to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
SECTION 8.03. Application of Trust Money. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to this
Article 8. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities.
Money and securities so held in trust are not subject to Article 10.
SECTION 8.04. Repayment to Company. The Trustee and the Paying Agent
shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon written request any money held by
them for the payment of principal or interest that remains unclaimed for two
years, and, thereafter, Securityholders entitled to the money must look to
the Company for payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations. The Company shall
pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the
Trustee or Paying Agent is permitted to apply all such money or U.S.
Government Obligations in accordance with this Article 8; provided, however,
that, if the Company has made any payment of interest on or principal of any
Securities because of the reinstatement of its obligations, the Company shall
be subrogated to the rights of the Holders of such Securities to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent.
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ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders. The Company and the Trustee
may amend or supplement this Indenture or the Securities without notice to or
consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for certificated or uncertificated Securities
(provided that the uncertificated Securities are issued in registered
form for purposes of Section 163(f) of the Code, or in a manner such
that the uncertificated Securities are described in Section 163(f)(2)(B)
of the Code);
(4) to make any change in Article 10 that would limit or terminate
the benefits available to any holder of Senior Indebtedness (or
Representatives therefor) under Article 10;
(5) to add guarantees with respect to the Securities or to secure
the Securities;
(6) 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;
(7) to comply with any requirements of the SEC in connection with
qualifying, or maintaining the qualification of, this Indenture under
the TIA;
(8) to make any change that does not adversely affect the rights of
any Securityholder; or
(9) to provide for the issuance of the Exchange Securities or
Private Exchange Securities, which shall have terms substantially
identical in all material respects to the Initial Securities (except
that the transfer restrictions contained in the Initial Securities shall
be modified or eliminated, as appropriate), and which shall be treated,
together with any outstanding Initial Securities, as a single issue of
securities.
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69
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 of any holder of Senior Indebtedness then
outstanding unless the holders of such Senior Indebtedness (or any group or
representative thereof authorized to give a consent) consent to such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment.
The failure to give such notice to all Securityholders, or any defect
therein, shall not impair or affect the validity of an amendment under this
Section.
SECTION 9.02. With Consent of Holders. The Company and the Trustee may
amend or supplement this Indenture or the Securities without notice to any
Securityholder but with the written consent of the Holders of at least a
majority in principal amount of the Securities then outstanding (including
consents obtained in connection with a tender offer or exchange for the
Securities). However, without the consent of each Securityholder affected,
an amendment may not:
(1) reduce the percentage of the principal amount of the Securities
whose Holders must consent to an amendment, supplement or waiver;
(2) change the stated maturity or the time or currency of payment of
the principal of or any interest on, or reduce the rate of interest on or
principal of any Security or alter the redemption provisions with respect
thereto;
(3) make any change in Article 10 of this Indenture that adversely
affects the rights of any Holder under Article 10 of this Indenture;
(4) impair the right of any Holder to institute suit for the
enforcement of any payment on or with respect to such Holder's
Securities;
(5) waive a default in the payment of the principal of or interest
on any Security;
(6) make any change to the provisions of this Indenture relating to
the Excess Proceeds Offer;
(7) make any change to Section 9.07 of this Indenture; or
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(8) make any change in Section 6.04 or 6.07 or the second sentence
of this Section 9.02.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.
An amendment under this Section 9.02 may not make any change that
adversely affects the rights under Article 10 of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness
(or any group or representative thereof authorized to give a consent) consent
to such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment.
The failure to give such notice to all Securityholders, or any defect
therein, shall not impair or affect the validity of an amendment under this
Section.
SECTION 9.03. Compliance with Trust Indenture Act. Every amendment to
this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers. A consent
to an amendment or a waiver by a Holder of a Security shall bind the Holder
and every subsequent Holder of that Security or portion of the Security that
evidences the same debt as the consenting Holder's Security, even if notation
of the consent or waiver is not made on the Security. However, any such
Holder or subsequent Holder may revoke the consent or waiver as to such
Holder's Security or portion of the Security if the Trustee receives the
notice of revocation before the date the amendment or waiver becomes
effective. After an amendment or waiver becomes effective, it shall bind
every Securityholder. An amendment or waiver becomes effective once both (i)
the requisite number of consents have been received by the Company or the
Trustee and (ii) such amendment or waiver has been executed by the Company
and the Trustee.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding
the immediately preceding
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paragraph, those Persons who were Securityholders at such record date (or
their duly designated proxies), and only those Persons, shall be entitled to
give such consent or to revoke any consent previously given or to take any
such action, whether or not such Persons continue to be Holders after such
record date. No such consent shall be valid or effective for more than 120
days after such record date.
SECTION 9.05. Notation on or Exchange of Securities. If an amendment
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Security shall issue and the Trustee shall
authenticate a new Security that reflects the changed terms. Failure to make
the appropriate notation or to issue a new Security shall not affect the
validity of such amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign any
amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the
Trustee. If it does, the Trustee may but need not sign it. In signing such
amendment the Trustee shall be entitled to receive indemnity reasonably
satisfactory to it and to receive, and (subject to Section 7.01) shall be
fully protected in relying upon, an Officers' Certificate and an Opinion of
Counsel stating that such amendment is authorized or permitted by this
Indenture and that such amendment is the legal, valid and binding obligation
of the Company enforceable against it in accordance with its terms, subject
to customary exceptions, and complies with the provisions hereof (including
Section 9.03).
SECTION 9.07. Payment for Consent. Neither the Company nor any of its
Subsidiaries shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to obtaining any consent, waiver or amendment of, or
direction in respect of, any of the terms or provisions of this Indenture or
the Securities, unless such consideration is offered or agreed to be paid,
and paid, to all Holders which so consent, waive, agree or direct in the time
frame set forth in solicitation documents relating to such consent, waiver,
agreement or direction.
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ARTICLE 10
Subordination
SECTION 10.01. Agreement To Subordinate. The Company agrees, and each
Securityholder by accepting a Security agrees, that the Indebtedness
evidenced by the Securities is subordinated in right of payment, to the
extent and in the manner provided in this Article 10, to the prior payment in
full of all Senior Indebtedness of the Company and that the subordination is
for the benefit of and enforceable by the holders of such Senior
Indebtedness. The Securities shall in all respects rank pari passu with all
other Senior Subordinated Indebtedness of the Company and only Indebtedness
of the Company that is Senior Indebtedness of the Company shall rank senior
to the Securities in accordance with the provisions set forth herein. For
purposes of this Article 10, the Indebtedness evidenced by the Securities
shall be deemed to include the liquidated damages payable pursuant to the
provisions set forth in the Registration Agreement. All provisions of this
Article 10 shall be subject to Section 10.12.
SECTION 10.02. Liquidation, Dissolution, Bankruptcy. Upon any payment
or distribution of the assets of the Company to creditors upon a total or
partial liquidation or a total or partial dissolution of the Company or in a
winding up, bankruptcy, reorganization, assignment for the benefit of
creditors, marshalling of assets and liabilities, insolvency, receivership or
similar proceeding relating to the Company or its property:
(1) holders of Senior Indebtedness of the Company shall be entitled
to receive payment in full of such Senior Indebtedness before
Securityholders shall be entitled to receive any direct or indirect
payment on account of principal of or interest on the Securities; and
(2) until the Senior Indebtedness of the Company is paid in full,
any payment or distribution to which Securityholders would be entitled
but for this Article 10 shall be made to holders of such Senior
Indebtedness as their interests may appear, except that Securityholders
may receive shares of stock and any debt securities that are
subordinated to such Senior Indebtedness to at least the same extent as
the Securities.
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SECTION 10.03. Default on Senior Indebtedness. The Company may not pay
the principal of or interest on the Securities or make any deposit pursuant
to Article 8 and may not repurchase, redeem or otherwise retire any
Securities (collectively, "pay the Securities") if (i) any Specified Senior
Indebtedness of the Company is not paid when due or (ii) any other default on
Specified Senior Indebtedness occurs which results in the maturity of such
Specified Senior Indebtedness being accelerated in accordance with its terms
unless, in either case, (x) the default has been cured or waived and any such
acceleration has been rescinded or (y) such Specified Senior Indebtedness has
been paid in full; provided, however, that the Company may pay the Securities
without regard to the foregoing if the Company and the Trustee receive
written notice approving such payment from the Representative of such
Specified Senior Indebtedness with respect to which either of the events in
clause (i) or (ii) of this sentence has occurred and is continuing. During
the continuance of any default (other than a default described in clause (i)
or (ii) of the preceding sentence) with respect to any Specified Senior
Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods,
the Company may not pay the Securities for a period (a "Payment Blockage
Period") commencing upon the receipt by the Trustee (with a copy to the
Company) of written notice (a "Blockage Notice") of such default from the
Representative of such Specified Senior Indebtedness specifying an election
to effect a Payment Blockage Period and ending 179 days thereafter (or
earlier if such Payment Blockage Period is terminated (i) by written notice
to the Trustee and the Company from the Person or Persons who gave such
Blockage Notice, (ii) by repayment in full of such Specified Senior
Indebtedness or (iii) because the default giving rise to such Blockage Notice
is no longer continuing). Notwithstanding the provisions described in the
immediately preceding sentence (but subject to the provisions contained in
the first sentence of this Section), unless the holders of such Specified
Senior Indebtedness or the Representative of such holders shall have
accelerated the maturity of such Specified Senior Indebtedness, the Company
may resume payments on the Securities after such Payment Blockage Period.
Not more than one Blockage Notice may be given in any consecutive 360-day
period, irrespective of the number of defaults that may exist or occur with
respect to Specified Senior Indebtedness during such period; provided,
however, that if any Blockage Notice within such 360-day period is given by
or on behalf of any holders of Specified
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74
Senior Indebtedness other than the Bank Indebtedness, the Representative of
the Bank Indebtedness may give another Blockage Notice within such period;
provided further, however, that in no event may the total number of days
during which any Payment Blockage Period or Periods is in effect exceed 179
days in the aggregate during any 360 consecutive day period. For purposes of
this Section, no default or event of default that existed or was continuing
on the date of the commencement of any Payment Blockage Period with respect
to the Specified Senior Indebtedness initiating such Payment Blockage Period
shall be, or be made, the basis of the commencement of a subsequent Payment
Blockage Period by the Representative of such Specified Senior Indebtedness,
whether or not within a period of 360 consecutive days, unless such default
or event of default shall have been cured or waived for a period of not less
than 90 consecutive days.
SECTION 10.04. Acceleration of Payment of Securities. If payment of the
Securities is accelerated because of an Event of Default, the Company or the
Trustee shall promptly notify the holders of the Specified Senior
Indebtedness (or their Representative) of the acceleration. If any Specified
Senior Indebtedness is outstanding, the Company may not pay the Securities
until five Business Days after such holders or the Representative of the
Specified Senior Indebtedness receive notice of such acceleration and,
thereafter, may pay the Securities only if this Article 10 otherwise permits
payment at that time.
SECTION 10.05. When Distribution Must Be Paid Over. If a distribution
is made to Securityholders that because of this Article 10 should not have
been made to them, the Securityholders who receive the distribution shall
hold it in trust for holders of Senior Indebtedness of the Company and pay it
over to them as their interests may appear.
SECTION 10.06. Subrogation. After all Senior Indebtedness of the
Company is paid in full and until the Securities are paid in full,
Securityholders shall be subrogated to the rights of holders of such Senior
Indebtedness to receive distributions applicable to Senior Indebtedness. A
distribution made under this Article 10 to holders of such Senior
Indebtedness which otherwise would have been made to Securityholders is not,
as between the Company and Securityholders, a payment by the Company on such
Senior Indebtedness.
<PAGE>
75
SECTION 10.07. Relative Rights. This Article 10 defines the relative
rights of Securityholders and holders of Senior Indebtedness of the Company.
Nothing in this Indenture shall:
(1) impair, as between the Company and Securityholders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on and liquidated damages in respect of, the
Securities in accordance with their terms; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon an Event of Default, subject to the rights of
holders of Senior Indebtedness of the Company to receive distributions
otherwise payable to Securityholders.
SECTION 10.08. Subordination May Not Be Impaired by Company. No right
of any holder of Senior Indebtedness of the Company to enforce the
subordination of the Indebtedness evidenced by the Securities shall be
impaired by any act or failure to act by the Company or by its failure to
comply with this Indenture.
SECTION 10.09. Rights of Trustee and Paying Agent. Notwithstanding
Section 10.03, the Trustee or Paying Agent may continue to make payments on
the Securities and shall not be charged with knowledge of the existence of
facts that would prohibit the making of any such payments unless, not less
than two Business Days prior to the date of such payment, a Trust Officer of
the Trustee receives notice satisfactory to it that payments may not be made
under this Article 10. The Company, the Registrar or co-registrar, the
Paying Agent, a Representative or a holder of Specified Senior Indebtedness
of the Company may give the notice; provided, however, that, if an issue of
Specified Senior Indebtedness of the Company has a Representative, only the
Representative may give the notice.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness of the Company with the same rights it would have if it were not
Trustee. The Registrar and co-registrar and the Paying Agent may do the same
with like rights. The Trustee shall be entitled to all the rights set forth
in this Article 10 with respect to any Senior Indebtedness of the Company
which may at any time be held by it, to the same extent as any other holder
of such Senior Indebtedness; and nothing in Article 7 shall deprive the
Trustee of any of its rights as such holder. Nothing in
<PAGE>
76
this Article 10 shall apply to claims of, or payments to, the Trustee under
or pursuant to Section 7.07.
SECTION 10.10. Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Specified Senior
Indebtedness of the Company, the distribution may be made and the notice
given to their Representative (if any).
SECTION 10.11. Article 10 Not To Prevent Events of Default or Limit
Right To Accelerate. The failure to make a payment pursuant to the
Securities by reason of any provision in this Article 10 shall not be
construed as preventing the occurrence of a Default. Nothing in this Article
10 shall have any effect on the right of the Securityholders or the Trustee
to accelerate the maturity of the Securities.
SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding anything
contained herein to the contrary, payments from money or the proceeds of U.S.
Government Obligations held in trust under Article 8 by the Trustee for the
payment of principal of and interest on the Securities shall not be
subordinated to the prior payment of any Senior Indebtedness of the Company
or subject to the restrictions set forth in this Article 10, and none of the
Securityholders shall be obligated to pay over any such amount to the Company
or any holder of Senior Indebtedness of the Company or any other creditor of
the Company.
SECTION 10.13. Trustee Entitled To Rely. Upon any payment or
distribution pursuant to this Article 10, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of
competent jurisdiction in which any proceedings of the nature referred to in
Section 10.02 are pending, (ii) upon a certificate of the liquidating trustee
or agent or other Person making such payment or distribution to the Trustee
or to the Securityholders or (iii) upon the Representatives for the holders
of Senior Indebtedness of the Company for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders
of such 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 10. In the event
that the Trustee determines, in good faith, that evidence is required with
respect to the right of any Person as a holder of Senior Indebtedness of the
Company to participate in any payment or distribution pursuant to this
Article 10, the
<PAGE>
77
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of such Senior Indebtedness held
by such Person, the extent to which such Person is entitled to participate in
such payment or distribution and other facts pertinent to the rights of such
Person under this Article 10, and, if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination
as to the right of such Person to receive such payment. The provisions of
Sections 7.01 and 7.02 shall be applicable to all actions or omissions of
actions by the Trustee pursuant to this Article 10.
SECTION 10.14. Trustee To Effectuate Subordination. Each Securityholder
by accepting a Security authorizes and directs the Trustee on his behalf to
take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination between the Securityholders and the holders of
Senior Indebtedness of the Company as provided in this Article 10 and
appoints the Trustee as attorney-in-fact for any and all such purposes.
SECTION 10.15. 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 of the Company and shall not be liable to any such
holders if it shall mistakenly pay over or distribute to Securityholders or
the Company or any other Person, money or assets to which any holders of
Senior Indebtedness of the Company shall be entitled by virtue of this
Article 10 or otherwise.
SECTION 10.16. Reliance by Holders of Senior Indebtedness on
Subordination Provisions. Each Securityholder by accepting a Security
acknowledges and agrees that the foregoing subordination provisions are, and
are intended to be, an inducement and a consideration to each holder of any
Senior Indebtedness of the Company, whether such Senior Indebtedness was
created or acquired before or after the issuance of the Securities, to
acquire and continue to hold, or to continue to hold, such Senior
Indebtedness and such holder of such Senior Indebtedness shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
continuing to hold, or in continuing to hold, such Senior Indebtedness.
SECTION 10.17. Trustee's Compensation Not Prejudiced. Nothing in this
Article shall apply to amounts due to the Trustee pursuant to other sections
of this Indenture.
<PAGE>
78
ARTICLE 11
Miscellaneous
SECTION 11.01. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 11.02. Notices. Any notice or communication shall be in writing
and delivered in person or mailed by first-class mail addressed as follows:
if to the Company:
Magellan Health Services, Inc.
Suite 1400
3414 Peachtree Road, N.E.
Atlanta, GA 30326
Attention of: Treasurer
with a copy to:
King & Spalding
191 Peachtree Street, N.E.
Atlanta, GA 30303
Attention of: Albert H. Conrad, Jr.
if to the Trustee:
Marine Midland Bank
140 Broadway
New York, NY 10005
Attention of: Frank Godino, Corporate Trust
Department/Magellan
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be mailed to
the Securityholder at the Securityholder's address as it appears on the
registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
<PAGE>
79
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner
provided above, it is duly given, whether or not the addressee receives it;
except that notices or communications to the Trustee shall be effective only
upon receipt.
SECTION 11.03. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall
have the protection of TIA Section 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions Precedent. Upon
any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such
counsel, all such conditions precedent (provided that the Opinion of
Counsel will not be required to cover compliance with any financial
tests or financial covenants) have been complied with.
SECTION 11.05. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or
condition provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or
<PAGE>
80
investigation as is necessary to enable him to express an informed
opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 11.06. When Securities Disregarded. In determining whether the
Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Company shall be disregarded and deemed not
to be outstanding, except that, for the purpose of determining whether the
Trustee shall be protected in relying on any such direction, waiver or
consent, only Securities which the Trustee knows are so owned shall be so
disregarded. Subject to the foregoing, only Securities outstanding at the
time shall be considered in any such determination.
SECTION 11.07. Rules by Trustee, Paying Agent and Registrar. The
Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar and the Paying Agent may make reasonable rules
for their functions.
SECTION 11.08. Legal Holidays. A "Legal Holiday" is a Saturday, a
Sunday or a day on which banking institutions are not required to be open in
the State of New York. If a payment date is a Legal Holiday, payment shall
be made on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period. If a regular record date
is a Legal Holiday, the record date shall not be affected.
SECTION 11.09. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF
LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION
WOULD BE REQUIRED THEREBY.
SECTION 11.10. No Personal Liability of Directors, Officers, Employees
and Stockholders. No director, officer, employee or stockholder of the
Company shall have any liability for any obligations of the Company under the
Securities or this Indenture or for any claim based on, in respect of, or by
reason of such obligations or their creation. Each Securityholder by
accepting a Security
<PAGE>
81
waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Securities.
SECTION 11.11. Successors. All agreements of the Company in this
Indenture and the Securities shall bind its successors. All agreements of
the Trustee in this Indenture shall bind its successors.
SECTION 11.12. Multiple Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to
prove this Indenture.
SECTION 11.13. Table of Contents; Headings. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any
of the terms or provisions hereof.
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
MAGELLAN HEALTH SERVICES,
INC.,
by /s/ James R. Bedenbaugh
--------------------------------------------
Name: James R. Bedenbaugh
Title: Senior Vice President
MARINE MIDLAND BANK, as
Trustee,
by /s/ Frank J. Godino
--------------------------------------------
Name: Frank J. Godino
Title: Vice President
<PAGE>
APPENDIX A
PROVISIONS RELATING TO INITIAL SECURITIES,
PRIVATE EXCHANGE SECURITIES
AND EXCHANGE SECURITIES
1. Definitions
1.1 Definitions
For the purposes of this Appendix A capitalized terms used but not
defined herein shall have the meanings given to such terms in the Indenture.
In addition, the following terms shall have the meanings indicated below:
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Temporary Regulation S Global Security or beneficial
interest therein, the rules and procedures of the Depositary for such Global
Security, Euroclear and Cedel, in each case to the extent applicable to such
transaction and as in effect from time to time.
"Cedel" means Cedel Bank, S.A., or any successor securities clearing
agency.
"Definitive Security" means a certificated Initial Security or Exchange
Security (bearing the Restricted Securities Legend if the transfer of such
Security is restricted by applicable law) that does not include the Global
Securities Legend.
"Depositary" means The Depository Trust Company, its nominees and their
respective successors.
"Euroclear" means the Euroclear Clearance System or any successor
securities clearing agency.
"Global Securities Legend" means the legend set forth under that caption
in Exhibit A to this Indenture.
"IAI" means an institutional "accredited investor" as described in Rule
501(a)(1), (2), (3) or (7) under the Securities Act.
"Initial Purchaser" means Chase Securities Inc.
"Private Exchange" means an offer by the Company, pursuant to the
Registration Agreement, to issue and deliver to certain purchasers, in
exchange for the Initial Securities held by such purchasers as part of their
initial distribution, a like aggregate principal amount of Private Exchange
Securities.
<PAGE>
"Private Exchange Securities" means the Securities of the Company issued
in exchange for Initial Securities pursuant to this Indenture in connection
with the Private Exchange pursuant to the Registration Agreement.
"Purchase Agreement" means the Purchase Agreement dated February 5, 1998,
between the Company and the Initial Purchaser.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registered Exchange Offer" means the offer by the Company, pursuant to
the Registration Agreement, to certain Holders of Initial Securities, to
issue and deliver to such Holders, in exchange for their Initial Securities,
a like aggregate principal amount of Exchange Securities registered under the
Securities Act.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Securities" means all Initial Securities offered and sold
outside the United States in reliance on Regulation S.
"Restricted Period", with respect to any Securities, means the period of
40 consecutive days beginning on and including the later of (i) the day on
which such Securities are first offered to persons other than distributors
(as defined in Regulation S under the Securities Act) in reliance on
Regulation S and (ii) the Issue Date with respect to such Securities.
"Restricted Securities Legend" means the legend set forth in Section
2.3(e)(i) herein.
"Rule 501" means Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
"Rule 144A" means Rule 144A under the Securities Act.
"Rule 144A Securities" means all Initial Securities offered and sold to
QIBs in reliance on Rule 144A.
"Securities Custodian" means the custodian with respect to a Global
Security (as appointed by the
<PAGE>
Depositary) or any successor person thereto, who shall initially be the
Trustee.
"Shelf Registration Statement" means a registration statement filed by
the Company in connection with the offer and sale of Initial Securities
pursuant to the Registration Agreement.
"Transfer Restricted Securities" means Definitive Securities and any
other Securities that bear or are required to bear the Restricted Securities
Legend.
1.2 Other Definitions
<TABLE>
<CAPTION>
Defined in
Term Section:
<S> <C>
"Agent Members". . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(b)
"IAI Global Security . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
"Global Security". . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
"Rule 144A Global Security". . . . . . . . . . . . . . . . . . . . . 2.1(a)
</TABLE>
2. The Securities
2.1 Form and Dating
The Initial Securities issued on the date hereof will be (i) offered and
sold by the Company pursuant to the Purchase Agreement and (ii) resold,
initially only to (A) QIBs in reliance on Rule 144A and (B) persons other
than U.S. persons (as defined in Regulation S) in reliance on Regulation S.
Such Initial Securities may thereafter be transferred to, among others, QIBs,
purchasers in reliance on Regulation S and, except as set forth below, IAIs
pursuant to Rule 501.
(a) Global Securities. Rule 144A Securities shall be issued initially
in the form of one or more permanent global Securities in definitive, fully
registered form (collectively, the "Rule 144A Global Security") and
Regulation S Securities shall be issued initially in the form of one or more
permanent global Securities (collectively, the "Regulation S Global
Security"), in each case without interest coupons and bearing the Global
Securities Legend and Restricted Securities Legend, which shall be deposited
on behalf of the purchasers of the Securities represented thereby with the
Securities Custodian, and registered in the name of the Depositary or a
nominee of the Depositary, duly executed by the Company and authenticated by
the Trustee as provided in this Indenture. One or more global securities in
definitive,
<PAGE>
4
fully registered form without interest coupons and bearing the Global
Securities Legend and the Restricted Securities Legend (collectively, the
"IAI Global Security") shall also be issued on the Closing Date, deposited
with the Securities Custodian, and registered in the name of the Depositary
or a nominee of the Depositary, duly executed by the Company and
authenticated by the Trustee as provided in this Indenture to accommodate
transfers of beneficial interests in the Securities to IAIs subsequent to the
initial distribution. Beneficial ownership interests in the Regulation S
Global Security will not be exchangeable for interests in the Rule 144A
Global Security, the IAI Global Security or any other Security without a
Restricted Securities Legend until the expiration of the Restricted Period.
The Rule 144A Global Security, the IAI Global Security and the Regulation S
Global Security are each referred to herein as a "Global Security" and are
collectively referred to herein as "Global Securities." The aggregate
principal amount of the Global Securities may from time to time be increased
or decreased by adjustments made on the records of the Trustee and the
Depositary or its nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a
Global Security deposited with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance with this
Section 2.1(b) and pursuant to an order of the Company, authenticate and
deliver initially one or more Global Securities that (a) shall be registered
in the name of the Depositary for such Global Security or Global Securities
or the nominee of such Depositary and (b) shall be delivered by the Trustee
to such Depositary or pursuant to such Depositary's instructions or held by
the Trustee as Securities Custodian.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held
on their behalf by the Depositary or by the Trustee as Securities Custodian
or under such Global Security, and the Depositary may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the
Depositary or impair, as between the Depositary and its Agent Members, the
operation of customary practices of such
<PAGE>
5
Depositary governing the exercise of the rights of a holder of a beneficial
interest in any Global Security.
(c) Definitive Securities. Except as provided in Section 2.3 or 2.4,
owners of beneficial interests in Global Securities will not be entitled to
receive physical delivery of certificated Securities.
2.2 Authentication. The Trustee shall authenticate and make available
for delivery upon a written order of the Company signed by two Officers (1)
Initial Securities for original issue on the date hereof in an aggregate
principal amount of $625,000,000 and (2) the (A) Exchange Securities for
issue only in a Registered Exchange Offer and (B) Private Exchange Securities
for issue only in the Private Exchange, in the case of each of (A) and (B)
pursuant to the Registration Agreement and for a like principal amount of
Initial Securities exchanged pursuant thereto. Such order shall specify the
amount of the Securities to be authenticated, the date on which the original
issue of Securities is to be authenticated and whether the Securities are to
be Initial Securities, Exchange Securities or Private Exchange Securities.
The aggregate principal amount of Securities outstanding at any time may not
exceed $625,000,000 except as provided in Section 2.07 of this Indenture.
2.3 Transfer and Exchange. (a) Transfer and Exchange of Definitive
Securities. When Definitive Securities are presented to the Registrar with a
request:
(x) to register the transfer of such Definitive Securities; or
(y) to exchange such Definitive Securities for an equal principal
amount of Definitive Securities of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested
if its reasonable requirements for such transaction are met; provided,
however, that the Definitive Securities surrendered for transfer or exchange:
(i) shall be duly endorsed or accompanied by a written instrument
of transfer in form reasonably satisfactory to the Company and the
Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing; and
(ii) are being transferred or exchanged pursuant to an effective
registration statement under the Securities
<PAGE>
6
Act or pursuant to clause (A), (B) or (C) below, and are accompanied by
the following additional information and documents, as applicable:
(A) if such Definitive Securities are being delivered to the
Registrar by a Holder for registration in the name of such Holder,
without transfer, a certification from such Holder to that effect
(in the form set forth on the reverse side of the Initial
Security); or
(B) if such Definitive Securities are being transferred to the
Company, a certification to that effect (in the form set forth on
the reverse side of the Initial Security); or
(C) if such Definitive Securities are being transferred
pursuant to an exemption from registration in accordance with Rule
144 under the Securities Act or in reliance upon another exemption
from the registration requirements of the Securities Act, (i) a
certification to that effect (in the form set forth on the reverse
side of the Initial Security) and (ii) if the Company so requests,
an opinion of counsel or other evidence reasonably satisfactory to
it as to the compliance with the restrictions set forth in the
legend set forth in Section 2.3(d)(i).
(b) Restrictions on Transfer of a Definitive Security for a Beneficial
Interest in a Global Security. A Definitive Security may not be exchanged
for a beneficial interest in a Global Security except upon satisfaction of
the requirements set forth below. Upon receipt by the Trustee of a
Definitive Security, duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the Registrar,
together with:
(i) certification (in the form set forth on the reverse side of the
Initial Security) that such Definitive Security is being transferred (A)
to a QIB in accordance with Rule 144A, (B) to an IAI that has furnished
to the Trustee a signed letter substantially in the form of Exhibit C or
(C) outside the United States in an offshore transaction within the
meaning of Regulation S and in compliance with Rule 904 under the
Securities Act; and
(ii) written instructions directing the Trustee to make, or to
direct the Securities Custodian to make, an
<PAGE>
7
adjustment on its books and records with respect to such Global Security
to reflect an increase in the aggregate principal amount of the
Securities represented by the Global Security, such instructions to
contain information regarding the Depositary account to be credited with
such increase,
then the Trustee shall cancel such Definitive Security and cause, or direct
the Securities Custodian to cause, in accordance with the standing
instructions and procedures existing between the Depositary and the
Securities Custodian, the aggregate principal amount of Securities
represented by the Global Security to be increased by the aggregate principal
amount of the Definitive Security to be exchanged and shall credit or cause
to be credited to the account of the Person specified in such instructions a
beneficial interest in the Global Security equal to the principal amount of
the Definitive Security so canceled. If no Global Securities are then
outstanding and the Global Security has not been previously exchanged for
certificated securities pursuant to Section 2.4, the Company shall issue and
the Trustee shall authenticate, upon written order of the Company in the form
of an Officers' Certificate, a new Global Security in the appropriate
principal amount.
(c) Transfer and Exchange of Global Securities. (i) The transfer and
exchange of Global Securities or beneficial interests therein shall be
effected through the Depositary, in accordance with this Indenture (including
applicable restrictions on transfer set forth herein, if any) and the
procedures of the Depositary therefor. A transferor of a beneficial interest
in a Global Security shall deliver a written order given in accordance with
the Depositary's procedures containing information regarding the participant
account of the Depositary to be credited with a beneficial interest in such
Global Security or another Global Security and such account shall be credited
in accordance with such order with a beneficial interest in the applicable
Global Security and the account of the Person making the transfer shall be
debited by an amount equal to the beneficial interest in the Global Security
being transferred. Transfers of beneficial interests in the Rule 144A Global
Security or the IAI Global Security to a transferee who takes delivery of
such interest through the Regulation S Global Security will be made only upon
receipt by the Trustee of a certification from the transferor to the effect
that such transfer is being made in accordance with Regulation S or Rule 144
under the Securities Act, if available. In the case of a transfer of a
beneficial interest in either the Regulation S Global Security or the Rule
144A Global Security for an interest in the IAI Global
<PAGE>
8
Security, the transferee must furnish a signed letter substantially in the
form of Exhibit C to the Trustee.
(ii) If the proposed transfer is a transfer of a beneficial
interest in one Global Security to a beneficial interest in another
Global Security, the Registrar shall reflect on its books and records
the date and an increase in the principal amount of the Global Security
to which such interest is being transferred in an amount equal to the
principal amount of the interest to be so transferred, and the Registrar
shall reflect on its books and records the date and a corresponding
decrease in the principal amount of Global Security from which such
interest is being transferred.
(iii) Notwithstanding any other provisions of this Appendix (other than
the provisions set forth in Section 2.4), a Global Security may not be
transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or any such
nominee to a successor Depositary or a nominee of such successor
Depositary.
(iv) In the event that a Global Security is exchanged for Definitive
Securities pursuant to Section 2.4 prior to the consummation of the
Registered Exchange Offer or the effectiveness of the Shelf Registration
Statement with respect to such Securities, such Securities may be
exchanged only in accordance with such procedures as are substantially
consistent with the provisions of this Section 2.3 (including the
certification requirements set forth on the reverse of the Initial
Securities intended to ensure that such transfers comply with Rule 144A,
Regulation S or such other applicable exemption from registration under
the Securities Act, as the case may be) and such other procedures as may
from time to time be adopted by the Company.
(d) Restrictions on Transfer of Regulation S Global Security. (i)
Prior to the expiration of the Restricted Period, interests in the Regulation
S Global Security may only be held through Euroclear or Cedel. During the
Restricted Period, beneficial ownership interests in the Regulation S Global
Security may only be sold, pledged or transferred through Euroclear or Cedel
in accordance with the Applicable Procedures and only (A) to the Company, (B)
so long as such security is eligible for resale pursuant to Rule 144A, to a
person whom the selling holder reasonably believes is a QIB
<PAGE>
9
that purchases for its own account or for the account of a QIB to whom notice
is given that the resale, pledge or transfer is being made in reliance on
Rule 144A, (C) in an offshore transaction in accordance with Regulation S,
(D) pursuant to an exemption from registration under the Securities Act
provided by Rule 144 (if applicable) under the Securities Act, (E) to an IAI
purchasing for its own account, or for the account of such an IAI, in a
minimum principal amount of Securities of $250,000 or (F) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States. Prior to the expiration of the Restricted Period, transfers by an
owner of a beneficial interest in the Regulation S Global Security to a
transferee who takes delivery of such interest through the Rule 144A Global
Security or the IAI Global Security will be made only in accordance with
Applicable Procedures and upon receipt by the Trustee of a written
certification from the transferor of the beneficial interest in the form
provided on the reverse of the Initial Security to the effect that such
transfer is being made to (i) a person whom the transferor reasonably
believes is a QIB within the meaning of Rule 144A in a transaction meeting
the requirements of Rule 144A or (ii) an IAI purchasing for its own account,
or for the account of such an IAI, a minimum principal amount of the
Securities of $250,000. Such written certification will no longer be
required after the expiration of the Restricted Period. In the case of a
transfer of a beneficial interest in the Regulation S Global Security for an
interest in the IAI Global Security, the transferee must furnish a signed
letter substantially in the form of Exhibit C to the Trustee.
(ii) Upon the expiration of the Restricted Period, beneficial
ownership interests in the Regulation S Global Security will be
transferable in accordance with applicable law and the other terms of
this Indenture.
(e) Legend.
(i) Except as permitted by the following paragraphs (ii), (iii) or
(iv), each Security certificate evidencing the Global Securities and the
Definitive Securities (and all Securities issued in exchange therefor or
in substitution thereof) shall bear a legend in substantially the
following form (each defined term in the legend being defined as such
for purposes of the legend only):
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES
<PAGE>
10
ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE
"RESALE RESTRICTION TERMINATION 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 SUCH SECURITY), ONLY (A) TO THE COMPANY, (B)
PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE
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 THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING
OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN "ACCREDITED
INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER
THE SECURITIES ACT THAT IS AN INSTITUTIONAL INVESTOR ACQUIRING THE
SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE
SECURITIES OF $250,000, 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 ANY OTHER AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE
COMPANY AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF
AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE
REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
<PAGE>
11
Each Definitive Security will also bear the following additional legend:
"IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE
REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION
AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE
TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS."
(ii) Upon any sale or transfer of a Transfer Restricted Security that
is a Definitive Security, the Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security for a Definitive Security that
does not bear the legends set forth above and rescind any restriction on
the transfer of such Transfer Restricted Security if the Holder certifies
in writing to the Registrar that its request for such exchange was made in
reliance on Rule 144 (such certification to be in the form set forth on the
reverse of the Initial Security).
(iii) After a transfer of any Initial Securities or Private Exchange
Securities during the period of the effectiveness of a Shelf Registration
Statement with respect to such Initial Securities or Private Exchange
Securities, as the case may be, all requirements pertaining to the
Restricted Securities Legend on such Initial Securities or such Private
Exchange Securities will cease to apply and the requirements that any such
Initial Securities or such Private Exchange Securities be issued in global
form will continue to apply.
(iv) Upon the consummation of a Registered Exchange Offer with
respect to the Initial Securities pursuant to which Holders of such Initial
Securities are offered Exchange Securities in exchange for their Initial
Securities, all requirements pertaining to Initial Securities that Initial
Securities be issued in global form will continue to apply, and Exchange
Securities in global form without the Restricted Securities Legend will be
available to Holders that exchange such Initial Securities in such
Registered Exchange Offer.
(v) Upon the consummation of a Private Exchange with respect to the
Initial Securities pursuant to which Holders of such Initial Securities are
offered Private Exchange Securities in exchange for their Initial
Securities, all requirements pertaining to Initial Securities that Initial
Securities be issued in global form will continue to apply, and Private
Exchange
<PAGE>
12
Securities in global form with the Restricted Securities Legend will be
available to Holders that exchange such Initial Securities in such Private
Exchange.
(vi) Upon a sale or transfer after the expiration of the Restricted
Period of any Initial Security acquired pursuant to Regulation S, all
requirements that such Initial Security bear the Restricted Securities
Legend will cease to apply and the requirements requiring any such Initial
Security be issued in global form will continue to apply.
(f) Cancelation or Adjustment of Global Security. At such time as
all beneficial interests in a Global Security have either been exchanged for
Definitive Securities, transferred, redeemed, repurchased or canceled, such
Global Security shall be returned by the Depositary to the Trustee for
cancelation or retained and canceled by the Trustee. At any time prior to
such cancelation, if any beneficial interest in a Global Security is
exchanged for Definitive Securities, transferred in exchange for an interest
in another Global Security, redeemed, repurchased or canceled, the principal
amount of Securities represented by such Global Security shall be reduced and
an adjustment shall be made on the books and records of the Trustee (if it is
then the Securities Custodian for such Global Security) with respect to such
Global Security, by the Trustee or the Securities Custodian, to reflect such
reduction.
(g) Obligations with Respect to Transfers and Exchanges of
Securities.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate, Definitive Securities and
Global Securities at the Registrar's request.
(ii) No service charge shall be made for any registration of transfer
or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax, assessments, or similar governmental charge payable
in connection therewith (other than any such transfer taxes, assessments or
similar governmental charge payable upon exchange or transfer pursuant to
Section 3.06, 4.06, 4.08 and 9.05 of the Indenture).
(iii) Prior to the due presentation for registration of transfer of
any Security, the Company, the Trustee, the Paying Agent or the Registrar
may deem and treat the Person in whose name a Security is registered as the
<PAGE>
13
absolute owner of such Security for the purpose of receiving payment of
principal of and interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the
Company, the Trustee, the Paying Agent or the Registrar shall be affected
by notice to the contrary.
(iv) All Securities issued upon any transfer or exchange pursuant to
the terms of this Indenture shall evidence the same debt and shall be
entitled to the same benefits under this Indenture as the Securities
surrendered upon such transfer or exchange.
(h) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or obligation to any
beneficial owner of a Global Security, a member of, or a participant in the
Depositary or any other Person with respect to the accuracy of the records
of the Depositary or its nominee or of any participant or member thereof,
with respect to any ownership interest in the Securities or with respect to
the delivery to any participant, member, beneficial owner or other Person
(other than the Depositary) of any notice (including any notice of
redemption or repurchase) or the payment of any amount, under or with
respect to such Securities. All notices and communications to be given to
the Holders and all payments to be made to Holders under the Securities
shall be given or made only to the registered Holders (which shall be the
Depositary or its nominee in the case of a Global Security). The rights of
beneficial owners in any Global Security shall be exercised only through
the Depositary subject to the applicable rules and procedures of the
Depositary. The Trustee may rely and shall be fully protected in relying
upon information furnished by the Depositary with respect to its members,
participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Security (including any transfers between
or among Depositary participants, members or beneficial owners in any
Global Security) other than to require delivery of such certificates and
other documentation or evidence as are expressly required by, and to do so
if and when expressly required by, the terms of this Indenture, and to
examine the same to determine
<PAGE>
14
substantial compliance as to form with the express requirements hereof.
2.4 Definitive Securities
(a) A Global Security deposited with the Depositary or with the
Trustee as Securities Custodian pursuant to Section 2.1 shall be transferred
to the beneficial owners thereof in the form of Definitive Securities in an
aggregate principal amount equal to the principal amount of such Global
Security, in exchange for such Global Security, only if such transfer
complies with Section 2.3 and (i) the Depositary notifies the Company that it
is unwilling or unable to continue as a Depositary for such Global Security
or if at any time the Depositary ceases to be a "clearing agency" registered
under the Exchange Act, and a successor depositary is not appointed by the
Company within 90 days of such notice, or (ii) an Event of Default has
occurred and is continuing or (iii) the Company, in its sole discretion,
notifies the Trustee in writing that it elects to cause the issuance of
certificated Securities under this Indenture.
(b) Any Global Security that is transferable to the beneficial
owners thereof pursuant to this Section 2.4 shall be surrendered by the
Depositary to the Trustee, to be so transferred, in whole or from time to
time in part, without charge, and the Trustee shall authenticate and deliver,
upon such transfer of each portion of such Global Security, an equal
aggregate principal amount of Definitive Securities of authorized
denominations. Any portion of a Global Security transferred pursuant to this
Section shall be executed, authenticated and delivered only in denominations
of $1,000 and any integral multiple thereof and registered in such names as
the Depositary shall direct. Any certificated Initial Security in the form of
a Definitive Security delivered in exchange for an interest in the Global
Security shall, except as otherwise provided by Section 2.3(e), bear the
Restricted Securities Legend.
(c) Subject to the provisions of Section 2.4(b), the registered
Holder of a Global Security may grant proxies and otherwise authorize any
Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under
this Indenture or the Securities.
(d) In the event of the occurrence of any of the events specified
in Section 2.4(a)(i), (ii) or (iii), the Company will promptly make available
to the Trustee a
<PAGE>
15
reasonable supply of Definitive Securities in fully registered form without
interest coupons.
<PAGE>
EXHIBIT A
[FORM OF FACE OF INITIAL SECURITY]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN
THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS
AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL
BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE
OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE
"RESALE RESTRICTION TERMINATION 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 SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE 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
<PAGE>
2
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 THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, (E) TO AN "ACCREDITED INVESTOR" WITHIN
THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT
IS AN INSTITUTIONAL INVESTOR ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN
A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, 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 ANY OTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE COMPANY AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE
OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER
AFTER THE RESALE RESTRICTION TERMINATION DATE.
[IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND
TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT
MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING
RESTRICTIONS.](1)
- -------------------
(1)Include this additional legend for each Definitive Security.
<PAGE>
No. $__________
9% Senior Subordinated Note due 2008
CUSIP No. ______
MAGELLAN HEALTH SERVICES, INC., a Delaware corporation, promises to
pay to Cede & Co., or registered assigns, the principal sum
[of Dollars] [listed on the Schedule of Increases or Decreases
in Global Security attached hereto]
(2)on February 15, 2008.
Interest Payment Dates: February 15 and August 15.
Record Dates: February 1 and August 1.
- ----------------
(2)Use the second set of bracketed language for a Global Security.
<PAGE>
2
Additional provisions of this Security are set forth on the other side
of this Security.
IN WITNESS WHEREOF, the parties have caused this instrument to be duly
executed.
MAGELLAN HEALTH SERVICES, INC.,
by
-------------------------------------------
Name:
Title:
[CORPORATE SEAL]
Dated:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
MARINE MIDLAND BANK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
-----------------------
Authorized Signatory
<PAGE>
3
[FORM OF REVERSE SIDE OF SECURITY]
9% Senior Subordinated Note due 2008
Capitalized terms used but not defined herein shall have the
meanings given to such terms in the Indenture (as defined).
1. Interest
(a) MAGELLAN HEALTH SERVICES, INC., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on
the principal amount of this Security at the rate per annum shown above. The
Company will pay interest semiannually on February 15 and August 15 of each
year, commencing on August 15, 1998. Interest on the Securities will accrue
from the most recent date to which interest has been paid or, if no interest
has been paid, from February 12, 1998. Interest will be computed on the
basis of a 360-day year of twelve 30-day months. The Company shall pay
interest on overdue principal at the rate borne by the Securities plus 1% per
annum, and it shall pay interest on overdue installments of interest at the
same rate to the extent lawful.
(b) Liquidated Damages. The Holder of this Security is entitled to
the benefits of the Exchange and Registration Rights Agreement, dated as of
February 12, 1998, between the Company and the Initial Purchaser named
therein (the "Registration Agreement"). Capitalized terms used in this
paragraph (b) but not defined herein have the meanings assigned to them in
the Registration Agreement. If (i) the Shelf Registration Statement or
Exchange Offer Registration Statement, as applicable under the Registration
Agreement is not filed with the SEC on or prior to 60 days after the Issue
Date, (ii) the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, is not declared effective within
150 days after the Issue Date, (iii) the Registered Exchange Offer is not
consummated on or prior to 210 days after the Issue Date, or (iv) the Shelf
Registration Statement is filed and declared effective within 210 days after
the Issue Date but shall thereafter cease to be effective (at any time that
the Company is obligated to maintain the effectiveness thereof) without being
succeeded within 30 days by an additional Registration Statement filed and
declared effective (each such event referred to in clauses (i) through (iv),
a "Registration Default"), the Company shall pay liquidated damages to each
Holder of
<PAGE>
4
Transfer Restricted Securities, during the period of such Registration
Default, in an amount equal to $0.192 per week per $1,000 principal amount of
the Securities constituting Transfer Restricted Securities held by such
Holder until the applicable Registration Statement is filed or declared
effective, the Registered Exchange Offer is consummated or the Shelf
Registration Statement again becomes effective, as the case may be. All
accrued liquidated damages shall be paid to Holders in the same manner as
interest payments on the Securities on semi-annual payment dates which
correspond to interest payment dates for the Securities. Following the cure
of all Registration Defaults, the accrual of liquidated damages will cease.
The Trustee shall have no responsibility with respect to the determination of
the amount of any such liquidated damages. For purposes of the foregoing,
"Transfer Restricted Securities" means (i) each Initial Security until the
date on which such Initial Security has been exchanged for a freely
transferable Exchange Security in the Registered Exchange Offer, (ii) each
Initial Security or Private Exchange Security until the date on which such
Initial Security or Private Exchange Security has been effectively registered
under the Securities Act and disposed of in accordance with a Shelf
Registration Statement or (iii) each Initial Security or Private Exchange
Security until the date on which such Initial Security or Private Exchange
Security is distributed to the public pursuant to Rule 144 under the
Securities Act or is saleable pursuant to Rule 144(k) under the Securities
Act.
2. Method of Payment
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered Holders of Securities at the
close of business on the February 1 or August 1 next preceding the interest
payment date even if Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company will pay principal
and interest in money of the United States of America that at the time of
payment is legal tender for payment of public and private debts. Payments in
respect of the Securities represented by a Global Security (including
principal, premium and interest) will be made by wire transfer of immediately
available funds to the accounts specified by The Depository Trust Company.
The Company, through the Paying Agent, will make all payments in respect of a
certificated Security (including principal, premium and interest), by mailing
a check to the registered address of each Holder thereof; provided, however,
that payments on the Securities may also be made, in the case of a Holder of
at least $1,000,000 aggregate principal amount of
<PAGE>
5
Securities, by wire transfer to a U.S. dollar account maintained by the payee
with a bank in the United States if such Holder elects payment by wire
transfer by giving written notice to the Trustee or the Paying Agent to such
effect designating such account no later than 30 days immediately preceding
the relevant due date for payment (or such other date as the Trustee may
accept in its discretion).
3. Paying Agent and Registrar
Initially, MARINE MIDLAND BANK, a New York banking corporation and
trust company (the "Trustee"), will act as Paying Agent and Registrar. The
Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice. The Company or any of its domestically incorporated
Wholly-owned Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as of
February 12, 1998 (the "Indenture"), between the Company and the Trustee.
The terms of the Securities include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture
(the "TIA"). The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the TIA for a statement of
those terms.
The Securities are senior subordinated unsecured obligations of the
Company limited to $625,000,000 aggregate principal amount at any one time
outstanding (subject to Section 2.07 of the Indenture). This Security is one
of the Initial Securities referred to in the Indenture issued in an aggregate
principal amount of $625,000,000. The Securities include the Initial
Securities and any Exchange Securities and Private Exchange Securities issued
in exchange for the Initial Securities pursuant to the Indenture. The
Initial Securities, the Private Exchange Securities and the Exchange
Securities are treated as a single class of securities under the Indenture.
The Indenture imposes certain limitations on the ability of the Company and
its Restricted Subsidiaries to, among other things, make certain Investments
and other Restricted Payments, pay dividends and other distributions, incur
Indebtedness, enter into consensual restrictions upon the payment of certain
dividends and distributions by such Restricted Subsidiaries, enter into or
permit certain transactions with Affiliates, create or incur Liens and make
asset sales. The Indenture also imposes limitations on the
<PAGE>
6
ability of the Company to consolidate or merge with or into any other Person
or convey, transfer or lease all or substantially all of the property of the
Company.
5. Optional Redemption
Except as set forth in the following paragraph, the Securities will
not be redeemable at the option of the Company prior to February 15, 2003.
The Securities will be redeemable at the option of the Company on or after
such date, in whole or in part, upon not less than 30 nor more than 60 days
prior notice, at the following redemption prices (expressed as percentages of
principal amount), plus accrued and unpaid interest (if any) to the
applicable redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date), if redeemed during the 12-month period commencing on February 15 of
the years set forth below:
<TABLE>
<CAPTION>
<S> <C>
Redemption
Year Prices
- ---- -------
2003 ........................................................... 104.500%
2004 ........................................................... 103.000%
2005 ........................................................... 101.500%
2006 and thereafter ............................................ 100.000%
</TABLE>
In addition, at any time and from time to time prior to February
15, 2001, the Company may, at its option, redeem up to 35% of the original
aggregate principal amount of Securities at a redemption price (expressed as
a percentage of the principal amount) of 109%, plus accrued and unpaid
interest thereon, if any, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date), with the net cash proceeds of one or more
Equity Offerings; provided that at least 65% of such original aggregate
principal amount of Securities remains outstanding immediately after the
occurrence of such redemption; and provided, further, that such redemption
shall occur within 60 days of the date of the closing of any such Equity
Offering. Any such redemption shall be made upon not less than 30 nor more
than 60 days notice mailed to each Holder of Securities being redeemed and
otherwise in accordance with the procedures set forth in the Indenture.
6. Sinking Fund
The Securities are not subject to any sinking fund.
<PAGE>
7
7. Notice of Redemption
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his or her registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest on all Securities (or portions thereof) to be redeemed on
the redemption date is deposited with the Paying Agent on or before the
redemption date and certain other conditions are satisfied, on and after such
date interest ceases to accrue on such Securities (or such portions thereof)
called for redemption.
8. Repurchase of Securities at the Option of Holders upon Change of Control
Upon a Change of Control, any Holder of Securities will have the
right, subject to certain conditions specified in the Indenture, to cause the
Company to repurchase all or any part of the Securities of such Holder at a
purchase price equal to 101% of the principal amount of the Securities to be
repurchased plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date that is on or
prior to the date of purchase) as provided in, and subject to the terms of,
the Indenture.
9. Subordination
The Securities are subordinated to Senior Indebtedness, as defined
in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid. The Company
agrees, and each Securityholder by accepting a Security agrees, to the
subordination provisions contained in the Indenture and authorizes the
Trustee to give it effect and appoints the Trustee as attorney-in-fact for
such purpose.
10. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer
or exchange Securities in accordance with the Indenture. Upon any transfer
or exchange, the Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements or transfer
<PAGE>
8
documents and to pay any taxes required by law or permitted by the Indenture.
The Registrar need not register the transfer of or exchange any Securities
selected for redemption (except, in the case of a Security to be redeemed in
part, the portion of the Security not to be redeemed) or to transfer or
exchange any Securities for a period of 15 days prior to a selection of
Securities to be redeemed.
11. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner
of it for all purposes.
12. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must
look only to the Company and not to the Trustee for payment.
13. Discharge and Defeasance
Subject to certain conditions, the Company at any time may
terminate some of or all its obligations under the Securities and the
Indenture if the Company deposits with the Trustee money or U.S. Government
Obligations for the payment of principal and interest on the Securities to
redemption or maturity, as the case may be.
14. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended or supplemented without prior
notice to any Securityholder but with the written consent of the Holders of
at least a majority in principal amount of the outstanding Securities and
(ii) any default or compliance with any provision may be waived with the
written consent of the Holders of at least a majority in principal amount of
the outstanding Securities. Subject to certain exceptions set forth in the
Indenture, without the consent of any Holder of Securities, the Company and
the Trustee may amend or supplement the Indenture or the Securities (i) to
cure any ambiguity, defect or inconsistency; (ii) to comply with Article 5 of
the Indenture; (iii) to provide for certificated or uncertificated Securities
(provided that the uncertificated Securities are issued in registered form
for purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Securities are
<PAGE>
9
described in Section 163(f)(2)(B) of the Code); (iv) to add Guarantees with
respect to the Securities or to secure the Securities; (v) to add additional
covenants for the benefit of the Holders or to surrender rights and powers
conferred on the Company; (vi) to comply with the requirements of the SEC in
connection with the qualification of the Indenture or the Trustee under the
TIA; (vii) to make any change that does not adversely affect the rights of
any Securityholder; (viii) to make any change in Article 10 of the Indenture
that would limit or terminate the benefits available to any holder of Senior
Indebtedness (or Representatives therefor) under Article 10 of the Indenture;
or (ix) to provide for the issuance of the Exchange Securities or Private
Exchange Securities.
15. Defaults and Remedies
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Securities then
outstanding, subject to certain limitations, may declare all the Securities
to be immediately due and payable. Certain events of bankruptcy or
insolvency are Events of Default and shall result in the Securities being
immediately due and payable upon the occurrence of such Events of Default
without any further act of the Trustee or any Holder.
Holders of Securities may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may refuse to
enforce the Indenture or the Securities unless it receives reasonable
indemnity or security. Subject to certain limitations, Holders of a majority
in principal amount of the Securities may direct the Trustee in its exercise
of any trust or power under the Indenture. The Holders of a majority in
aggregate principal amount of the Securities, by written notice to the
Trustee and the Company, may rescind any declaration of acceleration and its
consequences if the rescission would not conflict with any judgment or
decree, and if all existing Events of Default have been cured or waived
except nonpayment of principal or interest that has become due solely because
of the acceleration.
16. Trustee Dealings with the Company
Subject to certain limitations imposed by the TIA, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise
deal with
<PAGE>
10
the Company or its Affiliates with the same rights it would have if it were not
Trustee.
17. No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee or stockholder of the Company shall
have any liability for any obligations of the Company under the Securities or
the Indenture or for any claim based on, in respect of, or by reason of such
obligations or their creation. Each Securityholder by accepting a Security
waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Securities.
18. Authentication
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
19. Abbreviations
Customary abbreviations may be used in the name of a Securityholder
or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by
the entireties), JT TEN (=joint tenants with rights of survivorship and not
as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to
Minors Act).
20. Governing Law
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION
OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
21. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP
numbers to be printed on the Securities and has directed the Trustee to use
CUSIP numbers in notices of redemption as a convenience to Securityholders.
No representation is made as to the accuracy of such numbers either as
printed on the Securities or as contained in any notice of redemption and
reliance may be placed only on the other identification numbers placed
thereon.
<PAGE>
11
The Company will furnish to any Holder of Securities upon written
request and without charge to the Holder a copy of the Indenture which has in
it the text of this Security.
<PAGE>
12
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to
transfer this Security on the books of the Company. The agent may substitute
another to act for him.
____________________________________________________________
Date: ________________ Your Signature: _____________________
____________________________________________________________
Sign exactly as your name appears on the other side of this Security.
<PAGE>
13
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER RESTRICTED
SECURITIES
This certificate relates to $_________ principal amount of Securities held in
(check applicable space) ____ book-entry or _____ definitive form by the
undersigned.
The undersigned (check one box below):
/ / has requested the Trustee by written order to deliver in exchange for its
beneficial interest in the Global Security held by the Depositary a
Security or Securities in definitive, registered form of authorized
denominations and an aggregate principal amount equal to its beneficial
interest in such Global Security (or the portion thereof indicated above);
/ / has requested the Trustee by written order to exchange or register the
transfer of a Security or Securities.
<PAGE>
14
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in
Rule 144(k) under the Securities Act, the undersigned confirms that such
Securities are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) / / to the Company; or
(2) / / pursuant to an effective registration statement under the
Securities Act; or
(3) / / inside the United States to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) that purchases for
its own account or for the account of a qualified institutional
buyer to whom notice is given that such transfer is being made in
reliance on Rule 144A, in each case pursuant to and in compliance
with Rule 144A under the Securities Act; or
(4) / / outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance
with Rule 904 under the Securities Act; or
(5) / / to an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that
has furnished to the Trustee a signed letter containing certain
representations and agreements; or
(6) / / pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Securities evidenced by this certificate in the name of any Person
other than the registered Holder thereof; provided, however, that if
box (4), (5) or (6) is checked, the Trustee may require, prior to
registering any such transfer of the Securities, such legal opinions,
certifications and other information as the Company has reasonably
requested to confirm that such transfer is being made pursuant to an
exemption
<PAGE>
15
from, or in a transaction not subject to, the registration requirements of
the Securities Act.
---------------------------
Your Signature
- --------------------
Signature Guarantee:
Date:
-------------------------- --------------------------------
Signature must be guaranteed by a Signature of Signature Guarantee
participant in a recognized signature
guaranty medallion program or other
signature guarantor acceptable to the
Trustee
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act,
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:
------------------------ -------------------------------
NOTICE: To be executed by an
executive officer
<PAGE>
16
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The initial principal amount of this Global Security is $[ ].
The following increases or decreases in this Global Security have been made:
Signature of
Principal amount authorized
Amount of decrease Amount of increase of this Global signatory of
in Principal in Principal Security following Trustee or
Date of Amount of this Amount of this such decrease or Securities
Exchange Global Security Global Security increase Custodian
<PAGE>
17
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.06 or 4.08 of the Indenture, check the box:
/ /
If you want to elect to have only part of this Security purchased
by the Company pursuant to Section 4.06 or 4.08 of the Indenture, state the
amount:
$
Date: __________________ Your Signature: __________________
(Sign exactly as your name appears
on the other side of the Security)
Signature Guarantee:_______________________________________
Signature must be guaranteed by a participant in a
recognized signature guaranty medallion program or other
signature guarantor acceptable to the Trustee
<PAGE>
EXHIBIT B
[FORM OF FACE OF EXCHANGE SECURITY]
No. $__________
9% Senior Subordinated Note due 2008
CUSIP No. ______
MAGELLAN HEALTH SERVICES, INC., a Delaware corporation, promises to
pay to Cede & Co., or registered assigns, the principal sum
[of Dollars] [listed on the Schedule of Increases or Decreases
in Global Security attached hereto](1)on February 15, 2008.
Interest Payment Dates: February 15 and August 15.
Record Dates: February 1 and August 1.
- -----------------
(1)Use the second set of bracketed language for a Global Security.
<PAGE>
2
Additional provisions of this Security are set forth on the other side
of this Security.
IN WITNESS WHEREOF, the parties have caused this instrument to be duly
executed.
MAGELLAN HEALTH SERVICES, INC.,
by
-------------------------------
Name:
Title:
[CORPORATE SEAL]
Dated:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
MARINE MIDLAND BANK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
---------------------------
Authorized Signatory
- --------------------------
*/ If the Security is to be issued in global form, add the Global Securities
Legend and the attachment from Exhibit A captioned "TO BE ATTACHED TO GLOBAL
SECURITIES - SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY".
<PAGE>
3
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY]
9% Senior Subordinated Note due 2008
Capitalized terms used but not defined herein shall have the meanings
given to such terms in the Indenture (as defined).
1. Interest
MAGELLAN HEALTH SERVICES, INC., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at the rate per annum shown above. The
Company will pay interest semiannually on February 15 and August 15 of each
year, commencing on August 15, 1998. Interest on the Securities will accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from February 12, 1998. Interest will be computed on the basis of a
360-day year of twelve 30-day months. The Company shall pay interest on overdue
principal at the rate borne by the Securities plus 1% per annum, and it shall
pay interest on overdue installments of interest at the same rate to the extent
lawful.
2. Method of Payment
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered Securityholders at the close of
business on the February 1 or August 1 next preceding the interest payment date
even if Securities are canceled after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company will pay principal and interest in
money of the United States of America that at the time of payment is legal
tender for payment of public and private debts. Payments in respect of the
Securities represented by a Global Security (including principal, premium and
interest) will be made by wire transfer of immediately available funds to the
accounts specified by The Depository Trust Company. The Company, through the
Paying Agent, will make all payments in respect of a certificated Security
(including principal, premium and interest), by mailing a check to the
registered address of each Holder thereof; provided, however, that payments on
the Securities may also be made, in the case of a Holder of at least $1,000,000
aggregate principal amount of Securities, by wire transfer to a U.S. dollar
account maintained by the payee with
<PAGE>
4
a bank in the United States if such Holder elects payment by wire transfer by
giving written notice to the Trustee or the Paying Agent to such effect
designating such account no later than 30 days immediately preceding the
relevant due date for payment (or such other date as the Trustee may accept in
its discretion).
3. Paying Agent and Registrar
Initially, MARINE MIDLAND BANK, a New York banking corporation and
trust company (the "Trustee"), will act as Paying Agent and Registrar. The
Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice. The Company or any of its domestically incorporated
Wholly-owned Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as of
February 12, 1998 (the "Indenture"), between the Company and the Trustee. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA").
The Securities are subject to all such terms, and Securityholders are referred
to the Indenture and the TIA for a statement of those terms.
The Securities are senior subordinated unsecured obligations of the
Company limited to $625,000,000 aggregate principal amount at any one time
outstanding (subject to Section 2.07 of the Indenture). This Security is one of
the Securities referred to in the Indenture. The Securities include the Initial
Securities and any Exchange Securities and Private Exchange Securities issued in
exchange for the Initial Securities pursuant to the Indenture. The Initial
Securities, the Exchange Securities and the Private Exchange Securities are
treated as a single class of securities under the Indenture. The Indenture
imposes certain limitations on the ability of the Company and its Restricted
Subsidiaries to, among other things, make certain Investments and other
Restricted Payments, pay dividends and other distributions, incur Indebtedness,
enter into consensual restrictions upon the payment of certain dividends and
distributions by such Restricted Subsidiaries, enter into or permit certain
transactions with Affiliates, create or incur Liens and make asset sales. The
Indenture also imposes limitations on the ability of the Company to consolidate
or merge with or into
<PAGE>
5
any other Person or convey, transfer or lease all or substantially all of the
property of the Company.
5. Optional Redemption
Except as set forth in the following paragraph, the Securities will
not be redeemable at the option of the Company prior to February 15, 2003. The
Securities will be redeemable at the option of the Company on or after such
date, in whole or in part, upon not less than 30 nor more than 60 days prior
notice, at the following redemption prices (expressed as percentages of
principal amount), plus accrued and unpaid interest (if any) to the applicable
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on February 15 of the years set
forth below:
<TABLE>
<CAPTION>
Redemption
Year Prices
- ----- ----------
<S> <C>
2003 .................................................. 104.500%
2004 .................................................. 103.000%
2005 .................................................. 101.500%
2006 and thereafter......................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to February 15,
2001, the Company may, at its option, redeem up to 35% of the original aggregate
principal amount of Securities at a redemption price (expressed as a percentage
of the principal amount) of 109%, plus accrued and unpaid interest thereon, if
any, to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date), with the net cash proceeds of one or more Equity Offerings; provided that
at least 65% of such original aggregate principal amount of Securities remains
outstanding immediately after the occurrence of such redemption; and provided,
further, that such redemption shall occur within 60 days of the date of the
closing of any such Equity Offering. Any such redemption shall be made upon not
less than 30 nor more than 60 days notice mailed to each Holder of Securities
being redeemed and otherwise in accordance with the procedures set forth in the
Indenture.
6. Sinking Fund
The Securities are not subject to any sinking fund.
<PAGE>
6
7. Notice of Redemption
Notice of redemption will be mailed by first-class mail at least
30 days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his or her registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
8. Repurchase of Securities at the Option of Holders upon Change of Control
Upon a Change of Control, any Holder of Securities will have the
right, subject to certain conditions specified in the Indenture, to cause the
Company to repurchase all or any part of the Securities of such Holder at a
purchase price equal to 101% of the principal amount of the Securities to be
repurchased plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of purchase) as provided in, and subject to the terms of, the
Indenture.
9. Subordination
The Securities are subordinated to Senior Indebtedness, as defined in
the Indenture. To the extent provided in the Indenture, Senior Indebtedness
must be paid before the Securities may be paid. The Company agrees, and each
Securityholder by accepting a Security agrees, to the subordination provisions
contained in the Indenture and authorizes the Trustee to give it effect and
appoints the Trustee as attorney-in-fact for such purpose.
10. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. Upon any transfer or exchange, the
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements or transfer
<PAGE>
7
documents and to pay any taxes required by law or permitted by the Indenture.
The Registrar need not register the transfer of or exchange any Securities
selected for redemption (except, in the case of a Security to be redeemed in
part, the portion of the Security not to be redeemed) or to transfer or exchange
any Securities for a period of 15 days prior to a selection of Securities to be
redeemed.
11. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner of
it for all purposes.
12. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
13. Discharge and Defeasance
Subject to certain conditions, the Company at any time may terminate
some of or all its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
14. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended or supplemented without prior notice
to any Securityholder but with the written consent of the Holders of at least a
majority in principal amount of the outstanding Securities and (ii) any default
or compliance with any provision may be waived with the written consent of the
Holders of at least a majority in principal amount of the outstanding
Securities. Subject to certain exceptions set forth in the Indenture, without
the consent of any Holder of Securities, the Company and the Trustee may amend
or supplement the Indenture or the Securities (i) to cure any ambiguity, defect
or inconsistency; (ii) to comply with Article 5 of the Indenture; (iii) to
provide for certificated or uncertificated Securities (provided that the
uncertificated Securities are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated Securities are
<PAGE>
8
described in Section 163(f)(2)(B) of the Code); (iv) to add Guarantees with
respect to the Securities or to secure the Securities; (v) to add additional
covenants for the benefit of the Holders or to surrender rights and powers
conferred on the Company; (vi) to comply with the requirements of the SEC in
connection with the qualification of the Indenture or the Trustee under the TIA;
(vii) to make any change that does not adversely affect the rights of any
Securityholder; (viii) to make any change in Article 10 of the Indenture that
would limit or terminate the benefits available to any holder of Senior
Indebtedness (or Representatives therefor) under Article 10 of the Indenture; or
(ix) to provide for the issuance of the Exchange Securities or Private Exchange
Securities.
15. Defaults and Remedies
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Securities then
outstanding, subject to certain limitations, may declare all the Securities
to be immediately due and payable. Certain events of bankruptcy or
insolvency are Events of Default and shall result in the Securities being
immediately due and payable upon the occurrence of such Events of Default
without any further act of the Trustee or any Holder.
Holders of Securities may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power under
the Indenture. The Holders of a majority in aggregate principal amount of the
Securities, by written notice to the Trustee and the Company, may rescind any
declaration of acceleration and its consequences if the rescission would not
conflict with any judgment or decree, and if all existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of the acceleration.
16. Trustee Dealings with the Company
Subject to certain limitations imposed by the TIA, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with
<PAGE>
9
the Company or its Affiliates with the same rights it would have if it were not
Trustee.
17. No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee or stockholder of the Company shall
have any liability for any obligations of the Company under the Securities or
the Indenture or for any claim based on, in respect of, or by reason of such
obligations or their creation. Each Securityholder by accepting a Security
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Securities.
18. Authentication
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
19. Abbreviations
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
20. Governing Law
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
21. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
<PAGE>
10
The Company will furnish to any Holder of Securities upon written
request and without charge to the Holder a copy of the Indenture which has in it
the text of this Security.
<PAGE>
11
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
____________________________________________________________
Date: ________________ Your Signature: _____________________
____________________________________________________________
Sign exactly as your name appears on the other side of this Security. Signature
must be guaranteed by a participant in a recognized signature guaranty medallion
program or other signature guarantor acceptable to the Trustee.
<PAGE>
12
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.06 or 4.08 of the Indenture, check the box:
/ /
If you want to elect to have only part of this Security purchased
by the Company pursuant to Section 4.06 or 4.08 of the Indenture, state the
amount:
$
Date: __________________ Your Signature: __________________
(Sign exactly as your name appears
on the other side of the Security)
Signature Guarantee:_______________________________________
Signature must be guaranteed by a participant in a
recognized signature guaranty medallion program or other
signature guarantor acceptable to the Trustee
<PAGE>
EXHIBIT C
[Form of
Transferee Letter of Representation]
Ladies and Gentlemen:
This certificate is delivered to request a transfer of
$__________ principal amount of the 9% Senior Subordinated Notes due 2008 (the
"Securities") of Magellan Health Services, Inc. (the "Company").
Upon transfer, the Securities would be registered in the name of the
new beneficial owner as follows:
Name:______________________
Address:___________________
Taxpayer ID Number:________
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined in
rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended
(the "Securities Act")), purchasing for our own account or for the account of
such an institutional "accredited investor" at least $250,000 principal
amount of the Securities, and we are acquiring the Securities not with a view
to, or for offer or sale in connection with, any distribution in violation of
the Securities Act. 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 Securities, and we invest in or purchase securities similar
to the Securities in the normal course of our business. We, and any accounts
for which we are acting, are each able to bear the economic risk of our or
its investment.
2. We understand that the Securities have not been registered
under the Securities Act and, unless so registered, 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 Securities to
offer, sell or otherwise transfer such Securities prior to the date that 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
Securities (or any predecessor thereto) (the "Resale Restriction Termination
Date") only (a) to the Company, (b) pursuant to a registration statement that
has been declared effective under the Securities Act, (c) in a
<PAGE>
2
transaction complying with the requirements of Rule 144A under the Securities
Act ("Rule 144A"), to a person we reasonably believe is a qualified
institutional buyer under Rule 144A (a "QIB") that is purchasing for its own
account or for the account of a QIB and to whom notice is given that the
transfer is being made in reliance on Rule 144A, (d) in an offshore transaction
within the meaning of, and in compliance with, Regulation S under the Securities
Act, (e) to an institutional "accredited investor" within the meaning of
Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is purchasing for
its own account or for the account of such an institutional "accredited
investor," in each case in a minimum principal amount of Securities of $250,000,
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 or the property of
such investor account or accounts be at all times within our or their control
and in 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 Securities 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 Company and the Trustee, which
shall provide, among other things, that the transferee is an institutional
"accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act and that is acquiring such Securities for investment
purposes and not for distribution in violation of the Securities Act. Each
purchaser acknowledges that the Company and the Trustee reserve the right prior
to the offer, sale or other transfer prior to the Resale Restriction Termination
Date of the Securities pursuant to clause (d), (e) or (f) above to require the
delivery of an opinion of counsel, certifications or other information
satisfactory to the Company and the Trustee.
TRANSFEREE: ____________________________
by: ____________________________________
<PAGE>
Exhibit 4b
MAGELLAN HEALTH SERVICES, INC.
$625,000,000
9% Senior Subordinated Notes due 2008
PURCHASE AGREEMENT
February 5, 1998
CHASE SECURITIES INC.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
Magellan Health Services, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell $625,000,000 aggregate principal
amount of its 9% Senior Subordinated Notes due 2008 (the "Securities"). The
Securities will be issued pursuant to an Indenture (the "Indenture") to be
dated as of the Closing Date (as defined below) between the Company and
Marine Midland Bank, as trustee (the "Trustee"). The Company hereby confirms
its agreement with Chase Securities Inc. (the "Initial Purchaser") concerning
the purchase of the Securities from the Company by the Initial Purchaser.
The Securities will be offered and sold to the Initial Purchaser
without being registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon an exemption therefrom. The Company has
prepared a preliminary offering memorandum dated January 21, 1998 (the
"Preliminary Offering Memorandum") and will prepare an offering memorandum
dated the date hereof (the "Offering Memorandum") setting forth information
concerning the Company and the Securities. Copies of the Preliminary
Offering Memorandum have been, and copies of the Offering Memorandum will be,
delivered by the Company to the Initial Purchaser pursuant to the terms of
this Agreement. Any references herein to the Preliminary Offering Memorandum
and the Offering Memorandum shall be deemed to include all amendments and
supplements thereto, unless otherwise noted. The Company hereby confirms
that it has authorized the use of the Preliminary Offering Memorandum and the
Offering Memorandum in connection with the offering and resale of the
Securities by the Initial Purchaser in accordance with Section 2.
<PAGE>
Holders of the Securities (including the Initial Purchaser and its
direct and indirect transferees) will be entitled to the benefits of an
Exchange and Registration Rights Agreement, substantially in the form
attached hereto as Annex A (the "Registration Rights Agreement"), pursuant to
which the Company will agree to file with the Securities and Exchange
Commission (the "Commission") (a) a registration statement under the
Securities Act (the "Exchange Offer Registration Statement") registering an
issue of senior subordinated notes of the Company (the "Exchange Securities")
which are identical in all material respects to the Securities (except that
the Exchange Securities will not contain terms with respect to transfer
restrictions) and (b) under certain circumstances, a shelf registration
statement pursuant to Rule 415 under the Securities Act (the "Shelf
Registration Statement").
The Securities are being issued in connection with the acquisition
by the Company of Merit Behavioral Care Corporation ("Merit"). Pursuant to
the Agreement and Plan of Merger (the "Merger Agreement") among the Company,
Merit and MBC Merger Corporation dated October 24, 1997, Merit will become a
wholly owned subsidiary of the Company.
Capitalized terms used but not defined herein shall have the
meanings given to such terms in the Offering Memorandum.
1. Representations, Warranties and Agreements of the Company. The
Company represents and warrants to, and agrees with, the Initial Purchaser on
and as of the date hereof and the Closing Date that (it being understood that
to the extent the following representations and warranties relate to Merit
and are not otherwise qualified as to the knowledge of the Company, such
representations and warranties are made to the best knowledge of the Company):
(a) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its respective date, did not, and on the Closing Date
the Offering Memorandum will 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 the
light of the circumstances under which they were made, not misleading;
provided that the Company makes no representation or warranty as to
information contained in or omitted from the Preliminary Offering
Memorandum or the Offering Memorandum in reliance upon and in conformity
with written information relating to the Initial Purchaser furnished to
the Company by or on behalf of the Initial Purchaser specifically for
use therein (the "Initial Purchaser's Information").
(b) Assuming the accuracy of the representations and warranties of
the Initial Purchaser contained in Section 2 and its compliance with the
agreements set forth therein, it is not necessary, in connection with
the issuance and sale of the Securities to the Initial Purchaser and the
offer, resale and delivery of the Securities by the Initial Purchaser in
each case in the manner contemplated by this Agreement and the Offering
Memorandum, to register the Securities under the Securities Act or to
qualify the Indenture under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act").
(c) The Company, Merit and each of their respective subsidiaries
have been duly incorporated and are validly existing as corporations in
good standing under the laws of their respective jurisdictions of
incorporation, are duly qualified to do business and are in good
standing as foreign corporations in each jurisdiction in which their
respective ownership or lease of property or the conduct of their
respective businesses requires such qualification, and have all power
and authority necessary to own or hold their respective
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<PAGE>
properties and to conduct the businesses in which they are engaged,
except where the failure to so qualify or have such power or authority
would not, singularly or in the aggregate, have a material adverse
effect on the condition (financial or otherwise), results of operations,
business or prospects of the Company, Merit and their respective
subsidiaries taken as a whole (a "Material Adverse Effect").
(d) All the outstanding shares of capital stock of the Company
have been duly and validly authorized and issued and are fully paid and
nonassessable. All of the outstanding shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and
issued, are fully paid and nonassessable and, except with respect to the
subsidiaries that are not wholly owned by the Company and are listed on
Schedule 1 hereto, are owned directly or indirectly by the Company, free
and clear of any lien, charge, encumbrance, security interest,
restriction upon voting or transfer or any other claim of any third
party except for those to be created pursuant to the New Credit
Agreement or permitted thereunder.
(e) The Company has full right, power and authority to execute and
deliver this Agreement, the Indenture, the Registration Rights
Agreement, the Securities, the Merger Agreement and the New Credit
Agreement (collectively, the "Transaction Documents") and to perform its
obligations hereunder and thereunder; and all corporate action required
to be taken for the due and proper authorization, execution and delivery
of each of the Transaction Documents and the consummation of the
transactions contemplated thereby have been duly and validly taken.
(f) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except to the extent that such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equitable principles (whether considered
in a proceeding in equity or at law) and except to the extent that the
indemnification provisions thereof may be unenforceable.
(g) The Registration Rights Agreement has been duly authorized by
the Company and, when duly executed and delivered in accordance with its
terms by each of the parties thereto, will constitute a valid and
legally binding agreement of the Company, enforceable against the
Company in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
affecting creditors' rights generally and by general equitable
principles (whether considered in a proceeding in equity or at law).
(h) The Indenture has been duly authorized by the Company and,
when duly executed and delivered in accordance with its terms by each of
the parties thereto, will constitute a valid and legally binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except to the extent that such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equitable principles (whether considered
in a proceeding in equity or at law). On the
3
<PAGE>
Closing Date, the Indenture will conform in all material respects to the
requirements of the Trust Indenture Act and the rules and regulations of
the Commission applicable to an indenture which is qualified thereunder.
(i) The Securities have been duly authorized by the Company and,
when duly executed, authenticated, issued and delivered as provided in
the Indenture and paid for as provided herein, will be duly and validly
issued and outstanding and will constitute valid and legally binding
obligations of the Company, entitled to the benefits of the Indenture
and enforceable against the Company in accordance with their terms,
except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equitable principles (whether considered
in a proceeding in equity or at law).
(j) The Merger Agreement has been duly authorized, executed and
delivered by the Company and Merit and constitutes a valid and legally
binding agreement of the Company and Merit enforceable against each of the
Company and Merit in accordance with its terms, except to the extent that
such enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
affecting creditors' rights generally and by general equitable principles
(whether considered in a proceeding in equity or at law).
(k) The New Credit Agreement has been duly authorized by the
Company and, when duly executed and delivered in accordance with its
terms by each of the parties thereto, will constitute a valid and
legally binding agreement of the Company, enforceable against the
Company in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
affecting creditors' rights generally and by general equitable
principles (whether considered in a proceeding in equity or at law).
(l) Each Transaction Document conforms in all material respects to
the description thereof contained in the Offering Memorandum.
(m) The execution, delivery and performance by the Company of each
of the Transaction Documents and by Merit of the Merger Agreement, the
issuance, authentication, sale and delivery of the Securities and
compliance by the Company with the terms thereof and the consummation of
the transactions contemplated by the Transaction Documents will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, or, except as contemplated
by the Offering Memorandum, result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company,
Merit or any of their respective subsidiaries pursuant to, any material
indenture, mortgage, deed of trust, loan agreement or other material
agreement or instrument to which the Company, Merit or any of their
respective subsidiaries is a party (other than with respect to certain
managed care contracts that otherwise permit the customer to terminate
the contract upon the provision of a specified number of days notice to
the Company or Merit or one of their respective subsidiaries, as the
case may be, and the termination of which, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect) or
4
<PAGE>
by which the Company, Merit or any of their respective subsidiaries is
bound or to which any of the property or assets of the Company, Merit or
any of their respective subsidiaries is subject, nor will such actions
result in any violation of the provisions of the charter or by-laws of
the Company, Merit or any of their respective subsidiaries or any
statute or any judgment, order, decree, rule or regulation of any court
or arbitrator or governmental agency or body having jurisdiction over
the Company, Merit or any of their respective subsidiaries or any of
their properties or assets; and no consent, approval, authorization or
order of, or filing or registration with, any such court or arbitrator
or governmental agency or body under any such statute, judgment, order,
decree, rule or regulation is required for the execution, delivery and
performance by the Company of each of the Transaction Documents and by
Merit of the Merger Agreement, the issuance, authentication, sale and
delivery of the Securities and compliance by the Company and Merit with
the terms thereof and the consummation of the transactions contemplated
by the Transaction Documents, except for such consents, approvals,
authorizations, filings, registrations or qualifications (i) which shall
have been obtained or made prior to the Closing Date, (ii) as may be
required to be obtained or made under the Securities Act and applicable
state securities laws as provided in the Registration Rights Agreement
or (iii) the failure of which to obtain would not reasonably be likely
to restrain, prevent or impose burdensome conditions on the transactions
contemplated by the Transaction Documents or have a Material Adverse
Effect.
5
<PAGE>
(n) Arthur Andersen LLP ("AA") are independent certified public
accountants with respect to the Company and its subsidiaries and CBHS
and its subsidiaries within the meaning of Rule 101 of the Code of
Professional Conduct of the American Institute of Certified Public
Accountants ("AICPA") and its interpretations and rulings thereunder.
The historical financial statements (including the related notes) of the
Company and its subsidiaries and CBHS and its subsidiaries contained in
the Offering Memorandum comply in all material respects with the
requirements applicable to a registration statement on Form S-1 under
the Securities Act (except that certain supporting schedules are
omitted); such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied
throughout the periods covered thereby and fairly present the financial
position of the entities purported to be covered thereby at the
respective dates indicated and the results of their operations and their
cash flows for the respective periods indicated; and the financial
information contained in the Offering Memorandum under the headings
"Summary--Summary Historical and Unaudited Pro Forma Financial Data",
"Capitalization", "Magellan Selected Historical Consolidated Financial
Information", "Merit Selected Historical Consolidated Financial
Information", "Magellan's Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Merit's Management's
Discussion and Analysis of Financial Condition and Results of
Operations", and "Management--Executive Compensation" are derived from
the accounting records of the Company and its subsidiaries, CBHS, Merit
or HAI, as applicable, and fairly present the information purported to
be shown thereby. The pro forma financial information contained in the
Offering Memorandum has been prepared on a basis consistent with the
historical financial statements contained in the Offering Memorandum
(except for the pro forma adjustments specified therein), includes all
material adjustments to the historical financial information required by
Rule 11-02 of Regulation S-X under the Securities Act and the Exchange
Act to reflect the transactions described in the Offering Memorandum,
gives effect to assumptions made on a reasonable basis and fairly
presents the historical and proposed transactions contemplated by the
Offering Memorandum and the Transaction Documents. The other historical
financial and statistical information and data included in the Offering
Memorandum are, in all material respects, fairly presented.
(o) There are no legal or governmental proceedings pending to
which the Company, Merit or any of their subsidiaries is a party or of
which any property or assets of the Company, Merit or any of their
subsidiaries is the subject which (A) singularly or in the aggregate, if
determined adversely to the Company, Merit or any of their subsidiaries,
could reasonably be expected to have a Material Adverse Effect or (B)
questions the validity or enforceability of any of the Transaction
Documents or any action taken or to be taken pursuant thereto; and to
the best knowledge of the Company, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
(p) No action has been taken and no statute, rule, regulation or
order has been enacted, adopted or issued by any governmental agency or
body which prevents the issuance of the Securities or suspends the sale
of the Securities in any jurisdiction; no injunction, restraining order
or order of any nature by any federal or state court of competent
jurisdiction has been issued with respect to the Company, Merit or any
of their subsidiaries which would prevent or suspend the issuance or
sale of the Securities or the use of the Preliminary Offering Memorandum
or the Offering Memorandum in any
6
<PAGE>
jurisdiction; no action, suit or proceeding is pending against or, to
the best knowledge of the Company, threatened against or affecting the
Company, Merit or any of their respective subsidiaries before any court
or arbitrator or any governmental agency, body or official, domestic or
foreign, which could reasonably be expected to interfere with or
adversely affect the issuance of the Securities or in any manner draw
into question the validity or enforceability of any of the Transaction
Documents or any action taken or to be taken pursuant thereto; and the
Company has not received any requests by any securities authority in any
jurisdiction for additional information to be included in the
Preliminary Offering Memorandum and the Offering Memorandum.
(q) Neither the Company, Merit nor any of their respective
subsidiaries is (i) in violation of its charter or by-laws, (ii) in
default in any material respect, and no event has occurred which, with
notice or lapse of time or both, would constitute such a default, in the
due performance or observance of any term, covenant or condition
contained in any material indenture, mortgage, deed of trust, loan
agreement or other material agreement or instrument to which it is a
party or by which it is bound or to which any of its property or assets
is subject or (iii) in violation in any material respect of any law,
ordinance, governmental rule, regulation or court decree to which it or
its property or assets may be subject.
(r) The Company, Merit and each of their subsidiaries possess all
material licenses, certificates, authorizations and permits issued by,
and have made all declarations and filings with, the appropriate
federal, state or foreign regulatory agencies or bodies which are
necessary or desirable for the ownership of their respective properties
or the conduct of their respective businesses as described in the
Offering Memorandum, except where the failure to possess or make the
same would not, singularly or in the aggregate, have a Material Adverse
Effect, and neither the Company, Merit nor any of their subsidiaries has
received notification of any revocation or modification of any such
license, certificate, authorization or permit or has any reason to
believe that any such license, certificate, authorization or permit will
not be renewed in the ordinary course.
(s) The Company, Merit and each of their subsidiaries have filed
all federal, state, material local and foreign income and franchise tax
returns required to be filed through the date hereof and have paid all
taxes due thereon, and no tax deficiency has been determined adversely
to the Company, Merit or any of their respective subsidiaries which has
had (nor does the Company or any of its subsidiaries have any knowledge
of any tax deficiency which, if determined adversely to the Company,
Merit or any of their respective subsidiaries, could reasonably be
expected to have) a Material Adverse Effect.
(t) Neither the Company, Merit nor any of their respective
subsidiaries is (i) an "investment company" or a company "controlled by"
an investment company within the meaning of the Investment Company Act
of 1940, as amended (the "Investment Company Act"), and the rules and
regulations of the Commission thereunder or (ii) a "holding company" or
a "subsidiary company" of a holding company or an "affiliate" thereof
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
(u) The Company, Merit and each of their respective subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i)
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<PAGE>
transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
(v) The Company, Merit and each of their subsidiaries have
insurance covering their respective properties, operations, personnel
and businesses, which insurance is in amounts and insures against such
reasonably foreseeable losses and risks as are adequate to protect the
Company, Merit and their respective subsidiaries and their respective
businesses. Neither the Company, Merit nor any of their respective
subsidiaries has received notice from any insurer or agent of such
insurer that any material capital improvements or other expenditures are
required or necessary to be made in order to continue such insurance.
(w) The Company, Merit and each of their respective subsidiaries
own or possess adequate rights to use all material patents, patent
applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights, licenses and
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures) necessary for the conduct of their respective businesses;
and the conduct of their respective businesses will not conflict in any
material respect with, and the Company, Merit and their subsidiaries
have not received any notice of any claim of conflict with, any such
rights of others.
(x) The Company, Merit and each of their respective subsidiaries
have good and marketable title in fee simple to, or have valid rights to
lease or otherwise use, all items of real and personal property which
are material to the business of the Company, Merit and their respective
subsidiaries, in each case free and clear of all liens, encumbrances,
claims and defects and imperfections of title except (i) those to be
created pursuant to the New Credit Agreement or permitted thereunder and
(ii) those that (x) do not materially interfere with the use made and
proposed to be made of such property by the Company, Merit and their
respective subsidiaries or (y) could not reasonably be expected to have
a Material Adverse Effect.
(y) No labor disturbance by or dispute with the employees of the
Company, Merit or any of their subsidiaries exists or, to the best
knowledge of the Company, is contemplated or threatened that could
reasonably be expected to have a Material Adverse Effect.
(z) No "prohibited transaction" (as defined in Section 406 of the
Employee Retirement Income Security Act of 1974, as amended, including
the regulations and published interpretations thereunder ("ERISA"), or
Section 4975 of the Internal Revenue Code of 1986, as amended from time
to time (the "Code")) or "accumulated funding deficiency" (as defined in
Section 302 of ERISA) or any of the events set forth in Section 4043(b)
of ERISA (other than events with respect to which the 30-day notice
requirement under Section 4043 of ERISA has been waived) has occurred
with respect to any
8
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employee benefit plan of the Company, Merit or any of their subsidiaries
which could reasonably be expected to have a Material Adverse Effect;
each such employee benefit plan is in compliance in all material
respects with applicable law, including ERISA and the Code; the Company,
Merit and each of their subsidiaries have not incurred and do not expect
to incur liability under Title IV of ERISA with respect to the
termination of, or withdrawal from, any pension plan for which the
Company, Merit or any of their subsidiaries would have any liability;
and each such pension plan that is intended to be qualified under
Section 401(a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or by failure to act, which
could reasonably be expected to cause the loss of such qualification.
(aa) There has been no storage, generation, transportation,
handling, treatment, disposal, discharge, emission or other release of
any kind of toxic or other wastes or other hazardous substances by, due
to or caused by the Company, Merit or any of their subsidiaries (or, to
the best knowledge of the Company, any other entity (including any
predecessor) for whose acts or omissions the Company, Merit or any of
their subsidiaries is or could reasonably be expected to be liable) upon
any of the property now or previously owned or leased by the Company,
Merit or any of their subsidiaries, or upon any other property, in
violation of any statute or any ordinance, rule, regulation, order,
judgment, decree or permit or which would, under any statute or any
ordinance, rule (including rule of common law), regulation, order,
judgment, decree or permit, give rise to any liability, except for any
violation or liability that could not reasonably be expected to have,
singularly or in the aggregate with all such violations and liabilities,
a Material Adverse Effect; and there has been no disposal, discharge,
emission or other release of any kind onto such property or into the
environment surrounding such property of any toxic or other wastes or
other hazardous substances with respect to which the Company has
knowledge, except for any such disposal, discharge, emission or other
release of any kind which could not reasonably be expected to have,
singularly or in the aggregate with all such discharges and other
releases, a Material Adverse Effect.
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(bb) Neither the Company or Merit nor, to the best knowledge of
the Company, any director, officer, agent, employee or other person
associated with or acting on behalf of the Company or Merit has (i) used
any corporate funds for any unlawful contribution, gift, entertainment
or other unlawful expense relating to political activity; (ii) made any
direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; (iii) violated or
is in violation of any provision of the Foreign Corrupt Practices Act of
1977; or (iv) made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment.
(cc) On and immediately after the Closing Date, the Company (after
giving effect to the issuance of the Securities and to the other
transactions related thereto as described in the Offering Memorandum)
will be Solvent. As used in this paragraph, the term "Solvent" means,
with respect to a particular date, that on such date (i) the present
fair market value (or present fair saleable value) of the assets of the
Company is not less than the total amount required to pay the probable
liabilities of the Company on its total existing debts and liabilities
(including contingent liabilities) as they become absolute and matured,
(ii) the Company is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and commitments as they
mature and become due in the normal course of business, (iii) assuming
the sale of the Securities as contemplated by this Agreement and the
Offering Memorandum, the Company is not incurring debts or liabilities
beyond its ability to pay as such debts and liabilities mature and (iv)
the Company, on a consolidated basis, is not engaged in any business or
transaction, and is not about to engage in any business or transaction,
for which its property would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry in
which the Company is engaged. In computing the amount of such
contingent liabilities at any time, it is intended that such liabilities
will be computed at the amount that, in the light of all the facts and
circumstances existing at such time and known to the Company, represents
the amount that can reasonably be expected to become an actual or
matured liability.
(dd) Except as described in the Offering Memorandum, there are no
outstanding subscriptions, rights, warrants, calls or options to
acquire, or instruments convertible into or exchangeable for, or
agreements or understandings with respect to the sale or issuance of,
any shares of capital stock of or other equity or other ownership
interest in the Company or any of its subsidiaries other than those
given to employees and directors of the Company in the ordinary course
of business and those listed on Schedule 2 hereto.
(ee) Neither the Company nor any of its subsidiaries owns any
"margin securities" as that term is defined in Regulations G and U of
the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), and none of the proceeds of the sale of the Securities
will be used, directly or indirectly, for the purpose of purchasing or
carrying any margin security, for the purpose of reducing or retiring
any indebtedness which was originally incurred to purchase or carry any
margin security or for any other purpose which might cause any of the
Securities to be considered a "purpose credit" within the meanings of
Regulation G, T, U or X of the Federal Reserve Board.
(ff) Neither the Company, Merit nor any of their respective
subsidiaries is a party to any contract, agreement or understanding with
any person that would give rise to a valid claim against the Company,
Merit or the Initial Purchaser for a brokerage
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commission, finder's fee or like payment in connection with the offering
and sale of the Securities.
(gg) The Securities satisfy the eligibility requirements of Rule
144A(d)(3) under the Securities Act.
(hh) Assuming the accuracy of the representations and warranties
of the Initial Purchaser in Section 2(c)(iii) hereof, none of the
Company, any of its affiliates or any person acting on its or their
behalf has engaged or will engage in any directed selling efforts (as
such term is defined in Regulation S under the Securities Act
("Regulation S")), and all such persons have complied and will comply
with the offering restrictions requirement of Regulation S to the extent
applicable.
(ii) Neither the Company nor any of its affiliates has, directly
or through any agent, sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of, any security (as such term is
defined in the Securities Act), which is or will be integrated with the
sale of the Securities in a manner that would require registration of
the Securities under the Securities Act.
(jj) Assuming the accuracy of the representations and warranties
of the Initial Purchaser in Section 2(b)(ii) hereof, none of the Company
or any of its affiliates or any other person acting on its or their
behalf has engaged, in connection with the offering of the Securities,
in any form of general solicitation or general advertising within the
meaning of Rule 502(c) of Regulation D under the Securities Act
("Regulation D").
(kk) There are no securities of the Company or Merit registered
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or listed on a national securities exchange or quoted in a U.S.
automated inter-dealer quotation system other than the Company's common
stock and its 11 1/4% Series A Senior Subordinated Notes due 2004 and
Merit's 11 1/2% Senior Subordinated Notes due 2005 and certain of the
warrants listed on Schedule 2 hereto.
(ll) The Company has not taken and will not take, directly or
indirectly, any action prohibited by Regulation M under the Exchange Act
in connection with the offering of the Securities.
(mm) No forward-looking statement (within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act) contained
in the Preliminary Offering Memorandum or the Offering Memorandum has
been made or reaffirmed without a reasonable basis or has been disclosed
other than in good faith.
(nn) None of the Company or any of its subsidiaries does business
with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Florida Statutes Section 517.075.
(oo) Since the date as of which information is given in the
Offering Memorandum, except as otherwise stated therein, (i) there has
been no change or any development involving a prospective change in the
condition, financial or otherwise, or in the earnings, business affairs,
management or business prospects of the Company,
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Merit and their respective subsidiaries, whether or not arising in the
ordinary course of business, that has had or could reasonably be
expected to have a Material Adverse Effect, (ii) none of the Company or
Merit has incurred any material liability or obligation, direct or
contingent, other than in the ordinary course of business, (iii) none of
the Company or Merit has entered into any material transaction other
than in the ordinary course of business and (iv) except as contemplated
by the Offering Memorandum and except for the Company's repurchase of
shares of its common stock during the first quarter of fiscal 1998 as
previously described to the Initial Purchaser, there has not been any
change in the capital stock or long-term debt of the Company, or any
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
2. Purchase and Resale of the Securities. (a) On the basis of the
representations, warranties and agreements contained herein, and subject to
the terms and conditions set forth herein, the Company agrees to issue and
sell to the Initial Purchaser, and the Initial Purchaser agrees to purchase
from the Company, $625,000,000 principal amount of Securities at a purchase
price equal to 97.25% of the principal amount thereof. The Company shall not
be obligated to deliver any of the Securities except upon payment for all of
the Securities to be purchased as provided herein.
(b) The Initial Purchaser has advised the Company that it proposes to
offer the Securities for resale upon the terms and subject to the conditions
set forth herein and in the Offering Memorandum. The Initial Purchaser
represents and warrants to, and agrees with the Company that (i) it is
purchasing the Securities pursuant to a private sale exempt from registration
under the Securities Act, (ii) it has not solicited offers for, or offered or
sold, and will not solicit offers for, or offer or sell, the Securities by
means of any form of general solicitation or general advertising within the
meaning of Rule 502(c) of Regulation D or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act and (iii)
it has solicited and will solicit offers for the Securities only from, and
has offered or sold and will offer, sell or deliver the Securities, as part
of its initial offering, only (A) within the United States to persons whom
it reasonably believes to be qualified institutional buyers ("Qualified
Institutional Buyers"), as defined in Rule 144A under the Securities Act
("Rule 144A"), or if any such person is buying for one or more institutional
accounts for which such person is acting as fiduciary or agent, only when
such person has represented to it that each such account is a Qualified
Institutional Buyer to whom notice has been given that such sale or delivery
is being made in reliance on Rule 144A and in each case, in transactions in
accordance with Rule 144A and (B) outside the United States to persons other
than U.S. persons in reliance on Regulation S under the Securities Act
("Regulation S").
(c) In connection with the offer and sale of Securities in reliance on
Regulation S, the Initial Purchaser represents, warrants and agrees that:
(i) the Securities have not been registered under the
Securities Act and may not be offered or sold within the United States
or to, or for the account or benefit of, U.S. persons except pursuant to
an exemption from, or in transactions not subject to, the registration
requirements of the Securities Act;
(ii) it has offered and sold the Securities, and will offer
and sell the Securities, (A) as part of its distribution at any time and
(B) otherwise until 40 days after the later of the commencement of the
offering of the Securities and the Closing Date,
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<PAGE>
only in accordance with Regulation S or Rule 144A or any other available
exemption from registration under the Securities Act;
(iii) none of the Initial Purchaser, any of its affiliates or
any other person acting on its or their behalf has engaged or will engage
in any directed selling efforts (as defined in Regulation S) with respect
to the Securities, and all such persons have complied and will comply with
the offering restriction requirements of Regulation S;
(iv) at or prior to the confirmation of sale of any Securities
sold in reliance on Regulation S, it will have sent to each distributor,
dealer or other person receiving a selling concession, fee or other
remuneration that purchases Securities from it during the restricted
period (as defined in Regulation S) a confirmation or notice to
substantially the following effect:
"The Securities covered hereby have not been registered under
the U.S. Securities Act of 1933, as amended (the "Securities Act"),
and may not be offered or sold within the United States or to, or
for the account or benefit of, U.S. persons (i) as part of their
distribution at any time or (ii) otherwise until 40 days after the
later of the commencement of the offering of the Securities and the
date of original issuance of the Securities, except in accordance
with Regulation S or Rule 144A or any other available exemption
from registration under the Securities Act. Terms used above have
the meanings given to them by Regulation S."; and
(v) it has not and will not enter into any contractual
arrangement with any distributor with respect to the distribution of the
Securities, except with its affiliates or with the prior written consent
of the Company.
Terms used in this Section 2(c) have the meanings given to them by
Regulation S.
(d) The Initial Purchaser represents, warrants and agrees that (i)
it has not offered or sold and prior to the date six months after the Closing
Date will not offer or sell any Securities to persons in the United Kingdom
except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995; (ii)
it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 and the Public Offers of Securities Regulations
1995 with respect to anything done by it in relation to the Securities in,
from or otherwise involving the United Kingdom; and (iii) it has only issued
or passed on and will only issue or pass on in the United Kingdom any
document received by it in connection with the issue of the Securities to a
person who is of a kind described in Article 11 (3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person
to whom such document may otherwise lawfully be issued or passed on.
(e) The Initial Purchaser agrees that, prior to or simultaneously
with the confirmation of sale by the Initial Purchaser to any purchaser of
any of the Securities purchased by the Initial Purchaser from the Company
pursuant hereto, the Initial Purchaser shall furnish to that purchaser a copy
of the Offering Memorandum (and any amendment or supplement thereto
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<PAGE>
that the Company shall have furnished to the Initial Purchaser prior to the
date of such confirmation of sale). In addition to the foregoing, the
Initial Purchaser acknowledges and agrees that the Company and, for purposes
of the opinions to be delivered to the Initial Purchaser pursuant to Sections
5(d) and (e), counsel for the Company and for the Initial Purchaser,
respectively, may rely upon the accuracy of the representations and
warranties of the Initial Purchaser and its compliance with its agreements
contained in this Section 2, and the Initial Purchaser hereby consents to
such reliance.
(f) The Company acknowledges and agrees that the Initial Purchaser
may sell Securities to any affiliate of the Initial Purchaser and that any
such affiliate may sell Securities purchased by it to the Initial Purchaser.
(g) The Initial Purchaser agrees that it shall notify the Company
of its completion of the resale of the Securities.
3. Delivery of and Payment for the Securities. (a) Delivery of
and payment for the Securities shall be made at the offices of Cravath,
Swaine & Moore ("CS&M"), New York, New York, or at such other place as shall
be agreed upon by the Initial Purchaser and the Company, at 10:00 a.m., New
York City time, on February 12, 1998, or at such other time or date, not
later than seven full business days thereafter, as shall be agreed upon by
the Initial Purchaser and the Company (such date and time of payment and
delivery being referred to herein as the "Closing Date").
(b) On the Closing Date, payment of the purchase price for the
Securities shall be made to the Company by wire or book-entry transfer of
same-day funds to such account or accounts as the Company shall specify prior
to the Closing Date or by such other means as the parties hereto shall agree
prior to the Closing Date against delivery to the Initial Purchaser of the
certificates evidencing the Securities. Time shall be of the essence, and
delivery at the time and place specified pursuant to this Agreement is a
further condition of the obligations of the Initial Purchaser hereunder.
Upon delivery, the Securities shall be in global form, registered in such
names and in such denominations as the Initial Purchaser shall have requested
in writing not less than two full business days prior to the Closing Date.
The Company agrees to make one or more global certificates evidencing the
Securities available for inspection by the Initial Purchaser in New York, New
York at least 24 hours prior to the Closing Date.
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<PAGE>
4. Further Agreements of the Company. The Company agrees with the
Initial Purchaser:
(a) to advise the Initial Purchaser promptly and, if requested,
confirm such advice in writing, of the happening of any event which makes
any statement of a material fact made in the Offering Memorandum untrue or
which requires the making of any additions to or changes in the Offering
Memorandum (as amended or supplemented from time to time) in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; to advise the Initial Purchaser promptly of any
order preventing or suspending the use of the Preliminary Offering
Memorandum or the Offering Memorandum, of any suspension of the
qualification of the Securities for offering or sale in any jurisdiction
and of the initiation or threatening of any proceeding for any such
purpose; and to use its best efforts to prevent the issuance of any such
order preventing or suspending the use of the Preliminary Offering
Memorandum or the Offering Memorandum or suspending any such qualification
and, if any such suspension is issued, to obtain the lifting thereof at the
earliest possible time;
(b) to furnish promptly to the Initial Purchaser and counsel for the
Initial Purchaser, without charge, as many copies of the Offering
Memorandum (and any amendments or supplements thereto) as may be reasonably
requested;
(c) prior to making any amendment or supplement to the Offering
Memorandum, to furnish a copy thereof to each of the Initial Purchaser and
counsel for the Initial Purchaser and not to effect any such amendment or
supplement to which the Initial Purchaser shall reasonably object by notice
to the Company after a reasonable period to review;
(d) if, at any time prior to completion of the resale of the
Securities by the Initial Purchaser, any event shall occur or condition
exist as a result of which it is necessary, in the opinion of counsel for
the Initial Purchaser or counsel for the Company, to amend or supplement
the Offering Memorandum in order that the Offering Memorandum will not
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances existing at the time it is delivered to a purchaser, not
misleading, or if it is necessary to amend or supplement the Offering
Memorandum to comply with applicable law, to promptly prepare such
amendment or supplement as may be necessary to correct such untrue
statement or omission or so that the Offering Memorandum, as so amended or
supplemented, will comply with applicable law;
(e) for so long as the Securities are outstanding and are "restricted
securities" within the meaning of Rule 144(a)(3) under the Securities Act,
to furnish to holders of the Securities and prospective purchasers of the
Securities designated by such holders, upon request of such holders or such
prospective purchasers, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act, unless the Company is then
subject to and in compliance with Section 13 or 15(d) of the Exchange Act
(the foregoing agreement being for the benefit of the holders from time to
time of the Securities and prospective purchasers of the Securities
designated by such holders);
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<PAGE>
(f) for so long as the Securities are outstanding, to furnish to the
Initial Purchaser copies of any documents, reports and information as shall
be furnished by the Company to the Trustee or to the holders of the
Securities pursuant to the Indenture or the Exchange Act or any rule or
regulation of the Commission thereunder (other than routine periodic
compliance certificates and routine periodic filings pursuant to the
Exchange Act);
(g) to promptly take from time to time such actions as the Initial
Purchaser may reasonably request to qualify the Securities for offering and
sale under the securities or Blue Sky laws of such jurisdictions as the
Initial Purchaser may designate and to continue such qualifications in
effect for so long as required for the resale of the Securities; and to
arrange for the determination of the eligibility for investment of the
Securities under the laws of such jurisdictions as the Initial Purchaser
may reasonably request; provided that the Company and its subsidiaries
shall not be obligated to qualify as foreign corporations in any
jurisdiction in which they are not so qualified or to file a general
consent to service of process in any jurisdiction;
(h) to assist the Initial Purchaser in arranging for the Securities
to be eligible for clearance and settlement through The Depository Trust
Company ("DTC");
(i) not to, and to cause its affiliates not to, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security
(as such term is defined in the Securities Act) which could be integrated
with the sale of the Securities in a manner which would require
registration of the Securities under the Securities Act;
(j) except following the effectiveness of the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may
be, not to, and to cause its affiliates not to, and not to authorize or
knowingly permit any person acting on their behalf to, solicit any offer to
buy or offer to sell the Securities by means of any form of general
solicitation or general advertising within the meaning of Regulation D or
in any manner involving a public offering within the meaning of Section
4(2) of the Securities Act; and not to offer, sell, contract to sell or
otherwise dispose of, directly or indirectly, any securities under
circumstances where such offer, sale, contract or disposition would cause
the exemption afforded by Section 4(2) of the Securities Act to cease to be
applicable to the offering and sale of the Securities as contemplated by
this Agreement and the Offering Memorandum;
(k) for a period of 90 days from the date of the Offering Memorandum,
not to offer for sale, sell, contract to sell or otherwise dispose of,
directly or indirectly, or file a registration statement for, or announce
any offer, sale, contract for sale of or other disposition of any debt
securities issued or guaranteed by the Company or any of its subsidiaries
(other than the Securities) without the prior written consent of the
Initial Purchaser;
(l) during the period from the Closing Date until two years after the
Closing Date, without the prior written consent of the Initial Purchaser,
not to, and not permit any of its affiliates (as defined in Rule 144 under
the Securities Act) to, resell any of the Securities that have been
reacquired by them, except for Securities purchased by the
16
<PAGE>
Company or any of its affiliates and resold in a transaction registered
under the Securities Act;
(m) not to, for so long as the Securities are outstanding, be or
become, or be or become owned by, an open-end investment company, unit
investment trust or face-amount certificate company that is or is required
to be registered under Section 8 of the Investment Company Act, and to not
be or become, or be or become owned by, a closed-end investment company
required to be registered, but not registered thereunder;
(n) in connection with the offering of the Securities, until the
Initial Purchaser shall have notified the Company of the completion of the
resale of the Securities, not to, and to cause its affiliated purchasers
(as defined in Regulation M under the Exchange Act) not to, either alone or
with one or more other persons, bid for or purchase, for any account in
which it or any of its affiliated purchasers has a beneficial interest, any
Securities, or attempt to induce any person to purchase any Securities; and
not to, and to cause its affiliated purchasers not to, make bids or
purchase for the purpose of creating actual, or apparent, active trading in
or of raising the price of the Securities;
(o) in connection with the offering of the Securities, to make its
officers, employees, independent accountants and legal counsel reasonably
available upon request by the Initial Purchaser;
(p) to furnish to the Initial Purchaser on the date hereof a copy of
each of the independent accountants' reports included in the Offering
Memorandum signed by the accountants rendering such reports;
(q) to do and perform all things required to be done and performed by
it under this Agreement that are within its control prior to or after the
Closing Date, and to use its best efforts to satisfy all conditions
precedent on its part to the delivery of the Securities;
(r) to not take any action prior to the execution and delivery of the
Indenture which, if taken after such execution and delivery, would have
violated any of the covenants contained in the Indenture;
(s) to not take any action prior to the Closing Date which would
require the Offering Memorandum to be amended or supplemented pursuant to
Section 4(d); provided that the Company shall not be deemed to be in breach
of its obligations pursuant to this Section 4(s) if it continues its
discussions with Crescent Operating, Inc. and its affiliates regarding the
sale of the Company's interest in CBHS and the related transactions
previously described to the Initial Purchaser;
(t) prior to the Closing Date, not to issue any press release or
other communication directly or indirectly or hold any press conference
with respect to the Company, its condition, financial or otherwise, or
earnings, business affairs or business prospects (except for routine oral
marketing communications in the ordinary course of business and consistent
with the past practices of the Company and of which the Initial Purchaser
is notified and the press release describing the sale of the Securities and
the status of the Company's discussions with Crescent Operating, Inc.
described in Section 4(s) in the form previously approved by the Initial
Purchaser), without the prior
17
<PAGE>
written consent of the Initial Purchaser (which shall not be unreasonably
withheld), unless in the judgment of the Company and its counsel, and after
notification to the Initial Purchaser, such press release or communication
is required by law;
(u) to apply the net proceeds from the sale of the Securities as set
forth in the Offering Memorandum under the heading "Use of Proceeds" and
"The Transactions"; and
(v) to promptly provide the Initial Purchaser with copies of all
closing documents relating to the Transactions.
5. Conditions of Initial Purchaser's Obligations. The obligations of
the Initial Purchaser hereunder are subject to the accuracy, on and as of the
date hereof and the Closing Date, of the representations and warranties of the
Company contained herein, to the accuracy of the statements of the Company and
its officers made in any certificates delivered pursuant hereto, to the
performance by the Company of its obligations hereunder, and to each of the
following additional terms and conditions:
(a) The Offering Memorandum (and any amendments or supplements
thereto) shall have been printed and copies distributed to the Initial
Purchaser as promptly as practicable on or following the date of this
Agreement or at such other date and time as to which the Initial Purchaser
may agree; and no stop order suspending the sale of the Securities in any
jurisdiction shall have been issued and no proceeding for that purpose
shall have been commenced or shall be pending or threatened.
(b) The Initial Purchaser shall not have discovered and disclosed to
the Company on or prior to the Closing Date that the Offering Memorandum or
any amendment or supplement thereto contains an untrue statement of a fact
which, in the opinion of counsel for the Initial Purchaser, is material or
omits to state any fact which, in the opinion of such counsel, is material
and is required to be stated therein or is necessary to make the statements
therein not misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of each of the Transaction Documents and
the Offering Memorandum, and all other legal matters relating to the
Transaction Documents and the transactions contemplated thereby, shall be
satisfactory in all material respects to the Initial Purchaser, and the
Company shall have furnished to the Initial Purchaser all documents and
information that it or its counsel may reasonably request to enable them to
pass upon such matters.
(d) King & Spalding shall have furnished to the Initial Purchaser
their written opinion, as counsel to the Company, addressed to the Initial
Purchaser and dated the Closing Date, in form and substance reasonably
satisfactory to the Initial Purchaser, substantially to the effect set
forth in Annex B hereto.
(e) The Initial Purchaser shall have received from CS&M, counsel for
the Initial Purchaser, such opinion or opinions, dated the Closing Date,
with respect to such matters as the Initial Purchaser may reasonably
require, and the Company shall have furnished to such counsel such
documents and information as they request for the purpose of enabling them
to pass upon such matters.
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(f) The Company shall have furnished to the Initial Purchaser letters
(each an "Initial Letter") from each of AA, D&T and KPMG, addressed to the
Initial Purchaser and dated the date hereof, in form and substance
satisfactory to the Initial Purchaser, substantially to the effect set
forth in Annex C-1, Annex C-2 and Annex C-3, respectively, hereto.
(g) The Company shall have furnished to the Initial Purchaser (i) a
letter of AA (the "AA Bring-Down Letter"), (ii) a letter of D&T (the "D&T
Bring-Down Letter") and (iii) a letter of KPMG (the "KPMG Bring-Down
Letter" and, together with the AA Bring-Down Letter and the D&T Bring-Down
Letter, the "Bring-Down Letters"), in each case addressed to the Initial
Purchaser and dated the Closing Date (A) confirming that they are
independent public accountants with respect to the Company and CBHS, in the
case of the AA Bring-Down Letter, Merit, in the case of the D&T Bring-Down
Letter, and HAI, in the case of the KPMG Bring-Down Letter, in each case
within the meaning of Rule 101 of the Code of Professional Conduct of the
AICPA and its interpretations and rulings thereunder, (B) stating, as of
the date of the applicable Bring-Down Letter (or, with respect to matters
involving changes or developments since the respective dates as of which
specified financial information is given in the Offering Memorandum, as of
a date not more than three business days prior to the date of the
applicable Bring-Down Letter), that the conclusions and findings of such
accountants with respect to the financial information and other matters
covered by the applicable Initial Letter are accurate and (C) confirming in
all material respects the conclusions and findings set forth in the
applicable Initial Letter.
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<PAGE>
(h) The Company shall have furnished to the Initial Purchaser a
certificate, dated the Closing Date, of its chief executive officer and its
chief financial officer stating that (A) such officers have carefully
examined the Offering Memorandum, (B) in their opinion, the Offering
Memorandum, as of its date, did not include any untrue statement of a
material fact and did not omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, and
since the date of the Offering Memorandum, no event has occurred which
should have been set forth in a supplement or amendment to the Offering
Memorandum so that the Offering Memorandum (as so amended or supplemented)
would not include any untrue statement of a material fact and would not
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading and (C) as of the Closing Date,
the representations and warranties of the Company in this Agreement are
true and correct in all material respects, the Company has complied, in all
material respects, with all agreements and satisfied all conditions on its
part to be performed or satisfied hereunder on or prior to the Closing
Date, and subsequent to the date of the most recent financial statements
contained in the Offering Memorandum, there has been no change in the
financial position or results of operation of the Company, Merit and their
respective subsidiaries, taken as a whole, that has had or could reasonably
be expected to have a Material Adverse Effect, or any change, or any
development including a prospective change, in or affecting the condition
(financial or otherwise), results of operations, business or prospects of
the Company, Merit and their subsidiaries, taken as a whole, that has had
or could reasonably be expected to have a Material Adverse Effect.
(i) The Initial Purchaser shall have received a counterpart of the
Registration Rights Agreement which shall have been executed and delivered
by a duly authorized officer of the Company.
(j) The Indenture shall have been duly executed and delivered by the
Company and the Trustee, and the Securities shall have been duly executed
and delivered by the Company and duly authenticated by the Trustee.
(k) If any event shall have occurred that requires the Company under
Section 4(d) to prepare an amendment or supplement to the Offering
Memorandum, such amendment or supplement shall have been prepared, the
Initial Purchaser shall have been given a reasonable opportunity to comment
thereon, and copies thereof shall have been delivered to the Initial
Purchaser reasonably in advance of the Closing Date.
(l) There shall not have occurred any invalidation of Rule 144A under
the Securities Act by any court or any withdrawal or proposed withdrawal of
any rule or regulation under the Securities Act or the Exchange Act by the
Commission or any amendment or proposed amendment thereof by the Commission
which in the judgment of the Initial Purchaser would materially impair the
ability of the Initial Purchaser to purchase, hold or effect resales of the
Securities as contemplated hereby.
(m) Subsequent to the execution and delivery of this Agreement or, if
earlier, the dates as of which information is given in the Offering
Memorandum (exclusive of any amendment or supplement thereto), there shall
not have been any change in the capital
20
<PAGE>
stock or long-term debt or any change, or any development involving a
prospective change, in or affecting the condition (financial or otherwise),
results of operations, business or prospects of the Company, Merit and
their respective subsidiaries taken as a whole, the effect of which, in any
such case described above, is, in the reasonable judgment of the Initial
Purchaser, so material and adverse as to make it impracticable or
inadvisable to proceed with the sale or delivery of the Securities on the
terms and in the manner contemplated by this Agreement and the Offering
Memorandum (exclusive of any amendment or supplement thereto).
(n) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental
agency or body which would, as of the Closing Date, prevent the issuance or
sale of the Securities; and no injunction, restraining order or order of
any other nature by any federal or state court of competent jurisdiction
shall have been issued as of the Closing Date which would prevent the
issuance or sale of the Securities.
(o) Subsequent to the execution and delivery of this Agreement (i) no
downgrading shall have occurred in the rating accorded the Securities or
any of the Company's other debt securities or preferred stock by any
"nationally recognized statistical rating organization", as such term is
defined by the Commission for purposes of Rule 436(g)(2) of the rules and
regulations of the Commission under the Securities Act and (ii) no such
organization shall have publicly announced that it has under surveillance
or review (other than an announcement with positive implications of a
possible upgrading), its rating of the Securities or any of the Company's
other debt securities or preferred stock.
(p) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or
the over-the-counter market shall have been suspended or limited, or
minimum prices shall have been established on any such exchange or market
by the Commission, by any such exchange or by any other regulatory body or
governmental authority having jurisdiction, or trading in any securities of
the Company on any exchange or in the over-the-counter market shall have
been suspended or (ii) any moratorium on commercial banking activities
shall have been declared by federal or New York state authorities or
(iii) an outbreak or escalation of hostilities or a declaration by the
United States of a national emergency or war or (iv) a material adverse
change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in the United
States shall be such) the effect of which, in the case of this clause (iv),
is, in the reasonable judgment of the Initial Purchaser, so material and
adverse as to make it impracticable or inadvisable to proceed with the sale
or the delivery of the Securities on the terms and in the manner
contemplated by this Agreement and in the Offering Memorandum (exclusive of
any amendment or supplement thereto).
(q) All conditions to the consummation of each of the Transactions,
other than the offering of the Securities, shall have been satisfied and
each of such Transactions shall be consummated substantially concurrently
with the sale of the Securities hereunder.
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All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Initial Purchaser.
6. Termination. The obligations of the Initial Purchaser hereunder
may be terminated by the Initial Purchaser, in its absolute discretion, by
notice given to and received by the Company prior to delivery of and payment for
the Securities if, prior to that time, any of the events described in Section
5(m), (n), (o), (p) or (q) shall have occurred and be continuing.
7. Reimbursement of Initial Purchaser's Expenses. If (a) this
Agreement shall have been terminated pursuant to Section 6, (b) the Company
shall fail to tender the Securities for delivery to the Initial Purchaser for
any reason permitted under this Agreement or (c) the Initial Purchaser shall
decline to purchase the Securities for any reason permitted under this
Agreement, the Company shall reimburse the Initial Purchaser for such
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
as shall have been reasonably incurred by the Initial Purchaser in connection
with this Agreement and the proposed purchase and resale of the Securities.
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<PAGE>
8. Indemnification. (a) The Company shall indemnify and hold
harmless the Initial Purchaser, its affiliates, their respective officers,
directors, employees, representatives and agents, and each person, if any, who
controls the Initial Purchaser within the meaning of the Securities Act or the
Exchange Act (collectively referred to for purposes of this Section 8(a) and
Section 9 as the Initial Purchaser), from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof (including,
without limitation, any loss, claim, damage, liability or action relating to
purchases and sales of the Securities), to which the Initial Purchaser may
become subject, whether commenced or threatened, under the Securities Act, the
Exchange Act, any other federal or state statutory law or regulation, at common
law or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in the Preliminary Offering Memorandum or
the Offering Memorandum or in any amendment or supplement thereto or in any
information provided by the Company pursuant to Section 4(e) or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, and shall
reimburse the Initial Purchaser promptly upon demand for any legal or other
expenses reasonably incurred by the Initial Purchaser in connection with
investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or action arises out of, or is based upon, an untrue statement
or alleged untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with the Initial Purchaser's
Information; and provided, further, that with respect to any such untrue
statement in or omission from the Preliminary Offering Memorandum, the indemnity
agreement contained in this Section 8(a) shall not inure to the benefit of the
Initial Purchaser to the extent that the sale to the person asserting any such
loss, claim, damage, liability or action was an initial resale by the Initial
Purchaser and any such loss, claim, damage, liability or action of or with
respect to the Initial Purchaser results from the fact that both (A) to the
extent required by applicable law or Section 2(e), a copy of the Offering
Memorandum was not sent or given to such person at or prior to the written
confirmation of the sale of such Securities to such person and (B) the untrue
statement in or omission from the Preliminary Offering Memorandum was corrected
in the Offering Memorandum unless, in either case, such failure to deliver the
Offering Memorandum was a result of non-compliance by the Company with
Section 4(b).
(b) The Initial Purchaser shall indemnify and hold harmless the
Company, its affiliates, their respective officers, directors, employees,
representatives and agents, and each person, if any, who controls the Company
within the meaning of the Securities Act or the Exchange Act (collectively
referred to for purposes of this Section 8(b) and Section 9 as the Company),
from and against any loss, claim, damage or liability, joint or several, or any
action in respect thereof, to which the Company may become subject, whether
commenced or threatened, under the Securities Act, the Exchange Act, any other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in the Preliminary Offering Memorandum or the Offering Memorandum
or in any amendment or supplement thereto or (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, but in each case only
to the extent that the untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with the Initial
Purchaser's Information, and shall
23
<PAGE>
reimburse the Company promptly upon demand for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
or preparing to defend against or appearing as a third party witness in
connection with any such loss, claim, damage, liability or action as such
expenses are incurred.
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<PAGE>
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 8(a) or 8(b), notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have under this Section 8 except to the extent
that it has been materially prejudiced (through the forfeiture of substantive
rights or defenses) by such failure; and, provided, further, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have to an indemnified party otherwise than under this Section 8. If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate in the defense of such claim or action and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the indemnifying party
shall not be liable to the indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by the indemnified party in connection
with the defense thereof other than reasonable costs of investigation; provided,
however, that an indemnified party shall have the right to employ its own
counsel in any such action, but the fees, expenses and other charges of such
counsel for the indemnified party will be at the expense of such indemnified
party unless (1) the employment of counsel by the indemnified party has been
authorized in writing by the indemnifying party, (2) the indemnified party has
reasonably concluded (based upon advice of counsel to the indemnified party)
that there may be legal defenses available to it or other indemnified parties
that are different from or in addition to those available to the indemnifying
party, (3) a conflict or potential conflict exists (based upon advice of counsel
to the indemnified party) between the indemnified party and the indemnifying
party (in which case the indemnifying party will not have the right to direct
the defense of such action on behalf of the indemnified party) or (4) the
indemnifying party has not in fact employed counsel reasonably satisfactory to
the indemnified party to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be at
the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm of attorneys (in
addition to any local counsel) at any one time for all such indemnified party or
parties. Each indemnified party, as a condition of the indemnity agreements
contained in Sections 8(a) and 8(b), shall use all reasonable efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall be liable for any settlement of any such
action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be a
final judgment for the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of the indemnified party (which
consent shall not be unreasonably withheld), effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
25
<PAGE>
The obligations of the Company and the Initial Purchaser in this
Section 8 and in Section 9 are in addition to any other liability that the
Company or the Initial Purchaser, as the case may be, may otherwise have,
including in respect of any breaches of representations, warranties and
agreements made herein by any such party.
9. Contribution. If the indemnification provided for in Section 8 is
unavailable or insufficient to hold harmless an indemnified party under Section
8(a) or 8(b), then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Initial Purchaser, on
the other, from the offering of the Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company, on the one
hand, and the Initial Purchaser, on the other, with respect to the statements or
omissions that resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Company, on the one hand, and the Initial
Purchaser on the other with respect to such offering shall be deemed to be in
the same proportion as the total net proceeds from the offering of the
Securities purchased under this Agreement (before deducting expenses) received
by or on behalf of the Company, on the one hand, and the total discounts and
commissions received by the Initial Purchaser with respect to the Securities
purchased under this Agreement, on the other, bear to the total gross proceeds
from the sale of the Securities under this Agreement, in each case as set forth
in the table on the cover page of the Offering Memorandum. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to the Company or information supplied by the
Company, on the one hand, or to the Initial Purchaser's Information, on the
other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Initial Purchaser agree that it would not be just
and equitable if contributions pursuant to this Section 9 were to be determined
by pro rata allocation or by any other method of allocation that does not take
into account the equitable considerations referred to herein. The amount paid
or payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this Section 9
shall be deemed to include, for purposes of this Section 9, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending or preparing to defend any such action or claim.
Notwithstanding the provisions of this Section 9, the Initial Purchaser shall
not be required to contribute any amount in excess of the amount by which the
total discounts and commissions received by the Initial Purchaser with respect
to the Securities purchased by it under this Agreement exceeds the amount of any
damages that the Initial Purchaser has otherwise paid or become liable to pay by
reason of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
10. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Initial Purchaser, the Company
and their respective successors. This Agreement and the terms and provisions
hereof are for the sole benefit of
26
<PAGE>
only those persons, except as provided in Sections 8 and 9 with respect to
affiliates, officers, directors, employees, representatives, agents and
controlling persons of the Company and the Initial Purchaser and in Section 4(e)
with respect to holders and prospective purchasers of the Securities. Nothing
in this Agreement is intended or shall be construed to give any person, other
than the persons referred to in this Section 10, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision contained
herein.
11. Expenses. The Company agrees with the Initial Purchaser to pay
(a) the costs incident to the authorization, issuance, sale, preparation and
delivery of the Securities and any taxes payable in that connection; (b) the
costs incident to the preparation, printing and distribution of the Preliminary
Offering Memorandum, the Offering Memorandum and any amendments or supplements
thereto; (c) the costs of reproducing and distributing each of the Transaction
Documents; (d) the costs incident to the preparation, printing and delivery of
the certificates evidencing the Securities, including stamp duties and transfer
taxes, if any, payable upon issuance of the Securities; (e) the fees and
expenses of the Company's counsel and independent accountants; (f) the
reasonable and customary fees and expenses of qualifying the Securities under
the securities laws of the several jurisdictions as provided in Section 4(h) and
of preparing, printing and distributing Blue Sky Memoranda (including related
reasonable and customary fees and expenses of counsel for the Initial
Purchaser); (g) any reasonable and customary fees charged by rating agencies for
rating the Securities; (h) the reasonable and customary fees and expenses of the
Trustee and any paying agent (including related reasonable and customary fees
and expenses of any counsel to such parties); (i) all reasonable and customary
expenses and application fees incurred in connection with the application for
the inclusion of the Securities on the PORTAL Market and the approval of the
Securities for book-entry transfer by DTC; and (j) all other reasonable and
customary costs and expenses incident to the performance of the obligations of
the Company under this Agreement which are not otherwise specifically provided
for in this Section 11; provided, however, that except as provided in this
Section 11 and Section 7, the Initial Purchaser shall pay its own costs and
expenses.
12. Survival. The respective indemnities, rights of contribution,
representations, warranties and agreements of the Company and the Initial
Purchaser contained in this Agreement or made by or on behalf of the Company or
the Initial Purchaser pursuant to this Agreement or any certificate delivered
pursuant hereto shall survive the delivery of and payment for the Securities and
shall remain in full force and effect, regardless of any termination or
cancelation of this Agreement or any investigation made by or on behalf of any
of them or any of their respective affiliates, officers, directors, employees,
representatives, agents or controlling persons.
13. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Initial Purchaser, shall be delivered or sent by mail
or telecopy transmission to Chase Securities Inc., 270 Park Avenue, New
York, NY 10017, Attention of Mr. Peter DiLullo, (telecopier no.: (212)
270-0994); or
(b) if to the Company, shall be delivered or sent by mail or telecopy
transmission to the address of the Company set forth in the Offering
Memorandum,
27
<PAGE>
Attention of David J. Hansen, Esq., General Counsel, (telecopier no.:
(404) 814-5795);
provided that any notice to the Initial Purchaser pursuant to Section 8(c) shall
also be delivered or sent by mail to the Initial Purchaser at its address set
forth on the signature page hereof. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof.
14. Definition of Terms. For purposes of this Agreement, (a) the
term "business day" means any day on which the New York Stock Exchange, Inc. is
open for trading, (b) the term "subsidiary" has the meaning set forth in
Rule 405 under the Securities Act and (c) except where otherwise expressly
provided, the term "affiliate" has the meaning set forth in Rule 405 under the
Securities Act.
15. Initial Purchaser's Information. The parties hereto acknowledge
and agree that, for all purposes of this Agreement, the Initial Purchaser's
Information consists solely of the following information in the Preliminary
Offering Memorandum and the Offering Memorandum: (i) the last paragraph on the
front cover page concerning the terms of the offering by the Initial Purchaser;
(ii) the legend on the inside front cover page concerning over-allotment and
trading activities by the Initial Purchaser; (iii) the third sentence under the
caption "Risk Factors--Absence of Public Market; Restrictions on Transfer"; and
(iv) the statements concerning the Initial Purchaser contained in the third,
ninth, twelfth and thirteenth paragraphs under the heading "Plan of
Distribution".
16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
17. Counterparts. This Agreement may be executed in one or more
counterparts (which may include counterparts delivered by telecopier) and, if
executed in more than one counterpart, the executed counterparts shall each be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
18. Amendments. No amendment or waiver of any provision of this
Agreement, nor any consent or approval to any departure therefrom, shall in any
event be effective unless the same shall be in writing and signed by the parties
hereto.
19. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
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<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement between the Company and the Initial
Purchaser in accordance with its terms.
Very truly yours,
MAGELLAN HEALTH SERVICES, INC.,
by /s/ Craig L. McKnight
-----------------------------------------
Name: Craig L. McKnight
Title: Executive Vice President and
Chief Financial Officer
Accepted:
CHASE SECURITIES INC.,
by /s/ James Casey
------------------------
Authorized Signatory
Address for notices pursuant to Section 8(c):
1 Chase Plaza, 25th Floor
New York, NY 10081
Attention of Legal Department
29
<PAGE>
Exhibit 4c
MAGELLAN HEALTH SERVICES, INC.
$625,000,000
9% Senior Subordinated Notes due 2008
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
February 12, 1998
CHASE SECURITIES INC.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
Magellan Health Services, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to Chase Securities Inc. (the "Initial
Purchaser"), upon the terms and subject to the conditions set forth in a
purchase agreement dated February 5, 1998 (the "Purchase Agreement"),
$625,000,000 aggregate principal amount of its 9% Senior Subordinated Notes
due 2008 (the "Securities"). Capitalized terms used but not defined herein
shall have the meanings given to such terms in the Purchase Agreement.
As an inducement to the Initial Purchaser to enter into the
Purchase Agreement and in satisfaction of a condition to the obligations of
the Initial Purchaser thereunder, the Company agrees with the Initial
Purchaser, for the benefit of the holders (including the Initial Purchaser)
of the Securities, the Exchange Securities (as defined herein) and the
Private Exchange Securities (as defined herein) (collectively, the
"Holders"), as follows:
1. Registered Exchange Offer. The Company shall (i) prepare and,
not later than 60 days following the date of original issuance of the
Securities (the "Issue Date"), file with the Commission a registration
statement (the "Exchange Offer Registration Statement") on an appropriate
form under the Securities Act with respect to a proposed offer to the Holders
of the Securities (the "Registered Exchange Offer") to issue and deliver to
such Holders, in exchange for the Securities, a like aggregate principal
amount of debt securities of the Company (the "Exchange Securities") that are
identical in all material respects to the Securities, except for the transfer
restrictions relating to the Securities, (ii) use its reasonable best efforts
to cause the Exchange Offer Registration Statement to become effective under
the Securities Act no later than 150 days after the Issue Date and the
Registered Exchange Offer to be consummated no later than 210 days after the
Issue Date and (iii) keep the Exchange Offer Registration Statement effective
for not less than 30 days (or longer, if required by applicable law) after
the date on which notice of the Registered Exchange Offer is mailed to the
Holders (such period being called the "Exchange Offer Registration Period").
The Exchange Securities
<PAGE>
will be issued under the Indenture or an indenture (the "Exchange Securities
Indenture") between the Company and the Trustee or such other bank or trust
company that is reasonably satisfactory to you, as trustee (the "Exchange
Securities Trustee"), such indenture to be identical in all material respects
to the Indenture, except for the transfer restrictions relating to the
Securities (as described above).
Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Registered Exchange Offer,
it being the objective of such Registered Exchange Offer to enable each
Holder electing to exchange Securities for Exchange Securities (assuming that
such Holder (a) is not an affiliate of the Company or an Exchanging Dealer
(as defined herein) not complying with the requirements of the next sentence,
(b) is not the Initial Purchaser holding Securities that have, or that are
reasonably likely to have, the status of an unsold allotment in an initial
distribution, (c) acquires the Exchange Securities in the ordinary course of
such Holder's business and (d) has no arrangements or understandings with any
person to participate in the distribution of the Exchange Securities) to
trade such Exchange Securities from and after their receipt without any
limitations or restrictions under the Securities Act and without material
restrictions under the securities laws of the several states of the United
States. The Company, the Initial Purchaser and each Exchanging Dealer
acknowledge that, pursuant to current interpretations by the Commission's
staff of Section 5 of the Securities Act, each Holder that is a broker-dealer
electing to exchange Securities acquired for its own account as a result of
market-making activities or other trading activities for Exchange Securities
(an "Exchanging Dealer"), is required to deliver a prospectus containing
substantially the information set forth in Annex A hereto on the cover, in
Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of
the Exchange Offer" section and in Annex C hereto in the "Plan of
Distribution" section of such prospectus in connection with a sale of any
such Exchange Securities received by such Exchanging Dealer pursuant to the
Registered Exchange Offer.
If, prior to the consummation of the Registered Exchange Offer, any
Holder holds any Securities acquired by it that have, or that are reasonably
likely to be determined to have, the status of an unsold allotment in an
initial distribution, or any Holder is not entitled to participate in the
Registered Exchange Offer, the Company shall, upon the request of any such
Holder, simultaneously with the delivery of the Exchange Securities in the
Registered Exchange Offer, issue and deliver to any such Holder, in exchange
for the Securities held by such Holder (the "Private Exchange"), a like
aggregate principal amount of debt securities of the Company (the "Private
Exchange Securities") that are identical in all material respects to the
Exchange Securities, except for the transfer restrictions relating to such
Private Exchange Securities. The Private Exchange Securities will be issued
under the same indenture as the Exchange Securities, and the Company shall
use its reasonable best efforts to cause the Private Exchange Securities to
bear the same CUSIP number as the Exchange Securities.
In connection with the Registered Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
2
<PAGE>
(b) keep the Registered Exchange Offer open for not less than 30 days
(or longer, if required by applicable law) after the date on which notice
of the Registered Exchange Offer is mailed to the Holders;
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
(d) permit Holders to withdraw tendered Securities at any time prior
to the close of business, New York City time, on the last business day on
which the Registered Exchange Offer shall remain open; and
(e) otherwise comply in all respects with all laws that are applicable
to the Registered Exchange Offer.
As soon as practicable after the close of the Registered Exchange
Offer and any Private Exchange, as the case may be, the Company shall:
(a) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer and the Private
Exchange;
(b) deliver to the Trustee for cancelation all Securities so accepted
for exchange; and
(c) cause the Trustee or the Exchange Securities Trustee, as the case
may be, promptly to authenticate and deliver to each Holder, Exchange
Securities or Private Exchange Securities, as the case may be, equal in
principal amount to the Securities of such Holder so accepted for exchange.
The Company shall use its reasonable best efforts to keep the Exchange
Offer Registration Statement effective and to amend and supplement the
prospectus contained therein in order to permit such prospectus to be used by
all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Securities; provided that (i) in the case where
such prospectus and any amendment or supplement thereto must be delivered by an
Exchanging Dealer, such period shall be the lesser of 180 days and the date on
which all Exchanging Dealers have sold all Exchange Securities held by them and
(ii) the Company shall make such prospectus and any amendment or supplement
thereto available to any broker-dealer for use in connection with any resale of
any Exchange Securities for a period of not less than 180 days after the
consummation of the Registered Exchange Offer.
The Indenture or the Exchange Securities Indenture, as the case may
be, shall provide that the Securities, the Exchange Securities and the Private
Exchange Securities shall vote and consent together on all matters as one class
and that none of the Securities, the Exchange Securities or the Private Exchange
Securities will have the right to vote or consent as a separate class on any
matter.
3
<PAGE>
Interest on each Exchange Security and Private Exchange Security
issued pursuant to the Registered Exchange Offer and in the Private Exchange
will accrue from the last interest payment date on which interest was paid on
the Securities surrendered in exchange therefor or, if no interest has been paid
on the Securities, from the Issue Date.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Securities received by such Holder
will be acquired in the ordinary course of business, (ii) such Holder will have
no arrangements or understanding with any person to participate in the
distribution of the Securities or the Exchange Securities within the meaning of
the Securities Act and (iii) such Holder is not an affiliate of the Company or,
if it is such an affiliate, such Holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
Notwithstanding any other provisions hereof, the Company will ensure
that (i) any Exchange Offer Registration Statement and any amendment thereto and
any prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder, (ii) any Exchange Offer Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any prospectus forming part of any Exchange Offer Registration Statement,
and any supplement to such prospectus, does not, as of the consummation of the
Registered Exchange Offer, include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
2. Shelf Registration. If (i) because of any change in law or
applicable interpretations thereof by the Commission's staff the Company is not
permitted to effect the Registered Exchange Offer as contemplated by Section 1
hereof, or (ii) any Securities validly tendered pursuant to the Registered
Exchange Offer are not exchanged for Exchange Securities within 210 days after
the Issue Date, or (iii) the Initial Purchaser so requests with respect to
Securities or Private Exchange Securities not eligible to be exchanged for
Exchange Securities in the Registered Exchange Offer and held by it following
the consummation of the Registered Exchange Offer, or (iv) any applicable law or
interpretations do not permit any Holder to participate in the Registered
Exchange Offer, or (v) any Holder that participates in the Registered Exchange
Offer does not receive freely transferable Exchange Securities in exchange for
tendered Securities, or (vi) the Company so elects, then the following
provisions shall apply:
(a) The Company shall use its reasonable best efforts to file as
promptly as practicable (but in no event more than 30 days after so
required or requested pursuant to this Section 2) with the Commission, and
thereafter shall use its reasonable best efforts to cause to be declared
effective, a shelf registration statement on an appropriate form under the
Securities Act relating to the offer and sale of the Transfer Restricted
Securities (as defined below) by the Holders thereof from time to time in
accordance
4
<PAGE>
with the methods of distribution set forth in such registration statement
(hereafter, a "Shelf Registration Statement" and, together with any
Exchange Offer Registration Statement, a "Registration Statement").
(b) The Company shall use its reasonable best efforts to keep the
Shelf Registration Statement continuously effective in order to permit the
prospectus forming a part thereof to be used by Holders of Transfer
Restricted Securities for a period ending on the earlier of (i) two years
from the Issue Date or such shorter period that will terminate when all the
Transfer Restricted Securities covered by the Shelf Registration Statement
have been sold pursuant thereto and (ii) the date on which the Securities
become eligible for resale without volume restrictions pursuant to Rule 144
under the Securities Act (in any such case, such period being called the
"Shelf Registration Period"). The Company shall be deemed not to have used
its reasonable 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 Transfer Restricted Securities covered
thereby not being able to offer and sell such Transfer Restricted
Securities during that period, unless such action is required by applicable
law.
(c) Notwithstanding any other provisions hereof, the Company will
ensure that (i) any Shelf Registration Statement and any amendment thereto
and any prospectus forming part thereof and any supplement thereto complies
in all material respects with the Securities Act and the rules and
regulations of the Commission thereunder, (ii) any Shelf Registration
Statement and any amendment thereto (in either case, other than with
respect to information included therein in reliance upon or in conformity
with written information furnished to the Company by or on behalf of any
Holder specifically for use therein (the "Holders' Information")) does not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading and (iii) any prospectus forming part of any Shelf
Registration Statement, and any supplement to such prospectus (in either
case, other than with respect to Holders' Information), does not include an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
3. Liquidated Damages. (a) The parties hereto agree that the
Holders of Transfer Restricted Securities will suffer damages if the Company
fails to fulfill its obligations under Section 1 or Section 2, as applicable,
and that it would not be feasible to ascertain the extent of such damages.
Accordingly, if (i) the applicable Registration Statement is not filed with the
Commission on or prior to 60 days after the Issue Date, (ii) the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may be,
is not declared effective within 150 days after the Issue Date (or in the case
of a Shelf Registration Statement required to be filed in response to a change
in law or the applicable interpretations of Commission's staff, if later, within
30 days after publication of the change in law or interpretation), (iii) the
Registered Exchange Offer is not consummated on or prior to 210 days after the
Issue Date, or (iv) the Shelf Registration Statement is filed and declared
effective
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within 210 days after the Issue Date (or in the case of a Shelf Registration
Statement required to be filed in response to a change in law or the applicable
interpretations of Commission's staff, if later, within 30 days after
publication of the change in law or interpretation) but shall thereafter cease
to be effective (at any time that the Company is obligated to maintain the
effectiveness thereof) without being succeeded within 30 days by an additional
Registration Statement filed and declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default"), the Company will be
obligated to pay liquidated damages to each Holder of Transfer Restricted
Securities, during the period of one or more such Registration Defaults, in an
amount equal to $ 0.192 per week per $1,000 principal amount of Transfer
Restricted Securities held by such Holder until (i) the applicable Registration
Statement is filed, (ii) the Exchange Offer Registration Statement is declared
effective and the Registered Exchange Offer is consummated, (iii) the Shelf
Registration Statement is declared effective or (iv) the Shelf Registration
Statement again becomes effective, as the case may be. Following the cure of
all Registration Defaults, the accrual of liquidated damages will cease. As
used herein, the term "Transfer Restricted Securities" means (i) each Security
until the date on which such Security has been exchanged for a freely
transferable Exchange Security in the Registered Exchange Offer, (ii) each
Security or Private Exchange Security until the date on which it has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iii) each Security or Private Exchange
Security until the date on which it is distributed to the public pursuant to
Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under
the Securities Act. Notwithstanding anything to the contrary in this Section
3(a), the Company shall not be required to pay liquidated damages to a Holder of
Transfer Restricted Securities if such Holder failed to comply with its
obligations to make the representations set forth in the second to last
paragraph of Section 1 or failed to provide the information required to be
provided by it, if any, pursuant to Section 4(n).
(b) The Company shall notify the Trustee and the Paying Agent under
the Indenture immediately upon the happening of each and every Registration
Default. The Company shall pay the liquidated damages due on the Transfer
Restricted Securities by depositing with the Paying Agent (which may not be the
Company for these purposes), in trust, for the benefit of the Holders thereof,
prior to 10:00 a.m., New York City time, on the next interest payment date
specified by the Indenture and the Securities, sums sufficient to pay the
liquidated damages then due. The liquidated damages due shall be payable on
each interest payment date specified by the Indenture and the Securities to the
record holder entitled to receive the interest payment to be made on such date.
Each obligation to pay liquidated damages shall be deemed to accrue from and
including the date of the applicable Registration Default.
(c) The parties hereto agree that the liquidated damages provided for
in this Section 3 constitute a reasonable estimate of and are intended to
constitute the sole damages that will be suffered by Holders of Transfer
Restricted Securities by reason of the failure of (i) the Shelf Registration
Statement or the Exchange Offer Registration Statement to be filed, (ii) the
Shelf Registration Statement to remain effective or (iii) the Exchange Offer
Registration Statement to be declared effective and the Registered Exchange
Offer to be consummated, in each case to the extent required by this Agreement.
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4. Registration Procedures. In connection with any Registration
Statement, the following provisions shall apply:
(a) The Company shall (i) furnish to you, prior to the filing thereof
with the Commission, a copy of the Registration Statement and each
amendment thereof and each supplement, if any, to the prospectus included
therein and shall use its reasonable best efforts to reflect in each such
document, when so filed with the Commission, such comments as you
reasonably propose; (ii) include the information set forth in Annex A
hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures"
section and the "Purpose of the Exchange Offer" section and in Annex C
hereto in the "Plan of Distribution" section of the prospectus forming a
part of the Exchange Offer Registration Statement, and include the
information set forth in Annex D hereto in the Letter of Transmittal
delivered pursuant to the Registered Exchange Offer; and (iii) if requested
by the Initial Purchaser, include the information required by Items 507 or
508 of Regulation S-K, as applicable, in the prospectus forming a part of
the Exchange Offer Registration Statement.
(b) The Company shall advise the Initial Purchaser, each Exchanging
Dealer and the Holders (if applicable) and, if requested by any such
person, confirm such advice in writing (which advice pursuant to clauses
(ii)-(v) hereof shall be accompanied by an instruction to suspend the use
of the prospectus until the requisite changes have been made):
(i) when any Registration Statement and any amendment thereto
has been filed with the Commission and when such Registration
Statement or any post-effective amendment thereto has become
effective;
(ii) of any request by the Commission for amendments or
supplements to any Registration Statement or the prospectus
included therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of any Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Securities,
the Exchange Securities or the Private Exchange Securities for
sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and
(v) of the happening of any event that requires the making of
any changes in any Registration Statement or the prospectus
included therein in order that the statements therein are not
misleading and do not omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading.
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(c) The Company will make every reasonable effort to obtain the
withdrawal at the earliest possible time of any order suspending the
effectiveness of any Registration Statement.
(d) The Company will furnish to each Holder of Transfer Restricted
Securities included within the coverage of any Shelf Registration
Statement, without charge, at least one conformed copy of such Shelf
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules and, to the Initial Purchaser only, all
exhibits thereto (including those, if any, incorporated by reference).
(e) The Company will, during the Shelf Registration Period, promptly
deliver to each Holder of Transfer Restricted Securities included within
the coverage of any Shelf Registration Statement, without charge, as many
copies of the prospectus (including each preliminary prospectus) included
in such Shelf Registration Statement and any amendment or supplement
thereto as such Holder may reasonably request; and the Company consents to
the use of such prospectus or any amendment or supplement thereto by each
of the selling Holders of Transfer Restricted Securities in connection with
the offer and sale of the Transfer Restricted Securities covered by such
prospectus or any amendment or supplement thereto.
(f) The Company will furnish to the Initial Purchaser and each
Exchanging Dealer, and to any other Holder who so requests, without charge,
at least one conformed copy of the Exchange Offer Registration Statement
and any post-effective amendment thereto, including financial statements
and schedules and, to the Initial Purchaser only, all exhibits thereto
(including those, if any, incorporated by reference).
(g) The Company will, during the Exchange Offer Registration Period
or the Shelf Registration Period, as applicable, promptly deliver to the
Initial Purchaser, each Exchanging Dealer and such other persons that are
required to deliver a prospectus following the Registered Exchange Offer,
without charge, as many copies of the final prospectus included in the
Exchange Offer Registration Statement or the Shelf Registration Statement
and any amendment or supplement thereto as the Initial Purchaser,
Exchanging Dealer or other persons may reasonably request; and the Company
consents to the use of such prospectus or any amendment or supplement
thereto by the Initial Purchaser, any Exchanging Dealer or other persons,
as applicable, as aforesaid.
(h) Prior to the effective date of any Registration Statement, the
Company will use its reasonable best efforts to register or qualify, or
cooperate with the Holders of Securities, Exchange Securities or Private
Exchange Securities included therein and their respective counsel in
connection with the registration or qualification of, such Securities,
Exchange Securities or Private Exchange Securities for offer and sale under
the securities or blue sky laws of such jurisdictions as any such Holder
reasonably requests in writing and do any and all other acts or things
necessary or advisable to enable the offer and sale in such jurisdictions
of the Securities, Exchange Securities or Private Exchange Securities
covered by such Registration Statement; provided that the
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<PAGE>
Company will not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action which
would subject it to general service of process or to taxation in any such
jurisdiction where it is not then so subject.
(i) The Company will cooperate with the Holders of Securities,
Exchange Securities or Private Exchange Securities to facilitate the timely
preparation and delivery of certificates representing Securities, Exchange
Securities or Private Exchange Securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such
denominations and registered in such names as the Holders thereof may
request in writing prior to sales of Securities, Exchange Securities or
Private Exchange Securities pursuant to such Registration Statement.
(j) If any event contemplated by Section 4(b)(ii) through (v) occurs
during the period for which the Company is required to maintain an
effective Registration Statement, the Company will promptly prepare and
file with the Commission a post-effective amendment to the Registration
Statement or a supplement to the related prospectus or file any other
required document so that, as thereafter delivered to purchasers of the
Securities, Exchange Securities or Private Exchange Securities from a
Holder, the prospectus will not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(k) Not later than the effective date of the applicable Registration
Statement, the Company will provide a CUSIP number for the Securities, the
Exchange Securities and the Private Exchange Securities, as the case may
be, and provide the applicable trustee with printed certificates for the
Securities, the Exchange Securities or the Private Exchange Securities, as
the case may be, in a form eligible for deposit with The Depository Trust
Company.
(l) The Company will comply with all applicable rules and regulations
of the Commission and will make generally available to its security holders
as soon as practicable after the effective date of the applicable
Registration Statement an earning statement satisfying the provisions of
Section 11(a) of the Securities Act; provided that in no event shall such
earning statement be delivered later than 45 days after the end of a
12-month period (or 90 days, if such period is a fiscal year) beginning
with the first month of the Company's first fiscal quarter commencing after
the effective date of the applicable Registration Statement, which
statement shall cover such 12-month period.
(m) The Company will cause the Indenture or the Exchange Securities
Indenture, as the case may be, to be qualified under the Trust Indenture
Act as required by applicable law in a timely manner.
(n) The Company may require each Holder of Transfer Restricted
Securities to be registered pursuant to any Shelf Registration Statement to
furnish to the Company such information concerning the Holder and the
distribution of such Transfer Restricted Securities as the Company may from
time to time reasonably require for inclusion in
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<PAGE>
such Shelf Registration Statement, and the Company may exclude from such
registration the Transfer Restricted Securities of any Holder that fails to
furnish such information within a reasonable time after receiving such
request.
(o) In the case of a Shelf Registration Statement, each Holder of
Transfer Restricted Securities to be registered pursuant thereto agrees by
acquisition of such Transfer Restricted Securities that, upon receipt of
any notice from the Company pursuant to Section 4(b)(ii) through (v), such
Holder will discontinue disposition of such Transfer Restricted Securities
until such Holder's receipt of copies of the supplemental or amended
prospectus contemplated by Section 4(j) or until advised in writing (the
"Advice") by the Company that the use of the applicable prospectus may be
resumed. If the Company shall give any notice under Section 4(b)(ii)
through (v) during the period that the Company is required to maintain an
effective Registration Statement (the "Effectiveness Period"), such
Effectiveness Period shall be extended by the number of days during such
period from and including the date of the giving of such notice to and
including the date when each seller of Transfer Restricted Securities
covered by such Registration Statement shall have received (x) the copies
of the supplemental or amended prospectus contemplated by Section 4(j) (if
an amended or supplemental prospectus is required) or (y) the Advice (if no
amended or supplemental prospectus is required).
(p) In the case of a Shelf Registration Statement, the Company shall
enter into such customary agreements (including, if requested, an
underwriting agreement in customary form) and take all such other action,
if any, as Holders of a majority in aggregate principal amount of the
Securities, Exchange Securities and Private Exchange Securities being sold
or the managing underwriters (if any) shall reasonably request in order to
facilitate any disposition of Securities, Exchange Securities or Private
Exchange Securities pursuant to such Shelf Registration Statement.
(q) In the case of a Shelf Registration Statement, the Company shall
(i) make reasonably available for inspection by a representative of, and
Special Counsel (as defined below) acting for, Holders of a majority in
aggregate principal amount of the Securities, Exchange Securities and
Private Exchange Securities being sold and any underwriter participating in
any disposition of Securities, Exchange Securities or Private Exchange
Securities pursuant to such Shelf Registration Statement, all relevant
financial and other records, pertinent corporate documents and properties
of the Company and its subsidiaries and (ii) use its reasonable best
efforts to have its officers, directors, employees, accountants and counsel
supply all relevant information reasonably requested by such
representative, Special Counsel or any such underwriter (an "Inspector") in
connection with such Shelf Registration Statement.
(r) In the case of a Shelf Registration Statement, the Company shall,
if requested by Holders of a majority in aggregate principal amount of the
Securities, Exchange Securities and Private Exchange Securities being sold,
their Special Counsel or the managing underwriters (if any) in connection
with such Shelf Registration Statement, use its reasonable best efforts to
cause (i) its counsel to deliver an opinion
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<PAGE>
relating to the Shelf Registration Statement and the Securities, Exchange
Securities or Private Exchange Securities, as applicable, in customary
form, (ii) its officers to execute and deliver all customary documents and
certificates requested by Holders of a majority in aggregate principal
amount of the Securities, Exchange Securities and Private Exchange
Securities being sold, their Special Counsel or the managing underwriters
(if any) and (iii) its independent public accountants to provide a comfort
letter or letters in customary form, subject to receipt of appropriate
documentation as contemplated, and only if permitted, by Statement of
Auditing Standards No. 72.
5. Registration Expenses. The Company will bear all expenses
incurred in connection with the performance of its obligations under Sections 1,
2, 3 and 4 and the Company will reimburse the Initial Purchaser and the Holders
for the reasonable fees and disbursements of one firm of attorneys (in addition
to any local counsel) chosen by the Holders of a majority in aggregate principal
amount of the Securities, the Exchange Securities and the Private Exchange
Securities to be sold pursuant to each Registration Statement (the "Special
Counsel") acting for the Initial Purchaser or Holders in connection therewith.
6. Indemnification. (a) In the event of a Shelf Registration
Statement or in connection with any prospectus delivery pursuant to an Exchange
Offer Registration Statement by the Initial Purchaser or Exchanging Dealer, as
applicable, the Company shall indemnify and hold harmless each Holder
(including, without limitation, any such Initial Purchaser or Exchanging
Dealer), its affiliates, their respective officers, directors, employees,
representatives and agents, and each person, if any, who controls such Holder
within the meaning of the Securities Act or the Exchange Act (collectively
referred to for purposes of this Section 6 and Section 7 as a Holder) from and
against any loss, claim, damage or liability, joint or several, or any action in
respect thereof (including, without limitation, any loss, claim, damage,
liability or action relating to purchases and sales of Securities, Exchange
Securities or Private Exchange Securities), to which that Holder may become
subject, whether commenced or threatened, under the Securities Act, the Exchange
Act, any other federal or state statutory law or regulation, at common law or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained in any such Registration Statement or any prospectus
forming part thereof or in any amendment or supplement thereto or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, and shall
reimburse each Holder promptly upon demand for any legal or other expenses
reasonably incurred by that Holder in connection with investigating or defending
or preparing to defend against or appearing as a third party witness in
connection with any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, an untrue statement or alleged untrue
statement in or omission or alleged omission from any of such documents in
reliance upon and in conformity with any Holders' Information; and provided,
further, that with respect to any such untrue statement in or omission from any
related preliminary prospectus, the indemnity agreement contained in this
Section 6(a) shall not inure to the benefit of any Holder from whom the person
asserting any such loss, claim, damage, liability or action received Securities,
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<PAGE>
Exchange Securities or Private Exchange Securities to the extent that such
loss, claim, damage, liability or action of or with respect to such Holder
results from the fact that both (A) a copy of the final prospectus was not
sent or given to such person at or prior to the written confirmation of the
sale of such Securities, Exchange Securities or Private Exchange Securities
to such person and (B) the untrue statement in or omission from the related
preliminary prospectus was corrected in the final prospectus unless, in
either case, such failure to deliver the final prospectus was a result of
non-compliance by the Company with Section 4(e) or 4(g).
(b) In the event of a Shelf Registration Statement, each Holder shall
indemnify and hold harmless the Company, its affiliates, their respective
officers, directors, employees, representatives and agents, and each person, if
any, who controls the Company within the meaning of the Securities Act or the
Exchange Act (collectively referred to for purposes of this Section 6(b) and
Section 7 as the Company), from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof, to which the
Company may become subject, whether commenced or threatened, under the
Securities Act, the Exchange Act, any other federal or state statutory law or
regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in any such Registration
Statement or any prospectus forming a part thereof or in any amendment or
supplement thereto or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, but in each case only to the extent that the untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with any Holders' Information furnished to
the Company by such Holder, and shall reimburse the Company promptly upon demand
for any legal or other expenses reasonably incurred by the Company in connection
with investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that no such Holder
shall be liable for any indemnity claims hereunder in excess of the amount of
net proceeds received by such Holder from the sale of Securities, Exchange
Securities or Private Exchange Securities pursuant to such Shelf Registration
Statement.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party pursuant to Section 6(a) or 6(b), notify the
indemnifying party in writing of the claim or the commencement of that
action; provided, however, that the failure to notify the indemnifying party
shall not relieve it from any liability which it may have under this Section
6 except to the extent that it has been materially prejudiced (through the
forfeiture of substantive rights or defenses) by such failure; and provided,
further, that the failure to notify the indemnifying party shall not relieve
it from any liability which it may have to an indemnified party otherwise
than under this Section 6. If any such claim or action shall be brought
against an indemnified party, and it shall notify the indemnifying party
thereof, the indemnifying party shall be entitled to participate in the
defense of such claim or action and, to the extent that it wishes, jointly
with any other similarly notified indemnifying party, to assume the defense
thereof with counsel reasonably satisfactory to the indemnified party. After
notice from the indemnifying party to the indemnified party of its
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<PAGE>
election to assume the defense of such claim or action, the indemnifying party
shall not be liable to the indemnified party under this Section 6 for any legal
or other expenses subsequently incurred by the indemnified party in connection
with the defense thereof other than the reasonable costs of investigation;
provided, however, that an indemnified party shall have the right to employ its
own counsel in any such action, but the fees, expenses and other charges of such
counsel for the indemnified party will be at the expense of such indemnified
party unless (1) the employment of counsel by the indemnified party has been
authorized in writing by the indemnifying party, (2) the indemnified party has
reasonably concluded (based upon advice of counsel to the indemnified party)
that there may be legal defenses available to it or other indemnified parties
that are different from or in addition to those available to the indemnifying
party, (3) a conflict or potential conflict exists (based upon advice of counsel
to the indemnified party) between the indemnified party and the indemnifying
party (in which case the indemnifying party will not have the right to direct
the defense of such action on behalf of the indemnified party) or (4) the
indemnifying party has not in fact employed counsel reasonably satisfactory to
the indemnified party to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be at
the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm of attorneys (in
addition to any local counsel) at any one time for all such indemnified party or
parties. Each indemnified party, as a condition of the indemnity agreements
contained in Sections 6(a) and 6(b), shall use all reasonable efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall be liable for any settlement of any such
action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be a
final judgment for the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of the indemnified party (which
consent shall not be unreasonably withheld), effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
7. Contribution. If the indemnification provided for in Section 6
is unavailable or insufficient to hold harmless an indemnified party under
Section 6(a) or 6(b), then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Company from the offering and sale
of the Securities, on the one hand, and a Holder with respect to the sale by
such Holder of Securities, Exchange Securities or Private Exchange Securities,
on the other, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, on the one hand, and such Holder, on the other, with
respect to the statements or
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<PAGE>
omissions that resulted in such loss, claim, damage or liability, or action
in respect thereof, as well as any other relevant equitable considerations.
The relative benefits received by the Company, on the one hand, and a Holder,
on the other, with respect to such offering and such sale shall be deemed to
be in the same proportion as the total net proceeds from the offering of the
Securities (before deducting expenses) received by or on behalf of the
Company as set forth in the table on the cover of the Offering Memorandum, on
the one hand, bear to the total proceeds received by such Holder with respect
to its sale of Securities, Exchange Securities or Private Exchange
Securities, on the other. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to the Company or information supplied by the Company, on the one
hand, or to any Holders Information supplied by such Holder, on the other,
the intent of the parties and their relative knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
parties hereto agree that it would not be just and equitable if contributions
pursuant to this Section 7 were to be determined by pro rata allocation or by
any other method of allocation that does not take into account the equitable
considerations referred to herein. The amount paid or payable by an
indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 7 shall be
deemed to include, for purposes of this Section 7, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending or preparing to defend any such action or claim.
Notwithstanding the provisions of this Section 7, an indemnifying party that
is a Holder of Securities, Exchange Securities or Private Exchange Securities
shall not be required to contribute any amount in excess of the amount by
which the total price at which the Securities, Exchange Securities or Private
Exchange Securities sold by such indemnifying party to any purchaser exceeds
the amount of any damages which such indemnifying party has otherwise paid or
become liable to pay by reason of any untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
8. Rules 144 and 144A. The Company shall use its reasonable best
efforts to file the reports required to be filed by it under the Securities Act
and the Exchange Act in a timely manner and, if at any time the Company is not
required to file such reports, it will, upon the written request of any Holder
of Transfer Restricted Securities, make publicly available other information so
long as necessary to permit sales of such Holder's securities pursuant to Rules
144 and 144A. The Company covenants that it will take such further action as
any Holder of Transfer Restricted Securities may reasonably request, all to the
extent required from time to time to enable such Holder to sell Transfer
Restricted Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rules 144 and 144A (including, without
limitation, the requirements of Rule 144A(d)(4)). Upon the written request of
any Holder of Transfer Restricted Securities, the Company shall deliver to such
Holder a written statement as to whether it has complied with such requirements.
Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to
require the Company to register any of its securities pursuant to the Exchange
Act.
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9. Underwritten Registrations. If any of the Transfer Restricted
Securities covered by any Shelf Registration Statement are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority in aggregate principal amount of such Transfer Restricted Securities
included in such offering, subject to the consent of the Company (which shall
not be unreasonably withheld or delayed), and such Holders shall be responsible
for all underwriting commissions and discounts in connection therewith.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted
Securities on the basis reasonably provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
10. Miscellaneous. (a) Amendments and Waivers. The provisions of
this Agreement may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be given, unless the
Company has obtained the written consent of Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities, taken as a single class. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders whose Securities, Exchange
Securities or Private Exchange Securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities being sold by such Holders pursuant to such Registration
Statement.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
or air courier guaranteeing next-day delivery:
(1) if to a Holder, at the most current address given by such Holder
to the Company in accordance with the provisions of this Section 10(b),
which address initially is, with respect to each Holder, the address of
such Holder maintained by the Registrar under the Indenture, with a copy in
like manner to Chase Securities Inc.
(2) if to the Initial Purchaser, initially at the address of the
Initial Purchaser set forth in the Purchase Agreement; and
(3) if to the Company, initially at the address of the Company set
forth in the Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given: (i) when delivered by hand, if personally delivered; (ii) one business
day after being delivered to a next-day air courier; and (iii) five business
days after being deposited in the mail.
15
<PAGE>
(c) Successors And Assigns. This Agreement shall be binding upon the
Company and its successors and assigns.
(d) Counterparts. This Agreement may be executed in any number of
counterparts (which may be delivered in original form or by telecopier) and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(e) Definition of Terms. For purposes of this Agreement, (a) the
term "business day" means any day on which the New York Stock Exchange, Inc. is
open for trading, (b) the term "subsidiary" has the meaning set forth in
Rule 405 under the Securities Act and (c) except where otherwise expressly
provided, the term "affiliate" has the meaning set forth in Rule 405 under the
Securities Act.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(h) Remedies. In the event of a breach by the Company or by any
Holder of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law, including recovery of damages (other than the recovery of
damages for a breach by the Company of its obligations under Sections 1 or 2
hereof for which liquidated damages have been paid pursuant to Section 3
hereof), will be entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agree that, in the event
of any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.
(i) No Inconsistent Agreements. The Company represents, warrants and
agrees that (i) it has not entered into and shall not, on or after the date of
this Agreement, enter into any agreement that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof, (ii) it has not previously entered into any agreement which
remains in effect granting any registration rights with respect to any of its
debt securities to any person and (iii) without limiting the generality of the
foregoing, without the written consent of the Holders of a majority in aggregate
principal amount of the then outstanding Transfer Restricted Securities, it
shall not grant to any person the right to request the Company to register any
debt securities of the Company under the Securities Act unless the rights so
granted are not in conflict or inconsistent with the provisions of this
Agreement.
(j) No Piggyback on Registrations. Neither the Company nor any of
its security holders (other than the Holders of Transfer Restricted Securities
in such capacity) shall
16
<PAGE>
have the right to include any securities of the Company in any Shelf
Registration or Registered Exchange Offer other than Transfer Restricted
Securities.
(k) Severability. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
17
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the Initial Purchaser.
Very truly yours,
MAGELLAN HEALTH SERVICES, INC.,
by /s/ James R. Bedenbaugh
-------------------------------------------
Name: James R. Bedenbaugh
Title: Senior Vice President and Treasurer
Accepted:
CHASE SECURITIES INC.,
by /s/ Peter Dilullo
-----------------------
Authorized Signatory
18
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Securities.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Securities received in exchange for
Securities where such Securities were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution".
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Securities for its own
account in exchange for Securities, where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution".
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Securities.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Securities
received in exchange for Securities where such Securities were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that, for a period of 180 days after the Expiration Date, it will make
this prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until [ ]
199[ ], all dealers effecting transactions in the Exchange Securities may be
required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers
for their own account pursuant to the Registered Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange
Securities or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such Exchange Securities. Any broker-dealer that resells
Exchange Securities that were received by it for its own account pursuant to the
Registered Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Securities may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
Exchange Securities and any commission or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Registered Exchange Offer (including the expenses of one counsel
for the Holders of the Securities) other than commissions or concessions of any
broker-dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
<PAGE>
ANNEX D
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:
Address:
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE>
================================================================================
CREDIT AGREEMENT
dated as of February 12, 1998
among
MAGELLAN HEALTH SERVICES, INC.,
CHARTER BEHAVIORAL HEALTH SYSTEM OF NEW MEXICO, INC.,
MERIT BEHAVIORAL CARE CORPORATION,
THE LENDERS NAMED HEREIN,
THE CHASE MANHATTAN BANK,
as Administrative Agent,
Collateral Agent and an Issuing Bank,
FIRST UNION NATIONAL BANK,
as Syndication Agent and an Issuing Bank
and
CREDIT LYONNAIS,
as Documentation Agent and an Issuing Bank
================================================================================
[CS&M Reference No. 6700-439]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I Definitions
SECTION 1.01. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.02. Terms Generally . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE II The Credits
SECTION 2.01. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.02. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.03. Borrowing Procedure . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.04. Evidence of Debt; Repayment of Loans . . . . . . . . . . . . . 31
SECTION 2.05. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.06. Interest on Loans . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.07. Default Interest . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.08. Alternate Rate of Interest . . . . . . . . . . . . . . . . . . 33
SECTION 2.09. Termination and Reduction of Commitments . . . . . . . . . . . 33
SECTION 2.10. Conversion and Continuation of Borrowings . . . . . . . . . . 34
SECTION 2.11. Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 2.12. Repayment of Term Borrowings . . . . . . . . . . . . . . . . . 35
SECTION 2.13. Mandatory Prepayments and Commitment Reductions . . . . . . . 38
SECTION 2.14. Reserve Requirements; Change in Circumstances . . . . . . . . 40
SECTION 2.15. Change in Legality . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 2.16. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 2.17. Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 2.18. Sharing of Setoffs . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 2.19. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 2.20. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 2.21. Assignment of Commitments Under Certain Circumstances;
Duty To Mitigate . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 2.22. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 2.23. Additional Borrowers . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE III Representations and Warranties
SECTION 3.01. Organization; Powers . . . . . . . . . . . . . . . . . . . . . 49
SECTION 3.02. Authorization . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 3.03. Enforceability . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 3.04. Governmental Approvals . . . . . . . . . . . . . . . . . . . . 50
SECTION 3.05. Financial Statements . . . . . . . . . . . . . . . . . . . . . 50
SECTION 3.06. No Material Adverse Change . . . . . . . . . . . . . . . . . . 50
SECTION 3.07. Title to Properties; Possession Under Leases . . . . . . . . . 50
<PAGE>
Contents, p. 2
Page
----
SECTION 3.08. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 3.09. Litigation; Compliance with Laws . . . . . . . . . . . . . . . 51
SECTION 3.10. Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 3.11. Federal Reserve Regulations . . . . . . . . . . . . . . . . . 51
SECTION 3.12. Investment Company Act; Public Utility Holding Company Act . . 51
SECTION 3.13. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 3.14. Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 3.15. No Material Misstatements . . . . . . . . . . . . . . . . . . 52
SECTION 3.16. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . 52
SECTION 3.17. Environmental Matters . . . . . . . . . . . . . . . . . . . . 52
SECTION 3.18. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 3.19. Security Documents . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 3.20. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 3.21. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE IV Conditions
SECTION 4.01. First Credit Event . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 4.02. All Credit Events . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 4.03. New Subsidiary Borrower Credit Event . . . . . . . . . . . . . 58
ARTICLE V Affirmative Covenants
SECTION 5.01. Existence; Businesses and Properties . . . . . . . . . . . . . 58
SECTION 5.02. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 5.03. Obligations and Taxes . . . . . . . . . . . . . . . . . . . . 59
SECTION 5.04. Financial Statements, Reports, etc. . . . . . . . . . . . . . 59
SECTION 5.05. Litigation and Other Notices . . . . . . . . . . . . . . . . . 61
SECTION 5.06. Employee Benefits . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 5.07. Maintaining Records; Access to Properties and Inspections . . 61
SECTION 5.08. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 5.09. Compliance with Environmental Laws . . . . . . . . . . . . . . 62
SECTION 5.10. Preparation of Environmental Reports . . . . . . . . . . . . . 62
SECTION 5.11. Further Assurances . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 5.12. Concentration and Disbursement Accounts . . . . . . . . . . . 62
SECTION 5.13. Remedies Under Franchise Agreement . . . . . . . . . . . . . . 63
SECTION 5.14. Green Spring Conversion . . . . . . . . . . . . . . . . . . . 63
ARTICLE VI Negative Covenants
SECTION 6.01. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 6.02. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 6.03. Sale and Leaseback Transactions . . . . . . . . . . . . . . . 67
SECTION 6.04. Investments, Loans, Advances and Certain Other Transactions. . 67
<PAGE>
Contents, p. 3
Page
----
SECTION 6.05. Mergers, Consolidations, Sales of Assets and Acquisitions . . 68
SECTION 6.06. Dividends and Distributions; Restrictions on Ability of
Subsidiaries to Pay Dividends . . . . . . . . . . . . . . . . 70
SECTION 6.07. Transactions with Affiliates. . . . . . . . . . . . . . . . . 71
SECTION 6.08. Other Indebtedness and Agreements . . . . . . . . . . . . . . 71
SECTION 6.09. Business of the Borrowers and Subsidiaries . . . . . . . . . . 72
SECTION 6.10. Interest Expense Coverage Ratio . . . . . . . . . . . . . . . 72
SECTION 6.11. Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 6.12. Senior Debt Ratio . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 6.13. Maintenance of Consolidated EBITDA . . . . . . . . . . . . . . 73
SECTION 6.14. Maintenance of Consolidated Net Worth . . . . . . . . . . . . 73
SECTION 6.15. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 6.16. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . 73
ARTICLE VII Events of Default
ARTICLE VIII The Agents
ARTICLE IX Miscellaneous
SECTION 9.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 9.02. Survival of Agreement . . . . . . . . . . . . . . . . . . . . 78
SECTION 9.03. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 9.04. Successors and Assigns . . . . . . . . . . . . . . . . . . . . 78
SECTION 9.05. Expenses; Indemnity. . . . . . . . . . . . . . . . . . . . . . 80
SECTION 9.06. Right of Setoff. . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 9.07. APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 9.08. Waivers; Amendment . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 9.09. Interest Rate Limitation . . . . . . . . . . . . . . . . . . . 82
SECTION 9.10. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 9.11. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . 83
SECTION 9.12. Severability . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 9.13. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 9.14. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 9.15. Jurisdiction; Consent to Service of Process. . . . . . . . . . 83
SECTION 9.16. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 9.17. Obligations Joint and Several. . . . . . . . . . . . . . . . . 84
<PAGE>
EXHIBITS, ANNEX AND SCHEDULES
Exhibit A Form of Administrative Questionnaire
Exhibit B Form of Assignment and Acceptance
Exhibit C-1 Form of Borrowing Request
Exhibit C-2 Form of New Borrower Agreement
Exhibit C-3 Form of Subsidiary Borrower Termination
Exhibit D Form of Collateral Assignment
Exhibit E Form of Guarantee Agreement
Exhibit F Form of Indemnity, Subrogation and Contribution Agreement
Exhibit G Form of Pledge Agreement
Exhibit H Form of Security Agreement
Exhibit I-1 Form of Opinion of King & Spalding
Exhibit I-2 Form of Opinion of Foreign Counsel
Schedule 1.01(a) Existing Controlled Ventures
Schedule 1.01(b) Existing Letters of Credit
Schedule 1.01(c) Guarantors
Schedule 1.01(d) Real Estate for Sale
Schedule 2.01(a) Term Loan Commitments
Schedule 2.01(b) Revolving Credit Commitments
Schedule 3.04 Government Approvals
Schedule 3.08 Subsidiaries
Schedule 3.09 Litigation
Schedule 3.17 Environmental Matters
Schedule 3.18 Insurance
Schedule 4.01(a) Foreign Counsel
Schedule 6.01(a) Indebtedness
Schedule 6.02(a) Liens
Schedule 6.04(k) Investments, Loans and Advances
Schedule 6.06(b) Intercompany Dividend Restrictions and Encumbrances
</TABLE>
<PAGE>
CREDIT AGREEMENT dated as of February 12, 1998, among
MAGELLAN HEALTH SERVICES, INC., a Delaware corporation (the
"PARENT BORROWER"), CHARTER BEHAVIORAL HEALTH SYSTEM OF NEW
MEXICO, INC., a New Mexico corporation, MERIT BEHAVIORAL CARE
CORPORATION, a Delaware corporation, and each other wholly owned
Domestic Subsidiary Guarantor (such term and each other
capitalized term used but not defined in the preambles to this
Agreement having the meaning assigned thereto in Article I) that
becomes a "SUBSIDIARY BORROWER" hereunder as provided in
Section 2.23 hereof (each, a "SUBSIDIARY BORROWER" and
collectively, the "SUBSIDIARY BORROWERS" (such term is used
herein as modified in Article I); the Parent Borrower and the
Subsidiary Borrowers are collectively referred to herein as the
"BORROWERS"); the Lenders, THE CHASE MANHATTAN BANK, a New York
banking corporation, as administrative agent (in such capacity,
the "ADMINISTRATIVE AGENT") for the Lenders, as collateral agent
(in such capacity, the "COLLATERAL AGENT") for the Lenders and as
an issuing bank (in such capacity, an "ISSUING BANK"), FIRST
UNION NATIONAL BANK, a national banking association, as
syndication agent (in such capacity, the "SYNDICATION AGENT") for
the Lenders and as an issuing bank (in such capacity, an "ISSUING
BANK") and CREDIT LYONNAIS NEW YORK BRANCH, a licensed branch of
a bank organized and existing under the laws of the Republic of
France, as documentation agent (in such capacity, the
"DOCUMENTATION AGENT") for the Lenders and as an issuing bank (in
such capacity, an "ISSUING BANK" and, together with The Chase
Manhattan Bank and First Union National Bank, each in its
capacity as an Issuing Bank, the "ISSUING BANKS").
The Parent Borrower has entered into an Agreement and Plan of Merger
dated as of October 24, 1997 (the "MERGER AGREEMENT"), among Merit Behavioral
Care Corporation, a Delaware corporation ("MERIT"), the Parent Borrower and MBC
Merger Corporation, a Delaware corporation ("MERGER SUB") and a wholly owned
subsidiary of the Parent Borrower, pursuant to which Merger Sub will merge (the
"MERGER") with and into Merit in a transaction in which (a) all options to
acquire capital stock of Merit will be canceled; (b) the existing stockholders
of Merit and holders of options to acquire capital stock of Merit will receive
aggregate cash consideration equal to approximately $450,000,000 (the "MERGER
CONSIDERATION"); and (c) Merit will be the surviving corporation.
The Borrowers have requested the Lenders to extend credit in the form
of (a) Tranche A Term Loans on the Closing Date in an aggregate principal amount
not in excess of $183,333,333, (b) Tranche B Term Loans on the Closing Date in
an aggregate principal amount not in excess of $183,333,333, (c) Tranche C Term
Loans on the Closing Date in an aggregate principal amount not in excess of
$183,333,334, (d) Revolving Loans at any time and from time to time prior to the
Revolving Credit Maturity Date in an aggregate principal amount at any time
outstanding not in excess of $150,000,000 minus the L/C Exposure at such time
and (e) Letters of Credit at any time
<PAGE>
2
and from time to time prior to the Revolving Credit Maturity Date in an
aggregate stated amount at any time outstanding not in excess of $75,000,000.
The proceeds of the Term Loans borrowed on the Closing Date will be
used by the Borrowers, together with (a) cash from the Parent Borrower, (b)
the proceeds from the issuance of the Subordinated Notes and (c) proceeds of
Revolving Loans to be drawn on the Closing Date, solely (i) to pay the Merger
Consideration, (ii) to repay or provide the funds necessary to enable the
Parent Borrower and Merit to repay all principal, interest, fees and other
amounts outstanding under the Existing Credit Agreements, (iii) to repurchase
the Existing Parent Borrower Notes pursuant to the Parent Borrower Debt
Tender Offer and to repurchase the Existing Merit Notes pursuant to the Merit
Debt Tender Offer and (iv) to pay fees and expenses incurred in connection
with the Merger, the financing therefor and the other transactions
contemplated hereby and thereby. Proceeds of Revolving Loans (other than
those referred to in clause (c) above) and the issuance of Letters of Credit
will be used by the Borrowers for general corporate purposes.
The Lenders are willing to extend such credit to the Borrowers and
the Issuing Banks are willing to issue letters of credit for the account of
the Borrowers on the terms and subject to the conditions set forth herein.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINED TERMS. As used in this Agreement, the
following terms shall have the meanings specified below:
"ABR BORROWING" shall mean a Borrowing comprised of ABR Loans.
"ABR LOAN" shall mean any ABR Revolving Loan or ABR Term Loan.
"ABR REVOLVING LOAN" shall mean any Revolving Loan bearing interest
at a rate determined by reference to the Alternate Base Rate in accordance
with the provisions of Article II.
"ABR TERM BORROWING" shall mean a Borrowing comprised of ABR Term
Loans.
"ABR TERM LOAN" shall mean any Term Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"ACQUIRED ENTITY" shall mean the assets, in the case of an
acquisition of assets of a healthcare business or a reasonably related
(ancillary or complementary) line of business, or the capital stock or other
equity interests (or, if the context requires, the person that is the issuer
of such capital stock or other equity interests), in the case of an
acquisition of capital stock or other equity interests of a healthcare
business or a reasonably related (ancillary or complementary) line of
business, acquired by any Borrower or any Guarantor pursuant to a Permitted
Acquisition.
<PAGE>
3
"ACQUIRED ENTITY EBITDA" shall mean, with respect to any
Acquired Entity for any period, the net income of such Acquired Entity for
such period PLUS to the extent deducted in the determination of such Acquired
Entity's net income, the sum of such Acquired Entity's (a) aggregate amount
of income tax expense for such period, (b) aggregate amount of interest
expense for such period and (c) aggregate amount of amortization,
depreciation and other non-cash charges (including employee stock ownership
plan expense, stock option expense, and amortization of goodwill, transaction
expenses, excess reorganization expense, covenants not to compete and other
intangible assets) for such period, all as determined in accordance with
GAAP, PROVIDED that (i) all extraordinary gains or losses of such Acquired
Entity for such period and (ii) the gain (or loss) for such period
attributable to the sale of any assets of such Acquired Entity outside the
ordinary course of business shall not be included in such Acquired Entity's
net income.
"ADJUSTED LIBO RATE "shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the product of (a)
the LIBO Rate in effect for such Interest Period and (b) Statutory Reserves.
"ADMINISTRATIVE AGENT" shall have the meaning assigned to such term
in the preamble to this Agreement or any successor appointed pursuant to
Article VIII.
"ADMINISTRATIVE AGENT FEES" shall have the meaning assigned to such
term in Section 2.05(b).
"ADMINISTRATIVE QUESTIONNAIRE" shall mean an Administrative
Questionnaire in the form of Exhibit A.
"AFFILIATE" shall mean, when used with respect to a specified
person, another person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with
the person specified.
"AGENTS" shall mean the Administrative Agent, the Collateral Agent,
the Syndication Agent and the Documentation Agent.
"AGGREGATE CREDIT EXPOSURE" shall mean the aggregate amount of the
Lenders' Revolving Credit Exposures.
"ALTERNATE BASE RATE" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater
of (a) the Prime Rate in effect on such day and (b) the Federal Funds
Effective Rate in effect on such day PLUS 1/2 of 1%. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate for any reason, including the inability of the
Administrative Agent to obtain sufficient quotations in accordance with the
terms of the definition thereof, the Alternate Base Rate shall be determined
without regard to clause (b) of the preceding sentence until the
circumstances giving rise to such inability no longer exist. Any change in
the Alternate Base Rate due to a change in the Prime Rate or the Federal
Funds Effective Rate shall be effective on the effective date of such change
in the Prime Rate or the Federal
<PAGE>
4
Funds Effective Rate, respectively. The term "PRIME RATE" shall mean the
rate of interest per annum publicly announced from time to time by the
Administrative Agent as its prime rate in effect at its principal office in
New York City; each change in the Prime Rate shall be effective on the date
such change is publicly announced as being effective. The term "FEDERAL
FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average of
the quotations for the day for such transactions received by the
Administrative Agent from three Federal funds brokers of recognized standing
selected by it.
"APPLICABLE PERCENTAGE" shall mean, for any day, with respect to
any Eurodollar Loan or any ABR Loan, or with respect to the Commitment Fees,
as the case may be, the applicable percentage set forth below under the
caption "Eurodollar Spread", "ABR Spread" or "Fee Percentage", as the case
may be, based upon the Leverage Ratio as of the relevant determination date:
<TABLE>
<CAPTION>
Eurodollar ABR Fee
Leverage Ratio Spread Spread Percentage
-------------- ---------- ------ ----------
<S> <C> <C> <C>
CATEGORY 1 2.25% 1.25% 0.500%
Greater than or equal to 4.75 to 1.00
CATEGORY 2 2.00% 1.00% 0.500%
Less than 4.75 to 1.00 but greater
than or equal to 4.00 to 1.00
CATEGORY 3 1.75% 0.75% 0.500%
Less than 4.00 to 1.00 but greater
than or equal to 3.50 to 1.00
CATEGORY 4 1.50% 0.50% 0.375%
Less than 3.50 to 1.00 but greater
than or equal to 3.00 to 1.00
CATEGORY 5 1.25% 0.25% 0.375%
Less than 3.00 to 1.00 but greater
than or equal to 2.50 to 1.00
CATEGORY 6 1.00% 0.00 0.375%
Less than 2.50 to 1.00
</TABLE>
Each change in the Applicable Percentage resulting from a change in
the Leverage Ratio shall be effective with respect to all Tranche A Term
Loans, Revolving Loans, Commitments and Letters of Credit outstanding on and
after the date of delivery to the Administrative Agent of the financial
statements and certificates required by Section 5.04(a) or (b) indicating
such change until the date immediately preceding the next date of delivery of
such financial statements and
<PAGE>
5
certificates indicating another such change. Notwithstanding the foregoing,
(i) until the date that is six months following the Closing Date, (ii) at any
time during which the Parent Borrower has failed to deliver the financial
statements and certificates required by Section 5.04(a) or (b) or (iii) at
any time after the occurrence and during the continuance of an Event of
Default, the Leverage Ratio shall be deemed to be in Category 1 for purposes
of determining the Applicable Percentage.
"ASSET SALE" shall mean the sale (including any transaction that
has the economic effect of a sale), transfer or other disposition (by way of
merger or otherwise, including sales in connection with a sale and leaseback
transaction permitted pursuant to Section 6.03, or as a result of a
Condemnation Event or a Casualty Event) by any Borrower or any Guarantor to
any person, other than any Borrower or any Guarantor, of (a) any capital
stock of any Subsidiary Borrower or any Guarantor, (b) any capital stock or
other equity interests of CBHS or (c) any other assets of any Borrower or any
Guarantor (other than inventory, obsolete or worn out assets, scrap and
Permitted Investments, in each case disposed of in the ordinary course of
business), except (i) sales, transfers or other dispositions of the Real
Estate for Sale; (ii) sales, transfers or other dispositions that constitute
or result from Permitted Non-Control Investments, Permitted Non-Guarantor
Transactions or Permitted CBHS Investments, (iii) any Permitted Post-Closing
Crescent Transaction and (iv) sales, transfers or other dispositions of any
assets in one transaction or a series of related transactions having a value
not in excess of $200,000.
"ASSIGNMENT AND ACCEPTANCE" shall mean an assignment and acceptance
entered into by a Lender and an assignee, and accepted by the Administrative
Agent, in the form of Exhibit B or such other form as shall be approved by
the Administrative Agent.
"BOARD" shall mean the Board of Governors of the Federal Reserve
System of the United States of America.
"BORROWERS" shall have the meaning assigned to such term in the
preamble to this Agreement.
"BORROWING" shall mean Loans of a single Class and Type made by the
Lenders on a single date and, in the case of Eurodollar Loans, as to which a
single Interest Period is in effect.
"BORROWING REQUEST" shall mean a request by a Borrower in
accordance with the terms of Section 2.03 and substantially in the form of
Exhibit C-1.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or
day on which banks in New York City are authorized or required by law to
close; PROVIDED, HOWEVER, that when used in connection with a Eurodollar
Loan, the term "Business Day" shall also exclude any day on which banks are
not open for dealings in dollar deposits in the London interbank market.
"CAPITAL EXPENDITURES" shall mean, for any period, and without
duplication, the sum of all amounts that would, in conformity with GAAP, be
included as (a) additions to property, plant and equipment (including
renewals, improvements and replacements thereof, but excluding, not
withstanding clause (b) hereof, repairs thereof and assets acquired in
Permitted Acquisitions) or
<PAGE>
6
(b) other capital expenditures on a consolidated statement of cash flows for
the Parent Borrower and the Subsidiaries for such period (including Capital
Lease Obligations incurred during such period).
"CAPITAL LEASE OBLIGATIONS" of any person shall mean the
obligations of such person to pay rent or other amounts under any lease of
(or other arrangement conveying the right to use) real or personal property,
or a combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person in
accordance with GAAP, and the amount of such obligations shall be the
capitalized amount thereof determined in accordance with GAAP.
"CASUALTY EVENT" shall mean an event pursuant to which any Borrower
or any Guarantor has the right to collect and receive insurance proceeds
(other than business interruption proceeds) under any insurance policies with
respect to any insured casualty to any property of any Borrower or any
Guarantor.
"CBHS" shall mean Charter Behavioral Health Systems, LLC, a
Delaware limited liability company, 50% of which is owned by the Parent
Borrower as of the Closing Date and 50% of which is owned by the Crescent
Affiliate as of the Closing Date.
A "CHANGE IN CONTROL" shall be deemed to have occurred if (a) any
person or group (within the meaning of Rule 13d-5 of the Securities Exchange
Act of 1934 as in effect on the date hereof) shall own directly or
indirectly, beneficially or of record, shares representing more than 35% of
the aggregate ordinary voting power represented by the issued and outstanding
capital stock of the Parent Borrower, other than any person or group that
owns at least 5% of the capital stock of the Parent Borrower on the Closing
Date; (b) a majority of the seats (other than vacant seats) on the board of
directors of the Parent Borrower shall at any time be occupied by persons who
were neither (i) nominated by the board of directors of the Parent Borrower
nor (ii) appointed by directors so nominated; or (c) any change in control
(or similar event, however denominated) with respect to the Parent Borrower
shall occur under and as defined in any indenture or agreement in respect of
Indebtedness for borrowed money in excess of the aggregate principal amount
of $10,000,000 to which any Borrower or any Guarantor is a party, other than
the Existing Parent Borrower Notes Indenture in connection with a Permitted
CBHS Sale.
"CLASS" shall mean, when used in reference to any Loan or
Borrowing, whether such Loan, or the Loans comprising such Borrowing, are
Revolving Loans, Tranche A Term Loans, Tranche B Term Loans or Tranche C Term
Loans and, when used in reference to any Commitment, whether such Commitment
is a Revolving Credit Commitment, Tranche A Term Loan Commitment, Tranche B
Term Loan Commitment or Tranche C Term Loan Commitment.
"CLOSING DATE" shall mean the date (which in no event shall be
later than March 31, 1998) of the first Credit Event.
"CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"COLLATERAL" shall mean all the "Collateral" as defined in any
Security Document.
<PAGE>
7
"COLLATERAL AGENT" shall have the meaning assigned to such term in
the preamble to this Agreement or any successor appointed pursuant to Article
VIII.
"COLLATERAL ASSIGNMENT" shall mean the Collateral Assignment,
substantially in the form of Exhibit D, made by the Parent Borrower in favor
of the Collateral Agent for the benefit of the Secured Parties.
"COMMITMENT" shall mean, with respect to each Lender, such Lender's
Revolving Credit Commitment and Term Loan Commitments.
"COMMITMENT FEE" shall have the meaning assigned to such term in
Section 2.05(a).
"CONDEMNATION EVENT" shall mean an event pursuant to which any
Borrower or any Guarantor has the right to collect and receive proceeds as a
result of any action or proceeding for the taking of any property of any
Borrower or any Guarantor, or any part thereof or interest therein, for
public or quasi-public use under the power of eminent domain, by reason of
any public improvement or condemnation proceeding or in any other manner.
"CONFIDENTIAL INFORMATION MEMORANDUM" shall mean the Confidential
Information Memorandum of the Parent Borrower dated November 1997.
"CONSOLIDATED CURRENT ASSETS" shall mean, at any date of
determination, all assets (other than cash and cash-equivalents, including
all cash and cash-equivalents held in any escrow or special purpose or
restricted account) that would, in accordance with GAAP, be classified on a
consolidated balance sheet of the Parent Borrower and the Subsidiaries as
current assets at such date of determination.
"CONSOLIDATED CURRENT LIABILITIES" shall mean, at any date of
determination, all liabilities (other than, without duplication, (a) the
current portion of long-term Indebtedness and (b) Revolving Loans) that
would, in accordance with GAAP, be classified on a consolidated balance sheet
of the Parent Borrower and the Subsidiaries as current liabilities at such
date of determination.
"CONSOLIDATED EBITDA" shall mean, for any period, (a) Consolidated
Net Income for such period PLUS (b) to the extent deducted in the
determination of Consolidated Net Income, the sum of (i) the aggregate amount
of income tax expense for such period, (ii) the aggregate amount of
Consolidated Interest Expense for such period, (iii) any amounts paid in
respect of, and other expenses related to, the repurchase by the Parent
Borrower of stock options held by any director, officer or employee, and for
the cancelation or termination of such stock options, to the extent that such
amounts and expenses do not exceed in the aggregate $10,000,000, (iv) the
aggregate amount of amortization, depreciation and other non-cash charges
(including employee stock ownership plan expense, stock option expense and
amortization of goodwill, expenses related to the consummation of the
Transactions and other transaction expenses, excess reorganization expense,
covenants not to compete and other intangible assets) for such period, (v)
for the periods ending June 30, 1998, September 30, 1998 and December 31,
1998, severance, termination, closure, relocation, discontinuance,
restructuring and similar expenses associated with achieving synergies during
such periods, in an aggregate amount not to exceed $26,000,000 for all such
periods, and (vi) transaction
<PAGE>
8
expenses associated with any Permitted CBHS Sale, all as determined in
accordance with GAAP, and PLUS, without duplication, (c) any Acquired Entity
EBITDA during such period, calculated on a PRO FORMA basis as of the first
day of such period, and MINUS, without duplication, (d) the sum of
extraordinary cash charges paid during such period by the Parent Borrower and
the Subsidiaries, excluding any such extraordinary cash charges (including
extinguishment of Indebtedness) paid in respect of (x) the Transactions up to
an amount that is not materially inconsistent with amounts previously
disclosed to the Administrative Agent or (y) any refinancing of Indebtedness
permitted by Section 6.01(n). Notwithstanding anything to the contrary set
forth in this definition, (a) for purposes of calculating Consolidated EBITDA
for each of the four-fiscal-quarters ending June 30, 1998, September 30,
1998, and December 31, 1998, Consolidated EBITDA shall equal Consolidated
EBITDA for the period commencing April 1, 1998, and ending on (i) June 30,
1998, less the component of Consolidated Net Income for such period
attributable to franchise fees under the Franchise Agreement, multiplied by
4, PLUS the sum of (A) Consolidated Net Income attributable to franchise fees
under the Franchise Agreement for the immediately preceding twelve-month
period and (B) other than for purposes of calculating the Applicable Margin,
$20,000,000, (ii) September 30, 1998, less the component of Consolidated Net
Income for such period attributable to franchise fees under the Franchise
Agreement, multiplied by 2, PLUS the sum of (A) Consolidated Net Income
attributable to franchise fees under the Franchise Agreement for the
immediately preceding twelve-month period and (B) other than for purposes of
calculating the Applicable Margin, $10,000,000, and (iii) December 31, 1998,
less the component of Consolidated Net Income for such period attributable to
franchise fees under the Franchise Agreement, multiplied by 4/3, PLUS the sum
of (A) Consolidated Net Income attributable to franchise fees under the
Franchise Agreement for the immediately preceding twelve-month period and (B)
other than for purposes of calculating the Applicable Margin, $5,000,000,
respectively; PROVIDED, HOWEVER, that any extraordinary cash items recognized
during any such periods shall be included only in the actual amount thereof
and shall not be subject to the foregoing multipliers, and (b) for purposes
of calculating Consolidated EBITDA for any period, there shall be excluded
from Acquired Entity EBITDA with respect to such period the net income (or
loss) attributable to each Specified Acquired Entity to the extent that cash
has not been distributed by such Specified Acquired Entity to the Parent
Borrower or any of the Subsidiaries (other than any other Specified Acquired
Entity) during such period.
"CONSOLIDATED INTEREST EXPENSE" shall mean, with respect to the
Parent Borrower and the Subsidiaries for any period, the gross interest
expense (including interest expense attributable to Capital Lease Obligations
and Interest Rate Protection Agreements but excluding any non-cash interest
expense, including amortization of deferred loan costs) accrued or paid by
the Parent Borrower and the Subsidiaries for such period, as determined on a
consolidated basis in accordance with GAAP, PLUS (without duplication) gross
interest expense (including interest expense attributable to Capital Lease
Obligations and Interest Rate Protection Agreements but excluding any
non-cash interest expense such as amortization of deferred loan costs)
relating to Indebtedness incurred or assumed by the Parent Borrower or any
Subsidiary with respect to the acquisition of any Acquired Entity during such
period, calculated on a PRO FORMA basis as of the first day of such period.
"CONSOLIDATED NET INCOME" shall mean, for any period, the net
income (or loss) of the Parent Borrower and the Subsidiaries for such period
as determined on a consolidated basis in
<PAGE>
9
accordance with GAAP, PROVIDED that (a) there shall be included in the
determination of Consolidated Net Income the net income (or loss)
attributable to each Controlled Venture (it being understood that such net
income (or loss) will be proportionate to the Parent Borrower's equity
interest, direct or indirect, in such Controlled Venture) and (b) there shall
be excluded from the determination of Consolidated Net Income (i) the net
income (or loss) attributable to all Non-Controlled Ventures to the extent
that cash has not been distributed to the Parent Borrower or any of the
Subsidiaries, (ii) the net income (or loss) attributable to any Specified
Entity to the extent that cash has not been distributed by such Specified
Entity to the Parent Borrower or any of the Subsidiaries (other than any
other Specified Entity) during such period, (iii) all extraordinary gains or
losses and (iv) the gain (or loss) attributable to the sale of any assets of
the Parent Borrower or the Subsidiaries permitted under Section 6.05.
"CONSOLIDATED NET WORTH" shall mean, as at any date of
determination, the consolidated stockholders' equity of the Parent Borrower
and the Subsidiaries, as determined on a consolidated basis in accordance
with GAAP.
"CONSOLIDATED WORKING CAPITAL" shall mean, at any date of
determination, Consolidated Current Assets at such date of determination
MINUS Consolidated Current Liabilities at such date of determination.
"CONTROL" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise, and the terms "CONTROLLING" and "CONTROLLED" shall have meanings
correlative thereto. For purposes of this Agreement, the term "CONTROL"
shall be deemed to exist if, for financial reporting purposes, the Controlled
Person's financial statements are consolidated with the financial statements
of the Controlling Person.
"CONTROLLED NON-GUARANTOR ENTITIES" shall mean partnerships, joint
ventures or Subsidiaries in which the Parent Borrower or any of the
Subsidiaries have an ownership interest of 50% or greater of the equity
interests therein, that are Controlled by the Parent Borrower and that are
not Guarantors.
"CONTROLLED VENTURES" shall mean the healthcare partnerships and
joint ventures (i) that are Controlled by the Parent Borrower or any of the
Subsidiaries, (ii) of which the Parent Borrower or any of the Subsidiaries
has an ownership interest of 50% or greater of the equity interests therein
and (iii) of which the partnership documents and any other applicable
governing documents contain no restriction or prohibition of any kind on cash
distributions, other than Permitted Restrictions. Schedule 1.01(a) sets
forth a complete list of all Controlled Ventures as of the Closing Date.
"CONVERSION" shall have the meaning assigned to such term in
Section 5.14.
"CREDIT EVENT" shall have the meaning assigned to such term in
Section 4.02.
"CRESCENT" shall mean Crescent Real Estate Equities Limited
Partnership, a Delaware limited partnership.
<PAGE>
10
"CRESCENT AFFILIATE" shall mean Crescent Operating Inc., a Delaware
corporation, and its successors and assigns.
"CRESCENT FUNDING" shall mean Crescent Real Estate Funding VII,
L.P., a Delaware limited partnership, and its successors and assigns.
"DEBT TENDER OFFERS" shall mean the Parent Borrower Debt Tender
Offer and the Merit Debt Tender Offer.
"DEFAULT" shall mean any event or condition that upon notice, lapse
of time or both would constitute an Event of Default.
"DOCUMENTATION AGENT" shall have the meaning assigned to such term
in the preamble to this Agreement.
"DOLLARS" or "$" shall mean lawful money of the United States of
America.
"DOMESTIC SUBSIDIARIES" shall mean all Subsidiaries incorporated or
organized under the laws of the United States of America, any State thereof
or the District of Columbia.
"DOMESTIC SUBSIDIARY GUARANTORS" shall mean all Domestic
Subsidiaries that are also Guarantors.
"ENVIRONMENT" shall mean ambient air, surface water and groundwater
(including potable water, navigable water and wetlands), the land surface or
subsurface strata, the workplace or as otherwise defined in any Environmental
Law.
"ENVIRONMENTAL CLAIM" shall mean any written accusation,
allegation, notice of violation, claim, demand, order, directive, cost
recovery action or other cause of action by, or on behalf of, any
Governmental Authority or any person for damages, injunctive or equitable
relief, personal injury (including sickness, disease or death), Remedial
Action costs, tangible or intangible property damage, natural resource
damages, nuisance, pollution, any adverse effect on the environment caused by
any Hazardous Material, or for fines, penalties or restrictions, resulting
from or based upon (a) the existence, or the continuation of the existence,
of a Release (including sudden or non-sudden, accidental or non-accidental
Releases), (b) exposure to any Hazardous Material, (c) the presence, use,
handling, transportation, storage, treatment or disposal of any Hazardous
Material or (d) the violation or alleged violation of any Environmental Law
or Environmental Permit.
"ENVIRONMENTAL LAW" shall mean any and all applicable present and
future treaties, laws, rules, regulations, codes, ordinances, orders,
decrees, judgments, injunctions, notices or binding agreements issued,
promulgated or entered into by any Governmental Authority, relating in any
way to the environment, preservation or reclamation of natural resources, the
management, Release or threatened Release of any Hazardous Material or to
health and safety matters, including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, 42 U.S.C. Sections 9601 ET SEQ.
<PAGE>
11
(collectively "CERCLA"), the Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste
Amendments of 1984, 42 U.S.C. Sections 6901 ET SEQ., the Federal Water
Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C.
Sections 1251 ET SEQ., the Clean Air Act of 1970, as amended 42 U.S.C.
Sections 7401 ET SEQ., the Toxic Substances Control Act of 1976, 15 U.S.C.
Sections 2601 ET SEQ., the Occupational Safety and Health Act of 1970, as
amended, 29 U.S.C. Sections 651 ET SEQ., the Emergency Planning and
Community Right-to-Know Act of 1986, 42 U.S.C. Sections 11001 ET SEQ., the
Safe Drinking Water Act of 1974, as amended, 42 U.S.C. Sections 300(f) et
seq., the Hazardous Materials Transportation Act, 49 U.S.C. Sections 5101 ET
SEQ., and any similar or implementing state or local law, and all amendments
or regulations promulgated under any of the foregoing.
"ENVIRONMENTAL PERMIT" shall mean any permit, approval,
authorization, certificate, license, variance, filing or permission required
by or from any Governmental Authority pursuant to any Environmental Law.
"EQUITY ISSUANCE" means, without duplication, any issuance or sale
by the Parent Borrower or any Subsidiary on or after the Closing Date of its
capital stock (other than in connection with the Conversion) or any warrants,
options or similar rights to acquire such capital stock, other than (a)
issuances and sales to employees, officers and directors in the ordinary
course of business and (b) issuances and sales effected pursuant to the
exercise of warrants issued prior to January 1, 1996.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may be amended from time to time.
"ERISA AFFILIATE" shall mean any trade or business (whether or not
incorporated) that, together with any Loan Party, is treated as a single
employer under Section 414(b) or (c) of the Code, or solely for purposes of
Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.
"ERISA EVENT" shall mean (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder, with respect to a
Plan; (b) the adoption of any amendment to a Plan that would require the
provision of security pursuant to Section 401(a)(29) of the Code or Section
307 of ERISA; (c) the existence with respect to any Plan of an "accumulated
funding deficiency" (as defined in Section 412 of the Code or Section 302 of
ERISA), whether or not waived; (d) the filing pursuant to Section 412(d) of
the Code or Section 303(d) of ERISA of an application for a waiver of the
minimum funding standard with respect to any Plan; (e) the incurrence of any
liability under Title IV of ERISA with respect to the termination of any Plan
or the withdrawal or partial withdrawal of any Loan Party or any of its ERISA
Affiliates from any Plan or Multiemployer Plan; (f) the receipt by any Loan
Party or any ERISA Affiliate from the PBGC or a plan administrator of any
notice relating to the intention to terminate any Plan or Plans or to appoint
a trustee to administer any Plan; (g) the receipt by any Loan Party or any
ERISA Affiliate of any notice concerning the imposition of Withdrawal
Liability or a determination that a Multiemployer Plan is, or is expected to
be, insolvent or in reorganization, within the meaning of Title IV of ERISA;
(h) the occurrence of a "prohibited transaction" with respect to which any
Loan Party or any of its Subsidiaries is a "disqualified person" (within the
meaning of Section 4975 of the
<PAGE>
12
Code) or with respect to which any Loan Party or any such Subsidiary could
otherwise be liable; and (i) any other event or condition with respect to a
Plan or Multiemployer Plan that could reasonably be expected to result in
liability of any Loan Party.
"EURODOLLAR BORROWING" shall mean a Borrowing comprised of
Eurodollar Loans.
"EURODOLLAR LOAN" shall mean any Eurodollar Revolving Loan or
Eurodollar Term Loan.
"EURODOLLAR REVOLVING BORROWING" shall mean a Borrowing comprised
of Eurodollar Revolving Loans.
"EURODOLLAR REVOLVING LOAN" shall mean any Revolving Loan bearing
interest at a rate determined by reference to the Adjusted LIBO Rate in
accordance with the provisions of Article II.
"EURODOLLAR TERM BORROWING" shall mean a Borrowing comprised of
Eurodollar Term Loans.
"EURODOLLAR TERM LOAN" shall mean any Term Loan bearing interest at
a rate determined by reference to the Adjusted LIBO Rate in accordance with
the provisions of Article II.
"EVENT OF DEFAULT" shall have the meaning assigned to such term in
Article VII.
"EXCESS CASH FLOW" shall mean, for any fiscal year, the excess of
(a) the sum, without duplication, of (i) Consolidated EBITDA, (ii)
extraordinary cash income, if any, not included in Consolidated EBITDA,
(iii) an amount equal to any decrease in Consolidated Working Capital during
such fiscal year, (iv) the amount of all Net Cash Proceeds received during
such fiscal year of Indebtedness (other than pursuant to this Agreement) to
the extent used to finance any Permitted Acquisition, Permitted Non-Control
Investment, Permitted Non-Guarantor Transaction, Permitted CBHS Transaction,
Permitted Stock Repurchase, Capital Expenditure or any transactions similar
to any of the foregoing consummated prior to the Closing Date and (v) all
amounts that would have constituted Net Cash Proceeds under clause (a) of the
definition of the term "Net Cash Proceeds" if such amounts had not been used
to replace or repair damaged or condemned property, in the case of the
foregoing clauses (iv) and (v), to the extent there is a corresponding
deduction to Excess Cash Flow below, MINUS (b) the sum, without duplication,
of (i) taxes paid or payable in cash by the Parent Borrower and the
Subsidiaries on a consolidated basis during such fiscal year, (ii)
Consolidated Interest Expense paid in cash during such fiscal year, (iii)
cash payments made during such fiscal year in respect of Permitted
Acquisitions, Permitted Debt Repurchases, Permitted Non-Control Investments,
Permitted CBHS Transactions, Permitted Non-Guarantor Transactions, Permitted
Stock Repurchases and Capital Expenditures, or any transactions similar to
any of the foregoing consummated prior to the Closing Date, (iv) scheduled
and mandatory principal repayments of Indebtedness (other than the Loans)
made by the Borrowers and the Subsidiaries during such fiscal year (excluding
(A) payments of intercompany Indebtedness between or among the Parent
Borrower and the Subsidiaries, (B) principal repayments made in connection
with the refinancing of the Existing Credit Agreement and (C) any principal
repayments to the extent
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13
financed by incurring other Indebtedness, other than Revolving Loans), (v)
scheduled principal repayments of Loans made during such fiscal year pursuant
to Section 2.12, (vi) optional prepayments of principal of Term Loans made
during such fiscal year pursuant to Section 2.11, (vii) an amount equal to
any increase in Consolidated Working Capital during such fiscal year and
(viii) extraordinary cash expenses, if any, paid by the Parent Borrower and
the Subsidiaries and not reflected in the calculation of Consolidated EBITDA,
PROVIDED that Excess Cash Flow shall be adjusted to exclude the effect of any
(i) gains, losses, income or expenses attributable to any Prepayment Event
and (ii) Acquired Entity EBITDA attributable to periods prior to the
acquisition of the applicable Acquired Entity by any Borrower or any
Guarantor pursuant to a Permitted Acquisition.
"EXISTING CREDIT AGREEMENTS" shall mean the Existing Parent
Borrower Credit Agreement and the Existing Merit Credit Agreement.
"EXISTING LETTER OF CREDIT" shall mean each letter of credit that
(a) was issued under one of the Existing Credit Agreements, (b) is
outstanding on the Closing Date and (c) is listed on Schedule 1.01(b).
"EXISTING MERIT CREDIT AGREEMENT" shall mean the Credit Agreement
dated as of October 6, 1995, as amended, among Merit, The Chase Manhattan
Bank, as agent, and the financial institutions party thereto.
"EXISTING MERIT NOTES" shall mean the 111/2% Senior Subordinated
Notes due 2005 of Merit.
"EXISTING MERIT NOTES INDENTURE" shall mean the Indenture dated as
of November 22, 1995, between Merit and Marine Midland Bank, as Trustee,
relating to the Existing Merit Notes, as heretofore amended and supplemented
and as the same may hereafter be amended or supplemented from time to time in
accordance with the terms hereof and thereof.
"EXISTING PARENT BORROWER CREDIT AGREEMENT" shall mean the Amended
and Restated Credit Agreement dated as of June 16, 1997, as amended, among
the Parent Borrower, Charter Behavioral Health System of New Mexico, Inc.,
the lenders named therein, The Chase Manhattan Bank, as agent, and First
Union National Bank of North Carolina, as agent.
"EXISTING PARENT BORROWER NOTES" shall mean the 111/4% Series A
Senior Subordinated Notes due 2004 of the Parent Borrower.
"EXISTING PARENT BORROWER NOTES INDENTURE" shall mean the Indenture
dated as of May 2, 1994, among the Parent Borrower (formerly Charter Medical
Corporation), the guarantors named therein and Marine Midland Bank, as
Trustee, relating to the Existing Parent Borrower Notes, as heretofore
amended and supplemented and as the same may hereafter be amended or
supplemented from time to time in accordance with the terms hereof and
thereof.
"FEE LETTER" shall mean the letter agreement dated October 24,
1997, between the Parent Borrower and the Administrative Agent.
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14
"FEES" shall mean the Commitment Fees, the Administrative Agent's
Fees, the L/C Participation Fees and the Issuing Bank Fees.
"FINANCIAL OFFICER" of any corporation shall mean any of the chief
financial officer, principal accounting officer, Treasurer and Controller of
such corporation.
"FOREIGN SUBSIDIARY" shall mean any Subsidiary that is not a
Domestic Subsidiary.
"FRANCHISE AGREEMENT" shall mean the Master Franchise Agreement
dated as of June 16, 1997, among the Parent Borrower, Charter Franchise
Services, LLC and CBHS, each Franchise Agreement dated as of June 16, 1997,
among the Parent Borrower, Charter Franchise Services, LLC and each
subsidiary of CBHS party thereto and any Franchise Agreement entered into
among Parent Borrower, Charter Franchise Services, LLC and any subsidiary of
CBHS that is acquired or organized after the date of this Agreement, in each
case as the same may hereafter be amended, supplemented or otherwise modified
from time to time in accordance with this Agreement.
"FRANCHISE NON-PAYMENT EVENT" shall mean the failure by CBHS or any
subsidiary of CBHS to pay any fee or other amount that it is obligated to pay
under the Franchise Agreement to the Parent Borrower at the time payment of
such fee or other amount is due in accordance with the terms of the Franchise
Agreement, whether due to the subordination of such payments or other causes.
"GAAP" shall mean generally accepted accounting principles applied on
a consistent basis.
"GOVERNANCE REMEDIES" shall mean remedies that are specifically
enumerated in Section 5.9 of the Franchise Agreement.
"GOVERNMENTAL AUTHORITY" shall mean any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
"GREEN SPRING" shall mean Green Spring Health Services, Inc., a
Delaware corporation.
"GREEN SPRING STOCKHOLDER APPROVAL" shall have the meaning assigned
to such term in Section 5.14.
"GREEN SPRING TRANSACTION" shall have the meaning assigned to such
term in Section 5.14.
"GUARANTEE" of or by any person shall mean any obligation,
contingent or otherwise, of such person guaranteeing or having the economic
effect of guaranteeing any Indebtedness of any other person (the "PRIMARY
OBLIGOR") in any manner, whether directly or indirectly, and including any
obligation of such person, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or
to purchase (or to advance or supply funds for the purchase of) any security
for the payment of such Indebtedness, (b) to purchase or lease property,
<PAGE>
15
securities or services for the purpose of assuring the owner of such
Indebtedness of the payment of such Indebtedness or (c) to maintain working
capital, equity capital or any other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay
such Indebtedness; PROVIDED, HOWEVER, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business.
"GUARANTEE AGREEMENT" shall mean the Guarantee Agreement,
substantially in the form of Exhibit E, made by the Guarantors in favor of
the Collateral Agent for the benefit of the Secured Parties.
"GUARANTORS" shall mean each Person listed on Schedule 1.01(c) and
each other Person that becomes party to a Guarantee Agreement as a Guarantor,
and the permitted successors and assigns of each such person, but excluding
any Person that has been released from its obligations under the Guarantee
Agreement as PROVIDED in Section 12 thereof.
"HAZARDOUS MATERIALS" shall mean all explosive or radioactive
substances or wastes, hazardous or toxic substances or wastes, pollutants,
solid, liquid or gaseous wastes, including petroleum or petroleum
distillates, asbestos or asbestos containing materials, polychlorinated
biphenyls ("PCBs") or PCB-containing materials or equipment, radon gas,
infectious or medical wastes and all other substances or wastes of any nature
regulated pursuant to any Environmental Law.
"HEALTH CARE LAW" shall mean any and all applicable current and
future laws, rules, regulations, codes, ordinances, orders, decrees,
judgments, injunctions or binding agreements issued, promulgated or entered
into by the Food and Drug Administration, the Health Care Financing
Administration, the Department of Health and Human Services ("HHS"), the
Office of Inspector General of HHS, the Drug Enforcement Administration or
any other Governmental Authority, including any state and/or local
professional licensing laws, certificate of need laws and state reimbursement
laws, relating in any way to the conduct of the business of the Parent
Borrower or any Subsidiary and the provision of health care services
generally.
"INACTIVE SUBSIDIARY" shall have the meaning assigned to such term
in Section 5.11.
"INDEBTEDNESS" of any person shall mean, 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, (c)
all obligations of such person upon which interest charges are customarily
paid, (d) all obligations of such person under conditional sale or other
title retention agreements relating to property or assets purchased by such
person, (e) all obligations of such person issued or assumed as the deferred
purchase price of property or services (excluding (i) trade accounts payable
and accrued obligations incurred in the ordinary course of business) and (ii)
deferred earn-out and other performance-based payment obligations incurred in
connection with any Permitted Acquisition or any similar transactions
consummated prior to the Closing Date), (f) all Indebtedness of others
secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property owned
or acquired by such person, whether or not the obligations secured thereby
have been assumed, (g) all Guarantees by such person of Indebtedness of
others, (h) all Capital Lease Obligations of such person, (i) all obligations
<PAGE>
16
(determined on the basis of actual, not notional, obligations) of such person
in respect of interest rate protection agreements, foreign currency exchange
agreements or other interest or exchange rate hedging arrangements and (j)
all obligations of such person as an account party in respect of letters of
credit and bankers' acceptances issued in support of obligations that
constitute Indebtedness under any other clause of this definition (unless
such obligations are fully cash collateralized), PROVIDED that all
obligations in respect of letters of credit shall be deemed Indebtedness to
the extent drawings thereunder are unreimbursed (after any applicable grace
period) regardless of the purpose for which such letter of credit was issued.
The Indebtedness of any person shall include the recourse Indebtedness of any
partnership in which such person is a general partner. Notwithstanding the
foregoing, no portion of Indebtedness that becomes the subject of a
defeasance (whether a legal defeasance or a "covenant" or "in substance"
defeasance) shall, at any time that such defeasance remains in effect, be
treated as Indebtedness for purposes hereof.
"INDEMNITY, SUBROGATION AND CONTRIBUTION AGREEMENT" shall mean the
Indemnity, Subrogation and Contribution Agreement, substantially in the form
of Exhibit F, among the Borrowers, the Guarantors and the Collateral Agent.
"INSURANCE SUBSIDIARIES" shall mean (a) so long as they are
Subsidiaries of the Parent Borrower, Golden Isle Assurance Company and
Plymouth Insurance Company, Ltd., each a corporation organized under the laws
of Bermuda, and their respective successors and assigns and (b) any other
Subsidiaries of the Parent Borrower that are authorized or admitted to carry
on or transact one or more aspects of the business of selling, issuing or
underwriting insurance in any jurisdiction and are regulated by the insurance
departments or similar regulatory authorities of such jurisdiction or of the
jurisdictions where they are domiciled or primarily doing business.
"INTEREST EXPENSE COVERAGE RATIO" shall mean, as of the last day of
any fiscal quarter, the ratio of (a) Consolidated EBITDA for the period of
four consecutive fiscal quarters ended on such day to (b) Consolidated
Interest Expense for such period (PROVIDED that, for purposes of calculating
Consolidated Interest Expense for each of the four-fiscal quarter periods
ending June 30, 1998, September 30, 1998, and December 31, 1998, Consolidated
Interest Expense for such four-fiscal quarter periods shall equal
Consolidated Interest Expense for the period commencing on April 1, 1998,
and ending on (A) June 30, 1998, multiplied by 4, (B) September 30, 1998,
multiplied by 2, and (C) December 31, 1998, multiplied by 4/3).
"INTEREST PAYMENT DATE" shall mean, with respect to any Loan, the
last day of the Interest Period applicable to the Borrowing of which such
Loan is a part (and, in the case of a Eurodollar Borrowing with an Interest
Period of more than three months' duration, each day that would have been an
Interest Payment Date had successive Interest Periods of three months'
duration been applicable to such Borrowing), and the date of any prepayment
of such Borrowing or conversion of such Borrowing to a Borrowing of a
different Type.
"INTEREST PERIOD" shall mean (a) as to any Eurodollar Borrowing,
the period commencing on the date of such Borrowing and ending on the
numerically corresponding day (or, if there is no numerically corresponding
day, on the last day) in the calendar month that is 1, 2, 3 or 6 months
thereafter, as the applicable Borrower may elect, and (b) as to any ABR
Borrowing, the period commencing on the date of such Borrowing and ending on
the earliest of (i) the last Business
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17
Day of March, June, September or December, (ii) the Revolving Credit Maturity
Date, the Tranche A Maturity Date, the Tranche B Maturity Date or the Tranche
C Maturity Date, as applicable, and (iii) the date such Borrowing is
converted to a Borrowing of a different Type in accordance with Section 2.10
or repaid or prepaid in accordance with Section 2.11 or 2.12; PROVIDED,
however, that, in the case of a Eurodollar Borrowing, if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such
Interest Period shall end on the next preceding Business Day. Interest shall
accrue from and including the first day of an Interest Period to but
excluding the last day of such Interest Period.
"INTEREST RATE PROTECTION AGREEMENT" shall mean any interest rate
swap, cap or other agreement or arrangement entered into by any Borrower
designed to protect such Borrower against fluctuations in interest rates and not
for speculation, PROVIDED that any such swap, cap agreement or other arrangement
entered into after the Closing Date shall be satisfactory to the Administrative
Agent.
"INVESTMENT GRADE SECURITIES" shall mean and include (a) U.S.
Government Obligations (other than Permitted Investments described in clause (a)
of the definition of the term "Permitted Investments"), (b) debt securities or
debt instruments with a rating of BBB- or higher by S&P, Baa3 or higher by
Moody's or Class (2) or higher by NAIC, or the equivalent of such rating by S&P,
Moody's or NAIC, or if none of S&P, Moody's or NAIC shall then exist, the
equivalent of such rating by any other nationally recognized securities rating
agency, but excluding any debt securities or instruments constituting loans or
advances among the Parent Borrower and its wholly-owned subsidiaries and (c) any
fund investing exclusively in investments of the types described in clauses (a)
and (b), which fund may also hold immaterial amounts of cash pending investment
and/or distribution.
"ISSUING BANK FEES" shall have the meaning assigned to such term in
Section 2.05(c).
"ISSUING BANKS" shall have the meaning assigned to such term in the
preamble to this Agreement, except as amended in Section 2.22(i).
"L/C COMMITMENT" shall mean, with respect to each Issuing Bank, the
commitment of such Issuing Bank to issue Letters of Credit pursuant to
Section 2.22.
"L/C DISBURSEMENT" shall mean a payment or disbursement made by an
Issuing Bank pursuant to a Letter of Credit.
"L/C EXPOSURE" shall mean at any time the sum of (a) the aggregate
undrawn amount of all outstanding Letters of Credit at such time PLUS (b) the
aggregate principal amount of all L/C Disbursements that have not yet been
reimbursed at such time. The L/C Exposure of any Revolving Credit Lender at any
time shall mean its Pro Rata Percentage of the L/C Exposure at such time.
<PAGE>
18
"L/C PARTICIPATION FEE" shall have the meaning assigned to such term
in Section 2.05(c).
"LEASE" shall mean the Master Lease Agreement dated as of June 16,
1997, as amended, supplemented or otherwise modified from time to time in
accordance with this Agreement, among Crescent Funding (as landlord), CBHS and
each facility subsidiary listed therein (as tenant).
"LENDERS" shall mean (a) the financial institutions listed on
Schedule 2.01 (a) or (b) (other than any such financial institution that has
ceased to be a party hereto pursuant to an Assignment and Acceptance) and
(b) any financial institution that has become a party hereto pursuant to an
Assignment and Acceptance.
"LETTER OF CREDIT" shall mean (a) any letter of credit issued pursuant
to Section 2.22 and (b) any Existing Letter of Credit.
"LEVERAGE RATIO" shall mean, as of the last day of any fiscal quarter,
the ratio of (a) Total Debt as of such date to (b) Consolidated EBITDA for the
period of four consecutive fiscal quarters ended on such date.
"LIBO RATE" shall mean, with respect to any Eurodollar Borrowing for
any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or
on any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"LIEN" shall mean, with respect to any asset, (a) any mortgage, deed
of trust, lien, pledge, encumbrance, charge or security interest in or on such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement (or any financing lease
having substantially the same economic effect as any of the foregoing) relating
to such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities.
"LOAN DOCUMENTS" shall mean this Agreement, the Letters of Credit, any
applications relating to the Letters of Credit, the Guarantee Agreement, the
Security Documents and the Indemnity, Subrogation and Contribution Agreement.
"LOAN PARTIES" shall mean the Borrowers and the Guarantors.
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19
"LOANS" shall mean the Revolving Loans and the Term Loans.
"MARGIN STOCK" shall have the meaning assigned to such term in
Regulation U.
"MATERIAL ADVERSE EFFECT" shall mean (a) a materially adverse effect
on the business, assets, operations, prospects or condition, financial or
otherwise, of the Parent Borrower and the Subsidiaries taken as a whole,
(b) material impairment of the ability of the Parent Borrower and the other Loan
Parties taken as a whole to perform any of their respective obligations under
any Loan Document to which it is or will be a party or (c) material impairment
of the rights of or benefits available to the Lenders under any Loan Document
(including as a result of any material impairment of the Parent Borrower's
rights or benefits under the Franchise Agreement).
"MATERIAL FRANCHISE NON-PAYMENT EVENT" shall mean the failure by CBHS
or any of its subsidiaries to pay with respect to any consecutive twelve-month
period franchise fees and other amounts due under the Franchise Agreement to the
Parent Borrower in an aggregate amount greater than $40,000,000 for more than
30 days after such payment is due in accordance with the terms of the Franchise
Agreement (whether due to subordination of such payments or other causes).
"MERGER" shall have the meaning assigned to such term in the preamble
to this Agreement.
"MERGER AGREEMENT" shall have the meaning assigned to such term in the
preamble to this Agreement.
"MERGER CONSIDERATION" shall have the meaning assigned to such term in
the preamble to this Agreement.
"MERGER SUB" shall have the meaning assigned to such term in the
preamble to this Agreement.
"MERIT" shall have the meaning assigned to such term in the preamble
to this Agreement.
"MERIT DEBT TENDER MATERIALS" shall mean the Offer to Purchase and
Consent Solicitation Statement of Merit dated January 12, 1998, and the related
Consent and Letter of Transmittal dated January 12, 1998, as the same may be
extended, amended and supplemented from time to time.
"MERIT DEBT TENDER OFFER" shall mean the tender offer and consent
solicitation made by Merit in respect of the Existing Merit Notes pursuant to
which (a) Merit will repurchase or redeem at least a majority of the Existing
Merit Notes and (b) Merit will obtain consents sufficient to amend and,
immediately thereafter, shall amend, the Existing Merit Notes Indenture pursuant
to documentation reasonably satisfactory to the Administrative Agent to
eliminate all significant negative covenants and any "change of control"
provisions applicable to the Existing Merit Notes, all in accordance with the
Merit Debt Tender Materials.
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20
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"NAIC" shall mean the National Association of Insurance Commissioners
or any successor organization thereto.
"NET CASH PROCEEDS" shall mean (a) with respect to any Asset Sale or
any transaction described in Section 6.05(f), the cash proceeds thereof
(including cash and cash equivalents and cash payments received by way of
deferred payment or principal pursuant to a note or installment receivable or
otherwise, but only as and when received), net of (i) costs of sale (including
fees, expenses and payment of the outstanding principal amount of, premium or
penalty, if any, interest and other amounts on any Indebtedness (other than
Loans) repaid under the terms thereof as a result of such Asset Sale or such
transaction), (ii) taxes paid or payable as a result thereof and (iii) amounts
provided as a reserve, in accordance with GAAP, against any liabilities under
any indemnification obligations associated with such Asset Sale or such
transaction (except that, to the extent and at the time any such amounts are
released from such reserve, such amounts shall constitute Net Cash Proceeds);
PROVIDED, HOWEVER, that if the Asset Sale is a result of a Casualty Event or
Condemnation Event, the cash proceeds thereof for purposes of this definition
shall not include proceeds used to replace or repair the damaged or condemned
property, as applicable, within 180 days of receipt of such proceeds or, if
replacement or repair cannot reasonably be completed within such period, within
360 days of receipt of such proceeds and (b) with respect to (i) any issuance of
Indebtedness for borrowed money or (ii) any Equity Issuance, the cash proceeds
thereof net of underwriting commissions, placement fees and other costs and
expenses directly incurred in connection therewith.
"NEW BORROWER AGREEMENT" shall mean any agreement entered into by a
new Subsidiary Borrower, the Administrative Agent and the Collateral Agent in
accordance with Section 2.23 and substantially in the form of Exhibit C-2.
"NON-CONTROLLED VENTURES" shall mean all partnerships and joint
ventures (a) in which the Parent Borrower and/or any of the Subsidiaries have an
ownership interest and (b) that are not Controlled Ventures.
"OBLIGATIONS" shall mean all obligations defined as "Obligations" in
the Guarantee Agreement and the Security Documents.
"OPERATING AGREEMENT" shall mean the Operating Agreement for CBHS
dated as of June 16, 1997, as the same may hereafter be amended, supplemented or
otherwise modified from time to time in accordance with this Agreement, among
the Parent Borrower, Charter Behavioral Health Systems, Inc. and the Crescent
Affiliate.
"PARENT BORROWER" shall have the meaning assigned to such term in the
preamble to this Agreement.
"PARENT BORROWER DEBT TENDER MATERIALS" shall mean the Offer to
Purchase and Consent Solicitation Statement of the Parent Borrower dated January
12, 1998, and the related
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21
Consent and Letter of Transmittal dated January 12, 1998, as the same may be
extended, amended and supplemented from time to time.
"PARENT BORROWER DEBT TENDER OFFER" shall mean the tender offer and
consent solicitation made by the Parent Borrower in respect of the Existing
Parent Borrower Notes pursuant
to which (a) the Parent Borrower will repurchase or redeem not less than 662/3%
of the Existing Parent Borrower Notes and (b) the Parent Borrower will obtain
consents sufficient to amend and, immediately thereafter, shall amend, the
Existing Parent Borrower Notes Indenture pursuant to documentation reasonably
satisfactory to the Administrative Agent to eliminate all significant negative
covenants applicable to the Existing Parent Borrower Notes, all in accordance
with the Parent Borrower Debt Tender Materials.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
and defined in ERISA.
"PERFECTION CERTIFICATE" shall mean the Perfection Certificate
substantially in the form of Annex 1 to the Security Agreement.
"PERMITTED ACQUISITION" shall mean any acquisition of an Acquired
Entity that was not preceded by an unsolicited tender offer for such Acquired
Entity by the Parent Borrower, any Subsidiary Borrower or any Guarantor in which
the Parent Borrower, any Subsidiary Borrower or any Guarantor is (x) in the case
of an asset or stock purchase, the purchaser of assets or stock, or (y) in the
case of a merger or consolidation, the surviving entity or the owner of all the
capital stock of the surviving or resulting entity, so long as (a) after giving
effect to such acquisition, (i) the Parent Borrower shall be in compliance, on a
PRO FORMA basis, with all covenants set forth in this Agreement, including then
effective covenants contained in Sections 6.10, 6.11, 6.12, 6.13 and 6.14, which
shall be recomputed as at the last day of the most recently ended fiscal quarter
(for which financial information has been delivered pursuant to Section 5.04) of
the Parent Borrower as if such acquisition had occurred on the first day of each
relevant period for testing such compliance, and the Parent Borrower shall have
delivered to the Administrative Agent an officers' certificate to such effect
for any acquisition in excess of $7,500,000, (ii) any Indebtedness of the
Acquired Entity that is acquired or assumed in connection with such acquisition
shall be in compliance with Section 6.01 and (iii) on the date of such
acquisition and immediately after giving effect thereto (including the effect of
any Indebtedness incurred or assumed thereby), no Default or Event of Default
shall have occurred and be continuing, (b) in the case of an asset acquisition,
such assets are to be used, and in the case of an acquisition of capital stock
or other equity interests, the person so acquired is engaged in, a healthcare
business or healthcare businesses or in a reasonably related (ancillary or
complementary) line of business or lines of business, (c) in the case of an
acquisition of capital stock or other equity interests, (i) the Parent Borrower,
the acquiring Subsidiary Borrower or the acquiring Guarantor shall acquire at
least 50% of the outstanding equity securities of the Acquired Entity and
otherwise Control such Acquired Entity, (ii) in the case of an Acquired Entity
in which no person other than the Parent Borrower, any Affiliate of the Parent
Borrower or any member of management of the Parent Borrower owns any equity
interest, such Acquired Entity shall (except as provided in the proviso to
Section 6.05(d)) become a Guarantor in accordance with Section 5.11 and
(iii) all the capital stock of or other equity interests in such Acquired Entity
and any of the subsidiaries of the Acquired Entity owned by the Parent Borrower,
any Subsidiary Borrower or any
<PAGE>
22
Guarantor shall (except as provided in the proviso to Section 6.05(d)) be
pledged to the Collateral Agent in accordance with Section 5.11, (d) the
Acquired Entity EBITDA of any Acquired Entity, the purchase price for which
exceeded $25,000,000 (including, without limitation, any Indebtedness
incurred or assumed in connection therewith and any capital stock or other
equity interests issued or delivered as part of the consideration therefor),
for the four-fiscal-quarter period ended immediately prior to the date of its
acquisition is greater than zero and (e) the amounts paid for all Permitted
Acquisitions (including, without limitation, any Indebtedness incurred or
assumed in connection therewith, but excluding (i) any capital stock or other
equity interests issued or delivered as part of the consideration for such
Permitted Acquisition and (ii) Permitted CBHS Lease Transaction Amounts)
after the Closing Date shall not exceed, in the event the Leverage Ratio as
of the last day of the most recently ended fiscal quarter for which financial
statements have been delivered, or were required to have been delivered, by
the Parent Borrower pursuant to Section 5.04(a) or 5.04(b), prior to such
Permitted Acquisition, on a pro forma basis after giving effect to all such
Permitted Acquisitions, is greater than or equal to 4.00:1.00, $100,000,000
less the then outstanding amount of Permitted CBHS Investments and Permitted
CBHS Lease Transaction Amounts that have been allocated to, and treated as,
Permitted Acquisitions pursuant to the definition of the term "Permitted CBHS
Investment".
"PERMITTED CBHS INVESTMENT" shall mean any loan or advance to, or
other investment in, CBHS or any of its Subsidiaries made by the Parent Borrower
or any of its Subsidiaries, so long as (a) after giving effect to such Permitted
CBHS Investment, (i) the Parent Borrower shall be in compliance, on a PRO FORMA
basis, with all covenants set forth in this Agreement, including then effective
covenants contained in Sections 6.10, 6.11, 6.12, 6.13 and 6.14, which shall be
recomputed as at the last day of the most recently ended fiscal quarter (for
which financial information has been delivered pursuant to Section 5.04) of the
Parent Borrower as if such loan, advance or other investment had occurred on the
first day of each relevant period for testing such compliance, and the Parent
Borrower shall have delivered to the Administrative Agent an officers'
certificate to such effect for any such loan, advance or other investment in
excess of $2,500,000, and (ii) on the date of such loan, advance or other
investment, no Default or Event of Default shall have occurred and be
continuing, (b) the amount of such Permitted CBHS Investment, together with any
Permitted CBHS Lease Transaction Amounts outstanding at such time, shall not
exceed the sum of the amounts of Permitted Acquisitions and Permitted
Non-Guarantor Transactions that could have been made or effected on such date
within the limitations set forth in the definitions of the terms "Permitted
Acquisitions" and "Permitted Non-Guarantor Transactions" (after giving effect to
any amounts then outstanding of prior Permitted CBHS Investments and Permitted
CBHS Lease Transaction Amounts that had been allocated to, and treated as,
Permitted Acquisitions and Permitted Non-Guarantor Transactions as provided in
the next succeeding sentence) and (c) the aggregate amount of Permitted CBHS
Investments, together with all Permitted CBHS Lease Transaction Amounts, made
after the Closing Date and outstanding at any time shall not exceed $50,000,000.
Solely for purposes of determining compliance with the limitations on Permitted
Acquisitions and Permitted Non-Guarantor Transactions set forth in the
definitions of such terms, the outstanding amount of all Permitted CBHS
Investments and Permitted CBHS Lease Transactions Amounts shall be allocated to,
and shall be treated as, Permitted Acquisitions or Permitted Non-Guarantor
Transactions, at the Parent Borrower's discretion, but only to the extent that,
after giving effect to such allocation and treatment, the total amount of
Permitted Acquisitions and Permitted Non-Guarantor Transactions then permitted
to be made or effected has not been exceeded.
<PAGE>
23
"PERMITTED CBHS LEASE TRANSACTION" shall mean the lease by the Parent
Borrower or any of its Subsidiaries to CBHS or any of its Subsidiaries of a
hospital or other behavioral healthcare facility acquired by the Parent Borrower
or any of its Subsidiaries after the Closing Date for the purpose of leasing the
same to CBHS or any of its Subsidiaries, PROVIDED THAT (a) each such lease
transaction shall be consummated within 90 days of the acquisition thereof by
the Parent Borrower or any of its Subsidiaries, (b) the lease payments to be
made by CBHS or its Subsidiary, as the case may be, are not less than fair
market lease payments for such facility, (c) such lease shall be an operating
lease, (d) the Parent Borrower shall be in compliance, on a PRO FORMA basis,
with all covenants set forth in this Agreement, including then effective
covenants contained in Sections 6.10, 6.11, 6.12, 6.13 and 6.14, which shall be
recomputed as at the last day of the most recently ended fiscal quarter (for
which financial information has been delivered pursuant to Section 5.04) of the
Parent Borrower as if such transaction had occurred on the first day of the
relevant period for testing such compliance, and (e) on the date of such lease
and immediately after giving effect thereto, no Default or Event of Default
shall have occurred and be continuing.
"PERMITTED CBHS LEASE TRANSACTION AMOUNTS" shall mean any amounts paid
to acquire the hospitals or other behavioral health care facilities that are the
subject of a Permitted CBHS Lease Transaction.
"PERMITTED CBHS SALE" shall mean any sale of all or a portion of the
Parent Borrower's interests in CBHS and certain Subsidiaries of the Parent
Borrower, on the terms set forth in that certain Summary of Permitted CBHS Sale
dated February 6, 1998, and otherwise on terms reasonably satisfactory to the
Administrative Agent, provided that the Net Cash Proceeds of such sale that are
received at the closing of such sale shall be applied as required by
Section 2.13.
"PERMITTED CBHS TRANSACTIONS" shall mean, collectively, all Permitted
CBHS Investments and Permitted CBHS Lease Transactions.
"PERMITTED DEBT REPURCHASE" shall mean any repurchase or defeasance of
Existing Merit Notes or Existing Parent Borrower Notes so long as (a) after
giving effect to such repurchase (i) the Parent Borrower shall be in
compliance, on a PRO FORMA basis, with all covenants set forth in this
Agreement, including then effective covenants contained in Sections 6.10, 6.11,
6.12, 6.13 and 6.14, which shall be recomputed as of the last day of the most
recently ended fiscal quarter (for which financial information has been
delivered pursuant to Section 5.04) of the Parent Borrower as if such repurchase
had occurred on the first day of each relevant period for testing such
compliance, and the Parent Borrower shall have delivered to the Administrative
Agent an officers' certificate to such effect for any repurchase in excess of
$10,000,000, and (ii) on the date of such repurchase and immediately after
giving effect thereto, no Default or Event of Default shall have occurred and be
continuing and (b) after giving effect to such repurchase, the aggregate amount
of cash and cash equivalents on the Parent Borrower's consolidated balance sheet
PLUS the remaining available balance of the Total Revolving Credit Commitment
shall be at least equal to $50,000,000. The term "Permitted Debt Repurchase"
shall also include, without giving effect to and notwithstanding the
restrictions set forth above, the repurchases on the Closing Date of the
Existing Merit Notes and Existing Parent Borrower Notes pursuant to the Merit
Debt Tender Offer and Parent Borrower Debt Tender Offer, respectively or any
defeasance thereof.
<PAGE>
24
"PERMITTED INVESTMENTS" shall mean:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America or by any agency, instrumentality or sponsored corporation thereof
to the extent such obligations are rated at least A or the equivalent
thereof by Standard & Poor's Ratings Group ("S&P") or at least A-2 or the
equivalent thereof by Moody's Investors Service, Inc. ("Moody's"), in each
case maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 360 days from the
date of acquisition thereof and (i) having, at such date of acquisition, a
rating from S&P of A-1 or from Moody's of P-1 or (ii) unconditionally
guaranteed by any industrial or financial company having, at such date of
acquisition, (A) a short-term commercial paper rating of at least A-1 or
the equivalent thereof by S&P or at least P-1 or the equivalent thereof by
Moody's or (B) a long-term debt rating of at least A or the equivalent
thereof by S&P or at least A2 or the equivalent thereof by Moody's;
(c) investments in certificates of deposit, banker's acceptances and
demand and time deposits maturing within one year from the date of
acquisition thereof issued or guaranteed by or placed with, and money
market deposit accounts or overnight bank deposits issued, sponsored or
offered by, any domestic office of any commercial bank organized under the
laws of the United States of America or any State thereof that has a
combined capital and surplus and undivided profits of not less than
$250,000,000;
(d) repurchase obligations with a term of not more than 92 days for,
and secured by, underlying securities of the types described in clauses (a)
through (c) above entered into with a bank meeting the qualifications
described in clause (c) above;
(e) other investment instruments issued, sponsored or offered by
financial institutions which have a combined capital and surplus and
undivided profits of not less than $250,000,000;
(f) deposits made prior to 1992 and interest and income earned thereon
with respect to the Parent Borrower's obligations under its Public Issue of
7.5% Dual Currency Swiss Franc Bonds dated 1986 and due 1998/2001;
(g) readily marketable direct obligations issued by any state of the
United States of America or any political subdivision thereof having one of
the two highest rating categories obtainable from either Moody's or S&P, in
each case maturing within one year from the date of acquisition thereof;
(h) investments in Plan Investment Fund, Inc., or any other money
market fund, provided that substantially all of its assets are invested in
investments of the types described in clauses (a) through (g) above; and
<PAGE>
25
(i) investments in Investment Grade Securities made in the ordinary
course of their business by Insurance Subsidiaries.
"PERMITTED NON-CONTROL INVESTMENT" shall mean any investment by the
Parent Borrower, any Subsidiary Borrower or any Guarantor in another corporation
or other business entity, other than a Permitted CBHS Investment, so long as
(a) after giving effect to such Permitted Non-Control Investment, (i) the Parent
Borrower shall be in compliance, on a PRO FORMA basis, with all covenants set
forth in this Agreement, including then effective covenants contained in
Sections 6.10, 6.11, 6.12, 6.13 and 6.14, which shall be recomputed as at the
last day of the most recently ended fiscal quarter (for which financial
information has been delivered pursuant to Section 5.04) of the Parent Borrower
as if such investment had occurred on the first day of each relevant period for
testing such compliance, and the Parent Borrower shall have delivered to the
Administrative Agent an officers' certificate to such effect for any investment
in excess of $7,500,000 and (ii) on the date of such investment, no Default or
Event of Default shall have occurred and be continuing, (b) such investment
shall not constitute an investment in 50% or more of the equity interests of
such corporation or other business entity where either the Parent Borrower or
any wholly owned Subsidiary Controls such corporation or other business entity,
(c) except in the case of the capital stock or other equity interests of a
Specified Joint Venture or a Specified Newly Formed Subsidiary, all the capital
stock or other equity interests, if any, of such corporation or other business
entity owned by the Parent Borrower, any Subsidiary Borrower or any Guarantor
shall be pledged to the Collateral Agent in accordance with Section 5.11 and
(d) the aggregate amount of Permitted Non-Control Investments made after the
Closing Date and outstanding at any time shall not exceed $25,000,000 LESS the
amount, if any, by which the amount of Permitted Non-Guarantor Transactions made
after the Closing Date and outstanding at such time exceeds $25,000,000.
Subject to satisfaction of the foregoing criteria, the term "Permitted
Non-Control Investment" shall include (a) any investment arising as a result of
sales or other dispositions of common stock of a Guarantor permitted pursuant to
this Agreement, (b) transfers of assets to or other investments in entities that
are neither Controlled Non-Guarantor Entities nor Guarantors and (c) the
granting of any Guarantee of any Indebtedness of any such entity.
"PERMITTED NON-GUARANTOR TRANSACTIONS" shall mean any of the
transactions described in the following clauses (a) through (d), other than
any Permitted CBHS Investment: (a) any transfer of assets by the Parent
Borrower, any Subsidiary Borrower or any Guarantor to a Controlled
Non-Guarantor Entity, (b) investments by the Parent Borrower, any Subsidiary
Borrower or any Guarantor in Controlled Non-Guarantor Entities, (c)
Guarantees by the Parent Borrower, any Subsidiary Borrower or any Guarantor
of any Indebtedness of Controlled Non-Guarantor Entities or (d) any
transaction that causes any Guarantor to become a Controlled Non-Guarantor
Entity, in each case so long as, after giving effect to any such transaction,
the sum of (i) the fair market value of all assets transferred to Controlled
Non-Guarantor Entities (such value to be determined with respect to each
asset as of the time such asset was transferred), (ii) the amount of
then-outstanding investments in Controlled Non-Guarantor Entities, (iii) the
then-outstanding principal amount of Indebtedness of the Controlled
Non-Guarantor Entities Guaranteed by the Parent Borrower, any Subsidiary
Borrower or any Guarantor, (iv) the value of the equity interests retained by
the Parent Borrower, any Subsidiary Borrower or any Guarantor in all
Controlled Non-Guarantor Entities that became Controlled Non-Guarantor
Entities as the result of a Permitted Non-Guarantor Transaction effected
after the Closing Date (such value to be determined with respect to each
Controlled Non-
<PAGE>
26
Guarantor Entity as of the time the relevant Permitted Non-Guarantor
Transaction occurred) and (v) the then-outstanding amount of Permitted CBHS
Investments and Permitted CBHS Lease Transaction Amounts that have been
allocated to, and treated as, Permitted Non-Guarantor Transactions pursuant
to the definition of the term "Permitted CBHS Investment", shall not exceed
$25,000,000 plus the amount, if any, by which $25,000,000 exceeds the amount
of Permitted Non-Control Investments made after the Closing Date and
outstanding at the time of such transaction; PROVIDED, FURTHER, that after
giving effect to any such Permitted Non-Guarantor Transaction, (i) the Parent
Borrower shall be in compliance, on a pro forma basis, with all covenants set
forth in this Agreement, including then effective covenants contained in
Sections 6.10, 6.11, 6.12, 6.13 and 6.14, which shall be recomputed as at the
last day of the most recently ended fiscal quarter (for which financial
information has been delivered pursuant to Section 5.04) of the Parent
Borrower as if such transaction had occurred on the first day of each
relevant period for testing such compliance, and the Parent Borrower shall
have delivered to the Administrative Agent an officers' certificate to such
effect for any investment in excess of $7,500,000 and (ii) on the date of
such transaction and immediately after giving effect thereto, no Default or
Event of Default shall have occurred and be continuing.
"PERMITTED POST-CLOSING CRESCENT TRANSACTION" shall mean a sale,
transfer or other disposition of assets or property related to the behavioral
healthcare businesses that are acquired by the Parent Borrower or any
Subsidiary after the Closing Date to Crescent, CBHS or any of their
respective subsidiaries in accordance with the REIT Purchase Agreement,
PROVIDED that (a) each such sale, transfer or other disposition shall be
consummated within 90 days of the acquisition thereof by the Parent Borrower
or any Subsidiary, (b) such sale, transfer or other disposition is for
consideration not less than the fair market value of such assets or property
sold, transferred or disposed of (as determined in good faith by a Financial
Officer of the Parent Borrower) and the purchase price paid therefor by the
Parent Borrower or such Subsidiary; PROVIDED, HOWEVER, that in the event that
the assets or property sold, transferred or otherwise disposed of to Crescent
are a part of a larger group of assets or property acquired by the Parent
Borrower or any Subsidiary, then the Parent Borrower shall deliver a
certificate of a Financial Officer that (i) sets forth in reasonable detail
the derivation of the value allocated to such assets or property sold,
transferred or otherwise disposed of to Crescent and (ii) certifies that such
allocated value and the consideration paid by Crescent for such assets or
property is not less than the fair market value of such assets or property
and not less than the purchase price paid therefor by the Parent or such
Subsidiary, (c) the Parent Borrower shall be in compliance, on a PRO FORMA
basis, with all covenants set forth in this Agreement, including then
effective covenants contained in Sections 6.10, 6.11, 6.12, 6.13 and 6.14,
which shall be recomputed as at the last day of the most recently ended
fiscal quarter (for which financial information has been delivered pursuant
to Section 5.04) of the Parent Borrower as if such sale, transfer or other
disposition had occurred on the first day of each relevant period for testing
such compliance, and the Parent Borrower shall have delivered to the
Administrative Agent an officers' certificate to such effect for any sale,
transfer or other disposition in excess of $10,000,000 and (d) on the date of
such sale, transfer or other disposition and immediately after giving effect
thereto, no Default or Event of Default shall have occurred and be continuing.
"PERMITTED RESTRICTIONS" shall mean, with respect to any Controlled
Venture, provisions contained in the governing documents of such Controlled
Venture, that prohibit or otherwise restrict the making of distributions by such
Controlled Venture (a) at any time such Controlled
<PAGE>
27
Venture has outstanding Indebtedness to any owner of equity interests
thereof, (b) in the case of Controlled Ventures that are subject to taxation
as a partnership under the Code, to the extent that such distributions would
cause any owner of equity interests thereof to have a negative balance in its
capital account, (c) without the approval of at least a majority of the (i)
directors, (ii) managers, managing members or members, (iii) general partners
or (iv) the persons or governing body performing a similar function as any of
the foregoing, (d) to the extent such distribution would be prohibited by any
applicable law, rule, regulation, order, approval, license or other
restriction issued or imposed by any Governmental Authority, (e) out of or
through the use of funds of such Controlled Venture that the directors,
managers, managing members, members, general partners (or persons or
governing body performing similar functions) have reasonably determined are
necessary to pay such Controlled Venture's current and anticipated cash
obligations, including operating expenses, debt service, acquisitions,
capital expenditures and reasonable reserves, or (f) under other
circumstances that are consented to in writing by the Administrative Agent
with respect to such Controlled Venture.
"PERMITTED STOCK REPURCHASE" shall mean (a) any repurchase by the
Parent Borrower of shares of its common stock or (b) any repurchase by the
Parent Borrower of any stock option held by any director, officer or employee,
and any amount paid by the Parent Borrower in respect of the cancelation or
termination of any such stock option, in each case, so long as (i) after giving
effect to such repurchase, cancelation or termination, (A) the Parent Borrower
shall be in compliance, on a PRO FORMA basis, with all covenants set forth in
this Agreement, including then effective covenants contained in Sections 6.10,
6.11, 6.12, 6.13 and 6.14, which shall be recomputed as at the last day of the
most recently ended fiscal quarter (for which financial information has been
delivered pursuant to Section 5.04) of the Parent Borrower as if such repurchase
had occurred on the first day of each relevant period for testing such
compliance, and (B) on the date of such repurchase and immediately after giving
effect thereto, no Default or Event of Default shall exist, (ii) the aggregate
amount expended by the Parent Borrower in connection with all Permitted Stock
Repurchases shall not exceed during the term of this Agreement $10,000,000 and
(iii) after giving effect to any such repurchase, the aggregate amount of cash
and cash equivalents on the Parent Borrower's consolidated balance sheet PLUS
the remaining available balance of the Total Revolving Credit Commitment shall
be at least equal to $50,000,000.
"PERMITTED SUBORDINATED INDEBTEDNESS" shall mean (a) the Existing
Parent Borrower Notes not repurchased or redeemed pursuant to the Parent
Borrower Debt Tender Offer, (b) the Existing Merit Notes not repurchased or
redeemed pursuant to the Merit Debt Tender Offer, (c) the Subordinated Notes and
(d) any other Indebtedness of the Parent Borrower that is subordinated to the
Obligations, PROVIDED that (i) such Indebtedness has a maturity that is after
the Tranche C Maturity Date, (ii) such Indebtedness bears interest at a rate
consistent with the market at the time of issuance for similar Indebtedness;
(iii) such Indebtedness shall contain subordination and intercreditor provisions
that are no more favorable in any material respect to the holders thereof than
the subordination and intercreditor provisions contained in the Subordinated
Notes Indenture; (iv) the negative financial covenants (if any) of such
Indebtedness shall not require the Parent Borrower to maintain any specified
financial condition except as a condition to the taking of certain actions; and
(v) each of the covenants, events of default and other provisions thereof
(including any Guarantees thereof) shall be no less favorable to the Lenders in
any material respect than those contained in the Subordinated Notes Indenture.
<PAGE>
28
"PERSON" shall mean any natural person, corporation, business trust,
joint venture, association, company, partnership, limited liability company or
government, or any agency or political subdivision thereof.
"PLAN" shall mean any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or
Section 412 of the Code or Section 307 of ERISA, and in respect of which any
Loan Party or any ERISA Affiliate is (or, if such plan were terminated, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"PLEDGE AGREEMENT" shall mean the Pledge Agreement, substantially in
the form of Exhibit G, among the Parent Borrower, the Subsidiaries party thereto
and the Collateral Agent for the benefit of the Secured Parties.
"PREPAYMENT EVENT" shall mean any event requiring a mandatory
prepayment of Term Loans described in Section 2.13(a), 2.13(b), 2.13(c) or
2.13(d) or a prepayment of Revolving Loans required pursuant to Section 2.13(g)
as a result of a mandatory commitment reduction pursuant to Section 2.13(f).
"PROPERTIES" shall have the meaning assigned to such term in
Section 3.17(a).
"PRO RATA PERCENTAGE" of any Revolving Credit Lender at any time shall
mean the percentage of the Total Revolving Credit Commitment represented by such
Revolving Credit Lender's Revolving Credit Commitment.
"REAL ESTATE FOR SALE" shall mean the real property and improvements
having a book value of $18,456,000 set aside by the Parent Borrower for sale as
set forth in the Parent Borrower's consolidated balance sheet as of
September 30, 1997, and described on Schedule 1.01(d).
"REFINANCING INDEBTEDNESS" shall have the meaning assigned to such
term in Section 6.01(n).
"REGISTER" shall have the meaning given such term in Section 9.04(d).
"REGULATION G" shall mean Regulation G of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"REGULATION T" shall mean Regulation T of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"REGULATION U" shall mean Regulation U of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"REGULATION X" shall mean Regulation X of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
<PAGE>
29
"REIT PURCHASE AGREEMENT" shall mean the Real Estate Purchase and Sale
Agreement dated as of January 29, 1997, as amended, between the Parent Borrower
and Crescent.
"RELEASE" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing, depositing, dispersing, emanating or migrating of any Hazardous
Material in, into, onto or through the environment.
"REMEDIAL ACTION" shall mean (a) "remedial action" as such term is
defined in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions
required by any Governmental Authority or voluntarily undertaken to:
(i) cleanup, remove, treat, abate or in any other way address any Hazardous
Material in the environment; (ii) prevent the Release or threat of Release, or
minimize the further Release, of any Hazardous Material so it does not migrate
or endanger or threaten to endanger public health, welfare or the environment;
or (iii) perform studies and investigations in connection with, or as a
precondition to, the actions described in clause (i) or (ii) above.
"REQUIRED LENDERS" shall mean, at any time, Lenders having Revolving
Loans, Term Loans, L/C Exposure and unused Revolving Credit Commitments and Term
Loan Commitments representing at least a majority of the sum of all Revolving
Loans, Term Loans outstanding, L/C Exposure and unused Revolving Credit
Commitments and Term Loan Commitments at such time.
"RESPONSIBLE OFFICER" of any corporation shall mean any executive
officer or Financial Officer of such corporation and any other officer or
similar official thereof responsible for the administration of the obligations
of such corporation in respect of this Agreement.
"REVOLVING CREDIT BORROWING" shall mean a Borrowing comprised of
Revolving Loans.
"REVOLVING CREDIT COMMITMENT" shall mean, with respect to each Lender,
the commitment of such Lender to make Revolving Loans hereunder as set forth on
Schedule 2.01(b), or in the Assignment and Acceptance pursuant to which such
Lender assumed its Revolving Credit Commitment, as applicable, as the same may
be (a) reduced from time to time pursuant to Section 2.09, 2.13 or 2.21 and
(b) reduced or increased from time to time pursuant to assignments by or to such
Lender pursuant to Section 9.04.
"REVOLVING CREDIT EXPOSURE" shall mean, with respect to any Lender at
any time, the aggregate principal amount at such time of all outstanding
Revolving Loans of such Lender, plus the aggregate amount at such time of such
Lender's L/C Exposure.
"REVOLVING CREDIT LENDER" shall mean a Lender with a Revolving Credit
Commitment.
"REVOLVING CREDIT MATURITY DATE" shall mean the date that is six years
after the Closing Date.
<PAGE>
30
"REVOLVING LOANS" shall mean the revolving loans made by the Lenders
to the Borrowers pursuant to Section 2.01(b). Each Revolving Loan shall be a
Eurodollar Revolving Loan or an ABR Revolving Loan.
"RIGHTS PLAN" shall mean the Rights Agreement dated as of July 21,
1992, between the Parent Borrower and First Union Bank of North Carolina, as
Rights Agent (as defined therein).
"SECURED PARTIES" shall have the meaning assigned to such term in the
Security Agreement.
"SECURITY AGREEMENT" shall mean the Security Agreement, substantially
in the form of Exhibit H, among the Parent Borrower, the Subsidiaries party
thereto and the Collateral Agent for the benefit of the Secured Parties.
"SECURITY DOCUMENTS" shall mean the Security Agreement, the Pledge
Agreement, the Collateral Assignment and each of the security agreements and
other instruments and documents executed and delivered pursuant to any of the
foregoing or pursuant to Section 5.11.
"SENIOR DEBT" shall mean Total Debt but excluding all Permitted
Subordinated Indebtedness.
"SENIOR DEBT RATIO" shall mean, as of the last day of any fiscal
quarter, the ratio of (a) Senior Debt as of such date to (b) Consolidated EBITDA
for the period of four consecutive fiscal quarters ended on such date.
"SPECIFIED ACQUIRED ENTITY" shall mean any Subsidiary that is an
Acquired Entity with respect to which the Borrowers have not complied with any
of the provisions of Section 5.11 because of the proviso to Section 6.05(d).
"SPECIFIED ENTITY" shall mean any Specified Acquired Entity, any
Specified Joint Venture or any Specified Newly Formed Subsidiary.
"SPECIFIED JOINT VENTURE" shall mean any joint venture that is formed
or entered into by the Borrowers or any Guarantor after the Closing Date if the
granting by the Borrowers or any Guarantor of a security interest in the capital
stock owned by the Borrowers or such Guarantor in such joint venture would
violate applicable law or any regulation, rule, order, approval, license or
other restriction issued or imposed by any Governmental Authority.
"SPECIFIED NEWLY FORMED SUBSIDIARY" shall mean any Subsidiary that
(a) is formed by the Borrowers or any Guarantor after the Closing Date and
(b) with respect to which compliance with Section 5.11 would violate applicable
law or any regulation, rule, order, approval, license or other restriction
issued or imposed by any Governmental Authority.
"STATUTORY RESERVES" shall mean a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental
<PAGE>
31
reserves) expressed as a decimal established by the Board and any other
banking authority, domestic or foreign, to which the Administrative Agent or
any Lender (including any branch, Affiliate or other fronting office making
or holding a Loan) is subject with respect to the Adjusted LIBO Rate, for
Eurocurrency Liabilities (as defined in Regulation D of the Board). Such
reserve percentages shall include those imposed pursuant to such Regulation
D. Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities
and to be subject to such reserve requirements without benefit of or credit
for proration, exemptions or offsets that may be available from time to time
to any Lender under such Regulation D. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"SUBORDINATED NOTES" shall mean the Parent Borrower's 9% Senior
Subordinated Notes due 2008 issued on the Closing Date in accordance with
Section 4.01(n) (and shall include any substantially identical senior
subordinated notes of the Parent Borrower in the same aggregate principal amount
issued after the Closing Date in exchange therefor pursuant to a registered
exchange offer or shelf registration statement in accordance with the indenture
governing such senior subordinated notes).
"SUBORDINATED NOTES INDENTURE" shall mean the Indenture dated as of
February 12, 1998, between the Parent Borrower and Marine Midland Bank, as
Trustee, relating to the Subordinated Notes, as the same may be amended and
supplemented from time to time in accordance with the terms hereof and thereof.
"SUBSIDIARY" shall mean, with respect to any person (herein referred
to as the "parent"), any corporation, partnership, association or other business
entity of which securities or other ownership interests representing more than
50% of the equity or more than 50% of the ordinary voting power or more than 50%
of the general partnership interests are, at the time any determination is being
made, owned, controlled or held by the parent or one or more subsidiaries of the
parent or by the parent and one or more subsidiaries of the parent.
"SUBSIDIARY" shall mean any subsidiary of the Parent Borrower.
"SUBSIDIARY BORROWER" shall mean each wholly owned Domestic Subsidiary
Guarantor that executes a New Borrower Agreement in accordance with Section 2.23
and that has not ceased to be a Subsidiary Borrower in accordance with such
Section.
"SUBSIDIARY BORROWER TERMINATION" shall mean any termination executed
by the Parent Borrower in accordance with Section 2.23 and substantially in the
form of Exhibit C-3.
"SUBSIDIARY NON-GUARANTORS" shall mean any Subsidiary that is not a
Guarantor.
"SYNDICATION AGENT" shall have the meaning assigned to such term in
the preamble to this Agreement.
"TERM BORROWING" shall mean a Borrowing comprised of Term Loans.
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32
"TERM LOAN COMMITMENTS" shall mean the Tranche A Term Loan
Commitment, the Tranche B Term Loan Commitment and the Tranche C Term Loan
Commitment.
"TERM LOAN REPAYMENT DATES" shall mean the Tranche A Term Loan
Repayment Dates, the Tranche B Term Loan Repayment Dates and the Tranche C Term
Loan Repayment Dates.
"TERM LOANS" shall mean the term loans made by the Lenders pursuant to
Section 2.01(a). Each Term Loan shall be a Eurodollar Term Loan or an ABR Term
Loan.
"TOTAL DEBT" shall mean, with respect to the Parent Borrower and the
Subsidiaries on a consolidated basis at any time, all Indebtedness of the Parent
Borrower and the Subsidiaries which at such time would be required to be
reflected as a liability for borrowed money on a consolidated balance sheet of
the Parent Borrower and its consolidated Subsidiaries prepared in accordance
with GAAP, PLUS (without duplication) the maximum undrawn amount of any
outstanding letters of credit issued pursuant to this Agreement (it being
understood that such letters of credit shall not be included in "Total Debt" to
the extent such letters of credit are issued (i) to support Indebtedness and the
amount of such Indebtedness has been included in "Total Debt" or (ii) to support
obligations not constituting "Indebtedness" as defined herein and, in the case
of clause (ii), there are no unreimbursed drawings or other unreimbursed
payments made in respect thereof).
"TOTAL REVOLVING CREDIT COMMITMENT" shall mean, at any time, the
aggregate amount of the Revolving Credit Commitments, as in effect at such time.
"TRANCHE A BORROWING" shall mean a Borrowing comprised of Tranche A
Term Loans.
"TRANCHE A LENDER" shall mean a Lender with a Tranche A Term Loan
Commitment.
"TRANCHE A MATURITY DATE" shall mean the date that is six years after
the Closing Date.
"TRANCHE A TERM LOAN COMMITMENT" shall mean, with respect to each
Lender, the commitment of such Lender to make Tranche A Term Loans hereunder as
set forth in Schedule 2.01(a), or in the Assignment and Acceptance pursuant to
which such Lender assumed its Tranche A Term Loan Commitment, as applicable, as
the same may be (a) reduced from time to time pursuant to Section 2.09 and
(b) reduced or increased from time to time pursuant to assignments by or to such
Lender pursuant to Section 9.04.
"TRANCHE A TERM LOAN REPAYMENT AMOUNT" shall have the meaning assigned
to such term in Section 2.12(a).
"TRANCHE A TERM LOAN REPAYMENT DATES" shall have the meaning assigned
to such term in Section 2.12(a).
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"TRANCHE A TERM LOANS" shall mean the term loans made by the Lenders
pursuant to Section 2.01(a)(i).
"TRANCHE B BORROWING" shall mean a Borrowing comprised of Tranche B
Terms Loans.
"TRANCHE B LENDER" shall mean a Lender with a Tranche B Term Loan
Commitment.
"TRANCHE B MATURITY DATE" shall mean the date that is seven years
after the Closing Date.
"TRANCHE B TERM LOAN COMMITMENT" shall mean, with respect to each
Lender, the commitment of such Lender to make Tranche B Term Loans hereunder as
set forth in Schedule 2.01(a), or in the Assignment and Acceptance pursuant to
which such Lender assumed its Tranche B Term Loan Commitment, as applicable, as
the same may be (a) reduced from time to time pursuant to Section 2.09 and
(b) reduced or increased from time to time pursuant to assignments by or to such
Lender pursuant to Section 9.04.
"TRANCHE B TERM LOAN REPAYMENT AMOUNT" shall have the meaning assigned
to such term in Section 2.12(b).
"TRANCHE B TERM LOAN REPAYMENT DATES" shall have the meaning assigned
to such term in Section 2.12(b).
"TRANCHE B TERM LOANS" shall mean the term loans made by the Lenders
pursuant to Section 2.01(a)(ii).
"TRANCHE C BORROWING" shall mean a Borrowing comprised of Tranche C
Term Loans.
"TRANCHE C LENDER" shall mean a Lender with a Tranche C Term Loan
Commitment.
"TRANCHE C MATURITY DATE" shall mean the date that is eight years
after the Closing Date.
"TRANCHE C TERM LOAN COMMITMENT" shall mean, with respect to each
Lender, the commitment of such Lender to make Tranche C Term Loans hereunder as
set forth in Schedule 2.01(a), or in the Assignment and Acceptance pursuant to
which such Lender assumed its Tranche C Term Loan Commitment, as applicable, as
the same may be (a) reduced from time to time pursuant to Section 2.09 and
(b) reduced or increased from time to time pursuant to assignments by or to such
Lender pursuant to Section 9.04.
"TRANCHE C TERM LOAN REPAYMENT AMOUNT" shall have the meaning assigned
to such term in Section 2.12(c).
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"TRANCHE C TERM LOAN REPAYMENT DATES" shall have the meaning assigned
to such term in Section 2.12(c).
"TRANCHE C TERM LOANS" shall mean the term loans made by the Lenders
pursuant to Section 2.01(a)(iii).
"TRANSACTION DOCUMENTS" shall mean the Merger Agreement and all other
agreements to be entered into by the Parent Borrower or any Subsidiary pursuant
thereto or in connection therewith.
"TRANSACTIONS" shall mean (a) all transactions contemplated by the
Transaction Documents and the Loan Documents and (b) the Green Spring
Transaction.
"TYPE", when used in respect of any Loan or Borrowing, shall refer to
the Rate by reference to which interest on such Loan or on the Loans comprising
such Borrowing is determined. For purposes hereof, the term "Rate" shall
include the Adjusted LIBO Rate and the Alternate Base Rate.
"U.S. GOVERNMENT OBLIGATIONS" shall mean and include (a) securities
that are (i) direct obligations of the United States of America for the timely
payment of which its full faith and credit is pledged or (ii) obligations of a
Person controlled or supervised by and acting as an agency or instrumentality of
the United States of America the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of
America, and shall also include a depository receipt issued by a bank (as
defined in Section 3(a)(2) of the Securities Act of 1933, as amended), as
custodian with respect to any such U.S. Government Obligation or a specific
payment of principal of or interest on any such U.S. Government Obligation held
by such custodian for the account of the holder of such depository receipt,
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 depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of principal of or interest on the
U.S. Government Obligation evidenced by such depository receipt and (b) to the
extent in each case having an S&P equivalent rating of AAA, obligations issued
or guaranteed by the Federal Home Loan Mortgage Corporation, the Federal
National Mortgage Association, the Government National Mortgage Association, the
Student Loan Marketing Association and the Federal Home Loan Bank.
"WARRANT AGREEMENTS" shall mean (a) the Warrant Purchase Agreement
dated as of January 29, 1997, between the Parent Borrower and Crescent, and
(b) the Warrant Purchase Agreement dated as of June 17, 1997, between the
Parent Borrower and the Crescent Affiliate.
"WHOLLY OWNED SUBSIDIARY" of any person shall mean a subsidiary of
such person of which securities (except for directors' qualifying shares) or
other ownership interests representing 100% of the equity or 100% of the
ordinary voting power or 100% of the general partnership interests are, at the
time any determination is being made, owned, controlled or held by such person
or one or more wholly owned subsidiaries of such person or by such person and
one or more wholly owned subsidiaries of such person.
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35
"WITHDRAWAL LIABILITY" shall mean liability to a Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. TERMS GENERALLY. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context shall require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, (a) any reference in this Agreement to any Loan
Document shall mean such document as amended, restated, supplemented or
otherwise modified from time to time and (b) all terms of an accounting or
financial nature shall be construed in accordance with GAAP, as in effect from
time to time; provided, however, that for purposes of determining compliance
with the covenants contained in Article VI, all accounting terms herein shall be
interpreted and all accounting determinations hereunder shall be made in
accordance with GAAP as in effect on the date of this Agreement and applied on a
basis consistent with the application used in the financial statements referred
to in Section 3.05(a).
ARTICLE II
THE CREDITS
SECTION 2.01. COMMITMENTS. (a) Subject to the terms and conditions
and relying upon the representations and warranties herein set forth:
(i) each Tranche A Lender agrees, severally and not jointly, to make a
Tranche A Term Loan or Loans to the Parent Borrower and/or Merit on the
Closing Date in an aggregate principal amount not to exceed the Tranche A
Term Loan Commitment.
(ii) each Tranche B Lender agrees, severally and not jointly, to make
a Tranche B Term Loan or Loans to the Parent Borrower and/or Merit on the
Closing Date in an aggregate principal amount not to exceed the Tranche B
Term Loan Commitment.
(iii) each Tranche C Lender agrees, severally and not jointly, to make
a Tranche C Term Loan or Loans to the Parent Borrower and/or Merit on the
Closing Date in an aggregate principal amount not to exceed the Tranche C
Term Loan Commitment.
(b) Subject to the terms and conditions and relying upon the
representations and warranties herein set forth, each Revolving Credit Lender
agrees, severally and not jointly, to make Revolving Loans to the Borrowers, at
any time and from time to time on or after the date hereof, and until the
earlier of the Revolving Credit Maturity Date and the termination of the
Revolving Credit Commitment of such Lender in accordance with the terms hereof,
in an aggregate principal amount
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36
at any time outstanding that will not result in such Lender's Revolving
Credit Exposure at such time exceeding the Revolving Credit Commitment.
(c) Within the limits set forth in paragraph (b) above, the Borrowers
may borrow, pay or prepay and reborrow Revolving Loans on or after the Closing
Date and prior to the Revolving Credit Maturity Date, subject to the terms,
conditions and limitations set forth herein. Amounts paid or prepaid in respect
of Term Loans may not be reborrowed.
SECTION 2.02. LOANS. (a) Each Loan shall be made as part of a
Borrowing consisting of Loans made by the Lenders ratably in accordance with
their applicable Commitments; provided, however, that the failure of any Lender
to make any Loan shall not in itself relieve any other Lender of its obligation
to lend hereunder (it being understood, however, that no Lender shall be
responsible for the failure of any other Lender to make any Loan required to be
made by such other Lender). Except for Loans deemed made pursuant to
Section 2.02(f), the Loans comprising any Borrowing shall be in an aggregate
principal amount that is (i) an integral multiple of $1,000,000 and not less
than $5,000,000 or (ii) equal to the remaining available balance of the
applicable Commitments.
(b) Subject to Sections 2.08 and 2.15, each Borrowing shall be
comprised entirely of ABR Loans or Eurodollar Loans as the applicable Borrower
may request pursuant to Section 2.03. Each Lender may at its option make any
Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such
Lender to make such Loan, provided that any exercise of such option shall not
affect the obligation of the applicable Borrower to repay such Loan in
accordance with the terms of this Agreement. Borrowings of more than one Type
may be outstanding at the same time; provided, however, that the Borrowers shall
not be entitled to request any Borrowing that, if made, would result in more
than 15 Eurodollar Borrowings outstanding hereunder at any time. For purposes
of the foregoing, only Borrowings having different Interest Periods, regardless
of whether they commence on the same date, shall be considered separate
Borrowings.
(c) Except with respect to Loans deemed made pursuant to
Section 2.02(f), each Lender shall make each Loan to be made by it hereunder on
the proposed date thereof by wire transfer of immediately available funds to
such account in New York City as the Administrative Agent may designate not
later than 11:00 a.m., New York City time, and the Administrative Agent shall by
12:00 (noon), New York City time, credit the amounts so received to a domestic
account designated in the applicable Borrowing Request (provided that such
designated account shall be an account of a Borrower or a Guarantor) or, if a
Borrowing shall not occur on such date because any condition precedent herein
specified shall not have been met, return the amounts so received to the
respective Lenders.
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(d) Unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's portion of such Borrowing,
the Administrative Agent may assume that such Lender has made such portion
available to the Administrative Agent on the date of such Borrowing in
accordance with paragraph (c) above, and the Administrative Agent may, in
reliance upon such assumption, make available to the applicable Borrower on such
date a corresponding amount. If the Administrative Agent shall have so made
funds available then, to the extent that such Lender shall not have made such
portion available to the Administrative Agent, such Lender and the applicable
Borrower severally agree to repay to the Administrative Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to such Borrower until the date such
amount is repaid to the Administrative Agent at (i) in the case of any Borrower,
the interest rate applicable at the time to the Loans comprising such Borrowing
and (ii) in the case of such Lender, a rate determined by the Administrative
Agent to represent its cost of overnight or short-term funds (which
determination shall be conclusive absent manifest error). If such Lender shall
repay to the Administrative Agent such corresponding amount, such amount shall
constitute such Lender's Loan as part of such Borrowing for purposes of this
Agreement.
(e) Notwithstanding any other provision of this Agreement, the
Borrowers shall not be entitled to request any Tranche A Borrowing, Tranche B
Borrowing, Tranche C Borrowing or Revolving Credit Borrowing if the Interest
Period requested with respect thereto would end after the Tranche A Maturity
Date, the Tranche B Maturity Date, the Tranche C Maturity Date or the Revolving
Credit Maturity Date, respectively.
(f) If an Issuing Bank shall not have received from the applicable
Borrower any payment required to be made to such Issuing Bank by Section 2.22(e)
within the time specified in such Section, such Issuing Bank will promptly
notify the Administrative Agent of the L/C Disbursement and the Administrative
Agent will promptly notify each Revolving Credit Lender of such L/C Disbursement
and its Pro Rata Percentage thereof. Each Revolving Credit Lender shall pay by
wire transfer of immediately available funds to the Administrative Agent not
later than 2:00 p.m., New York City time, on such date (or, if such Revolving
Credit Lender shall have received such notice later than 12:00 (noon), New York
City time, on any day, not later than 10:00 a.m., New York City time, on the
immediately following Business Day), an amount equal to such Revolving Credit
Lender's Pro Rata Percentage of such L/C Disbursement (it being understood that
such amount shall be deemed to constitute an ABR Revolving Loan of such
Revolving Credit Lender and such payment shall be deemed to have reduced the
L/C Exposure), and the Administrative Agent will promptly pay to such Issuing
Bank amounts so received by it from the Revolving Credit Lenders. The
Administrative Agent will promptly pay to such Issuing Bank any amounts received
by it from the applicable Borrower pursuant to Section 2.22(e) prior to the time
that any Revolving Credit Lender makes any payment pursuant to this
paragraph (f); any such amounts received by the Administrative Agent thereafter
will be promptly remitted by the Administrative Agent to the Revolving Credit
Lenders that shall have made such payments and to such Issuing Bank, as their
interests may appear. If any Revolving Credit Lender shall not have made its
Pro Rata Percentage of such L/C Disbursement available to the Administrative
Agent as provided above, such Revolving Credit Lender and the applicable
Borrower severally agree to pay interest on such amount, for each day from and
including the date such amount is required to be paid in accordance with this
paragraph to but excluding the date such amount is paid, to the Administrative
Agent for the account of such Issuing Bank at (i) in the case of such Borrower,
a rate per annum equal to the interest rate applicable to Revolving Loans
pursuant to Section 2.06(a), and (ii) in the case of such Revolving Credit
Lender, for the first such day, the Federal Funds Effective Rate, and for each
day thereafter, the Alternate Base Rate.
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SECTION 2.03. BORROWING PROCEDURE. In order to request a Borrowing
(other than a deemed Borrowing pursuant to Section 2.02(f), as to which this
Section 2.03 shall not apply), a Borrower shall hand deliver or telecopy to the
Administrative Agent a duly completed Borrowing Request (a) in the case of a
Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three
Business Days before a proposed Borrowing and (b) in the case of an ABR
Borrowing, not later than 12:00 noon, New York City time, one Business Day
before a proposed Borrowing. Each Borrowing Request shall be irrevocable, shall
be signed by or on behalf of the applicable Borrower and shall specify the
following information: (i) whether the Borrowing then being requested is to be
a Term Borrowing or a Revolving Credit Borrowing (and in the case of a Term
Borrowing the Commitments pursuant to which the Loans comprising such Borrowing
are to be made), and whether such Borrowing is to be a Eurodollar Borrowing or
an ABR Borrowing; (ii) the date of such Borrowing (which shall be a Business
Day); (iii) the number and location of the account to which funds are to be
disbursed (which shall be an account that complies with the requirements of
Section 2.02(c)); (iv) the amount of such Borrowing; and (v) if such Borrowing
is to be a Eurodollar Borrowing, the Interest Period with respect thereto;
provided, however, that, notwithstanding any contrary specification in any
Borrowing Request, each requested Borrowing shall comply with the requirements
set forth in Section 2.02. If no election as to the Type of Borrowing is
specified in any such notice, then the requested Borrowing shall be an ABR
Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is
specified in any such notice, then the applicable Borrower shall be deemed to
have selected an Interest Period of one month's duration. The Administrative
Agent shall promptly advise the Lenders of any notice given pursuant to this
Section 2.03 (and the contents thereof), and of each Lender's portion of the
requested Borrowing.
SECTION 2.04. EVIDENCE OF DEBT; REPAYMENT OF LOANS. (a) The
Borrowers, jointly and severally, unconditionally promise to pay to the
Administrative Agent for the account of each Lender (i) the principal amount of
each Term Loan of such Lender as provided in Section 2.12 and (ii) the then
unpaid principal amount of each Revolving Loan of such Lender on the Revolving
Credit Maturity Date.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrowers to such
Lender resulting from each Loan made by such Lender from time to time, including
the amounts of principal and interest payable and paid to such Lender from time
to time under this Agreement.
(c) The Administrative Agent shall maintain accounts in which it will
record (i) the amount of each Loan made hereunder, the Type thereof and the
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Borrowers to each Lender
hereunder and (iii) the amount of any sum received by the Administrative Agent
hereunder from any Borrower or any Guarantor and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraphs (b) and (c) above shall be prima facie evidence of the existence and
amounts of the obligations therein recorded; provided, however, that the failure
of any Lender or the Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligations of the Borrowers to repay
the Loans in accordance with their terms.
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(e) Notwithstanding any other provision of this Agreement, in the
event any Lender shall request and receive a promissory note payable to such
Lender and its registered assigns, the interests represented by such note shall
at all times (including after any assignment of all or part of such interests
pursuant to Section 9.04) be represented by one or more promissory notes payable
to the payee named therein or its registered assigns.
SECTION 2.05. FEES. (a) The Borrowers agree to pay to each Lender,
through the Administrative Agent, on the last Business Day of March, June,
September and December in each year (calculated to such last Business Day, as
applicable, of March, June, September and December) and on the date on which the
applicable Commitment of such Lender shall expire or be terminated as provided
herein, a commitment fee (a "COMMITMENT FEE") equal to the Applicable Percentage
per annum in effect from time to time on the average daily unused amount of the
Commitments of such Lender during the preceding quarter (or other period
commencing with the Closing Date or ending with the date on which the applicable
Commitments of such Lender shall expire or be terminated), PROVIDED that the
aggregate fees payable on any such day shall not exceed the amount that would
have been payable if no assignment of any Lender's interest had occurred during
the applicable three month period. All Commitment Fees shall be computed on the
basis of the actual number of days elapsed in a year of 360 days. The
Commitment Fee due to each Lender shall commence to accrue on the Closing Date
and shall cease to accrue on the date on which the applicable Commitment of such
Lender shall expire or be terminated as provided herein.
(b) The Borrowers agree to pay to the Administrative Agent, for its
own account, the administrative fees set forth in the Fee Letter at the times
and in the amounts specified therein (the "ADMINISTRATIVE AGENT FEES").
(c) The Borrowers agree to pay (i) to each Revolving Credit Lender,
through the Administrative Agent, on the last Business Day of March, June,
September and December of each year (calculated to such last Business Day, as
applicable, of March, June, September and December) and on the date on which the
Revolving Credit Commitment of such Revolving Credit Lender shall be terminated
as provided herein, a fee (an "L/C PARTICIPATION FEE") calculated on such
Revolving Credit Lender's Pro Rata Percentage of the average daily aggregate
L/C Exposure (excluding the portion thereof attributable to unreimbursed
L/C Disbursements) during the preceding quarter (or shorter period commencing
with the date hereof or ending with the Revolving Credit Maturity Date or the
date on which all Letters of Credit have been canceled or have expired and the
Revolving Credit Commitments of all Lenders shall have been terminated) at a
rate equal to the Applicable Percentage from time to time used to determine the
interest rate on Revolving Credit Borrowings comprised of Eurodollar Loans
pursuant to Section 2.06, PROVIDED that the aggregate fees payable on any such
day shall not exceed the amount that would have been payable if no assignment of
any Revolving Credit Lender's interest had occurred during the applicable three
month period, and (ii) to each Issuing Bank with respect to each Letter of
Credit issued by it, (x) a fee equal to 0.125% per annum of the face amount of
such Letter of Credit, payable quarterly in arrears on the last Business Day of
each quarter (calculated to such last Business Day, as applicable, of March,
June, September and December) and (y) the standard issuance and administration
fees specified from time to time by such Issuing Bank (the "ISSUING BANK FEES").
All L/C Participation Fees and Issuing Bank Fees shall be computed on the basis
of the actual number of days elapsed in a year of 360 days.
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(d) All Fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate,
among the Lenders, except that the Issuing Bank Fees shall be paid directly to
the respective Issuing Banks. Once paid, none of the Fees shall be refundable
under any circumstances.
SECTION 2.06. INTEREST ON LOANS. (a) Subject to the provisions of
Section 2.07, the Loans comprising each ABR Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 365
or 366 days, as the case may be, when the Alternate Base Rate is determined by
reference to the Prime Rate and over a year of 360 days at all other times) at a
rate per annum equal to the Alternate Base Rate plus (i) in the case of
Tranche A Term Loans and Revolving Loans, the Applicable Percentage with respect
to ABR Loans in effect from time to time, (ii) in the case of Tranche B Term
Loans, 1.50% and (iii) in the case of Tranche C Term Loans, 1.75%.
(b) Subject to the provisions of Section 2.07, the Loans comprising
each Eurodollar Borrowing shall bear interest (computed on the basis of the
actual number of days elapsed over a year of 360 days) at a rate per annum equal
to the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing
plus (i) in the case of Tranche A Term Loans and Revolving Loans, the Applicable
Percentage with respect to Eurodollar Loans in effect from time to time, (ii) in
the case of Tranche B Term Loans, 2.50% and (iii) in the case of Tranche C Term
Loans, 2.75%.
(c) Interest on each Loan shall be payable on the Interest Payment
Dates applicable to such Loan except as otherwise provided in this Agreement.
The applicable Alternate Base Rate or Adjusted LIBO Rate for each Interest
Period or day within an Interest Period, as the case may be, shall be determined
by the Administrative Agent, and such determination shall be conclusive absent
manifest error.
SECTION 2.07. DEFAULT INTEREST. If the Borrowers shall default in
the payment of the principal of or interest on any Loan or any other amount
becoming due hereunder, by acceleration or otherwise, or under any other Loan
Document, the Borrowers shall on demand from time to time pay interest, to the
extent permitted by law, on such defaulted amount to, but excluding, the date of
actual payment (after as well as before judgment) (a) in the case of overdue
principal, at the rate otherwise applicable to such Loan pursuant to
Section 2.06 plus 2.00% per annum and (b) in all other cases, at a rate per
annum (computed on the basis of the actual number of days elapsed over a year of
365 or 366 days, as the case may be, when determined by reference to the Prime
Rate and over a year of 360 days at all other times) equal to the sum of the
Alternate Base Rate plus 2.00%.
SECTION 2.08. ALTERNATE RATE OF INTEREST. If, and on each occasion
that, on the day two Business Days prior to the commencement of any Interest
Period for a Eurodollar Borrowing the Administrative Agent shall have determined
that dollar deposits in the principal amounts of the Loans comprising such
Borrowing are not generally available in the London interbank market, or that
the rates at which such dollar deposits are being offered will not adequately
and fairly reflect the cost to any Lender of making or maintaining its
Eurodollar Loan during such Interest Period, or that reasonable means do not
exist for ascertaining the Adjusted LIBO Rate, the Administrative Agent shall,
as soon as practicable thereafter, give written or telecopy notice of such
determination to the Borrowers and the Lenders. In the event of any such
determination, until the Administrative
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Agent shall have advised the Borrowers and the Lenders that the circumstances
giving rise to such notice no longer exist, any request by the Borrowers for
a Eurodollar Borrowing pursuant to Section 2.03 shall be deemed to be a
request for an ABR Borrowing. Each determination by the Administrative Agent
hereunder shall be conclusive absent manifest error.
SECTION 2.09. TERMINATION AND REDUCTION OF COMMITMENTS. (a) The
Term Loan Commitments shall automatically terminate at 5:00 p.m., New York City
time, on the Closing Date. The Revolving Credit Commitments and the
L/C Commitments shall automatically terminate on the Revolving Credit Maturity
Date. Notwithstanding the foregoing, all the Commitments and L/C Commitments
shall automatically terminate at 5:00 p.m., New York City time, on March 31,
1998, if the initial Credit Event shall not have occurred by such time.
(b) Upon at least two Business Days' prior irrevocable written or
telecopy notice to the Administrative Agent, the Borrowers may at any time in
whole permanently terminate, or from time to time in part permanently reduce,
the Tranche A Term Loan Commitments, the Tranche B Term Loan Commitments, the
Tranche C Term Loan Commitments or the Revolving Credit Commitments; PROVIDED,
HOWEVER, that (i) each partial reduction of the Tranche A Term Loan Commitments,
the Tranche B Term Loan Commitments, the Tranche C Term Loan Commitments or the
Revolving Credit Commitments shall be in an integral multiple of $1,000,000 and
in a minimum amount of $5,000,000 and (ii) the Total Revolving Credit Commitment
shall not be reduced to an amount that is less than the Aggregate Credit
Exposure at the time.
(c) Each reduction in the Tranche A Term Loan Commitments, the
Tranche B Term Loan Commitments, the Tranche C Term Loan Commitments or the
Revolving Credit Commitments hereunder shall be made ratably among the Lenders
in accordance with their Tranche A Term Loan Commitments, Tranche B Term Loan
Commitments, Tranche C Term Loan Commitments and Revolving Credit Commitments,
respectively. The Borrowers shall pay to the Administrative Agent for the
account of the Lenders, on the date of each termination or reduction, the
Commitment Fees on the amount of the Commitments so terminated or reduced
accrued to but excluding the date of such termination or reduction.
SECTION 2.10. CONVERSION AND CONTINUATION OF BORROWINGS. The
applicable Borrower shall have the right at any time upon prior irrevocable
notice to the Administrative Agent (a) not later than 12:00 (noon), New York
City time, one Business Day prior to conversion, to convert any Eurodollar
Borrowing into an ABR Borrowing, (b) not later than 10:00 a.m., New York City
time, three Business Days prior to conversion or continuation, to convert any
ABR Borrowing into a Eurodollar Borrowing or to continue any Eurodollar
Borrowing as a Eurodollar Borrowing for an additional Interest Period, and
(c) not later than 10:00 a.m., New York City time, three Business Days prior to
conversion, to convert the Interest Period with respect to any Eurodollar
Borrowing to another permissible Interest Period, subject in each case to the
following:
(i) subject to Section 2.15, each conversion or continuation shall be
made pro rata among the Lenders in accordance with the respective principal
amounts of the Loans comprising the converted or continued Borrowing;
<PAGE>
42
(ii) if less than all the outstanding principal amount of any
Borrowing shall be converted or continued, then each resulting Borrowing
shall satisfy the limitations specified in Sections 2.02(a) and 2.02(b)
regarding the principal amount and maximum number of Borrowings of the
relevant Type;
(iii) each conversion shall be effected by each Lender and the
Administrative Agent by recording for the account of such Lender the new
Loan of such Lender resulting from such conversion and reducing the Loan
(or portion thereof) of such Lender being converted by an equivalent
principal amount; accrued interest on any Eurodollar Loan (or portion
thereof) being converted shall be paid by the Borrowers at the time of
conversion;
(iv) if any Eurodollar Borrowing is converted at a time other than the
end of the Interest Period applicable thereto, the Borrowers shall pay,
upon demand, any amounts due to the Lenders pursuant to Section 2.16;
(v) any portion of a Borrowing maturing or required to be repaid in
less than one month may not be converted into or continued as a Eurodollar
Borrowing;
(vi) any portion of a Eurodollar Borrowing that cannot be converted
into or continued as a Eurodollar Borrowing by reason of the immediately
preceding clause shall be automatically converted at the end of the
Interest Period in effect for such Borrowing into an ABR Borrowing;
(vii) no Interest Period may be selected for any Eurodollar Term
Borrowing that would end later than a Term Loan Repayment Date occurring on
or after the first day of such Interest Period if, after giving effect to
such selection, the aggregate outstanding amount of (A) the Eurodollar Term
Borrowings with Interest Periods ending on or prior to such repayment date
and (B) the ABR Term Borrowings would not be at least equal to the
principal amount of Term Borrowings to be paid on such Term Loan Repayment
Date; and
(viii) upon notice to the Borrowers from the Administrative Agent
given at the request of the Required Lenders, after the occurrence and
during the continuance of a Default or Event of Default, no outstanding
Loan may be converted into, or continued as, a Eurodollar Loan.
Each notice pursuant to this Section 2.10 shall refer to this
Agreement and specify (i) the identity and amount of the Borrowing that the
applicable Borrower requests be converted or continued, (ii) whether such
Borrowing is to be converted to or continued as a Eurodollar Borrowing or an
ABR Borrowing, (iii) if such notice requests a conversion, the date of such
conversion (which shall be a Business Day) and (iv) if such Borrowing is to
be converted to or continued as a Eurodollar Borrowing, the Interest Period
with respect thereto. If no Interest Period is specified in any such notice
with respect to any conversion to or continuation as a Eurodollar Borrowing,
the applicable Borrower shall be deemed to have selected an Interest Period
of one month's duration. The Administrative Agent shall advise the Lenders
of any notice given pursuant to this Section 2.10 and of each Lender's
portion of any converted or continued Borrowing. If the applicable Borrower
shall not have given notice in accordance with this Section 2.10 to continue
any Borrowing into a
<PAGE>
43
subsequent Interest Period (and shall not otherwise have given notice in
accordance with this Section 2.10 to convert such Borrowing), such Borrowing
shall, at the end of the Interest Period applicable thereto (unless repaid
pursuant to the terms hereof), automatically be continued into a new Interest
Period as an ABR Borrowing.
SECTION 2.11. PREPAYMENT. (a) The Borrowers shall have the right at
any time and from time to time to prepay any Borrowing, in whole or in part,
upon at least two Business Days' prior written or telecopy notice (or telephone
notice promptly confirmed by written or telecopy notice) to the Administrative
Agent before 11:00 a.m., New York City time; PROVIDED, HOWEVER, that each
partial prepayment shall be in an amount that is an integral multiple of
$1,000,000 and not less than $5,000,000.
(b) Subject to paragraph (d) below, optional prepayments of Term
Loans shall be allocated pro rata among the then outstanding Tranche A Term
Loans, Tranche B Term Loans and Tranche C Term Loans and applied pro rata
against the remaining scheduled installments of principal due in respect of the
Tranche A Term Loans, Tranche B Term Loans and Tranche C Term Loans under
Sections 2.12(a), (b) and (c), respectively.
(c) Each notice of prepayment shall specify the prepayment date and
the principal amount of each Borrowing (or portion thereof) to be prepaid, shall
be irrevocable and shall commit the Borrowers to prepay such Borrowing by the
amount stated therein on the date stated therein. All prepayments under this
Section 2.11 shall be subject to Section 2.16 but otherwise without premium or
penalty. All prepayments under this Section 2.11 shall be accompanied by
accrued interest on the principal amount being prepaid to the date of payment.
(d) Any Tranche B Lender or Tranche C Lender may elect, by notice to
the Administrative Agent in writing (or by telephone or telecopy promptly
confirmed in writing) at least one Business Day prior to any prepayment of
Tranche B Term Loans or Tranche C Term Loans, as applicable, to be made by the
Borrowers for the account of such Lender pursuant to this Section 2.11, to cause
all or a portion of such prepayment to be applied instead to prepay Tranche A
Term Loans in accordance with paragraph (b) above, PROVIDED that the Tranche B
Lenders and the Tranche C Lenders shall be entitled to make such election only
if and to the extent Tranche A Term Loans are outstanding at the time thereof.
SECTION 2.12. REPAYMENT OF TERM BORROWINGS. (a) The Borrowers shall
pay to the Administrative Agent, for the account of the Tranche A Lenders, on
the dates set forth below or, if any such date is not a Business Day, on the
next preceding Business Day (each such date being a "TRANCHE A TERM LOAN
REPAYMENT DATE"), a principal amount of the Tranche A Term Loans (such amount,
as adjusted from time to time pursuant to this Section 2.12 and Sections 2.11
and 2.13, being called the "TRANCHE A TERM LOAN REPAYMENT AMOUNT") equal to the
amount set forth below for such date, together in each case with accrued and
unpaid interest on the principal amount to be paid to but excluding the date of
such payment:
Date Amount
---- ------
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44
March 31, 1998 $ 0
June 30, 1998 $ 0
September 30, 1998 $ 0
December 31, 1998 $ 0
March 31, 1999 $ 5,500,000
June 30, 1999 $ 5,500,000
September 30, 1999 $ 5,500,000
December 31, 1999 $ 5,500,000
March 31, 2000 $ 7,500,000
June 30, 2000 $ 7,500,000
September 30, 2000 $ 7,500,000
December 31, 2000 $ 7,500,000
March 31, 2001 $ 9,000,000
June 30, 2001 $ 9,000,000
September 30, 2001 $ 9,000,000
December 31, 2001 $ 9,000,000
March 31, 2002 $12,000,000
June 30, 2002 $12,000,000
September 30, 2002 $12,000,000
December 31, 2002 $12,000,000
March 31, 2003 $12,000,000
June 30, 2003 $12,000,000
September 30, 2003 $12,000,000
Tranche A Maturity Date $11,333,333
(b) The Borrowers shall pay to the Administrative Agent, for the
account of the Tranche B Lenders, on the dates set forth below or, if any such
date is not a Business Day, on the next preceding Business Day (each such date
being a "TRANCHE B TERM LOAN REPAYMENT DATE"), a principal amount of the
Tranche B Term Loans (such amount, as adjusted from time to time pursuant to
this Section 2.12 and Sections 2.11 and 2.13, being called the "TRANCHE B TERM
LOAN REPAYMENT AMOUNT") equal to the amount set forth below for such date,
together in each case with accrued and unpaid interest on the principal amount
to be paid to but excluding the date of such payment:
Date Amount
---- ------
March 31, 1998 $ 0
June 30, 1998 $ 0
September 30, 1998 $ 0
December 31, 1998 $ 0
March 31, 1999 $ 550,000
June 30, 1999 $ 550,000
September 30, 1999 $ 550,000
December 31, 1999 $ 550,000
March 31, 2000 $ 550,000
June 30, 2000 $ 550,000
September 30, 2000 $ 550,000
<PAGE>
45
Date Amount
---- ------
December 31, 2000 $ 550,000
March 31, 2001 $ 550,000
June 30, 2001 $ 550,000
September 30, 2001 $ 550,000
December 31, 2001 $ 550,000
March 31, 2002 $ 550,000
June 30, 2002 $ 550,000
September 30, 2002 $ 550,000
December 31, 2002 $ 550,000
March 31, 2003 $13,750,000
June 30, 2003 $13,750,000
September 30, 2003 $13,750,000
December 31, 2003 $13,750,000
March 31, 2004 $29,900,000
June 30, 2004 $29,900,000
September 30, 2004 $29,900,000
Tranche B Maturity Date $29,833,333
(c) The Borrowers shall pay to the Administrative Agent, for the
account of the Tranche C Lenders, on the dates set forth below or, if any such
date is not a Business Day, on the next preceding Business Day (each such date
being a "Tranche C Term Loan Repayment Date"), a principal amount of the
Tranche C Term Loans (such amount, as adjusted from time to time pursuant to
this Section 2.12 and Sections 2.11 and 2.13 being called the "Tranche C Term
Loan Repayment Amount") equal to the amount set forth below for such date,
together in each case with accrued and unpaid interest on the principal amount
to be paid to but excluding the date of such payment:
Date Amount
---- ------
March 31, 1998 $ 0
June 30, 1998 $ 0
September 30, 1998 $ 0
December 31, 1998 $ 0
March 31, 1999 $ 550,000
June 30, 1999 $ 550,000
September 30, 1999 $ 550,000
December 31, 1999 $ 550,000
March 31, 2000 $ 550,000
June 30, 2000 $ 550,000
September 30, 2000 $ 550,000
December 31, 2000 $ 550,000
March 31, 2001 $ 550,000
June 30, 2001 $ 550,000
September 30, 2001 $ 550,000
December 31, 2001 $ 550,000
March 31, 2002 $ 550,000
<PAGE>
46
June 30, 2002 $ 550,000
September 30, 2002 $ 550,000
December 31, 2002 $ 550,000
March 31, 2003 $ 550,000
June 30, 2003 $ 550,000
September 30, 2003 $ 550,000
December 31, 2003 $ 550,000
March 31, 2004 $13,750,000
June 30, 2004 $13,750,000
September 30, 2004 $13,750,000
December 31, 2004 $13,750,000
March 31, 2005 $29,400,000
June 30, 2005 $29,400,000
September 30, 2005 $29,400,000
Tranche C Maturity Date $29,133,334
(d) In the event and on each occasion that any Term Loan Commitments
shall be reduced or shall expire or terminate other than as a result of the
making of a Term Loan, the installments payable on each Term Loan Repayment Date
shall be reduced pro rata by an aggregate amount equal to the amount of such
reduction or shall expire or terminate, as applicable.
(e) To the extent not previously paid, all Tranche A Term Loans,
Tranche B Term Loans and Tranche C Term Loans shall be due and payable on the
Tranche A Maturity Date, the Tranche B Maturity Date and the Tranche C Maturity
Date, respectively, together with accrued and unpaid interest on the principal
amount to be paid to but excluding the date of payment.
(f) All repayments pursuant to this Section 2.12 shall be subject to
Section 2.16, but shall otherwise be without premium or penalty.
SECTION 2.13. MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS.
(a) Not later than the third Business Day following the completion of any Asset
Sale or any transaction described in Section 6.05(f), the Borrowers shall apply
100% of the Net Cash Proceeds received with respect thereto to prepay
outstanding Loans in accordance with Sections 2.13(e) and 2.13(f); provided,
however, that no such prepayment shall be required until the September 30 that
is immediately after the completion of any such Asset Sale if the applicable Net
Cash Proceeds plus all other Net Cash Proceeds that have yet to be applied in
accordance with this Section 2.13(a) are less than $5,000,000.
(b) No later than the earlier of (i) 120 days after the end of each
fiscal year of the Parent Borrower, commencing with the fiscal year ending on
September 30, 1999, and (ii) the date on which the financial statements with
respect to such period are delivered pursuant to Section 5.04(a), the Parent
Borrower shall prepay outstanding Term Loans in accordance with Section 2.13(e)
in an aggregate principal amount equal to 75% of Excess Cash Flow for the fiscal
year then ended.
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47
(c) In the event that any Borrower or any Guarantor shall receive Net
Cash Proceeds from the issuance of Indebtedness for money borrowed of any
Borrower or any Subsidiary (other than Indebtedness for money borrowed permitted
pursuant to Section 6.01(h), Section 6.01(i) or Section 6.01(n)), the Borrowers
shall, substantially simultaneously with (and in any event not later than the
third Business Day next following) the receipt of such Net Cash Proceeds, apply
an amount equal to 100% of such Net Cash Proceeds to prepay outstanding Term
Loans in accordance with Section 2.13(e); PROVIDED, HOWEVER, that no such
prepayment shall be required until the September 30 that is immediately after
such issuance if the applicable Net Cash Proceeds plus all other Net Cash
Proceeds that have yet to be applied in accordance with this Section 2.13(c) are
less than $5,000,000.
(d) In the event that any Borrower or any Guarantor shall receive Net
Cash Proceeds from an Equity Issuance, the Borrowers shall, substantially
simultaneously with (and in any event not later than the third Business Day next
following) the receipt of such Net Cash Proceeds, apply an amount equal to 100%
of such Net Cash Proceeds to prepay outstanding Loans in accordance with
Section 2.13(e); PROVIDED, HOWEVER, that no such prepayment shall be required
until the September 30 that is immediately after such issuance if the applicable
Net Cash Proceeds plus all other Net Cash Proceeds that have yet to be applied
in accordance with this Section 2.13(d) are less than $5,000,000.
(e) Subject to paragraph (j) below, mandatory prepayments of
outstanding Term Loans under this Agreement shall be allocated pro rata among
the then outstanding Tranche A Term Loans, Tranche B Term Loans and Tranche C
Term Loans and applied pro rata against the remaining scheduled installments of
principal due in respect of Tranche A Term Loans, Tranche B Term Loans and
Tranche C Term Loans under Sections 2.12(a), (b) and (c), respectively.
(f) In the event that, upon the occurrence of any event described in
Section 2.13(a), no Term Loans are outstanding (or the amount required to be
applied pursuant to such Section exceeds the aggregate principal amount of
outstanding Term Loans), Revolving Credit Commitments shall be reduced PRO RATA
by the amount of the prepayment that would have been required in respect of Term
Loans had there been Term Loans outstanding (after giving effect to any
prepayment thereof); PROVIDED, HOWEVER, that no such reduction shall be required
until the September 30 that is immediately after such event if the applicable
Net Cash Proceeds PLUS all other Net Cash Proceeds that have yet to be applied
in accordance with this Section 2.13(f) are less than $5,000,000. The Borrowers
shall pay to the Administrative Agent for the account of the Revolving Credit
Lenders, on the date of each termination or reduction pursuant to this Section
2.13(f), the Commitment Fees on the amount of the Revolving Credit Commitments
so terminated or reduced accrued to but excluding the date of such termination
or reduction.
(g) In the event of any termination of all the Revolving Credit
Commitments, the Borrowers shall repay or prepay all outstanding Revolving
Credit Borrowings on the date of such termination. In the event of any partial
reduction of the Revolving Credit Commitments, then (i) at or prior to the
effective date of such reduction, the Administrative Agent shall notify the
Borrowers and the Revolving Credit Lenders of the Aggregate Credit Exposure
after giving effect thereto and (ii) if the Aggregate Credit Exposure would
exceed the Total Revolving Credit Commitment after
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48
giving effect to such reduction, then the Borrowers shall, on the date of
such reduction, repay or prepay Revolving Credit Borrowings in an amount
sufficient to eliminate such excess.
(h) If following any reduction of the Total Revolving Credit
Commitment pursuant to Section 2.13(f) and any payments required pursuant to
Section 2.13(g), the Total Revolving Credit Commitment is less than the
L/C Exposure, the Borrowers shall, on the date of such reduction, replace
outstanding Letters of Credit or deposit an amount in cash in a collateral
account established with the Collateral Agent in accordance with
Section 2.22(j), in an amount equal to the amount that the L/C Exposure exceeds
the Total Revolving Credit Commitment upon such date of reduction.
(i) Amounts to be applied pursuant to this Section 2.13 to the
prepayment of Loans shall be applied, as applicable, first to reduce outstanding
ABR Loans. Any amounts remaining after each such application shall, at the
option of the Parent Borrower, be applied to prepay Eurodollar Loans immediately
and/or shall be deposited in the Prepayment Account (as defined below). The
Administrative Agent shall apply any cash deposited in the Prepayment Account
(i) allocable to Term Loans to prepay Eurodollar Term Loans and (ii) allocable
to Revolving Loans to prepay Eurodollar Revolving Loans, in each case on the
last day of their respective Interest Periods (or, at the direction of the
Parent Borrower, on any earlier date) until all outstanding Term Loans or
Revolving Loans, as the case may be, have been prepaid or until all the
allocable cash on deposit with respect to such Loans has been exhausted. For
purposes of this Agreement, the term "Prepayment Account" shall mean an account
established by the Parent Borrower with the Administrative Agent and over which
the Administrative Agent shall have exclusive dominion and control, including
the exclusive right of withdrawal for application in accordance with this
paragraph (i). The Administrative Agent will, at the request of the Parent
Borrower, invest amounts on deposit in the Prepayment Account in Permitted
Investments that mature prior to the last day of the applicable Interest Periods
of the Eurodollar Term Borrowings or Eurodollar Revolving Borrowings to be
prepaid, as the case may be; provided, however, that (i) the Administrative
Agent shall not be required to make any investment that, in its sole judgment,
would require or cause the Administrative Agent to be in, or would result in
any, violation of any law, statute, rule or regulation and (ii) the
Administrative Agent shall have no obligation to invest amounts on deposit in
the Prepayment Account if a Default or Event of Default shall have occurred and
be continuing. The Parent Borrower shall indemnify the Administrative Agent for
any losses relating to the investments so that the amount available to prepay
Eurodollar Borrowings on the last day of the applicable Interest Period is not
less than the amount that would have been available had no investments been made
pursuant thereto. Any interest earned on such investments shall be deposited in
the Prepayment Account and reinvested and disbursed as specified above. If the
maturity of the Loans has been accelerated pursuant to Article VII, the
Administrative Agent may, in its sole discretion, apply all amounts on deposit
in the Prepayment Account to satisfy any of the Obligations. The Parent
Borrower hereby grants to the Administrative Agent, for its benefit and the
benefit of the Issuing Banks and the Lenders, a security interest in the
Prepayment Account to secure the Obligations.
(j) Other than with respect to Net Cash Proceeds received (i) from an
Equity Issuance prior to the first anniversary of the Closing Date or (ii) in
connection with a Permitted CBHS Sale, any Tranche B Lender or Tranche C Lender
may elect, by notice to the Administrative Agent in writing (or by telephone or
telecopy promptly confirmed in writing) at least one Business Day prior to any
prepayment of Tranche B Term Loans or Tranche C Term Loans required to be made
by the Borrowers for the account of such Lender pursuant to this Section 2.13,
to cause all or a portion of such prepayment to be applied instead to prepay
Tranche A Term Loans in accordance with paragraph (e) above, provided that the
Tranche B Lenders and Tranche C Lenders shall be entitled to make such election
only if and to the extent Tranche A Term Loans are outstanding at such time.
<PAGE>
49
(k) The Borrowers shall deliver to the Administrative Agent, at the
time of each prepayment required under this Section 2.13, (i) a certificate
signed by a Financial Officer of the Parent Borrower setting forth in reasonable
detail the calculation of the amount of such prepayment and (ii) to the extent
practicable, at least three days prior written notice of such prepayment. Each
notice of prepayment shall specify the prepayment date, the Type of each Loan
being prepaid and the principal amount of each Loan (or portion thereof) to be
prepaid. All prepayments of Borrowings under this Section 2.13 shall be subject
to Section 2.16, but shall otherwise be without premium or penalty.
SECTION 2.14. RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES.
(a) Notwithstanding any other provision of this Agreement, if after the date of
this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any Governmental Authority charged
with the interpretation or administration thereof (whether or not having the
force of law) shall change the basis of taxation of payments to any Lender or an
Issuing Bank of the principal of or interest on any Eurodollar Loan made by such
Lender or any Fees or other amounts payable hereunder (other than changes in
respect of taxes imposed on the overall net income of such Lender or Issuing
Bank by the jurisdiction in which such Lender or Issuing Bank has its principal
office or by any political subdivision or taxing authority therein), or shall
impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of or credit
extended by any Lender or an Issuing Bank (except any such reserve requirement
which is reflected in the Adjusted LIBO Rate) or shall impose on such Lender or
Issuing Bank or the London interbank market any other condition affecting this
Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or
participation therein, and the result of any of the foregoing shall be to
increase the cost to such Lender of making or maintaining any Eurodollar Loan or
increase the cost to any Lender or Issuing Bank of issuing or maintaining any
Letter of Credit or purchasing or maintaining a participation therein or to
reduce the amount of any sum received or receivable by such Lender or Issuing
Bank hereunder (whether of principal, interest or otherwise) by an amount deemed
by such Lender or Issuing Bank to be material, then the Borrowers will pay to
such Lender or Issuing Bank, as the case may be, upon demand such additional
amount or amounts as will compensate such Lender or Issuing Bank, as the case
may be, for such additional costs incurred or reduction suffered.
(b) If any Lender or an Issuing Bank shall have determined that the
adoption after the date hereof of any law, rule, regulation, agreement or
guideline regarding capital adequacy, or any change after the date hereof in any
such law, rule, regulation, agreement or guideline (whether such law, rule,
regulation, agreement or guideline has been adopted) or in the interpretation or
<PAGE>
50
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or an Issuing Bank or any Lender's or Issuing
Bank's holding company with any request or directive regarding capital adequacy
(whether or not having the force of law) of any Governmental Authority has or
would have the effect of reducing the rate of return on such Lender's or Issuing
Bank's capital or on the capital of such Lender's or Issuing Bank's holding
company, if any, as a consequence of this Agreement or the Loans made or
participations in Letters of Credit purchased by such Lender pursuant hereto or
the Letters of Credit issued by such Issuing Bank pursuant hereto to a level
below that which such Lender or Issuing Bank or such Lender's or Issuing Bank's
holding company could have achieved but for such applicability, adoption, change
or compliance (taking into consideration such Lender's or Issuing Bank's
policies and the policies of such Lender's or Issuing Bank's holding company
with respect to capital adequacy) by an amount deemed by such Lender or Issuing
Bank to be material, then from time to time the Borrowers shall pay to such
Lender or Issuing Bank, as the case may be, such additional amount or amounts as
will compensate such Lender or Issuing Bank or such Lender's or Issuing Bank's
holding company for any such reduction suffered.
(c) A certificate of a Lender or Issuing Bank setting forth the
amount or amounts necessary to compensate such Lender or an Issuing Bank or its
holding company, as applicable, as specified in paragraph (a) or (b) above shall
be delivered to the Borrowers and shall be conclusive absent manifest error.
Such certificate (i) shall set forth in reasonable detail the conditions giving
rise to a circumstance or situation under Section 2.14(a) or (b), and
(ii) shall set forth the calculations of the amounts to be paid by the
applicable Borrower (which calculations shall be made in the same manner as for
similar outstanding loans made by such Lender of a similar type and amount as
Loans by such Lender under this Agreement to persons of creditworthiness similar
to that of the Parent Borrower), and, if made in accordance with this sentence,
shall be conclusive absent manifest error. The Borrowers shall pay such Lender
or Issuing Bank the amount shown as due on any such certificate delivered by it
within 10 days after its receipt of the same.
(d) Failure or delay on the part of any Lender or any Issuing Bank to
demand compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital shall not constitute a waiver of
such Lender's or Issuing Bank's right to demand such compensation. The
protection of this Section shall be available to each Lender and Issuing Bank
regardless of any possible contention of the invalidity or inapplicability of
the law, rule, regulation, agreement, guideline or other change or condition
that shall have occurred or been imposed.
SECTION 2.15. CHANGE IN LEGALITY. (a) Notwithstanding any other
provision of this Agreement, if, after the date hereof, any change in any law or
regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall make it unlawful
for any Lender to make or maintain any Eurodollar Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Loan, then, by
written notice to the Borrowers and to the Administrative Agent:
(i) such Lender may declare that Eurodollar Loans will not thereafter
(for the duration of such unlawfulness) be made by such Lender hereunder
(or be continued for additional Interest Periods and ABR Loans will not
thereafter (for such duration) be converted into Eurodollar Loans),
whereupon any request for a Eurodollar Borrowing (or to convert an ABR
Borrowing to a Eurodollar Borrowing or to continue a Eurodollar Borrowing
for an additional Interest Period) shall, as to such Lender only, be deemed
a
<PAGE>
51
request for an ABR Loan (or a request to continue an ABR Loan as such for
an additional Interest Period or to convert a Eurodollar Loan into an ABR
Loan, as the case may be), unless such declaration shall be subsequently
withdrawn; and
(ii) such Lender may require that all outstanding Eurodollar Loans
made by it be converted to ABR Loans, in which event all such Eurodollar
Loans shall be automatically converted to ABR Loans as of the effective
date of such notice as provided in paragraph (b) below.
If any Lender shall exercise its rights under (i) or (ii) above, all payments
and prepayments of principal that would otherwise have been applied to repay the
Eurodollar Loans that would have been made by such Lender or the converted
Eurodollar Loans of such Lender shall instead be applied to repay the ABR Loans
made by such Lender in lieu of, or resulting from the conversion of, such
Eurodollar Loans.
(b) For purposes of this Section 2.15, a notice to the Borrowers by
any Lender shall be effective as to each Eurodollar Loan made by such Lender, if
lawful, on the last day of the Interest Period currently applicable to such
Eurodollar Loan; in all other cases such notice shall be effective on the date
of receipt by the Borrowers.
SECTION 2.16. INDEMNITY. The Borrowers, jointly and severally, shall
indemnify each Lender against any loss (but excluding lost profits) or expense
that such Lender may sustain or incur as a consequence of (a) any event, other
than a default by such Lender in the performance of its obligations hereunder,
which results in (i) such Lender receiving or being deemed to receive any amount
on account of the principal of any Eurodollar Loan prior to the end of the
Interest Period in effect therefor, (ii) the conversion of any Eurodollar Loan
to an ABR Loan, or the conversion of the Interest Period with respect to any
Eurodollar Loan, in each case other than on the last day of the Interest Period
in effect therefor, or (iii) any Eurodollar Loan to be made by such Lender
(including any Eurodollar Loan to be made pursuant to a conversion or
continuation under Section 2.10) not being made after notice of such Loan shall
have been given by the Borrowers hereunder (any of the events referred to in
this clause (a) being called a "BREAKAGE EVENT") or (b) any default in the
making of any payment or prepayment required to be made hereunder. In the case
of any Breakage Event, such loss shall include an amount equal to the excess, as
reasonably determined by such Lender, of (i) its cost of obtaining funds for the
Eurodollar Loan that is the subject of such Breakage Event for the period from
the date of such Breakage Event to the last day of the Interest Period in effect
(or that would have been in effect) for such Loan over (ii) the amount of
interest likely to be realized by such Lender in redeploying the funds released
or not utilized by reason of such Breakage Event for such period. A certificate
of any Lender setting forth any amount or amounts which such Lender is entitled
to receive pursuant to this Section 2.16 shall be delivered to the Borrowers and
shall be conclusive absent manifest error.
SECTION 2.17. PRO RATA TREATMENT. Except as required under
Sections 2.11(d), 2.13(j) and 2.15, each Borrowing, each payment or prepayment
of principal of any Borrowing, each payment of interest on the Loans, each
payment of the Commitment Fees, each reduction of the Revolving Credit
Commitments or Term Loan Commitments and each conversion of any Borrowing to or
continuation of any Borrowing as a Borrowing of any Type shall be allocated pro
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52
rata among the Lenders in accordance with their respective applicable
Commitments (or, if such applicable Commitments shall have expired or been
terminated, in accordance with the respective principal amounts of their
outstanding Loans). Each Lender agrees that in computing such Lender's portion
of any Borrowing to be made hereunder, the Administrative Agent may, in its
discretion, round each Lender's percentage of such Borrowing to the next higher
or lower whole dollar amount.
SECTION 2.18. SHARING OF SETOFFS. Each Lender agrees that if it
shall, through the exercise of a right of banker's lien, setoff or counterclaim
against the Borrowers or any other Loan Party, 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, obtain payment (voluntary or involuntary) in
respect of any Loan or Loans or L/C Disbursement as a result of which the unpaid
principal portion of its Revolving Loans and Term Loans and participations in
L/C Disbursements shall be proportionately less than the unpaid principal
portion of the Revolving Loans and Term Loans and participations in
L/C Disbursements of any other Lender, it shall be deemed simultaneously to have
purchased from such other Lender at face value, and shall promptly pay to such
other Lender the purchase price for, a participation in the Revolving Loans and
Term Loans and L/C Exposure, as the case may be, of such other Lender, so that
the aggregate unpaid principal amount of the Revolving Loans and Term Loans and
L/C Exposure and participations in Revolving Loans and Term Loans and
L/C Exposure held by each Lender shall be in the same proportion to the
aggregate unpaid principal amount of all Revolving Loans and Term Loans and
L/C Exposure then outstanding as the principal amount of its Revolving Loans and
Term Loans and L/C Exposure prior to such exercise of banker's lien, setoff or
counterclaim or other event was to the principal amount of all Revolving Loans
and Term Loans and L/C Exposure outstanding prior to such exercise of banker's
lien, setoff or counterclaim or other event; PROVIDED, HOWEVER, that if any such
purchase or purchases or adjustments shall be made pursuant to this Section 2.18
and the payment giving rise thereto shall thereafter be recovered, such purchase
or purchases or adjustments shall be rescinded to the extent of such recovery
and the purchase price or prices or adjustment restored without interest. The
Borrowers expressly consent to the foregoing arrangements and agree that any
Lender holding a participation in a Revolving Loan and Term Loan or
L/C Disbursement deemed to have been so purchased may exercise any and all
rights of banker's lien, setoff or counterclaim with respect to any and all
moneys owing by the Borrowers to such Lender by reason thereof as fully as if
such Lender had made a Loan directly to the Borrowers in the amount of such
participation.
SECTION 2.19. PAYMENTS. (a) The Borrowers shall make each payment
(including principal of or interest on any Borrowing or any L/C Disbursement or
any Fees or other amounts) hereunder and under any other Loan Document not later
than 12:00 (noon), New York City time, on the date when due in immediately
available dollars, without setoff, defense or counterclaim. Each such payment
(other than Issuing Bank Fees, which shall be paid directly to the respective
Issuing Banks, and other than payments pursuant to Sections 2.14, 2.16, 2.20 and
9.05, which shall be made to the persons entitled thereto) shall be made to the
Administrative Agent at its offices at One Chase Manhattan Plaza, 8th Floor,
New York, New York 10081.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder or under any other Loan
Document shall become due, or
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53
otherwise would occur, on a day that is not a Business Day, such payment may
be made on the next succeeding Business Day, and such extension of time shall
in such case be included in the computation of interest or Fees, if
applicable.
SECTION 2.20. TAXES. (a) Any and all payments by or on behalf of
the Borrowers or any Loan Party hereunder and under any other Loan Document
shall be made, in accordance with Section 2.19, free and clear of and without
deduction for any and all current or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding
(i) income taxes imposed on the net income of the Administrative Agent, any
Lender or either Issuing Bank (or any permitted assignee thereof, (any such
entity a "Transferee")) and (ii) franchise taxes imposed on the net income of
the Administrative Agent, any Lender or an Issuing Bank (or Transferee), in each
case by the jurisdiction under the laws of which the Administrative Agent, such
Lender or an Issuing Bank (or Transferee) is organized or any political
subdivision thereof (all such nonexcluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities, collectively or individually, being
called "Taxes"). If the Borrowers or any Loan Party shall be required to deduct
any Taxes from or in respect of any sum payable hereunder or under any other
Loan Document to the Administrative Agent, any Lender or an Issuing Bank (or any
Transferee), (i) the sum payable shall be increased by the amount (an
"additional amount") necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this
Section 2.20) the Administrative Agent, such Lender or an Issuing Bank (or
Transferee), as the case may be, shall receive an amount equal to the sum it
would have received had no such deductions been made, (ii) the Borrowers or such
Loan Party shall make such deductions and (iii) the Borrowers or such Loan Party
shall pay the full amount deducted to the relevant Governmental Authority in
accordance with applicable law.
(b) In addition, the Borrowers agree to pay to the relevant
Governmental Authority in accordance with applicable law any current or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made hereunder or under any other
Loan Document or from the execution, delivery or registration of, or otherwise
with respect to, this Agreement or any other Loan Document ("Other Taxes").
(c) The Borrowers shall indemnify the Administrative Agent, each
Lender and each Issuing Bank (or Transferee) for the full amount of Taxes and
Other Taxes paid by the Administrative Agent, such Lender or such Issuing Bank
(or Transferee), as the case may be, and any liability (including penalties,
interest and expenses (including reasonable attorney's fees and expenses))
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted by the relevant Governmental Authority.
A certificate as to the amount of such payment or liability prepared by the
Administrative Agent, a Lender or an Issuing Bank (or Transferee), or the
Administrative Agent on its behalf and accompanied by a copy of any relevant
notices received from a Governmental Authority and any return or form prepared
or filed by the Administrative Agent, a Lender or an Issuing Bank (or
Transferee) in connection with such payment or liability, absent manifest error,
shall be conclusive for all purposes. Such indemnification shall be made within
30 days after the date the Administrative Agent, any Lender or any Issuing Bank
(or Transferee), as the case may be, makes written demand therefor.
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54
(d) As soon as practicable after the date of any payment of Taxes or
Other Taxes by the Borrowers or any other Loan Party to the relevant
Governmental Authority, the Borrowers or such other Loan Party will deliver to
the Administrative Agent, at its address referred to in Section 9.01, the
original or a certified copy of a receipt issued by such Governmental Authority
evidencing payment thereof.
(e) Each Lender (or Transferee) that is organized under the laws of a
jurisdiction other than the United States, any State thereof or the District of
Columbia (a "Non-U.S. Lender") shall deliver to the Parent Borrower and the
Administrative Agent two copies of either United States Internal Revenue Service
Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption
from U.S. Federal withholding tax 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 Borrowers and is not a
controlled foreign corporation related to the Borrowers (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 reduced rate of, U.S.
Federal withholding tax on payments by the Borrowers under this Agreement and
the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender
on or before the date it becomes a party to this Agreement and on or before the
date, if any, such Non-U.S. Lender changes its applicable lending office by
designating a different lending office (a "New Lending Office"). In addition,
each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or
invalidity of any form previously delivered by such Non-U.S. Lender.
Notwithstanding any other provision of this Section 2.20(e), a Non-U.S. Lender
shall not be required to deliver any form pursuant to this Section 2.20(e) that
such Non-U.S. Lender is not legally able to deliver.
(f) The Borrowers shall not be required to indemnify any Non-U.S.
Lender or to pay any additional amounts to any Non-U.S. Lender, in respect of
United States Federal withholding tax pursuant to paragraph (a) or (c) above to
the extent that (i) the obligation to withhold amounts with respect to United
States Federal withholding tax existed on the date such Non-U.S. Lender became a
party to this Agreement or, with respect to payments to a New Lending Office,
the date such Non-U.S. Lender designated such New Lending Office with respect to
a Loan or a Letter of Credit; provided, however, that this paragraph (f) shall
not apply (x) to any Transferee or New Lending Office that becomes a Transferee
or New Lending Office as a result of an assignment, transfer or designation made
at the request of the Borrowers and (y) to the extent the indemnity payment or
additional amounts any Transferee, or any Lender (or Transferee), acting through
a New Lending Office, would be entitled to receive (without regard to this
paragraph (f)) do not exceed the indemnity payment or additional amounts that
the person making the assignment, or transfer to such Transferee, or Lender (or
Transferee) making the designation of such New Lending Office, would have been
entitled to receive in the absence of such assignment, transfer or designation
or (ii) the obligation to pay such additional amounts would not have arisen but
for a failure by such Non-U.S. Lender to comply with the provisions of
paragraph (e) above.
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55
(g) Nothing contained in this Section 2.20 shall require any Lender
or Issuing Bank (or any Transferee) or the Administrative Agent to make
available any of its tax returns (or any other information that it deems to be
confidential or proprietary).
SECTION 2.21. ASSIGNMENT OF COMMITMENTS UNDER CERTAIN CIRCUMSTANCES;
DUTY TO MITIGATE. (a) If (i) any Lender delivers a certificate requesting
compensation pursuant to Section 2.14, (ii) any Lender delivers a notice
described in Section 2.15 or (iii) the Borrowers are required to pay any
additional amount to any Lender or any Governmental Authority on account of any
Lender pursuant to Section 2.20, the Borrowers may, at their sole expense and
effort (including with respect to the processing and recordation fee referred to
in Section 9.04(b)), upon notice to such Lender and the Administrative Agent,
require such Lender or Issuing Bank to transfer and assign, without recourse (in
accordance with and subject to the restrictions contained in Section 9.04), all
of its interests, rights and obligations under this Agreement to an assignee
that shall assume such assigned obligations (which assignee may be another
Lender, if a Lender accepts such assignment), provided that (x) such assignment
shall not conflict with any law, rule or regulation or order of any court or
other Governmental Authority having jurisdiction, (y) the Borrowers shall have
received the prior written consent of the Administrative Agent (and, if a
Revolving Credit Commitment is being assigned, of each Issuing Bank), which
consent shall not unreasonably be withheld, and (z) the Borrowers or such
assignee shall have paid to the affected Lender in immediately available funds
an amount equal to the sum of the principal of and interest accrued to the date
of such payment on the outstanding Loans or L/C Disbursements of such Lender,
respectively, plus all Fees and other amounts accrued for the account of such
Lender hereunder (including any amounts under Section 2.14 and Section 2.16),
and PROVIDED FURTHER that, if prior to any such transfer and assignment the
circumstances or event that resulted in such Lender's claim for compensation
under Section 2.14 or notice under Section 2.15 or the amounts paid pursuant to
Section 2.20, as the case may be, cease to cause such Lender to suffer increased
costs or reductions in amounts received or receivable or reduction in return on
capital, or cease to have the consequences specified in Section 2.15, or cease
to result in amounts being payable under Section 2.20, as the case may be
(including as a result of any action taken by such Lender pursuant to
paragraph (b) below), or if such Lender shall waive its right to claim further
compensation under Section 2.14 in respect of such circumstances or event or
shall withdraw its notice under Section 2.15 or shall waive its right to further
payments under Section 2.20 in respect of such circumstances or event, as the
case may be, then such Lender shall not thereafter be required to make any such
transfer and assignment hereunder.
(b) If (i) any Lender shall request compensation under Section 2.14,
(ii) any Lender delivers a notice described in Section 2.15 or (iii) the
Borrowers are required to pay any additional amount to any Lender or any
Governmental Authority on account of any Lender, pursuant to Section 2.20, then
such Lender shall use reasonable efforts (which shall not require such Lender to
incur an unreimbursed loss or unreimbursed cost or expense or otherwise take any
action inconsistent with its internal policies or legal or regulatory
restrictions or suffer any disadvantage or burden deemed by it to be
significant) (x) to file any certificate or document (including any document
contesting the imposition of any such amount or requesting a refund of such
amount by any relevant Governmental Authority) reasonably requested in writing
by the Borrowers or (y) to assign its rights and delegate and transfer its
obligations hereunder to another of its offices, branches or affiliates, if such
filing or assignment would reduce its claims for compensation under
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Section 2.14 or enable it to withdraw its notice pursuant to Section 2.15 or
would reduce amounts payable pursuant to Section 2.20, as the case may be, in
the future. The Borrowers hereby agree to pay all reasonable costs and
expenses incurred by any Lender in connection with any such filing or
assignment, delegation and transfer. Any Lender receiving any refund or
rebate of any amounts paid by a Borrower pursuant to Section 2.20 shall
promptly pay the same to the applicable Borrower.
SECTION 2.22. LETTERS OF CREDIT. (a) General. Any Borrower may
request the issuance by any Issuing Bank of a Letter of Credit for such
Borrower's own account, in a form reasonably acceptable to the Administrative
Agent and such Issuing Bank, at any time and from time to time while the
Revolving Credit Commitments remain in effect. This Section shall not be
construed to impose an obligation upon any Issuing Bank to issue any Letter of
Credit that is inconsistent with the terms and conditions of this Agreement.
(b) NOTICE OF ISSUANCE, AMENDMENT, RENEWAL, EXTENSION; CERTAIN
CONDITIONS. In order to request the issuance of a Letter of Credit (or to
amend, renew or extend an existing Letter of Credit), any Borrower or any
Guarantor shall hand deliver or telecopy to an Issuing Bank and the
Administrative Agent (reasonably in advance of the requested date of issuance,
amendment, renewal or extension) a notice requesting the issuance of a Letter of
Credit, or identifying the Letter of Credit to be amended, renewed or extended,
the date of issuance, amendment, renewal or extension, the date on which such
Letter of Credit is to expire (which shall comply with paragraph (c) below), the
face amount of such Letter of Credit (which amount shall not be subject to any
minimum amount or multiple amount requirements hereunder), the name and address
of the beneficiary thereof and such other information as shall be necessary to
prepare such Letter of Credit. Following receipt of such notice and prior to
the issuance of the requested Letter of Credit or the applicable amendment,
renewal or extension, the Administrative Agent shall notify the Borrowers and
the applicable Issuing Bank of the amount of the Aggregate Credit Exposure after
giving effect to (i) the issuance, amendment, renewal or extension of such
Letter of Credit, (ii) the issuance or expiration of each other Letter of Credit
that is to be issued or will expire on or prior to the requested date of
issuance of such Letter of Credit and (iii) the borrowing or repayment of any
Revolving Loans that (based upon notices delivered to the Administrative Agent
by the Borrowers) are to be borrowed or repaid on or prior to the requested date
of issuance of such Letter of Credit. A Letter of Credit shall be issued,
amended, renewed or extended only if, and upon issuance, amendment, renewal or
extension of each Letter of Credit the Borrowers shall be deemed to represent
and warrant that, after giving effect to such issuance, amendment, renewal or
extension (A) the L/C Exposure shall not exceed $75,000,000 and (B) the
Aggregate Credit Exposure shall not exceed the Total Revolving Credit
Commitment.
(c) EXPIRATION DATE. Each Letter of Credit shall expire at the close
of business on the earlier of (i) the date one year after the date of the
issuance of such Letter of Credit and (ii) the date that is five Business Days
prior to the Revolving Credit Maturity Date, unless such Letter of Credit
expires by its terms on an earlier date.
(d) PARTICIPATIONS. By the issuance of a Letter of Credit and
without any further action on the part of the applicable Issuing Bank or the
Revolving Credit Lenders, the Issuing Bank in respect of such Letter of Credit
hereby grants to each Revolving Credit Lender, and each such Lender hereby
acquires from such Issuing Bank, a participation in such Letter of Credit equal
to such Lender's Pro Rata
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57
Percentage of the aggregate amount available to be drawn under such Letter of
Credit, effective upon the issuance of such Letter of Credit. In
consideration and in furtherance of the foregoing, each Revolving Credit
Lender hereby absolutely and unconditionally agrees to pay to the
Administrative Agent, for the account of such Issuing Bank, such Lender's Pro
Rata Percentage of each L/C Disbursement made by such Issuing Bank and not
reimbursed by the Borrowers (or, if applicable, another party pursuant to its
obligations under any other Loan Document) forthwith on the date due as
provided in Section 2.02(f). Each Revolving Credit Lender acknowledges and
agrees that its obligation to acquire participations pursuant to this
paragraph in respect of Letters of Credit is absolute and unconditional and
shall not be affected by any circumstance whatsoever, including the
occurrence and continuance of a Default or an Event of Default, and that each
such payment shall be made without any offset, abatement, withholding or
reduction whatsoever.
(e) REIMBURSEMENT. If an Issuing Bank shall make any L/C
Disbursement in respect of a Letter of Credit, the Borrowers shall pay to the
Administrative Agent an amount equal to such L/C Disbursement not later than
2:00 p.m. on the day the Borrowers shall have received notice from such Issuing
Bank that payment of such draft will be made, or, if the Borrowers shall have
received such notice later than 10:00 a.m., New York City time, on any Business
Day, not later than 10:00 a.m., New York City time, on the immediately following
Business Day.
(f) OBLIGATIONS ABSOLUTE. The Borrowers' obligations to reimburse
L/C Disbursements as provided in paragraph (e) above shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement, under any and all circumstances whatsoever,
and irrespective of:
(i) any lack of validity or enforceability of any Letter of Credit or
any Loan Document, or any term or provision therein;
(ii) any amendment or waiver of or any consent to departure from all
or any of the provisions of any Letter of Credit or any Loan Document;
(iii) the existence of any claim, setoff, defense or other right that
the Borrowers, any other party guaranteeing, or otherwise obligated with,
the Borrowers, any Subsidiary or other Affiliate thereof or any other
person may at any time have against the beneficiary under any Letter of
Credit, either Issuing Bank, the Administrative Agent or any Lender or any
other person, whether in connection with this Agreement, any other Loan
Document or any other related or unrelated agreement or transaction;
(iv) any draft or other document presented under a Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any respect;
(v) payment by an Issuing Bank under a Letter of Credit against
presentation of a draft or other document that does not comply with the
terms of such Letter of Credit; and
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(vi) any other act or omission to act or delay of any kind of either
Issuing Bank, the Lenders, the Administrative Agent or any other person or
any other event or circumstance whatsoever, whether or not similar to any
of the foregoing, that might, but for the provisions of this Section,
constitute a legal or equitable discharge of the Borrowers' obligations
hereunder.
Without limiting the generality of the foregoing, it is expressly
understood and agreed that the absolute and unconditional obligation of the
Borrowers hereunder to reimburse L/C Disbursements will not be excused by the
gross negligence or willful misconduct of either Issuing Bank. However, the
foregoing shall not be construed to excuse an Issuing Bank from liability to the
Borrowers to the extent of any direct damages (as opposed to consequential
damages, claims in respect of which are hereby waived by the Borrowers to the
extent permitted by applicable law) suffered by the Borrowers that are caused by
such Issuing Bank's gross negligence or willful misconduct in determining
whether drafts and other documents presented under a Letter of Credit comply
with the terms thereof; it is understood that an Issuing Bank may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary
and, in making any payment under any Letter of Credit (i) an Issuing Bank's
exclusive reliance on the documents presented to it under such Letter of Credit
as to any and all matters set forth therein, including reliance on the amount of
any draft presented under such Letter of Credit, whether or not the amount due
to the beneficiary thereunder equals the amount of such draft and whether or not
any document presented pursuant to such Letter of Credit proves to be
insufficient in any respect, if such document on its face appears to be in
order, and whether or not any other statement or any other document presented
pursuant to such Letter of Credit proves to be forged or invalid or any
statement therein proves to be inaccurate or untrue in any respect whatsoever
and (ii) any noncompliance in any immaterial respect of the documents presented
under such Letter of Credit with the terms thereof shall, in each case, be
deemed not to constitute willful misconduct or gross negligence of such Issuing
Bank.
(g) DISBURSEMENT PROCEDURES. An Issuing Bank shall, promptly
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. Such Issuing Bank shall as
promptly as possible give telephonic notification, confirmed by telecopy, to the
Administrative Agent and the Borrowers of such demand for payment and whether
such Issuing Bank has made or will make an L/C Disbursement thereunder (it being
understood that such notice shall not be required if prior to any
L/C Disbursement the Borrowers have made available to the applicable Issuing
Bank funds sufficient to reimburse such Issuing Bank for such L/C Disbursement),
provided that any failure to give or delay in giving such notice shall not
relieve the Borrowers of their obligation to reimburse such Issuing Bank and the
Revolving Credit Lenders with respect to any such L/C Disbursement. The
Administrative Agent shall promptly give each Revolving Credit Lender notice
thereof.
(h) INTERIM INTEREST. If on any date an Issuing Bank shall make any
L/C Disbursement in respect of a Letter of Credit, then, unless the Borrowers
shall reimburse such L/C Disbursement in full on such date, the unpaid amount
thereof shall bear interest for the account of such Issuing Bank, for each day
from and including the date of such L/C Disbursement, to but excluding the
earlier of the date of payment by the Borrowers or the date on which interest
shall commence to accrue thereon as provided in Section 2.02(f), at the rate per
annum that would apply to such amount if such amount were an ABR Loan.
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(i) RESIGNATION OR REMOVAL OF AN ISSUING BANK. An Issuing Bank may
resign at any time by giving 180 days prior written notice to the Administrative
Agent, the Lenders and the Borrowers, and may be removed at any time by the
Borrowers by notice to such Issuing Bank, the Administrative Agent and the
Lenders. Subject to the last sentence of this paragraph (i), upon the
acceptance of any appointment as an Issuing Bank hereunder by a Lender that
shall agree to serve as a successor Issuing Bank, such successor shall succeed
to and become vested with all the interests, rights and obligations of the
retiring Issuing Bank and the retiring Issuing Bank shall be discharged from its
obligations to issue additional Letters of Credit hereunder. At the time such
removal or resignation shall become effective, the Borrowers shall pay all
accrued and unpaid fees due to the retiring Issuing Bank pursuant to
Section 2.05(c)(ii). The acceptance of any appointment as an Issuing Bank
hereunder by a successor Lender shall be subject to approval, unless an Event of
Default has occurred and is continuing, by the Parent Borrower (which approval
shall not be unreasonably withheld) and shall be evidenced by an agreement
entered into by such successor, in a form satisfactory to the Borrowers and the
Administrative Agent, and, from and after the effective date of such agreement,
(i) such successor Lender shall have all the rights and obligations of the
previous Issuing Bank under this Agreement and the other Loan Documents and
(ii) references herein and in the other Loan Documents to the term "Issuing
Bank" shall be deemed to include such successor or any previous Issuing Bank, or
to such successor and all previous Issuing Banks, as the context shall require.
After the resignation or removal of an Issuing Bank hereunder, the retiring
Issuing Bank shall remain a party hereto and shall continue to have all the
rights and obligations of an Issuing Bank under this Agreement and the other
Loan Documents with respect to Letters of Credit issued by it prior to such
resignation or removal, but shall not be required to issue additional Letters of
Credit.
(j) CASH COLLATERALIZATION. If (i) any Event of Default shall occur
and be continuing or (ii) the Total Revolving Credit Commitment is less than the
L/C Exposure, the Borrowers shall, on the Business Day they receive notice from
the Administrative Agent or the Required Lenders thereof and of the amount to be
deposited, deposit in an account with the Collateral Agent, for the benefit of
the Revolving Credit Lenders, an amount in cash equal to the L/C Exposure as of
such date. Such deposit shall be held by the Collateral Agent as collateral for
the payment and performance of the Obligations. The Collateral Agent shall have
exclusive dominion and control, including the exclusive right of withdrawal,
over such account. Other than any interest earned on the investment of such
deposits in Permitted Investments, which investments shall be made by the
Collateral Agent and selected in its sole discretion, such deposits shall not
bear interest. Interest or profits, if any, on such investments shall
accumulate in such account. Moneys in such account shall (i) automatically be
applied by the Administrative Agent to reimburse the Issuing Banks for
L/C Disbursements for which they have not been reimbursed, (ii) be held for the
satisfaction of the reimbursement obligations of the Borrowers for the
L/C Exposure at such time and (iii) if the maturity of the Loans has been
accelerated (but, subject to the consent of Revolving Credit Lenders holding
participations in outstanding Letters of Credit representing greater than 50% of
the aggregate undrawn amount of all outstanding Letters of Credit), be applied
to satisfy the Obligations. If the Borrowers are required to provide an amount
of cash collateral hereunder as a result of the occurrence of an Event of
Default, such amount (to the extent not applied as aforesaid) shall be returned
to the Borrowers within three Business Days after all Events of Default have
been cured or waived. If the Borrowers are required to provide an amount of
cash collateral hereunder pursuant to Section 2.13(h), such amount shall be
returned to the Borrowers from time to time to the extent that the amount of
such cash collateral held by the Collateral Agent exceeds the excess, if any, of
the aggregate L/C Exposure over the Total Revolving Credit Commitment, provided
that such return shall not be required at any time that an Event of Default has
occurred and is continuing.
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SECTION 2.23. ADDITIONAL BORROWERS. The parties hereto agree that
wholly owned Domestic Subsidiary Guarantors that are not Borrowers as of the
Closing Date may enter into and become a party to this Agreement by executing a
New Borrower Agreement. Upon execution and delivery after the date hereof by
the Administrative Agent, the Collateral Agent and such a Domestic Subsidiary
Guarantor of a New Borrower Agreement, such Domestic Subsidiary Guarantor shall
become a Borrower hereunder with the same force and effect as if originally
named as a Borrower herein. The Parent Borrower may terminate any Subsidiary
Borrower's interests, rights and obligations under this Agreement by executing
and delivering to the Administrative Agent a Subsidiary Borrower Termination
with respect to such Subsidiary, whereupon such Subsidiary shall cease to be a
Subsidiary Borrower and a party to this Agreement (but such Subsidiary shall not
cease to be a Guarantor hereunder for so long as it shall remain a Subsidiary,
except as otherwise provided in the Guarantee Agreement). Notwithstanding the
preceding sentence, no Subsidiary Borrower Termination will become effective as
to any Subsidiary Borrower at a time when any principal of or interest on any
Revolving Loan to such Subsidiary Borrower shall be outstanding hereunder,
provided that such Subsidiary Borrower Termination shall be effective to
terminate such Subsidiary Borrower's right to make further Borrowings under this
Agreement unless and until such Subsidiary executes subsequent to such
termination a New Borrower Agreement. The execution and delivery of a New
Borrower Agreement or a Subsidiary Borrower Termination shall not require the
consent of any other Borrower hereunder. The rights and obligations of each
Borrower hereunder shall remain in full force and effect notwithstanding the
addition of any new Borrower or termination of any Borrower as a party to this
Agreement.
ARTICLE III
Representations and Warranties
Each of the Borrowers represents and warrants to the Administrative
Agent, the Issuing Banks and each of the Lenders that:
SECTION 3.01. ORGANIZATION; POWERS. Each of the Borrowers and the
Subsidiaries (a) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, (b) has all requisite
power and authority to own its property and assets and to carry on its
business as now conducted and as proposed to be conducted, including after
giving effect to the Transaction Documents, (c) is qualified to do business
in, and is in good standing in, every jurisdiction where such qualification
is required, except where the failure so to qualify could not reasonably be
expected to result in a Material Adverse Effect, and (d) has the
organizational power and authority to execute, deliver and perform its
obligations under each of the Loan Documents and
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Transaction Documents and each other agreement or instrument contemplated
hereby to which it is or will be a party and, in the case of the Borrowers, to
borrow hereunder.
SECTION 3.02. AUTHORIZATION. The execution, delivery and performance
by each Loan Party of each of the Loan Documents and Transaction Documents to
which it is a party, the borrowings hereunder and the Transactions (a) have been
duly authorized by all requisite organizational and, if required, stockholder
action and (b) will not (i) violate (A) in any material respect any provision of
law, statute, rule or regulation (including any Health Care Law), or any
provision of the certificate or articles of incorporation or other constitutive
documents or by-laws of the Borrowers or any Subsidiary, (B) any order of any
Governmental Authority or (C) any provision of any indenture, agreement or other
instrument to which the Borrowers or any Subsidiary is a party or by which any
of them or any of their property is or may be bound, (ii) be in conflict with,
result in a breach of or constitute (alone or with notice or lapse of time or
both) a default under, or give rise to any right to accelerate or to require the
prepayment, repurchase or redemption of any obligation under any such indenture,
agreement or other instrument, or (iii) result in the creation or imposition of
any Lien upon or with respect to any property or assets now owned or hereafter
acquired by the Borrowers or any Subsidiary (other than any Lien created
hereunder or under the Security Documents).
SECTION 3.03. ENFORCEABILITY. This Agreement has been duly executed
and delivered by the Borrowers and constitutes, and each other Loan Document
when executed and delivered by each Loan Party thereto will constitute, a legal,
valid and binding obligation of such Loan Party enforceable against such Loan
Party in accordance with its terms.
SECTION 3.04. GOVERNMENTAL APPROVALS. No action, consent or approval
of, registration or filing with or any other action by any Governmental
Authority is or will be required in connection with the Transactions, except for
(a) the filing of Uniform Commercial Code financing statements and filings with
the United States Patent and Trademark Office and the United States Copyright
Office, (b) such as have been made or obtained and are in full force and effect
and (c) such other filings as are set forth on Schedule 3.04 that the Borrowers
reasonably expect to be made within six months following the Closing Date.
SECTION 3.05. FINANCIAL STATEMENTS. (a) The Parent Borrower has
heretofore furnished to the Lenders its consolidated balance sheets and
statements of operations and cash flows and changes in stockholders' equity as
of and for the fiscal year ended September 30, 1997, audited by and accompanied
by the opinion of Arthur Anderson LLP, independent public accountants. Such
financial statements present fairly in all material respects the financial
condition and results of operations and cash flows of the Parent Borrower and
its consolidated Subsidiaries as of such dates and for such periods. Such
balance sheets and the notes thereto disclose all material liabilities, direct
or contingent, of the Parent Borrower and its consolidated Subsidiaries as of
the dates thereof. Such financial statements were prepared in accordance with
GAAP applied on a consistent basis.
(b) The Parent Borrower has heretofore delivered to the Lenders its
unaudited pro forma consolidated balance sheet as of November 30, 1997, prepared
giving effect to the Transactions as if they had occurred on such date. Such
pro forma balance sheet has been prepared in good faith by the Parent Borrower,
based on the assumptions used to prepare the pro forma
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financial information contained in the Confidential Information Memorandum
(which assumptions are believed by the Parent Borrower on the date hereof and
on the Closing Date to be reasonable), is based on the best information
available to the Parent Borrower as of the date of delivery thereof,
accurately reflects in all material respects all adjustments required on a
pro forma basis to be made to give effect to the Transactions and presents
fairly in all material respects on a pro forma basis the estimated
consolidated financial position of the Parent Borrower and its consolidated
Subsidiaries as of November 30, 1997, assuming that the Transactions had
actually occurred at November 30, 1997.
SECTION 3.06. NO MATERIAL ADVERSE CHANGE. There has been no material
adverse change in the operations, business, financial condition or results of
operations of the Parent Borrower, Merit and their respective subsidiaries,
taken as a whole, since June 30, 1997, except (a) in the case of the initial
Credit Event, for such changes or effects resulting directly or primarily from
(i) the announcement or other disclosure or consummation of the transactions
contemplated by the Merger Agreement (including the breach, termination,
cancelation or non-renewal by any customers of any customer contracts primarily
as a result of such announcement, disclosure or consummation) or (ii) general
economic conditions, and (b) as disclosed by either Merit or the Parent Borrower
in its Annual Report on Form 10-K filed with the Securities and Exchange
Commission for its fiscal year ended September 30, 1997.
SECTION 3.07. TITLE TO PROPERTIES; POSSESSION UNDER LEASES.
(a) Each of the Borrowers and the Subsidiaries has good and marketable title
to, or valid leasehold interests in, all its material properties and assets,
except for minor defects in title that do not interfere with its ability to
conduct its business as currently conducted or to utilize such properties and
assets for their intended purposes. All such material properties and assets are
free and clear of Liens, other than Liens expressly permitted by Section 6.02.
(b) Each of the Borrowers and the Subsidiaries has complied with all
material obligations under all leases to which it is a party and that are
material to the Borrowers and the Subsidiaries taken as a whole and all such
leases are in full force and effect. Each of the Borrowers and the Subsidiaries
enjoys peaceful and undisturbed possession under all such material leases in
which a Borrower or a Subsidiary is a lessee.
SECTION 3.08. SUBSIDIARIES. Schedule 3.08 sets forth as of the
Closing Date a list of all Subsidiaries and the percentage ownership interest,
direct or indirect, of the Parent Borrower therein. The shares of capital stock
or other ownership interests so indicated on Schedule 3.08 are fully paid and
non-assessable and are owned by the Parent Borrower, directly or indirectly,
free and clear of all Liens, except Liens under the Loan Documents.
SECTION 3.09. LITIGATION; COMPLIANCE WITH LAWS. (a) Except as set
forth on Schedule 3.09, there are not any actions, suits or proceedings at law
or in equity or by or before any Governmental Authority now pending or, to the
knowledge of the Parent Borrower, threatened against or affecting any Borrower
or any Subsidiary or any business, property or rights of any such person
(i) that involve any Loan Document or the Transactions or (ii) as to which there
is a reasonable probability of an adverse determination and that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Effect.
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(b) None of the Borrowers or any of the Subsidiaries or any of their
respective material properties or assets is in violation of, nor will the
continued operation of their material properties and assets as currently
conducted (or as proposed to be conducted pursuant to the Transaction Documents)
violate, any law, rule or regulation (including any Health Care Law or
Environmental Law), or is in default with respect to any judgment, writ,
injunction, decree or order of any Governmental Authority, where such violation
or default could reasonably be expected to result in a Material Adverse Effect.
SECTION 3.10. AGREEMENTS. (a) None of the Borrowers or any of the
Subsidiaries is a party to any agreement or instrument or subject to any
organizational restriction that has resulted or could reasonably be expected to
result in a Material Adverse Effect.
(b)(i) None of the Borrowers or any of the Subsidiaries is in default
in any manner under any provision of any indenture or other agreement or
instrument evidencing Indebtedness, or any other material agreement or
instrument (including any Transaction Document or, prior to any Permitted CBHS
Sale, the Operating Agreement or the Franchise Agreement) to which it is a party
or by which it or any of its properties or assets are or may be bound and (ii)
prior to any Permitted CBHS Sale, CBHS is not in default in any manner under any
provision of the Lease, in each case where such default could reasonably be
expected to result in a Material Adverse Effect.
SECTION 3.11. FEDERAL RESERVE REGULATIONS. (a) None of the
Borrowers or any of the Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
buying or carrying Margin Stock.
(b) No part of the proceeds of any Loan or any Letter of Credit will
be used, whether directly or indirectly, and whether immediately, incidentally
or ultimately, for any purpose that entails a violation of, or that is
inconsistent with, the provisions of the Regulations of the Board, including
Regulation G, T, U or X.
SECTION 3.12. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY
ACT. Neither any Borrower nor any Subsidiary is (a) an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of 1940
or (b) a "holding company" as defined in, or subject to regulation under, the
Public Utility Holding Company Act of 1935.
SECTION 3.13. USE OF PROCEEDS. The Borrowers will use the proceeds
of the Loans and will request the issuance of Letters of Credit only for the
purposes specified in the preamble to this Agreement.
SECTION 3.14. TAX RETURNS. Each of the Borrowers and the
Subsidiaries has filed or caused to be filed all Federal and state income tax
returns and all other material tax returns or materials required to have been
filed by it and has paid or caused to be paid all material taxes due and payable
by it and all assessments received by it, except taxes that are being contested
in good faith by appropriate proceedings and for which such Borrower or such
Subsidiary, as applicable, shall have set aside on its books adequate reserves.
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SECTION 3.15. NO MATERIAL MISSTATEMENTS. None of (a) the
Confidential Information Memorandum, (b) the Parent Borrower Debt Tender
Materials or the Merit Debt Tender Materials or (c) any other information,
report, financial statement, exhibit or schedule furnished by or on behalf of
the Parent Borrower to the Administrative Agent or any Lender in connection with
the negotiation of any Loan Document or included therein or delivered pursuant
thereto contained, contains or will contain any material misstatement of fact or
omitted, omits or will omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were, are
or will be made, not misleading, provided that to the extent any such
information, report, financial statement, exhibit or schedule was based upon or
constitutes a forecast or projection, the Parent Borrower represents only that
it acted in good faith and utilized reasonable assumptions and due care in the
preparation of such information, report, financial statement, exhibit or
schedule.
SECTION 3.16. EMPLOYEE BENEFIT PLANS. Each of the Borrowers and its
ERISA Affiliates is in compliance in all material respects with the applicable
provisions of ERISA and the Code and the regulations and published
interpretations thereunder. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events,
could reasonably be expected to result in material liability of the Borrowers or
any of its ERISA Affiliates. The present value of all benefit liabilities under
each Plan (based on those assumptions used to fund such Plan) did not, as of the
last annual valuation date applicable thereto, exceed by more than $2,000,000
the fair market value of the assets of such Plan, and the present value of all
benefit liabilities of all underfunded Plans (based on those assumptions used to
fund each such Plan) did not, as of the last annual valuation dates applicable
thereto, exceed by more than $7,500,000 the fair market value of the assets of
all such underfunded Plans.
SECTION 3.17. ENVIRONMENTAL MATTERS. Except as set forth in
Schedule 3.17:
(a) The properties owned or operated by the Borrowers and the
Subsidiaries (the "Properties") do not contain any Hazardous Materials in
amounts or concentrations which (i) constitute, or constituted a violation of,
(ii) require Remedial Action under, or (iii) could give rise to liability under,
Environmental Laws, which violations, Remedial Actions and liabilities, in the
aggregate, could result in a Material Adverse Effect;
(b) The Properties and all operations of the Borrowers and the
Subsidiaries are in compliance, and in the last three years have been in
compliance, with all Environmental Laws and all necessary Environmental Permits
have been obtained and are in effect, except to the extent that such
non-compliance or failure to obtain any necessary permits, in the aggregate,
could not result in a Material Adverse Effect;
(c) There have been no Releases or threatened Releases at, from,
under or proximate to the Properties or otherwise in connection with the
operations of the Borrowers or the Subsidiaries, which Releases or threatened
Releases, in the aggregate, could result in a Material Adverse Effect;
(d) Neither the Borrowers nor any of the Subsidiaries has received
any notice of an Environmental Claim in connection with the Properties or the
operations of the Borrowers or the
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Subsidiaries or with regard to any person whose liabilities for environmental
matters any of the Borrowers or the Subsidiaries has retained or assumed, in
whole or in part, contractually, by operation of law or otherwise, which, in
the aggregate, could result in a Material Adverse Effect, nor do the
Borrowers or the Subsidiaries have reason to believe that any such notice
will be received or is being threatened; and
(e) Hazardous Materials have not been transported from the
Properties, nor have Hazardous Materials been generated, treated, stored or
disposed of at, on or under any of the Properties in a manner that could give
rise to liability under any Environmental Law, nor have the Borrowers or the
Subsidiaries retained or assumed any liability, contractually, by operation of
law or otherwise, with respect to the generation, treatment, storage or disposal
of Hazardous Materials, which transportation, generation, treatment, storage or
disposal, or retained or assumed liabilities, in the aggregate, could result in
a Material Adverse Effect.
SECTION 3.18. INSURANCE. Schedule 3.18 sets forth a true, complete
and correct description of all insurance maintained by the Borrowers or by the
Borrowers for their Subsidiaries as of the date hereof and the Closing Date. As
of each such date, such insurance is in full force and effect and all premiums
have been duly paid. The Parent Borrower and the Subsidiaries have insurance in
such amounts and covering such risks and liabilities as are in accordance with
normal industry practice.
SECTION 3.19. SECURITY DOCUMENTS. (a) The Pledge Agreement is
effective to create in favor of the Collateral Agent, for the ratable benefit of
the Secured Parties, a legal, valid and enforceable security interest in the
Collateral (as defined in the Pledge Agreement) and, when the Collateral is
delivered to the Collateral Agent, the Pledge Agreement shall constitute a fully
perfected first priority Lien on, and security interest in, all right, title and
interest of the pledgors thereunder in such Collateral, in each case prior and
superior in right to any other person.
(b) The Security Agreement is effective to create in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid
and enforceable security interest in the Collateral (as defined in the Security
Agreement) and, when financing statements in appropriate form are filed in the
offices specified on Schedule 6 to the Perfection Certificate, the Security
Agreement shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the grantors thereunder in such Collateral in
which a security interest may be perfected by filing such financing statements
(other than the Intellectual Property, as defined in the Security Agreement), in
each case prior and superior in right to any other person, other than with
respect to Liens expressly permitted by Section 6.02.
(c) When the Security Agreement is filed in the United States Patent
and Trademark Office and the United States Copyright Office, the Security
Agreement shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the grantors thereunder in the Intellectual
Property (as defined in the Security Agreement), in each case prior and superior
in right to any other person (it being understood that subsequent recordings in
the United States Patent and Trademark Office and the United States Copyright
Office may be necessary to perfect a lien on registered trademarks, trademark
applications and copyrights acquired by the grantors after the date hereof).
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(d) The Collateral Assignment is effective to create in favor of the
Collateral Agent for the ratable benefit of the Secured Parties, a legal, valid
and enforceable security interest in the Collateral (as defined in the
Collateral Assignment) and, when financing statements in appropriate form are
filed in appropriate filing offices, the Collateral Assignment shall constitute
a fully perfected Lien on, and security interest in, all right, title and
interest of the Parent Borrower in such Collateral in which a security interest
may be perfected by filing such financing statements, in each case prior and
superior in right to any other person, other than with respect to Liens
expressly permitted by Section 6.02.
SECTION 3.20. LABOR MATTERS. As of the date hereof and the Closing
Date, there are no strikes, lockouts or slowdowns against any Borrower or any
Subsidiary pending or, to the knowledge of any Borrower, threatened. The hours
worked by and payments made to employees of the Borrowers and the Subsidiaries
have not been in violation in any material respect of the Fair Labor Standards
Act or any other applicable Federal, state, local or foreign law dealing with
such matters. All payments due from any Borrower or any Subsidiary, or for
which any claim may be made against any Borrower or any Subsidiary, on account
of wages and employee health and welfare insurance and other benefits, have in
all material respects been paid or accrued as a liability on the books of such
Borrower or such Subsidiary. The consummation of the Transactions will not give
rise to any right of termination or right of renegotiation on the part of any
union under any collective bargaining agreement to which any Borrower or any
Subsidiary is bound.
SECTION 3.21. SOLVENCY. Immediately after the consummation of the
Transactions to occur on the Closing Date and the making of each Loan on the
Closing Date and after giving effect to the application of the proceeds of such
Loans and the rights of indemnity, contribution and subrogation of the Loan
Parties, (i) the fair value of the assets of the Loan Parties will exceed their
debts and liabilities, subordinated, contingent or otherwise; (ii) the present
fair saleable value of the property of the Loan Parties will be greater than the
amount that will be required to pay the probable liability of their debts and
other liabilities, subordinated, contingent or otherwise, as such debts and
other liabilities become absolute and matured; (iii) the Loan Parties will be
able to pay their debts and liabilities, subordinated, contingent or otherwise,
as such debts and liabilities become absolute and matured; and (iv) the Loan
Parties will not have unreasonably small capital with which to conduct the
business in which they are engaged as such businesses are now conducted and are
proposed to be conducted following the Closing Date.
ARTICLE IV
Conditions
The obligations of the Lenders to make Loans and of the Issuing Banks
to issue Letters of Credit hereunder are subject to the satisfaction of the
following conditions:
SECTION 4.01. FIRST CREDIT EVENT. On the Closing Date:
(a) The Administrative Agent shall have received, on behalf of
itself, the Lenders and the Issuing Banks, a favorable written opinion of
(i) King & Spalding, counsel for the
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Borrowers, substantially to the effect
set forth in Exhibit I-1 and (ii) each foreign counsel listed on
Schedule 4.01(a), substantially to the effect set forth in Exhibit I-2, in
each case (A) dated the Closing Date, (B) addressed to the Issuing Banks,
the Administrative Agent and the Lenders, and (C) covering such other
matters relating to the Loan Documents, the Transaction Documents and the
Transactions as the Administrative Agent shall reasonably request, and the
Borrowers hereby request such counsel to deliver such opinions.
(b) All legal matters incident to this Agreement, the Borrowings and
extensions of credit hereunder and the other Loan Documents and the
Transaction Documents shall be satisfactory to the Lenders, to the Issuing
Banks and to Cravath, Swaine & Moore, counsel for the Administrative Agent.
(c) The Administrative Agent shall have received (i) a copy of the
certificate or articles of incorporation, including all amendments thereto,
of each Loan Party, certified as of a recent date by the Secretary of State
of the state of its organization, and a certificate as to the good standing
of each Loan Party as of a recent date, from such Secretary of State;
(ii) a certificate of the Secretary or Assistant Secretary of each Loan
Party dated the Closing Date and certifying (A) that attached thereto is a
true and complete copy of the by-laws of such Loan Party as in effect on
the Closing Date and at all times since a date prior to the date of the
resolutions described in clause (B) below, (B) that attached thereto is a
true and complete copy of resolutions duly adopted by the Board of
Directors of such Loan Party authorizing the execution, delivery and
performance of the Loan Documents and the Transaction Documents to which
such person is a party and, in the case of the Borrowers, the borrowings
hereunder, and that such resolutions have not been modified, rescinded or
amended and are in full force and effect, (C) that the certificate or
articles of incorporation of such Loan Party have not been amended since
the date of the last amendment thereto shown on the certificate of good
standing furnished pursuant to clause (i) above, and (D) as to the
incumbency and specimen signature of each officer executing any Loan
Document or Transaction Document or any other document delivered in
connection herewith on behalf of such Loan Party; (iii) a certificate of
another officer as to the incumbency and specimen signature of the
Secretary or Assistant Secretary executing the certificate pursuant to (ii)
above; and (iv) such other documents as the Lenders, the Issuing Banks or
Cravath, Swaine & Moore, counsel for the Administrative Agent, may
reasonably request.
(d) The Administrative Agent shall have received a certificate, dated
the Closing Date and signed by a Financial Officer of the Parent Borrower,
confirming compliance with the conditions precedent set forth in
paragraphs (b) and (c) of Section 4.02.
(e) The Administrative Agent shall have received all Fees and other
amounts due and payable on or prior to the Closing Date, including, to the
extent invoiced, reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by the Borrowers hereunder or under any
other Loan Document.
(f) The Pledge Agreement shall have been duly executed by the parties
thereto and delivered to the Collateral Agent and shall be in full force
and effect, and each of the Borrowers and the Guarantors shall have duly
and validly pledged thereunder all the
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Pledged Securities (as defined in
the Pledge Agreement) to the Collateral Agent for the ratable benefit of
the Secured Parties and certificates representing such Pledged Securities,
accompanied by instruments of transfer and stock powers endorsed in blank,
shall be in the actual possession of the Collateral Agent, provided, that
(i) neither the Parent Borrower nor any Domestic Subsidiary Guarantor shall
be required to pledge any capital stock of Societe Anonyme De La Metairie
or more than 65% of the capital stock of any other Foreign Subsidiary and
(ii) no Foreign Subsidiary shall be required to pledge the capital stock of
any of its Foreign Subsidiaries.
(g) The Security Agreement shall have been duly executed by the Loan
Parties and shall have been delivered to the Collateral Agent and shall be
in full force and effect on such date and each document (including each
Uniform Commercial Code financing statement) required by law or reasonably
requested by the Administrative Agent to be filed, registered or recorded
in order to create in favor of the Collateral Agent for the benefit of the
Secured Parties a valid, legal and perfected first-priority security
interest in and lien on the Collateral (subject to any Lien expressly
permitted by Section 6.02 and to the lack of perfection or priority with
respect to any such Collateral owned by an Excluded Loan Party (as defined
in paragraph (i) below)) described in such agreement shall have been
delivered to the Collateral Agent.
(h) The Collateral Assignment shall have been duly executed by the
Parent Borrower and shall have been delivered to the Collateral Agent and
shall be in full force and effect on such date and each document (including
each Uniform Commercial Code financing statement) required by law or
reasonably requested by the Administrative Agent to be filed, registered or
recorded in order to create in favor of the Collateral Agent for the
benefit of the Secured Parties a valid, legal and perfected first-priority
security interest in and lien on the Collateral (subject to any Lien
expressly permitted by Section 6.02) described in such agreement shall have
been delivered to the Collateral Agent.
(i) The Collateral Agent shall have received the results of a search
of the Uniform Commercial Code filings (or equivalent filings) made with
respect to the Loan Parties (other than any Loan Party (an "Excluded Loan
Party") that has total assets (excluding assets comprised of intercompany
loans and advances that are represented by notes that have been pledged to
the Collateral Agent) as of the Closing Date not in excess of $100,000,
provided that the total assets (excluding assets comprised of intercompany
loans and advances that are represented by notes that have been pledged to
the Collateral Agent ) as of the Closing Date of all Loan Parties as to
which searches will not be required pursuant to this parenthetical and
perfection of the Collateral Agent's security interest in property thereof
will not be required under paragraph (g) above shall not exceed $5,000,000)
in the states (or other jurisdictions) in which the chief executive office
of each such person is located and the other jurisdictions in which Uniform
Commercial Code filings (or equivalent filings) are to be made pursuant to
the preceding paragraph, together with copies of the financing statements
(or similar documents) disclosed by such search, and accompanied by
evidence satisfactory to the Collateral Agent that the Liens indicated in
any such financing statement (or similar document) would be permitted under
Section 6.02 or have been released or
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documents providing for the release
of such financing statements (or similar documents) have been delivered to
the Collateral Agent.
(j) The Guarantee Agreement shall have been duly executed by each
Guarantor, shall have been delivered to the Collateral Agent and shall be
in full force and effect.
(k) The Indemnity, Subrogation and Contribution Agreement shall have
been duly executed by each Loan Party, shall have been delivered to the
Collateral Agent and shall be in full force and effect.
(l) The Collateral Agent shall have received a Perfection Certificate
with respect to the Loan Parties dated the Closing Date and duly executed
by a Responsible Officer of the Parent Borrower.
(m) The Transactions shall have been consummated or shall be
consummated simultaneously with the first Credit Event in accordance with
applicable law and in accordance with the Transaction Documents (without
giving effect to any material amendment or waiver of any condition set
forth in the Transaction Documents not approved by the Lenders).
(n) The Parent Borrower shall have received gross cash proceeds of
not less than $625,000,000 (less the initial purchaser's discount) from the
issuance of the Subordinated Notes, the material terms of which shall be
reasonably satisfactory to the Administrative Agent (the Administrative
Agent having approved those terms and conditions set forth in Exhibit B to
the letter agreement between the Parent Borrower and the Administrative
Agent dated October 24, 1997).
(o) The Parent Borrower Debt Tender Offer and the Merit Debt Tender
Offer shall have been completed in accordance with their respective terms
(it being understood that all amendments and/or supplements to the Merit
Debt Tender Materials dated January 12, 1998, and the Parent Borrower Debt
Tender Materials dated January 12, 1998, shall be reasonably acceptable to
the Administrative Agent).
(p) After giving effect to the Transactions, the Borrowers and the
Subsidiaries (including Merit and its subsidiaries) shall have outstanding
no Indebtedness or preferred stock other than (i) the Loans hereunder,
(ii) any Existing Parent Borrower Notes not repurchased or redeemed
pursuant to the Parent Borrower Debt Tender Offer, (iii) any Existing Merit
Notes not repurchased or redeemed pursuant to the Merit Debt Tender Offer,
(iv) the Subordinated Notes and (v) the Indebtedness set forth on
Schedule 6.01 or otherwise permitted pursuant to Section 6.01.
(q) Each of the Transaction Documents shall have been executed and
delivered by the parties thereto and shall be in full force and effect, in
each case, in form and substance satisfactory to the Administrative Agent
(the Administrative Agent having approved the form of the Merger
Agreement).
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(r) After giving effect to the Transactions, there shall not be in
effect (i) any violation by the Borrowers or the Subsidiaries of any
applicable law, statute, rule or regulation or (ii) any conflict with, or
default or event of default by the Borrowers or any of the Subsidiaries
under, any agreement of the Borrowers or any of the Subsidiaries (in each
case other than any such violations, conflicts, defaults or events of
default that, individually or in the aggregate, would not be reasonably
likely to result in a material adverse effect on the operations, business,
financial condition or results of operations of the Parent Borrower, Merit
and their respective subsidiaries, taken as a whole (except for such
changes or effects resulting directly or primarily from (A) the
announcement or other disclosure or consummation of the transactions
contemplated by the Merger Agreement (including the breach, termination,
cancelation or non-renewal by any customers of any customer contracts
primarily as a result of such announcement, disclosure or consummation) or
(B) general economic conditions), or on the rights, remedies and benefits
available to the Lenders under the Loan Documents.
(s) All consents and approvals required to be obtained from any
Governmental Authority for the consummation of the Transactions shall have
been obtained and all applicable waiting and appeal periods (including
waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of
1976) shall have expired or been terminated.
(t) There shall be no litigation or administrative proceeding or any
other legal or regulatory development, actual or threatened, that (i) would
be reasonably likely to result in a material adverse effect on the
operations, business, financial condition or results of operations of the
Parent Borrower, Merit and their respective subsidiaries, taken as a whole,
or on the rights, remedies and benefits available to the Lenders under the
Loan Documents, or (ii) would be reasonably likely to result in any
material restriction or limitation or impose any burdensome conditions on
the Transactions.
(u) (i) The Parent Borrower shall have caused the Conversion to occur
or (ii) the Green Spring Stockholder Approval shall have been received, in
each case as contemplated by Section 5.14 hereof.
SECTION 4.02. ALL CREDIT EVENTS. On the date of each Borrowing,
including on the date of each issuance of a Letter of Credit (each such event
being called a "Credit Event"):
(a) The Administrative Agent shall have received a Borrowing Request
as required by Section 2.03 (or such notice shall have been deemed given in
accordance with Section 2.03) or, in the case of the issuance of a Letter
of Credit, the applicable Issuing Bank and the Administrative Agent shall
have received a notice requesting the issuance of such Letter of Credit as
required by Section 2.22(b).
(b) Except in the case of a Borrowing that does not increase the
aggregate principal amount of Loans outstanding of any Lender, the
representations and warranties set forth in Article III shall be true and
correct in all material respects on and as of the date of such Credit Event
with the same effect as though made on and as of such date, except to the
extent such representations and warranties expressly relate to an earlier
date.
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(c) Each Borrower and each other Loan Party shall be in compliance
with all the terms and provisions set forth herein and in each other Loan
Document on its part to be observed or performed, and at the time of and
immediately after such Credit Event, no Event of Default or Default shall
have occurred and be continuing.
Each Credit Event shall be deemed to constitute a representation and
warranty by each Borrower on the date of such Credit Event as to the matters
specified in paragraphs (b) (except as aforesaid) and (c) of this Section 4.02.
SECTION 4.03. NEW SUBSIDIARY BORROWER CREDIT EVENT. On the date of
the first Borrowing by any Subsidiary Borrower that was not a Subsidiary
Borrower on the Closing Date:
(a) The Administrative Agent (or its counsel) shall have received
(either at such time or in connection with the initial borrowing hereunder)
from each party thereto either (i) a counterpart of the applicable New
Borrower Agreement or (ii) written evidence satisfactory to the
Administrative Agent (which may include telecopy transmission of a signed
signature page thereof) that such party has signed a counterpart of such
New Borrower Agreement.
(b) The Administrative Agent shall have received such documents
(including legal opinions) and certificates as the Administrative Agent or
its counsel may reasonably request relating to the organization,
incumbency, existence and good standing of such Subsidiary Borrower and the
authorization of the transactions relating to such Subsidiary Borrower and
any other legal matters relating to such Subsidiary Borrower and the
applicable New Borrower Agreement, all in form and substance satisfactory
to the Administrative Agent and its counsel.
ARTICLE V
Affirmative Covenants
Each Borrower covenants and agrees with each Lender that so long as
this Agreement shall remain in effect and until the Commitments have been
terminated and the principal of and interest on each Loan, all Fees and all
other expenses or amounts payable under any Loan Document shall have been paid
in full and all Letters of Credit have been canceled or have expired and all
amounts drawn thereunder have been reimbursed in full, unless the Required
Lenders shall otherwise consent in writing, the Borrowers will, and will cause
each of the Subsidiaries (unless otherwise set forth below) to:
SECTION 5.01. EXISTENCE; BUSINESSES AND PROPERTIES. (a) Do or cause
to be done all things necessary to preserve, renew and keep in full force and
effect its legal existence, except as otherwise expressly permitted under
Section 6.05.
(b) Do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents,
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copyrights, trademarks and trade names material to the conduct of its
business; comply in all material respects with all applicable laws, rules,
regulations (including any Health Care Law or Environmental Law) and decrees
and orders of any Governmental Authority, whether now in effect or hereafter
enacted; and at all times maintain and preserve all property material to the
conduct of such business and keep such property in good repair, working order
and condition and from time to time make, or cause to be made, all needful
and proper repairs, renewals, additions, improvements and replacements
thereto necessary in order that the business carried on in connection
therewith may be properly conducted at all times.
SECTION 5.02. INSURANCE. (a) Keep its insurable properties
adequately insured at all times by financially sound and reputable insurers;
maintain such other insurance, to such extent and against such risks, including
fire and other risks insured against by extended coverage, as is customary with
companies in the same or similar businesses operating in the same or similar
locations, including public liability insurance against claims for personal
injury or death or property damage occurring upon, in, about or in connection
with the use of any properties owned, occupied or controlled by it; and maintain
such other insurance as may be required by law.
(b) Cause all policies of casualty insurance to be endorsed or
otherwise amended to include a "standard" or "New York" lender's loss payable
endorsement, in form and substance satisfactory to the Administrative Agent and
the Collateral Agent, which endorsement shall provide that, from and after the
Closing Date, if the insurance carrier shall have received written notice from
the Administrative Agent or the Collateral Agent of the occurrence of an Event
of Default, the insurance carrier shall pay all proceeds otherwise payable to
the Borrowers or the Loan Parties under such policies directly to the Collateral
Agent; cause all such policies to provide that none of the Borrowers, the
Administrative Agent, the Collateral Agent or any other party shall be a
coinsurer thereunder and to contain a "Replacement Cost Endorsement" (for at
least 85% of replacement cost), without any deduction for depreciation, and such
other provisions as the Administrative Agent or the Collateral Agent may
reasonably require from time to time to protect their interests; deliver
original or certified copies of all such policies to the Collateral Agent; cause
each such policy to provide that it shall not be canceled, modified or not
renewed (i) by reason of nonpayment of premium upon less than 10 days' prior
written notice thereof by the insurer to the Administrative Agent and the
Collateral Agent (giving the Administrative Agent and the Collateral Agent the
right to cure defaults in the payment of premiums) or (ii) for any other reason
upon less than 30 days' prior written notice thereof by the insurer to the
Administrative Agent and the Collateral Agent; deliver to the Administrative
Agent and the Collateral Agent, prior to the cancelation, modification or
nonrenewal of any such policy of insurance, a copy of a renewal or replacement
policy (or other evidence of renewal of a policy previously delivered to the
Administrative Agent and the Collateral Agent) together with evidence
satisfactory to the Administrative Agent and the Collateral Agent of payment of
the premium therefor.
SECTION 5.03. OBLIGATIONS AND TAXES. Pay its Indebtedness and other
obligations promptly and in accordance with their terms and pay and discharge
promptly when due all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or in respect of its property,
before the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise that, if unpaid, might
give rise to a Lien upon such properties or any part thereof (other than where
failure to so do could not be reasonably
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73
expected to have a Material Adverse Effect); PROVIDED, HOWEVER, that such
payment and discharge shall not be required with respect to any such tax,
assessment, charge, levy or claim so long as the validity or amount thereof
shall be contested in good faith by appropriate proceedings and such Borrower
or such Subsidiary shall have set aside on its books adequate reserves with
respect thereto in accordance with GAAP and such contest operates to suspend
collection of the contested obligation, tax, assessment or charge and
enforcement of a Lien.
SECTION 5.04. FINANCIAL STATEMENTS, REPORTS, ETC. In the case of the
Parent Borrower, furnish to the Administrative Agent and each Lender:
(a) within five Business Days after any filing of its annual report
on Form 10-K with the Securities and Exchange Commission (but in no event
later than 120 days after the end of each fiscal year), (i) its audited
consolidated balance sheet and related audited consolidated statements of
operations, changes in stockholders' equity and cash flows, in the case of
the audited balance sheet and statements, audited by Arthur Andersen LLP or
any other "Big 6" accounting firm and accompanied by an opinion of such
accountants (which shall not be qualified in any material respect) to the
effect that such consolidated financial statements fairly present in all
material respects the financial condition, results of operations, changes
in stockholders' equity and cash flows of the Parent Borrower and its
consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied; and (ii) an unaudited consolidated balance sheet and
statement of operations for Green Spring, Merit, Human Affairs
International, Incorporated, National Mentor, Inc. and such other material
Subsidiaries as are reasonably requested by the Administrative Agent;
(b) within five Business Days after any filing of its quarterly
report on Form 10-Q with the Securities and Exchange Commission (but in no
event later than 60 days after the end of each of the first three fiscal
quarters of each fiscal year), commencing with the report for the fiscal
quarter ending June 30, 1998, (i) its unaudited consolidated balance sheet
and related statements of operations and cash flows showing the financial
condition of the Parent Borrower and its consolidated Subsidiaries, all
certified by one of its Financial Officers as fairly presenting in all
material respects the financial condition and results of operations of the
Parent Borrower and its consolidated Subsidiaries on a consolidated basis,
in accordance with GAAP, applied on a basis consistent with the application
of GAAP to the Parent Borrower's most recent financial statements delivered
pursuant to Section 5.04(a), subject to normal year-end audit adjustments,
the absence of notes that are not required by GAAP and the condensed
presentation permitted by Form 10-Q of the forms promulgated under the
Securities Exchange Act of 1934, and (ii) a consolidated balance sheet and
statement of operations of Green Spring, Merit, Human Affairs
International, Incorporated, National Mentor, Inc. and such other material
Subsidiaries as are reasonably requested by the Administrative Agent
showing the financial condition of Green Spring, Merit, Human Affairs
International, Incorporated, National Mentor, Inc. and such other material
Subsidiaries as are reasonably requested by the Administrative Agent, in
the cases of (i) and (ii) of this paragraph as of the close of such fiscal
quarter and the results of its operations during such fiscal quarter and
the then elapsed portion of the fiscal year;
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(c) within 30 days after the end of each month (other than the last
month of any fiscal quarter), commencing with the month ending April 30,
1998, its unaudited consolidated balance sheet and related statements of
income and cash flows, showing the consolidated financial condition of the
Parent Borrower and its consolidated Subsidiaries, in all cases as of the
close of such month and the consolidated results of its operations and cash
flows during such month and the then-elapsed portion of the fiscal year;
(d) concurrently with any delivery of financial statements under
paragraph (a) or (b) above with respect to any fiscal period ending on or
after June 30, 1998, a certificate of the accounting firm or Financial
Officer opining on or certifying such statements (which certificate, when
furnished by an accounting firm, may be limited to accounting matters and
disclaim responsibility for legal interpretations) (i) certifying that no
Event of Default or Default has occurred or, if such an Event of Default or
Default has occurred, specifying the nature and extent thereof and any
corrective action taken or proposed to be taken with respect thereto and
(ii) setting forth computations in reasonable detail satisfactory to the
Administrative Agent demonstrating compliance with the covenants contained
in Sections 6.10, 6.11, 6.12, 6.13 and 6.14 (it being understood that
nothing herein requires such computation to be prepared by an accounting
firm), provided that if the accounting firm and other independent certified
public accountants of recognized national standing are prohibited by
applicable industry guidelines from delivering such certificates, the
Parent Borrower shall no longer be required to cause the delivery of such
certificate;
(e) not later than the date financial statements are delivered
pursuant to Section 5.04(a) and (b), a report in form and substance
satisfactory to the Administrative Agent, of (i) all Permitted Acquisitions
consummated during such quarter, which shall include the total
consideration for each such Permitted Acquisition (including a breakdown of
any Indebtedness permitted under Section 6.01(d)) from the Closing Date
through the end of such quarter; (ii) the aggregate sales price of assets
sold or disposed of pursuant to each transaction that constitutes an Asset
Sale permitted hereunder from the Closing Date through the end of such
fiscal quarter and a schedule that identifies each such sale or
disposition; (iii) all Permitted Debt Repurchases and Permitted Stock
Repurchases, which shall include the amount of securities purchased
pursuant thereto, from the Closing Date through the end of such quarter;
(iv) all Permitted Non-Guarantor Transactions and all Permitted Non-Control
Investments, which shall (A) include the value of such Transactions and
Investments completed during the period from the Closing Date through the
end of such quarter and (B) in the case of Permitted Non-Control
Investments, describe the management structure of the entity into which
such investment is made; and (v) all Specified Entities, which shall
include (A) the total assets of each of the Specified Entities, (B) the
Acquired Entity EBITDA of each Specified Acquired Entity and (C) the
aggregate amount of cash distributed by each Specified Entity to the Parent
Borrower or any of the Subsidiaries, in each case, calculated as of the
last day of the most recent quarter for which financial statements have
been delivered pursuant to Section 5.04(a) or (b);
(f) promptly after the same become publicly available, copies of all
periodic and other reports (including the Parent Borrower's quarterly
report on Form 10-Q for the fiscal quarter ending December 31, 1997), proxy
statements and other materials (except for
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registration statements on
Form S-8) filed by any Borrower or any Subsidiary with the Securities and
Exchange Commission, or any Governmental Authority succeeding to any or all
of the functions of said Commission, or with any national securities
exchange, or distributed to its stockholders, as the case may be;
(g) promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of any Borrower or any
Subsidiary, or compliance with the terms of any Loan Document, as the
Administrative Agent or any Lender may reasonably request; and
(h) within five Business Days after their availability (but in no
event later than the beginning of the third month of each fiscal year), a
copy of the budget for its consolidated statements of income and cash flows
for each fiscal year, with a certificate signed by a Financial Officer
certifying that such budget has been prepared in good faith.
SECTION 5.05. LITIGATION AND OTHER NOTICES. Furnish to the
Administrative Agent prompt written notice of the following:
(a) (i) any Event of Default or Default or (ii) prior to any
Permitted CBHS Sale, any Franchise Non-Payment Event that continues uncured
for a period of three Business Days, in each case specifying the nature and
extent thereof and the corrective action (if any) taken or proposed to be
taken with respect thereto;
(b) prior to any Permitted CBHS Sale, the termination of the Lease or
the Franchise Agreement;
(c) prior to any Permitted CBHS Sale, the failure of CBHS to pay any
scheduled rent under the Lease within three Business Days after the same
has become due;
(d) the filing or commencement of, or any threat or notice of
intention of any person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any Governmental
Authority, against any Borrower or any Affiliate thereof that could
reasonably be expected to result in a Material Adverse Effect; and
(e) any development (including any developments related to any Health
Care Law) that has resulted in, or could reasonably be expected to result
in, a Material Adverse Effect.
SECTION 5.06. EMPLOYEE BENEFITS. (a) Comply in all material
respects with the applicable provisions of ERISA and the Code relating to
employee benefits and (b) furnish to the Administrative Agent (i) as soon as
possible after, and in any event within 10 days after any Responsible Officer of
any Borrower or any ERISA Affiliate knows or has reason to know that, any ERISA
Event has occurred that, alone or together with any other ERISA Event, could
reasonably be expected to have a Material Adverse Effect.
SECTION 5.07. MAINTAINING RECORDS; ACCESS TO PROPERTIES AND
INSPECTIONS. Keep proper books of record and account in which in all material
respects full, true and correct entries in
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conformity with GAAP and all requirements of law are made of all dealings and
transactions in relation to its business and activities. Each Loan Party
will, and will cause each of its Subsidiaries to, permit any representatives
designated by the Administrative Agent or any Lender to visit and inspect the
financial records and the properties of any Borrower or any Subsidiary at
reasonable times and as often as reasonably requested of the Parent Borrower
and to make extracts from and copies of such financial records, and permit
any representatives designated by the Administrative Agent or any Lender to
discuss after reasonable notice to the Parent Borrower the affairs, finances
and condition of any Borrower or any Subsidiary with the officers thereof and
independent accountants therefor, provided that all such visits and
inspections shall be subject to health, safety and patient confidentiality
procedures regularly enforced by the Subsidiaries that provide patient care.
SECTION 5.08. USE OF PROCEEDS. Use the proceeds of the Loans and
request the issuance of Letters of Credit only for the purposes set forth in the
preamble to this Agreement.
SECTION 5.09. COMPLIANCE WITH ENVIRONMENTAL LAWS. Comply, and cause
all lessees and other persons occupying its Properties to comply, in all
material respects with all Environmental Laws and Environmental Permits
applicable to its operations and Properties; obtain and renew all material
Environmental Permits necessary for its operations and Properties; and conduct
any Remedial Action in accordance with Environmental Laws.
SECTION 5.10. PREPARATION OF ENVIRONMENTAL REPORTS. If a Default
caused by reason of a breach of Section 3.17 or 5.09 shall have occurred and be
continuing, at the request of the Required Lenders through the Administrative
Agent, provide to the Lenders within 45 days after such request, at the expense
of the Borrowers, an environmental site assessment report for the Properties
which are the subject of such Default prepared by an environmental consulting
firm acceptable to the Administrative Agent and indicating the presence or
absence of Hazardous Materials and the estimated cost of any compliance or
Remedial Action in connection with such Properties.
SECTION 5.11. FURTHER ASSURANCES. Execute any and all further
documents, financing statements, agreements and instruments, and take all
further action (including filing Uniform Commercial Code and other financing
statements) that may be required under applicable law, or that the Required
Lenders, the Administrative Agent or the Collateral Agent may reasonably
request, in order to effectuate the transactions contemplated by the Loan
Documents and in order to grant, preserve, protect and perfect the validity and
first priority of the security interests created or intended to be created by
the Security Documents. The Borrowers will (except in the case of a Specified
Newly Formed Subsidiary and except as provided in the proviso to
Section 6.05(d)) cause any subsequently acquired or organized wholly owned
Domestic Subsidiary (other than any wholly owned Subsidiary that has total
assets not in excess of $500,000 (an "Inactive Subsidiary")) or any wholly owned
Domestic Subsidiary upon ceasing to be an Inactive Subsidiary to become a party
to the Guarantee Agreement, Indemnity, Subrogation and Contribution Agreement
and each applicable Security Document in the manner provided therein. In
addition, from time to time, the Borrowers and the Guarantors will (except as
provided in the proviso to Section 6.05(d)), at their cost and expense, promptly
secure the Obligations by pledging or creating, or causing to be pledged or
created, perfected security interests with respect to assets acquired subsequent
to the Closing Date as required by any Security Document; PROVIDED, HOWEVER,
that the Borrowers and the Guarantors
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will not be required to comply with the provisions of this sentence with
respect to the capital stock of any Specified Joint Venture or any Specified
Newly Formed Subsidiary if compliance with the provisions of this sentence
with respect to such capital stock would violate applicable law, regulation,
rule, order, approval, license or other restriction issued or imposed by any
Governmental Authority. Such security interests and Liens will be created
under the Security Documents and other security agreements and other
instruments and documents in form and substance satisfactory to the
Collateral Agent, and the Borrowers shall deliver or cause to be delivered to
the Lenders all such instruments and documents (including legal opinions and
lien searches) as the Collateral Agent shall reasonably request to evidence
compliance with this Section. Each Borrower agrees to provide such evidence
as the Collateral Agent shall reasonably request as to the perfection and
priority status of each such security interest and Lien.
SECTION 5.12. CONCENTRATION AND DISBURSEMENT ACCOUNTS. The Parent
Borrower shall maintain with a financial institution that is a Lender one or
more accounts to be used by the Parent Borrower as its principal concentration
and disbursement accounts in a manner and following procedures consistent with
past business practices.
SECTION 5.13. REMEDIES UNDER FRANCHISE AGREEMENT. Prior to any
Permitted CBHS Sale, in the event that a Material Franchise Non-Payment Event
shall have occurred and be continuing, the Parent Borrower shall, upon the
request of the Administrative Agent and the Required Lenders, exercise all
remedies under the Franchise Agreement (including Governance Remedies) that are
so requested and are available to the Parent Borrower under the Franchise
Agreement, provided that the Parent Borrower shall not be required to comply
with this Section 5.13 if at the time of such request (a) no Event of Default
(other than any Event of Default described in paragraphs (a), (e) or (m) of
Article VII hereof or any Event of Default described in paragraph (d) of
Article VII relating to provisions other than those contained in Article VI
hereof) shall have occurred and be continuing or (b) no Loans are outstanding
and there is no Aggregate Credit Exposure outstanding.
SECTION 5.14. GREEN SPRING CONVERSION. The Parent Borrower shall use
commercially reasonable efforts to cause the minority stockholders in Green
Spring to convert (the "Conversion") all of their equity interests in Green
Spring into common stock of the Parent Borrower, such that after giving effect
to the Conversion, Green Spring will be a wholly owned Subsidiary. In the event
that the Parent Borrower is not able to effect the Conversion on or prior to the
Closing Date, the Parent Borrower shall (a) on or prior to the Closing Date,
obtain from the stockholders of Green Spring the approval (the "GREEN SPRING
STOCKHOLDER APPROVAL") required to enable Green Spring to make loans to the
Parent Borrower and incur Indebtedness (including as a result of becoming a
Subsidiary Guarantor), in each case in any amount and without the further
approval of such minority stockholders, and (b) from and after the Closing Date,
use commercially reasonable efforts to effect the Conversion. The actions
referred to in this Section 5.14 are collectively referred to herein as the
"GREEN SPRING TRANSACTION."
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ARTICLE VI
Negative Covenants
Each Borrower covenants and agrees with each Lender that, so long as
this Agreement shall remain in effect and until the Commitments have been
terminated and the principal of and interest on each Loan, all Fees and all
other expenses or amounts payable under any Loan Document have been paid in full
and all Letters of Credit have been canceled or have expired and all amounts
drawn thereunder have been reimbursed in full, unless the Required Lenders shall
otherwise consent in writing, the Borrowers will not, and will not cause or
permit any of the Subsidiaries (other than the Subsidiary Non-Guarantors, except
with respect to Sections 6.01 and 6.09) to:
SECTION 6.01. INDEBTEDNESS. Incur, create, assume or permit to exist
any Indebtedness, except for Indebtedness satisfying one of the following
paragraphs:
(a) Indebtedness existing on the date hereof and set forth on
Schedule 6.01(a);
(b) Indebtedness created hereunder and under the other Loan Documents;
(c) unsecured Indebtedness of the Parent Borrower, provided that
(i) the aggregate amount of scheduled principal payments in respect of such
Indebtedness, without duplication, that can be due on a date that is on or
prior to the Tranche C Maturity Date cannot exceed $25,000,000; (ii) such
Indebtedness contains covenants (including financial and negative
covenants) and events of default that are no more restrictive in any
material respect than the analogous covenants and events of default
contained in this Agreement; and (iii) on the date that any such
Indebtedness is incurred and immediately after giving effect thereto, no
Default or Event of Default shall have occurred and be continuing;
(d) unsecured Indebtedness (i) assumed by the Parent Borrower or any
Subsidiary in connection with a Permitted Acquisition made after the date
hereof or (ii) of any Subsidiary acquired after the date hereof pursuant to
a Permitted Acquisition, which Indebtedness, in each case, exists at the
time of such Permitted Acquisition and is not created in contemplation of
such Permitted Acquisition, provided that the aggregate principal amount of
such Indebtedness, without duplication, for all the Subsidiaries (together
with any Refinancing Indebtedness incurred to refinance such Indebtedness)
shall not exceed $25,000,000 at any time outstanding;
(e) unsecured Indebtedness of any Subsidiary in an aggregate principal
amount (for all the Subsidiaries) not to exceed $10,000,000 at any time
outstanding, provided that (i) the aggregate amount of scheduled principal
payments in respect of such Indebtedness that can be due on a date that is
on or prior to the Tranche C Maturity Date cannot exceed $5,000,000,
(ii) such Indebtedness contains covenants (including financial and negative
covenants) and events of default that are no more restrictive in any
material respect than the analogous covenants and events of default
contained in this Agreement; and (iii) on the date that any such
Indebtedness is incurred and immediately after giving effect thereto, no
Default or Event of Default shall have occurred and be continuing, and
PROVIDED FURTHER that
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the aggregate principal amount of such Indebtedness
plus the aggregate principal amount of Indebtedness of the Subsidiaries
permitted under clause (d)(ii) above shall not exceed $25,000,000 at any
time outstanding;
(f) secured Indebtedness of the Parent Borrower or any Subsidiary
(including purchase money Indebtedness) in an aggregate principal amount
(for the Parent Borrower and all the Subsidiaries) not to exceed
$10,000,000 at any time outstanding, provided that (i) such Indebtedness
contains covenants (including financial and negative covenants) and events
of default that are no more restrictive in any material respect than the
analogous covenants and events of default contained in this Agreement;
(ii) on the date that any such Indebtedness is incurred and immediately
after giving effect thereto, no Default or Event of Default shall exist and
be continuing; and (iii) the aggregate principal amount of such
Indebtedness shall not exceed the fair market value of the assets and
property securing such Indebtedness (as determined in good faith by a
Financial Officer of the Parent Borrower at the time of incurrence);
(g) Guarantees in respect of Indebtedness permitted pursuant to this
Section 6.01 (except that Guarantees by the Parent Borrower and the
Guarantors of Indebtedness of Controlled Non-Guarantor Entities shall be
limited to Permitted Non-Guarantor Transactions);
(h) Indebtedness of the Parent Borrower, any wholly owned Subsidiary
or any Guarantor to any other wholly owned Subsidiary, any other Guarantor
or the Parent Borrower, so long as such Indebtedness is subordinated to all
Indebtedness incurred pursuant hereto and pursuant to the Guarantee
Agreement and evidenced by a note pledged to the Collateral Agent for the
benefit of the Lenders to the extent required by the Pledge Agreement,
except where, in the case of a Specified Entity, the foregoing requirements
for subordination or being evidenced by a note pledged to the Collateral
Agent would violate any applicable law or any regulation, rule, order,
approval, license or other restriction issued or imposed by any
Governmental Authority;
(i) Indebtedness incurred pursuant to any sale and leaseback
transaction permitted by Section 6.03;
(j) Indebtedness incurred under any Interest Rate Protection
Agreement;
(k) Permitted Subordinated Indebtedness;
(l) Indebtedness incurred in connection with any Permitted
Non-Guarantor Transaction;
(m) Indebtedness secured by Liens permitted by Section 6.02(r);
(n) extensions, renewals or refinancings of Indebtedness under
paragraphs (a) and (d) so long as (i) such Indebtedness ("REFINANCING
INDEBTEDNESS") is in an aggregate principal amount not greater than the
aggregate principal amount of the Indebtedness being
<PAGE>
80
extended, renewed or
refinanced plus the amount of any premiums required to be paid thereon and
fees and expenses associated therewith, (ii) such Refinancing Indebtedness
has a later or equal final maturity and a longer or equal weighted average
life than the Indebtedness being extended, renewed or refinanced, (iii) the
interest rate applicable to such Refinancing Indebtedness shall be a market
interest rate (as determined in good faith by a Financial Officer of the
Parent Borrower) as of the time of such extension, renewal or refinancing,
(iv) if the Indebtedness being extended, renewed or refinanced is
subordinated to the Obligations, such Refinancing Indebtedness is
subordinated to the Obligations to the same extent as the Indebtedness
being extended, renewed or refinanced, (v) each of the covenants, events of
default or other provisions thereof (including any Guarantees thereof)
shall be substantially no less favorable to the Lenders than those
contained in the Indebtedness being refinanced and (vi) at the time and
after giving effect to such extension, renewal or refinancing, no Default
or Event of Default shall have occurred and be continuing;
(o) Indebtedness in respect of bankers' acceptances, letters of
credit, warehouse receipts or similar extensions of credit, in each case
entered into in the ordinary course of business, in an aggregate amount at
any time not in excess of $5,000,000; and
(p) Indebtedness of the Parent Borrower and any of the Subsidiaries
arising from their obligation to purchase minimum amounts of behavioral
health care services at market rates pursuant to preferred provider
arrangements with CBHS and any Affiliates of CBHS (provided that, for
purposes of the foregoing, the Parent Borrower and the Subsidiaries shall
not be considered Affiliates of CBHS) .
SECTION 6.02. LIENS. Create, incur, assume or permit to exist any
Lien on any property or assets (including stock or other securities of any
person, including any Subsidiary) now owned or hereafter acquired by it or on
any income or revenues or rights in respect of any thereof, except:
(a) Liens on property or assets of the Parent Borrower and the
Subsidiaries existing on the date hereof and set forth in Schedule 6.02(a),
provided that such Liens shall secure only those obligations which they
secure on the date hereof;
(b) any Lien created under the Loan Documents;
(c) any Lien existing on any property or asset prior to the
acquisition thereof by any Borrower or any Subsidiary pursuant to a
Permitted Acquisition, provided that (i) such Lien is not created in
contemplation of or in connection with such acquisition and (ii) such Lien
does not apply or extend to any other property or assets of any Borrower or
any Subsidiary;
(d) Liens for taxes not yet due or which are being contested in
compliance with Section 5.03 or Liens for unpaid local or state taxes that
are not in the aggregate material;
<PAGE>
81
(e) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business and securing
obligations that are not in the aggregate material;
(f) pledges and deposits made in the ordinary course of business in
compliance with workmen's compensation, unemployment insurance and other
social security laws or regulations;
(g) deposits to secure the performance of bids, trade contracts (other
than for Indebtedness), leases (other than Capital Lease Obligations),
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business;
(h) zoning restrictions, easements, rights-of-way, restrictions on use
of real property and other similar encumbrances incurred in the ordinary
course of business which, in the aggregate, are not substantial in amount
and do not materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the business of the
Borrowers and the Subsidiaries taken as a whole;
(i) purchase money security interests in real property, improvements
thereto or equipment hereafter acquired (or, in the case of improvements,
constructed) by any Borrower or any Subsidiary, provided that (i) such
security interests secure Indebtedness permitted by Section 6.01, (ii) such
security interests are incurred, and the Indebtedness secured thereby is
created, within 270 days after such acquisition (or construction),
(iii) the Indebtedness secured thereby does not exceed the fair market
value of such real property, improvements or equipment at the time of such
acquisition (or construction) and (iv) such security interests do not apply
to any other property or assets of any Borrower or any Subsidiary;
(j) any Lien securing Indebtedness permitted by Section 6.01(f),
provided that such Lien does not apply or extend to any other assets or
property of any Borrower or any Subsidiary;
(k) any Lien on an asset sold pursuant to a sale and leaseback
transaction permitted by Section 6.03, provided that such Lien does not
apply or extend to any other assets or property of any Borrower or any
Subsidiary;
(l) any Lien securing Indebtedness permitted by 6.01(h), provided that
such Indebtedness is, to the extent required by Section 6.01(h),
subordinated and evidenced by a note pledged in accordance with
Section 6.01(h);
(m) Liens securing Refinancing Indebtedness, to the extent that the
Indebtedness being refinanced was originally permitted to be secured
pursuant to this Section 6.02, provided that any such Lien does not apply
or extend to any property or assets of any Borrower or any Subsidiary other
than property or assets subject to the Liens securing the Indebtedness
being refinanced;
<PAGE>
82
(n) bankers' liens and Liens (other than any Lien imposed by ERISA)
incurred or deposits made in the ordinary course of business consistent
with past practices in connection with title insurance, purchase
agreements, judgment liens (if released, bonded or stayed within 60 days)
and leases and subleases;
(o) prejudgment liens in respect of property of a Foreign Subsidiary
that are incurred in connection with a claim or action against such Foreign
Subsidiary before a court or tribunal outside of the United States,
provided that such liens do not, individually or in the aggregate, have a
Material Adverse Effect;
(p) Liens on the assets of the Insurance Subsidiaries securing self
insurance and reinsurance obligations and letters of credit or bonds issued
in support of such self insurance and reinsurance obligations, provided
that the assets subject to such Liens shall only be assets of the Insurance
Subsidiaries;
(q) deposits made prior to 1992 plus interest and income earned
thereon to secure the Parent Borrower's obligations in respect of its
Public Issue of 7.5% Dual Currency Swiss Franc Bonds dated 1986 and due
1998/2001; and
(r) Liens not otherwise permitted by the foregoing clauses (a) through
(q) securing any Indebtedness or other obligations, provided that the
aggregate principal amount of such Indebtedness and other obligations
secured by Liens permitted by this clause (r) shall not exceed $5,000,000
at any time outstanding.
SECTION 6.03. SALE AND LEASEBACK TRANSACTIONS. Enter into any
arrangement, directly or indirectly, with any person whereby it shall sell or
transfer any property, real or personal, used or useful in its business, whether
now owned or hereafter acquired, and thereafter rent or lease such property or
other property which it intends to use for substantially the same purpose or
purposes as the property being sold or transferred, provided that the Parent
Borrower and the Subsidiaries may enter into any such transaction so long as
(i) the aggregate fair market value of assets subject to all such transactions
(as determined in good faith by the board of directors of the Parent Borrower at
the time of the applicable transaction) shall not exceed on a cumulative basis
during the term of this Agreement $10,000,000 (less the aggregate principal
amount of Indebtedness permitted under Section 6.01(f) outstanding at any time),
(ii) all the proceeds of any such transaction shall be in cash (except for
obligations assumed by the purchaser thereof) and the Net Cash Proceeds shall be
applied to prepay Term Loans or reduce Revolving Credit Commitments as required
by Section 2.13 and (iii) on the date that any such transaction is consummated
and immediately after giving effect thereto, no Default or Event of Default
shall have occurred and be continuing.
SECTION 6.04. INVESTMENTS, LOANS, ADVANCES AND CERTAIN OTHER
TRANSACTIONS. Purchase, hold or acquire any capital stock, evidences of
indebtedness or other securities of, make
<PAGE>
83
or permit to exist any loans or advances to, or make or permit to exist any
investment or any other interest in, any other person, or transfer any assets
to any Controlled Non-Guarantor Entity, or engage in any transaction that
causes any Guarantor to become a Controlled Non-Guarantor Entity, except:
(a) investments made by the Parent Borrower or any Subsidiary
(i) prior to the date hereof in the capital stock of the Subsidiaries that
are existing on the date hereof, (ii) on the date hereof pursuant to the
consummation of the Transactions and (iii) after the date hereof in the
capital stock of the Borrowers, the Guarantors and the Inactive
Subsidiaries;
(b) Permitted Investments;
(c) Permitted Acquisitions;
(d) Permitted Non-Guarantor Transactions and Permitted CBHS
Transactions;
(e) Permitted Non-Control Investments;
(f) Permitted Stock Repurchases and Permitted Debt Repurchases;
(g) loans and advances to directors, officers, employees, physicians
and other health care professionals not in excess of $10,000,000 at any
time outstanding, in each case in the ordinary course of business and
consistent with past practices;
(h) investments in real property in the ordinary course of business
and consistent with past practices not in excess of $5,000,000 at any time
outstanding so long as such property is being used or will be used by an
officer or employee of any Borrower or Guarantor primarily as a residence;
(i) investments consisting of non-cash consideration from a sale of
assets that is permitted pursuant to Section 6.05;
(j) loans or advances by the Parent Borrower, any wholly owned
Subsidiary or any Guarantor to the Parent Borrower, any wholly owned
Subsidiary or any Guarantor that are permitted under Section 6.01(h),
provided that such loans or advances are, to the extent required by
Section 6.01(h), subordinated and evidenced by a note pledged in accordance
with Section 6.01(h);
(k) investments, loans or advances existing on the date hereof and set
forth on Schedule 6.04(k);
(l) investments in the ordinary course of business and consistent with
past practices in property (including debt and equity securities) issued by
debtors as part of the reorganization of such debtors, provided that such
property is issued in exchange for property originally issued when such
debtors were solvent and was obtained in the ordinary course of business;
<PAGE>
84
(m) investments by any Foreign Subsidiary in instruments or securities
of the highest grade investment available in local currencies or in
certificates of deposit (or comparable instruments) of any bank with which
such Foreign Subsidiary regularly transacts business;
(n) any Interest Rate Protection Agreement permitted under
Section 6.01(j);
(o) acquisitions by the Parent Borrower of shares of the capital stock
of Green Spring in exchange for shares of common stock of the Parent
Borrower as contemplated by Section 5.14;
(p) investments by the Parent Borrower or any Subsidiary in shares of
the capital stock of any Specified Entity so long as, after giving effect
to any such investment, the total assets of all Specified Entities taken as
a whole, calculated on a consolidated basis as of the last day of the most
recent fiscal quarter for which financial statements have been delivered
pursuant to Section 5.04(a) or (b), do not exceed 10% of the total assets
of the Parent Borrower and its Subsidiaries on a consolidated basis as of
such date; and
(q) Investments made with funds required to be held on deposit by a
Governmental Authority so long as the type of such investments is
determined by the requirements of such Governmental Authority.
SECTION 6.05. MERGERS, CONSOLIDATIONS, SALES OF ASSETS AND
ACQUISITIONS. Merge into or consolidate with any other person, or permit any
other person to merge into or consolidate with it, or conduct any Asset Sale or
purchase, lease or otherwise acquire (in one transaction or a series of
transactions) all or any substantial part of the assets of any other person,
except:
(a) if at the time thereof and immediately after giving effect thereto
no Event of Default or Default shall have occurred and be continuing
(i) any wholly owned Subsidiary or any Guarantor may merge or consolidate
into any Borrower or Guarantor in a transaction in which such Borrower or
Guarantor is the surviving corporation and no person other than the
Borrower, the Parent Borrower, a Guarantor or any wholly owned Domestic
Subsidiary receives any consideration, (ii) any Borrower (other than the
Parent Borrower) may merge into or consolidate with any wholly owned
Subsidiary or Guarantor in a transaction in which no person other than a
Borrower, Guarantor or wholly owned Domestic Subsidiary receives any
consideration and the surviving or resulting corporation upon the
consummation of such merger or consolidation is or becomes a Borrower and
(iii) any wholly owned Subsidiary or any Guarantor may merge into or
consolidate with any other wholly owned Subsidiary in a transaction in
which the surviving entity is a wholly owned Domestic Subsidiary and no
person other than any Borrower or a wholly owned Domestic Subsidiary
receives any consideration and so long as the surviving entity is a
Guarantor or becomes a Guarantor to the extent required by Section 5.11;
(b) the Parent Borrower and the Subsidiaries may conduct any Asset
Sale, provided that the fair market value of all the assets sold,
transferred or otherwise disposed of pursuant to this Section 6.05(b)
(excluding any Casualty Event or Condemnation Event) shall not
<PAGE>
85
exceed
$10,000,000 on a cumulative basis during the term of this Agreement (as
determined in good faith by a Financial Officer of the Parent Borrower),
provided that the Net Cash Proceeds from any such sale shall be applied to
the extent required by Section 2.13 and provided further that any Asset
Sale otherwise permitted by this Section 6.05(b) shall not be permitted
unless (A) such sale, transfer or other disposition is for consideration at
least 75% of which is cash, and (B) such consideration is at least equal to
the fair market value of the assets sold, transferred or disposed of (as
determined in good faith by a Financial Officer of the Parent Borrower);
(c) the Parent Borrower may sell equity interests in CBHS, provided
that at no time prior to any Permitted CBHS Sale shall (i) the Parent
Borrower cease to own at least 25% of the equity interests in CBHS and
(ii) the equity interests in CBHS owned by the Parent Borrower be less than
the equity interests in CBHS owned by any other person or group, unless in
the case of clause (ii), the Parent Borrower has, at such time, the right
or ability by contract or otherwise to elect or designate for election more
than 20% of the governing board of CBHS;
(d) the Parent Borrower or any Subsidiary may make Permitted
Acquisitions; provided, however, that the Borrowers will not be required
to comply with the provisions of Section 5.11 with respect to any
Subsidiary that is an Acquired Entity (and the acquisition of such Acquired
Entity shall constitute a Permitted Acquisition notwithstanding the failure
of such acquisition to satisfy the criteria set forth in clauses (c)(ii)
and (c)(iii) of the definition of the term "Permitted Acquisition") if
(i) compliance with Section 5.11 with respect to such Acquired Entity would
violate applicable law or any regulation, rule, order, approval, license or
other restriction issued or imposed by any Governmental Authority and (ii)
after giving effect to the acquisition of such Acquired Entity, no Default
or Event of Default with respect to a failure to satisfy the requirements
of Section 6.04(p) shall have occurred and be continuing;
(e) any sale and leaseback transaction permitted by Section 6.03 may
be effected, provided that the Net Cash Proceeds from such sale shall be
applied as required by Section 2.13;
(f) any transfer of assets made in connection with any Permitted
Non-Control Investment or any Permitted Non-Guarantor Transaction may be
effected, provided that any Net Cash Proceeds from such transfer shall be
applied as required by Section 2.13;
(g) any Permitted CBHS Sale may be effected, provided that any Net
Cash Proceeds from such sale shall be applied as required by Section 2.13;
(h) any Subsidiary may liquidate and distribute assets to any other
Subsidiary, a Guarantor or the Parent Borrower, provided that if the
Subsidiary that is being liquidated is a Guarantor or a Borrower, the
Subsidiary that receives the assets pursuant to such liquidation shall be a
Guarantor or a Borrower;
<PAGE>
86
(i) any Loan Party or any Subsidiary may lease or sublease (whether as
lessor or lessee) properties in a Permitted CBHS Lease Transaction or
otherwise in the ordinary course of business and consistent with past
practice;
(j) the Parent Borrower may cause to be sold one or both of Charter
Clinic Chelsea and Charter Nightingale Hospital, each located in England,
whether effected as a sale of assets or a sale of capital stock or other
equity interests in any Person(s) owning such hospitals, in any case for
cash in an amount equal to the fair market value thereof (as determined in
good faith by a Financial Officer of the Parent Borrower), provided that
the Net Cash Proceeds from such sale shall be applied as required by
Section 2.13; and
(k) the Parent Borrower may cause to be sold Clinique La Metairie
located in Switzerland, whether effected as a sale of assets or a sale of
capital stock or other equity interests of any Person(s) owning Clinique La
Metairie, in any case for cash in an amount equal to the fair market value
thereof (as determined in good faith by a Financial Officer of the Parent
Borrower), provided that the Net Cash Proceeds from such sale shall be
applied as required by Section 2.13.
SECTION 6.06. DIVIDENDS AND DISTRIBUTIONS; RESTRICTIONS ON ABILITY OF
SUBSIDIARIES TO PAY DIVIDENDS. (a) Declare or pay, directly or indirectly, any
dividend or make any other distribution (by reduction of capital or otherwise),
whether in cash, property, securities or a combination thereof, with respect to
any shares of its capital stock or directly or indirectly redeem, purchase,
retire or otherwise acquire for value (or permit any Subsidiary to purchase or
acquire) any shares of any class of its capital stock or set aside any amount
for any such purpose; provided, however, that:
(i) any Subsidiary may declare and pay dividends or make other
distributions to any Borrower or any wholly owned Subsidiary;
(ii) Permitted Stock Repurchases may be effected;
(iii) the Parent Borrower may repurchase common stock distributed in
the ordinary course of business consistent with past practices to trusts
pursuant to any employee-related benefit plan (including any employee stock
ownership plan);
(iv) the Parent Borrower may acquire warrants and options for the
purchase of capital stock acquired upon the exercise of such warrants or
options, including pursuant to the Warrant Agreements, provided that the
sole consideration for any such warrants or options shall be the Parent
Borrower's common stock;
(v) the Parent Borrower may purchase, redeem or otherwise acquire for
nominal consideration rights in connection with the Rights Plan;
(vi) any Guarantor may declare and pay dividends pro rata to its
shareholders, partners or other equity holders, as the case may be; and
<PAGE>
87
(vii) to the extent that any Subsidiary is a Specified Entity, such
Subsidiary may declare and pay dividends if and to the extent that the
restriction contained in this Section 6.06 on such declaration or payment
would violate applicable law or any regulation, rule, order, approval,
license or other restriction issued or imposed by any Governmental
Authority, provided that any such declaration and payment is pro rata to
the shareholders, partners or other equity holders, as the case may be, of
such Specified Entity.
(b) Permit any of its 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 such subsidiary to (i) pay any dividends or
make any other distributions on its capital stock or any other interest or
(ii) make or repay any loans or advances to the Parent Borrower or the parent of
such subsidiary (dividends, distributions and other payments described in
subclauses (i) and (ii) are collectively referred to herein as "Upstream
Payments"), other than encumbrances and restrictions:
(A) pursuant to the Loan Documents;
(B) existing under, or by reason of, applicable law or any regulation,
rule, order, approval, license or other restriction issued by any
Governmental Authority;
(C) contained in any debt instrument governing (x) Indebtedness of a
Subsidiary that becomes a Borrower or (y) Indebtedness of a Guarantor
acquired or assumed pursuant to a Permitted Acquisition if such
Indebtedness was permitted by Section 6.01(d) or constitutes a refinancing
thereof permitted by Section 6.01(n), provided that (x) such instrument was
in existence at the time of such acquisition and was not created in
contemplation of or in connection with the applicable Permitted
Acquisition, (y) a Financial Officer of the Parent Borrower reasonably
believes at the time such Indebtedness is acquired that the terms of such
instrument will not encumber or restrict the ability of such acquired
Subsidiary to make an Upstream Payment, except upon a default or an event
of default under such Indebtedness and (z) such instrument contains no
express encumbrances, or restrictions on the ability of such acquired
Subsidiary to make an Upstream Payment, except upon a default or an event
of default under such Indebtedness;
(D) existing on the date hereof and set forth on Schedule 6.06(b);
(E) contained in sale and leaseback agreements permitted by
Section 6.03 and any debt instrument governing any Indebtedness permitted
by Section 6.01(f);
(F) that are Permitted Restrictions in the case of a Controlled
Venture; and
(G) with respect to cash or other deposits or minimum net worth or
similar requirements that are customary in the industry and imposed by
customers under contractual arrangements entered into in the ordinary
course of business.
SECTION 6.07. TRANSACTIONS WITH AFFILIATES. Sell or transfer any
property or assets to, or purchase or acquire any property or assets from, or
otherwise engage in any other transactions with, any of its Affiliates, except
that any Borrower or any Subsidiary may engage in any of the
<PAGE>
88
foregoing transactions in the ordinary course of business at prices and on
terms and conditions substantially not less favorable to such Borrower or
such Subsidiary than could be obtained on an arm's-length basis from
unrelated third parties, provided that the foregoing restriction shall not
apply to any Permitted Non-Guarantor Transaction.
SECTION 6.08. OTHER INDEBTEDNESS AND AGREEMENTS. (a) Permit any
waiver, supplement, modification, amendment, termination or release of any
indenture, instrument or agreement governing any Indebtedness or preferred stock
of any Borrower or any Subsidiary, or modify its charter or by-laws, in each
case to the extent that any such waiver, supplement, modification, amendment,
termination or release would be adverse to the Lenders in any material respect.
(b) Permit any waiver, supplement, modification, amendment,
termination or release (i) prior to any Permitted CBHS Sale, of the Operating
Agreement, the Franchise Agreement or the Lease and (ii) of any Transaction
Document to which it is a party after the Closing Date, in each case to the
extent that any such waiver, supplement, modification, amendment, termination or
release would be adverse to the interest of the Lenders in any material respect,
without the consent of the Required Lenders.
(c) Make any distribution, whether in cash, property, securities or a
combination thereof, other than scheduled payments of principal and interest as
and when due (to the extent not prohibited by applicable subordination
provisions), in respect of, or pay, or offer or commit to pay, or directly or
indirectly redeem, repurchase, retire or otherwise acquire for consideration, or
set apart any sum for the aforesaid purposes, any subordinated Indebtedness for
borrowed money of any Loan Party or any Subsidiary, except for (i) the
refinancing of Indebtedness in connection with the consummation of the
Transactions, (ii) the refinancings of Indebtedness permitted by Section 6.01,
(iii) Indebtedness permitted pursuant to Section 6.01(h) and (iv) Permitted Debt
Repurchases.
SECTION 6.09. BUSINESS OF THE BORROWERS AND SUBSIDIARIES. Engage at
any time in any business or business activity that is not a health care business
or activity and business activities reasonably related (ancillary or
complementary) to such business or business activity.
<PAGE>
89
SECTION 6.10. INTEREST EXPENSE COVERAGE RATIO. Permit the Interest
Expense Coverage Ratio as of the end of any fiscal quarter during any period set
forth below, commencing with the fiscal quarter ending on June 30, 1998, to be
less than the ratio set forth below opposite such period:
<TABLE>
<CAPTION>
Ratio Ratio
(Prior to (Following
Permitted Permitted
Fiscal Quarter Ending Dates CBHS Sale) CBHS Sale)
- --------------------------- ---------- -----------
<S> <C> <C>
June 30, 1998, through March 31, 1999 1.70:1.00 1.70:1.00
June 30, 1999, through March 31, 2000 2.25:1.00 2.25:1.00
June 30, 2000, through March 31, 2001 2.50:1.00 2.50:1.00
June 30, 2001, through March 31, 2002 2.75:1.00 2.75:1.00
June 30, 2002, and thereafter 3.00:1.00 3.00:1.00
</TABLE>
SECTION 6.11. LEVERAGE RATIO. Permit the Leverage Ratio as of the
end of any fiscal quarter during any period set forth below, commencing with the
fiscal quarter ending on June 30, 1998, to exceed the ratio set forth below
opposite such period:
<TABLE>
<CAPTION>
Ratio Ratio
(Prior to (Following
Permitted Permitted
Fiscal Quarter Ending Dates CBHS Sale) CBHS Sale)
- --------------------------- ---------- -----------
<S> <C> <C>
June 30, 1998 6.25:1.00 6.40:1.00
September 30, 1998, through March 31, 1999 6.00:1.00 6.15:1.00
June 30, 1999, through March 31, 2000 4.75:1.00 4.75:1.00
June 30, 2000, through March 31, 2001 4.25:1.00 4.25:1.00
June 30, 2001, through March 31, 2002 3.75:1.00 3.75:1.00
June 30, 2002, and thereafter 3.50:1.00 3.50:1.00
</TABLE>
SECTION 6.12. SENIOR DEBT RATIO. Permit the Senior Debt Ratio as of
the end of any fiscal quarter during any period set forth below, commencing with
the fiscal quarter ending on June 30, 1998, to exceed the ratio set forth below
opposite such period:
<TABLE>
<CAPTION>
Ratio Ratio
(Prior to (Following
Permitted Permitted
Fiscal Quarter Ending Dates CBHS Sale) CBHS Sale)
- --------------------------- ---------- -----------
<S> <C> <C>
June 30, 1998, through March 31, 1999 4.25:1.00 4.25:1.00
June 30, 1999, through March 31, 2000 3.25:1.00 3.25:1.00
June 30, 2000, through March 31, 2001 2.75 1.00 2.75:1.00
June 30, 2001, through March 31, 2002 2.50:1.00 2.50:1.00
June 30, 2002, and thereafter 2.00:1.00 2.00:1.00
</TABLE>
<PAGE>
90
SECTION 6.13. MAINTENANCE OF CONSOLIDATED EBITDA. Permit the
Consolidated EBITDA for the Parent Borrower for any period of four consecutive
fiscal quarters ending on the last day of any fiscal quarter, commencing with
the fiscal quarter ending on June 30, 1998, to be less than the amount set forth
below opposite such period.
<TABLE>
<CAPTION>
Ratio Ratio
(Prior to (Following
Permitted Permitted
Fiscal Quarter Ending Dates CBHS Sale) CBHS Sale)
- --------------------------- ---------- -----------
<S> <C> <C>
June 30, 1998, through March 31, 1999 $160,000,000 $100,000,000
June 30, 1999, through March 31, 2000 $225,000,000 $165,000,000
June 30, 2000, through March 31, 2001 $250,000,000 $190,000,000
June 30, 2001, through March 31, 2002 $275,000,000 $215,000,000
June 30, 2002, and thereafter $300,000,000 $240,000,000
</TABLE>
SECTION 6.14. MAINTENANCE OF CONSOLIDATED NET WORTH. Permit
Consolidated Net Worth as of the end of any fiscal quarter ending after the
Closing Date, commencing with the fiscal quarter ending on June 30, 1998, to be
less than the sum of (i) 75% of Consolidated Net Worth as at March 31, 1998,
(ii) 50% of Consolidated Net Income, if positive, computed for the period
(treated as one accounting period) commencing April 1, 1998, and ending as of
the last day of the fiscal quarter for which Consolidated Net Worth is being
determined and (iii) 100% of the Net Cash Proceeds of any Equity Issuance
received after the Closing Date, provided that, in the event of any Permitted
CBHS Sale after March 31, 1998, the determination of such minimum Consolidated
Net Worth shall be reduced by $40,000,000.
SECTION 6.15. FISCAL YEAR. Change the end of its fiscal year from
September 30 to any other date.
SECTION 6.16. CAPITAL EXPENDITURES. Make or permit to be made
Capital Expenditures in any fiscal year ending after the Closing Date in an
aggregate amount in excess of (a) $75,000,000 PLUS (b) with respect to any
fiscal year ending after September 30, 1998, to the extent that the aggregate
amount of Capital Expenditures made in the immediately preceding fiscal year
were less than $75,000,000, an amount equal to the lesser of (i) the
difference between $75,000,000 and such aggregate amount actually made and
(ii) $10,000,000.
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ARTICLE VII
Events of Default
In case of the happening of any of the following events ("Events of
Default"):
(a) any representation or warranty made or deemed made in or in
connection with any Loan Document or the borrowings or issuances of Letters
of Credit hereunder, or any representation, warranty, statement or
information contained in any report, certificate, financial statement or
other instrument furnished in connection with or pursuant to any Loan
Document, shall prove to have been false or misleading in any material
respect when so made, deemed made or furnished;
(b) default shall be made in the payment of any principal of any Loan
when and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or by acceleration
thereof or otherwise;
(c) default shall be made in the payment of any Fee, any L/C
Disbursement that is not satisfied by a deemed Loan pursuant to the second
sentence of Section 2.02(f) or interest on any Loan or L/C Disbursement or
any other amount (other than an amount referred to in (b) above) due under
any Loan Document, when and as the same shall become due and payable, and
such default shall continue unremedied for a period of three Business Days;
(d) default shall be made in the due observance or performance by any
Borrower or any Subsidiary of any covenant, condition or agreement
contained in Section 5.01(a), 5.05, 5.08 or 5.12 or in Article VI;
(e) default shall be made in the due observance or performance by any
Borrower or any Subsidiary of any covenant, condition or agreement
contained in any Loan Document (other than those specified in
paragraph (b), (c) or (d) above) and such default shall continue unremedied
for a period of 15 days after notice thereof from the Administrative Agent
or any Lender to the Borrowers;
(f) any Borrower or any Subsidiary shall (i) fail to pay any principal
or interest, regardless of amount, due in respect of any Indebtedness
(other than any Indebtedness evidenced by any Loan Document) in a principal
amount in excess of $10,000,000, when and as the same shall become due and
payable (subject to any grace period), or (ii) fail to observe or perform
any other term, covenant, condition or agreement contained in any agreement
or instrument evidencing or governing any such Indebtedness if the effect
of any failure referred to in this clause (ii) is to cause, or to permit
the holder or holders of such Indebtedness or a trustee on its or their
behalf to cause, such Indebtedness to become due prior to its stated
maturity;
(g) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking
(i) relief in respect of any Borrower or any Subsidiary, or of a
substantial part of the property or assets of any Borrower or a
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Subsidiary,
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal, state or foreign bankruptcy, insolvency,
receivership or similar law, (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for any Borrower
or any Subsidiary or for a substantial part of the property or assets of
any Borrower or a Subsidiary or (iii) the winding-up or liquidation of any
Borrower or any Subsidiary; and such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering any of
the foregoing shall be entered;
(h) any Borrower or any Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking relief under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other Federal,
state or foreign bankruptcy, insolvency, receivership or similar law,
(ii) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or the filing of any petition described
in (g) above, (iii) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for any
Borrower or any Subsidiary or for a substantial part of the property or
assets of any Borrower or any Subsidiary, (iv) file an answer admitting the
material allegations of a petition filed against it in any proceeding
relating to the above, (v) make a general assignment for the benefit of
creditors, (vi) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (vii) take any action for
the purpose of effecting any of the foregoing;
(i) one or more judgments for the payment of money in an aggregate
amount in excess of $5,000,000 shall be rendered against any Borrower, any
Subsidiary or any combination thereof and the same shall remain
undischarged for a period of 60 consecutive days during which execution
shall not be effectively stayed, or any action shall be legally taken by a
judgment creditor to levy upon assets or properties of any Borrower or any
Subsidiary to enforce any such judgment;
(j) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other such ERISA Events,
could reasonably be expected to have a Material Adverse Effect;
(k) prior to any Permitted CBHS Sale, the Lease shall cease to be in
full force and effect in accordance with the respective terms thereof;
(l) prior to any Permitted CBHS Sale, there shall have occurred and be
continuing a Material Franchise Non-Payment Event;
(m) any security interest purported to be created by any Security
Document shall cease to be, or shall be asserted by any Borrower or any
other Loan Party not to be, a valid, perfected, first priority (except as
otherwise expressly provided in this Agreement or such Security Document)
security interest in the securities, assets or properties covered thereby,
except to the extent that any such loss of perfection or priority results
from the failure of the Collateral Agent to maintain possession of
certificates representing securities pledged under the Pledge Agreement;
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93
(n) any Loan Document or, prior to any Permitted CBHS Sale, the
Franchise Agreement shall not be for any reason, or shall be asserted by
any Loan Party not to be, in full force and effect and enforceable in
accordance with its terms; or
(o) there shall have occurred a Change in Control;
then, and in every such event (other than an event with respect to any Borrower
or any Subsidiary described in paragraph (g) or (h) above), and at any time
thereafter during the continuance of such event, the Administrative Agent may,
and at the request of the Required Lenders shall, by notice to the Borrowers,
take either or both of the following actions, at the same or different times:
(i) terminate forthwith the Commitments and (ii) declare the Loans then
outstanding to be forthwith due and payable in whole or in part, whereupon the
principal of the Loans so declared to be due and payable, together with accrued
interest thereon and any unpaid accrued Fees and all other liabilities of the
Borrowers accrued hereunder and under any other Loan Document, shall become
forthwith due and payable, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived by the Borrowers,
anything contained herein or in any other Loan Document to the contrary
notwithstanding; and in any event with respect to any Borrower or any Subsidiary
described in paragraph (g) or (h) above, the Commitments shall automatically
terminate and the principal of the Loans then outstanding, together with accrued
interest thereon and any unpaid accrued Fees and all other liabilities of the
Borrowers accrued hereunder and under any other Loan Document, shall
automatically become due and payable, without presentment, demand, protest or
any other notice of any kind, all of which are hereby expressly waived by the
Borrowers, anything contained herein or in any other Loan Document to the
contrary notwithstanding. If any Event of Default has occurred and is
continuing, the Collateral Agent may exercise rights and remedies as provided in
the Collateral Assignment.
ARTICLE VIII
The Agents
In order to expedite the transactions contemplated by this Agreement,
The Chase Manhattan Bank is hereby appointed to act as Administrative Agent and
Collateral Agent, in each case on behalf of the Lenders and the Issuing Banks.
Each of the Lenders and each assignee of any such Lender and each Issuing Bank,
hereby irrevocably authorizes the Agents to take such actions on behalf of such
Lender or assignee or Issuing Bank and to exercise such powers as are
specifically delegated to the Agents by the terms and provisions hereof and of
the other Loan Documents, together with such actions and powers as are
reasonably incidental thereto. The Administrative Agent is hereby expressly
authorized by the Lenders and the Issuing Banks, without hereby limiting any
implied authority, (a) to receive on behalf of the Lenders and the Issuing Banks
all payments of principal of and interest on the Loans, all payments in respect
of L/C Disbursements and all other amounts due to the Lenders hereunder, and
promptly to distribute to each Lender or the applicable Issuing Bank its proper
share of each payment so received; (b) to give notice on behalf of each of the
Lenders to the Borrowers of any Event of Default specified in this Agreement of
which the Administrative Agent has actual knowledge acquired in connection with
its agency hereunder; (c) pursuant to Section 5.13, request the Parent Borrower
to exercise all remedies under the
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Franchise Agreement (including Governance Remedies); and (d) to distribute to
each Lender copies of all notices, financial statements and other materials
delivered by the Borrowers or any other Loan Party pursuant to this Agreement
or the other Loan Documents as received by the Administrative Agent. Without
limiting the generality of the foregoing, the Administrative Agent and the
Collateral Agent are hereby expressly authorized to execute any and all
documents (including releases) with respect to the Collateral and the rights
of the Secured Parties with respect thereto, as contemplated by and in
accordance with the provisions of this Agreement and the Security Documents.
The Borrowers agree that the Administrative Agent may designate prior to the
Closing Date any other Lender with the title co-agent and that any such
co-agent shall not be obligated to perform any duties in such capacity as a
co-agent.
Neither the Agents nor any of their respective directors, officers,
employees or agents shall be liable as such for any action taken or omitted by
any of them except for its or his own gross negligence or willful misconduct, or
be responsible for any statement, warranty or representation herein or the
contents of any document delivered in connection herewith, or be required to
ascertain or to make any inquiry concerning the performance or observance by the
Borrowers or any other Loan Party of any of the terms, conditions, covenants or
agreements contained in any Loan Document. The Agents shall not be responsible
to the Lenders for the due execution, genuineness, validity, enforceability or
effectiveness of this Agreement or any other Loan Documents, instruments or
agreements. The Agents shall in all cases be fully protected in acting, or
refraining from acting, in accordance with written instructions signed by the
Required Lenders and, except as otherwise specifically provided herein, such
instructions and any action or inaction pursuant thereto shall be binding on all
the Lenders. Each Agent shall, in the absence of knowledge to the contrary, be
entitled to rely on any instrument or document believed by it in good faith to
be genuine and correct and to have been signed or sent by the proper person or
persons. Neither the Agents nor any of their respective directors, officers,
employees or agents shall have any responsibility to the Borrowers or any other
Loan Party on account of the failure of or delay in performance or breach by any
Lender or any Issuing Bank of any of its obligations hereunder or to any Lender
or any Issuing Bank on account of the failure of or delay in performance or
breach by any other Lender or Issuing Bank or the Borrowers or any other Loan
Party of any of their respective obligations hereunder or under any other Loan
Document or in connection herewith or therewith. Each of the Agents may execute
any and all duties hereunder by or through agents or employees and shall be
entitled to rely upon the advice of legal counsel selected by it with respect to
all matters arising hereunder and shall not be liable for any action taken or
suffered in good faith by it in accordance with the advice of such counsel.
The Lenders hereby acknowledge that none of the Agents shall be under
any duty to take any discretionary action permitted to be taken by it pursuant
to the provisions of this Agreement unless it shall be requested in writing to
do so by the Required Lenders.
Subject to the appointment and acceptance of a successor Agent as
provided below, any of the Agents may resign at any time by notifying the
Lenders and the Borrowers. Upon any such resignation, the Required Lenders,
with the consent of the Parent Borrower (which consent shall not be unreasonably
withheld), shall have the right to appoint a successor, provided the consent of
the Parent Borrower shall not be required if an Event of Default has occurred
and is continuing. If no successor shall have been so appointed by the Required
Lenders and shall have accepted such
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appointment within 30 days after the retiring Agent gives notice of its
resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent, with the consent of the Parent Borrower (which consent shall
not be unreasonably withheld), which shall be a bank that is a Lender and has
a combined capital and surplus of at least $500,000,000 or an Affiliate of
any such bank, provided the consent of the Parent Borrower shall not be
required if an Event of Default has occurred and is continuing. Upon the
acceptance of any appointment as Agent hereunder by a successor bank, such
successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent and the retiring Agent shall be
discharged from its duties and obligations hereunder. After the Agent's
resignation hereunder, the provisions of this Article and Section 9.05 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.
With respect to the Loans made by it hereunder, each Agent in its
individual capacity and not as Agent shall have the same rights and powers as
any other Lender and may exercise the same as though it were not an Agent, and
the Agents and their Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrowers or any Subsidiary or
other Affiliate thereof as if it were not an Agent.
Each Lender agrees (a) to reimburse the Agents, on demand, in the
amount of its pro rata share (based on its aggregate Commitments hereunder) of
any expenses incurred for the benefit of the Lenders by the Agents, including
counsel fees and compensation of agents and employees paid for services rendered
on behalf of the Lenders, that shall not have been reimbursed by the Borrowers
or any other Loan Party and (b) to indemnify and hold harmless each Agent and
any of its directors, officers, employees or agents, on demand, in the amount of
such pro rata share, from and against any and all liabilities, taxes,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
on, incurred by or asserted against it in its capacity as Agent or any of them
in any way relating to or arising out of this Agreement or any other Loan
Document or any action taken or omitted by it or any of them under this
Agreement or any other Loan Document, to the extent the same shall not have been
reimbursed by the Borrowers or any other Loan Party, provided that no Lender
shall be liable to an Agent or any such other indemnified person for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements that are determined by a
court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or willful misconduct of such Agent or any of
its directors, officers, employees or agents.
Each Lender acknowledges that it has, independently and without
reliance upon the Agents or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Agents or any other Lender and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement or any other Loan Document, any related
agreement or any document furnished hereunder or thereunder.
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Neither the Syndication Agent nor the Documentation Agent shall have
any duties or responsibilities hereunder in its capacity as such.
ARTICLE IX
Miscellaneous
SECTION 9.01. NOTICES. Notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to any Borrower, to it in care of the Parent Borrower at
3414 Peachtree Road, NE, Suite 1400, Atlanta, GA 30326, Attention of
Treasurer (Telecopy No. (404) 814-5823);
(b) if to the Administrative Agent or the Collateral Agent, to Chase
Manhattan Bank Agency Services Corporation, One Chase Manhattan Plaza,
8th Floor, New York, New York 10081, Attention of Sandra Miklave (Telecopy
No. (212) 552-7500), with a copy to The Chase Manhattan Bank, at 270 Park
Avenue, New York, New York 10017, Attention of Dawn Lee Lum (Telecopy
No. (212) 270-3279); and
(c) if to a Lender, to it at its address (or telecopy number) set
forth on Schedule 2.01 (a) or (b) or in the Assignment and Acceptance
pursuant to which such Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 9.01 or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section 9.01.
SECTION 9.02. SURVIVAL OF AGREEMENT. All covenants, agreements,
representations and warranties made by the Loan Parties herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and the Issuing Banks and shall survive the
making by the Lenders of the Loans and the issuance of Letters of Credit by the
Issuing Banks, regardless of any investigation made by the Lenders or the
Issuing Banks or on their behalf, and shall continue in full force and effect as
long as the principal of or any accrued interest on any Loan or any Fee or any
other amount payable under this Agreement or any other Loan Document is
outstanding and unpaid or any Letter of Credit is outstanding and so long as the
Commitments have not been terminated. The provisions of Sections 2.14, 2.16,
2.20 and 9.05 shall remain operative and in full force and effect regardless of
the expiration of the term of this Agreement, the consummation of the
transactions contemplated hereby, the repayment of any of the Loans, the
expiration of the Commitments, the expiration of any Letter of Credit, the
invalidity or unenforceability of any term
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or provision of this Agreement or any other Loan Document, or any
investigation made by or on behalf of the Administrative Agent, the
Collateral Agent, any Lender or any Issuing Bank.
SECTION 9.03. BINDING EFFECT. This Agreement shall become effective
when it shall have been executed by the Borrowers, the Administrative Agent, the
Syndication Agent and the Documentation Agent and when the Administrative Agent
shall have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be binding
upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns.
SECTION 9.04. SUCCESSORS AND ASSIGNS. (a) Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the permitted successors and assigns of such party; and all
covenants, promises and agreements by or on behalf of the Borrowers, the
Administrative Agent, the Issuing Banks or the Lenders that are contained in
this Agreement shall bind and inure to the benefit of their respective permitted
successors and assigns.
(b) Each Lender may assign to one or more assignees all or a portion
of its interests, rights and obligations under this Agreement (including all or
a portion of its Commitment and the Loans at the time owing to it); provided,
however, that (i) except in the case of an assignment to a Lender or an
Affiliate of such Lender or an Approved Fund, (x) the Parent Borrower (unless an
Event of Default shall have occurred and is continuing) and the Administrative
Agent (and, in the case of any assignment of a Revolving Credit Commitment, the
Issuing Banks) must give their prior written consent to such assignment (which
consent shall not be unreasonably withheld) and (y) the amount of the Commitment
of the assigning Lender subject to each such assignment (determined as of the
date the Assignment and Acceptance with respect to such assignment is delivered
to the Administrative Agent) shall not be less than $5,000,000 unless each of
the Parent Borrower and the Administrative Agent otherwise consent (or, if less
and no such consent shall be granted, the entire remaining amount of such
Lender's Commitment), (ii) the parties to each such assignment shall execute and
deliver to the Administrative Agent an Assignment and Acceptance, together with
a processing and recordation fee of $3,500 and (iii) the assignee, if it shall
not be a Lender, shall deliver to the Administrative Agent an Administrative
Questionnaire. For purposes of this Section 9.04, an "Approved Fund" shall
mean, with respect to any Lender that is a fund that invests in bank loans, any
other fund that invests in bank loans which is managed or advised by the same
investment advisor as such Lender or by an affiliate of such investment advisor.
Upon acceptance and recording pursuant to paragraph (e) of this Section 9.04,
from and after the effective date specified in each Assignment and Acceptance,
which effective date shall be at least five Business Days after the execution
thereof, unless otherwise agreed by the Administrative Agent, (A) the assignee
thereunder shall be a party hereto and, to the extent of the interest assigned
by such Assignment and Acceptance, have the rights and obligations of a Lender
under this Agreement and (B) the assigning Lender thereunder shall, to the
extent of the interest assigned by such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.16,
2.20 and 9.05, as well as to any Fees accrued for its account and not yet paid).
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(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Revolving Credit Commitment and its Term Loan Commitment, and the
outstanding balance of its Revolving Loans and Term Loans, in each case without
giving effect to assignments thereof which have not become effective, are as set
forth in such Assignment and Acceptance, (ii) except as set forth in clause (i)
above, such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement, or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement,
any other Loan Document or any other instrument or document furnished pursuant
hereto, or the financial condition of any Borrower or any Subsidiary or the
performance or observance by any Borrower or any Subsidiary of any of its
obligations under this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto; (iii) such assignee represents
and warrants that it is legally authorized to enter into such Assignment and
Acceptance; (iv) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements referred
to in Section 3.05(a) or delivered pursuant to Section 5.04 and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (v) such
assignee will independently and without reliance upon the Administrative Agent,
the Collateral Agent, such assigning Lender 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
this Agreement; (vi) such assignee appoints and authorizes the Administrative
Agent and the Collateral Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement as are delegated to the Administrative
Agent and the Collateral Agent, respectively, by the terms hereof, together with
such powers as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all the obligations which by
the terms of this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent, acting for this purpose as an agent of
the Borrowers, shall maintain at one of its offices a copy of each Assignment
and Acceptance delivered to it and a register for the recordation of the names
and addresses of the Lenders, and the Commitment of, and principal amount of the
Loans owing to, each Lender pursuant to the terms hereof from time to time (the
"Register"). The entries in the Register shall be conclusive and the Borrowers,
the Administrative Agent, the Issuing Banks, the Collateral Agent and the
Lenders may treat each person whose name is recorded in the Register pursuant to
the terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. The Register shall be available for
inspection by the Borrowers, the Issuing Banks, the Collateral Agent and any
Lender, at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, an Administrative Questionnaire
completed in respect of the assignee (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in
paragraph (b) above and, if required, the written consent of the Parent
Borrower, the Issuing Banks and the Administrative Agent to such assignment, the
Administrative Agent shall
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(i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register and (iii) give prompt notice thereof to the
Lenders and the Issuing Banks. No assignment shall be effective unless it
has been recorded in the Register as provided in this paragraph (e).
(f) Each Lender may without the consent of the Borrowers, the Issuing
Banks or the Administrative Agent sell participations to one or more banks or
other entities in all or a portion of its rights and obligations under this
Agreement (including all or a portion of its Commitment and the Loans owing to
it); provided, however, that (i) such Lender's obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, (iii) the
participating banks or other entities shall be entitled to the benefit of the
cost protection provisions contained in Sections 2.14, 2.16 and 2.20 to the same
extent as if they were Lenders and (iv) the Borrowers, the Administrative Agent,
the Issuing Banks and the Lenders shall continue to deal solely and directly
with such Lender in connection with such Lender's rights and obligations under
this Agreement, and such Lender shall retain the sole right to enforce the
obligations of the Borrowers relating to the Loans or L/C Disbursements and to
approve any amendment, modification or waiver of any provision of this Agreement
and the other Loan Documents (other than amendments, modifications or waivers
decreasing any fees payable hereunder or the amount of principal of or the rate
at which interest is payable on the Loans, extending any scheduled principal
payment date or date fixed for the payment of interest on the Loans or
increasing or extending the Commitments or releasing from any Lien granted under
any Security Document all or any substantial part of the Collateral (except with
respect to sales or transfers of, and other transactions relating to, Collateral
permitted pursuant to any Loan Document)).
(g) Any Lender or participant may, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
Section 9.04, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrowers furnished to such Lender
by or on behalf of the Borrowers, provided that, prior to any such disclosure
of information designated by the Borrowers as confidential, each such assignee
or participant or proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree (subject to customary
exceptions) to preserve the confidentiality of such confidential information on
terms no less restrictive than those applicable to the Lenders pursuant to
Section 9.16.
(h) Any Lender may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement to secure obligations
of such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank, and this Section shall not apply to any such pledge or
assignment of a security interest, provided that no such pledge or assignment of
a security interest shall release a Lender from any of its obligations hereunder
or substitute any such pledgee or assignee for such Lender as a party hereto.
In order to facilitate such an assignment, the Borrowers shall, at the request
of the assigning Lender, duly execute and deliver to the assigning Lender a
promissory note or notes evidencing the Loans made to the Borrowers by the
assigning Lender hereunder.
(i) The Borrowers shall not assign or delegate any of their
respective rights or duties hereunder without the prior written consent of the
Administrative Agent, the Issuing Banks and each Lender, and any attempted
assignment without such consent shall be null and void.
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SECTION 9.05. EXPENSES; INDEMNITY. (a) The Borrowers agree to pay
all reasonable out-of-pocket expenses (including expenses incurred in connection
with due diligence) incurred by the Administrative Agent, the Collateral Agent
and the Issuing Banks in connection with the syndication of the credit
facilities provided for herein and the preparation and administration of this
Agreement and the other Loan Documents or in connection with any amendments,
modifications or waivers of the provisions hereof or thereof (whether or not the
transactions hereby or thereby contemplated shall be consummated) or incurred by
the Administrative Agent, the Collateral Agent, an Issuing Bank or any Lender in
connection with the enforcement or protection of its rights in connection with
this Agreement and the other Loan Documents or in connection with the Loans made
or Letters of Credit issued hereunder, including the reasonable fees, charges
and disbursements of Cravath, Swaine & Moore, counsel for the Administrative
Agent and the Collateral Agent, and, in connection with any such enforcement or
protection, the reasonable fees, charges and disbursements of any other counsel
for the Administrative Agent, the Collateral Agent, an Issuing Bank or any
Lender.
(b) The Borrowers agree, jointly and severally, to indemnify the
Agents, each co-agent, each Lender and each Issuing Bank, each Affiliate of any
of the foregoing persons and each of their respective directors, officers,
employees and agents (each such person being called an "Indemnitee") against,
and to hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including reasonable counsel fees, charges and
disbursements, incurred by or asserted against any Indemnitee arising out of, in
any way connected with, or as a result of (i) the execution or delivery of this
Agreement or any other Loan Document or any agreement or instrument contemplated
thereby, the performance by the parties thereto of their respective obligations
thereunder or the consummation of the Transactions and the other transactions
contemplated thereby, (ii) the use of the proceeds of the Loans or issuance of
Letters of Credit, (iii) any claim, litigation, investigation or proceeding
relating to any of the foregoing, whether or not any Indemnitee is a party
thereto, or (iv) any actual or alleged presence or Release of Hazardous
Materials on any property owned or operated by the Borrowers or any of the
Subsidiaries, or any Environmental Claim related in any way to the Borrowers or
the Subsidiaries, provided that such indemnity shall not, as to any Indemnitee,
be available to the extent that such losses, claims, damages, liabilities or
related expenses are determined by a court of competent jurisdiction by final
and nonappealable judgment to have resulted from the gross negligence or willful
misconduct of such Indemnitee.
(c) The provisions of this Section 9.05 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the expiration of the Commitments, the expiration
of any Letter of Credit, the invalidity or unenforceability of any term or
provision of this Agreement or any other Loan Document, or any investigation
made by or on behalf of the Administrative Agent, the Collateral Agent, any
Lender or any Issuing Bank. All amounts due under this Section 9.05 shall be
payable on written demand therefor.
SECTION 9.06. RIGHT OF SETOFF. If an Event of Default shall have
occurred and be continuing, each Lender and Issuing Bank is hereby authorized
at any time and from time to time, except to the extent prohibited 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
<PAGE>
101
such Lender or Issuing Bank to or for the credit or the account of any
Borrower against any of and all the obligations of any Borrower now or
hereafter existing under this Agreement and other Loan Documents held by such
Lender or Issuing Bank, irrespective of whether or not such Lender or Issuing
Bank shall have made any demand under this Agreement or such other Loan
Document and although such obligations may be unmatured. The rights of each
Lender and Issuing Bank under this Section 9.06 are in addition to other
rights and remedies (including other rights of setoff) which such Lender or
Issuing Bank may have.
SECTION 9.07. APPLICABLE LAW. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS (OTHER THAN LETTERS OF CREDIT AND AS EXPRESSLY SET FORTH IN OTHER LOAN
DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF
CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND
PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF
COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT
GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK.
SECTION 9.08. WAIVERS; AMENDMENT. (a) No failure or delay of the
Administrative Agent, the Collateral Agent, any Lender or any Issuing Bank in
exercising any power or right hereunder or under any other Loan Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of the
Administrative Agent, the Collateral Agent, the Issuing Banks and the Lenders
hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver
of any provision of this Agreement or any other Loan Document or consent to any
departure by the Borrowers or any other Loan Party therefrom shall in any event
be effective unless the same shall be permitted by paragraph (b) below, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given. No notice or demand on the Borrowers in any case
shall entitle the Borrowers to any other or further notice or demand in similar
or other circumstances.
(b) Neither this Agreement nor any other Loan Document (excluding
Letters of Credit) nor any provision hereof or thereof may be waived, amended or
modified except pursuant to an agreement or agreements in writing entered into
by the Borrowers and the Required Lenders (or, in the case of any other such
Loan Document, the parties thereto with the prior written consent of the
Required Lenders); provided, however, that no such agreement shall (i) decrease
the principal amount of, or extend the maturity of or any scheduled principal
payment date or date for the payment of any interest on any Loan or any date for
reimbursement of an L/C Disbursement, or waive or excuse any such payment or any
part thereof, or decrease the rate of interest on any Loan or L/C Disbursement,
without the prior written consent of each Lender affected thereby, (ii) increase
or extend the Commitment or decrease or extend the date for payment of the
Commitment Fees of any Lender without the prior written consent of such Lender,
(iii) amend or modify the provisions
<PAGE>
102
of Section 2.17 or 9.04(i), the provisions of this Section, the definition of
the term "Required Lenders" or release any Guarantor from its obligations
under the Guarantee Agreement (other than in accordance with the Guarantee
Agreement) or release from any Lien granted under any Security Document all
or any substantial part of the Collateral (except with respect to sales or
transfers of, and other transactions relating to, Collateral permitted
pursuant to the Security Documents), without the prior consent of each
Lender, (iv) change (A) the allocation or timing of any prepayment to be
allocated among the Term Loans and Revolving Loans pursuant to Sections 2.11
and 2.13 or (B) the application of any prepayment or repayment of Term Loans
pursuant to Sections 2.11(b) or 2.13(e), in each case without the prior
written consent of Lenders holding a majority in interest of the outstanding
Loans and unused Commitments of each affected Class, (v) change any
provisions of any Loan Document in a manner that by its terms adversely
affects the rights in respect of payments due to Lenders holding Loans of any
Class differently than those holding Loans of any other Class, without the
written consent of Lenders holding a majority in interest of the outstanding
Loans and unused Commitments of each affected Class or (vi) amend Sections
2.11(d) or 2.13(j) without the prior written consent of Lenders holding
Tranche B Term Loans representing more than 50% of the aggregate outstanding
principal amount of the Tranche B Term Loans and Lenders holding Tranche C
Term Loans representing more than 50% of the aggregate outstanding principal
amount of the Tranche C Term Loans and provided further that no such
agreement shall amend, modify or otherwise affect the rights or duties of the
Administrative Agent, the Collateral Agent or any Issuing Bank hereunder or
under any other Loan Document without the prior written consent of the
Administrative Agent, the Collateral Agent or such Issuing Bank, as the case
may be.
SECTION 9.09. INTEREST RATE LIMITATION. Notwithstanding anything
herein to the contrary, if at any time the interest rate applicable to any Loan
or participation in any L/C Disbursement, together with all fees, charges and
other amounts which are treated as interest on such Loan or participation in
such L/C Disbursement under applicable law (collectively the "Charges"), shall
exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for,
charged, taken, received or reserved by the Lender holding such Loan or
participation in accordance with applicable law, the rate of interest payable in
respect of such Loan or participation hereunder, together with all Charges
payable in respect thereof, shall be limited to the Maximum Rate and, to the
extent lawful, the interest and Charges that would have been payable in respect
of such Loan or participation but were not payable as a result of the operation
of this Section 9.09 shall be cumulated and the interest and Charges payable to
such Lender in respect of other Loans or participations or periods shall be
increased (but not above the Maximum Rate therefor) until such cumulated amount,
together with interest thereon at the Federal Funds Effective Rate to the date
of repayment, shall have been received by such Lender.
SECTION 9.10. ENTIRE AGREEMENT. This Agreement, the Fee Letter and
the other Loan Documents constitute the entire contract between the parties
relative to the subject matter hereof. Any other previous agreement among the
parties with respect to the subject matter hereof is superseded by this
Agreement and the other Loan Documents. Nothing in this Agreement or in the
other Loan Documents, expressed or implied, is intended to confer upon any party
other than the parties hereto and thereto any rights, remedies, obligations or
liabilities under or by reason of this Agreement or the other Loan Documents.
<PAGE>
103
SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED TO SUCH PARTY, EXPRESSLY OR
OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11.
SECTION 9.12. SEVERABILITY. In the event any one or more of the
provisions contained in this Agreement or in any other Loan Document should be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby (it being understood that
the invalidity of a particular provision in a particular jurisdiction shall not
in and of itself affect the validity of such provision in any other
jurisdiction). The parties shall endeavor in good-faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 9.13. COUNTERPARTS. This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original but all of which when taken together shall
constitute a single contract, and shall become effective as provided in
Section 9.03. Delivery of an executed signature page to this Agreement by
facsimile transmission shall be as effective as delivery of a manually signed
counterpart of this Agreement.
SECTION 9.14. HEADINGS. Article and Section headings and the Table
of Contents used herein are for convenience of reference only, are not part of
this Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 9.15. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) Each
Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the
Administrative Agent, the Collateral Agent, any Issuing Bank or any Lender may
otherwise have to bring any action or proceeding relating to this Agreement or
the other Loan Documents against the Borrowers or its properties in the courts
of any jurisdiction.
<PAGE>
104
(b) Each Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the other Loan
Documents in any New York State or Federal court. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 9.16. CONFIDENTIALITY. The Administrative Agent, the
Collateral Agent, each Issuing Bank and each of the Lenders agrees to keep
confidential (and to use its best efforts to cause its respective agents and
representatives to keep confidential) the Information (as defined below) and all
copies thereof, extracts therefrom and analyses or other materials based
thereon, except that the Administrative Agent, the Collateral Agent, any Issuing
Bank or any Lender shall be permitted to disclose Information (a) to such of its
respective officers, directors, employees, agents, auditors, affiliates and
representatives as need to know such Information or to any direct or indirect
contractual counterparty in swap agreements or such contractual counterparty's
professional advisor (so long as such contractual counterparty or professional
advisor to such contractual counterparty agrees to be bound by the provisions of
this Section 9.16), (b) to the extent requested by any regulatory authority
(including the NAIC), (c) to the extent otherwise required by applicable laws
and regulations or by any subpoena or similar legal process, (d) in connection
with any suit, action or proceeding relating to the enforcement of its rights
hereunder or under the other Loan Documents or (e) to the extent such
Information (i) becomes publicly available other than as a result of a breach of
this Section 9.16 or (ii) becomes available to the Administrative Agent, any
Issuing Bank, any Lender or the Collateral Agent on a nonconfidential basis from
a source other than the Borrowers. For the purposes of this Section, the term
"Information" shall mean all financial statements, certificates, reports,
agreements and information (including all analyses, compilations and studies
prepared by the Administrative Agent, the Collateral Agent, any Issuing Bank or
any Lender based on any of the foregoing) that (i) are received from the
Borrowers and related to the Borrowers, any shareholder of any of the Borrowers
or any employee, customer or supplier of the Borrowers, other than any of the
foregoing that were available to the Administrative Agent, the Collateral Agent,
any Issuing Bank or any Lender on a nonconfidential basis prior to its
disclosure thereto by the Borrowers, and (ii) are in the case of Information
provided after the date hereof, clearly identified at the time of delivery as
confidential. The provisions of this Section 9.16 shall remain operative and in
full force and effect regardless of the expiration and term of this Agreement.
SECTION 9.17. OBLIGATIONS JOINT AND SEVERAL. (a) Each Borrower
agrees that it shall, jointly with the other Borrowers and severally, be liable
for all the Obligations. Each Borrower further agrees that the Obligations of
the other Borrowers may be extended and renewed, in whole or in part, without
notice to or further assent from it, and that it will remain bound upon its
agreement hereunder notwithstanding any extension or renewal of any Obligation
of the other Borrowers.
<PAGE>
105
(b) Each Borrower waives presentment to, demand of payment from and
protest to the other Borrowers of any of the Obligations, and also waives notice
of acceptance of its obligations and notice of protest for nonpayment. The
Obligations of a Borrower hereunder shall not be affected by (i) the failure of
any Lender or Issuing Bank or the Administrative Agent or Collateral Agent to
assert any claim or demand or to enforce any right or remedy against the other
Borrowers under the provisions of this Agreement or any of the other Loan
Documents or otherwise; (ii) any rescission, waiver, amendment or modification
of any of the terms or provisions of this Agreement, any of the other Loan
Documents or any other agreement; or (iii) the failure of any Lender or Issuing
Bank to exercise any right or remedy against any other Borrower.
(c) Each Borrower further agrees that its agreement hereunder
constitutes a promise of payment when due and not of collection, and waives any
right to require that any resort be had by any Lender or Issuing Bank to any
balance of any deposit account or credit on the books of any Lender or Issuing
Bank in favor of any other Borrower or any other person.
(d) The Obligations of each Borrower hereunder shall not be subject
to any reduction, limitation, impairment or termination for any reason,
including compromise, and shall not be subject to any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Obligations of the other Borrowers or
otherwise. Without limiting the generality of the foregoing, the Obligations of
each Borrower hereunder shall not be discharged or impaired or otherwise
affected by the failure of the Administrative Agent, the Collateral Agent or any
Lender or Issuing Bank to assert any claim or demand or to enforce any remedy
under this Agreement or under any other Loan Document or any other agreement, by
any waiver or modification in respect of any thereof, by any default, failure or
delay, willful or otherwise, in the performance of the Obligations of the other
Borrowers, or by any other act or omission which may or might in any manner or
to any extent vary the risk of such Borrower or otherwise operate as a discharge
of such Borrower as a matter of law or equity.
(e) Each Borrower further agrees that its obligations hereunder shall
continue to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of principal of or interest on any Obligation of
the other Borrowers is rescinded or must otherwise be restored by the
Administrative Agent, the Collateral Agent or any Lender or Issuing Bank upon
the bankruptcy or reorganization of any of the other Borrowers or otherwise.
(f) In furtherance of the foregoing and not in limitation of any
other right which the Administrative Agent, the Collateral Agent or any Lender
or Issuing Bank may have at law or in equity against any Borrower by virtue
hereof, upon the failure of a Borrower to pay any Obligation when and as the
same shall become due, whether at maturity, by acceleration, after notice of
prepayment or otherwise, each other Borrower hereby promises to and will, upon
receipt of written demand by the Administrative Agent, forthwith pay, or cause
to be paid, in cash the amount of such unpaid Obligations, and thereupon each
Lender shall, in a reasonable manner, assign the amount of the Obligations of
the other Borrowers owed to it and paid by such Borrower pursuant to this
guarantee to such Borrower, such assignment to be pro tanto to the extent to
which the Obligations in question were discharged by such Borrower, or make such
disposition thereof as such Borrower shall direct (all without recourse to any
Lender and without any representation or warranty by any Lender).
<PAGE>
106
(g) Upon payment by a Borrower of any sums as provided above, all
rights of such Borrower against another Borrower, as the case may be, arising as
a result thereof by way of right of subrogation or otherwise shall in all
respects be subordinated and junior in right of payment to the prior
indefeasible payment in full of all the Obligations to the Lenders and Issuing
Banks.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
MAGELLAN HEALTH SERVICES, INC.,
by /s/ James R. Bedenbaugh
Name: James R. Bedenbaugh
Title: Senior Vice President and Treasurer
<PAGE>
CHARTER BEHAVIORAL HEALTH SYSTEM OF NEW MEXICO, INC.,
by /s/ Charlotte Sanford
Name: Charlotte Sanford
Title: Treasurer
MERIT BEHAVIORAL CARE CORPORATION,
by /s/ Charlotte Sanford
Name: Charlotte Sanford
Title: Treasurer
THE CHASE MANHATTAN BANK, individually and as Administrative Agent, Collateral
Agent and an Issuing Bank,
by /s/ Laurie B. Perper
Name: Laurie B. Perper
Title: Vice President
FIRST UNION NATIONAL BANK, individually and as Syndication Agent and an Issuing
Bank,
by /s/ Joseph H. Powell
Name: Joseph H. Powell
Title: Senior Vice President
CREDIT LYONNAIS NEW YORK BRANCH, individually and as Documentation Agent and an
Issuing Bank,
by /s/ John Oberle
Name: John Oberle
Title: Vice President
<PAGE>
AMSOUTH BANK,
by /s/ Keith L. Law
--------------------------------------
Name: Keith S. Law
Title: Vice President
ARES LEVERAGED INVESTMENT FUND L.P.,
by /s/ Jeff Moore
--------------------------------------
Name: Jeff Moore
Title: Principal
THE BANK OF NEW YORK,
by /s/ Ronald Reedy
--------------------------------------
Name: Ronald Reedy
Title: Vice President
THE BANK OF NOVA SCOTIA,
by /s/ W.J. Brown
--------------------------------------
Name: W.J. Brown
Title: Vice President
BANK POLSKA KASA OPIEKI S.A.
PEKAO S.A. GROUP, NEW YORK BRANCH,
by /s/ Harvey Winter
--------------------------------------
Name: Harvey Winter
Title: Vice President
THE BANK OF TOKYO-MITSUBISHI TRUST COMPANY,
by /s/ Douglas Weir
--------------------------------------
Name: Douglas Weir
Title: Vice President
CREDIT AGRICOLE INDOSUEZ,
by /s/ Francoise Berthelot
--------------------------------------
Name: Francoise Berthelot
Title: Vice President
by /s/ Kenneth Kencel
--------------------------------------
Name: Kenneth Kencel
Title: Managing Director
<PAGE>
CYPRESSTREE INVESTMENT MANAGEMENT
COMPANY, INC.
AS: ATTORNEY-IN-FACT AND ON BEHALF OF FIRST
ALLAMERICA FINANCIAL LIFE INSURANCE COMPANY
AS PORTFOLIO MANAGER,
by /s/ Joseph A. Germain
--------------------------------------
Name: Joseph A. Germain
Title: Associate
DEBT STRATEGIES FUND, INC.,
by /s/ Lynn C. Baranski
--------------------------------------
Name: Lynn C. Baranski
Title: Authorized Signatory
DEEPROCK & COMPANY,
BY: EATON VANCE INVESTMENT
MANAGEMENT, INC.,
AS INVESTMENT ADVISOR,
by /s/ Scott H. Page
--------------------------------------
Name: Scott H. Page
Title: Vice President
DELANO COMPANY
BY PACIFIC INVESTMENT MANAGEMENT
COMPANY AS ITS INVESTMENT ADVISOR,
by /s/ Raymond Kennedy
--------------------------------------
Name: Raymond Kennedy
Title: Vice President
FIRST AMERICAN NATIONAL BANK,
by /s/ Sandy Hamrick
--------------------------------------
Name: Sandy Hamrick
Title: Authorized Signatory
GENERAL ELECTRIC CAPITAL CORPORATION,
by /s/ Holly Kaczmarczk
--------------------------------------
Name: Holly Kaczmarczk
Title: Duly Authorized
Signatory
KZH-CRESCENT-2 CORPORATION,
by /s/ Virginia Conway
--------------------------------------
Name: Virginia Conway
Title: Authorized Agent
KZH HOLDING CORPORATION III,
by /s/ Virginia Conway
--------------------------------------
Name: Virginia Conway
Title: Authorized Agent
<PAGE>
KZH-ING-2 CORPORATION,
by /s/ Virginia Conway
--------------------------------------
Name: Virginia Conway
Title: Authorized Agent
THE LONG TERM CREDIT BANK OF JAPAN,
LIMITED,
by /s/ Philip A. Marsden
--------------------------------------
Name: Philip Marsden
Title: Senior Vice President
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY,
by /s/ Roger W. Crandall
--------------------------------------
Name: Roger W. Crandall
Title: Managing Director
MASSMUTUAL CORPORATE VALUE PARTNERS
LIMITED,
By: MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY,
AS INVESTMENT MANAGER
by /s/ Roger W. Crandall
--------------------------------------
Name: Roger W. Crandall
Title: Managing Director
MASSMUTUAL/DARBY CBO LLC,
BY: MASSMUTUAL/DARBY CBO IM INC.
AS INVESTMENT MANAGER
by /s/ Roger W. Crandall
--------------------------------------
Name: Roger W. Crandall
Title: Managing Director
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.,
by /s/ Lynn C. Baranski
--------------------------------------
Name: Lynn C. Baranski
Title: Authorized Signatory
PARIBAS CAPITAL FUNDING LLC,
by /s/ Jeff Yale
--------------------------------------
Name: Jeff Yale
Title: Director
<PAGE>
PILGRIM AMERICA PRIME RATE TRUST,
by /s/ Daniel Norman
--------------------------------------
Name: Daniel Norman
Title: Senior Vice President
PRIME INCOME TRUST,
by /s/ Rafael Scolari
--------------------------------------
Name: Rafael Scolari
Title: S.V.P. Portfolio
Manager
SUMMIT BANK,
by /s/ Bruce Gray
--------------------------------------
Name: Bruce Gray
Title: Vice President
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
INCOME TRUST
by /s/ Jeffrey W. Maillet
--------------------------------------
Name: Jeffrey W. Maillet
Title: Sr. Vice President
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-20371 of Magellan Health Services, Inc. ("Magellan") on Form S-3 dated
January 24, 1997 of our report dated November 14, 1997, appearing in this
Current Report Form 8-K/A of Magellan dated April 2, 1998. Such report expresses
an unqualified opinion on the consolidated balance sheets of Merit Behavioral
Care Corporation (the "Company") as of September 30, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1997 and
includes an explanatory paragraph relating to the fact that effective October 1,
1995, the Company changed its method of accounting for deferred contract
start-up costs related to new contracts or expansion of existing contracts.
/s/ Deloitte & Touche LLP
New York, New York
March 31, 1998
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-01217 of Magellan Health Services, Inc. ("Magellan") on Form S-3, as amended
by Amendment No. 2, dated May 28, 1996 of our report dated November 14, 1997,
appearing in this Current Report Form 8-K/A of Magellan dated April 2, 1998.
Such report expresses an unqualified opinion on the consolidated balance sheets
of Merit Behavioral Care Corporation (the "Company") as of September 30, 1997
and 1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended September
30, 1997 and includes an explanatory paragraph relating to the fact that
effective October 1, 1995, the Company changed its method of accounting for
deferred contract start-up costs related to new contracts or expansion of
existing contracts.
/s/ Deloitte & Touche LLP
New York, New York
March 31, 1998
