<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report: July 5, 1996
------
Date of earliest
event reported: June 21, 1996
Community Psychiatric Centers
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 1-7008 94-1599386
- ------------- ----------------------- ------------------
(State of (Commission File Number) (IRS Employer
Incorporation Identification No.)
5110 West Sahara Avenue, Las Vegas, NV 89102
- ------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(702) 257-3600
- ----------------------------------------------------
(Registrant's telephone number, including area code)
6600 W. Charleston Boulevard, Suite 118, Las Vegas, NV 89102
- -------------------------------------------------------------
(former name or former address, if changed since last report)
<PAGE>
Item 2: Disposition of Assets:
On June 21, 1996, Community Psychiatric Centers ("CPC") completed the sale
of Priory Hospitals Group ("PHG"), the company's United Kingdom operations, to
Foray 911 Limited ("Foray"), a new corporation formed by Mercury Development
Capital, a division of Mercury Asset Management plc ("Mercury"), and other
investors for the purpose of acquiring PHG. After payment of taxes, severance
costs, employee performance bonuses, transaction fees and PHG's debt, net
proceeds are expected to be approximately $97 million, which includes a $4.6
million 15% subordinated note due 2009 issued by Foray. Interest is payable
quarterly, with none, 1/3, 2/3, and all of the annual interest being payable in
cash through November 30, 1997, 1998, 2001, and thereafter, respectively, and
the amount of accrued interest being payable upon each of the principal payment
dates. The principal amount of the note is to be re-paid in equal annual
installments beginning on June 30, 2004 with the final payment due on June 30,
2009. The total purchase price was approximately $135 million. Net proceeds from
Mercury's original non-binding offer, as reported on April 16, were estimated at
approximately $99 million. In addition, excluded from the sale was PHG's startup
secured training centers business, being developed under the name Youth Services
Ltd. ("YSL"), which CPC and a 20% joint venture partner intend to develop in the
U.K.
Upon receipt of the proceeds from the sale, the Company repaid $50 million
of outstanding bank debt which bore interest at an effective rate of
approximately 8%.
PHG operates 15 freestanding acute psychiatric hospitals and chemical
dependency facilities comprising 698 beds, including one 42-bed hospital that
was 50% owned by CPC. In addition, PHG manages a 13-bed psychiatric unit, a 10-
bed secured residential clinic and two 13-station kidney dialysis units for the
British government's National Health Service. Uses of the proceeds from the sale
of PHG being contemplated by CPC include the expansion of THC operations,
repayment of additional bank borrowings, general corporate purposes and other
measures which management believes would facilitate CPC's growth, strengthen its
balance sheet and enhance stockholder value.
<PAGE>
Item 5. Other Events.
------------
On June 21, 1996 the Board of Directors of Community Psychiatric Centers
(the "Company") declared a dividend of one preferred stock purchase right (the
"Rights") on each outstanding share of Company common stock, $1.00 par value per
share (the "Common Stock"), payable to stockholders of record on July 16, 1996.
Each Right will entitle the holder thereof after the Rights become exercisable
and until June 20, 2006 (or the earlier redemption, exchange or termination of
the Rights), to buy one one-hundredth of a share of Series B Junior
Participating Preferred Stock (the "Preferred Stock") at an exercise price of
$45.00, subject to certain antidilution adjustments (the "Purchase Price"). The
Rights will be represented by the Common Stock certificates and will not be
exercisable or transferable apart from the Common Stock until the earlier of (i)
the tenth day after the public announcement that a Person or group has become an
Acquiring Person (a Person who has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the Common Stock), or (ii) the tenth day
after a Person or group commences, or announces an intention to commence, a
tender or exchange offer, the consummation of which would result in the
beneficial ownership by a Person or group of 15% or more of the Common Stock
(the earlier of (i) and (ii) being called herein the "Distribution Date"). Prior
to the Distribution Date, the Board of Directors has the power, under certain
circumstances, to postpone the Distribution Date. Separate certificates
representing the Rights will be mailed to holders of the Common Stock as of the
Distribution Date. The Rights will first become exercisable on the Distribution
Date, unless earlier redeemed or exchanged, and may then begin trading
separately from the Common Stock. The Rights will at no time have any voting
rights.
In the event that a Person were to become an Acquiring Person (except
pursuant to certain cash offers for all outstanding Common Stock approved by the
Board of Directors of the Company) or if the Company were the surviving
corporation in a merger and its Common Stock were not changed or exchanged, each
holder of a Right, other than Rights that are or were acquired or beneficially
owned by the Acquiring Person (which Rights will thereafter be void), will
thereafter have the right to receive upon exercise that number of shares of
Common Stock having a market value of two times the then-current exercise price
of one Right. With certain exceptions, in the event that (i) the Company were
acquired in a merger or other business combination transaction in which the
Company is not the surviving corporation or its Common Stock is changed or
exchanged (other than a merger which follows certain cash offers for all
outstanding Common Stock approved by the Board) or (ii) more than 50% of the
Company's assets or earning power were sold, proper provision shall be made so
that each holder of a Right (except Rights which previously have been voided as
set forth above) shall thereafter have the right to receive, upon exercise
thereof, that number of shares of common
2
<PAGE>
stock of the acquiring company which at the time of such transaction would have
a market value of two times the then-current exercise price of one Right.
At any time after a Person has become an Acquiring Person and prior to the
acquisition of 50% or more of the then-outstanding Common Stock by such
Acquiring Person, the Board of Directors may cause the Company to acquire the
Rights (other than Rights owned by an Acquiring Person which have become void),
in whole or in part, in exchange for that number of shares of Common Stock
having an aggregate value equal to the excess of the value of the Common Stock
issuable upon exercise of a Right after a Person becomes an Acquiring Person
over the Purchase Price.
The Rights are redeemable at $0.01 per Right prior to the first date of
public announcement that a Person or group has become an Acquiring Person. Prior
to the expiration of the period during which the Rights may be redeemed, the
Board of Directors has the power, under certain circumstances, to extend the
redemption period. The Rights will expire on June 20, 2006 (unless earlier
redeemed or exchanged). Chase Mellon Shareholder Services is the Rights Agent.
Under certain circumstances set forth in the Rights Agreement, the decision to
redeem or to lengthen or shorten the redemption period shall require the
concurrence of a majority of the Continuing Directors (as defined in the Rights
Agreement).
The Purchase Price payable, and the number of shares of Preferred Stock or
other securities or property issuable upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Stock, (ii) upon the grant to holders of the Preferred Stock of certain rights
or warrants to subscribe for or purchase the Preferred Stock or convertible
securities at less than the current market price of the Preferred Stock, or
(iii) upon the distribution to holders of the Preferred Stock of evidences of
indebtedness, cash, securities or assets (excluding regular periodic cash
dividends at a rate not in excess of 125% of the last regular periodic cash
dividend theretofore paid or, in case regular periodic dividends have not
theretofore been paid, at a rate not in excess of 50% of the average net income
per share of the Company for the four quarters ended immediately prior to the
payment of such dividend, or dividends payable in the Preferred Stock) or of
subscription rights or warrants (other than those referred to above). No
adjustments in the Purchase Price will be required until cumulative adjustments
require an adjustment of at least 1% in such Purchase Price.
As of May 31, 1996, there were 44,395,753 shares of Common Stock
outstanding and 1,128,000 shares were reserved for distribution under the
Company's 1989 Stock Incentive Plan and the Company's Combined Stock Option Plan
for Key Employees. One Right will be distributed to stockholders of the Company
for each share of Common Stock owned of record by them on July 16, 1996. As long
as the Rights are attached to the Common Stock, the Company will issue one Right
with each new share of Common Stock so that all
3
<PAGE>
such shares will have attached Rights. Approximately 1,000,000 shares of
Preferred Stock have been reserved for issuance upon exercise of the Rights.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Company's Board of Directors, except pursuant to an
offer conditioned on a substantial number of Rights being acquired. The Rights
should not interfere with any merger or other business combination approved by
the Board of Directors prior to the time that a Person or group has become an
Acquiring Person, as the Rights may be redeemed by the Company at $0.01 per
Right prior to such time.
The Rights Agreement, dated as of June 21, 1996, between the Company and
the Rights Agent specifying the terms of the Rights, and the form of a letter to
be sent to the holders of the Company's Common Stock explaining the Rights, are
attached hereto as exhibits and are incorporated herein by reference. The
foregoing description of the Rights is qualified by reference to such exhibits.
Item 7. Exhibits.
--------
1. Agreement between Community Psychiatric Centers and Foray 911 Limited,
dated as of June 21, 1996, related to the sale of the entire issued
share capital of CPC (Londinium) Limited. The Agreement contains
certain attachments designated as "Approved Form Documents" which are
not included in this filing. The Company will furnish supplementally a
copy of any omitted attachment to the Commission upon request.
2. The Series A Loan Note dated June 21, 1996, made by Foray 911 Limited
and payable to Community Psychiatric Centers in the amount of 3
million British Pounds.
3. Inter-Creditor Agreement between the Royal Bank of Scotland, Mercury
Asset Management PLC, Foray 911 Limited and Community Psychiatric
Centers.
4. Rights Agreement, dated as of June 21, 1996, between Community
Psychiatric Centers and Chase Mellon Shareholder Services.
5. Form of Letter to the holders of Community Psychiatric Centers Common
Stock.
4
<PAGE>
Item 7. Financial Statements:
The following unaudited pro forma financial data gives effect to the sale
of PHG as described in Item 2, as if the sale occurred as of November 30, 1994
for purposes of the unaudited Pro Forma Condensed Combined Statements of
Operations and as of February 29, 1996 for purposes of the Unaudited Pro Forma
Condensed Combined Balance Sheet. The unaudited pro forma condensed combined
financial statements are based on historical audited financial statements for
the year ended November 30, 1995 and the unaudited financial statements as of
and for the three months ended February 29, 1996.
Pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions and adjustments described in the notes to
the Unaudited Pro Forma Condensed Combined Financial Statements. The unaudited
pro forma financial information presented herein is not necessarily indicative
of the results of operations or financial position that CPC would have obtained
had such events occurred at the beginning of the period, as assumed, or of the
future results of CPC. The unaudited pro forma financial statements should be
read in conjunction with the audited financial statements for the year ended
November 30, 1995 included in CPC's Form 10-K and the unaudited financial
statements for the three months ended February 29, 1996 included in CPC's Form
10-Q.
<PAGE>
<TABLE>
<CAPTION>
CPC
Pro Forma Condensed Combined Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three months ended February 29, 1996 Year Ended November 30, 1995
------------------------------------- -------------------------------------
UK UK
Operations Pro Forma Operations Pro Forma
Divested Pro Forma as Divested Pro Forma as
Historical (A) Adjustments Adjusted Historical (A) Adjustments Adjusted
------------------------------------------------ ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net operating revenues $123,409 $(15,254) $ $108,155 $506,663 $(63,319) $ $443,344
Investment and other income 486 173(B) 659 2,513 693(B) 3,206
------------------------------------------------ -----------------------------------------------
123,895 (15,254) 173 108,814 509,176 (63,319) 693 446,550
Costs and expenses:
Operating expense 97,393 (10,837) 86,556 384,818 (41,597) 343,221
General & administrative
expense 7,935 (1,016) 6,919 39,444 (3,338) 36,106
Bad debt expense 4,703 (150) 4,553 28,732 (504) 28,228
Depreciation & amortization 5,643 (857) 4,786 23,344 (3,215) 20,129
Interest expense 1,373 (295) 1,078 5,256 (632) 4,624
Settlement costs 0 45,985 45,985
Impairment loss 0 46,021 46,021
Restructuring charge 843 843 2,110 2,110
------------------------------------------------ -----------------------------------------------
117,890 (13,155) 104,735 575,710 (49,286) 526,424
------------------------------------------------ -----------------------------------------------
Income (loss) before taxes 6,005 (2,099) 173 4,079 (66,534) (14,033) 693 (79,874)
Income taxes (credit) 2,282 (735) 66(C) 1,613 (24,902) (4,912) 265(C) (29,549)
------------------------------------------------ -----------------------------------------------
Net income (loss) $ 3,723 $ (1,364) $107 $ 2,466 $(41,632) $ (9,121) $428 $(50,325)
Net income (loss) per share $ 0.09 $ 0.06 $ (0.95) $ (1.15)
Weighted average shares 43,702 43,702 43,642 43,642
outstanding
</TABLE>
See notes to unaudited proforma condensed combined financial statements.
<PAGE>
CPC
Pro Forma Condensed Combined Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
As of February 29, 1996
------------------------------------------------
UK
Operations
Historical Divested(A) Pro Forma
------------------------------------------------
(In thousands, except par value data)
<S> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 7,209 $ 89,626 $ 96,835
Accounts receivable less allowance for
doubtful accounts 119,136 (11,340) 107,796
Receivable from third parties under
reimbursement contracts 5,196 5,196
Prepaid expenses and other current assets 19,038 (2,324) 16,714
Property held for sale 19,169 19,169
Refundable and deferred income taxes 18,754 18,754
------------------------------------------------
Total current assets 188,502 75,962 264,464
Property, buildings and equipment, at cost
less accumulated depreciation 354,223 (57,899) 296,324
Deferred income taxes 21,218 21,218
Other assets 27,573 1,569 29,142
Goodwill 8,799 (4,557) 4,242
------------------------------------------------
$600,315 $ 15,075 $615,390
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable & accrued expenses $ 46,781 $ (6,824) $ 39,957
Income taxes payable 8,814 (5,131) 3,683
Current maturities on long-term debt 68,758 (5,102) 63,656
Accrued restructuring charges 1,875 1,875
------------------------------------------------
Total current liabilities 126,228 (17,057) 109,171
Long-term debt 31,328 (8,929) 22,399
Deferred compensation 2,013 2,013
Deferred income taxes 17,007 (2,322) 14,685
Obligation to be settled in common stock 21,250 21,250
Common Stock, par value $1 a share;
authorized 100,000 shares; issued
46,856 shares 46,856 46,856
Other Stockholders' equity 355,633 43,383 399,016
------------------------------------------------
$600,315 $ 15,075 $615,390
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Financial Statements reflect all
adjustments which, in the opinion of management, are necessary to present a fair
statement of the results for the periods presented. These statements do not
include certain disclosures required under generally accepted accounting
principles and, therefore, should be read in conjunction with the financial
statements and notes thereto included in the Form 10-K of CPC for the year ended
November 30, 1995. The accounting principles used in preparing these financial
statements are the same as the principles described in those statements. The
results for interim periods are not necessarily indicative of trends or of
results to be expected for a full year.
The adjustments to arrive at the Unaudited Pro Forma Combined Financial
Statements are as follows:
(A) To reflect the divestiture of Priory Hospitals Group ("PHG"), the
Company's United Kingdom operations. After payment of taxes, severance costs,
employee performance bonuses, transaction fees and PHG's debt, net proceeds are
expected to be approximately $97 million, which includes a $4.6 million 15%
subordinated note due 2009 issued by the buyer. CPC expects to record a net gain
of approximately $42 million after income taxes and other divestiture costs. The
net gain of $43.4 million reflected in the unaudited balance sheet represents
the gain that would have been recorded if the sale had occurred on February 29,
1996. For the quarter ended February 29, 1996 and fiscal year 1995, the divested
international operations generated net operating revenues of $15.3 million and
$63.3 million and net income of $1.4 million and $9.1 million, respectively.
Capital expenditures and acquisitions related to these operations totalled $3.0
million for the quarter ended February 29, 1996 and $11.3 million for fiscal
year 1995.
(B) To reflect interest income on the $4.6 million note due from Foray at
an annual interest rate of 15%.
(C) To reflect income taxes at CPC's effective tax rate of 38.2%.
<PAGE>
EXHIBIT INDEX
1. Agreement between Community Psychiatric Centers and Foray 911 Limited,
dated as of June 21, 1996, related to the sale of the entire issued
share capital of CPC (Londinium) Limited.
2. The Series A Loan Note, dated June 21, 1996, made by Foray 911 Limited
and payable to Community Psychiatric Centers in the amount of 3,000
British Pounds.
3. Inter-Creditor Agreement between the Royal Bank of Scotland, Mercury
Asset Management PLC, Foray 911 Limited and Community Psychiatric
Centers.
4. Rights Agreement dated as of June 21, 1996 between Community
Psychiatric Centers and Chase Mellon Shareholder Services, which
includes the form of Certificate of Resolution Establishing
Designations, Preferences and Rights of Series B Junior Participating
Preferred Stock of Community Psychiatric Centers as Exhibit A, the
form of Right Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Shares as Exhibit C.
5. Form of Letter to the holders of Community Psychiatric Centers Common
Stock.
6
<PAGE>
SIGNATURE
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.
COMMUNITY PSYCHIATRIC CENTERS
Dated: July 5, 1996 By Wendy Simpson
---------------------------
Chief Financial Officer
<PAGE>
EXHIBIT 1
DATED 21st JUNE 1996
------------------------------------------
(1) COMMUNITY PSYCHIATRIC CENTERS
and
(2) FORAY 911 LIMITED
------------------------------------------
ACQUISITION OF THE ENTIRE ISSUED
SHARE CAPITAL OF CPC (LONDINIUM) LIMITED
------------------------------------------
Biddle & Co.
1 Gresham Street
LONDON
EC2V 7BU
Tel: 071 606 9301
Fax: 071 606 3305
Ref: 30/4972X
<PAGE>
CONTENTS
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Clause
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1. Definitions and interpretations
2. Sale and Purchase
3. Waivers of Pre-emption Rights
4. Consideration
5. Completion
6. Representations, Warranties and Undertakings
7. Taxation Payments
8. Limitations on Relevant Claims
9. Restrictions
10. Vendor's Accounts
11. Announcements
12. Costs and Expenses
13. Entire Agreement
14. Successors
15. Effect of Completion
16. Further Assurance
17. Time of the Essence
18. Notices and Service of Process
19. Counterparts
20. Change of Name
21. Governing Law
Schedule
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First Shareholder
Second Directors and Secretary
Third Subsidiaries and Associated Companies
Fourth Property
Fifth Representations, Warranties and Undertakings
Sixth Taxation Claims
Seventh Cash and Working Capital Adjustment
Approved Form Documents
-----------------------
- Officers Resignation Letter
- Post Completion Powers of Attorney
- Evidence of the appointment and retirement of Pension Trustees
- Vendors letter of procurement of R Conte's services
<PAGE>
- Anti-embarrassment letter
- Loan Notes
- Side Letter re: taxation provisions
- US Legal Opinion - Certificates of Title
- Share transfer forms
<PAGE>
THIS AGREEMENT is made on 21st June 1996 BETWEEN:-
(1) COMMUNITY PSYCHIATRIC CENTERS whose principal place of business is at 5110
West Sahara Avenue, Las Vegas NV 89102, USA (Facsimile No. 001 702 257 3625)
("the Vendor")
(2) FORAY 911 LIMITED whose registered office is at 14 Fletcher Gate, Nottingham
NG1 2FX (Facsimile No. 0115 936 6001) ("the Purchaser")
WHEREAS:-
(A) The Company is a private limited company incorporated in England on 3
November 1987 under the Companies Act 1985, is registered with number
2188451 and has its registered office at The Priory, Priory Lane,
Roehampton, London SW15 5JJ.
(B) The Company has an authorised share capital of (Pounds)3,500,000 and US
161,063.13 divided into 3,500,000 ordinary shares of (Pounds)1.00 each of
which 3,407,203 are issued fully paid or credited as fully paid and
16,106,313 ordinary US shares of $0.01 each all of which are issued fully
paid or credited as fully paid.
(C) CPC Investment Corporation Inc ("the Shareholder"), a wholly-owned
subsidiary of the Vendor, is the beneficial owner of the whole of the issued
share capital of the Company.
(D) The persons named in the Second Schedule are the only directors and
secretary of the Company.
(E) The Company has the subsidiaries and associated companies details of which
are set out in the Third Schedule.
(F) The Vendor wishes to procure the sale of, and the Purchaser wishes to
purchase, the whole of the issued share capital of the Company upon the
terms and conditions set out in this Agreement.
<PAGE>
-2-
IT IS HEREBY AGREED as follows:-
- ------------------------------
1. DEFINITIONS AND INTERPRETATION
------------------------------
(a) In this Agreement the following words and expressions (unless the
context otherwise requires) have the following meanings:-
"Accounts" the audited financial statements of the
Company and of each Subsidiary, and the
audited consolidated financial statements
of the Company and the Subsidiaries, for
the accounting reference period ended on
the Accounts Date, each of which financial
statements comprise a balance sheet at the
Accounts Date, profit and loss account,
notes, directors' and auditors' reports and
other documents annexed thereto a copy of
which is attached to the Disclosure Letter.
"Accounts Date" 30 November 1995.
"approved form" in the form approved by the Vendor and the
Purchaser and for the purposes of
identification initialled by or on behalf
of the same or in the form executed at the
same time as this Agreement.
"Associated Companies" the companies details of which are set out
in Part 2 of the Third Schedule.
"business day" a day which in England is neither a
<PAGE>
-3-
Saturday nor Sunday nor a bank or other
public holiday.
"Bearer Shares" all the issued ordinary US shares of US
$0.01 each in the capital of the Company.
"Company" CPC (Londinium) Limited.
"Completion" performance of the obligations assumed by
the parties respectively under Clause 5.
"Completion Date" the date of Completion.
"Disclosure Letter" the letter including its attachments of the
same date as this Agreement from the Vendor
to the Purchaser disclosing facts for the
purpose of Clause 6(a) and delivered to the
Purchaser's Solicitors on or before the
execution of this Agreement.
"the Executive Pension the Priory Executive Pension and
Scheme" Assurance Scheme
"Group Company" the Company and the Subsidiaries (and, in
respect of the period immediately
following Completion, any holding company
of the Company and any other subsidiary of
such holding company from time to time).
"the Individual Pension the following:-
Arrangements"
(a) the plans established in 1978 through
Provident Mutual for Miss Baudonne and
Mrs. G F Murphy; and
<PAGE>
-4-
(b) the individual pension policies
through Equitable Life Assurance
Society established by Priory
Hospitals Group for John D Lambert,
Janis Lambert, David R. Matthews,
Stuart P Vere and David A Wakefield
"IHTA" Inheritance Tax Act 1984.
"Industrial Property" patents, trade marks, service marks, rights
(whether registered or unregistered) in any
designs, applications for any of the
foregoing, trade or business names,
copyright and other similar industrial or
commercial rights.
"Industrial Property agreements or arrangements relating
Agreements" wholly or partly to Industrial Property or
to the disclosure, use, assignment or
patenting of any inventions, discoveries,
improvements, processes, formulae or other
knowhow.
"Loan Notes" the secured loan notes 2004 to be issued by
the Purchaser pursuant to Clause 4(a) in
the approved form.
"the Management the management accounts of the Company and
Accounts" the Subsidiaries for the period from the
Accounts Date to 30th April 1996 a copy of
which is attached to the Disclosure Letter.
<PAGE>
-5-
"the Management 30th April 1996.
Accounts Date"
"the Paid-Up Schemes" the Priory Staff Pension and Assurance
Scheme, Pension 2000 Savingsplan for
Community Psychiatric Centers (London)
Unlimited, and the Regency Park Pension
Scheme
"the Pension Schemes" the Paid-Up Schemes, the Executive Pension
Scheme, the Staff Scheme, and the Teachers'
Scheme
"Property" the property described in the Fourth
Schedule.
"Purchaser's Accountants" Deloitte & Touche of Stonecutter Court, 1
Stonecutter Street, London EC4A 4TR.
"Purchaser's Solicitors" Eversheds of 14 Fletcher Gate, Nottingham
NG1 2FX
"Registered Shares" all the issued ordinary shares of (Pounds)1
each in the capital of the Company.
"relevant claim" a claim in respect of any of the Warranties
and/or in respect of a Taxation Claim
and/or under any other provision of this
Agreement, but excluding a claim in respect
of any of Clauses 2, 3, 4, 5, 6(b), 9 and
16.
"Shares" the Bearer Shares and the Registered
Shares.
"the Staff Scheme" the Priory Hospitals Group Retirement and
Death Benefits Scheme
<PAGE>
-6-
"Subsidiaries" the companies details of which are set out
in Part 1 of the Third Schedule.
"taxation" all forms of taxation whether of the United
Kingdom or elsewhere including (without
limitation) corporation tax (and any amount
assessed or assessable, or payable, as if
it were corporation tax), advance
corporation tax, income tax, capital gains
tax, development land tax, value added tax,
customs and other import duty, stamp duty,
stamp duty reserve tax, capital duty,
capital transfer tax, inheritance tax, pay
as you earn and national insurance and
social security contributions, sums
required by law to be deducted in respect
of or on account of any such taxation and
all penalties, fines, surcharges and
interest relating to any such taxation or
to any failure or delay in reporting any
matter or making any return required to be
reported or made (or any failure to do so
accurately and completely) to any authority
responsible for the administration of any
taxation.
"Taxation Claim" as defined in the Sixth Schedule.
"TCGA" Taxation of Chargeable Gains Act 1992.
"Taxes Act" Income and Corporation Taxes Act 1988.
<PAGE>
-7-
"the Teachers' Scheme" the Teachers' Superannuation Scheme
"VAT" value added tax.
"VATA" Value Added Tax Act 1994.
"Vendor's Group" the Vendor and any corporations (other than
the Group Companies) which at the relevant
time after Completion are subsidiaries or
subsidiary undertakings of the Vendor (or
which would have been had they been
incorporated in England).
"Vendors' Solicitors" Biddle & Co of 1 Gresham Street, London
EC2V 7BU.
"Warranties" the representations, warranties and
undertakings set out or referred to in
Clause 6 and in the Fifth Schedule.
(b) References in this Agreement to Clauses, Recitals or Schedules are to
clauses of and recitals or schedules to this Agreement and references
to this Agreement include all Recitals and Schedules.
(c) Any headings in this Agreement are for convenience only and do not
affect the construction or interpretation of this Agreement.
(d) Unless the context otherwise requires in this Agreement references to
the parties are references to the parties to this Agreement, the
singular includes the plural and vice versa, words implying one gender
shall be treated as implying any gender, and references to individuals
shall be treated as including corporations and vice versa.
(e) Whether a person is "connected" with another person shall be
determined in accordance with Section 839 of the Taxes Act.
(f) Words and expressions defined in the Companies Act 1985 bear the
<PAGE>
-8-
same meanings in this Agreement unless the context otherwise requires.
(g) References in this Agreement to any statute or statutory provision
include any statute or statutory provision which amends, extends,
consolidates or replaces the same or which has been amended, extended,
consolidated or replaced by the same and include any orders,
regulations, instruments or other subordinate legislation made under
the relevant statute Provided always that the obligations of the
parties under this Agreement shall not be increased by any such
amendment, extension, consolidation or replacement made after the date
of this Agreement or by any subordinate legislation made after the
date of this Agreement.
2. SALE AND PURCHASE
-----------------
(a) Subject to the terms of this Agreement the Vendor shall procure that
the Shareholder shall sell with full title guarantee, and the
Purchaser shall purchase, the Shares free from all claims, charges,
liens, encumbrances and equities and together with all rights attached
or accruing thereto and together with all dividends and distributions
declared, paid or made after the date hereof.
(b) The Purchaser shall not be obliged to complete the purchase of any of
the Shares unless the purchase of all of the Shares is completed
simultaneously.
3. WAIVERS OF PRE-EMPTION RIGHTS
-----------------------------
The Vendor shall procure that the Shareholder irrevocably waives all rights
of pre-emption over the Shares conferred on it either by the Articles of
Association of the Company or in any other way.
<PAGE>
-9-
4. CONSIDERATION
-------------
(a) Subject to the provisions of the Seventh Schedule, the Purchaser shall
pay a total consideration for the Registered Shares and the Bearer
Shares of (Pounds)88,418,289, which consideration shall be satisfied as
follows:-
(i) as to (Pounds)85,198,289 in cash payable at Completion to the
Shareholder or as the Shareholder shall direct;
(ii) as to (Pounds)3,000,000 by the allotment and delivery of the
Loan Notes to the Shareholder or as the Shareholder shall
direct;
(iii) as to the balance of (Pounds)220,000 in cash on the first
anniversary of Completion to the Shareholder or as the
Shareholder shall direct.
The consideration for the Registered Shares is (Pounds)100 in cash at
Completion, and the consideration for the Bearer Shares is the
balance of the total consideration specified in this Clause 4(a).
(b) If:-
(i) the Purchaser is obliged to pay any stamp duty on (or in
respect of the consideration attributed to) the Bearer Shares
and/or any penalty and/or interest in respect of late payment
of such stamp duty and makes such payment within 2 years of
Completion; or
(ii) during the 2 year period referred to in Clause 4(b)(i), the
Purchaser notifies the Vendor that the Inland Revenue claims
payment of an amount as referred to in Clause 4(b)(i) and the
Purchaser has paid the same to the Inland Revenue within 4
years of Completion
and produces appropriate evidence to such effect then the Vendor
shall pay to the Purchaser an amount equal to 75% of any such amount
paid to the Inland Revenue.
<PAGE>
-10-
5. COMPLETION
----------
The sale and purchase of the Shares shall be completed immediately after
execution of this Agreement at the offices of the Vendor's Solicitors or at
such other place as may be agreed between the parties, whereupon:-
(a) the Vendor shall cause to be delivered to the Purchaser's Solicitors:
(i) the certificate or certificates for the Shares together with a
transfer or transfers in the approved form of the Registered
Shares duly executed in favour of the Purchaser or as it may
direct;
(ii) transfers in the approved form of all shares in any Subsidiary
or Associated Company not held in the name of the Company duly
executed in favour of the Purchaser (or as it will direct)
together with the share certificates in respect of all the
issued shares of each Subsidiary or Associated Company (but
excluding transfers and certificates in respect of such shares
as are not beneficially owned by a Group Company, as identified
in the Third Schedule);
(b) the Vendor shall cause to be delivered to the Purchaser's Solicitors
or as the Purchaser may direct:-
(i) certificates of title ("Certificates of Title") or in the case
of such of the Property as is listed in the Fourth Schedule
reports on leases prepared by the Vendor's Solicitors or (in the
case of such of the Property known as Langside Priory Hospital,
Glasgow) by Archibald Campbell & Harley, WS in favour of the
Purchaser, the Purchaser's Solicitors, Mercury Asset Management
Plc and
<PAGE>
-11-
The Royal Bank of Scotland PLC and others in the approved form
(subject to a limitation of liability of (Pounds)50,000,000 in
aggregate) together with all deeds and documents relating to the
title of the Company and the Subsidiaries to the Property but
excluding the Land Certificate in respect of Woodbourne Clinic and
excluding original title deeds and documents to Langside Priory
Hospital and to such of the Property as is referred to at items 3 and
7 in the Fourth Schedule under the heading Unregistered Titles;
(ii) the written resignation of those directors of the Company and the
Subsidiaries in the approved form as the Purchaser shall direct and
subject to the Purchaser or the Company assuming any liability in
respect of any claim for compensation for loss of office (except as
regards R. Conte, W. Simpson and D. Wakefield) and (except as
aforesaid) the Purchaser hereby undertakes to indemnify and keep
indemnified the Vendor's Group from any liability, loss, cost or
expense in relation thereto;
(iii) the written resignation of the auditors of the Company and the
Subsidiaries confirming that they have no claims against the Company
or the Subsidiaries in respect of compensation for loss of office or
on any other account whatsoever and containing a statement pursuant
to Section 394 of the Companies Act 1985 to the effect that there are
no circumstances connected with their ceasing to hold office which
they consider should be brought to the attention of the members or
creditors of the Company or the Subsidiaries;
(iv) the Disclosure Letter;
(v) the certificate of incorporation, any certificate or
<PAGE>
-12-
certificates of incorporation on change of name, any common
seal (and any former common seal or seals), all minute books,
share registers and share certificate books (and any unissued
share certificates) and other statutory books (all such books
and registers being written up to, but not including,
Completion) and complete and up to date copies of the
Memorandum and Articles of Association of the Company and of
each of the Subsidiaries;
(vi) all books of account, cheque books, paying in books and unused
cheques of the Company and the Subsidiaries together with
statements from each of the banks at which they maintain
accounts of the amounts standing to the debit or credit of
such accounts at the close of business on the business day
preceding by no more than three business days the Completion
Date together also with duly signed instructions to such banks
in the approved form;
(vii) all documents of title relating to the investments and
securities of the Company and the Subsidiaries;
(viii) a power of attorney in the approved form in relation to the
exercise of the rights attached to the Registered Shares
during the period commencing on Completion and ending on the
registration of the Purchaser or its nominee as holder of the
Registered Shares;
(ix) all licences, certificates or other documents previously
specified by the Purchaser at the respective place of business
of each unit;
(x) all keys and credit cards (if any) of the Company and each
Subsidiary which are in the possession of or under the control
of the Vendor or any other person who resigns as
<PAGE>
-13-
an officer of any of such companies in accordance with this
clause 5;
(xi) evidence in the approved form of the appointment of such new
trustees to, and the retirement of such of the trustees of, the
Pension Schemes as the Purchaser may reasonably require;
(c) the Vendor shall procure that board meetings of the Company and of
each of the Subsidiaries are held at which the Vendor shall procure:-
(i) the appointment as secretary and as directors of the Company and
the Subsidiaries of such persons as the Purchaser may nominate;
(ii) the appointment of the Purchaser's Accountants as auditors of
the Company and of each of the Subsidiaries;
(iii) the cancellation of the existing bank mandates of the Company
and the Subsidiaries and the execution of new bank mandates in
such form as the Purchaser shall require;
(iv) that resolutions are passed to cancel the certificate(s)
delivered pursuant to sub-clause (a) of this Clause (other than
those relating to the Bearer Shares) and to register the
transfer(s) delivered pursuant to that sub-clause, subject to
their being re-produced duly stamped, and to seal and issue
certificates in favour of the transferees named in those
transfers;
(d) the Vendor shall further procure that:-
(i) any indebtedness owing by R Conte, W Simpson or D Wakefield and
persons connected with such persons is repaid in full with all
outstanding interest (whether due for payment or not);
<PAGE>
-14-
(ii) any indebtedness owing between the Company or any of the
Subsidiaries or the Associated Companies and the Vendor or any
other member of the Vendor's Group is or has been repaid
(whether by retirement, expiry or otherwise) in full with all
outstanding interest (whether due for payment or not);
(iii) the Company and each of the Subsidiaries is released from all
guarantees, indemnities, charges or other encumbrances granted
by any of them in respect of liabilities of the Vendor or any
other member of the Vendor's Group or the liabilities of any
directors of the Company or the Subsidiaries and persons
connected with any of such persons ;
(iv) the Company and each of the Subsidiaries is released from any
liability owed in favour of the Bank of America National Trust
and Savings Association and any other lender (other than
Midland Bank Plc) who has advanced cash or cash equivalent to
the Company or any of the Subsidiaries and is released from all
guarantees, indemnities, charges or other encumbrances in
relation thereto;
(v) the ISDA agreement disclosed at paragraph (21) of the
Disclosure Letter and all transactions thereunder are or have
been terminated.
and (without prejudice to the foregoing provisions of this Clause
5(d)) the Vendor undertakes that if any indebtedness of the Company
or any of the Subsidiaries or any Associated Company to or in respect
of the Vendor or any other member of the Vendor's Group or if any
such obligation as is referred to in paragraph
<PAGE>
-15-
(iii) of this sub-clause (d) is not fully repaid or released at
Completion the Vendor shall procure that the same is not enforced
after Completion;
(e) the Vendor shall procure the delivery of the letter in the approved
form for the provision of R. Conte's services on behalf of the Vendor
to the Purchaser;
(f) the Vendor and Mercury Asset Management Plc shall execute and deliver
the anti-embarrassment letter in the approved form;
(g) the Purchaser shall deliver a letter to the Vendor's Solicitors and
addressed to R. Conte relating to the collection of his personal
effects at Flat 5, Priory Court;
(h) the Vendor shall deliver to the Purchaser's Solicitors or its US
agents a legal opinion in the approved form;
(i) the Vendor and Purchaser shall each execute and deliver the side
letter relating to taxation provisions in the approved form;
(j) the Purchaser shall:-
(i) cause to be delivered to the Vendors' Solicitors cleared funds
in the sum of (Pounds)84,534,342 (of which (Pounds)30,000
represents the aggregate amount due as compensation for loss of
office for Mr J Ainley and Mr N Petrie, (Pounds)96,711
represents outstanding interest and management charges owed to
the Vendor and the balance represents the consideration payable
for the Shares);
(ii) deliver to the Vendor's Solicitors a certified copy of the
resolution of the board of directors authorising the execution
of this Agreement, the issue of the Loan Notes to the Vendor
and the carrying out of the other matters contemplated by this
Agreement;
<PAGE>
-16-
and the delivery of such funds and the allotment of the Loan Notes
shall constitute an absolute discharge to the Purchaser of the
purchase price for the Shares.
(k) The Vendor will procure that, on or immediately following Completion,
application is made (on behalf of the Company and the Subsidiaries)
to HM Customs & Excise for the removal of the Vendor from the PHG
Group with effect from the day following Completion (or such other
later date as HM Customs & Excise may require).
6. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS
--------------------------------------------
(a) The Vendor represents, warrants and undertakes to the Purchaser in
the terms set out in the Fifth Schedule (subject to Clause 8 and
provided however that the Purchaser will not be entitled to claim
that any fact or combination of facts constitutes a breach of any of
the Warranties if and to the extent that such fact or combination of
facts has been fairly disclosed by the Disclosure Letter so as to
enable a purchaser reasonably to be made aware of the same (including
for the avoidance of doubt, facts contained in the Purchaser's
reports from its advisers as such reports are listed in the
Disclosure Letter)) and the Vendor agrees and acknowledges that the
Purchaser is entering into this Agreement in reliance on the
Warranties. The rights and remedies of the Purchaser in respect of
the Warranties shall not be affected by the sale of the Shares, by
any investigation made by or on behalf of the Purchaser into the
affairs of the Company or of any of the Subsidiaries (save as
specified above) or by any other event or matter whatsoever.
<PAGE>
-17-
(b) The Vendor warrants to the Purchaser that no promise or representation
has been made to it in connection with the Warranties, the Disclosure
Letter or taxation in respect of which the Company or any of the
Subsidiaries might be liable and the Vendor undertakes to the Purchaser
that it will waive all rights it may have in respect of any
misrepresentation, inaccuracy or omission in or from information
supplied to it by the Company, any of its Subsidiaries or their
respective directors or employees in connection with the Warranties,
the Disclosure Letter or taxation and undertakes that it will not make
any claims against any such person in respect of any such
mispresentation, inaccuracy or omission; Provided however that the
Vendor's warranties and undertakings in this Clause 6(b) do not extend
to any promise or representation by, or right it may have against,
David Wakefield.
(c) Each of the Warranties shall be construed as a separate Warranty and
will not be limited or restricted by reference to, or inference from,
the terms of any other Warranty or any other term of this Agreement.
(d) The Vendor hereby undertakes with the Purchaser for itself and as
trustee for the Company and each Subsidiary to indemnify and keep
indemnified the Purchaser and each Group Company in respect of any
entitlement that the Purchaser or any Group Company may be required to
satisfy under the CPC stock incentive scheme or phantom stock option
scheme as a result of the participation by any employee or former
employee of any Group Company in any such scheme or by reason of any
such employee or former employee ceasing to be entitled to benefit
thereunder in consequence of
<PAGE>
-18-
the Group Companies ceasing to be subsidiaries of the Vendor, provided
that, with the exception of sub-clause (a)(iii) of Clause 8, and
subject as provided below in respect of sub-clause 8(e), Clause 8
shall not apply; provided further that the Purchaser shall not be
entitled to make a claim under this sub-clause 6(d) unless written
notice thereof (specifying reasonably full details of the
circumstances giving rise to the claim and an estimate of the total
amount claimed or potentially to be claimed in respect thereof) shall
have been received by the Vendor prior to the fifth anniversary of the
Completion Date, and unless any legal proceedings in connection with
it are commenced within 12 months after such written notice of the
claim is first served on the Vendor. For the avoidance of doubt, no
amount paid under this sub-clause (d) of Clause 6 shall form part of
or count towards the (Pounds)2,500,000 threshold referred to in sub-
clause (a)(iv) of Clause 8. Where any action is proposed to be taken
by the Company or any of the Subsidiaries or the Purchaser which may
lead to a claim by the Purchaser under this Clause 6(d) (and in
respect of which such party shall be deemed to be under a duty to take
reasonable steps to mitigate its loss) the Purchaser shall procure
that the Vendor is kept fully informed of the position and that any
agreement with any such employee or former employee will be subject to
the prior approval of the Vendor (such approval not to be unreasonably
withheld) and that any such action as aforesaid shall in good faith
take account of all proper observations and representations of the
Vendor with a view to minimising any liability of the Vendor under
this Clause 6(d)
<PAGE>
-19-
and in the case of a claim by a former employee the provisions of sub-
clause 8(e) shall also apply on the basis that the Purchaser
acknowledges that any dispute with such former employee will not
materially and adversely affect the goodwill of the Purchaser, the
Company or the Subsidiaries. If any relevant employee ceases to be
employed by any of the Group Companies for any reason, the Purchaser
shall notify the Vendor of the same within 30 days of such cessation.
(e) The Vendor hereby undertakes with the Purchaser for itself and as
trustee for the Company and each Subsidiary to indemnify and keep
indemnified the Purchaser and each Group Company against any liability
which constitutes a breach of the Warranty under paragraph (71) of the
Fifth Schedule, to the extent that such liability when aggregated with
any other such liability exceeds (Pounds)25,000; provided that of sub-
clauses (a)(iv) and (v) of clause 8, clause 8 shall not apply. For the
avoidance of doubt no amount paid under this sub-clause (e) of Clause
6 shall form part of or count towards the (Pounds)2,500,000 threshhold
referred to in sub-clause (a)(iv) to Clause 8.
7. TAXATION PAYMENTS
-----------------
(a) The Vendor shall, subject to the provisions in Clause 8, pay to the
Purchaser an amount equal to the amount claimed by or due under any
Taxation Claim or (as the case may be) equal to the taxation which
arises in relation to any Taxation Claim together with any reasonable
costs, fees and expenses reasonably incurred by the Company, the
Purchaser or any of the Subsidiaries in connection with any Taxation
Claim in respect of which the Vendor is liable to make a payment to
the Purchaser in accordance with the provisions of this Agreement.
<PAGE>
-20-
(b) Where the amount of any claim, credit, relief, repayment or other sum
falls to be determined in respect of a Taxation Claim, the Purchaser
may request the Company's auditors for the time being (acting as
experts and not as arbitrators) to certify such amount and any such
certificate shall be binding on the parties save in the case of
manifest error.
(c) The Purchaser shall procure that the Company and the Subsidiaries
shall co-operate with the Vendor in the preparation and submission of
tax returns relating to periods up to the Accounts Date and shall give
access to and copies of any papers or information which the Vendor may
reasonably require in respect of the tax liabilities for such periods.
All written communications with the Inland Revenue in respect of
corporation tax liabilities for periods up to the Accounts Date shall
be shown to the Vendor and subject to the Vendor's approval (not to be
unreasonably withheld or delayed) prior to being sent, and the
Purchaser agrees that all reasonable representations by the Vendor
will be incorporated accordingly. Where any action is proposed to be
taken by the Company or any of the Subsidiaries or by the Vendor or
the Purchaser, which will or might result in the tax liabilities in
question being such as to make the charge of (Pounds)2,723,333 for
corporation tax in the consolidated profit and loss account comprised
in the Accounts, and/or the provision of (Pounds)462,478 for other
taxation and Social Security provisions shown as creditors in the
Accounts, an under-provision the Vendor and the Purchaser each agree
to procure that the person taking responsibility for agreeing the tax
liabilities will keep the other fully informed of the position and
that any agreement with any revenue authority will be subject to the
prior approval of
<PAGE>
-21-
the other party (such approval not to be unreasonably withheld or
delayed) and that any such action as aforesaid shall in good faith
take account of all proper observations and representations by the
other party with a view to minimising or eliminating the shortfall in
the said taxation provision.
(d) The Purchaser shall procure that the Company and each of the
Subsidiaries join if required in the making of any capital gains tax
roll-over relief claim which will result in a reduction or
cancellation of any chargeable gain otherwise realised by any such
company but so that such claims shall only be required in relation to
asset disposals and acquisitions occurring before Completion.
(e) (i) If any deduction or withholding in respect of taxation is required
by law to be made from any payment by the Vendor or the
Shareholder to the Purchaser under this Clause 7 or if the
Purchaser is or becomes liable to make a payment of taxation or
increased taxation as a result of receiving or becoming entitled
to any payment ("the Initial Amount") by the Vendor or the
Shareholder under this Clause 7, the Vendor covenants with the
Purchaser to pay to the Purchaser or procure that the Shareholder
pays to the Purchaser such additional amount as is necessary to
ensure that the net amount received and retained by the Purchaser
(after taking account of such deduction or withholding or
taxation) is equal to the amount which it would have received and
retained had the payment in question not been subject to the
deduction or withholding or taxation. The date for payment of the
additional amount shall, in the case of a deduction or
withholding, be the date on which
<PAGE>
-22-
payment of the Initial Amount is made and, in the case of a
payment subject to taxation, shall be the date five business days
before the taxation or increased taxation referred to above falls
due for payment.
(ii) In sub-clause (i) above "the Purchaser" means Foray 911 Limited
only, and this "grossing up" clause in sub-clause (i) above shall
not apply in the case of any payments to or which belong to any
person other than Foray 911 Limited.
(f) Where the Vendor is required to make any payment to the Purchaser
under this Clause 7 (or other provision of this Agreement) the Vendor
may procure that the Shareholder shall make payment so as to discharge
the Vendor's obligation.
8. LIMITATIONS ON RELEVANT CLAIMS
------------------------------
(a) Notwithstanding any other provision of this Agreement (other than
Clauses 6(d) and 8(s):-
(i) the Purchaser shall not be entitled to make a relevant claim
unless written notice thereof or, in the circumstances referred
to in Clause 8(b)(viii), of the contingent liability which may
give rise to an actual liability (specifying reasonably full
details of the circumstances giving rise to the claim and an
estimate of the total amount claimed or potentially to be claimed
in respect thereof) shall have been received by the Vendor prior
to the sixth anniversary of the Completion Date in respect of any
relevant claim relating to taxation and prior to the second
anniversary of the Completion Date in respect of any other
relevant claim;
<PAGE>
-23-
(ii) a relevant claim will not be enforceable against the Vendor, and
shall be treated as of no force and effect whatsoever, unless
any legal proceedings in connection with it are commenced within
12 months after written notice of it is first served on the
Vendor; this paragraph will not apply where there is a delay of
more than 12 months arising solely as a result of the
Purchaser's compliance with paragraph (a)(vi) or (b)(viii) below
provided that legal proceedings are commenced within a
reasonable time after the date on which it becomes clear that
recovery from any third party will not be possible or (as the
case may be) that the contingent liability has become an actual
liability (provided such liability becomes actual prior to the
tenth anniversary of the Completion Date in respect of claims
relating to taxation and the sixth anniversary of the Completion
Date in respect of any other relevant claim), and in any event
within 12 months of that date;
(iii) the aggregate liability of the Vendor in respect of all relevant
claims and other claims under this Agreement and the tax side
letter shall be limited to the aggregate consideration received
and not repaid under Clause 4 ;
(iv) the Vendor shall only be liable in respect of any relevant claim
if the amount of that and all other relevant claims shall exceed
(Pounds)2,500,000 in aggregate in which event the Purchaser
shall be entitled to make claim in full in respect of any
relevant claim and not just the excess and
<PAGE>
-24-
provided that any amounts in respect of and to the extent to
which the Vendor is liable to make a payment to the Purchaser
pursuant to the provisions of the tax side letter, or for which
the Vendor is not liable in any event in accordance with Clause
2(c) or (d) or 6(b) of the tax side letter shall be excluded
altogether in connection with or in aggregating relevant claims
for the purposes of the threshold in this sub-clause (iv)
(v) individual relevant claims of (Pounds)25,000 or less shall be
ignored for all purposes and the Purchaser shall be entitled to
make no claim whatsoever in respect thereof and, for the purposes
of this Clause only, where two or more Taxation Claims arise from
the same subject matter which gives rise to a particular Taxation
Claim, the same shall be treated as one;
(vi) where the Purchaser or any Group Company is entitled to recover
from some other person (including any taxation authority but
excluding any other Group Company) any sum in respect of any
matter or event which has given rise to a relevant claim against
the Vendor, the Purchaser shall procure that it or any Group
Company (as appropriate) shall take all reasonable steps to
recover that sum, and any sum recovered (whether by way of
repayment, set off, credit or otherwise) together with any
interest or other amount recovered thereon in addition ("the
recovered amount") will reduce by the same amount the amount of
the relevant claim. Except in respect of a Taxation Claim, no
claim shall (without prejudice to the Purchaser's right to
<PAGE>
-25-
notify the Vendor of a relevant claim under Clause 8(a)(i)) be made by
the Purchaser against the Vendor pending such attempts at recovery but
if, for whatever reason, a claim has been satisfied by the Vendor
prior to such recovery an amount equal to the recovered amount (or if
less, the full amount of the claim previously satisfied) will be paid
to the Vendor forthwith upon recovery. In the case of a relevant claim
which relates to taxation, the recovered amount shall be calculated
less the reasonable costs of recovery, and if, subsequent to any
payment by the Vendor in respect of a Taxation Claim, any reduction
(including discharge) of a Taxation Claim is made or if the ultimate
liability in respect of the Taxation Claim falls short of the amount
of the Taxation Claim the Purchaser shall promptly repay to the Vendor
an amount equal to such reduction or shortfall as if the same were a
recovered amount (together with any supplement received in respect of
the same). In the case of the recovery of any sum from any of the
professional consultants (being the medical directors, therapists and
sessional workers and any other similar categories) who at the
relevant time is or remains engaged on an on-going basis to provide
services to any Group Company and who has been paid gross (as a self-
employed person and not an employee), no Group Company shall be bound
to take action to recover any such sum where it is reasonably of the
opinion that by doing so it would prejudice and adversely affect its
on-going relationship with the consultant
<PAGE>
-26-
concerned to the detriment of the business and goodwill of that Group
Company; Group Companies will however be obliged to seek the
reasonable assistance and co-operation of all such professional
consultants paid on a gross basis in providing information to the
Vendor and/or to the Inland Revenue and/or the Department of Social
Security with a view to eliminating or minimising any income tax or
national insurance contributions liabilities sought to be recovered
by the Inland Revenue and/or the Department of Social Security from
any Group Company in respect of payments by any Group Company to the
professional consultants, and to otherwise assist the Vendor to a
reasonable extent in liaising with relevant individuals for the
purpose of procuring such information;
(vii) the Purchaser shall as soon as reasonably practicable inform the
Vendor in writing of any event which comes to the notice of the
Purchaser or any Group Company whereby it appears that the Vendor is
or may become liable to make any payment under the Warranties and/or
in respect of a Taxation Claim and, in the case of a claim relating
to taxation, notice shall in any event, but only so far as reasonably
practicable, be given in sufficient time to enable the Vendor to
instruct the Purchaser to lodge on behalf of any such company a
notice of appeal with the relevant taxation authorities, and the
Purchaser shall make available to the Vendor all such information as
may be available to it and any such company in connection with the
potential liability; failure to notify the Vendor as
<PAGE>
-27-
soon as is reasonably practicable pursuant to the above
provisions of this sub-clause will not invalidate any claim but
will (if relevant) be taken into account in assessing any
damages payable.
(b) The Vendor will not be liable in respect of a relevant claim:-
(i) if or to the extent that the relevant claim would not have
arisen but for the creation and issue on or before 6 June 1996
of 3,407,203 Bearer Shares or anything done or omitted to be
done on or before Completion at the written request or with the
written approval of the Purchaser provided however that the
issue of any of the Shares by the Company on the date hereof and
the arrangements made and to be made on the date hereof to repay
indebtedness shall not be treated as done at the request or with
the approval of the Purchaser for the purposes of this sub-
clause (i);
(ii) if or to the extent that the relevant claim would not have
arisen but for anything voluntarily done or omitted to be done
outside the ordinary course of business after Completion by the
Purchaser or any Group Company or any of their respective agents
or successors in title which the Purchaser knew or ought
reasonably to have known would give rise to the relevant claim;
(iii) to the extent that it arises or is increased as a result of any
change in the basis or method of calculation of any assets or
liabilities or in the treatment of timing differences adopted by
any Group Company after the date of this Agreement except to the
extent to which such change
<PAGE>
-28-
is necessary in order to correct an accounting policy of any
such company which did not comply with any relevant Statement of
Standard Accounting Practice or Financial Reporting Standard in
force at the date of preparation of the Accounts or relevant
earlier accounts of any such company;
(iv) to the extent that it arises from or is increased by a change of
law or of published Inland Revenue, Customs & Excise or
accountancy practice, in either case announced after the date of
this Agreement ;
(v) to the extent that it would not have arisen but for a revision
of any allowance, relief, credit or repayment previously claimed
or taken into account or assumed to be available in the
preparation of the Accounts, unless the same is voluntarily
effected by any Group Company after the date of this Agreement;
(vi) to the extent that it relates to any loss for which the
Purchaser or any Group Company is indemnified by insurance or
for which it would have been so indemnified if at the relevant
time there had been maintained with a no less reputable
insurance company valid and adequate insurance cover of the same
type as, and for at least the same amount of cover as, and on no
less favourable terms and conditions than that which was in
force in relation to the relevant Group Company at the date of
this Agreement;
(vii) to the extent that it is provided for or included as a liability
or disclosed in the Accounts including but not limited to items
included in calculating creditors or
<PAGE>
-29-
deducted in calculating debtors in the Accounts or is taken
into account in determining the Value of Cash or the Value of
the Working Capital in the Completion Accounts pursuant to the
Seventh Schedule;
(viii) to the extent that it relates to any liability which is
contingent only unless and until such contingent liability
becomes an actual liability and is due and payable;
(ix) to the extent that it relates to any liability for taxation
arising in the ordinary course of business of the Company or
any of the Subsidiaries after the Accounts Date and in the
period up to and including Completion or arising out of the
execution and completion of this Agreement (including the
documents in the approved form other than the Disclosure
Letter) (and for the avoidance of doubt the reference to a
liability for taxation arising in the ordinary course of
business includes, without limitation, any such liability
resulting from the disposal of any fixed asset by the Company
or any of the Subsidiaries on arms length terms to a third
party purchaser not being connected with such company and
excludes any liability to income tax or national insurance
contributions mentioned in Clause 2(e) of the tax side letter
which arises out of a failure to deduct or account for any
taxation on payments referred to therein and any VAT liability
in respect of management services mentioned in Clause 2(d) of
the tax side letter) ;
(x) to the extent that it results from any company ceasing at any
time after Completion to be a member of the same group of
companies as the Company;
<PAGE>
-30-
(xi) to the extent that the subject of such relevant claim has been
or is made good or is otherwise compensated for without loss to
the Purchaser or the Company.
(xii) in respect of a relevant claim under paragraph (55)(g) of the
Fifth Schedule only, to the extent that such claim would not
have arisen had the Purchaser not:-
(aa) conceded that any person was under any liability to any
other person such as would cause the Vendor to be in
breach of Warranty (55)(g) unless it was so obliged by
the terms of a Court Order, or an Industrial Tribunal or
Pensions Ombudsman decision; or
(bb) advised any person that such person might in any way be
entitled to such rights as would be inconsistent with
Warranty (55)(g), or assisted or procured assistance for
any such person in bringing a claim for such rights; or
(cc) procured or advised that any other person took any action
which if it had been taken by the Purchaser would have
fallen within paragraphs (aa) or (bb) above.
(c) The amount of any taxation credits, allowances, reliefs, set-offs or
rights of repayment due to (and whether ascertained before or
<PAGE>
-31-
after the date hereof) or already received by the Company or any of the
Subsidiaries in respect of any period ending on or prior to the
Accounts Date shall, to the extent that the same has not been taken
into account in the Accounts, be set off against the Vendor's liability
in respect of any relevant claim to the extent which they are available
to reduce the amount of any taxation, or give rise to any right to
repayment of taxation, of or for the Company or any of the
Subsidiaries. For the avoidance of doubt any amount which is a
corresponding saving in sub-clause (t) below shall be dealt with under
that sub-clause and not be treated as an amount for the purpose of this
sub-clause (c).
(d) A breach of any warranty or undertaking which is capable of remedy
shall not entitle the Purchaser to compensation unless the Vendor is
given written notice of such breach and such breach is not remedied
within 30 days after the date on which such notice is served on the
Vendor.
(e) The Purchaser and each of the Group Companies shall take such action
and give such information and assistance (subject to the Purchaser and
such company (as appropriate) having been indemnified and secured to
the Purchaser's reasonable satisfaction as to costs and expenses by the
Vendor) as the Vendor may reasonably require to mitigate, avoid,
dispute, resist, appeal, compromise or defend any claim or matter which
gives rise to a relevant claim. No admission of liability to a claim
or compromise thereof shall be made without the prior written agreement
of the Vendor. If the Purchaser shall be in breach of the above
provisions of this Clause 8(e), the Vendor shall, subject only to the
Vendor securing the Purchaser to the
<PAGE>
-32-
reasonable satisfaction of the Purchaser against any losses damages
and reasonable costs and expenses in respect thereof, have the right
at its expense of investigating, resisting appealing and settling and
otherwise conducting in the name of the Purchaser or (as the case may
be) the Company or any Group Company any claim, or matter giving rise
to a relevant claim and to have any claim conducted by professional
advisers nominated and instructed by it for this purpose provided that
the Purchaser is given notice of any action prior to it being taken
and, in circumstances where the goodwill of the Company or any of the
Subsidiaries will not be materially and adversely affected by bringing
such an action, the Purchaser shall consent to such an action being
taken. The Vendor agrees that it shall not be reasonable for it to
require any action which shall materially and adversely affect the
goodwill of the Company or any of the Subsidiaries, and it shall not
refuse agreement of any admission of liability or compromise
reasonably necessary in circumstances where such goodwill shall
otherwise be materially and adversely affected.
(f) The Vendor will not be liable in respect of a relevant claim by the
Purchaser under any provision of this Agreement if and to the extent
that the loss is or has been recovered under any other provision of
this Agreement.
(g) If the Vendor is liable to the Purchaser in respect of a relevant
claim by reason of an obligation of the Company or any of the
Subsidiaries to pay advance corporation tax or any sum due from such
company as if it were advance corporation tax, the liability
<PAGE>
-33-
of the Vendor shall be reduced, and any amount paid to the Purchaser
in respect of such liability shall be refunded when and to the extent
that the relevant company obtains the benefit of a reduction in
liability to or repayment of taxation following such payment by any
such company. The Purchaser shall procure that such company makes all
such claims and elections as will result in such benefit being
obtained as soon as reasonably possible.
(h) Where to the extent that a relevant claim relates to a liability for
taxation, no payment shall be due from the Vendor until the following
dates:-
(i) to the extent that the relevant claim includes taxation which
has not yet become due, the date five days before the day on
which that taxation becomes legally due and payable;
(ii) to the extent that the relevant claim relates to the
nullification or cancellation of a right to repayment of
taxation, the date on which that repayment would otherwise have
become due;
(iii) to the extent that the relevant claim relates to the denial of
any allowance, relief or credit, the date on which taxation
becomes due as a result of that denial;
but in any event (and notwithstanding the above) no amount shall be
payable by the Vendor earlier than 14 days after the date on which
notice setting out details of the relevant claim is delivered to the
Vendor.
(i) Where an amount may be applied or set off by the Vendor to reduce the
amount payable under a relevant claim then:-
<PAGE>
-34-
(i) if the amount is ascertained before payment has been made in
respect of any relevant claim the like consequences shall follow
as if the relevant claim were for the reduced amount; and
(ii) if the amount is ascertained after payment has been made in
respect of one or more relevant claims such claims shall be
reduced accordingly and any resulting overpayment shall be
repaid forthwith to the Vendor; and
(iii) in either case, the de minimis provisions in sub-clauses (a)
(iv) and (v) of this Clause shall operate as if the claims paid
or payable were for the reduced amounts.
(j) If the Purchaser is entitled to make a claim in respect of any act,
event or default both under the Warranties and also in respect of a
Taxation Claim the Purchaser shall not be entitled to recover more
than once in respect of the same act event or default
(k) Nothing in this Agreement shall be deemed to relieve the Purchaser or
any Group Company from a duty to the Vendor to mitigate its loss in
respect of a relevant claim or otherwise but the duty to mitigate is
subject to the proviso absolving Group Companies from seeking to
recover sums from the professional consultants as set out in Clause
8(a)(vi) above;
(l) The Purchaser shall procure that each of the Group Companies complies
with the provisions of this Clause 8.
(m) Any amount paid by the Vendor under or in respect of any relevant
claim shall be treated as a reduction in the consideration payable by
the Purchaser to the Vendor under this Agreement.
<PAGE>
-35-
(n) The provisions of this Clause will not be discharged or cease to have
effect or be limited in any way in consequence of any provision of
this Agreement or any document referred to in this Agreement.
(o) The Purchaser shall not be entitled to rescind this Agreement.
(p) The Purchaser hereby undertakes as a separate covenant with the Vendor
to indemnify it and at all times keep it indemnified against any
taxation, additional taxation or other liability (including all costs,
fees and expenses incurred in connection with such taxation or other
liability) which may arise or accrue (whether alone or in conjunction
with other events, circumstances, acts, omissions or transactions) to
the Vendor directly or indirectly in consequence of or in connection
with or by reference to:-
(i) the payment by the Company or any of the Subsidiaries after
Completion of an abnormal amount by way of dividend (as defined
in Section 709(4) Income and Corporation Taxes Act 1988); or
(ii) the distribution or the appropriation of or any other dealing
with the whole or part of the assets of the Company or any of
the Subsidiaries after Completion otherwise than in the ordinary
course of their existing businesses
but for the avoidance of doubt this indemnity shall not apply in
respect of circumstances giving rise to a liability of the Vendor to
make any payment to the Purchaser under this Agreement or under the
side letter relating to taxation provisions referred to in Clause
5(k).
<PAGE>
-36-
(q) The Purchaser shall procure that the Company and each of the
Subsidiaries utilise all deductions, reliefs and claims relating to
taxation and which have accrued in respect of periods up to the
Accounts Date in such a way including, without limitation, by way of
surrender of group relief and/or ACT to any other Group Company as to
minimise taxation which could give rise or has given rise to a claim
against the Vendor under this Agreement provided that:-
(i) there shall be no obligation to utilise any such deductions,
reliefs or claims to the extent that by doing so either:
(aa) the corporation tax charge on consolidation of
(Pounds)2,723,333 in the Accounts effectively represents an
underprovision, unless by virtue thereof the Purchaser has a
separate right of recovery, thereupon enforceable, against
the Vendor; or
(bb) there is a reduction in the amount of any taxation for which
the Vendor is liable to make a payment to the Purchaser
under the tax side letter of even date ("the tax letter") at
the expense of a corresponding increase in the amount of any
taxation for which the Vendor would be liable to make a
payment to the Purchaser pursuant to Clause 7 but for the
application of the de minimis thresholds contained in Clause
8(a)(iv) and (v) of this Agreement; and
(ii) (for the avoidance of doubt) this sub-clause (q) shall not
require any election to carry back reliefs or claims which accrue
in respect of periods after the Accounts Date.
<PAGE>
-37-
(r) The Purchaser shall not be entitled in respect of a relevant claim to
any right of deduction set off or counterclaim under the Loan Notes,
the deferred consideration payable under Clause 4(a)(iii) or any
payment to be made under the letter in the approved form of the
provision of R Conte's services on behalf of the Vendor to the
Purchaser and the Purchaser hereby unconditionally and irrevocably
waives any such right that it might otherwise have had but for this
sub-clause (r).
(s) Notwithstanding any other provisions of this Agreement, the
limitations on relevant claims contained in this Clause 8 shall not
apply to exclude or or limit the liability of the Vendor to the extent
that any claim arises by reason of any fraud dishonesty or wilful
mistatement by or on behalf of the Vendor.
(t) (i) If as a result of any liability to taxation (or the circumstances
or matter giving rise to any such liability to taxation) for or
in consequence of which the Vendor is liable to make or has made
a payment to the Purchaser under Clause 7 the Company or any of
the Subsidiaries obtains a reduction in or the elimination of any
liability to make a payment of taxation (other than (and then to
the extent of) such a liability in respect of which the Vendor is
liable to make a payment to the Purchaser under Clause 7 or under
the tax letter by the use of a benefit, saving, credit, allowance
or relief arising directly as a result of the matter which gives
rise to the first liability to taxation (a "Corresponding
Saving"), the amount or value of such Corresponding Saving (if
not agreed between the parties, then as determined and certified
by the auditors for the time being of the Company acting as
experts whose
<PAGE>
-38-
costs shall be borne by the Vendor unless the auditors (as experts)
determine on the application of the Vendor that the Purchaser's
assessment of the amount in question was an unreasonable one) shall be
dealt with in accordance with (t)(ii) of this clause 8;
(ii) Where pursuant to (t)(i) of this Clause 8 any Corresponding
Saving is obtained, it shall be dealt with in accordance with
this sub-clause:-
(aa) the amount or value of the Corresponding Saving shall
first be set off against any payment then due from the
Vendor under Clause 7 or the tax letter;
(bb) to the extent that there is an excess, refund shall be
made to the Vendor of any previous payment or payments
made by it under Clause 7 or the tax letter; and
(cc) to the extent that the excess referred to in (bb) is not
exhausted under that sub-clause an amount equal to the
remainder of that excess shall be set against and reduce
pro tanto any claim that subsequently may be made against
the Vendor under Clause 7 or the tax letter.
(iii) If any taxation liabilities included in creditors in the
consolidated balance sheet comprised in the Accounts are shown
or prove to be or to have included any over-provision in
respect of such taxation liabilities the amount of any such
over-provision (if not agreed, then as determined by the
conditions as set out in (t)(i) above) shall also be dealt with
under (t)(ii) above in the same way as a Corresponding Saving.
<PAGE>
-39-
9. RESTRICTIONS
------------
(a) Subject to Clause 9(c) the Vendor undertakes with the Purchaser that
it shall not, and it shall procure that no other member of the
Vendor's Group shall, at any time:-
(i) unless required to do so by law, disclose to any person any
confidential information of a technical, trade or other
character which it has acquired in the course of or as a result
of its position as a member of the same group as the Group
Companies;
(ii) use to the detriment of the Company or of any of the
Subsidiaries any confidential information of a technical, trade
or other character which it has acquired in the course of or as
a result of its position as a member of the same group as the
Group Companies
Provided that none of the restrictions contained in sub-clauses (a)(i)
and (ii) of this Clause shall apply in respect of any confidential
information which enters the public domain unless it does so by reason
of its unauthorised publication by or the unauthorised act of a member
of the Vendor's Group;
(iii) after the Completion Date in any way hold itself out, or permit
itself to be held out, as being interested in, or in any way
connected with, the Company or any of the Subsidiaries;
(iv) after the Completion Date, use the name "Harvard" in any
business competing with Harvard Medical Limited and in
particular shall not use the name "Harvard" in the Guam
operation of the Vendor.
(b) Subject to Clause 9(c) the Vendor further undertakes with the
Purchaser that for a period of three years from the Completion Date
neither it nor any other member of the Vendor's Group shall:
<PAGE>
-40-
(i) be interested, engaged or concerned in any business which
competes within the United Kingdom with any business carried on
by the Company or by any of the Subsidiaries now or at any time
during the period of twelve months prior to the Completion
Date;
(ii) without prejudice to the provisions of sub-clause (b)(i) of
this Clause, in relation to any services supplied in
competition with the business of the Company or of any of the
Subsidiaries, deal with or solicit or entice the custom of any
person who was a customer of the Company or of any of the
Subsidiaries at any time during the period of twelve months
prior to the Completion Date;
(iii) without prejudice to the provisions of sub-clause (b)(i) of
this Clause, in relation to any services supplied in
competition with the business of the Company or of any of the
Subsidiaries, deal with or solicit or entice the business of
any person who was a supplier to the Company or any of the
Subsidiaries at any time during the period of twelve months
prior to the Completion Date;
(iv) other than Richard Conte, David Wakefield or Wendy Simpson in
respect of services outside the United Kingdom (and except for
the provisions of the letter in the approved form in respect of
R Conte's services) employ or offer employment to, or endeavour
to employ, or solicit, or endeavour to entice away, or conclude
or offer to conclude any contract for services with, any person
who was at any time during the period of twelve months prior to
the Completion Date a director, manager or senior employee of
or consultant to the Company or any of the Subsidiaries.
<PAGE>
-41-
(c) Notwithstanding the foregoing provisions of this Clause:
(i) the operation or marketing by any member of the Vendor's Group
of or in respect of a substance abuse clinic (having not more
than 36 beds) situated in Antigua shall not represent a breach
of sub-clauses (a) or (b) of this Clause;
(ii) the operation or marketing by any member of the Vendor's Group
of the business transferred pursuant to the sale agreement
disclosed under paragraph (69) of the Disclosure Letter ("YS
Agreement") shall not represent a breach of sub-clauses (b)(i),
(b)(ii) or (b)(iii) of this Clause;
(iii) sub-clause (b)(i) of this Clause shall not restrict any member
of the Vendor's Group from being interested, engaged or
concerned in a business (being a residential co-educational
psycho-dynamic therapeutic single-centre community for severely
emotionally damaged adolescents aged 11 to 18) which competes
with the business carried on at Jacques Hall, Harwich Road,
Bradfield, Manningtree and which is not conducted at premises
within a radius of 150 miles of Jacques Hall, and sub-clause
b(ii) and (b)(iii) of this Clause shall not apply in relation
to any business permitted by this sub-clause (c)(iii);
(iv) sub-clause (b)(i) of this Clause shall not restrict any member
of the Vendor's Group from being interested, engaged or
concerned in a business (being a residential school for boys
aged 8 to 19 with mild or moderate learning difficulties and
also social, emotional or behavioural problems) which competes
with the business at
<PAGE>
-42-
Eden Grove, Chapel Street, Bolton and which is not conducted at
premises within a radius of 150 miles of Eden Grove and sub-
clauses (b)(ii) and (b)(iii) of this Clause shall not apply in
relation to any business permitted by this sub-clause (c)(iv).
(d) Each of the restrictions contained in sub-clauses (a) and (b) of this
Clause shall apply to each member of the Vendor's Group if it carries
on the relevant activities either directly or indirectly, or alone or
jointly with another, or (without prejudice to the generality of the
foregoing) as manager, adviser, consultant or agent for any other
person, or as a shareholder or director of a company, provided that
they shall not apply where the activity consists solely of the holding
of securities listed on a stock exchange or dealt in on a public
securities market which does not exceed three per cent in nominal
value of the securities of that class.
(e) The Vendor agrees that in all the circumstances of this Agreement the
restrictions and provisions contained in this Clause are reasonable
and necessary for the protection of the Company, the Subsidiaries and
the Purchaser and the Vendor further agrees that having regard to
those circumstances such restrictions and provisions do not work
harshly on it or any other member of the Vendor's Group.
(f) Without prejudice to the foregoing, the parties agree that if such
restrictions and provisions taken together shall be judged to go
beyond what is reasonable in all the circumstances for the protection
of the Company, the Subsidiaries and the Purchaser, but would be
judged reasonable if part or parts of the wording
<PAGE>
-43-
thereof were deleted or the area of operation or the period of
application reduced, the said restrictions and provisions shall apply
with such modifications as may be necessary to make them valid and
effective.
(g) The Purchaser undertakes to procure that Priory Hospitals Group
Limited and Priory Childcare Services Limited shall honour their
obligations under the YS Agreement.
(h) Notwithstanding any other provisions of this Agreement, if there is
any provision in this Agreement, or in any agreement or arrangement of
which this Agreement forms a part, which causes or would cause this
Agreement (or such agreement or arrangement) to be registrable under
the Restrictive Trade Practices Act 1976 (as amended), then that
provision shall not take effect until the day after particulars of
this Agreement (or such agreement or arrangement, as the case may be)
have been furnished to the Director General of Fair Trading.
10. VENDOR'S ACCOUNTS
-----------------
The Purchaser undertakes that it will on request use all reasonable
endeavours to provide the Vendor (at the Vendor's cost) with such
assistance as the Vendor reasonably requires in connection with the
preparation and audit of the Vendor's accounts for its financial year
ending on 30th November 1996 including granting the Vendor or its
accountants reasonable access during normal office hours upon reasonable
notice to any books of account, ledgers, files, correspondence and
documents in the possession of the Purchaser or any other Group Company.
<PAGE>
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11. ANNOUNCEMENTS
-------------
No announcement, press release or circular relating to any matter referred
to in this Agreement shall be made or issued by or on behalf of any party
without the prior written approval of the other parties save that each
party reserves the right to make or issue any announcement or circular
required by law, the rules of The London Stock Exchange or The City Code on
Take-overs and Mergers or any other regulatory authority in any other
applicable jurisdiction subject, to the extent it is practicable to do so,
to prior consultation with the other party or parties and giving such other
party or parties an opportunity to comment thereon.
12. COSTS AND EXPENSES
------------------
Each of the parties hereto shall pay its own costs and expenses in relation
to the negotiation, preparation and implementation of this Agreement and
the Purchaser shall (subject to Clause 4) pay all stamp duty on the
transfer of the Shares.
13. ENTIRE AGREEMENT
----------------
(a) This Agreement (together with any documents referred to herein) sets
out the entire agreement and understanding between the Purchaser and
the Vendor in connection with the sale and purchase of the Shares and
no party has relied, in entering into this Agreement, on any
representations of any other party which is not expressly set out or
referred to in this Agreement.
(b) No variation of this Agreement shall be effective unless in writing
signed by or on behalf of each of the parties.
<PAGE>
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14. SUCCESSORS
----------
This Agreement is not assignable except as part of the Purchaser's bank
security arrangements entered into as at the Completion Date, any
refinancing of the same and any enforcement thereof but subject thereto it
shall be binding upon and enure for the benefit of each party's successors
in title.
15. EFFECT OF COMPLETION
--------------------
The provisions of this Agreement insofar as they are not performed at
Completion or are capable of operating or taking effect after Completion
will remain in full force and effect and capable of so operating after and
notwithstanding Completion.
16. FURTHER ASSURANCE
-----------------
Notwithstanding Completion the Vendor shall from time to time and at the
cost of the Purchaser execute all such documents and take all such steps
(or to the extent it lies within its power so to do procure other necessary
parties so to do) as the Purchaser may reasonably require in order to
perfect the right, title and interest of the Purchaser to and in the Shares
and to give to the Purchaser the full benefit of this Agreement.
17. TIME OF THE ESSENCE
-------------------
Time shall be of the essence as regards any date or period referred to in
this Agreement.
18. NOTICES AND SERVICE OF PROCESS
------------------------------
(a) All notices under this Agreement shall be in writing and in the English
language and shall be delivered by hand or sent by
<PAGE>
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prepaid first class post or by prepaid first class recorded delivery or air
mail prepaid at the appropriate rate or by facsimile transmission. All
notices shall (subject to Clause 18(f)) be delivered at or sent to the
address, or transmitted to the facsimile number shown in this Agreement of
the party to be served (or such other address or number in the United
Kingdom as that party shall have notified in writing to the other party for
this purpose) and shall be marked for the attention of the Chief Executive
or President of that party. Notwithstanding the foregoing provisions of
this sub-clause, notices may be served on any party which is a limited
company incorporated in a jurisdiction within the United Kingdom by
delivering by hand or sending by prepaid first class post or by prepaid
first class recorded delivery the notice to the registered office of such
company.
(b) A notice delivered by hand shall be deemed to have been served at the time
of such delivery if delivered between 9.00 am and 5.30 pm on a business day
or, if delivered before 9.00 am on a business day, it shall be deemed
served at 9.00 am on that business day or, if delivered after 5.30 pm on a
business day or on a day which is not a business day, at 9.00 am on the
next following business day.
(c) A notice sent by prepaid first class recorded delivery shall be deemed to
have been served at 9.00 am on the second business day following the date
of posting or, in the case of air mail, at 9.00 am on the seventh business
day following the date of posting and in proving such service it shall be
sufficient to show that the notice was properly addressed and posted in
accordance with the provisions of this Clause.
<PAGE>
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(d) A notice sent by facsimile transmission shall be deemed to have been served
at the time it is transmitted if transmitted between 9.00 am and 5.30 pm on
a business day or, if transmitted before 9.00 am on a business day, at 9.00
am on that business day, or, if transmitted after 5.30 pm on a business day
or on a day which is not a business day, at 9.00 am on the next following
business day provided that a hard copy of any notice sent by facsimile
transmission is also sent by post on the same day in accordance with Clause
18(a). It shall be sufficient proof of the time of service by facsimile
transmission to show that the transmission was properly made and that the
transmitting device was connected to a device with a telephone number
reasonably believed to be that of the party to be served at the address for
such service.
(e) In this Clause all times are to be taken as being the local times of the
place at which the notice is received.
(f) The Vendor hereby irrevocably designates, empowers and appoints Biddle & Co
of 1 Gresham Street, London EC2V 7BU (Facsimile No.0171 606 3305) as its
agent to receive for and on its behalf any notice under this Agreement or
service of process in England in any action or proceeding with respect to
this Agreement and the Vendor agrees that any failure of the said Biddle &
Co to inform the Vendor of any such notice or service shall not impair or
affect the validity of such notice or service or of any judgement rendered
in any action or proceeding based thereon. The Vendor may replace Biddle &
Co or any successor agent by notice in writing to the other party with a
new agent provided that the address for service on the new agent is in
England. If Biddle & Co or any successor agent should cease to exist, cease
<PAGE>
-48-
to have an address for service in England or otherwise cease to be able to
inform the Vendor of any service of notice or proceedings, the Vendor shall
replace such agent with a new agent as permitted above.
19. COUNTERPARTS
------------
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all the counterparts shall
together constitute one and the same instrument which shall only be deemed
executed when counterparts executed by all the parties hereto are delivered
and so that delivery for this purpose shall be deemed effective when any
party confirms in writing (which shall include confirmation by facsimile
transmission) that it has executed any counterpart of this Agreement.
20. CHANGE OF NAME
--------------
The Purchaser shall within one month of the Completion Date cause the name
of the Company to be changed so as not to include the word "CPC" or
"LONDINIUM" or to suggest any connection with the Vendor and the Purchaser
agrees that neither it nor any Group Company will use any name or names
identical or similar to "CPC" or "LONDINIUM" or any colourable imitation
thereof in connection with any activity whatsoever.
21. GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with
English law and each of the parties hereby submits to the jurisdiction of
the English Courts.
EXECUTED on the date appearing at the beginning of this Agreement.
<PAGE>
-49-
FIRST SCHEDULE
(the Shareholder)
<TABLE>
<S> <C>
1 2
Names and addresses Number of
of the Shareholder Shares owned
CPC Investment Corporation Inc (a) 3,407,203 Ordinary
5110 West Sahara Avenue Shares of (Pounds)1 each
4th Floor
Las Vegas (b) 16,106,313 Ordinary
NV 89102 USA Shares of US $0.01
each
</TABLE>
<PAGE>
-50-
SECOND SCHEDULE
(the directors)
R. Conte
D.A. Wakefield
D.H.W. Kelly
(the secretary)
Mrs J. Lambert
<PAGE>
-51-
THIRD SCHEDULE
Part 1
(the Subsidiaries)
<TABLE>
<CAPTION>
Name Registered Number Percentage of
- ---- ----------------- -------------
share capital
-------------
owned by Group
--------------
Companies
---------
<S> <C> <C>
Priory Hospitals Group Limited 1505382 100
Sturt House Clinic Limited 2656972 100
The Nottingham Clinic Limited 2220967 100
Regency Park Limited 2779834 100
Priory Childcare Services Limited 2838284 100
Care Continuums Limited 2998874 100
Counselling Services (CI) Limited 37244 80
Part 2
(Associated Companies)
Fulford Grange Medical
Centre Limited 2804493 50
Pinnacle Counselling Limited 2814776 49.32% (of
ordinary
shares)
100% (of
preference
shares)
Priory Healthcare Group
(Middle East) Limited 63330 50
</TABLE>
<PAGE>
-52-
FOURTH SCHEDULE
(the Property)
I REGISTERED TITLES
-----------------
A. FREEHOLD
--------
<TABLE>
<CAPTION>
Short description of property Title number
----------------------------- ------------
<S> <C>
1. The Dene, Goddards Green Hospital,
Goddards Green WSX180031
2. The Dukes Priory Hospital and
Dukes Cottages, Stump Lane,
Springfield Green, Chelmsford EX448034
3. Eden Grove, Chapel St, Bolton CU113771
4. Altrincham Priory Hospital, Rappax Road,
Hale, Trafford GM32147
5. Grovelands, The Bourne, Southgate,
Enfield EGL224063
EGL159651
6. Hayes Grove, Prestons Road, Hayes,
Bromley P84935
7. Heath House, Purdown, Bristol AV204454
8. Jacques Hall, Harwich Rd, Bradfield,
Manningtree EX494805
9. Lynbrook Clinic, Chobham Rd, Woking,
Surrey SY648215
10. Marchwood Park, Marchwood, Hampshire HP274006
HP274005
11. St Dymphna, Ransom Rd, St Anns,
Nottingham NT220908
NT292439
12. Priory Hospital, Roehampton and
9 to 11 Upper Richmond Road West SGL172131
13. Sturts Priory Hospital, Sturts Lane,
Walton on the Hill, Surrey SY280588
SY567305
</TABLE>
<PAGE>
-53-
FOURTH SCHEDULE
(the Property)
B. LEASEHOLD
---------
<TABLE>
<CAPTION>
Short description of property and Title number
--------------------------------- ------------
particulars and term of lease
-----------------------------
<S> <C>
1. Woodbourne Clinic, 21 & 23 Woodbourne Rd,
Edgbaston WM299425
Lease dated 7/10/83 and made between (1)
The Right Honourable Lord Luke of
Pavenham KCVO and others (2) Community
Psychiatric Centers (London) for a term
of 99 1/44 years from 24/6/1983
2. 3 Owls Road, Boscombe, Bournemouth DT233811
Lease dated 28/2/96 and made between (1)
Nuffield Nursing Homes Trust (2) Priory
Hospitals Group Limited for a term of 999
years from 25/12/1995.
3. Langside Priory Hospital, 38 Mansionhouse
Road, Glasgow
Lease constituted by missives dated
24th and 28th June 1994 and made between
(1) Sister Joseph Patrick Donovan and
Others as Trustees within mentioned (2)
Priory Hospitals Group Limited for a
term of 25 years from 1 June 1994.
</TABLE>
<PAGE>
-54-
FOURTH SCHEDULE
(the Property)
II UNREGISTERED TITLES
-------------------
1. Dialysis Unit, Rotherham District Council Hospital, Margate Road,
Rotherham.
There is no lease but the Company operates under a Management Agreement.
2. Department of Clinical & Quality Development, Unit 8, Shelley Farm, Ower,
Romsey, SO51 6AS.
Lease dated 17/10/95 and made between (1) E H Jewell and (2) Priory
Hospitals Group Limited for a term of 5 years from 17/10/1995.
3. Priory Suite, Beardwood Hospital, Preston New Road, Blackburn, Lancashire,
BB2 7AE.
Lease dated 15/2/93 and made between (1) Great Northern Hospitals Ltd and
(2) Priory Hospitals Group Ltd for a term of 5 years from 1/2/1993.
4. The Longridge Clinic, Samuel Hill House, Springfield Hospital, Glenburnie
Road, London, SW17.
Lease dated 11/5/95 and made between (1) The Secretary of State for
Health (2) Care Continuums Limited and (3) Priory Hospitals Group Limited
for a term commencing on 19/6/95 and terminating on 31/3/1997.
5. 3 Consulting Rooms, Bredon House, 321 Tettenhall Road, Wolverhampton.
Lease dated 5/3/1993 and made between (1) Dr Nigel Smith and Dr David
O'Connell and (2) Priory Hospitals Group Limited for a term of 5 years
from 1/11/1991.
6. Room 12, Watton Place Clinic, Watton Place House, Watton at Store,
Hertfordshire.
Lease dated 10/6/1991 and made between (1) Dr James Newton and Dr David
William Haslam and (2) Priory Hospitals Group Limited from 15th July 1991
to 31st December 1992 but the Company has remained in occupation.
7. Hampden House, Didsbury, Manchester.
Lease dated 3rd June 1996 and made between (1) R J Turley and I M Turley
and (2) Priory Hospitals Group Limited for a term of 10 years from 3rd
June 1996.
<PAGE>
-55-
FOURTH SCHEDULE
(the Property)
II UNREGISTERED TITLES
-------------------
8. Renal Unit, West Wales General Hospital, Caernarfon.
Agreement for the provision of dialysis services dated 3rd April 1992
between (1) East Dyfed Health Authority and (2) Community Dialysis
Services. The contract period is for five years from 3rd April 1992.
9. Silkwood House, 18 Duhamel Place, Jersey.
Agreement dated 16th February 1996 between (1) Hardcastle and Preston
Limited (2) Counselling Services (CI) Limited and (3) Priory Hospitals
Group Limited for a term of 9 years from 16th February 1996.
10. Suite 2, Second Floor, 113 Cathedral Road, Pontcanna, Cardiff.
Tenancy Agreement dated 12 October 1995 between (1) Cowdery and Morris
Limited and (2) Heath House Priory Hospital. Tenancy at Will.
<PAGE>
-56-
FIFTH SCHEDULE
(the representations, warranties and undertakings
referred to in Clause 6)
Information
- -----------
(1) The information set out in the Recitals and Schedules is true, complete (as
to the matters addressed therein) and accurate in all respects.
Disclosure Letter
- -----------------
(2) The Disclosure Letter fairly discloses details of:-
(a) all matters which are necessary to qualify the statements contained in
this Schedule in order for such statements, when so qualified, to be
fair, accurate and not misleading;
(b) all assets used by the Company in connection with its business which
are held under leasing, hire or hire purchase agreements, agreements
for payment on deferred terms, conditional sale agreements, rental
agreements or any similar agreements or arrangements.
Memorandum and Articles
- -----------------------
(3) The copy of the Memorandum and Articles of Association of the Company which
has been made available to the Purchaser's Solicitors is accurate and
complete in all respects as at the date of this Agreement and sets out all
rights attaching to each class of the share capital of the Company, and the
register of members and other statutory books of the Company have been
properly kept and contain a true, accurate and complete record of the
matters which should be dealt with therein and no notice or allegation that
any of the same is incorrect or should be rectified has been received.
<PAGE>
-57-
Returns to the Registrar and elective resolutions
- -------------------------------------------------
(4) (a) All returns, particulars, resolutions and other documents required to be
filed with or delivered to the Registrar of Companies by the Company
have been correctly and properly prepared and so filed or delivered
within the time limits specified by the Companies Act 1985, and all such
documents are now recorded on the Company's file at Companies House by
the Registrar of Companies.
(b) The Company has not passed any elective resolutions.
Shares unencumbered
- -------------------
(5) The Shares constitute the whole of the authorised and issued share capital
of the Company and there is no option, right to acquire, mortgage, charge,
pledge, lien or other form of security or encumbrance on, over or affecting
the Shares or the issued or unissued share capital of the Company and there
is no agreement or commitment to give or create any of the foregoing and no
claim has been made by any person to be entitled to any of the foregoing and
the Shareholder is the beneficial owner free from encumbrances of all the
Shares and is entitled to sell and transfer the full legal and beneficial
ownership in the Shares to the Purchaser on the terms set out in this
Agreement.
No lien or call on Shares
- -------------------------
(6) The Company has not exercised or claimed or purported to exercise or claim
any lien over any of the Shares and no call on any of the Shares is
outstanding.
Subsidiaries
- ------------
(7) The Company:-
(a) has not, and has not since its incorporation had, any subsidiary or
subsidiary undertaking other than the Subsidiaries;
<PAGE>
-58-
(b) is, or a Subsidiary is, the beneficial owner free from all charges,
liens, encumbrances, equities and claims whatsoever of the whole of
the issued share capital of each of the Subsidiaries and such share
capital is in each case issued fully paid or credited as fully paid;
(c) has not since its incorporation been a subsidiary or subsidiary
undertaking of any other company nor been a member of any partnership
or unincorporated company or association nor does the Company have any
branch, agency or permanent establishment outside the United Kingdom;
(d) has not made, and has had no cause to make, any warranty or indemnity
claim in respect of the acquisition of shares in, or the business of,
any of the Subsidiaries.
Application of Warranties to Subsidiaries
- -----------------------------------------
(8) Each of the statements set out in the other paragraphs of this Schedule
(except paragraphs (7)(a) to (c) inclusive and (10) to (18)) would remain
fair, accurate and not misleading if the references in those paragraphs to
the Company were replaced by references to each of the Subsidiaries and as
if references in paragraphs (5) and (6) to the Shares were references to the
issued shares of the Subsidiaries owned by Group Companies as referred to in
the Third Schedule.
Redemption of Shares and capitalisation of profits
- --------------------------------------------------
(9) The Company has not at any time:-
(a) repaid or agreed to repay or redeem any shares of any class of its
share capital or otherwise reduced or agreed to reduce its issued
share capital or any class thereof; or
(b) capitalised or agreed to capitalise, in the form of shares or
debentures or other securities or in paying up any amounts
<PAGE>
-59-
unpaid on any shares, debentures or other securities, any profits or
reserves of any class or description or passed or agreed to pass any
resolution to do so.
Accounts
- --------
(10) (a) The Accounts disclose a true and fair view as at the Accounts Date of
the state of affairs and position of the companies to which they
relate, both individually and as a group, and of their results for the
accounting period ended on the Accounts Date.
(b) The Accounts were prepared on a proper and consistent basis in
accordance with the books of account of the Company and the
Subsidiaries and generally accepted and adopted United Kingdom
accounting principles and financial reporting standards for companies
carrying on similar businesses and in accordance with the requirements
of all relevant statutes.
(c) Proper and, so far as the Vendor is aware, adequate reserves and
provisions have been made in the Accounts for bad and doubtful debts,
old, depreciated and unsaleable stock, non-chargeable work in
progress, depreciation on fixed assets, taxation and deferred taxation
as at the Accounts Date.
(d) The Accounts are not affected by any unusual or non-recurring items.
(11) As at the Accounts Date there were no liabilities of the Company or of the
Subsidiaries known, actual or contingent (including financial lease
commitments, pension liabilities, contingent liabilities to customers and
contingent liabilities for taxation) which were not disclosed or provided
for in the Accounts.
(12) The value attributed to work in progress in the
Accounts does not
<PAGE>
-60-
exceed the lower of cost or net realisable value at the Accounts Date and
has since been charged to customers.
Books of account and records
- ----------------------------
(13) The books of account and records of the Company and of each of the
Subsidiaries have for the period of six years prior to the Completion Date
(during which period there has been no change in any methods or bases of
valuation or accountancy treatment applied to or reflected in such books
and records) been kept on a proper and consistent basis, are up-to-date,
are in the possession of the companies to which they relate and contain
true, complete and accurate records of the business and activities of the
Company and of the respective Subsidiaries and of all matters required to
be entered therein by the Companies Act 1985 and the Companies Acts 1948 to
1983 then and from time to time in force.
Book debts
- ----------
(14) The provision for book debts owing to the Company and to each of the
Subsidiaries shown in the Management Accounts is proper in accordance with
UK generally accepted accounting principles.
No transfer from deferred taxation
- ----------------------------------
(15) No transfer from any provision against deferred taxation to distributable
reserves has been made by the Company or by any of the Subsidiaries
pursuant to or in accordance with the recommendations of the Accounting
Standards Committee or otherwise.
Professional expenses
- ---------------------
(16) The expenses in respect of legal and other professional charges and
<PAGE>
-61-
auditors' remuneration reflected in the Accounts have all been properly
incurred in the normal course of business and do not relate to advice
given or the preparation of figures or documentation supplied in
connection with the sale and purchase of the Company or of the
Subsidiaries.
Events since Accounts Date
- --------------------------
(17) Since the Accounts Date:-
(a) there has been no material adverse change in the financial and trading
position and prospects and the nature of the business of the Company
or any of the Subsidiaries;
(b) there has been no material change in the assets and liabilities shown
in the Accounts nor has the net asset position of the Company or of
each of the Subsidiaries deteriorated by comparison with such position
at the Accounts Date;
(c) there has not been any acquisition or disposal by the Company or by
any of the Subsidiaries of fixed or capital assets or any agreement to
effect the same;
(d) there has not been any creation of liabilities (other than in the
ordinary course of business);
(e) no dividend or distribution has been declared, made or paid by the
Company or by any of the Subsidiaries and no payment has been made
which could be deemed a distribution within the meaning of the Taxes
Act;
(f) no disposal or deemed disposal which might give rise to a liability
for corporation tax on chargeable gains has been made by the Company
or by any of the Subsidiaries;
(g) there has been no capitalisation of reserves or creation or
issue of any share or loan capital by the Company or by any of
the Subsidiaries;
<PAGE>
-62-
(h) the business of the Company and of each of the Subsidiaries has been
carried on in the ordinary and usual course and in the same manner
(including nature and scope) as immediately before the Accounts Date;
(i) otherwise than in the ordinary course of business neither the Company
nor any of the Subsidiaries has disposed of or parted with possession
of any of its property or assets or made any payment;
(j) no fixed assets have been written up by the Company or by any of the
Subsidiaries;
(k) no debts have been written off, deferred or subordinated or have
proved to any extent irrecoverable and no debtor has been released by
the Company or by any of the Subsidiaries on terms that he pays less
than the book value of his debt;
(l) no contract has been entered into by the Company or by any of the
Subsidiaries involving expenditure by them on capital account;
(m) the remuneration (including bonuses) payable to any of the directors
or employees of the Company or of any of the Subsidiaries has not been
increased nor has any obligation been assumed to increase any such
remuneration at any future date with or without retrospective effect;
(n) no event has occurred which would entitle any third party to terminate
any contract or any benefit enjoyed by the Company or by any of the
Subsidiaries or call in any money before the normal due date therefor;
(o) no legal or other professional charges relating to advice given or the
preparation of figures or documentation supplied in connection with
the sale and purchase of the Company and of the
<PAGE>
-63-
Subsidiaries or this Agreement have been charged to or paid by the
Company or the Subsidiaries;
(p) nothing has occurred which would or might affect the adequacy of the
reserves or provisions referred to in paragraph 10(c) of this
Schedule;
(q) no management fee or other charge has been made against the Company or
any Subsidiary by the Vendor or any subsidiary of the Vendor (other
than the Company or any Subsidiary).
Management Accounts
- -------------------
(18) The Management Accounts have been prepared on a prudent basis and on a
basis consistent with previous management accounts and the Management
Accounts fairly state the assets, liabilities and position of the Company
and the Subsidiaries at the Management Accounts Date and their results for
the period ended on such date.
Ownership of assets
- -------------------
(19) (a) All the assets of the Company, excluding the Property and those assets
listed in the Disclosure Letter pursuant to paragraph 2(b) of this
Schedule, but including all books debts owed to the Company and all
other assets used in connection with the business of the Company, are
the absolute property of the Company and are in the possession or under
the control of the Company and the Company has a good title thereto and
all such assets are held by the Company free from any mortgage, charge,
lien, bill of sale or other encumbrance, and from any agreement to
grant any of the same, and are not the subject of any assignment,
royalty, factoring arrangement, leasing, hire or hire purchase
agreement, agreement for payment on deferred terms, conditional sale
agreement, rental agreement or any similar agreement or arrangement;
and the assets listed in the
<PAGE>
-64-
Disclosure Letter pursuant to paragraph 2(b) of this Schedule are in
the possession or under the control of the Company in accordance with
the agreements or arrangements under which they are held.
(b) The plant, machinery, office equipment and vehicles used by the
Company are, subject to fair wear and tear, in good repair,
serviceable and comply with any applicable legal requirement or
restriction, and the vehicles are duly licensed and suitable for the
purposes for which they are used.
Indebtedness
- ------------
(20) There is no indebtedness of the Company to the Vendor or to any of R.
Conte, W. Simpson or D. Wakefield or to any person connected with any of
them.
(21) The Company has no outstanding loan capital nor, except in the normal
course of business, has it borrowed any money or incurred any indebtedness
which it has not repaid or satisfied nor has it lent any money which has
not been repaid to it nor does it own the benefit of any debt (whether
present or future).
Bank accounts
- -------------
(22) A statement of the bank accounts of the Company and the credit or debit
balances thereon at close of business on the business day preceding by no
more than three business days the date of this Agreement which have been
supplied to the Purchaser are true and correct, there are no other bank or
deposit accounts of the Company (whether in credit or overdrawn) not
included in such statement and since such statement there have been no
payments out of any such accounts other than in the ordinary course of
business and the present balances on such accounts are not now
substantially different from the balances shown on such statement.
<PAGE>
-65-
Insurances
- ----------
(23) (a) All the assets of the Company of an insurable nature and all of those
assets listed in the Disclosure Letter pursuant to paragraph 2(b) of
this Schedule which the Company has undertaken to insure are, and at
all material times have been, adequately insured for the full
replacement or reinstatement value thereof in the name of the Company
against fire and all other risks usually insured against by companies
with the same assets or carrying on the same or a similar business.
(b) The Company is now, and at all material times has been, adequately
insured against accident, damage, injury, third party loss loss of
profits and all other risks usually insured against by companies
carrying on the same or a similar business.
(c) Full details of all insurance policies maintained by the Company have
been disclosed to the Purchaser; the Company has not done or omitted
to do any act or thing which might render any of such insurances void
or voidable; no claims under such insurances are outstanding and so
far as the Vendor is aware nothing has occurred to give rise to any
such claim.
Litigation
- ----------
(24) The Disclosure Letter lists those debts which have been referred to
solicitors or any debt collection agency as at 18th June 1996 before the
Completion Date. Otherwise than in respect of debts referred to solicitors
or any debt collection agency and claims arising in the normal course of
business covered by insurance (particulars of which claims have been
disclosed in the Disclosure Letter) the Company is not engaged nor has it
been engaged since the Accounts Date in any proceedings, litigation,
arbitration or prosecution (whether as
<PAGE>
-66-
plaintiff or defendant or otherwise) and except as aforesaid:-
(a) no legal or other proceedings are threatened or anticipated by or
against the Company; and
(b) to the best of the knowledge, information and belief of the Vendor,
there are no circumstances likely to lead to any such proceedings, or
to any payment in anticipation of such proceedings, and there are no
circumstances that are likely to give rise to proceedings of any
character against any director or employee or ex-director or ex-
employee of the Company in respect of any acts or defaults for which
the Company might be vicariously liable.
(25) There are no unsatisfied judgments against the Company.
Taxation
- --------
Compliance, filing and payment obligations
------------------------------------------
(26) (a) The Company has made or caused to be made within the permitted time
limits all proper returns (including notices, computations and
registrations required to be made) and all relevant information has
been supplied to the Inland Revenue and Customs and Excise
Commissioners in respect of taxation for all periods up to and
including the date hereof and all such returns and information are
true and accurate and there is no dispute or question nor is the
Vendor aware of any contemplated at the date hereof with the said
authorities with regard to liability (actual or contingent) assessable
on the Company at the date of this Agreement.
(b) There are set out in the Disclosure Letter full details of all matters
in respect of which the Company has, or at Completion will have, an
outstanding entitlement to make any appeal
<PAGE>
-67-
(including a further appeal) against any assessment to taxation or to
make any application for the postponement of the payment of any
taxation.
(27) (a) All taxation due and payable by the Company up to Completion has been
paid by the Company within the designated time periods and no such
payment remains outstanding at Completion.
(b) The Company has not within the six years prior to Completion paid or
become liable to pay any fine, penalty surcharge or interest in
relation to taxation.
(c) The Company is not and has not been the subject of a back duty
investigation, PAYE, P11D or VAT audit by the Inland Revenue Special
Office, Special Investigations Section, Enquiry Branch, PAYE Audit
Team, Customs and Excise Commissioners or otherwise and there are no
facts which are likely to cause any such investigation to be
instituted or which such an investigation would disclose so as to
cause additional taxation liabilities to fall upon the Company.
PAYE and National Insurance and Employee Benefits
- -------------------------------------------------
(28) (a) The Company has properly operated the PAYE and national insurance
systems making such deductions as are required by law from all
payments made to or treated as made to employees or ex-employees of
the Company and sums payable to the Inland Revenue have been so paid.
All forms P11D and P9D due for submission prior to the date hereof
have been completed and submitted.
(b) The Company has obtained clearances from the Inland Revenue in respect
of all freelance workers and consultants to whom payment has been made
without deducting PAYE.
<PAGE>
-68-
(c) The Company has complied fully with all reporting requirements and
proper records have been maintained, relating to all payments and
benefits made or provided, or treated as made or provided to its
directors, employees or officers or former directors, employees or
officers.
(d) The Company has complied fully with its obligations under the
provisions of sections 136(6) and 139(5) ICTA and section 85 FA 1988.
(e) The Disclosure Letter contains full details of all share option
schemes and profit sharing schemes established by the Company whether
approved by the Inland Revenue under the provisions of Schedule 9 ICTA
or otherwise.
(f) The Company has not established a qualifying employee share ownership
trust within the meaning of section 74 and Schedule 5 FA 1989 and no
chargeable event within the meaning of section 69 FA 1989 has
occurred.
(g) The Disclosure Letter contains full details of all profit-related pay
schemes providing for the payment to any employee of the Company of
emoluments calculated by reference to profits, which have ever been
registered under Chapter III Part V ICTA.
Chargeable gains
- ----------------
(29) (a) No assets of the Company have been acquired or disposed of except by
way of bargain at arm's length;
(b) No chargeable gain would arise on the sale at the value attributed to
it in the Accounts of any asset which is a chargeable asset for the
purposes of taxation;
(c) The Company has not been a party to or involved in or connected with
any disposal of assets within the meaning of section 29 of
<PAGE>
-69-
the TCGA, or any scheme or arrangements such as are mentioned in
section 30 of the TCGA;
(d) The Company has sufficient records to calculate the liability to
taxation or relief arising on the disposal of any fixed asset where
any gain on such disposal would be a chargeable gain for tax purposes;
(e) The Company has not in the last six years carried out or been involved
in or connected with any reorganisation of its share capital or scheme
of reconstruction or amalgamation involving the issue of securities
whether or not (by virtue of section 126 or 136 TCGA) section 127 TCGA
applied to such reorganisation or scheme of reconstruction or
amalgamation;
(f) The Company has not in the last six years carried out or been involved
in or connected with any scheme of reconstruction or amalgamation
involving a transfer of business assets whether or not section 139
TCGA applied to the transfer;
(g) The Company has not made an election under paragraph 4 Schedule 2 of
the TCGA and no asset owned by the Company is subject to a deemed
disposal and re-acquisition under paragraph 16, 19 or 20 Schedule 2 of
the TCGA;
(h) The Company has not made an election under section 35(5) TCGA nor has
the Company made its first relevant disposal for the purposes of
section 35(6) TCGA;
(i) The Company has not in the last six years transferred a trade carried
on by it outside the United Kingdom through a branch or agency in
circumstances such that a chargeable gain could be deemed to arise at
a date after such transfer under section 140 TCGA;
<PAGE>
-70-
(30) No claim has been made, nor is the Company entitled to make any claim,
under any of the following provisions which would affect or be relevant to
the chargeable gain or allowable loss which would arise on a disposal by
the Company of any of its assets:-
Section 247 of the TCGA (roll-over relief on compulsory acquisition)
Section 152 of the TCGA (roll-over relief)
Section 165 of the TCGA (relief for gifts of business assets)
Section 175 of the TCGA (replacement of business assets by members of a
group)
Section 35(5) of the TCGA (assets held at 31 March 1982)
Schedule 4 to the TCGA (deferred charges on gains before 31 March 1982).
(31) No claim has been made under any of the following provisions:-
Section 279 of the TCGA (foreign assets: delayed remittances)
Section 161 of the TCGA (appropriations to and from stock)
Section 162 of the TCGA (roll-over relief on transfer of business).
(32) The Company has not received or made any capital distributions to which
the provisions of Section 189 of the TCGA (capital distribution of
chargeable gains; recovery of tax from shareholder) could apply.
Distributions and payments by the Company
- -----------------------------------------
(33) (a) No actual or deemed distribution has been declared or made by the
Company within the meaning of any of the following Sections of the
Taxes Act:-
Section 209 (meaning of "distribution")
Section 210 (bonus issue following repayment of share capital)
Section 211 (matters to be treated or not to be treated as repayment
of share capital).
(b) The Company has not issued any share capital to which the provisions
of Section 249 of the Taxes Act (stock dividends
<PAGE>
-71-
treated as income) could apply nor does it own any such share
capital.
(34) (a) All sums representing income tax required to be deducted from
payments made or deemed to have been made by the Company prior to
the date hereof have been deducted from all such payments and have
been paid to the Inland Revenue, including (but without limitation
to the generality of the foregoing) payments under or subject to any
of the following provisions of the Taxes Act:-
Section 43 (non-residents)
Section 349 (payments not out of profits or gains brought into
charge to income tax, etc.)
Section 350 (charge to tax where payments made under Section 349)
Chapter I of Part XIII (Intellectual Property)
Chapter III of Part XIII (Entertainers and Sportsmen)
Chapter IV of Part XIII (Sub-contractors in the Construction
Industry).
(b) The Company has not received any notice under Section 23 of the
Taxes Act (collection from lessees and agents).
(35) (a) The Company has not elected that any dividend it has paid be treated
as a foreign income dividend as described in Chapter VI Part VI
ICTA.
(b) The Company has not paid any dividend to which section 246T ICTA has
applied.
Capital allowances
- ------------------
(36) In the case of each asset of the Company which qualifies or has qualified
for capital allowances, the tax written down value of such asset as at the
Accounts Date is not less than the book value of the asset at that date.
<PAGE>
-72-
Available losses
- ----------------
(37) The Company has no trading losses and no capital losses available to be
carried forward at the date hereof.
Groups
- ------
(38) (a) In the last six years the Company has at no time surrendered or
claimed or agreed to surrender or claim any amount by way of group
relief, and has at no time received or agreed to receive the
surrender of any amount by way of group relief, under the provisions
of Part X of Chapter IV of the Taxes Act (group relief).
(b) In the last six years the Company has at no time surrendered or
claimed or agreed to surrender or claim any amount of advance
corporation tax, and has at no time received or agreed to receive the
surrender of any amount of advance corporation tax, under the
provisions of Section 240 of the Taxes Act (set off of company's
surplus ACT against subsidiary's liability to corporation tax).
(c) No tax is or may become payable by the Company pursuant to Section
190 of the TCGA (tax on one member of group recoverable from another
member) or Sections 178 or 179 of the TCGA (company ceasing to be a
member of a group) in respect of any chargeable gain which accrued or
will accrue prior to Completion and the Company has at no time within
the six years ending on the date hereof transferred any assets other
than trading stock to any company which at the time of disposal was a
member of the same group (as defined in Section 170 of the TCGA
(groups of companies: definitions)).
(d) None of the assets which were acquired by the Company in the six
years ending on the date hereof was acquired from any company
<PAGE>
-73-
which at the time of the acquisition was a member of the same group
(as defined in the said Section 170 of the TCGA).
(e) The Company has not made any elections under Section 247 of the Taxes
Act (dividends etc paid by one member of a group to another) and the
Company has not paid any dividend without paying advance corporation
tax in respect thereof and has not made any payments without deduction
of tax in the circumstances specified in sub-section (6) of the said
Section 247.
(f) In relation to Section 178 and 179 of the TCGA (company ceasing to be
member of a group), the Company has not at any time ceased to be a
member of a group of companies.
Close companies
- ---------------
(39) The Company is not, nor has it been in respect of any accounting period
ended within six years prior to the date of this Agreement, a close company
within Section 414 of the Taxes Act (close companies).
Stamp duty and stamp duty reserve tax
- -------------------------------------
(40) The Company has complied with all its obligations in respect of stamp duty
and stamp duty reserve tax and all documents which are in the possession of
or under the control of the Company, or in the enforcement of which the
Company may be interested, or to which the Company is a party, have been
properly stamped to the extent that they attract stamp duty in the United
Kingdom or elsewhere.
(41) No relief or exemption granted to the Company under Section 55 of the
Finance Act 1927 (relief from capital and transfer stamp duty in case of
reconstructions and amalgamations of companies) or Section 42 of the
Finance Act 1930 (relief from transfer stamp duty in case of transfer of
property as between associated companies) or Section 47 (stamp duty on
documents relating to chargeable transaction of capital
<PAGE>
-74-
companies) of and part III of Schedule 19 to the Finance Act 1973 has
become liable to forfeiture.
Value added tax
- ---------------
(42) (a) The Company has complied with all its VAT obligations and in
particular (but without prejudice to the generality of the foregoing)
has duly paid or provided for all amounts of VAT for which the Company
is liable and has maintained, complete, correct and up-to-date
records, invoices and other supporting documents.
(b) The Company is not and has not been a member of any group of companies
for VAT purposes and no act or transaction has been effected in
consequence whereof the Company is or may be held liable for any VAT
calculated by reference to the supply of goods or services by any
other company.
(c) The Company is not a party to (nor does it enjoy the benefit of) any
contract which contains any provision excluding the adjustment of the
consideration therein on changes in tax under Section 89 of the VATA.
(43) (a) In this paragraph references to "Schedule 9" and "Schedule 10" are
references to those Schedules to the VATA and reference to "election
to waive exemption" is a reference to an election under paragraph 2 of
Schedule 10.
(b) (i) The Company has not at any time made an election to waive
exemption in relation to any land or interest in land.
(ii) The Company is not, and never has been, a "relevant associate"
(as defined in paragraph 3 of Schedule 10) in relation to a body
corporate by which an election to waive exemption has been made
in relation to any land or interest in land.
<PAGE>
-75-
(c) No building and no civil engineering work comprised in or forming part
of the Property is at the date hereof a building or a civil
engineering work "which has not been completed" or "a new building" or
"a new civil engineering work" within the meaning of Group 1 of
Schedule 9.
Anti-avoidance
- --------------
(44) (a) The Company has not entered into or been a party to any transactions
schemes or arrangements the sole or main purpose of which is or was
for the purpose of avoiding taxation.
(b) The Company has not been a party to or otherwise involved in any
transaction, scheme or arrangement to which any of the following
provisions have been or could be applied other than transactions in
respect of which all necessary clearances have been obtained on the
basis of full and accurate disclosure to the Inland Revenue and/or the
Special Commissioners of all material facts and considerations
relating thereto:-
Section 139 of the TCGA (reconstruction or amalgamation involving
transfer of business)
Sections 213 to 218 of the Taxes Act (demergers)
Sections 219 to 229 of the Taxes Act (purchase of own shares)
Sections 703 to 709 of the Taxes Act (cancellation of tax advantages
from certain transactions in securities)
Section 776 of the Taxes Act (transactions in land; taxation of
capital gains)
Sections 135 to 138 of the TCGA (company reconstructions and
amalgamations).
Inheritance tax
- ---------------
(45) (a) There is no outstanding Inland Revenue charge under Section 237
<PAGE>
-76-
of the IHTA (imposition of charge) over the assets of or the shares in
the Company.
(b) No person has by virtue of Section 212 of the IHTA (powers to raise
tax) any power of sale, mortgage or charge in respect of any share in
or asset of the Company.
(c) The Company has not made any transfer within Section 94 of the IHTA
(charge on participators) which has given rise or could give rise to a
liability on the Company under Section 202 of the IHTA (close
companies).
Miscellaneous
- -------------
(46) (a) No claim has been made or is entitled to be made by the Company under
either Section 584 (relief for unremittable overseas income) or
Section 585 (relief from tax on delayed remittances) of the Taxes Act.
(b) The Company is and has at all times been resident in the United
Kingdom for the purposes of all taxation matters.
Claims and liabilities
- ----------------------
(47) At the date hereof save as provided in the Accounts or the Management
Accounts there are outstanding no liabilities (except in the ordinary
course of business) or claims against the Company nor, so far as the Vendor
is aware, are there any deficiencies or defects which may result in claims
being made against the Company in relation to any services (other than
insurance claims disclosed in the Disclosure Letter) for which the Company
has been or is or may be or become liable or responsible in the course of
its business and, without prejudice to the generality of the foregoing, no
dispute exists between the Company and any customer or client nor, so far
as the Vendor is aware, are there any circumstances which may give rise to
any such dispute.
<PAGE>
-77-
Trading contracts
- -----------------
(48) There is not outstanding:-
(a) any agreement or arrangement between the Company and a supplier or
customer of the Company who accounts for more than ten per cent of the
turnover or expenditure of the Company and the Subsidiaries in
aggregate;
(b) any agreement or arrangement between the Company and any holding
company of the Company or any other subsidiary of such a holding
company;
(c) any agreement or arrangement entered into by the Company otherwise
than by way of bargain at arm's length;
(d) any agreement or arrangement whereby any assets owned or used by the
Company are subject to an option or similar arrangement for their sale
or purchase;
(e) any agreement or arrangement which requires or may require, or which
restricts in any way, the issue of shares in the Company or the issue
of a debenture by the Company;
(f) any joint venture, consortium, partnership or profit sharing agreement
or arrangement to which the Company is a party;
(g) any guarantee, indemnity or undertaking given by the Company to
procure the solvency of any person or otherwise to meet the
liabilities of any third party;
(h) any agreement restricting the freedom of the Company to provide and
take goods and services to and from such persons as it may from time
to time think fit.
(49) There are no agency or management agreements which have been entered into
by the Company.
(50) The Vendor has no knowledge, of the invalidity of or grounds for
rescission, avoidance or repudiation of any agreement to which the
<PAGE>
-78-
Company is a party and the Company has not received notice of any
intention to terminate any such agreement.
(51) So far as the Vendor is aware, no party to any contract in which the
Company is interested (whether as a contracting party or otherwise) is in
material breach thereof.
(52) The Company has outstanding no bids or tenders or sales or service
proposals made otherwise than in the ordinary course of business or which,
if accepted, would be likely to result in a loss on completion or
performance.
Product Guarantees, retention of title
- --------------------------------------
(53) The Company has not given any guarantee or warranty or made any
representation in respect of services supplied or contracted to be
supplied by it save for any guarantee or warranty implied by law; nor
(save as aforesaid) has the Company accepted any liability or obligation
in respect of any services that would apply after any such services have
been supplied by it; nor does the Company in the course of its business
acquire or dispose of any goods or receive or supply services on terms
whereby title in such goods or the subject matter of such services (or the
proceeds of resale thereof) is reserved to the vendor thereof.
Employment and Consultancy
- --------------------------
(54) (a) Details of all remuneration and other benefits payable to each
officer of the Company and of each employee of the Company whose
remuneration exceeds (Pounds)15,000 per annum or whose period of
notice exceeds three months and the main terms of employment thereof
are set out in the Disclosure Letter and no officer or employee has
given notice or is under notice of dismissal and no amounts are due
to or in respect of any former officer or employee and there are
outstanding no arrears of salary, wages, holiday pay
<PAGE>
-79-
or other remuneration and no current or former director, officer or
employee of the Company has any claim or prospective claim against the
Company for compensation for loss of office or arising out of the
termination of his office or employment or otherwise howsoever.
(b) The Company has not entered into any recognition agreement with a
trade union nor has it done any act which might be construed as
recognition of a trade union.
(c) So far as the Vendor is aware, material details of the remuneration
and other benefits payable to and the main terms of appointment of
each Consultant of the Company are set out in the Disclosure Letter.
Pensions
- --------
(55) (a) Save under the Pension Schemes and the Individual Pension Arrangements
there is not in existence, and no proposal has been announced to
establish, any retirement, death or disability benefit scheme for
present or former officers or employees nor any obligation to or in
respect of present or former officers or employees or the dependants
of any such person with regard to retirement, death or disability
pursuant to which any of the Group Companies is or may become liable
to make payment and no pension or retirement or sickness gratuity is
currently being paid or has been promised by any of the Group
Companies in respect of any former officer or former employee or a
dependant of any such person.
(b) Each of the Pension Schemes is Contracted-in to the State Earnings-
Related Pension Scheme (apart from the Teachers' Superannuation Scheme
which is contracted-out), and is an exempt approved scheme within the
meaning of Section 592(1) ICTA, and there is no reason why such exempt
approval may be withdrawn.
<PAGE>
-80-
(c) All contributions, premiums and any other financial expenditure for
which any of the Group Companies are responsible in relation to the
Pension Schemes and the Individual Pension Arrangements have been duly
paid.
(d) Save for those members listed in the Schedule under item (56) of
Volume 84 (Pensions) of the agreed bundle attached to the Disclosure
Letter, all benefits for classes of members (including deferred
pensioners, pensioners and dependants or other contingent
beneficiaries) under the Paid-Up Schemes are fully secured and can be
fully met from the assets held by each of the Paid-Up Schemes and none
of the Group Companies have any further financial liability whatsoever
in relation to any of them.
(e) The records of each of the Pension Schemes have been maintained by the
insurance company with which each Pension Scheme is invested. All
information necessary for the maintenance of the records and the
calculation of benefit for each of the Pension Schemes has been
provided to the relevant insurance company.
(f) All benefits payable under the Pension Schemes on the death of a
member are at the date of Completion either fully insured with
insurance companies or funded in accordance with the actuarial
valuation reports disclosed.
(g) No current or former employees or officers (whether living or
deceased) of any of the Group Companies have at any time in the two
years preceding the date of Completion been excluded or prevented from
participating in any of the Pension Schemes on the grounds of part-
time employment, marital status or otherwise where such exclusion
constitutes discrimination in breach of Article 119 of the Treaty of
Rome.
<PAGE>
-81-
(h) The only employees or former employees who are subject to the
provision of a guaranteed minimum level of defined benefits in
accordance with the full terms of their previous membership of the
Priory, Roehampton Limited Cash Benefit Scheme are fully listed in the
schedule attached under item 56 of Volume 84 (Pensions) of the agreed
bundle attached to the Disclosure Letter and their personal details
appearing on such schedule are complete and accurate.
Real Property
- -------------
(56) (a) The Property comprises all of the property owned, used or occupied
by the Company or in which the Company has any interest.
(b) The Vendor has to the best of its knowledge information or belief
provided to the Vendor's Solicitors all the information relating to
the Property that ought properly to be taken into account in the
preparation of the Certificates of Title.
(c) To the best of the Vendor's knowledge information or belief the
Certificates of Title are true and accurate in all respects.
Environmental matters
- ---------------------
(57) (a) In this paragraph the following words have the following meanings:
"Environment": air (including, without limitation, that within
buildings or natural or man-made structures, whether above or below
ground), water (including, without limitation, inland waters and
ground water as defined in Section 103(d) of the Water Act 1989) and
land (including, without limitation, soil and river beds under any
water as described above, surface land and sub-surface land);
"Environmental Agency": any regulatory or enforcement body in respect
of any Relevant Law including (without limitation) any
<PAGE>
-82-
Waste Regulation Authority, Waste Disposal Authority, Waste Management
Authority, Sewerage Undertaker, Land Drainage Authority, Drainage
Authority or Local Authority, Her Majesty's Inspectorate of Pollution,
the National Rivers Authority and the Health and Safety Executive;
"Environmental Audit": any survey, inspection, audit, test or
examination, whether carried out by an Environmental Agency or
otherwise, carried out for the purpose of assessing or demonstrating
compliance with the terms of any Relevant Law or of any Permit or
assessing the extent to which any of the Property or any neighbouring
property has been contaminated by any Hazardous Substance;
"Hazardous Substance": controlled waste and/or any substance which
alone or in combination with any other substance is hazardous, toxic,
radioactive, explosive or capable of polluting the Environment or
causing harm to human health or to the health of any living organism;
"Permit": any consent, approval, authorisation, exemption, filing
requirement, licence, order, permission, recording or registration
required as at today's date (and references to obtaining Permits shall
be construed accordingly);
"Relevant Law": a requirement of or duty imposed by any of the
following as at today's date:
the common law; United Kingdom legislation and subordinate or
delegated legislation; a judgement, order or award of any court;
European Community regulations or directives having the force of law
in the United Kingdom;
which in any case relates to the protection of the Environment, the
control of discharges or emissions, the prevention of harm
<PAGE>
-83-
to human health or to the health of any living organism, or to the
storage, disposal, handling or transport of any Hazardous Substance.
(b) The Company has complied with all Relevant Laws and obtained all
Permits required by all Relevant Laws in relation to the conduct of
its business and its use of the Property and has complied with the
terms and conditions of all such Permits.
(c) No allegation or claim of any violation or failure to comply with the
requirements of any Relevant Law, or of any Permit, has been received
by the Company and there are no circumstances which might give rise to
such a claim.
(d) Neither the Company nor the Property has been the subject of any
Environmental Audit.
(e) As far as the Vendor is aware all underground storage tanks which
contain or have contained any Hazardous Substance are, and have at all
relevant times been, fit for the purpose of Containing the substances
which they are containing or have contained.
(f) The Purchaser or its representatives have been supplied with the
following information in the Company's possession or control:-
(i) notices to or from any Environmental Agency;
(ii) all correspondence with any Environmental Agency;
(iii) any report whether prepared on behalf of the Company or for a
third party (but which is in the Company's possession or under
its control), resulting from any Environmental Audit in
connection with the Company's business or the Property, and all
correspondence and documentation relating to such a report;
<PAGE>
-84-
(iv) all Permits and details of appeals (whether current or pending)
and all correspondence and memoranda relating to environmental,
planning and health and safety matters;
(v) details of all litigation files, including administrative
proceedings in connection with any governmental or local
authority requirements, affecting the Company's business or the
Property;
(vi) all information concerned with the position, testing and age of
underground storage tanks;
(vii) details of any remedial measures taken or being taken to
prevent, reduce, mitigate or clean up any pollution of the
Environment deriving from any of the Property or from the
Company's business; and
(viii) details of all spillages of any Hazardous Substances upon any
of the Property which might give rise to a breach of any
Relevant Law or a failure to comply with the requirements of
any Permit.
(g) The Company has not deposited, caused or permitted to be deposited or
caused pollution, contamination, release, discharge or emission of any
Hazardous Substance other than in accordance with a current valid
Permit.
Documents and information
- -------------------------
(58) (a) All documents which are necessary to establish the title of the
Company to its assets are in the possession of or under the control of
the Company.
(b) All documents required to be retained for a minimum period for the
purposes of taxation or the Companies Act 1985 have been retained and
are in the possession or under the control of the Company.
<PAGE>
-85-
(c) The Company is registered under the Data Protection Act 1984 in
respect of its business as a data user who also carries on a computer
bureau and both the Company and its officers have complied in all
respects with their obligations under that Act. No requests have been
received under Part III of that Act for the disclosure of information
held by the Company.
Powers of attorney etc
- ----------------------
(59) The Company has not given any power of attorney or any other authority
(express, implied or ostensible) which is still outstanding or effective
to any person to enter into any contract or commitment or to do anything
on its behalf (other than any authority of employees to enter into routine
trading contracts in the normal course of their duties).
Licences etc
- ------------
(60) All licences, consents and other permissions and approvals necessary for
the carrying on of the Company's business and activities have been duly
obtained on a permanent and unconditional basis and are in full force and
effect and all reports, returns and other information required to be made
or given in respect thereof have been duly made or given and so far as the
Vendor is aware there are no circumstances which indicate that any of such
licences, consents and permissions are likely to be revoked or not renewed
(if necessary) in the ordinary course and the Company is not restricted by
contract from carrying on any activity in any part of the world.
Industrial Property Rights
- --------------------------
(61) (a) All the Industrial Property used or required by the Company in
connection with its business is in full force and effect and vested in
and beneficially owned by it.
<PAGE>
-86-
(b) The Company is the sole beneficial owner of the Industrial Property
disclosed in the Disclosure Letter and (where such property is capable
of registration) the registered proprietor thereof and (save for
copyrights) owns no other Industrial Property and save as may appear
from the Industrial Property Agreements disclosed in the Disclosure
Letter no person has been authorised to make any use whatsoever of any
Industrial Property owned by the Company and the Company has not
disclosed or permitted to be disclosed or undertaken or arranged to
disclose to any person other than the Purchaser any of its knowhow,
trade secrets, confidential information, price lists or lists of
customers or suppliers save in the ordinary course of its business.
(c) Save for the Industrial Property disclosed in the Disclosure Letter
and the Industrial Property Agreements, the Company does not require
any Industrial Property or rights under Industrial Property Agreements
for any of the operations of any of its businesses as presently
carried on and none of such operations infringes any right of any
other person relating to Industrial Property or involves the
unlicensed use of confidential information disclosed to the Company by
any person in circumstances which might entitle that person to a claim
against the Company and none of the Industrial Property disclosed in
the Disclosure Letter is being used, claimed, opposed or attacked by
any person nor has any claim been settled by the giving of
undertakings which remain in force.
(d) The operations of the businesses of the Company (and of any licensee
under a licence granted by the Company) as presently
<PAGE>
-87-
carried on do not and are not likely to give rise to a liability to
pay a royalty or any sum in the nature of a royalty or to a liability
to pay compensation pursuant to Sections 40 and 41 of the Patents Act
1977.
(e) The Vendor is not aware of any infringement by any third party of any
of the Industrial Property disclosed in the Disclosure Letter.
(f) The Company is not party to any secrecy agreement or agreement which
may restrict the use or disclosure of information.
(g) Confidential information and knowhow used or required by the Company
is kept strictly confidential and the Company has operated and
complied with procedures which maintain such confidentiality. The
Vendor is not aware of any such confidentiality having been breached.
(h) All application and renewal fees, costs and charges relating to the
Industrial Property disclosed in the Disclosure Letter have been duly
paid on time and no act has been done or omission permitted by the
Company whereby such Industrial Property or any of it has ceased or
might cease to be valid and enforceable.
(i) The Industrial Property Agreements disclosed in the Disclosure Letter
are all the Industrial Property Agreements to which the Company is a
party and all of them are valid and binding and there has not been any
material default (or any event which with notice or lapse of time or
both would constitute a material default) under any of them by the
Company or by any other party thereto.
Insolvency
- ----------
(62) No receiver, administrator or administrative receiver has been appointed
of the whole or any part of the assets or undertaking of the Company.
<PAGE>
-88-
(63) The Company is not in liquidation, is not the subject of a voluntary
arrangement or administration order and is not in receivership and no
order, petition, application, proceeding, meeting or resolution has been
made, presented, brought, called or passed for any of those purposes.
(64) The Company has not stopped payment nor is it insolvent nor is it deemed
unable to pay its debts within the meaning of Section 123 of the Insolvency
Act 1986 and there is no unfulfilled or unsatisfied judgment or Court order
outstanding against the Company and there has been no delay by the Company
in the payment of any obligation due for payment.
Grants
- ------
(65) (a) Save as disclosed in the Disclosure Letter the Company has not applied
for or received any grant, subsidy or other financial assistance from
any government department or agency, or any local or other authority.
(b) The Company has not done nor omitted to do any act or thing which
could result in all or any part of any such grant, subsidy or
assistance becoming repayable or being forfeited or withheld in whole
or in part.
Statutory, criminal etc. offences
- ---------------------------------
(66) There is no subsisting breach by the Company or any director, officer or
employee of the Company in his capacity as such of any statutory enactment
or regulation relating to the Company which would have a material adverse
effect on its business.
(67) The Company has not committed nor is it liable for any criminal, illegal,
unlawful, ultra vires or unauthorised act or material breach
<PAGE>
-89-
of contract and the Company has at all times carried on its business and
affairs in all respects in accordance with its Memorandum and Articles of
Association.
Fair Trading
- ------------
(68) (a) No agreement, practice or arrangement carried on by the Company or to
which the Company is a party:-
(i) is being or has been or ought to be or ought to have been
registered in accordance with the provisions of the Restrictive
Trade Practices Acts 1976 and 1977 or contravenes the provisions
of the Resale Prices Act 1976 or is or has been the subject of
any enquiry, investigation or proceeding under any of those
Acts; or
(ii) is or has been the subject of an enquiry, investigation,
reference or report under the Fair Trading Act 1973 (or any
previous legislation relating to monopolies or mergers) or the
Competition Act 1980; or
(iii) infringes article 85 of the Treaty (as amended) establishing the
European Community or constitutes an abuse of dominant position
contrary to article 86 of such Treaty or infringes any
regulation or other enactment made under article 87 of such
Treaty or is or has been the subject of any enquiry,
investigation or proceeding in respect thereof; or
(iv) has been notified to the Directorate General of Competition of
the Commission of the European Community; or
(v) is by virtue of its terms or by virtue of any practice for the
time being carried on in connection therewith a
<PAGE>
-90-
'Consumer Trade Practice' within the meaning of Section 13 of
the Fair Trading Act 1973 and susceptible to or under reference
to the Consumer Protection Advisory Committee or the subject
matter of a report to the Secretary of State or the subject
matter of an order by the Secretary of State under the
provisions of Part II of that Act; or
(vi) infringes any other competition, anti-restrictive trade
practice, anti-trust or consumer protection law or legislation
applicable in the United Kingdom and not specifically mentioned
in this sub-paragraph (a).
(b) The Company has not given any assurance or undertaking to the
Restrictive Practices Court or the Director General of Fair Trading or
the Secretary of State for Trade and Industry or the Commission or
Court of Justice of the European Community or to any other court,
person or body and is not subject to any Act, decision, regulation,
order or other instrument made by any of them relating to any matter
referred to in this paragraph 68.
(c) The Company is not in default or in contravention of any article, act,
decision, regulation, order or other instrument or of any undertaking
relating to any matter referred to in this paragraph 68.
Insider Contracts
- -----------------
(69) There is not outstanding and there has not at any time during the last four
years been outstanding any contract or arrangement, other than the
contracts of employment referred to in the Disclosure Letter, to which the
Company is a party and in which the Vendor or any director of the Company
or any person connected with any of them is or has been
<PAGE>
-91-
interested, whether directly or indirectly, and neither is the Company a
party to, nor have its profits or financial position during such period
been affected by, any contract or arrangement which is not of an entirely
arm's length nature.
BUPA
- ----
(70) There has been no further correspondence or discussion between BUPA and the
Company relating to the matters referred to in the correspondence specified
in paragraph (68)(a)(iii) of the Disclosure Letter.
ASSOCIATED COMPANIES
- --------------------
(71) The Company has no legally binding liability (whether actual or contingent)
which it owes to, or to a third party in respect of, any of the Associated
Companies.
<PAGE>
-92-
SIXTH SCHEDULE
(Taxation Claims)
1. A "Taxation Claim" means any taxation due from or any claim for taxation
against the Company or any of the Subsidiaries including (without
limitation) any notice, demand, assessment, letter or other document issued
or action taken whereby it appears that the Company or any of the
Subsidiaries is or may be:-
(a) liable to make any payment of taxation; or
(b) denied any allowance, relief, credit or repayment of taxation; and
includes a liability or claim for taxation which is the primary
liability of another party but which may be recovered from the
Company, any of the Subsidiaries or the Purchaser.
2. If a Taxation Claim for a given amount would arise or would have arisen
under (a) or (b) of paragraph 1 of this Schedule but for the availability
to the Company or any of the Subsidiaries of an allowance, relief or credit
which has accrued since the Accounts Date there shall be a Taxation Claim
for a like amount which shall be treated in the same way as the denial of
an allowance, relief or credit.
3. A claim is not a Taxation Claim:-
(a) unless it arises in relation to, any income, profits or gains earned,
accrued or received on or before the Completion Date or any act,
omission or event occuring on or before the Completion Date; or
(b) to the extent that provision or allowance has been made therefor in
the Accounts; or
(c) to the extent that provision or allowance has been made therefor in
the Accounts which is insufficient by reason only of any
<PAGE>
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increase in rates of taxation after the date of this Agreement and
having retrospective effect; or
(d) to the extent that it is a liability in respect of actual (but not
deemed) income, profit, gains or payments which arise in the ordinary
course of business of the Company or any of the Subsidiaries since the
Accounts Date (and for the avoidance of doubt the reference to a
liability in respect of such matters which arise in the ordinary
course of business includes, without limitation, any such liability
resulting from the disposal of a fixed asset on arms length terms to a
third party purchaser not being in any way connected with the Company
or any of its Subsidiaries); or
(e) if it is a liability which would not have arisen but for a voluntary
act of the Purchaser, the Company or any of the Subsidiaries after the
Completion Date outside the ordinary course of their respective normal
businesses and which the Purchaser knew or ought reasonably to have
known would give rise to such a liability; or
(f) to the extent that it arises from the loss, reduction or denial of any
allowance, relief or credit, or of any right to repayment of tax, or
to the extent that any allowance relief or credit or right to
repayment of tax is available to reduce the tax liability (or to
prevent the same from arising), but only where the relevant allowance
relief or credit, or right to repayment of tax:
(i) accrued to the Company or any of the Subsidiaries in any
accounting period prior to or up to the Accounts Date; and
(ii) was not taken into account by way of an increase in the amount
of the assets or net assets, or reduction in the
<PAGE>
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amount of the liabilities of the Company and the Subsidiaries in
the consolidated balance sheet comprised in the Accounts;
(g) if it is any amount in respect of and to the extent to which the
Vendor is liable to make a payment to the Purchaser pursuant to the
provisions of the tax side letter (or would be so liable but for some
set-off or other saving under the tax side letter which prevents the
liability from arising), or for which the Vendor is not liable in any
event in accordance with Clause 2(c) or (d) or 6(b) of the tax side
letter; or
(h) if it relates to or arises out of the whole or any of the expenditure
referred to in Clause 3 of the tax side letter not being allowable or
being disallowed as a deduction or charge against or in computing
profits of the Company and/or any of the Subsidiaries; or
(i) (for the avoidance of doubt) if it relates to or arises out of the
disposal of any asset after Completion which operates to bring into
charge to taxation any gain previously rolled over into the asset
being disposed of.
4. References to income or profits or gains earned, accrued or received shall
(except where the contrary appears) include income or profits or gains
deemed to have been, or treated as, earned, accrued or received for the
purposes of any legislation.
<PAGE>
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SEVENTH SCHEDULE
(Cash and Working Capital Adjustment)
1. The total consideration payable for the Shares shall be adjusted in
accordance with the following provisions of this Schedule by reference to
the aggregate Value of the Cash (as defined below) and the aggregate Value
of the Working Capital (as defined below) of the Company and the
Subsidiaries as at opening of business on 21st June 1996 (but assuming all
matters due to occur on Completion have so occurred) as shown in the
consolidated accounts for such companies to be prepared pursuant to
paragraph 6(b) of this Schedule ("the Completion Accounts").
2. In this Schedule:-
(a) "Value of the Working Capital" means the Net Current Assets less the
Net Current Liabilities;
(b) "Net Current Assets" means the trade debtors and other receivables due
within one year (net of the provision for bad debts) pre-paid
expenses, pre-opening expenses, accrued income other current assets
but excluding cash;
(c) "Net Current Liabilities" means the trade and other creditors and
deferred income falling due (in each case) within one year but
excluding corporation tax, any indebtedness to Midland Bank plc, Bank
of America or to the Vendor or any of its subsidiaries (other than the
Company or the Subsidiaries) or Borrowings;
(d) "Value of the Cash" means the cash in hand and at bank (including any
uncashed cheques received, but deducting any uncashed cheques drawn),
less the amount of the Borrowings and the Relevant Capital
Expenditure;
<PAGE>
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(e) "Borrowings" means, indebtedness incurred in respect of (i) money
borrowed or raised, (ii) any bond, note, loan stock, debenture or
similar instrument, (iii) acceptance or documentary credit facilities,
(iv) deferred payments for assets or services acquired (other than on
normal trade credit terms), (v) any cost to any Group Company of
terminating the ISDA agreement referred to in paragraph (21) of the
Disclosure Letter and all transactions thereunder or in connection
with the other arrangements referred to in clause 5(d) of this
Agreement, (vi) any amount which would have been borrowings but for an
act or omission outside the normal course of business calculated to
reduce, or a change in policy or general practice, since the
management accounts date having the effect of reducing borrowings but
excluding any borrowings arranged by or at the instance of the
Purchaser or (for the avoidance of doubt) discharged or released as
part of Clause 5 of this Agreement.
(f) "Relevant Capital Expenditure" means the aggregate amount remaining to
be paid within one year by any Group Company pursuant to any
contractual commitment to incur capital expenditure made by it prior
to Completion but excluding any such amount which:-
(i) is disclosed by the Disclosure Letter; or
(ii) is included in the Management Accounts; or
(iii) has been incurred since the Management Accounts Date in the
ordinary course of business; or
(iv) amounts in aggregate to a liability falling due within one year
of less than (Pounds)25,000.
(g) Notwithstanding anything to the contrary in the foregoing provisions,
all calculations made under this Schedule shall be
<PAGE>
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on a consolidated basis for the Company and the Subsidiaries as a
whole and without duplication of the same liability or other matter
under more than one heading;
(h) Assets and/or liabilities in a currency other than sterling shall be
translated into sterling at the market rate of exchange prevailing for
the relevant currency on the date of Completion (on the basis of the
spot rate of The Royal Bank of Scotland Plc for the sale of the
relevant currency for sterling at 11.00 hours (London time) on such
date).
(i) "The Vendor's Accountants" means Price Waterhouse of Thames Court, 1
Victoria Street, Windsor, Berkshire SL4 1HB.
(j) Unless otherwise stated, definitions and headings used in this
Schedule have the same meanings as in the Management Accounts.
3. Subject to paragraph 5 of this Schedule:-
(a) If the Value of the Cash shown in the Completion Accounts is less than
(Pounds)2,925,289 the Vendor shall repay to the Purchaser the sum by
which the Value of the Cash falls short of (Pounds)2,925,289.
(b) If the Value of the Cash shown in the Completion Accounts is more than
(Pounds)2,925,289 the Purchaser shall pay to the Vendor the sum by
which the Value of the Cash exceeds (Pounds)2,925,289.
4. Subject to paragraph 5 of this Schedule:-
(a) If the Value of the Working Capital shown in the Completion Accounts
is less than (Pounds)4,800,000 the Vendor shall repay to the Purchaser
the sum by which the Value of the Working Capital falls short of
(Pounds)4,800,000.
<PAGE>
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(b) If the Value of the Working Capital shown in the Completion Accounts
is more than (Pounds)4,800,000 the Purchaser shall pay to the Vendor
the sum by which the Value of the Working Capital exceeds
(Pounds)4,800,000.
5. The Value of the Cash and the Value of the Working Capital shall be
aggregated and the net amount paid or repaid to the Vendor or the
Purchaser, as appropriate (but so that no payment shall be made which is
less than (Pounds)20,000).
6. (a) Any sum payable under this Schedule shall be paid in cleared funds by
the Vendor or, as the case may be, the Purchaser within 21 days of the
Value of the Cash and the Value of the Working Capital being finally
determined in accordance with this Schedule. Any such sum shall bear
interest at the daily rate of 2% per annum over National Westminster
Bank PLC's base rate from the date which is 60 days from the
Completion Date until the date of such receipt.
(b) The Completion Accounts shall be prepared as at Completion by the
Company and the Purchaser's Accountants a draft of which shall be
delivered to the Vendor or the Vendor's Accountants within 60 days of
the Completion Date using the bases and policies of accounting adopted
in preparing the Management Accounts and in accordance with UK GAAP
(unless stated otherwise in paragraph 2 of this Schedule).
(c) The Vendor shall then be entitled to have the Completion Accounts and
the determination of the Value of the Cash and the Value of the
Working Capital reviewed by the Vendor's Accountants and, if the
Vendor's Accountants disagree with the
<PAGE>
-99-
determination of the Purchaser's Accountants, it shall notify that
fact to the Purchaser within 45 days of the date on which the Vendor
or the Vendor's Accountants received a copy of the Completion Accounts
and the statement of the Value of the Cash and the Value of the
Working Capital from the Purchaser's Accountants. If the Vendor and
the Purchaser cannot resolve such disagreement within a period of 21
days from the date on which the Vendor notifies the Purchaser of its
disagreement the Vendor and the Purchaser shall agree upon the
appointment of an independent chartered accountant, or if they cannot
so agree within a further period of 21 days then either may apply to
the President for the time being of the Institute of Chartered
Accountants in England and Wales for the appointment of an independent
chartered accountant. The Vendor and the Purchaser shall instruct such
independent chartered accountant that, after making such enquiries as
he shall see fit, he should within 45 days of the matter being
referred to him verify the Completion Accounts and determine the Value
of the Cash and the Value of the Working Capital and the Vendor and
the Purchaser shall each use all reasonable endeavours to ensure that
the determination is made within that period.
(d) In making his determination the independent chartered accountant shall
act as an expert and not as an arbitrator.
(e) The determination of the independent chartered accountant or, if there
has been no disagreement, the determination of the Purchaser's
Accountants, as to the amount of the Value of the Cash and the Value
of the Working Capital shall, save in the case of manifest error, be
binding on the Vendor and the Purchaser.
<PAGE>
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(f) All fees and expenses incurred in the determination of the Value of
the Cash and the Value of the Working Capital by the independent
chartered accountant shall be paid equally by the Vendor and the
Purchaser. The fees and expenses of the Vendor's Accountants for work
carried out by them under this Schedule shall be borne by the Vendor.
The fees and expenses of the Purchaser's Accountants for work carried
out by them under this Schedule shall be borne by the Purchaser, save
for 25% or (Pounds)7,500 plus VAT (whichever is less) of such fees and
expenses incurred to the date which is 60 days from the Completion
Date (such payment to be made by the Vendor within 21 days of demand
provided an appropriate invoice from the Purchaser's Accountants to
the Purchaser is attached thereto).
(g) The Purchaser shall give the Vendor's accountants and any independent
chartered accountant reasonable access to the personnel and books of
account and records of the relevant Group Company to enable an
accurate and proper determination of the Value of the Cash and the
Value of the Working Capital to be made.
7. Subject to paragraph 5 of this Schedule, neither party to this Agreement
shall be entitled to any right of set off, deduction, counterclaim or
similar right against any amount payable under this Schedule and each party
unconditionally and irrevocably waives any such right that it might
otherwise have had but for this paragraph 7 of this Schedule.
<PAGE>
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SIGNED by )
) Richard L. Conte
for and on behalf of )
COMMUNITY PSYCHIATRIC )
CENTERS INC in the )
presence of:- ) Ronald L. Ooley
/s/ Ronald L. Ooley
SIGNED by )
/s/ Jan Peter Reynolds ) J. P. Reynolds
for and on behalf of )
FORAY 911 LIMITED )
in the presence of:- )
<PAGE>
EXHIBIT 2
THE SERIES `A' LOAN NOTES
SERIAL NO: 1
________________________________________________________________________________
(Pounds)3,000,000 Principal Amount
FORAY 911 LIMITED
(Incorporated with limited liability in England under the Companies Act 1985)
(Registered No 3189363)
(the "Company")
(Pounds)3,000,000 Secured Loan Notes
This Note is held by: Community Psychiatric Centers of 5110, West Sahara
Avenue, Las Vegas, NV 89102, USA.
This Note forms one of a series of Notes constituted by an instrument dated 21
June 1996 made by Foray 911 Limited (the "Instrument").
Interest on this Note shall be payable in accordance with and at the rates from
time to time specified in Condition 3 and in clause 3 of the Instrument.
The Company's obligations under the terms of this Note and under the Conditions
are subject to the provisions of the Intercreditor Agreement (as defined in the
Instrument).
The Company hereby covenants with the Noteholder that it will pay to the
Noteholder on the dates set out in Condition 4 the sums set out therein (or such
earlier date as may be specified in the Conditions for redemption of the Notes)
together with interest at the aforesaid rates and any additional amounts as may
be payable in accordance with the terms of the Instrument or the Conditions.
IN WITNESS whereof this Note is executed as a Deed this 21st day of June 1996.
<PAGE>
-2-
EXECUTED AS A DEED )
By FORAY 911 LIMITED )
in the presence of: )
Director
Director
<PAGE>
CONDITIONS OF THE SERIES `A' LOAN NOTES
AND SERIES `B' LOAN NOTES
The (Pounds)35,250,000 Secured Loan Notes (the "Notes") of Foray 911 Limited
(the "Company") are in registered form. The Notes are constituted by an
instrument (the "Instrument") dated 21 June 1996 made by the Company. Copies
of the Instrument are available from the registered office of the Company.
The statements set out in these Conditions include summaries of, and are subject
to, the detailed provisions of the Instrument. Words and expressions used in
these Conditions have, unless otherwise defined or the context otherwise
requires, the same meanings as are given to them in the Instrument. The holders
of the Notes are entitled to the benefit of, and are deemed to have notice of,
all the provisions of the Instrument and the Notes, all of which are binding on
them.
1. DENOMINATION AND TITLE
Notes may, subject to paragraph 2 of Schedule 2, be transferred by an
instrument (in writing in accordance with Schedule 2 to the Instrument) in
amounts or integral multiples of (Pounds)10,000 in principal amount (or
such other amount representing a whole Note). The Notes shall be issued in
such denominations as the Company shall determine and each Note shall bear
a denoting serial number. The Company may treat the registered holder of
any Note as the absolute owner thereof (whether or not such Note shall be
overdue and notwithstanding any notice of ownership or writing thereon or
any notice of previous loss or theft or of trust or other interest therein)
for the purpose of making payment and for all other purposes.
2. STATUS AND SECURITY
2.1 The Notes constitute secured obligations of the Company ranking pari passu
without any preference among themselves, subject to the provisions of the
Intercreditor Agreement and Condition 4.5.
2.2 The obligations of the Company under the Instrument and in respect of the
Notes are secured by way of the Security, subject to the provisions of the
Intercreditor Agreement.
<PAGE>
-2-
3. INTEREST
3.1 Interest shall accrue on the principal amount of the Notes and the Accrued
Interest from time to time outstanding and accruing until repayment in full
of the Notes at the following rates (the "Accrued Interest"):
(a) 15% per annum during the period from the date of issue up to and
including 30 November 1997;
(b) 10% per annum during the period from 1 December 1997 up to and
including 30 November 1998;
(c) 5% per annum during the period from 1 December 1998 up to and
including 30 November 2001; and
(d) 0% thereafter.
The Accrued Interest shall be calculated by reference to a year of 365 days
and the number of days elapsed and shall accrue on a daily basis on the
principal amount of the Notes and the Accrued Interest (compounded monthly)
and shall, subject to Condition 3.4 and to the provisions of the
Intercreditor Agreement, become payable by the Company on any repayment of
the Notes.
3.2 The Company shall pay interest on the principal amount of the Notes and on
the Accrued Interest from time to time outstanding and accruing until
repayment in full of the Notes at the following rates (the "Running
Interest"):
(a) 5% per annum during the period from 1 December 1997 up to and
including 30 November 1998;
(b) 10% per annum during the period from 1 December 1998 up to and
including 30 November 2001;
(c) 15% per annum thereafter.
The Running Interest shall, subject to the provisions of the Intercreditor
Agreement, be paid by the Company semiannually in arrears on 31 July and 31
January in each year (or the first
<PAGE>
-3-
Business Day after such date in any year when such dates fall on a day
which is not a Business Day) with the first such payment due on 31 July
1998. The Running Interest payable hereunder shall be calculated by
reference to a year of 365 days and the number of days elapsed and shall
accrue on a daily basis. In addition, unpaid Running Interest shall itself
bear interest in accordance with clause 3 of the Instrument (but for the
avoidance of doubt shall not itself become Accrued Interest).
3.3 The Company at its sole discretion may at any time satisfy all or any part
of the Accrued Interest accumulated at such time by the creation and issue
of further loan notes, in principal amounts equal to the Accrued Interest
accumulated at such time. Such further loan notes will be issued by the
Company to the Noteholders on the same terms as the Notes held by each
Noteholder.
3.4 If a Specified Disposal occurs, then, subject to the provisions of the
Intercreditor Agreement, an amount equal to the One-Third Amount (as
defined in Condition 4.5(b)) shall be paid to the Noteholders, pro rata to
their respective holdings of Notes, as a payment of Accrued Interest, and
the amount of Accrued Interest on the Notes shall be reduced accordingly.
4. REDEMPTION AND PURCHASE
4.1 REDEMPTION AT MATURITY
Unless previously redeemed or purchased by the Company and cancelled, the
Company will, subject to the provisions of the Intercreditor Agreement,
redeem the Notes at their principal amount on the dates and in the amounts
set out below together with the Accrued Interest and the Running Interest
accrued up to and including the date of redemption and any other sum due in
accordance with these Conditions, less any Taxes:
<TABLE>
<CAPTION>
Date
----
<S> <C>
June 30 2004 (Pounds)5,875,000
June 30 2005 (Pounds)5,875,000
June 30 2006 (Pounds)5,875,000
July 02 2007 (Pounds)5,875,000
June 30 2008 (Pounds)5,875,000
June 30 2009 (Pounds)5,875,000
</TABLE>
<PAGE>
-4-
Except as provided in Conditions 4.2, 4.4 and 4.5 below, and without
prejudice to Condition 4.3 below, the Company may not optionally redeem
Notes prior to these dates.
4.2 REDEMPTION FOR TAXATION REASONS
If the Company at any time determines immediately prior to giving notice
referred to below that, as a result of any change in or in the official or
judicial interpretation or application of any taxation laws (or in
regulations made thereunder) of the United Kingdom by any authority thereof
or therein having power to levy any form of tax on or in respect of the
Company, the Notes are materially prejudicial to the Company's tax position
and the Company cannot by taking reasonable steps avoid such result, then
the Company may, if all amounts actually or contingently outstanding under
the Banking Facilities have been paid in full and none of the Banking
Facilities are available for utilisation (but not otherwise) and having
given not less than 30 or more than 60 days' notice in writing to the
Noteholders, redeem all but not some only of the Notes then outstanding at
their then Redemption Amount.
4.3 OPTIONAL PURCHASE
The Company may, if all amounts actually or contingently outstanding under
the Banking Facilities have been paid in full and none of the Banking
Facilities are available for utilisation (but not otherwise), at any time
thereafter purchase beneficially or procure others to purchase beneficially
for its account all or any of the Notes in amounts or integral multiples of
(Pounds)1,000,000 in principal amount (or such other amount representing a
whole Note).
4.4 SPECIFIED DATE
On any Specified Date the Notes shall, if all amounts actually or
contingently outstanding under the Banking Facilities have been paid in
full and none of the Banking Facilities are available for utilisation (but
not otherwise), become immediately due and payable at their then Redemption
Amount.
<PAGE>
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4.5 SPECIFIED DISPOSAL
If a Specified Disposal occurs and provided that at the time of the
redemption contemplated by this Condition 4.5 the Agent has not given an
instruction to the Security Trustee under clause 5.1 of the Intercreditor
Agreement, a number of the Series `A' Loan Notes shall be redeemed within
30 days of the completion of the Specified Disposal by the payment by the
Company of a sum (the "Sum") equal to the lower of:
(a) (Pounds)500,000;
(b) one-third of the net consideration received by the Group pursuant to
the agreement giving effect to the Specified Disposal (being the
amount of the consideration actually received by the Group (in cash or
which is immediately measurable in cash terms) on completion of that
agreement or subsequent to it and the Company hereby agrees to use its
reasonable endeavours to ensure that any element of deferred
consideration will be (i) payable in cash or immediately (at the time
of payment) measurable in cash terms and (ii) not more than 20% of the
aggregate consideration receivable by the Group) less all taxes and
reasonable costs and expenses payable by the Group in connection with
the Specified Disposal or otherwise resulting therefrom (the "One-
Third Amount"); and
(c) the Redemption Amount on all Series 'A' Loan Notes then outstanding at
the date of payment under this Condition.
The number of Series `A' Loan Notes to be redeemed pursuant to this
Condition 4.5 will be such number of Series `A' Loan Notes as represents
the relevant principal amount, where the Redemption Amount for such Series
`A' Loan Notes on such redemption equals the Sum. The payment of such
amount shall be in full satisfaction of all the Company's obligations to
pay the principal amount and the Accrued Interest and any Running Interest
accrued to the date of receipt on the Series `A' Loan Notes then being
redeemed, and any other sum due in accordance with the Instrument or these
Conditions.
4.6 REDEMPTION FOR DEFAULT
If there occurs an Event of Default, the Notes shall, if declared due and
payable in accordance with Condition 6, become immediately due and payable
at their then Redemption Amount.
<PAGE>
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4.7 NOTICE OF REDEMPTION
28 days (or such lesser period as shall be agreed between the Company and
the holder of the majority of the Notes then in issue) prior to repayment
of any Notes the Company shall give notice to the relevant Noteholders and
(unless the Banking Facilities have been repaid in full and are no longer
available for utilisation) to The Royal Bank of Scotland plc (as agent for
the Banks under the Facilities Agreement) specifying the total amount of
the Notes to be repaid on that occasion, the method by which this was
calculated, the number of such holder's Notes to be repaid, the applicable
repayment date and place at which the certificate for such Notes are to be
produced. On each such redemption date each of the relevant Noteholders
shall be bound to deliver to the Company at such place the certificate of
such of the Notes concerned as are held by him. Upon such delivery of the
certificates the Company shall pay to such holder the amount due to him in
respect of such repayment. If any certificate so delivered to the Company
includes any Notes not to be repaid on the relevant repayment date, a fresh
Note for such Notes shall be issued free of charge to the holder delivering
such certificate to the Company.
4.8 SELECTION OF NOTES FOR REDEMPTION
The Notes to be repaid on any occasion (except redemption in accordance
with paragraph 4.5) shall be selected, as nearly as may be, pro rata from
the holding of each relevant Noteholder. On any redemption in accordance
with paragraph 4.5, the Notes to be repaid shall be selected, as nearly as
may be, pro rata from the Noteholders holding the Series `A' Loan Notes.
4.9 CANCELLATION AND RE-SALE
All Notes redeemed or purchased by the Company under this Condition 4 will
be cancelled and accordingly will not be available for re-issue or re-sale.
5. PAYMENTS
5.1 If the date for payment of any sum under these Conditions is not a Business
Day the date for payment shall be postponed to the next succeeding Business
Day and Interest and the Redemption Amount shall be calculated by reference
to and payable in respect of such extension of time.
<PAGE>
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5.2 All payments to be made by the Company hereunder shall be made in the case
of redemption against delivery of the relevant Note executed by the
Noteholder and in all cases either by telegraphic transfer on the due date
for payment, or at the Company's option, by cheque drawn on a bank in the
City of London which will be posted no later than the fourth Business Day
before the due date for payment thereof to persons who are registered as
Noteholders at the close of business on the fifth Business Day before the
relevant due date and payable to such Noteholders.
5.3 All payments to be made by the Company hereunder to a Noteholder (i) shall
be made without any set-off or counter-claim and (ii) each such payment,
including any sum in respect of interest payable under Condition 3 and/or
clause 3 of the Instrument shall be made without deduction for, any taxes,
levies, imposts, duties, charges, fees, deductions or withholdings of any
nature ("Taxes"), unless the Company is compelled by law to deduct any
Taxes.
5.4 The Company shall not be entitled to any set off or counterclaim against
the Redemption Amount of any Series "A" Loan Note in respect of any sum due
or claimed to be due to the Company from the holder of such Series "A" Loan
Note.
6. EVENTS OF DEFAULT AND ENFORCEMENT
Any Noteholder if so authorised by a Consent or an Extraordinary
Resolution, and subject to the provisions of the Intercreditor Agreement,
may declare the Notes to be due and repayable immediately (and the Notes
shall thereby become so due and repayable) at their then Redemption Amount
(without prejudice to the provisions of Condition 3) if:
(a) the Company shall fail on the due date to make any payment of
principal to any Noteholder under these Conditions, except where such
payment is prohibited under the provisions of the Intercreditor
Agreement, and shall not remedy such defect within three Business Days
of being required to do so by notice in writing from such Noteholder;
(b) the Company shall fail on the due date to make any payment of interest
due to any Noteholder under these Conditions, except where such
payment is prohibited under the provisions of the Intercreditor
Agreement, and shall not remedy such defect within three Business Days
of being required to do so by notice in writing from such Noteholder;
<PAGE>
-8-
(c) the Company shall fail to perform or observe any other covenant,
condition or provision contained in the Notes or the Instrument and on
its part to be performed and observed and such failure is not remedied
within 15 Business Days following service by or on behalf of any
Noteholder on the Company of notice certifying that such failure is
materially prejudicial to the interests of the Noteholders in respect
of the Notes and requiring the same to be remedied;
(d) any resolution is passed or order made for the winding up or
dissolution of the Company save for the purpose of a solvent
reorganisation or reconstruction or amalgamation, the terms of which
were previously approved by an Extraordinary Resolution or a Consent;
(e) an administration order is made or a receiver, manager or
administrator is appointed in relation to the Company;
(f) any demand for repayment being made under clause 11.2(b) of the
Facilities Agreement;
(g) the Company has committed a breach of the provisions of the Investment
Agreement (other than a failure to pay the Participating Dividend
under the Articles where payment of such dividend is prohibited by the
provisions of the Intercreditor Agreement) and such breach, if capable
of remedy, has not been remedied within a period of 15 Business Days
following service by or on behalf of any Noteholder on the Company of
notice of such breach certifying that such breach is materially
prejudicial to the interests of the Investors (as defined in the
Investment Agreement) in respect of their investment in the Company
and requiring the same to be remedied.
7. MODIFICATION, WAIVER AND SUBSTITUTION
7.1 The Instrument contains provisions for convening meetings of the
Noteholders to consider any matter affecting their interests, including the
modification by Extraordinary Resolution of these Conditions or the
provisions of the Instrument. Any such modification may only be made in
accordance with the provisions of the Intercreditor Agreement. The quorum
at any such meeting for passing an Extraordinary Resolution for modifying
such provisions is persons holding or representing not less than one-half
in principal amount of the Notes for the time being outstanding. Any
resolution duly passed at any such meeting shall be binding on all the
Noteholders, whether present or not.
<PAGE>
-9-
7.2 The Company may make, without the consent of the Noteholders, any
modification of, or any waiver or authorisation of any breach of any
provision of, these Conditions or the Instrument which, in the opinion of
the auditors appointed by the Company, is not materially prejudicial to the
interests of the Noteholders or any modification which is of a formal or
technical nature or which is made to correct a manifest error. Any such
modification may only be made in accordance with the provisions of the
Intercreditor Agreement.
7.3 Any such modification, waiver, authorisation or substitution shall be
binding on the Noteholders and any such modification or substitution shall
be notified to the Noteholders as soon as practicable thereafter in
accordance with clause 8.2 of the Instrument.
8. GOVERNING LAW
The Instrument and the Notes are governed by, and shall be construed in
accordance with, English law and the English courts have non-exclusive
jurisdiction in connection with the Instrument and the Notes.
<PAGE>
SCHEDULE 2
PROVISIONS AS TO REGISTRATION, TRANSFER
AND REPLACEMENT OF NOTES
1. EXCLUSION OF EQUITIES
Every Noteholder will be recognised by the Company as entitled to its Note
free from any equity, set-off or counter-claim on the part of the Company
against the original or any intermediate holder of the Note.
2. TRANSFERABILITY OF NOTES
2.1 The principal amount of each Note is transferable by instrument in writing
in any usual form. There shall not be included in any instrument of
transfer any note other than a Note constituted by the Instrument.
2.2 Subject to paragraph 2.3 the Series `A' Loan Notes may only be transferred
in whole and not in part, and may only be transferred to members of the
original Noteholder's group (being any holding company of the original
Noteholder, or any subsidiary undertaking of the original Noteholder or of
any of its holding companies from time to time) or to a sophisticated
investor.
2.3 A transfer of Series `A' Loan Notes other than to a member of the original
Noteholder's group (as defined above) may only be made if 30 days' prior
written notice thereof (the "Notice Period") has been given to the Company
specifying the price at which the Series `A' Loan Notes are to be
transferred and the identity of the proposed transferee (a "Transfer
Notice"). Within five Business Days of receipt of a Transfer Notice, the
Company shall copy the Transfer Notice to the holders of the Series `B'
Loan Notes, who shall be entitled to purchase the Series `A' Loan Notes at
the price specified in the Transfer Notice within the Notice Period (such
entitlement to be in proportion to their holdings of the Series `B' Loan
Notes unless any such Noteholder does not wish to participate, in which
case the entitlement of each Noteholder who does wish to participate shall
be in proportion to its holding of the Series `B' Loan Notes held by all
the Noteholders who wish to participate, and provided at all times that the
holders of the Series `B' Loan Notes who wish to participate shall not be
entitled to purchase part but not all of the Series `A' Loan Notes), and
the holder of the Series `A' Loan Notes shall be bound to transfer such
Notes to the holders of the Series `B' Loan Notes in accordance with this
paragraph on receipt of the price specified in the Transfer Notice.
<PAGE>
-2-
2.4 If the holders of the Series `B' Loan Notes do not purchase the Series `A'
Loan Notes offered for sale in accordance with the Transfer Notice, the
holder of the Series `A' Loan Notes may transfer such notes to the proposed
transferee specified in the Transfer Notice at a price no lower than the
price specified in the Transfer Notice.
2.5 Each Series `B' Loan Note shall only be transferable in accordance with the
provisions contained in the Articles, mutatis mutandis, as though each
Series `B' Loan Note was a "B" Ordinary Share of the Company. The
provisions of this Schedule 2 shall be subject to the provisions contained
in the Articles governing the transferability of Series `B' Loan Notes.
2.6 Any proposed transferee of any Note shall adhere to the terms of the
Intercreditor Agreement (if not already a party thereto) as a condition of
such transfer.
3. EXECUTION OF TRANSFERS
Every instrument of transfer must be signed by or on behalf of the
transferor and the transferor shall be deemed to remain the owner of the
Note to be transferred until the name of the transferee is entered in the
Register.
4. REGISTRATION OF TRANSFERS
Every instrument of transfer must be left for registration at the location
of the Register accompanied by the Note to be transferred together with
such other evidence as the Registrar may reasonably require to prove the
title of the transferor or his right to transfer the Note and if the
instrument of transfer is executed by some other person on his behalf the
authority of that person to do so. All instruments of transfer which shall
be registered may be retained by the Company. The Registrar will despatch
by registered mail, to such address as the transferee may request, a new
Note in respect of the principal amount of the Note transferred. Upon
registration of any transfer and delivery of any new Note or Notes in
respect thereof as aforesaid, the Note transferred shall be cancelled. No
transfer shall be registered of a Note in respect of which a notice of
repayment has been given.
5. NO FEES FOR REGISTRATION OF TRANSFERS
No fees shall be charged for the registration of any transfer.
<PAGE>
-3-
6. REPLACEMENT OF NOTES
If a Note is mutilated, defaced, destroyed, stolen or lost it may, and
shall, in the case of mutilation or defacement, upon the surrender of the
mutilated or defaced Note be replaced at the registration office for the
time being of the Company on payment of such costs as may be incurred in
connection therewith and, in the case of destruction, theft or loss, on
such terms as to provision of evidence and indemnity as the Company may
reasonably require. An entry on the Register shall be made accordingly.
<PAGE>
SCHEDULE 3
PROVISIONS FOR MEETINGS AND RESOLUTIONS OF THE NOTEHOLDERS
1. CALLING OF MEETINGS
The Company may at any time and shall upon the request in writing signed by
Noteholders holding in aggregate not less than one-tenth of the principal
amount of the Notes then outstanding convene a meeting of the Noteholders,
in default of which such Noteholders shall convene such meeting themselves.
Every such meeting shall be held at such reasonably convenient and
appropriate place in the United Kingdom and time as the Directors may
approve.
2. NOTICE OF MEETINGS
At least 14 or, in the case of a meeting convened for the purpose of
passing an Extraordinary Resolution, at least 21 clear days' notice
specifying the place, day and time of the meeting shall be given to the
Noteholders of any meeting of Noteholders. Any such notice shall specify
the general nature of the business to be transacted at the meeting thereby
convened but except in the case of a resolution to be proposed as an
Extraordinary Resolution it shall not be necessary to specify the terms of
any resolutions to be proposed. The non-receipt of notice by or the
accidental omission to give notice to any Noteholder shall not invalidate
any resolution passed at any such meeting. A Noteholder whose address on
the Register is not within the United Kingdom shall be entitled to receive
notice of any meeting.
3. CHAIRMAN OF MEETINGS
A person nominated by Noteholders present holding or representing by proxy
in aggregate a majority of the principal amount of the Notes then
outstanding shall be entitled to take the chair at any such meeting but if
no such nomination is made, or if at any meeting the person nominated is
not present within 15 minutes after the time appointed for the holding of
such meeting, the Noteholders present shall choose one of their number to
be chairman. Any director and the secretary, solicitors, auditors and
financial advisers of the Company and any other person authorised in that
behalf by the Company may attend and speak at any meeting.
<PAGE>
-2-
4. QUORUM AT MEETINGS
At any meeting of Noteholders convened for any purpose other than the
passing of an Extraordinary Resolution a person or persons holding or
representing by proxy in aggregate not less than one-tenth of the principal
amount of the Notes then outstanding shall form a quorum for the
transaction of business. At any meeting convened for the purpose of passing
an Extraordinary Resolution a person or persons holding or representing by
proxy in aggregate a majority of the principal amount of the Notes then
outstanding shall form a quorum. No business (other than the choosing of a
Chairman) shall be transacted at any meeting unless the requisite quorum is
present at the commencement of business.
5. ABSENCE OF QUORUM
If within fifteen minutes from the time appointed for any meeting of the
Noteholders a quorum is not present the meeting shall, if convened upon the
requisition of the Noteholders, be dissolved. In any other case it shall
stand adjourned to such day and time (being not less than 14 days
thereafter) and to such place as may be appointed by the Chairman and at
such adjourned meeting the Noteholders present in person or by proxy and
entitled to vote whatever the principal amount of the Notes then
outstanding held by them shall form a quorum and shall have power to pass
any Extraordinary or other resolution and to decide upon all matters which
could properly have been disposed of at the meeting from which the
adjournment took place.
6. ADJOURNMENT OF MEETINGS
The Chairman may with the consent of any meeting at which a quorum is
present and shall if directed by a person or persons holding or
representing by proxy in aggregate not less than one-fifth of the principal
amount of the Notes then outstanding adjourn the same from time to time and
from place to place but no business shall be transacted at any adjourned
meeting except business which might lawfully have been transacted at the
meeting from which the adjournment took place.
<PAGE>
-3-
7. NOTICE OF ADJOURNED MEETINGS
Notice of any adjourned meeting at which an Extraordinary Resolution is to
be submitted shall be given in the manner provided by this Instrument and
such notice shall state that the Noteholders present in person or by proxy
at the adjourned meeting will form a quorum.
8. RESOLUTION ON SHOW OF HANDS
Every question submitted to a meeting of Noteholders shall be decided in
the first instance by a show of hands and in case of an equality of votes
the Chairman shall both on a show of hands and on a poll have a casting
vote in addition to the vote or votes (if any) to which he may be entitled
as a Noteholder or as a duly appointed proxy.
9. DEMAND FOR POLL
At any meeting of Noteholders unless (before or on the declaration of the
result of the show of hands) a poll is demanded by the Chairman or by a
person or persons present holding or representing by proxy in aggregate no
less than one-tenth of the principal amount of the Notes then outstanding a
declaration by the Chairman that a resolution has been carried or carried
by a particular majority or lost or not carried by any particular majority
shall be conclusive evidence of the fact.
10. MANNER OF TAKING POLL
If at any such meeting a poll is so demanded it shall be taken in such
manner as the Chairman may direct and the result of such poll shall be
deemed to be the resolution of the meeting at which the poll was demanded.
The demand for a poll may be withdrawn.
11. TIME FOR TAKING POLL
Any poll demanded at any such meeting on the election of a Chairman or on
any question of adjournment shall be taken at the meeting without
adjournment. A poll demanded on any other question shall be taken at such
time and place as the Chairman may direct. No notice need be given of a
poll not taken immediately if the time and place at which it is to be taken
are announced at the meeting at which it is demanded. In any other case at
least seven clear days' notice shall be given specifying the time and place
at which the poll is to be taken. The
<PAGE>
-4-
demand for a poll shall not prevent the continuance of a meeting for the
transaction of any business other than the question on which the poll has
been demanded.
12. PERSONS ENTITLED TO VOTE
The registered holders of any of the Notes shall be entitled to vote either
in person or by proxy.
13. INSTRUMENT APPOINTING PROXY
Every instrument appointing a proxy must be in writing signed by a duly
authorised officer of the Noteholder and shall be in any usual form or in
such other form as the Directors may approve. Such instrument of proxy
shall unless the contrary is stated thereon confer authority to demand or
join in demanding a poll and to vote on a resolution or amendment of a
resolution put to the meeting for which it is given as the proxy thinks
fit, be valid as well for an adjournment of the meeting as for the meeting
to which it relates and need not be witnessed. A person appointed to act as
a proxy need not be a Noteholder.
14. DEPOSIT OF INSTRUMENT APPOINTING PROXY
The instrument appointing a proxy and the power of attorney or other
authority (if any) under which it is signed or a notarially certified copy
of such power or authority shall be deposited at such place or places as
the Company (or the Noteholders in default of the Company convening the
meeting) may in the notice of meeting direct or if no such place is
specified then at the registered office of the Company not less than 48
hours before the time appointed for holding the meeting or adjourned
meeting or the taking of a poll at which the person named in such
instrument proposes to vote and in default the instrument of proxy shall
not be treated as valid. A vote given in accordance with the terms of an
instrument appointing a proxy shall be valid notwithstanding the previous
revocation of the instrument of proxy or of the authority under which the
instrument of proxy is given or transfer of the Notes in respect of which
it is given unless previous intimation in writing of such revocation or
transfer shall have been received at the registered office of the Company
at least one hour before the time for holding the meeting or adjourned
meeting at which the vote is given. No instrument appointing a proxy shall
be valid after the expiration of 12 months from the date named in it as the
date of its execution.
<PAGE>
-5-
15. VOTES
On a show of hands every Noteholder who is present by a representative or
by one of its officers as its proxy shall have one vote and on a poll every
Noteholder present in person or by proxy shall have one vote for every
(Pounds)1 principal amount of the Notes then outstanding of which he is the
holder. A Noteholder entitled to more than one vote need not use all his
votes or cast all the votes he uses in the same way.
16. POWERS OF MEETINGS OF NOTEHOLDERS
16.1 Subject to paragraph 16.2, a meeting of the Noteholders shall in addition
to any other powers have the following powers exercisable by Extraordinary
Resolution namely:
(a) power to sanction any compromise or arrangement proposed to be made
between the Company and the Noteholders;
(b) power to sanction any abrogation, modification or compromise or any
arrangement in respect of the rights of the Noteholders against the
Company or its property whether such rights shall arise under this
Instrument or otherwise;
(c) power to sanction any scheme for the reconstruction of the Company or
for the amalgamation of the Company with any other company;
(d) power to sanction any scheme or proposal for the sale or exchange of
the Notes for or the conversion of the Notes into shares, stock,
debentures, debenture stock or other obligations or securities of the
Company or any other company formed or to be formed or cash or partly
for or into such shares, stock, debentures, debenture stock or other
obligations or securities as aforesaid and partly for or into cash and
for the appointment of some person with power on behalf of the
Noteholders to execute an instrument of transfer of the Notes held by
them in favour of the person to or with whom the Notes are to be sold
or exchanged respectively;
(e) power to assent to any modifications of the Conditions and/or of the
provisions contained in this Instrument proposed or agreed to by the
Company and to authorise the Company to execute an instrument
supplemental to the Instrument embodying any such modification;
<PAGE>
-6-
(f) power to sanction the release of the Company from payment of all or
any part of the principal amount and interest owing upon the Notes,
and any other moneys payable to Noteholders pursuant to this
Instrument or from any other obligation arising under this Instrument;
(g) power to appoint any persons (whether Noteholders or not) as a
committee to represent the interest of the Noteholders and to confer
upon such committee any powers or discretions which the Noteholders
could themselves exercise;
(h) power to give any approval, authority, sanction, direction or request
which under any of the provisions of this Instrument is required to be
given by Extraordinary Resolution; and
(i) power to declare the Notes due and payable pursuant to Condition 6.
Provided that such powers shall only be exercisable in accordance with, and
to the extent permitted by, the provisions of the Intercreditor Agreement.
16.2 The Series 'B' Noteholders will not:
(a) convene a meeting of the Noteholders for the purpose of proposing an
Extraordinary Resolution to sanction any modification, abrogation or
compromise of or arrangement in respect of the rights attaching to the
Series 'A' Loan Notes or of the Conditions attaching to the Series 'A'
Loan Notes; or
(b) save where requested to do so in writing by the holders of the Series
'A' Loan Notes vote, either in person or by proxy or by corporate
representative, in favour of any such Extraordinary Resolution, or
sign a Consent to pass such an Extraordinary Resolution,
unless such Extraordinary Resolution is proposed for a Specified Purpose.
16.3 The holders of the Series 'B' Loan Notes agree that they shall not exercise
their powers to pass an Extraordinary Resolution or sign a Consent in such
a way as to obtain a benefit for themselves (either in their capacity as
shareholders of the Company or as Noteholders) which would not accrue to
all the Noteholders as a group and shall exercise their powers hereunder in
good faith.
<PAGE>
-7-
17. EXTRAORDINARY RESOLUTION BINDING ON ALL NOTEHOLDERS
An Extraordinary Resolution shall be binding upon all the Noteholders
whether present or not present at such meeting and each of the Noteholders
shall be bound to give effect thereto accordingly and the passing of any
such resolution shall be conclusive evidence that the circumstances justify
the passing thereof the intention being that it shall rest with the meeting
to determine without appeal whether or not the circumstances justify the
passing of such resolution.
18. DEFINITION OF EXTRAORDINARY RESOLUTION
The expression "Extraordinary Resolution" means a resolution passed at a
meeting of the Noteholders duly convened and held in accordance with the
provisions herein contained by a majority consisting of not less than six-
tenths of the persons voting thereat upon a show of hands or if a poll is
demanded then by a majority consisting of not less than 64% of the votes
given on such poll.
19. RESOLUTIONS IN WRITING
A resolution in writing signed by the holders of at least 64% of the
principal amount of the Notes then outstanding who are for the time being
entitled to receive notice of meetings in accordance with the provisions
herein contained shall for all purposes be as valid and effectual as an
Extraordinary Resolution passed at a meeting of Noteholders. Such
resolution in writing may be contained in one document or in several
documents in like form each signed by one or more of the Noteholders.
20. MINUTES OF MEETINGS
Minutes of all resolutions and proceedings at every meeting of the
Noteholders shall be made and duly entered in books kept for that purpose
by the Company and any such minutes if purporting to be signed by the
Chairman of the meeting at which such resolutions were passed or
proceedings had or by the Chairman of the next succeeding meeting of the
Noteholders shall be conclusive evidence of the matters therein contained
and until the contrary is proved every such meeting in respect of the
proceedings of which minutes have been made shall be deemed to have been
duly convened and held and all resolutions passed thereat to have been duly
passed.
<PAGE>
EXHIBIT 3
Dated 21 June, 1996
-------------------
THE ROYAL BANK OF SCOTLAND plc
as Arranger and Agent
THE ROYAL BANK OF SCOTLAND plc
and Others as Banks
THE ROYAL BANK OF SCOTLAND plc
as Swap Counterparty
THE ROYAL BANK OF SCOTLAND plc
as Working Capital Bank
THE ROYAL BANK OF SCOTLAND plc
as Security Trustee
MERCURY ASSET MANAGEMENT PLC
and Others as Investors
COMMUNITY PSYCHIATRIC CENTERS
as Vendor
FORAY 911 LIMITED
and Others as Borrower
and Charging Subsidiaries
----------------------------
INTER-CREDITOR AGREEMENT
----------------------------
Norton Rose
London
<PAGE>
CONTENTS
--------
<TABLE>
<CAPTION>
Clause Heading Page
<S> <C>
1 Definitions and Preliminary Matters.................................. 2
1.1 Incorporation by Reference................................... 2
1.2 Definitions.................................................. 2
1.3 Clause headings and Contents page............................ 6
1.4 References................................................... 6
1.5 Further References........................................... 6
2 Priority of Payments................................................. 7
2.1 Priority..................................................... 7
2.2 Restricted payments in respect of dividends and Loan Stock... 7
2.3 Acknowledgment by Loan Stock Holders and Investors........... 10
2.4 Refund of payments........................................... 10
2.5 Remedy of financial covenant defaults........................ 10
2.6 Beneficiaries entitled to grant time etc..................... 11
2.7 Termination of Swap Transactions............................. 11
2.8 Insolvency proceedings....................................... 12
2.9 Proof by Creditors........................................... 12
2.10 Rights of Working Capital Bank under the Facilities
Agreement.................................................... 13
3 Changes to the Loan Stock and the New Articles....................... 13
3.1 Changes to the Loan Stock.................................... 13
3.2 Changes to the New Articles.................................. 13
4 Effect of this Agreement............................................. 14
4.1 This Agreement prevails...................................... 14
4.2 Purchasers not concerned with provisions of this Agreement... 14
4.3 Disclosure of information.................................... 14
4.4 Notification of Defaults, etc................................ 15
4.5 Consultation................................................. 15
4.6 Prohibition on Encumbrances.................................. 15
5 Enforcement.......................................................... 16
5.1 Enforcement.................................................. 16
5.2 Cash Collateralised Debt..................................... 16
5.3 Rights to enforce............................................ 16
5.4 Security Trustee not to enforce until instructed............. 17
5.5 Deemed consent............................................... 17
5.6 Claims and actions against Relevant Professionals and the
Auditors..................................................... 17
5.7 Rights as Shareholders unaffected............................ 18
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6 Appropriation........................................................ 18
6.1 Declaration of Trust......................................... 18
6.2 Order of claims.............................................. 19
6.3 Powers of the Security Trustee............................... 20
6.4 Limitation on liability of the Security Trustee.............. 20
7 The Security Trustee................................................. 20
7.1 Security Trustee to act in accordance with instructions...... 20
7.2 Notification................................................. 21
7.3 Provision of information to the Security Trustee............. 21
7.4 Reimbursement................................................ 21
7.5 Indemnity.................................................... 22
7.6 Enquiry by the Security Trustee.............................. 22
7.7 Exclusion in relation to deposit of deeds, etc. ............. 22
7.8 Exclusion of liability....................................... 22
7.9 Reliance on documents........................................ 23
7.10 Deposit of deeds, etc. ...................................... 23
7.11 Illegal acts................................................. 23
7.12 Other business with the Group................................ 24
7.13 Rights as Beneficiary........................................ 24
7.14 Separation of capacities..................................... 24
8 Acknowledgments...................................................... 24
8.1 Acknowledgment by the Borrower and the Charging
Subsidiaries................................................. 24
8.2 Agreement between the Creditors.............................. 25
9 Substitutions and Assignments by Banks............................... 25
9.1 Substitutions by Banks....................................... 25
9.2 Notification by Agent........................................ 26
9.3 Authorisation to Agent....................................... 26
9.4 References to A Bank and/or B Bank........................... 26
10 Changes of Agent and the Security Trustee............................ 26
10.1 Change of Agent.............................................. 26
10.2 Change of Security Trustee................................... 26
10.3 Retirement of Security Trustee............................... 27
10.4 Replacement of Security Trustee following payment
of the Senior Debt in full................................... 27
11 Assignments and transfers by Other Parties........................... 27
11.1 No assignment or transfer by the Borrower or any Charging
Subsidiary................................................... 27
11.2 Assignment or transfer by the Swap Counterparty and the
Working Capital Bank......................................... 27
11.3 Assignment by Loan Stock Holders and Investors............... 27
12 Notices and Other Matters............................................ 28
12.1 Notices...................................................... 28
</TABLE>
<PAGE>
<TABLE>
<S> <C>
12.2 Severability................................................. 30
12.3 Not a partnership............................................ 30
12.4 No waiver.................................................... 30
12.5 Counterparts................................................. 30
12.6 Interpretation on payment of Senior Debt in full............. 30
13 Law and Jurisdiction................................................. 30
SCHEDULE 31
Part A - Agent's Adherence................................................ 31
Part B - Trustee's Deed of Appointment and Adherence...................... 32
Part C - Loan Stock Holder's and Investor's Adherence..................... 34
</TABLE>
<PAGE>
THIS AGREEMENT is made the 21 June, 1996 BETWEEN:
(1) THE ROYAL BANK OF SCOTLAND plc of Waterhouse Square, 138-142
Holborn, London EC1N 2TH as Arranger;
(2) THE ROYAL BANK OF SCOTLAND plc as Agent;
(3) THE BANKS whose names and addresses are set out in schedules 1 and 2 to the
Facilities Agreement as A Banks and B Banks;
(4) THE ROYAL BANK OF SCOTLAND plc as Swap Counterparty;
(5) THE ROYAL BANK OF SCOTLAND plc as Working Capital Bank;
(6) THE ROYAL BANK OF SCOTLAND plc as Security Trustee;
(7) MERCURY ASSET MANAGEMENT PLC of 33 King William Street,
London EC4R 9AS and the other Investors pursuant to the Subscription
Agreement as Investors and Loan Stock Holders;
(8) COMMUNITY PSYCHIATRIC CENTERS of 5110 W. Sahara Avenue,
Las Vegas, Nevada 89102-3702, U.S.A. as Vendor and a Loan Stock Holder;
(9) FORAY 911 LIMITED whose registered office is at Fletcher Gate, Nottingham
NG1 NFX as Borrower; and
(10) THE COMPANIES whose names and addresses are set out in schedule 1 to the
Guarantee and Debenture as Charging Subsidiaries.
WHEREAS:
(A) The Arranger has arranged for the A Banks to make available to the Borrower
a senior secured term loan facility of (Pounds)42,000,000 to be used for
the purpose of satisfying part of the purchase consideration for the
acquisition by the Borrower of the entire issued share capital of CPC
(Londinium) Limited.
(B) The Arranger has arranged for the B Banks to make available to the Borrower
and certain of the Charging subsidiaries a senior secured medium term loan
facility of (Pounds)10,000,000 to be used for the same purpose as referred
to in Recital (A).
(C) The Working Capital Bank has agreed to make available to the Borrower a
(Pounds)2,000,000 senior secured working capital facility.
(D) The Borrower will enter into certain interest rate and/or other hedging
arrangements with the Swap Counterparty relating to all or part of the
loans made available under the facilities referred to in Recitals (A) and
(B).
1
<PAGE>
(E) The Borrower and the other members of the Charging Group have given, or
will give, a guarantee and debenture in favour of the Security Trustee as
a continuing security for the monies, obligations and liabilities now or
hereafter due, owing or incurred under or pursuant to the Facilities
Agreement, the Swap Documents, the Working Capital Facility Letter, the
Loan Stock and/or the Security Documents (as such terms are defined or
referenced below).
(F) The Investors and the Vendor have agreed to purchase certain loan stock
issued, or to be issued, by the Borrower pursuant to the Loan Stock
Instrument.
(G) Each of the Arranger, the Agent, the Banks, the Swap Counterparty, the
Working Capital Bank, the Security Trustee and the Loan Stock Holders have
agreed to regulate the order of payments in respect of the Cash
Collateralised Debt, the Bank Debt and the Loan Stock Debt (as such terms
are defined or referenced below) in the manner set out herein.
NOW it is hereby agreed as follows:
1 Definitions and Preliminary Matters
-----------------------------------
1.1 Incorporation by Reference
--------------------------
Unless the context otherwise requires or unless otherwise defined herein,
words and expressions defined in the Facilities Agreement or the Guarantee
and Debenture (in their respective forms on the date hereof) shall have the
same meanings when used in this Agreement (including the Recitals).
1.2 DEFINITIONS
-----------
In this Agreement, unless the context otherwise requires:
"Agent's Adherence" means an undertaking in the form, or substantially in
the form, of Part A of the schedule;
"Bank Debt" means the aggregate amount from time to time outstanding of all
monies, obligations and liabilities, whether actual or contingent, due,
owing or incurred by the Companies or any of them to (i) the Arranger
and/or the Agent and/or the Banks or any of them under the terms of the
Facilities Agreement and/or (ii) the Swap Counterparty under the terms of
the Swap Documents and/or (iii) the Working Capital Bank under the Working
Capital Facility Letter (to the extent only that such amount is not Cash
Collateralised Debt) together (in each case) with interest thereon to the
date of payment at the rates and upon the terms set out in the relevant
documents, commission, fees and other charges and all legal and other
costs, charges and expenses incurred by the Arranger, the Agent, the Banks,
the Swap Counterparty, the Working Capital Bank or any of them in relation
to any of the Companies which, under the terms of the relevant documents,
they are entitled to recover from any of the Companies together with any
refinancing, novation, refunding, deferral or extension of such
2
<PAGE>
Indebtedness or increase in the amount thereof which is permitted (or not
prohibited) under the terms hereof (any necessary consents having been
obtained);
"Cash Collateralised Debt" means the aggregate amount from time to time
outstanding of all monies, obligations and liabilities, whether actual or
contingent, due, owing or incurred by the Borrower or the Charging
Subsidiaries or any of them to the Working Capital Bank under the terms of
the Working Capital Facility Letter together with interest thereon to the
date of payment at the rates and upon the terms set out in the Working
Capital Facility Letter, commission, fees and other charges and all legal
and other costs, charges and expenses incurred by the Working Capital Bank
in relation to the Borrower or the Charging Subsidiaries or any of them
which, under the terms of the Working Capital Facility Letter, it is
entitled to recover from the Borrower or the Charging Subsidiaries or any
of them together with any refinancing, novation, refunding deferral or
extension of such Indebtedness which is permitted (or not prohibited) under
the terms hereof (any necessary consents having been obtained) but (in all
cases) to the extent only of the Cash Collateral;
"Cash Collateral" means the aggregate amount of all monies standing to the
credit of all accounts of the Borrower or the Charging Subsidiaries or any
of them with the Working Capital Bank from time to time other than monies
standing to the credit of (a) (while the Working Capital Bank is also the
Security Trustee) any accounts with the Security Trustee pursuant to the
terms of the Security Documents and (b) (while the Working Capital Bank is
also the Agent) any accounts with the Agent pursuant to the terms of the
Facilities Agreement;
"Creditors" means the Arranger, the Agent, the Banks, the Swap
Counterparty, the Working Capital Bank and the Loan Stock Holders;
"Facilities" has the meaning ascribed thereto in the Facilities Agreement;
"Facilities Agreement" means the agreement of even date between the
Borrower (1), the Banks (2), the Arranger (3) and the Agent (4) under the
terms of which (a) the A Banks will, subject to and in accordance with the
terms thereof, make available to the Borrower a (Pounds)42,000,000 senior
secured term loan facility for the purpose referred to in Recital (A) above
and (b) the B Banks will, subject to and in accordance with the terms
thereof, make available to the Borrower a (Pounds)10,000,000 senior secured
medium term loan facility for the purpose referred to in Recital (A) above;
"Financial Covenant Event of Default" means an Event of Default arising by
reason of a breach of the undertakings in clause 9.3 and schedule 8 to the
Facilities Agreement;
"Guarantee and Debenture" means the guarantee and debenture entered into,
or to be entered into, between the Borrower (1), the companies whose
respective
3
<PAGE>
names, registered numbers and registered offices are set out in schedule 1
thereto (2) and the Security Trustee (3) and more particularly described in
Recital (E);
"insolvency proceeding" means (other than in clause 5.6) any of:
(a) an administration order is made in relation to the Borrower or any
other member of the Charging Group; or
(b) any kind of composition, scheme of arrangement, compromise or
arrangement, in each case involving the Borrower or any other member
of the Charging Group and its creditors generally (or any class of
them), is made or entered into by the Borrower or any other member of
the Charging Group or the Borrower or any other member of the Charging
Group otherwise becomes subject to any of the same; or
(c) any administrative or other receiver or any manager is appointed of
the Borrower or any other member of the Charging Group or any part of
its assets and/or undertaking; or
(d) an order is made for the winding-up of the Borrower or any other
member of the Charging Group; or
(e) the Borrower or any other member of the Charging Group is dissolved;
or
(f) there occurs, in relation to the Borrower or any other member of the
Charging Group, in any country or territory in which any of them
carries on business or to the jurisdiction of whose courts any part of
their assets is subject, any event which appears in that country or
territory to correspond with, or have an effect equivalent or similar
to, any of those mentioned in paragraphs (a) to (e) above (inclusive)
or the Borrower or any other member of the Charging Group otherwise
becomes subject, in any such country or territory, to the operation
of any law relating to insolvency, bankruptcy or liquidation;
"Loan Stock Debt" means the aggregate amount from time to time outstanding
of all monies, obligations and liabilities, whether actual or contingent,
due, owing or incurred by the Borrower to the Loan Stock Holders or any of
them under the terms of the Loan Stock and/or the Loan Stock Instrument
(which obligations and liabilities shall for the avoidance of doubt include
all obligations and liabilities of the Borrower under the terms of any loan
stock issued by it under the Loan Stock Instrument in respect of interest
owing by the Borrower under the terms of the Loan Stock and/or the Loan
Stock Instrument) together with interest thereon to the date of payment at
the rates and upon the terms set out in the Loan Stock and/or the Loan
Stock Instrument, commission, fees and other charges and all legal and
other costs, charges and expenses incurred by the Loan Stock Holders or any
of them in relation to the Borrower which, under the
4
<PAGE>
terms of the Loan Stock and/or the Loan Stock Instrument, they are entitled
to recover from the Borrower together with any refinancing, novation,
refunding, deferral or extension of such Indebtedness which is permitted
(or not prohibited) under the terms hereof (any necessary consents having
been obtained);
"Loan Stock Holders" means the Investors and the Vendor in their capacity
as holders of Loan Stock and any other person who from time to time becomes
a holder of Loan Stock and a party to this Agreement pursuant to a Loan
Stock Holder's and Investor's Adherence;
"Loan Stock Holder's Representative" means Mercury in its capacity as
representative of the Loan Stock Holders pursuant to clause 8.3;
"Loan Stock Holder's and Investor's Adherence" means an undertaking in the
form, or substantially the form, of Part C of the schedule;
"Participating Dividend" means the dividend referred to in Article 5.1 of
the New Articles in their form as at the date hereof;
"Payment Default" means a default or event of default (howsoever called)
arising by reason of a default in the payment of any amounts due (ignoring
any applicable grace period) under the Facilities Agreement, the Swap
Documents, the Working Capital Facility Letter or, as the case may be, the
Security Documents;
"Relevant Professional" means each of Biddle & Co., Deloitte & Touche,
Corporate Risks plc, Kalchas, Grimleys and Archibald, Campbell and Harley;
"Relevant Report" means (a) in the case of Biddle & Co., the reports on
title to be provided by them referred to in schedule 4 to the Facilities
Agreement, (b) in the case of Deloitte & Touche, the Accountants' Report,
(c) in the case of Corporate Risk plc, the insurance Report, (d) in the
case of Kalchas, the Marketing Report, (e) in the case of Grimleys, the
Property Valuation and Survey Report and (f) in the case of Archibald,
Campbell and Harley, the report of title to be provided by them referred to
in schedule 4 to the Facilities Agreement;
"Security Trustee's Adherence" means an undertaking in the form, or
substantially in the form, of Part B of the schedule;
"Security Trustee Debt" means all those amounts First referred to in clause
6.2;
"Senior Debt" means the Security Trustee Debt, the Cash Collateralised Debt
and the Bank Debt;
5
<PAGE>
"Unpaid Dividends" means any dividend (including, without limitation, the
Participating Dividend) due and unpaid or declared and unpaid or any other
distribution due but not made; and
"Vendor Sale Assets Repayment" means the repayment of part of the Loan
Stock Debt owing to the Vendor in an amount not exceeding the amount
calculated in accordance with the Loan Stock Instrument in its form as at
the date hereof following a disposal of the Sale Assets.
1.3 Clause headings and Contents page
---------------------------------
Clause headings and the Contents page are inserted for convenience of
reference only and shall be ignored in the interpretation of this
Agreement.
1.4 References
----------
In this Agreement, unless the context otherwise requires:
(a) references to clauses and the schedule are to be construed as
references to the clauses of, and the schedule to, this Agreement and
references to this Agreement include its schedule;
(b) references to, or to any specified provision of, this Agreement, any
Facility Document or any other document shall be construed as
references to this Agreement, such Facility Document, that provision
or that document as in force for the time being and as amended,
extended or restated in accordance with the terms thereof or, as the
case may be, with the agreement of the relevant parties and (where any
consents are required to be obtained as a condition to such amendment,
extension or restatement being permitted) with the requisite consents;
(c) words importing the plural shall include the singular and vice versa;
(d) references to a person shall be construed as including references to
an individual, firm, company, corporation, unincorporated body of
persons or any State or any agency thereof; and
(e) references to statutory provisions shall be construed as references to
those provisions as replaced, amended or re-enacted from time to time.
1.5 Further References
------------------
For the purposes of this Agreement:
(a) all amounts owing under the A Loan are "paid in full" and no longer
"outstanding" when no moneys are owing to the A Banks under the
Facilities Agreement and the Security Documents and the A Banks are
not under any obligation to advance any moneys under the Facilities
6
<PAGE>
Agreement and do not have any actual or contingent liability under
the Facilities Agreement;
(b) the Cash Collateralised Debt is "paid in full" and is no longer
"outstanding" only when no moneys are owing to the Working Capital
Bank under the Working Capital Facility Letter in respect thereof and
the Working Capital Bank is not under any obligation to advance any
moneys under the Working Capital Facility Letter;
(c) the Bank Debt is "paid in full" and is no longer "outstanding" only
when no moneys are owing to the Arranger and/or the Agent and/or the A
Banks and/or the B Banks and/or the Swap Counterparty and/or the
Working Capital Bank under the Facilities Agreement, the Security
Documents, the Swap Documents and the Working Capital Facility Letter
and neither the A Banks nor the B Banks are under any obligation to
advance any moneys under the Facilities Agreement and the Working
Capital Bank is not under any obligation to advance any moneys under
the Working Capital Facility Letter and the Swap Counterparty does not
have any contingent or actual liability under any Swap Document;
(d) the Security Trustee Debt is "paid in full" and is no longer
"outstanding" only when no moneys are owing to the Security Trustee
under the Security Documents; and
(e) the Senior Debt is "paid in full" and is no longer "outstanding" only
when the Cash Collateralised Debt, the Bank Debt and the Security
Trustee Debt have all been paid in full and are no longer outstanding.
2 Priority of Payments
--------------------
2.1 Priority
--------
In consideration of each other Creditor entering into this Agreement and
the Facility Documents to which it is a party, each Creditor agrees that,
subject to and upon the terms and provisions of this Agreement:
(a) the Cash Collateralised Debt shall rank in priority to the Security
Trustee Debt, the Bank Debt and the Loan Stock Debt;
(b) the Security Trustee Debt shall rank in priority to the Bank Debt and
the Loan Stock Debt; and
(c) the Bank Debt shall rank in priority to the Loan Stock Debt.
7
<PAGE>
2.2 Restricted payments in respect of dividends and Loan Stock
----------------------------------------------------------
Notwithstanding any provisions of the New Articles, the Subscription
Agreement, the Loan Stock or the Loan Stock Instrument to the contrary,
the Borrower shall not without the prior written consent of the Agent:
(a) (i) pay any interest on, or repay (save as permitted by clause
2.2(a)(ii)) any principal of, the Loan Stock or make any payment
of the Participating Dividend (in each case) except upon 30 days'
prior written notice to the Agent (provided that this requirement
for 30 days' prior written notice shall not apply in the case of
scheduled payments of interest on, and scheduled repayments of,
the Loan Stock and any scheduled payment of the Participating
Dividend in each case on the first dates on which they become
payable (not having been deferred pursuant to this Agreement),
payments of the Accrued Interest (as defined in the Loan Stock)
resulting from disposals of the Sale Assets not being scheduled
payments) and in any event not if (A) upon making such a payment
(including payment of any related advance corporation tax (in the
case of the Participating Dividend) or Taxes at the basic rate
(in the case of interest)) any Financial Covenant Event of
Default would occur or (B) any Financial Covenant Event of
Default or any Payment Default has occurred and is continuing, or
either of such circumstances might reasonably be expected (in the
light of facts then known) to occur as a result (wholly or
partly) of such declaration or payment either immediately or
within 4 months thereafter, and (for the purpose of determining
whether any scheduled payment of interest on, or principal of,
the Loan Stock may be made in accordance with this clause
2.2(a)(i) when it is first scheduled to be made) the Borrower's
management accounts for the period ending in May in any
relevant year shall be used in relation to any such scheduled
payment first due to be made in June or July of such year and the
Borrower's management accounts for the period ending in November
shall be used in relation to any such scheduled payment first due
to be made in January of the next year, Provided however that if
on the scheduled due date for a payment on or in respect
of the Loan Stock or any payment of the Participating Dividend,
such payment is not permitted under this clause 2.2(a)(i), such
payment may be paid and received by the Loan Stock Holders or the
Investors (as the case may be) as soon as the requirements of
this clause 2.2(a)(i) are met (together with interest accrued on
the unpaid amount in accordance with the loan stock instrument
and/or the New Articles as the case may be), provided always that
payment at that date would itself satisfy the requirements of
this clause 2.2(a)(i) and, if payment in full of a scheduled
payment on or in respect of the Loan Stock or any payment of the
Participating Dividend (as the case may be) is not
8
<PAGE>
permitted by this clause 2.2(a)(i), partial payment (which
shall, in the case of the Participating Dividend, include any
related corporation tax) may instead be made if and to the
extent that such partial payment would result in the
requirements of this clause 2.2(a)(i) being complied with; or
(ii) make the Vendor Sale Assets Repayment, provided that no such
consent shall be required if at the time the Vendor Sale Assets
Repayment is made or proposed to be made the Agent has not given
an instruction to the Security Trustee under clause 5.1(a); or
(iii) save as permitted by clause 2.2(a)(i), declare or pay any
dividend or make any other distribution (whether in cash or in
specie) in respect of any of its share capital whatsoever;
(b) (unless required to do so by virtue of the adoption of mandatory
accounting policies) reduce, redeem or purchase any of its share
capital or reduce any uncalled or unpaid liability in respect thereof
or reduce the amount (if any) for the time being standing to the
credit of its share premium account or capital redemption or other
undistributable reserve in any manner, if in each case such reduction,
redemption or purchase is on terms that its shareholders receive any
payment or distribution in cash or in specie;
(c) save, for the avoidance of doubt, to the extent permitted by clause
2.2(a)(i) or (ii):
(i) pay, repay, prepay or redeem any of the Loan Stock;
(ii) discharge any of the Loan Stock by any set-off; or
(iii) purchase or otherwise acquire any of the Loan Stock;
(d) (without prejudice to clause 2.2(a)(i)) pay any interest on the Loan
Stock at rates in excess of the rates payable under the Loan Stock and
the Loan Stock Instrument in their respective forms at the date hereof
or in a manner contrary to the Loan Stock and the Loan Stock
Instrument in their respective forms at the date hereof or pay any
Participating Dividend at a rate or in an amount in excess of the
rates or amounts payable under the New Articles in their form at the
date hereof or in a manner contrary to the New Articles in their form
at the date hereof; or
(e) (save as provided above) pay any amount in respect of or calculated by
reference to, or any fee or like amount related to, the Loan Stock
(other than fees and expenses payable to Mercury under the
Subscription Agreement on or about the date of issue of the Loan
Stock);
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<PAGE>
unless and until there has occurred the payment in full of the Senior Debt.
2.3 Acknowledgement by Loan Stock Holders and Investors
---------------------------------------------------
Without prejudice to the generality of any other clause of this Agreement,
each of the Loan Stock Holders and the Investors acknowledges and accepts
the provisions of clause 2.2 and agrees that in no circumstances shall it
take or accept (whether by any payment, the transfer of asset, the exercise
of a right of set-off or combination of accounts or otherwise) any monies
or other property from the Borrower or any other member of the Group in or
towards reduction or satisfaction of all or any part of the Loan Stock Debt
or any moneys due or owing in respect of any Unpaid Dividend except in
accordance with, and to the extent permitted by, that clause, provided that
no breach of this clause 2.3 shall occur by reason only of the Loan Stock
Holders or (as the case may be) the Investors so taking or accepting such
monies or property if the same have been paid or delivered on the basis of
the management accounts referred to in clause 2.2(a)(i) in relation to
scheduled payments on or in respect of the Loan Stock (when the same first
become due to be made) which indicated satisfaction of the requirements of
clause 2.2 and the subsequent audited consolidated financial statements of
the Group show that such requirements were not in fact met.
2.4 Refund of payments
------------------
In the event that, prior to the Senior Debt being repaid in full and
following the making of a declaration by the Agent under clause 11.2(b)
of the Facilities Agreement or the Working Capital Bank making a demand for
payment under the Working Capital Facility letter, any amount is
received or recovered (whether by any payment the exercise of a right of
set-off or combination of accounts (whether statutory, equitable,
contractual or otherwise) by, or any asset is transferred to, any Loan
Stock Holder or Investor in or towards reduction or satisfaction of all or
any part of the Loan Stock Debt or (as the case may be) all or any part of
any Unpaid Dividends, such Loan Stock Holder or (as the case may be)
Investor shall forthwith pay such amount (or, in the case of a set-off or
combination of accounts, an amount equal thereto), or, as the case may be,
transfer such asset, to the Security Trustee (and, pending such payment or
transfer, shall hold the same on trust for the Security Trustee) to be
applied in accordance with the terms of clause 6 and if any such amount is
received or recovered or any such asset is transferred prior to any such
declaration or demand (other than in accordance with clause 2.2 or the
proviso to clause 2.3) such Loan Stock Holder or (as the case may be)
Investor shall (upon being satisfied that the Arranger, the Agent, the
Banks, the Swap Counterparty and/or the Working Capital Bank have no prior
claim in respect thereof) promptly pay over or (as the case may be)
transfer the same to the Borrower.
2.5 Remedy of financial covenant defaults
-------------------------------------
For the purposes only of this Agreement, a Financial Covenant Event of
Default which is tested only on specific dates or by reference to specific
periods shall
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<PAGE>
be deemed to have been remedied when the undertaking (in its present or an
agreed revised form) is next complied with on a subsequent testing date or
in respect of a subsequent testing period.
2.6 Beneficiaries entitled to grant time etc.
-----------------------------------------
Each of the Beneficiaries shall be entitled to grant time or indulgence
to and to release, compound or otherwise deal with, or receive monies from,
any person liable or to deal with, exchange, release, modify or abstain
from perfecting or enforcing any of the rights which it may now or
hereafter have against any member of the Charging Group or otherwise
without prejudicing its rights under this Agreement but subject always to
the express provisions of this Agreement.
2.7 Termination of Swap Transactions
--------------------------------
The Swap Counterparty agrees with the Agent, the Banks and the Working
Capital Bank that it will not terminate any of the Swap Transactions to
which it is a party except:
(a) as a result of non-payment of any Indebtedness under a Swap
Transaction, which non-payment continues for 7 days after notice of
such non-payment has been given by the Swap Counterparty to the Agent
(provided that while the Swap Counterparty and the Agent are the same
entity it will not be necessary for there to be any formal notice of
such non-payment to be given by the Swap Counterparty to the Agent);
or
(b) upon an acceleration of the principal amount outstanding under the
Facilities following consultation with (but without being required to
obtain the consent of) the Agent; or
(c) upon the occurrence of an insolvency proceeding; or
(d) following the repudiation of any such Swap Transaction by the
Borrower; or
(e) upon:
(i) it becoming contrary to any law or regulation for the Borrower
or the Swap Counterparty to perform the payment obligations
expressed to be assumed by it in respect of any Swap Transaction
or such obligations become invalid or unenforceable against the
Borrower; or
(ii) any provision of any Swap Document relating to the termination
thereof (including, without limitation, the calculation of or
obligation to pay amounts upon such termination) becoming
invalid or unenforceable against the Borrower; or
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<PAGE>
(f) (i) from the date hereof until the date on which the A Loan is paid
in full with the prior written consent of the Agent (acting on
the instructions of all the Banks); or
(ii) on or after the date on which the A Loan is paid in full, with
prior written consent of the Agent (acting on the instructions
of all the B Banks).
2.8 Insolvency proceedings
----------------------
(a) Without prejudice to the generality of any other provision of this
Agreement, the Loan Stock Holders and the Investors severally
covenant with and undertake to the Security Trustee that they
will procure that in any insolvency proceeding:
(i) the claims of the Loan Stock Holders in respect of the Loan
Stock Debt and the claims of the Investors in respect of any
Unpaid Dividends shall be postponed to the payment in full of
the Senior Debt and no amount received in any insolvency
proceeding shall be retained by any of the Loan Stock Holders in
respect of the Loan Stock Debt or by any of the Investors in
respect of any Unpaid Dividends, nor shall any distribution of
assets of any kind be retained by any Loan Stock Holders in
respect of the Loan Stock Debt or by any of the Investors in
respect of any Unpaid Dividends, until the Senior Debt has first
been paid in full; and
(ii) all amounts which are received (including, without limitation an
amount equal to all amounts which are deemed received by reason
of the operation of any set-off or combination of accounts
(whether statutory, equitable, contractual or otherwise)) by,
and all assets which are distributed to, the Loan Stock Holders
in respect of the Loan Stock Debt and the Investors in respect
of any Unpaid Dividends after the commencement of such
insolvency proceeding but before the Senior Debt has been repaid
in full shall, or (in the case of a set-off or combination of
accounts) an amount equal thereto shall, forthwith be paid or
(as the case may be) transferred to the Security Trustee to be
applied in accordance with the terms of clause 6 (and, pending
such payment or transfer shall be held on trust for the Security
Trustee).
2.9 Proof by Creditors
------------------
The Loan Stock Holders and Investors each agree to demand, sue and prove
for, collect and receive every payment or distribution made of all or
any part of the assets of any member of the Charging Group or the proceeds
thereof and to give acquittance therefor and to file claims and take such
other proceedings in
12
<PAGE>
relation to sums owing in respect of the Loan Stock Debt and any Unpaid
Dividends respectively as the Security Trustee may deem necessary or
advisable to give effect to this Agreement, provided that they shall not
however be required to take any action which would in their reasonable
opinion be unlawful or expose them to any material liability or expense.
The liquidator or other insolvency representative of each member of the
Charging Group is authorised to apply any assets or monies received by him
in accordance with the terms of this Agreement.
2.10 Rights of Working Capital Bank under the Facilities Agreement
-------------------------------------------------------------
Each Bank acknowledges that the Working Capital Bank shall have the rights
ascribed to it under the Facilities Agreement.
3 Changes to the Loan Stock and the New Articles
----------------------------------------------
3.1 Changes to the Loan Stock
-------------------------
Each of the Loan Stock Holders agrees that no amendment shall be made to
the terms of the Loan Stock and/or the Loan Stock Instrument (other than
the amendment of typographical inconsistencies or manifest errors unless
not less than ten Banking Days prior to despatch of the notice convening
the relevant proposed meeting of Loan Stock Holders or distribution of the
relevant proposed amending resolution the Security Trustee has been
consulted in relation to the making of the relevant amendment and each Loan
Stock Holder agrees that the relevant amendment will not be made if, in the
opinion of the Security Trustee (acting reasonably), the making of the
relevant amendment would have an adverse effect on the interests of the
Agent and/or the Banks under the Facilities Agreement or on the interests
of the Swap Counterparty under the Swap Documents or on the interests of
the Working Capital Bank under the Working Capital Facility letter or the
interests of any of them under the Security Documents or would bring
forward and/or increase the amount of any payment made or to be made under
or in respect of the Loan Stock prior to the date on which the Senior Debt
is paid in full. Any such amendment so made shall be promptly notified to
the Agent and the Security Trustee.
3.2 Changes to the New Articles
---------------------------
The Borrower undertakes with the Security Trustee that it will consult
with the Security Trustee (not later than ten Banking Days prior to the
despatch of the notice convening the relevant proposed meeting) if it
proposes to convene any meeting of its shareholders or any class of its
shareholders with a view to the alteration of any provision of its Articles
of Association (in the form of the New Articles in their form as at the
date hereof) which would create any new class of share or any securities
convertible into or carrying rights to subscribe for shares of any class or
which would alter the rights of any class of shares (including, without
prejudice to the generality of the foregoing, any alteration which would
have the effect of converting a class of shares into any other class
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<PAGE>
of shares, increasing the amount of any dividend or other distribution
payable on any class of shares or of requiring or enabling payment of any
dividend or other distribution on, or of requiring or enabling the
redemption or purchase of, any class of shares otherwise than in accordance
with the New Articles in their form as at the date hereof) and will not
make the relevant change if, in the opinion of the Security Trustee (acting
reasonably), the making of the same could have an adverse effect on the
interests of the Agent and/or the Banks under the Facilities Agreement or
on the interests of the Swap Counterparty under the Swap Documents or on
the interests of the Working Capital Bank under the Working Capital
Facility Letter or on the interests of any of them under the Security
Documents or would alter the rights of the shareholders of the Borrower in
respect of any distribution made or that may be made by the Borrower prior
to the earlier of the date on which the Senior Debt is scheduled to be paid
in full and the date on which the Senior Debt is actually paid in full; for
the purposes of this clause 3.2 "alteration" shall for the avoidance of
doubt include any addition to, deletion from or revision of any provision
of its Articles of Association.
4 Effect of this Agreement
------------------------
4.1 This Agreement prevails
-----------------------
Nothing contained in this Agreement shall:
(a) require any Creditor to make any advance to, or to purchase any stock
or notes from, or to provide any facility to, the Borrower or any
other member of the Group; or
(b) (without prejudice to clause 8.2) as between (i) the Borrower and any
Charging Subsidiary and (ii) any of the other parties hereto, affect
or prejudice any rights or remedies of such other parties under the
Facilities Agreement, the Loan Stock, the Loan Stock Instrument, the
Swap Documents, the Working Capital Facility Letter and the other
Security Documents which shall respectively remain in full force and
effect according to their terms.
4.2 Purchasers not concerned with provisions of this Agreement
----------------------------------------------------------
No purchaser or other person shall be concerned in any way with the
provisions of this Agreement but shall assume that the party hereto with
which it is dealing, or any Receiver (as the case may be), is acting in
accordance with the provisions of this Agreement.
4.3 Disclosure of information
-------------------------
Any party hereto shall be at liberty from time to time to disclose to any
other party hereto any information concerning the affairs of the Borrower
and any other member of the Group in such manner and to such extent as such
party
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<PAGE>
shall from time to time think fit. The Agent agrees to inform the Swap
Counterparty and the Working Capital Bank before increasing the principal
amount of the Facilities. Each of the Agent, the Working Capital Bank and
the Swap Counterparty agrees to inform the others thereof promptly upon any
amendment being made to the Facilities Agreement, the Working Capital
Facility Letter or the Swap Documents respectively.
4.4 Notification of Defaults, etc.
------------------------------
(a) The Agent shall notify the Working Capital Bank and the Swap
Counterparty of any Event of Default;
(b) the Swap Counterparty shall notify the Agent and the Working Capital
Bank of any default or any termination event (howsoever described)
under any Swap Document; and
(c) the Working Capital Bank shall notify the Agent and the Swap
Counterparty of the occurrence of any default under the Working
Capital Facility Letter;
but (in each case) only if, in the case of an event which is the non-
payment of an amount, such amount is more than three Banking Days overdue
(ignoring for this purpose any applicable grace period) or, in the case of
any other event, the Agent, the Swap Counterparty or the Working Capital
Bank (as the case may be) otherwise has actual knowledge of the event
concerned. For the purposes of this clause 4.4, neither the Agent, the Swap
Counterparty nor the Working Capital Bank shall be treated as having actual
knowledge of any matter of which the corporate finance or any other
division outside the treasury, corporate lending or loan administration
departments (if any) of the person for the time being acting as the Agent
or, as appropriate, the Swap Counterparty or the Working Capital Bank may
become aware in the context of corporate finance or advisory activities
from time to time undertaken by the Agent or, as appropriate, the Swap
Counterparty or the Working Capital Bank or for the Borrower or any other
member of the Group.
4.5 Consultation
------------
The Agent, the Swap Counterparty, the Working Capital Bank and the Security
Trustee shall consult generally with regard to any matter materially
affecting the rights of the Banks, the Swap Counterparty and the Working
Capital Bank as regulated by this Agreement.
4.6 Prohibition on Encumbrances
---------------------------
Each Creditor undertakes with each of the other Creditors, and each
Investor undertakes with each Creditor, that, from and after the date
hereof and so long as any of the Senior Debt remains outstanding, such
Creditor will not take, accept or receive the benefit of any Encumbrance
from any member of the
15
<PAGE>
Group (other than Permitted Encumbrances) to secure any liability (whether
actual or contingent or present or future) of any member of the Group
without the prior written consent of all of the other Creditors.
5 Enforcement
-----------
5.1 Enforcement
-----------
It is agreed that:
(a) the Agent may instruct the Security Trustee to enforce the security
created by the Security Documents at any time after the happening of
any Event of Default and while the same is continuing; and
(b) following the making of a declaration by the Agent under clause
11.2(b) of the Facilities Agreement, the Working Capital Bank shall
(if it has not already done so) make demand under the Working Capital
Facility Letter in respect of all moneys then outstanding thereunder.
5.2 Cash Collateralised Debt
------------------------
Each of the Creditors, the Security Trustee, the Borrower and the Charging
Subsidiaries agrees that the Working Capital Bank shall not be obliged to
account to the Security Trustee for any part of the Cash Collateral.
5.3 Rights to enforce
-----------------
(a) Each of the Creditors acknowledges that only the Agent may instruct
the Security Trustee to enforce the security created by the Security
Documents and that they are not entitled independently to instruct the
Security Trustee to enforce the security created by the Security
Documents in any circumstances whatsoever. None of the Loan Stock
Holders or the Investors shall themselves challenge or question the
validity or enforceability of any of the Security Documents. Nothing
in this sub-clause shall prejudice the rights of the Creditors amongst
themselves.
(b) Except as expressly permitted by this Agreement, none of the Loan
Stock Holders shall:
(i) enforce or take any steps to enforce (whether by legal action or
otherwise) the Loan Stock Debt except (having given 90 days'
prior written notice to the Agent) in respect of a payment which
is permitted to be, or not prohibited from being, made by this
Agreement which has become due and payable but has not been made
(provided that, for the avoidance of doubt, prior to payment in
full of the Senior Debt, nothing in this clause 5.3(b)(i) shall
16
<PAGE>
entitle any Loan Stock Holder to require the Security Trustee to
enforce the security created by the Security Documents), or
(ii) subject to and save as provided in clause 5.7, petition for or
vote in favour of any resolution for any insolvency proceeding
until the Senior Debt has been paid in full
5.4 Security Trustee not to enforce until instructed
------------------------------------------------
The Security Trustee shall refrain from enforcing the security created by
the Security Documents until instructed to do so, pursuant to the terms of
this Agreement, by the Agent. Each Creditor with the right to participate
in any decision as to whether the Security Trustee should be instructed to
enforce the security created by the Security Documents (which, for the
avoidance of doubt, shall not prior to payment in full of the Senior Debt
include any Loan Stock Holder) is entitled to have regard solely to its own
interests in forming a view and is entitled to act and vote in accordance
with that view.
5.5 Deemed consent
--------------
Notwithstanding any provision of this Agreement, each Loan Stock Holder
agrees that prior to payment of the Senior Debt in full any waiver,
consent, instruction or discharge which it is contemplated by this
Agreement may be given by the Agent, the Banks, the Swap Counterparty, the
Working Capital Bank or any of them to the Security Trustee (including,
without limitation any instruction given by the Agent under clauses 5.1(a)
or 7.1) shall be deemed to have been given by and on behalf of the Loan
Stock Holders as well and each of the Loan Stock Holders shall be bound by,
and shall have no right to challenge, each of the same and shall have no
right of action against the Security Trustee in respect of its reliance on
any of the same.
5.6 Claims and actions against Relevant Professionals and the Auditors
------------------------------------------------------------------
Each Loan Stock Holder and each Investor agrees that, if, in any capacity
whatsoever prior to payment in full of the Senior Debt:
(a) it has any claim or right of action against Biddle & Co. and Deloitte
& Touche in respect of or arising out of a Relevant Report or against
the Auditors (in such capacity but only if in respect of such claim
the liability of the Auditors is limited), it will not proceed with,
or will discontinue, such claim if and to the extent that the Security
Trustee shall request, provided that nothing in this clause 5.6(a)
shall require any Loan Stock Holder or Investor to waive any such
claim and each Loan Stock Holder and Investor may take such action as
may be reasonably necessary to preserve its claim against the Relevant
Professional or, as the case may be, the Auditors for such period as
such Loan Stock Holder
17
<PAGE>
or, as the ease may be, Investor is prevented by this clause 5.6(a)
from pursuing its claim; and
(b) it recovers any sum from a Relevant Professional in respect of any
claim or right of action in respect of or arising out of a relevant
Report or from the Auditors (in such capacity) or their respective
insurers in settlement of any such claim (whether in respect of
damages or pursuant to any insolvency proceeding or otherwise), it
shall promptly upon receipt of the relevant sum pay the same to the
Security Trustee for application in accordance with clauses 6.2 and
6.3 (and pending such payment shall hold the same on trust for the
Security Trustee), provided that each Loan Stock Holder and Investor
shall only be obliged to pay over to the Security Trustee and share
any amount which it receives or recovers in respect of any such claim
with any other party which:
(i) has a same or similar claim against such Relevant Professional
or the Auditors which such party successfully pursues; and
(ii) does not ultimately receive or recover from such Relevant
Professional or the Auditors (as the case may be) or their
respective insurers or relevant insolvency official the full
amount in respect of which such Relevant Professional or the
Auditors (as the case may be) are found to be liable (and in the
event that such party receives or recovers part of such amount
it shall only be entitled to recover pursuant to this clause
5.6(b) an amount not exceeding the shortfall).
5.7 Rights as Shareholders unaffected
---------------------------------
Save as otherwise provided in this Agreement nothing in this Agreement
restricts any party hereto which is, from time to time, a shareholder in
the Borrower from exercising its rights in that capacity.
6 Appropriation
-------------
6.1 Declaration of Trust
--------------------
The Security Trustee hereby declares itself trustee of all monies and
assets received by, or transferred to, it pursuant to or in connection
with this Agreement (other than (for the avoidance of doubt) the Security
Trustee Debt) with effect from the date hereof to hold the same on trust
for the Beneficiaries and to apply the same in accordance with clause 6.2.
The trust hereby declared shall remain in full force and effect for so long
as the trusts contained in the other Security Documents remain in effect.
18
<PAGE>
6.2 Order of claims
---------------
All amounts received by the Security Trustee pursuant to this Agreement
and/or the other Security Documents shall be applied by it in the following
order and to the extent that the said amounts are sufficient to meet the
respective claims:
First as to a sum equivalent to the amounts payable to the Security
Trustee under clauses 5.3, 13.3 and 13.4 of the Guarantee and
Debenture and any equivalent or similar provisions in any other
Security Document from time to time (including any amounts received by
the Security Trustee pursuant to clauses 7.4 and/or 7.5) for the
Security Trustee absolutely (or, if any amounts have been received by
the Security Trustee pursuant to clauses 7.4 and/or 7.5, for the
Security Trustee and the payers of those amounts pro rata to the
amounts (in the case of the Security Trustee) so payable to it and not
received by it pursuant to clauses 7.4 and/or 7.5 and (in the case of
each payer) to the amount paid by it pursuant to clauses 7.4 and/or
7.5);
Secondly as to a sum equivalent to the Cash Collateralised Debt from
time to time and to the extent that for any reason the Working Capital
Bank is unable to apply the Cash Collateral in satisfaction of the
Cash Collateralised Debt for the Working Capital Bank absolutely;
Thirdly as to a sum equivalent to the Bank Debt from time to time for
the Arranger, the Agent, the A Banks, the B Banks, the Swap
Counterparty and the Working Capital Bank absolutely (and shall pay
each of the same (each a "relevant Beneficiary") a sum equivalent to
the proportion that the amount outstanding to each relevant
Beneficiary bears to the aggregate of all amounts outstanding to all
relevant Beneficiaries at the time of payment);
Fourthly as to a sum equivalent to the Loan Stock Debt from time to
time for the Loan Stock Holders absolutely (and shall pay each of the
same a sum equivalent to the proportion that the amount outstanding to
such Loan Stock Holder bears to the aggregate of all amounts
outstanding to the Loan Stock Holders at the time of payment);
Fifthly to such other persons (if any) as may be entitled thereto in
priority to the Borrower and the other members of the Charging Group;
and
Sixthly as to the balance (if any) for the Borrower and the other
members of the Charging Group absolutely pro rata to the respective
amounts paid, received or recovered from each of them.
19
<PAGE>
6.3 Powers of the Security Trustee
------------------------------
The Security Trustee shall have all the powers and discretions conferred
upon trustees by law (to the extent not inconsistent herewith) and upon
the Security Trustee by this Agreement and it is expressly declared that
the Security Trustee shall be entitled to invest monies which in the
opinion of the Security Trustee may not be paid out promptly following
receipt in the name or under the control of the Security Trustee in any of
the investments for the time being authorised by law for the investment by
trustees of trust monies or in any other property or investments whether
similar to the aforesaid or not or by placing the same on deposit in the
name or under the control of the Security Trustee as the Security Trustee
may think fit without being under any duty to diversify its investments
and the Security Trustee may at any time vary or transpose any such
property or investments for or into any others of a like nature and shall
not be responsible for any loss due to depreciation in value or otherwise
of such property or investments.
6.4 Limitation on liability of the Security Trustee
-----------------------------------------------
The Security Trustee shall have no duties, obligations or liabilities to
any of the Beneficiaries or the Borrower or any other member of the
Charging Group beyond those expressly stated in this Agreement and the
other Security Documents and, without prejudice to the generality of the
foregoing, shall not be liable to any of the Beneficiaries or the Borrower
or any other member of the Charging Group for any losses, costs, damages or
expenses any of the same may incur, or that may result from (a) the
exercise of, or (b) the failure to exercise, or (c) the timing of the
exercise of, any of the powers, authorities and discretions vested in the
Security Trustee by this Agreement, by any of the other Security Documents
or by law except any arising out of its own wilful default or negligence.
7 The Security Trustee
--------------------
7.1 Security Trustee to act in accordance with instructions
-------------------------------------------------------
Without prejudice to clauses 7.6, 7.7 and 7.8:
(a) the Security Trustee shall act in accordance with the instructions of
the Agent in agreeing with the Borrower and/or any one or more other
members of the Charging Group to amend, modify or otherwise vary, or
waive breaches of or defaults under, or otherwise excuse performance
of, any provision of any of the Security Documents; and
(b) the Security Trustee shall act in accordance with:
(i) the instructions of the Borrower in granting releases under any
provision of the Security Documents for the disposal of any asset
permitted by clause 9.2(i) of the Facilities Agreement; and
20
<PAGE>
(ii) the instructions of the Agent in granting releases under any
provision of the Security Documents for the disposal of any
asset not permitted pursuant to (i) above.
The Security Trustee shall be entitled to assume that the Agent has due
authority to give any such consent or (as the case may be) has obtained the
requisite authorisations from the Banks, and shall not be liable to any of
the Beneficiaries for any action taken or omitted under or in connection
with any of the Security Documents following receipt of such consent.
7.2 Notification
------------
The Security Trustee agrees to notify the Agent promptly of the contents of
each notice, certificate and other document received by the Security
Trustee from the Borrower or any other member of the Charging Group.
7.3 Provision of information to the Security Trustee
------------------------------------------------
Each of the other parties hereto (whether directly or through the Agent)
shall provide the Security Trustee with such written information as it may
reasonably require for the purpose of carrying out its duties and
obligations under this Agreement and/or the other Security Documents and,
in particular with such directions in writing as may reasonably be required
so as to enable the Security Trustee to apply the proceeds of realisation
of the Security Documents as contemplated by clause 6.2.
7.4 Reimbursement
-------------
Without prejudice to clauses 5.3, 13.3 and 13.4 of the Guarantee and
Debenture and any equivalent or similar provisions in any other Security
Document:
(a) prior to payment of the Senior Debt in full, each Bank; and
(b) thereafter, each Loan Stock Holder,
shall reimburse the Security Trustee (rateably in accordance with the
principal amount actually or contingently owing to it under the Facilities
Agreement or, as the case may be, under the Loan Stock Instrument and/or
the Loan Stock), to the extent that the Security Trustee is not reimbursed
by the Borrower or any other member of the Charging Group, for the charges
and expenses incurred by the Security Trustee in contemplation of, or
otherwise in connection with, the enforcement or attempted enforcement of,
or the preservation or attempted preservation of any rights under, any of
the Security Documents or in carrying out its duties under this Agreement
and/or any of the other Security Documents including (in each case) the
fees and expenses of legal or other professional advisers.
21
<PAGE>
7.5 Indemnity
---------
Without prejudice to clauses 5.3, 13.3 and 13.4 of the Guarantee and
Debenture and any equivalent or similar provisions in any other Security
Document;
(a) prior to payment of the Senior Debt in full, each Bank; and
(b) thereafter, each Loan Stock Holder,
shall indemnify the Security Trustee (rateably in accordance with the
principal amount actually or contingently owing to it under the Facilities
Agreement or, as the case may be, under the Loan Stock Instrument and/or
the Loan Stock), to the extent that the Security Trustee is not indemnified
by the Borrower or any other member of the Charging Group, against all
liabilities, damages, costs and claims whatsoever incurred by the Security
Trustee in connection with the performance of its duties under this
Agreement and/or any of the other Security Documents or any action taken
or omitted by the Security Trustee under this Agreement and/or any of the
other Security Documents other than any of the same arising out of its own
wilful default or negligence.
7.6 Enquiry by the Security Trustee
-------------------------------
The Security Trustee shall not be obliged to make any enquiry as to any
default by the Borrower or any other member of the Charging Group in the
performance or observance of any provision of any of the Security Documents
or as to whether any event or circumstance has occurred as a result of
which the security constituted by any of the Security Documents shall have
or may become enforceable.
7.7 Exclusion in relation to deposit of deeds, etc.
-----------------------------------------------
The Security Trustee shall not have any duty or responsibility, either
initially or on a continuing basis, to ascertain whether all deeds and
documents which should have been deposited with it under or pursuant to the
Security Documents have been so deposited with it.
7.8 Exclusion of liability
----------------------
The Security Trustee shall not have any responsibility to any of the
Beneficiaries (i) on account of the failure of the Borrower or any other
member of the Charging Group to perform any of its obligations under any of
the Security Documents or (ii) for the financial condition of the Borrower
or any other member of the Charging Group or (iii) for the completeness or
accuracy of any statements, representations or warranties in any of the
Security Documents or any document delivered under any of the Security
Documents or (iv) for the execution, effectiveness, adequacy, genuineness,
validity, enforceability or admissibility in evidence of any of the
Security Documents or of any certificate, report or other document executed
or delivered under any of the Security
22
<PAGE>
Documents or (v) to investigate or make any enquiry into the title of the
Borrower or any other member of the Charging Group to the Charged Assets or
any part thereof or (vi) for the failure to register any of the Security
Documents at the Companies Registration Office, H.M. Land Registry or the
Trade Marks Registry or elsewhere or (vii) for the failure to register any
of the Security Documents in accordance with the provisions of the
documents of title of the Borrower or any other member of the Charging
Group to any of the Charged Assets or (viii) for the failure to effect or
procure the registration of any floating charge created by any of the
Security Documents by registering under the Land Registration Act 1925 any
notice, caution or other entry prescribed by or pursuant to the provisions
of the said Act against any land for the time being forming part of the
Charged Assets or (ix) for the failure to take or require the Borrower or
any other member of the Charging Group to take any steps to render any of
the Security Documents effective as regards Charged Assets outside England
or Wales or to secure the creation of any ancillary charge under the laws
of the jurisdiction concerned or (x) otherwise in connection with the
Security Documents or their negotiation or for acting (or, as the case may
be, refraining from acting) with the consent, or upon the instruction, of
the Agent given pursuant to clauses 5.1 or 7.1 or in reliance upon
information provided to it pursuant to clause 7.3 or otherwise.
7.9 Reliance on documents
---------------------
The Security Trustee shall be entitled to rely on any communication,
instrument or document believed by it to be genuine and correct and to
have been signed or sent by the proper person and shall be entitled to rely
as to legal or other professional matters on opinions and statements of any
legal or other professional advisers selected or approved by it.
7.10 Deposit of deeds, etc.
----------------------
The Security Trustee shall be entitled to place all deeds, certificates and
other documents relating to the Charged Assets deposited with it under or
pursuant to the Security Documents or any of them in any safe deposit, safe
or receptacle selected by the Security Trustee or with any solicitor or
firm of solicitors and may make any such arrangements as it thinks fit for
allowing the Borrower or any other member of the Charging Group access to,
or its solicitors or auditors possession of, such documents when necessary
or convenient and the Security Trustee shall not be responsible for any
loss incurred in connection with any such deposit, access or possession
other than arising out of its own wilful default or negligence.
7.11 Illegal acts
------------
The Security Trustee may refrain from doing anything which would, or might
in its opinion, be contrary to any law of any jurisdiction or any
directive, regulation or regulatory requirement of any State (or any agency
thereof) or which would or might render it liable to any person and may do
anything which
23
<PAGE>
is, in its opinion, necessary to comply with any such law, directive,
regulation or regulatory requirement.
7.12 Other business with the Group
-----------------------------
The Security Trustee and its subsidiary and associated companies may,
without any liability to account to any other party hereto, accept
deposits from, lend money to. and generally engage in any kind of banking
or trust business with, the Borrower or any of its Subsidiaries or
Affiliates or the members of the Management Team or any of the
Beneficiaries or any of the Investors as if it were not the Security
Trustee.
7.13 Rights as Beneficiary
---------------------
With respect to its own status as a Beneficiary the Security Trustee shall
have the same rights and powers as any other Beneficiary and may exercise
the same as though it were not performing the duties and functions of
Security Trustee.
7.14 Separation of capacities
------------------------
Notwithstanding that the Agent and the Security Trustee may from time to
time be the same entity, the Agent and the Security Trustee have entered
into this Agreement in their separate capacities as agent for the Banks
under and pursuant to the Facilities Agreement and as security trustee for
the Beneficiaries to hold the guarantees and other assurances and security
created or to be created by the Security Documents on the terms set out in
the Security Documents Provided that, where this Agreement provides for the
Agent to communicate with or provide instructions to the Security Trustee,
while the Agent and the Security Trustee are the same entity it will not
be necessary for there to be any such formal communication or instructions
notwithstanding that this Agreement provides in certain cases for the same
to be in writing.
8 Acknowledgements
----------------
8.1 Acknowledgement by the Borrower and the Charging Subsidiaries
-------------------------------------------------------------
The Borrower and the Charging Subsidiaries enter into this Agreement for
the purpose of acknowledging the order of payments herein recorded and
undertakes with each of the other parties hereto to observe the provisions
of this Agreement at all times and not in any way prejudice or affect the
enforcement of such provisions or do or suffer anything which would be a
breach of the terms of this Agreement. The Borrower further undertakes to
procure that its Subsidiaries will not take any action (including, without
limitation, the making of any payment) which action, if taken by the
Borrower, would have been a breach by the Borrower of the preceding
undertaking given in this clause 8.1.
24
<PAGE>
8.2 Agreement between the Creditors
-------------------------------
Each Creditor agrees with every other Creditor (but not with the Borrower
or any Charging Subsidiary) that the provisions of this Agreement shall
regulate the rights of such Creditor under the Facilities Agreement, the
Swap Documents, the Working Capital Facility Letter, the Loan Stock and the
Loan Stock Instrument, which rights shall in all respects take effect
subject to the provisions of this Agreement.
8.3 Each Loan Stock Holder acknowledges that Mercury is the authorised
representative of the Loan Stock Holders for the purposes of this Agreement
and agrees that it will not challenge any action taken by Mercury in such
capacity under this Agreement. The Security Trustee shall be entitled to
assume that the Loan Stock Holder's Representative has due authority to
give any consent or instruction on behalf of the Loan Stock Holders or (as
the case may be) has obtained the requisite authorisations from the Loan
Stock Holders, and shall not be liable to any of the Loan Stock Holders for
any action taken or omitted under this Agreement following receipt of any
such consent or instruction.
9 Substitutions and Assignments by Banks
--------------------------------------
9.1 Substitutions by Banks
----------------------
Any Bank may transfer, by way of novation, all or any part of its rights,
benefits and/or obligations under this Agreement by delivery to the Agent
of a Substitution Certificate in the manner and otherwise as provided in
clause 15.3 of the Facilities Agreement in which event, on and as from the
effective date specified in such Substitution Certificate, the following
provisions shall apply in relation to the rights and obligations of the
parties to this Agreement:
(a) to the extent that in such Substitution Certificate the A Bank or (as
the case may be) B Bank party thereto seeks to transfer its rights
and/or its obligations under the Facilities Agreement, such A Bank or
(as the case may be) B Bank and the other parties to this Agreement
shall be released from their respective obligations to one another
under this Agreement ("discharged obligations") and their respective
rights against one another under this Agreement ("discharged rights")
shall be cancelled;
(b) the Substitute party to the relevant Substitution Certificate and the
other parties to this Agreement shall, to the same extent, assume
obligations towards each other which differ from the discharged
obligations only insofar as they are owed to or assumed by such
Substitute instead of to or by such A Bank or (as the case may be) B
Bank; and
(c) the Substitute party to the relevant Substitution Certificate and the
other parties to this Agreement shall, to the same extent, acquire
rights against each other which differ from the discharged rights only
insofar as they
25
<PAGE>
are exercisable by or against such Substitute instead of by or against
such A Bank or (as the case may be) B Bank.
9.2 Notification by Agent
---------------------
The Agent shall promptly notify the Security Trustee of the receipt by it
of any Substitution Certificate.
9.3 Authorisation to Agent
----------------------
Each of the other parties hereto irrevocably authorizes the Agent to
countersign each Substitution Certificate on its behalf without any further
consent of, or consultation with, any such party provided that the
conditions of clause 15.3 of the Facilities Agreement have been complied
with.
9.4 References to A Bank and/or B Bank
----------------------------------
If any A Bank and/or (as the case may be) any B Bank novates all or any
of its rights, benefits and obligations as provided in clause 9.1 all
relevant references in this Agreement to such A Bank or (as the case may
be) any B Bank shall thereafter be construed as a reference to such Bank
and/or its Substitute to the extent of their respective interests.
10 Changes of Agent and the Security Trustee
------------------------------------------
10.1 Change of Agent
---------------
The appointment of any successor to the Agent pursuant to clause 16.11 of
the Loan Agreement shall be (as therein provided) conditional upon such
successor having executed and delivered to the Security Trustee an Agent's
Adherence. Upon the appointment of any such successor taking effect, the
retiring Agent shall be discharged from any further obligation under this
Agreement and its successor and each of the other parties to this Agreement
shall have the same rights and obligations among themselves as they would
have had if such successor had been a party to this Agreement in place of
the retiring Agent.
10.2 Change of Security Trustee
--------------------------
The appointment of any successor to the Security Trustee pursuant to clause
13.6 of the Guarantee and Debenture or any equivalent or similar provision
in any other Security Document shall be conditional upon the Agent, the
retiring Security Trustee and such successor having executed and delivered
a Security Trustee's Adherence. Each of the other parties hereto
irrevocably authorises the Agent to enter into a Security Trustee's
Adherence on its behalf without further consent of, or consultation with,
any such party, provided that the conditions of clause 13.6 of the
Guarantee and Debenture and any equivalent or similar provision in any
other Security Document have been complied with. Upon the appointment of
any such successor taking effect, the retiring Security Trustee
26
<PAGE>
shall be discharged from any further obligation under this Agreement and
its successor and each of the other parties to this Agreement shall have
the same rights and obligations among themselves as they would have had if
such successor had been a party to this Agreement in place of the Retiring
Security Trustee.
10.3 Retirement of Security Trustee
------------------------------
The Agent acting on the instructions of the Majority Banks may at any time
require the Security Trustee to retire from its appointment as Security
Trustee if the Security Trustee is no longer a Bank and a Bank willing to
replace the Security Trustee has been found. The Security Trustee agrees to
co-operate in giving effect to such retirement in accordance with any such
notice duly received by it.
10.4 Replacement of Security Trustee following payment of the Senior Debt in
-----------------------------------------------------------------------
full
----
After the Senior Debt has been paid in full the Security Trustee may
require Mercury to accept (or to procure that a person nominated by it
accepts) the appointment of Security Trustee in its place (and the
Borrower, the Charging Subsidiaries and the Creditors agree to give any
consents, execute any documents and take any other action which may be
necessary or desirable to facilitate such appointment).
11 Assignments and transfers by Other Parties
------------------------------------------
11.1 No assignment or transfer by the Borrower or any Charging Subsidiary
--------------------------------------------------------------------
Neither the Borrower nor any Charging Subsidiary may assign or transfer any
of its rights or obligations under this Agreement.
11.2 Assignment or transfer by the Swap Counterparty and the Working Capital
-----------------------------------------------------------------------
Bank
----
The Swap Counterparty and the Working Capital Bank may not assign any of
their respective rights and/or transfer any of their respective obligations
under the Swap Documents and the Working Capital Facility Letter (as the
case may be) to any person unless the prospective assignee or transferee
has first entered into an undertaking in form and substance reasonably
satisfactory to the Security Trustee, to be bound by the provisions of this
Agreement in the capacity of Swap Counterparty or Working Capital Bank (as
the case may be).
11.3 Assignment by Loan Stock Holders and Investors
----------------------------------------------
No Loan Stock Holder or Investor may assign or transfer any of its rights
under, in respect of or to the Loan Stock and/or the Loan Stock Instrument
or (as the case may be) transfer any of its rights or title in respect of
or to shares in the Borrower to any person unless the prospective assignee
or transferee has first entered into a Loan Stock Holder's and Investor's
Adherence.
27
<PAGE>
12 Notices and Other Matters
-------------------------
12.1 Notices
-------
Every notice, request, demand or other communication under this Agreement
shall:
(a) be in writing delivered personally or by first class prepaid letter
or fax;
(b) be deemed to have been received, subject as otherwise provided in this
Agreement, in the case of a letter, when delivered personally or three
days after it has been put into the post and, in the case of a fax, at
the time of despatch (provided that if the date of despatch is not a
business day or the time of despatch is after normal business hours in
the country of the addressee it shall be deemed to have been received
at the opening of business on the next such business day); and
(c) be sent:
1) to the Agent at:
Waterhouse Square,
138-142 Holborn,
London EC1N 2TH
Fax: 0171 427 9930
Attn: Peter Goody
or at its address or fax number in any relevant Agent's Adherence
or at any other address or fax number from time to time notified
to the other parties by it;
2) to each Bank at its address or fax number in schedule 1 to the
Facilities Agreement or in any relevant Substitution Certificate
or at any other address or fax number from time to time notified
to the other parties by it;
3) to the Swap Counterparty at:
Waterhouse Square
138-142 Holborn,
London EC1N 2TH
Fax: 0171 293 9494
Attn: Peter Goody
28
<PAGE>
4) to the Working Capital Bank at:
Waterhouse Square,
138-142 Holborn,
London EC1N 2TH
Fax: 0171 427 9930
Attn: Peter Goody
or at any other address or fax number from time to time notified
to the other parties by it
5) to the Security Trustee at:
Waterhouse Square,
138-142 Holborn,
London EC1N 2TH
Fax: 0171 427 9930
Attn: Peter Goody
or at its address or fax number in any relevant Security
Trustee's Adherence or at any other address or fax number from
time to time notified to the other parties by it;
6) to each Investor at its address in Schedule 1 or 2 (as the case
may be) to the Subscription Agreement or at any other address or
fax number from time to time notified to the other parties by it;
7) to the Vendor at:
5110 W. Sahara Avenue,
Las Vegas,
Nevada 89102-3702,
U.S.A.
Fax: 702 257 3601
Attn: Wendy Simpson
8) to the Borrower and the Charging Subsidiaries at:
The Priory,
Priory Lane,
Roehampton,
London SW15 5JJ
Fax: 0181 876 8261
Attn: Ian Reynolds
or at any other address or fax number in the United Kingdom from
time to time notified to the other parties by it.
29
<PAGE>
12.2 Severability
------------
If any provision of this Agreement is illegal or unenforceable in any
jurisdiction in relation to any party hereto such illegality or
unenforceability shall not invalidate the remaining provisions hereof or
affect the validity or enforceability of such provision in any other
jurisdiction or in relation to any of the other parties hereto.
12.3 Not a partnership
-----------------
This Agreement shall not, and shall not be construed so as to, constitute
a partnership between the parties or any of them.
12.4 No waiver
---------
No waiver by any party of any breach of this Agreement shall operate as a
waiver of any subsequent or continuing breach and no failure by any party
to exercise its rights under this Agreement shall preclude that party from
exercising its rights in respect of any subsequent event.
12.5 Counterparts
------------
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which, when
executed and delivered, shall constitute an original, but all the
counterparts shall together constitute one and the same instrument.
12.6 Interpretation on payment of Senior Debt in full
------------------------------------------------
Following payment of the Senior Debt in full, all references in this
Agreement to the Agent shall be deemed to be a reference to the Loan Stock
Holder's Representative and all references in this Agreement to the Banks
shall be deemed to be a reference to the Loan Stock Holders.
13 Law and Jurisdiction
--------------------
This Agreement shall be governed by and interpreted in accordance with
English law. Each of the parties hereby irrevocably submits to the
non-exclusive jurisdiction of the High Court of Justice in England
but (subject as provided below) this Agreement may be enforced in any
court of competent jurisdiction. Each party to this Agreement agrees that
only the courts of England shall have jurisdiction to determine any claim
which any party may have against the Security Trustee arising out of this
Agreement.
IN WITNESS whereof this Agreement has been entered into the day and year first
above written.
30
<PAGE>
SCHEDULE
--------
Part A - Agent's Adherence
--------------------------
THIS DEED POLL dated ..............., supplemental to an agreement (the
"Inter-Creditor Agreement") dated ............., 1996 and made between The Royal
Bank of Scotland plc as Arranger (1), The Royal Bank of Scotland plc as Agent
(2), certain banks as A Banks and B Banks (3), The Royal Bank of Scotland plc as
Swap Counterparty (4), The Royal Bank of Scotland plc as Working Capital Bank
(5), The Royal Bank of Scotland plc as Security Trustee (6), Mercury Development
Capital Limited and others as Investors and Loan Stock Holders (7), Community
Psychiatric Centers as Vendor and a Loan Stock Holder (8), Foray 911 Limited as
Borrower (9) and certain companies as Charging Subsidiaries (10). Words and
expressions defined or referenced in the Inter-Creditor Agreement shall, uniess
the context otherwise requires, or unless otherwise defined in this Deed, have
the same meanings when used in this Deed.
WHEREAS ....................... (the "New Agent") proposes to accept the
appointment of Agent under and in accordance with the provisions of clause 16.11
of the Facilities Agreement and execution of this Deed by the New Agent is a
condition precedent to such appointment becoming effective.
NOW THIS DEED WITNESSES that the New Agent hereby agrees and covenants with each
other person who is a party to the Inter-Creditor Agreement as at the date on
which the aforementioned appointment shall become effective that, subject only
to such appointment becoming effective, it will at all times thereafter observe,
perform and be bound by all the terms, provisions, covenants and undertakings
contained in the Inter-Creditor Agreement and expressed to be observed and/or
performed by the Agent as if it had been party to the Inter-Creditor Agreement
in the capacity of Agent.
For the purposes of clause 12.1 of the Inter-Creditor Agreement the New Agent's
address for service shall be at:
..............................
..............................
..............................
Fax: ...................
Attention: ...................
IN WITNESS whereof this Deed has been duly executed by the New Agent the day and
year first above written.
31
<PAGE>
SCHEDULE
--------
Part B - Trustee's Deed of Appointment and Adherence
----------------------------------------------------
THIS DEED is made the ............. day of ............. BETWEEN:
(1) [Retiring Trustee] of (the "Retiring Trustee");
(2) [New Trustee] of (the "New Trustee); and
(3) [Agent] of (the "Agent")
WHEREAS:
(A) This Deed is supplemental to:
(1) an agreement (the "Inter-Creditor Agreement") made between The Royal
Bank of Scotland plc as Arranger (1), The Royal Bank of Scotland plc
as Agent (2), certain banks as A Banks and B Banks (3), The Royal
Bank of Scotland plc as Swap Counterparty (4), The Royal Bank of
Scotland plc as Working Capital Bank (5), The Royal Bank of Scotland
plc as Security Trustee (6), Mercury Development Capital Limited and
others as Investors and Loan Stock Holders (7), Community Psychiatric
Centers as Vendor and a Loan Stock Holder (8), Foray 911 Limited as
Borrower (9) and certain companies as Charging Subsidiaries (10);
(2) the other Security Documents; and
(3) [specify previous Trustee's Deeds of Appointment and Adherence (if
any)]
(B) The Retiring Trustee wishes to appoint the New Trustee and the New Trustee
proposes to accept the appointment as Security Trustee under and in
accordance with the provisions of the Intercreditor Agreement and the other
Security Documents and execution of this Deed by the New Trustee is a
condition to such appointment becoming effective.
(C) It is intended that all property subject to the trusts contained in the
Inter-Creditor Agreement and the other Security Documents shall be
henceforth vested in or transferred shortly hereafter into the name, or
under the control, of the New Trustee.
NOW THIS DEED WITNESSES as follows:
1 Unless the context requires otherwise, or unless otherwise defined herein,
words and expressions defined in, or incorporated by reference into, the
Security Trust Inter-Creditor Agreement shall have the same meanings when
used in this Deed.
32
<PAGE>
2 In exercise of the powers conferred upon it by the Trustee Act 1925 and of
every other (if any) power enabling it the Retiring Trustee hereby appoints
the New Trustee to be Security Trustee in its place.
3 The Retiring Trustee is henceforth discharged from the trusts contained in
the Inter-Creditor Agreement and the Security Documents.
4 It is intended that the property subject to the trusts constituted by the
Trustee Security Documents shall henceforth be vested in the New Trustee by
virtue of the provisions of the Trustee Act 1925 and in the case of
property which does not vest in the New Trustee by virtue of such
provisions, the Retiring Trustee undertakes to do and execute all acts and
deeds required to transfer such property into the name, or under the
control, of the New Trustee.
5 The New Trustee hereby agrees and covenants with the Agent (on behalf of
each Beneficiary, the Borrower and each Charging Subsidiary) that it will
at all times hereafter observe, perform and be bound by all the terms,
provisions, covenants and undertakings contained in the Intercreditor
Agreement and expressed to be observed and/or performed by the Security
Trustee as if it had been party to the Intercreditor Agreement in the
capacity of Security Trustee.
For the purposes of clause 12.1 of the Inter-Creditor Agreement the New
Trustee's address for service shall be at:
.............................
.............................
Telex: ..............
Fax: ..............
Attention: ..............
IN WITNESS whereof this Deed has been duly executed by the Retiring Trustee, the
New Trustee and the Agent the day and year first before written.
IN WITNESS whereof this Deed has been duly executed by the New Trustee the day
and year first above written.
33
<PAGE>
SCHEDULE
--------
Part C - Loan Stock Holder's and Investor's Adherence
-----------------------------------------------------
THIS DEED POLL dated ............, supplemental to an agreement (tile "Inter-
Creditor Agreement") dated ............., 1996 and made between The Royal Bank
of Scotland plc as Arranger (1), The Royal Bank of Scotland plc as Agent (2),
certain banks as A Banks and B Banks (3), The Royal Bank of Scotland plc as Swap
Counterparty (4), The Royal Bank of Scotland plc as Working Capital Bank (5),
The Royal Bank of Scotland plc as Security Trustee (6), Mercury Asset Management
Plc and others as Investors and Loan Stock Holders (7), Community Psychiatric
Centers as Vendor and a Loan Stock Holder (8), Foray 911 Limited as Borrower (9)
and certain companies as Charging Subsidiaries (10). Words and expressions
defined or referenced in the Inter-Creditor Agreement shall, unless the context
otherwise requires, or unless otherwise defined in this Deed, have the same
meanings when used in this Deed.
WHEREAS .............................. (the "New *[Loan Stock Holder [and]
Investor]") proposes to accept an assignment or transfer of rights under, in
respect of or to the Loan Stock and/or the Loan Stock Instrument [and] a
transfer of rights or title in respect of or to shares in the Borrower] and
execution of this Deed by the New *[Loan Stock Holder [and] Investor] is a
condition precedent to such assignment or transfer becoming effective.
NOW THIS DEED WITNESSES that the New *[Loan Stock Holder [and] Investor]
hereby agrees and covenants with each other person who is a party to the Inter-
Creditor Agreement that, subject only to such assignment or transfer becoming
effective, it will at all times thereafter observe, perform and be bound by all
the terms, provisions, covenants and undertakings contained in the Inter-
Creditor Agreement and expressed to be observed and/or performed by *[a Loan
Stock Holder [and] [an Investor] as if it had been party to the Inter-Creditor
Agreement in the capacity of *[a Loan Stock Holder [and] an Investor].
For the purposes of clause 12.1 of the Inter-Creditor Agreement the New *[Loan
Stock Holder's] [and] [1nvestor's] address for service shall be at:
.............................
.............................
.............................
Fax: ..............
Attention: ..............
IN WITNESS whereof this Deed has been duly executed by the New Loan Stock Holder
the day and year first above written.
* delete as applicable
34
<PAGE>
The Arranger
- ------------
SIGNED for and on behalf of )
THE ROYAL BANK OF SCOTLAND plc: )
The Agent
- ---------
SIGNED for and on behalf of )
THE ROYAL BANK OF SCOTLAND plc: )
The A Bank
- ----------
SIGNED for and on behalf of )
THE ROYAL BANK OF SCOTLAND plc: )
The B Bank
- ----------
SIGNED for and on behalf of )
THE ROYAL BANK OF SCOTLAND plc: )
The Swap Counterparty
- ---------------------
SIGNED for and on behalf of )
THE ROYAL BANK OF SCOTLAND plc: )
The Working Capital Bank
- ------------------------
SIGNED for and on behalf of )
The ROYAL BANK OF SCOTLAND plc: )
35
<PAGE>
The Security Trustee
- --------------------
SIGNED for and on behalf of )
THE ROYAL BANK OF SCOTLAND plc: )
The Borrower
- ------------
SIGNED for and on behalf of )
FORAY 911 LIMITED: )
The Investors
- -------------
SIGNED for and on behalf of )
MERCURY ASSET MANAGEMENT PLC )
SIGNED by IAN PETER REYNOLDS: )
SIGNED by ERIC ALLEN MILLARD: )
The Vendor
- ----------
SIGNED for and on behalf of ) /s/ Richard Conte
COMMUNITY PSYCHIATRIC )
CENTERS )
The Charging Subsidiaries
- -------------------------
SIGNED for and on behalf of )
CPC (LONDINIUM) LIMITED: )
36
<PAGE>
SIGNED for and on behalf of )
PRIORY HOSPITALS GROUP LIMITED: )
SIGNED for and on behalf of )
CARE CONTINUUMS LIMITED: )
SIGNED for and on behalf of )
PRIORY CHILDCARE )
SERVICES LIMITED: )
37
<PAGE>
EXHIBIT 4
================================================================================
COMMUNITY PSYCHIATRIC CENTERS
and
CHASE MELLON SHAREHOLDER SERVICES
as Rights Agent
Rights Agreement
Dated as of June 21, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1. Certain Definitions..................................................... 1
Section 2. Appointment of Rights Agent............................................. 5
Section 3. Issuance of Right Certificates.......................................... 5
Section 4. Form of Right Certificates.............................................. 6
Section 5. Countersignature and Registration....................................... 6
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates................. 7
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights........... 8
Section 8. Cancellation and Destruction of Right Certificates...................... 9
Section 9. Reservation and Availability of Capital Stock........................... 9
Section 10. Preferred Shares Record Date............................................ 10
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights...... 10
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.............. 17
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power.... 17
Section 14. Fractional Rights and Fractional Shares................................. 18
Section 15. Rights of Action........................................................ 19
Section 16. Agreement of Right Holders.............................................. 20
Section 17. Right Certificate Holder Not Deemed a Stockholder....................... 20
Section 18. Concerning the Rights Agent............................................. 20
Section 19. Merger or Consolidation or Change of Name of Rights Agent............... 21
Section 20. Duties of Rights Agent.................................................. 21
Section 21. Change of Rights Agent.................................................. 23
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 22. Issuance of New Right Certificates...................................... 24
Section 23. Redemption.............................................................. 24
Section 24. Notice of Certain Events................................................ 25
Section 25. Notices................................................................. 26
Section 26. Supplements and Amendments.............................................. 26
Section 27. Exchange................................................................ 27
Section 28. Successors.............................................................. 28
Section 29. Benefits of this Rights Agreement....................................... 28
Section 30. Severability............................................................ 28
Section 31. Governing Law........................................................... 28
Section 32. Counterparts............................................................ 28
Section 33. Descriptive Heading..................................................... 29
</TABLE>
Exhibit A - Form of Certificate of Resolution Establishing Designation,
Preferences and Rights of Series B Junior Participating Preferred
Stock
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase Preferred Shares
ii
<PAGE>
RIGHTS AGREEMENT
----------------
Agreement, dated as of June 21, 1996, between COMMUNITY PSYCHIATRIC
CENTERS, a Nevada corporation (the "Company"), and CHASE MELLON SHAREHOLDER
SERVICES, as Rights Agent (the "Rights Agent").
RECITALS
--------
The Board of Directors of the Company has authorized and declared a
dividend of one right (a "Right") for each Common Share (as defined in Section
1.6) of the Company outstanding at the close of business on July 16, 1996 (the
"Record Date") and has authorized the issuance of one Right (subject to
adjustment as provided herein) with respect to each Common Share that shall
become outstanding between the Record Date and the earliest of the Distribution
Date, the Redemption Date and the Final Expiration Date (as such terms are
defined in Sections 3.1 and 7.1), each Right initially representing the right to
purchase one one-hundredth of a share of Series B Junior Participating Preferred
Stock (the "Preferred Shares") of the Company having the rights, powers and
preferences set forth in the form of Certificate of Resolution Establishing
Designation, Preferences and Rights of Series B Junior Participating Preferred
Stock of Community Psychiatric Centers attached hereto as Exhibit A, upon the
terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Rights
-------------------
Agreement, the following terms have the meanings indicated:
1.1 "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and Associates
(as such terms are hereinafter defined) of such Person, shall be the Beneficial
Owner (as such term is hereinafter defined) of 15% or more of the Common Shares
of the Company then outstanding but shall not include the Company, any
Subsidiary of the Company or any employee benefit plan of the Company or of any
Subsidiary of the Company or any entity holding shares of capital stock of the
Company for or pursuant to the terms of any such plan, in its capacity as an
agent or trustee for any such plan. Notwithstanding the foregoing, no Person
shall become an "Acquiring Person" as the result of an acquisition of Common
Shares by the Company which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such Person
to 15% or more of the Common Shares of the Company then outstanding; PROVIDED,
HOWEVER, that if a Person shall become the Beneficial Owner of 15% or more of
the Common Shares of the Company then outstanding solely by reason of share
purchases by the Company and shall, after such share purchases by the Company,
become the Beneficial Owner of any additional Common Shares of the Company, then
such Person shall be deemed to be an "Acquiring Person." Notwithstanding the
foregoing, if the Board of Directors of the Company determines in good faith
that a Person who would otherwise be an "Acquiring Person," as defined pursuant
to the foregoing provisions of this Section 1.1, has become such inadvertently,
and such Person divests as promptly as practicable a sufficient number of Common
Shares so that such Person would no longer be an Acquiring Person, as defined
pursuant to the foregoing provisions of this Section 1.1, then such Person shall
not be deemed to be an "Acquiring Person" at any time for any purposes of this
Agreement.
1
<PAGE>
1.2 "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations, as in
effect on the date of this Rights Agreement, under the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
1.3 A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly (as determined pursuant to Rule 13d-3
of the General Rules and Regulations under the Exchange Act as in effect on the
date of this Agreement);
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has (A) the right to acquire (whether such
right is exercisable immediately, or only after the passage of time, compliance
with regulatory requirements, fulfillment of a condition or otherwise) pursuant
to any agreement, arrangement or understanding, whether or not in writing (other
than customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights (other than the Rights),
warrants or options, or otherwise; PROVIDED, HOWEVER, that a Person shall not be
deemed the Beneficial Owner of, or to beneficially own, (1) securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person or
any of such Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange, or (2) securities issuable upon exercise of
Rights at any time prior to the occurrence of a Trigger Event, or (3) securities
issuable upon exercise of Rights from and after the occurrence of a Trigger
Event which Rights were acquired by such Person or any of such Person's
Affiliates or Associates prior to the Distribution Date or pursuant to Section
3.1 or Section 22 hereof (the "Original Rights") or pursuant to Section 11.9
hereof in connection with an adjustment made with respect to any Original
Rights, or (4) securities which such Person or any of such Person's Affiliates
or Associates may acquire, does or do acquire or may be deemed to have the right
to acquire, pursuant to any merger or other acquisition agreement between the
Company and such Person (or one or more of his Affiliates or Associates) if such
agreement has been approved by the Board of Directors of the Company prior to
such Person's becoming an Acquiring Person; or (B) the right to vote pursuant to
any agreement, arrangement or understanding (whether or not in writing);
PROVIDED, HOWEVER, that a Person shall not be deemed the Beneficial Owner of, or
to beneficially own, any security under this clause (B) if the agreement,
arrangement or understanding to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations of the Exchange Act and (2) is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such Person or
any of such Person's Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between underwriters and
selling group members with respect to a bona fide public offering of
securities), whether or not in writing, for
2
<PAGE>
the purpose of acquiring, holding, voting (except pursuant to a revocable proxy
as described in the proviso to Section 1.3(ii)(B)) or disposing of any
securities of the Company.
1.4 "Business Day" shall mean any day other than a Saturday, Sunday,
or a day on which banking institutions in the State of California are authorized
or obligated by law or executive order to close.
1.5 "close of business" on any given date shall mean 5:00 p.m.,
California time, on such date; PROVIDED, HOWEVER, that if such date is not a
Business Day it shall mean 5:00 p.m., California time, on the next succeeding
Business Day.
1.6 "Common Shares" when used with reference to the Company shall mean
the shares of common stock, par value $1.00 per share, of the Company. "Common
Shares" when used with reference to any Person other than the Company shall mean
the capital stock with the greatest voting power, or the equity securities or
other equity interest having power to control or direct the management, of such
other Person or, if such Person is a Subsidiary of another Person, the Person or
Persons which ultimately control such first-mentioned Person, and which has
issued and outstanding such capital stock, equity securities or equity interest.
1.7 "Continuing Director" shall mean (i) any member of the Board of
Directors of the Company, while such Person is a member of the Board, who is not
an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or an
employee, director, representative, nominee or designee of any Acquiring Person
or of any such Affiliate or Associate, and was a member of the Board prior to
the time that any Person becomes an Acquiring Person or (ii) any Person (during
such period in which such Person is a member of the Board) who, after the time
that any Person becomes an Acquiring Person, becomes a member of the Board and
who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring
Person, or an employee, director, representative, nominee or designee of an
Acquiring Person or of any such Affiliate or Associate, if such Person's
nomination for election or election to the Board is recommended or approved by a
majority of the Continuing Directors.
1.8 "Person" shall mean any individual, partnership, joint venture,
limited liability company, firm, corporation, unassociated association, trust or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
1.9 "Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, the filing of a report pursuant to Section 13(d) of the Exchange Act
or pursuant to a comparable successor statute) by the Company or an Acquiring
Person that an Acquiring Person has become such or that discloses information
which reveals the existence of an Acquiring Person.
1.10 "Spin-off Distribution" shall mean the distribution, to all
holders of the Common Shares, of one share of common stock of Spinco
Corporation, an indirect wholly-owned subsidiary of the Company, for each five
Common Shares held by such stockholder. After such distribution, the Company
intends to change its name to "Apollo Healthcare International" and Spinco
Corporation intends to change its name to "Community Psychiatric Centers."
3
<PAGE>
1.11 "Subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity securities
or equity interests is owned, of record or beneficially, directly or indirectly,
by such Person.
1.12 A "Trigger Event" shall be deemed to have occurred upon any
Person becoming an Acquiring Person. Notwithstanding the foregoing, a Trigger
Event shall not be deemed to have occurred if the event causing the 15%
ownership threshold to be crossed is an acquisition of Common Shares made
pursuant to a cash tender offer made pursuant to the rules and regulations under
the Exchange Act and filed with the Securities and Exchange Commission on
Schedule 14D-1 (or any successor form) for all outstanding Common Shares not
beneficially owned by the Person making such offer (or by its Affiliates or
Associates) so long as the Board of Directors of the Company determines, after
receiving advice from one or more investment banking firms, that such offer is
(i) at a price and on terms which are fair to stockholders (taking into account
all factors which such members of the Board deem relevant, including without
limitation, prices which could reasonably be achieved if the Company or its
assets were sold on an orderly basis designed to realize maximum value) and (ii)
otherwise in the best interests of the Company and its stockholders; PROVIDED,
HOWEVER, that there must be Continuing Directors then in office and any such
determination shall require the concurrence of a majority of such Continuing
Directors.
1.13 The following terms shall have the meanings defined for such
terms in the Sections set forth below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Adjustment Shares 11.1.2
common stock equivalent 11.1.3
Company Recitals
current per share market price 11.4
Current Value 11.1.3
Distribution Date 3.1
equivalent preferred stock 11.2
Exchange Act 1.2
Exchange Consideration 27
Final Expiration Date 7.1
Nasdaq 9
Original Rights 1.3
Preferred Shares Recitals
Purchase Price 4
Record Date Recitals
Redemption Date 7.1
Redemption Price 23.1
Right Recitals
Right Certificate 3.1
Rights Agent Recitals
Security 11.4
Spread 11.1.3
Substitution Period 11.1.3
Summary of Rights 3.2
Trading Day 11.4
</TABLE>
4
<PAGE>
Section 2. Appointment of Rights Agent. The Company hereby appoints
---------------------------
the Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3, shall prior to the Distribution Date also be
the holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable. In the event the Company appoints one or more co-Rights Agents, the
respective duties of the Rights Agent and any co-Rights Agent shall be as the
Company shall determine. Contemporaneously with such appointment, if any, the
Company shall notify the Rights Agent thereof.
Section 3. Issuance of Right Certificates.
------------------------------
3.1 Rights Evidenced by Share Certificates. Until the earlier of (i)
--------------------------------------
the tenth day after the Shares Acquisition Date or (ii) the tenth day after the
date of the commencement of, or first public announcement of the intent of any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding shares of capital stock of the Company for or pursuant to the terms of
any such plan, in its capacity as an agent or trustee for any such plan) to
commence, a tender or exchange offer the consummation of which would result in
any Person becoming the Beneficial Owner of Common Shares aggregating 15% or
more of the then outstanding Common Shares of the Company (the earlier of (i)
and (ii) being herein referred to as the "Distribution Date," whether or not
either such date occurs prior to the Record Date), (x) the Rights (unless
earlier expired, redeemed or terminated) will be evidenced (subject to the
provisions of Section 3.2) by the certificates for Common Shares registered in
the names of the holders thereof (which certificates for Common Shares shall
also be deemed to be Right Certificates) and not by separate certificates, and
(y) the Rights (and the right to receive certificates therefor) will be
transferable only in connection with the transfer of the underlying Common
Shares. The preceding sentence notwithstanding, prior to the Distribution Date
specified therein (or such later Distribution Date as the Board of Directors of
the Company may select pursuant to this sentence), the Board of Directors of the
Company may postpone, one or more times, the Distribution Date beyond the
earlier of the dates set forth in such preceding sentence; PROVIDED, HOWEVER,
that there must be Continuing Directors then in office and any such postponement
shall require the approval of at least a majority of such Continuing Directors.
As soon as practicable after the Distribution Date, the Rights Agent will send,
by first-class, postage-prepaid mail, to each record holder of Common Shares as
of the close of business on the Distribution Date, at the address of such holder
shown on the records of the Company, one or more certificates for Rights, in
substantially the form of Exhibit B hereto (a "Right Certificate"), evidencing
one Right (subject to adjustment as provided herein) for each Common Share so
held. As of the Distribution Date, the Rights will be evidenced solely by such
Right Certificates.
3.2 Summary of Rights. On the Record Date or as soon as practicable
-----------------
thereafter, the Company will send or cause to be sent a copy of a Summary of
Rights to Purchase Preferred Shares, in substantially the form attached hereto
as Exhibit C (the "Summary of Rights"), by first-class, postage-prepaid mail, to
each record holder of Common Shares as of the close of business on the Record
Date at the address of such holder shown on the records of the Company. With
respect to certificates for Common Shares outstanding as of the close of
business on the Record Date, until the Distribution Date (or the earlier
Redemption Date or Final Expiration Date), the Rights will be evidenced by such
certificates for Common Shares registered in the names of the holders thereof
together with a copy of the Summary of Rights and the registered holders of the
Common Shares shall also be registered holders of the associated Rights. Until
the Distribution Date (or the earlier Redemption Date or Final Expiration Date),
the surrender for transfer of any certificate for Common Shares outstanding at
the close of business
5
<PAGE>
on the Record Date shall also constitute the transfer of the Rights associated
with the Common Shares represented thereby.
3.3 New Certificates After Record Date. Certificates for Common Shares
----------------------------------
which become outstanding (whether upon issuance out of authorized but unissued
Common Shares, issuance out of treasury or transfer or exchange of outstanding
Common Shares) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date, shall be
deemed also to be certificates for Rights, and shall have impressed, printed,
stamped, written or otherwise affixed onto them the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement between
Community Psychiatric Centers and Chase Mellon Shareholder
Services, dated as of June 21, 1996, as the same may be amended
from time to time (the "Rights Agreement"), the terms of which are
hereby incorporated herein by reference and a copy of which is on
file at the principal executive offices of Community Psychiatric
Centers. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates
and will no longer be evidenced by this certificate. Community
Psychiatric Centers will mail to the holder of this certificate a
copy of the Rights Agreement without charge after receipt of a
written request therefor. AS DESCRIBED IN THE RIGHTS AGREEMENT,
RIGHTS WHICH ARE HELD BY OR HAVE BEEN HELD BY ACQUIRING PERSONS OR
ASSOCIATES OR AFFILIATES THEREOF (AS DEFINED IN THE RIGHTS
AGREEMENT) SHALL BECOME NULL AND VOID.
With respect to such certificates containing the foregoing legend, until the
Distribution Date (or the earlier Redemption Date or Final Expiration Date), the
Rights associated with the Common Shares represented by such certificates shall
be evidenced by such certificates (together with a copy of the Summary of
Rights), and the surrender for transfer of any such certificates shall also
constitute the transfer of the Rights associated with the Common Shares
represented thereby. In the event that the Company purchases or acquires any
Common Shares after the Record Date but prior to the Distribution Date, any
Rights associated with such Common Shares shall be deemed cancelled and retired
so that the Company shall not be entitled to exercise any Rights associated with
the Common Shares which are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates (and the
--------------------------
forms of election to purchase Preferred Shares, certification and assignment to
be printed on the reverse thereof) shall be substantially the same as Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Rights
Agreement, or as may be required to comply with any applicable law or with any
rule or regulation made pursuant thereto or with any rule or regulation of any
stock exchange or trading system on which the Rights may from time to time be
listed or quoted, or to conform to usage. Subject to the terms and conditions
hereof, the Right Certificates, whenever issued, shall be dated as of the Record
Date, and shall show the date of countersignature by the Rights Agent, and on
their face shall entitle the holders thereof to purchase such number of one one-
hundredths of a Preferred Share as shall be set forth therein at the price per
one one-hundredth of a Preferred Share set forth therein (the "Purchase Price"),
but the number of such one one-hundredths of a Preferred Share and the Purchase
Price shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration. The Right Certificates
---------------------------------
shall be executed on behalf of the Company by its Chairman of the Board of
Directors, the Chief Executive Officer,
6
<PAGE>
President or any Vice President, either manually or by facsimile signature, and
shall have affixed thereto the Company's seal or a facsimile thereof which shall
be attested by the Secretary or any Assistant Secretary of the Company, either
manually or by facsimile signature. The Right Certificates shall be manually
countersigned by an authorized signatory of the Rights Agent, but it shall not
be necessary for the same signatory to countersign all of the Right Certificates
hereunder. No Right Certificate shall be valid for any purpose unless so
countersigned. In case any officer of the Company who shall have signed any of
the Right Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent,
and issued and delivered by the Company with the same force and effect as though
the person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause
to be kept, at its principal office in California, books for registration and
transfer of the Right Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Right Certificates, the
number of Rights evidenced on its face by each of the Right Certificates, the
certificate number of each of the Right Certificates and the date of each of the
Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
-----------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
- ---------------------------------------------------------------------
to the provisions of Section 11.1.2 and Section 14, at any time after the close
of business on the Distribution Date, and at or prior to the close of business
on the earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11.1.2 or that have been
exchanged pursuant to Section 27) may be transferred, split up or combined or
exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of one one-hundredths of a Preferred
Share (or, following a Trigger Event, Common Shares, other securities, cash or
other assets, as the case may be) as the Right Certificate or Right Certificates
surrendered then entitled such holder to purchase. Any registered holder
desiring to transfer, split up or combine or exchange any Right Certificate
shall make such request in writing delivered to the Rights Agent, and shall
surrender, together with any required form of assignment and certificate duly
completed, the Right Certificate or Right Certificates to be transferred, split
up or combined or exchanged at the office of the Rights Agent designated for
such purpose. Neither the Rights Agent nor the Company shall be obligated to
take any action whatsoever with respect to the transfer of any such surrendered
Right Certificate or Right Certificates until the registered holder shall have
completed and signed the certificate contained in the form of assignment on the
reverse side of such Right Certificate or Right Certificates and shall have
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request. Thereupon the Rights Agent shall countersign and
deliver to the person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested. The Company may require
payment from the holders of Right Certificates of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection with any transfer,
split up or combination or exchange of such Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
7
<PAGE>
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for countersignature and
delivery to the registered owner in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
------------------------------------------------------
Rights.
- ------
7.1 Exercise of Rights. Subject to Section 11.1.3 and except as
------------------
otherwise provided herein, the registered holder of any Right Certificate may
exercise the Rights evidenced thereby in whole or in part at any time after the
Distribution Date upon surrender of the Right Certificate, with the form of
election to purchase and certification on the reverse side thereof duly
executed, to the Rights Agent at the office of the Rights Agent designated for
such purpose, together with payment of the Purchase Price for each one one-
hundredth of a Preferred Share as to which the Rights are exercised, at or prior
to the earliest of (i) the close of business on June 20, 2006 (the "Final
Expiration Date"), (ii) the time at which the Rights are redeemed as provided in
Section 23 (the "Redemption Date"), (iii) the closing of any merger or other
acquisition transaction involving the Company pursuant to an agreement of the
type described in Section 1.3(ii)(A)(4), at which time the Rights are deemed
terminated, or (iv) the time at which the Rights are exchanged as provided in
Section 27.
7.2 Purchase Price. The Purchase Price for each one one-
--------------
hundredth of a Preferred Share pursuant to the exercise of a Right shall
initially be $45.00, shall be subject to adjustment from time to time as
provided in Sections 11, 13 and 26 and shall be payable in lawful money of the
United States of America in accordance with Section 7.3.
7.3 Payment Procedures. Upon receipt of a Right Certificate
------------------
representing exercisable Rights, with the form of election to purchase and
certification duly executed, accompanied by payment of the Purchase Price for
the shares to be purchased and an amount equal to any applicable transfer tax
required to be paid by the holder of such Right Certificate in accordance with
Section 9, by certified or cashier's check or money order payable to the order
of the Company, the Rights Agent shall thereupon promptly (i)(A) requisition
from any transfer agent of the Preferred Shares (or make available, if the
Rights Agent is the transfer agent) certificates for the number of Preferred
Shares to be purchased and the Company hereby irrevocably authorizes its
transfer agent to comply with all such requests, or (B) if the Company shall
have elected to deposit the total number of Preferred Shares issuable upon
exercise of the Rights hereunder with a depositary agent, requisition from the
depositary agent depositary receipts representing such number of one one-
hundredths of a Preferred Share as are to be purchased (in which case
certificates for the Preferred Shares represented by such receipts shall be
deposited by the transfer agent with the depositary agent) and the Company
hereby directs the depositary agent to comply with all such requests, (ii) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of the issuance of fractional shares in accordance with Section 14, (iii)
promptly after receipt of such certificates or depositary receipts, cause the
same to be delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt, promptly deliver such cash to
or upon the order of the registered holder of such Right Certificate. In the
event that the Company is obligated to issue other securities of the Company,
pay cash and/or distribute other property pursuant to Section 11.1.3, the
Company will make all arrangements necessary so that such other securities, cash
and/or other property are available for distribution by the Rights Agent, if and
when appropriate.
7.4 Partial Exercise. In case the registered holder of any
----------------
Right Certificate shall exercise less than all the Rights evidenced thereby, a
new Right Certificate evidencing Rights equivalent
8
<PAGE>
to the Rights remaining unexercised shall be issued by the Rights Agent and
delivered to the registered holder of such Right Certificate or to his duly
authorized assigns, subject to the provisions of Section 14.
7.5 Full Information Concerning Ownership. Notwithstanding anything in
-------------------------------------
this Rights Agreement to the contrary, neither the Rights Agent nor the Company
shall be obligated to undertake any action with respect to a registered holder
of Rights upon the occurrence of any purported exercise as set forth in this
Section 7 unless the certificate contained in the form of election to purchase
set forth on the reverse side of the Right Certificate surrendered for such
exercise shall have been duly completed and signed by the registered holder
thereof and the Company shall have been provided with such additional evidence
of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates. All
--------------------------------------------------
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all cancelled Right Certificates to the Company, or shall, at the written
request of the Company, destroy such cancelled Right Certificates, and in such
case shall deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock. The Company
---------------------------------------------
covenants and agrees that from and after the Distribution Date it will cause to
be reserved and kept available out of its authorized and unissued Preferred
Shares (and, following the occurrence of a Trigger Event, out of its authorized
and unissued Common Shares or other securities or out of its shares held in its
treasury) the number of Preferred Shares (and, following the occurrence of a
Trigger Event, Common Shares and/or other securities) that will be sufficient to
permit the exercise in full of all outstanding Rights.
So long as the Preferred Shares (and, following the occurrence of a
Trigger Event, Common Shares and/or other securities) issuable upon the exercise
of Rights may be listed on any national securities exchange or traded in the
over-the-counter market and quoted on the Nasdaq National Market ("Nasdaq"), the
Company shall use its best efforts to cause, from and after such time as the
Rights become exercisable, all shares reserved for such issuance to be listed on
such exchange or so traded in such over-the-counter market, upon official notice
of issuance upon such exercise.
The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all Preferred Shares (and, following the
occurrence of a Trigger Event, Common Shares and/or other securities) delivered
upon exercise of Rights shall, at the time of delivery of the certificates for
such shares (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and nonassessable shares.
The Company further covenants and agrees that it will pay when due and
payable any and all Federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Preferred Shares (or Common Shares and/or other securities, as the case may
be) upon the exercise of Rights. The Company shall not, however, be required to
pay any transfer tax which may be payable in respect of any transfer or delivery
of Right Certificates to a person other than, or the issuance or delivery of
certificates for the Preferred Shares (or Common Shares
9
<PAGE>
and/or other securities, as the case may be) in a name other than that of, the
registered holder of the Right Certificate evidencing Rights surrendered for
exercise or to issue or deliver any certificates for Preferred Shares (or Common
Shares and/or other securities, as the case may be) in a name other than that of
the registered holder upon the exercise of any Rights until any such tax shall
have been paid (any such tax being payable by the holder of such Right
Certificate at the time of surrender) or until it has been established to the
Company's satisfaction that no such tax is due.
Section 10. Preferred Shares Record Date. Each person in whose name
----------------------------
any certificate for Preferred Shares (or Common Shares and/or other securities,
as the case may be) is issued upon the exercise of Rights shall for all purposes
be deemed to have become the holder of record of the Preferred Shares (or Common
Shares and/or other securities, as the case may be) represented thereby on, and
such certificate shall be dated, the date upon which the Right Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and any applicable transfer taxes) was made; PROVIDED, HOWEVER, that if the
date of such surrender and payment is a date upon which the Preferred Shares (or
Common Shares and/or other securities, as the case may be) transfer books of the
Company are closed, such person shall be deemed to have become the record holder
of such shares (fractional or otherwise) on, and such certificate shall be
dated, the next succeeding Business Day on which the Preferred Shares (or Common
Shares and/or other securities, as the case may be) transfer books of the
Company are open.
Section 11. Adjustment of Purchase Price, Number of Shares or Number
--------------------------------------------------------
of Rights. The Purchase Price, the number of shares covered by each Right and
- ---------
the number of Rights outstanding are subject to adjustment from time to time as
provided in this Section 11.
11.1 Post Execution Events.
---------------------
11.1.1 Corporate Dividends, Reclassifications, Etc. In the event the
-------------------------------------------
Company shall at any time after the date of this Rights Agreement (A) declare a
dividend on the Preferred Shares payable in Preferred Shares, (B) subdivide the
outstanding Preferred Shares, (C) combine the outstanding Preferred Shares into
a smaller number of shares or (D) issue any shares of its capital stock in a
reclassification of the Preferred Shares (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), except as otherwise provided in this Section 11.1,
the Purchase Price in effect at the time of the record date for such dividend or
of the effective date of such subdivision, combination or reclassification, and
the number and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Preferred Shares transfer books of the Company were
open, he would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification. If an
event occurs which would require an adjustment under both Section 11.1.1 and
Section 11.1.2, the adjustment provided for in this Section 11.1.1 shall be in
addition to, and shall be made prior to, the adjustment required pursuant to,
Section 11.1.2.
11.1.2 Acquiring Person Events; Triggering Events. Subject to Sections
------------------------------------------
23.1 and 27 of this Agreement, in the event that
(A) any Acquiring Person or any Associate or Affiliate of any
Acquiring Person, at any time after the date of this Rights Agreement,
directly or indirectly, shall merge into the Company or otherwise combine
with the Company and the Company shall be the continuing or surviving
corporation of such merger or combination and the Common Shares of
10
<PAGE>
the Company shall remain outstanding and not changed into or exchanged for
stock or other securities of any other Person or the Company or cash or any
other property, or
(B) a Trigger Event occurs,
then, from and after the first occurrence of such event, each holder of a Right,
except as provided below, shall thereafter have a right to receive, upon
exercise thereof at a price per Right equal to the then current Purchase Price
multiplied by the number of one one-hundredths of a Preferred Share for which a
Right is then exercisable (without giving effect to this Section 11.1.2), in
accordance with the terms of this Rights Agreement, such number of Common Shares
as shall equal the result obtained by (x) multiplying the then current Purchase
Price by the then number of one one-hundredths of a Preferred Share for which a
Right is then exercisable (without giving effect to this Section 11.1.2) and (y)
dividing that product by 50% of the current per share market price of the Common
Shares (determined pursuant to Section 11.4) on the first of the date of the
occurrence of, or the date of the first public announcement of, one of the
events listed above in this Section 11.1.2 (the "Adjustment Shares"); PROVIDED,
HOWEVER, that if the transaction that would otherwise give rise to the foregoing
adjustment is also subject to the provisions of Section 13, then only the
provisions of Section 13 shall apply and no adjustment shall be made pursuant to
this Section 11.1.2; PROVIDED, FURTHER, that nothing contained in this Section
11.1.2 shall limit or otherwise diminish the power of the Board of Directors
(or, if applicable, the Continuing Directors) to postpone the Distribution Date
pursuant to Section 3.1 or to extend the period during which the Rights may be
redeemed pursuant to Section 23.1; PROVIDED, FURTHER, that the Purchase Price
and the number of Adjustment Shares shall thereafter be subject to further
adjustment pursuant to Section 11.1.1 hereof. Notwithstanding the foregoing,
upon the occurrence of either of the events listed above in this Section 11.1.2,
any Rights that are or were acquired or beneficially owned by (1) an Acquiring
Person or any Associate or Affiliate thereof, (2) a transferee of an Acquiring
Person (or of any such Associate or Affiliate) who becomes a transferee after
the Acquiring Person becomes such, or (3) a transferee of an Acquiring Person
(or of any such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which the Board of Directors of the Company has determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect avoidance
of this Section 11.1.2, shall become void, and any holder (whether or not such
holder is an Acquiring Person or an Associate or Affiliate of an Acquiring
Person) of such Rights shall thereafter have no right to exercise such Rights
under any provision of this Rights Agreement or otherwise. The Company shall not
enter into any transaction of the type described in this Section 11.1.2 if at
the time of such transaction there are any rights, warrants, instruments or
securities outstanding or any arrangements which, as a result of the
consummation of such transaction, would eliminate or substantially diminish the
benefits intended to be afforded by the Rights. Any Right Certificate issued
pursuant to Section 3 or Section 22 that represents Rights beneficially owned
by: (1) an Acquiring Person or any Associate or Affiliate thereof, (2) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes such, or (3) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
such and receives such Rights pursuant to either (A) a transfer (whether or not
for consideration) from the Acquiring Person to holders of equity interests in
such Acquiring Person or to any Person with whom the Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect avoidance of this Section 11.1.2, and any Right
Certificate issued
11
<PAGE>
pursuant to Section 6, 7.4 or 22 or this Section 11 upon transfer, exchange,
replacement or adjustment of any other Right Certificate referred to in this
sentence, shall contain the following legend (PROVIDED, HOWEVER, that the Rights
Agent shall not be responsible for affixing such legend unless it has actual
knowledge as to the foregoing circumstances or the Company has notified the
Rights Agent in writing thereof):
THE RIGHTS REPRESENTED BY THIS RIGHT CERTIFICATE ARE HELD OR HAVE BEEN
HELD BY A PERSON WHO IS OR WAS AN ACQUIRING PERSON OR AN AFFILIATE OR
AN ASSOCIATE OF AN ACQUIRING PERSON OR A NOMINEE THEREOF. THIS RIGHT
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY HAVE BECOME NULL AND
VOID AS SPECIFIED IN SECTION 11.1.2 OF THE RIGHTS AGREEMENT.
The Company shall use all reasonable efforts to insure that the
provisions of this Section 11.1.2 are complied with, but shall have no liability
to any holder of Right Certificates or other Person as a result of its failure
to make any determinations with respect to any Acquiring Person or its
Affiliates, Associates or transferees hereunder.
11.1.3 Insufficient Shares. In the event that upon the occurrence of
-------------------
one or more of the events listed in Section 11.1.2 above there shall not be
sufficient Common Shares authorized but unissued, or held by the Company as
treasury shares, to permit the exercise in full of the Rights in accordance with
the foregoing Section 11.1.2, the Company shall take all such action as may be
necessary to authorize additional Common Shares for issuance upon exercise of
the Rights, PROVIDED, HOWEVER, that if the Company determines that it is unable
to cause the authorization of a sufficient number of additional Common Shares,
then, in the event the Rights become exercisable, the Company, with respect to
each Right and to the extent necessary and permitted by applicable law and any
agreements or instruments in effect on the date hereof to which it is a party,
shall: (A) determine the excess of (1) the value of the Adjustment Shares
issuable upon the exercise of a Right (the "Current Value"), over (2) the
Purchase Price (such excess, the "Spread") and (B) with respect to each Right,
make adequate provision to substitute for the Adjustment Shares, upon payment of
the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price,
(3) Common Shares or other equity securities of the Company (including, without
limitation, shares, or units of shares, of preferred stock which the Board of
Directors of the Company has deemed to have the same value as Common Shares)
(each such share of preferred stock constituting a "common stock equivalent")),
(4) debt securities of the Company, (5) other assets or (6) any combination of
the foregoing having an aggregate value equal to the Current Value, where such
aggregate value has been determined by the Board of Directors of the Company
based upon the advice of a nationally recognized investment banking firm
selected by the Board of Directors of the Company; PROVIDED, HOWEVER, that if
the Company shall not have made adequate provision to deliver value pursuant to
clause (B) above within thirty (30) days following the first occurrence of one
of the events listed in Section 11.1.2 above, then the Company shall be
obligated to deliver, upon the surrender for exercise of a Right and without
requiring payment of the Purchase Price, Common Shares (to the extent available)
and then, if necessary, cash, which in the aggregate are equal to the Spread. If
the Board of Directors of the Company shall determine in good faith that it is
unlikely that sufficient additional Common Shares could, within the thirty (30)
day period set forth above, be authorized for issuance upon exercise in full of
the Rights, such thirty (30) day period may be extended and re-extended to the
extent necessary, but not more than ninety (90) days following the first
occurrence of one of the events listed in Section 11.1.2 above, in order that
the Company may seek stockholder approval for the authorization of such
additional shares (such period as may be extended, the "Substitution Period").
To the extent that the Company determines that some action need be taken
pursuant to the first and/or second sentences of this Section 11.1.3, the
Company (x) shall provide that such action shall apply uniformly to all
outstanding Rights,
12
<PAGE>
and (y) may suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek any authorization of additional shares
and/or to decide the appropriate form of distribution to be made pursuant to
such first sentence and to determine the value thereof. In the event of any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended as well as a public
announcement at such time as the suspension is no longer in effect. For purposes
of this Section 11.1.3, the value of a Common Share shall be the current per
share market price (as determined pursuant to Section 11.4) on the date of the
first occurrence of one of the events listed in Section 11.1.2 above and the
value of any "common stock equivalent" shall be deemed to have the same value as
the Common Shares on such date.
11.2 Dilutive Rights Offering. In case the Company shall fix a record
------------------------
date for the issuance of rights, options or warrants to all holders of Preferred
Shares entitling them (for a period expiring within 45 calendar days after such
record date) to subscribe for or purchase Preferred Shares (or securities having
the same rights, privileges and preferences as the Preferred Shares ("equivalent
preferred stock")) or securities convertible into Preferred Shares or equivalent
preferred stock at a price per share of Preferred Shares or per share of
equivalent preferred stock (or having a conversion or exercise price per share,
if a security convertible into or exercisable for Preferred Shares or equivalent
preferred stock) less than the current per share market price of the Preferred
Shares (as defined in Section 11.4) on such record date, the Purchase Price to
be in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the number of Preferred Shares outstanding on
such record date plus the number of Preferred Shares which the aggregate
offering price of the total number of Preferred Shares and/or equivalent
preferred stock to be offered (and/or the aggregate initial conversion price of
the convertible securities so to be offered) would purchase at such current per
share market price and the denominator of which shall be the number of Preferred
Shares outstanding on such record date plus the number of additional Preferred
Shares and/or equivalent preferred stock to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
initially convertible). In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent and shall be binding on the Rights Agent and the
holders of the Rights. Preferred Shares owned by or held for the account of the
Company or any Subsidiary of the Company shall not be deemed outstanding for the
purpose of any such computation. Such adjustments shall be made successively
whenever such a record date is fixed; and in the event that such rights or
warrants are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date had not been
fixed.
11.3 Distributions. In case the Company shall fix a record date for
-------------
the making of a distribution to all holders of the Preferred Shares (including
any such distribution made in connection with a consolidation or merger in which
the Company is the continuing or surviving corporation) of evidences of
indebtedness, cash, securities or assets (other than a regular periodic cash
dividend at a rate not in excess of 125% of the rate of the last regular
periodic cash dividend theretofore paid or, in case regular periodic cash
dividends have not theretofore been paid, at a rate not in excess of 50% of the
average net income per share of the Company for the four quarters ended
immediately prior to the payment of such dividend, or a dividend payable in
Preferred Shares (which dividend, for purposes of this Agreement, shall be
subject to the provisions of Section 11.1.1(A) hereof)) or convertible
securities, or subscription rights or warrants (excluding those referred to in
Section 11.2), the Purchase Price to be in effect after such record date shall
be determined by multiplying the Purchase Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the current per
share market price of the Preferred Shares (as defined in Section 11.4) on such
record date, less the fair market value (as
13
<PAGE>
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent) of
the portion of the cash, assets, securities or evidences of indebtedness so to
be distributed or of such subscription rights or warrants applicable to one
Preferred Share and the denominator of which shall be such current per share
market price of the Preferred Shares. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
11.4 Current Per Share Market Value.
------------------------------
11.4.1 General. For the purpose of any computation hereunder, the
-------
"current per share market price" of any security (a "Security" for the purpose
of this Section 11.4.1) on any date shall be deemed to be the average of the
daily closing prices per share of such Security for the thirty (30) consecutive
Trading Days (as such term is hereinafter defined) immediately prior to such
date; PROVIDED, HOWEVER, that in the event that the current per share market
price of the Security is determined during any period following the announcement
by the issuer of such Security of (i) a dividend or distribution on such
Security payable in shares of such Security or securities convertible into such
shares or (ii) any subdivision, combination or reclassification of such
Security, and prior to the expiration of thirty (30) Trading Days after the ex-
dividend date for such dividend or distribution, or the record date for such
subdivision, combination or reclassification, then, and in each such case, the
"current per share market price" shall be appropriately adjusted to reflect the
current market price per share equivalent of such Security. The closing price
for each day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Security is not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Security is listed or
admitted to trading or, if the Security is not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by Nasdaq or such other system then in use, or, if on any such date
the Security is not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Security selected by the Board of Directors of the Company. If on any
such date no such market maker is making a market in the Security, the fair
value of the Security on such date as determined in good faith by the Board of
Directors of the Company shall be used. The term "Trading Day" shall mean a day
on which the principal national securities exchange on which the Security is
listed or admitted to trading is open for the transaction of business or, if the
Security is not listed or admitted to trading on any national securities
exchange, a Business Day. If the Security is not publicly held or not so listed
or traded, "current per share market price" shall mean the fair value per share
as determined in good faith by the Board of Directors of the Company or, if at
the time of such determination there is an Acquiring Person, by a majority of
the Continuing Directors then in office, or if there are no Continuing
Directors, by a nationally recognized investment banking firm selected by the
Board of Directors, which shall have the duty to make such determination in a
reasonable and objective manner, whose determination shall be described in a
statement filed with the Rights Agent and shall be conclusive for all purposes.
11.4.2 Preferred Shares. Notwithstanding Section 11.4.1, for the
----------------
purpose of any computation hereunder, the "current per share market price" of
the Preferred Shares shall be determined in the same manner as set forth above
in Section 11.4.1 (other than the last sentence thereof). If the current per
share market price of the Preferred Shares cannot be determined in the manner
described in
14
<PAGE>
Section 11.4.1, the "current per share market price" of the Preferred Shares
shall be conclusively deemed to be an amount equal to 100 (as such number may be
appropriately adjusted for such events as stock splits, stock dividends and
recapitalizations with respect to the Common Shares occurring after the date of
this Agreement) multiplied by the current per share market price of the Common
Shares. If neither the Common Shares nor the Preferred Shares is publicly held
or so listed or traded, "current per share market price" of the Preferred Shares
shall mean the fair value per share as determined in good faith by the Board of
Directors of the Company, or, if at the time of such determination there is an
Acquiring Person, by a majority of the Continuing Directors then in office, or
if there are no Continuing Directors, by a nationally recognized investment
banking firm selected by the Board of Directors of the Company, which shall have
the duty to make such determination in a reasonable and objective manner, which
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes. For purposes of this Agreement, the
"current per share market price" of one one-hundredth of a Preferred Share shall
be equal to the "current per share market price" of one Preferred Share divided
by 100.
11.5 Insignificant Changes. No adjustment in the Purchase Price shall
---------------------
be required unless such adjustment would require an increase or decrease of at
least 1% in such price. Any adjustments which by reason of this Section 11.5 are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made to
the nearest cent or to the nearest one-millionth of a Preferred Share or the
nearest ten-thousandth of a Common Share, as the case may be.
11.6 Shares Other Than Preferred Shares. If as a result of an
----------------------------------
adjustment made pursuant to Section 11.1, the holder of any Right thereafter
exercised shall become entitled to receive any shares of capital stock of the
Company other than Preferred Shares, thereafter the number of such other shares
so receivable upon exercise of any Right shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Shares contained in Sections 11.1
through 11.3, inclusive, and the provisions of Sections 7, 9, 10 and 13 with
respect to the Preferred Shares shall apply on like terms to any such other
shares.
11.7 Rights Issued Prior to Adjustment. All Rights originally issued
---------------------------------
by the Company subsequent to any adjustment made to the Purchase Price hereunder
shall evidence the right to purchase, at the adjusted Purchase Price, the number
of one one-hundredths of a Preferred Share purchasable from time to time
hereunder upon exercise of the Rights, all subject to further adjustment as
provided herein.
11.8 Effect of Adjustments. Unless the Company shall have exercised
---------------------
its election as provided in Section 11.9, upon each adjustment of the Purchase
Price as a result of the calculations made in Sections 11.2 and 11.3, each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a Preferred Share (calculated to the nearest one-millionth
of a Preferred Share) obtained by (i) multiplying (x) the number of one one-
hundredths of a Preferred Share covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
11.9 Adjustment in Number of Rights. The Company may elect on or after
------------------------------
the date of any adjustment of the Purchase Price to adjust the number of Rights,
in substitution for any adjustment in the number of one one-hundredths of a
Preferred Share issuable upon the exercise of a Right. Each of the Rights
outstanding after such adjustment of the number of Rights shall be exercisable
for the
15
<PAGE>
number of one one-hundredths of a Preferred Share for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day thereafter, but,
if the Right Certificates have been issued, shall be at least ten (10) days
later than the date of the public announcement. If Right Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11.9, the Company shall, as promptly as practicable, cause to be distributed to
holders of record of Right Certificates on such record date Right Certificates
evidencing, subject to Section 14, the additional Rights to which such holders
shall be entitled as a result of such adjustment, or, at the option of the
Company, shall cause to be distributed to such holders of record in substitution
and replacement for the Right Certificates held by such holders prior to the
date of adjustment, and upon surrender thereof, if required by the Company, new
Right Certificates evidencing all the Rights to which such holders shall be
entitled after such adjustment. Right Certificates so to be distributed shall be
issued, executed and countersigned in the manner provided for herein (and may
bear, at the option of the Company, the adjusted Purchase Price) and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
11.10 Right Certificates Unchanged. Irrespective of any adjustment or
----------------------------
change in the Purchase Price or the number of one one-hundredths of a Preferred
Share issuable upon the exercise of the Rights, the Right Certificates
theretofore and thereafter issued may continue to express the Purchase Price per
share and the number of one one-hundredths of a Preferred Share which were
expressed in the initial Right Certificates issued hereunder.
11.11 Par Value Limitations. Before taking any action that would cause
---------------------
an adjustment reducing the Purchase Price below one one-hundredth of the then
par value, if any, of the Preferred Shares issuable upon exercise of the Rights,
the Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable Preferred Shares at such adjusted Purchase Price.
11.12 Deferred Issuance. In any case in which this Section 11 shall
-----------------
require that an adjustment in the Purchase Price be made effective as of a
record date for a specified event, the Company may elect to defer until the
occurrence of such event the issuing to the holder of any Right exercised after
such record date of the Preferred Shares and other capital stock or securities
of the Company, if any, issuable upon such exercise over and above the Preferred
Shares and other capital stock or securities of the Company, if any, issuable
upon such exercise on the basis of the Purchase Price in effect prior to such
adjustment; PROVIDED, HOWEVER, that the Company shall deliver to such holder a
due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares upon the occurrence of the event requiring such
adjustment.
11.13 Reduction in Purchase Price. Anything in this Section 11 to the
---------------------------
contrary notwithstanding, the Company shall be entitled to make such reductions
in the Purchase Price, in addition to those adjustments expressly required by
this Section 11, as and to the extent that it in its sole discretion shall
determine to be advisable in order that any consolidation or subdivision of the
Preferred Shares, issuance wholly for cash of any of the Preferred Shares at
less than the current market price, issuance wholly for cash of Preferred Shares
or securities which by their terms are convertible into or
16
<PAGE>
exchangeable for Preferred Shares, dividends on Preferred Shares payable in
Preferred Shares or issuance of rights, options or warrants referred to
hereinabove in this Section 11, hereafter made by the Company to holders of its
Preferred Shares shall not be taxable to such stockholders.
11.14 Certain Actions. The Company covenants and agrees that after the
---------------
Distribution Date it will not, except as permitted by Section 23 or Section 26,
take (or permit any Subsidiary to take) any action if at the time such action is
taken it is reasonably foreseeable that such action will substantially diminish
or otherwise eliminate the benefits intended to be afforded by the Rights.
11.15 Corporate Dividends, Reclassifications, Etc.; Adjustment in
-----------------------------------------------------------
Number of Rights. Notwithstanding anything contained in this Agreement to the
- ----------------
contrary, in the event that the Company shall at any time after the date hereof
and prior to the Distribution Date (i) declare or pay any dividend on the
outstanding Common Shares payable in Common Shares, (ii) effect a subdivision or
consolidation of the outstanding Common Shares (by reclassification or otherwise
than by the payment of dividends payable in Common Shares), or (iii) combine the
outstanding Common Shares into a greater or lesser number of Common Shares, then
in any such case, the number of Rights associated with each Common Share then
outstanding, or issued or delivered thereafter but prior to the Distribution
Date, shall be proportionately adjusted so that the number of Rights thereafter
associated with each Common Share following any such event shall equal the
result obtained by multiplying the number of Rights associated with each Common
Share immediately prior to such event by a fraction, the numerator of which
shall be the total number of Common Shares outstanding immediately prior to the
occurrence of the event and the denominator of which shall be the total number
of Common Shares outstanding immediately following the occurrence of such event.
The adjustments provided for in this Section 11.15 shall be made successively
whenever such a dividend is declared or paid or such a subdivision, combination
or consolidation is effected.
Section 12. Certificate of Adjusted Purchase Price or Number of
---------------------------------------------------
Shares. Whenever an adjustment is made as provided in Sections 11 and 13, the
- ------
Company shall (a) promptly prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) promptly
file with the Rights Agent and with each transfer agent for the Common Shares or
the Preferred Shares a copy of such certificate and (c) mail a brief summary
thereof to each holder of a Right Certificate (or, if prior to the Distribution
Date, to each holder of a certificate representing Common Shares) in accordance
with Section 25. The Rights Agent shall be fully protected in relying on any
such certificate and on any adjustment therein contained and shall not be deemed
to have knowledge of any such adjustment unless and until it shall have received
such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
------------------------------------------------------
Earning Power.
- -------------
13.1 General. In the event that, from and after the first occurrence
-------
of a Trigger Event, directly or indirectly, (A) the Company shall consolidate
with, or merge with and into, any other Person and the Company shall not be the
continuing or surviving corporation, (B) any Person shall consolidate with the
Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged for
stock or other securities of the Company or any other Person or cash or any
other property, or (C) the Company shall sell, exchange, mortgage or otherwise
transfer (or one or more of its Subsidiaries shall sell, exchange, mortgage or
otherwise transfer), in one or more transactions, assets or earning power
aggregating 50% or more of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons, then, and in
each such case, proper provision shall be made so that (i) each holder of a
Right (except as provided in Section
17
<PAGE>
11.1.2 and as otherwise provided herein) shall thereafter have the right to
receive, upon the exercise thereof at a price per Right equal to the then
current Purchase Price multiplied by the number of one one-hundredths of a
Preferred Share for which a Right was exercisable immediately prior to the first
occurrence of a Trigger Event (as subsequently adjusted pursuant to Sections
11.1.1, 11.2, 11.3, 11.8, 11.9 and 11.12), in accordance with the terms of this
Rights Agreement and in lieu of Preferred Shares, such number of Common Shares
of such other Person (including the Company as successor thereto or as the
surviving corporation) as shall be equal to the result obtained by (x)
multiplying the then current Purchase Price by the number of one one-hundredths
of a Preferred Share for which a Right was exercisable immediately prior to the
first occurrence of a Trigger Event (as subsequently adjusted pursuant to
Sections 11.1.1, 11.2, 11.3, 11.8, 11.9 and 11.12) and (y) dividing that product
by 50% of the then current per share market price of the Common Shares of such
other Person (determined pursuant to Section 11.4) on the date of consummation
of such consolidation, merger, sale or transfer; PROVIDED, that the price per
Right so payable and the number of Common Shares of such Person so purchasable
shall thereafter be adjusted in accordance with Sections 11.1.1, 11.2, 11.3,
11.8, 11.9 and 11.12 by reason of such subsequent events covered thereby
occurring in respect of such Person; (ii) the issuer of such Common Shares shall
thereafter be liable for, and shall assume, by virtue of such consolidation,
merger, sale or transfer, all the obligations and duties of the Company pursuant
to this Rights Agreement; (iii) the term "Company" shall thereafter be deemed to
refer to such issuer; and (iv) such issuer shall take such steps (including, but
not limited to, the reservation of a sufficient number of its Common Shares in
accordance with Section 9) in connection with such consummation as may be
necessary to assure that the provisions hereof shall thereafter be applicable,
as nearly as reasonably may be, in relation to its Common Shares thereafter
deliverable upon the exercise of the Rights. The Company shall not enter into
any transaction of the kind referred to in this Section 13 if at the time of
such transaction there are any rights, warrants, instruments or securities
outstanding or any agreements or arrangements which, as a result of the
consummation of such transaction, would eliminate or substantially diminish the
benefits intended to be afforded by the Rights. The Company shall not consummate
any such consolidation, merger, sale or transfer unless prior thereto the
Company and such issuer shall have executed and delivered to the Rights Agent a
supplemental agreement so providing. The provisions of this Section 13 shall
similarly apply to successive mergers or consolidations or sales or other
transfers.
13.2 Approved Acquisitions. Notwithstanding anything contained herein
---------------------
to the contrary, in the event of any merger or other acquisition transaction
involving the Company pursuant to a merger or other acquisition agreement
between the Company and any Person (or one or more of such Person's Affiliates
or Associates) which agreement has been approved by the Board of Directors of
the Company prior to any Person becoming an Acquiring Person, this Rights
Agreement and the rights of holders of Rights hereunder shall be terminated in
accordance with Section 7.1.
Section 14. Fractional Rights and Fractional Shares.
---------------------------------------
14.1 Cash in Lieu of Fractional Rights. The Company shall not be
---------------------------------
required to issue fractions of Rights or to distribute Right Certificates which
evidence fractional Rights. In lieu of such fractional Rights, there shall be
paid to the registered holders of the Right Certificates with regard to which
such fractional Rights would otherwise be issuable an amount in cash equal to
the same fraction of the current market value of a whole Right. For the purposes
of this Section 14.1, the current market value of a whole Right shall be the
closing price of the Rights for the Trading Day immediately prior to the date on
which such fractional Rights would have been otherwise issuable. The closing
price for any day shall be the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock
18
<PAGE>
Exchange or, if the Rights are not listed or admitted to trading on the New York
Stock Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the Rights are listed or admitted to trading or, if the Rights
are not listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by Nasdaq or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the Company. If on any such date no such market maker is making a
market in the Rights, the fair value of the Rights on such date as determined in
good faith by the Board of Directors of the Company shall be used.
14.2 Cash in Lieu of Fractional Shares. The Company shall not be
---------------------------------
required to issue fractions of Preferred Shares (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share) upon exercise of
the Rights or to distribute certificates which evidence fractional Preferred
Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share). Fractions of Preferred Shares in integral multiples of
one one-hundredth of a Preferred Share may, at the election of the Company, be
evidenced by depositary receipts, pursuant to an appropriate agreement between
the Company and a depositary selected by it; PROVIDED, that such agreement shall
provide that the holders of such depositary receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners of
the Preferred Shares represented by such depositary receipts. In lieu of
fractional Preferred Shares that are not integral multiples of one one-hundredth
of a Preferred Share, the Company shall pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current per share market price of one
Preferred Share. For purposes of this Section 14.2, the current per share market
price of a Preferred Share shall be the closing price of a Preferred Share (as
determined pursuant to the second sentence of Section 11.4.2) for the Trading
Day immediately prior to the date of such exercise.
Following the occurrence of a Trigger Event, the Company shall not be
required to issue fractions of Common Shares upon exercise of the Rights or to
distribute certificates which evidence fractional Common Shares. In lieu of
fractional Common Shares, the Company may pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current per share market price of one
Common Share. For purposes of this Section 14.2, the current per share market
price of a Common Share shall be the closing price of a Common Share (as
determined pursuant to Section 11.4.1 hereof) for the Trading Day immediately
prior to the date of such exercise.
14.3 Waiver of Right to Receive Fractional Rights or Shares. The
------------------------------------------------------
holder of a Right by the acceptance of the Rights expressly waives his right to
receive any fractional Rights or any fractional shares upon exercise of a Right,
except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect of this
----------------
Rights Agreement, except the rights of action given to the Rights Agent under
Section 18, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce this Rights Agreement, and may institute and maintain any suit,
action or proceeding against the Company to enforce this Rights Agreement, or
otherwise enforce or act in respect
19
<PAGE>
of his right to exercise the Rights evidenced by such Right Certificate in the
manner provided in such Right Certificate and in this Rights Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Rights Agreement and shall be entitled to
specific performance of the obligations under, and injunctive relief against
actual or threatened violations of, the obligations of any Person (including,
without limitation, the Company) subject to this Rights Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right by
--------------------------
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) as of and after the Distribution Date, the Right
Certificates are transferable only on the registry books of the Rights Agent if
surrendered at the office of the Rights Agent designated for such purpose, duly
endorsed or accompanied by a proper instrument of transfer with all required
certifications completed;
(c) the Company and the Rights Agent may deem and treat the
Person in whose name the Right Certificate (or, prior to the Distribution Date,
the associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary; and
(d) notwithstanding anything in this Rights Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Rights Agreement by reason of any preliminary
or permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No
-------------------------------------------------
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 24), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights evidenced by such
Right Certificate shall have been exercised in accordance with the provisions
hereof.
Section 18. Concerning the Rights Agent. The Company agrees to pay to
---------------------------
the Rights Agent reasonable compensation for all services rendered by it
hereunder in accordance with a fee schedule to be mutually agreed upon and, from
time to time, on demand of the Rights Agent, its reasonable
20
<PAGE>
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Rights Agreement and the exercise and performance of its
duties hereunder. The Company also agrees to indemnify the Rights Agent for, and
to hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Rights Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
The Rights Agent shall be protected and shall incur no liability for
or in respect of any action taken, suffered or omitted by it in connection with
its administration of this Rights Agreement in reliance upon any Right
Certificate or certificate for the Preferred Shares or the Common Shares or for
other securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, instruction, direction,
consent, certificate, statement, or other paper or document believed by it to be
genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper person or persons.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
---------------------------------------------------------
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the corporate trust or
stock transfer business of the Rights Agent or any successor Rights Agent, shall
be the successor to the Rights Agent under this Rights Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, PROVIDED that such corporation would be eligible for appointment
as a successor Rights Agent under the provisions of Section 21. In case at the
time such successor Rights Agent shall succeed to the agency created by this
Rights Agreement, any of the Right Certificates shall have been countersigned
but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Rights Agreement.
In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Rights Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
----------------------
duties and obligations imposed by this Rights Agreement upon the following terms
and conditions, by all of which the Company and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
20.1 Legal Counsel. The Rights Agent may consult with legal counsel
-------------
selected by it (who may be legal counsel for the Company), and the opinion of
such counsel shall be full and complete authorization and protection to the
Rights Agent as to any action taken or omitted by it in good faith and in
accordance with such opinion.
20.2 Certificates as to Facts or Matters. Whenever in the
-----------------------------------
performance of its duties under this Rights Agreement the Rights Agent shall
deem it necessary or desirable that any fact or matter be
21
<PAGE>
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board of
Directors, the Chief Executive Officer, the President, the Chief Financial
Officer, any Vice President, the Treasurer, the Secretary or any Assistant
Treasurer or Assistant Secretary of the Company and delivered to the Rights
Agent; and such certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the provisions of this
Rights Agreement in reliance upon such certificate.
20.3 Standard of Care. The Rights Agent shall be liable hereunder only
----------------
for its own negligence, bad faith or willful misconduct.
20.4 Reliance on Rights Agreement and Right Certificates. The Rights
---------------------------------------------------
Agent shall not be liable for or by reason of any of the statements of fact or
recitals contained in this Rights Agreement or in the Right Certificates (except
as to its countersignature thereof) or be required to verify the same, but all
such statements and recitals are and shall be deemed to have been made by the
Company only.
20.5 No Responsibility as to Certain Matters. The Rights Agent shall
---------------------------------------
not be under any responsibility in respect of the validity of this Rights
Agreement or the execution and delivery hereof (except the due execution hereof
by the Rights Agent) or in respect of the validity or execution of any Right
Certificate (except its countersignature thereof); nor shall it be responsible
for any breach by the Company of any covenant or condition contained in this
Rights Agreement or in any Right Certificate; nor shall it be responsible for
any change in the exercisability of the Rights (including the Rights becoming
void pursuant to Section 11.1.2) or any adjustment required under the provisions
of Sections 3, 11, 13, 23 or 27 or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Right Certificates after actual notice of any such adjustment); nor
shall it by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any Preferred Shares to be issued
pursuant to this Rights Agreement or any Right Certificate or as to whether any
Preferred Shares will, when so issued, be validly authorized and issued, fully
paid and nonassessable.
20.6 Further Assurance by Company. The Company agrees that it will
----------------------------
perform, execute, acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts, instruments and
assurances as may reasonably be required by the Rights Agent for the carrying
out or performing by the Rights Agent of the provisions of this Rights
Agreement.
20.7 Authorized Company Officers. The Rights Agent is hereby
---------------------------
authorized and directed to accept instructions with respect to the performance
of its duties hereunder from any one of the Chairman of the Board of Directors,
the Chief Executive Officer, the President, the Chief Financial Officer, any
Vice President, the Treasurer, the Secretary or any Assistant Treasurer or
Assistant Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties under this Rights Agreement, and it
shall not be liable for any action taken or suffered to be taken by it in good
faith in accordance with instructions of any such officer or for any delay in
acting while waiting for these instructions. Any application by the Rights Agent
for written instructions from the Company may, at the option of the Rights
Agent, set forth in writing any action proposed to be taken or omitted by the
Rights Agent with respect to its duties or obligations under this Rights
Agreement and the date on and/or after which such action shall be taken or
omitted. The Rights Agent shall not be liable to the Company for any action
taken or omitted in accordance with a proposal included in any such application
22
<PAGE>
on or after the date specified therein (which date shall not be less than three
business days after the date any such officer actually receives such
application, unless any such officer shall have consented in writing to an
earlier date) unless, prior to taking of any such action (or the effective date
in the case of omission), the Rights Agent shall have received written
instructions in response to such application specifying the action to be taken
or omitted.
20.8 Freedom to Trade in Company Securities. The Rights Agent and any
--------------------------------------
stockholder, director, officer or employee of the Rights Agent may buy, sell or
deal in any of the Rights or other securities of the Company or become
pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or otherwise act as
fully and freely as though it were not Rights Agent under this Rights Agreement.
Nothing herein shall preclude the Rights Agent from acting in any other capacity
for the Company or for any other legal entity.
20.9 Reliance on Attorneys and Agents. The Rights Agent may execute
--------------------------------
and exercise any of the rights or powers hereby vested in it or perform any duty
hereunder either itself or by or through its attorneys or agents, and the Rights
Agent shall not be answerable or accountable for any act, omission, default,
neglect or misconduct of any such attorneys or agents or for any loss to the
Company resulting from any such act, omission, default, neglect or misconduct,
PROVIDED that reasonable care was exercised in the selection and continued
employment thereof.
20.10 Rights Holders List. At any time and from time to time after the
-------------------
Distribution Date, upon the request of the Company, the Rights Agent shall
promptly deliver to the Company a list, as of the most recent practicable date
(or as of such earlier date as may be specified by the Company), of the holders
of record of Rights.
Section 21. Change of Rights Agent. The Rights Agent or any successor
----------------------
Rights Agent may resign and be discharged from its duties under this Rights
Agreement upon thirty (30) days' notice in writing mailed to the Company and to
each transfer agent of the Common Shares and/or Preferred Shares, as applicable,
by registered or certified mail. The Company shall promptly notify the holders
of the Right Certificates by first-class mail of any such resignation. The
Company may remove the Rights Agent or any successor Rights Agent upon thirty
(30) days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Shares
and/or Preferred Shares, as applicable, by registered or certified mail, and to
the holders of the Right Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
resigning, removed, or incapacitated Rights Agent shall remit to the Company, or
to any successor Rights Agent designated by the Company, all books, records,
funds, certificates or other documents or instruments of any kind then in its
possession which were acquired by such resigning, removed or incapacitated
Rights Agent in connection with its services as Rights Agent hereunder, and
shall thereafter be discharged from all duties and obligations hereunder.
Following notice of such removal, resignation or incapacity, the Company shall
appoint a successor to such Rights Agent. If the Company shall fail to make such
appointment within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (who shall, with such notice, submit his Right Certificate for
inspection by the Company), then the registered holder of any Right Certificate
may apply to any court of competent jurisdiction for the appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company or by
such a court, shall be a corporation organized and doing business under the laws
of the United States or of the State of California (or any other state of the
United States so long as such corporation is authorized to do business as a
banking institution in the State of California) in good standing, having a
principal office in the State of California,
23
<PAGE>
which is authorized under such laws to exercise stock transfer or corporate
trust powers and is subject to supervision or examination by Federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $10 million. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Shares and/or Preferred Shares, as
applicable, and mail a notice thereof in writing to the registered holders of
the Right Certificates. Failure to give any notice provided for in this Section
21, however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of
----------------------------------
the provisions of this Rights Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any adjustment
or change in the Purchase Price and the number or kind or class of shares or
other securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Rights Agreement. In addition, in
connection with the issuance or sale of Common Shares following the Distribution
Date and prior to the redemption, exchange, termination or expiration of the
Rights, the Company (a) shall, with respect to Common Shares so issued or sold
pursuant to the exercise of stock options or under any employee plan or
arrangement, granted or awarded as of the Distribution Date, or upon exercise,
conversion or exchange of securities hereinafter issued by the Company, and (b)
may, in any other case, if deemed necessary or appropriate by the Board of
Directors of the Company, issue Right Certificates representing the appropriate
number of Rights in connection with such issuance or sale; PROVIDED, HOWEVER,
that (i) no such Right Certificate shall be issued if, and to the extent that,
the Company shall be advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to the Company or the
Person to whom such Right Certificate would be issued, (ii) no such Right
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof and (iii) at the
time of a determination by the Board of Directors to cause the Company to issue
a Right Certificate under clause (b) above, there must be Continuing Directors
then in office and any such determination shall require the approval of at least
a majority of such Continuing Directors.
Section 23. Redemption.
----------
23.1 Right to Redeem. The Board of Directors of the Company may, at
---------------
its option, at any time prior to the Shares Acquisition Date, redeem all but not
less than all of the then outstanding Rights at a redemption price of $0.01 per
Right, appropriately adjusted to reflect any stock split, stock dividend,
recapitalization or similar transaction occurring after the date hereof (such
redemption price being hereinafter referred to as the "Redemption Price") and
the Company may, at its option, pay the Redemption Price in cash, Common Shares
(based on the "current per share market price," as defined in Section 11.4.1
hereof, of the Common Shares at the time of redemption) or any other form of
consideration deemed appropriate by the Board of Directors; PROVIDED, HOWEVER,
that if the Board of Directors of the Company authorizes redemption of the
Rights after the time a Person becomes an Acquiring Person, then there must be
Continuing Directors then in office and such authorization shall require the
approval of at least a majority of such Continuing Directors. The preceding
sentence notwithstanding, prior to the expiration of the period during which the
Rights may be redeemed as
24
<PAGE>
specified therein (or such longer period as the Board of Directors of the
Company may select pursuant to this sentence), the Board of Directors of the
Company may extend, one or more times, the period during which the Rights may be
redeemed beyond the Shares Acquisition Date; PROVIDED, HOWEVER, that there must
be Continuing Directors then in office and any such extension shall require the
approval of at least a majority of such Continuing Directors. In the event that,
pursuant to the last sentence of Section 1.1 hereof, the Board of Directors
determines that a Person has become an Acquiring Person inadvertently, and such
Person divests Common Shares in accordance with such sentence, then the
Company's right of redemption hereunder shall be deemed to have not expired as a
result of such inadvertent acquisition. Anything contained in this Rights
Agreement to the contrary notwithstanding, the Rights shall not be exercisable
following a transaction or event described in Section 11.1.2 prior to the
expiration of the Company's right of redemption hereunder.
23.2 Redemption Procedures. Immediately upon the action of the Board
---------------------
of Directors of the Company ordering the redemption of the Rights, and without
any further action and without any notice, the right to exercise the Rights will
terminate and the only right thereafter of the holders of Rights shall be to
receive the Redemption Price for each Right so held. Within ten (10) days after
the action of the Board of Directors ordering the redemption of the Rights, the
Company shall give, or cause the Rights Agent to give, notice of such redemption
to the holders of the then outstanding Rights by mailing such notice to all such
holders at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Shares. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made. Neither the Company nor any of its
Affiliates or Associates may redeem, acquire or purchase for value any Rights at
any time in any manner other than that specifically set forth in this Section 23
or in Section 27, and other than in connection with the purchase, acquisition or
redemption of Common Shares prior to the Distribution Date.
Section 24. Notice of Certain Events. In case the Company shall
------------------------
propose at any time after the Distribution Date (a) to pay any dividend payable
in stock of any class to the holders of Preferred Shares or to make any other
distribution to the holders of Preferred Shares (other than a regular periodic
cash dividend at a rate not in excess of 125% of the rate of the last regular
periodic cash dividend theretofore paid or, in case regular periodic cash
dividends have not theretofore been paid, at a rate not in excess of 50% of the
average net income per share of the Company for the four quarters ended
immediately prior to the payment of such dividends, or a stock dividend on, or a
subdivision, combination or reclassification of the Common Shares), or (b) to
offer to the holders of Preferred Shares rights or warrants to subscribe for or
to purchase any additional Preferred Shares or shares of stock of any class or
any other securities, rights or options, or (c) to effect any reclassification
of its Preferred Shares (other than a reclassification involving only the
subdivision of outstanding Preferred Shares), or (d) to effect any consolidation
or merger into or with, or to effect any sale or other transfer (or to permit
one or more of its Subsidiaries to effect any sale or other transfer), in one or
more transactions, of 50% or more of the assets or earning power of the Company
and its Subsidiaries (taken as a whole) to, any other Person (other than
pursuant to a merger or other acquisition agreement of the type described in
Section 1.3(ii)(A)(4)), or (e) to effect the liquidation, dissolution or winding
up of the Company, or (f) to declare or pay any dividend on the Common Shares
payable in Common Shares or to effect a subdivision, combination or
consolidation of the Common Shares (by reclassification or otherwise than by
payment of dividends in Common Shares), then, in each such case, the Company
shall give to the Rights Agent and to each holder of a Right Certificate, in
accordance with Section 25, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, distribution of
rights or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation,
25
<PAGE>
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Preferred Shares and/or Common Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (a) or (b) above at least ten (10) days prior to the record
date for determining holders of the Preferred Shares for purposes of such
action, and in the case of any such other action, at least ten (10) days prior
to the date of the taking of such proposed action or the date of participation
therein by the holders of the Preferred Shares and/or Common Shares, whichever
shall be the earlier.
In case any event set forth in Section 11.1.2 of this Rights Agreement
shall occur, then, in any such case, (i) the Company shall as soon as
practicable thereafter give to the Rights Agent and to each holder of a Right
Certificate, in accordance with Section 25, a notice of the occurrence of such
event, which notice shall describe the event and the consequences of the event
to holders of Rights under Section 11.1.2, and (ii) all references in this
Section 24 to Preferred Shares shall be deemed thereafter to refer to Common
Shares and/or, if appropriate, other securities.
Notwithstanding anything in this Rights Agreement to the contrary,
prior to the Distribution Date a filing by the Company with the Securities and
Exchange Commission shall constitute sufficient notice to the holders of
securities of the Company, including the Rights, for purposes of this Rights
Agreement and no other notice need be given.
Section 25. Notices. Notices or demands authorized by this Rights
-------
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Community Psychiatric Centers
5110 West Sahara Avenue
Las Vegas, Nevada 89102
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Rights Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
Chase Mellon Shareholder Services
15821 Ventura Boulevard
Suite 670
Encino, California 91436
Attention: Mary Ann McElroy
Notices or demands authorized by this Rights Agreement to be given or made by
the Company or the Rights Agent to the holder of any Right Certificate (or,
prior to the Distribution Date, to the holder of any certificate representing
Common Shares) shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed to such holder at the address of such holder as shown
on the registry books of the Company.
Section 26. Supplements and Amendments. Prior to the Distribution Date
--------------------------
and subject to the last sentence of this Section 26, the Company and the Rights
Agent may, if the Company so
26
<PAGE>
directs, supplement or amend any term or provision of this Rights Agreement
without the approval of any holders of certificates representing Common Shares,
including, without limitation, the Purchase Price upon the occurrence of the
Spin-off Distribution. From and after the Distribution Date and subject to the
last sentence of this Section 26, the Company and the Rights Agent may from time
to time supplement or amend this Rights Agreement without the approval of any
holders of Right Certificates (i) to cure any ambiguity or to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, (ii) to shorten or lengthen any time period
hereunder (which shortening or lengthening, after the time a Person becomes an
Acquiring Person, shall be effective only if there are Continuing Directors and
shall require the approval of at least a majority of such Continuing Directors)
or (iii) so long as the interests of the holders of the Right Certificates
(other than an Acquiring Person or an Affiliate or Associate of an Acquiring
Person) are not adversely affected thereby, to make any other changes or
provisions in regard to matters or questions arising hereunder which the Company
and the Rights Agent may deem necessary or desirable, including but not limited
to extending the Final Expiration Date; PROVIDED, HOWEVER, that the right of the
Board of Directors to extend the Distribution Date or Redemption Date shall not
require any amendment or supplement hereunder. Upon the delivery of a
certificate from an appropriate officer of the Company which states that the
proposed supplement or amendment is in compliance with the terms of this Section
26, the Rights Agent shall execute such supplement or amendment. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Shares. Without limiting
the foregoing, at any time prior to such time as any Person becomes an Acquiring
Person, the Company and the Rights Agent may amend this Agreement to lower the
thresholds set forth in Sections 1.1 and 3.1 to not less than the greater of (i)
any percentage greater than the largest percentage of the outstanding Common
Shares then known by the Company to be beneficially owned by any Person (other
than the Company, any Subsidiary of the Company, any employee benefit plan of
the Company or any Subsidiary of the Company, or any entity holding Common
Shares for or pursuant to the terms of any such plan) and (ii) 10%.
Section 27. Exchange.
--------
27.1 Exchange of Common Shares for Rights. The Board of Directors of
------------------------------------
the Company may, at its option, at any time after the occurrence of a Trigger
Event, exchange Common Shares for all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 11.1.2) by exchanging that number of
Common Shares having an aggregate value equal to the Spread (with such value
being based on the current per share market price (as determined pursuant to
Section 11.4) on the date of the occurrence of a Trigger Event) per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such amount per Right being
hereinafter referred to as the "Exchange Consideration"). Notwithstanding the
foregoing, (i) the Board of Directors shall not be empowered to effect such
exchange at any time after any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or any such Subsidiary, or
any entity holding Common Shares for or pursuant to the terms of any such plan),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the Common Shares then outstanding and (ii)
the Board shall not be empowered to effect an exchange for more than that number
of Rights for which there are sufficient Common Shares authorized but unissued,
or held by the Company as treasury shares, to permit the exchange for Rights.
27.2 Exchange Procedures. Immediately upon the action of the Board of
-------------------
Directors of the Company ordering the exchange for any Rights pursuant to
Section 27.1 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right
27
<PAGE>
thereafter of a holder of such Rights shall be to receive that number of Common
Shares equal to the number of such Rights held by such holder multiplied by the
Exchange Consideration. The Company shall promptly give public notice of any
such exchange; PROVIDED, HOWEVER, that the failure to give, or any defect in,
such notice shall not affect the validity of such exchange. The Company promptly
shall mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of the Common Shares for Rights will be
effected and, in the event of any partial exchange, the number of Rights which
will be exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than the Rights which have become void pursuant to the
provisions of Section 11.1.2) held by each holder of Rights.
27.3 No Fractional Shares Upon Exchange. The Company shall not be
----------------------------------
required to issue fractions of Common Shares or to distribute certificates which
evidence fractional Common Shares. In lieu of such fractional Common Shares, the
Company shall pay to the registered holders of the Right Certificates, with
regard to which such fractional Common Shares would otherwise be issuable, in an
amount in cash equal to the same fraction of the current market value of a whole
Common Share. For the purposes of this Section 27.3, the current market value of
a whole Common Share shall be the current per share market price (as determined
pursuant to Section 11.4) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 27.
Section 28. Successors. All the covenants and provisions of this
----------
Rights Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Benefits of this Rights Agreement. Nothing in this Rights
---------------------------------
Agreement shall be construed to give to any Person or corporation other than the
Company, the Rights Agent and the registered holders of the Right Certificates
(and, prior to the Distribution Date, the Common Shares) any legal or equitable
right, remedy or claim under this Rights Agreement; but this Rights Agreement
shall be for the sole and exclusive benefit of the Company, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Shares).
Section 30. Severability. If any term, provision, covenant or
------------
restriction of this Rights Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Rights
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
Section 31. Governing Law. This Rights Agreement and each Right
-------------
Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Nevada and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 32. Counterparts. This Rights Agreement may be executed in any
------------
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
28
<PAGE>
Section 33. Descriptive Heading. Descriptive headings of the several
-------------------
Sections of this Rights Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
[signature page to follow]
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Rights Agreement to be duly executed as of the day and year first above
written.
COMMUNITY PSYCHIATRIC CENTERS
By ______________________________
Name:
Title:
CHASE MELLON SHAREHOLDER SERVICES
By ______________________________
Name:
Title:
S-1
<PAGE>
EXHIBIT A
---------
FORM
of
CERTIFICATE OF RESOLUTION
ESTABLISHING DESIGNATION, PREFERENCES AND RIGHTS
of
SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
of
COMMUNITY PSYCHIATRIC CENTERS
(Pursuant to Section 78.195 of the
Nevada Revised Statutes)
_____________________________
Community Psychiatric Centers, a corporation organized and existing
under the laws of the State of Nevada (hereinafter called the "Corporation"),
hereby certifies that the following resolution was adopted by the Board of
Directors of the Corporation as required by Section 78.195 of the Nevada Revised
Statutes at a meeting duly called and held on June 21, 1996.
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Restated
Articles of Incorporation, the Board of Directors hereby creates a series of
Preferred Stock, par value $1.00 per share (the "Preferred Stock"), of the
Corporation and hereby states the designation and number of shares, and fixes
the relative rights, preferences, and limitations thereof as follows:
Series B Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series
----------------------
shall be designated as "Series B Junior Participating Preferred Stock" (the
"Series B Preferred Stock") and the number of shares constituting the Series B
Preferred Stock shall be 1,000,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; PROVIDED, that no decrease
shall reduce the number of shares of Series B Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Corporation
convertible into Series B Preferred Stock.
A-1
<PAGE>
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series B Preferred Stock with respect to dividends,
the holders of shares of Series B Preferred Stock, in preference to
the holders of Common Stock, par value $1.00 per share (the "Common
Stock"), of the Corporation, and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September
and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series B Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $1.00
or (b) subject to the provision for adjustment hereinafter set forth,
100 times the aggregate per share amount of all cash dividends, and
100 times the aggregate per share amount (payable in kind) of all non-
cash dividends or other distributions, other than a dividend payable
in shares of Common Stock or a subdivision of the outstanding shares
of Common Stock (by reclassification or otherwise), declared on the
Common Stock since the immediately preceding Quarterly Dividend
Payment Date or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of
Series B Preferred Stock. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in shares
of Common Stock, or effect a subdivision, combination or consolidation
of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock)
into a greater or lesser number of shares of Common Stock, then in
each such case the amount to which holders of shares of Series B
Preferred Stock were entitled immediately prior to such event under
clause (b) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on
the Series B Preferred Stock as provided in paragraph (A) of this
Section 2 immediately after it declares a dividend or distribution on
the Common Stock (other than a dividend payable in shares of Common
Stock); provided that, in the event no dividend or distribution shall
have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $1.00 per share on the Series B
Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series B Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date
for the first Quarterly Dividend Payment Date, in which case dividends
on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series B Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares
of Series B Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of
A-2
<PAGE>
Directors may fix a record date for the determination of holders of
shares of Series B Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be
not more than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series B Preferred
-------------
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series B Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series B Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Resolution creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series B Preferred
Stock and the holders of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series B Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
--------------------
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series B Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series B Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding up) to
the Series B Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series B Preferred Stock, except dividends
paid ratably on the Series B Preferred Stock and all such
parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all
such shares are then entitled;
A-3
<PAGE>
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series B Preferred Stock, provided that the Corporation may
at any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series B
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series B Preferred Stock, or any
shares of stock ranking on a parity with the Series B Preferred
Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences
of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the
respective series or classes.
(B) The Corporation shall not permit any Subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series B Preferred
-----------------
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock subject to the conditions and restrictions on issuance set
forth herein, in the Restated Articles of Incorporation, or in any other
Certificate of Resolution creating a series of Preferred Stock or any similar
stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
--------------------------------------
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series B
Preferred Stock unless, prior thereto, the holders of shares of Series B
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series B
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series B Preferred Stock, except distributions made ratably on the Series B
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision, combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the aggregate amount to which holders of
shares of Series B Preferred Stock were entitled immediately prior to such event
under the proviso in clause (1) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common
A-4
<PAGE>
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that are outstanding immediately prior to
such event.
Section 7. Consolidation, Merger, etc. In case the Corporation
--------------------------
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series B Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision,
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series B Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series B Preferred Stock
-------------
shall not be redeemable.
Section 9. Rank. The Series B Preferred Stock shall rank, with
----
respect to the payment of dividends and the distribution of assets, junior to
all series of any other class of the Corporation's Preferred Stock, except to
the extent that any such other series specifically provides that it shall rank
on a parity with or junior to the Series B Preferred Stock.
Section 10. Amendment. The Restated Articles of Incorporation of
---------
the Corporation shall not be amended in any manner which would materially alter
or change the powers, preferences or special rights of the Series B Preferred
Stock so as to affect them adversely without the affirmative vote of the holders
of at least two-thirds of the outstanding shares of Series B Preferred Stock,
voting together as a single class.
A-5
<PAGE>
IN WITNESS WHEREOF, this Certificate of Resolution Establishing
Designation, Preferences and Rights of Series B Junior Participating Preferred
Stock of Community Psychiatric Centers is executed on behalf of the Corporation
by its Chairman of the Board and attested by its Secretary this ___ day of
____________, 1996.
______________________________
Chairman of the Board
Attest:
______________________
Secretary
A-6
<PAGE>
EXHIBIT B
---------
[Form of Right Certificate]
Certificate No. R- _______ Rights
NOT EXERCISABLE AFTER JUNE 20, 2006 OR EARLIER IF NOTICE OF REDEMPTION
OR EXCHANGE IS GIVEN OR IF THE COMPANY IS MERGED OR ACQUIRED PURSUANT
TO AN AGREEMENT OF THE TYPE DESCRIBED IN SECTION 1.3(ii)(A)(4) OF THE
RIGHTS AGREEMENT. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION
OF THE COMPANY, AT $0.01 PER RIGHT ON THE TERMS SET FORTH IN THE
RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN SECTION
-------------------------------------------------
11.1.2 OF THE RIGHTS AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN
----------------------------------------------------------------
ACQUIRING PERSON, OR ITS AFFILIATES OR ASSOCIATES, OR ANY SUBSEQUENT
--------------------------------------------------------------------
HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS
----------------------------------------------
REPRESENTED BY THIS CERTIFICATE ARE HELD OR HAVE BEEN HELD BY A PERSON
WHO IS OR WAS AN ACQUIRING PERSON OR AN ASSOCIATE OR AFFILIATE OF AN
ACQUIRING PERSON OR A NOMINEE THEREOF. THIS RIGHT CERTIFICATE AND THE
RIGHTS REPRESENTED HEREBY HAVE BECOME NULL AND VOID AS SPECIFIED IN
SECTION 11.1.2 OF THE RIGHTS AGREEMENT.]/1/
Right Certificate
COMMUNITY PSYCHIATRIC CENTERS
This certifies that __________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of June 21, 1996, as the same may be amended from time to
time (the "Rights Agreement"), between Community Psychiatric Centers, a Nevada
corporation (the "Company"), and Chase Mellon Shareholder Services, as Rights
Agent (the "Rights Agent"), to purchase from the Company at any time after the
Distribution Date and prior to 5:00 P.M. (California time) on June 20, 2006, at
the offices of the Rights Agent, or its successors as Rights Agent, designated
for such purpose, one one-hundredth of a fully paid, nonassessable share of
Series B Junior Participating Preferred Stock, par value $1.00 per share (the
"Preferred Shares") of the Company, at a purchase price of $45.00 per one one-
hundredth of a share, subject to adjustment (the "Purchase Price"), upon
presentation and surrender of this Right Certificate with the Form of Election
to Purchase and certification duly executed. The number of Rights evidenced by
this Right Certificate (and the number of one one-hundredths of a Preferred
Share which may be purchased upon exercise thereof) set forth above, and the
Purchase Price set forth above, are the number and Purchase Price as of July 16,
1996 based on the Preferred Shares as constituted at such date. Capitalized
terms used in this Right Certificate without definition shall have the meanings
ascribed to them in the Rights Agreement. As provided in the Rights Agreement,
the Purchase Price and the number of Preferred Shares which may be purchased
upon
- ---------------
/1./ The portion of the legend in brackets shall be inserted only if applicable
and shall replace the preceding sentence.
B-1
<PAGE>
the exercise of the Rights evidenced by this Right Certificate are subject to
modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal offices of the Company and the
Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the offices of the Rights Agent designated for such purpose, may be
exchanged for another Right Certificate or Right Certificates of like tenor and
date evidencing Rights entitling the holder to purchase a like aggregate number
of one one-hundredths of a Preferred Share as the Rights evidenced by the Right
Certificate or Right Certificates surrendered shall have entitled such holder to
purchase. If this Right Certificate shall be exercised in part, the holder shall
be entitled to receive upon surrender hereof another Right Certificate or Right
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Board of
Directors may, at its option, (i) redeem the Rights evidenced by this Right
Certificate at a redemption price of $0.01 per Right at any time prior to the
Shares Acquisition Date (as such time period may be extended pursuant to the
Rights Agreement) or (ii) exchange Common Shares for the Rights evidenced by
this Certificate, in whole or in part, after the occurrence of a Trigger Event.
The period during which redemption of the Rights is permitted may be extended by
the Board of Directors of the Company, but such an extension shall require the
concurrence of a majority of the Continuing Directors. In the event that,
pursuant to the last sentence of Section 1.1 of the Rights Agreement, the Board
of Directors determines that a Person has become an Acquiring Person
inadvertently, and such Person divests Common Shares in accordance with such
sentence, then the Company's right of redemption shall be deemed to have not
expired as a result of such inadvertent acquisition. Under certain circumstances
set forth in the Rights Agreement, the decision to redeem shall require the
concurrence of a majority of the Continuing Directors.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of the
Preferred Shares or of any other securities of the Company which may at any time
be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
If any term, provision, covenant or restriction of the Rights
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the
B-2
<PAGE>
terms, provisions, covenants and restrictions of the Rights Agreement shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.
This Right Certificate shall not be valid or binding for any purpose
until it shall have been countersigned by the Rights Agent.
B-3
<PAGE>
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of _______________.
Attest: COMMUNITY PSYCHIATRIC CENTERS
By ______________________ By _________________________________
Title: Title:
Countersigned:
CHASE MELLON SHAREHOLDER SERVICES
By _____________________________
Authorized Signature
B-4
<PAGE>
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such holder
desires to transfer the Right Certificate.)
FOR VALUE RECEIVED _________________________________________
hereby sells, assigns and transfers unto____________________
____________________________________________________________
____________________________________________________________
(Please print name and address
of transferee)
this Right Certificate and the Rights evidenced thereby, together with
all right, title and interest therein, and does hereby irrevocably
constitute and appoint __________________________ Attorney, to transfer
the within Right Certificate on the books of the within-named Company,
with full power of substitution.
Dated: __________________
----------------------------
Signature
Signature Guaranteed:
-------------------------
Signatures must be guaranteed by an eligible institution (as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934) which may
include a commercial bank, trust company, savings association, credit
union or a member firm of the American Stock Exchange, New York Stock
Exchange, Pacific Stock Exchange or Midwest Stock Exchange.
B-5
<PAGE>
- --------------------------------------------------------------------------------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate [ ]
are [ ] are not beneficially owned by an Acquiring Person or an
Affiliate or an Associate thereof; and
(2) after due inquiry and to the best knowledge of the
undersigned, the undersigned [ ] did [ ] did not acquire the Rights
evidenced by this Right Certificate from any person who is, was or
subsequently became an Acquiring Person or an Affiliate or Associate
thereof.
Dated: __________________
--------------------------
Signature
B-6
<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to
exercise Rights represented by
the Right Certificate.)
To: COMMUNITY PSYCHIATRIC CENTERS
The undersigned hereby irrevocably elects to exercise
__________________ Rights represented by this Right Certificate to purchase
the Preferred Shares issuable upon the exercise of such Rights (or such
other securities of the Company or of any other Person which may be
issuable upon the exercise of the Rights) and requests that certificates
for such shares be issued in the name of:
Please insert social security
or other identifying number
____________________________________________________________
(Please print name and address)
____________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance remaining of
such Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
____________________________________________________________
(Please print name and address)
____________________________________________________________
Dated: __________________
______________________________
Signature
Signature Guaranteed:
----------------------------------
Signatures must be guaranteed by an eligible institution (as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934) which may include a
commercial bank, trust company, savings association, credit union or a
member firm of the American Stock Exchange, New York Stock Exchange,
Pacific Stock Exchange or Midwest Stock Exchange.
B-7
<PAGE>
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Right Certificate [ ] are [ ] are not
beneficially owned by an Acquiring Person or an Affiliate or an Associate
thereof; and
(2) after due inquiry and to the best knowledge of the undersigned,
the undersigned [ ] did [ ] did not acquire the Rights evidenced by this
Right Certificate from any person who is, was or subsequently became an
Acquiring Person or an Affiliate or Associate thereof.
Dated:_______________
________________________
Signature
- --------------------------------------------------------------------------------
NOTICE
------
The signature in the foregoing Form of Assignment and Form of Election
to Purchase must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
In the event the certification set forth above in the Form of
Assignment or Form of Election to Purchase is not completed, the Company will
deem the beneficial owner of the Rights evidenced by this Right Certificate to
be an Acquiring Person or an Affiliate or Associate hereof and, in the case of
an Assignment, will affix a legend to that effect on any Right Certificates
issued in exchange for this Right Certificate.
B-8
<PAGE>
EXHIBIT C
---------
As described in the Rights Agreement, Rights which are held by
--------------------------------------------------------------
or have been held by Acquiring Persons or Associates or Affiliates
------------------------------------------------------------------
thereof (as defined in the Rights Agreement) shall become null and void.
------------------------------------------------------------------------
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On June 21, 1996 the Board of Directors of Community Psychiatric
Centers (the "Company") declared a dividend of one Right for each share of
common stock, $1.00 par value (the "Common Shares"), of the Company outstanding
at the close of business on July 16, 1996 (the "Record Date"). As long as the
Rights are attached to the Common Shares, the Company will issue one Right
(subject to adjustment) with each new Common Share so that all such shares will
have attached Rights. When exercisable, each Right will entitle the registered
holder to purchase from the Company one one-hundredth of a share of Series B
Junior Participating Preferred Stock (the "Preferred Shares") at a price of
$45.00 per one one-hundredth of a Preferred Share, subject to adjustment (the
"Purchase Price"). The description and terms of the Rights are set forth in a
Rights Agreement, dated as of June 21, 1996, as the same may be amended from
time to time (the "Rights Agreement"), between the Company and Chase Mellon
Shareholder Services, as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) ten (10) days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the Common Shares or (ii) ten (10) days following
the commencement or announcement of an intention to make a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of the Common Shares (the earlier
of (i) and (ii) being called the "Distribution Date," whether or not either such
date occurs prior to the Record Date), the Rights will be evidenced, with
respect to any of the Common Share certificates outstanding as of the Record
Date, by such Common Share certificate together with a copy of this Summary of
Rights.
The Rights Agreement provides that the Board of Directors, with the
concurrence of a majority of the Continuing Directors (as defined below), may
postpone the Distribution Date and that, until the Distribution Date, the Rights
will be transferred with and only with the Common Shares. Until the Distribution
Date (or earlier redemption or expiration of the Rights), new Common Share
certificates issued after the close of business on the Record Date upon transfer
or new issuance of the Common Shares will contain a notation incorporating the
Rights Agreement by reference. Until the Distribution Date (or earlier
redemption, exchange, termination or expiration of the Rights), the surrender
for transfer of any certificates for Common Shares will also constitute the
transfer of the Rights associated with the Common Shares represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on June 20, 2006, subject to the Company's right to extend such date
(the "Final Expiration Date"), unless earlier redeemed or exchanged by the
Company or terminated.
Each Preferred Share purchasable upon exercise of the Rights will be
entitled to a minimum preferential quarterly dividend payment of $1.00 per share
but will be entitled to an aggregate dividend
C-1
<PAGE>
of 100 times the dividend, if any, declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per Common Share. Each Preferred
Share will have 100 votes and will vote together with the Common Shares.
Finally, in the event of any merger, consolidation or other transaction in which
Common Shares are exchanged, each Preferred Share will be entitled to receive
100 times the amount received per Common Share. These rights are protected by
customary antidilution provisions. Because of the nature of the Preferred
Share's dividend, liquidation and voting rights, the value of one one-hundredth
of a Preferred Share purchasable upon exercise of each Right should approximate
the value of one Common Share.
The Purchase Price payable, and the number of Preferred Shares or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares or convertible
securities at less than the current market price of the Preferred Shares or
(iii) upon the distribution to holders of the Preferred Shares of evidences of
indebtedness, cash, securities or assets (excluding regular periodic cash
dividends at a rate not in excess of 125% of the rate of the last regular
periodic cash dividend theretofore paid or, in case regular periodic cash
dividends have not theretofore been paid, at a rate not in excess of 50% of the
average net income per share of the Company for the four quarters ended
immediately prior to the payment of such dividend, or dividends payable in
Preferred Shares (which dividends will be subject to the adjustment described in
clause (i) above)) or of subscription rights or warrants (other than those
referred to above).
In the event that a Person becomes an Acquiring Person (except
pursuant to certain cash offers for all outstanding Common Shares approved by
the Board) or if the Company were the surviving corporation in a merger with an
Acquiring Person or any affiliate or associate of an Acquiring Person and the
Common Shares were not changed or exchanged, each holder of a Right, other than
Rights that are or were acquired or beneficially owned by the 15% stockholder
(which Rights will thereafter be void), will thereafter have the right to
receive upon exercise that number of Common Shares having a market value of two
times the then current Purchase Price of the Right. With certain exceptions, in
the event that (i) the Company is acquired in a merger or other business
combination transaction in which the Company is not the surviving corporation or
its Common Shares are changed or exchanged (other than a merger which follows
certain cash offers for all outstanding Common Shares approved by the Board) or
(ii) more than 50% of its assets or earning power is sold, proper provision
shall be made so that each holder of a Right (except Rights which have
previously been voided as set forth above) shall thereafter have the right to
receive, upon the exercise thereof at the then current Purchase Price of the
Right, that number of shares of common stock of the acquiring company which at
the time of such transaction would have a market value of two times the then
current Purchase Price of the Right.
At any time after a Person becomes an Acquiring Person and prior to
the acquisition by such Acquiring Person of 50% or more of the outstanding
Common Shares, the Board of Directors may cause the Company to acquire the
Rights (other than Rights owned by an Acquiring Person which have become void),
in whole or in part, in exchange for that number of Common Shares having an
aggregate value equal to the Spread (the excess of the value of the Common
Shares issuable upon exercise of a Right after a Person becomes an Acquiring
Person over the Purchase Price) per Right (subject to adjustment).
No adjustment in the Purchase Price will be required until cumulative
adjustments require an adjustment of at least 1% in such Purchase Price. No
fractional shares will be issued and in lieu thereof, a payment in cash will be
made based on the market price of the Preferred Shares on the last trading date
prior to the date of exercise.
C-2
<PAGE>
The Rights may be redeemed in whole, but not in part, at a price of
$0.01 per Right (the "Redemption Price") by the Board of Directors at any time
prior to the first date of public announcement that a Person has become an
Acquiring Person. Prior to the expiration of the period during which the Rights
may be redeemed (or such longer period as the Board of Directors may select
pursuant to this sentence), the Board of Directors, with the concurrence of a
majority of the Continuing Directors (as defined below), may extend the period
during which the Rights are redeemable beyond the first date of public
announcement that a Person has become an Acquiring Person. In the event that,
pursuant to the last sentence of Section 1.1 of the Rights Agreement, the Board
of Directors determines that a Person has become an Acquiring Person
inadvertently, and such Person divests Common Shares in accordance with such
sentence, then the Company's right of redemption shall be deemed to have not
expired as a result of such inadvertent acquisition. Under certain circumstances
set forth in the Rights Agreement, the decision to redeem shall require the
concurrence of a majority of the Continuing Directors. Immediately upon the
action of the Board of Directors of the Company electing to redeem the Rights,
the Company shall make an announcement thereof, and upon such election, the
right to exercise the Rights will terminate and the only right of the holders of
Rights will be to receive the Redemption Price.
The term "Continuing Directors" means any member of the Board of
Directors of the Company who was a member of the Board prior to the time that
any Person becomes an Acquiring Person, and any person who is subsequently
elected to the Board if such person is recommended or approved by a majority of
the Continuing Directors. Continuing Directors do not include an Acquiring
Person, or an affiliate or associate of an Acquiring Person, or any
representative of the foregoing.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company beyond those as an existing stockholder,
including, without limitation, the right to vote or to receive dividends.
Any of the terms or provisions of the Rights Agreement may be amended
by the Board of Directors of the Company prior to the Distribution Date,
including, without limitation, the Purchase Price upon the occurrence of the
distribution, to all holders of the Common Shares, of one share of common stock
of Spinco Corporation, an indirect wholly-owned subsidiary of the Company, for
each five Common Shares held by such stockholder. After the Distribution Date,
the Company and the Rights Agent may amend or supplement the Rights Agreement
without the approval of any holders of Right Certificates to cure any ambiguity,
to correct or supplement any provision contained therein which may be defective
or inconsistent with any other provisions therein, to shorten or lengthen any
time period under the Rights Agreement (so long as, under certain circumstances,
a majority of Continuing Directors approve such shortening or lengthening) or so
long as the interests of the holders of Right Certificates (other than an
Acquiring Person or an affiliate or associate of an Acquiring Person) are not
adversely affected thereby, to make any other provisions in regard to matters or
questions arising thereunder which the Company and the Rights Agent may deem
necessary or desirable, including but not limited to extending the Final
Expiration Date. The Company may at any time prior to such time as any Person
becomes an Acquiring Person amend the Rights Agreement to lower the thresholds
described above to not less than the greater of (i) any percentage greater than
the largest percentage of the outstanding Common Shares then known by the
Company to be beneficially owned by any person or group of affiliated or
associated persons and (ii) 10%.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Company. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.
C-3
<PAGE>
EXHIBIT 5
Community Psychiatric Centers
5110 West Sahara Avenue
Las Vegas, Nevada 89102
July ___, 1996
To Our Stockholders:
On June 21, 1996 Community Psychiatric Centers' Board of Directors
adopted a Stockholder Rights Plan that is intended to protect your interests in
the event you and Community Psychiatric Centers are confronted with coercive
takeover tactics.
The Plan provides for a dividend distribution of Rights to purchase
shares of a newly created series of Community Psychiatric Centers Preferred
Stock. Under certain circumstances, the Rights could become exercisable to
purchase Community Psychiatric Centers Common Stock, or securities of an
acquiring entity, at one-half market value. The Rights may be exercised only if
certain events occur. You are now the owner of one Right for each share of
Community Psychiatric Centers Common Stock you own. The Plan has been adopted
in order to strengthen the ability of the Board to protect your interests.
We are attaching a summary description that outlines the principal
features of the Plan, and we urge you to read the summary carefully. This
letter reviews our reasons for issuing the Rights.
NO ACTION BY STOCKHOLDERS IS REQUIRED OR PERMITTED AT THIS TIME, AND
NO MONEY SHOULD BE SENT TO COMMUNITY PSYCHIATRIC CENTERS. THE RIGHTS WILL
AUTOMATICALLY ATTACH TO THE SHARES OF COMMON STOCK YOU HOLD AND WILL TRADE WITH
THEM. SEPARATE RIGHT CERTIFICATES WILL BE SENT TO STOCKHOLDERS ONLY IF A PERSON
OR GROUP ACQUIRES 15% OR MORE OF COMMUNITY PSYCHIATRIC CENTERS' OUTSTANDING
COMMON STOCK OR MAKES A TENDER OFFER FOR 15% OR MORE OF THE COMMON STOCK.
COMMUNITY PSYCHIATRIC CENTERS COMMON STOCK CERTIFICATES ISSUED AFTER JULY 16,
1996 WILL CONTAIN A REFERENCE TO THE RIGHTS PLAN, BUT THERE IS NO NEED TO SEND
IN YOUR CERTIFICATES TO HAVE THIS REFERENCE ADDED.
The Rights are not being distributed in response to any specific
effort to acquire control of the Company. The Rights are designed to protect
stockholders in the event of an unsolicited attempt to acquire the Company,
including through an accumulation of Common Stock in the open market, a partial,
two-tier or inadequate tender offer that does not treat all stockholders equally
and other abusive takeover tactics which the Board of Directors believes are not
in the best interests of stockholders. These tactics unfairly pressure
stockholders, squeeze them out of their investment without giving them any real
choice and deprive them of the full value of their Common Stock. We consider
these Rights to be a valuable means of protecting both your right to retain your
equity investment in the Company and the full value of that investment, while
not foreclosing a fair acquisition bid for the Company.
The Rights are not intended to prevent a takeover of Community
Psychiatric Centers and will not do so. They are designed to deal with the
possibility of unilateral actions by hostile acquirors that could deprive the
Board of Directors and stockholders of Community Psychiatric Centers of their
ability to determine the Company's destiny and obtain the highest price for
their Common Stock. Among the factors considered by the Board in adopting the
Plan were the substantial amount of cash the Company
<PAGE>
has on its balance sheet due to the sale of Priory Hospitals Group, the
Company's United Kingdom operations, and the proposed spin-off of the Company's
U.S. psychiatric operations to its stockholders.
Adoption of the Plan should not by itself affect any prospective
acquiror who is willing to make an all-cash offer at a full and fair price or
who is willing to negotiate with the Company's Board of Directors. The Plan
certainly will not interfere with a merger or other business combination
transaction approved by the Board of Directors.
The issuance of the Rights has no dilutive effect, will not affect
reported earnings per share and is not taxable to the Company or to you.
Stockholders may, under certain circumstances, recognize taxable income if the
Rights become exercisable.
Our overriding objective is to continue building value for Community
Psychiatric Centers' stockholders, and we feel that the Plan will assist in that
effort.
Sincerely,
[Name and Title of Executive Officer]
2
