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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 1-3720
FRESENIUS MEDICAL CARE HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-3461988
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
(JURISDICTION OF INCORPORATION OR ORGANIZATION)
TWO LEDGEMONT CENTER, 95 HAYDEN AVE., LEXINGTON, MA 02173
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code: 781-402-9000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class D Special Dividend Preferred Stock, par value $.10 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. /X/
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. (See
definition of affiliate in Rule 405).
$12,310,327 March 12, 1998.
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Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
As of March 23, 1998, 90,000,000 shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Definitive Information Statement with respect to its 1998 Annual
Meeting of Stockholders, to be filed on or before April 30, 1998. (Part III)
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TABLE OF CONTENTS
PART I
<TABLE>
<S> <C> <C>
Item 1. Business..............................................................4
Item 2. Properties...........................................................37
Item 3. Legal Proceedings ...................................................38
Item 4. Submission of Matters to a Vote of Security Holders..................53
PART II .....................................................................53
Item 5. Market Price for Registrant's Common Equity and Related
Stockholder Matters.........................................53
Item 6. Selected Financial Data..............................................54
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................55
Item 8. Consolidated Financial Statements and Supplementary Data.............61
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.........................62
PART III .....................................................................62
Item 10. Directors and Executive Officers of the Registrant ..................62
Item 11. Executive Compensation...............................................62
Item 12. Security Ownership of Certain Beneficial Owners and
Management..................................................62
Item 13. Certain Relationships and Related Transactions.......................62
PART IV ......................................................................62
Item 14. Exhibits, Consolidated Financial Statement Schedules, and Reports on
Form 8-K ...................................................62
</TABLE>
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ITEM 1. BUSINESS
The discussion under this section contains forward-looking statements.
These forward-looking statements are made based on management's expectations and
beliefs concerning future events impacting Fresenius Medical Care Holdings,
Inc., but no assurance can be given that such events will occur or that results
will be as anticipated.
Fresenius Medical Care Holdings, Inc., a New York corporation (the
"Company" or ("FMCH")) is a subsidiary of Fresenius Medical Care AG, a German
corporation ("Fresenius Medical Care" or "FMC"), the world's largest integrated
provider of dialysis products and services. The Company conducts its operations
through two principal subsidiaries, National Medical Care, Inc., a Delaware
corporation ("NMC") and Fresenius USA, Inc., a Massachusetts corporation
("Fresenius USA"). The Company conducts business in three main areas: Dialysis
Treatment and Other Services, Dialysis Products, and Home Care and Diagnostics
Services, which accounted for 72%, 17%, and 11% of 1997 net revenues,
respectively.
- DIALYSIS TREATMENT AND OTHER SERVICES. The Company is
the largest private provider in the U.S. of kidney
dialysis and related services and is the largest
international private provider of kidney dialysis and
ancillary services with operations in 13 other
countries. FMCH operates 852 outpatient dialysis
centers worldwide, treating approximately 64,000
patients. Additionally, the Company provides
inpatient dialysis services at approximately 550
hospitals in the U.S. The Company treats
approximately 23% of the dialysis patients in the
U.S., and believes its market share is twice as large
as that of its largest competitor. The Company also
offers related services including clinical laboratory
and diagnostic testing and imaging services.
- DIALYSIS PRODUCTS. The Company manufactures a
comprehensive line of dialysis products, including
hemodialysis machines, peritoneal dialysis systems
and disposable products. The Company manufactures
innovative and technologically advanced products,
including the Fresenius Polysulfone(TM) dialyzer,
which the Company believes is the best-performing,
mass-produced dialyzer on the market, and Delflex(R)
peritoneal solutions with Safe-Lock(R) connectors.
- HOME CARE AND NON-RENAL DIAGNOSTICS SERVICES. The
Company is a provider in the U.S. of integrated home
care services, offering comprehensive intravenous
infusion (prescription medications and nutrition),
respiratory therapies and home medical equipment. As
of December 31, 1997, the Company operated from 79
locations, providing infusion services from 76 of
these locations, home respiratory services from 73 of
these locations and home health services from 16 of
these locations. Non-renal diagnostic services
offered by the Company are also included in its
homecare division. The Company is currently
evaluating various options for its home care and
non-renal diagnostic services operations, including
the possible disposition of all or portions of those
businesses.
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THE MERGER
Fresenius Medical Care was organized in a series of transactions
(collectively, the "Merger"), which were effective September 30, 1996. The
Merger represented the consummation of the transactions contemplated by the
Agreement and Plan of Reorganization entered into on February 4, 1996 by
Fresenius AG and W. R. Grace & Co. ("Grace"). In the Merger, Fresenius AG
contributed Fresenius Worldwide Dialysis ("FWD"), representing its global
dialysis business (including its controlling interest in Fresenius USA, Inc.
("Fresenius USA" or "FUSA")), to Fresenius Medical Care in exchange for
35,210,000 Fresenius Medical Care Ordinary Shares ("Ordinary Shares").
Thereafter, Fresenius Medical Care acquired (i) all of the outstanding common
stock of Grace, whose sole business at the time of the transaction consisted of
National Medical Care, Inc. ("NMC"), the global dialysis business of Grace
(Grace was subsequently renamed Fresenius National Medical Care Holdings, Inc.
("FNMC")), and (ii) the minority interest of Fresenius USA not otherwise held by
Fresenius AG in exchange for 31,360,000 Ordinary Shares and 3,430,000 Ordinary
Shares, respectively. FMC subsequently transferred Fresenius USA to the Company
On June 12, 1997, FNMC changed its name to Fresenius Medical Care
Holdings, Inc. ("FMCH").
The Company's principal executive office is located at Two Ledgemont
Center, 95 Hayden Avenue, Lexington, MA 02173. Its telephone number is (781)
402-9000.
RENAL INDUSTRY OVERVIEW
END-STAGE RENAL DISEASE
End-stage renal disease is the state of advanced chronic kidney disease
that is characterized by the irreversible loss of kidney function and requires
routine dialysis treatment or kidney transplantation to sustain life. A normally
functioning human kidney removes waste products and excess water from the blood,
preventing toxin buildup, eventual poisoning of the body and water overload.
Chronic kidney disease can be caused by a number of conditions, primarily
nephritis, inherited diseases, hypertension and diabetes. Nearly 60% of all
people with ESRD acquire the disease as a complication of one or more of these
primary conditions.
Based on information published by the Health Care Financing
Administration ("HCFA") of the Department of Health and Human Services ("HHS"),
the number of patients in the U.S. who received chronic dialysis grew from
approximately 66,000 in 1982 to approximately 214,103 at December 31, 1996 or at
a compound annual rate of 9%. Fresenius Medical Care believes that, over the
next five to ten years, the number of patients suffering from ESRD in the U.S.
will continue to grow at approximately the same rate. According to data
published by HCFA and the European Dialysis and Transplantation Association
("EDTA"), the number of non-U.S. chronic dialysis patients is growing at annual
rates of 8% for patients receiving hemodialysis and 10% for patients receiving
peritoneal dialysis. Total worldwide dialysis patients (including the U.S.) were
estimated to exceed 750,000 in 1996. Fresenius Medical Care attributes the
continuing growth in the number of dialysis patients principally to the aging of
the general population, better treatment and survival of patients with
hypertension, diabetes and other illnesses that lead to ESRD, and increases in
reimbursements for treatments in many countries. Moreover, improved technology
has enabled older patients and those who previously could not tolerate dialysis
due to other illnesses to benefit from this life-prolonging treatment.
There are currently only two methods for the treatment of ESRD:
dialysis and kidney transplantation. Transplants are limited by the scarcity of
compatible kidneys. Approximately 12,200 patients received kidney transplants in
the U.S. during 1996. Transplantation rates vary from country to country in
Europe. According to the EDTA Registry Report 1996, 2% of new ESRD patients age
15 or over received transplants as the first mode of treatment in Europe in
1995. Therefore, most patients suffering from ESRD must rely on dialysis, which
is the removal of toxic waste products and excess fluids from the body by
artificial means. There are two major dialysis modalities commonly used today,
hemodialysis and peritoneal dialysis. Generally, the method of treatment used by
an ESRD patient is chosen by the physician in consultation with the patient, and
is based on the patient's medical conditions and needs.
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According to HCFA data, as of December 31, 1996, there were
approximately 3,082 Medicare-certified ESRD treatment centers in the U.S.
Ownership of these centers was fragmented. The Company estimates that at that
time, the ten largest multi-facility providers accounted for approximately 1,500
facilities (49% of facilities) and 108,000 patients (50% of patients).
Freestanding facilities (many privately owned by physicians) and
hospital-affiliated facilities were the sites of treatment for the remaining 27%
and 23% of patients, respectively.
There was substantial further consolidation in the market in 1997
leading the Company to estimate that the top ten multi-center providers
accounted for approximately 136,500 patients, or 60% of the estimated market at
December 31, 1997 (percentage market share is an estimate as HCFA data
specifying 100% of total market size are not yet available for 1997).
According to HCFA, as of December 31, 1996, approximately 85% of
dialysis patients in the U.S. received in-center treatment (virtually all
hemodialysis) and approximately 15% were treated at home. Of those treated at
home, more than 94% received peritoneal dialysis.
According to a Fresenius Medical Care market survey, there were
approximately 157,000 dialysis patients in Western Europe as of December 31,
1996, of whom approximately 87% received hemodialysis and 13% received
peritoneal dialysis. The Company estimates that there are approximately 2,700
dialysis centers in Western Europe, approximately 59% of which are
government-owned, approximately 27% of which are privately owned (primarily by
physicians), approximately 10% of which are operated by non-profit organizations
and approximately 4% of which are owned or operated by provider companies. In
Japan, the world's second largest dialysis market after the U.S., there are
approximately 161,000 dialysis patients, of whom approximately 94% receive
hemodialysis and approximately 6% receive peritoneal dialysis. In the rest of
the world, there are approximately 230,000 dialysis patients, of whom 33% and
31% reside in Asia and Latin America, respectively. Approximately 75% of these
patients are treated by hemodialysis and approximately 25% are treated by
peritoneal dialysis.
TREATMENT OPTIONS FOR ESRD
Hemodialysis. Hemodialysis removes waste products and excess fluids
from the blood extracorporeally. In hemodialysis, the blood flows outside the
body by means of plastic tubes known as bloodlines into a specially designed
filter, a dialyzer, which functions as an artificial kidney by separating waste
products and excess water from the blood by diffusion and ultrafiltration.
Dialysis solution carries away the waste products and excess water, and the
cleansed blood is returned to the patient. The movement of the blood and
dialysis solution is controlled by a hemodialysis machine, which pumps blood,
adds anti-coagulants, regulates the purification process and controls the mixing
of dialysis solution and the rate of its flow through the system. This machine
may also monitor and record the patient's vital signs.
According to HCFA, as of December 31, 1996, hemodialysis patients
represented 85% of all dialysis patients in the U.S. According to published
reports, as of December 1996, hemodialysis patients represented approximately
86% of all dialysis patients worldwide. Hemodialysis treatments are generally
administered to a patient three times per week and typically last from two and
one-half to four hours or longer. The majority of hemodialysis patients are
referred to outpatient dialysis centers, such as those operated by Fresenius
Medical Care, where hemodialysis treatments are performed with the assistance of
a nurse or dialysis technician under the general supervision of a physician.
Hemodialysis is the only form of treatment (other than transplantation)
currently available to patients who have very low residual or nonexistent renal
function and are inadequately dialyzed using peritoneal dialysis.
Peritoneal Dialysis. Peritoneal dialysis removes waste products from
the blood by use of the peritoneum, the membrane lining covering the internal
organs located in the abdominal area. Most peritoneal dialysis treatments are
selfadministered by patients in their own homes and workplaces, either by a
treatment known as continuous ambulatory peritoneal dialysis ("CAPD") or by a
treatment introduced by Fresenius USA in 1980 known as continuous cycling
peritoneal dialysis ("CCPD"). In both of these treatments, the patient has a
catheter surgically implanted to provide access to the peritoneal cavity. Using
this catheter, a sterile dialysis solution is
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introduced into the peritoneal cavity and the peritoneum operates as the
dialyzing membrane. A typical CAPD peritoneal dialysis program involves the
introduction and disposal of solution four times a day. With CCPD a machine is
used to "cycle" solution to and from the patient's peritoneum during sleep.
In both CAPD and CCPD the patient undergoes dialysis daily, and
typically does not experience the buildup of toxins and fluids experienced by
hemodialysis patients on the days they are not treated. In addition, because the
patient is not required to make frequent visits to a hemodialysis clinic, and
because the solution exchanges can be accomplished at convenient (although more
frequent) times, a patient on peritoneal dialysis may experience much less
disruption to his or her life than a patient on hemodialysis. Certain aspects of
peritoneal dialysis, however, limit its use as a long-term therapy for some
patients. First, certain patients cannot effect sterile connections of the
peritoneal dialysis tubing to the catheter, leading to excessive episodes of
peritonitis, a bacterial infection of the peritoneum which can result in serious
adverse health consequences, including death. Second, treatment by current forms
of peritoneal dialysis may not be as effective in removing wastes and fluids as
hemodialysis; therefore, patients using peritoneal dialysis must have some
residual renal function (which may deteriorate over time) or the amount of
therapy must be increased. As residual renal function decreases, peritoneal
dialysis is less effective. Therefore, in general, ESRD patients require
hemodialysis treatments for some period during the term of their disease.
STRATEGY
FMCH's strategy is in alignment with Fresenius Medical Care's strategy
and is used interchangeably below. Fresenius Medical Care's objective is to
capitalize on the continued rapid growth of the dialysis industry and its
leading position in the market. The worldwide dialysis patient population is
estimated to be growing at approximately 9% annually, driven primarily by (i)
the aging of the population worldwide, (ii) better treatment and survival of
patients with illnesses that lead to ESRD, including diabetes and hypertension,
and (iii) increases in reimbursements for treatments in many countries.
Fresenius Medical Care's dialysis services and product sales businesses
have grown faster than the market in terms of revenues over the past five years,
and FMC believes that it is well positioned to continue this growth by focusing
on the following strategies:
- Provide High Standards of Patient Care. Fresenius Medical Care
believes that its reputation for providing the highest
standards of patient care is a competitive advantage in an
environment increasingly focused on cost containment and
quality outcomes. The Company believes that NMC's proprietary
Patient Statistical Profile ("PSP") database, which contains
clinical and demographic data on approximately 50,000 dialysis
patients, is the most comprehensive body of information about
dialysis patients in the world. FMC believes that this
database provides a unique advantage in continuing to improve
dialysis treatment outcomes, reduce mortality rates and
improve the quality and effectiveness of dialysis products,
all of which are becoming increasingly important to patients
and payors.
- Expand Presence in the U.S. Over the past several years, FMC
has significantly expanded its U.S. provider operations
through the acquisition by FMCH of existing dialysis clinics
and the development of new clinics. In 1997, the Company
acquired or agreed to acquire 100 clinics serving
approximately 8,100 patients and opened 48 new clinics. As a
result, the Company now has an established presence in each of
its targeted markets in the U.S. Prospectively, the Company
expects to enhance its presence in the U.S. by focusing its
expansion on the acquisition of individual or small groups of
clinics, expansion of existing clinics, and opening of new
clinics, rather than on large acquisitions.
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- Increase Revenues from Expanded and Enhanced Patient Services.
One of Fresenius Medical Care's objectives is to continue to
expand its role within the broad spectrum of services provided
to dialysis patients. Fresenius Medical Care has begun to
implement this strategy by providing expanded and enhanced
patient services, including increased ancillary services, such
as laboratory and diagnostic services, to both its own clinics
and those operated by third parties. FMCH estimates that its
Spectra Renal Management division provides laboratory services
for 43% of the dialysis patients in the United States. FMCH
has developed treatment plans using disease state management
that it believes will be attractive to managed care payors,
has formed a joint venture with Southern California Permanente
Medical Group, a subsidiary of Kaiser Permanente which has the
largest dialysis patient population of any managed care
organization, and has formed Renaissance Health Care as a
joint venture with certain of the Company's nephrologists.
- Continue to Offer Complete Dialysis Product Lines. Fresenius
Medical Care offers broad and competitive hemodialysis and
peritoneal dialysis product lines. These product lines enjoy
broad market acceptance and enable customers to purchase all
of their dialysis machines, systems and disposable products
from a single source. Approximately 86% of Fresenius Medical
Care's product revenues for the twelve months ended December
31, 1997 were from sales of disposable products.
- Extend Position as a Technology Innovator. Fresenius Medical
Care is committed to being a technology leader in both
hemodialysis and peritoneal dialysis products. FMC has an
approximate 190 member research and development team focused
on developing dialysis systems that are safer, more effective
and easier to use and that can be easily customized to meet
the differing needs of customers around the world. Fresenius
Medical Care believes that its extensive expertise in patient
treatment and clinical data will further enhance its ability
to develop more effective products and treatment
methodologies.
- Enhance Manufacturing Technologies and Efficiencies. Over the
past several years, FMC has reduced manufacturing costs per
unit through development of proprietary manufacturing
technologies that have streamlined and automated its
production processes. Fresenius Medical Care intends to
further improve its proprietary, highly automated
manufacturing systems to continue to reduce product
manufacturing costs, concurrently achieving a high level of
quality control and reliability.
Fresenius Medical Care believes that its core strategic principles,
particularly its commitment to maintaining clinical quality, ensuring cost
management and control and developing superior cost-effective products, are key
elements in sustaining a competitive advantage in a health care environment
increasingly focused on cost containment. Fresenius Medical Care believes that
its strengths in clinical data systems, its professional affiliations with a
broad network of providers and institutions, its extensive geographic coverage
in dialysis services and products and its ongoing internal development of an
integrated approach to care should result in attractive partnering opportunities
with managed-care enterprises. The Company believes that its strategy, based on
its extensive clinical information database and large dialysis center and
physician network, may enable FMC to improve overall ESRD patient care and
therefore contain hospitalization and other ESRD treatment costs.
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For a description of other elements of the Company's strategy see " --
Dialysis Services" and " -- Dialysis Products Business."
DIALYSIS SERVICES
OVERVIEW
The Company is the largest private provider of kidney dialysis and
related services to patients suffering from chronic kidney disease. The Company
also provides laboratory services for dialysis patients in the U.S., Puerto
Rico, Portugal, and Spain. In addition, the Company provides diagnostic
testing services to the outpatient market (physicians, clinics and hospitals)
and also serves dialysis facilities (Company and non-Company clinics). Such
testing services include ultrasound, nuclear medicine, magnetic resonance
imaging, computerized axial topography, bone densitometry, nerve conduction
velocity, mammography and other tests.
The Company's provider business is primarily operated through the Dialysis
Services Division ("DSD"). The laboratory services are primarily provided by
Spectra Renal Management ("SRM"). Non-renal diagnostic testing services are
provided through DSD's Diagnostic Services Division ("DSI").
DIALYSIS SERVICES
The Company as of December 31, 1997, owned or managed 852 outpatient
dialysis centers located in 14 countries throughout the world. As of December
31, 1997, the Company owned or managed 715 dialysis centers in the U.S. and
owned or managed 137 dialysis centers in 13 countries outside of the U.S.
(Portugal, Spain, Brazil, Taiwan, Argentina, Hungary, Venezuela, Czech Republic,
Germany, United Kingdom, South Korea, China, and Colombia). Approximately 8% of
the Dialysis Services Division's net revenues for the twelve months ended
December 31, 1997 were attributable to operations outside the U.S. For further
discussion of the Company's foreign operations see "Notes to Consolidated
Financial Statements."
The centers are generally concentrated in areas of high population
density and their surrounding areas. In 1997, the Company acquired 68 existing
centers, developed 48 new centers and closed or sold 24 centers. The number of
patients treated at the Company's centers has increased from approximately
55,600 at December 31, 1996 to approximately 64,000 at December 31, 1997.
At the Company's centers, hemodialysis treatments are provided at
individual "stations" through the use of dialysis machines. A registered nurse
or dialysis technician attaches the necessary tubing to the patient and monitors
the dialysis equipment and the patient's vital signs. The capacity of a center
is a function of the number of stations and such factors as the type of
treatment, patient requirements, length of time per treatment and local
operating practices and ordinances regulating hours of operation. Most of the
Company's centers operate two or three patient shifts per day.
Each of the Company's dialysis centers is under the general supervision
of a medical director ("Medical Director") and, in some cases, one or more
associate Medical Directors, who are physicians. See " -- Physician and Other
Relationships." Each dialysis center also has an administrator who supervises
the day-to-day operations of the facility and the staff. The staff typically
consists of registered nurses, licensed practical nurses, patient care
technicians, a social worker, a registered dietician, a unit clerk and
biomedical technicians.
The Company engages in systematic efforts to measure, maintain and
improve the quality of the services that it delivers at its dialysis centers.
Each center collects and analyzes quality assurance and patient data, which in
turn is regularly reviewed by division and corporate management. At each center,
a quality assurance committee is responsible for reviewing quality of care
reports generated by the Company's PSP system, setting goals for quality
enhancement and monitoring the progress of quality assurance initiatives. The
Company believes that it enjoys a reputation of providing high quality care to
dialysis patients.
The Company provides various ancillary medications and services to ESRD
patients in the U.S. at its dialysis centers, the most significant of which is
the administration of Erythropoietin ("EPO"), a bioengineered protein that
stimulates the production of red blood cells. EPO is used to treat anemia, a
medical
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complication frequently experienced by ESRD patients, and is administered to
most of the Company's patients. Revenues from EPO (the substantial majority of
which are reimbursed through the Medicare and Medicaid programs) accounted for
approximately 23% of the Dialysis Services Division's U.S. net revenues for the
twelve months ended December 31, 1997 and materially contribute to DSD's
operating earnings. EPO is produced by a single source manufacturer, Amgen Inc.,
and any interruption of supply could materially adversely affect the Company's
business and results of operations. The Company has entered into a contract with
Amgen Inc. covering the period from October 1997 to December 1998 with price
protection and volume discounts.
Other ancillary services provided to ESRD patients in the U.S. include
the administration of Calcijex(R) (calcium), INFED(R) (iron) and hepatitis
vaccine; the provision of IDPN, in which nutrients are added to the patient's
blood during hemodialysis; the provision, through Spectra Renal Management, of
clinical laboratory testing; the provision by Diagnostic Services Division of
studies to test the degree of bone deterioration; electrocardiograms; nerve
conduction studies to test the degree of deterioration of nerves; Doppler flow
testing of the effectiveness of the patient's vascular access for dialysis; and
blood transfusions. These tests and other ancillary services are provided by
specific prescription of the patient's attending physician.
The Company employs a centralized approach with respect to certain
administrative functions common to its operations. For example, the Company has
standardized operating and billing procedures which are contained in proprietary
manuals used by each dialysis center. The Company believes that the
centralization and standardization of these functions enhance its ability to
perform services on a cost-effective basis.
The Company's centers also offer services for home dialysis patients,
the majority of whom are treated with peritoneal dialysis. For such patients,
the Company's dialysis centers provide certain materials, training and patient
support services, including clinical monitoring, supply of EPO, follow-up
assistance and arrangements for the delivery of the supplies to the patient's
residence. See " -- Regulatory and Legal Matters -- Reimbursement -- U.S." and "
- -- Legal Proceedings" for a discussion of billing for such products and
services.
The manner in which each center conducts its business is dependent, in
large part, upon applicable laws, rules and regulations of the jurisdiction in
which the center is located, as well as the Company's clinical policies.
However, a patient's attending physician (who may be the center's Medical
Director or an unaffiliated physician with staff privileges at the center) has
medical discretion as to the particular treatment modality and medications to be
prescribed for that patient. Similarly, the attending physician has discretion
in selecting the particular medical products prescribed, although equipment,
regardless of brand, is typically purchased by the center in consultation with
the medical director through the Company's central purchasing operations.
The Company also provides dialysis services under contract to
approximately 550 hospitals in the U.S. on an "as needed" basis for patients
suffering from acute kidney failure and for ESRD patients who are hospitalized.
The Company services these patients either at their bedside, using portable
dialysis equipment, or at a dialysis site maintained by the hospital. Contracts
with hospitals provide for payment at negotiated rates that are higher than the
Medicare reimbursement rates for chronic in-center treatments.
SPECTRA RENAL MANAGEMENT
The Company provides laboratory testing and marketing services through
Spectra Renal Management ("SRM"). SRM was created as a result of the acquisition
of Spectra Laboratories, Inc. in June of 1997. SRM is the leading U.S. dialysis
clinical laboratory providing blood, urine and other bodily fluid testing
services to assist physicians in determining whether a dialysis patient's
therapy regimen, diet and medicines remain optimal. SRM operates three
laboratories, one in New Jersey (LifeChem), one in Southern California
(LifeChem), and one in Northern California (Spectra). The Spectra laboratory is
operated as a separate subsidiary of FMCH.
In 1997, SRM performed approximately 35 million tests for more than
92,000 dialysis patients across the United States. SRM also provided testing
services to
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clinical research projects and others. The Company plans to expand SRM into
related markets such as hospital dialysis units and physician office practices,
particularly nephrologists.
LifeChem's clinical laboratory results have been a critical element in
the development of the Company's proprietary PSP database, which contains
clinical, laboratory and demographic data on approximately 50,000 dialysis
patients. The Company uses PSP to assist physicians in providing quality care to
dialysis patients. In addition, PSP is a key resource in ongoing research, both
within the Company and at outside research institutions, to decrease mortality
rates among dialysis patients and improve their quality of life. See " --
Regulatory and Legal Matters -- Reimbursement -- U.S." for a description of
certain billing problems relating to LifeChem and " -- Legal Proceedings --
LifeChem."
The Company also offers laboratory services to dialysis and
non-dialysis patients at 16 clinical testing laboratories in Portugal and one
located in Spain.
RENAL DIAGNOSTICS
The Company provides diagnostic testing services to patients at the
Company's centers and unaffiliated dialysis facilities through the use of mobile
equipment. The renal diagnostics group performs testing at 670 dialysis
facilities in 37 states. The renal diagnostics group's range of services
includes Doppler flow testing, bone densitometry, echocardiography and nerve
conduction velocity testing. Revenues for the twelve months ended December 31,
1997, were $9 million.
Growth in the outpatient diagnostic industry is expected to continue as
a result of cost-containment pressures accelerating the shift from expensive
inpatient testing to lower cost outpatient testing, and managed care's interest
in prevention and early diagnosis. Limiting factors on growth include increased
utilization management by managed care organizations and continued downward
pressure on reimbursement rates and Medicare regulatory requirements.
For financial reporting purposes, renal and non-renal diagnostic services and
the provision of IDPN are included in Homecare/Diagnostics.
ACQUISITIONS
FMCH's growth in revenues and operating earnings in prior years has
resulted, in significant part, from its ability to effect acquisitions of health
care businesses, particularly dialysis centers, on reasonable terms. Worldwide,
many dialysis centers that are potential acquisition or joint venture candidates
of the Company are owned by physicians. In the U.S., doctors may be motivated to
sell their centers to obtain relief from day-to-day administrative
responsibilities and changing governmental regulations, to focus on patient care
and to realize a return on their investment. Outside the U.S., doctors may be
motivated to sell and/or enter into joint ventures or other relationships with
the Company to achieve the same goals and to gain a partner with extensive
expertise in dialysis products and services. While price is typically the key
factor in securing acquisitions, the Company believes that it will be an
attractive acquiror or partner to many dialysis center owners due to its
reputation for patient treatment, its proprietary PSP database (which contains
clinical and demographic data on approximately 50,000 dialysis patients), its
comprehensive clinical and administrative systems, manuals and policies, its
ability to provide ancillary services to dialysis centers and patients and its
reputation for technologically advanced products. The Company believes that
these factors will also be advantages when opening new centers.
The U.S. health care industry has experienced significant consolidation
in recent years, particularly in the dialysis and homecare service sectors in
which the Company competes, resulting, in some cases, in increased costs of
acquisitions in these sectors. The entrance into the acquisition arena by new,
smaller public dialysis companies, which can make acquisitions using their stock
as consideration, has accelerated the increase in costs of acquisitions.
Moreover, because of the ongoing consolidation in the dialysis services
industry, the availability of acquisitions may decrease. The Company's ability
to make acquisitions also will depend, in part, on the Company's available
financial resources and the limitations imposed under the NMC Credit Agreement.
See "MD&A -- Fresenius Medical Care Holdings, Inc." The inability of the Company
to continue to effect acquisitions in the
11
<PAGE> 12
provider business on reasonable terms could have an adverse impact on growth in
its business and on its results of operations. See also " -- Legal Proceedings."
The Company regularly evaluates and holds discussions with various
other health care companies and other businesses regarding acquisitions and
joint business ventures. In 1997 FMCH acquired or signed agreements to acquire
or provide management services to approximately 100 dialysis facilities in the
United States providing care to approximately 8,100 patients. These acquisitions
and agreements expand FMCH's presence in the United States, particularly in the
Pacific Northwest, the Upper Midwest, and along the East Coast. In 1997, FMCH
also strengthened its leadership in dialysis and laboratory services through the
acquisition of Spectra Laboratories, Inc., which provides laboratory services to
more than 30,000 patients, and the formation of Spectra Renal Management.
Spectra Renal Management combines the sales and marketing functions of Spectra
Laboratories, Inc. and FMCH's existing laboratory operations to offer
laboratory, diagnostics, nutritional therapy and managed care services for renal
patients to dialysis clinics and physician office practices.
SOURCES OF DIALYSIS SERVICES NET REVENUES
The following table provides information for the periods indicated
regarding the percentage of the Company's U.S. dialysis treatment services net
revenues provided by (a) the Medicare ESRD program, (b) private/alternative
payors, such as commercial insurance and private funds, (c) Medicaid and other
government sources and (d) hospitals.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Medicare ESRD program.............. 64.5% 63.0% 58.1%
Private/alternative payors......... 25.8 28.1 32.7
Medicaid and other government
sources............................ 4.6 4.0 4.2
Hospitals.......................... 5.1 4.9 5.0
---------- ------- -------
Total.............................. 100.0% 100.0% 100.0%
========== ======= =======
</TABLE>
Under the Medicare ESRD program, Medicare reimburses dialysis providers
for the treatment of certain individuals who are diagnosed as having ESRD,
regardless of age or financial circumstances. When Medicare assumes
responsibility as the primary payor, it pays for dialysis and certain specified
related services at 80% of the payment methodology commonly referred to as the
composite rate method ("Composite Rate"). In addition, subject to various
restrictions and co-payment limitations, Medicare pays separately for certain
dialysis-related diagnostic and therapeutic services not included in the
Composite Rate. A secondary payor, usually a Medicare supplemental insurer, a
state Medicaid program or, to a lesser extent, the patient or the patient's
private insurer, is responsible for paying any co-payment (typically 20%), other
approved services not paid by Medicare and the annual deductible. Most of the
states in which the Company currently operates dialysis centers provide Medicaid
benefits to qualified recipients to supplement their Medicare entitlement.
Prior to the time at which Medicare becomes the primary payor, most
dialysis treatments are paid for by another third-party payor, such as the
patient's private insurer, or by the patient. ESRD patients under age 65 who are
covered by an employer health plan must wait 33 months (consisting of a
three-month entitlement waiting period and an additional 30-month "coordination
of benefits period") before Medicare becomes the primary payor. During this
33-month period, the employer health plan is responsible for payment as primary
payor at its negotiated rate or, in the absence of such a rate, at the Company's
usual and customary rates (which generally are higher than the rates paid by
governmental payors, such as Medicare), and Medicare is the secondary payor. See
" -- Regulatory and Legal Matters -- Reimbursement -- U.S."
A significant portion of the Company's revenues for dialysis services
are derived from reimbursement provided by non-governmental third-party payors.
A substantial portion of third-party health insurance in the U.S. is now
furnished through some type of managed care plan, including health maintenance
organizations ("HMOs"). Managed care plans are increasing their market share
overall, and in the Medicare population in particular. This trend may accelerate
as a result of the
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<PAGE> 13
merger and consolidation of providers and payors in the health care industry, as
well as the discussions among members of Congress and the executive branch
regarding ways to increase the number of Medicare and Medicaid beneficiaries
served through managed care plans. The Company estimates that approximately 8%
of DSD's net revenues for the twelve months ended December 31, 1997 was
attributable to managed care plans.
Non-governmental payors generally reimburse for dialysis treatments at
higher rates than governmental payors such as Medicare. However, managed care
plans are becoming more aggressive in selectively contracting with a smaller
number of providers willing to furnish services for lower rates and subject to a
variety of service restrictions. For example, managed care plans and traditional
indemnity third-party payors increasingly are demanding alternative fee
structures, such as capitation arrangements whereby a provider receives a fixed
payment per month per enrollee and bears the risk of loss if the costs of
treating such enrollee exceed the capitation payment. These market forces are
creating downward pressure on the reimbursements the Company receives for its
services and products.
FMCH's ability to secure favorable rates with indemnity and managed
care plans has largely been due to the relatively small number of ESRD patients
which any single HMO has enrolled. By regulation, ESRD patients have been
prohibited from joining an HMO unless they are otherwise eligible for Medicare
coverage, due to age or disability, and are members of a managed care plan when
they first experience kidney failure. HCFA has a pilot evaluation underway for
treatment of Medicare ESRD patients by managed care companies under capitated
contracts. Three organizations are presently, or expect to soon begin,
recruiting ESRD patients for this pilot program, which, if successful, could
result in the elimination of the pre-existing condition requiring ESRD patients
to enroll in managed care organizations. As Medicare HMO enrollments increase
and the number of ESRD patients in managed care plans also increases, managed
care plans' leverage to negotiate lower rates may become greater. In addition,
the HMO may have contracted with another provider, or may have tighter
utilization controls with respect to certain ancillary services typically
provided by the Company to ESRD patients, which could limit the Company's future
payments for such services.
HCFA has initiated the ESRD demonstration projects that are likely to
be conducted over the next three to four years and that will seek to evaluate
the feasibility of "privatizing" the Medicare ESRD program. The Company believes
that the elimination of "pre-existing conditions" exclusions would greatly
facilitate the enrollment of ESRD patients into managed care plans. The
likelihood and timing of this decision is impossible to predict. Should such
legislation pass, the Company believes it would likely increase the number of
patients enrolled in managed care plans, and might also cause these plans to
look closer at "carving out" ESRD care to ESRD companies such as the Company's
joint ventures (Optimal Renal Care and Renaissance Health Care).
The Company has formed two joint ventures seeking to contract "at risk"
with managed care organizations for the care of ESRD patients. Renaissance
Health Care, Inc. is a 50/50 joint venture between Fresenius Medical Care and
participating nephrologists throughout the U.S. Optimal Renal Care is a 50/50
joint venture between Permanente Medical Group of Southern California and
Fresenius Medical Care.
As managed care programs expand market share and gain greater
bargaining power vis-a-vis health care providers, there will be increasing
pressure to reduce the amounts paid for services and products furnished by the
Company. These trends would be accelerated if future changes to the Medicare
ESRD program require private payors to assume a greater percentage of the cost
of care given to dialysis patients. The Company is presently seeking to expand
the portion of its revenues attributable to non-governmental private payors.
However, the Company believes that the historically higher rates of
reimbursement paid by nongovernmental payors may not be maintained at such
levels. If substantially more patients of the Company join managed care plans or
such plans reduce reimbursements to the Company, the Company's business and
results of operations could be adversely affected, possibly materially. See
" -- Regulatory and Legal Matters -- Reimbursement," " -- Anti-Kickback
Statutes, False Claims Act, Stark Law and Fraud and Abuse Laws -- Changes in the
Health Care Industry in the U.S."
13
<PAGE> 14
PHYSICIAN AND OTHER RELATIONSHIPS
The Company believes that its success in establishing and maintaining
dialysis centers, both in the U.S. and in other countries, depends in
significant part upon its ability to obtain the acceptance of and referrals from
local physicians, hospitals and managed care plans. A dialysis patient generally
seeks treatment at a center that is convenient to the patient and at which the
patient's nephrologist has staff privileges. Virtually all of the Company's
clinics maintain open staff privileges for local nephrologists. The Company's
ability to provide quality dialysis care and otherwise to meet the needs of
local physicians is central to its ability to attract nephrologists to the
Company's centers and to receive referrals from such physicians. See " -- Anti-
kickback Statutes, False Claims Act, Stark Law and Fraud and Abuse Laws."
The conditions for coverage under the Medicare ESRD program require
that treatment at a dialysis center be under the general supervision of a
Medical Director. Generally, the Medical Director must be board certified or
board eligible in internal medicine and have at least 12 months of training or
experience in the care of patients at ESRD centers. Virtually all of the
Company's Medical Directors maintain their own active private practices.
The Company has written agreements with qualified nephrologists or
groups of qualified nephrologists to serve as Medical Directors (and associate
Medical Directors) for its centers. The U.S. Medical Director agreements entered
into by the Company generally have terms of three years, although some have
terms of as long as five to ten years. The compensation of Medical Directors and
other physicians under contract with the Company is individually negotiated and
generally depends upon competitive factors in the local market, the physician's
professional qualifications, experience and responsibilities and the size of and
services provided by the center. Until January 1, 1995, Medical Director
compensation typically included a component based on some measure of the
financial performance of the clinics under the supervision of that Medical
Director. See " -- Legal Proceedings -- OIG Investigation." Since 1995, the
Company has entered into new agreements, or amended existing agreements, for
substantially all of its Medical Directors. Under the new arrangements, the
aggregate compensation of the Medical Directors and other physicians under
contract is fixed in advance for a period of one year or more and is based in
part on various efficiency and quality incentives. The Company believes that
compensation is paid at fair market value. In certain countries other than the
U.S., Medical Director and physician compensation may include a component based
on some measure of the center's financial performance.
Virtually all of the U.S. Medical Director agreements, as well as the
typical contract under which the Company acquires existing dialysis centers,
include noncompetition covenants covering specified activities within specified
geographic areas for specified periods of time, although they do not prohibit
the physicians from providing direct patient care services at other locations
and, consistent with law, do not require a physician to refer patients to the
Company or particular centers or to buy or use specific medical products. In
certain states, non-competition covenants may not be enforceable.
COMPETITION
Dialysis Services. The dialysis services industry is highly
competitive. Ownership of dialysis centers in the U.S. is fragmented, with a
large number of operators owning 10 or fewer centers and a small number of
larger multi-center providers, the largest of which is the Company. In urban
areas, where many of the Company's dialysis centers are located, there
frequently are many competing centers in proximity to the Company's centers. The
Company experiences direct competition from time to time from former Medical
Directors or referring physicians who establish their own centers. Furthermore,
a number of health care providers, some of which have significant operations,
may decide to enter the dialysis business in the future.
Because in most cases the prices of dialysis services and products in
the U.S. are directly or indirectly regulated by Medicare, competition for
patients is based primarily on quality and accessibility of service and the
ability to obtain referrals from physicians and hospitals. However, the growth
of managed care has placed greater emphasis on service costs for patients
insured by nongovernmental payors. The Company believes that it competes
effectively in all of these areas. In
14
<PAGE> 15
particular, based upon the Company's knowledge and understanding of other
providers of kidney dialysis, as well as from information obtained from publicly
available sources, the Company believes that it is among the most cost-efficient
providers of kidney dialysis services. In addition, as a result of its large
size relative to most other dialysis service providers, the Company enjoys
economies of scale in areas such as purchasing, billing, collections and data
processing.
Competition in the dialysis industry is particularly intense with
respect to the acquisition of existing dialysis centers, which has resulted in
an increase in the cost of such acquisitions, and in enlisting and retaining
qualified physicians to act as Medical Directors.
In most countries other than the U.S., the Company primarily competes
against individual centers and hospitals. In many of these countries, especially
the developed countries, prices and the opening of new centers are directly or
indirectly regulated by governments. Competition in all countries is based
primarily on the quality and availability of service and the development and
maintenance of relationships with referring physicians.
Laboratory Services and Renal Diagnostics. SRM competes in the U.S.
with large nationwide laboratories, dedicated dialysis laboratories and numerous
local and regional laboratories, including hospital laboratories. In the
laboratory services market, companies compete on the basis of performance,
including quality of laboratory testing, timeliness of reporting test results
and cost-effectiveness. The Company believes that SRM's services are competitive
in these areas. In addition to laboratory services, SRM competes in the imaging
diagnostic market. While the main competition is local hospitals, SRM is
competitive based upon the quality and accessibility of the service.
DIALYSIS PRODUCTS BUSINESS
The Company manufactures and distributes equipment and disposable
products for the treatment of kidney failure by hemodialysis and by peritoneal
dialysis. Such products include hemodialysis machines, peritoneal dialysis
cyclers and related equipment, dialyzers, peritoneal dialysis solutions in
flexible plastic bags, hemodialysis concentrates and solutions, granulate mixes,
bloodlines, and disposable tubing assemblies and equipment for water treatment
in dialysis centers. Other products manufactured by third parties and
distributed by the Company include dialyzers, special blood access needles,
heparin (used to prevent blood clotting) and commodity supplies such as
bandages, clamps and syringes.
OVERVIEW
The following table shows, actual net revenues for 1997 and pro forma
net revenues for 1995 and 1996, of the FMCH products business related to
hemodialysis products, peritoneal dialysis products and other activities,
principally technical service:
15
<PAGE> 16
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------- --------------------------- ------------------------------
Total % of Total % of Total % of
Revenues Total Revenues Total Revenues Total
-------- ----- -------- ----- -------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Hemodialysis
Products $275,645 61% $294,137 66% $279,569 67%
Peritoneal Dialysis
Products 124,788 28 137,020 31 132,058 32
Other 52,046 11 13,777 3 3,804 1
----------- ----------- ------------ ------------ ---------------- ------------
Total $452,479 100% $444,934 100% $415,431 100%
=========== =========== ============ ============ ================ ============
</TABLE>
HEMODIALYSIS PRODUCTS
The Company believes that Fresenius Medical Care is a leader in the
hemodialysis product field and continually strives to extend and improve the
capabilities of its hemodialysis systems to offer an advanced treatment mode at
reasonable cost. In North America, the Company offers a comprehensive
hemodialysis product line, consisting of hemodialysis machines, modular
accessories for dialysis machines, polysulfone and cuprophane dialyzers,
bloodlines, dialysis solutions and concentrates, fistula needles, connectors,
data management systems, machines and supplies for the reuse of dialyzers and
other similar supplies.
Dialysis Machines. Through Fresenius USA, the Company assembles, tests
and calibrates hemodialysis machines and sells these machines in the U.S.,
Canada and Mexico. Components for these machines are provided by Fresenius
Medical Care and other vendors. Hemodialysis machines manufactured by the
Company provide a unique volumetric dialysate balancing and ultrafiltration
control system. This system, first developed and introduced by Fresenius AG in
1977, provides for the safe and more efficient use of highly permeable
dialyzers. The Company also provides machine upgrade kits to allow for advanced
therapy modes, thus offering the customer maximum performance with highly
permeable polysulfone dialyzers. The Company's hemodialysis machines are capable
of operating with dialyzers manufactured by all manufacturers, and are
compatible with a wide variety of bloodlines and dialysis solutions. Fresenius
USA has extended the Fresenius Series 2008 hemodialysis machine for the North
American market through the development of the model 2008H, which combines the
reliable hydraulic system of the Series 2008 with electronic systems developed
by Fresenius USA. Dialysis machines sold by the Company employ the same modular
design as those of Fresenius Medical Care, but are tailored to local markets.
Modular design also permits the Company to offer dialysis centers a broad range
of options to meet specific patient or regional treatment requirements. The
display panel can also be adapted using different modules to meet local language
requirements. All machines have battery backup, permitting operation of the
blood circuit and all protective systems for 15 to 20 minutes in the event of a
power failure.
Dialyzers. Most dialyzers manufactured by the Company use hollow fiber
polysulfone membranes, a synthetic material. The Company believes that the
Fresenius Polysulfone(TM) dialyzer is the best-performing mass-produced dialyzer
on the market. Fresenius Medical Care is the leading worldwide producer of
polysulfone dialyzers. While competitors currently sell polysulfone membranes in
the market, Fresenius Medical Care developed and is the only manufacturer with
more than 12 years' experience in applying the technology required to mass
produce polysulfone membranes. The Company believes that polysulfone has
superior performance characteristics compared to other materials used in
dialyzers, including a higher biocompatibility and greater clearing capacities
for uremic toxins. The Company's Fresenius Polysulfone(TM) dialyzer line
consists of a complete range of permeability (high, medium and low flux) to
allow tailoring of the dialysis therapy to the individual patient. Fresenius
Polysulfone(TM) dialyzers are also available in an ultra-flux version for acute
dialysis. The Company also manufactures cuprophane low-flux dialyzers and
distributes (primarily to its own dialysis centers) dialyzers manufactured by
others.
The Company also sells dialyzer reuse and rinse machines manufactured
by Fresenius USA for Seratronics, Inc. ("Seratronics"). These machines cleanse
dialyzers
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<PAGE> 17
after dialysis, permitting multiple usage for the same patient before disposal
of the dialyzer. The Seratronics machines facilitate the reuse of disposable
dialyzers and, therefore, permit hemodialysis providers to reduce operating
costs. The reuse business of Seratronics is managed by the Company through
Fresenius USA.
Other Hemodialysis Products. The Company manufactures and distributes
arterial, venous, single needle and pediatric bloodlines. The Company produces
both liquid and dry dialysate concentrates. Liquid dialysate concentrate is
mixed with purified water by the hemodialysis machine to produce dialysis
solution, which is used in hemodialysis treatment to remove the waste products
and excess water from the patient's blood. Dry concentrate, developed more
recently, is less labor-intensive to use, requires less storage space and may be
less prone to bacterial growth than liquid solutions. The Company also produces
dialysis solutions in bags, including solutions for priming and rinsing
hemodialysis bloodlines, as well as connection systems for central concentrate
supplies and devices for mixing dialysis solutions and supplying them to
hemodialysis machines. Other products include solutions for disinfecting and
decalcifying hemodialysis machines , fistula needles, hemodialysis catheters,
and products for acute renal treatment.
New Hemodialysis Products. Fresenius USA has developed the Fresenius
Data System FDS08(TM) ("FDS08") computerized treatment monitoring and
documentation system. The FDS08 can automatically monitor and record machine and
treatment information from as many as 32 hemodialysis machines. The FDS08 is a
PC-based system which has found many applications for improving record keeping
and increasing staff efficiency. The FDS08 system has been used to pioneer new
therapies such as remote monitoring of patients during nightly home
hemodialysis, which enables a patient to be dialyzed at home while a staff
caregiver monitors the machine performance via a modem link. Additionally the
FDS08 system can be linked to Fresenius USA's new Hypercare(TM) Medical Records
System. The Hypercare(TM) Medical Records System is a fully-integrated medical
records system which can record and analyze trends in medical outcome factors in
hemodialysis patients.
PERITONEAL DIALYSIS PRODUCTS
The Company offers a full line of products for peritoneal dialysis
patients. Peritoneal dialysis products manufactured by the Company include
peritoneal dialysis solutions in bags, peritoneal dialysis cycling machines for
CCPD and disposable products for both CAPD and CCPD, such as tubing, sterile
solutions and sterile kits to prepare patients for dialysis. The Company also
distributes (primarily to its own dialysis centers) other manufacturers'
peritoneal dialysis products.
Peritoneal Dialysis Systems. The Company manufactures standard and
specialized peritoneal dialysis solutions. The Company believes that its
peritoneal solution products with Safe-Lock(R) connection systems offer
significant advantages for CAPD and CCPD home patients, including ease of use
and greater protection against touch contamination than other peritoneal
dialysis systems presently available. The Safe-Lock(R) standard system involves
the connection procedure of introducing and draining the dialysis solution into
and from the abdominal cavity through the use of the same bag for introduction
and drainage. To use Safe-Lock(R) products, a catheter that has been surgically
implanted in the patient is fitted with one part of the Safe-Lock(R) connector,
and the peritoneal dialysis solution bag and tubing are fitted with the other
part of the Safe-Lock(R) connector. The Company also manufactures disposable
double bag systems utilizing a special drainage bag and a snap-off Y-shaped
piece that is connected to the Safe-Lock(R) connector at the catheter. These
double bag systems further reduce possible entry of contaminants during
peritoneal dialysis. The Company's Inpersol(R) line of peritoneal dialysis
products acquired by Fresenius USA from Abbott Laboratories in 1993 (the "Abbott
Acquisition") is interchangeable and competitive with the peritoneal dialysis
products offered by Baxter, the Company's major competitor in this field.
Therefore, the addition of the Inpersol(R) product line to the Company's other
products enables the Company to expand the potential customer base for which it
competes, because the Company now supplies peritoneal dialysis products usable
by all peritoneal dialysis patients in the U.S.
Cyclers. Although CAPD is the predominant form of peritoneal dialysis
therapy, the Company believes that CCPD therapy offers patients benefits over
CAPD therapy for patients who need more therapy due to body size,
ultrafiltration loss or any other reason. In a standard CAPD program, a patient
undergoes four manual two-liter exchanges of peritoneal dialysis solution over a
24-hour period, with treatment occurring seven days per week. CAPD must be
performed by the patient when he or she
17
<PAGE> 18
is awake. With CCPD therapy, peritoneal dialysis cyclers provide automated
dialysis solution exchange. The cycler delivers a prescribed volume of dialysis
solution into the peritoneal cavity through an implanted catheter, allows the
solution to dwell for a specified time, and completes the process by draining
the solution. Cycling may be performed by patients at home throughout the night
while sleeping. CCPD delivers more effective therapy than CAPD due to the supine
position of the patient during the night, higher volume exchanges and preferable
cycle management. The Company's cycling equipment incorporates microprocessor
technology, that can be easily programmed by the patient, hospital or clinic
staff to perform specific prescribed therapy for a given patient. Since all
components are monitored and programmable, these machines allow the physician to
prescribe any of a number of current therapy procedures. With nighttime cycling,
the patient has complete daytime freedom, wearing only the surgically-implanted
catheter and capping device. In addition, the Company believes that CCPD reduces
the risk of peritonitis due to less frequent handling of the catheter.
Fresenius USA introduced the first CCPD machine in 1980 and, in 1994,
introduced a new variant on CCPD therapy, PD-Plus(TM) that is offered by the
Company in other parts of the world. Normally, a CCPD patient undergoes five or
six two-liter solution exchanges at night, and carries no solution during the
day. PD-Plus(TM) therapy provides a more tailored therapy using a simpler
nighttime cycler, and, where necessary, one exchange during the day. Compared
with typical CCPD therapy, the Company believes that PD-Plus(TM) therapy is less
costly and easier to administer. In addition, compared with CAPD therapy, the
Company believes that PD-Plus(TM) therapy improves toxin removal by more than
40% and therefore is attractive to patients and physicians alike. By increasing
the effectiveness of peritoneal dialysis treatments, at an acceptable increase
in cost over CAPD therapy, PD-Plus(TM) therapy may also effectively prolong the
time period during which a patient will be able to remain on peritoneal dialysis
before requiring hemodialysis. PD-Plus(TM) therapy, as developed by Fresenius
USA, can only be performed using the Fresenius Freedom Cycler and special tubing
using Safe-Lock(R) connectors.
Other Peritoneal Dialysis Products. The Company also manufactures and
distributes pediatric treatment systems for administration of low volumes of
dialysis solutions, assist devices to facilitate automated bag exchange for
handicapped patients, catheters, catheter implantation instruments, silicon
glue, Pack-PD(TM) (a computer program which analyzes patient and peritoneal
characteristics to present a range of treatment options for individual
therapies), disinfectants, bag heating plates, adapters, and products to assist
and enhance connector sterility. The Company also provides scientific and
patient information products, including support materials, such as brochures,
slides, videos, instructional posters and training manuals.
New Peritoneal Dialysis Products. Fresenius Medical Care has recently
developed a new CAPD system, comprising tubing, connectors and a peritoneal
dialysis double bag, together with the process technology for the manufacture of
the system. The Fresenius Stay-Safe(TM) peritoneal dialysis system utilizes a
single switching mechanism that replaces the three tubing clamps to control
drainage of solution, flushing of tubes that connect solution bags to catheters,
the introduction of new solution, and the tight closure of the line. The control
device also further reduces the possibility of catheter contamination during
connection and disconnection by sealing the catheter access and surrounding the
catheter adapter with a disinfectant solution.
In March 1996, Fresenius USA received approval by the U.S. Food and
Drug Administration ("FDA") of its new Premier twin bag CAPD system. This system
comprises a single product, the Delflex(R) solution bag and the tubing and
drainage set necessary for CAPD exchanges. The Premier twin bag system also
utilizes Safe-Lock(R) connectors and, because fewer connections are required,
may help to reduce patient complications associated with peritoneal dialysis
therapy. The Premier twin bag system also includes new fill volumes which offer
the physician the ability to prescribe larger dosages without requiring the
patient to do more exchanges during the day. Fresenius USA began limited
marketing of the Premier twin bag system during July 1996. Additionally, in
December 1997, Fresenius Medical Care submitted to the FDA a file for review of
a more advanced Premier twin bag system that utilizes additional features beyond
those approved in March 1996.
18
<PAGE> 19
MARKETING, DISTRIBUTION AND SERVICE
Most of the Company's products are sold to hospitals, clinics and
specialized treatment centers. With its comprehensive product line and years of
experience in dialysis, the Company believes that it has been able to establish
and maintain very close relationships with its clinic customer base on a global
basis. Close interaction among the Company's sales force and research and
development personnel enables concepts and ideas that develop in the field to be
considered and integrated into product development. The Company maintains a
direct sales force of trained salespersons engaged in the sale of both
hemodialysis and peritoneal dialysis products. This sales force engages in
direct promotional efforts, including visits to physicians, clinical
specialists, hospitals, clinics and dialysis centers, and represents the Company
at industry trade shows. The Company also sponsors medical conferences and
scientific symposia as a means for disseminating product information. The sales
force is assisted by clinical nurses who provide clinical support, training and
assistance to customers. The Company also utilizes outside distributors to
provide sales coverage in countries not serviced by its internal sales force.
Fresenius USA's products are distributed in Canada through a wholly-owned
subsidiary and in Mexico through distributors. Inpersol(R) products are not
distributed by Fresenius USA in Canada or Mexico, where Abbott retains exclusive
rights to those products.
All of the Company's machines are shipped from its facilities in Walnut
Creek, California. Fresenius USA's dialyzers and other hemodialysis disposable
products are shipped to regional distribution centers from Fresenius USA's
facilities in Ogden, Utah. Fresenius USA's disposable peritoneal dialysis
products are shipped from its facility in Ogden, Utah or from Abbott facilities
to regional distribution centers, and, from these regional distribution centers
the products are delivered directly to the customer, in most cases the patient,
by Company drivers. The drivers store deliveries in the location desired by the
patient, rotate disposable products so that the oldest products are used first,
and generally provide continuity of contact between Fresenius USA and patients
who use Fresenius USA's peritoneal dialysis products. Products of the Renal
Products Division of NMC are distributed through 19 warehouse facilities (13 in
the U.S., three in Europe, two in Latin America and one in Asia). RPD delivers
its products to dialysis providers and, in the U.S. and United Kingdom, directly
to home patients. At the time of the Abbott Acquisition by Fresenius USA, Abbott
Laboratories had agreements with numerous hospitals pursuant to which these
hospitals could order the full line of Abbott Laboratories products, including
renal dialysis products, from Abbott Laboratories. Abbott Laboratories has
agreed to act as Fresenius USA's distributor for the continued sale of
Inpersol(R) products to hospitals through the beginning of 1998. The agreement
is automatically extended for successive one year terms unless six-months notice
of termination is given prior to the expiration of the term or any extension
thereof.
FMCH offers customer service, training and education, and technical
support such as field service, spare parts, repair shops, maintenance, and
warranty regulation. The Company also provides training sessions on the
Company's equipment. The Company's management believes its service organizations
have a reputation for reliability and high quality service.
MANUFACTURING OPERATIONS
The Company assembles equipment, including hemodialysis machines,
dialyzer reuse devices and peritoneal dialysis cyclers, at its facility in
Walnut Creek, California. Components of the Company's hemodialysis machines are
supplied by Fresenius Medical Care as well as other suppliers, and the Company
has experienced no difficulties in obtaining sufficient quantities of such
components. In connection with the sale and installation of the machines,
Company technicians and engineers calibrate the machines and add computer
software for record keeping and monitoring.
The Company owns a 344,000 square-foot facility in Ogden, Utah for the
manufacture of disposable products, including polysulfone dialyzers, peritoneal
dialysis solutions, other sterile solutions, plastic tubing and medical devices.
This facility uses automated equipment for the production of polysulfone
dialyzers and sterile solutions in flexible plastic containers. The design of
the Company's Ogden facility is based on the design of a Fresenius Medical Care
facility in St. Wendel, Germany, and was constructed in consultation with
Fresenius AG. The Company, through Fresenius USA, also purchases dialyzers and
polysulfone bundles from
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Fresenius Medical Care. The Company believes that it is the principal
manufacturer of polysulfone dialyzers in the U.S. While the Company obtains the
film used in the manufacture of its plastic bags from one supplier located in
The Netherlands, the Company believes that there are readily available
alternative sources of supply for which the FDA could grant expedited approval.
The Company also intends to manufacture its own plastic film for peritoneal
dialysis solution bags.
The Company also manufactures dialysis products at 8 additional plants
(five in the U.S., one in Europe and two in Latin America). Bloodlines are
produced at facilities in Reynosa, Mexico, and McAllen, Texas, and concentrates
are produced at three facilities in the U.S. and one plant in each of Brazil,
Argentina, and the U.K.
The Company intends to transfer the production of the products acquired
by Fresenius USA from Abbott to the Company's facility in Ogden, Utah. Until the
transfer is completed, Fresenius USA has agreed to purchase products at
contractually-established prices, and Abbott has agreed to manufacture and sell
to Fresenius USA stated quantities of Inpersol(R) dialysis products. Fresenius
USA's license agreement with Abbott also provides Fresenius USA with access to
Abbott's manufacturing technology used in connection with Abbott's production
of peritoneal dialysis solution in plastic bags, related tubing assemblies and
other products used in the dialysis field (other than Abbott's Calcijex(R)
product line). Abbott will assist Fresenius USA in establishing Fresenius USA's
manufacturing capability for these products. Fresenius USA intends to use this
technology to develop the ability to manufacture several components that it now
purchases from third parties. In March 1996, Fresenius USA received FDA approval
to manufacture Abbott Inpersol(R) dialysis solutions with Safe-Lock(R)
connectors and twin-bag systems.
Each step in the manufacture of the Company's products, from the
initial processing of raw materials through the final packaging of the completed
product, is carried out under controlled quality assurance procedures required
by law and under Good Manufacturing Practices ("GMP"), as well as under
comprehensive quality management systems, such as the internationally recognized
ISO 9000-9004 standards, which are mandated by regulatory authorities in the
countries in which the Company operates.
Incoming raw materials for solutions are subjected to infrared,
ultraviolet and physical and chemical analyses to assure quality and
consistency. During the production cycle, sampling and testing are performed in
accordance with established quality assurance procedures. Pressure, temperature
and time for various processes are monitored to assure consistency of
semifinished goods. Environmental conditions are monitored to assure that
particulate and bacteriological levels do not exceed specified maximums.
Sampling and testing are done in accordance with physical and chemical
procedures required to ensure sterility, safety and potency of finished
products. The Company maintains continuing quality control and GMP education and
training programs for its employees. See "-- Regulatory and Legal Matters."
SOURCES OF SUPPLY
Raw materials essential to the Company's dialysis products business are
purchased worldwide from numerous suppliers and no serious shortages or delays
in obtaining raw materials have been encountered. To assure continuous high
quality, Fresenius Medical Care has single supplier agreements for many of its
polymers, including polysulfone, polyvinylpyrrolidone, and polyurethane for
dialyzer production, and for certain other raw materials. Wherever single
supplier agreements exist, the Company believes alternative suppliers are
available. However, use of raw materials obtained from alternative suppliers
could cause costs to rise due to necessary adjustments in the production process
or interruptions in supply.
One of the Company's subsidiaries, Fresenius USA, obtains bloodlines
under an agreement with Medisystems Corporation ("MDS"), whose principal source
of bloodlines is a single FDA-approved plant located in Thailand. The agreement
has an eight-year term ending in September 1999 and is automatically extended
thereafter for successive three-year terms unless one-year's notice of
termination is given prior to the expiration of the term or any extension
thereof. Fresenius USA is required to make minimum annual purchase commitments
(currently approximately 11.9 million bloodline sets) which increase by a
minimum of 8% per year. The agreement includes guaranteed price provisions,
subject to permitted increases reflecting cost increases beyond the supplier's
control.
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RESEARCH AND DEVELOPMENT
Current research and development activities of the Company are
primarily conducted through Fresenius Medical Care and are strongly focused on
the development of new products, technologies and treatment concepts to optimize
the quality of treatment for dialysis patients, and on process technology for
the manufacture of the Company's products. Research and development is conducted
through the Fresenius Medical Care's Innovation & Technology Group which is
divided into hemodialysis and peritoneal dialysis segments. These units work
closely with the respective marketing and medical departments in each dialysis
segment.
Fresenius Medical Care intends to continue to maintain its central
research and development operations for disposable products, including dialyzers
and peritoneal solutions, at its St. Wendel facility and for durable products at
its facilities in Schweinfurt and Bad Homburg, Germany. It expects that as its
dialysis products business continues to expand internationally, research and
development activities by its international operations, including the Company,
will rely primarily on the research and development activities conducted at St.
Wendel, Schweinfurt, and Bad Homburg, with local activities focusing on
cooperative efforts with those facilities to develop new products and product
modifications for local markets. The Company's product development staff works
closely with the Fresenius Medical Care research and development group in this
regard. Fresenius Medical Care employs approximately 190 persons in research and
development (including medical doctors, engineers, technicians and research
scientists), and conducts its activities at three locations in Germany (at the
St. Wendel Facility, the Schweinfurt Facility and the Bad Homburg Facility), and
in Walnut Creek, California and Ogden, Utah. Fresenius Medical Care's research
and development expenses were $22 million in 1997.
The Company seeks to maintain its profile in scientific circles through
articles in scientific and medical journals, participation in academic symposia,
relationships with scientists and physicians in relevant fields and the
organization of scientific meetings and workshops. The Company also establishes
scientific advisory boards and works with medical and other consultants.
PATENTS, TRADEMARKS AND LICENSES
In connection with the Merger, Fresenius Medical Care and its
subsidiaries acquired or licensed all intellectual property rights of Fresenius
AG relating to Fresenius Worldwide Dialysis.
As the owner of or licensee under patents and trademarks throughout the
world, Fresenius Medical Care holds rights under more than 800 patents and
patent applications relating to dialysis technology in major markets. Patented
technologies that relate to dialyzers include Fresenius Worldwide Dialysis'
polysulfone hollow fiber, Fresenius Worldwide Dialysis' in-line sterilization
method, and sterile closures for in-line sterilized medical devices. For
dialysis machines, patents include the process for volumetric mixing of
concentrate with water, the location for a filter device for sterile filtering
dialysate in the dialysis machine circuit, and conductivity sensor devices and a
mathematical algorithm for using such devices. Pending patents include the
safety concept for the control of the ultrafiltration rate in a dialysis machine
used for high flux dialysis and the connector system for the Fresenius Worldwide
Dialysis' biBag(TM) bicarbonate concentrate powder container.
For peritoneal dialysis, Fresenius Medical Care holds rights on the
Safe-Lock(R) system, the double bag for bicarbonate peritoneal dialysis
solution, and its orientation of the two compartments. Pending patents include
non-PVC film (Biofine(TM)) for general use in intravenous and peritoneal
dialysis applications and a special film for a peelable, non-PVC double bag for
peritoneal dialysis solutions. Fresenius USA's intellectual property includes
the Inpersol(R) trademark and rights to certain manufacturing know-how Fresenius
USA obtained from Abbott, and a paid-up non-exclusive global sublicense from
Baxter to certain CAPD and connector technology.
The patent family covering Fresenius Polysulfone(TM) high flux
membranes has been subject to opposition by competitors in Europe and Japan.
While Fresenius Medical Care believes that these patents are valid in the
relevant jurisdictions, a successful opposition could have a material adverse
effect on the Company.
The Company believes that its success will depend, in large part, on
Fresenius Medical Care's technology. While Fresenius Medical Care, as a standard
practice,
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obtains such legal protections it believes are appropriate for its intellectual
property, such intellectual property is subject to infringement or invalidation
claims. In addition, technological developments in ESRD therapy could reduce the
value of Fresenius Medical Care's existing intellectual property, which
reduction could be rapid and unanticipated.
COMPETITION
The markets in which the Company sells its dialysis products are highly
competitive. Among The Company's competitors in the sale of hemodialysis and
peritoneal dialysis products are CGH Medical (an affiliate of Gambro AB),
Baxter, Inc., Althin CD Medical, Inc., Asahi Medical Co., Ltd., Bellco S.p.A. (a
subsidiary of Sorin Biomedica S.p.A.), Bieffe Medital S.p.A., B. Braun Melsungen
AG, Nissho Corporation (including Nissho Nipro Corporation Ltd.), Nikkiso Co.,
Ltd., Terumo Medical Corporation and Toray Medical Co., Ltd. Some the Company's
competitors possess greater financial, marketing and research and development
resources than the Company.
The Company believes that in the dialysis product market, companies
compete primarily on the basis of product performance, cost-effectiveness,
reliability, assurance of supply and service and continued technological
innovation. The Company believes its products are highly competitive in all of
these areas. Independent dialysis centers and those operated by other chains
that were customers of Fresenius Worldwide Dialysis prior to the Merger may
elect to limit or terminate their purchases of the Company dialysis products in
order to avoid purchasing products manufactured by a competitor. The Company
believes, however, that customers will continue to consider its long-term
customer relationships and reputation for product quality in making product
purchasing decisions, and the Company intends to compete vigorously for such
customers.
HOMECARE AND NON-RENAL DIAGNOSTICS SERVICES
STRATEGIC ALTERNATIVES
In order to increase the value of the core business, the Company is
currently evaluating alternatives for its Homecare and Non-Renal Diagnostic
Services division. Alternatives under consideration include a restructuring,
joint venture, merger or sale of the homecare and non-renal diagnostics
businesses. The evaluation of the various alternatives is expected to be
completed during 1998.
HOMECARE OVERVIEW
The Company, through its Homecare division, is a leading U.S. provider
of integrated homecare services, offering primarily comprehensive intravenous
infusion (prescription medications and nutrition), respiratory therapies and
home medical equipment in the U.S. The Company believes that by providing all
three of these key components of home patient care (either directly or through
contractual arrangements), the Company offers quality care on a cost-effective
and integrated basis. As of December 31, 1997, the Company operated from
approximately 79 locations in 31 states, providing infusion services from 76 of
these locations, home respiratory services from 73 of these locations, and home
health services from 16 locations. Approximately 65% of Homecare's net revenues
for the twelve months ended December 31, 1997 were derived from infusion
therapies, approximately 28% from home respiratory therapies and equipment and
approximately 7% from home health services.
In all three of its areas of service, the Company provides patients
with a variety of services and related products and supplies prescribed by a
physician as part of, or pursuant to, a patient treatment plan. In addition to
patient care, these services include pharmacy compounding of prescription
medications and nutritional solutions, training patients and their care givers
as to the proper administration of therapies and products in the home,
monitoring compliance with the patient's individualized treatment plan,
reporting patient status and clinical outcome to the patient's physician and/or
managed care organization, maintaining equipment and supplies and processing
claims to third party payors.
A typical Homecare infusion respiratory therapy location has a fully
equipped pharmacy, offices for administrative, clinical and sales personnel and
a small storage warehouse. Location staffs generally include a general manager,
licensed
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pharmacists, registered nurses, certified respiratory therapists and sales and
administrative personnel. The Company purchases or leases the products and
equipment needed to support the provision of its clinical services.
The homecare industry has experienced rapid growth in recent years as a
result of the cost-effectiveness of home treatment as compared to hospital
inpatient treatment, continued advances in medical technology that have
facilitated the provision of sophisticated care in a home setting, increased
acceptance of homecare by the medical community, patients and payors, and the
significant increase in the over-65 population. The Company believes that the
homecare industry will continue to benefit from health care cost-containment
measures that encourage reduced hospital admissions and reduced lengths of stay
in hospitals. Additionally, the advent of managed care in the U.S. has
transformed the health care delivery system from a fragmented system of
providers of discrete services to an integrated continuum of care delivery
system. This evolution encourages therapy planning across places of service and
levels of care, and is intended to achieve efficiency and cost savings through
use of lower cost, less intensive treatment settings.
NON-RENAL DIAGNOSTICS OVERVIEW
The Company provides diagnostic testing services to the primary care
market through NMC's Diagnostic Services Division ("DSI"). DSI is one of the
largest diagnostic testing suppliers in the U.S. DSI provides diagnostic testing
at company owned imaging centers and on-site in physician offices, hospitals and
nursing homes. Services are provided through the use of fixed and transportable
imaging equipment, and mobile coaches. DSI's range of services include:
Diagnostic Ultrasound (e.g., Obstetrical, Gynecological, Fertility Testing,
Abdominal, Genitourinary, Small Parts), Cardiac and Vascular Studies (e.g.,
Echocardiography, Stress Echocardiography, Electrocardiogram, ECG Stress
Testing, Cerebrovasular, Arterial and Venous Studies of Extremities), Cardiac
and General Nuclear Medicine, Diagnostic Radiology (e.g., X-Rays, Fluoroscopy,
Bone Denitometry), Mammography, Nerve Conduction Velocity, Computerized
Tomography, and Magnetic Resonance Imaging. DSI also provides portable X-Ray,
Holter and Trans-Telephonic Cardiac Montoring (TTM). DSI provides imaging
services in 23 states and TTM services in 33 states. DSI's revenues for the nine
months ended December 31, 1997, were $64 million.
The U.S. market for diagnostic imaging is over $50 billion. The competition is
highly fragmented and can be characterized as follows: hospital radiology
departments, national imaging center chains, independent imaging centers, mobile
testing companies, and physicians owning their own equipment. Growth in the
outpatient diagnostic industry is expected to continue as a result of cost
containment pressures accelerating the shift from expensive inpatient testing to
lower cost outpatient testing, and managed care's interest in prevention and
early diagnosis. Limiting factors on growth include increased utilization
management by managed care organizations and continued downward pressure on
reimbursement rates.
EMPLOYEES
At December 31, 1997, FMCH employed approximately 27,810 employees,
including part-time and per diem employees. Such persons are employed by the
Company's principal businesses as follows: dialysis treatment and laboratory
services, approximately 22,060 employees; dialysis products, approximately 2,990
employees; and home care services, approximately 2,760 employees. Medical
Directors of the Company's dialysis centers are retained as independent
contractors. Management believes that its relations with its employees are good.
Approximately 520, or 3% of the Company's U.S. employees are covered by union
agreements.
REGULATORY AND LEGAL MATTERS
Regulatory Overview
The operations of the Company are subject to extensive governmental
regulation by virtually every nation in which it operates, including, most
notably in the U.S. at the federal, state and local levels. Although such
regulations differ from country to country, in general, non-U.S. regulations are
designed to accomplish the same objectives as U.S. regulations regarding the
operation of dialysis centers, laboratories and manufacturing facilities, the
provision of quality health care for patients, the maintenance of occupational,
health, safety and environmental
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standards and the provision of accurate reporting and billing for governmental
payments and/or reimbursement. In addition, each country has its own payment and
reimbursement rules and procedures, and some countries prohibit ownership of
health care providers by foreign interests or establish other regulatory
barriers to direct ownership by foreign companies. In those countries, the
Company works within the framework of local laws to establish alternative
contractual arrangements for the management of facilities.
Any failure by the Company or its subsidiaries to receive required
licenses, certifications or other approvals, significant delays in such receipt,
loss of its various federal certifications in the U.S., termination of licenses
under the laws of any state or other governmental authority or changes resulting
from health care reform or other government actions that reduce reimbursement or
reduce or eliminate coverage for particular services rendered by the Company or
its subsidiaries could have a material adverse effect on the business, financial
condition and results of operations of the Company.
The Company must comply with all U.S. and non-U.S. legal and regulatory
requirements under which it operates, including the federal Medicare and
Medicaid Fraud and Abuse Amendments of 1977, as amended (the "anti-kickback
statutes"), the federal restrictions on certain physician referrals (commonly
known as the "Stark Law") and other fraud and abuse laws and similar state
statutes, as well as similar laws in other countries. Certain of NMC's
activities are subject to investigation (the "OIG Investigation") by the Office
of the Inspector General ("OIG") of the HHS. See " --Legal Proceedings" for
information about the OIG's investigations and about additional regulatory,
investigatory and legal proceedings with respect to the Company. Moreover, there
can be no assurance that applicable laws, or the regulations thereunder, will
not be amended, or that enforcement agencies or the courts will not make
interpretations inconsistent with those of the Company, any one of which could
have a material adverse effect on its business, reputation, financial condition
and results of operations. Sanctions for violations of these statutes may
include criminal or civil penalties, such as imprisonment, fines or forfeitures,
denial of payments, or suspension or exclusion from the Medicare and Medicaid
programs. In the U.S., these laws have been broadly interpreted by a number of
courts, and significant government funds have been devoted to their enforcement
because such enforcement has become a high priority for the federal government
and some states. Fresenius Medical Care, and the health care industry in
general, will continue to be subject to extensive federal, state and foreign
regulation, the full scope of which cannot be predicted.
NMC historically has employed certain mechanisms to monitor its
compliance with relevant laws, rules, regulations and business standards. Such
compliance-related policies and activities have included periodic reaffirmations
of business ethics standards, internal audit reviews and legal reviews. To
increase the effectiveness of its compliance activities, the Company initiated a
review and enhancement of NMC's compliance systems. It also hired a senior-level
corporate compliance officer to assist with such efforts.
In connection with its compliance program, FMCH established a toll-free
Employee Action Line accessible to all its employees to seek guidance and report
potentially improper or unethical actions, or report violations of applicable
law or policies. Confidentiality of callers is protected to the extent permitted
by law, and FMCH has a policy against retaliation or retribution against anyone
who in good faith reports an ethical or legal concern. FMCH seeks to ensure that
cases are investigated thoroughly, objectively, and promptly. A Code of Ethics
and Business Conduct was developed and distributed to all FMCH employees in
January 1997. This document emphasizes FMCH's commitment to conduct business in
accordance with the highest legal and ethical standards of business conduct,
which every employee has an obligation to uphold.
Compliance training for employees began in 1996. Currently, compliance
training is performed by FMCH management under the supervision and guidance of
FMCH's Compliance Officer. The compliance training program, featuring both live
and video presentations, focuses on the current regulatory environment, FMCH's
commitment to compliance, a page-by-page review of the Code of Ethics and
Business Conduct, a discussion of the Employee Action Line, and an analysis of
hypothetical cases involving compliance and ethics challenges. Substantially all
of the approximately 23,000 FMCH employees throughout the United States are
expected to have received
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training by the end of the first quarter of 1998. Training for new employees is
ongoing.
Compliance-related communications to all employees have been and will
continue to be made regularly. In addition, compliance audits are a part of
FMCH's overall compliance program. For example, FMCH's Compliance Officer is
currently supervising and coordinating training and audits required under
Spectra Laboratories' Corporate Integrity Agreement.
In June of 1997, FMCH acquired Spectra Laboratories, Inc. ("Spectra"),
a clinical laboratory located in Fremont, California, specializing in clinical
laboratory testing for end-stage renal disease patients. Prior to its
acquisition by FMCH, Spectra settled an investigation by the government and
entered into a Corporate Integrity Agreement ("Agreement"). This Agreement
provides for a government-mandated compliance program which, among its
provisions, requires an annual independent review to assess the effectiveness of
internal controls and the implementation and operation of the program. Under its
provisions, breach of a material term of the Agreement may result in exclusion
of Spectra from the Medicare and Medicaid programs. A similar agreement was
executed by Spectra to settle state Medicaid claims.
PRODUCT REGULATION
U.S.
In the U.S., the FDA and comparable state regulatory agencies impose
requirements on certain subsidiaries of the Company as a manufacturer and a
seller of medical products and supplies under their jurisdiction. These require
that products be manufactured in accordance with GMP and that the Company comply
with FDA requirements regarding the design, safety, advertising, labeling,
recordkeeping and reporting of adverse events related to the use of its
products. In addition, in order to clinically test, produce and market certain
medical products and supplies (including hemodialysis and peritoneal dialysis
equipment and solutions, dialyzers, bloodlines and cell separators) for human
use, the Company must satisfy mandatory procedures and safety and efficacy
requirements established by the FDA or comparable state and foreign governmental
agencies. Such rules generally require that products be approved by the FDA as
safe and effective for their intended use prior to being marketed.
A "510(k)" pre-market notification or pre-market approval application
is required before any new FDA-regulated device may be sold or marketed in the
U.S. The FDA generally classifies medical devices as class I devices, which are
subject to general controls (e.g., labeling, pre-marketing notification and
adherence to GMP); class II devices, which are subject to special controls
(e.g., performance standards, post-marketing surveillance, patient registries
and FDA guidelines); and class III devices, which include life-sustaining,
lifesupporting and implantable devices, or new devices which are not
substantially equivalent to devices in interstate commerce prior to 1976 and
which require pre-market approvals. The FDA will generally grant 510(k)
clearance if the submitted data establish that the proposed device is
"substantially equivalent" to a legally marketed class I or class II medical
device, or a class III medical device for which the FDA does not require
pre-marketing approval. The FDA may request additional data or require
pre-marketing approval for any device. The approval process is expensive, time
consuming and subject to unanticipated delays. There can be no assurance that
the Company will obtain necessary regulatory approvals or clearances within
reasonable time frames, if at all. Any such delay or failure to obtain
regulatory approval or clearances could have a materially adverse effect on the
business, financial condition and results of operations of Fresenius Medical
Care.
The Company's peritoneal dialysis solutions have been designated as
drugs by the FDA and, as such, are subject to additional FDA regulation under
the Food, Drug and Cosmetic Act of 1938 ("FDC Act"). In order for a new drug to
receive marketing approval in the U.S., the Company must follow a series of
steps which may include: (a) pre-clinical laboratory and animal tests in
accordance with good laboratory practices, (b) an Investigational New Drug
application which must become effective before human clinical trials may begin,
(c) well-controlled human clinical trials to establish the safety and efficacy
of the new drug product, (d) a New Drug Application ("NDA") or an Abbreviated
New Drug Application ("ANDA") and (e) approval of the NDA or ANDA prior to any
commercial sale or shipment of the drug. FDA
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approval must be obtained for each product designated as a drug. Generally,
approval of an NDA, if obtained, takes one and a half or more years and may take
longer should the FDA raise questions or have concerns about a new drug.
The FDA may also prohibit the sale or importation of products, order
product recalls or require post-marketing testing and surveillance programs to
monitor a product's effects. The Company believes that it has filed for or
obtained all necessary approvals for the manufacture and sale of its products in
jurisdictions in which those products are currently produced or sold.
See " -- Legal Proceedings -- FDA Matters" for information about
certain FDA matters, including warning letters and import alerts that the FDA
issued from 1991 through 1993 with respect to certain products assembled by NMC
and the Consent Decree entered into thereafter; 1994 and 1995 FDA audits of
certain Fresenius USA manufacturing facilities; and a District of New Jersey
federal grand jury investigation into NMC's activities in connection with the
lifting of a 1991 import hold with respect to its Dublin, Ireland manufacturing
facility.
NON-U.S.
Most countries maintain different regulatory regimes for pharmaceutical
products and for medical devices. In each regime, there are regulations
governing manufacturers and distributors, as well as regulations governing the
final products manufactured and distributed. Individual country regulations may
be supplemented or superseded by treaties or other international law and by
standards and guidelines issued thereunder.
Some of the Company's products, such as peritoneal dialysis solutions,
are considered pharmaceuticals. The European Union ("EU") has issued a directive
on pharmaceuticals, No. 65/65/EWG (26 January 1965), as amended. Each member of
the EU is responsible for conforming local law to comply with this directive. In
Germany, pharmaceutical products are primarily regulated by the German Drug Law,
as amended (Arzneimittelgesetz) (the "Drug Law") which implements EU
requirements.
The provisions of the Drug Law are typical of the legal standards in
other European countries. The Drug Law sets forth the requirements for the
authorization of a company to manufacture pharmaceuticals. One such requirement
is that a manufacturer appoint pharmacists or physicians to be responsible for
the manufacture of the pharmaceuticals. At least three such responsible persons
must be appointed: a quality assurance manager, a head of the manufacturing
department and a person responsible for notifying authorities of any reported
side effects and authorized to recall the products in question. Each such person
may be held personally liable under German criminal laws for violations of the
Drug Law.
International guidelines also govern the manufacture of pharmaceuticals
and, in many cases, overlap with national requirements. In particular, the
Pharmaceutical Inspection Convention ("PIC"), an international treaty, sets
forth rules which are binding on most countries in which pharmaceuticals are
manufactured. Among other things, PIC establishes requirements for GMP which are
then adopted at the national level. Another international guideline, which is
non-binding, is the ISO 9000-9004 system for assuring quality control. This
system is more detailed than GMP. Compliance entitles the manufacturer to a
certification of quality control. As of July 1993, the first Fresenius Worldwide
Dialysis plants obtained certificates for successfully running full quality
management systems (ISO 9001).
In addition to the regulation of the manufacture of pharmaceuticals,
countries directly regulate the pharmaceuticals produced. A drug needs to be
registered and authorized in every country in which it is distributed. EU rules
govern the conditions for a registration, such as pre-clinical and clinical
testing.
Historically, medical devices have not been regulated as strictly as
pharmaceuticals, but more stringent regulatory schemes are now being adopted.
The EU began to harmonize national regulations comprehensively for the control
of medical products in Europe in 1993, when it adopted Medical Devices Directive
(93/42/EEC, 12 July 1993). In 1995, Germany implemented this directive when it
adopted the Medical Devices Act (Medizinproduktegesetz) (the "Medical Devices
Act"), which is similar in many ways to the Drug Law. The EU directive applies
to both the manufacturers' quality control system and the products' technical
design. Depending on the class of medical devices, there are alternative
regulatory modules to be chosen by a
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manufacturer to demonstrate compliance with EU provisions. To assure and
demonstrate the high quality standards and performance of its operations,
Fresenius Worldwide Dialysis has subjected its plants to the most comprehensive
procedural module, which is also the fastest way to launch a new product in the
EU. This module requires the certification of a full quality management system
by a "notified body" (i.e., a group accredited and monitored by governmental
agencies that inspects manufacturing facilities and quality control systems at
regular intervals and is authorized to carry out unannounced inspections)
charged with supervising the quality management system.
Upon receipt of an EU certificate for the quality management system of
a particular facility, a company is permitted to assess if products developed
and manufactured in the facility satisfy EU requirements. EU requirements for
products are laid down in harmonized EU standards and include conformity to
safety requirements, physical and biological properties, construction and
environmental properties, and information supplied by the manufacturer.
Conformity to these requirements must be demonstrated by pre-clinical tests,
biocompatibility tests, qualification of products and packaging, risk analysis
and well-conducted clinical evaluations approved by ethics committees.
A manufacturer having an EU-certified full quality management system
has to declare and document conformity of its products to the harmonized
standards and, if able to do so, to put a "CE" mark on the products. The "CE"
mark demonstrates compliance with the relevant EU requirements. Products subject
to these provisions that do not bear the "CE" mark cannot be imported, sold or
distributed within the EU.
The Medical Device Directive became effective on June 29, 1993.
However, for a period of five years after the adoption of the Medical Device
Directive, Member States may authorize the distribution of products which comply
with the legal provisions applicable within their territory as in effect on
December 31, 1994. The latest generations of the Company's machines (Series
4008, 4008B, 4008E and its therapy modifications, and PD-NIGHT(R)), as well as
dialysis filters and dialysis tubing systems, already bear the "CE" mark. The
Company expects to continue to obtain additional certificates as they are
required. The Company's Renal Products Division ("RPD") manufacturing facilities
have been awarded a "CE" mark and have received ISO certifications, and all RPD
products are labelled with a "CE" mark.
FACILITIES AND OPERATIONAL REGULATION
U.S.
The Clinical Laboratory Improvement Amendments of 1988 ("CLIA") subject
virtually all clinical laboratory testing facilities, including those of the
Company, to the jurisdiction of HHS. CLIA establishes national standards for
assuring the quality of laboratories based upon the complexity of testing
performed by a laboratory. Certain of the operations of Fresenius Medical Care
also subject it to federal laws governing the repackaging and dispensing of
drugs (including oxygen) and the maintenance and tracking of certain life
sustaining and life-supporting equipment.
The U.S. operations of Fresenius Medical Care are subject to various
U.S. Department of Transportation, Nuclear Regulatory Commission and
Environmental Protection Agency requirements and other federal, state and local
hazardous waste disposal laws. As currently in effect, laws governing the
disposal of hazardous waste do not classify most of the waste produced in
connection with the provision of dialysis, laboratory or homecare services as
hazardous, although disposal of nonhazardous medical waste is subject to
specific state regulation. LifeChem and DSI both generate hazardous waste which
is subject to specific disposal requirements. In addition, certain chemotherapy
services provided by Homecare are subject to specific disposal requirements. The
operations of Fresenius Medical Care are also subject to various air emission
and wastewater discharge regulations.
Federal, state and local regulations require Fresenius Medical Care to
meet various standards relating to, among other things, the management of
facilities, personnel qualifications and licensing, maintenance of proper
records, equipment, quality assurance programs, the operation of pharmacies, and
dispensing of controlled substances. All of the operations of Fresenius Medical
Care in the U.S. are subject to periodic inspection by federal and state
agencies and other
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governmental authorities to determine if the operations, premises, equipment,
personnel and patient care meet applicable standards. To receive Medicare
reimbursement, the Company's dialysis centers, home health services locations
and laboratories must be certified by HCFA. All of the Company's dialysis
centers, home health services locations and laboratories that furnish Medicare
services are so certified. In addition, all of the locations operated by
Homecare are accredited by the Joint Commission for the Accreditation of Health
Care Organizations.
Certain facilities of the Company and certain of their employees are
also subject to state licensing statutes and regulations. These statutes and
regulations are in addition to federal and state rules and standards that must
be met to qualify for payments under Medicare, Medicaid and other government
reimbursement programs. Licenses and approvals to operate these centers and
conduct certain professional activities are customarily subject to periodic
renewal and to revocation upon failure to comply with the conditions under which
they were granted. See " -- Legal Proceedings -- FDA Matters" for information
about 1995 FDA audits of Fresenius USA's facilities.
The Occupational Safety and Health Administration ("OSHA") regulations
require employers to provide employees who work with blood or other potentially
infectious materials with prescribed protections against blood-borne pathogens.
The regulatory requirements apply to all health care facilities, including
dialysis centers, laboratories and homecare providers, and require employers to
make a determination as to which employees may be exposed to blood or other
potentially infectious materials and to have in effect a written exposure
control plan. In addition, employers are required to provide hepatitis B
vaccinations, personal protective equipment, blood-borne pathogens training,
post-exposure evaluation and follow-up, waste disposal techniques and
procedures, engineering and work practice controls and other OSHA-mandated
programs.
Some states in which NMC operates have Certificate of Need ("CON") laws
that require any person or entity seeking to establish a new health care service
or to expand an existing service to apply for and receive an administrative
determination that the service is needed. The Company currently operates in 14
states and the District of Columbia and Puerto Rico that have CON laws
applicable to dialysis centers. These requirements may provide a barrier to
entry to new companies seeking to provide services in these states, but also may
constrain the Company's ability to expand its operations in these states.
NON-U.S.
Countries outside of the U.S. possess a wide variety of operational
regulation at disparate levels. Accordingly, the Company's operations are
subject to very different regulations in different countries. Most countries
regulate the conditions under which manufacturing is conducted and dialysis
centers are operated.
The Company is subject to a broad spectrum of regulation. Its
operations must comply with various environmental and transportation regulations
in the various countries in which it operates. Its manufacturing facilities and
dialysis centers are also subject to various standards relating to, among other
things, the management of facilities, personnel qualifications and licensing,
maintenance of proper records, equipment, quality assurance programs, the
operation of pharmacies, the protection of workers from blood- borne diseases
and the dispensing of controlled substances. All of the operations of the
Company are subject to periodic inspection by various governmental authorities
to determine if the operations, premises, equipment, personnel and patient care
meet applicable standards. The operation of dialysis centers and conduct of
related activities by the Company and its subsidiaries generally require
licenses, which are subject to periodic renewal and the possibility of
revocation for violation of applicable regulatory requirements.
In addition, many countries impose various investment restrictions on
foreign companies. For instance, China requires government approval to enter
into a joint venture with a local partner. Certain countries do not permit
foreign investors to own a majority interest in local companies or require that
companies organized under their laws have at least one local shareholder.
Investment restrictions therefore impact the corporate structure, operating
procedures and other characteristics of Fresenius Medical Care's subsidiaries
and joint ventures in these and other countries.
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The Company believes its facilities are currently in compliance in all
material respects with the applicable national and local requirements in the
jurisdictions in which they operate.
REIMBURSEMENT
U.S.
Dialysis Services. Company's dialysis centers provide outpatient
hemodialysis treatment for ESRD patients. In addition, some of the Company's
centers offer services for the provision of peritoneal dialysis treatment at
home.
The Medicare program is the primary source of DSD's revenues from
dialysis treatment. For example, in 1997, approximately 65% of DSD's revenues
resulted from Medicare's ESRD program. As described below, DSD is reimbursed by
the Medicare program in accordance with the Composite Rate for certain products
and services rendered at the Company's dialysis centers. As described in the
next paragraph, other payment methodologies apply to Medicare reimbursement for
other products and services provided at the Company's dialysis centers and for
products (such as those sold by the Company) and support services furnished to
ESRD patients receiving dialysis treatment at home (such as those of RPD).
Medicare reimbursement rates are fixed in advance and are subject to adjustment
from time to time by the U.S. Congress. Although this form of reimbursement
limits the allowable charge per treatment, it provides the Company with
predictable and recurring per treatment revenues and allows the Company to
retain any profit earned.
When Medicare assumes responsibility as primary payor (see
" -- Coordination of Benefits"), Medicare is responsible for payment of 80% of
the Composite Rate set by HCFA for dialysis treatments. The Composite Rate
governs the Medicare reimbursement available for a designated group of dialysis
services, including the dialysis treatment, supplies used for such treatment,
certain laboratory tests and certain medications. The Composite Rate consists of
labor and nonlabor components with adjustments made for regional wage costs,
subject to a national payment floor and ceiling currently ranging from $117 to
$139 per treatment, with exceptions based on specified criteria. In certain
instances, products sold by Fresenius USA and RPD are included in the non-labor
component of the Composite Rate as described below.
The method under which the Company is reimbursed for home dialysis is
based on which supplier is selected to provide dialysis supplies and equipment.
If the center is designated as the supplier ("Method I"), the center provides
all dialysis treatment related services, including equipment and supplies, and
is reimbursed using a methodology based on the Composite Rate. If the Company is
designated as the direct supplier ("Method II"), the Company provides the
patient directly with all necessary equipment and supplies and is reimbursed by
Medicare at a monthly capitated rate. Clinics provide home support services to
Method II patients and these services are reimbursed at a monthly fee for
service basis subject to a capitated ceiling. The reimbursement rates under
Method I and Method II differ, although both are prospectively determined and
are subject to adjustment from time to time by Congress.
Certain items and services that the Company furnishes at its dialysis
centers are not included in the Composite Rate and are eligible for separate
Medicare reimbursement, typically on the basis of established fee schedule
amounts. Such items and services include certain drugs (such as EPO), blood
transfusions and certain diagnostic tests. The rate of utilization by the
Company's facilities of items and services that are not included in the
Composite Rate is a subject of the OIG Investigation. See " -- Legal Proceedings
- -- OIG Investigation."
Medicare payments are subject to change by legislation and pursuant to
deficit reduction measures. The Composite Rate was unchanged from commencement
of the ESRD program in 1972 until 1983. From 1983 through December 1990,
numerous congressional actions resulted in a net reduction of the average
reimbursement rate from $138 per treatment in 1983 to approximately $125 per
treatment in 1990. Congress increased the ESRD reimbursement rate, effective
January 1, 1991, to an average rate of $126 per treatment.
In 1990, Congress required that the Prospective Payment Assessment
Commission ("PROPAC") study dialysis costs and reimbursement and make reports
annually to
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Congress with a recommendation as to the appropriateness of changes to the ESRD
reimbursement rates. In 1993, PROPAC recommended a 2.5% increase in the
Composite Rate for independent freestanding dialysis facilities, which was not
implemented by Congress. In March 1994 and again in 1995, PROPAC recommended
that no changes be made in the reimbursement rate. In March 1996, PROPAC
recommended a 2% increase in the Composite Rate for independent freestanding
dialysis facilities. In March 1997, PROPAC recommended a 2.8% increase in the
Composite Rate for both independent freestanding dialysis facilities and
hospital-based dialysis facilities for fiscal year 1998. Congress is not
required to, and no congressional action was taken to, implement the PROPAC
recommendations and Congress could establish a different reimbursement rate. The
Company is unable to predict what, if any, future changes may occur in the rate
of Medicare reimbursement. Any significant decreases in the Medicare
reimbursement rates could have a material adverse effect on the Company's
provider business and, because the demand for products is affected by Medicare
reimbursement, on its products business. Increases in operating costs that are
affected by inflation, such as labor and supply costs, without a compensating
increase in reimbursement rates, also may adversely affect the Company's
business and results of operations.
The patient or third-party insurance payors, including
employer-sponsored health insurance plans, commercial insurance carriers and the
Medicaid program, are responsible for paying any co-payment amounts for approved
services not paid by Medicare (typically the annual deductible and 20%
co-insurance), subject to the specific coverage policies of such payors. The
extent to which the Company is actually paid the full co-payment amounts depends
on the particular responsible party. Each third-party payor, including Medicaid,
makes payment under contractual or regulatory reimbursement provisions which may
or may not cover the full 20% co-payment or annual deductible. Where the patient
has no third-party insurance and is not eligible for Medicaid, the patient is
responsible for paying the co-payments, which the Company frequently does not
collect fully despite reasonable collection efforts. In certain cases, the
Company through NMC has paid, or provided loans for the payment of, premiums for
supplemental medical insurance (under which Medicare Part B coverage is
provided) and/or for Medigap insurance (which covers co-payment amounts) on
behalf of financially needy patients. NMC believes that, in most cases, this
practice was lawful prior to the effective date of the Health Insurance
Portability and Accountability Act, Public Act 104-191 ("HIPAA"). The practice
of providing loans or grants for the payment of supplemental medical insurance
premiums by NMC was one of the subjects of review by the government as part of
the OIG Investigation. See " -- Legal Proceedings -- OIG Investigation" and
" -- Legal Proceedings -- Supplemental Medical Insurance." The government,
however, advised the Company orally that it is no longer pursuing this issue.
Furthermore, as a result of the passage of the HIPAA, the Company terminated
making such payments on behalf of its patients. Instead, FMCH, together with
other representatives of the industry, obtained an advisory opinion from the
OIG, whereby, consistent with specified conditions, FMCH and other similarly
situated providers may make contributions to a non-profit organization that has
volunteered to make these payments on behalf of indigent ESRD patients,
including patients of FMCH.
Laboratory Tests. A substantial portion of SRM's net revenues are
derived from Medicare, which pays for clinical laboratory services provided to
dialysis patients in two ways. First, payment for certain routine tests is
included in the Composite Rate paid to the centers. As to such services, the
dialysis centers obtain the services from a laboratory and pay the laboratory
for such services. In accordance with industry practice, SRM usually provides
such testing services under capitation agreements with its customers pursuant to
which it bills a fixed amount per patient per month to cover the laboratory
tests included in the Composite Rate at the designated frequencies. In October
1994, the OIG issued a special fraud alert in which it stated its view that the
industry practice of providing tests covered by the Composite Rate at below fair
market value raised issues under the anti-kickback statutes, as such an
arrangement with an ESRD facility appeared to be an offer of something of value
(Composite Rate tests at below market value) in return for the ordering of
additional tests billed directly to Medicare. See " -- Anti-kickback Statutes,
False Claims Act, Stark Law and Fraud and Abuse Laws" for a description of this
statute. LifeChem's use of capitation rates in billing for tests in the
Composite Rate is a subject of the OIG Investigation. See " -- Legal Proceedings
- -- OIG Investigation" and " --Legal Proceedings -- LifeChem."
Second, laboratory tests performed by SRM for Medicare beneficiaries
that are not included in the Composite Rate are separately billable directly to
Medicare.
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Such tests are paid at 100% of the Medicare fee schedule amounts, which are
limited by national ceilings on payment rates, called National Limitation
Amounts ("NLAs"). Congress has periodically reduced the fee schedule rates and
the NLAs, with the most recent reductions in the NLAs occurring in January 1996.
As part of the Balanced Budget Act of 1997, Congress lowered the NLAs from 76%
to 74% effective January 1, 1998. Congress has also approved a five year freeze
on the inflation updates based on the Consumer Price Index (CPI) for 1998-2002.
In addition, LifeChem's practice of billing Medicare directly for certain
laboratory tests is a subject of the OIG Investigation and, therefore, recent
changes in such direct billing practices could materially affect SRM's revenues.
Medicare carriers have aggressively implemented Local Medical Review
Policies (LMRPs) limiting the coverage of certain clinical laboratory services
to an established list of diagnosis codes supporting medical necessity. These
LMRPs set forth medical necessity criteria based on diagnosis coding as well as
frequency of service provisions. Provisions in the Balanced Budget Act of 1997,
require the Secretary of HHS to adopt uniform coverage and payment policies for
laboratory testing by July 1, 1999. The adoption of additional coverage policies
would reduce the number of covered services and could materially affect SRM's
revenues.
See " -- Legal Proceedings -- OIG Investigation" and " -- Legal
Proceedings -- LifeChem," for information relating to LifeChem's voluntary
disclosure of, and repayments associated with, certain billing problems and
related proceedings.
IDPN. Among its other services, NMC administers IDPN to chronic
dialysis patients who suffer from gastrointestinal malfunctions. These services
are covered by the Medicare program under the Medicare Parenteral and Enteral
Nutrition ("PEN") benefit, which requires extensive documentation and individual
physician certification of medical necessity for each patient. Treatment by IDPN
has been shown to increase the body content of vital, high biologic value
proteins like albumin. Deficiency of such proteins has been shown to be
associated with substantially higher risk of death, both long-term and
short-term (one year), among dialysis patients.
NMC has continued to provide IDPN therapy to malnourished dialysis
patients because NMC believes that to be the only clinically and ethically
responsible course of action. Analyses of data from the Company's PSP database,
both internal and as published in peer-reviewed medical journals, indicate that
malnutrition measured by a serum albumin value of 3.4 g/dl or less is associated
with significantly increased mortality risk in the chronic dialysis population
and that IDPN is effective in increasing serum albumin and moderating mortality
risk for such malnourished patients. These studies show that when these initial
albumin levels were 3.0 g/dl or less, IDPN treatment was accompanied by a 70%
improvement in survival. Similarly, when the initial albumin was 3.4 g/dl or
less, survival with IDPN treatment was improved by about 15%. IDPN treatment is
therefore associated with improved odds of survival at albumin concentration
lower than 3.4 g/dl and the amount of improvement increases as albumin
concentrates falls. A statistical review conducted in March 1996 suggests that
about 5% of dialysis patients suffer from albumin concentration that is 3.0 g/dl
or less.
Because the management of NMC has believed that the obligation of
medical professionals and companies that support medical care to ESRD patients
extends beyond the mere provision of paid-for-service to advocacy for needed
treatment, NMC has accepted increasing financial risk by continuing to offer
IDPN.
Prior to September 1993, IDPN claims were processed by two regional
Medicare specialty PEN carriers, which are private companies under contract with
HCFA responsible for processing claims and implementing certain Medicare
benefits. In late 1993, administration of Medicare PEN claims was transferred to
four newly created regional Durable Medical Equipment Regional Carriers
("DMERCs"). The DMERCs implemented policies for IDPN reimbursement that resulted
in a sharp reduction in the number of IDPN claims approved for payment. As a
result of these payment reductions, several competitors of Homecare ceased
providing IDPN. Some of these competitors' patients subsequently became Homecare
patients for IDPN.
NMC believes that the reduction in IDPN claims paid by Medicare
represented an unauthorized policy coverage change. Accordingly, NMC, along with
certain other IDPN providers, is pursuing various administrative and legal
avenues, including administrative appeals, to address this problem. Although NMC
contends that its IDPN
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claims were consistent with published Medicare coverage guidelines and
ultimately will be approved for payment, there can be no assurance that the
claims on appeal will be approved for payment.
In April 1996, HCFA published new medical review policies which
restrict substantially the number of patients for whom IDPN is reimbursed by
Medicare. The new policies became final and effective for claims submitted on or
after July 1, 1996. NMC and other PEN providers continue to review whether and
to what extent possible modifications to the new policies might be obtained in
legislative or administrative forums.
While the new policy permits continued coverage of IDPN and other PEN
therapies, and while the potential impact of the new policy is subject to
further analysis, NMC believes that the new policy has made it substantially
more difficult to qualify patients for future coverage by, among other things,
requiring certain patients to undergo onerous and/or invasive tests in order to
qualify for coverage. The new policy also eliminates all reimbursement for
infusion pumps. NMC, together with other interested parties, may seek to effect
certain changes in the new policy (other than with respect to the elimination of
pump revenues), and NMC has developed changes to its patient qualification
procedures in order to comply with the policy. If NMC is unable to achieve
meaningful change in the new policy, such policy significantly reduces the
number of patients eligible for Medicare coverage of IDPN and other PEN
therapies. The new DMERC policy may adversely impact revenue for IDPN therapy.
During 1997, revenue for IDPN decreased by $41 million compared with the same
period for 1996. Since patients receiving IDPN therapy continue to decline, and
in response to these regulatory changes, future revenues likely will be further
adversely impacted by up to $20 million annually.
If NMC is unable to collect its IDPN accounts receivable or if IDPN/PEN
coverage is reduced or eliminated, Fresenius Medical Care's business, financial
position and results of operations could be materially adversely affected.
See " -- Legal Proceedings -- IDPN Coverage Issues."
See " -- Legal Proceedings -- OIG Investigation" for information on
issues raised by the OIG with respect to the provision of IDPN by Homecare and
related billing practices.
EPO. Since June 1, 1989, the Medicare program has provided coverage for
the administration of EPO to dialysis patients, with reimbursement made
separately from the Composite Rate. Medicare reimbursement for EPO was reduced
from $11.00 to $10.00 per 1,000 units, effective January 1, 1994. Future changes
in the EPO reimbursement rate, inclusion of EPO in the Composite Rate, changes
in the typical dosage per administration or increases in the cost of EPO
purchased by NMC could adversely affect the Company's business and results of
operations, possibly materially. See " -- Legal Proceedings -- Qui Tam Actions."
Non-Dialysis-Related Services. Homecare and DSI provide a variety of
non-dialysis-related services. Subject to various restrictions and co-payment
limitations, Medicare typically pays for such non-dialysis-related services on
the basis of established fee schedule amounts or, with respect to home health
services, on the basis of reasonable costs. Private payors reimburse the Company
for such non-dialysis-related services at contractually established amounts or
at the Company's usual and customary rates. Medicare and certain Medicare
carriers are imposing or considering the imposition of restrictions on
diagnostic providers, such as DSI, that limit the category of tests they can
perform or require direct personal physician supervision of technicians
performing certain tests. DSI has made modification to its non-dialysis-related
services in an effort to consolidate operations and in response to these
regulatory changes.
Coordination of Benefits. Medicare entitlement begins for most patients
in the fourth month after the initiation of chronic dialysis treatment at a
dialysis center. During the first three months, considered to be a waiting
period, the patient or patient's insurance, Medicare or a state renal program
are responsible for payment.
Patients who have Medicare and are also covered by an employer group
health plan ("EGHP") are subject to a 30 month coordination period during which
the EGHP is the primary payor and Medicare the secondary payor. During this
coordination period the EGHP pays a negotiated rate or in the absence of such a
rate, the Company's standard
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rate or a rate defined by its plan documents. The payments are generally higher
than the Medicare Composite Rate. Insurance will therefore cover a total of 33
months, the 3 month waiting period plus the 30 month coordination period.
Patients who already have Medicare based on age when they become ESRD
patients are dual eligible patients. If these patients have an EGHP that is
paying primary then these patients will have a 30 month coordination period. If
Medicare is already the primary payor when ESRD entitlement begins, Medicare
remains the primary payor, the EGHP is the secondary payor and no coordination
period will apply. Most patients over 65 are retired and fall into this second
category. Patients who do not have a health insurance retirement benefit plan
can purchase Medigap plans offered by AARP and many other insurance companies.
Possible Changes in Medicare. Because the Medicare program represents a
substantial portion of the federal budget, in order to reduce the federal
government deficit, and for other reasons, the U.S. Congress takes action in
almost every legislative session to modify the Medicare program by refining the
amounts payable to health care providers. Legislation or regulations may be
enacted in the future that could substantially modify or reduce the amounts paid
for services and products offered by Fresenius Medical Care and its
subsidiaries. In this regard, both the executive branch and members of Congress
from both parties have recently proposed significant reductions in the Medicare
program as part of initiatives to reduce the federal government deficit. It is
also possible that statutes may be adopted or regulations may be promulgated in
the future that impose additional eligibility requirements for participation in
the federal and state health care programs. Such new legislation or regulations
may adversely affect Fresenius Medical Care's business and results of
operations.
NON-U.S.
Reimbursement arrangements outside the U.S. vary significantly from
country to country. In developed areas, such as Western Europe, national health
insurance programs frequently provide coverage for dialysis treatments and, in
some cases, provide reimbursement at rates higher than those available in the
U.S. In less developed countries, reimbursement programs often do not exist, and
patients then bear the entire cost of dialysis treatment. Some developing
countries, especially in the Asia/Pacific region and South America, are moving
toward national health insurance programs modelled after those in Europe.
ANTI-KICKBACK STATUTES, FALSE CLAIMS ACT, STARK LAW AND FRAUD AND ABUSE LAWS
Various operations of the Company are subject to federal and state
statutes and regulations governing financial relationships between health care
providers and potential referral sources and reimbursement for services and
items provided to Medicare and Medicaid patients. Such laws include the
anti-kickback statutes, the False Claims Act, the Stark Law, other federal fraud
and abuse laws and similar state laws. These laws apply because the Company's
Medical Directors and other physicians with whom the Company has financial
relationships refer patients to, and order diagnostic and therapeutic services
from, the Company's dialysis centers and other operations. As is generally true
in the dialysis industry, at each DSD center a small number of physicians
account for all or a significant portion of the patient referral base. An ESRD
patient generally seeks treatment at a center that is convenient to the patient
and at which the patient's nephrologist has staff privileges. Virtually all of
the Company's centers maintain open staff privileges for local nephrologists.
The ability of the Company to provide quality dialysis care and to otherwise
meet the needs of patients and local physicians is central to its ability to
attract nephrologists to DSD centers and to receive referrals from such
physicians.
The federal government, many states and private third-party insurance
payors have made combating health care fraud and abuse one of their highest
enforcement priorities, resulting in increasing resources devoted to this
problem. Consequently, the OIG and other enforcement authorities are increasing
scrutiny of arrangements between physicians and health care providers for
possible violations of the anti-kickback statutes or other federal laws. Certain
competitors of NMC who have faced federal criminal charges under these statutes
have entered into settlement agreements under which they have agreed to pay
substantial fines and penalties. See " -- Legal Proceedings" for information
concerning the OIG's investigations of NMC's activities under these provisions.
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ANTI-KICKBACK STATUTES
The federal anti-kickback statutes establish criminal prohibitions
against and civil penalties for the knowing and willful solicitation, receipt,
offer or payment of any remuneration, whether direct or indirect, in return for
or to induce the referral of patients or the ordering or purchasing of items or
services payable in whole or in part under Medicare, Medicaid or other federal
health care programs. Certain federal courts have interpreted the anti-kickback
statutes broadly, for example as prohibiting payments intended to induce the
referral of Medicare business, irrespective of any other legitimate motives.
However, one federal appellate court, in a civil case, has found that a
violation of the anti-kickback statutes requires specific knowledge of the
anti-kickback statutes and specific intent to disobey the law. Federal district
courts in other circuits, however, have expressly declined to follow this
precedent. Sanctions for violations of the anti-kickback statutes include
criminal and civil penalties, such as imprisonment or criminal fines of up to
$25,000 per violation, and civil penalties of up to $50,000 per violation, and
exclusion from the Medicare or Medicaid programs and other federal programs. In
addition, certain provisions of federal criminal law that may be applicable
provide that if a corporation is found guilty of a criminal offense it may be
fined no more than twice any pecuniary gain to the corporation, or, in the
alternative, no more than $500,000 per offense.
Because of the breadth of the anti-kickback statutes, substantial
uncertainty has resulted regarding which practices violate the statutes and
which practices are legitimate. Two methods the OIG uses periodically to give
guidance to providers about the anti-kickback statutes are "safe harbor"
regulations and special fraud alerts. The safe harbor regulations, which were
first promulgated in final form on July 29, 1991 and have subsequently been
amended, create safe harbors from prosecution, in addition to the statutory
exceptions, for certain business arrangements that would otherwise be prohibited
by the anti-kickback statutes. To date, a number of regulatory safe harbors have
been finalized and additional safe harbor regulations are under consideration.
An arrangement that satisfies all of the standards of the applicable safe
harbors is deemed not to be subject to prosecution. Arrangements that fall
outside of the safe harbors do not necessarily violate the anti-kickback
statutes; rather, such arrangements are not afforded protection from prosecution
and may be subject to scrutiny by enforcement agencies. Special fraud alerts are
intended to inform providers of the OIG's enforcement priorities and to identify
suspect practices the OIG believes violate the anti-kickback statutes. See " --
Legal Proceedings" for information concerning the OIG's investigations of
certain of NMC's activities, including Medical Director contracts and
compensation. Effective February 1997, the OIG must respond to requests for
advisory opinions concerning whether certain activities violate the
anti-kickback statutes. See " -- Legal Proceedings --The Health Insurance
Portability and Accountability Act of 1996" for a reference to the advisory
opinion provision.
Some states also have enacted statutes similar to the anti-kickback
statutes, which may include criminal penalties, applicable to referrals of
patients regardless of payor source, and may contain exceptions different from
state to state and from those contained in the federal anti-kickback statutes.
FALSE CLAIMS ACT AND RELATED CRIMINAL PROVISIONS
The U.S. federal False Claims Act (the "False Claims Act") imposes
civil penalties for making false claims with respect to governmental programs,
such as Medicare and Medicaid, for services not rendered, or for misrepresenting
actual services rendered, in order to obtain higher reimbursement. Moreover,
private individuals may bring qui tam or "whistle blower" suits against
providers under the False Claims Act, which authorizes the payment of a portion
of any recovery to the individual bringing suit. Such actions are initially
required to be filed under seal pending their review by the Department of
Justice. A few federal district courts have recently interpreted the False
Claims Act as applying to claims for reimbursement that violate the anti-
kickback statutes under certain circumstances. The False Claims Act generally
provides for the imposition of civil penalties of $5,000 to $10,000 per claim
and for treble damages, resulting in the possibility of substantial financial
penalties for small billing errors that are replicated in a large number of
claims, as each individual claim could be deemed to be a separate violation of
the False Claims Act. Criminal provisions that are similar to the False Claims
Act provide that if a corporation is convicted of presenting a claim or
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making a statement that it knows to be false, fictitious or fraudulent to any
federal agency it may be fined not more than twice any pecuniary gain to the
corporation, or, in the alternative, no more than $500,000 per offense.
Some states also have enacted statutes similar to the False Claims Act
which may include criminal penalties, substantial fines, and treble damages.
THE HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996
HIPAA was enacted in August 1996 and substantively changed federal
fraud and abuse laws by expanding their reach to all federal health care
programs, establishing new bases for exclusions and mandating minimum exclusion
terms, creating an additional exception to the anti-kickback penalties for
risk-sharing arrangements, requiring the Secretary of HHS to issue advisory
opinions, increasing civil money penalties to $10,000 (formerly $2,000) per item
or service and assessments to three times (formerly twice) the amount claimed,
creating a specific health care offense and related health fraud crimes, and
expanding investigative authority and sanctions applicable to health care fraud.
It also prohibits provider payments which could be deemed an inducement to
patient selection of a provider.
In addition to establishing minimum periods of exclusion from
government health programs, the statute authorizes exclusion of an individual
with a direct or indirect ownership or control interest in a sanctioned entity
if the individual "knows or should know" of the activity leading to the
conviction or exclusion of the entity or where the individual is an officer or
managing employee of the entity.
The law requires the Secretary of HHS to issue advisory opinions
regarding what constitutes a violation under the anti-kickback statutes and
whether an arrangement satisfies a statutory exception or regulatory safe harbor
to the anti-kickback law.
Significantly, the law expands criminal sanctions for health care fraud
involving any governmental or private health benefit program, including freezing
of assets and forfeiture of property traceable to commission of a health care
offense.
BALANCED BUDGET ACT OF 1997
In August 1997 President Clinton signed the Balanced Budget Act of 1997
("BBA") which contains sweeping adjustments to both the Medicare and Medicaid
programs, as well as further expansion of the fraud and abuse laws.
Specifically, the BBA created a civil monetary penalty for violations of the
federal anti-kickback statute whereby violations will result in damages equal to
three times the amount involved as well as a penalty of $50,000 per violation.
In addition, the new provisions expanded the exclusion requirements so that any
person or entity convicted of three health care offenses is automatically
excluded from federally funded health care programs for life. Individuals or
entities convicted of two offenses are subject to mandatory exclusion of 10
years, while any provider or supplier convicted of any felony may be denied
entry into the Medicare program by the Secretary of HHS if deemed to be
detrimental to the best interests of the Medicare program or its beneficiaries.
The BBA also provides that any person or entity that arranges or
contracts with an individual or entity that has been excluded from a federally
funded health care program will be subject to civil monetary penalties if the
individual or entity "knows or should have known" of the sanction. The BBA also
requires that a variety of providers, including home health agencies, equipment
suppliers and rehabilitation agencies, post a $50,000 surety bond in an effort
to deter "sham" providers and suppliers from entering the Medicare program. In
addition, the BBA requires HCFA to issue advisory opinions in response to
inquiries as to whether physician referrals for designated health services are
prohibited by the Stark law.
Finally, the BBA creates a Medicare+Choice Program that is designed to
provide a variety of options to Medicare beneficiaries, almost all of whom may
enroll in a Medicare+Choice Plan. The options include provider sponsored
organizations, coordinated care plans, HMOs with and without point of service
options involving out-of-network providers, and medical savings accounts offered
as a demonstration project.
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STARK LAW
The original Stark Law, known as "Stark I" and enacted as part of the
Omnibus Budget Reconciliation Act of 1989, prohibits a physician from referring
Medicare patients for clinical laboratory services to entities with which the
physician (or an immediate family member) has a financial relationship, unless
certain exceptions apply. Sanctions for violations of the Stark Law may include
denial of payment, refund obligations, civil monetary penalties or exclusion of
the provider from the Medicare and Medicaid programs. The Stark Law prohibits
the entity receiving the referral from filing a claim or billing for services
arising out of the prohibited referral.
Provisions of OBRA 93, known as "Stark II," amended Stark I to revise
and expand upon various statutory exceptions, to expand the services regulated
by the statute to a list of "Designated Health Services," and to prohibit
Medicaid referrals where a financial relationship exists. The provisions of
Stark II generally became effective on January 1, 1995. The additional
Designated Health Services include: physical therapy services; occupational
therapy services; radiology services, including magnetic resonance imaging,
computer axial tomography scans and ultrasound services; durable medical
equipment and supplies; parenteral and enteral nutrients, equipment and
supplies; home health services; outpatient prescription drugs; and inpatient and
outpatient hospital services. NMC has determined that the Stark Law does apply
to dialysis-related Designated Health Services not paid for under the Composite
Rate as well as to certain services provided by DSI, LifeChem and Homecare.
However, pursuant to proposed regulations implementing Stark II, published on
January 9, 1998, erythropoietin (EPO) provided to ESRD patients as part of a
renal dialysis treatment plan is specifically exempted as a Designated Health
Service. Further, in the proposed regulations discussing Durable Medical
Equipment, ESRD equipment and supplies are excluded from coverage as a
Designated Health Service because the ESRD benefit is distinguished under
Medicare from the DME benefit.
Prior to the effective date of Stark II, NMC had reimbursed the
substantial majority of its Medical Directors on the basis of a percentage of
net pre-tax earnings of the facilities. In response to Stark II, since January
1, 1995, DSD has compensated its Medical Directors on a fixed compensation
arrangement intended to comply with the requirements of Stark II. The
compensation of Medical Directors is a subject of the OIG Investigation. See
" -- Legal Proceedings -- OIG Investigation" and " -- Medical Director
Compensation."
On August 14, 1995, HCFA promulgated a final regulation implementing
Stark I and its statutory restrictions on referrals for clinical laboratory
services. One of the provisions of the regulation significantly affecting
dialysis providers is HCFA's interpretation that the Stark Law applies to
dialysis-related laboratory services. However, in proposed regulations published
on January 9, 1998, HCFA proposed a regulatory exception for clinical laboratory
services paid for as part of the Composite Rate. The proposed Stark II
regulations follow the provisions set forth in the Stark I regulation in that
any service included as part of the Composite Rate is not considered a
Designated Health Service.
Several states in which the Company operates have enacted self-referral
statutes similar to the Stark Law. Such state self-referral laws may apply to
referrals of patients regardless of payor source and may contain exceptions
different from each other and from those contained in the Stark Law.
OTHER FRAUD AND ABUSE LAWS
The Company's operations are also subject to a variety of other federal
and state fraud and abuse laws, principally designed to ensure that claims for
payment to be made with public funds are complete, accurate and fully comply
with all applicable program rules.
The civil monetary penalty provisions are triggered by violations of
numerous rules under the statute, including the filing of a false or fraudulent
claim and billing in excess of the amount permitted to be charged for a
particular item or service. As a result of the HIPPA amendments, monetary
penalties of up to $10,000 plus three times the amount of the claim for each
item or service for which an improper claim for payment was made, may be
imposed, resulting in the possibility of substantial financial penalties for
small billing errors that are replicated in a
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large number of claims. Violations may also result in suspension of payments,
exclusion from the Medicare and Medicaid programs, as well as other federal
health care benefit programs, or forfeiture of assets.
In addition to the statutes described above, other criminal statutes
may be applicable to conduct that is found to violate any of the statutes
described above.
HEALTH CARE REFORM
Health care reform is considered by many in the U.S. to be a national
priority. Members of Congress from both parties and the executive branch are
continuing to consider many health care proposals, some of which are
comprehensive and far-reaching in nature. As noted above, the Medicare+Choice
Program was developed as part of the amendments in the BBA. This program is
designed to expand the options for Medicare beneficiaries and may have a
significant impact on the manner in which health care is delivered in the
future. Several states are also currently considering health care proposals. It
cannot be predicted what additional action, if any, the federal government or
any state may ultimately take with respect to health care reform or when any
such action will be taken. Health care reform may bring radical changes in the
financing and regulation of the health care industry, which could have a
material adverse effect on the business of Fresenius Medical Care or its
subsidiaries and the results of their operations.
CHANGES IN THE HEALTH CARE INDUSTRY IN THE U.S.
Significant changes in the health care industry are occurring as a
result of market driven forces that are creating significant downward pressure
on reimbursement rates that Fresenius Medical Care and its subsidiaries will
receive for their services and products. A substantial portion of third-party
health insurance is now furnished through some type of managed care plan,
including HMOs.
Managed care plans are increasing their market share, and this trend
may accelerate as a result of the merger and consolidation of providers and
payors in the health care industry and as a result of the discussions among
members of Congress and the executive branch regarding ways to increase the
number of Medicare and Medicaid beneficiaries served through such managed care
plans. At the same time, private purchasing cooperatives and the government are
attempting to limit premium increases for these plans. In such an environment,
controlling underlying medical costs is the only vehicle for ensuring
satisfactory managed care plan margins. Managed care plans have been aggressive
in seeking lower reimbursement levels for virtually all providers. For some
populations, plans have sought to limit their own financial risk by negotiating
capitation agreements under which providers assume responsibility for delivering
a range of services at a fixed payment amount. Capitation effectively "locks in"
a base of patients for providers who accept such arrangements. If substantially
more patients of the Company join managed care plans or if such plans reduce
reimbursements or capitate competitor companies, Fresenius Medical Care's
business and results of operations could be adversely affected, possibly
materially.
ITEM 2. PROPERTIES
The table below describes the Company's principal facilities as of the
date hereof.
<TABLE>
<CAPTION>
CURRENTLY OWNED
FLOOR AREA OR LEASED
(APPROXIMATE BY FRESENIUS
Location SQUARE FEET) MEDICAL CARE USE
<S> <C> <C> <C>
Lexington, Massachusetts 200,000 leased Corporate headquarters and
administration.
Walnut Creek, California 85,000 leased Warehousing; machine manufacture
and assembly; and customer service.
Ogden, Utah 334,000 owned Production of disposable products.
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Delran, New Jersey 112,324 leased Manufacture of liquid hemodialysis
concentrate solutions.
Perrysburg, Ohio 12,000 leased Manufacture of dry hemodialysis
concentrates.
Livingston, California 32,000 leased Manufacture of liquid hemodialysis
concentrate solutions.
McAllen, Texas 92,856 leased/ Manufacture of bloodlines.
owned(1)
Reynosa, Mexico 48,745 owned Manufacture of bloodlines.
Notts, United Kingdom 55,000 leased Manufacture of hemodialysis
concentrate solutions.
</TABLE>
- ----------
(1) Land is leased, building is owned.
The lease on Fresenius USA's Walnut Creek facility expires in 2002.
Fresenius USA owns one warehouse and leases 9 warehouses throughout the U.S.
These warehouses are used as regional distribution centers for Fresenius USA's
peritoneal dialysis products. All such warehouses are subject to leases with
remaining terms not exceeding four years. As a result of the Abbott Acquisition,
Fresenius USA has added distribution capacity at an additional 22 public
warehouses, substantially all of which were formerly used by Abbott. At December
31, 1997, RPD distributed its products through 19 warehouse facilities (13 in
the U.S., 3 in Europe, 2 in Latin America, and 1 in Asia).
Fresenius Medical Care Holdings, Inc. leases its corporate headquarters
in Lexington, Massachusetts. This lease expires on October 31, 2007.
The Company leases most of the dialysis centers, Homecare locations and
manufacturing, laboratory, distribution and administrative and sales facilities
in the U.S. and foreign countries on terms which the Company believes are
customary in the industry. The Company owns those dialysis centers and
manufacturing facilities that it does not lease.
In connection with proceedings before the Federal Trade Commission
("FTC") for pre-merger clearance of the Merger under the Hart-Scott-Rodino
Anti-Trust Improvements Act of 1976, as amended, Fresenius USA entered into a
consent agreement pursuant to which it agreed to divest its Lewisberry,
Pennsylvania facility. This facility was divested effective November 8, 1996.
In February 1997, the Company announced that it would discontinue
production of dialyzers at its Dublin, Ireland facility. In 1996, the facility
produced approximately 750,000 units, primarily cuprophane dialyzers. During the
third quarter of 1995, NMC recorded nonrecurring charges of approximately $16.6
million relating to the termination of a dialyzer development project at its
Dublin, Ireland facility. These charges related to a research project that had
previously been supported by Grace. This project was terminated in 1995 because
no commercially viable product had been developed by such time. Also in the
third quarter of 1995, NMC recorded nonrecurring charges of approximately $12.3
million relating to the termination of RPD's German dialysis machine
manufacturing operation when it was determined that such operations could not
produce commercially viable machines.
ITEM 3: LEGAL PROCEEDINGS
As discussed in greater detail below, most aspects of NMC's U.S.
businesses are the subject of criminal or civil investigations by several
federal agencies and authorities, the outcome of which cannot be predicted. If
the government were successfully to pursue claims arising from any of these
investigations, NMC or one or more of its subsidiaries could be subject to civil
or criminal penalties, including substantial fines, suspension of payments or
exclusion from the Medicare and Medicaid programs as well as other federal
health care benefit programs, which provide over 60% of NMC's revenues. In
addition, NMC could be required to change billing or other practices which could
adversely affect NMC's revenues. In addition,
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as discussed below, NMC has become aware that it is the subject of qui tam or
"whistleblower" actions with respect to some or all of the issues raised by the
government investigations, which whistleblower actions are filed under seal as a
matter of law in the first instance, thereby preventing disclosure to the
Company and to the public except by court order. In the process of unsealing
federal whistleblower complaints, it is not unusual for courts to allow the
government to inform the Company and its counsel of a complaint prior to the
time the Company may be legally permitted to disclose it to the public. NMC may
be the subject of other "whistleblower" actions not known to the Company. The
Company and FMCH have guaranteed NMC's obligations relating to or arising out of
the OIG Investigation and the qui tam proceedings, and indemnified Grace
Chemicals for any such liabilities. See " -- OIG Agreements."
An adverse result in any of such governmental investigations or
"whistleblower" proceedings could have a material adverse effect on the
Company's business, financial condition and results of operations.
OIG INVESTIGATION
In October 1995, NMC received five investigative subpoenas from the
OIG. The subpoenas were issued in connection with an investigation being
conducted by the OIG, the U.S. Attorney for the District of Massachusetts and
others concerning possible violations of federal laws, including the
anti-kickback statutes and the False Claims Act. The subpoenas call for
extensive document production relating to various aspects of NMC's business.
In connection with the OIG Investigation, the Company continues to
receive additional subpoenas directed to NMC or the Company to obtain
supplemental information and documents regarding the above-noted issues, or to
clarify the scope of the original subpoenas.
The Company is cooperating with the OIG Investigation. The Company
believes that the government continues to review and evaluate the voluminous
information the Company has provided. As indicated above, the government
continues, from time to time, to seek supplementing and/or clarifying
information from the Company. The Company expects that this process will
continue while the government completes its evaluation of the issues.
The OIG Investigation covers the following areas: (a) NMC's dialysis
services business, principally relating to its Medical Director contracts and
compensation; (b) NMC's treatment of credit balances resulting from overpayments
received under the Medicare ESRD program, its billing for home dialysis
services, and its payment of supplemental medical insurance premiums on behalf
of indigent patients; (c) LifeChem's laboratory business, including documents
relating to testing procedures, marketing, customers, competition and certain
overpayments totaling approximately $4.9 million that were received by LifeChem
from the Medicare program with respect to laboratory services rendered between
1989 and 1993, and a 1997 review of dialysis facilities' standing orders; and
(d) Homecare and, in particular, information concerning IDPN billing practices
including various services, equipment and supplies and payments made to third
parties as compensation for administering IDPN therapy.
The government has indicated that the areas identified above are not
exclusive, and that it may pursue additional areas. As noted, the penalties
applicable under the anti-kickback statutes, the False Claims Act and other
federal and state statutes and regulations applicable to NMC's business can be
substantial. See " -- Anti-kickback Statutes, False Claims Act, Stark Law and
Fraud and Abuse Laws." While NMC asserts that it is able to offer legal and/or
factual defenses with respect to many of the areas the government has
identified, there can be no assurance that the federal government and/or one or
more state agencies will not claim that NMC has violated statutory or regulatory
provisions. Additionally, eight and possibly other qui tam actions alleging that
NMC submitted false claims to the government have been filed under seal by
former or current NMC employees or other individuals who may have familiarity
with one or more of the issues under investigation. As noted, under the False
Claims Act, any such private plaintiff could pursue an action against NMC in the
name of the U.S. at his or her own expense if the government declines to do so.
An adverse determination with respect to any of the issues addressed by
the subpoenas, or any of the other issues that have been or may be identified by
the
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government, could result in the payment of substantial fines, penalties and
forfeitures, the suspension of payments or exclusion of the Company or one or
more of its subsidiaries from the Medicare program and other federal programs,
and changes in billing and other practices that could adversely affect the
Company's revenues. Any such result could have a material adverse effect on the
Company's business, financial condition and results of operations. Under the
terms of the Merger, any potential resulting monetary liability has been
retained by NMC, and the Company has indemnified Grace Chemicals against all
potential liability arising from or relating to the OIG Investigation. The
Company has provided the U.S. government with a guarantee of payment of the
obligations, if any, arising from the OIG Investigation. In support of this
guarantee, the Company has delivered to the U.S. government a standby letter of
credit in the amount of $150 million.
MEDICAL DIRECTOR COMPENSATION
The government is investigating whether DSD's compensation arrangements
with its Medical Directors constitute payments to induce referrals, which would
be illegal under the anti-kickback statutes, rather than payment for services
rendered. DSD compensated the substantial majority of its Medical Directors on
the basis of a percentage of the earnings of the dialysis center for which the
Medical Director was responsible from the inception of NMC's predecessor in 1972
until January 1, 1995, the effective date of Stark II. Under the arrangements in
effect prior to January 1, 1995, the compensation paid to Medical Directors was
adjusted to include "add backs," which represented a portion of the profit
earned by the Medical Products Group ("MPG") on products purchased by the
Medical Director's facility from MPG and (until January 1, 1992) a portion of
the profit earned by LifeChem on laboratory services provided to patients at the
Medical Director's facility. These adjustments were designed to allocate a
profit factor to each dialysis center relating to the profits that could have
been realized by the center if it had provided the items and services directly
rather than through a subsidiary of NMC. The percentage of profits paid to any
specific Medical Director was reached through negotiation, and was typically a
provision of a multi-year consulting agreement.
To comply with Stark II if Designated Health Services are involved,
Medical Director compensation must not exceed fair market value and may not take
into account the volume or value of referrals or other business generated
between the parties. Since January 1, 1995, DSD has compensated its Medical
Directors on a fixed compensation arrangement intended to comply with the
requirements of Stark II. In renegotiating its Medical Director compensation
arrangements in connection with Stark II, DSD took and continues to take account
of the compensation levels paid to its Medical Directors in prior years.
Certain government representatives have expressed the view in meetings
with counsel for NMC that arrangements where the Medical Director was or is paid
amounts in excess of the "fair market value" of the services rendered may
evidence illegal payments to induce referrals, and that hourly compensation is a
relevant measure for evaluating the "fair market value" of the services. DSD
does not compensate its Medical Directors on an hourly basis and has asserted to
the government that hourly compensation is not a determinative measure of fair
market value. Although the Company believes that the compensation paid to its
Medical Directors is generally reflective of fair market value, there can be no
assurances that the government will agree with this position or that the Company
ultimately will be able to defend its position successfully. Because of the wide
variation in local market factors and in the profit percentage contractually
negotiated between DSD and its Medical Directors prior to January 1, 1995, there
is a wide variation in the amounts that have been paid to Medical Directors.
As a result, the compensation that DSD has paid and is continuing to
pay to a material number of its Medical Directors could be viewed by the
government as being in excess of "fair market value," both in absolute terms and
in terms of hourly compensation. NMC has asserted to the government that its
compensation arrangements do not constitute illegal payments to induce
referrals. NMC has also asserted to the government that OIG auditors repeatedly
reviewed NMC's compensation arrangements with its Medical Directors in
connection with their audits of the costs claimed by DSD; that the OIG stated in
its audit reports that, with the exception of certain technical issues, NMC had
complied with applicable Medicare laws and regulations pertaining to the ESRD
program; and that NMC reasonably relied on these audit reports in concluding
that its program for compensating Medical Directors was lawful. There has been
no indication that the government will accept NMC's
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assertions concerning the legality of its arrangements generally or NMC's
assertion that it reasonably relied on OIG audits, or that the government will
not focus on specific arrangements that DSD has made with one or more Medical
Directors and claim that those specific arrangements were or are unlawful.
The government is also investigating whether DSD's profit sharing
arrangements with its Medical Directors influenced them to order unnecessary
ancillary services and items. NMC has asserted to the government that the rate
of utilization of ancillary services and items by its Medical Directors is
reasonable and that it did not provide illegal inducements to Medical Directors
to order ancillary services and items.
CREDIT BALANCES
In the ordinary course of business, Medicare providers like DSD receive
overpayments from Medicare intermediaries for services that they provide to
Medicare patients. Medicare intermediaries commonly direct such providers to
notify them of the overpayment and not remit such amounts to the intermediary by
check or otherwise unless specifically requested to do so. In 1992, HCFA adopted
a regulation requiring certain Medicare providers, including dialysis centers,
to file a quarterly form listing unrecouped overpayments with the Medicare
intermediary responsible for reimbursing the provider. The first such filing was
required to be made as of June 30, 1992 for the period beginning with the
initial date that the provider participated in the Medicare program and ending
on June 30, 1992.
The government is investigating whether DSD intentionally understated
the Medicare credit balance reflected on its books and records for the period
ending June 30, 1992 by reversing entries out of its credit balance account and
taking overpayments into income in anticipation of the institution of the new
filing requirement. DSD's policy was to notify Medicare intermediaries in
writing of overpayments upon receipt and to maintain unrecouped Medicare
overpayments as credit balances on the books and records of DSD for four years;
overpayments not recouped by Medicare within four years would be reversed from
the credit balance account and would be available to be taken into income. NMC
asserts that Medicare overpayments that have not been recouped by Medicare
within four years are not subject to recovery under applicable regulations and
that its initial filing with the intermediaries disclosed the credit balance on
the books and records of DSD as shown in accordance with its policy, but there
can be no assurance that the government will accept NMC's views. The government
has inquired whether other divisions including Homecare, LifeChem and DSI have
appropriately treated Medicare credit balances.
The government is also investigating whether DSD failed to disclose
Medicare overpayments that resulted from DSD's obligation to rebill commercial
payors for amounts originally billed to Medicare under HCFA's initial
implementation of the OBRA 93 amendments to the secondary payor provisions of
the Medicare Act. See " -- OBRA 93." DSD experienced delays in reporting a
material amount of overpayments after the implementation of the OBRA 93
amendments. NMC asserts that most of these delays were the result of the
substantial administrative burdens placed on DSD as a consequence of the
changing and inconsistent instructions issued by HCFA with respect to the OBRA
93 amendments and were not intentional. Substantially all overpayments resulting
from the rebilling effort associated with the OBRA 93 amendments have now been
reported. Procedures are in place that are designed to ensure that subsequent
overpayments resulting from the OBRA 93 amendments will be reported on a timely
basis.
SUPPLEMENTAL MEDICAL INSURANCE
DSD provided grants or loans for the payment of premiums for
supplemental medical insurance (under which Medicare Part B coverage is
provided) on behalf of a small percentage of its patients who are financially
needy. The practice of providing loans or grants for the payment of supplemental
medical insurance premiums by NMC was one of the subjects of review by the
government as part of the OIG investigation. See "Regulatory and Legal Matters
- -- Reimbursement."
The Government, however, advised the Company orally that it is no
longer pursuing this issue. Furthermore, as a result of the passage of HIPPA,
the Company terminated making such payments on behalf of its patients. Instead,
the Company, together with other representatives of the industry, obtained an
advisory opinion
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from the OIG, whereby, consistent with specified conditions, the Company and
other similarly situated providers may make contributions to a non-profit
organization that has volunteered to make these payments on behalf of indigent
ESRD patients, including patients of the Company.
OVERPAYMENTS FOR HOME DIALYSIS SERVICES
NMC acquired HIC, an in-center and home dialysis service provider, in
1993. At the time of the acquisition, HIC was the subject of a claim by HCFA
that HIC had received payments for home dialysis services in excess of the
Medicare reasonable charge for services rendered prior to February 1, 1990. NMC
settled the HCFA claim against HIC in 1994. The government is investigating
whether the settlement concerning the alleged overpayments made to HIC resolved
all issues relating to such alleged overpayments. The government is also
investigating whether an NMC subsidiary, Home Dialysis Services, Inc. ("HDS"),
received payments similar to the payments that HIC received, and whether HDS
improperly billed for home dialysis services in excess of the monthly cost cap
for services rendered on or after February 1, 1990. The government is
investigating whether NMC was overpaid for services rendered. NMC asserts that
the billings by HDS were proper, but there can be no assurance that the
government will accept NMC's view.
LIFECHEM
Overpayments. On September 22, 1995, LifeChem voluntarily disclosed
certain billing problems to the government that had resulted in LifeChem's
receipt of approximately $4.9 million in overpayments from the Medicare program
for laboratory services rendered between 1989 and 1993. LifeChem asserts that
most of these overpayments relate to errors caused by a change in LifeChem's
computer systems and that the remainder of the overpayments were the result of
the incorrect practice of billing for a complete blood count with differential
when only a complete blood count was ordered and performed, and of the incorrect
practice of billing for a complete blood count when only a hemoglobin or
hematocrit test was ordered. LifeChem asserts that the overpayments it received
were not caused by fraudulent activity, but there can be no assurance that the
government will accept LifeChem's view.
LifeChem made these disclosures to the government as part of an
application to be admitted to a voluntary disclosure program begun by the
government in mid-1995. At the time of the disclosures, LifeChem tendered
repayment to the government of the $4.9 million in overpayments. After the OIG
Investigation was announced, the government indicated that LifeChem had not been
accepted into its voluntary disclosure program. The government has deposited the
$4.9 million check with NMC's approval. The matters disclosed in LifeChem's
September 22, 1995 voluntary disclosure are a subject of the OIG Investigation.
On June 7, 1996, LifeChem voluntarily disclosed an additional billing
problem to the government that had resulted in LifeChem's receipt of between
$40,000 and $160,000 in overpayments for laboratory services rendered in 1991.
LifeChem advised the government that this overpayment resulted from the
submission for payment of a computer billing tape that had not been subjected to
a "billing rules" program designed to eliminate requests for payments for
laboratory tests that are included in the Composite Rate and that were not
eligible for separate reimbursement. LifeChem also advised the government that
there may have been additional instances during the period from 1990 to 1992
when other overpayments were received as a result of the submission of computer
billing tapes containing similar errors and that it was in the process of
determining whether such additional overpayments were received. On June 21,
1996, LifeChem advised the government that the 1991 billing problem disclosed on
June 7, 1996 resulted in an overpayment of approximately $112,000. LifeChem also
advised the government that certain records suggested instances in July 1990 and
August 31 through September 11, 1990, when billing tapes may have been processed
without rules processing. LifeChem continued its effort to determine whether any
other overpayments occurred relating to the "billing rules" problem and, in
March 1997, advised the government that an additional overpayment of
approximately $260,000 was made by Medicare.
Capitation for routine tests and panel design. In October 1994, the OIG
issued a special fraud alert in which it stated its view that the industry
practice of offering to perform or performing the routine tests covered by the
Composite Rate at a price below fair market value, coupled with an agreement by
a dialysis center to refer all or most of its non-Composite Rate tests to the
laboratory, violates the
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anti-kickback statutes. In response to this alert, LifeChem changed its
practices with respect to testing covered by the Composite Rate to increase the
amount charged to both DSD and third-party dialysis centers and reduce the
number of tests provided for the fixed rate. The government is investigating
LifeChem's practices with respect to these tests.
Benefits provided to dialysis centers and persons associated with
dialysis centers. The government is investigating whether DSD or any third-party
dialysis center or any person associated with any such center was provided with
benefits in order to induce them to use LifeChem services. Such benefits could
include, for example, discounts on RPD supplies, the provision of computer
equipment, the provision of money for the purchase of computer equipment, and
the provision of research grants. NMC has identified certain instances in which
benefits were provided to MPG customers who purchased medical products from RPD
and used LifeChem's laboratory services. The government may claim that the
provision of such benefits violates, among other things, the anti-kickback
statutes.
Business and testing practices. As noted above, the government has
identified a number of specific categories of documents that it is requiring NMC
to produce at this time. In addition to documents relating to the areas
discussed above, the government has also required LifeChem to produce documents
relating to the equipment and systems used by LifeChem in performing and billing
for clinical laboratory blood tests, the design of the test panels offered and
requisition forms used by LifeChem, the utilization rate for certain tests
performed by LifeChem, recommendations concerning diagnostic codes to be used in
ordering tests for patients with given illnesses or conditions, internal and
external audits and investigations relating to LifeChem's billing and testing.
Recently, the government served an investigative subpoena for documents
concerning the Company's 1997 review of dialysis facilities' standing orders,
and responsive documents were provided.
IDPN
Administration kits. As discussed above, one of the principal
activities of Homecare is to provide IDPN therapy to dialysis patients at both
NMC-owned facilities and at facilities owned by other providers. IDPN therapy is
typically provided to the patient 12-13 times per month during dialysis
treatment. Bills are submitted to Medicare on a monthly basis and include
separate claims for reimbursement for supplies, including, among other things,
nutritional solutions, administration kits and infusion pumps. In February 1991,
the Medicare carrier responsible for processing Homecare's IDPN claims issued a
Medicare advisory to all parenteral and enteral nutrition suppliers announcing a
coding change for reimbursement of administration kits provided in connection
with IDPN therapy for claims filed for items provided on or after April 1, 1991.
The Medicare allowance for administration kits during this period was
approximately $625 per month per patient. The advisory stated that IDPN
providers were to indicate the "total number of actual days" when administration
kits were "used," instead of indicating that a one-month supply of
administration kits had been provided. In response, Homecare billed for
administration kits on the basis of the number of days that the patient was on
an IDPN treatment program during the billing period, which typically represented
the entire month, as opposed to the number of days the treatment was actually
administered. During the period from April 1991 to June 1992, Homecare had an
average of approximately 1,200 IDPN patients on service.
In May 1992, the carrier issued another Medicare advisory to all PEN
suppliers in which it stated that it had come to the carrier's attention that
some IDPN suppliers had not been prorating their billing for administration kits
used by IDPN patients and that providers should not bill for administration kits
on the basis of the number of days that the patient was on an IDPN treatment
program during the billing period. The advisory stated further that the carrier
would be conducting "a special study to determine whether or not overpayments
have occurred as a result of incorrect billing" and that "if overpayments have
resulted, providers that have incorrectly billed" would "be contacted so that
refunds can be recovered." Homecare revised its billing practices in response to
this advisory for claims filed for items provided on or after July 1, 1992.
Homecare was not asked to refund any amounts relating to its billings for
administration kits following the issuance of the second advisory.
The government is investigating whether NMC submitted false claims for
administration kits during the period from April 1, 1991 to June 30, 1992. NMC
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asserts that the claims submitted in connection with billing for administration
kits were proper, but there can be no assurance that the government will accept
NMC's view. The government may claim that Homecare's billing for administration
kits during this period violates, among other things, the False Claims Act.
Infusion Pumps and IV Poles. During the time period covered by the
subpoenas, Medicare regulations permitted IDPN providers to bill Medicare for
the infusion pumps and, until 1992, for IV poles provided to IDPN patients in
connection with the administration of IDPN treatments. These regulations do not
expressly specify that a particular pump and IV pole be dedicated to a specific
patient, and NMC asserts that these regulations permitted Homecare to bill
Medicare for an infusion pump and IV pole so long as the patient was infused
using a pump and IV pole. Despite the absence of an express regulatory
specification, Homecare developed a policy to deliver to a dialysis center a
dedicated infusion pump and IV pole for each patient, although NMC cannot
represent that it followed this policy in every instance. The government is
investigating the propriety of Homecare's billings for infusion pumps and IV
poles.
As noted above, under the new policies published by HCFA with respect
to IDPN therapy, the Company has not been able to bill for infusion pumps after
July 1, 1996. The government discontinued reimbursement for IV poles in 1992.
"Hang fees" and other payments. IDPN therapy is typically provided to
the patient during dialysis by personnel employed by the dialysis center
treating the patient with supplies provided and billed to Medicare by Homecare
in accordance with the Medicare parenteral nutrition supplier rules. In order to
compensate dialysis centers for the costs incurred in administering IDPN therapy
and monitoring the patient during therapy, Homecare followed the practice common
in the industry of paying a "hang fee" to the center. Dialysis centers are
responsible for reporting such fees to HCFA on their cost reports. For DSD
dialysis centers, the fee was $30 per administration, based upon internal DSD
cost calculations. For third-party dialysis centers, the fee was negotiated with
each center, typically pursuant to a written contract, and ranged from $15 to
$65 per administration. NMC has identified instances in which other payments and
amounts beyond that reflected in a contract were paid to these third-party
centers. NMC has stopped paying "hang fees" to both DSD and third-party
facilities.
In July 1993, the OIG issued a management advisory alert to HCFA in
which it stated that "hang fees" and other payments made by suppliers of IDPN to
dialysis centers "appear to be illegal as well as unreasonably high." The
government is investigating the nature and extent of the "hang fees" and other
payments made by Homecare as well as payments by Homecare to physicians whose
patients have received IDPN therapy. The government may claim that the payments
by Homecare to dialysis centers violate, among other things, the anti-kickback
statutes.
Utilization of IDPN. Since 1984, when HCFA determined that Medicare
should cover IDPN and other parenteral nutrition therapies, NMC has been an
industry leader in identifying situations in which IDPN therapy is beneficial to
ESRD patients. It is the policy of Homecare to seek Medicare reimbursement for
IDPN therapy only when it is prescribed by a patient's treating physician and
when it believes that the circumstances satisfy the requirements published by
HCFA and its carrier agents. Prior to 1994, HCFA and its carriers approved for
payment more than 90% of the IDPN claims submitted by Homecare. After 1993, the
rate of approval for Medicare reimbursement for IDPN claims submitted by
Homecare for new patients, and by the infusion industry in general, fell to
approximately 9%. NMC contends that the reduction in rates of approval occurred
because HCFA and its carriers implemented an unauthorized change in coverage
policy without giving notice to providers. See " -- IDPN Coverage Issues." While
NMC continued to offer IDPN to patients pursuant to the prescription of the
patients' treating physicians and to submit claims for Medicare reimbursement
when it believed the requirements stated in HCFA's published regulations were
satisfied, other providers responded to the drop in the approval rate for new
Medicare IDPN patients by abandoning the Medicare IDPN business, cutting back on
the number of Medicare patients to whom they provide IDPN, or declining to add
new Medicare patients. The number of patients to whom NMC provided IDPN
increased as a result.
The government is investigating the utilization rate of IDPN therapy
among NMC patients, whether NMC submitted IDPN claims to Medicare for patients
who were not eligible for coverage, and whether documentation of eligibility was
adequate. NMC
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asserts that the utilization rate of IDPN therapy among its dialysis patients,
which, in 1995, averaged less than 3.5%, is the result of the factors discussed
above and that it is the policy of Homecare to seek Medicare reimbursement for
IDPN therapy prescribed by the patients' treating physician in accordance with
the requirements published by HCFA and its carrier agents. There can be no
assurance that the government will accept NMC's view or that the government will
not claim that Homecare submitted IDPN claims for individuals who were not
eligible for coverage or with inadequate documentation of eligibility.
In addition, the government is investigating whether, in certain
circumstances, documentation of eligibility was false or inaccurate. With
respect to some claims, the Company has determined that false or inaccurate
documentation was submitted, deliberately or otherwise. The Company understands
that the government recently has utilized a grand jury to investigate this
matter.
QUI TAM ACTIONS
The Company and NMC have become aware that eight qui tam actions have
been filed in various jurisdictions. Each of these actions is under seal and in
each action, pursuant to court order the seal has been modified to permit the
Company, NMC and other affiliated defendants to disclose the complaint to any
relevant investors, financial institutions and/or underwriters, their successors
and assigns and their respective counsel and to disclose the allegations in the
complaints in their respective SEC and NYSE periodically required filings.
The first qui tam action was filed in the United States District Court
for the Southern District of Florida in 1996, amended on July 8, 1996 and
disclosed to the Company on July 10, 1996. It alleges, among other things, that
Grace Chemicals and NMC violated the False Claims Act in connection with certain
billing practices regarding IDPN and the administration of EPO and that as a
result of this allegedly wrongful conduct, the United States suffered actual
damages in excess of $200 million. The Amended Complaint also seeks the
imposition of a constructive trust on the proceeds of the NMC dividend to Grace
Chemicals for the benefit of the United States on the ground that the Merger
constitutes a fraudulent conveyance that will render NMC unable to satisfy the
claims asserted in the Amended Complaint.
The second qui tam action was filed in the United States District Court
for the Middle District of Florida in 1995 and disclosed to the Company on or
before November 7, 1996. It alleges, among other things, that NMC and certain
NMC subsidiaries violated the False Claims Act in connection with the alleged
retention of over-payments made under the Medicare program, the alleged
submission of claims in violation of applicable cost caps and the payment of
supplemental Medicare insurance premiums as an alleged inducement to patients to
obtain dialysis products and services from NMC. The complaint alleges that as a
result of this allegedly wrongful conduct, the United States suffered damages in
excess of $10 million including applicable fines.
The third qui tam action was filed in the United States District Court
for the Eastern District of Pennsylvania in February 1996 and was disclosed to
the Company in November 1996. It alleges, among other things, that a
pharmaceutical manufacturer, an unaffiliated dialysis provider and NMC violated
the False Claims Act in connection with the submission of claims to the Medicare
program for a nonsterile intravenous drug and for intravenous drugs which were
allegedly billed in excess of permissible Medicare reimbursement rates. The
complaint also claims that the defendants violated the Medicare and Medicaid
anti-kickback statutes in connection with the receipt of discounts and other in
kind payments as alleged inducements to purchase intravenous drugs. The
complaint is focused on the business relationship between the pharmaceutical
manufacturer and several providers, one of which is NMC. The complaint claims
that as a result of this allegedly wrongful conduct, the United States suffered
damages. On June 28, 1997, in response to relator's motion to dismiss and the
United States' declination to intervene, the District Court ordered the
complaint dismissed without prejudice.
The fourth qui tam action was filed in the United States District Court
for the Eastern District of Pennsylvania in May 1995 and was disclosed to the
Company in August 1997. It alleges, among other things, that Biotrax
International, Inc., a subsidiary of NMC, violated the False Claims Act in
connection with its submission of claims to the Medicare program for diagnostic
tests and induced overutilization
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of such tests in the medical community through improper marketing practices also
in violation of the False Claims Act.
The fifth qui tam action was filed in the United States District Court
for the Eastern District of Pennsylvania in August 1996 and was disclosed to the
Company in August 1997. It alleges, among other things, that Biotrax and NMC
Diagnostic Services induced overutilization of diagnostic tests by several named
and unnamed physician defendants in the local medical community, through
improper marketing practices and fee arrangements, in violation of the False
Claims Act.
The sixth qui tam action was filed in the United States District Court
for the Eastern District of Pennsylvania in November 1996 and was disclosed to
the Company in August 1997. It alleges, among other things, that NMC, DSI and
Biotrax violated the False Claims Act in connection with the submission of
claims to the Medicare program by improperly upcoding and otherwise billing for
various diagnostic tests.
The seventh qui tam action was filed in the United States District
Court for the District of Delaware in January 1997 and was disclosed to the
Company in September 1997. It alleges, among other things, that NMC and Biotrax
violated the False Claims Act in connection with the submission of claims to the
Medicare program for diagnostic tests, and induced overutilization of such tests
through improper marketing practices which provided impermissible incentives to
health care providers to order these tests.
The eighth qui tam action was filed in the United States District Court
for the District of New Jersey in February 1997 and was disclosed to the Company
in September 1997. It alleges, among other things, that DSI and NMC violated the
False Claims Act in connection with the submission of claims to the Medicare
program for reimbursement for diagnostic tests, by causing unnamed physicians to
overutilize these tests though a variety of fee arrangements and other
impermissible inducements.
Each of the qui tam complaints claims that as a result of the allegedly
wrongful conduct, the United States suffered damages and that the defendants are
liable to the United States for three times the amount of the alleged damages
plus civil penalties of up to $10,000 per false claim. An adverse result in any
of the qui tam actions could have a material adverse affect on the Company's
business, financial condition or results of operations.
OIG AGREEMENTS
As a result of discussions with representatives of the United States in
connection with the OIG Investigation, certain agreements (the "OIG Agreements")
have been entered into to guarantee the payment of any obligations of NMC to the
United States (an "Obligation") relating to or arising out of the OIG
Investigation and the qui tam action filed in the Southern District of Florida
(the "Government Claims"). For the purposes of the OIG Agreements, an Obligation
is (a) a liability or obligation of NMC to the United States in respect of a
Government Claim pursuant to a court order (i) which is final and nonappealable
or (ii) the enforcement of which has not been stayed pending appeal or (b) a
liability or obligation agreed to be an Obligation in a settlement agreement
executed by Fresenius Medical Care, FMCH or NMC, on the one hand, and the United
States, on the other hand. As stated elsewhere herein, the outcome of the OIG
Investigation cannot be predicted. The entering into of the OIG Agreements is
not an admission of liability by any party with respect to the OIG
Investigation, nor does it indicate the liability, if any, which may result
therefrom.
Pursuant to the OIG Agreements, upon consummation of the Merger,
Fresenius Medical Care, FMCH and NMC provided the United States with a joint and
several unconditional guarantee of payment when due of all Obligations (the
"Primary Guarantee"). As credit support for this guarantee, NMC delivered an
irrevocable standby letter of credit in the amount of $150 million. The United
States will return such letter of credit (or any renewal or replacement) for
cancellation when all Obligations have been paid in full or it is determined
that NMC has no liability in respect of the Government Claims.
Fresenius Medical Care and the United States state in the OIG
Agreements that they will negotiate in good faith to attempt to arrive at a
consensual resolution of
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the Government Claims and, in the context of such negotiations, will negotiate
in good faith as to the need for any restructuring of the payment of any
Obligations arising under such resolution, taking into account the ability of
Fresenius Medical Care to pay the Obligations. The OIG Agreements state that the
foregoing statements shall not be construed to obligate any person to enter into
any settlement of the Government Claims or to agree to a structured settlement.
Moreover, the OIG Agreements state that the statements described in the first
sentence of this paragraph are precatory and statements of intent only and that
(a) compliance by the United States with such provisions is not a condition or
defense to the obligations of Fresenius Medical Care under the OIG Agreements
and (b) breach of such provisions by the United States cannot and will not be
raised by Fresenius Medical Care to excuse performance under the OIG Agreements.
The foregoing describes the material terms of the OIG Agreements,
copies of which were previously filed with the U.S. Securities and Exchange
Commission (the "SEC" or the "Commission") and copies of which may be examined
without charge at the public reference facilities maintained by the Commission
at Room 1024, 450 Fifth Street, N.W. Washington, D.C. 20549, and at the Regional
Offices of the Commission located at Suite 1400, Citicorp Center, 500 West
Madison Street, Chicago, Illinois 60661-2551 and Room 1300, 7 World Trade
Center, New York, New York 10048. Copies of such material will also be made
available by mail from the Public Reference Branch of the Commission at 450
Fifth Street, N.W. Washington, D.C. 20549, at prescribed rates. The foregoing
description does not purport to be complete and is qualified in its entirety by
reference to such agreements.
DIAGNOSTICS SUBPOENA
In October 1996, Biotrax International, Inc. and NMC Diagnostics, Inc.,
both of which are subsidiaries of NMC, received an investigative subpoena from
the OIG. The subpoena calls for the production of extensive documents and was
issued in connection with an investigation being conducted by the OIG in
conjunction with the U.S. Attorney for the Eastern District of Pennsylvania
concerning the possible submission of false or improper claims to, and their
payment by, the Medicare program. The subpoena calls for the production of
documents on corporate organization, business plans, document retention,
personnel files, sales and marketing and Medicare billing issues relating to
certain procedures offered by the prior owner of the Biotrax business before its
assets were acquired by NMC in March 1994 and by DSI following the acquisition.
The Company has reviewed the subpoena with its legal counsel and is making
extensive document production in response to the subpoena. The outcome of this
investigation, its duration, and its effect, if any, on NMC or the Company
cannot be predicted at this time.
EASTERN DISTRICT OF VIRGINIA
In December 1994, a subsidiary of NMC received a subpoena from a
federal grand jury in the Eastern District of Virginia investigating the
contractual relationships between subsidiaries of NMC that provide dialysis
services and third parties that provide medical directorship and related
services to those subsidiaries. There has been no communication from the
government since a January 1995 document production and the outcome of this
investigation and its effect, if any, on NMC cannot be predicted at this time.
DISTRICT OF NEW JERSEY INVESTIGATION
NMC has received multiple subpoenas from a federal grand jury in the
District of New Jersey investigating, among other things, whether NMC sold
defective products, the manner in which NMC handled customer complaints and
certain matters relating to the development of a new dialyzer product line. NMC
is cooperating with this investigation and has provided the grand jury with
extensive documents. In February, 1996, NMC received a letter from the U.S.
Attorney for the District of New Jersey indicating that it is the target of a
federal grand jury investigation into possible violations of criminal law in
connection with its efforts to persuade the FDA to lift a January 1991 import
hold issued with respect to NMC's Dublin, Ireland manufacturing facility. In
June 1996, NMC received a letter from the U.S. Attorney for the District of New
Jersey indicating that the U.S. Attorney had declined to prosecute NMC with
respect to a submission related to NMC's effort to lift the import hold. The
letter added that NMC remains a subject of a federal grand jury's investigation
into other matters. NMC has produced documents in response to a June 1996
subpoena from the federal grand jury requesting certain documents in connection
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with NMC's imports of the FOCUS(R) dialyzer from January 1991 to November 1995.
The government investigators and the Company have been attempting to further
narrow the issues with respect to which the government has previously expressed
concerns in order to resolve this investigation. However, the outcome and
impact, if any, of these discussions and potential resolution on the Company's
business, financial condition or results of operations cannot be predicted at
this time.
FDA MATTERS
Since 1993, NMC has engaged in a number of voluntary recalls of
products that it manufactured or that were manufactured by third parties and
distributed by NMC. None of these product recalls has resulted in fines or
penalties for NMC. In 1995, Fresenius USA completed a voluntary action with
respect to the Optum(R) exchange device that Fresenius USA acquired from Abbott,
which was classified by the FDA as a recall. The FDA reviewed Fresenius USA's
actions with respect to this device and determined that they were adequate.
During the period from 1991 through 1993, the FDA issued warning
letters concerning four of the six RPD facilities in the U.S., as well as import
alerts concerning hemodialysis bloodlines manufactured at NMC's Reynosa, Mexico
facility and Focus(R) brand hemodialyzers manufactured at NMC's Dublin, Ireland
facility. As a result of the import alerts, NMC was prohibited from importing
the products covered by the alerts into the U.S. until the FDA confirmed
compliance with GMP requirements at the facilities where such products were
manufactured.
In January 1994, NMC and certain members of its senior management
entered into the Consent Decree providing that the importation of bloodlines and
hemodialyzers could resume upon certification by NMC that the relevant
manufacturing facility complied with GMP requirements and successful completion
of an FDA inspection at the relevant facility to confirm compliance. The Consent
Decree also required NMC to certify, and be inspected for, GMP compliance at all
of RPD's manufacturing facilities in the U.S. Under the Consent Decree, RPD
committed to maintaining ongoing compliance with GMP and related requirements at
both U.S. and non-U.S. manufacturing facilities. As a result of the Consent
Decree, NMC's U.S. facilities were required to undertake significant GMP
improvements.
NMC submitted all required certifications for its U.S. and non-U.S.
facilities in accordance with timetables specified in the Consent Decree, and
the bloodline import alert was lifted in March 1994. During the course of 1994
and 1995, NMC also worked with the FDA and demonstrated that its other
manufacturing facilities in the U.S. were in compliance with GMP requirements.
The hemodialyzer manufacturing facility in Dublin, Ireland was inspected by the
FDA in April and December 1994 but did not pass inspection. NMC completed all
remaining corrective actions, and in December 1995 the FDA determined that the
Dublin facility was in compliance with GMP requirements and lifted the import
alert. No fines or penalties have been imposed on NMC as a result of the FDA's
actions or in connection with the Consent Decree. By policy, however, the FDA
generally will undertake more frequent and more rigorous inspections of
facilities that have been subject to consent decrees. For a discussion of the
effects of the warning letters and import alerts issued by the FDA on NMC's
business. The Consent Decree was lifted in January 1997. In February 1997, the
Company closed its Dublin, Ireland facility. See " -- Properties."
On January 24, 1995, the FDA issued a warning letter and import alert
relating to NMC's manufacture of Diafilter(R) products at its Limerick, Ireland
facility. That facility was not expressly named in the Consent Decree described
above. Because NMC voluntarily ceased importing Diafilters(R) into the U.S. in
December 1994, and, for business reasons, decided to shut down the Diafilter(R)
business at the Limerick facility on January 23, 1995, no subsequent compliance
review was deemed necessary by the FDA. NMC was not restricted from importing
into the U.S. the other products manufactured at the Limerick facility.
In 1994 and 1995, the FDA inspected Fresenius USA's manufacturing
facilities in Maumee, Ohio, Ogden, Utah and Walnut Creek, California. At each
location, violations of certain GMPs were found. At the Walnut Creek facility,
violations of pre-market notification filing requirements were also found,
although these findings were subsequently reversed when the devices in question
were determined to be covered by appropriate filings. The FDA issued warning
letters with respect to each facility, as a result of which the issuance of new
510(k) notices and new export clearances was placed on administrative hold.
Fresenius USA responded to the inspection
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findings at Maumee in a manner it believes addresses the FDA's findings.
Fresenius USA subsequently closed the Maumee facility in connection with the
relocation of production from that facility to a facility in Lewisberry,
Pennsylvania. Fresenius USA undertook an exhaustive review of the FDA's findings
relating to Walnut Creek and submitted a detailed response to those findings.
The Ogden plant was reinspected in 1995 and the administrative holds have been
lifted from both Ogden and Walnut Creek. The Walnut Creek facility was inspected
again in January and February of 1996 and Fresenius USA was advised that all GMP
issues raised by the FDA have been resolved. Fresenius USA believes that its
facilities are currently in compliance in all material respects with applicable
state, local and federal requirements.
In August 1996, Fresenius USA undertook a voluntary North American
recall of certain lots of its peritoneal dialysis solutions which were
associated with aseptic peritonitis. This condition is an inflammation of the
abdominal cavity not caused by infection. The patients affected in the episode
recovered quickly after using non-suspect product lots. In the recall, Fresenius
USA notified hospitals and dialysis centers that received the recalled lots as
well as individual patients. Patients with recalled lots were provided with
replacement solution, and a toll free telephone number for patient inquiries was
established. Fresenius USA cooperated with the FDA and other government agencies
in resolving the matter.
In addition, the FDA may inspect facilities in the ordinary course of
business to ensure compliance with GMP and other applicable regulations. The
Company intends to address expeditiously any FDA findings resulting from such
inspections.
COMMERCIAL INSURER LITIGATION
In December 1997, FMCH, NMC, and certain named NMC subsidiaries, as
well as Grace, were served with a civil complaint filed by Aetna Life Insurance
Company in the U.S. District Court for the Southern District of New York (Aetna
Life Insurance Company v. National Medical Care, Inc. et al, 97-Civ-9310). Based
in large part on information contained in prior securities filings, the lawsuit
alleges inappropriate billing practices for nutritional therapy, diagnostic and
clinical laboratory tests and misrepresentations. The complaint seeks
unspecified damages and costs. Grace has sought indemnification from the Company
pursuant to the terms of an indemnification agreement between Grace and the
Company for any liability, costs and expenses that Grace may incur as a result
of the lawsuit. The Company is currently engaged in formulating its response to
the complaint. This action is at an early stage and its outcome and impact on
the Company cannot be predicted at this time. However, the Company, NMC and its
subsidiaries believe that they have substantial defenses to the claims asserted,
and intend to vigorously defend the lawsuit. It is also possible that one or
more other private payors may claim that NMC received excess payments and
similarly, may seek reimbursement and other damages from NMC. An adverse result
could have a material adverse effect on the Company's business, financial
condition or results of operations.
INTERNATIONAL LEGAL PROCEEDINGS AND REGULATORY CLAIMS
As discussed above, as a general matter, licenses and certifications
are required in connection with the operation of dialysis clinics outside the
United States, and the Company is dependent upon NMC's ability to obtain and
maintain such licenses and certifications. NMC lacks certain licenses and
certifications technically required to operate its facilities in Portugal.
However, based on discussions with regulatory officials in Portugal, NMC
management does not believe that the absence of such licenses will have a
material adverse effect on NMC or materially affect its ability to operate such
facilities.
The Company has conducted an investigation regarding suspected
fraudulent activity of the General Manager of the Company's dialysis and
laboratory operations in Portugal. The Company recently completed an analysis of
the effect of such activities and expensed approximately $10 million related to
the fraud and FMCH increased reserves by $10 million related to uncollectible
accounts and tax matters, none of which was material to any prior year, during
the third quarter 1996. The Company is pursuing actions against the responsible
individuals and possible recovery of such losses under insurance coverage.
Additionally, FMCH has written off $9 million related to franchise fees for its
operations in Brazil.
MEDICARE CERTIFICATION ISSUES
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As discussed above, licenses and certification for participation in the
Medicare and Medicaid programs are regulated at the federal, state and local
levels. The Medicare carriers serving Florida, New Jersey, Pennsylvania, South
Carolina, West Virginia and Ohio, have implemented or are considering the
implementation of coverage policies that may restrict the ability of
nuclear-imaging providers, such as DSI, to qualify as a provider for this
service. If DSI is not permitted to bill for these services as a Medicare
provider, it may be able to bill physicians for the services DSI provides.
OBRA 93
OBRA 93 affected the payment of benefits under Medicare and employer
health plans for certain eligible ESRD patients. In July 1994, HCFA issued an
instruction to Medicare claims processors to the effect that Medicare benefits
for the patients affected by OBRA 93 would be subject to a new 18-month
"coordination of benefits" period. This instruction had a positive impact on
NMC's dialysis revenues because, during the 18-month coordination of benefits
period, patients' employer health plans were responsible for payment, which was
generally at rates higher than that provided under Medicare.
In April 1995, HCFA issued a new instruction, reversing its original
instruction in a manner that would substantially diminish the positive effect of
the original instruction on NMC's dialysis business. Under the new instruction,
no 18-month coordination of benefits period would arise, and Medicare would
remain the primary payor. HCFA further proposed that its new instruction be
effective retroactive to August 1993, the effective date of OBRA 93.
If HCFA's reversal of its original implementation of the provisions of
OBRA 93 that relate to ESRD patients for whom Medicare is the secondary payor
(see " -- Regulatory and Legal Matters -- Reimbursement -- U.S. -- Coordination
of Benefits") is upheld, NMC may be required to refund the payments received
from employer health plans for services provided after August 10, 1993 under
HCFA's original implementation, and to re-bill Medicare for the same services,
which would result in a net loss to DSD of approximately $120 million as of
December 31, 1995. NMC ceased to recognize the incremental revenue realized
under the original Program Memorandum as of July 1, 1995, but it continued to
bill employer health plans as primary payors for patients affected by OBRA 93
through December 31, 1995. As of January 1, 1996, NMC commenced billing Medicare
as primary payor for dual eligible ESRD patients affected by OBRA 93, and then
began to rebill in compliance with the revised policy for services rendered
between April 24 and December 31, 1995.
On May 5, 1995, NMC filed a complaint in the U.S. District Court for
the District of Columbia (National Medical Care, Inc. and Bio-Medical
Applications of Colorado, Inc. d/b/a Northern Colorado Kidney Center v. Shalala,
C.A. No. 95-0860 (WBB)) seeking to preclude HCFA from retroactively enforcing
its April 24, 1995 implementation of the OBRA 93 provisions relating to the
coordination of benefits for dual eligible ESRD patients. On May 9, 1995, NMC
moved for a preliminary injunction to preclude HCFA from enforcing its new
policy retroactively, that is, to billings for services provided between August
10, 1993 and April 23, 1995. On June 6, 1995, the court granted NMC's request
for a preliminary injunction. The litigation is continuing with respect to NMC's
request to enjoin HCFA's new policy, both retroactively and prospectively, and
NMC filed significant discovery requests concerning how HCFA developed the April
1995 rule. In December of 1996, NMC moved for partial summary judgment seeking a
declaration from the Court that HCFA's retroactive application of the April 1995
rule was legally invalid. HCFA cross moved for summary judgment on the grounds
that the April 1995 rule was validly applied prospectively. In January 1998, the
court granted NMC's motion for partial summary judgment and entered a
declaratory judgment in favor of NMC, holding HCFA's retroactive application of
the April 1995 rule legally invalid. Based on its finding, the Court also
ordered that HCFA is permanently enjoined from enforcing and applying the April
1995 rule retroactively against NMC and granted NMC's outstanding discovery
motions. The Court took no action on HCFA's motion for summary judgment pending
completion of the outstanding discovery. The Court's favorable rulings provide a
stronger legal basis for NMC to collect outstanding amounts from commercial
payors on the retroactive portion of the case during the first half of 1998. At
this time, it is unknown whether HCFA intends to appeal that ruling. If HCFA
should successfully appeal so that the revised interpretation would be applied
retroactively, FMCH's business, financial position and results of operations
would be materially adversely affected.
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SECURITIES AND EXCHANGE COMMISSION INVESTIGATION
In April 1996, FMCH (then called W.R. Grace & Co.) received a formal
order of investigation issued by the Commission directing an investigation into,
among other things, whether Grace violated the federal securities laws by filing
periodic reports with the Commission that contained false and misleading
financial information. Pursuant to this formal order of investigation, FMCH has
produced documents pursuant to subpoenas from the Southeast Regional Office of
the Commission relating to reserves (net of applicable taxes) established by
FMCH and NMC during the period from January 1, 1990 to the date of the subpoena
(the "Covered Period") and certain corporate records and personnel material.
FMCH believes that all financial statements filed by FMCH with the Commission
during the Covered Period, including the financial statements of NMC included in
the NMC Form 10 filed with the Commission on September 25, 1995, and the
consolidated financial statements of Grace filed in Grace's Annual Report on
Form 10-K for the year ended December 31, 1995 (all of which financial
statements, other than unaudited quarterly financial statements, were covered by
unqualified opinions issued by Price Waterhouse LLP, independent certified
public accountants), have been fairly stated, in all material respects, in
conformity with U.S. GAAP. FMCH and NMC have been cooperating with the
Commission. While there can be no assurance, FMCH believes that the outcome of
this investigation will have no material adverse effect on the business,
financial condition and results of operations of FMCH.
IDPN COVERAGE ISSUES
The Company administers IDPN therapy to chronic dialysis patients who
suffer from severe gastrointestinal malfunctions. After 1993, Medicare claims
processors sharply reduced the number of IDPN claims approved for payment as
compared to prior periods. NMC believes that the reduction in IDPN claims
represented an unauthorized policy coverage change. Accordingly, NMC and other
IDPN providers pursued various administrative and legal remedies, including
administrative appeals, to address this reduction.
In November 1995, NMC filed a complaint in the U.S. District Court for
the Middle District of Pennsylvania seeking a declaratory judgment and
injunctive relief to prevent the implementation of this policy coverage change.
(National Medical Care, Inc. v. Shalala, 3:CV-95-1922 (RPC)). Subsequently, the
District Court affirmed a prior report of the magistrate judge dismissing NMC's
complaint, without considering any substantive claims, on the grounds that the
underlying cause of action should be submitted fully to the administrative
review processes available under the Medicare Act. The Company decided not to
appeal the Court's decision, but rather, to pursue the claims through the
available administrative processes.
Although NMC management believes that those IDPN claims were consistent
with published Medicare coverage guidelines and ultimately will be approved for
payment, there can be no assurance that the claims on appeal will be approved
for payment. Such claims represent substantial accounts receivable of NMC,
amounting to approximately $152 million as of December 31, 1997.
If NMC is unable to collect its IDPN receivable or if IDPN coverage is
reduced or eliminated, depending on the amount of the receivable that is not
collected and/or the nature of the coverage change, NMC's business, financial
condition and results of operations could be materially adversely affected. See
" -- Reimbursement -- U.S. -- IDPN."
SHAREHOLDER LITIGATION
In 1995, nine purported class action lawsuits were brought against FMCH
(prior to the Merger, when it was Grace) and certain of its then officers and
directors in various federal courts. These lawsuits have been consolidated in a
case entitled Murphy, et al. v. W.R. Grace & Co., et al. No. 95-CV-9003(JFK)
(the "Murphy Action"), which is pending in the U.S. District Court for the
Southern District of New York. The first amended class action complaint in this
lawsuit, which purports to be a class action on behalf of all persons and
entities who purchased publicly traded securities of FMCH during the period from
March 13, 1995 through October 17, 1995, generally alleges that the defendants
violated federal securities laws by concealing information and issuing
misleading public statements and reports
51
<PAGE> 52
concerning NMC's financial position and business prospects, a proposed spin-off
of NMC, and the matters that are the subject of the OIG Investigation and the
investigation by the federal grand jury in the District of New Jersey. See
" -- OIG Investigation" and " -- District of New Jersey Investigation." The
Murphy Action seeks unspecified damages, attorneys' and experts' fees and costs
and such other relief as the court deems proper. Plaintiffs and their counsel
have agreed to compromise and settle the Murphy Action upon the terms of a
Stipulation of Settlement executed on or about January 13, 1998 and
preliminarily approved by the Court on January 28, 1998. The Stipulation of
Settlement remains subject to the approval of the Court. If approved, the
settlement agreement calls for the establishment of a settlement fund consisting
of amounts contributed by Grace and insurance carriers for the individual
defendants. The Company, FMCH and NMC are not required to make any contribution
to the settlement fund.
In October 1995, a purported derivative lawsuit was filed in the U.S.
District Court for the Southern District of Florida, Northern Division against
FMCH (prior to the Merger, when it was known as Grace), certain of its then
directors and its former President and Chief Executive Officer, alleging, inter
alia, that such individuals breached their fiduciary duties by failing to
properly supervise the activities of NMC in the conduct of its business (Bennett
v. Bolduc, et al. 95-8638-CIV-MORENO). In December 1995, the plaintiff in this
action filed a new action, based on similar allegations, in the U.S. District
Court for the Southern District of New York (Bennett v. Bolduc, et al.
95-CV-10737 (AGS)) (the "Bennett Action"). The action in Florida has been
dismissed in favor of the Bennett Action. A second action making similar
allegations was filed in October 1995 in New York State Supreme Court, New York
County (Bauer v. Bolduc, et al. 95-125751). This action has been stayed in favor
of the Bennett Action, which has been consolidated, for discovery purposes only,
with the Murphy Action described above. The complaint in the Bennett Action
seeks unspecified damages, attorneys' and experts' fees and costs and such other
relief as the court deems proper. Pursuant to a case management order issued by
the Court in February 1996, the parties in the consolidated litigation have
begun discovery, including the exchange of documents. Plaintiff and his counsel
have agreed to compromise and settle the Bennett Action upon the terms of a
Stipulation of Settlement executed on or about January 12, 1998. The Stipulation
of Settlement remains subject to the approval of the Court. The Company, FMCH
and NMC are not required to make any payment in connection with this settlement.
The outcomes of these lawsuits cannot be predicted, although FMCH, NMC
and the individual defendants believe that they have substantial defenses to the
claims asserted. The stipulations of settlement in both the Murphy Action and
the Bennett Action contain denials of liability on the part of the defendants.
In February 1996, a purported class action was filed in New York State
Supreme Court, New York County, against FMCH (prior to the Merger, when it was
known as Grace) and certain of Grace's then current and former directors,
alleging that the defendants breached their fiduciary duties, principally by
failing to provide internal financial data concerning NMC and by failing to
negotiate with certain other companies that had made proposals for business
combinations involving NMC (Rosman v. W. R. Grace, et al. 96-102347). The
lawsuit seeks injunctive relief ordering defendants to carry out their fiduciary
duties and preventing or rescinding the Merger or any related transactions with
Fresenius AG, unspecified monetary damages, an award of plaintiff's attorneys'
and experts' fees and costs, and such other relief as the court may deem just
and proper. The plaintiff has not taken any steps to prosecute the action since
it was filed. The defendants believe this lawsuit is without merit.
Grace Chemicals has indemnified the Company and its affiliates for any
losses related to these lawsuits.
OTHER LITIGATION AND POTENTIAL EXPOSURES
In recent years, physicians, hospitals and other participants in the
health care industry have become subject to an increasing number of lawsuits
alleging professional negligence, malpractice, product liability, workers'
compensation or related claims, many of which involve large claims and
significant defense costs. FMCH and NMC and their subsidiaries have been, and
the Company can be expected to continue from time to time to be, subject to such
suits due to the nature of the Company's business. Although the Company
maintains insurance at a level which it believes to be prudent, there can be no
assurance that the coverage limits will be
52
<PAGE> 53
adequate or that all asserted claims will be covered by insurance. In addition,
there can be no assurance that liability insurance will continue to be available
at acceptable costs. A successful claim against the Company or any of its
subsidiaries in excess of insurance coverage could have a material adverse
effect upon Fresenius Medical Care and the results of its operations. Any
claims, regardless of their merit or eventual outcome, also may have a material
adverse effect on the reputation and business of Fresenius Medical Care. FMCH,
NMC and their subsidiaries operate a large number and wide variety of facilities
throughout the U.S. In such a decentralized system it is often difficult to
maintain the desired level of oversight and control over the thousands of
individuals employed by many affiliate companies. The Company relies upon its
management structure, regulatory and legal resources, and the effective
operation of its compliance program to direct, manage and monitor the activities
of these employees. See "Business -- Regulatory and Legal Matters -- Regulatory
Overview." However, on occasion, FMCH, NMC and their subsidiaries have
identified instances where employees, deliberately or inadvertently, have
submitted inadequate or false billings while employed by an affiliated
company. The illegal actions of such persons may subject NMC to liability under
the False Claims Act, among other laws, and the Company cannot predict whether
such law enforcement authorities may use such information to initiate further
investigations of the business practices disclosed or any other business
activities of the Company. In addition, the Company asserts claims and suits
arising in the ordinary course of business, the ultimate resolution of which
would not, in the opinion of Fresenius Medical Care, have a material adverse
effect on its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of 1997.
PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
All of the Company's common stock is held by Fresenius Medical Care.
The NMC Credit Agreement and the indentures pertaining to the Senior
Subordinated Notes of Fresenius Medical Care and one of its subsidiaries impose
certain limits on the Company's payment of dividends. See Item 7 - "MD&A".
53
<PAGE> 54
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Successor Predecessor
--------------------------- -------------------------------------------------
Nine
Three Months Months
Year Ended Ended Ended Year Ended December 31,
Dec. 31, Dec. '31, Sept. 30,
1997 1996 1996 1995 1994 1993
---------- ---------- --------- ---------- --------- ---------
(Dollars in Millions, Except Shares and
Per Share Data)
Statement of Operations Data
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 2,621 $ 631 $ 1,615 $ 2,033 $ 1,818 $ 1,456
Cost of sales 1,650 394 969 1,176 1,027 840
------- ------- ------- ------- ------- -------
Gross profit 971 237 646 857 791 616
Selling, general and administrative
and research and development 718 177 501 625 561 413
------- ------- ------- ------- ------- -------
Operating income 253 60 145 232 230 203
Interest expense (net) 186 45 16 26 16 12
------- ------- ------- ------- ------- -------
Income before income taxes 67 15 129 206 214 191
Income tax expense 46 9 66 109 112 87
------- ------- ------- ------- ------- -------
Net income $ 21 $ 6 $ 63 $ 97 $ 102 $ 104
======= ======= ======= ======= ======= =======
Net Income Per Common and Common
Equivalent Share:
Primary $ 0.23 $ 0.07 $ 0.66 $ 1.01 $ 1.08 $ 1.12
Weighted average number of shares of
common stock and
common stock equivalents:
Primary (000'S) 90,000 90,000 95,188 95,822 93,936 91,974
</TABLE>
<TABLE>
<CAPTION>
Successor Predecessor
---------------------------- -------------------------------------
At December 31, At December 31,
---------------------------- -------------------------------------
1997 1996 1995 1994 1993
-------------- ---------- --------- --------- ---------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Working capital $ 383 $ 282 $ 125 $ 145 $ 74
Total assets 5,010 4,596 1,998 1,644 1,245
Total long term debt and capital
lease obligations 1,624 1,438 35 17 14
Stockholders' equity 1,969 1,768 1,363 1,159 880
</TABLE>
54
<PAGE> 55
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For purposes of the following discussion, Fresenius Medical Care
Holdings, Inc., ("FMCH" or the "Company") formerly known as W. R. Grace & Co.
("Grace New York"), together with the wholly owned subsidiaries, National
Medical Care, Inc. and its subsidiaries ("NMC") and Fresenius USA, Inc. and its
subsidiaries ("FUSA") was formed as a result of a series of transactions
pursuant to the Agreement and Plan of Reorganization dated as of February 4,
1996 by and between Grace New York and Fresenius AG ("the Merger") formerly
referred to in the Company's SEC filings as the Reorganization. The following is
a discussion of the financial condition and results of operations of FMCH. The
discussion should be read in conjunction with the financial statements included
elsewhere in this document.
This section contains certain forward-looking statements. These
forward-looking statements are made based on management's expectations and
beliefs concerning future events impacting FMCH, but no assurance can be given
that such events will occur or that the results will be as anticipated. Such
statements include, without limitation, discussions concerning the outlook of
FMCH, government reimbursement, future plans and management's expectations
regarding future performance.
OVERVIEW
FMCH is primarily engaged in (a) providing kidney dialysis services and
clinical laboratory testing, (b) manufacturing and distributing products and
equipment for dialysis treatment, and (c) providing home infusion therapy, home
respiratory services, diagnostic services and other medical services. Throughout
FMCH's history, a significant portion of FMCH's growth has resulted from the
development of new dialysis centers and the acquisition of existing dialysis
centers, as well as from the acquisition and development of complementary
businesses in the health care field.
FMCH derives a significant portion of its health care services net revenues
from Medicare, Medicaid and other government health care programs (approximately
XX% in 1997). The reimbursement rates under these programs, including the
Composite Rate, the reimbursement rate for EPO (which accounted for
approximately 23% of dialysis service's domestic net revenues in 1997), and the
reimbursement rate for other dialysis and non-dialysis related services and
products, as well as other material aspects of these programs, have in the past
and may in the future be changed as a result of deficit reduction and health
care reform measures.
FMCH's business, financial position and results of operations also could be
materially adversely effected by an adverse outcome in the OIG investigations,
any whistleblower action, the pending challenge by FMCH of changes effected by
Medicare in approving reimbursement claims relating to the administration of
IDPN or by the recent adoption of a new coverage policy that will change IDPN
coverage prospectively. FMCH's business, financial position and results of
operations would also be materially adversely affected by an adverse outcome in
the pending litigation concerning the implementation of certain provisions of
OBRA 93 relating to the coordination of benefits between Medicare and employer
health plans in the case of certain dual eligible ESRD patients.
FMCH also derives a significant portion of its net revenues from
reimbursement by non-government payors. Historically, reimbursement rates paid
by these payors generally have been higher than Medicare and other government
program rates in all areas except for certain services provided by NMC Homecare.
However, non-government payors are imposing cost containment measures that are
creating significant downward pressure on reimbursement levels that FMCH
receives for its services and products.
Dialysis Services operated or managed dialysis centers in 13 foreign
countries at December 31, 1997. In certain countries, FMCH experiences lower
reimbursement rates per treatment for dialysis services than are generally
realized in the U.S. FMCH's international dialysis services operations currently
generate less operating profit per treatment than domestic dialysis operations
due to both the lower reimbursement rates in some countries and the start-up
nature of many of the centers in foreign countries.
55
<PAGE> 56
RESULTS OF OPERATIONS
The following table summarizes certain operating results of FMCH by
principal business unit for the periods indicated. Intercompany eliminations
primarily reflect sales of medical supplies by Dialysis Products to Dialysis
Services. The table presents the year 1996 where there is a combination of 9
months of operations on a predecessor basis and 3 months of operations on a
successor basis. The entire year for 1997 operations was on a successor basis,
the operations for 1995 were on a predecessor basis. These bases of accounting
are not entirely compatible. In particular, the successor basis has a
significant increase in interest expense and depreciation and amortization when
compared to the predecessor basis.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------------------------------
1997 1996 1995
------------- ------------- --------------
(DOLLARS IN MILLIONS)
Net Revenues:
<S> <C> <C> <C>
Dialysis Services $1,905 $1,669 $1,539
Dialysis Products 676 406 290
Homecare/Diagnostics 296 379 382
Intercompany Eliminations (256) (209) (178)
------------- ------------- -------------
Total Net Revenues $2,621 $2,245 $2,033
============= ============= =============
Operating Earnings:
Dialysis Services 274 239 282
Dialysis Products 71 42 (11)
Homecare/Diagnostics (19) (1) 47
-------------- ------------- -------------
326 280 318
-------------- ------------- -------------
Other Expenses:
General Corporate 69 72 66
Research and Development 4 3 20
Interest Expense, Net 186 61 26
-------------- ------------- -------------
Total Other Expenses 259 136 112
-------------- ------------- -------------
Earnings Before Income Taxes 67 144 206
Provision for Income Taxes 46 75 109
------------- ------------- ------------
Net Earnings $ 21 $ 69 $ 97
============= ============= =============
</TABLE>
56
<PAGE> 57
1997 COMPARED TO 1996
Net revenues for 1997 increased by 17% ($376 million) over 1996, with
Dialysis Services and Dialysis Products accounting for more than all of the
entire increase. Net earnings for 1997 decreased 70% ($48 million) as compared
to 1996 primarily as a result of increased amortization and interest expenses
partially offset by increased operating earnings of dialysis products and
dialysis services.
Dialysis Services. Dialysis Services net revenues for 1997 increased by
14% ($236 million) over 1996, which included a favorable OBRA 93 adjustment ($10
million), primarily as a result of a 15% increase in the number of treatments
provided worldwide. This increase was partially offset by a decline in the
ancillary revenue rate ($16 million). The treatment increase was largely due to
an increase in the number of dialysis centers (852 at December 31, 1997 as
compared to 753 at December 31, 1996). Laboratory testing revenues for 1997
increased by $17 million over 1996. This was primarily due to revenues of
Spectra Laboratories ($29 million), acquired by FMCH in June 1997, partially
offset by decreases in LifeChem testing volume ($12 million).
Dialysis Services operating earnings for 1997 increased by 15% ($35
million) over 1996. This was primarily due to three unfavorable one time
adjustments made during the third quarter of 1996; (writedowns in Portugal
related to fraudulent activities ($10 million), increased reserves for certain
Portuguese uncollectible accounts and tax matters ($10 million), and write-offs
of Brazil franchise fees ($9 million)). The effect of these adjustments and the
increase in treatment volume was partially offset by the aforementioned OBRA 93
adjustment in 1996, decreases in volume of LifeChem laboratory testing, and
increases to personnel costs. Spectra Laboratories operating earnings for 1997
were $4 million.
Dialysis Products. Dialysis Products net revenues for 1997 increased by
67% ($270 million) over 1996, primarily due to a $267 million increase in
revenues for FUSA which was contributed to FMCH by Fresenius Medical Care AG
effective October 1, 1996. Included in the increased sales of FUSA, was a $30
million increase in product sales between FUSA and Dialysis Services which have
been eliminated for financial reporting.
Dialysis Products operating earnings for 1997 increased by 69% ($29
million) over 1996, primarily due to increased operating earnings of FUSA ($22
million). NMC's Renal Product Division's operating earnings increased by
approximately $7 million during 1997, primarily due to a reduction in operating
expenses and distribution costs ($4 million) as well as one-time charges
recorded during 1996 for legal expenses ($3 million).
Homecare/Diagnostics. Homecare/Diagnostics net revenues for 1997
decreased by 22% ($83 million) as compared to 1996, primarily due to changes in
Medicare qualification procedures for IDPN patients ($41 million), decreases in
infusion therapy revenues mainly due to continued price compression from managed
care ($22 million), the effect of the sale of Home Health business ($10
million), and decreases in the number of diagnostic services primary care tests
($17 million). These decreases were partially offset by increases in respiratory
therapy revenues ($7 million).
Homecare/Diagnostic operating earnings for 1997 decreased by $18
million over 1996, primarily due to continued pressure resulting from managed
care, the decline in the number of Medicare IDPN patients who qualify for
coverage under the government's new procedures and decreases in the volume of
diagnostic services tests, partially offset by increased bad debt provisions in
1996, approximately $12 million.
Other Expenses. FMCH's other expenses for 1997 increased by 90% ($123
million) over 1996. General corporate expense decreased by 4% ($3 million)
primarily due to reduced legal expenses ($12 million) favorable savings in
foreign exchange ($27 million), and other cost reductions ($20 million), almost
entirely offset by increased amortization expenses associated with the
revaluation of intangible assets at the time of the Merger ($56 million).
Research and development expenses for 1997 increased by $1 million over 1996.
Interest expense for 1997 increased by $125 million over 1996 mainly due to the
large amount of bank debt incurred to finance the merger and the increase in
interest expense associated with FUSA ($7 million).
57
<PAGE> 58
Income Tax Rate. The effective tax rate was 68.7% for 1997 as compared
with 52.1% of 1996. The effective income tax rates for 1997 and 1996 were
significantly higher than the combined statutory rates due primarily to
nondeductible losses and asset writedowns in certain foreign countries in 1996
and the large amount of non-deductible goodwill incurred as a result of the
Merger in 1996 and 1997 partially offset by a reduction in the FUSA valuation
allowance.
1996 COMPARED TO 1995
Net revenues for 1996 increased by 10% ($212 million) over 1995, with
Dialysis Services and Dialysis Products accounting for more than all of the
increase. Net earnings for 1996 decreased 29% ($28 million) as compared to 1995
as a result of decreased operating earnings and higher general corporate and
interest expenses.
Dialysis Services. Dialysis Services net revenues for 1996 increased by
8% ($130 million) over 1995, primarily as a result of an 11% increase in the
number of treatments provided worldwide, offset somewhat by the absence of the
comparable profit contribution from OBRA 93 recorded in the first six months of
1995 ($38 million). See Item 1. "Business -- Regulatory and Legal Matters --
Reimbursement -- U.S." The treatment increase was largely due to an increase in
the number of dialysis centers (753 at December 31, 1996 as compared to 681 at
December 31, 1995). LifeChem revenues increased by $2 million in 1996, as
compared to 1995.
Dialysis Services's operating earnings for 1996 decreased by 15% ($43
million) as compared to 1995 primarily as a result of the absence of the
comparable profit contribution from OBRA 93 ($38 million), writedowns in
Portugal related to fraudulent activities ($10 million), increased reserves for
certain Portuguese uncollectible accounts and tax matters ($10 million), and
write-offs of Brazil franchise fees ($9 million), somewhat offset by increased
treatment volume. These decreases were partially offset by an increase in
LifeChem profits of 13% ($4 million) due to increases in the number of billable
tests performed and the charges, recorded in 1995, related to the repayment to
the government of certain overpayments received from Medicare.
Dialysis Products. Dialysis Products net revenues for 1996 increased by
40% ($116 million) over 1995 due to increases at NMC's Renal Products Division
and $83 million of fourth quarter revenues of FUSA, which was contributed to
FMCH by Fresenius Medical Care AG effective October 1, 1996. RPD's net revenues
for 1996 increased by 11% ($33 million) over 1995, primarily due to higher
domestic volume in hemodialysis disposables, and increased international market
penetration, partially offset by the effect of the Renal-tec and Renamed
divestments ($4 million).
Dialysis Products operating earnings improved by $53 million as
compared to 1995, primarily due to higher revenues, increased capacity
utilization, lower manufacturing costs, reduction in operating expense and
distribution costs and one-time charges recorded in the third quarter of 1995
for asset impairments and writedowns. FUSA's fourth quarter operating earnings
were less than $1 million.
Homecare/Diagnostics. Homecare/Diagnostics net revenues for 1996
decreased by 1% ($3 million) as compared to 1995, primarily due to changes in
Medicare qualification procedures for IDPN patients ($7 million), and decreases
in infusion therapy revenues mainly due to continued price compression from
managed care ($40 million), partially offset by increases to diagnostic services
revenue ($35 million), respiratory therapy revenues ($6 million) and home health
revenues ($3 million). The growth in diagnostic services was primarily due to a
significant increase in the number of primary care treatments resulting from
three acquisitions consummated in 1995.
Homecare/Diagnostic operating earnings for 1996 decreased by $48
million over 1995, primarily due to continued pressure resulting from managed
care, the decline in the number of Medicare IDPN patients who qualify for
coverage under the government's new procedures and provisions for bad debt
expenses ($12 million) and restructuring charges ($2 million) recorded in the
third quarter of 1996.
Other Expenses. FMCH's other expenses for 1996 increased by 22% ($24
million) over 1995. General corporate expense increased by 9% ($6 million) over
1995 due to increased FMCH corporate expenses (reflecting the growth of FMCH),
and costs related to the OIG investigative subpoenas. Research and development
expenses decreased by 85% ($17 million) in 1996 versus 1995 due primarily to a
reduction in the allocation
58
<PAGE> 59
of these expenses by the Grace Consolidated Group. Following the Merger, FMCH,
as part of Fresenius Medical Care has not been allocated Grace Consolidated
Group corporate expenses, but will incur certain corporate expenses as part of
Fresenius Medical Care. FMCH has discontinued most of the ongoing research
projects that resulted in these allocations from the Grace consolidated group
($16 million) during 1996, thereby incurring significantly lower research and
development expenses. Interest expense increased by 135% ($35 million) in 1996
over 1995 mainly due to the large amount of bank debt incurred to finance the
merger and the interest expense associated with FUSA in the fourth quarter ($2
million).
Income Tax Rate. The effective tax rate was 52.1% for 1996 as compared
with 52.9% of 1995. The effective income tax rates for 1996 and 1995 were
significantly higher than the combined statutory rates due primarily to
nondeductible losses and asset writedowns in certain foreign countries and the
large amount of non-deductible goodwill incurred as a result of the merger.
The following table represents the unaudited proforma statements of
operations of the Company for the fiscal year 1996, assuming the Merger occurred
on January 1, 1996, and the actual statements of operations for the fiscal year
1996.
<TABLE>
<CAPTION>
ACTUAL PROFORMA
YEARS ENDED
DECEMBER 31,
----------------------
1996 1996
------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Net Revenues:
Dialysis Services $ 1,669 $ 1,669
Dialysis Products 406 667
Homecare/Diagnostics 379 379
Intercompany Eliminations (209) (259)
------- -------
Total Net Revenues $ 2,245 $ 2,456
======= =======
Operating Earnings:
Dialysis Services $ 239 $ 239
Dialysis Products 42 39
Homecare/Diagnostics (1) (1)
------- -------
280 277
------- -------
Other Expenses:
General Corporate 72 114
Research and Development 3 5
Interest Expense, Net 61 150
------- -------
Total Other Expenses 136 269
------- -------
Earnings Before Income Taxes 144 8
Provision for Income Taxes 75 32
------- -------
Net Earnings $ 69 $ (24)
======= =======
</TABLE>
EFFECT OF MERGER ON RESULTS OF OPERATIONS
In accordance with U.S. GAAP relating to purchase accounting rules, the
Company has adjusted to fair value its assets and liabilities which, on a pro
forma basis, would have resulted in increased amortization of approximately $41
million for 1996, in the pro forma Statement of Operations shown as part of
general corporate expenses. In addition, as part of the Merger, the Company has
incurred additional debt, which would have resulted in a net increase in
interest expense, including amortization of debt issuance costs and other fees,
in the amount of $89 million for 1996 on a pro forma basis. In connection with
the Merger, the addition of FUSA for the entire year would have resulted in
increased revenues for Renal Products of $211 million and decreased operating
earnings for Renal Products of $3 million in 1996, on a pro forma basis. The
addition of FUSA for the entire year would have also resulted in a $2 million
increase in research and development expense, on a pro forma basis. The Merger
would have resulted in a decrease in the Company's provision for income taxes of
$43 million in 1996, on a pro forma basis. As a result of the above adjustments,
on a pro forma basis, the Company would have reported a net loss of $24 million
in 1996, as compared to its actual net profit of $69 million in 1996.
59
<PAGE> 60
LIQUIDITY AND CAPITAL RESOURCES
FMCH made acquisitions totaling $487 million, (including $67 million
issuance of investment securities), $95 million and $252 million in 1997, 1996
and 1995, respectively, net of cash acquired. FMCH made capital expenditures for
internal expansion, improvements, new furnishings and equipment of $171 million,
$139 million and $103 million in 1997, 1996 and 1995, respectively. The Company
intends to capitalize on the continuing shift in the U.S. from physician-owned
and hospital based dialysis clinics to multi-center providers by acquiring
existing dialysis centers and the establishment of new or expanded centers and,
accordingly, will require significant capital resources to pursue its growth
strategy in the dialysis marketplace. FMCH may also make other strategic
acquisitions in the future.
FMCH also requires capital resources for working capital purposes. FMCH
used cash to fund increases in accounts receivable of $119 million, $144 million
and $176 million in 1997, 1996 and 1995, respectively. The increases in accounts
receivable reflect growth in FMCH's business operations and, beginning in 1994,
the sharp reduction in IDPN claims approved for payment.
During 1997, FMCH funded its acquisitions and capital expenditures
primarily through increased borrowings under its credit facility ($202 million)
and increased borrowings from affiliates ($70 million). In addition, FMCH
received capital contributions of $199 million from Fresenius Medical Care, AG,
which were used primarily in connection with repayment of external debt and
acquisitions. In addition, acquisitions were also funded through issuance of
investment securities by a Luxembourg subsidiary ("FMC Finance"). An
intercompany payable ($67 million) has been established between FMCH and FMC
Finance. FMCH received net cash advances from Fresenius AG of $513 million
during 1996. Prior to the Merger, FMCH funded its acquisitions and capital
expenditures with cash advances from the Grace Consolidated Group and cash from
operations supplemented by financing programs, including the accounts receivable
securitization program. FMCH received net cash advances from Grace of $279
million and $107 million for 1996 and 1995, respectively. FMCH generated net
cash from operations of $168 million, $144 million, and $129 million for 1997,
1996, and 1995, respectively.
Effective July 1, 1995, FMCH ceased to recognize the incremental
revenue provided under HCFA's initial instruction under OBRA 93, although it
continued to bill private third-party payors for these amounts through December
31, 1995. FMCH began billing Medicare as the primary payor for the dual
eligible ESRD patients affected by OBRA 93 effective January 1, 1996. If HCFA's
revised instruction under OBRA 93 is permanently enjoined on a prospective
basis, or if such revised instruction is sustained but given an effective date
of later than June 30, 1995, FMCH may be able to rebill such services to
third-party payors and, as a result, FMCH's future results of operations and
financial position would be favorably affected by the incremental revenue that
FMCH would recognize. For further discussion see Note 15, "Commitments and
Contingencies", Omnibus Budget Reconciliation Act of 1993.
NMC entered into a $2.5 billion Credit Agreement on September 27, 1996
with a group of financial institutions. The Credit Agreement was used to fund a
cash dividend to Grace Chemicals of approximately $2.1 billion, finance existing
letters of credit and for general corporate purposes. In November 1996,
Fresenius Medical Care implemented two financings which raised a total of $731
million, the proceeds of which were invested in FMCH through a $249 million
equity infusion and a total of $482 million of loans to FMCH. The funds were
used to repay certain borrowings under the Credit Agreement. Also in November
1996, Fresenius Medical Care became a guarantor under the NMC Credit Agreement.
The Credit Agreement will be utilized to fund future capital requirements and
acquisitions and, to the extent necessary, General Corporate requirements,
including future letters of credit, and any claims on the Company which may
result from adverse settlements with the government of the OIG or other
investigations.
On August 28, 1997, FMCH established a new $204 million receivables
financing facility with NationsBank to replace its former financing facility
with Citicorp. The agreement has an effective interest rate of 5.66% and matures
on August 27, 1998.
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<PAGE> 61
Proceeds of $200 million have been drawn down under the NationsBank agreement,
an increase of $52 million from December 31, 1996.
Beginning in 1995, FMCH financed working capital requirements for
certain overseas operations by means of borrowings denominated in currencies
other than the operational currency. FMCH hedged its exposure to the foreign
exchange risk associated with these borrowings through the use of forward
purchase contracts, whereby FMCH contracted with the same counterparty as the
original borrowing to purchase the currency in which the loan is denominated and
sell the operational currency with a maturity date equivalent to the maturity
date of the underlying borrowings. The value of these borrowings and associated
forward exchange contracts at December 31, 1995 amounted to approximately $48.
FMCH estimates that these transactions had a favorable impact on FMCH 's net
interest expense for the year ended December 31, 1996 of $0.3 million. Forward
purchases of foreign currency are used solely to manage exposure to fluctuations
in foreign currency exchange rates. These borrowings were repaid prior to the
Merger.
The liquidity of FMCH is contingent upon a number of factors,
principally FMCH's future operating results and the contingencies referred to
below. FMCH believes that its current levels of liquidity, including
availability under the NMC Credit Agreement, are sufficient to meet its
foreseeable needs. If existing sources of funds are not sufficient to provide
liquidity, FMCH may need to sell assets or obtain debt or equity financing from
additional external sources. There can be no assurance that FMCH will be able to
do so on satisfactory terms, if at all.
IMPACT OF INFLATION
A substantial portion of FMCH's net revenue is subject to reimbursement
rates which are regulated by the federal government and do not automatically
adjust for inflation. Non-governmental payors also are exerting downward
pressure on reimbursement levels. Increased operating costs that are subject to
inflation, such as labor and supply costs, without a compensating increase in
reimbursement rates, may adversely affect FMCH's business and results of
operations, possibly materially.
CONTINGENCIES
FMCH is the subject of investigations by several federal agencies and
authorities, is a defendant in litigation with a commercial insurance company,
is a plaintiff in litigation against the federal government with respect to the
implementation of OBRA 93 and coverage for IDPN therapy, and is seeking to
change a proposed revision to IDPN coverage policies. An adverse outcome in any
of these matters, beyond the reserves which have established, could have a
material adverse effect on FMCH's business, financial condition and results of
operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS
130, "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. Under this concept, all revenues,
expenses, gains and losses recognized during the period are included in income,
regardless of whether they are considered to be results of operations of the
period. SFAS 130, which becomes effective for the Company in its year ending
December 31, 1998, is not expected to have material impact on the Consolidated
Financial Statements of the Company.
In June 1997, the Financial Accounting Standards Board issued SFAS
131, "Disclosures about Segments of an Enterprise and Related Information,"
which establishes standards for the way that public business enterprises report
selected information about operating segments in annual financial statements
and require that those enterprises report selected information about operating
segments in interim financial reports to stockholders. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS 131, which becomes effective for the Company in its
year ending December 31, 1998, is not expected to have a material impact on the
Company's results of operations.
YEAR 2000 DATE CONVERSION
The Year 2000 problem is the result of computer programs being written
with two digits instead of four digits to define the applicable year. The
Company's management has initiated a company-wide program to prepare the
Company's computer systems for the Year 2000. A comprehensive review of the
Company's computer systems and software has been conducted to identify the
systems and software that could be affected by this issue. A plan to resolve
this issue is currently being developed and implemented. The Company presently
believes that with conversion to new software and modifications to existing
systems and software, the Year 2000 problem will not pose a significant
operational problem to the Company. The Company is also reviewing the possible
impact of the Year 2000 problem on its customers, payors and suppliers.
However, without the modifications and conversions, the Year 2000 problem could
have a material impact on the operations of the Company. The Company expects
the Year 2000 related modifications and conversions to be substantially
completed by the middle of 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is indexed in Item 14 of this
Report and contained on the pages following the signature page hereof.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Previously reported.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with General Instruction G.(3) to Form 10-K, the
information required by Part III is incorporated by reference to the Company's
definitive information statement to be filed by April 30, 1998.
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Index to Consolidated Financial Statements
The following consolidated financial statements are filed with this report:
Report of Independent Auditors.
Report of Independent Accountants.
Consolidated Statements of Earnings for the Year Ended December 31, 1997
and the Three Months Ended December 31, 1996 (Successor) and for the Nine
Months Ended September 30, 1996 and the Year Ended December 31, 1995
(Predecessor).
Consolidated Balance Sheets as of December 31, 1997 and 1996
(Successor).
Consolidated Statements of Cash Flows for the Year Ended December 31, 1997
and the Three Months Ended December 31, 1996 (Successor) and for the Nine
Months Ended September 30, 1996 and the Year Ended December 31, 1995
(Predecessor).
Consolidated Statements of Changes in Equity for the Year Ended December
31, 1997, and the Three Months Ended December 31,1996 (Successor) and for
the Nine Months Ended September 30, 1996 and the Year Ended December 31,
1995 (Predecessor).
Notes to Consolidated Financial Statements.
The Company is a majority-owned subsidiary of Fresenius Medical Care AG.
The operating results and other financial information of the Company
included in this report are not necessarily indicative of the operating
results and financial condition of Fresenius Medical Care AG at the dates
or for the periods presented herein. Users of the Company's financial
statements wishing to obtain financial and other information regarding
Fresenius Medical Care AG should consult the Annual Report on Form 20-F of
Fresenius Medical Care AG, which is expected to be filed with the
Securities and Exchange Commission and the New York Stock Exchange on or
about March 23, 1998.
(b) Reports on Form 8-K.
None.
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<PAGE> 63
(c) Exhibits.
Exhibits. The following exhibits are filed or incorporated by reference
as required by Item 601 of Regulation S-K.
EXHIBIT NO. DESCRIPTION
2.1 Agreement and Plan of Reorganization dated as of February 4, 1996
between W. R. Grace & Co. and Fresenius AG (incorporated herein by
reference to Appendix A to the Joint Proxy Statement-Prospectus of
Fresenius Medical Care AG, W. R. Grace & Co. and Fresenius USA, Inc.
dated August 2, 1996 and filed with the Commission on August 5, 1996).
2.2 Distribution Agreement by and among W. R. Grace & Co., W. R. Grace &
Co.-Conn. and Fresenius AG dated as of February 4, 1996 (incorporated
herein by reference to Exhibit A to Appendix A to the Joint Proxy
Statement-Prospectus of Fresenius Medical Care AG, W. R. Grace & Co.
and Fresenius USA, Inc. dated August 2, 1996 and filed with the
Commission on August 5, 1996).
2.3 Contribution Agreement by and among Fresenius AG, Sterilpharma GmbH and
W. R. Grace & Co.-Conn. dated February 4, 1996 (incorporated herein by
reference to Exhibit E to Appendix A to the Joint Proxy-Statement
Prospectus of Fresenius Medical Care AG, W. R. Grace & Co. and
Fresenius USA, Inc. dated August 2, 1996 and filed with the Commission
on August 5, 1996).
3.1 Certificate of Incorporation of Fresenius Medical Care Holdings, Inc.
(f/k/a W. R. Grace & Co.) under Section 402 of the New York Business
Corporation Law dated March 23, 1988 (incorporated herein by reference
to the Form 8-K of the Company filed on May 9, 1988).
3.2 Certificate of Amendment of the Certificate of Incorporation of
Fresenius Medical Care Holdings, Inc. (f/k/a W. R. Grace & Co.) under
Section 805 of the New York Business Corporation Law dated May 25, 1988
(changing the name to W. R. Grace & Co., incorporated herein by
reference to the Form 8-K of the Company filed on May 9, 1988).
3.3 Certificate of Amendment of the Certificate of Incorporation of
Fresenius Medical Care Holdings, Inc. (f/k/a W. R. Grace & Co.) under
Section 805 of the New York Business Corporation Law dated September
27, 1996 (incorporated herein by reference to the Form 8-K of the
Company filed with the Commission on October 15, 1996).
3.4 Certificate of Amendment of the Certificate of Incorporation of
Fresenius Medical Care Holdings, Inc. (f/k/a W. R. Grace & Co.) under
Section 805 of the New York Business Corporation Law dated September
27, 1996 (changing the name to Fresenius National Medical Care
Holdings, Inc., incorporated herein by reference to the Form 8-K of the
Company filed with the Commission on October 15, 1996).
3.5 Certificate of Amendment of the Certificate of Incorporation of
Fresenius Medical Care Holdings, Inc. under Section 805 of the New York
Business Corporation Law dated June 12, 1997 (changing name to
Fresenius Medical Care Holdings, Inc., incorporated herein by reference
to the Form 10-Q of the Company filed with the Commission on August 14,
1997).
3.6 Amended and Restated By-laws of Fresenius Medical Care Holdings, Inc.
(incorporated herein by reference to the Form 10-Q of the Company filed
with the Commission on August 14, 1997).
4.1 Credit Agreement dated as of September 27, 1996 among National Medical
Care, Inc. and Certain Subsidiaries and Affiliates, as Borrowers,
Certain Subsidiaries and Affiliates, as Guarantors, the Lenders named
therein, Nationsbank, N.A., as paying agent and the Bank of Nova
Scotia, The Chase Manhattan Bank, Dresdner Bank AG and Nationsbank,
N.A., as Managing Agents (incorporated herein by reference to the Form
6-K of Fresenius Medical Care AG filed with the Commission on October
15, 1996).
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<PAGE> 64
4.2 Amendment dated as of November 26, 1996 (amendment to the Credit
Agreement dated as of September 27, 1996, incorporated herein by
reference to the Form 8-K of Registrant filed with the Commission on
December 16, 1996).
4.3 Amendment No. 2 dated December 12, 1996 (second amendment to the Credit
Agreement dated as of September 27, 1996, incorporated herein by
reference to the Form 10-K of Registrant filed with the Commission on
March 31, 1997).
4.4 Amendment No. 3 dated June 13, 1997 to the Credit Agreement dated as of
September 27, 1996 , among National Medical Care, Inc. and Certain
Subsidiaries and Affiliates , as Borrowers, Certain Subsidiaries and
Affiliates, as Guarantors, the Lenders named therein, NationsBank,
N.A., as paying agent and the Bank of Nova Scotia, the Chase Manhattan
Bank, N.A., Dresdner Bank AG and NationsBank, N.A. as Managing Agents,
as previously amended (incorporated herein by reference to the Form
10-Q of the Registrant filed with the Commission on November 14, 1997).
4.5 Amendment No. 4, dated August 26, 1997 to the Credit Agreement dated as
of September 27, 1996, among National Medical Care, Inc. and Certain
Subsidiaries and Affiliates, as Borrowers, Certain Subsidiaries and
Affiliates, as Guarantors, the Lenders named therein, NationsBank,
N.A., as paying agent and the Bank of Nova Scotia, the Chase Manhattan
Bank, N.A. , Dresdner Bank AG and NationsBank, N.A. as Managing Agents,
as previously amended (incorporated herein by reference to the Form
10-Q of Registrant filed with Commission on November 14, 1997).
4.6 Amendment No. 5 dated December 12, 1997 to the Credit Agreement dated
as of September 27, 1996, among National Medical Care, Inc. and Certain
Subsidiaries and Affiliates, as Borrowers, Certain Subsidiaries and
Affiliates, as Guarantors, the Lenders named therein, NationsBank,
N.A., as paying agent and the Bank of Nova Scotia, the Chase Manhattan
Bank, N.A., Dresdner Bank AG and NationsBank, N.A. as Managing Agents,
as previously amended (filed herewith).
4.7 Form of Consent to Modification of Amendment No. 5 dated December 12,
1997 to the Credit Agreement dated as of September 27, 1996 among
National Medical Care, Inc. and Certain Subsidiaries and Affiliates, as
Borrowers, Certain Subsidiaries and Affiliates, as Guarantors, the
Lenders named therein, NationsBank, N.A., as paying agent and the Bank
of Nova Scotia, the Chase Manhattan Ban, N.A., Dresdner Bank AG and
NationsBank, N.A. as Managing Agents (filed herewith).
10.1 Senior Subordinated Indenture dated November 27, 1996, among Fresenius
Medical Care AG, State Street Bank and Trust Company, as successor
Fleet National Bank, as Trustee and the Subsidiary Guarantors named
therein (incorporated herein by reference to the Form 10-K of
Registrant filed with the Commission on March 31, 1997).
10.2 Senior Subordinated Indenture dated as of February 19, 1998, among
Fresenius Medical Care AG, State Street Bank and Trust Company as
Trustee and Fresenius Medical Care Holdings, Inc. and Fresenius
Medical Care AG, as Guarantors with respect to the issuance of 7 7/8%
Senior Subordinated Notes due 2008 therein (filed herewith).
10.3 Senior Subordinated Indenture dated as of February 19, 1998 among FMC
Trust Finance S.A. Luxemborg, as Insurer, State Street Bank and Trust
Company as Trustee and the Fresenius Medical Care Holdings, Inc. and
Fresenius Medical Care AG, as Guarantors with respect to the issuance
of 7 3/8% Senior Subordinated Notes due 2008 (filed herewith).
10.4 Employee Benefits and Compensation Agreement dated September 27, 1996
by and among W. R. Grace & Co., National Medical Care, Inc., and W. R.
Grace & Co.-- Conn. (incorporated herein by reference to the
Registration Statement on Form F-1 of Fresenius Medical Care AG, as
amended (Registration No. 333-05922), dated November 22, 1996 and the
exhibits thereto).
10.5 Purchase Agreement, effective January 1, 1995, between Baxter Health
Care Corporation and National Medical Care, Inc., including the
addendum thereto (incorporated by reference to the Form SE of Fresenius
Medical Care dated July 29, 1996 and the exhibits thereto).
10.6 Agreement, dated November 25, 1992 between Bergen Brunswig Drug Company
and National Medical Care, Inc., including the addendum thereto
(incorporated by reference to the Form SE of Fresenius Medical Care
dated July 29, 1996 and the exhibits thereto).
10.7 Product Purchase Agreement, effective January 1, 1996, between Amgen,
Inc. and National Medical Care, Inc. (incorporated by reference to the
Form SE of Fresenius Medical Care dated July 29, 1996 and the exhibits
thereto).
10.8 Primary Guarantee dated July 31, 1996 (incorporated by reference to the
Registrant's Registration Statement on Form S-4 (Registration No.
333-09497) dated August 2, 1996 and the exhibits thereto).
10.9 Secondary Guarantee dated July 31, 1996 (incorporated by reference to
the Registrant's Registration Statement on Form S-4 (Registration No.
333-09497) dated August 2, 1996 and the exhibits thereto).
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<PAGE> 65
10.10 Receivables Purchase Agreement dated August 28, 1997 between National
Medical Care, Inc. and NMC Funding Corporation (incorporated herein by
reference to the Form 10-Q of the Registrant filed with the Commission
on November 14, 1997).
10.11 Transfer and Administration Agreement dated August 28, 1997 among NMC
Funding Corporation, National Medical Care, Inc., Enterprise Funding
Corporation, the Bank Investors listed therein and NationsBank, N.A.,
as agent (incorporated herein by reference to the Form 10-Q of the
Registrant filed with the Commission on November 14, 1997).
10.12 Amendment No. 1 dated as of February 27, 1998 to Transfer and
Administration Agreement dated as of August 28, 1997 among NMC Funding
Corporation, National Medical Care, Inc., Enterprise Funding
Corporation, the Bank Investors listed herein and NationsBank, N.A., as
agent (filed herewith).
27.1 Financial Data Schedule
(d) Financial Statement Schedules.
Schedule II - Valuation and Qualifying Accounts
Portions of this Exhibit have been granted confidential treatment by the
Commission.
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SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 23, 1998 FRESENIUS MEDICAL CARE HOLDINGS, INC.
By: /s/ Ben J. Lipps
Ben J. Lipps, President
(Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Ben J. Lipps President and Director March 23, 1998
Ben J. Lipps (Chief Executive Officer)
/s/ Jerry Schneider Chief Financial Officer and Treasurer March 23, 1998
Jerry Schneider (Chief Financial and Accounting Officer)
/s/ Geoffrey W. Swett Director March 23, 1998
Geoffrey W. Swett
/s/ William F. Grieco Director March 23, 1998
William F. Grieco
</TABLE>
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<PAGE> 67
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Fresenius Medical Care Holdings, Inc.
We have audited the accompanying consolidated balance sheets of
Fresenius Medical Care Holdings, Inc. and its subsidiaries (the "Company") as of
December 31, 1997 and 1996 and the related consolidated statements of earnings,
changes in equity and cash flows for the year ended December 31, 1997 and the
period October 1, 1996 to December 31, 1996, the successor periods, and for the
period January 1, 1996 to September 30, 1996, the predecessor period. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
The accompanying predecessor consolidated financial statements were
prepared on the basis of presentation described in Note 1, and are not intended
to be a complete presentation of the assets, liabilities, revenues and expenses
of the Company.
In our opinion, the accompanying consolidated financial statements
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for the year ended December 31, 1997 and
for the period October 1, 1996 to December 31, 1996, the successor periods, in
conformity with generally accepted accounting principles, and for the period
January 1, 1996 to September 30, 1996, the predecessor period pursuant to the
basis of presentation in Note 1, in conformity with generally accepted
accounting principles.
As more fully described in Note 1 to the consolidated financial
statements, the Company was acquired as of September 30, 1996 in a business
combination accounted for as a purchase. As a result of the acquisition, the
consolidated financial statements for the successor periods are presented on a
different basis of accounting than that of the predecessor period, and therefore
are not directly comparable.
KPMG Peat Marwick LLP
February 23, 1998
Boston, MA 02110
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<PAGE> 68
REPORT OF INDEPENDENT ACCOUNTANTS
March 29, 1996
To The Board of Directors and Stockholders of
Fresenius National Medical Care Holdings, Inc.
We have audited the accompanying consolidated statement of earnings
and cash flows of Fresenius National Medical Care Holdings, Inc. (formerly W.R.
Grace & Co. and its subsidiary (the "Company"))for the year ended December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements were prepared on the
basis of presentation described in Note 1, and are not intended to be a complete
presentation of the revenues and expenses of the Company.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the results of operations and cash flows of
the Company for the year ended December 31, 1995 pursuant to the basis of
presentation described in Note 1, in conformity with generally accepted
accounting principles. We have not audited the consolidated financial statements
of Fresenius National Medical Care Holdings, Inc. for any period subsequent to
December 31, 1995.
PRICE WATERHOUSE LLP
Boston, Massachusetts
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FRESENIUS MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------------------------ -----------------------------
TWELVE MONTHS THREE MONTHS NINE MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1997 1996 1996 1995
-------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
NET REVENUES
Health care services $2,153,264 $ 515,697 $1,495,451 $1,884,748
Medical supplies 468,036 114,869 119,209 147,990
---------- ---------- ---------- ----------
2,621,300 630,566 1,614,660 2,032,738
---------- ---------- ---------- ----------
EXPENSES
Cost of health care services 1,309,601 320,703 888,441 1,067,906
Cost of medical supplies 340,663 72,923 80,545 108,187
General and administrative expenses 391,870 105,167 319,466 360,960
Provision for doubtful accounts 86,461 12,819 80,475 88,858
Depreciation and amortization 236,062 57,704 93,097 113,176
Research and development 4,077 1,083 1,906 3,957
Allocation of Grace Chemicals expenses -- -- 5,322 29,724
Interest expense, net, and related
financing costs 185,715 45,206 16,325 25,534
Reduction of carrying amounts of
assets to estimated fair values and
restructing costs -- -- -- 28,923
---------- ---------- ---------- ----------
2,554,449 615,605 1,485,577 1,827,225
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 66,851 14,961 129,083 205,513
PROVISION FOR INCOME TAXES 45,928 8,915 66,202 108,616
---------- ---------- ---------- ----------
NET EARNINGS $ 20,923 $ 6,046 $ 62,881 $ 96,897
========== ========== ========== ==========
Earnings per share $ 0.23 $ 0.07 $ 0.66 $ 1.01
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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<PAGE> 70
FRESENIUS MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR
----------------------------
DECEMBER 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 19,966 $ 50,422
Accounts receivable, less allowances of
$155,002 and $153,939 592,554 516,083
Inventories 153,550 153,480
Deferred income taxes 94,905 146,751
Other current assets 111,934 86,907
Income taxes receivable 2,768 --
----------- -----------
Total Current Assets 975,587 953,643
----------- -----------
Properties and equipment, net 639,281 525,988
----------- -----------
Other Assets:
Excess of cost over the fair value of
net assets acquired and other
intangible assets, net of accumulated
amortization of $164,422 and $37,933 3,352,693 3,057,957
Other assets and deferred charges 42,559 58,491
----------- -----------
Total Other Assets 3,395,252 3,116,448
----------- -----------
Total Assets $ 5,010,120 $ 4,596,079
=========== ===========
LIABILITIES AND EQUITY
Current Liabilities:
Current portion of long-term debt and
capitalized lease obligations $ 22,811 $ 56,270
Short-term borrowings from affiliates -- 12,193
Accounts payable 153,653 131,314
Accrued liabilities 381,734 421,240
Net payable to affiliates 34,739 32,590
Accrued income taxes -- 18,530
----------- -----------
Total Current Liabilities 592,937 672,137
Long-term debt 1,614,268 1,420,959
Non-current borrowings from affiliates 654,168 504,693
Capitalized lease obligations 9,240 17,246
Deferred income taxes 140,692 179,290
Other liabilities 29,836 34,015
----------- -----------
Total Liabilities 3,041,141 $ 2,828,340
----------- -----------
Commitments and Contingencies (Note 15)
Equity: (Note 12)
Preferred stocks, $100 par value 7,412 7,412
Preferred stocks, $.10 par value 8,906 8,906
Common stock, $ 1 par value
90,000,000 shares authorized;
outstanding at December 31, 1997
and 1996; 90,000,000 90,000 90,000
Paid in capital 1,925,515 1,723,345
Retained earnings (deficit) (40,686) (61,089)
Cumulative translation adjustment (22,168) (835)
----------- -----------
Total Equity 1,968,979 1,767,739
----------- -----------
Total Liabilities and Equity $ 5,010,120 $ 4,596,079
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
70
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FRESENIUS MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
---------------------------- -----------------------------
TWELVE MONTHS THREE MONTHS NINE MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, SEPT. 30, DEC. 31,
1997 1996 1996 1995
------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 20,923 $ 6,046 $ 62,881 $ 96,897
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 236,062 57,704 93,097 113,176
Provision for doubtful accounts 86,461 12,819 80,475 88,858
Provision for (benefit of) deferred income
taxes 12,604 5,700 (8,268) (11,028)
Loss on disposal of properties and equipment 871 13,414 5,816 5,295
Reduction of carrying amounts of assets to
estimated fair values -- -- -- 18,003
Changes in operating assets and liabilities,
net of effects of purchase acquisitions
and foreign exchange:
Increase in accounts receivable (119,330) (60,873) (82,981) (176,444)
Decrease (increase) in inventories 3,333 (6,504) 2,570 11,358
(Increase) decrease in other current assets (23,615) (7,937) (20,569) 3,309
Increase (decrease) in accounts payable 4,174 (5,887) 12,454 849
(Decrease) increase in accrued income taxes (16,011) (945) 11,013 (23,533)
(Decrease) increase in accrued liabilities (48,591) 20,053 (17,282) (8,798)
(Decrease) increase in other long-term
liabilities (5,864) (7,141) 5,320 12,709
Decrease (increase) in other assets and
deferred charges 9,825 (32,842) 987 1,636
Net changes due to/from affiliates 2,149 5,394 -- --
Other, net 4,733 (3,800) 2,812 (2,808)
--------- -------- --------- ---------
Net cash provided by/(used in) operating
activities 167,724 (4,799) 148,325 129,479
--------- -------- --------- ---------
</TABLE>
-Continued-
71
<PAGE> 72
FRESENIUS MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
---------------------------------- ------------------------------
TWELVE MONTHS THREE MONTHS NINE MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, SEPT. 30, DEC. 31,
1997 1996 1996 1995
------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Cash Flows from Investing Activities:
Capital expenditures (171,125) (46,271) (92,853) (102,894)
Payments for acquisitions, net of cash
acquired (385,357) (6,287) (89,090) (252,158)
----------- --------- ----------- ---------
Net cash used in investing activities (556,482) (52,558) (181,943) (355,052)
----------- --------- ----------- ---------
Cash Flows from Financing Activities:
(Payments to) Advances from Grace Chemicals, net -- (1,130) 279,819 106,990
Increase in borrowings from affiliates 69,698 513,448 -- --
Cash dividends paid (520) (8,930) (2,114,396) --
Contributed capital from FMC AG 165,000 249,005 -- --
Proceeds on issuance of debt 205,990 90,334 2,390,607 382,783
Payments on debt and capitalized leases (66,547) (951,150) (338,793) (269,683)
Other 2,745 (3,589) -- --
----------- --------- ----------- ---------
Net cash provided by/(used in) financing
activities 376,366 (112,012) 217,237 220,090
----------- --------- ----------- ---------
Effects of changes in foreign exchange
rates (18,064) (711) 3,353 (745)
----------- --------- ----------- ---------
(Decrease) increase in cash and cash
equivalents (30,456) (170,080) 186,972 (6,228)
Cash and cash equivalents at beginning of
period 50,422 220,502 33,530 39,758
----------- --------- ----------- ---------
Cash and cash equivalents at end of period $ 19,966 $ 50,422 $ 220,502 $ 33,530
=========== ========= =========== =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 141,014 $ 27,306 $ 21,328 $ 26,787
Income taxes 45,895 169 23,293 28,637
</TABLE>
<TABLE>
<CAPTION>
Details for Acquisitions:
<S> <C> <C> <C> <C>
Assets acquired $ 525,966 $ 8,248 $ 90,928 $ 293,459
Liabilities assumed 36,783 1,610 1,820 40,706
Advances from affiliates 67,584 -- -- --
Contributed capital from FMC AG 34,425 -- -- --
----------- --------- ----------- ---------
Cash paid 387,174 6,638 89,108 252,753
Less cash acquired 1,817 351 18 595
----------- --------- ----------- ---------
Net cash paid for acquisitions $ 385,357 $ 6,287 $ 89,090 $ 252,158
=========== ========= =========== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
72
<PAGE> 73
FRESENIUS MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Preferred Stocks Common Stock
--------------------- ---------------------
Shares Amount Shares Amount
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 (PREDECESSOR) -- -- 10,268,701 $ 103
Net Income -- -- -- --
Cumulative foreign currency translation
adjustments -- -- -- --
Increases to advances from Grace Chemicals -- -- -- --
Other adjustments
---------- ------- ---------- -------
BALANCE, DECEMBER 31, 1995 (PREDECESSOR) -- -- 10,268,701 103
Net Income for 9 months ended 9/30/96 -- -- -- --
Cumulative foreign currency translation
adjustments -- -- -- --
Cash dividends to Grace Chemicals for
Reorganization -- -- -- --
Increases to advances from Grace Chemicals
for 9 months ended 9/30/96
---------- ------- ---------- -------
BALANCE, SEPTEMBER 30, 1996 (PREDECESSOR) -- -- 10,268,701 103
Excess of purchase price over book value -- -- -- --
Adjustment to establish successor basis for
Reorganization 89,136,435 16,318 79,731,299 89,897
---------- ------- ---------- -------
BALANCE, OCTOBER 1, 1996 (SUCCESSOR) 89,136,435 16,318 90,000,000 90,000
Cash dividends to Grace Chemicals for
Reorganization -- -- -- --
Net income for 3 months ended 12/31/96 -- -- -- --
Cash dividends on preferred stocks -- -- -- --
Contributed capital from Fresenius USA at 10/1/96 -- -- -- --
Contributed capital from Fresenius Medical Care, -- -- -- --
AG
Cumulative foreign currency translation
adjustments -- -- -- --
---------- ------- ---------- -------
BALANCE, DECEMBER 31, 1996 (SUCCESSOR) 89,136,435 $16,318 90,000,000 $90,000
Net Income -- -- -- --
Cash dividends on preferred stocks -- -- -- --
Contributed capital from Fresenius Medical Care, -- -- -- --
AG
Tax benefit of dispositions of stock options -- -- -- --
Cumulative foreign currency translation -- -- -- --
adjustments
Other adjustments -- -- -- --
---------- ------- ---------- -------
BALANCE, DECEMBER 31, 1997 (SUCCESSOR) 89,136,435 $16,318 90,000,000 $90,000
========== ======= ========== =======
</TABLE>
73
<PAGE> 74
<TABLE>
<CAPTION>
Capital in Retained Cumulative Advance from
Excess of Par Earnings Translation Grace
Value (Deficit) Adjustments Chemicals
------------- --------- ----------- ------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 (PREDECESSOR) 15,560 414,452 (2,728) 731,899
Net Income -- 96,897 -- --
Cumulative foreign currency translation
adjustments -- -- (398) --
Increases to advances from Grace Chemicals -- -- -- 106,990
Other adjustments -- 5,563 -- (5,563)
----------- ----------- -------- -----------
BALANCE, DECEMBER 31, 1995 (PREDECESSOR) 15,560 516,912 (3,126) 833,326
Net Income for 9 months ended 9/30/96 -- 62,881 -- --
Cumulative foreign currency translation
adjustments -- -- (2,653) --
Cash dividends to Grace Chemicals for
Reorganization -- (2,114,396) -- --
Increases to advances from Grace Chemicals
for 9 months ended 9/30/96 -- -- -- 199,905
----------- ----------- -------- -----------
BALANCE, SEPTEMBER 30, 1996 (PREDECESSOR) 15,560 (1,534,603) (5,779) 1,033,231
Excess of purchase price over book value 1,696,698 -- -- --
Adjustment to establish successor basis
for Reorganization (613,366) 1,534,603 5,779 (1,033,231)
----------- ----------- -------- -----------
BALANCE, OCTOBER 1, 1996 (SUCCESSOR) 1,098,892 0 0 0
Cash dividends to Grace Chemicals for
Reorganization (8,800) -- -- --
Net income for 3 months ended 12/31/96 -- 6,046 -- --
Cash dividends on preferred stocks -- (130) -- --
Contributed capital from Fresenius USA
at 10/1/96 384,248 (67,005) (34) --
Contributed capital from Fresenius Medical
Care, AG 249,005 -- -- --
Cumulative foreign currency translation
adjustments -- -- (801)
----------- ----------- -------- -----------
BALANCE, DECEMBER 31, 1996 (SUCCESSOR) $ 1,723,345 $ (61,089) $ (835) $ 0
Net Income 20,923 -- --
Cash dividends on preferred stocks -- (520) -- --
Contributed capital from Fresenius Medical 199,425 -- -- --
Care, AG
Tax benefit of dispositions of stock options 2,739 -- -- --
Cumulative foreign currency translation
adjustments -- -- (21,333) --
Other adjustments 6 -- -- --
----------- ----------- -------- -----------
BALANCE, DECEMBER 31, 1997 (SUCCESSOR) $ 1,925,515 $ (40,686) $(22,168) $ 0
=========== =========== ======== ===========
</TABLE>
74
<PAGE> 75
<TABLE>
<CAPTION>
Total Equity
------------
<S> <C>
BALANCE, DECEMBER 31, 1994 (PREDECESSOR) $ 1,159,286
Net Income 96,897
Cumulative foreign currency translation adjustments (398)
Increases to advances from Grace Chemicals 106,990
Other adjustments 0
-----------
BALANCE, DECEMBER 31, 1995 (PREDECESSOR) $ 1,362,775
Net Income for 9 months ended 9/30/96 62,881
Cumulative foreign currency translation adjustments (2,653)
Cash dividends to Grace Chemicals for Reorganization (2,114,396)
Increases to advances from Grace Chemicals for 9 months ended 9/30/96 199,905
-----------
BALANCE, SEPTEMBER 30, 1996 (PREDECESSOR) $ (491,488)
Excess of purchase price over book value 1,696,698
Adjustment to establish successor basis for Reorganization 0
-----------
BALANCE, OCTOBER 1, 1996 (SUCCESSOR) $ 1,205,210
Cash dividends to Grace Chemicals for Reorganization (8,800)
Net income for 3 months ended 12/31/96 6,046
Cash dividends on preferred stocks (130)
Contributed capital from Fresenius USA at 10/1/96 317,209
Contributed capital from Fresenius Medical Care, AG 249,005
Cumulative foreign currency translation adjustments (801)
-----------
BALANCE, DECEMBER 31, 1996 (SUCCESSOR) $ 1,767,739
Net Income 20,923
Cash dividends on preferred stocks (520)
Contributed capital from Fresenius Medical Care, AG 199,425
Tax benefit of dispositions of stock options 2,739
Cumulative foreign currency translation adjustments (21,333)
Other adjustments 6
-----------
BALANCE, DECEMBER 31, 1997 (SUCCESSOR) $ 1,968,979
===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
75
<PAGE> 76
FRESENIUS MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1. THE COMPANY, REORGANIZATION AND BASIS OF PRESENTATION
THE COMPANY
Fresenius Medical Care Holdings, Inc., ("FMCH" or the "Company"),
formerly known as W. R. Grace & Co. ("Grace New York"), together with its wholly
owned subsidiaries, National Medical Care, Inc. and its subsidiaries ("NMC") and
Fresenius USA, Inc. and its subsidiaries ("FUSA"), was formed as a result of a
series of transactions pursuant to the Agreement and Plan of Reorganization
dated as of February 4, 1996 by and between Grace New York and Fresenius AG (the
"Merger") formerly known as the Reorganization, which is more fully described
hereunder.
The Company is primarily engaged in (i) providing kidney dialysis
services and clinical laboratory testing, (ii) manufacturing and distributing
products and equipment for dialysis treatment and (iii) providing home infusion
therapy, home respiratory services, diagnostic services and other medical
services.
THE MERGER
The Merger, which was effective September 30, 1996, resulted from the
culmination of the following transactions: (1) NMC, which was a subsidiary of W.
R. Grace & Co. -- Conn. ("Grace Chemicals"), a wholly-owned subsidiary of Grace
New York, borrowed $2,300,000 and paid a cash dividend of approximately
$2,100,000 to Grace Chemicals; (2) the stock of NMC was transferred to Grace New
York, so that NMC and Grace Chemicals became sibling subsidiaries of Grace New
York; (3) the stock of Grace Chemicals was transferred to a newly formed
Delaware subsidiary of Grace New York ("New Grace") and the shares of New Grace
were spun-off to the Grace New York shareholders in a pro rata distribution; (4)
Grace New York was recapitalized such that each Grace New York shareholder
received one share of Class D Preferred Stock of Grace New York (the "Class D
Preferred Stock") for each share of Grace New York common stock held; and (5)
Grace New York, with NMC as its sole business, merged with a wholly-owned
subsidiary of Fresenius Medical Care AG ("FMC"), and Fresenius AG's worldwide
dialysis business ("FWD") was contributed as separate subsidiaries of FMC with
the result that 44.8% of the ordinary shares of FMC were exchanged for the
common stock held by Grace New York common shareholders in the merger
transaction and the balance of the ordinary shares of FMC were received by
Fresenius AG and the shareholders of FUSA, in consideration of the contribution
of FWD to FMC. All of the Grace New York (now Fresenius Medical Care Holdings,
Inc. ("FMCH") common stock is held by FMC, while the Class D Preferred Stock
(which entitles its shareholders to a contingent dividend based on the
consolidated performance of FMC in the years 1997-2001) and other previously
issued classes of FMCH preferred stock remain outstanding.
Effective October 1, 1996, FMC contributed all of the assets and
liabilities of FUSA to FMCH. The contribution of FUSA to FMCH by FMC was
accounted for on the cost basis since FUSA was a subsidiary under control of a
common parent. These consolidated financial statements include the results of
FUSA's operations and cash flows for the period October 1, 1996 through December
31, 1997.
76
<PAGE> 77
BASIS OF PRESENTATION
BASIS OF CONSOLIDATION - PREDECESSOR BASIS
The consolidated financial statements have been prepared as if the
Company had operated as an independent, stand alone entity for all periods
presented. Such financial statements have been prepared using the historical
basis of accounting prior to the Merger ("Predecessor") and include all of the
assets, liabilities, revenues, expenses and related taxes on income of the Grace
New York health care business operated by NMC (the "NMC Business") previously
included in the consolidated financial statements of Grace New York and its
subsidiaries prior to the Merger (the "Grace Consolidated Group"). Consequently,
these consolidated financial statements include balances for goodwill and other
assets and liabilities related to the NMC Business that were previously included
in the financial statements of the Grace Consolidated Group, except that there
is no allocation to the NMC Business of Grace Chemicals' borrowings and related
interest expense. These consolidated financial statements reflect only the
borrowings and interest expense of NMC prior to the Merger and interest expense
of the Company after the Merger. In accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 55 ("SAB 55"), the financial statements
have also been adjusted to include certain expenses incurred by Grace Chemicals
on the NMC Business's behalf prior to the Merger.
These consolidated financial statements do not necessarily indicate the
financial position and results of operations that would have occurred if the NMC
Business were a stand-alone entity on the dates, and for the periods, indicated.
ACCOUNTING FOR THE MERGER - SUCCESSOR BASIS
The issuance of FMC ordinary shares for all of the common stock of NMC
has been recorded as an acquisition in accordance with the purchase method of
accounting. Accordingly, purchase accounting adjustments recorded by FMC have
been "pushed down" to NMC, thus establishing a new basis of accounting at NMC
("Successor"). The purchase price of the acquisition was determined as the
average of the mid-points of the ranges of valuation of NMC and FMC,
respectively, as assigned by independent financial advisors to Fresenius AG and
was approximately $1,152,000. The valuation has been increased for direct costs
incurred to consummate the transaction. The excess of the purchase price over
the cost of the net identifiable assets acquired at September 30, 1996 of
$1,696,698 has been allocated to the fair value of the assets acquired and
liabilities assumed with the remaining portion recorded as goodwill.
The Agreement and Plan for Reorganization also provides for the payment
of additional purchase price to the holders of the FMCH Class D Preferred Stock
in the form of a dividend, contingent upon the attainment of certain specific
consolidated operating results by FMC. Such future dividends, if any, will be
recorded as an increase in goodwill.
In order to properly allocate purchase price to assets acquired, the
Company obtained an independent appraisal to fair value all assets of NMC.
Accordingly, the carrying values of specifically identified intangible assets
and certain tangible assets were adjusted upward by $186,030 and $53,122,
respectively, to approximate their fair values.
The Company has also recorded adjustments to increase liabilities
assumed by approximately $123,000 for pre-acquisition contingencies primarily
related to legal settlements and the anticipated costs incurred in the defense
of litigation. These adjustments resulted from discussions with the government
in March 1997. The Company has provided an estimate of legal costs at the low
end of an expected range, but the ultimate costs could be significantly higher.
The Company is in discussions with the government regarding these matters. Any
difference between the final settlement and the Company's estimate would be
adjusted to goodwill, if determined within the allocation period, or charged to
income if determined thereafter. In addition, the Company has accrued
approximately $50,000 for certain costs related to the closing of certain renal
products manufacturing and distribution operations as well as the closing of
certain clinics of the Homecare Division. These restructuring costs primarily
relate to severance payments and lease commitments. Through the period ended
December 31, 1997 approximately $36,000 in payments and other charges have been
applied against the pre-acquisition contingencies and $20,000 against the
restructuring costs.
77
<PAGE> 78
All intercompany transactions and balances under the predecessor and
successor basis have been eliminated in consolidation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions affecting the reported amounts of assets and liabilities
(including disclosed amounts of contingent assets and liabilities) at the dates
of the consolidated financial statements and the reported revenues and expenses
during the reporting periods. Actual amounts could differ from those estimates.
Cash Equivalents
Cash equivalents consist of highly liquid instruments with maturities
of three months or less when purchased.
Derivative Financial Instruments
Forward currency contracts -- Gains and losses on forward currency
contracts that are designated and effective as hedges of existing assets,
liabilities (including borrowings) and firm commitments are deferred and
recorded as an adjustment to general and administrative expenses in the period
in which the related transaction is consummated. Gains and losses on other
forward currency contracts are recognized at each reporting period.
Interest rate swaps -- Interest rate agreements that are designated and
effective as a hedge of a debt or other long-term obligations are accounted for
on an accrual basis. That is, the interest payable and interest receivable under
the swaps terms are accrued and recorded as an adjustment to the interest or
rent expense of the designated liability or obligations.
Amounts due from and payable to the counterparties of interest rate
swaps are recorded on an accrual basis at each reporting date on amounts
computed by reference of the respective interest rate swap contract. Realized
gains and losses that occur from the early termination or expiration of forward
currency contracts and interest rate swaps are recorded in income over the
remaining period of the original agreement. Gains and losses arising from the
interest differential on contracts that hedge specific borrowings are recorded
as a component of interest expense over the life of the contract.
The effectiveness of the hedge is measured by a historical and probable
future high correlation of changes in the fair value of the hedging instruments
with changes in the value of the hedged item. If correlation ceases to exist,
hedge accounting will be terminated and gains on losses recorded in other
income. To date, high correlation has always been achieved.
Revenue Recognition
Revenues are recognized on the date services and related products are
provided/shipped and are recorded at amounts estimated to be received under
reimbursement arrangements with a large number of third-party payors, including
Medicare and Medicaid. The Company establishes appropriate allowances based upon
factors surrounding credit risks of specific third party payors, historical
trends and other information. Retroactive adjustments are accrued on an
estimated basis in the period the related services are rendered and adjusted in
future periods as final settlements are determined
Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Properties and Equipment
Properties and equipment are stated at cost. Significant improvements
are capitalized; repairs and maintenance costs that do not extend the lives of
the assets
78
<PAGE> 79
are charged to expense as incurred. The cost and accumulated depreciation of
assets sold or otherwise disposed of are removed from the accounts, and any
resulting gain or loss is included in income when the assets are disposed.
The cost of properties and equipment is depreciated over estimated
useful lives on a straight-line basis as follows: buildings--20 to 50 years,
equipment and furniture--3 to 10 years, and leasehold improvements--the shorter
of the lease term or useful life. For income tax purposes, depreciation is
calculated using accelerated methods to the extent permitted.
Excess of Cost Over the Fair Value of Net Assets Acquired and Other
Intangible Assets
On a predecessor basis, the Company had adopted the following useful
lives and methods to amortize intangible assets: goodwill - 40 years on a
straight - line basis; patient relationships and other intangible assets - over
the estimated period to be benefited, generally from 7 to 25 years; and certain
contractual arrangements - over the life of the agreements on a straight-line
basis.
On a successor basis, the Company has adopted the following useful
lives and methods to amortize intangible assets: trade name, acute care
agreements and goodwill--40 years on a straight-line basis; patient
relationships and other intangible assets--over the estimated period to be
benefited, generally from 5 to 6 years on a straight line basis.
Debt Issuance Costs
Costs related to the issuance of debt are amortized over the term of
the related obligation using a method that approximates the weighted average
principal balance outstanding method.
Self Insurance Programs
The Company is self insured for professional, product and general
liability, auto and worker's compensation claims up to predetermined amounts
above which third party insurance applies. Estimates include ultimate costs for
both reported claims and incurred but not reported.
Impairment
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", the Company reviews the carrying value of its investments for
impairment whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable. The Company considers various
valuation factors including discounted cash flows, fair values and replacement
costs to assess any impairment of goodwill and other long lived assets.
Foreign Currency Translation
The Company follows the provisions of Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation". Substantially all assets and
liabilities of the Company's foreign subsidiaries are translated at year end
exchange rates, while revenue and expenses are translated at exchange rates
prevailing during the year. Adjustments for foreign currency translation
fluctuations are excluded from net earnings and are deferred in the cumulative
translation adjustment component of equity. In addition, the translation of
certain intercompany borrowings denominated in foreign currencies, which are
considered foreign equity investments, is included in the cumulative
translation adjustment. Translation adjustments related to these equity
investments amounted to $16,179 for the year ended December 31, 1997. There
were no similar amounts recorded in the previous periods.
Gains and losses resulting from the translation of revenues and
expenses and intercompany borrowings, which are not considered equity
investments, are included in general and administrative expense. On a successor
basis, translation gains amounted to $28,286 and $1,943 for the twelve months
ended December 31, 1997 and for the three months ended December 31, 1996,
respectively. On a predecessor basis, similar exchange losses amounted to $3,661
and $4,962 for the nine months ended September 30, 1996 and the year ended
December 31, 1995, respectively.
79
<PAGE> 80
Income Taxes
Income tax expense and certain other tax-related information included
in these consolidated financial statements have been calculated as if the
Company were a stand-alone taxpayer for all periods presented.
Deferred income taxes are provided for temporary differences between
the reporting of income and expense for financial reporting and tax return
purposes. Deferred tax liabilities or assets at the end of each period are
determined using the tax rates then in effect for the periods when taxes are
actually expected to be paid or recovered. Accordingly, income tax expense
provisions will increase or decrease in the period in which a change in tax
rates is enacted.
Research and Development
Research and development costs are expensed as incurred.
Earnings per Share
The Company adopted the provisions of SFAS No. 128, Earnings per Share,
effective for the fiscal 1997. This statement requires the presentation of basic
earnings per share and diluted earnings per share. Basic earnings per share are
computed by dividing the net income by the weighted-average number of common
shares outstanding during the year. Diluted earnings per share includes the
effect of all dilutive potential common shares that were outstanding during the
year. The number of shares used to compute basic and diluted earnings per share
was (in thousands) 90,000 for the year ended December 31, 1997 and the three
months ended December 31, 1996, successor basis, as there were no potential
common shares and no adjustments to net earnings to be considered for purposes
of the diluted earnings per share calculation. On a predecessor basis, primary
earnings per share was computed on the basis of weighted average number of
common shares outstanding.
80
<PAGE> 81
NOTE 3. ACQUISITIONS
The Company acquired certain health care facilities and clinical
laboratories for a total consideration of $489,183 for the twelve months ended
December 31, 1997 and $5,847 for the three months ended December 31, 1996, on a
successor basis, and $91,737 for the nine months ended September 30, 1996, and
$252,753 in 1995 on a predecessor basis. These acquisitions have been accounted
for as purchase transactions and, accordingly, are included in the results of
operations from the dates of acquisition. The excess of the total acquisition
costs over the fair value of tangible net assets acquired was $395,503 for the
twelve months ended December 31, 1997 and $4,575 for the three months ended
December 31, 1996, on a successor basis, and $81,189 for the nine months ended
September 30, 1996, and $215,837 in 1995 on a predecessor basis.
Had the acquisitions occurred during the twelve months ended December
31, 1997 been consummated on October 1, 1996, unaudited proforma net revenues
for the twelve months ended December 31, 1997 would have been $2,715,819 and
$680,160 for the three months ended December 31, 1996, all on a successor basis.
Unaudited proforma net earnings would have been $17,498 for the twelve months
ended December 31, 1997 and $1,709 for the three months ended December 31, 1996,
all on a successor basis.
Had the acquisitions that occurred during the three months ended
December 31, 1996 been consummated on October 1, 1996, unaudited proforma net
revenues for the three months ended December 31, 1996 would have been $631,568
on a successor basis. Unaudited proforma net earnings would have been $7,092 for
the three months ended December 31, 1996 on a successor basis. On a predecessor
basis had the acquisitions that occurred during the nine months ended September
30, 1996 been consummated on January 1, 1995 unaudited proforma net revenues
would have been $1,628,774 for the nine months ended September 30, 1996, and
$1,514,346 for the year ended December 31, 1995. Unaudited pro forma net
earnings would have been $60,386 for the nine months ended September 30, 1996,
and $69,024 for the year ended 1995 on a predecessor basis.
81
<PAGE> 82
NOTE 4. OTHER BALANCE SHEET ITEMS
<TABLE>
<CAPTION>
Successor
December 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Inventories
Raw materials $ 39,274 $ 41,659
Manufactured goods in process 14,074 11,837
Manufactured and purchased inventory available
for sale 65,052 64,156
-------- --------
118,400 117,652
Health care supplies 35,150 35,828
-------- --------
Total $153,550 $153,480
======== ========
</TABLE>
Under the terms of certain unconditional purchase commitments, the Company is
obligated to purchase raw materials during 1998 amounting to $67,558
<TABLE>
<S> <C> <C>
Other Current Assets
Miscellaneous accounts receivable $ 82,833 $ 56,215
Deposits and prepaid expenses 29,101 30,692
---------- ----------
$ 111,934 $ 86,907
========== ==========
Excess of Cost Over the Fair Value of Net Assets
Acquired and Other Intangible Assets:
Goodwill, less accumulated amortization of
$87,871 and $18,667 $2,805,424 $2,523,202
Patient relationships, less accumulated
amortization of $28,398 and $5,088 138,329 117,616
Other intangible assets, less accumulated
amortization of $48,153 and $14,178 408,940 417,139
---------- ----------
Total $3,352,693 $3,057,957
========== ==========
Accrued Liabilities
Accrued operating expenses $ 78,351 $ 36,206
Accrued insurance 65,905 60,737
Accounts legal and compliance costs 62,470 115,651
Accrued salaries and wages 51,667 51,817
Accounts receivable credit balances 41,454 39,334
Accrued interest 32,293 30,001
Accrued other 16,798 19,855
Accrued physician compensation 16,178 16,358
Accrued restructuring 9,295 39,413
Accrued bonus and incentive compensation 7,323 11,868
---------- ----------
$ 381,734 $ 421,240
========== ==========
</TABLE>
Accounts receivable credit balances principally reflect overpayments
from third party payors and are in the process of repayment.
82
<PAGE> 83
NOTE 5. SALE OF ACCOUNTS RECEIVABLE
During 1991, NMC entered into a non-recourse agreement with CitiCorp to
sell up to $180,000 of an undivided interest in a designated pool of accounts
receivable. In September 1996, the CitiCorp agreement was amended to increase
the level of undivided interest which could be sold up to $200,000. On August
28, 1997, NMC established a new $204,000 receivable financing facility with
NationsBank to replace its former facility with CitiCorp. The current agreement
has an effective interest rate of 5.66% and matures on August 27, 1998. At
December 31, 1997 and 1996, $200,000 and $148,000 had been received pursuant to
such sales; these amounts are reflected as reductions to accounts receivable.
Under the terms of the agreement, new interests in accounts receivable are sold
as collections reduce previously sold accounts receivable. If certain accounts
receivable in the pool prove to be uncollectible, other accounts receivable are
submitted (to the extent available). The costs related to such sales are
expensed as incurred and recorded as interest expense and related financing
costs. There were no gains or losses on these transactions.
NOTE 6. DEBT
Long-term debt to outside parties consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Credit Agreement $1,613,300 $1,411,000
Third-party debt, primarily bank borrowings at
variable interest rates (3% -14%) with
various maturities 14,547 57,101
---------- ----------
1,627,847 1,468,101
Less amounts classified as current 13,579 47,142
---------- ----------
$1,614,268 $1,420,959
========== ==========
</TABLE>
Immediately prior to the Merger, NMC entered into a credit agreement
with a group of banks (collectively, the "Lenders"), pursuant to which the
Lenders made available to NMC and certain specified subsidiaries and affiliates
an aggregate of $2,500,000 through three credit facilities (collectively, the
"NMC Credit Facility"). The NMC Credit Facility, as amended, includes: (i) a
revolving credit facility of up to $1,000,000 for up to seven years (of which up
to $250,000 is available for letters of credit, up to $450,000 is available for
borrowings in certain non-U.S. currencies, up to $50,000 is available as swing
lines in U.S. dollars and up to $20,000 is available as swing lines in certain
non-U.S. currencies) ("Facility 1"); (ii) a term loan facility of $1,000,000 for
up to seven years ("Facility 2"); and (iii) a term loan facility of $500,000 for
up to two years ("Facility 3").
Loans under the NMC Credit Facility bear interest at one of the
following rates, at either (i) LIBOR plus an applicable margin or (ii) a base
rate equal to the sum of (1) the higher from time to time of (A) the prime rate
of NationsBank, N.A. or (B) the federal funds rate plus 0.50% and (2) an
applicable margin. A fee is payable to the Lenders equal to a percentage per
annum (initially 0.375%) of the portion of the NMC Credit Facility not used.
In addition to scheduled principal payments, the NMC Credit Facility
will be reduced by certain portions of the net cash proceeds from certain sales
of assets, sales of accounts receivable and the issuance of subordinated debt
and equity securities. Prepayments are permitted at any time without penalty,
except in certain defined periods. The NMC Credit Agreement contains customary
affirmative and negative covenants with respect to the Company, NMC and its
subsidiaries.
In November, 1996 Facility 3 was fully repaid by the Company, primarily
using borrowings from affiliates. The prepayment reduces the available
financing under the agreement to $2,000,000. At December 31, 1997 and 1996 the
Company had available
83
<PAGE> 84
to it $168 million and $372 million, respectively of additional borrowing
capacity under the NMC Credit Facility including $31 million and $33 million
respectively, available under the letters of credit.
The Credit Agreement contains certain affirmative and negative
covenants customary for this type of agreement and was partially guaranteed at
inception by Grace Chemicals. The guarantee of Grace Chemicals was released in
November 1996 upon the receipt of an unconditional joint and several guarantee
by FMC and certain material subsidiaries of FMC of the Credit Agreement.
In connection with the purchase of certain assets, FUSA entered into a
term loan agreement with a commercial bank to borrow $25,000 at an interest rate
of 5.68% per annum. The loan is repayable in annual installments of $6,250
through February 1998. The loan is guaranteed by Fresenius.
In consideration of proprietary technology acquired, FUSA issued a note
payable due in annual installments of $2,500 through 1998. The obligation has
been recorded at its net present value using an imputed interest rate of 5.68%.
The note is secured by a standby letter of credit expiring March 31, 1998,
totaling $10,000. FUSA pays a commitment fee of 0.5% per annum on the
outstanding letter of credit.
Non current borrowings from affiliates consists of:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Fresenius Medical Care AG non-current borrowings primarily at a
fixed interest rates of 7.17% and 9.25% $359,112
Fresenius Medical Care AG deutsche mark denominated at variable
interest rates approximating 5% 187,876
Fresenius Medical Care - Deutschland - GmbH deutsche mark
denominated at interest rate approximating 5% 39,321
Fresenius Medical Care Finance SA non-current borrowings primarily
at interest rates approximating 6% 67,584
Other 275
--------
654,168
Less amounts classified as current 0
--------
TOTAL $654,168
========
</TABLE>
Scheduled maturities of long-term debt and non-current borrowings from
affiliates are as follows:
<TABLE>
<S> <C>
1998 $ 13,579
1999 45,357
2000 185,000
2001 200,000
2002 200,000
2003 and beyond 1,638,079
-----------
Total $ 2,282,015
===========
</TABLE>
84
<PAGE> 85
NOTE 7. INCOME TAXES
Earnings (losses) before income taxes are as follows:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
---------------------------- ------------------------------
TWELVE MONTHS THREE MONTHS NINE MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
DEC. 31, 1997 DEC. 31, 1996 SEPT. 30, 1996 DEC. 31, 1995
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Domestic $59,461 $12,945 $ 154,878 $ 237,225
Foreign 7,390 2,016 (25,795) (31,712)
------- ------- --------- ---------
Total $66,851 $14,961 $ 129,083 $ 205,513
======= ======= ========= =========
</TABLE>
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
Successor Predecessor
------------------------------ -----------------------------
TWELVE MONTHS THREE MONTHS NINE MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
DEC. 31, 1997 DEC. 31, 1996 SEPT. 30, 1996 DEC. 31, 1995
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Current tax (benefit) expense
Federal $12,740 $ 2,960 $ 56,100 $ 91,012
State 12,094 861 15,183 23,271
Foreign 8,490 (606) 3,187 5,361
------- ------- -------- ---------
Total Current 33,324 3,215 74,470 119,644
Deferred tax (benefit) expense
Federal 10,686 4,959 (7,235) (9,287)
State 1,918 741 (1,033) (3,271)
Foreign -- -- -- 1,530
------- ------- -------- ---------
Total deferred 12,604 5,700 (8,268) (11,028)
------- ------- -------- ---------
Total provision $45,928 $ 8,915 $ 66,202 $ 108,616
======= ======= ======== =========
</TABLE>
Deferred tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
SUCCESSOR
---------------------------
DECEMBER 31,
1997 1996
--------- ---------
<S> <C> <C>
Allowance for doubtful accounts $ (18,871) $ (36,464)
Insurance liability (10,577) (7,524)
Legal liability (37,666) (46,212)
Restructuring reserves (2,978) (5,614)
Deferred and incentive compensation (17,028) (22,937)
Pension and benefit accruals (14,230) (13,107)
Accrued interest (3,460) (2,838)
Inventory reserves (3,193) (3,403)
General reserves (18,558) (17,390)
Other temporary differences (3,556) (5,421)
Loss carryforwards (24,058) (31,723)
--------- ---------
Gross deferred tax assets (154,175) (192,633)
Deferred tax assets valuation allowance 20,195 29,733
--------- ---------
Deferred tax assets (133,980) (162,900)
--------- ---------
Depreciation and amortization 179,767 195,439
Other temporary differences -- --
--------- ---------
Gross deferred tax liabilities 179,767 195,439
--------- ---------
Net deferred tax liabilities $ 45,787 $ 32,539
========= =========
</TABLE>
85
<PAGE> 86
The provision for income taxes for the twelve months ended December 31,
1997 and the three months ended December 31, 1996 and for the periods prior to
the Merger of the Company as described in Note 1 differed from the amount of
income taxes determined by applying the applicable statutory Federal income tax
rate to pretax earnings as a result of the following differences:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------------------------- ------------------------------
TWELVE MONTHS THREE MONTHS NINE MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
DEC. 31, 1997 DEC. 31, 1996 SEPT. 30, 1996 DEC. 31, 1995
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Statutory federal tax rate 35.0% 35.0% 35.0% 35.0%
State income taxes, net of Federal
tax benefit 13.6 7.0 7.1 6.3
Amortization of goodwill 30.5 28.2 0.9 2.0
Foreign losses and taxes 8.8 (3.0) 7.7 2.4
Change in valuation allowance (19.7) (4.3) 0.0 6.3
Other 0.5 (3.3) 0.6 0.9
------ ------ ------ ------
Effective tax rate 68.7% 59.6% 51.3% 52.9%
====== ====== ====== ======
</TABLE>
The net changes in the valuation allowance for deferred tax assets were
$(9,538), $10,233, $0, and $13,033, for the twelve months ended December 31,
1997, for the three months ended December 31, 1996, the nine months ended
September 30, 1996, and the twelve months ended December 31, 1995, respectively.
The decrease for 1997 relates mainly to the utilization of the FUSA loss
carryforward. This is offset in part by additional loss carryforwards incurred
by certain foreign subsidiaries. The increase for prior periods relate to loss
carryforwards of certain foreign subsidiaries, and for the three month period
ended December 31, 1996, U.S. loss carryforwards of FUSA for which related
deferred tax benefits were not expected to be utilized.
At December 31, 1997, there were approximately $77,712 of foreign net
operating losses, the majority of which are not subject to an expiration period.
There was also a net operating loss carryforward of approximately $11,042 in the
U.S. attributable to FUSA. The FUSA net operating losses expire in varying
amounts beginning in 1997 through 2010. The ability of the Company to use the
carryforwards to offset taxes on its future income is also subject to Internal
Revenue Code Section 382 and consolidated return loss limitations.
Provision has not been made for additional federal, state, or foreign
taxes on $10,804 of undistributed earnings of foreign subsidiaries. Those
earnings have been, and will continue to be, reinvested. The earnings could
become subject to additional tax if they were remitted as dividends, if foreign
earnings were loaned to the Company or a U.S. affiliate, or if the Company
should sell its stock in the subsidiaries. The Company estimates that the
distribution of these earnings would result in $4,154 of additional foreign
withholding and federal income taxes.
86
<PAGE> 87
NOTE 8. PROPERTIES AND EQUIPMENT
<TABLE>
<CAPTION>
SUCCESSOR
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
Land and improvements $ 6,874 $ 6,640
Buildings 57,097 54,784
Capitalized lease property 15,122 18,776
Leasehold improvements 157,147 128,449
Equipment and furniture 508,915 363,581
Construction in progress 36,189 14,859
--------- ---------
781,344 587,089
Accumulated depreciation and amortization
(142,063) (61,101)
--------- ---------
Properties and equipment, net $ 639,281 $ 525,988
========= =========
</TABLE>
Depreciation expense relating to properties and equipment amounted to
$104,673 for the year ended December 31, 1997 and $27,621 for the three months
ended December 31, 1996 on a successor basis, and $53,509, and $62,686 for the
nine months ended September 30, 1996, and year ended December 31, 1995,
respectively, on a predecessor basis.
Included in properties and equipment as of December 31, 1997, was
$16,313 of peritoneal dialysis cycler machines which the Company leases to
customers with end-stage renal disease on a month-to-month basis and $2,817 of
hemodialysis machines which the Company leases to physicians under operating
leases. Rental income for the peritoneal dialysis cycler machines was $956 for
the twelve months ended December 31, 1997 and $467, for the three months ended
December 31, 1996. Identification of the rental income from the Company's
leasing of hemodialysis machines is not practicable as the Company's return on
the machines is received through contractual arrangements whereby a premium is
charged for other support equipment sold during the life of the lease.
Leases
In September 1997, FUSA entered into an amended sale and leaseback
arrangement with a bank that covers the sale by FUSA of approximately $40,100 of
certain new equipment of FUSA's dialyzer manufacturing facility at its Ogden,
Utah plant. Under the terms of the amended agreement, the leaseback of the
equipment is under an operating lease that has a basic term expiration date of
January 1, 2010, renewal options and a purchase option at the greater of 20% of
the original cost or the fair market value. If FUSA elects not to purchase the
equipment or renew the lease at the end of the lease term, FUSA will be
obligated to pay a remarketing fee of up to $1,350.
87
<PAGE> 88
Future minimum payments under noncancelable leases (principally for
clinics and offices) as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES TOTAL
--------- -------- --------
<S> <C> <C> <C>
1998 $ 56,518 $ 10,675 $ 67,193
1999 48,928 6,716 55,644
2000 41,895 2,231 44,126
2001 35,147 486 35,633
2002 55,767 300 56,067
2003 and beyond 51,322 975 52,297
-------- --------- --------
Total minimum payments $289,577 $ 21,383 $310,960
======== ========
Less interest and operating costs 2,911
---------
Present value of minimum lease
payments ($9,232 payable in
1998). $ 18,472
=========
</TABLE>
Rental expense for operating leases was $104,618 for the year ended
December 31, 1997, $25,678 for the three months ended December 31, 1996 on a
successor basis and $66,864, for nine months ended September 30, 1996, and
$80,356 for the twelve months ended December 31, 1995, on a predecessor basis.
Amortization of properties under capital leases amounted to $3,445 for the year
ended December 31, 1997 and $465 for the three months ended December 31, 1996 on
a successor basis and $629 and $2,872, and for the nine months ended September
30, 1996, and the year ended 1995 respectively, on a predecessor basis.
Lease agreements frequently include renewal options and require that
the Company pay for utilities, taxes, insurance and maintenance expenses.
Options to purchase are also included in some lease agreements, particularly
capital leases.
NOTE 9. IMPAIRMENT OF ASSETS AND RESTRUCTURING COSTS
During 1995, following several periods of operating losses, management
decided to discontinue its German dialysis machine manufacturing operation and
therefore reviewed the carrying value of its related investment. This review
indicated that its investment was permanently impaired. Such impairment was
recognized one year after the acquisition after the discovery that
misrepresentations were made by the seller. Management considered the future
cash flows resulting from the use of the related assets and determined that the
entire carrying value of such assets, amounting to $7,313, should be written
off. In addition, as a result of this decision, a charge of $5,000 was recorded
in 1995, comprising inventory write-offs, employee termination benefits and
grant repayments. The charge in respect of employee termination benefits
amounted to $910 for the year ended December 31, 1995 and primarily represents
severance pay and other benefits associated with the termination of all
remaining 35 employees.
Similarly, during 1995 the Company recorded a charge of $16,610, after
management decided to cease its investment in the polysulfone dialyzer
development operations in Ireland. As a result, the carrying value of the fixed
assets used in developing the new dialyzer product line of $10,690, was fully
written off and accruals in the amount of $5,920 for employee termination
benefits, inventory adjustments, grant repayments and other items were made.
Employee termination benefits amounted to $716 for the year ended December 31,
1995 and were primarily in respect of statutory and voluntary termination
payments associated with the termination of 17 employees. The Company has
decided to terminate all operations in Ireland. The last day of production was
February 14, 1997 and the facility is in the process of being closed.
Through December 31, 1997, the Company has recorded payments and other
charges against its restructuring reserves totaling $9,953.
88
<PAGE> 89
NOTE 10. EMPLOYEE INCENTIVES
Predecessor Basis
Long Term Incentive Programs
On a predecessor basis, Grace New York had established long-term
incentive programs under which certain key executives of NMC were eligible to
receive payments based upon the cumulative earnings before interest and taxes of
NMC, and, in the case of one executive, the Grace Consolidated Group and the
total shareholder return on the Company's common stock over three-year periods.
Provisions for the incentive pools were made annually and awards are paid to
participants at the end of each three-year period. These programs were
terminated as of the effective date of the Merger and payments under these
programs were made in 1997 and will be made in 1998. The earnings for nine
months 1996, and twelve months 1995 included charges of $6,584 and $13,000
respectively for costs associated with these programs.
NMC also had, on a predecessor basis, an additional long-term incentive
program for key executives which was terminated as of the effective date of the
Merger. Under the terms of the program, payments were to be made at the end of
each five-year period commencing in 1994 and ending in 1998 based on a multiple
of the average earnings before interest and taxes of NMC, as adjusted. The
earnings for the nine months ended September 30, 1996, and the twelve months
ended December 31, 1995 included (credits)/charges of ($1,500) and $2,914
respectively for costs associated with this program.
Annual Incentive Compensation Plan
NMC has an annual incentive compensation plan under which key employees
of NMC are eligible to receive bonuses if certain corporate objectives are
attained. Normally, awards will not exceed 20% of the eligible employee's base
compensation, but discretionary awards for outstanding contributions are
authorized under the plan. Awards under the plan totaled $385, and $2,931 for
the nine months ended September 30, 1996, and twelve months ended December 31,
1995, respectively.
Successor Basis
Annual Incentive Compensation Plan
FMCH amended its annual incentive plan in 1997. Under the 1997 plan,
key employees of FMCH are eligible to receive bonuses based upon the achievement
of EBITDA results and other key objectives. Target awards range from 10% to 40%
of employee's salary. No awards under the plan were paid in 1997.
89
<PAGE> 90
NOTE 11. DEFINED BENEFIT PLANS
Defined Benefit Pension Plans
Substantially all domestic employees are covered by NMC's
non-contributory, defined benefit pension plan. Each year NMC contributes at
least the minimum required by the Employee Retirement Income Security Act of
1974, as amended. Plan assets consist primarily of publicly traded common stock,
fixed income securities and cash equivalents.
Total pension expense includes the following components:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
---------------------------- ----------------------------
TWELVE THREE MONTHS NINE MONTHS TWELVE
MONTHS ENDED ENDED DEC. ENDED SEPT. MONTHS ENDED
DEC. 31, 1997 31, 1996 30, 1996 DEC. 31, 1995
------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Service cost -- benefits earned during
the period $ 7,100 $ 1,678 $ 5,035 $ 3,649
Interest cost on projected benefit
obligation 4,561 1,021 3,063 2,891
Actual return on plan assets (4,758) (1,103) (3,309) (3,721)
Net amortization and deferral (139) -- (194) (557)
------- ------- ------- -------
Net pension expense $ 6,764 $ 1,596 $ 4,595 $ 2,262
======= ======= ======= =======
</TABLE>
The funded status of NMC's plan is as follows:
<TABLE>
<CAPTION>
SUCCESSOR
---------------------
1997 1996
-------- --------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 47,728 $ 42,126
Nonvested benefit obligation 5,602 4,809
Accumulated benefit obligation 53,330 46,935
Projected benefit obligation (72,025) (63,260)
Plan assets at fair value 65,088 54,218
-------- --------
Projected benefit obligation in excess of plan
assets (6,937) (9,042)
Unrecognized prior service cost -- --
Unrecognized net (gain) loss (15,165) (6,244)
Unamortized net transition asset -- --
-------- --------
Accrued pension cost $(22,102) $(15,286)
======== ========
</TABLE>
The projected benefit obligation was determined using an assumed
discount rate of 7.50% in 1997 and 1996, and an assumed long-term average rate
of compensation increase of 5% in 1997 and 1996. The assumed long-term rate of
return on plan assets was 9.0% and 1997 and 1996.
NMC also sponsors a supplemental executive retirement plan to provide
certain key executives with benefits in excess of normal pension benefits. The
projected benefit obligation was $3.1 and $2.4 million at December 31, 1997 and
1996, respectively. Pension expense for this plan, for the twelve months ended
December 31, 1997 and the three months ended December 31, 1996 was $360 and
$106, respectively, on a successor basis, and $319 for the nine months ended
September 30, 1996, on a predecessor basis.
NMC does not provide any postretirement benefits to its employees other
than those provided under its pension plan and supplemental executive retirement
plan.
Defined Contribution Plans
NMC's employees are eligible to join NMC's 401 (k) Savings Plan once
they have achieved a minimum of one year of service and if they have more than
900 hours of service before their one year anniversary date. Under the
provisions of the 401 (k) plan, employees are allowed to contribute up to 16% of
their salaries. NMC contributes 50% of their savings up to 6% of saved pay.
NMC's total contributions for the year ended December 31, 1997 was $6,385 and
for the three months ended December
90
<PAGE> 91
31, 1996 and nine months ended September 30, 1996 amounted to $1,204 and $3,428,
respectively.
FUSA employees are eligible to join FUSA's 401 (k) Savings Plan once
they have achieved a minimum of one year of service, 1000 hours of service and
attained the age of 18. Under the provisions of FUSA's 401 (k) Savings Plan,
FUSA contributes 2% of eligible employee base salary to the FUSA 401 (k) Plan.
FUSA's obligation to the FUSA 401 (k) Savings Plan was approximately $780 and
$217 for the twelve months ended December 31, 1997 and for the three months
ended December 31, 1996, respectively.
NOTE 12. EQUITY
PREFERRED STOCK-SUCCESSOR BASIS
At December 31, 1997, the components of FMCH's preferred stocks as
presented in the Consolidated Balance Sheet and the Consolidated Statement of
Changes in Equity are as follows:
PREFERRED STOCKS, $100 PAR VALUE
<TABLE>
<S> <C>
- - 6% Cumulative (1); 40,000 shares authorized; 36,460 outstanding $ 3,646
- - 8% Cumulative Class A (2); 50,000 shares authorized; 16,176 outstanding 1,618
- - 8% Noncumulative Class B (2); 40,000 shares authorized; 21,483
outstanding 2,148
-------
$ 7,412
-------
PREFERRED STOCKS, $.10 PAR VALUE
- - Noncumulative Class D (3); 100,000,000 shares authorized; 89,062,316
outstanding 8,906
-------
Total Preferred $16,318
=======
</TABLE>
(1) 160 votes per share
(2) 16 votes per share
(3) 1/10 vote per share
Stock Options - Predecessor Basis
On a predecessor basis, stock options were granted under the stock
incentive plans of companies within the Grace Consolidated Group. At September
30, 1996, options for 6,740,450 shares were outstanding with an average exercise
price of $30.12 (of which 4,726,562 were exercisable) and 7,000,000 shares were
available for additional grants. As of the date of the Merger, all outstanding
Grace New York stock options were, in the case of NMC employees, converted to
FMC stock options and, for non-NMC personnel, converted into Grace Chemical
stock options. Accordingly, there are no outstanding stock options on FMCH
common stock.
Stock Options - Successor Basis
Immediately prior to the Merger, FMC adopted a stock incentive plan
(the "FMC Plan") under which FMCH key management and executive employees are
eligible. Under the FMC Plan, eligible employees will have the right to acquire
Preference Shares of FMC. Options granted under the FMC Plan will be evidenced
by a non-transferable convertible bond and corresponding non-recourse loan to
the employee, secured solely by the bond with which it was made. Each
convertible bond, which will be DM denominated, will entitle the holder thereof
to convert the bond in Preference Shares equal to the face amount of the bond
divided by the Preference Share's nominal value. During 1997, FMC granted
2,697,438 options to FMCH, under the FMC Plan. At December 31, 1997 no options
were exercisable.
91
<PAGE> 92
NOTE 13. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
At December 31, 1997 and 1996, the carrying value of financial
instruments such as cash, cash equivalents, accounts receivable, accounts
payable and the current portion of long-term debt approximated their fair
values, based on the short-term maturities of these instruments. At December 31,
1997 and 1996, the fair value of long-term debt which approximated carrying
value was determined based on expected future cash flows, discounted at market
interest rates.
Forward Currency Contracts
The Company uses foreign exchange contracts as a hedge against foreign
exchange risks associated with the settlement of foreign currency denominated
payables and firm commitments. At December 31, 1997 and 1996, the Company had
purchased foreign exchange contracts for the sale of currencies for Deutsche
Marks of $135,000 and $48,400 respectively. The fair value of forward currency
contracts are the estimated amounts that the Company would receive or pay to
terminate the agreement at the reporting date, taking into account the current
exchange rates and the current credit worthiness of the counterparties. At
December 31, 1997 and 1996, the Company would have paid $2,985 and received
less than $1 million, respectively, to terminate the contracts.
Interest Rate Swap Agreements
At December 31, 1997 and 1996, the Company had interest rate swap
agreements outstanding with commercial banks for notional amounts of $1,950,000
and $25,034 respectively. The agreements effectively change the Company's
interest rate exposure on the credit agreement and certain operating lease
payments to a fixed rate. The interest rate swap agreements outstanding as of
December 31, 1997 expire between January 1998 and December 2003. While the
Company does not anticipate non-performance by various counter-parties, the
Company is exposed to credit loss in the event of non-performance by other
parties to the interest rate swap agreements. The fair value of interest rate
swaps was estimated to be $23 million less than the carrying cost at December
31, 1997. The fair value of interest swap agreements outstanding at December 31,
1996 approximates the carrying value. The fair values of interest rate swap
agreements are the estimated amounts obtained from brokers.
Credit Risk
The Company is exposed to credit risk to the extent of potential
nonperformance by counterparties on financial instruments. As of December 31,
1997, the Company's credit exposure was insignificant and limited to the fair
value stated above; the Company believes the risk of incurring losses due to
credit risk is remote.
Market Risk
Exposure to market risk on financial instruments results from
fluctuations in currency rates during the periods in which the contracts are
outstanding. The mark-to-market valuations of foreign currency agreements and of
associated underlying exposures are closely monitored at all times. The Company
uses portfolio sensitivities and stress tests to monitor risk. Overall financial
strategies and the effects of using derivatives are reviewed periodically.
92
<PAGE> 93
NOTE 14. RELATED PARTY TRANSACTIONS AND ALLOCATIONS
PREDECESSOR BASIS
Corporate Services
In accordance with SAB 55, Grace Chemicals allocated a portion of its
domestic corporate expenses to its business units, including NMC. These expenses
have included management and corporate overhead; benefit administration; risk
management/insurance administration; tax and treasury/cash management services;
environmental services; litigation administration services; and other support
and executive functions. Allocations and charges were based on either a direct
cost pass through or a percentage allocation for such services provided based on
factors such as net sales, management time, or headcount. Such allocations and
charges totaled $5,322, and $13,782 for the nine months ended September 30, 1996
and for the year ended December 31, 1995, respectively.
Domestic research and development expenses of Grace Chemicals related
to NMC's business and allocated to NMC in accordance with SAB 55 totaled $0, and
$15,942 for the nine months ended September 30, 1996, and for the year ended
December 31, 1995, respectively.
Management believes that the basis used for allocating corporate
services was reasonable and that the terms of these transactions would not
materially differ from those that would result from transactions among unrelated
parties.
Grace Chemicals also charged NMC for its share of domestic workers'
compensation, employee life, medical and dental, and other general business
liability insurance premiums and claims which were handled by Grace Chemicals on
a corporate basis. These charges have been based on NMC's actual and expected
future experience, including actual payroll expense, and totaled $13,314, and
$34,784 for the nine months ended September 30, 1996, and for the year ended
December 31, 1995, respectively, and have been included in either cost of health
care services or general and administrative expenses, depending upon the nature
of the employee's or insured asset's function.
SUCCESSOR BASIS
FINANCIAL SUPPORT
Prior to the Merger, Fresenius AG provided substantial financial
support to FUSA, a majority owned entity included within FWD. This support
included guarantees of letters of credit in connection with FUSA's previously
outstanding industrial revenue bonds, providing credit support to assist in
securing lines of credit participating in and assisting with foreign exchange
contracts as well as various miscellaneous general management assistance.
EQUITY CONTRIBUTORS
During 1997, the Company received equity contributions totalling
$199,425 for the purposes of financing acquisitions.
OTHER
FUSA provides various administrative services and advances to Fresenius
Pharma U.S.A., Inc. ("Fresenius Pharma"), another wholly-owned subsidiary of
Fresenius.
Pursuant to a series of agreements with Seratonics, Inc. ("Seratonics")
and Andersen Group, Inc. entered into in 1985 and extended an amended in 1995.
FUSA manages, and acts as sole distributor for the dialyzer reuse business of
Seratonics. These arrangements required FUSA to make minimum net payments of
$100 per year to Seratonics through February 1995, and starting in March 1995
required FUSA to make minimum payments of $50 per quarter through February 29,
2000. As of February 1995, FUSA has the right to acquire the assets and
liabilities of the dialyzer reuse
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business for a nominal purchase price and, if it exercises this option, its
obligation to make the quarterly payments discussed above ends. During 1994
FUSA, as distributor, purchased dialyzer reuse systems and supplies from
Seratonics for an aggregate purchase price of approximately $1,600. The results
of operations and the assets and liabilities of the Seratonics' reuse business
are included in FUSA's combined financial statements. The President and Chief
Executive Officer of FUSA is also the President and Chief Executive Officer of
Seratonics. A former director of FUSA is the President of Andersen Group, Inc.
which owns a majority of the outstanding capital stock of Seratonics. A portion
of the salary of the President and Chief Executive Officer of FUSA is paid each
year by Seratonics.
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NOTE 15. COMMITMENTS AND CONTINGENCIES
CONTINGENT NON-NMC LIABILITIES OF GRACE NEW YORK
(NOW KNOWN AS FRESENIUS MEDICAL CARE HOLDINGS, INC.)
In connection with the Merger, Grace Chemicals has agreed to indemnify
Grace New York and NMC against all liabilities of Grace New York and its
successors, whether relating to events occurring before or after the Merger,
other than liabilities arising from or relating to NMC operations. After the
Merger Grace New York will remain contingently liable for certain liabilities
with respect to pre-Merger matters that are not related to NMC operations. FMCH
believes that in view of the nature of the non-NMC liabilities and the expected
impact of the Merger on Grace Chemicals' financial position, the risk of
significant loss from non-NMC liabilities is remote.
Were events to violate the tax free nature of the Merger, the resulting
tax liability would be the obligation of FMCH. Subject to representations by
Grace Chemicals, FMCH and Fresenius AG, Grace Chemicals has agreed to indemnify
FMCH for such a tax liability. Were FMCH not able to collect on the indemnity,
the tax liability would have a material adverse effect on FMCH's business, the
financial condition of FNMC and the results of operations.
LEGAL PROCEEDINGS
GOVERNMENT INVESTIGATIONS
OIG INVESTIGATIVE SUBPOENAS
In October 1995, NMC received five investigative subpoenas from the OIG.
The subpoenas were issued in connection with an investigation being conducted by
the OIG, the U.S. Attorney for the District of Massachusetts and others
concerning possible violations of federal laws, including the anti-kickback
statutes and the False Claims Act. The subpoenas call for extensive document
production relating to various aspects of NMC's business.
In connection with the OIG Investigation, the Company continues to receive
additional subpoenas directed to NMC or the Company to obtain supplemental
information and documents regarding the above-noted issues, or to clarify the
scope of the original subpoenas.
The Company is cooperating with the OIG Investigation. The Company
believes that the government continues to review and evaluate the voluminous
information the Company has provided. As indicated above, the government
continues, from time to time, to seek supplementing and/or clarifying
information from the Company. The Company expects that this process will
continue while the government completes its evaluation of the issues.
The OIG Investigation covers the following areas: (a) NMC's dialysis
services business, principally relating to its Medical Director contracts and
compensation; (b) NMC's treatment of credit balances resulting from overpayments
received under the Medicare ESRD program, its billing for home dialysis
services, and its payment of supplemental medical insurance premiums on behalf
of indigent patients; (c) LifeChem's laboratory business, including documents
relating to testing procedures, marketing, customers, competition and certain
overpayments totaling approximately $4.9 million that were received by LifeChem
from the Medicare program with respect to laboratory services rendered between
1989 and 1993, and a 1997 review of dialysis facilities' standing orders; and
(d) Homecare and, in particular, information concerning IDPN billing practices
including various services, equipment
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and supplies and payments made to third parties as compensation for
administering IDPN therapy.
The government has indicated that the areas identified above are not
exclusive, and that it may pursue additional areas. As noted, the penalties
applicable under the anti-kickback statutes, the False Claims Act and other
federal and state statutes and regulations applicable to NMC's business can be
substantial. While NMC asserts that it is able to offer legal and/or factual
defenses with respect to many of the areas the government has identified, there
can be no assurance that the federal government and/or one or more state
agencies will not claim that NMC has violated statutory or regulatory
provisions. Additionally, eight and possibly other qui tam actions alleging that
NMC submitted false claims to the government have been filed under seal by
former or current NMC employees or other individuals who may have familiarity
with one or more of the issues under investigation. As noted, under the False
Claims Act, any such private plaintiff could pursue an action against NMC in the
name of the U.S. at his or her own expense if the government declines to do so.
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Diagnostics Subpoena
In October 1996, Biotrax International, Inc. and NMC Diagnostics, Inc.,
both of which are subsidiaries of NMC, received an investigative subpoena from
the OIG. The subpoena calls for the production of extensive documents and was
issued in connection with an investigation being conducted by the OIG in
conjunction with the U.S. Attorney for the Eastern District of Pennsylvania
concerning the possible submission of false or improper claims to, and their
payment by, the Medicare program. The subpoena calls for the production of
documents on corporate organization, business plans, document retention,
personnel files, sales and marketing and Medicare billing issues relating to
certain procedures offered by the prior owner of the Biotrax business before its
assets were acquired by NMC in March 1994 and by DSI following the acquisition.
The Company has reviewed the subpoena with its legal counsel and is making
extensive document production in response to the subpoena. The outcome of this
investigation, its duration, and its effect, if any, on NMC or the Company
cannot be predicted at this time.
Medical Director Compensation
The government is investigating whether DSD's compensation arrangements
with its Medical Directors constitute payments to induce referrals, which would
be illegal under the anti-kickback statutes, rather than payment for services
rendered. DSD compensated the substantial majority of its Medical Directors on
the basis of a percentage of the earnings of the dialysis center for which the
Medical Director was responsible from the inception of NMC's predecessor in 1972
until January 1, 1995, the effective date of Stark II. Under the arrangements in
effect prior to January 1, 1995, the compensation paid to Medical Directors was
adjusted to include "add backs," which represented a portion of the profit
earned by the Medical Products Group ("MPG") on products purchased by the
Medical Director's facility from MPG and (until January 1, 1992) a portion of
the profit earned by LifeChem on laboratory services provided to patients at the
Medical Director's facility. These adjustments were designed to allocate a
profit factor to each dialysis center relating to the profits that could have
been realized by the center if it had provided the items and services directly
rather than through a subsidiary of NMC. The percentage of profits paid to any
specific Medical Director was reached through negotiation, and was typically a
provision of a multi-year consulting agreement.
To comply with Stark II if Designated Health Services are involved,
Medical Director compensation must not exceed fair market value and may not take
into account the volume or value of referrals or other business generated
between the parties. Since January 1, 1995, DSD has compensated its Medical
Directors on a fixed compensation
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arrangement intended to comply with the requirements of Stark II. In
renegotiating its Medical Director compensation arrangements in connection with
Stark II, DSD took and continues to take account of the compensation levels paid
to its Medical Directors in prior years.
Certain government representatives have expressed the view in meetings
with counsel for NMC that arrangements where the Medical Director was or is paid
amounts in excess of the "fair market value" of the services rendered may
evidence illegal payments to induce referrals, and that hourly compensation is a
relevant measure for evaluating the "fair market value" of the services. DSD
does not compensate its Medical Directors on an hourly basis and has asserted to
the government that hourly compensation is not a determinative measure of fair
market value. Although the Company believes that the compensation paid to its
Medical Directors is generally reflective of fair market value, there can be no
assurances that the government will agree with this position or that the Company
ultimately will be able to defend its position successfully. Because of the wide
variation in local market factors and in the profit percentage contractually
negotiated between DSD and its Medical Directors prior to January 1, 1995, there
is a wide variation in the amounts that have been paid to Medical Directors.
As a result, the compensation that DSD has paid and is continuing to pay
to a material number of its Medical Directors could be viewed by the government
as being in excess of "fair market value," both in absolute terms and in terms
of hourly compensation. NMC has asserted to the government that its compensation
arrangements do not constitute illegal payments to induce referrals. NMC has
also asserted to the government that OIG auditors repeatedly reviewed NMC's
compensation arrangements with its Medical Directors in connection with their
audits of the costs claimed by DSD; that the OIG stated in its audit reports
that, with the exception of certain technical issues, NMC had complied with
applicable Medicare laws and regulations pertaining to the ESRD program; and
that NMC reasonably relied on these audit reports in concluding that its program
for compensating Medical Directors was lawful. There has been no indication that
the government will accept NMC's assertions concerning the legality of its
arrangements generally or NMC's assertion that it reasonably relied on OIG
audits, or that the government will not focus on specific arrangements that DSD
has made with one or more Medical Directors and claim that those specific
arrangements were or are unlawful.
The government is also investigating whether DSD's profit sharing
arrangements with its Medical Directors influenced them to order unnecessary
ancillary services and items. NMC has asserted to the government that the rate
of utilization of ancillary services and items by its Medical Directors is
reasonable and that it did not provide illegal inducements to Medical Directors
to order ancillary services and items.
Credit Balances
In the ordinary course of business, Medicare providers like DSD receive
overpayments from Medicare intermediaries for services that they provide to
Medicare patients. Medicare intermediaries commonly direct such providers to
notify them of the overpayment and not remit such amounts to the intermediary by
check or otherwise unless specifically requested to do so. In 1992, HCFA adopted
a regulation requiring certain Medicare providers, including dialysis centers,
to file a quarterly form listing unrecouped overpayments with the Medicare
intermediary responsible for reimbursing the provider. The first such filing was
required to be made as of June 30, 1992 for the period beginning with the
initial date that the provider participated in the Medicare program and ending
on June 30, 1992.
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The government is investigating whether DSD intentionally understated the
Medicare credit balance reflected on its books and records for the period ending
June 30, 1992 by reversing entries out of its credit balance account and taking
overpayments into income in anticipation of the institution of the new filing
requirement. DSD's policy was to notify Medicare intermediaries in writing of
overpayments upon receipt and to maintain unrecouped Medicare overpayments as
credit balances on the books and records of DSD for four years; overpayments not
recouped by Medicare within four years would be reversed from the credit balance
account and would be available to be taken into income. NMC asserts that
Medicare overpayments that have not been recouped by Medicare within four years
are not subject to recovery under applicable regulations and that its initial
filing with the intermediaries disclosed the credit balance on the books and
records of DSD as shown in accordance with its policy, but there can be no
assurance that the government will accept NMC's views. The government has
inquired whether other divisions including Homecare, LifeChem and DSI have
appropriately treated Medicare credit balances.
The government is also investigating whether DSD failed to disclose
Medicare overpayments that resulted from DSD's obligation to rebill commercial
payors for amounts originally billed to Medicare under HCFA's initial
implementation of the OBRA 93 amendments to the secondary payor provisions of
the Medicare Act. DSD experienced delays in reporting a material amount of
overpayments after the implementation of the OBRA 93 amendments. NMC asserts
that most of these delays were the result of the substantial administrative
burdens placed on DSD as a consequence of the changing and inconsistent
instructions issued by HCFA with respect to the OBRA 93 amendments and were not
intentional. Substantially all overpayments resulting from the rebilling effort
associated with the OBRA 93 amendments have now been reported. Procedures are in
place that are designed to ensure that subsequent overpayments resulting from
the OBRA 93 amendments will be reported on a timely basis.
Overpayments for Home Dialysis Services
NMC acquired Home Intensive Care, Inc.("HIC"), an in-center and home
dialysis service provider, in 1993. At the time of the acquisition, HIC was the
subject of a claim by HCFA that HIC had received payments for home dialysis
services in excess of the Medicare reasonable charge for services rendered prior
to February 1, 1990. NMC settled the HCFA claim against HIC in 1994. The
government is investigating whether the settlement concerning the alleged
overpayments made to HIC resolved all issues relating to such alleged
overpayments. The government is also investigating whether an NMC subsidiary,
Home Dialysis Services, Inc. ("HDS"), received payments similar to the payments
that HIC received, and whether HDS improperly billed for home dialysis services
in excess of the monthly cost cap for services rendered on or after February 1,
1990. The government is investigating whether NMC was overpaid for services
rendered. NMC asserts that the billings by HDS were proper, but there can be no
assurance that the government will accept NMC's view.
LifeChem
Overpayments. On September 22, 1995, LifeChem voluntarily disclosed
certain billing problems to the government that had resulted in LifeChem's
receipt of approximately $4.9 million in overpayments from the Medicare program
for laboratory services rendered between 1989 and 1993. LifeChem asserts that
most of these overpayments relate to errors caused by a change in LifeChem's
computer systems and that the remainder of the overpayments were the result of
the incorrect practice of billing for a complete blood count with differential
when only a complete blood count was ordered and performed, and of the incorrect
practice of billing for a complete blood count when only a hemoglobin or
hematocrit
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test was ordered. LifeChem asserts that the overpayments it received were not
caused by fraudulent activity, but there can be no assurance that the government
will accept LifeChem's view.
LifeChem made these disclosures to the government as part of an
application to be admitted to a voluntary disclosure program begun by the
government in mid-1995. At the time of the disclosures, LifeChem tendered
repayment to the government of the $4.9 million in overpayments. After the OIG
Investigation was announced, the government indicated that LifeChem had not been
accepted into its voluntary disclosure program. The government has deposited the
$4.9 million check with NMC's approval. The matters disclosed in LifeChem's
September 22, 1995 voluntary disclosure are a subject of the OIG Investigation.
On June 7, 1996, LifeChem voluntarily disclosed an additional billing
problem to the government that had resulted in LifeChem's receipt of between
$40,000 and $160,000 in overpayments for laboratory services rendered in 1991.
LifeChem advised the government that this overpayment resulted from the
submission for payment of a computer billing tape that had not been subjected to
a "billing rules" program designed to eliminate requests for payments for
laboratory tests that are included in the Composite Rate and that were not
eligible for separate reimbursement. LifeChem also advised the government that
there may have been additional instances during the period from 1990 to 1992
when other overpayments were received as a result of the submission of computer
billing tapes containing similar errors and that it was in the process of
determining whether such additional overpayments were received. On June 21,
1996, LifeChem advised the government that the 1991 billing problem disclosed on
June 7, 1996 resulted in an overpayment of approximately $112,000. LifeChem also
advised the government that certain records suggested instances in July 1990 and
August 31 through September 11, 1990, when billing tapes may have been processed
without rules processing. LifeChem continued its effort to determine whether any
other overpayments occurred relating to the "billing rules" problem and, in
March 1997, advised the government that an additional overpayment of
approximately $260,000 was made by Medicare.
Capitation for routine tests and panel design. In October 1994, the OIG
issued a special fraud alert in which it stated its view that the industry
practice of offering to perform or performing the routine tests covered by the
Composite Rate at a price below fair market value, coupled with an agreement by
a dialysis center to refer all or most of its non-Composite Rate tests to the
laboratory, violates the anti-kickback statutes. In response to this alert,
LifeChem changed its practices with respect to testing covered by the Composite
Rate to increase the amount charged to both DSD and third-party dialysis centers
and reduce the number of tests provided for the fixed rate. The government is
investigating LifeChem's practices with respect to these tests.
Benefits provided to dialysis centers and persons associated with dialysis
centers. The government is investigating whether DSD or any third-party dialysis
center or any person associated with any such center was provided with benefits
in order to induce them to use LifeChem services. Such benefits could include,
for example, discounts on RPD supplies, the provision of computer equipment, the
provision of money for the purchase of computer equipment, and the provision of
research grants. NMC has identified certain instances in which benefits were
provided to MPG customers who purchased medical products from RPD and used
LifeChem's laboratory services. The government may claim that the provision of
such benefits violates, among other things, the anti-kickback statutes.
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Business and testing practices. As noted above, the government has
identified a number of specific categories of documents that it is requiring NMC
to produce at this time. In addition to documents relating to the areas
discussed above, the government has also required LifeChem to produce documents
relating to the equipment and systems used by LifeChem in performing and billing
for clinical laboratory blood tests, the design of the test panels offered and
requisition forms used by LifeChem, the utilization rate for certain tests
performed by LifeChem, recommendations concerning diagnostic codes to be used in
ordering tests for patients with given illnesses or conditions, internal and
external audits and investigations relating to LifeChem's billing and testing.
Recently, the government served an investigative subpoena for documents
concerning the Company's 1997 review of dialysis facilities' standing orders,
and responsive documents were provided.
INTRADIALYTIC PARENTERAL NUTRITION
Administration kits. One of the principal activities of Homecare is to
provide IDPN therapy to dialysis patients at both NMC-owned facilities and at
facilities owned by other providers. IDPN therapy is typically provided to the
patient 12-13 times per month during dialysis treatment. Bills are submitted to
Medicare on a monthly basis and include separate claims for reimbursement for
supplies, including, among other things, nutritional solutions, administration
kits and infusion pumps. In February 1991, the Medicare carrier responsible for
processing Homecare's IDPN claims issued a Medicare advisory to all parenteral
and enteral nutrition suppliers announcing a coding change for reimbursement of
administration kits provided in connection with IDPN therapy for claims filed
for items provided on or after April 1, 1991. The Medicare allowance for
administration kits during this period was approximately $625 per month per
patient. The advisory stated that IDPN providers were to indicate the "total
number of actual days" when administration kits were "used," instead of
indicating that a one-month supply of administration kits had been provided. In
response, Homecare billed for administration kits on the basis of the number of
days that the patient was on an IDPN treatment program during the billing
period, which typically represented the entire month, as opposed to the number
of days the treatment was actually administered. During the period from April
1991 to June 1992, Homecare had an average of approximately 1,200 IDPN patients
on service.
In May 1992, the carrier issued another Medicare advisory to all PEN
suppliers in which it stated that it had come to the carrier's attention that
some IDPN suppliers had not been prorating their billing for administration kits
used by IDPN patients and that providers should not bill for administration kits
on the basis of the number of days that the patient was on an IDPN treatment
program during the billing period. The advisory stated further that the carrier
would be conducting "a special study to determine whether or not overpayments
have occurred as a result of incorrect billing" and that "if overpayments have
resulted, providers that have incorrectly billed" would "be contacted so that
refunds can be recovered." Homecare revised its billing practices in response to
this advisory for claims filed for items provided on or after July 1, 1992.
Homecare was not asked to refund any amounts relating to its billings for
administration kits following the issuance of the second advisory.
The government is investigating whether NMC submitted false claims for
administration kits during the period from April 1, 1991 to June 30, 1992. NMC
asserts that the claims submitted in connection with billing for administration
kits were proper, but there can be no assurance that the government will accept
NMC's view. The government may claim that Homecare's billing for administration
kits during this period violates, among other things, the False Claims Act.
Infusion Pumps and IV Poles. During the time period covered by the
subpoenas, Medicare regulations permitted IDPN providers to bill Medicare for
the infusion pumps and, until 1992, for IV poles provided to IDPN patients in
connection with the administration of IDPN treatments. These regulations do not
expressly specify that a particular pump and IV pole be dedicated to a specific
patient, and NMC asserts that these regulations permitted Homecare to bill
Medicare for an infusion pump and IV pole so long as the patient was infused
using a pump and IV pole. Despite the absence of an express regulatory
specification, Homecare developed a policy to deliver to a dialysis center a
dedicated infusion pump and IV pole for each patient, although NMC cannot
represent that it followed this policy in every instance. The government is
investigating the propriety of Homecare's billings for infusion pumps and IV
poles.
As noted above, under the new policies published by HCFA with respect to
IDPN therapy, the Company has not been able to bill for infusion pumps after
July 1, 1996. The government discontinued reimbursement for IV poles in 1992.
"Hang fees" and other payments. IDPN therapy is typically provided to the
patient during dialysis by personnel employed by the dialysis center treating
the patient with supplies provided and billed to Medicare by Homecare in
accordance with the Medicare parenteral nutrition supplier rules. In order to
compensate dialysis centers for the costs incurred in administering IDPN therapy
and monitoring the patient during therapy, Homecare followed the practice common
in the industry of paying a "hang fee" to the center. Dialysis centers are
responsible for reporting such fees to HCFA on their cost reports. For DSD
dialysis centers, the fee was $30 per administration, based upon internal DSD
cost calculations. For third-party dialysis centers, the fee was negotiated with
each center, typically pursuant to a written contract, and ranged from $15 to
$65 per administration. NMC has identified instances in which other payments and
amounts beyond that reflected in a contract were paid to these third-party
centers. NMC has stopped paying "hang fees" to both DSD and third-party
facilities.
In July 1993, the OIG issued a management advisory alert to HCFA in which
it stated that "hang fees" and other payments made by suppliers of IDPN to
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dialysis centers "appear to be illegal as well as unreasonably high." The
government is investigating the nature and extent of the "hang fees" and other
payments made by Homecare as well as payments by Homecare to physicians whose
patients have received IDPN therapy. The government may claim that the payments
by Homecare to dialysis centers violate, among other things, the anti-kickback
statutes.
Utilization of IDPN. Since 1984, when HCFA determined that Medicare should
cover IDPN and other parenteral nutrition therapies, NMC has been an industry
leader in identifying situations in which IDPN therapy is beneficial to ESRD
patients. It is the policy of Homecare to seek Medicare reimbursement for IDPN
therapy only when it is prescribed by a patient's treating physician and when it
believes that the circumstances satisfy the requirements published by HCFA and
its carrier agents. Prior to 1994, HCFA and its carriers approved for payment
more than 90% of the IDPN claims submitted by Homecare. After 1993, the rate of
approval for Medicare reimbursement for IDPN claims submitted by Homecare for
new patients, and by the infusion industry in general, fell to approximately 9%.
NMC contends that the reduction in rates of approval occurred because HCFA and
its carriers implemented an unauthorized change in coverage policy without
giving notice to providers. While NMC continued to offer IDPN to patients
pursuant to the prescription of the patients' treating physicians and to submit
claims for Medicare reimbursement when it believed the requirements stated in
HCFA's published regulations were satisfied, other providers responded to the
drop in the approval rate for new Medicare IDPN patients by abandoning the
Medicare IDPN business, cutting back on the number of Medicare patients to whom
they provide IDPN, or declining to add new Medicare patients. The number of
patients to whom NMC provided IDPN increased as a result.
The government is investigating the utilization rate of IDPN therapy among
NMC patients, whether NMC submitted IDPN claims to Medicare for patients who
were not eligible for coverage, and whether documentation of eligibility was
adequate. NMC asserts that the utilization rate of IDPN therapy among its
dialysis patients, which, in 1995, averaged less than 3.5%, is the result of the
factors discussed above and that it is the policy of Homecare to seek Medicare
reimbursement for IDPN therapy prescribed by the patients' treating physician in
accordance with the requirements published by HCFA and its carrier agents. There
can be no assurance that the government will accept NMC's view or that the
government will not claim that Homecare submitted IDPN claims for individuals
who were not eligible for coverage or with inadequate documentation of
eligibility.
In addition, the government is investigating whether, in certain
circumstances, documentation of eligibility was false or inaccurate. With
respect to some claims, the Company determined that false or inaccurate
documentation was submitted, deliberately or otherwise. The Company understands
that the government has recently utilized a grand jury to investigate this
matter.
QUI TAM ACTIONS
The Company and NMC have become aware that eight qui tam actions have been
filed in various jurisdictions. Each of these actions is under seal and in each
action, pursuant to court order the seal has been modified to permit the
Company, NMC and other affiliated defendants to disclose the complaint to any
relevant investors, financial institutions and/or underwriters, their successors
and assigns and their respective counsel and to disclose the allegations in the
complaints in their respective SEC and NYSE periodically required filings.
The first qui tam action was filed in the United States District Court for
the Southern District of Florida in 1996, amended on July 8, 1996 and disclosed
to the Company on July 10, 1996. It alleges, among other things, that Grace
Chemicals and NMC violated the False Claims Act in connection with certain
billing practices regarding IDPN and the administration of EPO and that as a
result of this allegedly wrongful conduct, the United States suffered actual
damages in excess of $200 million. The Amended Complaint also seeks the
imposition of a constructive trust on the proceeds of the NMC dividend to Grace
Chemicals for the benefit of the United States on the ground that the Merger
constitutes a fraudulent conveyance that will render NMC unable to satisfy the
claims asserted in the Amended Complaint.
The second qui tam action was filed in the United States District Court
for the Middle District of Florida in 1995 and disclosed to the Company on or
before November 7, 1996. It alleges, among other things, that NMC and certain
NMC subsidiaries violated the False Claims Act in connection with the alleged
retention of over-payments made under the Medicare program, the alleged
submission of claims in violation of applicable cost caps and the payment of
supplemental Medicare insurance premiums as an alleged inducement to patients to
obtain dialysis products and services from NMC. The complaint alleges that as a
result of this allegedly wrongful conduct, the United States suffered damages in
excess of $10 million including applicable fines.
The third qui tam action was filed in the United States District Court for
the Eastern District of Pennsylvania in February 1996 and was disclosed to the
Company in November 1996. It alleges, among other things, that a pharmaceutical
manufacturer, an unaffiliated dialysis provider and NMC violated the False
Claims Act in connection with the submission of claims to the Medicare program
for a nonsterile intravenous drug and for intravenous drugs which were allegedly
billed in excess of permissible Medicare reimbursement rates. The complaint also
claims that the defendants violated the Medicare and Medicaid anti-kickback
statutes in connection with the receipt of discounts and other in kind payments
as alleged inducements to purchase intravenous drugs. The complaint is focused
on the business relationship between the pharmaceutical manufacturer and several
providers, one of which is NMC. The complaint claims that as a result of this
allegedly wrongful conduct, the United States suffered damages. On June 28,
1997, in response to relator's motion to dismiss and the United States'
declination to intervene, the District Court ordered the complaint dismissed
without prejudice.
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The fourth qui tam action was filed in the United States District Court for the
Eastern District of Pennsylvania in May 1995 and was disclosed to the Company in
August 1997. It alleges, among other things, that Biotrax International, Inc., a
subsidiary of NMC, violated the False Claims Act in connection with its
submission of claims to the Medicare program for diagnostic tests and induced
overutilization of such tests in the medical community through improper
marketing practices also in violation of the False Claims Act.
The fifth qui tam action was filed in the United States District Court for
the Eastern District of Pennsylvania in August 1996 and was disclosed to the
Company in August 1997. It alleges, among other things, that Biotrax and NMC
Diagnostic Services induced overutilization of diagnostic tests by several named
and unnamed physician defendants in the local medical community, through
improper marketing practices and fee arrangements, in violation of the False
Claims Act.
The sixth qui tam action was filed in the United States District Court for
the Eastern District of Pennsylvania in November 1996 and was disclosed to the
Company in August 1997. It alleges, among other things, that NMC, DSI and
Biotrax violated the False Claims Act in connection with the submission of
claims to the Medicare program by improperly upcoding and otherwise billing for
various diagnostic tests.
The seventh qui tam action was filed in the United States District Court
for the District of Delaware in January 1997 and was disclosed to the Company in
September 1997. It alleges, among other things, that NMC and Biotrax violated
the False Claims Act in connection with the submission of claims to the Medicare
program for diagnostic tests, and induced overutilization of such tests through
improper marketing practices which provided impermissible incentives to health
care providers to order these tests.
The eighth qui tam action was filed in the United States District Court
for the District of New Jersey in February 1997 and was disclosed to the Company
in September 1997. It alleges, among other things, that DSI and NMC violated the
False Claims Act in connection with the submission of claims to the Medicare
program for reimbursement for diagnostic tests, by causing unnamed physicians to
overutilize these tests though a variety of fee arrangements and other
impermissible inducements.
Each of the qui tam complaints claims that as a result of the allegedly
wrongful conduct, the United States suffered damages and that the defendants are
liable to the United States for three times the amount of the alleged damages
plus civil penalties of up to $10,000 per false claim. An adverse result in any
of the qui tam actions could have a material adverse affect on the Company's
business, financial condition or results of operations.
As a result of discussions with representatives of the United States in
connection with the OIG Investigation, certain agreements (the "OIG Agreements")
have been entered into to guarantee the payment of any obligations of NMC to the
United States (an "Obligation") relating to or arising out of the OIG
Investigation and the qui tam action filed in the Southern District of Florida
(the "Government Claims"). For the purposes of the OIG Agreements, an Obligation
is (a) a liability or obligation of NMC to the United States in respect of a
Government Claim pursuant to a court order (i) which is final and nonappealable
or (ii) the enforcement of which has not been stayed pending appeal or (b) a
liability or obligation agreed to be an Obligation in a settlement agreement
executed by Fresenius Medical Care, FMCH or NMC, on the one hand, and the United
States, on the other hand. As stated elsewhere herein, the outcome of the OIG
Investigation cannot be predicted. The entering into of the OIG Agreements is
not an admission of liability by any party with respect to the OIG
Investigation, nor does it indicate the liability, if any, which may result
therefrom.
Pursuant to the OIG Agreements, upon consummation of the Merger, Fresenius
Medical Care, FMCH and NMC provided the United States with a joint and several
unconditional guarantee of payment when due of all Obligations (the "Primary
Guarantee"). As credit support for this guarantee, NMC delivered an irrevocable
standby letter of credit in the amount of $150 million. The United States will
return such letter of credit (or any renewal or replacement) for cancellation
when all Obligations have been paid in full or it is determined that NMC has no
liability in respect of the Government Claims. Under the terms of the Merger,
any potential resulting monetary liability has been retained by NMC, and the
Company has indemnified Grace Chemicals against all potential liability arising
from or relating to the OIG Investigation.
FMCH and the United States state in the OIG Agreements that they will
negotiate in good faith to attempt to arrive at a consensual resolution of the
Government Claims and, in the context of such negotiations, will negotiate in
good faith as to the need for any restructuring of the payment of any
Obligations arising under such resolution, taking into account the ability of
Fresenius Medical Care to pay the Obligations. The OIG Agreements state that the
foregoing statements shall not be construed to obligate any person to enter into
any settlement of the Government Claims or to agree to a structured settlement.
Moreover, the OIG Agreements state that the statements described in the first
sentence of this paragraph are precatory and statements of intent only and that
(a) compliance by the United States with such provisions is not a condition or
defense to the obligations of Fresenius Medical Care under the OIG Agreements
and (b) breach of such provisions by the United States cannot and will not be
raised by Fresenius Medical Care to excuse performance under the OIG Agreements.
The foregoing describes the material terms of the OIG Agreements, copies
of which were previously filed with the U.S. Securities and Exchange Commission
(the "SEC" or the "Commission") and copies of which may be examined without
charge at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W. Washington, D.C. 20549, and at the Regional Offices
of the Commission located at Suite 1400, Citicorp Center, 500 West Madison
103
<PAGE> 104
Street, Chicago, Illinois 60661-2551 and Room 1300, 7 World Trade Center, New
York, New York 10048. Copies of such material will also be made available by
mail from the Public Reference Branch of the Commission at 450 Fifth Street,
N.W. Washington, D.C. 20549, at prescribed rates. The foregoing description does
not purport to be complete and is qualified in its entirety by reference to such
agreements.
An adverse determination with respect to any of the issues addressed by
the subpoenas, or any of the other issues that have been or may be identified by
the government, could result in the payment of substantial fines, penalties and
forfeitures, the suspension of payments or exclusion of the Company or one or
more of its subsidiaries from the Medicare program and other federal programs,
and changes in billing and other practices that could adversely affect the
Company's revenues. Any such result could have a material adverse effect on the
Company's business, financial condition and results of operations.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
OBRA 93 affected the payment of benefits under Medicare and employer
health plans for certain eligible ESRD patients. In July 1994, HCFA issued an
instruction to Medicare claims processors to the effect that Medicare benefits
for the patients affected by OBRA 93 would be subject to a new 18-month
"coordination of benefits" period. This instruction had a positive impact on
NMC's dialysis revenues because, during the 18-month coordination of benefits
period, patients' employer health plans were responsible for payment, which was
generally at rates higher than that provided under Medicare.
In April 1995, HCFA issued a new instruction, reversing its original
instruction in a manner that would substantially diminish the positive effect of
the original instruction on NMC's dialysis business. Under the new instruction,
no 18-month coordination of benefits period would arise, and Medicare would
remain the primary payor. HCFA further proposed that its new instruction be
effective retroactive to August 1993, the effective date of OBRA 93.
If HCFA's reversal of its original implementation of the provisions of
OBRA 93 that relate to ESRD patients for whom Medicare is the secondary payor is
upheld, NMC may be required to refund the payments received from employer health
plans for services provided after August 10, 1993 under HCFA's original
implementation, and to re-bill Medicare for the same services, which would
result in a net loss to DSD of approximately $120 million as of December 31,
1995. NMC ceased to recognize the incremental revenue realized under the
original Program Memorandum as of July 1, 1995, but it continued to bill
employer health plans as primary payors for patients affected by OBRA 93 through
December 31, 1995. As of January 1, 1996, NMC commenced billing Medicare as
primary payor for dual eligible ESRD patients affected by OBRA 93, and then
began to rebill in compliance with the revised policy for services rendered
between April 24 and December 31, 1995.
On May 5, 1995, NMC filed a complaint in the U.S. District Court for the
District of Columbia (National Medical Care, Inc. and Bio-Medical Applications
of Colorado, Inc. d/b/a Northern Colorado Kidney Center v. Shalala, C.A. No.
95-0860 (WBB)) seeking to preclude HCFA from retroactively enforcing its April
24, 1995 implementation of the OBRA 93
104
<PAGE> 105
provisions relating to the coordination of benefits for dual eligible ESRD
patients. On May 9, 1995, NMC moved for a preliminary injunction to preclude
HCFA from enforcing its new policy retroactively, that is, to billings for
services provided between August 10, 1993 and April 23, 1995. On June 6, 1995,
the court granted NMC's request for a preliminary injunction. The litigation is
continuing with respect to NMC's request to enjoin HCFA's new policy, both
retroactively and prospectively, and NMC filed significant discovery requests
concerning how HCFA developed the April 1995 rule. In December of 1996, NMC
moved for partial summary judgment seeking a declaration from the Court that
HCFA's retroactive application of the April 1995 rule was legally invalid. HCFA
cross moved for summary judgment on the grounds that the April 1995 rule was
validly applied prospectively. In January 1998, the court granted NMC's motion
for partial summary judgment and entered a declaratory judgment in favor of NMC,
holding HCFA's retroactive application of the April 1995 rule legally invalid.
Based on its finding, the Court also ordered that HCFA is permanently enjoined
from enforcing and applying the April 1995 rule retroactively against NMC and
granted NMC's outstanding discovery motions. The Court took no action on HCFA's
motion for summary judgment pending completion of the outstanding discovery. The
Court's favorable rulings provide a stronger legal basis for NMC to collect
outstanding amounts from commercial payors on the retroactive portion of the
case during the first half of 1998. At this time, it is unknown whether HCFA
intends to appeal that ruling. If HCFA should successfully appeal so that the
revised interpretation would be applied retroactively, FMCH's business,
financial position and results of operations would be materially adversely
affected.
INTRADIALYTIC PARENTERAL NUTRITION COVERAGE ISSUES
NMC administers intradialytic parenteral nutrition ("IDPN") therapy to
chronic dialysis patients who suffer from severe gastrointestinal malfunctions.
After 1993, Medicare claims processors sharply reduced the number of IDPN claims
approved for payment as compared to prior periods. NMC believes that the
reduction in IDPN claims represented an unauthorized policy coverage change.
Accordingly, NMC and other IDPN providers pursued various administrative and
legal remedies, including administrative appeals, to address this reduction.
In November 1995, NMC filed a complaint in the U.S. District Court for the
Middle District of Pennsylvania seeking a declaratory judgment and injunctive
relief to prevent the implementation of this policy coverage change. (National
Medical Care, Inc. v. Shalala, 3:CV-95-1922 (RPC)). Subsequently, the District
Court affirmed a prior report of the magistrate judge dismissing NMC's
complaint, without considering any substantive claims, on the grounds that the
underlying cause of action should be submitted fully to the administrative
review processes available under the Medicare Act. NMC decided not to appeal the
Court's decision, but rather, to pursue the claims through the available
administrative processes.
Although NMC management believes that those IDPN claims were consistent
with published Medicare coverage guidelines and ultimately will be approved for
payment, there can be no assurance that the claims on appeal will be approved
for payment. Such claims represent substantial accounts receivable of NMC,
amounting to approximately $152 million as of December 31, 1997.
If NMC is unable to collect its IDPN receivable or if IDPN coverage is
reduced or eliminated, depending on the amount of the receivable that is not
collected and/or the nature of the coverage change, FMCH's business, financial
condition and results of operations could be materially adversely affected.
105
<PAGE> 106
OTHER LEGAL PROCEEDINGS
District of New Jersey Investigation
NMC has received multiple subpoenas from a federal grand jury in the
District of New Jersey investigating, among other things, whether NMC sold
defective products, the manner in which NMC handled customer complaints and
certain matters relating to the development of a new dialyzer product line. NMC
is cooperating with this investigation and
106
<PAGE> 107
has provided the grand jury with extensive documents. In February, 1996, NMC
received a letter from the U.S. Attorney for the District of New Jersey
indicating that it is the target of a federal grand jury investigation into
possible violations of criminal law in connection with its efforts to persuade
the FDA to lift a January 1991 import hold issued with respect to NMC's Dublin,
Ireland manufacturing facility. In June 1996, NMC received a letter from the
U.S. Attorney for the District of New Jersey indicating that the U.S. Attorney
had declined to prosecute NMC with respect to a submission related to NMC's
effort to lift the import hold. The letter added that NMC remains a subject of a
federal grand jury's investigation into other matters. NMC has produced
documents in response to a June 1996 subpoena from the federal grand jury
requesting certain documents in connection with NMC's imports of the FOCUS(R)
dialyzer from January 1991 to November 1995. The government investigators and
the Company have been attempting to further narrow the issues with respect to
which the government has previously expressed concerns in order to resolve this
investigation. However, the outcome and impact, if any, of these discussions and
potential resolution on the Company's business, financial condition or results
of operations cannot be predicted at this time.
Commercial Insurer Litigation
In December 1997, FMCH, NMC, and certain named NMC subsidiaries, as well
as Grace Chemicals, were served with a civil complaint filed by Aetna Life
Insurance Company in the U.S. District Court for the Southern District of New
York (Aetna Life Insurance Company v. National Medical Care, Inc. et al,
97-Civ-9310). Based in large part on information contained in prior securities
filings, the lawsuit alleges inappropriate billing practices for nutritional
therapy, diagnostic and clinical laboratory tests and misrepresentations. The
complaint seeks unspecified damages and costs. Grace Chemicals has sought
indemnification from the Company pursuant to the terms of an indemnification
agreement between Grace and the Company for any liability, costs and expenses
that Grace may incur as a result of the lawsuit. The Company is currently
engaged in formulating its response to the complaint. This action is at an early
stage and its outcome and impact on the Company cannot be predicted at this
time. However, the Company, NMC and its subsidiaries believe that they have
substantial defenses to the claims asserted, and intend to vigorously defend the
lawsuit. It is also possible that one or more other private payors may claim
that NMC received excess payments and similarly, may seek reimbursement and
other damages from NMC. An adverse result could have a material adverse effect
on the Company's business, financial condition or results of operations.
107
<PAGE> 108
Insurance
The Company is largely self-insured for group health, workers
compensation, medical malpractice, auto and general liability. Provisions for
losses expected under these programs are recorded currently based upon NMC's
estimates of the aggregate liability for claims incurred.
108
<PAGE> 109
NOTE 16. SIGNIFICANT CUSTOMER RELATIONS
For the periods presented approximately 62% to 64% of the Company's health
care services net revenues are paid by and subject to regulations under
governmental programs, primarily Medicare and Medicaid. The Company maintains
reserves for losses related to these programs, including uncollectible accounts
receivable, and such losses have been within management's expectations.
109
<PAGE> 110
NOTE 17. INDUSTRY SEGMENTS AND INFORMATION ABOUT FOREIGN OPERATIONS
The table below provides information for the year ended December 31,
1997 and the three months ended December 31, 1996 on a successor basis and for
the nine months ended September 30, 1996 and the year ended December 31, 1995 on
a predecessor basis pertaining to the Company's operations by geographic area.
<TABLE>
<CAPTION>
UNITES STATES EUROPE OTHER TOTAL
------------- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues 1997 $2,438,235 $131,375 $51,690 $2,621,300
Three Months Ended 12/31/96 $ 584,121 $ 35,257 $11,188 $ 630,566
Nine Months Ended 9/30/96 1,480,500 103,576 30,584 1,614,660
1995 1,868,882 125,153 38,703 2,032,738
Earnings before income taxes 1997 60,719 5,933 199 66,851
Three Months Ended 12/31/96 12,945 2,408 (392) 14,961
Nine Months Ended 9/30/96 154,878 (19,338) (6,457) 129,083
1995 234,860 (32,415) 3,068 205,513
Assets Successor 1997 4,757,367 163,837 88,916 5,010,120
1996 4,286,867 211,760 97,452 4,596,079
Predecessor 1995 1,675,667 242,393 80,084 1,998,144
</TABLE>
The table below provides information for the year ended December 31,
1997 and three months ended December 31, 1996 on a successor basis and the nine
months ended September 30, 1996 and the year ended December 31, 1995 on a
predecessor basis pertaining to the Company's two industry segments.
<TABLE>
<CAPTION>
LESS:
HEALTH CARE MEDICAL INTERSEGMENT
SERVICES SUPPLIES SALES TOTAL
----------- -------- ------------ -----
<S> <C> <C> <C> <C> <C>
Net Revenues 1997 $2,200,825 $722,859 $302,383 $2,621,300
Three Months Ended 12/31/96 524,328 175,275 69,037 630,566
Nine Months Ended 9/30/96 1,523,458 240,175 148,973 1,614,660
1995 1,884,748 300,001 152,011 2,032,738
Earnings before income taxes 1997 21,217 45,634 -- 66,851
Three Months Ended 12/31/96 6,098 8,863 -- 14,961
Nine Months Ended 9/30/96 99,648 29,435 -- 129,083
1995 223,094 (17,581) -- 205,513
Assets Successor 1997 4,357,857 652,263 -- 5,010,120
1996 3,952,282 643,797 -- 4,596,079
Predecessor 1995 1,855,907 142,237 1,998,144
Capital expenditures 1997 118,890 52,235 -- 171,125
Three Months Ended 12/31/96 42,345 3,926 -- 46,271
Nine Months Ended 9/30/96 90,655 2,198 -- 92,853
1995 99,905 2,989 -- 102,894
Depreciation and amortization of
properties and equipment 1997 92,048 12,625 -- 104,673
Three Months Ended 12/31/96 21,594 6,027 -- 27,621
Nine Months Ended 9/30/96 50,824 2,685 -- 53,509
1995 57,783 4,903 -- 62,686
</TABLE>
110
<PAGE> 111
NOTE 18. QUARTERLY SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
SUCCESSOR
-----------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1997
Net revenues $624,394 $645,524 $656,927 $ 694,455
Cost of health care services and
medical supplies 393,653 396,387 411,506 448,718
Operating expenses 172,313 176,944 183,856 185,357
Interest expense, net 41,214 45,977 49,182 49,342
-------- -------- -------- ---------
Total expenses 607,180 619,308 644,544 683,417
-------- -------- -------- ---------
Earnings before Income Taxes 17,214 26,216 12,383 11,038
Provision for Income Taxes 10,577 15,682 7,254 12,415
-------- -------- -------- ---------
Net earnings $ 6,637 $ 10,534 $ 5,129 $ (1,377)
======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
----------------------------------------------- -----------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1996
Net revenues $528,291 $552,119 $534,250 $630,566
Cost of health care services and
medical supplies 315,433 322,853 330,700 393,626
Operating expenses 156,264 159,057 184,945 176,773
Interest expense, net 7,004 7,459 1,862 45,206
-------- -------- -------- --------
Total expenses 478,701 489,369 517,507 615,605
-------- -------- -------- --------
Earnings before Income Taxes 49,590 62,750 16,743 14,961
Provision for Income Taxes 23,145 28,832 14,225 8,915
-------- -------- -------- --------
Net earnings $ 26,445 $ 33,918 $ 2,518 $ 6,046
======== ======== ======== ========
</TABLE>
NOTE 19. SUBSEQUENT EVENTS
International Operations
Effective January 1, 1998, FMCH transferred legal ownership of
significantly all of its international operations to FMC. This transfer was
accounted for on the cost basis since the international subsidiaries remain
under control of a common parent. These consolidated financial statements
include the operating results and cash flows of FMCH's international operations
through December 31, 1997. For the year ended December 31, 1997 less than 8% of
the net revenues were derived from FMCH's international operations. The total
international assets of $263,181 and liabilities of $339,185 which includes
$265,865 of intercompany obligations were transferred at December 31, 1997.
Credit Agreement
Per Amendment No. 5, to the Credit Agreement, Term Loan A was prepaid
by $250 million on February 19, 1998. The prepayment reduces the available
financing under the agreement to $1,750,000. Subsequent, mandatory repayments
scheduled to begin on December 31, 1999 will be ratably reduced. Additionally,
certain financial ratios were reduced so as to avoid default per covenants
contained within the Credit Agreement.
111
<PAGE> 112
To the Board of Directors and Stockholders of
Fresenius Medical Care Holdings, Inc.
Under the date of February 23, 1998, we reported on the consolidated
balance sheets of Fresenius Medical Care Holdings, Inc. and its subsidiaries
(the "Company") as of December 31, 1997 and 1996 and the related consolidated
statements of earnings, changes in equity and cash flows for the year ended
December 31, 1997 and the period October 1, 1996 to December 31, 1996, the
successor periods and the period January 1, 1996 to September 30, 1996, the
predecessor period, as included in the annual report on Form 10-K for the year
1997. In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedules. These consolidated financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statement schedules based on our audits.
In our opinion, such consolidated financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
The audit report on the consolidated financial statements of the
Company referred to above contains an explanatory paragraph that states that the
Company was acquired as of September 30, 1996 in a business combination
accounted for as a purchase. As a result of the acquisition, the consolidated
financial statements for the successor period are presented on a different basis
of accounting than that of the predecessor period, and therefore are not
directly comparable. It is further explained that the predecessor period
consolidated financial statements were prepared on the basis of presentation
described in the notes to the consolidated financial statement and are not
intended to be a complete presentation of the assets, liabilities, revenues and
expenses of the Company.
KPMG PEAT MARWICK LLP
February 23, 1998
Boston, MA 02110
112
<PAGE> 113
SCHEDULE II
FRESENIUS MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
SUCCESSOR - FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ADDITIONS (DEDUCTIONS)
-------------------------------
CHARGED
BALANCE AT (CREDITED) TO
BEGINNING OF COSTS AND BALANCE AT
YEAR EXPENSES OTHER NET END OF PERIOD
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
DESCRIPTION
Valuation and qualifying accounts
deducted from assets:
Allowances for notes and accounts
receivable $153,939 $ 86,461 $(85,398) $155,002
Valuation allowance for deferred tax
assets 29,733 (13,166) 3,628 20,195
</TABLE>
SUCCESSOR - FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADDITIONS (DEDUCTIONS)
-------------------------------
CHARGED
BALANCE AT (CREDITED) TO
BEGINNING OF COSTS AND BALANCE AT
YEAR EXPENSES OTHER NET END OF PERIOD
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
DESCRIPTION
Valuation and qualifying accounts
deducted from assets:
Allowances for notes and accounts
receivable $140,519 $ 12,819) $ 601 $153,939
Valuation allowance for deferred tax
assets 19,500 (640) 10,873 29,733
</TABLE>
PREDECESSOR - FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
ADDITIONS (DEDUCTIONS)
-------------------------------
CHARGED
BALANCE AT (CREDITED) TO
BEGINNING OF COSTS AND BALANCE AT
YEAR EXPENSES OTHER NET END OF PERIOD
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
DESCRIPTION
Valuation and qualifying accounts
deducted from assets:
Allowances for notes and accounts
receivable $119,914 $ 80,475 $ (59,870) $140,519
Valuation allowance for deferred tax
assets 19,500 0 0 19,500
</TABLE>
PREDECESSOR - FOR THE YEAR 1995
<TABLE>
<CAPTION>
ADDITIONS (DEDUCTIONS)
-------------------------------
CHARGED
BALANCE AT (CREDITED) TO
BEGINNING OF COSTS AND BALANCE AT
YEAR EXPENSES OTHER NET END OF PERIOD
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
DESCRIPTION
Valuation and qualifying accounts
deducted from assets:
Allowances for notes and accounts
receivable $ 91,449 $ 88,858 $ (60,393) $119,914
Valuation allowance for deferred tax
assets 6,467 13,033 0 19,500
</TABLE>
113
<PAGE> 114
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Agreement and Plan of Reorganization dated as of February 4, 1996
between W. R. Grace & Co. and Fresenius AG (incorporated herein by
reference to Appendix A to the Joint Proxy Statement-Prospectus of
Fresenius Medical Care AG, W. R. Grace & Co. and Fresenius USA, Inc.
dated August 2, 1996 and filed with the Commission on August 5, 1996).
2.2 Distribution Agreement by and among W. R. Grace & Co., W. R. Grace &
Co.-Conn. and Fresenius AG dated as of February 4, 1996 (incorporated
herein by reference to Exhibit A to Appendix A to the Joint Proxy
Statement-Prospectus of Fresenius Medical Care AG, W. R. Grace & Co.
and Fresenius USA, Inc. dated August 2, 1996 and filed with the
Commission on August 5, 1996).
2.3 Contribution Agreement by and among Fresenius AG, Sterilpharma GmbH and
W. R. Grace & Co.-Conn. dated February 4, 1996 (incorporated herein by
reference to Exhibit E to Appendix A to the Joint Proxy-Statement
Prospectus of Fresenius Medical Care AG, W. R. Grace & Co. and
Fresenius USA, Inc. dated August 2, 1996 and filed with the Commission
on August 5, 1996).
3.1 Certificate of Incorporation of Fresenius Medical Care Holdings, Inc.
(f/k/a W. R. Grace & Co.) under Section 402 of the New York Business
Corporation Law dated March 23, 1988 (incorporated herein by reference
to the Form 8-K of the Company filed on May 9, 1988).
3.2 Certificate of Amendment of the Certificate of Incorporation of
Fresenius Medical Care Holdings, Inc. (f/k/a W. R. Grace & Co.) under
Section 805 of the New York Business Corporation Law dated May 25, 1988
(changing the name to W. R. Grace & Co., incorporated herein by
reference to the Form 8-K of the Company filed on May 9, 1988).
3.3 Certificate of Amendment of the Certificate of Incorporation of
Fresenius Medical Care Holdings, Inc. (f/k/a W. R. Grace & Co.) under
Section 805 of the New York Business Corporation Law dated September
27, 1996 (incorporated herein by reference to the Form 8-K of the
Company filed with the Commission on October 15, 1996).
3.4 Certificate of Amendment of the Certificate of Incorporation of
Fresenius Medical Care Holdings, Inc. (f/k/a W. R. Grace & Co.) under
Section 805 of the New York Business Corporation Law dated September
27, 1996 (changing the name to Fresenius National Medical Care
Holdings, Inc., incorporated herein by reference to the Form 8-K of the
Company filed with the Commission on October 15, 1996).
3.5 Certificate of Amendment of the Certificate of Incorporation of
Fresenius Medical Care Holdings, Inc. under Section 805 of the New York
Business Corporation Law dated June 12, 1997 (changing name to
Fresenius Medical Care Holdings, Inc., incorporated herein by reference
to the Form 10-Q of the Company filed with the Commission on August 14,
1997).
3.6 Amended and Restated By-laws of Fresenius Medical Care Holdings, Inc.
(incorporated herein by reference to the Form 10-Q of the Company filed
with the Commission on August 14, 1997).
4.1 Credit Agreement dated as of September 27, 1996 among National Medical
Care, Inc. and Certain Subsidiaries and Affiliates, as Borrowers,
Certain Subsidiaries and Affiliates, as Guarantors, the Lenders named
therein, Nationsbank, N.A., as paying agent and the Bank of Nova
Scotia, The Chase Manhattan Bank, Dresdner Bank AG and Nationsbank,
N.A., as Managing Agents (incorporated herein by reference to the Form
6-K of Fresenius Medical Care AG filed with the Commission on October
15, 1996).
4.2 Amendment dated as of November 26, 1996 (amendment to the Credit
Agreement dated as of September 27, 1996, incorporated herein by
reference to the Form 8-K of Registrant filed with the Commission on
December 16, 1996).
114
<PAGE> 115
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.3 Amendment No. 2 dated December 12, 1996 (second amendment to the Credit
Agreement dated as of September 27, 1996, incorporated herein by
reference to the Form 10-K of Registrant filed with the Commission on
March 31, 1997).
4.4 Amendment No. 3 dated June 13, 1997 to the Credit Agreement dated as of
September 27, 1996 , among National Medical Care, Inc. and Certain
Subsidiaries and Affiliates , as Borrowers, Certain Subsidiaries and
Affiliates, as Guarantors, the Lenders named therein, NationsBank,
N.A., as paying agent and the Bank of Nova Scotia, the Chase Manhattan
Bank, N.A., Dresdner Bank AG and NationsBank, N.A. as Managing Agents,
as previously amended (incorporated herein by reference to the Form
10-Q of the Registrant filed with the Commission on November 14, 1997).
4.5 Amendment No. 4, dated August 26, 1997 to the Credit Agreement dated as
of September 27, 1996, among National Medical Care, Inc. and Certain
Subsidiaries and Affiliates, as Borrowers, Certain Subsidiaries and
Affiliates, as Guarantors, the Lenders named therein, NationsBank,
N.A., as paying agent and the Bank of Nova Scotia, the Chase Manhattan
Bank, N.A. , Dresdner Bank AG and NationsBank, N.A. as Managing Agents,
as previously amended (incorporated herein by reference to the Form
10-Q of Registrant filed with Commission on November 14, 1997).
4.6 Amendment No. 5 dated December 12, 1997 to the Credit Agreement dated
as of September 27, 1996, among National Medical Care, Inc. and Certain
Subsidiaries and Affiliates, as Borrowers, certain Subsidiaries and
Affiliates, as Guarantors, the Lenders named therein, NationsBank,
N.A., as paying agent and the Bank of Nova Scotia, the Chase Manhattan
Bank, N.A., Dresdner Bank AG and NationsBank, N.A. as Managing Agents,
as previously amended (filed herewith).
4.7 Form of Consent to Modification of Amendment No. 5 dated December 12,
1997 to the Credit Agreement dated as of September 27, 1996 among
National Medical Care, Inc. and Certain Subsidiaries and Affiliates,
as Borrowers, Certain Subsidiaries and Affiliates, as Guarantors, the
Lenders named therein, NationsBank, N.A., as paying agent and the Bank
of Nova Scotia, the Chase Manhattan Bank, N.A., Dresdner Bank AG and
NationsBank, N.A. as Managing Agents (filed herewith).
10.1 Senior Subordinated Indenture dated November 27, 1996, among Fresenius
Medical Care AG, State Street Bank and Trust Company, as successor
Fleet National Bank, as Trustee and the Subsidiary Guarantors named
therein (incorporated herein by reference to the Form 10-K of
Registrant filed with the Commission on March 31, 1997).
10.2 Senior Subordinated Indenture dated as of February 19, 1998, among
Fresenius Medical Care AG, State Street Bank and Trust Company as
Trustee and the Fresenius Medical Care Holdings, Inc. and Fresenius
Medical Care AG, as Guarantors with respect to the issuance of 7 7/8%
Senior Subordinated Notes due 2008 (filed herewith).
10.3 Senior Subordinated Indenture dated as of February 19, 1998 among FMC
Trust Finance S.A. Luxemborg, as Insurer, State Street Bank and Trust
Company as Trustee and the Fresenius Medical Care Holdings, Inc. and
Fresenius Medical Care AG, as Guarantors with respect to the issuance
of 7 3/8% Senior Subordinated Notes due 2008. (filed herewith)
10.4 Employee Benefits and Compensation Agreement dated September 27, 1996
by and among W. R. Grace & Co., National Medical Care, Inc., and W. R.
Grace & Co.-- Conn. (incorporated herein by reference to the
Registration Statement on Form F-1 of Fresenius Medical Care AG, as
amended (Registration No. 333-05922), dated November 22, 1996 and the
exhibits thereto).
10.5 Purchase Agreement, effective January 1, 1995, between Baxter Health
Care Corporation and National Medical Care, Inc., including the
addendum thereto (incorporated by reference to the Form SE of Fresenius
Medical Care dated July 29, 1996 and the exhibits thereto).
10.6 Agreement, dated November 25, 1992 between Bergen Brunswig Drug Company
and National Medical Care, Inc., including the addendum thereto
(incorporated by reference to the Form SE of Fresenius Medical Care
dated July 29, 1996 and the exhibits thereto).
10.7 Product Purchase Agreement, effective January 1, 1996, between Amgen,
Inc. and National Medical Care, Inc. (incorporated by reference to the
Form SE of Fresenius Medical Care dated July 29, 1996 and the exhibits
thereto).
10.8 Primary Guarantee dated July 31, 1996 (incorporated by reference to the
Registrant's Registration Statement on Form S-4 (Registration No.
333-09497) dated August 2, 1996 and the exhibits thereto).
10.9 Secondary Guarantee dated July 31, 1996 (incorporated by reference to
the Registrant's Registration Statement on Form S-4 (Registration No.
333-09497) dated August 2, 1996 and the exhibits thereto).
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<PAGE> 116
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.10 Receivables Purchase Agreement dated August 28, 1997 between National
Medical Care, Inc. and NMC Funding Corporation (incorporated herein by
reference to the Form 10-Q of the Registrant filed with the Commission
on November 14, 1997).
10.11 Transfer and Administration Agreement dated August 28, 1997 among NMC
Funding Corporation, National Medical Care, Inc., Enterprise Funding
Corporation, the Bank Investors listed therein and NationsBank, N.A.,
as agent (incorporated herein by reference to the Form 10-Q of the
Registrant filed with the Commission on November 14, 1997).
10.12 Amendment No. 1 dated as of February 27, 1998 to Transfer and
Administration Agreement dated as of August 28, 1997 among NMC Funding
Corporation, National Medical Care, Inc., Enterprise Funding
Corporation, the Bank Investors listed herein and NationsBank, N.A., as
agent (filed herewith).
27.1 Financial Data Schedule
(d) Financial Statement Schedules.
Schedule II - Valuation and Qualifying Accounts
Portions of this Exhibit have been granted confidential treatment by the
Commission.
116
<PAGE> 1
EXHIBIT 4.6
AMENDMENT NO. 5
THIS AMENDMENT NO. 5, dated as of December 12, 1997 (the "Amendment")
relating to the Credit Agreement referenced below, by and among NATIONAL MEDICAL
CARE, INC., a Delaware corporation, certain subsidiaries and affiliates party to
the Credit Agreement and identified on the signature pages hereto, and
NATIONSBANK, N.A., as Paying Agent for and on behalf of the Lenders. Terms used
but not otherwise defined shall have the meanings provided in the Credit
Agreement.
W I T N E S S E T H
WHEREAS, a $2.5 billion credit facility has been extended to National
Medical Care, Inc. and certain subsidiaries and affiliates pursuant to the terms
of that Credit Agreement dated as of September 27, 1996 (as amended and
modified, the "Credit Agreement") among National Medical Care, Inc., the other
Borrowers, Guarantors and Lenders identified therein, and NationsBank, N.A., as
Paying Agent;
WHEREAS, the Credit Parties desire to confirm that the issuance of
certain investment securities issued by a newly-formed special purpose
Luxembourg subsidiary of Holdings in connection with acquisitions of stock and
assets by the Company and its Subsidiaries, and the related obligations of
certain members of the Consolidated Group in connection therewith, are permitted
by the terms of the Credit Agreement;
WHEREAS, the Company has requested modification of certain financial
covenants and certain other changes to the Credit Agreement more fully set forth
herein;
WHEREAS, the requested consents and modifications described herein
require the consent of the Required Lenders; and
WHEREAS, the Required Lenders have consented to the requested
modifications on the terms and conditions set forth herein and have authorized
the Paying Agent to enter into this Amendment on their behalf to give effect to
this Amendment;
NOW, THEREFORE, IN CONSIDERATION of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
A. The Credit Agreement is amended and modified in the following
respects:
1. The Managing Agents and Required Lenders hereby consent to the
issuance of investment securities by FMC Finance to the SPV Trusts and the
incurrence of related obligations of the Consolidated Group to each other and in
favor of the SPV Trusts in connection with acquisitions of stock and assets by
the Company and its Subsidiaries, in
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<PAGE> 2
substantially the form described in Exhibit A attached, or such other form not
less favorable in any material respect to the Lenders and waive compliance with
the provisions of the Credit Agreement to the extent that any such transaction
would conflict with such provisions. Also attached as part of Exhibit A is a
letter from KPMG as to the equity treatment of such investment securities under
GAAP.
2. In Section 1.1,
(a) The definition of "Consolidated EBITDA" is amended by inserting
the following at the end thereof:
; provided, that for purposes of calculating the Consolidated
Leverage Ratio, Consolidated EBITDA shall be determined as if any
Person, property, business or asset acquired by the Consolidated Group
during such period had been so acquired as of the first day of such
period (where officer's certificates and supporting information have
been delivered in connection therewith).
(b) The definition of "Consolidated Funded Debt" is hereby amended
by inserting the following at the end thereof:
, less the amount of any Indebtedness to the SPV Trusts permitted by
Section 8.1(l), to the extent that Holdings and its Subsidiaries have
lent an equivalent amount to the SPV Trusts pursuant to clause (xviii)
of the definition of Permitted Investment.
(c) The definition of "Indebtedness" is hereby amended by inserting
the following proviso at the end of the first sentence thereof:
; provided, that the investment securities issued by FMC Finance in
connection with a Permitted Genu(beta)schein Transaction shall not be
deemed to be Indebtedness hereunder.
(d) The definition of "Equity Transaction" is hereby amended by
inserting the following proviso at the end thereof:
; and provided further, that the issuance of investment securities
by FMC Finance in connection with a Permitted Genu(beta)schein
Transaction shall be deemed to be an Equity Transaction.
(e) The obligations of any member of the Consolidated Group under
any Option Agreement entered into with any SPV Trust in connection with any
Permitted Genu(beta)schein Transaction to buy or sell any investment securities
issued to the SPV Trusts by FMC Finance shall not be considered "Guaranty
Obligations" as such term is used and defined in the Credit Agreement.
(f) The provisos to the definition of "Material Subsidiary" are
hereby deleted and the following inserted in their place:
2
<PAGE> 3
; provided however, that the Subsidiaries of Bio-Medical
Applications Management Co., Inc., NMC Homecare, Inc. and Lifechem Inc.
shall not be considered Material Subsidiaries hereunder; and provided
further that (i) for purposes of determining whether the FMC Trust is a
Material Subsidiary hereunder, the subordinated notes given by Holdings
to the FMC Trust in connection with the Refinancing Securities shall
not be considered as assets for purposes hereof, nor shall interest
thereon be considered for purposes of determining Consolidated EBITDA
under this definition, and (ii) for purposes of determining whether any
special purpose Subsidiary of Holdings that issues Additional Subdebt
and/or Additional Subdebt Securities is a Material Subsidiary
hereunder, the proceeds of such Additional Subdebt Securities shall not
be considered as assets for purposes hereof, to the extent that such
proceeds have been lent or contributed to another member of the
Consolidated Group, and any interest in respect of any such loan shall
not be considered for the purposes of determining Consolidated EBITDA
under this definition.
(g) New subsections (xvii), (xviii), (xix) and (xx) are hereby added
to the definition of "Permitted Investments", and subsection (xvii) thereof is
renumbered to be subsection (xxi) instead, as follows:
(xvii) Investments by Holdings and its Subsidiaries in FMC Finance
or any special purpose subsidiary of Holdings that issues Additional
Subdebt or Additional Subdebt Securities;
(xviii) Investments by Holdings or its Subsidiaries in the SPV
Trusts in connection with Permitted Genu(beta)schein Transactions;
(xix) Investments by NMC in FMC Finance or Holdings in connection
with Permitted Genu(beta)schein Transactions;
(xx) Investments by a Subsidiary of Holdings that is not a Credit
Party in any Credit Party;
(h) Subsection (xii) of the definition of "Permitted Liens" is
hereby amended by inserting the words "and the Additional Subdebt Securities"
after the words "Refinancing Securities" in the fourth line thereof, the words
"or the Additional Subdebt Securities" after the words "Refinancing Securities"
in the eighth line thereof, and the words "or, in the case of the Additional
Subdebt Securities, on terms and conditions substantially similar to the Lien
securing the Refinancing Securities" at the end thereof.
(i) In the definition of "Permitted Receivables Financing" the words
"; provided that" are deleted and replaced with "; provided that with respect to
(A) each Securitization Transaction entered into by a Domestic Subsidiary of
Holdings with respect to receivables originating in and payable in the United
States or any state thereof and (B) other Securitization Transactions which
shall exceed $15 million in any instance or $75 million in the aggregate, then".
3
<PAGE> 4
(j) The following definitions in Section 1.1 are amended or added to
read as follows:
"Additional Subdebt" shall have the meaning given such term in
Section 8.1(m).
"Additional Subdebt Securities" means securities issued by a special
purpose subsidiary of Holdings on terms substantially similar to the
terms of the Refinancing Securities or on such other terms not less
favorable in any material respect to the Lenders, in an amount not to
exceed the amount of any Additional Subdebt and any Investment by any
member of the Consolidated Group in the issuer of such securities;
provided that the proceeds thereof are lent to or otherwise invested in
Holdings or its Subsidiaries.
"Excluded Securitization Transaction" means (i) the accounts
receivable financing facility of the Company contemplated by the Trade
Receivables Purchase and Sale Agreement dated as of December 30, 1991
among Bio-Medical Applications Management Co., Inc., as seller, and
Ciesco, L.P., as investor, and Citicorp North America, Inc., as agent,
as amended and supplemented, and any Permitted Receivables Financing
entered into in replacement thereof, and (ii) any other Permitted
Receivables Financing; but only to the extent that the aggregate
Attributed Principal Amount thereof shall not exceed $400,000,000 (any
greater amount being subject to the mandatory prepayment provisions of
Section 3.3(b)(iii) hereof).
"FMC Finance" means Fresenius Medical Care Finance, S.A., a
Luxembourg stock corporation, a special purpose corporation formed by
Holdings to issue investment securities in connection with, and as
referenced in the definition of, Permitted Genu(beta)schein
Transactions.
"Permitted Genu(beta)schein Transaction" means the issuance of
investment securities by FMC Finance in an aggregate amount up to $250
million (or the Dollar Equivalent thereof (as determined, in each case,
on the date of issuance thereof)) and the incurrence of related
obligations by members of the Consolidated Group to other members of
the Consolidated Group and in favor of the SPV Trusts, in all material
respects in the form described in Exhibit A to Amendment No. 5 dated as
of December __, 1997, or such other form not less favorable in any
material respect to the Lenders.
"SPV Trusts" means, collectively, the trusts to which investment
securities are issued by FMC Finance in connection with Permitted
Genu(beta)schein Transactions.
3. Section 2.5(a) is amended by deleting the reference to "THIRTY
MILLION DOLLARS ($30,000,000)" in the definition of Domestic Swingline Committed
Amount in the seventh and eighth lines thereof and replacing it with a reference
to "FIFTY MILLION DOLLARS ($50,000,000)".
4. Section 3.3(b) (Mandatory Reductions in Revolving Commitments and
Mandatory Repayments) is hereby amended as follows:
4
<PAGE> 5
(a) In clause (ii) (Equity and Subordinated Debt Transactions), by
adding the following parenthetical after the words "Equity Transaction" in
the second line thereof:
"(other than the issuance of Additional Subdebt Securities")
(b) In clause (ii) (Equity and Subordinated Debt Transactions) by
adding the words "and the Additional Subdebt" at the end of clause (B)
thereof; and
(c) In clause (ii) (Equity and Subordinated Debt Transactions) by
adding a new clause (D) thereto just before the proviso as follows:
(D) forty percent (40%) of the Net Proceeds of the Additional
Subdebt (by an equivalent amount being invested in the Company as
additional equity and applied by the Company as set forth in subsection
(iv) below);
5. The financial covenant in Section 7.9(b) relating to the
Consolidated Leverage Ratio is hereby amended to read as follows:
(b) Consolidated Leverage Ratio. There shall be maintained, as of
the end of each fiscal quarter to occur during the periods shown, a
Consolidated Leverage Ratio of not greater than:
Closing Date through December 30, 1998 4.35:1.0
December 31, 1998 through December 30, 1999 3.75:1.0
December 31, 1999 through December 30, 2000 3.25:1.0
December 31, 2000 and thereafter 3.00:1.0
6. Reference is made to the joinder provisions of Section 7.11. It is
agreed that if after giving effect to a Permitted Genu(beta)schein Transaction,
FMC Finance shall constitute a Material Subsidiary, then, notwithstanding
language contained therein to the contrary, the Company shall have a period of
six (6) weeks from the date of this amendment to comply with the requirements of
Section 7.11.
7. Section 8.1 (Indebtedness) is hereby amended as follows:
(a) Clause (d) is amended by deleting the words "$70,000,000 at any
time outstanding;" in the last line thereof and inserting the following
reference:
$90 million outstanding at any time until December 31, 1997, $150
million outstanding at any time from January 1, 1998 to December 31,
1998, and $200 million outstanding at any time thereafter;
(b) The reference in clause (e) to "$204,000,000" is increased and
amended to read "$400,000,000."
5
<PAGE> 6
(c) Clauses (f) and (i) are amended to read as follows:
(f) other Funded Debt of Foreign Subsidiaries of Holdings (other
than intercompany Funded Debt permitted by Sections 8.1(b) and 8.5) of up
to $400 million in the aggregate amount at any time outstanding (which
Funded Debt may be guaranteed by Holdings and its Subsidiaries other than
the Company and its Subsidiaries to the extent provided herein); provided,
however, that (i) neither the Company nor any of its Subsidiaries shall
have any obligation with respect to such Funded Debt permitted by this
subsection (f), (ii) the principal amount of the Indebtedness permitted by
this subsection (f) shall be reduced by the principal amount of any
Indebtedness outstanding pursuant to Section 8.1(j) and (iii) no more than
$250 million in aggregate principal amount of such Funded Debt at any time
outstanding may be guaranteed by Holdings;
(i) in addition to other indebtedness permitted by this Section
8.1, Indebtedness of the Company and its Subsidiaries of up to $150 million
in the aggregate principal amount at any time outstanding; provided that
amounts in excess of $50 million must be specifically subordinated in right
of payment to the Obligations during the continuance of a Default or Event
of Default hereunder on terms reasonably acceptable to the Paying Agent; it
being understood and agreed that any Indebtedness that has been
subordinated to the payment of the Obligations pursuant to the provisions
hereof shall not be considered a Subordinated Debt Transaction for purposes
of Section 3.3 or Subordinated Debt for purposes of Section 8.9.
(d) New subsections (l) and (m) are added to the end to read as
follows:
(l) Indebtedness of any member of the Consolidated Group to the
SPV Trusts in connection with a Permitted Genu(beta)schein Transaction and
Indebtedness of the SPV Trusts to any other person assumed by FMC Finance
in connection with a Permitted Genu(beta)schein Transaction as partial
consideration for the issuance of investment securities; and
(m) subordinated debt issued by Holdings or any special purpose
Subsidiary of Holdings in an aggregate amount not to exceed $500 million
(or the approximate Dollar Equivalent thereof on the date on which the
amount of any portion thereof that is issued in a Foreign Currency is
fixed) (the "Additional Subdebt") and Guaranty Obligations relating thereto
issued by the Holdings and Subsidiaries of Holdings; provided that (i) none
of the Subsidiaries of the Company shall guarantee or otherwise become
obligated with respect to the Additional Subdebt, (ii) in the case of any
such Guaranty Obligations, any such Person which provides a guaranty in
connection with the Additional Subdebt shall also be a Guarantor hereunder;
and (iii) such Additional Subdebt shall mature no earlier than September
30, 2004 and be subordinated on terms no less favorable to the Lenders than
the terms of the subordinated debt related to and included within
6
<PAGE> 7
the definition of Refinancing Securities subject to review and confirmation
by the Paying Agent prior to the issuance thereof.
8. Section 8.4 (Consolidation, Merger, etc.) is hereby amended as
follows:
(a) a new subsection (v) is hereby added to clause (c) thereof,
and subsection (v) thereof is renumbered to be subsection (vi) instead, as
follows:
(v) sales to other members of the Consolidated Group for
fair consideration,
(b) In Section 8.4(d), (i) the words "Except as otherwise
permitted by Section 8.4(b)(i) and Section 8.4(b)(ii)," are hereby deleted
from the beginning thereof and adding the words "Except as otherwise
permitted by Section 8.4(b)(i), Section 8.4(b)(ii) or Section 8.4(c)(v),"
are hereby added in place thereof; and (ii) the reference in the third line
thereof to "subclause (xiii)" is amended to refer to "subclause (xiv)".
9. New subsections (vi) and (vii) are hereby added to the end of
Section 8.7 (Ownership of Equity Interests), and subsection (vi) is renumbered
to be subsection (viii) instead, as follows:
(vi) issuance, sale or transfer of investment securities by FMC
Finance in connection with a Permitted Genu(beta)schein Transaction, and
(vii) issuance of Additional Subdebt Securities,
10. Clause (B) of Section 8.10(b)(ii) is amended to read as follows:
(B) with respect to the Company, not more than 37.5% of Consolidated
Net Income of the Company for the prior fiscal year until such time as at least
$250 million in principal amount of Additional Subdebt shall have been issued,
and thereafter not more than 50% of Consolidated Net Income of the Company for
the prior fiscal year.
11. Section 8.11 (Sale Leaseback) is hereby amended as follows:
The words "Except as permitted pursuant to Section 8.1(d) hereof,"
at the beginning thereof are deleted and replaced with the following:
Except (x) as permitted pursuant to Section 8.1(d) hereof, and (y)
with respect to assets sold and leased back pursuant to Operating
Leases that do not constitute Indebtedness, if the aggregate fair
market value of the assets so sold and leased back, together with the
outstanding Indebtedness permitted under Section 8.1(d), does not
exceed $90 million outstanding at any time until December 31, 1997,
$150 million outstanding at any time from January 1, 1998 to December
31, 1998 and $200 million outstanding at any time thereafter,
7
<PAGE> 8
12. Section 8.12 (No Further Negative Pledges) is hereby amended by
inserting the words "except in connection with the issuance of the Refinancing
Securities or any Additional Subdebt" immediately before the words "or requiring
the grant of any security for such obligation" in the penultimate line thereof.
13. The Lenders hereby waive compliance with the provisions of the
Credit Agreement as in effect before the execution and delivery of this
Amendment No. 5 to the extent, and only to the extent, that any transaction or
action of any member of the Consolidated Group would have been permitted by the
provisions of the Credit Agreement as amended hereby.
14. The Lenders hereby consent to allow Holdings until March 15, 1998
to provide a Guarantor Joinder Agreement and a Pledge Joinder Agreement relating
to FMC Finance (as referenced in Exhibit A) and related corporate documentation
and legal opinions pursuant to the provisions of Section 7.11.
B. The effectiveness of this Amendment is subject to receipt by the Paying
Agent of an Amendment Fee of 7.5 basis points on the aggregate amount of the
Commitments held by each of the Lenders consenting to this Amendment.
C. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (and Exhibits and Schedules) remain in full force and effect.
D. The Company agrees to pay all reasonable costs and expenses of the
Paying Agent in connection with the preparation, execution and delivery of this
Amendment, including without limitation the reasonable fees and expenses of
Moore & Van Allen, PLLC.
E. This Amendment may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original and its shall
not be necessary in making proof of this Amendment to produce or account for
more than one such counterpart.
F. This Amendment, and the Credit Agreement as amended hereby, shall be
governed by and construed and interpreted in accordance with the laws of the
State of New York.
[Remainder of Page Intentionally Left Blank]
8
<PAGE> 9
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed and delivered as of the date first above
written.
BORROWERS: NATIONAL MEDICAL CARE, INC.,
a Delaware corporation
By /s/ William F. Grieco
----------------------------------
Name: William F. Grieco
Title: Senior Vice President
FRESENIUS MEDICAL CARE AG
By /s/ Udo Werle
----------------------------------
Name: Udo Werle
Title: Chief Executive Officer
By /s/ Dr. Dietmar Blumenhagen
----------------------------------
Name: Dr. Dietmar Blumenhagen
Title: Treasurer
NMC DO BRASIL LTDA.,
a Brazil corporation
By /s/ Joao Pedrinelli
----------------------------------
Name: Joao Pedrinelli
Title: General Manager
NATIONAL MEDICAL CARE OF SPAIN, S.A.,
a Spanish corporation
By /s/ Manuel Huete
----------------------------------
Name: Manuel Huete
Title: Board Member
NATIONAL MEDICAL CARE OF TAIWAN, INC.,
a Delaware corporation
By /s/ William F. Grieco
----------------------------------
Name: William F. Grieco
Title: Assistant Secretary
9
<PAGE> 10
NMC CENTRO MEDICO NACIONAL, LDA.,
a Portuguese corporation
By /s/ Michael J. Allen
----------------------------------
Name: Michael J. Allen
Title: Board Member
NMC DE ARGENTINA, S.A.,
an Argentine corporation
By /s/ Mario Guasco
----------------------------------
Name: Mario Guasco
Title: President
FRESENIUS USA, INC.,
a Massachusetts corporation
By /s/ Heinz J. Schmidt
----------------------------------
Name: Heinz J. Schmidt
Title: Vice President
FRESENIUS MEDICAL CARE DEUTSCHLAND GmbH,
a German corporation
By /s/ Udo Werle By /s/ Dr. Dietmar Blumenhagen
---------------------------------- ---------------------------
Name: Udo Werle Name: Dr. Dietmar Blumenhagen
Title: Chief Executive Officer Title: Treasurer
FRESENIUS MEDICAL CARE GROUPE FRANCE
(formerly known as Fresenius Groupe France S.A.),
a French corporation
By /s/ Udo Werle
----------------------------------
Name: Udo Werle
Title: Board Member
FRESENIUS MEDICAL CARE HOLDING, S.p.A.,
an Italian corporation
By /s/ Dr. E. Gatti
----------------------------------
Name: Dr. E. Gatti
Title: Board Member
10
<PAGE> 11
FRESENIUS MEDICAL CARE ESPANA S.A.,
a Spanish corporation
By /s/ Dr. E. Gatti
----------------------------------
Name: Dr. E. Gatti
Title: Board Member
FRESENIUS MEDICAL CARE MAGYAROSZA KfG,
a Hungarian corporation
By /s/ Normal Erhard
----------------------------------
Name: Norman Erhard
Title: Board Member
GUARANTORS: FRESENIUS MEDICAL CARE HOLDINGS, INC.,
a New York corporation formerly known as WRG-NY
By /s/ Ben Lipps
----------------------------------
Name: Ben Lipps
Title: President
NATIONAL MEDICAL CARE, INC.,
a Delaware corporation
By /s/ William F. Grieco
----------------------------------
Name: William F. Grieco
Title: Senior Vice President
BIO-MEDICAL APPLICATIONS MANAGEMENT CO.,
INC., a Delaware corporation
By /s/ Heinz J. Schmidt
----------------------------------
Name: Heinz J. Schmidt
Title: Treasurer
NMC HOMECARE, INC.,
a Delaware corporation
By /s/ Heinz J. Schmidt
----------------------------------
Name: Heinz J. Schmidt
Title: Treasurer
11
<PAGE> 12
LIFECHEM, INC.,
a Delaware corporation
By /s/ Heinz J. Schmidt
----------------------------------
Name: Heinz J. Schmidt
Title: Treasurer
FRESENIUS MEDICAL CARE AG,
a German corporation
By /s/ Udo Werle By: /s/ Dr. D. Blumenhagen
---------------------------------- -----------------------
Name: Udo Werle Name: Dr. D. Blumenhagen
Title: Chief Executive Officer Title: Treasurer
FRESENIUS USA, INC.,
a Massachusetts corporation
By /s/ Heinz J. Schmidt
----------------------------------
Name: Heinz J. Schmidt
Title: Vice President
FRESENIUS MEDICAL CARE DEUTSCHLAND
GmbH, a German corporation
By /s/ Udo Werle By: /s/ Dr. D. Blumenhagen
---------------------------------- -----------------------
Name: Udo Werle Name: Dr. D. Blumenhagen
Title: Chief Executive Officer Title: Treasurer
FRESENIUS MEDICAL CARE GROUPE FRANCE,
a French corporation (formerly known as Fresenius
Groupe France S.A.)
By /s/ Udo Werle
----------------------------------
Name: Udo Werle
Title: Board Member
FRESENIUS SECURITIES, INC.,
a California corporation
By /s/ Heinz J. Schmidt
----------------------------------
Name: Heinz J. Schmidt
Title: Treasurer
12
<PAGE> 13
PAYING AGENT: NATIONSBANK, N.A.,
as Paying Agent for and on behalf of the Lenders
By /s/ Ashley M. Crabtree
----------------------
Ashley M. Crabtree
Senior Vice President
13
<PAGE> 14
CONSENT TO AMENDMENT NO. 5
NationsBank, N.A., as Paying Agent
101 N. Tryon Street, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attn: Carol Lindsay, Agency Services
Re: Credit Agreement dated as of September 27, 1996 (as amended
and modified, the "Credit Agreement") among National Medical
Care, Inc., the other Borrowers, Guarantors and Lenders
identified therein and NationsBank, N.A., as Paying Agent.
Terms used but not otherwise defined shall have the meanings
provided in the Credit Agreement.
Amendment No. 5 dated December __, 1997 (the "Subject
Amendment") relating to the Credit Agreement
Ladies and Gentlemen:
This should serve to confirm our receipt of, and consent to, the
Subject Amendment. We hereby authorize and direct you, as Paying Agent for the
Lenders, to enter into the Subject Amendment on our behalf in accordance with
the terms of the Credit Agreement upon your receipt of such consent and
direction from the Required Lenders, and agree that Company and the other Credit
Parties may rely on such authorization.
Sincerely,
-----------------------------
[Name of Lender]
By:
-------------------------
Name:
Title:
14
<PAGE> 15
Exhibit A
Description of Permitted Genu(beta)schein
Transaction (including KPMG Peat Marwick letter regarding
characterization as equity)
PERMITTED GENU(beta)SCHEIN TRANSACTIONS
DESCRIPTION OF SECURITIES
1. Background. National Medical Care, Inc. ("NMC" or the "Company"; capitalized
terms used but not otherwise defined herein having the meanings assigned thereto
in the Credit Agreement) has decided to pursue an accelerated acquisition
program in light of the current consolidation and acquisition activity in the
U.S. dialysis business. Holdings and NMC wish to finance this program with
equity, but for various reasons have determined that neither the direct issuance
of Preference Shares of Holdings nor a general public offering are appropriate
at this time. Accordingly, it has structured the program described below, which
involves the issuance of investment securities (also known as
"Genu(beta)schein") by a newly-created special purpose subsidiary of Holdings,
redeemable with Preference Shares of Holdings. or cash at the option of
Holdings. These securities will be accounted for as equity in Holdings'
financial statements in accordance with U.S. GAAP.
2. Cash Consideration from NMC. The prospective seller ("Seller") will transfer
an undivided interest in its stock or assets and liabilities (together with the
assets transferred as described below, the "Acquired Property") as provided for
by the applicable purchase agreement to a subsidiary of NMC ("Acquisition Sub")
for cash.
3. Deferred Consideration from Special Purpose Trust. The Seller will transfer
the remaining undivided interest in the Acquired Property to a trust (the
"Trust"), organized under the laws of Bermuda, for promissory notes (the
"Notes"), payable on terms agreed upon by the parties. A new Trust will be
formed in connection with each acquisition. The trustee of the Trusts will be
Harrington Trust Limited, a Bermuda trust company, with State Street Bank and
Trust Company as the manager of the Trusts. Each Trust will be a single purpose
vehicle, subject to certain standard terms and conditions, that may engage in
activities limited to the purchase of an interest in the Acquired Property,
issuance of the Notes, investment of cash balances, transfer of an interest in
the Acquired Property to a subsidiary of Holdings and the exercise of its rights
in connection with those transactions. The Trusts will not be controlled by
Holdings or its subsidiaries.
4. Transfer of Acquired Property from Trust in consideration of issuance of
Investment Securities. The applicable Trust will transfer its interest in the
Acquired Property to Fresenius Medical Care Finance, S.A. ("FMC Finance"), a
special purpose subsidiary of Holdings incorporated under the laws of
Luxembourg, or, at FMC Finance's direction, to the applicable Acquisition Sub,
in exchange for dividend-bearing investment securities issued by FMC Finance
(the "Investment Securities"), having a face amount and dividend equal to or
greater than the face amount of the Notes and interest payable under the Notes
issued to the Seller, and maturing in ten years. Dividends on the investment
Securities will be payable annually, but only to the
15
<PAGE> 16
extent that Holdings, Finance Sub's parent, has net profits. Any interest in the
Acquired Property transferred to or assumed by FMC Finance will be transferred
to and assumed by Acquisition Sub.
The Investment Securities confer no voting rights on the holder thereof, either
in FMC Finance or Holdings.
5. Option Agreements with Holdings.
The Trust and Holdings will enter into an option agreement (the "Option
Agreement") under which the following options will be granted:
(a) Put to Holdings. The Trust, as holder of the Investment
Securities will be entitled, from time to time and subject to
certain conditions, to put all or any of the Investment
Securities to Holdings ("Put Option") in exchange for:
(i) Preference Shares of Holdings that are subject to a
firm commitment underwriting agreement and that have,
net of expenses (including underwriting commission) a
market value equal to the principal and accrued
interest on the Investment Securities subject to the
Put Option;
or
(ii) at Holding's election, cash in an equivalent amount.
(b) Call by Holdings. Under the Option Agreement, Holdings shall
have the right from time to time to call all or any of the
Investment Securities in exchange for Preference Shares of an
equivalent value (determined as in (a) above) or for cash in
an equivalent amount.
Any Preference Shares issued under the Option Agreement will be newly-issued
Preference Shares of Holdings, of the same class as those which are generally
available to the public, and will be listed on the Frankfurt Stock Exchange and
in the form of ADRs on the New York Stock Exchange, or other recognized German
or U.S. exchanges. For regulatory reasons, in certain cases, at the time of
issuance of such Preference Shares Holdings must have had (x) total assets at
the end of its most recent fiscal year exceeding $100 million, and (y)
stockholders' equity exceeding $75 million at the end of its most recent fiscal
year or on average over the previous three fiscal years.
If Holdings advises a Trust that it Plans to satisfy an option by issuing
Preference Shares, the Trust will, together with Holdings, make arrangements to
monetize such Preference Shares. Monetization of the Preference Shares by the
Trusts is likely to be through open market sales or public underwritings at
market value, although other methods of selling the Preference Shares may be
employed. Cash obtained from such sales prior to the time needed to make
payments on the Notes will be invested, so that the Trusts may have some
investment income. For this and other tax reasons, the Trusts will be Bermuda
Trusts where tax liability can be minimized or
16
<PAGE> 17
avoided. If any assets remain in the Trust after the exercise of the options
with respect to all of the Investment Securities, the sale of any Preference
Shares held by the Trust and the payment of its obligations under the Notes,
they will be deemed to reflect an excess payment in respect of the Investment
Securities and shall be remitted to FMC Finance.
6. Intercompany Arrangements.
For accounting purposes and to provide FMC Finance with the creditworthiness
necessary for Holdings to obtain the approval of the German Commercial Court to
issue Preference Shares in exchange for the Investment Securities, an
intercompany account will be established reflecting an obligation of NMC to FMC
Finance, subordinated to the payment of the Credit Agreement Obligations, in an
amount equal to the face amount of, and accrued interest slightly in excess of
the dividends accrued on, each separate series of Investment Securities issued
to the Trusts. As the Option Agreements are exercised and the obligations in
respect of Investment Securities are satisfied, FMC Finance will assign a
proportionate part of the intercompany receivable to Holdings.
7. Potential Variations from Standard Transactions.
Additional Put Option; other remedies
Because this type of transaction is new to the dialysis industry, some Sellers
have insisted on the additional protection of an option for the Trust to put the
Investment Securities to another member of the Consolidated Group for cash, if
neither the Seller nor Holdings has exercised its options under the Option
Agreement before the maturity date of the Seller's Notes (or an earlier agreed
date) in a way that sufficient funds have been realized for the Trust to pay the
Notes in full. For regulatory reasons, when referring physicians are not
involved, this put option is likely to be to NMC; when referring physicians are
involved this put option is likely to be to FUSA. It is possible that where
necessary Sellers may also be granted additional rights and remedies if the
exercise of the Option Agreement does not provide sufficient funds for the Notes
to be paid in full.
Overfunding of the Trust
Some Sellers have accepted this financing structure under the assumption that
they will receive installment sales treatment on the Notes issued by the Trust.
Tax counsel has suggested that Seller's reporting position on the installment
sales treatment would be enhanced if the Trust had assets other than the
Investment Security. To accommodate a Seller, when requested Holdings will
overfund the Trust by lending it an amount equal to approximately 10% of the
amount of the Investment Securities, in return for a promissory note
subordinated to the Seller's promissory note, maturing after the Seller's
promissory note is repaid. The Trust, in turn, would lend the overfunded amount
to a member of the Consolidated Group, in return for a promissory note.
17
<PAGE> 1
EXHIBIT 4.7
[Form of Consent to Modification of Amendment No. 5 dated December 12, 1997 to
the Credit Agreement dated as of September 27, 1996 among National Medical Care,
Inc. and certain Subsidiaries and Affiliates, as Borrowers, Certain Subsidiaries
and Affiliates, as Guarantors, the Lenders named therein, NationsBank, N.A., as
paying agent and the Bank of Nova Scotia, the Chase Manhattan Bank, N.A.,
Dresdner Bank AG and NationsBank, N.A. as Managing Agents]
January 30, 1998
To Those on the Distribution List:
RE: Additional Subdebt Securities as defined in the Credit Agreement
dated as of September 27, 1996 (as amended and modified) among
National Medical Care, Inc. the other Borrowers, Guarantors and
Lenders identified therein and NationsBank, N.A. as Paying Agent.
Terms used but not otherwise defined shall have the meanings
provided in the Credit Agreement.
As previously discussed with the lenders in November, Fresenius Medical Care AG
will access the long term capital markers through the issuance of additional
subordinated debt which are substantially similar to those Trust Preferred
Securities issued in November 1996 (the Refinancing Securities). These bonds
will be ten year securities with call provisions at year five. A rating has not
yet been assigned to this issue. Pricing is scheduled for Friday, February 6th.
Based upon favorable indications from the market, Fresenius Medical Care is
considering increasing the size of the offering to $650MM from the original
$500MM contemplated and approved in Amendment No. 5 to the Credit Agreement.
Fresenius has therefore requested that the Lenders consent to the issuance of up
to a maximum of $650 million in subordinated debt (Additional Subdebt) from the
$500 million originally approved (INDEBTEDNESS Section 8.1(m)). Forty percent of
net proceeds raised in such an issuance will be applied to permanently reduce
Term Loan A as approved in Amendment No. 5.
NationsBank, N.A., as Paying Agent, is supportive of the proposed change above.
The Lenders consent is requested to the proposed increase in the Additional
Subdebt Indebtedness provision to $650 million. Please evidence your consent by
signing and returning a copy of this letter not later than end of business on
Tuesday, February 3rd by telecopy to Doak Barnhardt at Moore & Van Alten, PLLC
at (704)331-1159. If you have any questions, please call either myself at
(615)749-3524 or Michnel Sylvester at (704)388-6003.
Thank you for your prompt consideration.
Sincerely,
NationsBank, N.A.
/s/ Ashley Crabtree
-------------------------------
Ashley M. Crabtree
Senior Vice President
CONSENT:
- ----------------------------
[Name of Lender]
By:
------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.2
------------------------------------------
FMC TRUST FINANCE S.A.R.L. LUXEMBOURG
As Issuer
STATE STREET BANK AND TRUST COMPANY
As Trustee
FRESENIUS MEDICAL CARE AG
As Company and as a Guarantor
FRESENIUS MEDICAL CARE HOLDINGS, INC. AND FRESENIUS MEDICAL CARE
DEUTSCHLAND GMBH
As Guarantors
SENIOR SUBORDINATED INDENTURE
DATED AS OF FEBRUARY 19, 1998
with respect to the issuance of
$450,450,000
IN AGGREGATE PRINCIPAL AMOUNT OF
7 7/8% SENIOR SUBORDINATED NOTES DUE 2008
------------------------------------------
EXECUTION
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
ARTICLE I.
SECTION 1.1. Definitions............................................ 2
SECTION 1.2. Compliance Certificate and Opinions.................... 24
SECTION 1.3. Form of Documents Delivered to Trustee................. 25
SECTION 1.4. Acts of Holders; Record Date........................... 25
SECTION 1.5. Notices, etc., to Trustee, Note Issuer and
Guarantors........................................... 27
SECTION 1.6. Notice to Holders; Waiver.............................. 27
SECTION 1.7. Conflict with Trust Indenture Act...................... 28
SECTION 1.8. Effect of Headings and Table of Contents............... 28
SECTION 1.9. Successors and Assigns................................. 28
SECTION 1.10. Separability Clause.................................... 28
SECTION 1.11. Benefits of Indenture.................................. 28
SECTION 1.12. Governing Law.......................................... 28
SECTION 1.13. Non-Business Days...................................... 29
SECTION 1.14. Duplicate Originals.................................... 29
SECTION 1.15. Submission to Jurisdiction............................. 29
ARTICLE II.
SECURITY AND GUARANTY FORMS...................... 30
SECTION 2.1. Forms Generally........................................ 30
N Form of Face of Security............................... 30
SECTION 2.3. Form of Reverse of Security............................ 34
SECTION 2.4. Additional Provisions Required
in Global Security and Initial Security.............. 37
SECTION 2.5. Form of Trustee's Certificate of Authentication........ 39
SECTION 2.6. Form of Guaranty....................................... 39
ARTICLE III.
THE SECURITIES............................. 44
SECTION 3.1. Title and Terms........................................ 44
SECTION 3.2. Denominations.......................................... 46
SECTION 3.3. Execution, Authentication, Delivery and Dating......... 46
i EXECUTION
<PAGE> 3
SECTION 3.4. Temporary Securities................................... 47
SECTION 3.5. Registration, Registration of Transfer and Exchange.... 48
SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Securities....... 49
SECTION 3.7. Payment of Interest; Interest Rights Preserved......... 50
SECTION 3.8. Persons Deemed Owners.................................. 52
SECTION 3.9. Cancellation........................................... 52
SECTION 3.10. Computation of Interest................................ 53
SECTION 3.11. Right of Set-Off....................................... 53
SECTION 3.12. Agreed Tax Treatment................................... 53
SECTION 3.13. CUSIP Numbers.......................................... 53
ARTICLE IV.
SATISFACTION AND DISCHARGE....................... 53
SECTION 4.1. Satisfaction and Discharge of Indenture................ 53
SECTION 4.2. Application of Trust Money; Reinstatement.............. 55
SECTION 4.3. Satisfaction, Discharge and Defeasance of
Securities........................................... 56
ARTICLE V.
REMEDIES................................ 58
SECTION 5.1. Events of Default...................................... 58
SECTION 5.2. Acceleration of Maturity; Rescission and Annulment..... 60
SECTION 5.3. Collection of Indebtedness and Suits for
Enforcement by Trustee............................... 61
SECTION 5.4. Trustee May File Proofs of Claim....................... 62
SECTION 5.5. Trustee May Enforce Claims Without Possession of
Securities........................................... 63
SECTION 5.6. Application of Money Collected......................... 63
SECTION 5.7. Limitation on Suits.................................... 64
SECTION 5.8. Unconditional Right of Holders to
Receive Principal, Premium and Interest.............. 65
SECTION 5.9. Restoration of Rights and Remedies..................... 65
SECTION 5.10. Rights and Remedies Cumulative......................... 65
SECTION 5.11. Delay or Omission Not Waiver. ......................... 66
SECTION 5.12. Control by Holders. ................................... 66
SECTION 5.13. Waiver of Past Defaults. .............................. 67
SECTION 5.14. Undertaking for Costs. ................................ 67
SECTION 5.15. Waiver of Usury, Stay or Extension Laws. .............. 67
ii EXECUTION
<PAGE> 4
ARTICLE VI.
THE TRUSTEE.............................. 68
SECTION 6.1. Certain Duties and Responsibilities. .................. 68
SECTION 6.2. Notice of Defaults. ................................... 69
SECTION 6.3. Certain Rights of Trustee. ............................ 69
SECTION 6.4. Not Responsible for Recitals or Issuance of
Securities. ......................................... 70
SECTION 6.5. May Hold Securities. .................................. 70
SECTION 6.6. Money Held in Trust. .................................. 71
SECTION 6.7. Compensation and Reimbursement. ....................... 71
SECTION 6.8. Disqualification; Conflicting Interests. .............. 72
SECTION 6.9. Corporate Trustee Required; Eligibility. .............. 72
SECTION 6.10. Resignation and Removal; Appointment of Successor. .... 72
SECTION 6.11. Acceptance of Appointment by Successor. ............... 74
SECTION 6.12. Merger, Conversion, Consolidation or
Succession to Business. ............................. 74
SECTION 6.13. Preferential Collection of Claims Against Note
Issuer. ............................................. 74
SECTION 6.14. Appointment of Authenticating Agent. .................. 75
ARTICLE VII.
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND NOTE ISSUER......... 76
SECTION 7.1. Note Issuer to Furnish Trustee Names and
Addresses of Holders................................. 76
SECTION 7.2. Preservation of Information, Communications to
Holders. ............................................ 77
SECTION 7.3. Reports by Trustee. ................................... 77
SECTION 7.4. Reports by Note Issuer. ............................... 77
ARTICLE VIII.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE.......... 78
SECTION 8.1. Note Issuer May Consolidate, etc.,
Only on Certain Terms. .............................. 78
SECTION 8.2. Guarantors May Consolidate, etc.,
Only on Certain Terms................................ 79
SECTION 8.3. Successor Corporation Substituted. .................... 80
SECTION 8.4. Successor to Note Issuer. ............................. 81
iii EXECUTION
<PAGE> 5
ARTICLE IX.
SUPPLEMENTAL INDENTURES........................ 81
SECTION 9.1. Supplemental Indentures Without Consent of Holders. ... 81
SECTION 9.2. Supplemental Indentures with Consent of Holders. ...... 83
SECTION 9.3. Execution of Supplemental Indentures................... 84
SECTION 9.4. Effect of Supplemental Indentures. .................... 84
SECTION 9.5. Conformity with Trust Indenture Act. .................. 84
SECTION 9.6. Reference in Securities to Supplemental Indentures. ... 84
ARTICLE X.
COVENANTS............................... 85
SECTION 10.1. Payment of Principal, Premium and Interest. .......... 85
SECTION 10.2. Maintenance of Office or Agency. ..................... 85
SECTION 10.3. Money for Security Payments to be Held in Trust. ..... 86
SECTION 10.4. Existence............................................. 87
SECTION 10.5. Maintenance of Properties............................. 87
SECTION 10.6. Payment of Taxes and Other Claims..................... 88
SECTION 10.7. Maintenance of Insurance.............................. 88
SECTION 10.8. Limitation on Incurrence of Indebtedness.............. 88
SECTION 10.9. Limitation on Restricted Payments..................... 90
SECTION 10.10. Limitation on Restrictions on Distributions
from Subsidiaries................................... 91
SECTION 10.11. Senior Subordinated Indebtedness; Liens............... 92
SECTION 10.12. Limitation on Affiliate Transactions.................. 92
SECTION 10.13. Limitation on Sales of Assets and Subsidiary Stock.... 93
SECTION 10.14. Intentionally Omitted................................. 95
SECTION 10.15. Change of Control..................................... 95
SECTION 10.16. Statement as to Compliance and Default. .............. 96
SECTION 10.17. Ownership of the Trust and the Note Issuer;
Business of the Note Issuer......................... 97
SECTION 10.18. Waiver of Certain Covenants. ......................... 97
SECTION 10.19. Additional Amounts; Additional Interest............... 98
ARTICLE XI.
REDEMPTION OF SECURITIES........................ 99
SECTION 11.1. Applicability of This Article. ....................... 99
SECTION 11.2. Election to Redeem; Notice to Trustee. ............... 99
SECTION 11.3. Intentionally Omitted. ............................... 99
iv EXECUTION
<PAGE> 6
SECTION 11.4. Notice of Redemption. ................................ 99
SECTION 11.5. Deposit of Redemption Price. .........................100
SECTION 11.6. Payment of Securities Called for Redemption. .........100
SECTION 11.7. Note Issuer's Right of Redemption in Certain
Circumstances. .....................................100
ARTICLE XII.
SUBORDINATION OF SECURITIES......................101
SECTION 12.1. Securities Subordinate to Senior Indebtedness. .......101
SECTION 12.2. Payment Over of Proceeds Upon Dissolution, etc. ......101
SECTION 12.3. Prior Payment to Senior Indebtedness Upon
Acceleration of Securities. ........................102
SECTION 12.4. No Payment When Senior Indebtedness in Default. ......103
SECTION 12.5. Payment Permitted If No Default. .....................104
SECTION 12.6. Subrogation to Rights of Holders of Senior
Indebtedness. ......................................104
SECTION 12.7. Provisions Solely to Define Relative Rights. .........105
SECTION 12.8. Trustee to Effectuate Subordination. .................105
SECTION 12.9. No Waiver of Subordination Provisions. ...............105
SECTION 12.10. Notice to Trustee. ...................................106
SECTION 12.11. Reliance on Judicial Order or Certificate of
Liquidating Agent. .................................106
SECTION 12.12. Trustee Not Fiduciary for Holders of Senior
Indebtedness. ......................................106
SECTION 12.13. Rights of Trustee as Holder of Senior
Indebtedness; Preservation of Trustee's Rights. ....107
SECTION 12.14. Article Applicable to Paying Agents. .................107
SECTION 12.15. Certain Conversions or Exchanges Deemed Payment. .....107
ARTICLE XIII.
GUARANTY................................107
SECTION 13.1. Guaranty. ............................................107
SECTION 13.2. Execution and Delivery of Guaranties. ................111
SECTION 13.3. Guarantors May Consolidate, etc., on Certain
Terms. .............................................112
SECTION 13.4. Release of Guarantors. ...............................112
SECTION 13.5. Additional Guarantors. ...............................113
ARTICLE XIV.
SUBORDINATION OF GUARANTIES......................113
SECTION 14.1. Guaranties Subordinate to Senior Indebtedness of
Guarantors. ........................................113
SECTION 14.2. Payment Over of Proceeds Upon Dissolution, etc. ......113
v EXECUTION
<PAGE> 7
SECTION 14.3. Prior Payment to Senior Indebtedness
of a Guarantor Upon Acceleration of Securities. ....115
SECTION 14.4. No Payment When Senior Indebtedness of a
Guarantor in Default. ..............................115
SECTION 14.5. Payment Permitted If No Default. .....................116
SECTION 14.6. Subrogation to Rights of Holders of Senior
Indebtedness of a Guarantor.........................117
SECTION 14.7. Provisions Solely to Define Relative Rights. .........117
SECTION 14.8. Trustee to Effectuate Subordination. .................118
SECTION 14.9. No Waiver of Subordination Provisions. ...............118
SECTION 14.10. Notice to Trustee. ...................................118
SECTION 14.11. Reliance on Judicial Order or Certificate
of Liquidating Agent. ..............................118
SECTION 14.12. Trustee Not Fiduciary for Holders of
Senior Indebtedness of the Guarantors. .............119
SECTION 14.13. Rights of Trustee as Holder of Senior
Indebtedness of the Guarantors; Preservation
of Trustee's Rights. ...............................119
SECTION 14.14. Article Applicable to Paying Agents. .................119
SECTION 14.15. Certain Conversions or Exchanges Deemed Payment. .....119
EXHIBITS
Exhibit A Form of Amended and Restated Declaration of Trust of
Fresenius Medical Care Capital Trust II
vi EXECUTION
<PAGE> 8
FMC TRUST FINANCE S.a.r.l. LUXEMBOURG
Reconciliation and tie between the Trust Indenture Act of 1939 (including
cross-references to provisions of Sections 310 to and including 317 which,
pursuant to Section 318(c) of the Trust Indenture Act of 1939, as amended by the
Trust Reform Act of 1990, are a part of and govern the Indenture upon
consummation of the Exchange Offer (as defined in the Indenture) whether or not
physically contained therein) and the Senior Subordinated Indenture, dated as of
February 19, 1998.
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
----------- -------
ss.310 (a) (1), (2) and (5).................................. 6.9
(a) (3)............................................... Not Applicable
(a) (4)............................................... Not Applicable
(b)................................................... 6.8
...................................................... 6.10
(c)................................................... Not Applicable
ss.311 (a)................................................... 6.13
(b)................................................... 6.13
(b) (2)............................................... 6.13
...................................................... 6.13
ss.312 (a)................................................... 7.1
...................................................... 7.2(a)
(b)................................................... 7.2(b)
(c)................................................... 7.2(c)
ss.313 (a)................................................... 7.3(a)
(b)................................................... 7.3(a)
(c)................................................... 7.3(a), 7.3(b)
(d)................................................... 7.3(c)
ss.314 (a) (1), (2) and (3).................................. 7.4
(a) (4)............................................... 10.16
(b)................................................... Not Applicable
(c) (1)............................................... 1.2
(c) (2)............................................... 1.2
(c) (3)............................................... Not Applicable
(d)................................................... Not Applicable
vii EXECUTION
<PAGE> 9
(e)................................................... 1.2
(f)................................................... Not Applicable
ss.315 (a)................................................... 6.1(a)
(b)................................................... 6.2
...................................................... 7.3(a) (6)
(c)................................................... 6.1(b)
(d)................................................... 6.1(c)
(d) (1)............................................... 6.1(a)
(d) (2)............................................... 6.1(c) (2)
(d) (3)............................................... 6.1(c) (3)
(e)................................................... 5.14
ss.316 (a)................................................... 1.1
(a) (1) (A)........................................... 5.12
(a) (1) (B)........................................... 5.13
(a) (2)............................................... Not Applicable
(b)................................................... 5.8
(c)................................................... 1.4(f)
ss.317 (a) (1)............................................... 5.3
(a) (2)............................................... 5.4
(b)................................................... 10.3
ss.318 (a)................................................... 1.7
- ----------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Senior Subordinated Indenture.
viii EXECUTION
<PAGE> 10
FMC TRUST FINANCE S.A.R.L. LUXEMBOURG
SENIOR SUBORDINATED INDENTURE
SENIOR SUBORDINATED INDENTURE, dated as of February 19, 1998, among FMC
TRUST FINANCE S.A.R.L. LUXEMBOURG, a private limited company (Societe a
responsabilite limitee) organized under the laws of Luxembourg (hereinafter
called the "Note Issuer") having its principal office at L-2210 Luxembourg, 54
boulevard Napoleon 1er, as Issuer, FRESENIUS MEDICAL CARE AG, a stock
corporation (Aktiengesellschaft) organized under the laws of Germany
(hereinafter called the "Company"), as the Company and as a Guarantor, each of
the other GUARANTORS (as hereinafter defined), and STATE STREET BANK AND TRUST
COMPANY, a Massachusetts chartered trust company, as Trustee (hereinafter called
the "Trustee").
RECITALS OF THE NOTE ISSUER AND THE GUARANTORS
The Note Issuer has duly authorized the execution and delivery of this
Indenture to provide for the issuance of its 7 7/8% Senior Subordinated Notes
due February 1, 2008 of substantially the tenor hereinafter provided, including,
without limitation, Securities (this term and other capitalized terms used and
not defined in these recitals having the respective meanings set forth in
Article I hereof) issued to evidence loans made to the Note Issuer of the
proceeds from the issuance by Fresenius Medical Care Capital Trust II, a
Delaware business trust (the "Trust"), of preferred trust interests in such
Trust (the "Preferred Securities") and common trust interests in such Trust (the
"Common Securities" and, collectively with the Preferred Securities, the "Trust
Securities"), and to provide the terms and conditions upon which the Securities
are to be authenticated, issued and delivered.
The Company, directly or indirectly, owns beneficially and of record 100%
of the Capital Stock of the Note Issuer and the other Guarantors (other than the
preferred stock of Fresenius Medical Care Holdings, Inc.); the Note Issuer and
the Guarantors are members of the same consolidated group of companies and are
engaged in related businesses; the Guarantors will derive direct and indirect
economic benefit from the issuance of the Securities; accordingly, the
Guarantors have each duly authorized the execution and delivery of this
Indenture to provide for the Guarantee by each of them with respect to the
Securities as set forth in this Indenture.
All things necessary to make the Securities, when executed by the Note
Issuer and authenticated and delivered hereunder and duly issued by the Note
Issuer, the valid obligations of the Note Issuer, to make the Guarantees of each
of the Guarantors, when executed by the respective Guarantors and endorsed on
the Securities, authenticated and delivered hereunder, the valid obligations of
the respective Guarantors, and to make this Indenture a valid agreement of the
Note Issuer and each of the Guarantors in accordance with its terms, have been
done.
1 EXECUTION
<PAGE> 11
NOW THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the
premises and the purchase of the Securities by the Holders thereof, it is
mutually covenanted and agreed, for the equal and proportionate benefit of all
Holders of the Securities, as follows:
ARTICLE I.
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) The terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(2) All other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) All accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and the term "generally accepted accounting principles" with
respect to any computation required or permitted hereunder shall mean such
accounting principles which are generally accepted at the date or time of
such computation; provided, that when two or more principles are so
generally accepted, it shall mean that set of principles consistent with
those in use by the Company;
(4) Unless otherwise specifically set forth herein, all calculations
or determinations of a Person shall be performed or made on a consolidated
basis in accordance with generally accepted accounting principles; and
(5) The words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
"Act" when used with respect to any Holder has the meaning specified in
Section 1.4.
"Additional Amounts" has the meaning specified in Section 10.19(a).
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Subsidiary as a result
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of the acquisition of such Capital Stock by the Company or another Subsidiary;
or (iii) Capital Stock constituting a minority interest in any Person that at
such time is a Subsidiary; provided, however, that any such Subsidiary described
in clauses (ii) or (iii) above is primarily engaged in a Related Business.
"Additional Interest" has the meaning specified in Section 10.19(b).
"Additional Sums" means the interest (compounded quarterly), if any, that
shall accrue on any interest on the Securities in arrears for more than one
quarter at the rate per annum specified in this Indenture for the Securities.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person; provided, however, that an Affiliate of the
Company shall not be deemed to include the Trust, Fresenius Medical Care Capital
Trust or Fresenius Medical Care Capital Trust III. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of Sections 10.9, 10.12 and 10.13 only, Affiliate shall
also mean any beneficial owner of Capital Stock representing 5% or more of the
total voting power of the Voting Stock (on a fully diluted basis) of the Company
or of rights or warrants to purchase such Capital Stock (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Affiliate Transaction" has the meaning specified in Section 10.12(a).
"Approved Lender" has the meaning specified under the definition of
"Temporary Cash Investments."
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Subsidiary, including any disposition by means of a merger, consolidation
or similar transaction (each referred to for the purposes of this definition as
a "disposition"), of (i) any shares of Capital Stock of any Subsidiary (other
than directors qualifying shares or shares required by applicable law to be held
by a Person other than the Company or a Subsidiary), (ii) all or substantially
all the assets of any division or line of business of the Company or any
Subsidiary or (iii) any other assets of the Company or any Subsidiary outside of
the ordinary course of business of the Company or such Subsidiary (other than,
in the case of (i), (ii) and (iii) above, (y) a disposition by a Subsidiary to
the Company or by the Company or a Subsidiary to a Wholly Owned Subsidiary and
(z) for purposes of Section 10.13 only, a disposition that constitutes a
Restricted Payment permitted by Section 10.9).
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"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 6.14 to act on behalf of the Trustee to authenticate Securities.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Credit Agreement" means the Credit Agreement, dated as of September
27, 1996, among NMC, certain subsidiaries and affiliates thereof, the lenders
referred to in such Credit Agreement, NationsBank, N.A., as paying agent, and
The Bank of Nova Scotia, The Chase Manhattan Bank, Dresdner Bank AG and
NationsBank, N.A., as managing agents, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection with
such Credit Agreement, in each case as amended, modified, renewed, refunded,
replaced, restated or refinanced from time to time; provided that such
amendment, modification, renewal, refunding, replacement, restatement or
refinancing (i) does not cause the aggregate principal amount of Indebtedness
that may be outstanding under such Credit Agreement to exceed $2,500,000,000,
except to the extent that such additional principal amount of Indebtedness could
be incurred pursuant to Section 10.8(b)(9), and (ii) does not contain, with
respect to any Subsidiary, any encumbrances or restrictions of the type
contained in clauses (a), (b) and (c) of Section 10.10 that are less favorable
to the Holders of Securities than the encumbrances and restrictions with respect
to such Subsidiary contained in such Credit Agreement prior thereto.
"Blockage Notice" has the meaning specified in Section 12.4.
"Board of Directors" means, with respect to the Company or a Subsidiary,
as the case may be, the Board of Directors (or other body performing functions
similar to any of those performed by a Board of Directors including those
performed, in the case of a German corporation, by the Managing Board or the
Supervisory Board) of such person or any committee thereof duly authorized to
act on behalf of such Board (or other body).
"Board Resolution" means, with respect to the Note Issuer or a Guarantor,
a copy of a resolution certified by the Secretary or an Assistant Secretary or a
member of the Managing Board of the Note Issuer or such Guarantor to have been
duly adopted by the Board of Directors, or such committee of the Board of
Directors or officers of the Note Issuer or such Guarantor to which authority to
act on behalf of the Board of Directors has been delegated, and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day other than (i) a Saturday or Sunday, (ii) a
day on which banking institutions in New York City, Frankfurt am Main or
Luxembourg are authorized or required by law or executive order to remain closed
or (iii) a day on which the Corporate Trust
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Office of the Trustee or, with respect to the Preferred Securities, the
Corporate Trust Office of the Preferred Trustee under the Declaration, is closed
for business.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means any transaction or series of transactions in
which any Person or group (within the meaning of Rule 13d-5 under the Exchange
Act and Section 13(d) and 14(d) of the Exchange Act) other than Fresenius
Aktiengesellschaft and its subsidiaries acquires all or substantially all of the
Company's assets or becomes the direct or indirect "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), by way of merger, consolidation,
other business combination or otherwise, of greater than 50% of the total voting
power (on a fully diluted basis as if all convertible securities had been
converted and all options and warrants had been exercised) entitled to vote in
the election of directors of the Company or the Surviving Person (if other than
the Company).
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Decline.
"Commission" means the United States Securities and Exchange Commission.
"Common Securities" has the meaning specified in the first paragraph of
the Recitals to this Indenture.
"Company" means Fresenius Medical Care AG, a stock corporation
(Aktiengesellschaft) organized under the laws of the Federal Republic of
Germany, and its successors and permitted assigns pursuant to Article VIII.
"Company Guarantee" means the guarantee by the Company of distributions on
the Preferred Securities of the Trust for the benefit of the holders of the
Preferred Securities to the extent provided in the Guarantee Agreement, executed
and delivered by the Company and the Preferred Trustee pursuant to the
Declaration, as amended from time to time.
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"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date of such determination to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided, however
that (1) if the Company or any Subsidiary has Incurred any Indebtedness since
the beginning of such period that remains outstanding or if the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio is an
Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest Expense
for such period shall be calculated after giving effect on a pro forma basis to
such Indebtedness as if such Indebtedness had been Incurred on the first day of
such period and the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new Indebtedness as
if such discharge had occurred on the first day of such period, (2) if since the
beginning of such period the Company or any Subsidiary shall have made any Asset
Disposition, the EBITDA for such period shall be reduced by an amount equal to
the EBITDA (if positive) directly attributable to the assets which are the
subject of such Asset Disposition for such period, or increased by an amount
equal to the EBITDA (if negative), directly attributable thereto for such period
and Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its continuing Subsidiaries
in connection with such Asset Disposition for such period (or, if the Capital
Stock of any Subsidiary is sold, the Consolidated Interest Expense for such
period directly attributable to the Indebtedness of such Subsidiary to the
extent the Company and its continuing Subsidiaries are no longer liable for such
Indebtedness after such sale), (3) if since the beginning of such period the
Company or any Subsidiary (by merger or otherwise) shall have made an Investment
in any Subsidiary (or any Person which becomes a Subsidiary) or an acquisition
of assets, including any acquisition of assets occurring in connection with a
transaction requiring a calculation to be made hereunder, which constitutes all
or substantially all of an operating unit of a business, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period and (4) if
since the beginning of such period any Person (that subsequently became a
Subsidiary or was merged with or into the Company or any Subsidiary since the
beginning of such period) shall have made any Asset Disposition, any Investment
or acquisition of assets that would have required an adjustment pursuant to
clause (2) or (3) above if made by the Company or a Subsidiary during such
period, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto as if such Asset Disposition,
Investment or acquisition occurred on the first day of such period. For purposes
of this definition, whenever pro forma effect is to be given to an acquisition
of assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest of such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the
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<PAGE> 16
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in excess
of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Subsidiaries, plus, to the extent
not included in such total interest expense, and to the extent incurred by the
Company or its Subsidiaries, (i) interest expense attributable to capital
leases, (ii) amortization of debt discount and debt issuance cost, (iii)
capitalized interest, (iv) non-cash interest expenses, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs associated with Hedging
Obligations (including amortization of fees), (vii) Preferred Stock dividends in
respect of all Preferred Stock held by Persons other than the Company or a
Wholly Owned Subsidiary, (viii) interest incurred in connection with Investments
in discontinued operations, (ix) interest accruing on any Indebtedness of any
other Person to the extent such Indebtedness is Guaranteed by the Company or any
Subsidiary and (x) the cash contributions to any employee stock ownership plan
or similar trust to the extent such contributions are used by such plan or trust
to pay interest or fees to any Person (other than the Company) in connection
with Indebtedness Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income of any
Person if such Person is not a Subsidiary, except that (A) subject to the
exclusion contained in clause (iv) below, the Company's equity in the net income
of any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such Person
during such period to the Company or a Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution paid to a
Subsidiary, to the limitations contained in clause (iii) below) and (B) the
Company's equity in a net loss of any such Person for such period shall be
included in determining such Consolidated Net Income; (ii) any net income (or
loss) of any Person acquired by the Company or a Subsidiary in a pooling of
interests transaction for any period prior to the date of such acquisition;
(iii) any net income of any Subsidiary that is not a Wholly Owned Subsidiary if
such Subsidiary is subject to contractual, governmental or regulatory
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Subsidiary, directly or indirectly, to the Company,
except that (A) subject to the exclusion contained in clause (iv) below, the
Company's equity in the net income of any such Subsidiary for such period shall
be included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Subsidiary during such period to the Company or
another Subsidiary as a dividend or other distribution (subject, in the case of
a dividend or other distribution paid to another Subsidiary that is not a Wholly
Owned Subsidiary, to the limitation contained in this clause) and (B) the
Company's equity in a net loss of any such Subsidiary for such period shall be
included in determining such Consolidated Net Income; (iv) any gain (but not
loss) realized upon the sale or other disposition of any assets of the Company
or its consolidated Subsidiaries (including pursuant to any sale and leaseback
arrangement) that is not sold or otherwise disposed of in the ordinary course of
business
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and any gain (but not loss) realized upon the sale or other disposition of any
Capital Stock of any Person; (v) extraordinary gains or losses; and (vi) the
cumulative effect of a change in accounting principles.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available prior to the taking of any action for the purpose of which the
determination is being made, as (i) the par or stated value of all outstanding
Capital Stock of the Company plus (ii) paid-in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings or earned
surplus less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Corporate Trust Office" means the principal office of the Trustee in
Hartford, Connecticut.
"corporation" means a corporation, association, partnership, business
trust or other business entity.
"Credit Agreements" means the Bank Credit Agreement and the Other Bank
Agreements; provided, that the aggregate principal amount of Indebtedness that
may be outstanding at any one time under such agreements does not exceed
$2,500,000,000.
"Currency Agreement" means any foreign currency exchange contract,
currency swap agreement or other similar agreement or arrangement designed and
entered into to protect the Company or any Subsidiary against fluctuations in
currency exchange rates.
"Declaration" means the Amended and Restated Declaration of Trust
substantially in the form attached hereto as Exhibit A, as amended from time to
time.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 3.7.
"Depository" means, with respect to the Securities issuable or issued in
whole or in part in the form of one or more Global Securities, the Person
designated as Depository by the Note Issuer (or any successor thereto).
"Disqualified Stock" means, with respect to any Person, any Capital Stock
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund
8 EXECUTION
<PAGE> 18
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the first anniversary of the
Stated Maturity of the Securities; provided, however, that any Capital Stock
that would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require such Person to repurchase or redeem such
Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the first anniversary of the Stated Maturity of the
Securities shall not constitute Disqualified Stock if the "asset sale" or
"change of control" provisions applicable to such Capital Stock are not more
favorable to the holders of such Capital Stock than the provisions of Sections
10.13 and 10.15.
"DM Indenture" means the Senior Subordinated Indenture dated as of
February 19, 1998 by and among the Note Issuer, State Street Bank and Trust
Company as Trustee, the Company and the other Guarantors with respect to the
issuance of 7 3/8% Senior Subordinated Notes due February 1, 2008 in the
aggregate principal amount of 300,300,000 Deutsche Marks, as it may be amended,
supplemented or otherwise modified from time to time.
"DM Securities" means the 7 3/8% Senior Subordinated Notes due February 1,
2008 issued pursuant to the DM Indenture.
"Dollar" means the currency of the United States of America that, as at
the time of payment, is legal tender for the payment of public and private
debts.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Company and its Subsidiaries, (b) depreciation expense and (c) amortization
expense, in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization of, a Subsidiary that is not a Wholly Owned Subsidiary shall be
added to Consolidated Net Income to compute EBITDA only to the extent (and in
the same proportion) that the net income of such Subsidiary was included in
calculating Consolidated Net Income and only if a corresponding amount would be
permitted at the date of determination to be dividended to the Company by such
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Subsidiary or its stockholders.
"Event of Default" has the meaning specified in Article V.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the exchange offer contemplated by the Registration
Rights Agreement.
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"Exchange Offer Registration Statement" means a registration statement of
the Note Issuer, the Guarantors and the Trust pursuant to the applicable
provisions of the Registration Rights Agreement on an appropriate form under the
Securities Act, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
prospectus contained therein, all exhibits and materials included therewith or
incorporated by reference therein pursuant to the requirements of the Securities
Act or the Exchange Act.
"Exchange Preferred Securities" means a series of Preferred Securities of
the Trust to be issued under the Declaration in connection with the offer to
exchange Preferred Securities for a new series of Preferred Securities pursuant
to the Declaration and the Registration Rights Agreement.
"Exchange Security" or "Exchange Securities" means any Security or
Securities authenticated and delivered under this Indenture in connection with
the Exchange Offer, the offer and sale of which has or have been registered
under the Securities Act pursuant to the Registration Rights Agreement.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth (i) in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) the rules and regulations of the Commission
governing the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the
Commission.
"Global Security" means a Security in the form prescribed in Section 2.4
evidencing all or part of the Securities, issued to the Depository or its
nominee for such series, and registered in the name of such Depository or its
nominee.
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed by the United States
of America and which, in either case, are full faith and credit obligations of
the United States of America and are not callable or redeemable at the option of
the issuer thereof and shall also include a depository receipt issued by a bank
(as defined in Section 3(a)(2) of the Securities Act of 1933, as amended) as
custodian with respect to any such Government Obligation or a specific payment
of interest on or principal of any such Government Obligation held by such
custodian for the account of the holder of such depository receipt; provided,
that (except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the
10 EXECUTION
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custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such Person (whether
arising by virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business. The term Guarantee used as a verb has a
corresponding meaning.
"Guarantor Blockage Notice" has the meaning specified in Section 14.4(b).
"Guarantor Payment Blockage Period" has the meaning specified in Section
14.4(b).
"Guarantor Senior Subordinated Payment" has the meaning specified in
Section 14.2.
"Guarantors" means the Company, Fresenius Medical Care Holdings, Inc., a
New York corporation, and Fresenius Medical Care Deutschland GmbH, a German
limited liability company.
"Guaranty" means the Guarantee by a Guarantor of the Note Issuer's
obligations with respect to the Securities.
"Guaranty Agreement" means, in the context of a consolidation, merger or
sale of all or substantially all of the assets of a Guarantor, an agreement by
which the Surviving Person from such a transaction expressly assumes all of the
obligations of such Guarantor under its Guaranty.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" means a Person in whose name a Security is registered in the
Securities Register. The Preferred Trustee shall be the initial Holder of the
Securities.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when
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used as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall be deemed the Incurrence
of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable; (ii) all Capital
Lease Obligations of such Person; (iii) all obligations of such Person issued or
assumed as the deferred purchase price of property or services, all conditional
sale obligations of such Person and all obligations of such Person under any
title retention agreement (other than (x) customary reservations or retentions
of title under agreements with suppliers entered into in the ordinary course of
business, (y) trade debt incurred in the ordinary course of business and due
within six months of the incurrence thereof and (z) obligations incurred under a
pension, retirement or deferred compensation program or arrangement regulated
under the Employee Retirement Income Security Act of 1974, as amended, or the
laws of a foreign government); (iv) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, bank guaranty, banker's
acceptance or similar credit transaction (other than obligations with respect to
letters of credit and bank guaranties (A) not made under the Bank Credit
Agreement and (B) securing obligations (other than obligations described in (i)
through (iii) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the tenth Business
Day following receipt by such Person of a demand for reimbursement following
payment on the letter of credit); (v) the amount of all obligations of such
Person with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any subsidiary of such Person, any
Preferred Stock (but excluding, in each case, any accrued dividends); (vi) all
obligations of the type referred to in clauses (i) through (v) of other Persons
and all dividends of other Persons for the payment of which, in either case,
such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any Guarantee; (vii) all
obligations of the type referred to in clauses (i) through (vi) of other Persons
secured by any Lien on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount of
the obligation so secured; and (viii) to the extent not otherwise included in
this definition, Hedging Obligations of such Person. The amount of Indebtedness
of any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations at such date.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including, for
all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of
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and govern this instrument and any such supplemental indenture, respectively,
and shall include the terms of the Securities established as contemplated by
Section 3.1.
"Initial Security" or "Initial Securities" means any Security or
Securities authenticated and delivered under this Indenture, and not registered
under the Securities Act.
"Interest Payment Date" means February 1, May 1, August 1 and November 1
of each year, commencing May 1, 1998.
"Interest Rate" means the rate of interest specified or determined as
specified as being the rate of interest payable on the Securities.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed and
entered into to protect the Company or any Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person.
"Investment Company Event" means the receipt by the Company of an Opinion
of Counsel, rendered by a law firm having a nationally recognized tax and
securities practice, to the effect that, as a result of the occurrence of a
change in law or regulation or a change in interpretation or application of law
or regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in 1940 Act Law"), the Trust is or will be considered an
"investment company" that is required to be registered under the 1940 Act, which
Change in 1940 Act Law becomes effective on or after the date of original
issuance of the Preferred Securities of the Trust.
"Investment Grade" means a rating of BBB- or higher by S&P and Baa3 or
higher by Moody's or the equivalent of such ratings by S&P or Moody's and the
equivalent in respect of Rating Categories of any Rating Agencies substituted
for S&P or Moody's.
"Issue Date" means the date on which the Securities are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
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"Liquidated Damages" means amounts payable to the holders of Preferred
Securities as "Liquidated Damages" as defined in and pursuant to the
Registration Rights Agreement.
"Maturity" when used with respect to any Security means the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"1940 Act" means the Investment Company Act of 1940, as amended.
"NMC" means National Medical Care, Inc., a Delaware corporation.
"Net Available Cash" from an Asset Disposition means cash payments
received therefrom (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
non-cash form) in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be accrued as a liability
under GAAP, as a consequence of such Asset Disposition, (ii) all payments made
on any Indebtedness which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such Asset Disposition, or by
applicable law be, repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Disposition
and (iv) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
property or other assets disposed in such Asset Disposition and retained by the
Company or any Subsidiary after such Asset Disposition.
"Net Cash Proceeds" with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"9% Notes" means the 9% Senior Subordinated Notes issued pursuant to that
certain Indenture dated as of November 27, 1996, by and between the Company,
Fleet National Bank (as predecessor to State Street Bank and Trust Company), as
trustee, and the Subsidiary Guarantors named therein, as supplemented and in
effect as of the date hereof, as it may be further amended, modified or
otherwise supplemented from time to time.
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"Note Issuer" means the Person named as the "Note Issuer" in the first
paragraph of this Indenture until a successor issuer shall have become such
pursuant to Article VIII, and thereafter "Note Issuer" shall mean such successor
issuer.
"Note Issuer Request" and "Note Issuer Order" mean, respectively, the
written request or order signed in the name of the Note Issuer by any two
members of the Managing Board (if a German corporation) or of the Board of
Directors (or any other two officers of the Note Issuer thereunto duly
authorized) and delivered to the Trustee.
"Officers' Certificate" means a certificate signed by (a) the Chairman and
Chief Executive Officer, President or Vice President, and by the Treasurer, an
Assistant Treasurer, the Controller, the Secretary or an Assistant Secretary, or
(b) any two members of the Managing Board (if a German corporation) or of the
Board of Directors, of the Company, the Note Issuer or a Guarantor, as the case
may be, and delivered to the appropriate Trustee.
"Opinion of Counsel" or "opinion of counsel" means, as to the Company, the
Note Issuer or a Guarantor, a written opinion of counsel, who may be counsel for
the Company, the Note Issuer or such Guarantor, as the case may be, but, other
than in connection with the issuance of the Securities, not an employee of any
thereof, and who shall be reasonably acceptable to the Trustee.
"Other Bank Agreements" means any credit agreement or other agreement for
loans, letters of credit, bank guaranties or other financial accommodations (and
any related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith) entered into by the Company or any Subsidiary
with any bank; provided that the aggregate principal amount of Indebtedness that
may be outstanding thereunder does not exceed $500,000,000, except to the extent
that such additional principal amount of Indebtedness could be incurred pursuant
to Section 10.8(b)(9).
"Outstanding" means, when used in reference to any Securities, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or
any Paying Agent in trust for the Holders of such Securities (other
than the Note Issuer or any Guarantor) in trust or set aside and
segregated in trust by the Note Issuer or a Guarantor (if the Note
Issuer or a Guarantor shall act as its own Paying Agent) for the
Holders of such Securities; provided, that if such Securities are to
be redeemed, notice of such redemption has
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been duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made;
(iii) Securities in substitution for or in lieu of which other
Securities have been authenticated and delivered or which have been
paid pursuant to Section 3.6, unless proof satisfactory to the
Trustee is presented that any such Securities are held by Holders in
whose hands such Securities are valid, binding and legal obligations
of the Note Issuer; and
(iv) Securities which have been defeased pursuant to Section 4.3
hereof.
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Note Issuer or any other obligor upon the Securities or any Affiliate of
the Note Issuer or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Note Issuer or any other obligor upon the Securities or
any Affiliate of the Note Issuer or such other obligor. Upon the written request
of the Trustee, the Note Issuer shall furnish to the Trustee promptly an
Officers' Certificate listing and identifying all Securities, if any, known by
the Note Issuer to be owned or held by or for the account of the Note Issuer, or
any other obligor on the Securities or any Affiliate of the Note Issuer or such
obligor, and, subject to the provisions of Section 6.1, the Trustee shall be
entitled to accept such Officers' Certificate as conclusive evidence of the
facts therein set forth and of the fact that all Securities not listed therein
are Outstanding for the purpose of any such determination.
"Payment Blockage Period" has the meaning specified in Section 12.4(b).
"Paying Agent" means the Trustee or any Person authorized by the Note
Issuer to pay the principal of or interest on any Securities on behalf of the
Note Issuer.
"Permitted Investment" means an Investment by the Company or any
Subsidiary in (i) a Person that will, upon the making of such Investment, be or
become a Subsidiary; provided, however, that the primary business of such
Subsidiary is a Related Business; (ii) a Person if as a result of such
Investment such other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all its assets to, the Company or a
Subsidiary; provided, however, that such Person's primary business is a Related
Business; (iii) Temporary Cash Investments; (iv) any demand deposit account with
an Approved Lender; (v) receivables owing to the Company or any Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in
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accordance with customary trade terms; provided, however, that such trade terms
may include such concessionary trade terms as the Company or any such Subsidiary
deems reasonable under the circumstances; (vi) payroll, travel and similar
advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (vii) loans or advances to employees made in
the ordinary course of business consistent with past practices of the Company or
such Subsidiary; (viii) stock, obligations or securities received in settlement
of debts created in the ordinary course of business and owing to the Company or
any Subsidiary or in satisfaction of judgments; (ix) any Person to the extent
such Investment represents the non-cash portion of the consideration received
for an Asset Disposition as permitted pursuant to Section 10.13; and (x) any
Affiliate (the primary business of which is a Related Business) that is not a
Subsidiary (other than Fresenius Aktiengesellschaft), provided, that the
aggregate of all such Investments outstanding at any one time under this clause
(x) shall not exceed $125,000,000.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency, instrumentality or political subdivision thereof, or any other
entity.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any security
authenticated and delivered under Section 3.6 in lieu of a lost, destroyed or
stolen Security shall be deemed to evidence the same debt as the lost, destroyed
or stolen Security.
"Preferred Securities" has the meaning specified in the first paragraph of
the Recitals to this Indenture.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Preferred Trustee" means State Street Bank and Trust Company, a
Massachusetts chartered trust company, solely in its capacity as Preferred
Trustee of the Trust and not in its individual capacity, or its successor in
interest in such capacity, or any successor Preferred Trustee appointed as
provided in the Declaration.
"principal" of a Security means the principal of the Security plus the
premium, if any, payable on the Security which is due or overdue or is to become
due at the relevant time.
"Proceeding" has the meaning specified in Section 12.2.
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"Rating Agencies" means (i) S&P and (ii) Moody's or (iii) if S&P or
Moody's or both shall not make rating of the Securities publicly available, a
nationally recognized securities rating agency or agencies, as the case may be,
selected by the Company, which shall be substituted for S&P or Moody's or both,
as the case may be.
"Rating Category" means (i) with respect to S&P, any of the following
categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (ii)
with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and
D (or equivalent successor categories); and (iii) the equivalent of any such
category of S&P or Moody's used by another Rating Agency. In determining whether
the rating of the Securities has decreased by one or more gradations, gradations
within Rating Categories (+ and [GRAPHIC] for S&P, 1, 2, and 3 for Moody's; or
the equivalent gradations for another Rating Agency) shall be taken into account
(e.g., with respect to S&P, a decline in a rating from BB+ to BB, as well as
from BB[GRAPHIC] to B+, will constitute a decrease of one gradation).
"Rating Date" means the date which is 90 days prior to the earlier of (i)
a Change of Control and (ii) public notice of the occurrence of a Change of
Control or of the intention by the Company or any Person to effect a Change of
Control.
"Rating Decline" means the occurrence on or within 90 days after the date
of the first public notice of the occurrence of a Change of Control or of the
intention by the Company to effect a Change of Control (which period shall be
extended so long as the rating of the Securities is under publicly announced
consideration for possible downgrade by any of the Rating Agencies) of: (a) in
the event the Securities are rated by either Moody's or S&P on the Rating Date
as Investment Grade, a decrease in the rating of the Securities by both Rating
Agencies to a rating that is below Investment Grade, or (b) in the event the
Securities are rated below Investment Grade by both Rating Agencies on the
Rating Date, a decrease in the rating of the Securities by either Rating Agency
by one or more gradations (including gradations within Rating Categories as well
as between Rating Categories).
"Receivables Financings" means (i) the accounts receivable financing
facility of NMC contemplated by the Receivables Purchase Agreement dated as of
August 28, 1997 by and between NMC, as Seller, and NMC Funding Corporation, as
Purchaser and the Transfer and Administration Agreement dated as of August 28,
1997 between Enterprise Funding Corporation, as Company, NMC Funding
Corporation, as Transferor, NMC, as Collection Agent, and NationsBank, N.A., as
Agent and Bank Investor, as each such agreement may be amended or supplemented
from time to time, and (ii) any financing transaction or series of financing
transactions that have been or may be entered into by the Company or a
Subsidiary pursuant to which the Company or a Subsidiary may sell, convey or
otherwise transfer to a Subsidiary or Affiliate, or any other Person, or may
grant a security interest in, any receivables or interests therein secured by
the merchandise or services financed thereby (whether such receivables are then
existing or arising in the future) of the Company or such Subsidiary, as the
case may be, and any assets related thereto, including without
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limitation, all security interests in merchandise or services financed thereby,
the proceeds of such receivables, and other assets which are customarily sold or
in respect of which security interests are customarily granted in connection
with securitization transactions involving such assets.
"Redemption Date," when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Subsidiary existing on the Issue Date or
Incurred in compliance with the Indenture including Indebtedness that Refinances
Refinancing Indebtedness; provided, however, that (i) such Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being Refinanced, (ii) such Refinancing Indebtedness has an Average
Life at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being Refinanced and (iii)
such Refinancing Indebtedness has an aggregate principal amount (or if Incurred
with original issue discount, an aggregate issue price) that is equal to or less
than the aggregate principal amount (or if Incurred with original issue
discount, the aggregate accredit value) then outstanding or committed (plus fees
and expenses, including any premium and defeasance costs) under the Indebtedness
being Refinanced; provided further, however, that Refinancing Indebtedness shall
not include (x) Indebtedness of a Subsidiary that Refinances Indebtedness of the
Company or (y) Indebtedness of the Company or a Subsidiary (other than NMC or a
subsidiary of NMC) that Refinances Indebtedness of another Subsidiary.
"Registration Rights Agreement" means the Registration Rights Agreement
dated February 13, 1998 by and among the Company, the Note Issuer, the
Guarantors, the Trust and Donaldson, Lufkin & Jenrette Securities Corporation,
Credit Suisse First Boston Corporation, Bear, Stearns & Co. Inc., Chase
Securities Inc., Deutsche Morgan Grenfell Inc., Dresdner Kleinwort Benson North
America LLC, NationsBanc Montgomery Securities LLC and Scotia Capital Markets
(USA), Inc., as such agreement may be amended, modified or supplemented from
time to time, relating to an exchange offer and registration rights for the
Preferred Securities, the Company Guarantee, the Securities and the Guaranties.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the date which is the fifteenth day immediately preceding such
Interest Payment Date (whether or not a Business Day).
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"Related Business" means any business related, ancillary or complementary
to the businesses of the Company and its Subsidiaries on the Issue Date.
"Responsible Officer" when used with respect to the Trustee means any
officer of the Trustee assigned by the Trustee from time to time to administer
its corporate trust matters.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to the Company or a Subsidiary, and
other than pro rata dividends or other distributions made by a Subsidiary that
is not a Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a Subsidiary that is an entity other than a
corporation)), (ii) the purchase, redemption or other acquisition or retirement
for value of any Capital Stock of the Company held by any Person or of any
Capital Stock of a Subsidiary held by any Affiliate of the Company (other than a
Subsidiary), including the exercise of any option to exchange any Capital Stock
(other than into Capital Stock of the Company that is not Disqualified Stock),
(iii) the purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated Obligations purchased
in anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of acquisition)
or (iv) the making of any Investment in any Person (other than a Permitted
Investment).
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Securities Act" means the Securities Act of 1933 or any successor statute
thereto, in each case as amended from time to time.
"Securities" or "Security" means (a) any Initial Securities or Initial
Security and (b) any Exchange Security or Exchange Securities.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 3.5.
"Senior Indebtedness" means, with respect to the Note Issuer or a
Guarantor, as the case may be, (i) Indebtedness of such Person, whether
outstanding on the Issue Date or thereafter incurred and (ii) accrued and unpaid
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to such person, whether or not the
claim for such interest is allowed as a claim after such filing) in respect of
(A) any Indebtedness of such Person under the Bank Credit Agreement, (B)
Indebtedness of such Person for money borrowed
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and (C) indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or liable
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that such obligations are subordinate in
right of payment to the Securities; provided, however, that Senior Indebtedness
shall not include (1) any obligation of such Person to any subsidiary of such
person, (2) any liability for Federal, state, local or other taxes owed or owing
by such person, (3) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities), (4) any Indebtedness of such Person
(and any accrued and unpaid interest in respect thereof) which is subordinate or
junior in any respect to any other Indebtedness or other obligation of such
Person or (5) that portion of any Indebtedness which at the time of incurrence
is incurred in violation of the Indenture.
"Senior Subordinated Indebtedness" means the 9% Notes, the DM Securities,
the Securities and any other Indebtedness of the Company that specifically
provides that such Indebtedness is to rank pari passu with the Company's
obligations with respect to the Securities in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company or the Note Issuer that is not Senior Indebtedness.
"Senior Subordinated Payment" has the meaning specified in Section 12.2.
"Shelf Registration Statement" means a shelf registration statement of the
Note Issuer, the Guarantors and the Trust pursuant to the provisions of the
Registration Rights Agreement on an appropriate form under Rule 415 under the
Securities Act, or any similar rule that may be adopted by the Commission, and
all amendments and supplements to such registration statement, including
post-effective amendments, in each case including the prospectus contained
therein, all exhibits and materials included therewith or incorporated by
reference therein pursuant to the requirements of the Securities Act or the
Exchange Act.
"S&P" means Standard & Poor's Corporation and its successors.
"Specified Senior Indebtedness" means, with respect to the Company, the
Note Issuer or a Guarantor, as the case may be, (i) any Indebtedness of such
Person under the Bank Credit Agreement, and (ii) after all Indebtedness
specified in clause (i) above is no longer outstanding, any other Senior
Indebtedness of such Person permitted under the Indenture the outstanding
principal amount of which is more than $25,000,000 at the time of determination
and that has been designated by such Person as "Specified Senior Indebtedness."
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.7.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including
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pursuant to any mandatory redemption provision (but excluding any provision
providing for the repurchase of such security at the option of the Holder
thereof upon the happening of any contingency unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Note Issuer or the
Company (whether outstanding on the Issue Date or thereafter Incurred) that is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement to that effect.
"Subsidiary" means a corporation (as defined herein) of which more than
50% of the total voting power of shares of Capital Stock or other interests
(including partnership interests) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by the
Company or by one or more Subsidiaries, or by the Company and one or more
Subsidiaries.
"Surviving Person" means, with respect to any Person involved in any
merger, consolidation or other business combination or the sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
such Person's assets, the Person formed by or surviving such transaction or the
Person to which such disposition is made.
"Tax Event" means that the Company shall have obtained of an Opinion of
Counsel of nationally recognized independent tax counsel to the effect that, as
a result of (a) any amendment to or change (including any announced prospective
change) in the laws (or any regulations thereunder) of the United States,
Germany or the jurisdiction of formation of the Note Issuer or any political
subdivision or taxing authority thereof or therein or (b) any amendment to or
change in an interpretation or application of such laws or regulations by any
legislative body, court, governmental agency or regulatory authority (including
the enactment of any legislation and the publication of any judicial decision or
regulatory determination on or after the date of issuance of the Preferred
Securities), which amendment or change is effective or which interpretation or
pronouncement is announced on or after the date of issuance of the Preferred
Securities, there is more than an insubstantial risk that (i) the Trust is or
will be subject to United States Federal or German income tax, or income tax in
the jurisdiction of formation of the Note Issuer, in each case with respect to
interest received or accrued on the Securities, (ii) interest payable to the
Trust on the Securities is not or will not be deductible for United States
Federal or German income tax purposes or for purposes of any income tax imposed
by the jurisdiction of formation of the Note Issuer or (iii) the Trust is or
will be subject to more than a de minimis amount of other taxes, duties,
assessments or other governmental charges of whatever nature imposed by the
United States, Germany, or the jurisdiction of formation of the Note Issuer, or
any other taxing authority.
"Taxes" has the meaning specified in Section 10.19.
"Temporary Cash Investments" means any of the following: (a) securities
issued or directly and fully guaranteed or insured by (i) the United States of
America or any agency or
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instrumentality thereof (provided, that the full faith and credit of the United
States of America is pledged in support thereof) and (ii) the governments of
Germany and the United Kingdom, having in each case maturities of not more than
twelve months from the date of acquisition, (b) time deposits and certificates
of deposit, eurodollar time deposits and eurodollar certificates of deposit of
(i) any lender under the Bank Credit Agreement, or (ii) any United States,
German, United Kingdom or Swiss commercial bank of recognized standing (y)
having capital and surplus in excess of $500,000,000 and (z) whose short-term
commercial paper rating from S&P is at least A-1 or the equivalent thereof or
from Moody's is at least P-1 or the equivalent thereof (any such bank being an
"Approved Lender"), in each case with maturities of not more than 270 days from
the date of acquisition, (c) commercial paper and variable or fixed rate notes
issued by an Approved Lender (or by the parent company thereof) and maturing
within six months of the date of acquisition, (d) repurchase agreements entered
into by a Person with a bank or trust company (including any of the lenders
under the Bank Credit Agreement) or recognized securities dealer having capital
and surplus in excess of $500,000,000 for (i) direct obligations issued by or
fully guaranteed by the United States of America, (ii) time deposits or
certificates of deposit described under subsection (b) above, or (iii)
commercial paper or other notes described under subjection (c) above, in which,
in each such case, such bank, trust company or dealer shall have a perfected
first priority security interest (subject to no other Liens) and having, on the
date of purchase thereof, a fair market value of at least 100% of the amount of
the repurchase obligations, (e) obligations of any State of the United States or
any political subdivision thereof, the interest with respect to which is exempt
from federal income taxation under Section 103 of the U.S. Internal Revenue
Code, having a long term rating of at least AA- or Aa-3 by S&P or Moody's,
respectively, and maturing within three years from the date of acquisition
thereof, (f) Investments in municipal auction preferred stock (i) rated AAA (or
the equivalent thereof) or better by S&P or Aaa (or the equivalent thereof) or
better by Moody's and (ii) with dividends that reset at least once every 365
days and (g) Investments, classified in accordance with GAAP as current assets,
in money market investment programs (i) registered under the Investment Company
Act of 1940, as amended, or (ii) operated by an investment company in Germany or
the United Kingdom and subject to regulations under the laws of such
jurisdiction, in each case which are administered by reputable financial
institutions having capital of at least $100,000,000 and the portfolios of which
are limited to Investments of the character described in clauses (a), (b), (c),
(e) and (f) above.
"Trust" has the meaning specified in the first paragraph of the Recitals
to this Indenture.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this Indenture until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
or include each Person who is then a Trustee hereunder.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as amended and
as in force at the date as of which this Indenture was executed, except as
provided in Section 9.5; provided, however, that in the event the Trust
Indenture Act of 1939 is amended after such date, "Trust
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Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Trust Securities" has the meaning specified in the first paragraph of the
Recitals to this Indenture.
"Vice President" when used with respect to the Company, the Note Issuer, a
Guarantor or the Trustee means any duly appointed vice president, whether or not
designated by a number or a word or words added before or after the title "vice
president."
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of
which (other than (i) directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Company or a Subsidiary and (ii) shares of Preferred Stock
of Fresenius Medical Care Holdings, Inc.) is owned by the Company or by one or
more Wholly Owned Subsidiaries, or by the Company and one or more Wholly Owned
Subsidiaries.
SECTION 1.2. Compliance Certificate and Opinions.
Upon any application or request by the Company, the Note Issuer or any
other Guarantor to the Trustee to take any action under any provision of this
Indenture, the Company, the Note Issuer or such Guarantor shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent
(including covenants, compliance with which constitutes a condition precedent),
if any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition
precedent or covenant provided for in this Indenture (other than the
certificates provided pursuant to Section 10.16) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
24 EXECUTION
<PAGE> 34
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.3. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Note Issuer, the Company
or another Guarantor may be based, insofar as it relates to legal matters, upon
a certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Note Issuer, the Company or another Guarantor stating that the information with
respect to such factual matters is in the possession of the Note Issuer, the
Company or another Guarantor, unless the individual attorneys actively engaged
in the transaction which is the subject matter of such opinion in the office of
such counsel have actual knowledge that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.4. Acts of Holders; Record Date.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given to or taken by Holders
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Holders in person or by an agent duly appointed in
writing; and, except as herein otherwise expressly
25 EXECUTION
<PAGE> 35
provided, such action shall become effective when such instrument or instruments
is or are delivered to the Trustee, and, where it is hereby expressly required,
to the Note Issuer or the Company, as applicable. Such instrument or instruments
(and the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Holders signing such instrument or instruments.
Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Indenture and (subject to
Section 6.1) conclusive in favor of the Trustee and the Note Issuer or the
Company, as applicable, if made in the manner provided in this Section 1.4.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a Person acting in other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority.
(c) The fact and date of the execution by any Person of any such
instrument or writing, or the authority of the Person executing the same, may
also be proved in any other manner which the Trustee deems sufficient and in
accordance with such reasonable rules as the Trustee may determine.
(d) The ownership of Securities shall be proved by the Securities
Register.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee, the Note Issuer,
or the Company in reliance thereon, whether or not notation of such action is
made upon such Security.
(f) The Note Issuer may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to take any action under
this Indenture by vote or consent. Except as otherwise provided herein, such
record date shall be the later of 30 days prior to the first solicitation of
such consent or vote or the date of the most recent list of Securityholders
furnished to the Trustee pursuant to Section 7.1 prior to such solicitation. If
a record date is fixed, those Persons who were Securityholders at such record
date (or their duly designated proxies), and only those Persons, shall be
entitled to take such action by vote or consent or to revoke any vote or consent
previously given, whether or not such persons continue to be Holders after such
record date, provided, however, that unless such vote or consent is obtained
from the Holders (or their duly designated proxies) of the requisite principal
amount of Outstanding Securities prior to the date which is the 90th day after
such record date, any such vote or consent previously given shall automatically
and without further action by any Holder be cancelled and of no further effect.
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SECTION 1.5. Notices, etc., to Trustee, Note Issuer and Guarantors.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Note Issuer or any Guarantor
shall be sufficient for every purpose hereunder if made, given, furnished
or filed in writing to or with the Trustee at its Corporate Trust office,
or
(2) the Note Issuer or any Guarantor by the Trustee or by any Holder
shall be sufficient for every purpose (except as otherwise provided in
Sections 5.1 and 5.2 hereof) hereunder if in writing and mailed, first
class, postage prepaid, in the case of the Note Issuer to it at the
address of the Note Issuer's principal office specified in the first
paragraph of this Indenture or at any other address previously furnished
in writing to the Trustee by the Note Issuer and, in the case of any
Guarantor, to it at its principal office at Borkenberg 14, 61440
Oberursel, Germany or at any other address previously furnished in writing
to the Trustee by such Guarantor; provided, however, that all notices sent
to the Note Issuer and any Guarantor pursuant to this Indenture shall be
sent in copy to O'Melveny & Myers LLP (Citicorp Center, 153 East 53rd
Street, New York, NY 10022-4611, Attn: Dr. Ulrich Wagner) and shall be
effective five Business Days after such mailing.
SECTION 1.6. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first class postage prepaid, to each Holder affected
by such event, at the address of such Holder as it appears in the Securities
Register, not later than the latest date (if any), and not earlier than the
earliest date (if any), prescribed for the giving of such notice. In any case
where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
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SECTION 1.7. Conflict with Trust Indenture Act.
Upon consummation of the Exchange Offer, the Trust Indenture Act shall
apply to this Indenture and if any provision hereof limits, qualifies or
conflicts with a provision of the Trust Indenture Act that is required or deemed
under the Trust Indenture Act to be part of and govern this Indenture, the
latter provision shall control. If any provision of this Indenture modifies or
excludes any provision of the Trust Indenture Act that may be so modified or
excluded, the latter provision shall be deemed to apply to this Indenture as so
modified or to be excluded, as the case may be.
SECTION 1.8. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 1.9. Successors and Assigns.
All covenants and agreements in this Indenture by the Note Issuer, the
Company or any other Guarantor shall bind its respective successors and assigns,
whether so expressed or not.
SECTION 1.10. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1.11. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than (i) the parties hereto, (ii) any Paying Agent and
their successors and assigns, (iii) the holders of Senior Indebtedness (subject
to Articles XII and XIV hereof), and (iv) the Holders of the Securities, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 1.12. Governing Law.
THIS INDENTURE, THE SECURITIES AND THE GUARANTIES ENDORSED THEREON SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICT OF LAWS.
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<PAGE> 38
SECTION 1.13. Non-Business Days.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or the Securities) payment of interest or
principal (and premium, if any) need not be made on such date, but may be made
on the next succeeding Business Day (and no interest shall accrue for the period
from and after such Interest Payment Date, Redemption Date or Stated Maturity,
as the case may be, until such next succeeding Business Day except that, if such
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day (in each case with the same force and
effect as if made on the Interest Payment Date or Redemption Date or at the
Stated Maturity)).
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<PAGE> 39
SECTION 1.14. Duplicate Originals.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
SECTION 1.15. Submission to Jurisdiction.
The Company hereby appoints CT Corporation System through its office at
1633 Broadway, New York, New York 10019 as its authorized agent (the "Authorized
Agent") upon which process may be served in any legal action or proceeding
against it with respect to its obligations under this Indenture or the
Securities instituted in any federal or state court in the Borough of Manhattan,
The City of New York, by the Trustee or the Holder of any Securities and agrees
that service of process upon such authorized agent, together with written notice
of said service to the Company by the person serving the same, addressed as
provided in Section 1.5, shall be deemed in every respect effective service of
process upon the Company in any such legal action or proceeding, and the Company
hereby irrevocably submits to the non-exclusive jurisdiction of any such court
in respect of any such legal action or proceeding. Such appointment shall be
irrevocable until this Indenture has been satisfied and discharged in accordance
with Article 4 hereof. Notwithstanding the foregoing, the Company reserves the
right to appoint another Person located or with an office in the Borough of
Manhattan, The City of New York, selected in its discretion, as a successor
Authorized Agent, and upon acceptance of such appointment by such a successor
the appointment of the prior Authorized Agent shall terminate. If for any reason
CT Corporation System ceases to be able to act as the Authorized Agent or to
have an address in the Borough of Manhattan, The City of New York, the Company
will appoint a successor Authorized Agent in accordance with the preceding
sentence. The Company further agrees to take any and all action, including the
filing of any and all documents and instruments as may be necessary to continue
such designation and appointment of such agent in full force and effect until
this Indenture has been satisfied and discharged in accordance with Article 4
hereof. Service of process upon the Authorized Agent addressed to it at the
address set forth above, as such address may be changed within the Borough of
Manhattan, The City of New York by notice given by the Authorized Agent to the
Trustees, together with written notice of such service mailed or delivered to
the Company shall be deemed, in every respect, effective service of process on
the Company.
ARTICLE II.
SECURITY AND GUARANTY FORMS
SECTION 2.1. Forms Generally.
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<PAGE> 40
The Securities, the Guaranties to be endorsed thereon and the Trustee's
certificate of authentication shall be in substantially the forms set forth in
this Article, or in such other form or forms as shall be established by or
pursuant to a Board Resolution or in one or more indentures supplemental hereto,
in each case with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with applicable tax
laws or the rules of any securities exchange or as may, consistently herewith,
be determined by the officers executing such Securities or Guaranties, as the
case may be, as evidenced by their execution of the Securities or Guaranties, as
the case may be. If the form of Securities or Guaranties is established by
action taken pursuant to a Board Resolution, such Board Resolution to be
delivered to the Trustee at or prior to the delivery of the Note Issuer Order
contemplated by Section 3.3 with respect to the authentication and delivery of
such Securities.
The Trustee's certificates of authentication shall be substantially in the
form set forth in this Article.
The definitive Securities and Guaranties to be endorsed thereon shall be
printed, lithographed or engraved or produced by any combination of these
methods, if required by any securities exchange on which the Securities may be
listed, on a steel engraved border or steel engraved borders or may be produced
in any other manner permitted by the rules of any securities exchange on which
the Securities may be listed, all as determined by the officers executing such
Securities or Guaranties, as the case may be, as evidenced by their execution of
such Securities or Guaranties, as the case may be.
SECTION 2.2. Form of Face of Security.
[IF THE SECURITY IS AN INITIAL SECURITY, INSERT - THIS SECURITY HAS NOT
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT
OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE SECOND SENTENCE
HEREOF. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) ("QIB") OR (B) IT IS
ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT RESELL
OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY OF ITS
SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB
PURCHASING FOR ITS OWN ACCOUNT
31 EXECUTION
<PAGE> 41
OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE
903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE NOTE ISSUER) OR
(F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED
HEREIN, THE TERM "OFFSHORE TRANSACTION" AND "UNITED STATES"HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES
ACT.
THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT IN AGGREGATE PRINCIPAL
AMOUNT OF $100,000 OR MORE]
[IF THE SECURITY IS A GLOBAL SECURITY, INSERT [MAILBOX GRAPHIC] THIS
SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY
TRUST COMPANY (THE "DEPOSITORY") OR A NOMINEE OF THE DEPOSITORY. THIS
SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON
OTHER THAN THE DEPOSITORY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE AND NO TRANSFER OF THIS SECURITY (OTHER THAN A
TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN LIMITED
CIRCUMSTANCES.
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK) TO FMC TRUST FINANCE
S.A.R.L LUXEMBOURG OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.]
FMC TRUST FINANCE S.A.R.L. LUXEMBOURG
32 EXECUTION
<PAGE> 42
7 7/8% SENIOR SUBORDINATED NOTES DUE FEBRUARY 1, 2008
GUARANTEED AS TO PAYMENT OF PRINCIPAL,
PREMIUM, IF ANY, AND INTEREST BY FRESENIUS MEDICAL CARE AG
AND CERTAIN OF ITS SUBSIDIARIES
NO. $
FMC TRUST FINANCE S.A.R.L. LUXEMBOURG, a private limited company
(Societe a responsabilite limitee) organized and existing under the laws
of Luxembourg (hereinafter called the "Note Issuer", which term includes
any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to , or registered assigns, the
principal sum of Dollars on February 1, 2008. The Note Issuer further
promises to pay interest on said principal sum quarterly in arrears on
February 1, May 1, August 1 and November 1 of each year, commencing May 1,
1998, (each such date, an "Interest Payment Date") at the rate of 7 7/8%
per annum, (plus Additional Amounts and Additional Sums, if any) until the
principal hereof is paid or duly provided for or made available for
payment and on any overdue principal and (without duplication and to the
extent that payment of such interest is enforceable under applicable law)
on any interest which is in arrears more than a quarter at the rate of 7
7/8% per annum, compounded quarterly. The amount of interest payable for
any period shall be computed on the basis of twelve 30-day months and a
360-day year. The amount of interest payable for any partial period shall
be computed on the basis of the number of days elapsed in a 360-day year
of twelve 30-day months. In the event that any date on which interest is
payable on this Security is not a Business Day, then a payment of the
interest payable on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day is in the
next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on the date the payment was originally payable. A
"Business Day" shall mean any day other than (i) a Saturday or Sunday,
(ii) a day on which banking institutions in New York City, Frankfurt am
Main or Luxembourg are authorized or required by law or executive order to
remain closed or (iii) a day on which the Corporate Trust Office of the
Trustee, or, with respect to the Preferred Securities, the principal
office of the Preferred Trustee under the Declaration hereinafter referred
to for Fresenius Medical Care Capital Trust II, is closed for business.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities,
as defined in the Indenture) is registered at the close of business on the
Regular Record Date for such interest, which shall be the date which is
the fifteenth day immediately preceding such Interest Payment Date
(whether or not a Business Day). Any interest not so punctually paid or
duly provided for shall forthwith cease to be payable to the Holder on
such Regular Record Date and may either be paid to
33 EXECUTION
<PAGE> 43
the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders not less than 10 days
prior to such Special Record Date, or be paid in any other lawful manner
not inconsistent with the requirements of any securities exchange on which
the Securities may be listed, and upon such notice as may be required by
such exchange, all as more fully provided in said Indenture.
[IF THE SECURITY IS AN INITIAL SECURITY, INSERT - UNDER THE TERMS
AND CONDITIONS OF, AND IN THE CIRCUMSTANCES SET FORTH IN, THE REGISTRATION
RIGHTS AGREEMENT, ADDITIONAL PAYMENTS IN THE FORM OF LIQUIDATED DAMAGES
MAY BE PAYABLE IN RESPECT OF THIS SECURITY.]
Payments on this Security issued as a Global Security shall be made
in immediately available funds to the Depository. In the event that this
Security is issued in certificated form, the principal of (and premium, if
any) and interest (including Additional Sums and Additional Amounts, if
any) on the Security will be payable at the office maintained by the Note
Issuer under the Indenture; provided, that unless the Security is held by
the Trust or any permissible successor entity as provided under the
Declaration in the event of a merger, consolidation or amalgamation of the
Trust, payment of interest may be made at the option of the Note Issuer by
check mailed to the address of the person entitled thereto, as such
address shall appear in the Register.
The indebtedness evidenced by this Security is, to the extent
provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full of all Senior Indebtedness, and this Security is
issued subject to the provisions of the Indenture with respect thereto.
Each Holder of this Security, by accepting the same, (a) agrees to and
shall be bound by such provisions, (b) authorizes and directs the Trustee
on his behalf to take such actions as may be necessary or appropriate to
effectuate the subordination so provided and (c) appoints the Trustee his
attorney-in-fact for any and all such purposes. Each Holder hereof, by his
acceptance hereof, waives all notice of the acceptance of the
subordination provisions contained herein and in the Indenture by each
holder of Senior Indebtedness, whether now outstanding or hereafter
incurred, and waives reliance by each such holder upon said provisions.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this
Security shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.
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<PAGE> 44
IN WITNESS WHEREOF, the Note Issuer has caused this instrument to be
duly executed.
Dated: February 19, 1998 _____________________________
FMC TRUST FINANCE S.a.r.l. LUXEMBOURG
By:
Name:
Title:
SECTION 2.3. Form of Reverse of Security.
This Security is one of a duly authorized issue of securities of the
Note Issuer (herein called the "Securities"), issued under a Senior
Subordinated Indenture, dated as of February 19, 1998 (herein called the
"Indenture"), between the Note Issuer, as Issuer, and State Street Bank
and Trust Company, as Trustee (herein called the "Trustee", which term
includes any successor trustee under the Indenture), Fresenius Medical
Care AG (herein called the "Company"), as the Company and as a Guarantor,
Fresenius Medical Care Holdings, Inc. and Fresenius Medical Care
Deutschland GmbH, as Guarantors, to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder
of the Trustee, the Note Issuer, the Company and the Holders of the
Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
All terms used in this Security that are defined in the Indenture
and in the Amended and Restated Declaration of Trust, dated as of February
19, 1998, (the "Declaration"), for Fresenius Medical Care Capital Trust
II, shall have the meanings assigned to them in the Indenture or the
Declaration, as the case may be.
If a Tax Event or an Investment Company Event in respect of the
Trust shall occur and be continuing, the Company shall cause the Trustees
(as defined in the Declaration) to dissolve the Trust and cause Securities
to be distributed to the holders of the Trust Securities in dissolution of
the Trust or, in the event of a Tax Event only, may cause the Securities
to be redeemed, in each case, subject to and in accordance with the
provisions of the Declaration, within 90 days following the occurrence of
such Tax Event or Investment Company Event. The Securities may be
redeemed, at the option of the Note Issuer, subject to the provisions of
Article XI of the Indenture, at any time as a whole but not in part, at
100% of the principal amount thereof, plus accrued and unpaid interest (if
any) to the date of redemption (subject to the right of Holders of record
on the relevant Regular Record Date to receive interest due on the
relevant Interest Payment Date), in the event the Note Issuer
35 EXECUTION
<PAGE> 45
has become or would become obligated to pay, on the next date on which any
amount would be payable with respect to the Securities, any Additional
Amounts as a result of a change in or an amendment to the laws (including
any regulations promulgated thereunder) of the United States of America,
Germany, the United Kingdom, Luxembourg, or any other Member State of the
European Union (or any political subdivision or taxing authority thereof
or therein), or any change in or amendment to any official position
regarding the application or interpretation of such laws or regulations,
which change or amendment is announced or becomes effective on or after
the date of the issuance of the Securities.
The Securities do not have the benefit of any sinking fund
obligations.
If an Event of Default shall occur and be continuing, the principal
of all the Securities may be declared due and payable in the manner, with
the effect and subject to the conditions provided in the Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, the obligations of the Note Issuer under the Indenture
and this Security are Guaranteed on a senior subordinated basis pursuant
to Guaranties endorsed hereon. The Indenture provides that a Guarantor
shall be released from its Guaranty upon compliance with certain
conditions.
The Indenture contains provisions for satisfaction, discharge and
defeasance at any time of the entire indebtedness of this Security upon
compliance by the Note Issuer with certain conditions set forth in the
Indenture.
The Indenture permits, with certain exceptions as therein provided,
the Note Issuer, the Guarantors and the Trustee at any time to enter into
a supplemental indenture or indentures for the purpose of modifying in any
manner the rights and obligations of the Note Issuer, the Guarantors and
of the Holders of the Securities, with the consent of the Holders of not
less than a majority in principal amount of the Outstanding Securities to
be affected by such supplemental indenture. The Indenture also contains
provisions permitting Holders of specified percentages in aggregate
outstanding principal amount of the Outstanding Securities affected
thereby, on behalf of the Holders of all the Securities, to waive
compliance by the Note Issuer or the Guarantors with certain provisions of
the Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Security
shall be conclusive and binding upon such Holder and upon all future
Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or
not notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, if an
Event of Default with respect to the Securities at the time Outstanding
occurs and is continuing, then and in
36 EXECUTION
<PAGE> 46
every such case the Trustee or the Holders of not less than 25% in
aggregate outstanding principal amount of the Outstanding Securities may
declare the principal amount of and interest (including Additional Sums
and Additional Amounts, if any) on all the Securities to be due and
payable immediately, by a notice in writing to the Note Issuer and the
Guarantors (and to the Trustee if given by Holders), provided, that if the
Trustee or such Holders fail to do so, the Preferred Trustee shall have
such right by a notice in writing to the Note Issuer and the Trustee; and
upon any such declaration such specified amount of and the accrued
interest (including Additional Sums and Additional Amounts, if any) on all
the Securities shall become immediately due and payable, provided, that
the payment of principal and interest (including Additional Sums and
Additional Amounts, if any) on such Securities shall remain subordinated
to the extent provided in Article XII of the Indenture.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Note Issuer, which is absolute and unconditional, to pay the principal of
(and premium, if any) and interest on this Security at the times, place
and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the
Securities Register, upon surrender of this Security for registration of
transfer at the office or agency of the Note Issuer maintained under
Section 10.2 of the Indenture duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Note Issuer and
the Securities Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new
Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or
transferees. No service charge shall be made for any such registration of
transfer or exchange, but the Note Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Note Issuer, the Guarantors, the Trustee and any agent of
the Note Issuer, the Guarantors or the Trustee may treat the Person in
whose name this Security is registered as the owner hereof, for all
purposes (subject to certain limitations set forth in the Indenture),
whether or not this Security be overdue, and neither the Note Issuer, the
Guarantors, the Trustee nor any such agent shall be affected by notice to
the contrary.
The Securities are issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof. As provided
in the Indenture and subject to certain limitations therein set forth, the
Securities are exchangeable for a like aggregate principal amount of
Securities of a different authorized denomination, as requested by the
Holder surrendering the same.
37 EXECUTION
<PAGE> 47
The Note Issuer and, by its acceptance of this Security or a
beneficial interest therein, the Holder of, and any Person that acquires a
beneficial interest in, this Security agree that for German and United
States Federal, state and local tax purposes and for purposes of any tax
imposed by the jurisdiction of formation of the Note Issuer, or any
political subdivision or taxing authority thereof or therein, it is
intended that this Security constitute indebtedness.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES THEREOF.
SECTION 2.4. Additional Provisions Required in Global Security and Initial
Security.
(a) Any Global Security issued hereunder shall, in addition to the
provisions contained in Sections 2.2 and 2.3, bear a legend in substantially the
following form:
"This Security is a Global Security within the meaning of the
Indenture hereinafter referred to and is registered in the name of The
Depository Trust Company (the "Depository") or a nominee of the
Depository. This Security is exchangeable for Securities registered in the
name of a Person other than the Depository or its nominee only in the
limited circumstances described in the Indenture and no transfer of this
Security (other than a transfer of this Security as a whole by the
Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository) may be
registered except in limited circumstances."
Unless this Security is presented by an authorized representative of
The Depository Trust Company (55 Water Street, New York) to FMC TRUST
FINANCE S.a.r.l. LUXEMBOURG or its agent for registration of transfer,
exchange or payment, and any Security issued is registered in the name of
Cede & Co. or such other name as requested by an authorized representative
of The Depository Trust Company and any payment hereon is made to Cede &
Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co.,
has an interest herein."
(b) Any Initial Security issued hereunder shall, in addition to the
provisions contained in Sections 2.2 and 2.3, bear a legend in substantially the
following form:
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<PAGE> 48
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED, SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES
OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH
IN THE SECOND SENTENCE HEREOF. BY ITS ACQUISITION HEREOF OR OF A
BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) ("QIB") OR (B) IT IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES
ACT, (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS
SECURITY EXCEPT (A) TO THE ISSUER OR ANY OF ITS SUBSIDIARIES, (B) TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT,
(E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO THE NOTE ISSUER) OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON
TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERM
"OFFSHORE TRANSACTION" AND "UNITED STATES"HAVE THE MEANINGS GIVEN TO THEM
BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT.
THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT IN AGGREGATE PRINCIPAL AMOUNT
OF $100,000 OR MORE."
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<PAGE> 49
SECTION 2.5. Form of Trustee's Certificate of Authentication.
This is one of the Securities with the Guaranties endorsed thereon
referred to in the within mentioned Indenture.
_________________________________
as Trustee
By: _____________________________
Authorized officer
SECTION 2.6. Form of Guaranty.
GUARANTY
For value received, each of the Guarantors hereby jointly and
severally unconditionally Guarantees, on a senior subordinated basis, to
each Holder of a Security authenticated and delivered by the Trustee, and
to the Trustee on behalf of such Holder, the due and punctual payment of
the principal of (and premium, if any) and interest (including Additional
Sums and Additional Amounts, if any) on such Security when and as the same
shall become due and payable, whether at the Stated Maturity, by
acceleration, call for redemption, purchase or otherwise, in accordance
with the terms of such Security and of this Indenture. In case of the
failure of the Note Issuer punctually to make any such payment, each of
the Guarantors hereby jointly and severally agrees to cause such payment
to be made punctually when and as the same shall become due and payable,
whether at the Stated Maturity or by acceleration, call for redemption,
purchase or otherwise, and as if such payment were made by the Note
Issuer. The Guarantee extends to the Note Issuer's repurchase obligations
arising from a Change of Control or an Asset Disposition pursuant to the
Indenture.
Each of the Guarantors hereby jointly and severally agrees that its
obligations hereunder shall be unconditional, irrespective of the
validity, regularity or enforceability of such Security or this Indenture,
the absence of any action to enforce the same, any exchange, release or
non-perfection of any Lien on any collateral for, or any release or
amendment or waiver of any term of any other Guarantee of, or any consent
to departure from any requirement of any other Guarantee of all or any of
the Securities, the election by the Trustee or any of the Holders in any
proceeding under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") of the application of Section 1111(b)(2) of the
Bankruptcy Code, or equivalent provision under applicable law, any
borrowing or grant of a security interest by the Note Issuer, as
debtor-in-possession, under Section 364 of the Bankruptcy Code, or
equivalent provision under applicable law, the disallowance, under Section
502 of the Bankruptcy Code, or other similar applicable law, of all or any
portion of
40 EXECUTION
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the claims of the Trustee or any of the Holders for payment of any of the
Securities, any waiver or consent by the Holder of such Security or by the
Trustee with respect to any provisions thereof or of the Indenture, the
obtaining of any judgment against the Note Issuer or any action to enforce
the same or any other circumstances which might otherwise constitute a
legal or equitable discharge or defense of a guarantor. Each of the
Guarantors hereby waives the benefits of diligence, presentment, demand
for payment, any requirement that the Trustee or any of the Holders
protect, secure, perfect or insure any security interest in or other Lien
on any property subject thereto or exhaust any right or take any action
against the Note Issuer or any other Person or any collateral, filing of
claims with a court in the event of insolvency or bankruptcy of the Note
Issuer, any right to require a proceeding first against the Note Issuer,
protest or notice with respect to such Security or the Indebtedness
evidenced thereby and all demands whatsoever, and covenants that this
Guaranty will not be discharged in respect of such Security except by
complete performance of the obligations contained in such Security and in
this Guaranty. Each of the Guarantors hereby agrees that, in the event of
a default in payment of principal (or premium, if any) or interest
(including Additional Sums and Additional Amounts, if any) on such
Security, whether at their Stated Maturity, by acceleration, call for
redemption, purchase or otherwise, legal proceedings may be instituted by
the Trustee on behalf of, or by, the Holder of such Security, subject to
the terms and conditions set forth in the Indenture, directly against each
of the Guarantors to enforce this Guaranty without first proceeding
against the Note Issuer. Each Guarantor agrees that, to the extent
permitted by law, if, after the occurrence and during the continuance of
an Event of Default, the Trustee or any of the Holders are prevented by
applicable law from exercising their respective rights to accelerate the
maturity of the Securities, to collect interest on the Securities, or to
enforce or exercise any other right or remedy with respect to the
Securities, or the Trustee or the Holders are prevented from taking any
action to realize on any collateral, such Guarantor agrees to pay to the
Trustee for the account of the Holders, upon demand therefor, the amount
that would otherwise have been due and payable had such rights and
remedies been permitted to be exercised by the Trustee or any of the
Holders.
The indebtedness of each Guarantor evidenced by this Guaranty is, to
the extent provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness of such
Guarantor, and this Guaranty is issued subject to the provisions of the
Indenture with respect thereto. Each Holder of this Security, by accepting
the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such action as
may be necessary or appropriate to effectuate the subordination so
provided and (c) appoints the Trustee his attorney-in-fact for any and all
such purposes.
No reference herein to the Indenture and no provision of this
Guaranty or of the Indenture shall alter or impair the Guaranty of any
Guarantor, which is absolute and unconditional, of the due and punctual
payment of the principal (and premium, if any) and
41 EXECUTION
<PAGE> 51
interest (including Additional Sums and Additional Amounts, if any) on the
Security upon which this Guaranty is endorsed.
Each Guarantor shall be subrogated to all rights of the Holder of
this Security against the Note Issuer in respect of any amounts paid by
such Guarantor on account of this Security pursuant to the provisions of
its Guaranty or the Indenture; provided, however, that such Guarantor
shall not be entitled to enforce or to receive any payments arising out
of, or based upon, such right of subrogation until the principal of (and
premium, if any) and interest on this Security and all other Securities
issued under the Indenture shall have been paid in full.
This Guaranty shall remain in full force and effect and continue to
be effective should any petition be filed by or against the Note Issuer
for liquidation or reorganization, or equivalent proceeding under
applicable law, should the Note Issuer become insolvent or make an
assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of the Note Issuer's assets, or
the equivalent of any of the foregoing under applicable law, and shall, to
the fullest extent permitted by applicable law, continue to be effective
or be reinstated, as the case may be, if at any time payment and
performance of the Securities is, pursuant to applicable law, rescinded or
reduced in amount, or must otherwise be restored or returned by any
obligee on the Securities whether as a voidable preference, fraudulent
transfer, or as otherwise provided under similar laws affecting the rights
of creditors generally or under applicable laws of the jurisdiction of
formation of the Note Issuer, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Securities shall, to the
fullest extent permitted by applicable law, be reinstated and deemed
reduced only by such amount paid and not so rescinded, reduced, restored
or returned.
The Guarantors shall have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does not impair
the rights of the Holders under this Guaranty.
The Guarantors or any particular Guarantor shall be released from
this Guaranty upon the terms and subject to certain conditions provided in
the Indenture.
By delivery of a supplemental indenture to the Trustee in accordance
with the terms of the Indenture or the execution of a Guaranty Agreement,
each Person that becomes, or assumes the obligations of, a Guarantor after
the date of the Indenture will be deemed to have executed and delivered
this Guaranty for the benefit of the Holder of this Security with the same
effect as if such Guarantor was named below.
42 EXECUTION
<PAGE> 52
All terms used in this Guaranty which are defined in the Indenture
referred to in the Security upon which this Guaranty is endorsed shall
have the meanings assigned to them in such Indenture.
This Guaranty shall not be valid or obligatory for any purpose until
the certificate of authentication on the Security upon which this Guaranty
is endorsed shall have been executed by the Trustee under the Indenture by
manual signature.
Each Guaranty (other than the Company's Guaranty) will be limited in
amount to an amount not to exceed the maximum amount that can be
guaranteed by the applicable Guarantor without rendering the Guaranty, as
it relates to such Guarantor, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally or under applicable law of Germany.
In the case of Fresenius Medical Care Deutschland GmbH ("FMCD"), the
following provisions apply:
A Profit and Loss Pooling Agreement (the "Agreement")
(Ergebnisabfuhrungsvertrag) between the Company and FMCD dated as of
August 21, 1996 was entered into the commercial register with effect from
January 1, 1996. FMCD, having a stated capital of DM 80 million, had a
capital reserve account of DM 168,302,162 (the "January 1, 1996 Amount")
in its balance sheet as of January 1, 1996. Assuming that the January 1,
1996 Amount has not decreased by losses in the business of FMCD since
January 1, 1996, at least such amount exceeds the Company's assets
protecting its share capital within the meaning of Section 30 of the
German GmbH Law. Since January 1, 1996, the January 1, 1996 Amount has not
been decreased by the actions of the Company (the sole shareholder of
FMCD), e.g. no distributions against the January 1, 1996 Amount have been
made.
Based thereon, the guaranty obligations of FMCD hereunder and under
FMCD's guaranty of the 9% Notes, the DM Securities and any other Senior
Subordinated Indebtedness, if any, of FMCD to which Section 30 of the
German GmbH law may apply are limited to the amount of the capital
reserves of FMCD as of the date hereof less its obligations as a guarantor
from time to time under the Bank Credit Agreement (the "Minimum Guaranty
Amount"). If, in the case of a default under the Indenture, the capital
reserves are higher than such Minimum Guaranty Amount, such higher amount
(the "Higher Guaranty Amount") shall serve as limitation to the
obligations of FMCD, as Guarantor. In case FMCD, as Guarantor, has to sell
off assets to fulfill its obligations under the Indenture, after such
guaranty obligations have been drawn, and if the proceeds from the sale of
such assets exceed the amount of their book value, such excess amounts
shall be paid to the Trustee for the benefit of the Holders, subject to
the provisions of Article XIV hereof, in addition to the Minimum Guaranty
Amount or the Higher Guaranty Amount,
43 EXECUTION
<PAGE> 53
respectively. For the determination of the applicable book value, the book
value of assets which were included into the balance sheet per January 1,
1996 applies, and for such assets which were not yet included but added to
the business of FMCD since that date, the book value on the day of the
sale of such assets applies. Should Section 30 of the German GmbH law
however require a lower Minimum Guaranty Amount or a lower Higher Guaranty
Amount, then such lower amounts required by law shall be applicable.
FMCD undertakes not to decrease its capital reserves, neither by
capital increase from such reserve accounts nor by other kinds of
contributions to its shareholders or affiliates without the prior written
approval of the Holders of a majority in principal amount of the
Outstanding Securities.
FMCD undertakes to maintain a profit and loss pooling agreement with
the Company during the term of the Indenture, in particular, to extend the
term of such agreement to the term of the Indenture and not to terminate,
rescind or amend such agreement without prior notice to the Trustee and
the consent of the Holders of a majority in principal amount of the
Outstanding Securities thereto. In case of a termination of such profit
and loss pooling agreement, FMCD will grant, upon the request of the
Holders of a majority in principal amount of the Outstanding Securities,
collateral to minimize the legal and financial disadvantages caused by the
termination of such agreement, as far as legally available under German
law. FMCD undertakes to give notice immediately to the Trustee if it
intends to give notice of termination to such agreement or to agree to the
termination of such agreement, or if it becomes aware that the Company
intends to terminate such agreement. During the term of the profit and
loss pooling agreement, any and all allocations of profit to the Company
and any and all cash distributions to the Company as a consequence thereof
upon the terms and conditions of the profit and loss pooling agreement are
permitted and unrestricted, subject to the terms of Section 30 of the
German GmbH law as described above.
Reference is made to Article XIII and Article XIV of the Indenture
for further provisions with respect to this Guaranty.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICT OF LAWS.
IN WITNESS WHEREOF, each of the Guarantors has caused this Guaranty to be
duly executed.
44 EXECUTION
<PAGE> 54
FRESENIUS MEDICAL CARE AG, as Guarantor
By: _________________________________
Member of the Managing Board
By: _________________________________
Member of the Managing Board
FRESENIUS MEDICAL CARE HOLDINGS, INC.,
as Guarantor
Authorized Officer
FRESENIUS MEDICAL CARE DEUTSCHLAND GmbH,
as Guarantor
Member of
the Managing Board
Member of
the Managing Board
45 EXECUTION
<PAGE> 55
ARTICLE III.
THE SECURITIES
SECTION 3.1. Title and Terms.
The aggregate principal amount of the Securities which may be
authenticated and delivered under this Indenture is limited to $450,450,000
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section 3.4,
3.5, 3.6, 9.6 or 11.6. The Note Issuer may issue Exchange Securities from time
to time pursuant to an Exchange Offer pursuant to a Board Resolution included in
an Officers' Certificate delivered to the Trustee, in authorized denominations
in exchange for a like principal amount of Initial Securities. Upon any such
exchange the Initial Securities shall be cancelled in accordance with Section
3.9 and shall no longer be deemed Outstanding for any purpose. In no event shall
the aggregate principal amount of Initial Securities and Exchange Securities
Outstanding exceed $450,450,000, except in accordance with Section 3.6.
The Securities shall be known and designated as the "7 7/8% Senior
Subordinated Notes due February 1, 2008" of the Note Issuer. Their Stated
Maturity shall be February 1, 2008 at which time the Securities will become due
and payable together with any accrued and unpaid interest thereon (including
Additional Sums and Additional Amounts, if any) and they shall bear interest at
the rate of 7 7/8% per annum, from the Issue Date, payable quarterly in arrears
on each Interest Payment Date, to the Persons in whose name the Securities are
registered at the close of business on the Regular Record Date.
Interest on the Securities will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from the Issue Date.
Interest in arrears for more than one quarter (and interest thereon) will accrue
interest (compounded quarterly) at the same rate.
Payments on the Securities issued as a Global Security shall be made in
immediately available funds to the Depository. In the event that Securities are
issued in certificated form, the principal of (and premium, if any) and interest
(including Additional Sums and Additional Amounts, if any) on the Securities
shall be payable at the office maintained by the Note Issuer pursuant to Section
10.2; provided, that unless the Securities are held by the Trust or any
permissible successor entity as provided under the Declaration in the event of a
merger, consolidation or amalgamation of the Trust, payment of interest may be
made at the option of the Note Issuer by check mailed to the address of the
persons entitled thereto, as such address shall appear in the Register.
The Securities shall be redeemable as provided in Article XI.
46 EXECUTION
<PAGE> 56
The Securities shall be subordinated in right of payment to Senior
Indebtedness of the Company and the Note Issuer as provided in Article XII.
The Securities shall be Guaranteed by the Guarantors as provided in
Article XIII.
The Guaranties shall be subordinated in right of payment to Senior
Indebtedness of the Guarantors as provided in Article XIV.
The Securities shall be subject to defeasance at the option of the Note
Issuer as provided in Section 4.3.
Unless the context otherwise requires, the Initial Securities and the
Exchange Securities shall constitute one series for all purposes under this
Indenture.
SECTION 3.2. Denominations.
The Securities shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof. The
Initial Securities may only be issued and transferred in aggregate principal
amount of $100,000 or more.
SECTION 3.3. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Note Issuer by any
officer or officers of the Note Issuer thereunder duly authorized. The signature
of any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Note Issuer shall bind the Note
Issuer, notwithstanding that such individuals or any of them have ceased to hold
such offices prior to the authentication and delivery of such Securities or did
not hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Note Issuer may deliver Securities executed by the Note Issuer
and having endorsed thereon the Guaranties executed pursuant to Section 13.2 by
the Guarantors to the Trustee for authentication, together with a Note Issuer
Order for the authentication and delivery of such Securities with the Guaranties
of the Guarantors endorsed thereon; and the Trustee in accordance with such Note
Issuer Order shall authenticate and deliver such Securities with the Guaranties
of the Guarantors endorsed thereon as in this Indenture provided and not
otherwise.
At any time and from time to time after the execution and delivery of this
Indenture and after the effectiveness of a registration statement under the
Securities Act with respect thereto, the Note Issuer may deliver Exchange
Securities executed by the Note Issuer to the Trustee for
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authentication, together with a Note Issuer Order for the authentication and
delivery of such Exchange Securities and a like principal amount of Initial
Securities for cancellation in accordance with Section 3.9, and the Trustee in
accordance with the Note Issuer Order shall authenticate and deliver such
Securities. In authenticating such Exchange Securities, and accepting the
additional responsibilities under this Indenture in relation to such Securities,
the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be
fully protected in relying upon, an Opinion of Counsel substantially to the
effect that: (i) the Exchange Securities have been duly authorized and, when
executed and authenticated in accordance with the provisions of the Indenture
and delivered in exchange for the Initial Securities in accordance with the
Indenture and the Exchange Offer, will be entitled to the benefits of the
Indenture and will be legally valid and binding obligations of the Note Issuer,
enforceable in accordance with their terms subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles; and (ii) when the Exchange Securities are executed and authenticated
in accordance with the provisions of the Indenture and delivered in exchange for
the Initial Securities in accordance with the Indenture and the Exchange Offer,
the Guaranties endorsed thereon will be the legally valid and binding
obligations of the Guarantors, enforceable in accordance with their terms
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability, relating to or affecting
creditors' rights and to general equity principles.
If terms have been so established, the Trustee shall not be required to
authenticate such Exchange Securities if the issue of such Exchange Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Exchange Securities and this Indenture or otherwise in a
manner which is not reasonably acceptable to the Trustee.
Each Security shall be dated the date of its authentication.
No Security or Guaranty endorsed thereon shall be entitled to any benefit
under this Indenture or be valid or obligatory for any purpose, unless there
appears on such Security a certificate of authentication substantially in the
form provided for herein executed by the Trustee by the manual signature of one
of its authorized officers, and such certificate upon any Security shall be
conclusive evidence, and the only evidence, that such Security and the Guaranty
endorsed thereon have been duly authenticated and delivered hereunder.
48 EXECUTION
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SECTION 3.4. Temporary Securities.
Pending the preparation of definitive Securities, the Note Issuer may
execute, and upon Note Issuer Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and having
endorsed thereon the Guaranties substantially of the tenor of the definitive
Guaranties in lieu of which they are issued duly executed by the Guarantors and
with such appropriate insertions, omissions, substitutions and other variations
as the officers executing such Securities and Guaranties, as the case may be,
may determine, as evidenced by their execution of such Securities and
Guaranties, as the case may be.
If temporary Securities are issued, the Note Issuer will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Note Issuer designated for that purpose without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Securities,
the Note Issuer shall execute and the Trustee shall authenticate and deliver in
exchange therefor a like principal amount of definitive Securities of authorized
denominations having the same Issue Date and Stated Maturity, having the same
terms and like tenor, and having endorsed thereon the Guaranties executed by the
Guarantors. Until so exchanged, the temporary Securities shall in all respects
be entitled to the same benefits under this Indenture as definitive Securities.
SECTION 3.5. Registration, Registration of Transfer and Exchange.
The Note Issuer shall cause to be kept at the Corporate Trust Office of
the Trustee, a register in which, subject to such reasonable regulations as it
may prescribe, the Note Issuer shall provide for the registration of Securities
and of transfers of Securities. Such register is herein sometimes referred to as
the "Securities Register." The Trustee is hereby appointed "Securities
Registrar" for the purpose of registering Securities and transfers of the
Securities as herein provided.
Upon surrender for registration of transfer of any Security at the office
or agency of the Note Issuer designated for that purpose the Note Issuer shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Securities of any
authorized denominations, of a like aggregate principal amount, of the same
Issue Date and Stated Maturity, having the same terms and like tenor, and having
endorsed thereon the Guaranties executed by the Guarantors; PROVIDED, that
Initial Securities may only be transferred in principal amounts of $100,000 or
more.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations, of a like aggregate principal
amount, of the same Issue Date and Stated
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Maturity and having the same terms and like tenor, and having endorsed thereon
the Guaranties executed by the Guarantors, upon surrender of the Securities to
be exchanged at such office or agency. Whenever any Securities are so
surrendered for exchange, the Note Issuer shall execute, the Guarantors shall
execute the Guaranties endorsed on and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive.
All Securities and the Guaranties endorsed thereon issued upon any
registration of transfer or exchange of Securities shall be the valid
obligations of the Note Issuer and the respective Guarantors, evidencing the
same debt and Guaranties, and entitled to the same benefits under this
Indenture, as the Securities and Guaranties surrendered upon such registration
of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Note Issuer or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Note Issuer and the Securities Registrar, duly executed by
the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Securities, but the Note Issuer may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities.
Notwithstanding any of the foregoing, any Global Security shall be
exchangeable pursuant to this Section 3.5 for Securities registered in the names
of Persons other than the Depositary for such Global Security or its nominee
only if (i) such Depositary notifies the Note Issuer that it is unwilling or
unable to continue as Depositary for such Global Security or if at any time such
Depositary ceases to be a clearing agency registered under the Exchange Act, as
amended, (ii) the Note Issuer executes and delivers to the Trustee a Note Issuer
Order that such Global Security shall be so exchangeable or (iii) there shall
have occurred and be continuing an Event of Default with respect to the
Securities and the Holders of a majority in aggregate principal amount of this
outstanding securities shall have so requested. Any Global Security that is
exchangeable pursuant to the preceding sentence shall be exchangeable for
Securities registered in such names as such Depositary shall direct.
Notwithstanding any other provision in this Indenture, a Global Security
may not be transferred except as a whole by the Depositary with respect to such
Global Security to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary.
Neither the Note Issuer nor the Trustee shall be required to, pursuant to
the provisions of this Section, (a) issue, register the transfer of or exchange
any Security during a period beginning at the opening of business 15 days before
any selection for redemption of Securities pursuant to
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Article XI and ending at the close of business on the earliest date on which the
relevant notice of redemption is deemed to have been given to all Holders of
Securities to be so redeemed, and (b) register the transfer of or exchange any
Security so selected for redemption, in whole or in part, except, in the case of
any Security to be redeemed in part, any portion thereof not to be redeemed.
All Initial Securities initially issued hereunder shall, upon issuance,
bear the legend specified in Section 2.4 to be applied to such a Security and
such required legend shall not be removed unless the Note Issuer shall have
delivered to the Trustee (and the Securities Registrar, if other than the
Trustee) a Note Issuer Order which states that the Security may be issued
without such legend thereon. If such legend required for an Initial Security has
been removed from a Security as provided above, no other Security issued in
exchange for all or any part of such Security shall bear such legend, unless the
Note Issuer has reasonable cause to believe that such other Security is a
"restricted security" within the meaning of Rule 144 of the Securities Act and
instructs the Trustee to cause a legend to appear thereon.
SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee together with such
security or indemnity as may be required by the Note Issuer or the Trustee to
save each of them harmless, the Note Issuer shall execute, the Guarantors shall
execute the Guaranties endorsed on and the Trustee shall authenticate and
deliver in exchange therefor, a new Security of like tenor and principal amount,
having the same Issue Date and Stated Maturity and bearing the same Interest
Rate as such mutilated Security, and bearing a number not contemporaneously
outstanding.
If there shall be delivered to the Note Issuer and to the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any
Security, and (ii) such security or indemnity as may be required by each of them
to save each of them, each Guarantor and any agent of either of them harmless,
then, in the absence of notice to the Note Issuer or the Trustee that such
Security has been acquired by a bona fide purchaser, the Note Issuer shall
execute and upon its request the Trustee shall authenticate and deliver, in lieu
of any such destroyed, lost or stolen Security, a new Security of like tenor and
principal amount, having endorsed thereon the Guaranties executed by the
Guarantors, having the same Issue Date and Stated Maturity and bearing the same
Interest Rate as such destroyed, lost or stolen Security, and bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Note Issuer in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Note Issuer
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in
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relation thereto and any other expenses (including the fees and expenses of the
Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security, and the Guaranties endorsed thereon, shall
constitute an original additional contractual obligation of the Note Issuer and
the respective Guarantors, whether or not the destroyed, lost or stolen
Security, and the Guaranties endorsed thereon, shall be at any time enforceable
by anyone, and shall be entitled to all the benefits of this Indenture equally
and proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.7. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date, shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest, except that
interest payable on the Stated Maturity of a Security shall be paid to the
Person to whom principal is paid.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest"), shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Note Issuer, at its election in each case, as
provided in Clause (1) or (2) below:
(1) The Note Issuer may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Note Issuer shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be paid
on each Security and the date of the proposed payment, and at the same
time the Note Issuer shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such money
when deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as in this Clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days
prior to the date of the proposed payment and not less than 10 days after
the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the
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Note Issuer of such Special Record Date and, in the name and at the
expense of the Note Issuer, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be mailed,
first-class, postage prepaid, to each Holder at the address of such Holder
as it appears in the Securities Register not less than 10 days prior to
such Special Record Date. The Trustee may, in its discretion, in the name
and at the expense of the Note Issuer, cause a similar notice to be
published at least once in a newspaper, customarily published in the
English language on each Business Day and of general circulation in the
Borough of Manhattan, The City of New York, but such publication shall not
be a condition precedent to the establishment of such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been mailed as aforesaid, such Defaulted
Interest shall be paid to the Persons in whose names the Securities (or
their respective Predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following Clause (2).
(2) The Note Issuer may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, upon such
notice as may be required by such exchange (or by the Trustee if the
Securities are not listed), if, after notice given by the Note Issuer to
the Trustee of the proposed payment pursuant to this Clause, such manner
of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
Under the Registration Rights Agreement, in the event that (i) an Exchange
Offer Registration Statement or a Shelf Registration Statement is not filed on
or prior to the applicable deadline set forth in the Registration Rights
Agreement, (ii) an Exchange Offer Registration Statement or a Shelf Registration
Statement is not declared effective on or prior to the applicable deadline set
forth in the Registration Rights Agreement, or (iii) the Exchange Offer has not
been "Consummated" (as defined in the Registration Rights Agreement) or upon the
occurrence of certain other conditions, then additional payments in the form of
Liquidated Damages shall accrue on the principal amount of the Securities at the
rate per $1,000 liquidation amount of Preferred Securities set forth in the
Registration Rights Agreement. Upon filing or effectiveness of the Exchange
Offer Registration Statement or the Shelf Registration Statement, Consummation
of the Exchange Offer or upon cessation of any such other conditions, as the
case may be, the obligation to pay such Liquidated Damages with respect to the
event in question shall cease.
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SECTION 3.8. Persons Deemed Owners.
Prior to the presentment of a Security for registration of transfer, the
Note Issuer, the Guarantors, the Trustee and any agent of the Note Issuer, the
Guarantors or the Trustee may treat the Person in whose name such Security is
registered as the owner of such Security for the purpose of receiving payment of
principal (and premium, if any) of and (subject to Section 3.7) interest on such
Security and for all other purposes whatsoever, whether or not such Security be
overdue, and neither the Note Issuer, the Guarantors, the Trustee nor any agent
of the Note Issuer, the Guarantors or the Trustee shall be affected by notice to
the contrary.
SECTION 3.9. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee, and any such Securities surrendered directly to the
Trustee for any such purpose shall be promptly canceled by it. The Note Issuer
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Note Issuer may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly canceled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities canceled as provided in this Section,
except as expressly permitted by this Indenture. All canceled Securities shall
be destroyed by the Trustee and the Trustee shall deliver to the Note Issuer a
certificate of such destruction.
SECTION 3.10. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months and, for any partial period, on the basis of the
number of days elapsed in a 360-day year of twelve 30-day months.
SECTION 3.11. Right of Set-Off.
Notwithstanding anything to the contrary in this Indenture, the Note
Issuer shall have the right to set-off any payment it or the Company is
otherwise required to make hereunder in respect of any Security to the extent
the Note Issuer or the Company has theretofore made, or is concurrently on the
date of such payment making, a payment under the Company Guarantee relating to
such Security or under Section 5.8 of this Indenture.
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SECTION 3.12. Agreed Tax Treatment.
Each Security issued hereunder shall provide that the Note Issuer and, by
its acceptance of a Security or a beneficial interest therein, the Holder of,
and any Person that acquires a beneficial interest in, such Security agree that
for German and United States Federal, state and local tax purposes and for
purposes of any tax imposed by the jurisdiction of formation of the Note Issuer
(or any political subdivision or taxing authority thereof or therein) it is
intended that such Security constitute indebtedness.
SECTION 3.13. CUSIP Numbers.
The Note Issuer in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided, that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers.
ARTICLE IV.
SATISFACTION AND DISCHARGE
SECTION 4.1. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to (i) any
surviving rights of registration of transfer, substitution and exchange of
Securities, (ii) rights hereunder of Holders to receive payments of principal of
(and premium, if any) and interest (including Additional Sums and Additional
Amounts, if any) on the Securities and other rights, duties and obligations of
the Holders as beneficiaries hereof with respect to the amounts, if any,
deposited with the Trustee pursuant to this Article IV and (iii) the rights and
obligations of the Trustee hereunder), and the Trustee, on demand of and at the
expense of the Note Issuer, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(1) either:
(A) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 3.6 and (ii) Securities
for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Note Issuer and thereafter
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repaid to the Note Issuer or discharged from such trust, as provided in
Section 10.3) have been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within one
year of the date of deposit,
and the Note Issuer or a Guarantor, in the case of Clause (B) (i) or (B)
(ii) above, has deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose an amount in the currency or
currencies in which the Securities are payable sufficient (without
reinvestment) to pay and discharge the entire indebtedness on such
Securities not theretofore delivered to the Trustee for cancellation, for
principal (and premium, if any) and interest (including Additional Sums
and Additional Amounts, if any) to the date of such deposit (in the case
of Securities which have become due and payable) or to the Stated
Maturity;
(2) the Note Issuer or a Guarantor has paid or caused to be paid all
other sums payable hereunder by the Note Issuer and the Guarantors; and
(3) the Note Issuer has delivered to the Trustee an Opinion of
Counsel to the effect that the Holders of the Outstanding Securities will
not recognize gain or loss for German and United States Federal income tax
purposes and for purposes of any income tax imposed by the jurisdiction of
formation of the Note Issuer as a result of the application of this
Section 4.1 and will be subject to German and United States Federal income
tax and any income tax imposed by the jurisdiction of formation of the
Note Issuer, if any, on the same amount as would have been the case if
such satisfaction and discharge of the Indenture had not occurred; and
(4) the application of this Section 4.1 shall not cause the Trustee
to have a conflicting interest as defined in Section 6.8 hereof and for
purposes of the Trust Indenture Act with respect to any securities of the
Note Issuer; and
(5) the funds deposited with the Trustee pursuant to Clause (1)(B)
above shall not be deemed an "investment company" as defined in the 1940
Act, or such trust shall be qualified under the 1940 Act or exempt from
regulation thereunder; and
(6) the Note Issuer has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided in this subsection 4.1 for relating to the satisfaction
and discharge of this Indenture have been complied with.
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Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Article IV, the obligations of the Note Issuer to the Trustee under Section
6.7 and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of Clause (1) of this Section, the obligations of the Trustee
under Section 4.2 and the last paragraph of Section 10.3, shall survive.
SECTION 4.2. Application of Trust Money; Reinstatement.
Subject to the provisions of the last paragraph of Section 10.3, all money
deposited with the Trustee pursuant to Section 4.1 or money or Government
Obligations deposited with the Trustee pursuant to Section 4.3, or received by
the Trustee in respect of Government Obligations deposited with the Trustee
pursuant to Section 4.3, shall be held in trust and applied by the Trustee, in
accordance with the provisions of the Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Note Issuer
acting as its own Paying Agent) as the Trustee may determine, to the Persons
entitled thereto, of the principal (and premium, if any) and interest (including
Additional Sums and Additional Amounts, if any) for the payment of which such
money or Government Obligations have been deposited with or received by the
Trustee; provided, however, such moneys need not be segregated from other funds
held in trust except to the extent required by law. Money so held in trust shall
not be subject to the provisions of Article XII or Article XIV.
The Note Issuer shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the Government Obligations
deposited pursuant to Section 4.3 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Securities.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with Section 4.1 or 4.3 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the obligations of the Note Issuer and the Guarantors
under this Indenture, the Securities and the Guaranties shall be revived and
reinstated as though no deposit had occurred pursuant to this Article IV until
such time as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 4.1 or 4.3; provided, however, that if the Note Issuer
or any Guarantor makes any payment of principal of (and premium, if any) or
interest (including Additional Sums and Additional Amounts, if any) on any
Security following the reinstatement of its obligations, the Note Issuer or such
Guarantor shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money held by the Trustee or the Paying Agent.
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SECTION 4.3. Satisfaction, Discharge and Defeasance of Securities.
The Note Issuer shall be deemed to have paid and discharged the entire
indebtedness on all the Outstanding Securities, the Guarantors shall each be
released from their respective Guaranties, and the Trustee, at the expense of
the Note Issuer, shall execute proper instruments acknowledging satisfaction and
discharge of such indebtedness and Guaranties, when
(1) with respect to all Outstanding Securities,
(A) the Note Issuer has irrevocably deposited or caused to be
irrevocably deposited with the Trustee as trust funds in trust for such
purpose an amount sufficient to pay and discharge the entire indebtedness
on all Outstanding Securities for principal (and premium, if any) and
interest (including Additional Sums and Additional Amounts, if any) to the
Stated Maturity or any Redemption Date as contemplated by the penultimate
paragraph of this Section 4.3, as the case may be; or
(B) the Note Issuer has irrevocably deposited or caused to be
irrevocably deposited with the Trustee as obligations in trust for such
purpose an amount of Government Obligations as will, in the written
opinion of independent public accountants delivered to the Trustee,
together with predetermined and certain income to accrue thereon, without
consideration of any reinvestment thereof, be sufficient to pay and
discharge when due the entire indebtedness on all Outstanding Securities
for principal (and premium, if any) and interest (including Additional
Sums and Additional Amounts, if any) to the Stated Maturity or any
Redemption Date as contemplated by the penultimate paragraph of this
Section 4.3, as the case may be; and
(2) the Note Issuer has paid or caused to be paid all other sums
payable with respect to the Outstanding Securities; and
(3) the Note Issuer has delivered to the Trustee an Opinion of
Counsel to the effect that the Holders of the Outstanding Securities will
not recognize gain or loss for German and United States Federal income tax
purposes or for the purposes of any income tax imposed by the jurisdiction
of formation of the Note Issuer as a result of the application of this
Section 4.3 and will be subject to German and United States Federal income
tax and any income tax imposed by the jurisdiction of formation of the
Note Issuer, if any, on the same amount, in the same manner as would have
been the case if such satisfaction, discharge and defeasance of the
Securities had not occurred; and
(4) the Note Issuer has delivered to the Trustee an Officers'
Certificate to the effect that the Securities, if then listed on any
securities exchange, will not be delisted as a result of the deposit
pursuant to Clause (1) above; and
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(5) the application of this Section 4.3 shall not cause the Trustee
to have a conflicting interest as defined in Section 6.8 hereof and for
purposes of the Trust Indenture Act with respect to any securities of the
Note Issuer; and
(6) at the time of the deposit pursuant to Clause (1) above: (A) no
default in the payment of all or a portion of principal of (or premium, if
any) or interest on any Senior Indebtedness of the Note Issuer or any
Guarantor shall have occurred and be continuing, and no event of default
with respect to any such Senior Indebtedness shall have occurred and be
continuing and shall have resulted in such Senior Indebtedness becoming or
being declared due and payable prior to the date on which it would
otherwise have become due and payable and (B) no other event of default
with respect to any Senior Indebtedness of the Note Issuer or any
Guarantor shall have occurred and be continuing permitting (after notice
or the lapse of time, or both) the holders of such Senior Indebtedness (or
a representative on behalf of the holders thereof) to declare such Senior
Indebtedness due and payable prior to the date on which it would otherwise
have become due and payable, or, in the case of either Clause (A) or
Clause (B) above, each such default or event of default shall have been
cured or waived or shall have ceased to exist; and
(7) no Event of Default or event which with notice or lapse of time
or both would become an Event of Default shall have occurred and be
continuing on the date of such deposit; and
(8) the funds deposited with the Trustee pursuant to Clause (1)
above shall not be deemed an "investment company" as defined in the 1940
Act or such trust shall be qualified under the 1940 Act or exempt from
regulation thereunder; and
(9) the Note Issuer has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge
of the entire indebtedness on all Outstanding Securities have been
complied with.
Any deposits with the Trustee referred to in Section 4.3(1) above shall be
irrevocable and shall be made under the terms of an escrow trust agreement in
form and substance reasonably satisfactory to the Trustee. If any Outstanding
Securities are to be redeemed prior to their Stated Maturity, whether pursuant
to any optional or mandatory redemption provisions, the applicable escrow trust
agreement shall provide therefor and the Note Issuer shall make such
arrangements as are satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Note Issuer.
If the Securities are not to become due and payable at their Stated Maturity or
upon call for redemption within one year of the date of deposit, then the Note
Issuer shall give, not later than the date of such deposit, notice of such
deposit to the Holders.
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Upon the satisfaction of the conditions set forth in this Section 4.3 with
respect to all the Outstanding Securities, the terms and conditions of the
Securities and Guaranties, including the terms and conditions with respect
thereto set forth in this Indenture, shall no longer be binding upon, or
applicable to, the Note Issuer and the Guarantors; provided, that the Note
Issuer and the Guarantors shall not be discharged from any payment obligations
in respect of Securities which are deemed not to be Outstanding under clause
(iii) of the definition thereof if such obligations continue to be valid
obligations of the Note Issuer and the Guarantors under applicable law.
ARTICLE V.
REMEDIES
SECTION 5.1. Events of Default.
"Event of Default," wherever used herein means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest upon any Security,
including any Additional Sums and Additional Amounts in respect thereof,
when it becomes due and payable, and continuance of such default for a
period of 30 days; or
(2) default in the payment of the principal of (or premium, if any,
on) any Security at its Maturity; or
(3) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Company or the Note Issuer in this
Indenture (other than a covenant or warranty a default in the performance
of which or the breach of which is elsewhere in this Section specifically
dealt with), and continuance of such default or breach for a period of 90
days after there has been given, by registered or certified mail, to the
Note Issuer by the Trustee or to the Note Issuer and the Trustee by the
Holders of at least 25% in principal amount of the Outstanding Securities
a written notice specifying such default or breach and requiring it to be
remedied; or
(4) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any Subsidiary (or the
payment of which is guaranteed by the Company or any Subsidiary), whether
such Indebtedness or Guarantee now exists or is incurred after the Issue
Date, if (A) such default results in the acceleration of such Indebtedness
prior to its express maturity or shall constitute a default in the payment
of
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such Indebtedness and (B) the principal amount of any such Indebtedness
that has been accelerated or not paid at maturity, when added to the
aggregate principal amount of all other such Indebtedness, at such time,
that has been accelerated or not paid at maturity, exceeds $25,000,000; or
(5) the dissolution, winding up or termination of the Trust, except
in connection with the distribution of Securities to the holders of
Preferred Securities in dissolution of the Trust and in connection with
such mergers, consolidations or amalgamations as are permitted by the
Declaration; or
(6) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or the Note Issuer a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or the Note Issuer under any applicable German or United
States Federal or State or other applicable foreign bankruptcy,
insolvency, reorganization or other similar law, or appointing a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
the Company or the Note Issuer or of any substantial part of its property
or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect for a
period of 60 consecutive days; or
(7) the institution by the Company or the Note Issuer of proceedings
to be adjudicated a bankrupt or insolvent, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or
relief under any applicable German or United States Federal or State or
other applicable foreign bankruptcy, insolvency, reorganization or other
similar law, or the consent by it to the filing of any such petition or to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Company or the Note Issuer or of any
substantial part of its property, or the making by it of an assignment for
the benefit for creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due and its
willingness to be adjudicated a bankrupt, or the taking of corporate
action by the Company or the Note Issuer in furtherance of any such
action; or
(8) except as permitted by the terms hereof and the Securities, the
cessation of effectiveness of any Guaranty or the finding by any judicial
proceeding that any such Guaranty is unenforceable or invalid or the
denial or disaffirmation by any Guarantor of its obligations under its
Guaranty.
A default under any other indebtedness of the Company or any of its
Subsidiaries or joint ventures or the Trust would not constitute an Event of
Default under the Securities.
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SECTION 5.2. Acceleration of Maturity; Rescission and Annulment.
As provided in and subject to the provisions of this Indenture, if an
Event of Default with respect to the Securities at the time Outstanding occurs
and is continuing, then and in every such case the Trustee or the Holders of not
less than 25% in aggregate outstanding principal amount of the Outstanding
Securities may declare the principal amount of and interest (including
Additional Sums and Additional Amounts, if any) on all the Securities to be due
and payable immediately, by a notice in writing to the Note Issuer and the
Guarantors (and to the Trustee if given by Holders), provided, that if the
Trustee or such Holders fail to do so, the Preferred Trustee shall have such
right by a notice in writing to the Note Issuer and the Trustee; and upon any
such declaration such specified amount of and the accrued interest (including
Additional Sums and Additional Amounts, if any) on all the Securities shall
become immediately due and payable, provided, that the payment of principal and
interest (including Additional Sums and Additional Amounts, if any) on such
Securities shall remain subordinated to the extent provided in Article XII of
the Indenture.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in aggregate principal amount of the Outstanding Securities, by written notice
to the Note Issuer and the Trustee, may rescind and annul such declaration and
its consequences if:
(1) the Note Issuer or any Guarantor has paid or deposited with the
Trustee a sum sufficient to pay:
(A) all overdue installments of interest (including Additional Sums
and Additional Amounts, if any) on the Securities,
(B) the principal of (and premium, if any, on) any Securities which
have become due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Securities, and
(C) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
(2) all Events of Default, other than the non-payment of the
principal of the Securities which have become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 5.13.
The Holders of a majority in aggregate outstanding principal amount of the
Securities affected thereby may, on behalf of the Holders of all the Securities,
waive any past default, except a
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default in the payment of principal, premium, if any, or interest (unless such
default has been cured and a sum sufficient to pay all matured installments of
interest, premium, if any, and principal due otherwise than by acceleration has
been deposited with the Trustee) or a default in respect of a covenant or
provision which under this Indenture cannot be modified or amended without the
consent of the Holder of each Outstanding Security and, should the Holders of
such Securities fail to annul such declaration and waive such default, the
holders of a majority in aggregate liquidation amount of the Preferred
Securities shall have such right. The Preferred Trustee, as the initial Holder
of the Securities, has agreed under the Declaration not to waive an Event of
Default with respect to the Securities without the consent of holders of a
majority in aggregate liquidation amount of the Preferred Securities then
outstanding.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Upon receipt by the Trustee of written notice declaring such an
acceleration, or rescission and annulment thereof, a record date shall be
established for determining Holders of Outstanding Securities entitled to join
in such notice, which record date shall be at the close of business on the day
the Trustee receives such notice. The Holders on such record date, or their duly
designated proxies, and only such Persons, shall be entitled to join in such
notice, whether or not such Holders remain Holders after such record date;
provided, that, unless such declaration of acceleration, or rescission and
annulment, as the case may be, shall have become effective by virtue of the
requisite percentage having joined in such notice prior to the day which is 90
days after such record date, such notice of declaration of acceleration, or
rescission and annulment, as the case may be, shall automatically and without
further action by any Holder be canceled and of no further effect. Nothing in
this paragraph shall prevent a Holder, or a proxy of a Holder, from giving,
after expiration of such 90-day period, a new written notice of declaration of
acceleration, or rescission and annulment thereof, as the case may be, that is
identical to a written notice which has been canceled pursuant to the proviso to
the preceding sentence, in which event a new record date shall be established
pursuant to the provisions of this Section 5.2.
SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Note Issuer covenants that if:
(1) default is made in the payment of any installment of interest
(including Additional Sums and Additional Amounts, if any) on any Security
when such interest becomes due and payable and such default continues for
a period of 30 days, or
(2) default is made in the payment of the principal of (and premium,
if any, on) any Security at the Maturity thereof,
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the Note Issuer will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such Securities, the whole amount then due and payable
on such Securities for principal (and premium, if any) and interest (including
Additional Sums and Additional Amounts, if any); and, in addition thereto, all
amounts owing the Trustee under Section 6.7.
If the Note Issuer fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Note Issuer, any Guarantor or any other obligor upon the Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Note Issuer, any Guarantor or any other
obligor upon the Securities, wherever situated.
Subject to Section 6.3 hereof, if an Event of Default occurs and is
continuing, the Trustee may in its discretion proceed to protect and enforce its
rights and the rights of the Holders under this Indenture by such appropriate
judicial proceedings as the Trustee shall deem most effectual to protect and
enforce any such rights, whether for the specific enforcement of any covenant or
agreement in this Indenture or in aid of the exercise of any power granted
herein, pursuant to the terms of this Indenture.
SECTION 5.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Note Issuer, any Guarantor or any other
obligor upon the Securities or the property of the Note Issuer, of any Guarantor
or of such other obligor or their creditors,
(a) the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Note Issuer for the payment of overdue principal (and premium, if any) or
interest (including Additional Sums and Additional Amounts, if any)) shall be
entitled and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest (including Additional Sums and Additional Amounts,
if any) owing and unpaid in respect to the Securities and to file such other
papers or documents as may be necessary or advisable and to take any and all
actions as are authorized under the Trust Indenture Act in order to have the
claims of the Holders and any predecessor to the Trustee under Section 6.7 and
of the Holders allowed in any such judicial proceedings; and
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(ii) and in particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same in accordance with Section 5.6; and
(b) any custodian, receiver, assignee, trustee, liquidator, sequestrator
(or other similar official) in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee for distribution in
accordance with Section 5.6, and in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due to it and any predecessor Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
SECTION 5.5. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of all the amounts owing the Trustee and any predecessor Trustee
under Section 6.7, its agents and counsel, be for the ratable benefit of the
Holders of the Securities in respect of which such judgment has been recovered.
SECTION 5.6. Application of Money Collected.
Any money or property collected or to be applied by the Trustee with
respect to the Securities pursuant to this Article, shall, subject to Articles
XII and XIV, be applied in the following order, at the date or dates fixed by
the Trustee and, in case of the distribution of such money or property on
account of principal (or premium, if any) or interest (including any Additional
Sums), upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any
predecessor Trustee under Section 6.7;
SECOND: To the extent provided in Article XII, to the holders of
Senior Indebtedness of the Note Issuer and the Company in accordance with
Article XII or if
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collected from a Guarantor, to the extent provided in Article XIV, to the
holders of Senior Indebtedness of the Guarantor in accordance with Article
XIV;
THIRD: To the payment of the amounts then due and unpaid upon such
Securities for principal (and premium, if any) and interest (including
Additional Sums and Additional Amounts, if any), in respect of which or
for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and
payable on such Securities for principal (and premium, if any) and
interest (including any Additional Sums and Additional Amounts),
respectively; and
FOURTH: The balance, if any, to the Person or Persons lawfully
entitled thereto.
SECTION 5.7. Limitation on Suits.
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture or for the
appointment of a receiver, assignee, trustee, liquidator, sequestrator (or other
similar official) or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee
of a continuing Event of Default;
(2) if the Preferred Trustee is not the Holder of the Securities,
the Holders of not less than 25% in aggregate principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in aggregate principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
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The foregoing limitations shall not apply to a suit instituted by a Holder
of a Security for enforcement of payment of the principal of and premium, it
any, or interest (including Additional Sums and Additional Amounts, if any) on
such Security on or after the respective due dates expressed in such Security.
SECTION 5.8. Unconditional Right of Holders to Receive Principal, Premium
and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right which is absolute and unconditional to receive
payment of the principal of (and premium, if any) and (subject to Section 3.7)
interest (including Additional Sums and Additional Amounts, if any) on such
Security on the respective Stated Maturities expressed in such Security and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder. Except as set forth in the
Declaration, the holders of Preferred Securities shall have no right to exercise
directly any right or remedy available to the Holders of, or in respect of, the
Securities; provided, however, that if the Preferred Trustee or the Special
Trustee (as defined in the Declaration) do not enforce such payment obligations,
a holder of Preferred Securities will have the right to bring an action on
behalf of the Trust to enforce the Trust's rights under the Securities and the
Indenture.
SECTION 5.9. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case the Note Issuer, the Guarantors, the
Trustee and the Holders shall, subject to any determination in such proceeding,
be restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative.
Except as otherwise provided in the last paragraph of Section 3.6, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
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SECTION 5.11. Delay or Omission Not Waiver.
Except as otherwise provided in the last paragraph of Section 3.6, no
delay or omission of the Trustee or of any Holder of any Security to exercise
any right or remedy accruing upon any Event of Default shall impair any such
right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or
to the Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
SECTION 5.12. Control by Holders.
The Holders of a majority in aggregate principal amount of the Outstanding
Securities shall have the right, subject to Section 6.3 hereof, to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee, with
respect to the Securities, provided, that:
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) subject to the provisions of Section 6.1, the Trustee shall have
the right to decline to follow such direction if the Trustee in good faith
shall, by a Responsible Officer or Officers of the Trustee, determine that
the proceeding so directed would be unjustly prejudicial to the Holders
not joining in any such direction or would involve the Trustee in personal
liability.
Upon receipt by the Trustee of any written notice directing the time,
method or place of conducting any such proceeding or exercising any such trust
or power, a record date shall be established for determining Holders of
Outstanding Securities entitled to join in such notice, which record date shall
be at the close of business on the day the Trustee receives such notice. The
Holders on such record date, or their duly designated proxies, and only such
Persons, shall be entitled to join in such notice, whether or not such Holders
remain Holders after such record date; provided, that, unless the Holders of a
majority in principal amount of the Outstanding Securities shall have joined in
such notice prior to the day which is 90 days after such record date, such
notice shall automatically and without further action by any Holder be canceled
and of no further effect. Nothing in this paragraph shall prevent a Holder, or a
proxy of a Holder, from giving, after expiration of such 90-day period, a new
notice identical to a notice which has been canceled
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pursuant to the proviso to the preceding sentence, in which event a new record
date shall be established pursuant to the provisions of this Section 5.12.
SECTION 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate outstanding principal
amount of the Outstanding Securities affected thereby may on behalf of the
Holders of all the Securities waive any past default hereunder and its
consequences with respect to the Securities except a default:
(1) in the payment of the principal of (or premium, if any) or
interest (including Additional Sums and Additional Amounts, if any) on any
Security, or
(2) in respect of a covenant or provision hereof which under Article
IX cannot be modified or amended without the consent of the Holder of each
Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities,
or to any suit instituted by any Holder for the enforcement of the payment of
the principal of (or premium, if any) or interest (including Additional Sums and
Additional Amounts, if any) on any Security on or after the respective Stated
Maturities expressed in such Security.
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SECTION 5.15. Waiver of Usury, Stay or Extension Laws.
Each of the Note Issuer and the Guarantors covenants (to the extent that
it may lawfully do so) that it will not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any usury, stay
or extension law wherever enacted, now or at any time hereafter in force, which
may affect the covenants or the performance of this Indenture; and each of the
Note Issuer and the Guarantors (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
ARTICLE VI.
THE TRUSTEE
SECTION 6.1. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture; but
in the case of any such certificates or opinions which by any provisions
hereof are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct except that
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(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the
direction of Holders pursuant to Section 5.12 relating to the time, method
and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture with respect to the Securities.
(d) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if there shall be reasonable grounds for believing that repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(e) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
SECTION 6.2. Notice of Defaults.
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Securities, the Trustee shall transmit by mail to all Holders, as their names
and addresses appear in the Securities Register, notice of such default
hereunder known to the Trustee, unless such default shall have been cured or
waived; provided, however, that, except in the case of a default in the payment
of the principal of (or premium, if any) or interest (including Additional Sums
and Additional Amounts, if any) on any Security, the Trustee shall be protected
in withholding such notice if and so long as the board of directors, the
executive committee or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determines that the withholding of such
notice is in the interests of the Holders; and provided, further, that, in the
case of any default of the character specified in Section 5.1(3), no such notice
to Holders shall be given until at least 30 days after the occurrence thereof.
For the purpose of this Section, the term "default" means any event which is, or
after notice or passage of time or both would be, an Event of Default.
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SECTION 6.3. Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note,
Security or other evidence of indebtedness, or other paper or document believed
by it to be genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Note Issuer mentioned herein shall be
sufficiently evidenced by a Note Issuer Request or Note Issuer Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, Security or other evidence of indebtedness, or other paper or document,
but the Trustee in its discretion may make such further inquiry or investigation
into such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be entitled to
examine the books, records and premises of the Note Issuer or any Guarantor,
personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
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SECTION 6.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in Securities and Guaranties endorsed
thereon, except the Trustee's certificates of authentication, shall be taken as
the statements of the Note Issuer, or the Guarantors, as the case may be, and
the Trustee assumes no responsibility for their correctness. The Trustee makes
no representations as to the validity or sufficiency of this Indenture or of the
Securities, the value or condition of any Collateral or the priority or
perfection of any security interest purportedly granted herein. The Trustee
shall not be accountable for the use or application by the Note Issuer of the
Securities or the proceeds thereof.
SECTION 6.5. May Hold Securities.
The Trustee, Collateral Agent, any Paying Agent, Securities Registrar or
any other agent of the Note Issuer or any Guarantor, in its individual or any
other capacity, may become the owner or pledgee of Securities and, subject to
Sections 6.8 and 6.13, may otherwise deal with the Note Issuer or any Guarantor
with the same rights it would have if it were not Trustee, Paying Agent,
Securities Registrar or such other agent.
SECTION 6.6. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed in writing with the Note Issuer or any Guarantor, as the case may be.
SECTION 6.7. Compensation and Reimbursement.
The Company and the Note Issuer agree
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder in such amounts as the Note
Issuer, the Guarantors and the Trustee shall agree from time to time
(which compensation shall not be limited by any provision of law in regard
to the compensation of a trustee of an express trust);
(2) to reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the reasonable
compensation and the reasonable expenses and disbursements of its agents
and counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
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(3) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense (including the reasonable compensation and
the reasonable expenses and disbursements of its agents and counsel)
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of this trust or the
performance of its duties hereunder, including the costs and expenses of
defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder. This
indemnification shall survive the termination of this Agreement.
To secure the Note Issuer's payment obligations in this Section, the Note
Issuer and the Holders agree that the Trustee shall have a lien prior to the
Securities on all money or property held or collected by the Trustee. Such lien
shall survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.1(6) or (7) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any applicable German or United States Federal or State or
other applicable foreign bankruptcy, insolvency or other similar law.
SECTION 6.8. Disqualification; Conflicting Interests.
The Trustee shall be subject to the provisions of Section 310(b) of the
Trust Indenture Act. Nothing herein shall prevent the Trustee from filing with
the Commission the application referred to in the second to last paragraph of
Section 301(b) of the Trust Indenture Act.
SECTION 6.9. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
(a) a corporation organized and doing business under the laws of the
United States of America or of any State, Territory or the District of Columbia,
authorized under such laws to exercise corporate trust powers and subject to
supervision or examination by Federal, State, Territorial or District of
Columbia authority, or
(b) a corporation or other Person organized and doing business under the
laws of a foreign government that is permitted to act as Trustee pursuant to a
rule, regulation or order of the Commission, authorized under such laws to
exercise corporate trust powers, and subject to supervision or examination by
authority of such foreign government or a political subdivision thereof
substantially equivalent to supervision or examination applicable to United
States institutional trustees,
in either case having a combined capital and surplus of at least $50,000,000,
subject to supervision or examination by Federal or State authority. If such
corporation publishes reports of condition at
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least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then, for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article. Neither
the Note Issuer nor any Person directly or indirectly controlling, controlled by
or under common control with the Note Issuer shall serve as Trustee.
SECTION 6.10. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time by giving written notice thereof to
the Note Issuer. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time with respect to the Securities
by Act of the Holders of a majority in principal amount of the Outstanding
Securities, delivered to the Trustee and to the Note Issuer.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.8 after written
request therefor by the Note Issuer or by any Holder who has been a bona
fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.9 and
shall fail to resign after written request therefor by the Note Issuer or
by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Note Issuer, acting pursuant to the authority of
a Board Resolution, may remove the Trustee, or (ii) subject to Section 5.14, any
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee and the appointment of
a successor Trustee.
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(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Note
Issuer, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Note Issuer and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Note
Issuer. If no successor Trustee shall have been so appointed by the Note Issuer
or the Holders and accepted appointment in the manner hereinafter provided, any
Holder who has been a bona fide Holder of a Security for at least six months
may, subject to Section 5.14, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(f) The Note Issuer shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee by mailing written
notice of such event by first-class mail, postage prepaid, to the Holders of
Securities as their names and addresses appear in the Securities Register. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
SECTION 6.11. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee, every
such successor Trustee so appointed shall execute, acknowledge and deliver to
the Company, the Note Issuer and the other Guarantors and to the retiring
Trustee an instrument accepting such appointment, and thereupon the resignation
or removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Trustee; but, on the
request of the Company, the Note Issuer, any other Guarantor or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder.
(b) Upon request of any such successor Trustee, the Company, the Note
Issuer and the Guarantors shall execute any and all instruments for more fully
and certainly vesting in and confirming to such successor Trustee all rights,
powers and trusts referred to in paragraph (a) of this Section.
(c) No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
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SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated, and in case any
Securities shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor Trustee or in
the name of such successor Trustee, and in all cases the certificate of
authentication shall have the full force which it is provided anywhere in the
Securities or in this Indenture that the certificate of the Trustee shall have.
SECTION 6.13. Preferential Collection of Claims Against Note Issuer.
If and when the Trustee shall be or become a creditor of the Note Issuer,
the Guarantors or any other obligor upon the Securities, the Trustee shall be
subject to the provisions of the Trust Indenture Act regarding the collection of
claims against the Note Issuer, the Guarantors or any such other obligor.
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SECTION 6.14. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents which shall be
authorized to act on behalf of the Trustee to authenticate the Securities issued
upon original issue and upon exchange, registration of transfer or partial
redemption thereof, and the Securities so authenticated shall be entitled to the
benefits of this Indenture and shall be valid and obligatory for all purposes as
if authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of the Securities by the Trustee or
the Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the Note
Issuer and shall at all times be a corporation organized and doing business
under the laws of the United States of America, any State thereof, or any
Territory or the District of Columbia, authorized under such laws to act as
Authenticating Agent, having a combined capital and surplus of not less than
$50,000,000 and subject to supervision or examination by Federal or State
authority. If such Authenticating Agent publishes reports of condition at least
annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such Authenticating Agent shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time an Authenticating Agent shall cease to be eligible in
accordance with the provisions of this Section, such Authenticating Agent shall
resign immediately in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to all or substantially all of
the corporate trust business of an Authenticating Agent shall be the successor
Authenticating Agent hereunder, provided such corporation shall be otherwise
eligible under this Section, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Note Issuer. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Note Issuer. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Note Issuer and the Guarantors and shall
give notice of such appointment in the manner provided in Section 1.6 to all
Holders of Securities. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and duties
of its predecessor hereunder, with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible under the provision of this Section.
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The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 6.7.
If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:
This is one of the Securities with the Guaranties endorsed thereon
referred to in the within mentioned Indenture.
____________________________________
____________________________________
As Trustee
By: _________________________
As Authenticating Agent
By: _________________________
Authorized Officer
ARTICLE VII.
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND NOTE ISSUER
SECTION 7.1. Note Issuer to Furnish Trustee Names and Addresses of
Holders.
The Note Issuer will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not more than 15 days after each Regular Record Date, a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders as of such Regular Record Date,
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(b) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Note Issuer of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Securities Registrar.
SECTION 7.2. Preservation of Information, Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Securities
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.1 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect
to their rights under this Indenture or under the Securities, and the
corresponding rights, privileges and duties of the Trustee, shall be as provided
by the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Note Issuer, the Guarantors and the Trustee that none of the Note
Issuer, the Guarantors, the Trustee and any agent of any of them shall be held
accountable by reason of any disclosure of information as to the names and
addresses of the Holders made pursuant to the Trust Indenture Act.
SECTION 7.3. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act, at the times and in the manner provided pursuant thereto.
(b) Reports so required to be transmitted at stated intervals of not more
than 12 months shall be transmitted no later than May 15 in each calendar year,
commencing with the first May 15 after the first issuance of Securities under
this Indenture.
(c) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with the Commission, and delivered to the Note
Issuer and to the Guarantors.
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SECTION 7.4. Reports by Note Issuer.
The Company, the Note Issuer and each of the Guarantors shall file with
the Trustee and with the Commission, and transmit to Holders, such information,
documents and other reports, and such summaries thereof, as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided in
the Trust Indenture Act; provided, whether or not required by the rules and
regulations of the Commission, so long as any Securities are Outstanding, the
Company shall provide the Trustee and the Holders with (i) all annual financial
information that would be required to be contained in a filing with the
Commission on Form 20-F as if the Company were required to file such Forms, and
(ii) quarterly financial statements as of end for the period from the beginning
of each year to the close of each quarterly period (other than the fourth
quarter), together with comparable information for the corresponding periods of
the preceding year, including, in each case, a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon from the Company's certified
independent public accountants. (In addition, whether or not required by the
rules and regulations of the Commission, the Company will file a copy of all
such information and reports with the Commission for public availability and
make such information and reports available to securities analysts and
prospective investors upon request.) The Company and the Note Issuer also shall
comply with the other provisions of Trust Indenture Act Section 314(a).
ARTICLE VIII.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 8.1. Note Issuer May Consolidate, etc., Only on Certain Terms.
The Note Issuer shall not consolidate or merge with or into any other
Person (whether or not the Note Issuer is the Surviving Person) or convey,
transfer, assign, sell, lease or otherwise dispose of, in one or more related
transactions, all or substantially all of its properties and assets as an
entirety to any Person, unless:
(1) the Surviving Person shall be a corporation, organized and
existing under the laws of Germany, the United Kingdom, the United States
of America or any State thereof, the District of Columbia or the
jurisdiction of formation of the Note Issuer;
(2) the Surviving Person (if other than the Note Issuer) shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Note Issuer under the Securities and the Indenture;
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(3) at the time of, and immediately after giving effect to, such
transaction, no Default or Event of Default, shall have occurred and be
continuing;
(4) the Note Issuer has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that such
consolidation, merger, conveyance, transfer, assignment, sale, lease or
disposition, and any such supplemental indenture complies with this
Article and that all conditions precedent herein provided for relating to
such transaction have been complied with; and the Trustee, subject to
Section 6.1, may rely upon such Officers' Certificate and Opinion of
Counsel as conclusive evidence that such transaction complies with this
Section 8.1; and
(5) such consolidation, merger, conveyance, transfer, assignment,
lease or disposition is permitted under the Declaration and does not give
rise to any breach or violation of the Declaration.
SECTION 8.2. Guarantors May Consolidate, etc., Only on Certain Terms.
The Company will not and will not permit any other Guarantor to
consolidate with or merge with or into, or convey, transfer, sell, assign,
lease, or otherwise dispose of, in one transaction or a series of transactions,
all or substantially all of its properties and assets to any Person unless:
(1) the Surviving Person (if not the Company or such other
Guarantor) shall be a Person organized and existing under the laws of the
jurisdiction under which such Guarantor was organized or under the laws of
Germany, the United Kingdom, the United States of America, or any State
thereof or the District of Columbia or, except in a transaction or series
of transactions involving the Company, the jurisdiction of formation of
the Note Issuer or, if the Surviving Person is a corporation organized and
existing under the laws of any other jurisdiction, the Note Issuer
delivers to the Trustee an Opinion of Counsel reasonably acceptable to the
Trustee to the effect that the rights of the Holders of the Securities
would not be affected adversely as a result of the law of the jurisdiction
of organization of the Surviving Person, insofar as such law affects the
ability of the Surviving Person to pay and perform its obligations and
undertakings in connection with its Guaranty or the ability of the
Surviving Person to obligate itself to pay and perform such obligations
and undertakings or the ability of the Holders to enforce such obligations
and undertakings;
(2) the Surviving Person (if other than the Company or such other
Guarantor) shall expressly assume, (A) in a transaction or series of
transactions involving the Company, by a supplemental indenture in a form
satisfactory to the Trustee, all of the obligations of the Company under
this Indenture, including its Guaranty hereunder, or (B) in a transaction
or series of transactions not involving the Company, by a Guaranty
Agreement, in a form satisfactory to the Trustee, all the obligations of
such Subsidiary, if any, under its Guaranty;
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(3) at the time of, and immediately after giving effect to, such
transaction or transactions on a pro forma basis (and treating any
Indebtedness which becomes an obligation of the resulting, surviving or
transferee Person as a result of such transaction as having been issued by
such Person at the time of such transaction), no Default shall have
occurred and be continuing; and
(4) in the case of a transaction or series of transactions involving
the Company, (a) the Surviving Person will have a Consolidated Net Worth
(immediately after the transaction) equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the
transaction, (b) at the time of such transaction and after giving pro
forma effect thereto, the Surviving Person would be permitted to incur at
least $1.00 of additional Indebtedness pursuant to paragraph (a) of
Section 10.8 and (c) such consolidation, merger, conveyance, transfer or
lease is permitted under the Declaration and the Company Guarantee and
does not give rise to any breach or violation of the Declaration or the
Company Guarantee; and
(5) the Note Issuer and the Company or such other Note Guarantor has
delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, conveyance,
transfer, assignment, sale, lease, or disposition and such supplemental
indenture or Guaranty Agreement, if any, complies with the Indenture.
SECTION 8.3. Successor Corporation Substituted.
Upon any consolidation or merger by the Note Issuer with or into any other
Person, or any conveyance, transfer, sale, assignment, lease or other
disposition by the Note Issuer, in one or more transactions, of substantially
all of its properties and assets as an entirety to any Person in accordance with
Section 8.1, the Surviving Person shall succeed to, and be substituted for, and
may exercise every right and power of, the Note Issuer under this Indenture with
the same effect as if such Surviving Person had been named as the Note Issuer
herein, and thereafter the Note Issuer shall be discharged from all obligations
and covenants under the Indenture and the Securities.
Such Surviving Person may cause to be signed, and may issue either in its
own name or in the name of the Note Issuer, any or all of the Securities
issuable hereunder which theretofore shall not have been signed by the Note
Issuer and delivered to the Trustee; and, upon the order of such Surviving
Person instead of the Note Issuer and subject to all the terms, conditions and
limitations in this Indenture prescribed, the Trustee shall authenticate and
shall deliver any Securities which previously shall have been signed and
delivered by the officers of the Note Issuer to the Trustee for authentication
pursuant to such provisions and any Securities which such Surviving Person
thereafter shall cause to be signed and delivered to the Trustee on its behalf
for the purpose pursuant to such provisions. All the Securities so issued shall
in all respects have the same legal rank and benefit under this Indenture as the
Securities theretofore or thereafter issued in accordance
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with the terms of this Indenture as though all of such Securities had been
issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, assignment, transfer,
conveyance, lease, or other disposition such changes in phraseology and form may
be made in the Securities thereafter to be issued as may be appropriate.
Upon any consolidation, or merger of a Guarantor with or into any other
Person or any transfer, conveyance, sale, lease, assignment or other disposition
of all or substantially all of the properties and assets of such Guarantor as an
entirety in accordance with Section 8.2, the Surviving Person shall succeed to,
and be substituted for, and may exercise every right and power of, such
Guarantor under this Indenture with the same effect as if such Surviving Person
had been named as a Guarantor herein, and thereafter the Guarantor shall be
relieved of all obligations and covenants under this Indenture and the
Securities.
SECTION 8.4. Successor to Note Issuer.
The Company or a Wholly Owned Subsidiary (a "Successor"), may assume the
obligations of the Note Issuer under the Securities by executing and delivering
to the Trustee (a) a supplemental indenture which subjects such person to all of
the provisions of the Indenture as Note Issuer and (b) an Opinion of Counsel to
the effect that such supplemental indenture has been duly authorized and
executed by such Person, and constitutes the legal, valid, binding and
enforceable obligation of such Person, subject to customary exceptions;
provided, that (i) the Successor is formed under the laws of the United States
of America, or any State thereof or the District of Columbia, Germany, the
United Kingdom or any other Member State of the European Union, (ii) no
Additional Amounts would be or become payable with respect to the Securities and
the time of such assumption, or as a result of any change in the laws of the
jurisdiction of formation of such Successor that was reasonably foreseeable at
such time, (iii) the assumption of such obligations by the Successor shall not
cause the Trust to fail or cease to be classified for United States Federal
income tax purposes as a grantor trust or another entity which is not subject to
United States Federal income tax at the entity level and the assets and income
of which are treated for United States Federal income tax purposes as held and
derived directly by holders of interests in such Trust and, (iv) if a Wholly
Owned Subsidiary is the Successor, the Company will continue to unconditionally
guarantee, on a senior subordinated basis, the obligations assumed by such
Successor. The Successor will succeed to, and be substituted for, and may
exercise every right and power of, the Note Issuer under the Indenture with the
same effect as if it were the Note Issuer thereunder, and the former Note Issuer
will be discharged from all obligations and covenants under the Indenture and
the Securities.
ARTICLE IX.
SUPPLEMENTAL INDENTURES
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SECTION 9.1. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Note Issuer, when authorized by a
Board Resolution of the Note Issuer, the Company, when authorized by a Board
Resolution of the Company, the Guarantors, when authorized by respective Board
Resolutions of the Guarantors, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Note Issuer
or any Guarantor, and the assumption by any such successor of the
covenants of the Note Issuer or such Guarantor herein and in the
Securities; or
(2) to convey, transfer, assign, mortgage or pledge any property to
or with the Trustee or to surrender any right or power herein conferred
upon the Note Issuer; or
(3) to establish the form or terms of Securities and Guaranties as
permitted by Section 2.1; or
(4) to add to the covenants of the Note Issuer for the benefit of
the Holders or to surrender any right or power herein conferred upon the
Note Issuer; or
(5) to add any additional Events of Default; or
(6) to change or eliminate any of the provisions of this Indenture,
provided, that any such change or elimination shall become effective only
when there is no Security Outstanding created prior to the execution of
such supplemental indenture which is entitled to the benefit of such
provision; or
(7) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture, provided, that such action pursuant to this clause
(7) shall not materially adversely affect the interest of the Holders or,
for so long as any of the Preferred Securities shall remain outstanding,
the holders of such Preferred Securities; or
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities and to add
to or change any of the provisions of this Indenture as shall be necessary
to provide for or facilitate the administration of the trusts hereunder by
more than one Trustee, pursuant to the requirements of Section 6.11(b); or
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(9) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust
Indenture Act; or
(10) to add new Guarantors pursuant to Section 13.5.
SECTION 9.2. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities affected by such supplemental indenture, by
Act of said Holders delivered to the Note Issuer, the Guarantors and the
Trustee, the Note Issuer, when authorized by a Board Resolution of the Note
Issuer, the Guarantors, when authorized by respective Board Resolutions of the
Guarantors, and the Trustee may modify the Indenture or enter into an indenture
or indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby,
(1) extend the Stated Maturity of the principal of any Security, or
reduce the principal amount thereof, or reduce the rate or extend the time
of payment of interest thereon, or reduce any premium payable upon the
redemption thereof, or change the place of payment where, or the currency
of payment of any principal of, or any premium or interest on any
Security, or impair the right to institute suit for the enforcement of any
such payment on or with respect to a Security (or, in the case of
redemption, on or after the date fixed for redemption thereof); or
(2) reduce the percentage in principal amount of Securities, the
consent of whose Holders is required for any such modification or
supplemental indenture, or the consent of whose Holders is required for
any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture; or
(3) modify any of the provisions of this Section, Section 5.13 or
Section 10.18, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby; or
(4) modify the provisions in this Indenture relating to the
subordination of Outstanding Securities in a manner adverse to the
Holders.
provided, that, so long as any of the Preferred Securities remains outstanding,
no such amendment shall be made that adversely affects the holders of such
Preferred Securities, and no termination of this Indenture shall occur, and no
waiver of any Event of Default or compliance with any covenant
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under this Indenture shall be effective, without the prior consent of the
holders of at least a majority of the aggregate liquidation preference of such
Preferred Securities then outstanding unless and until the principal (and
premium, if any) of the Securities and all accrued and, subject to Section 3.7,
unpaid interest (including Additional Sums and Additional Amounts, if any)
thereon have been paid in full; and provided further, that, so long as any of
the Preferred Securities remain outstanding, no amendment shall be made to
Section 5.8 of this Indenture without the prior consent of the holders of each
Preferred Security then outstanding unless and until the principal (and premium,
if any) of the Securities and all accrued and (subject to Section 3.7) unpaid
interest (including Additional Sums and Additional Amounts, if any) thereon have
been paid in full.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 9.3. Execution of Supplemental Indentures.
In executing or accepting the additional trusts created by any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 6.1) shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture, and
that all conditions precedent have been complied with. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
SECTION 9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby. No such supplemental indenture shall directly or
indirectly modify the provisions of Article XII, Article XIV, Sections 4.3(b),
5.3 or 5.6 in any manner which might terminate or impair the rights of the
Senior Indebtedness pursuant to such subordination provisions.
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SECTION 9.5. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to any applicable requirements of the Trust Indenture Act as then in
effect.
SECTION 9.6. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Note Issuer, bear a notation in form approved by the Note Issuer as to any
matter provided for in such supplemental indenture. If the Note Issuer and the
Guarantors shall so determine, new Securities so modified as to conform, in the
opinion of the Note Issuer and the Guarantors, to any such supplemental
indenture may be prepared and executed by the Note Issuer and the Guaranties
endorsed thereon may be executed by the Guarantors and authenticated and
delivered by the Trustee in exchange for Outstanding Securities.
ARTICLE X.
COVENANTS
SECTION 10.1. Payment of Principal, Premium and Interest.
The Note Issuer covenants and agrees for the benefit of each of the
Securities that it will duly and punctually pay the principal of (and premium,
if any) and interest on the Securities in accordance with the terms of such
Securities and this Indenture.
SECTION 10.2. Maintenance of Office or Agency.
The Note Issuer will maintain in the Borough of Manhattan, The City of New
York an office or agency where Securities may be presented or surrendered for
payment and an office or agency where Securities may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Note Issuer or any Guarantor in respect of the Securities, any Guaranty
endorsed thereon and this Indenture may be served. The Note Issuer and the
Guarantors initially appoint the Trustee, acting through its office or agency in
the Borough of Manhattan, The City of New York, as its agent for said purposes.
The Note Issuer and the Guarantors will give prompt written notice to the
Trustee of any change in the location of any such office or agency. If at any
time the Note Issuer or any Guarantor shall fail to maintain such office or
agency or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Note Issuer and each Guarantor
hereby appoints the Trustee as its agent to receive all such presentations,
surrenders, notices and demands.
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The Note Issuer may also from time to time designate one or more other
offices or agencies in or outside the Borough of Manhattan, The City of New York
where the Securities may be presented or surrendered for any or all of such
purposes, and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Note Issuer of its obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York for such purposes. The Note Issuer will give
prompt written notice to the Trustee of any such designation or rescission and
of any change in the location of any such other office or agency.
SECTION 10.3. Money for Security Payments to be Held in Trust.
If the Note Issuer shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of or interest on any of the
Securities, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal (and premium, if any) or interest
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided, and will promptly notify the Trustee of its
action or failure so to act.
Whenever the Note Issuer shall have one or more Paying Agents, it will,
prior to 10:00 a.m. New York City time on each due date of the principal of (and
premium, if any) or interest on any Securities, deposit with a Paying Agent a
sum sufficient to pay the principal, premium, or interest so becoming due, such
sum to be held in trust for the benefit of the Persons entitled to such
principal, premium or interest, and (unless such Paying Agent is the Trustee)
the Note Issuer will promptly notify the Trustee of its action or failure so to
act.
The Note Issuer will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of
(and premium, if any) or interest on Securities in trust for the benefit
of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Note Issuer (or
any other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest;
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent; and
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(4) comply with the provisions of the Trust Indenture Act applicable
to it as a Paying Agent.
The Note Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Note Issuer Order direct any Paying Agent to pay, to the Trustee all sums
held in trust by the Note Issuer or such Paying Agent, such sums to be held by
the Trustee upon the same trusts as those upon which such sums were held by the
Note Issuer or such Paying Agent; and, upon such payment by the Note Issuer or
any Paying Agent to the Trustee, the Note Issuer or such Paying Agent shall be
released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Note Issuer, in trust for the payment of the principal of (and premium, if
any) or interest on any Security and remaining unclaimed for two years after
such principal (and premium, if any) or interest has become due and payable
shall (unless otherwise required by mandatory provision of applicable escheat or
abandoned or unclaimed property law) be paid on Note Issuer Request to the Note
Issuer, or (if then held by the Note Issuer) shall (unless otherwise required by
mandatory provision of applicable escheat or abandoned or unclaimed property
law) be discharged from such trust; and the Holder of such Security shall
thereafter, as an unsecured general creditor, look only to the Note Issuer for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Note Issuer as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Note Issuer cause to be published once, in a newspaper published
in the English language, customarily published on each Business Day and of
general circulation in The Borough of Manhattan, The City of New York, notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the Note
Issuer.
SECTION 10.4. Existence.
Subject to Article VIII and the other Sections of this Article X, the
Company will do or cause to be done all things necessary to preserve and keep in
full force and effect the existence, rights (charter and statutory) and
franchises of the Company, the Note Issuer and each other Guarantor; provided,
however, that the Company shall not be required to preserve any such right or
franchise if the Board of Directors of the Company in good faith shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and that the loss thereof is not disadvantageous in any
material respect to the Holders.
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SECTION 10.5. Maintenance of Properties.
Subject to Article VIII and the other Sections of this Article X, the
Company will cause all properties used or useful in the conduct of its business
or the business of any Subsidiary of the Company to be maintained and kept in
good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, as determined by the Company in good faith, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
SECTION 10.6. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any of its
Subsidiaries or upon the income, profits or property of the Company or any of
its Subsidiaries, and (b) all material lawful claims for labor, materials and
supplies which, if unpaid, might by law become a Lien upon the property of the
Company or any of its Subsidiaries; provided, however, that the Company shall
not be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings.
SECTION 10.7. Maintenance of Insurance.
The Company shall, and shall cause its Subsidiaries to, keep at all times
all of their properties which are of an insurable nature insured against loss or
damage with insurers believed by the Company to be responsible to the extent
that property of similar character is usually so insured by corporations
similarly situated and owning like properties in accordance with good business
practice. The Company shall, and shall cause its Subsidiaries to, use the
proceeds from any such insurance policy to repair, replace or otherwise restore
the property to which such proceeds relate, except to the extent that a
different use of such proceeds is, as determined by the Company, in good faith,
desirable in the conduct of its business or the business of any Subsidiary and
not disadvantageous in any material respect to the Holders.
SECTION 10.8. Limitation on Incurrence of Indebtedness.
(a) The Company shall not, and shall not permit any Subsidiary to, Incur,
directly or indirectly, any Indebtedness unless, on the date of such Incurrence
(and after giving effect thereto), the Consolidated Coverage Ratio exceeds 2.5
to 1.
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(b) The foregoing limitations contained in paragraph (a) do not apply to
the Incurrence of any of the following Indebtedness:
(1) Indebtedness under the Credit Agreements;
(2) Indebtedness owed to and held by a Wholly Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any Capital
Stock that results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any subsequent transfer of such Indebtedness
(other than to another Wholly Owned Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the Company;
(3) the 9% Notes, the DM Securities and the Securities;
(4) Capital Lease Obligations and Indebtedness incurred, in each
case, to provide all or a portion of the purchase price or cost of
construction of an asset or, in the case of a sale/leaseback transaction,
to finance the value of such asset owned by the Company or a Subsidiary,
in an aggregate principal amount which, together with all other such
Capital Lease Obligations and Indebtedness outstanding on the date of such
Incurrence (other than Indebtedness permitted by paragraph (a) or clause
(2) or (9) of this paragraph (b)), does not exceed $200,000,000;
(5) Indebtedness in respect of Receivables Financings in an
aggregate principal amount which, together with all other Indebtedness in
respect of Receivables Financings outstanding on the date of such
Incurrence (other than Indebtedness permitted by paragraph (a) or clause
(2) or (9) of this paragraph (b)), does not exceed $500,000,000;
(6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (3), (4) or (5) of this
paragraph (b);
(7) Hedging Obligations permitted under the Bank Credit Agreement as
in effect on the Issue Date;
(8) customer deposits and advance payments received from customers
for goods purchased in the ordinary course of business; and
(9) Indebtedness in an aggregate principal amount which, together
with all other Indebtedness of the Company and its Subsidiaries
outstanding on the date of such Incurrence (other than Indebtedness
permitted by paragraph (a) or clauses (1) through (8) of this paragraph
(b)), does not exceed $300,000,000.
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(c) Notwithstanding the foregoing, the Company shall not, and shall not
permit any Subsidiary to, Incur, directly or indirectly, any Indebtedness (i)
that is subordinate or junior in ranking in right of payment to its Senior
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is
expressly subordinated in right of payment to Senior Subordinated Indebtedness,
or (ii) pursuant to paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to Refinance any Subordinate Obligations unless such
Indebtedness shall be subordinated to the Securities to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing covenant,
(i) in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness described above, the Company, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses and
(ii) an item of Indebtedness may be divided and classified in more than one of
the types of Indebtedness described above.
SECTION 10.9. Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, make any Restricted Payment if at the time the Company
or such Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of Section 10.8; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of: (A) 50%
of the Consolidated Net Income accrued during the period (treated as one
accounting period) from January 1, 1998 to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary and other than an issuance or sale to an employee stock
ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees); and (C) the amount by
which Indebtedness of the Company is reduced on the Company's balance
sheet upon the conversion or exchange (other than by a Subsidiary),
subsequent to the Issue Date, of any Indebtedness of the Company
convertible or exchangeable for Capital Stock (other than Disqualified
Stock) of the Company (less the amount of any cash, or the fair value of
any other property, distributed by the Company upon such conversion or
exchange).
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(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(1) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company made by exchange for, or out of the proceeds of
the substantially concurrent sale of, Capital Stock of the Company (other
than Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary or an employee stock ownership plan or to a trust established
by the Company or any of its Subsidiaries for the benefit of their
employees); provided, however, that (A) such purchase or redemption shall
be excluded in the calculation of the amount of Restricted Payments and
(B) the Net Cash Proceeds from such sale shall be excluded from the
calculation of amounts under clause (3)(B) of paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness of the Company which is permitted to be Incurred pursuant
to Section 10.8; provided, however, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value shall
be excluded in the calculation of the amount of Restricted Payments; or
(3) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, however, that at the time of payment of such
dividend, no other Default shall have occurred and be continuing (or
result therefrom); provided further, however, that such dividend shall be
included in the calculation of the amount of Restricted Payments.
SECTION 10.10. Limitation on Restrictions on Distributions from
Subsidiaries.
The Company shall not, and shall not permit any Subsidiary to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Subsidiary (a) to pay dividends
or make any other distributions on its Capital Stock to the Company or any other
Subsidiary or pay any Indebtedness owed to the Company or any other Subsidiary,
(b) to make any loans or advances to the Company or any other Subsidiary or (c)
transfer any of its property or assets to the Company or any other Subsidiary,
except:
(i) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Subsidiary on or prior to the date on which such Subsidiary was acquired
by the Company (other than Indebtedness Incurred as consideration in, or
to provide all or any portion of the funds or credit support utilized to
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consummate the transaction or series of related transactions pursuant to
which such Subsidiary became a Subsidiary or was acquired by the Company)
and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (i) or (ii) above or this clause (iii) or contained
in any amendment to an agreement referred to in clause (i) or (ii) above
or this clause (iii); provided, however, that the encumbrances and
restrictions with respect to such Subsidiary contained in any such
refinancing agreement or amendment are no less favorable to the Holders
than encumbrances and restrictions with respect to such Subsidiary
contained in such agreements;
(iv) any such encumbrance or restriction consisting of customary
non-assignment provisions in leases governing leasehold interests or in
licensing agreements to the extent such provisions restrict the transfer
of the lease or the property leased thereunder or the licensing agreement
or the rights licensed thereunder;
(v) in the case of clause (c) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Subsidiary to
the extent such restrictions restrict the transfer of the property subject
to such security agreements or mortgages; and
(vi) any restriction with respect to a Subsidiary imposed pursuant
to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Subsidiary pending
the closing of such sale or disposition.
SECTION 10.11. Senior Subordinated Indebtedness; Liens.
The Company shall not, and shall not permit any Subsidiary to,
Incur: (1) any Indebtedness if such Indebtedness is subordinate or junior in
ranking in any respect to any Senior Indebtedness, unless such Indebtedness is
Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness; or (2) any Secured Indebtedness
that is not Senior Indebtedness other than the 9% Notes unless (A)
contemporaneously therewith effective provision is made to secure the Securities
equally and ratably with such Secured Indebtedness for so long as such Secured
Indebtedness is secured by a Lien, (B) such Secured Indebtedness is permitted by
clause (1), (4), (5) or (7) of paragraph (b) of Section 10.8, (C) such Secured
Indebtedness is Incurred by a Subsidiary pursuant to a revolving credit
agreement as in effect on the Issue Date, or (D) such Secured Indebtedness is
Refinancing Indebtedness in respect of Secured Indebtedness Incurred by a
Subsidiary pursuant to a revolving credit agreement as in effect on the Issue
Date.
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SECTION 10.12. Limitation on Affiliate Transactions.
(a) The Company shall not, and shall not permit any Subsidiary to, enter
into any transaction (including the purchase, sale, lease or exchange of any
property, employee compensation arrangements or the rendering of any service)
with any Affiliate of the Company (an "Affiliate Transaction") unless the terms
thereof:
(1) are no less favorable to the Company or such Subsidiary than
those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate;
(2) if such Affiliate Transaction involves an amount in excess of
$5,000,000, (i) are set forth in writing and (ii) have been approved by a
majority of the members of the Board of Directors of the Company or such
Subsidiary having no personal stake in such Affiliate Transaction; and
(3) if such Affiliate Transaction involves an amount in excess of
$15,000,000, have been determined by a nationally recognized investment
banking firm or, in appropriate circumstances, an internationally
recognized engineering firm, to be fair from a financial standpoint to the
Company and its Subsidiaries.
(b) The provisions of paragraph (a) above shall not prohibit:
(1) any Restricted Payment permitted to be paid pursuant to Section
10.9;
(2) transactions or payments pursuant to any employee arrangements
or employee or director benefit plans entered into by the Company or any
of its Subsidiaries in the ordinary course of business of the Company or
such Subsidiary; and
(3) any Affiliate Transaction between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries.
SECTION 10.13. Limitation on Sales of Assets and Subsidiary Stock.
(a) The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless:
(1) the Company or such Subsidiary receives consideration at the
time of such Asset Disposition at least equal to the fair market value
(including as to the value of all non-cash consideration), as determined
in good faith by the Board of Directors of the Company or such Subsidiary
as the case may be, of the shares and assets subject to such Asset
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Disposition and at least 70% of the consideration thereof received by the
Company or such Subsidiary is in the form of cash or cash equivalents; and
(2) an amount equal to 100% of the Net Available Cash from such
Asset Disposition is applied by the Company (or such Subsidiary, as the
case may be) (A) first, to the extent the Company elects (or is required
by the terms of any Senior Indebtedness), to prepay, repay, redeem or
purchase Senior Indebtedness or Indebtedness (other than any Disqualified
Stock) of a Wholly Owned Subsidiary (in each case other than Indebtedness
owed to the Company or an Affiliate of the Company) within one year from
the later of the date of such Asset Disposition or the receipt of such Net
Available Cash; (B) second, to the extent of the balance of such Net
Available Cash after application in accordance with clause (A), to the
extent the Company elects, to acquire Additional Assets within one year
from the later of the date of such Asset Disposition or the receipt of
such Net Available Cash; (C) third, to the extent of the balance of such
Net Available Cash after application in accordance with clauses (A) and
(B), to make an offer to the holders of the 9% Notes to purchase the 9%
Notes pursuant to and subject to the conditions contained in the Indenture
relating thereto; and (D) fourth, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A), (B) and
(C), to cause the Note Issuer to make an offer to the Holders of the
Securities and the DM Securities on a pro rata basis (determined in
accordance with the respective outstanding principal amounts thereof at
the time of such offer, as calculated by reference to an exchange rate of
1.8237 DM per $1.00) to purchase the Securities and the DM Securities
pursuant to and subject to the conditions contained in the Indenture (in
the case of the Securities) and in the DM Indenture (in the case of the DM
Securities); provided, however, that in connection with any prepayment,
repayment or purchase of Indebtedness pursuant to clause (A), (C) or (D)
above, the Company or such Subsidiary shall retire such Indebtedness and
shall cause the related loan commitment (if any) to be permanently reduced
in an amount equal to the principal amount so prepaid, repaid or
purchased. Notwithstanding the foregoing provisions of this paragraph, the
Company and the Subsidiaries shall not be required to apply any Net
Available Cash in accordance with this paragraph except to the extent that
the aggregate Net Available Cash from all Asset Dispositions which are not
applied in accordance with this paragraph exceeds $20,000,000. Pending
application of Net Available Cash pursuant to this covenant, such Net
Available Cash shall be invested in Permitted Investments.
For the purposes of this covenant, the following are deemed to be cash or cash
equivalents: (x) the assumption of Indebtedness of the Company or any Subsidiary
and the release of the Company or such Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition and (y) securities
received by the Company or any Subsidiary from the transferee that are promptly
converted by the Company or such Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of the
Securities pursuant to clause (a)(2)(D) above, the Note Issuer will purchase the
Securities tendered pursuant to
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an offer by the Note Issuer for the Securities at a purchase price of 100% of
their principal amount (without premium) plus accrued but unpaid interest, by
mailing a notice to each Holder with a copy to the Trustee, within 30 days
following the determination by or on behalf of the holders of the 9% Notes as to
the amount of the 9% Notes to be purchased pursuant to the offer to repurchase
the 9% Notes made pursuant to clause (a)(2)(C) above, stating:
(i) that an Asset Disposition that requires the purchase of the
Securities pursuant to clause (a)(2)(D) above has occurred and that such
Holder has a right to require the Note Issuer to repurchase Securities at
a purchase price of 100% of their principal amount (without premium) plus
accrued and unpaid interest in an amount not to exceed the balance of Net
Available Cash from such Asset Disposition after application in accordance
with clauses (A), (B) and (C) of this covenant and that the amount
available for repurchase of the Securities will be increased to the extent
that the holders of the DM Securities do not accept the offer to
repurchase the DM Securities made pursuant to clause (D) above and the
applicable provisions of the DM Indenture;
(ii) the repurchase date (which shall be no earlier than 30 days not
later than 60 days from the date such notice is mailed);
(iii) that the tendered Securities will be repurchased pro rata in
the event of oversubscription; provided, that the unrepurchased portion of
the principal amount of any Security shall be in an authorized
denomination (which shall not be less than the minimum authorized
denomination) for such Security;
(iv) the instructions determined by the Note Issuer, consistent with
the covenant described hereunder, that a Holder must follow in order to
have its Securities purchased; and
(v) that each Security shall be subject to repurchase only in the
amount of $1,000 or integral multiples thereof.
The Note Issuer shall not make such an offer to purchase Securities
pursuant to this covenant if the Net Available Cash available therefor is less
than $20,000,000 (which lesser amount shall be carried forward for purposes of
determining whether such an offer is required with respect to any subsequent
Asset Disposition). Each Security shall be subject to repurchase only in the
amount of $1,000 or integral multiples thereof. Upon presentation of any
Security repurchased in part only, the Note Issuer shall execute and the Trustee
shall authenticate and deliver to the Holder thereof, at the expense of the Note
Issuer, a new Security (and the Guarantors shall execute their Guaranties to be
endorsed thereon) of authorized denominations, in aggregate principal amount
equal to the unredeemed portion of the Security so presented and having the same
Issue Date, Stated Maturity and terms. If a Global Security is so surrendered,
such new Security will also be a new Global Security.
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(c) The Note Issuer shall, and the Company shall cause the Note Issuer to,
comply, to the extent applicable, with the requirements of Section 14(e) of the
Exchange Act and any other securities laws or regulations in connection with the
repurchase of Securities pursuant to this covenant. To the extent that the
provisions of any securities laws or regulations conflict with provisions of
this covenant, the Note Issuer shall, and the Company shall cause the Note
Issuer to, comply with the applicable securities laws and regulations and shall
not be deemed to have breached its obligations under this clause by virtue
thereof.
SECTION 10.14. Intentionally Omitted.
SECTION 10.15. Change of Control.
(a) Upon the occurrence of a Change of Control Triggering Event, each
Holder shall have the right to require that the Note Issuer repurchase such
Holder's Securities at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant Regular Record Date
to receive interest due on the relevant Interest Payment Date). Each Security
shall be subject to repurchase only in the amount of $1,000 or integral
multiples thereof. Upon presentation of any Security repurchased in part only,
the Note Issuer shall execute and the Trustee shall authenticate and deliver to
the Holder thereof, at the expense of the Note Issuer, a new Security (and the
Guarantors shall execute their Guaranties to be endorsed thereon) of authorized
denominations, in aggregate principal amount equal to the unredeemed portion of
the Security so presented and having the same Issue Date, Stated Maturity and
terms. If a Global Security is so surrendered, such new Security will also be a
new Global Security.
(b) Within 30 days following a Change of Control Triggering Event, the
Note Issuer shall mail a notice to each Holder with a copy to the Trustee
stating: (1) that a Change of Control Triggering Event has occurred and that
such Holder has the right to require the Note Issuer to purchase such Holder's
Securities at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant Regular Record Date
to receive interest on the relevant Interest Payment Date); (2) the
circumstances and relevant facts regarding such Change of Control Triggering
Event (including information with respect to pro forma historical income, cash
flow and capitalization after giving effect to such Change of Control); (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); (4) the instructions determined by the
Note Issuer, consistent with the covenant described hereunder, that a Holder
must follow in order to have its Securities purchased and (5) that each Security
shall be subject to repurchase only in the amount of $1,000 or integral
multiples thereof.
(c) The Note Issuer shall, and the Company shall cause the Note Issuer to,
comply, to the extent applicable, with the requirements of Section 14(e) of the
Exchange Act and any other
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securities laws or regulations in connection with the repurchase of the
Securities pursuant to this covenant. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of this covenant,
the Note Issuer shall, and the Company shall cause the Note Issuer to, comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this covenant by virtue thereof.
SECTION 10.16. Statement as to Compliance and Default.
(a) The Note Issuer and the Guarantors shall deliver to the Trustee,
within 95 days after the end of each of their respective calendar years ending
after the date hereof, a certificate of the principal executive officer,
principal financial officer or principal accounting officer covering the
preceding calendar year, stating whether or not to the best knowledge of the
signers thereof the Note Issuer or the Guarantors, as the case may be, is in
default in the performance, observance or fulfillment of or compliance with any
of the terms, provisions, covenants and conditions of this Indenture and, if the
Note Issuer or the Guarantors, as the case may be, shall be in default,
specifying all such defaults and the nature and status thereof of which they may
have knowledge.
(b) The Note Issuer and each Guarantor shall deliver to the Trustee, as
soon as possible and in any event within 10 days after the Note Issuer or any
Guarantor becomes aware of the occurrence of an Event of Default or an event
which, with notice or the lapse of time or both, would constitute an Event of
Default, an Officers' Certificate setting forth the details of such Event of
Default or default, and the action which the Note Issuer or any Guarantor
proposes to take with respect thereto.
SECTION 10.17. Ownership of the Trust and the Note Issuer; Business of the
Note Issuer.
(a) The Company shall continue (i) to directly or indirectly maintain 100%
ownership of the Common Securities of the Trust; provided, however, that any
permitted successor of the Company hereunder may succeed to the Company's
ownership of such Common Securities and (ii) to use its reasonable efforts to
cause the Trust (x) to remain a statutory business trust, except in connection
with the distribution of Securities to the holders of Trust Securities in
dissolution of the Trust, the redemption of all of the Trust Securities, or
certain mergers, consolidations or amalgamations, each as permitted by the
Declaration, and (y) to otherwise continue to be classified for United States
Federal income tax purposes as a grantor trust or another entity which is not
subject to United States Federal income tax at the entity level and the assets
and income of which are treated for United States Federal income tax purposes as
held and derived directly by holders of interests in the entity.
(b) The Company shall own directly or indirectly 100% ownership of the
Capital Stock of the Note Issuer; provided, however, that any permitted
successor of the Company pursuant to Article VIII may succeed to the Company's
ownership of such Capital Stock.
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(c) The Company shall cause the Note Issuer to engage only in those
activities that are necessary, convenient or incidental to (i) issuing and
selling the Securities and the DM Securities, advancing or distributing the
proceeds thereof to the Company and the Subsidiaries and exercising its rights
and performing its obligations relating to the Securities and the DM Securities
pursuant to the terms thereof and of this Indenture and the DM Indenture, (ii)
conducting or participating in the Exchange Offer and issuing the Exchange
Securities and conducting or participating in the Exchange Offer (as defined in
the DM Indenture) and issuing the Exchange Securities (as defined in the DM
Indenture), (iii) guaranteeing the Bank Credit Agreement and the 9% Notes, and
(iv) subject to obtaining the necessary consents and approvals, assuming the
obligations of the Company under the 9% Notes.
SECTION 10.18. Waiver of Certain Covenants.
The Company or the Note Issuer, as applicable, may omit in any particular
instance to comply with any covenant or condition set forth in Section 8.1 and
Sections 10.4 to 10.17, if before or after the time for such compliance the
Holders of at least a majority in principal amount of the Outstanding Securities
shall, by Act of such Holders, either waive such compliance in such instance or
generally waive compliance with such covenant or condition, but no such waiver
shall extend to or affect such covenant or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the obligations
of the Company or the Note Issuer, as applicable, in respect of any such
covenant or condition shall remain in full force and effect.
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SECTION 10.19. Additional Amounts; Additional Interest.
(a) All payments made on behalf of the Note Issuer under or with respect
to the Securities must be made free and clear of and without withholding or
deduction for or on account of any present or future tax, duty, levy, impost,
assessment or other governmental charge (including penalties, interest and other
liabilities related thereto) imposed or levied by or on behalf of the United
States, Germany, the United Kingdom or the jurisdiction of formation of the Note
Issuer, or of any territory thereof or by an authority or agency therein or
thereof having power to tax (hereinafter "Taxes"), unless the Note Issuer is
required to withhold or deduct Taxes by law or by the interpretation or
administration thereof by the relevant government authority or agency. If the
Note Issuer is so required to withhold or deduct any amount for or on account of
Taxes from any payment made under or with respect to the Securities, the Note
Issuer will be required to pay such amounts ("Additional Amounts") as may be
necessary so that the net amount (including Additional Amounts) received by each
Holder after such withholding or deduction will not be less than the amount such
Holder would have received if such Taxes had not been withheld or deducted;
provided, however, that no Additional Amounts will be payable with respect to
payments made to any Holder in respect of a beneficial owner which is subject to
such Taxes by reason of its being connected with the United States, Germany, the
United Kingdom or the jurisdiction of formation of the Note Issuer, or any
territory thereof otherwise than by the mere holding of Securities or the
receipt of payments thereunder. The Note Issuer will also make such withholding
or deduction and remit the full amount deducted or withheld to the relevant
authority as and when required in accordance with applicable law. The Note
Issuer will furnish to the Holders within 30 days after the date the payment of
any Taxes is due pursuant to applicable law, certified copies of tax receipts
evidencing such payment by the Note Issuer.
(b) In the event that (i) the Trust is the Holder of all outstanding
Securities, (ii) the Trust would be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States of America, or any other taxing authority,
and (iii) the Note Issuer shall not have (1) redeemed the Securities pursuant to
Section 11.7 or (2) terminated the Trust pursuant to Section 9.2(f) of the
Declaration, then, in any such case, the Note Issuer shall pay to the Trust (and
its permitted successors or assigns under the Declaration) for so long as the
Trust (or its permitted successors or assigns) is the registered Holder of any
Securities, as additional interest ("Additional Interest") such amounts as shall
be necessary so that the net amounts received and retained by the Trust after
paying any such taxes, duties, assessments or governmental charges will be not
less than the amounts the Trust would have received had no such taxes, duties,
assessments or governmental charges been imposed. All references herein to
Additional Amounts shall be deemed to include Additional Interest.
(c) Whenever in this Indenture or the Securities there is a reference in
any context to the payment of principal of or interest on the Securities, such
mention shall be deemed to include mention of the payments of the Additional
Amounts provided for in this Section to the extent that,
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in such context, Additional Amounts are, were or would be payable in respect
thereof pursuant to the provisions of this Section and express mention of the
payment of Additional Amounts (if applicable) in any provisions hereof shall not
be construed as excluding Additional Amounts in those provisions hereof where
such express mention is not made.
(d) The foregoing obligations shall survive any termination, defeasance or
discharge of the Indenture pursuant to Article IV.
ARTICLE XI.
REDEMPTION OF SECURITIES
SECTION 11.1. Applicability of This Article.
Redemption of Securities as permitted or required by any provision of this
Indenture shall be made in accordance with such provision and this Article.
SECTION 11.2. Election to Redeem; Notice to Trustee.
The election of the Note Issuer to redeem any Securities shall be
evidenced by or pursuant to a Board Resolution. In the case of any redemption of
Securities prior to the expiration of any restriction on such redemption
provided in the terms of such Securities, the Note Issuer shall furnish the
Trustee with an Officers' Certificate and an Opinion of Counsel evidencing
compliance with such restriction.
SECTION 11.3. Intentionally Omitted.
SECTION 11.4. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not later than the thirtieth day, and not earlier than the sixtieth day,
prior to the date fixed for redemption, to each Holder of Securities to be
redeemed, at the address of such Holder as it appears in the Securities
Register.
With respect to the Securities to be redeemed, each notice of redemption
shall state:
(a) the Redemption Date;
(b) the Redemption Price;
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(c) that on the Redemption Date, the Redemption Price at which such
Securities are to be redeemed will become due and payable upon each such
Security or portion thereof, and that interest thereon, if any, shall cease to
accrue on and after said date; and
(d) the place or places where such Securities are to be surrendered for
payment of the Redemption Price at which such Securities are to be redeemed.
Notice of redemption of Securities to be redeemed at the election of the
Note Issuer shall be given by the Note Issuer or, at the Note Issuer's request,
by the Trustee in the name and at the expense of the Note Issuer and shall not
be irrevocable. The notice if mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the Holder
receives such notice. In any case, a failure to give such notice by mail or any
defect in the notice to the Holder of any Security designated for redemption as
a whole or in part shall not affect the validity of the proceedings for the
redemption of any other Security.
SECTION 11.5. Deposit of Redemption Price.
Prior to 10:00 a.m. New York City time on the Redemption Date specified in
the notice of redemption given as provided in Section 11.4, the Note Issuer will
deposit with the Trustee or with one or more Paying Agents an amount of money
sufficient to redeem on the Redemption Date all the Securities so called for
redemption at the applicable Redemption Price.
SECTION 11.6. Payment of Securities Called for Redemption.
If any notice of redemption has been given as provided in Section 11.4,
the Securities with respect to which such notice has been given shall become due
and payable on the date and at the place or places stated in such notice at the
applicable Redemption Price. On presentation and surrender of such Securities at
a place of payment in said notice specified, the said Securities shall be paid
and redeemed by the Note Issuer at the applicable Redemption Price.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal of and premium, if any, on such Security
shall, until paid, bear interest from the Redemption Date at the rate prescribed
therefor in the Security.
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SECTION 11.7. Note Issuer's Right of Redemption in Certain Circumstances.
If a Tax Event or an Investment Company Event in respect of the Trust
shall occur and be continuing, the Company shall cause the Trustees (as defined
in the Declaration) to dissolve the Trust and cause Securities to be distributed
to the holders of the Trust Securities in dissolution of the Trust or, in the
event of a Tax Event only, may cause the Securities to be redeemed, in each
case, subject to and in accordance with the provisions of the Declaration,
within 90 days following the occurrence of such Tax Event or Investment Company
Event. The Securities may be redeemed, at the option of the Note Issuer, at any
time as a whole but not in part, subject to this clause (b) and the other
provisions of Article XI, at 100% of the principal amount thereof, plus accrued
and unpaid interest (if any) to the date of redemption (subject to the right of
Holders of record on the relevant Regular Record Date to receive interest due on
the relevant Interest Payment Date), in the event the Note Issuer has become or
would become obligated to pay, on the next date on which any amount would be
payable with respect to the Securities, any Additional Amounts as a result of a
change in or an amendment to the laws (including any regulations promulgated
thereunder) of the United States of America, Germany, the United Kingdom,
Luxembourg or any other Member State of the European Union (or any political
subdivision or taxing authority thereof or therein), or any change in or
amendment to any official position regarding the application or interpretation
of such laws or regulations, which change or amendment is announced or becomes
effective on or after the date of the issuance of the Securities.
ARTICLE XII.
SUBORDINATION OF SECURITIES
SECTION 12.1. Securities Subordinate to Senior Indebtedness.
The Note Issuer covenants and agrees, and each Holder of a Security, by
its acceptance thereof, likewise covenants and agrees, that, to the extent and
in the manner hereinafter set forth in this Article (subject to Article IV), the
payment of the principal of (and premium, if any) and interest (including
Additional Sums and Additional Amounts, if any) on each and all of the
Securities are hereby expressly made subordinate and subject in right of payment
to the prior payment in full of all amounts then due and payable in respect of
all Senior Indebtedness of the Note Issuer and the Company.
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SECTION 12.2. Payment Over of Proceeds Upon Dissolution, etc.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Note Issuer or its property (each such
event, if any, herein sometimes referred to as a "Proceeding"), the holders of
Senior Indebtedness of the Note Issuer shall be entitled to receive payment in
full of principal of (and premium, if any) and interest, if any, on such Senior
Indebtedness, or provision shall be made for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness, before the Holders of the Securities are entitled to receive or
retain any payment or distribution of any kind or character, whether in cash,
property or securities (including any payment or distribution which may be
payable or deliverable by reason of the payment of any other Indebtedness of the
Note Issuer (including the Securities) subordinated to the payment of the
Securities, such payment or distribution being hereinafter referred to as a
"Senior Subordinated Payment"), on account of principal of (or premium, if any)
or interest (including Additional Sums and Additional Amounts, if any) on the
Securities or on account of the purchase or other acquisition of Securities by
the Note Issuer or any Subsidiary, and to that end the holders of Senior
Indebtedness shall be entitled to receive, for application to the payment
thereof, any payment or distribution of any kind or character, whether in cash,
property or securities, including any Senior Subordinated Payment, which may be
payable or deliverable in respect of the Securities in any such Proceeding.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Note Issuer of any kind or character,
whether in cash, property or securities, including any Senior Subordinated
Payment, before all Senior Indebtedness of the Note Issuer and the Company is
paid in full or payment thereof is provided for in cash or cash equivalents or
otherwise in a manner satisfactory to the holders of such Senior Indebtedness,
and if such fact shall, at or prior to the time of such payment or distribution,
have been made known to the Trustee or, as the case may be, such Holder, then
and in such event such payment or distribution shall be paid over or delivered
forthwith to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other Person making payment or distribution of
assets of the Note Issuer for application to the payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
For purposes of this Article only, the words "any payment or distribution
of any kind or character, whether in cash, property or securities" shall not be
deemed to include shares of stock of the Note Issuer as reorganized or
readjusted, or securities of the Note Issuer or any other corporation provided
for by a plan of reorganization or readjustment which securities are
subordinated in right of payment to all then outstanding Senior Indebtedness to
substantially the same extent as the Securities are so subordinated as provided
in this Article. The consolidation of
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the Note Issuer with, or the merger of the Note Issuer into, another Person or
the liquidation or dissolution of the Note Issuer following the sale of all or
substantially all of its properties and assets as an entirety to another Person
or the liquidation or dissolution of the Note Issuer following the sale of all
or substantially all of its properties and assets as an entirety to another
Person upon the terms and conditions set forth in Article VIII shall not be
deemed a Proceeding for the purposes of this Section if the Person formed by
such consolidation or into which the Note Issuer is merged or the Person which
acquires by sale such properties and assets as an entirety, as the case may be,
shall, as a part of such consolidation, merger, or sale comply with the
conditions set forth in Article VIII.
SECTION 12.3. Prior Payment to Senior Indebtedness Upon Acceleration of
Securities.
In the event that, upon the occurrence of an Event of Default, any
Securities are declared due and payable before their Stated Maturity, then (a)
the Company, the Note Issuer or the Trustee, at the direction of the Note
Issuer, shall promptly notify the holders of Senior Indebtedness of the Note
Issuer and the Company or the representative of such holders of the
acceleration, and (b) in such event, if any Senior Indebtedness is outstanding,
the Note Issuer may not pay the Securities until five Business Days after the
representative of all issues of Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the Securities only if payment is
otherwise permitted hereunder at that time.
In the event that, notwithstanding the foregoing, the Note Issuer shall
make any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Note Issuer.
The provisions of this Section shall not apply to any payment with respect
to which Section 12.2 would be applicable.
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SECTION 12.4. No Payment When Senior Indebtedness in Default.
(a) The Note Issuer may not pay principal of, or premium (if any) or
interest (and Additional Sum and Additional Amounts, if any) on, the Securities,
and may not repurchase, redeem or otherwise retire any Securities (collectively
"pay the Securities") if (i) any Specified Senior Indebtedness of the Company or
the Note Issuer (or any other Senior Indebtedness of the Company or the Note
Issuer having an outstanding principal amount at the time of determination in
excess of $25,000,000) is not paid when due or (ii) any other default on
Specified Senior Indebtedness of the Company or the Note Issuer occurs and the
maturity of such Specified Senior Indebtedness is accelerated in accordance with
its terms, unless, in either case, the default has been cured or waived and any
such acceleration has been rescinded or such Specified Senior Indebtedness has
been paid in full. However, the Note Issuer may pay the Securities without
regard to the foregoing if the Company, the Note Issuer and the Trustee receive
written notice approving such payment from a representative of the Specified
Senior Indebtedness with respect to which either of the events set forth in
clause (i) or (ii) of the immediately preceding sentence has occurred and is
continuing.
(b) During the continuance of any default (other than a default described
in clause (i) or (ii) of the preceding paragraph (a)) with respect to any
Specified Senior Indebtedness of the Company or the Note Issuer pursuant to
which the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace periods, the Note Issuer may not pay the
Securities to the Holders for a period (a "Payment Blockage Period") commencing
upon the receipt by the Trustee (with a copy to the Company and the Note Issuer)
of written notice (a "Blockage Notice") of such default from the representative
of the holders of such Specified Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice to the Trustee,
the Company and the Note Issuer from the representative of the holders of such
Specified Senior Indebtedness, (ii) because the default giving rise to such
Blockage Notice is no longer continuing, as certified to the Trustee by the
representative of the holders of such Specified Senior Indebtedness, or (iii)
because such Specified Senior Indebtedness has been repaid in full, as certified
to the Trustee by the representative of the holders of such Specified Senior
Indebtedness).
(c) Notwithstanding the preceding paragraph (b), unless the holders of
such Specified Senior Indebtedness or the representative of such holders have
accelerated the maturity of such Specified Senior Indebtedness, the Note Issuer
may resume payments on the Securities after the end of such Payment Blockage
Period. The Securities shall not be subject to more than one Payment Blockage
Period in any consecutive 360-day period, irrespective of the number of defaults
with respect to Specified Senior Indebtedness during such period.
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(d) In the event that, notwithstanding the foregoing, the Note Issuer
shall make any payment to the Trustee or the Holder of any Security prohibited
by the foregoing provisions of this Section, and if such fact shall, at or prior
to the time of such payment, have been made known to the Trustee or, as the case
may be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Note Issuer.
The provisions of this Section shall not apply to any payment with respect
to which Section 12.2 would be applicable.
SECTION 12.5. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture or in any
of the Securities shall prevent (a) the Note Issuer, at any time except during
the pendency of any Proceeding referred to in Section 12.2 or under the
conditions described in Sections 12.3 and 12.4, from making payments at any time
of principal of (and premium, if any) or interest on the Securities, or (b) the
application by the Trustee of any money or Government Obligations deposited with
it hereunder in accordance with the provisions of Section 4.3 to the payment of
or on account of the principal of (and premium, if any) or interest (including
Additional Sums and Additional Amounts, if any) on the Securities or the
retention of such payment by the Holders, if, at the time of such payment or
application, as the case may be, by the Note Issuer or the Trustee, as the case
may be, the Note Issuer or the Trustee, as the case may be, did not have
knowledge that such payment would have been prohibited by the provisions of this
Article.
SECTION 12.6. Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness of the Note
Issuer, or the provision for such payment in cash or cash equivalents or
otherwise in a manner satisfactory to the holders of Senior Indebtedness of the
Note Issuer, the Holders of the Securities shall be subrogated to the extent of
the payments or distributions made to the holders of such Senior Indebtedness
pursuant to the provisions of this Article (equally and ratably with the holders
of all indebtedness of the Note Issuer which by its express terms is
subordinated to Senior Indebtedness of the Note Issuer to substantially the same
extent as the Securities are subordinated to the Senior Indebtedness and is
entitled to like rights of subrogation by reason of any payments or
distributions made to holders of such Senior Indebtedness) to the rights of the
holders of such Senior Indebtedness to receive payments and distributions of
cash, property and securities applicable to the Senior Indebtedness of the Note
Issuer until the principal of (and premium, if any) and interest on the
Securities shall be paid in full. For purposes of such subrogation or
assignment, no payments or distributions to the holders of the Senior
Indebtedness of the Note Issuer of any cash, property or securities to which the
Holders of the Securities or the Trustee would be entitled except for the
provisions of this Article, and no payments over pursuant to the provisions of
this Article to the holders of Senior Indebtedness by Holders of the Securities
or the Trustee, shall, as among the Note Issuer, its
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creditors other than holders of Senior Indebtedness, and the Holders of the
Securities, be deemed to be a payment or distribution by the Note Issuer to or
on account of the Senior Indebtedness.
SECTION 12.7. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the purpose
of defining the relative rights of the Holders of the Securities on the one hand
and the holders of Senior Indebtedness on the other hand. Nothing contained in
this Article or elsewhere in this Indenture or in the Securities is intended to
or shall (a) impair, as between the Note Issuer and the Holders of the
Securities, the obligations of the Note Issuer, which are absolute and
unconditional, to pay to the Holders of the Securities the principal of (and
premium, if any) and interest (including Additional Sums and Additional Amounts,
if any) on the Securities as and when the same shall become due and payable in
accordance with their terms; or (b) affect the relative rights against the Note
Issuer of the Holders of the Securities and creditors of the Note Issuer other
than their rights in relation to the holders of Senior Indebtedness of the Note
Issuer; or (c) prevent the Trustee or the Holder of any Security from exercising
all remedies otherwise permitted by applicable law upon default under this
Indenture including, without limitation, filing and voting claims in any
Proceeding, subject to the rights, if any, under this Article of the holders of
Senior Indebtedness to receive cash, property and securities otherwise payable
or deliverable to the Trustee or such Holder.
SECTION 12.8. Trustee to Effectuate Subordination.
Each Holder of a Security by his or her acceptance thereof authorizes and
directs the Trustee on his or her behalf to take such action as may be necessary
or appropriate to acknowledge or effectuate the subordination provided in this
Article and appoints the Trustee his or her attorney-in-fact for any and all
such purposes.
SECTION 12.9. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Note
Issuer or by any act or failure to act, in good faith, by any such holder, or by
any noncompliance by the Note Issuer with the terms, provisions and covenants of
this Indenture, regardless of any knowledge thereof that any such holder may
have or be otherwise charged with.
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SECTION 12.10. Notice to Trustee.
The Note Issuer shall give prompt written notice to the Trustee of any
fact known to the Note Issuer which would prohibit the making of any payment to
or by the Trustee in respect of the Securities. Notwithstanding the provisions
of this Article or any other provision of this Indenture, the Trustee shall not
be charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until a Responsible Officer of the Trustee shall have received written
notice thereof from the Note Issuer or a holder of Senior Indebtedness or from
any trustee, agent or representative therefor (whether or not the facts
contained in such notice are true); provided, however, that if the Trustee shall
not have received the notice provided for in this Section at least two Business
Days prior to the date upon which by the terms hereof any monies may become
payable for any purpose (including, without limitation, the payment of the
principal of (and premium, if any) or interest (including Additional Sums and
Additional Amounts, if any) on any Security), then, anything herein contained to
the contrary notwithstanding, the Trustee shall have full power and authority to
receive such monies and to apply the same to the purpose for which they were
received and shall not be affected by any notice to the contrary which may be
received by it within two Business Days prior to such date.
SECTION 12.11. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets of the Note Issuer referred to
in this Article, the Trustee, subject to the provisions of Article VI, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other Person
making such payment or distribution, delivered to the Trustee or to the Holders
of Securities, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior
Indebtedness and other indebtedness of the Note Issuer, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article.
SECTION 12.12. Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee, in its capacity as trustee under this Indenture, shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness of the
Note Issuer and shall not be liable to any such holders if it shall in good
faith mistakenly pay over or distribute to Holders of Securities or to the Note
Issuer or to any other Person cash, property or securities to which any holders
of Senior Indebtedness of the Note Issuer shall be entitled by virtue of this
Article or otherwise.
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SECTION 12.13. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the rights set
forth in this Article with respect to any Senior Indebtedness of the Note Issuer
which may at any time be held by it, to the same extent as any other holder of
Senior Indebtedness of the Note Issuer, and nothing in this Indenture shall
deprive the Trustee of any of its rights as such holder.
SECTION 12.14. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Note Issuer and be then acting hereunder, the term
"Trustee" as used in this Article shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article in addition to or in place of the Trustee.
SECTION 12.15. Certain Conversions or Exchanges Deemed Payment.
For the purposes of this Article only, (a) the issuance and delivery of
junior securities upon conversion or exchange of Securities shall not be deemed
to constitute a payment or distribution on account of the principal of (or
premium, if any) or interest (including Additional Sums and Additional Amounts,
if any) on Securities or on account of the purchase or other acquisition of
Securities, and (b) the payment, issuance or delivery of cash, property or
securities (other than Securities, Exchange Securities or junior securities)
upon conversion or exchange of a Security shall be deemed to constitute payment
on account of the principal of such security. For the purposes of this Section,
the term "junior securities" means (i) shares of any stock of any class of the
Note Issuer and (ii) securities of the Note Issuer which are subordinated in
right of payment to all Senior Indebtedness of the Note Issuer which may be
outstanding at the time of issuance or delivery of such securities to
substantially the same extent as, or to a greater extent than, the Securities
are so subordinated as provided in this Article.
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ARTICLE XIII.
GUARANTY
SECTION 13.1. Guaranty.
Each of the Guarantors hereby jointly and severally unconditionally
Guarantees, on a senior subordinated basis, to each Holder of a Security
authenticated and delivered by the Trustee, and to the Trustee on behalf of such
Holder, the due and punctual payment of the principal of (and premium, if any)
and interest (including Additional Sums and Additional Amounts, if any) on such
Security when and as the same shall become due and payable, whether at the
Stated Maturity, by acceleration, call for redemption, purchase or otherwise, in
accordance with the terms of such Security and of this Indenture. In case of the
failure of the Note Issuer punctually to make any such payment, each of the
Guarantors hereby jointly and severally agrees to cause such payment to be made
punctually when and as the same shall become due and payable, whether at the
Stated Maturity or by acceleration, call for redemption, purchase or otherwise,
and as if such payment were made by the Note Issuer. The Guarantee extends to
the Note Issuer's repurchase obligations arising from a Change of Control or an
Asset Disposition pursuant to Section 10.15.
Each of the Guarantors hereby jointly and severally agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of such Security or this Indenture, the absence of
any action to enforce the same, any exchange, release or non-perfection of any
Lien on any collateral for, or any release or amendment or waiver of any term of
any other Guarantee of, or any consent to departure from any requirement of any
other Guarantee of all or any of the Securities, the election by the Trustee or
any of the Holders in any proceeding under Chapter 11 of Title 11 of the United
States Code (the "Bankruptcy Code") of the application of Section 1111(b)(2) of
the Bankruptcy Code, or equivalent provision under applicable law, any borrowing
or grant of a security interest by the Note Issuer, as debtor-in-possession,
under Section 364 of the Bankruptcy Code, or equivalent provision under
applicable law, the disallowance, under Section 502 of the Bankruptcy Code, or
other similar applicable law, of all or any portion of the claims of the Trustee
or any of the Holders for payment of any of the Securities, any waiver or
consent by the Holder of such Security or by the Trustee with respect to any
provisions thereof or of this Indenture, the obtaining of any judgment against
the Note Issuer or any action to enforce the same or any other circumstances
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor. Each of the Guarantors hereby waives the benefits of diligence,
presentment, demand for payment, any requirement that the Trustee or any of the
Holders protect, secure, perfect or insure any security interest in or other
Lien on any property subject thereto or exhaust any right or take any action
against the Note Issuer or any other Person or any collateral, filing of claims
with a court in the event of insolvency or bankruptcy of the Note Issuer, any
right to require a proceeding first against the Note Issuer, protest or notice
with respect to such Security or the Indebtedness evidenced thereby and all
demands whatsoever, and covenants that this Guaranty
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will not be discharged in respect of such Security except by complete
performance of the obligations contained in such Security and in this Guaranty.
Each of the Guarantors hereby agrees that, in the event of a default in payment
of principal (or premium, if any) or interest (including Additional Sums and
Additional Amounts, if any) on such Security, whether at their Stated Maturity,
by acceleration, call for redemption, purchase or otherwise, legal proceedings
may be instituted by the Trustee on behalf of, or by, the Holder of such
Security, subject to the terms and conditions set forth in this Indenture,
directly against each of the Guarantors to enforce this Guaranty without first
proceeding against the Note Issuer. Each Guarantor agrees that, to the extent
permitted by law, if, after the occurrence and during the continuance of an
Event of Default, the Trustee or any of the Holders are prevented by applicable
law from exercising their respective rights to accelerate the maturity of the
Securities, to collect interest on the Securities, or to enforce or exercise any
other right or remedy with respect to the Securities, or the Trustee or the
Holders are prevented from taking any action to realize on any collateral, such
Guarantor agrees to pay to the Trustee for the account of the Holders, upon
demand therefor, the amount that would otherwise have been due and payable had
such rights and remedies been permitted to be exercised by the Trustee or any of
the Holders.
The indebtedness evidenced by the Guaranties is, to the extent provided in
this Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness of each Guarantor, and the Guaranties are
issued subject to the provisions of this Indenture with respect thereto. Each
Holder of such Security, by accepting the same, (a) agrees to and shall be bound
by such provisions, (b) authorizes and directs the Trustee on his behalf to take
such action as may be necessary or appropriate to effectuate the subordination
so provided and (c) appoints the Trustee his attorney-in-fact for any and all
such purposes.
Each Guarantor shall be subrogated to all rights of the Holders of the
Securities upon which its Guarantee is endorsed against the Note Issuer in
respect of any amounts paid by such Guarantor on account of such Security
pursuant to the provisions of its Guaranty or this Indenture; provided, however,
that no Guarantor shall be entitled to enforce or to receive any payments
arising out of, or based upon, such right of subrogation until the principal of
(and premium, if any) and interest (including Additional Sums and Additional
Amounts, if any) on all Securities issued hereunder shall have been paid in
full.
Each Guaranty shall remain in full force and effect and continue to be
effective should any petition be filed by or against the Note Issuer for
liquidation or reorganization or equivalent proceeding under applicable law,
should the Note Issuer become insolvent or make an assignment for the benefit of
creditors or should a receiver or trustee be appointed for all or any
significant part of the Note Issuer's assets, or the equivalent of any of the
foregoing under applicable law, and shall, to the fullest extent permitted by
law, continue to be effective or be reinstated, as the case may be, if at any
time payment and performance of the Securities, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or returned by any
obligee on the Securities, whether as a voidable preference, fraudulent
transfer, or as otherwise provided under similar laws
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affecting the rights of creditors generally or under applicable laws of the
jurisdiction of formation of the Note Issuer, all as though such payment or
performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Securities shall, to
the fullest extent permitted by law, be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored or returned.
The Guarantors shall have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does not impair the
rights of the Holders under this Guaranty.
Each Guaranty (other than the Company's Guaranty) will be limited in
amount to an amount not to exceed the maximum amount that can be guaranteed by
the applicable Guarantor without rendering the Guaranty, as it relates to such
Guarantor, voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors generally
or under applicable law of Germany.
In the case of Fresenius Medical Care Deutschland GmbH ("FMCD"), the
following provisions apply:
A Profit and Loss Pooling Agreement (the "Agreement")
(Ergebnisabfuhrungsvertrag) dated as of August 21, 1996, between the Company and
FMCD was entered into the commercial register as approved by the stockholders of
the Company and the shareholders of FMCD with effect from January 1, 1996. FMCD,
having a stated capital of DM 80 million, had a capital reserve account of DM
168,302,162 (the "January 1, 1996 Amount") in its balance sheet as of January 1,
1996. Assuming that the January 1, 1996 Amount has not decreased by losses in
the business of FMCD since January 1, 1996, at least such amount exceeds the
Company's assets protecting its share capital within the meaning of Section 30
of the German GmbH Law. Since January 1, 1996, the January 1, 1996 Amount has
not been decreased by the actions of the Company (the sole shareholder of FMCD),
e.g. no distributions against the January 1, 1996 Amount have been made.
Based thereon, the guaranty obligations of FMCD hereunder and under FMCD's
guaranty of the 9% Notes, the DM Securities and any other Senior Subordinated
Indebtedness, if any, of FMCD to which Section 30 of the German GmbH law may
apply are limited to the amount of the capital reserves of FMCD as of the date
hereof less its obligations as a guarantor from time to time under the Bank
Credit Agreement (the "Minimum Guaranty Amount"). If, in the case of a default
under this Indenture, the capital reserves are higher than such Minimum Guaranty
Amount, such higher amount (the "Higher Guaranty Amount") shall serve as
limitation to the obligations of FMCD, as Guarantor. In case FMCD, as Guarantor,
has to sell off assets to fulfill its obligations under this Indenture, after
such guaranty obligations have been drawn, and if the proceeds from the sale of
such assets exceed the amount of their book value, such excess amounts shall be
paid to the Trustee for the benefit of the Holders, subject to the provisions of
Article XIV hereof, in addition to the Minimum Guaranty Amount or the Higher
Guaranty Amount, respectively. For the determination of the applicable book
value, the book value of assets which were included into the
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balance sheet per January 1, 1996 applies, and for such assets which were not
yet included but added to the business of FMCD since that date, the book value
on the day of the sale of such assets applies. Should Section 30 of the German
GmbH law however require a lower Minimum Guaranty Amount or a lower Higher
Guaranty Amount, then such lower amounts required by law shall be applicable.
FMCD undertakes not to decrease its capital reserves, neither by capital
increase from such reserve accounts nor by other kinds of contributions to its
shareholders or affiliates without the prior written approval of the Holders of
a majority in principal amount of the Outstanding Securities.
FMCD undertakes to maintain a profit and loss pooling agreement with the
Note Issuer during the term of this Indenture, in particular, to extend the term
of such agreement to the term of this Indenture and not to terminate, rescind or
amend such agreement without prior notice to the Trustee and the consent of the
Holders of a majority in principal amount of the Outstanding Securities thereto.
In case of a termination of such profit and loss pooling agreement, FMCD will
grant, upon the request of the Holders of a majority in principal amount of the
Outstanding Securities, collateral to minimize the legal and financial
disadvantages caused by the termination of such agreement, as far as legally
available under German law. FMCD undertakes to give notice immediately to the
Trustee if it intends to give notice of termination to such agreement or to
agree to the termination of such agreement, or if it becomes aware that the Note
Issuer intends to terminate such agreement. During the term of the profit and
loss pooling agreement, any and all allocations of profit to the Note Issuer and
any and all cash distributions to the Note Issuer as a consequence thereof upon
the terms and conditions of the profit and loss pooling agreement are permitted
and unrestricted, subject to the terms of Section 30 of the German GmbH law as
described above.
SECTION 13.2. Execution and Delivery of Guaranties.
The Guaranties to be endorsed on the Securities shall include the terms of
the Guaranty set forth in Section 13.1 and any other terms that may be set forth
in the form established pursuant to Section 2.6. Each of the Guarantors hereby
agrees to execute its Guaranty, in a form established pursuant to Section 2.6,
to be endorsed on each Security authenticated and delivered by the Trustee.
The Guaranty shall be executed on behalf of each respective Guarantor by
any one of such Guarantor's Chairman of the Board of Directors or two members of
the Managing Board, as the case may be, or other person duly authorized by the
Board of Directors or Managing Board of such Guarantor. The signature of any or
all of these persons on the Guaranty may be manual or facsimile.
A Guaranty bearing the manual or facsimile signature of individuals who
were at any time the proper officers of a Guarantor shall bind such Guarantor,
notwithstanding that such individuals
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or any of them have ceased to hold such offices prior to the authentication and
delivery of the Security on which such Guaranty is endorsed or did not hold such
offices at the date of such Guaranty.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guaranty endorsed
thereon on behalf of the Guarantors. Each of the Guarantors hereby jointly and
severally agrees that its Guaranty set forth in Section 13.1 shall remain in
full force and effect notwithstanding any failure to endorse a Guaranty on any
Security.
SECTION 13.3. Guarantors May Consolidate, etc., on Certain Terms.
Except as set forth in Section 13.4 and in Articles VIII and X hereof,
nothing contained in this Indenture or in any of the Securities shall prevent
any consolidation or merger of a Guarantor with or into the Company, the Note
Issuer or another Guarantor or shall prevent any sale, transfer, assignment,
lease, conveyance or other disposition of the property of a Guarantor as an
entirety or substantially as an entirety to the Company, the Note Issuer or
another Guarantor.
SECTION 13.4. Release of Guarantors.
(a) Concurrently with any consolidation or merger of a Guarantor or any
sale, transfer, assignment, lease, conveyance or other disposition of the
property of a Guarantor as an entirety or substantially as an entirety, in each
case as permitted by Section 13.3 hereof, and upon delivery by the Company or
the Note Issuer to the Trustee of an Officers' Certificate and an Opinion of
Counsel to the effect that such consolidation, merger, sale, transfer,
assignment, conveyance or other disposition was made in accordance with Section
13.3 hereof, the Trustee shall execute any documents reasonably required in
order to acknowledge the release of such Guarantor from its obligations under
its Guaranty endorsed on the Securities and under this Indenture. Any Guarantor
not released from its obligations under its Guaranty endorsed on the Securities
and under this Indenture shall remain liable for the full amount of principal of
(premium, if any) and interest (including Additional Sums and Additional
Amounts, if any) on the Securities and for the other obligations of a Guarantor
under its Guaranty endorsed on the Securities and under this Indenture.
(b) Concurrently with the defeasance of the Securities under Section 4.3
hereof, the Guarantors shall be released from all of their obligations under
their Guaranties endorsed on the Securities and under this Indenture, without
any action on the part of the Trustee or any Holder of Securities.
(c) Upon the sale or other disposition (including by way of merger or
consolidation) of any Guarantor or the sale, conveyance, transfer, assignment,
lease or other disposition of all or substantially all the assets of a Guarantor
(in each case other than to the Company, the Note Issuer or any Affiliate of the
Note Issuer) pursuant to Section 10.13 hereof, such Guarantor shall
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automatically be released from all obligations under its Guaranties endorsed on
the Securities and under this Indenture.
SECTION 13.5. Additional Guarantors.
The Company or the Note Issuer may cause any Subsidiary to become a
Guarantor with respect to the Securities by executing and delivering to the
Trustee (a) a supplemental indenture, in form and substance satisfactory to the
Trustee, which subjects such Person to the provisions (including the
representations and warranties) of this Indenture as a Guarantor and (b) an
Opinion of Counsel to the effect that such supplemental indenture has been duly
authorized and executed by such Person and constitutes the legal, valid, binding
and enforceable obligation of such Person (subject to such customary exceptions
concerning creditors' rights and equitable principles as may be acceptable to
the Trustee in its discretion).
ARTICLE XIV.
SUBORDINATION OF GUARANTIES
SECTION 14.1. Guaranties Subordinate to Senior Indebtedness of Guarantors.
Each Guarantor covenants and agrees, and each Holder of a Security, by his
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article (subject to the provisions of
Article IV), the payment of the principal of (and premium, if any) and interest
(including Additional Sums and Additional Amounts, if any) on the Guaranty of
each Guarantor in respect of the Securities are hereby expressly made
subordinate and subject in right of payment in full of all amounts then due and
payable in respect of all Senior Indebtedness of the Note Issuer and such
Guarantor.
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SECTION 14.2. Payment Over of Proceeds Upon Dissolution, etc.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to a Guarantor or its property (each such event, if
any, herein sometimes referred to as a "Guarantor Proceeding"), the holders of
Senior Indebtedness of the Company and such Guarantor shall be entitled to
receive payment in full of principal of (and premium, if any) and interest, if
any (including Additional Sums and Additional Amounts, if any), on such Senior
Indebtedness, or provision shall be made for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness of the Company and such Guarantor, before the Holders of the
Securities are entitled to receive or retain any payment or distribution of any
kind or character, whether in cash, property or securities (including any
payment or distribution which may be payable or deliverable by reason of the
payment of any other Indebtedness of the Company or such Guarantor (including
the Securities) subordinated to the payment of the Securities, such payment or
distribution being hereinafter referred to as a "Guarantor Senior Subordinated
Payment"), on account of principal of (or premium, if any) or interest
(including Additional Sums and Additional Amounts, if any) on the Securities or
on account of the purchase or other acquisition of Securities by the Company or
any Subsidiary, and to that end the holders of Senior Indebtedness of the
Company and such Guarantor shall be entitled to receive, for application to the
payment thereof, any payment or distribution of any kind or character, whether
in cash, property or securities, including any Guarantor Senior Subordinated
Payment, which may be payable or deliverable in respect of the Securities in any
such Guarantor Proceeding.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Company or any Guarantor of any kind or
character, whether in cash, property or securities, including any Guarantor
Senior Subordinated Payment, before all Senior Indebtedness of the Company and
such Guarantor is paid in full or payment thereof is provided for in cash or
cash equivalents or otherwise in a manner satisfactory to the holders of such
Senior Indebtedness, and if such fact shall, at or prior to the time of such
payment or distribution, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment or distribution shall be
paid over or delivered forthwith to the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee, agent or other Person making payment
or distribution of assets of the Company or such Guarantor for application to
the payment of all Senior Indebtedness of the Company and such Guarantor
remaining unpaid, to the extent necessary to pay all Senior Indebtedness of the
Company and such Guarantor in full, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Indebtedness of the
Company and such Guarantor.
For purposes of this Article only, the words "any payment or distribution
of any kind or character, whether in cash, property or securities" shall not be
deemed to include shares of stock of the Company or any Guarantor as reorganized
or readjusted, or securities of the Company or any
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Guarantor or any other corporation provided for by a plan of reorganization or
readjustment which securities are subordinated in right of payment to all then
outstanding Senior Indebtedness of the Company and such Guarantor to
substantially the same extent as the Securities are so subordinated as provided
in this Article. The consolidation of the Company or any Guarantor with, or the
merger of the Company or any Guarantor into, another Person or the liquidation
or dissolution of the Company or any Guarantor following the sale of all or
substantially all of its properties and assets as an entirety to another Person
or the liquidation or dissolution of the Company or any Guarantor following the
sale of all or substantially all of its properties and assets as an entirety to
another Person upon the terms and conditions set forth in Article VIII shall not
be deemed a Guarantor Proceeding for the purposes of this Section if the Person
formed by such consolidation or into which the Company or such Guarantor is
merged or the Person which acquires by sale such properties and assets as an
entirety, as the case may be, shall, as a part of such consolidation, merger, or
sale comply with the conditions set forth in Article VIII.
SECTION 14.3. Prior Payment to Senior Indebtedness of a Guarantor Upon
Acceleration of Securities.
In the event that, upon the occurrence of an Event of Default, any
Securities are declared due and payable before their Stated Maturity, then (a) a
Guarantor shall promptly notify the holders of Senior Indebtedness of such
Guarantor or the representative of such holders of the acceleration, and (b) in
such event, if any Senior Indebtedness of the Company or such Guarantor is
outstanding, such Guarantor may not pay the Securities until five Business Days
after the representative of all issues of Senior Indebtedness of the Company and
such Guarantor receive notice of such acceleration and, thereafter, may pay the
Securities only if payment is otherwise permitted hereunder at that time.
In the event that, notwithstanding the foregoing, a Guarantor shall make
any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to such Guarantor.
The provisions of this Section shall not apply to any payment with respect
to which Section 14.2 would be applicable.
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SECTION 14.4. No Payment When Senior Indebtedness of a Guarantor in
Default.
(a) A Guarantor may not pay principal of, or premium (if any) or interest
(including Additional Sums and Additional Amounts, if any) on, the Securities,
and may not repurchase, redeem or otherwise retire any Securities (collectively
"pay the Securities") if (i) any Specified Senior Indebtedness of the Company or
such Guarantor (or any other Senior Indebtedness of the Company or such
Guarantor having an outstanding principal amount at the time of determination in
excess of $25,000,000) is not paid when due or (ii) any other default on
Specified Senior Indebtedness of the Company or such Guarantor occurs and the
maturity of such Specified Senior Indebtedness is accelerated in accordance with
its terms, unless, in either case, the default has been cured or waived and any
such acceleration has been rescinded or such Specified Senior Indebtedness has
been paid in full. However, a Guarantor may pay the Securities without regard to
the foregoing if the Company such Guarantor and the Trustee receive written
notice approving such payment from a representative of Specified Senior
Indebtedness of the Company and such Guarantor with respect to which either of
the events set forth in clause (i) or (ii) of the immediately preceding sentence
has occurred and is continuing.
(b) During the continuance of any default (other than a default described
in clause (i) or (ii) of the preceding paragraph (a) with respect to any
Specified Senior Indebtedness of the Company or any Guarantor pursuant to which
the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace periods, such Guarantor may not pay the
Securities to the Holders for a period (a "Guarantor Payment Blockage Period")
commencing upon the receipt by the Trustee (with a copy to such Guarantor) of
written notice (a "Guarantor Blockage Notice") of such default from the
representative of the holders of such Specified Senior Indebtedness specifying
an election to effect a Payment Blockage Period and ending 179 days thereafter
(or earlier if such Payment Blockage Period is terminated (i) by written notice
to the Trustee and the Guarantor from the representative of the holders of such
Specified Senior Indebtedness, (ii) because the default giving rise to such
Blockage Notice is no longer continuing, as certified to the Trustee by the
representative of the holders of such Specified Senior Indebtedness or (iii)
because such Specified Senior Indebtedness has been repaid in full, as certified
to the Trustee by the representative of the holders of such Specified Senior
Indebtedness).
(c) Notwithstanding the preceding paragraph (b), unless the holders of
such Specified Senior Indebtedness or the representative of such holders have
accelerated the maturity of such Specified Senior Indebtedness, the Guarantor
may resume payments on the Securities after the end of such Payment Blockage
Period. The Securities shall not be subject to more than one Payment Blockage
Period in any consecutive 360-day period, irrespective of the number of defaults
with respect to Specified Senior Indebtedness of the Company or such Guarantor
during such period.
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(d) In the event that, notwithstanding the foregoing, the Guarantor shall
make any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to such Guarantor.
The provisions of this Section shall not apply to any payment with respect
to which Section 14.2 would be applicable.
SECTION 14.5. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture or in any
of the Securities shall prevent (a) any Guarantor, at any time except during the
pendency of any Proceeding referred to in Section 14.2 or under the conditions
described in Sections 14.3 and 14.4, from making payments at any time of
principal of (and premium, if any) or interest on the Securities, or (b) the
application by the Trustee of any money or Government Obligations deposited with
it hereunder in accordance with the provisions of Section 4.3 to the payment of
or on account of the principal of (and premium, if any) or interest (including
Additional Sums and Additional Amounts, if any) on the Securities or the
retention of such payment by the Holders, if, at the time of such payment or
application, as the case may be, by the Company, the Note Issuer or the Trustee,
as the case may be, the Note Issuer or the Trustee, as the case may be, did not
have knowledge that such payment would have been prohibited by the provisions of
this Article.
122 EXECUTION
<PAGE> 132
SECTION 14.6. Subrogation to Rights of Holders of Senior Indebtedness of a
Guarantor.
Subject to the payment in full of all Senior Indebtedness of a Guarantor,
or the provision for such payment in cash or cash equivalents or otherwise in a
manner satisfactory to the holders of Senior Indebtedness of a Guarantor, the
Holders of the Securities shall be subrogated to the extent of the payments or
distributions made to the holders of such Senior Indebtedness of a Guarantor
pursuant to the provisions of this Article (equally and ratably with the holders
of all indebtedness of such Guarantor which by its express terms is subordinated
to Senior Indebtedness of such Guarantor to substantially the same extent as the
Securities are subordinated to Senior Indebtedness and is entitled to like
rights of subrogation by reason of any payments or distributions made to holders
of such Senior Indebtedness) to the rights of the holders of such Senior
Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness of such Guarantor until the
principal of (and premium, if any) and interest on the Securities shall be paid
in full. For purposes of such subrogation or assignment, no payments or
distributions to the holders of the Senior Indebtedness of such Guarantor of any
cash, property or securities to which the Holders of the Securities or the
Trustee would be entitled except for the provisions of this Article, and no
payments over pursuant to the provisions of this Article to the holders of
Senior Indebtedness of such Guarantor by Holders of the Securities or the
Trustee, shall, as among the Guarantors, their creditors other than holders of
Senior Indebtedness of the Guarantors, and the Holders of the Securities, be
deemed to be a payment or distribution by a Guarantor to or on account of the
Senior Indebtedness of such Guarantor.
SECTION 14.7. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the purpose
of defining the relative rights of the Holders of the Securities on the one hand
and the holders of Senior Indebtedness of each Guarantor on the other hand.
Nothing contained in this Article or elsewhere in this Indenture or in the
Securities is intended to or shall (a) impair, as between the Guarantors and the
Holders of the Securities, the obligations of each Guarantor, which are absolute
and unconditional, to pay to the Holders of the Securities the principal of (and
premium, if any) and interest (including Additional Sums and Additional Amounts,
if any) on the Securities as and when the same shall become due and payable in
accordance with their terms; or (b) affect the relative rights against any
Guarantor of the Holders of the Securities and creditors of such Guarantor other
than their rights in relation to the holders of Senior Indebtedness of such
Guarantor; or (c) prevent the Trustee or the Holder of any Security from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture including, without limitation, filing and voting claims in any
Guarantor Proceeding, subject to the rights, if any, under this Article of the
holders of Senior Indebtedness of a Guarantor to receive cash, property and
securities otherwise payable or deliverable to the Trustee or such Holder.
123 EXECUTION
<PAGE> 133
SECTION 14.8. Trustee to Effectuate Subordination.
Each Holder of a Security by his or her acceptance thereof authorizes and
directs the Trustee on his or her behalf to take such action as may be necessary
or appropriate to acknowledge or effectuate the subordination provided in this
Article and appoints the Trustee his or her attorney-in-fact for any and all
such purposes.
SECTION 14.9. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Indebtedness of any
Guarantor to enforce subordination as herein provided shall at any time in any
way be prejudiced or impaired by any act or failure to act on the part of such
Guarantor or by any act or failure to act, in good faith, by any such holder, or
by any noncompliance by such Guarantor with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof that any such holder may
have or be otherwise charged with.
SECTION 14.10. Notice to Trustee.
Each Guarantor shall give prompt written notice to the Trustee of any fact
known to such Guarantor which would prohibit the making of any payment to or by
the Trustee in respect of the Securities. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from a
Guarantor or a holder of Senior Indebtedness of a Guarantor or from any trustee,
agent or representative therefor (whether or not the facts contained in such
notice are true); provided, however, that if the Trustee shall not have received
the notice provided for in this Section at least two Business Days prior to the
date upon which by the terms hereof any monies may become payable for any
purpose (including, without limitation, the payment of the principal of (and
premium, if any) or interest (including Additional Sums and Additional Amounts,
if any) on any Security), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive such
monies and to apply the same to the purpose for which they were received and
shall not be affected by any notice to the contrary which may be received by it
within two Business Days prior to such date.
124 EXECUTION
<PAGE> 134
SECTION 14.11. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets of the Guarantors referred to
in this Article, the Trustee, subject to the provisions of Article VI, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other Person
making such payment or distribution, delivered to the Trustee or to the Holders
of Securities, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior
Indebtedness of a Guarantor and other indebtedness of such Guarantor, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article.
SECTION 14.12. Trustee Not Fiduciary for Holders of Senior Indebtedness of
the Guarantors.
The Trustee, in its capacity as trustee under this Indenture, shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness of any
Guarantor and shall not be liable to any such holders if it shall in good faith
mistakenly pay over or distribute to Holders of Securities or to any Guarantor
or to any other Person cash, property or securities to which any holders of
Senior Indebtedness of such Guarantor shall be entitled by virtue of this
Article or otherwise.
SECTION 14.13. Rights of Trustee as Holder of Senior Indebtedness of the
Guarantors; Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article with respect to any Senior Indebtedness of any
Guarantor which may at any time be held by it, to the same extent as any other
holder of Senior Indebtedness of such Guarantor, and nothing in this Indenture
shall deprive the Trustee of any of its rights as such holder.
SECTION 14.14. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Note Issuer and be then acting hereunder, the term
"Trustee" as used in this Article shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article in addition to or in place of the Trustee.
125 EXECUTION
<PAGE> 135
SECTION 14.15. Certain Conversions or Exchanges Deemed Payment.
For the purposes of this Article only, (a) the issuance and delivery of
junior securities upon conversion or exchange of Securities shall not be deemed
to constitute a payment or distribution on account of the principal of (or
premium, if any) or interest (including Additional Sums and Additional Amounts,
if any) on Securities or on account of the purchase or other acquisition of
Securities, and (b) the payment, issuance or delivery of cash, property or
securities (other than Securities, Exchange Securities or junior securities)
upon conversion or exchange of a Security shall be deemed to constitute payment
on account of the principal of such security. For the purposes of this Section,
the term "junior securities" means (i) shares of any stock of any class of any
Guarantor and (ii) securities of any Guarantor which are subordinated in right
of payment to all Senior Indebtedness of such Guarantor which may be outstanding
at the time of issuance or delivery of such securities to substantially the same
extent as, or to a greater extent than, the Securities are so subordinated as
provided in this Article.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
126 EXECUTION
<PAGE> 136
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the day and year first above written.
FMC TRUST FINANCE S.A.R.L. LUXEMBOURG
By: /s/ Andrea Stopper
-------------------------------
Name: Dr. Andrea Stopper
Title: Manager
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: /s/ Elizabeth C. Hammer
-------------------------------
Name: Elizabeth C. Hammer
Title: Vice President
FRESENIUS MEDICAL CARE AG, as
Company and as a Guarantor
By: /s/ Udo Werle
-------------------------------
Name: Udo Werle
Title: Member of the Managing Board
By: /s/ Emanuele Gatti
-------------------------------
Name: Dr. Emanuele Gatti
Title: Member of the Managing Board
FRESENIUS MEDICAL CARE HOLDINGS, INC.,
as a Guarantor
By: /s/ Ben Lipps
-------------------------------
Name: Ben Lipps
Title: President
127 EXECUTION
<PAGE> 137
FRESENIUS MEDICAL CARE DEUTSCHLAND GMBH,
as a Guarantor
By: /s/ Udo Werle
-------------------------------
Name: Udo Werle
Title: Member of the Managing Board
By: /s/ Emanuele Gatti
-------------------------------
Name: Dr. Emanuele Gatti
Title: Member of the Managing Board
128 EXECUTION
<PAGE> 1
EXHIBIT 10.3
------------------------------------------
FMC TRUST FINANCE S.A.R.L. LUXEMBOURG
As Issuer
STATE STREET BANK AND TRUST COMPANY
As Trustee
FRESENIUS MEDICAL CARE AG
As Company and as a Guarantor
FRESENIUS MEDICAL CARE HOLDINGS, INC. AND FRESENIUS MEDICAL CARE
DEUTSCHLAND GMBH
As Guarantors
SENIOR SUBORDINATED INDENTURE
DATED AS OF FEBRUARY 19, 1998
with respect to the issuance of
DM 300,300,000
IN AGGREGATE PRINCIPAL AMOUNT OF
7 3/8% SENIOR SUBORDINATED NOTES DUE 2008
------------------------------------------
EXECUTION
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
ARTICLE I.
SECTION 1.1. Definitions............................................ 2
SECTION 1.2. Compliance Certificate and Opinions.................... 24
SECTION 1.3. Form of Documents Delivered to Trustee................. 25
SECTION 1.4. Acts of Holders; Record Date........................... 25
SECTION 1.5. Notices, etc., to Trustee, Note Issuer and
Guarantors............................................. 26
SECTION 1.6. Notice to Holders; Waiver.............................. 27
SECTION 1.7. Conflict with Trust Indenture Act...................... 28
SECTION 1.8. Effect of Headings and Table of Contents............... 28
SECTION 1.9. Successors and Assigns................................. 28
SECTION 1.10. Separability Clause.................................... 28
SECTION 1.11. Benefits of Indenture.................................. 28
SECTION 1.12. Governing Law.......................................... 29
SECTION 1.13. Non-Business Days...................................... 29
SECTION 1.14. Duplicate Originals.................................... 29
SECTION 1.15. Submission to Jurisdiction............................. 29
SECTION 1.16. Substitution of Currency............................... 30
ARTICLE II.
SECURITY AND GUARANTY FORMS...................... 30
SECTION 2.1. Forms Generally........................................ 30
SECTION 2.2. Form of Face of Security............................... 31
SECTION 2.3. Form of Reverse of Security............................ 35
SECTION 2.4. Additional Provisions Required in Global
Security and Initial Security.......................... 38
SECTION 2.5. Form of Trustee's Certificate of Authentication........ 39
SECTION 2.6. Form of Guaranty....................................... 39
ARTICLE III.
THE SECURITIES............................. 45
SECTION 3.1. Title and Terms........................................ 45
SECTION 3.2. Denominations.......................................... 46
SECTION 3.3. Execution, Authentication, Delivery and Dating......... 46
SECTION 3.4. Temporary Securities................................... 47
i EXECUTION
<PAGE> 3
SECTION 3.5. Registration, Registration of Transfer and Exchange.... 48
SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Securities....... 50
SECTION 3.7. Payment of Interest; Interest Rights Preserved......... 51
SECTION 3.8. Persons Deemed Owners.................................. 52
SECTION 3.9. Cancellation........................................... 53
SECTION 3.10. Computation of Interest................................ 53
SECTION 3.11. Right of Set-Off....................................... 53
SECTION 3.12. Agreed Tax Treatment................................... 53
SECTION 3.13. CUSIP Numbers.......................................... 53
ARTICLE IV.
SATISFACTION AND DISCHARGE....................... 54
SECTION 4.1. Satisfaction and Discharge of Indenture................ 54
SECTION 4.2. Application of Trust Money; Reinstatement.............. 55
SECTION 4.3. Satisfaction, Discharge and Defeasance of
Securities............................................. 56
ARTICLE V.
REMEDIES................................ 58
SECTION 5.1. Events of Default...................................... 58
SECTION 5.2. Acceleration of Maturity; Rescission and Annulment..... 60
SECTION 5.3. Collection of Indebtedness and Suits for Enforcement
by Trustee............................................. 62
SECTION 5.4. Trustee May File Proofs of Claim....................... 62
SECTION 5.5. Trustee May Enforce Claims Without
Possession of Securities............................... 63
SECTION 5.6. Application of Money Collected......................... 64
SECTION 5.7. Limitation on Suits.................................... 64
SECTION 5.8. Unconditional Right of Holders to
Receive Principal, Premium and Interest................ 65
SECTION 5.9. Restoration of Rights and Remedies..................... 65
SECTION 5.10. Rights and Remedies Cumulative......................... 66
SECTION 5.11. Delay or Omission Not Waiver. ......................... 66
SECTION 5.12. Control by Holders. ................................... 66
SECTION 5.13. Waiver of Past Defaults. .............................. 67
SECTION 5.14. Undertaking for Costs. ................................ 67
SECTION 5.15. Waiver of Usury, Stay or Extension Laws. .............. 68
ARTICLE VI.
THE TRUSTEE.............................. 68
ii EXECUTION
<PAGE> 4
SECTION 6.1. Certain Duties and Responsibilities. .................. 68
SECTION 6.2. Notice of Defaults. ................................... 69
SECTION 6.3. Certain Rights of Trustee. ............................ 69
SECTION 6.4. Not Responsible for Recitals
or Issuance of Securities. ............................ 70
SECTION 6.5. May Hold Securities. .................................. 71
SECTION 6.6. Money Held in Trust. .................................. 71
SECTION 6.7. Compensation and Reimbursement. ....................... 71
SECTION 6.8. Disqualification; Conflicting Interests. .............. 72
SECTION 6.9. Corporate Trustee Required; Eligibility. .............. 72
SECTION 6.10. Resignation and Removal; Appointment of Successor. .... 73
SECTION 6.11. Acceptance of Appointment by Successor. ............... 74
SECTION 6.12. Merger, Conversion, Consolidation
or Succession to Business. ............................ 74
SECTION 6.13. Preferential Collection of Claims
Against Note Issuer. .................................. 75
SECTION 6.14. Appointment of Authenticating Agent. .................. 75
ARTICLE VII.
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND NOTE ISSUER......... 77
SECTION 7.1. Note Issuer to Furnish Trustee Names and
Addresses of Holders................................... 77
SECTION 7.2. Preservation of Information, Communications to
Holders. .............................................. 77
SECTION 7.3. Reports by Trustee. ................................... 77
SECTION 7.4. Reports by Note Issuer. ............................... 78
ARTICLE VIII.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE.......... 78
SECTION 8.1. Note Issuer May Consolidate, etc., Only on Certain
Terms. ................................................ 78
SECTION 8.2. Guarantors May Consolidate, etc., Only on Certain
Terms.................................................. 79
SECTION 8.3. Successor Corporation Substituted. .................... 80
SECTION 8.4. Successor to Note Issuer. ............................. 81
ARTICLE IX.
SUPPLEMENTAL INDENTURES........................ 82
SECTION 9.1. Supplemental Indentures Without Consent of Holders. ... 82
SECTION 9.2. Supplemental Indentures with Consent of Holders. ...... 83
iii EXECUTION
<PAGE> 5
SECTION 9.3. Execution of Supplemental Indentures................... 84
SECTION 9.4. Effect of Supplemental Indentures. .................... 84
SECTION 9.5. Conformity with Trust Indenture Act. .................. 85
SECTION 9.6. Reference in Securities to Supplemental Indentures. ... 85
ARTICLE X.
COVENANTS............................... 85
SECTION 10.1. Payment of Principal, Premium and Interest. .......... 85
SECTION 10.2. Maintenance of Office or Agency. ..................... 85
SECTION 10.3. Money for Security Payments to be Held in Trust. ..... 86
SECTION 10.4. Existence............................................. 87
SECTION 10.5. Maintenance of Properties............................. 88
SECTION 10.6. Payment of Taxes and Other Claims..................... 88
SECTION 10.7. Maintenance of Insurance.............................. 88
SECTION 10.8. Limitation on Incurrence of Indebtedness.............. 88
SECTION 10.9. Limitation on Restricted Payments..................... 90
SECTION 10.10. Limitation on Restrictions on Distributions
from Subsidiaries..................................... 91
SECTION 10.11. Senior Subordinated Indebtedness; Liens............... 92
SECTION 10.12. Limitation on Affiliate Transactions.................. 93
SECTION 10.13. Limitation on Sales of Assets and Subsidiary Stock.... 93
SECTION 10.14. Intentionally Omitted................................. 96
SECTION 10.15. Change of Control..................................... 96
SECTION 10.16. Statement as to Compliance and Default. .............. 97
SECTION 10.17. Ownership of the Trust and the Note Issuer;
Business of the Note Issuer........................... 97
SECTION 10.18. Waiver of Certain Covenants. ......................... 98
SECTION 10.19. Additional Amounts; Additional Interest............... 98
ARTICLE XI.
REDEMPTION OF SECURITIES........................ 99
SECTION 11.1. Applicability of This Article. ....................... 99
SECTION 11.2. Election to Redeem; Notice to Trustee. ............... 99
SECTION 11.3. Intentionally Omitted. ...............................100
SECTION 11.4. Notice of Redemption. ................................100
SECTION 11.5. Deposit of Redemption Price. .........................100
SECTION 11.6. Payment of Securities Called for Redemption. .........101
SECTION 11.7. Note Issuer's Right of Redemption
in Certain Circumstances. ............................101
iv EXECUTION
<PAGE> 6
ARTICLE XII.
SUBORDINATION OF SECURITIES......................101
SECTION 12.1. Securities Subordinate to Senior Indebtedness. .......101
SECTION 12.2. Payment Over of Proceeds Upon Dissolution, etc. ......102
SECTION 12.3. Prior Payment to Senior Indebtedness Upon
Acceleration of Securities. ..........................103
SECTION 12.4. No Payment When Senior Indebtedness in Default. ......103
SECTION 12.5. Payment Permitted If No Default. .....................105
SECTION 12.6. Subrogation to Rights of Holders of
Senior Indebtedness. .................................105
SECTION 12.7. Provisions Solely to Define Relative Rights. .........105
SECTION 12.8. Trustee to Effectuate Subordination. .................106
SECTION 12.9. No Waiver of Subordination Provisions. ...............106
SECTION 12.10. Notice to Trustee. ...................................106
SECTION 12.11. Reliance on Judicial Order or Certificate
of Liquidating Agent. ................................107
SECTION 12.12. Trustee Not Fiduciary for Holders
of Senior Indebtedness. ..............................107
SECTION 12.13. Rights of Trustee as Holder of Senior
Indebtedness; Preservation of Trustee's Rights. ......107
SECTION 12.14. Article Applicable to Paying Agents. .................107
SECTION 12.15. Certain Conversions or Exchanges Deemed Payment. .....108
ARTICLE XIII.
GUARANTY................................108
SECTION 13.1. Guaranty. ............................................108
SECTION 13.2. Execution and Delivery of Guaranties. ................112
SECTION 13.3. Guarantors May Consolidate, etc., on Certain
Terms. ...............................................112
SECTION 13.4. Release of Guarantors. ...............................112
SECTION 13.5. Additional Guarantors. ...............................113
ARTICLE XIV.
SUBORDINATION OF GUARANTIES......................113
SECTION 14.1. Guaranties Subordinate to Senior
Indebtedness of Guarantors. ..........................113
SECTION 14.2. Payment Over of Proceeds Upon Dissolution, etc........114
SECTION 14.3. Prior Payment to Senior Indebtedness
v EXECUTION
<PAGE> 7
of a Guarantor Upon Acceleration of Securities. ......115
SECTION 14.4. No Payment When Senior Indebtedness of a
Guarantor in Default. ................................116
SECTION 14.5. Payment Permitted If No Default. .....................117
SECTION 14.6. Subrogation to Rights of Holders of
Senior Indebtedness of a Guarantor....................117
SECTION 14.7. Provisions Solely to Define Relative Rights. .........118
SECTION 14.8. Trustee to Effectuate Subordination. .................118
SECTION 14.9. No Waiver of Subordination Provisions. ...............118
SECTION 14.10. Notice to Trustee. ...................................118
SECTION 14.11. Reliance on Judicial Order or Certificate
of Liquidating Agent. ................................119
SECTION 14.12. Trustee Not Fiduciary for Holders of
Senior Indebtedness of the Guarantors. ...............119
SECTION 14.13. Rights of Trustee as Holder of Senior Indebtedness
of the Guarantors; Preservation of Trustee's Rights. .119
SECTION 14.14. Article Applicable to Paying Agents. .................120
SECTION 14.15. Certain Conversions or Exchanges Deemed Payment. .....120
EXHIBITS
EXHIBIT A Form of Amended and Restated Declaration of Trust of
Fresenius Medical Care Capital Trust III
vi EXECUTION
<PAGE> 8
FMC TRUST FINANCE S.a.r.l. LUXEMBOURG
Reconciliation and tie between the Trust Indenture Act of 1939 (including
cross-references to provisions of Sections 310 to and including 317 which,
pursuant to Section 318(c) of the Trust Indenture Act of 1939, as amended by the
Trust Reform Act of 1990, are a part of and govern the Indenture upon
consummation of the Exchange Offer (as defined in the Indenture) whether or not
physically contained therein) and the Senior Subordinated Indenture, dated as of
February 19, 1998.
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
----------- -------
ss.310 (a) (1), (2) and (5)...................................6.9
(a) (3)................................................Not Applicable
(a) (4)................................................Not Applicable
(b)....................................................6.8
.......................................................6.10
(c)....................................................Not Applicable
ss.311 (a)....................................................6.13
(b)....................................................6.13
(b) (2)................................................6.13
.......................................................6.13
ss.312 (a)....................................................7.1
.......................................................7.2(a)
(b)....................................................7.2(b)
(c)....................................................7.2(c)
ss.313 (a)....................................................7.3(a)
(b)....................................................7.3(a)
(c)....................................................7.3(a), 7.3(b)
(d)....................................................7.3(c)
ss.314 (a) (1), (2) and (3)...................................7.4
(a) (4)................................................10.16
(b)....................................................Not Applicable
(c) (1)................................................1.2
(c) (2)................................................1.2
(c) (3)................................................Not Applicable
(d)....................................................Not Applicable
vii EXECUTION
<PAGE> 9
(e)....................................................1.2
(f)....................................................Not Applicable
ss.315 (a)....................................................6.1(a)
(b)....................................................6.2
.......................................................7.3(a) (6)
(c)....................................................6.1(b)
(d)....................................................6.1(c)
(d) (1)................................................6.1(a)
(d) (2)................................................6.1(c) (2)
(d) (3)................................................6.1(c) (3)
(e)....................................................5.14
ss.316 (a)....................................................1.1
(a) (1) (A)............................................5.12
(a) (1) (B)............................................5.13
(a) (2)................................................Not Applicable
(b)....................................................5.8
(c)....................................................1.4(f)
ss.317 (a) (1)................................................5.3
(a) (2)................................................5.4
(b)....................................................10.3
ss.318 (a)....................................................1.7
- ----------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Senior Subordinated Indenture.
viii EXECUTION
<PAGE> 10
FMC TRUST FINANCE S.A.R.L. LUXEMBOURG
SENIOR SUBORDINATED INDENTURE
SENIOR SUBORDINATED INDENTURE, dated as of February 19, 1998, among FMC
TRUST FINANCE S.A.R.L. LUXEMBOURG, a private limited company (Societe a
responsabilite limitee) organized under the laws of Luxembourg (hereinafter
called the "Note Issuer") having its principal office at L-2210 Luxembourg, 54
boulevard Napoleon 1er, as Issuer, FRESENIUS MEDICAL CARE AG, a stock
corporation (Aktiengesellschaft) organized under the laws of Germany
(hereinafter called the "Company"), as the Company and as a Guarantor, each of
the other GUARANTORS (as hereinafter defined), and STATE STREET BANK AND TRUST
COMPANY, a Massachusetts chartered trust company, as Trustee (hereinafter called
the "Trustee").
RECITALS OF THE NOTE ISSUER AND THE GUARANTORS
The Note Issuer has duly authorized the execution and delivery of this
Indenture to provide for the issuance of its 7 3/8% Senior Subordinated Notes
due February 1, 2008 of substantially the tenor hereinafter provided, including,
without limitation, Securities (this term and other capitalized terms used and
not defined in these recitals having the respective meanings set forth in
Article I hereof) issued to evidence loans made to the Note Issuer of the
proceeds from the issuance by Fresenius Medical Care Capital Trust III, a
Delaware business trust (the "Trust"), of preferred trust interests in such
Trust (the "Preferred Securities") and common trust interests in such Trust (the
"Common Securities" and, collectively with the Preferred Securities, the "Trust
Securities"), and to provide the terms and conditions upon which the Securities
are to be authenticated, issued and delivered.
The Company, directly or indirectly, owns beneficially and of record 100%
of the Capital Stock of the Note Issuer and the other Guarantors (other than the
preferred stock of Fresenius Medical Care Holdings, Inc.); the Note Issuer and
the Guarantors are members of the same consolidated group of companies and are
engaged in related businesses; the Guarantors will derive direct and indirect
economic benefit from the issuance of the Securities; accordingly, the
Guarantors have each duly authorized the execution and delivery of this
Indenture to provide for the Guarantee by each of them with respect to the
Securities as set forth in this Indenture.
All things necessary to make the Securities, when executed by the Note
Issuer and authenticated and delivered hereunder and duly issued by the Note
Issuer, the valid obligations of the Note Issuer, to make the Guarantees of each
of the Guarantors, when executed by the respective Guarantors and endorsed on
the Securities, authenticated and delivered hereunder, the valid obligations of
the respective Guarantors, and to make this Indenture a valid agreement of the
Note Issuer and each of the Guarantors in accordance with its terms, have been
done.
1 EXECUTION
<PAGE> 11
NOW THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the
premises and the purchase of the Securities by the Holders thereof, it is
mutually covenanted and agreed, for the equal and proportionate benefit of all
Holders of the Securities, as follows:
ARTICLE I.
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) The terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(2) All other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) All accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and the term "generally accepted accounting principles" with
respect to any computation required or permitted hereunder shall mean such
accounting principles which are generally accepted at the date or time of
such computation; provided, that when two or more principles are so
generally accepted, it shall mean that set of principles consistent with
those in use by the Company;
(4) Unless otherwise specifically set forth herein, all calculations
or determinations of a Person shall be performed or made on a consolidated
basis in accordance with generally accepted accounting principles; and
(5) The words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
"Act" when used with respect to any Holder has the meaning specified in
Section 1.4.
"Additional Amounts" has the meaning specified in Section 10.19(a).
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Subsidiary as a result of the acquisition of such
Capital Stock by the Company or another Subsidiary; or (iii) Capital
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Stock constituting a minority interest in any Person that at such time is a
Subsidiary; provided, however, that any such Subsidiary described in clauses
(ii) or (iii) above is primarily engaged in a Related Business.
"Additional Interest" has the meaning specified in Section 10.19(b).
"Additional Sums" means the interest (compounded quarterly), if any, that
shall accrue on any interest on the Securities in arrears for more than one
quarter at the rate per annum specified in this Indenture for the Securities.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person; provided, however, that an Affiliate of the
Company shall not be deemed to include the Trust, Fresenius Medical Care Capital
Trust or Fresenius Medical Care Capital Trust II. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of Sections 10.9, 10.12 and 10.13 only, Affiliate shall
also mean any beneficial owner of Capital Stock representing 5% or more of the
total voting power of the Voting Stock (on a fully diluted basis) of the Company
or of rights or warrants to purchase such Capital Stock (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Affiliate Transaction" has the meaning specified in Section 10.12(a).
"Approved Lender" has the meaning specified under the definition of
"Temporary Cash Investments."
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Subsidiary, including any disposition by means of a merger, consolidation
or similar transaction (each referred to for the purposes of this definition as
a "disposition"), of (i) any shares of Capital Stock of any Subsidiary (other
than directors qualifying shares or shares required by applicable law to be held
by a Person other than the Company or a Subsidiary), (ii) all or substantially
all the assets of any division or line of business of the Company or any
Subsidiary or (iii) any other assets of the Company or any Subsidiary outside of
the ordinary course of business of the Company or such Subsidiary (other than,
in the case of (i), (ii) and (iii) above, (y) a disposition by a Subsidiary to
the Company or by the Company or a Subsidiary to a Wholly Owned Subsidiary and
(z) for purposes of Section 10.13 only, a disposition that constitutes a
Restricted Payment permitted by Section 10.9).
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 6.14 to act on behalf of the Trustee to authenticate Securities.
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"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Credit Agreement" means the Credit Agreement, dated as of September
27, 1996, among NMC, certain subsidiaries and affiliates thereof, the lenders
referred to in such Credit Agreement, NationsBank, N.A., as paying agent, and
The Bank of Nova Scotia, The Chase Manhattan Bank, Dresdner Bank AG and
NationsBank, N.A., as managing agents, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection with
such Credit Agreement, in each case as amended, modified, renewed, refunded,
replaced, restated or refinanced from time to time; provided that such
amendment, modification, renewal, refunding, replacement, restatement or
refinancing (i) does not cause the aggregate principal amount of Indebtedness
that may be outstanding under such Credit Agreement to exceed $2,500,000,000,
except to the extent that such additional principal amount of Indebtedness could
be incurred pursuant to Section 10.8(b)(9), and (ii) does not contain, with
respect to any Subsidiary, any encumbrances or restrictions of the type
contained in clauses (a), (b) and (c) of Section 10.10 that are less favorable
to the Holders of Securities than the encumbrances and restrictions with respect
to such Subsidiary contained in such Credit Agreement prior thereto.
"Blockage Notice" has the meaning specified in Section 12.4.
"Board of Directors" means, with respect to the Company or a Subsidiary,
as the case may be, the Board of Directors (or other body performing functions
similar to any of those performed by a Board of Directors including those
performed, in the case of a German corporation, by the Managing Board or the
Supervisory Board) of such person or any committee thereof duly authorized to
act on behalf of such Board (or other body).
"Board Resolution" means, with respect to the Note Issuer or a Guarantor,
a copy of a resolution certified by the Secretary or an Assistant Secretary or a
member of the Managing Board of the Note Issuer or such Guarantor to have been
duly adopted by the Board of Directors, or such committee of the Board of
Directors or officers of the Note Issuer or such Guarantor to which authority to
act on behalf of the Board of Directors has been delegated, and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day other than (i) a Saturday or Sunday, (ii) a
day on which banking institutions in New York City, Frankfurt am Main or
Luxembourg are authorized or required by law or executive order to remain closed
or (iii) a day on which the Corporate Trust Office of the Trustee or, with
respect to the Preferred Securities, the Corporate Trust Office of the Preferred
Trustee under the Declaration, is closed for business.
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"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means any transaction or series of transactions in
which any Person or group (within the meaning of Rule 13d-5 under the Exchange
Act and Section 13(d) and 14(d) of the Exchange Act) other than Fresenius
Aktiengesellschaft and its subsidiaries acquires all or substantially all of the
Company's assets or becomes the direct or indirect "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), by way of merger, consolidation,
other business combination or otherwise, of greater than 50% of the total voting
power (on a fully diluted basis as if all convertible securities had been
converted and all options and warrants had been exercised) entitled to vote in
the election of directors of the Company or the Surviving Person (if other than
the Company).
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Decline.
"Commission" means the United States Securities and Exchange Commission.
"Common Securities" has the meaning specified in the first paragraph of
the Recitals to this Indenture.
"Company" means Fresenius Medical Care AG, a stock corporation
(Aktiengesellschaft) organized under the laws of the Federal Republic of
Germany, and its successors and permitted assigns pursuant to Article VIII.
"Company Guarantee" means the guarantee by the Company of distributions on
the Preferred Securities of the Trust for the benefit of the holders of the
Preferred Securities to the extent provided in the Guarantee Agreement, executed
and delivered by the Company and the Preferred Trustee pursuant to the
Declaration, as amended from time to time.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the Company's most recently
ended four full fiscal quarters for
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<PAGE> 15
which internal financial statements are available immediately preceding the date
of such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Subsidiary has
Incurred any Indebtedness since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Indebtedness as if such Indebtedness
had been Incurred on the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the first
day of such period, (2) if since the beginning of such period the Company or any
Subsidiary shall have made any Asset Disposition, the EBITDA for such period
shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition for
such period, or increased by an amount equal to the EBITDA (if negative),
directly attributable thereto for such period and Consolidated Interest Expense
for such period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of the Company or any
Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to
the Company and its continuing Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Subsidiary is sold,
the Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Subsidiary to the extent the Company and its continuing
Subsidiaries are no longer liable for such Indebtedness after such sale), (3) if
since the beginning of such period the Company or any Subsidiary (by merger or
otherwise) shall have made an Investment in any Subsidiary (or any Person which
becomes a Subsidiary) or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction requiring a calculation to be
made hereunder, which constitutes all or substantially all of an operating unit
of a business, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the first day
of such period and (4) if since the beginning of such period any Person (that
subsequently became a Subsidiary or was merged with or into the Company or any
Subsidiary since the beginning of such period) shall have made any Asset
Disposition, any Investment or acquisition of assets that would have required an
adjustment pursuant to clause (2) or (3) above if made by the Company or a
Subsidiary during such period, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto as if such
Asset Disposition, Investment or acquisition occurred on the first day of such
period. For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the amount of income or earnings relating
thereto and the amount of Consolidated Interest Expense associated with any
Indebtedness Incurred in connection therewith, the pro forma calculations shall
be determined in good faith by a responsible financial or accounting officer of
the Company. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest of such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months).
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"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Subsidiaries, plus, to the extent
not included in such total interest expense, and to the extent incurred by the
Company or its Subsidiaries, (i) interest expense attributable to capital
leases, (ii) amortization of debt discount and debt issuance cost, (iii)
capitalized interest, (iv) non-cash interest expenses, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs associated with Hedging
Obligations (including amortization of fees), (vii) Preferred Stock dividends in
respect of all Preferred Stock held by Persons other than the Company or a
Wholly Owned Subsidiary, (viii) interest incurred in connection with Investments
in discontinued operations, (ix) interest accruing on any Indebtedness of any
other Person to the extent such Indebtedness is Guaranteed by the Company or any
Subsidiary and (x) the cash contributions to any employee stock ownership plan
or similar trust to the extent such contributions are used by such plan or trust
to pay interest or fees to any Person (other than the Company) in connection
with Indebtedness Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income of any
Person if such Person is not a Subsidiary, except that (A) subject to the
exclusion contained in clause (iv) below, the Company's equity in the net income
of any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such Person
during such period to the Company or a Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution paid to a
Subsidiary, to the limitations contained in clause (iii) below) and (B) the
Company's equity in a net loss of any such Person for such period shall be
included in determining such Consolidated Net Income; (ii) any net income (or
loss) of any Person acquired by the Company or a Subsidiary in a pooling of
interests transaction for any period prior to the date of such acquisition;
(iii) any net income of any Subsidiary that is not a Wholly Owned Subsidiary if
such Subsidiary is subject to contractual, governmental or regulatory
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Subsidiary, directly or indirectly, to the Company,
except that (A) subject to the exclusion contained in clause (iv) below, the
Company's equity in the net income of any such Subsidiary for such period shall
be included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Subsidiary during such period to the Company or
another Subsidiary as a dividend or other distribution (subject, in the case of
a dividend or other distribution paid to another Subsidiary that is not a Wholly
Owned Subsidiary, to the limitation contained in this clause) and (B) the
Company's equity in a net loss of any such Subsidiary for such period shall be
included in determining such Consolidated Net Income; (iv) any gain (but not
loss) realized upon the sale or other disposition of any assets of the Company
or its consolidated Subsidiaries (including pursuant to any sale and leaseback
arrangement) that is not sold or otherwise disposed of in the ordinary course of
business and any gain (but not loss) realized upon the sale or other disposition
of any Capital Stock of any
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Person; (v) extraordinary gains or losses; and (vi) the cumulative effect of a
change in accounting principles.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available prior to the taking of any action for the purpose of which the
determination is being made, as (i) the par or stated value of all outstanding
Capital Stock of the Company plus (ii) paid-in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings or earned
surplus less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Corporate Trust Office" means the principal office of the Trustee in
Hartford, Connecticut.
"corporation" means a corporation, association, partnership, business
trust or other business entity.
"Credit Agreements" means the Bank Credit Agreement and the Other Bank
Agreements; provided, that the aggregate principal amount of Indebtedness that
may be outstanding at any one time under such agreements does not exceed
$2,500,000,000.
"Currency Agreement" means any foreign currency exchange contract,
currency swap agreement or other similar agreement or arrangement designed and
entered into to protect the Company or any Subsidiary against fluctuations in
currency exchange rates.
"Declaration" means the Amended and Restated Declaration of Trust
substantially in the form attached hereto as Exhibit A, as amended from time to
time.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 3.7.
"Depository" means, with respect to the Securities issuable or issued in
whole or in part in the form of one or more Global Securities, the Person
designated as Depository by the Note Issuer (or any successor thereto).
"Deutsche Mark" means the currency of the Federal Republic of Germany
that, as at the time of payment, is legal tender for the payment of public and
private debts.
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"Disqualified Stock" means, with respect to any Person, any Capital Stock
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or
(iii) is redeemable at the option of the holder thereof, in whole or in part, in
each case on or prior to the first anniversary of the Stated Maturity of the
Securities; provided, however, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the Securities shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions of Sections 10.13 and 10.15.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Company and its Subsidiaries, (b) depreciation expense and (c) amortization
expense, in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization of, a Subsidiary that is not a Wholly Owned Subsidiary shall be
added to Consolidated Net Income to compute EBITDA only to the extent (and in
the same proportion) that the net income of such Subsidiary was included in
calculating Consolidated Net Income and only if a corresponding amount would be
permitted at the date of determination to be dividended to the Company by such
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Subsidiary or its stockholders.
"Event of Default" has the meaning specified in Article V.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the exchange offer contemplated by the Registration
Rights Agreement.
"Exchange Offer Registration Statement" means a registration statement of
the Note Issuer, the Guarantors and the Trust pursuant to the applicable
provisions of the Registration Rights Agreement on an appropriate form under the
Securities Act, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
prospectus contained therein, all exhibits and materials included therewith or
incorporated by reference therein pursuant to the requirements of the Securities
Act or the Exchange Act.
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"Exchange Preferred Securities" means a series of Preferred Securities of
the Trust to be issued under the Declaration in connection with the offer to
exchange Preferred Securities for a new series of Preferred Securities pursuant
to the Declaration and the Registration Rights Agreement.
"Exchange Security" or "Exchange Securities" means any Security or
Securities authenticated and delivered under this Indenture in connection with
the Exchange Offer, the offer and sale of which has or have been registered
under the Securities Act pursuant to the Registration Rights Agreement.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth (i) in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) the rules and regulations of the Commission
governing the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the
Commission.
"Global Security" means a Security in the form prescribed in Section 2.4
evidencing all or part of the Securities, issued to the Depository or its
nominee for such series, and registered in the name of such Depository or its
nominee.
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed by the United States
of America and which, in either case, are full faith and credit obligations of
the United States of America and are not callable or redeemable at the option of
the issuer thereof and shall also include a depository receipt issued by a bank
(as defined in Section 3(a)(2) of the Securities Act of 1933, as amended) as
custodian with respect to any such Government Obligation or a specific payment
of interest on or principal of any such Government Obligation held by such
custodian for the account of the holder of such depository receipt; provided,
that (except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the Government Obligation or
the specific payment of interest on or principal of the Government Obligation
evidenced by such depository receipt.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such Person (whether
arising by virtue of partnership arrangements, or by agreements to keep-well, to
purchase
10 EXECUTION
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assets, goods, securities or services, to take-or-pay or to maintain financial
statement conditions or otherwise) or (ii) entered into for the purpose of
assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided, however, that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business. The term Guarantee used as a verb has a
corresponding meaning.
"Guarantor Blockage Notice" has the meaning specified in Section 14.4(b).
"Guarantor Payment Blockage Period" has the meaning specified in Section
14.4(b).
"Guarantor Senior Subordinated Payment" has the meaning specified in
Section 14.2.
"Guarantors" means the Company, Fresenius Medical Care Holdings, Inc., a
New York corporation, and Fresenius Medical Care Deutschland GmbH, a German
limited liability company.
"Guaranty" means the Guarantee by a Guarantor of the Note Issuer's
obligations with respect to the Securities.
"Guaranty Agreement" means, in the context of a consolidation, merger or
sale of all or substantially all of the assets of a Guarantor, an agreement by
which the Surviving Person from such a transaction expressly assumes all of the
obligations of such Guarantor under its Guaranty.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" means a Person in whose name a Security is registered in the
Securities Register. The Preferred Trustee shall be the initial Holder of the
Securities.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall be deemed the Incurrence
of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable; (ii) all Capital
Lease Obligations of such Person; (iii) all obligations of such Person issued or
assumed as the deferred purchase price of property or services, all conditional
sale obligations of such Person and all
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obligations of such Person under any title retention agreement (other than (x)
customary reservations or retentions of title under agreements with suppliers
entered into in the ordinary course of business, (y) trade debt incurred in the
ordinary course of business and due within six months of the incurrence thereof
and (z) obligations incurred under a pension, retirement or deferred
compensation program or arrangement regulated under the Employee Retirement
Income Security Act of 1974, as amended, or the laws of a foreign government);
(iv) all obligations of such Person for the reimbursement of any obligor on any
letter of credit, bank guaranty, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit and bank
guaranties (A) not made under the Bank Credit Agreement and (B) securing
obligations (other than obligations described in (i) through (iii) above)
entered into in the ordinary course of business of such Person to the extent
such letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the tenth Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (v) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any subsidiary of such Person, any Preferred Stock (but
excluding, in each case, any accrued dividends); (vi) all obligations of the
type referred to in clauses (i) through (v) of other Persons and all dividends
of other Persons for the payment of which, in either case, such Person is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guarantee; (vii) all obligations of the
type referred to in clauses (i) through (vi) of other Persons secured by any
Lien on any property or asset of such Person (whether or not such obligation is
assumed by such Person), the amount of such obligation being deemed to be the
lesser of the value of such property or assets or the amount of the obligation
so secured; and (viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations at
such date.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including, for
all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this instrument and any such supplemental indenture, respectively, and shall
include the terms of the Securities established as contemplated by Section 3.1.
"Initial Security" or "Initial Securities" means any Security or
Securities authenticated and delivered under this Indenture, and not registered
under the Securities Act.
"Interest Payment Date" means February 1, May 1, August 1 and November 1
of each year, commencing May 1, 1998.
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"Interest Rate" means the rate of interest specified or determined as
specified as being the rate of interest payable on the Securities.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed and
entered into to protect the Company or any Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person.
"Investment Company Event" means the receipt by the Company of an Opinion
of Counsel, rendered by a law firm having a nationally recognized tax and
securities practice, to the effect that, as a result of the occurrence of a
change in law or regulation or a change in interpretation or application of law
or regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in 1940 Act Law"), the Trust is or will be considered an
"investment company" that is required to be registered under the 1940 Act, which
Change in 1940 Act Law becomes effective on or after the date of original
issuance of the Preferred Securities of the Trust.
"Investment Grade" means a rating of BBB- or higher by S&P and Baa3 or
higher by Moody's or the equivalent of such ratings by S&P or Moody's and the
equivalent in respect of Rating Categories of any Rating Agencies substituted
for S&P or Moody's.
"Issue Date" means the date on which the Securities are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Liquidated Damages" means amounts payable to the holders of Preferred
Securities as "Liquidated Damages" as defined in and pursuant to the
Registration Rights Agreement.
"Maturity" when used with respect to any Security means the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"1940 Act" means the Investment Company Act of 1940, as amended.
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"NMC" means National Medical Care, Inc., a Delaware corporation.
"Net Available Cash" from an Asset Disposition means cash payments
received therefrom (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
non-cash form) in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be accrued as a liability
under GAAP, as a consequence of such Asset Disposition, (ii) all payments made
on any Indebtedness which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such Asset Disposition, or by
applicable law be, repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Disposition
and (iv) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
property or other assets disposed in such Asset Disposition and retained by the
Company or any Subsidiary after such Asset Disposition.
"Net Cash Proceeds" with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"9% Notes" means the 9% Senior Subordinated Notes issued pursuant to that
certain Indenture dated as of November 27, 1996, by and between the Company,
Fleet National Bank (as predecessor to State Street Bank and Trust Company), as
trustee, and the Subsidiary Guarantors named therein, as supplemented and in
effect as of the date hereof, as it may be further amended, modified or
otherwise supplemented from time to time.
"Note Issuer" means the Person named as the "Note Issuer" in the first
paragraph of this Indenture until a successor issuer shall have become such
pursuant to Article VIII, and thereafter "Note Issuer" shall mean such successor
issuer.
"Note Issuer Request" and "Note Issuer Order" mean, respectively, the
written request or order signed in the name of the Note Issuer by any two
members of the Managing Board (if a German corporation) or of the Board of
Directors (or any other two officers of the Note Issuer thereunto duly
authorized) and delivered to the Trustee.
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"Officers' Certificate" means a certificate signed by (a) the Chairman and
Chief Executive Officer, President or Vice President, and by the Treasurer, an
Assistant Treasurer, the Controller, the Secretary or an Assistant Secretary, or
(b) any two members of the Managing Board (if a German corporation) or of the
Board of Directors, of the Company, the Note Issuer or a Guarantor, as the case
may be, and delivered to the appropriate Trustee.
"Opinion of Counsel" or "opinion of counsel" means, as to the Company, the
Note Issuer or a Guarantor, a written opinion of counsel, who may be counsel for
the Company, the Note Issuer or such Guarantor, as the case may be, but, other
than in connection with the issuance of the Securities, not an employee of any
thereof, and who shall be reasonably acceptable to the Trustee.
"Other Bank Agreements" means any credit agreement or other agreement for
loans, letters of credit, bank guaranties or other financial accommodations (and
any related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith) entered into by the Company or any Subsidiary
with any bank; provided that the aggregate principal amount of Indebtedness that
may be outstanding thereunder does not exceed $500,000,000, except to the extent
that such additional principal amount of Indebtedness could be incurred pursuant
to Section 10.8(b)(9).
"Outstanding" means, when used in reference to any Securities, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or
any Paying Agent in trust for the Holders of such Securities (other
than the Note Issuer or any Guarantor) in trust or set aside and
segregated in trust by the Note Issuer or a Guarantor (if the Note
Issuer or a Guarantor shall act as its own Paying Agent) for the
Holders of such Securities; provided, that if such Securities are to
be redeemed, notice of such redemption has been duly given pursuant
to this Indenture or provision therefor satisfactory to the Trustee
has been made;
(iii) Securities in substitution for or in lieu of which other
Securities have been authenticated and delivered or which have been
paid pursuant to Section 3.6, unless proof satisfactory to the
Trustee is presented that any such Securities are held by Holders in
whose hands such Securities are valid, binding and legal obligations
of the Note Issuer; and
(iv) Securities which have been defeased pursuant to Section 4.3
hereof.
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provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Note Issuer or any other obligor upon the Securities or any Affiliate of
the Note Issuer or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Note Issuer or any other obligor upon the Securities or
any Affiliate of the Note Issuer or such other obligor. Upon the written request
of the Trustee, the Note Issuer shall furnish to the Trustee promptly an
Officers' Certificate listing and identifying all Securities, if any, known by
the Note Issuer to be owned or held by or for the account of the Note Issuer, or
any other obligor on the Securities or any Affiliate of the Note Issuer or such
obligor, and, subject to the provisions of Section 6.1, the Trustee shall be
entitled to accept such Officers' Certificate as conclusive evidence of the
facts therein set forth and of the fact that all Securities not listed therein
are Outstanding for the purpose of any such determination.
"Payment Blockage Period" has the meaning specified in Section 12.4(b).
"Paying Agent" means the Trustee or any Person authorized by the Note
Issuer to pay the principal of or interest on any Securities on behalf of the
Note Issuer.
"Permitted Investment" means an Investment by the Company or any
Subsidiary in (i) a Person that will, upon the making of such Investment, be or
become a Subsidiary; provided, however, that the primary business of such
Subsidiary is a Related Business; (ii) a Person if as a result of such
Investment such other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all its assets to, the Company or a
Subsidiary; provided, however, that such Person's primary business is a Related
Business; (iii) Temporary Cash Investments; (iv) any demand deposit account with
an Approved Lender; (v) receivables owing to the Company or any Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however, that
such trade terms may include such concessionary trade terms as the Company or
any such Subsidiary deems reasonable under the circumstances; (vi) payroll,
travel and similar advances to cover matters that are expected at the time of
such advances ultimately to be treated as expenses for accounting purposes and
that are made in the ordinary course of business; (vii) loans or advances to
employees made in the ordinary course of business consistent with past practices
of the Company or such Subsidiary; (viii) stock, obligations or securities
received in settlement of debts created in the ordinary course of business and
owing to the Company or any Subsidiary or in satisfaction of judgments; (ix) any
Person to the extent such Investment represents the non-cash portion of the
consideration received for an Asset Disposition as permitted pursuant to Section
10.13; and (x) any Affiliate (the primary business of which is a Related
Business) that is not a Subsidiary (other than Fresenius Aktiengesellschaft),
16 EXECUTION
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provided, that the aggregate of all such Investments outstanding at any one time
under this clause (x) shall not exceed $125,000,000.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency, instrumentality or political subdivision thereof, or any other
entity.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any security
authenticated and delivered under Section 3.6 in lieu of a lost, destroyed or
stolen Security shall be deemed to evidence the same debt as the lost, destroyed
or stolen Security.
"Preferred Securities" has the meaning specified in the first paragraph of
the Recitals to this Indenture.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Preferred Trustee" means State Street Bank and Trust Company, a
Massachusetts chartered trust company, solely in its capacity as Preferred
Trustee of the Trust and not in its individual capacity, or its successor in
interest in such capacity, or any successor Preferred Trustee appointed as
provided in the Declaration.
"principal" of a Security means the principal of the Security plus the
premium, if any, payable on the Security which is due or overdue or is to become
due at the relevant time.
"Proceeding" has the meaning specified in Section 12.2.
"Rating Agencies" means (i) S&P and (ii) Moody's or (iii) if S&P or
Moody's or both shall not make rating of the Securities publicly available, a
nationally recognized securities rating agency or agencies, as the case may be,
selected by the Company, which shall be substituted for S&P or Moody's or both,
as the case may be.
"Rating Category" means (i) with respect to S&P, any of the following
categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (ii)
with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and
D (or equivalent successor categories); and (iii) the equivalent of any such
category of S&P or Moody's used by another Rating Agency. In determining whether
the rating of the Securities has decreased by one or more gradations, gradations
within Rating Categories (+ and - for S&P, 1, 2, and 3 for Moody's; or the
equivalent
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gradations for another Rating Agency) shall be taken into account (e.g., with
respect to S&P, a decline in a rating from BB+ to BB, as well as from BB- to B+,
will constitute a decrease of one gradation).
"Rating Date" means the date which is 90 days prior to the earlier of (i)
a Change of Control and (ii) public notice of the occurrence of a Change of
Control or of the intention by the Company or any Person to effect a Change of
Control.
"Rating Decline" means the occurrence on or within 90 days after the date
of the first public notice of the occurrence of a Change of Control or of the
intention by the Company to effect a Change of Control (which period shall be
extended so long as the rating of the Securities is under publicly announced
consideration for possible downgrade by any of the Rating Agencies) of: (a) in
the event the Securities are rated by either Moody's or S&P on the Rating Date
as Investment Grade, a decrease in the rating of the Securities by both Rating
Agencies to a rating that is below Investment Grade, or (b) in the event the
Securities are rated below Investment Grade by both Rating Agencies on the
Rating Date, a decrease in the rating of the Securities by either Rating Agency
by one or more gradations (including gradations within Rating Categories as well
as between Rating Categories).
"Receivables Financings" means (i) the accounts receivable financing
facility of NMC contemplated by the Receivables Purchase Agreement dated as of
August 28, 1997 by and between NMC, as Seller, and NMC Funding Corporation, as
Purchaser and the Transfer and Administration Agreement dated as of August 28,
1997 between Enterprise Funding Corporation, as Company, NMC Funding
Corporation, as Transferor, NMC, as Collection Agent, and NationsBank, N.A., as
Agent and Bank Investor, as each such agreement may be amended or supplemented
from time to time, and (ii) any financing transaction or series of financing
transactions that have been or may be entered into by the Company or a
Subsidiary pursuant to which the Company or a Subsidiary may sell, convey or
otherwise transfer to a Subsidiary or Affiliate, or any other Person, or may
grant a security interest in, any receivables or interests therein secured by
the merchandise or services financed thereby (whether such receivables are then
existing or arising in the future) of the Company or such Subsidiary, as the
case may be, and any assets related thereto, including without limitation, all
security interests in merchandise or services financed thereby, the proceeds of
such receivables, and other assets which are customarily sold or in respect of
which security interests are customarily granted in connection with
securitization transactions involving such assets.
"Redemption Date," when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
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"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Subsidiary existing on the Issue Date or
Incurred in compliance with the Indenture including Indebtedness that Refinances
Refinancing Indebtedness; provided, however, that (i) such Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being Refinanced, (ii) such Refinancing Indebtedness has an Average
Life at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being Refinanced and (iii)
such Refinancing Indebtedness has an aggregate principal amount (or if Incurred
with original issue discount, an aggregate issue price) that is equal to or less
than the aggregate principal amount (or if Incurred with original issue
discount, the aggregate accredit value) then outstanding or committed (plus fees
and expenses, including any premium and defeasance costs) under the Indebtedness
being Refinanced; provided further, however, that Refinancing Indebtedness shall
not include (x) Indebtedness of a Subsidiary that Refinances Indebtedness of the
Company or (y) Indebtedness of the Company or a Subsidiary (other than NMC or a
subsidiary of NMC) that Refinances Indebtedness of another Subsidiary.
"Registration Rights Agreement" means the Registration Rights Agreement
dated February 13, 1998 by and among the Company, the Note Issuer, the
Guarantors, the Trust and Credit Suisse First Boston Aktiengesellschaft,
Donaldson, Lufkin & Jenrette International, Bear, Stearns International Limited,
Chase Securities Inc., Deutsche Bank AG, Dresdner Bank AG London Branch,
NationsBank Europe Limited and Scotia Capital Markets (USA) Inc., as such
agreement may be amended, modified or supplemented from time to time, relating
to an exchange offer and registration rights for the Preferred Securities, the
Company Guarantee, the Securities and the Guaranties.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the date which is the fifteenth day immediately preceding such
Interest Payment Date (whether or not a Business Day).
"Related Business" means any business related, ancillary or complementary
to the businesses of the Company and its Subsidiaries on the Issue Date.
"Responsible Officer" when used with respect to the Trustee means any
officer of the Trustee assigned by the Trustee from time to time to administer
its corporate trust matters.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable
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solely in its Capital Stock (other than Disqualified Stock) and dividends or
distributions payable solely to the Company or a Subsidiary, and other than pro
rata dividends or other distributions made by a Subsidiary that is not a Wholly
Owned Subsidiary to minority stockholders (or owners of an equivalent interest
in the case of a Subsidiary that is an entity other than a corporation)), (ii)
the purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Company held by any Person or of any Capital Stock of a
Subsidiary held by any Affiliate of the Company (other than a Subsidiary),
including the exercise of any option to exchange any Capital Stock (other than
into Capital Stock of the Company that is not Disqualified Stock), (iii) the
purchase, repurchase, redemption, defeasance or other acquisition or retirement
for value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment of any Subordinated Obligations (other than the purchase,
repurchase or other acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition) or
(iv) the making of any Investment in any Person (other than a Permitted
Investment).
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Securities Act" means the Securities Act of 1933 or any successor statute
thereto, in each case as amended from time to time.
"Securities" or "Security" means (a) any Initial Securities or Initial
Security and (b) any Exchange Security or Exchange Securities.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 3.5.
"Senior Indebtedness" means, with respect to the Note Issuer or a
Guarantor, as the case may be, (i) Indebtedness of such Person, whether
outstanding on the Issue Date or thereafter incurred and (ii) accrued and unpaid
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to such person, whether or not the
claim for such interest is allowed as a claim after such filing) in respect of
(A) any Indebtedness of such Person under the Bank Credit Agreement, (B)
Indebtedness of such Person for money borrowed and (C) indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are subordinate in right of payment to the Securities;
provided, however, that Senior Indebtedness shall not include (1) any obligation
of such Person to any subsidiary of such person, (2) any liability for Federal,
state, local or other taxes owed or owing by such person, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness of such Person (and any accrued and unpaid
interest in respect thereof) which is subordinate or junior
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in any respect to any other Indebtedness or other obligation of such Person or
(5) that portion of any Indebtedness which at the time of incurrence is incurred
in violation of the Indenture.
"Senior Subordinated Indebtedness" means the 9% Notes, the USD Securities,
the Securities and any other Indebtedness of the Company that specifically
provides that such Indebtedness is to rank pari passu with the Company's
obligations with respect to the Securities in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company or the Note Issuer that is not Senior Indebtedness.
"Senior Subordinated Payment" has the meaning specified in Section 12.2.
"Shelf Registration Statement" means a shelf registration statement of the
Note Issuer, the Guarantors and the Trust pursuant to the provisions of the
Registration Rights Agreement on an appropriate form under Rule 415 under the
Securities Act, or any similar rule that may be adopted by the Commission, and
all amendments and supplements to such registration statement, including
post-effective amendments, in each case including the prospectus contained
therein, all exhibits and materials included therewith or incorporated by
reference therein pursuant to the requirements of the Securities Act or the
Exchange Act.
"S&P" means Standard & Poor's Corporation and its successors.
"Specified Senior Indebtedness" means, with respect to the Company, the
Note Issuer or a Guarantor, as the case may be, (i) any Indebtedness of such
Person under the Bank Credit Agreement, and (ii) after all Indebtedness
specified in clause (i) above is no longer outstanding, any other Senior
Indebtedness of such Person permitted under the Indenture the outstanding
principal amount of which is more than $25,000,000 at the time of determination
and that has been designated by such Person as "Specified Senior Indebtedness."
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.7.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the Holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Note Issuer or the
Company (whether outstanding on the Issue Date or thereafter Incurred) that is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement to that effect.
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"Subsidiary" means a corporation (as defined herein) of which more than
50% of the total voting power of shares of Capital Stock or other interests
(including partnership interests) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by the
Company or by one or more Subsidiaries, or by the Company and one or more
Subsidiaries.
"Surviving Person" means, with respect to any Person involved in any
merger, consolidation or other business combination or the sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
such Person's assets, the Person formed by or surviving such transaction or the
Person to which such disposition is made.
"Tax Event" means that the Company shall have obtained of an Opinion of
Counsel of nationally recognized independent tax counsel to the effect that, as
a result of (a) any amendment to or change (including any announced prospective
change) in the laws (or any regulations thereunder) of the United States,
Germany or the jurisdiction of formation of the Note Issuer or any political
subdivision or taxing authority thereof or therein or (b) any amendment to or
change in an interpretation or application of such laws or regulations by any
legislative body, court, governmental agency or regulatory authority (including
the enactment of any legislation and the publication of any judicial decision or
regulatory determination on or after the date of issuance of the Preferred
Securities), which amendment or change is effective or which interpretation or
pronouncement is announced on or after the date of issuance of the Preferred
Securities, there is more than an insubstantial risk that (i) the Trust is or
will be subject to United States Federal or German income tax, or income tax in
the jurisdiction of formation of the Note Issuer, in each case with respect to
interest received or accrued on the Securities, (ii) interest payable to the
Trust on the Securities is not or will not be deductible for United States
Federal or German income tax purposes or for purposes of any income tax imposed
by the jurisdiction of formation of the Note Issuer or (iii) the Trust is or
will be subject to more than a de minimis amount of other taxes, duties,
assessments or other governmental charges of whatever nature imposed by the
United States, Germany, or the jurisdiction of formation of the Note Issuer, or
any other taxing authority.
"Taxes" has the meaning specified in Section 10.19.
"Temporary Cash Investments" means any of the following: (a) securities
issued or directly and fully guaranteed or insured by (i) the United States of
America or any agency or instrumentality thereof (provided, that the full faith
and credit of the United States of America is pledged in support thereof) and
(ii) the governments of Germany and the United Kingdom, having in each case
maturities of not more than twelve months from the date of acquisition, (b) time
deposits and certificates of deposit, eurodollar time deposits and eurodollar
certificates of deposit of (i) any lender under the Bank Credit Agreement, or
(ii) any United States, German, United Kingdom or Swiss commercial bank of
recognized standing (y) having capital and surplus in excess of $500,000,000 and
(z) whose short-term commercial paper rating from S&P is at least A-1 or the
equivalent thereof or from Moody's is at least P-1 or the equivalent thereof
(any such bank being an
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"Approved Lender"), in each case with maturities of not more than 270 days from
the date of acquisition, (c) commercial paper and variable or fixed rate notes
issued by an Approved Lender (or by the parent company thereof) and maturing
within six months of the date of acquisition, (d) repurchase agreements entered
into by a Person with a bank or trust company (including any of the lenders
under the Bank Credit Agreement) or recognized securities dealer having capital
and surplus in excess of $500,000,000 for (i) direct obligations issued by or
fully guaranteed by the United States of America, (ii) time deposits or
certificates of deposit described under subsection (b) above, or (iii)
commercial paper or other notes described under subjection (c) above, in which,
in each such case, such bank, trust company or dealer shall have a perfected
first priority security interest (subject to no other Liens) and having, on the
date of purchase thereof, a fair market value of at least 100% of the amount of
the repurchase obligations, (e) obligations of any State of the United States or
any political subdivision thereof, the interest with respect to which is exempt
from federal income taxation under Section 103 of the U.S. Internal Revenue
Code, having a long term rating of at least AA- or Aa-3 by S&P or Moody's,
respectively, and maturing within three years from the date of acquisition
thereof, (f) Investments in municipal auction preferred stock (i) rated AAA (or
the equivalent thereof) or better by S&P or Aaa (or the equivalent thereof) or
better by Moody's and (ii) with dividends that reset at least once every 365
days and (g) Investments, classified in accordance with GAAP as current assets,
in money market investment programs (i) registered under the Investment Company
Act of 1940, as amended, or (ii) operated by an investment company in Germany or
the United Kingdom and subject to regulations under the laws of such
jurisdiction, in each case which are administered by reputable financial
institutions having capital of at least $100,000,000 and the portfolios of which
are limited to Investments of the character described in clauses (a), (b), (c),
(e) and (f) above.
"Trust" has the meaning specified in the first paragraph of the Recitals
to this Indenture.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this Indenture until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
or include each Person who is then a Trustee hereunder.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as amended and
as in force at the date as of which this Indenture was executed, except as
provided in Section 9.5; provided, however, that in the event the Trust
Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means,
to the extent required by any such amendment, the Trust Indenture Act of 1939 as
so amended.
"Trust Securities" has the meaning specified in the first paragraph of the
Recitals to this Indenture.
"USD Indenture" means the Senior Subordinated Indenture dated as of
February 19, 1998 by and among the Note Issuer, State Street Bank and Trust
Company as Trustee, the Company and
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the other Guarantors with respect to the issuance of 7 7/8% Senior Subordinated
Notes due February 1, 2008 in the aggregate principal amount of $450,450,000, as
it may be amended, supplemented or otherwise modified from time to time.
"USD Securities" means the 7 7/8% Senior Subordinated Notes due February
1, 2008 issued pursuant to the USD Indenture.
"Vice President" when used with respect to the Company, the Note Issuer, a
Guarantor or the Trustee means any duly appointed vice president, whether or not
designated by a number or a word or words added before or after the title "vice
president."
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of
which (other than (i) directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Company or a Subsidiary and (ii) shares of Preferred Stock
of Fresenius Medical Care Holdings, Inc.) is owned by the Company or by one or
more Wholly Owned Subsidiaries, or by the Company and one or more Wholly Owned
Subsidiaries.
SECTION 1.2. Compliance Certificate and Opinions.
Upon any application or request by the Company, the Note Issuer or any
other Guarantor to the Trustee to take any action under any provision of this
Indenture, the Company, the Note Issuer or such Guarantor shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent
(including covenants, compliance with which constitutes a condition precedent),
if any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition
precedent or covenant provided for in this Indenture (other than the
certificates provided pursuant to Section 10.16) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
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(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.3. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Note Issuer, the Company
or another Guarantor may be based, insofar as it relates to legal matters, upon
a certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Note Issuer, the Company or another Guarantor stating that the information with
respect to such factual matters is in the possession of the Note Issuer, the
Company or another Guarantor, unless the individual attorneys actively engaged
in the transaction which is the subject matter of such opinion in the office of
such counsel have actual knowledge that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.4. Acts of Holders; Record Date.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given to or taken by Holders
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Holders in person or by an agent duly appointed in
writing; and, except as herein otherwise expressly
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provided, such action shall become effective when such instrument or instruments
is or are delivered to the Trustee, and, where it is hereby expressly required,
to the Note Issuer or the Company, as applicable. Such instrument or instruments
(and the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Holders signing such instrument or instruments.
Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Indenture and (subject to
Section 6.1) conclusive in favor of the Trustee and the Note Issuer or the
Company, as applicable, if made in the manner provided in this Section 1.4.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a Person acting in other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority.
(c) The fact and date of the execution by any Person of any such
instrument or writing, or the authority of the Person executing the same, may
also be proved in any other manner which the Trustee deems sufficient and in
accordance with such reasonable rules as the Trustee may determine.
(d) The ownership of Securities shall be proved by the Securities
Register.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee, the Note Issuer,
or the Company in reliance thereon, whether or not notation of such action is
made upon such Security.
(f) The Note Issuer may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to take any action under
this Indenture by vote or consent. Except as otherwise provided herein, such
record date shall be the later of 30 days prior to the first solicitation of
such consent or vote or the date of the most recent list of Securityholders
furnished to the Trustee pursuant to Section 7.1 prior to such solicitation. If
a record date is fixed, those Persons who were Securityholders at such record
date (or their duly designated proxies), and only those Persons, shall be
entitled to take such action by vote or consent or to revoke any vote or consent
previously given, whether or not such persons continue to be Holders after such
record date, provided, however, that unless such vote or consent is obtained
from the Holders (or their duly designated proxies) of the requisite principal
amount of Outstanding Securities prior to the date which is the 90th day after
such record date, any such vote or consent previously given shall automatically
and without further action by any Holder be cancelled and of no further effect.
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SECTION 1.5. Notices, etc., to Trustee, Note Issuer and Guarantors.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Note Issuer or any Guarantor
shall be sufficient for every purpose hereunder if made, given, furnished
or filed in writing to or with the Trustee at its Corporate Trust office,
or
(2) the Note Issuer or any Guarantor by the Trustee or by any Holder
shall be sufficient for every purpose (except as otherwise provided in
Sections 5.1 and 5.2 hereof) hereunder if in writing and mailed, first
class, postage prepaid, in the case of the Note Issuer to it at the
address of the Note Issuer's principal office specified in the first
paragraph of this Indenture or at any other address previously furnished
in writing to the Trustee by the Note Issuer and, in the case of any
Guarantor, to it at its principal office at Borkenberg 14, 61440
Oberursel, Germany or at any other address previously furnished in writing
to the Trustee by such Guarantor; provided, however, that all notices sent
to the Note Issuer and any Guarantor pursuant to this Indenture shall be
sent in copy to O'Melveny & Myers LLP (Citicorp Center, 153 East 53rd
Street, New York, NY 10022-4611, Attn: Dr. Ulrich Wagner) and shall be
effective five Business Days after such mailing.
SECTION 1.6. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first class postage prepaid, to each Holder affected
by such event, at the address of such Holder as it appears in the Securities
Register, not later than the latest date (if any), and not earlier than the
earliest date (if any), prescribed for the giving of such notice. In any case
where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
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Additionally, at any time that the Securities are listed on the Luxembourg
Stock Exchange all notices regarding the Securities including, without
limitation, notices pursuant to Sections 3.7, 6.2, 6.10(f), 6.14, 10.13(b),
10.15(b) and 11.4 hereof, shall be published in the Luxemburger Wort or in such
other publication as required by the rules of the Luxembourg Stock Exchange. Any
such notice will become effective for all purposes on the date of its
publication. There may (provided that, in the case of Securities listed on the
Luxembourg Stock Exchange, the rules of the Luxembourg Stock Exchange so
permit), be substituted for such publication in such newspaper the delivery of
the relevant notice to the applicable clearing system for communication by it to
the Holders. Any such notice shall be deemed to have been given to the Holders
on the seventh day after the day on which the said notice was given to all
applicable clearing systems. The Note Issuer shall be responsible for compliance
with this paragraph and shall provide directions to the Trustee in connection
therewith.
SECTION 1.7. Conflict with Trust Indenture Act.
Upon consummation of the Exchange Offer, the Trust Indenture Act shall
apply to this Indenture and if any provision hereof limits, qualifies or
conflicts with a provision of the Trust Indenture Act that is required or deemed
under the Trust Indenture Act to be part of and govern this Indenture, the
latter provision shall control. If any provision of this Indenture modifies or
excludes any provision of the Trust Indenture Act that may be so modified or
excluded, the latter provision shall be deemed to apply to this Indenture as so
modified or to be excluded, as the case may be.
SECTION 1.8. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 1.9. Successors and Assigns.
All covenants and agreements in this Indenture by the Note Issuer, the
Company or any other Guarantor shall bind its respective successors and assigns,
whether so expressed or not.
SECTION 1.10. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
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SECTION 1.11. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than (i) the parties hereto, (ii) any Paying Agent and
their successors and assigns, (iii) the holders of Senior Indebtedness (subject
to Articles XII and XIV hereof), and (iv) the Holders of the Securities, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 1.12. Governing Law.
THIS INDENTURE, THE SECURITIES AND THE GUARANTIES ENDORSED THEREON SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICT OF LAWS.
SECTION 1.13. Non-Business Days.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or the Securities) payment of interest or
principal (and premium, if any) need not be made on such date, but may be made
on the next succeeding Business Day (and no interest shall accrue for the period
from and after such Interest Payment Date, Redemption Date or Stated Maturity,
as the case may be, until such next succeeding Business Day except that, if such
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day (in each case with the same force and
effect as if made on the Interest Payment Date or Redemption Date or at the
Stated Maturity)).
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SECTION 1.14. Duplicate Originals.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
SECTION 1.15. Submission to Jurisdiction.
The Company hereby appoints CT Corporation System through its office at
1633 Broadway, New York, New York 10019 as its authorized agent (the "Authorized
Agent") upon which process may be served in any legal action or proceeding
against it with respect to its obligations under this Indenture or the
Securities instituted in any federal or state court in the Borough of Manhattan,
The City of New York, by the Trustee or the Holder of any Securities and agrees
that service of process upon such authorized agent, together with written notice
of said service to the Company by the person serving the same, addressed as
provided in Section 1.5, shall be deemed in every respect effective service of
process upon the Company in any such legal action or proceeding, and the Company
hereby irrevocably submits to the non-exclusive jurisdiction of any such court
in respect of any such legal action or proceeding. Such appointment shall be
irrevocable until this Indenture has been satisfied and discharged in accordance
with Article 4 hereof. Notwithstanding the foregoing, the Company reserves the
right to appoint another Person located or with an office in the Borough of
Manhattan, The City of New York, selected in its discretion, as a successor
Authorized Agent, and upon acceptance of such appointment by such a successor
the appointment of the prior Authorized Agent shall terminate. If for any reason
CT Corporation System ceases to be able to act as the Authorized Agent or to
have an address in the Borough of Manhattan, The City of New York, the Company
will appoint a successor Authorized Agent in accordance with the preceding
sentence. The Company further agrees to take any and all action, including the
filing of any and all documents and instruments as may be necessary to continue
such designation and appointment of such agent in full force and effect until
this Indenture has been satisfied and discharged in accordance with Article 4
hereof. Service of process upon the Authorized Agent addressed to it at the
address set forth above, as such address may be changed within the Borough of
Manhattan, The City of New York by notice given by the Authorized Agent to the
Trustees, together with written notice of such service mailed or delivered to
the Company shall be deemed, in every respect, effective service of process on
the Company.
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SECTION 1.16. Substitution of Currency.
All payments made by the Note Issuer under this Indenture shall be made in
Deutsche Marks regardless of any law, rule, regulation or statutes, whether now
or hereafter in existence or in effect in any jurisdiction, which affects or
purports to affect such payment obligations; provided, that if the Federal
Republic of Germany adopts the Euro, the regulations of the European Commission
relating to the Euro shall apply to the Securities and this Indenture. The
circumstance and consequences described in this Section 1.15 entitle neither the
Note Issuer nor any Holder of the Securities to early redemption, rescission,
notice, repudiation, adjustment or renegotiation of the terms and conditions of
such Securities or this Indenture or to raise other defenses or to request any
compensation claim, nor will they affect any of the other obligations of the
Note Issuer under the Securities and this Indenture.
ARTICLE II.
SECURITY AND GUARANTY FORMS
SECTION 2.1. Forms Generally.
The Securities, the Guaranties to be endorsed thereon and the Trustee's
certificate of authentication shall be in substantially the forms set forth in
this Article, or in such other form or forms as shall be established by or
pursuant to a Board Resolution or in one or more indentures supplemental hereto,
in each case with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with applicable tax
laws or the rules of any securities exchange or as may, consistently herewith,
be determined by the officers executing such Securities or Guaranties, as the
case may be, as evidenced by their execution of the Securities or Guaranties, as
the case may be. If the form of Securities or Guaranties is established by
action taken pursuant to a Board Resolution, such Board Resolution to be
delivered to the Trustee at or prior to the delivery of the Note Issuer Order
contemplated by Section 3.3 with respect to the authentication and delivery of
such Securities.
The Trustee's certificates of authentication shall be substantially in the
form set forth in this Article.
The definitive Securities and Guaranties to be endorsed thereon shall be
printed, lithographed or engraved or produced by any combination of these
methods, if required by any securities exchange on which the Securities may be
listed, on a steel engraved border or steel engraved borders or may be produced
in any other manner permitted by the rules of any securities exchange on which
the Securities may be listed, all as determined by the officers executing such
31 EXECUTION
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Securities or Guaranties, as the case may be, as evidenced by their execution of
such Securities or Guaranties, as the case may be.
SECTION 2.2. Form of Face of Security.
[IF THE SECURITY IS AN INITIAL SECURITY, INSERT - THIS SECURITY HAS NOT
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT
OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE SECOND SENTENCE
HEREOF. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) ("QIB") OR (B) IT IS
ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT RESELL
OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY OF ITS
SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE
TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES
ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION
OF COUNSEL ACCEPTABLE TO THE NOTE ISSUER) OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON
TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERM
"OFFSHORE TRANSACTION" AND "UNITED STATES"HAVE THE MEANINGS GIVEN TO THEM
BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT.
THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT IN AGGREGATE PRINCIPAL
AMOUNTS OF DM 100,000 OR MORE EXCEPT IN OFFSHORE TRANSACTIONS IN RELIANCE
ON REGULATION S UNDER THE SECURITIES ACT]
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[IF THE SECURITY IS A GLOBAL SECURITY, INSERT--THIS SECURITY IS A
GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED
TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (THE
"DEPOSITORY") OR A NOMINEE OF THE DEPOSITORY. THIS SECURITY IS
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN
THE DEPOSITORY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER
OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN LIMITED
CIRCUMSTANCES.
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK) TO FMC TRUST
FINANCE S.A.R.L LUXEMBOURG OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE &
CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.]
FMC TRUST FINANCE S.A.R.L. LUXEMBOURG
7 3/8% SENIOR SUBORDINATED NOTES DUE FEBRUARY 1, 2008
GUARANTEED AS TO PAYMENT OF PRINCIPAL,
PREMIUM, IF ANY, AND INTEREST BY FRESENIUS MEDICAL CARE AG
AND CERTAIN OF ITS SUBSIDIARIES
NO. DM
FMC TRUST FINANCE S.A.R.L. LUXEMBOURG, a private limited company
(Societe a responsabilite limitee) organized and existing under the laws
of Luxembourg (hereinafter called the "Note Issuer", which term includes
any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to , or registered assigns, the
principal sum of Deutsche Marks on February 1, 2008. The Note Issuer
further promises to pay interest on said principal sum quarterly in
arrears on February 1, May 1, August 1 and November 1 of each year,
commencing May 1, 1998, (each such date, an "Interest Payment Date") at
the rate of 7 3/8% per annum, (plus Additional Amounts and Additional
Sums, if any) until the principal hereof is paid or duly provided for or
made available for payment and on any overdue principal and (without
duplication and to the extent that payment of such interest is enforceable
under applicable law) on any interest which is in arrears more than a
quarter at the rate of 7 3/8% per annum, compounded quarterly. The amount
of interest payable for any period shall be computed on
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the basis of twelve 30-day months and a 360-day year. The amount of
interest payable for any partial period shall be computed on the basis of
the number of days elapsed in a 360-day year of twelve 30-day months. In
the event that any date on which interest is payable on this Security is
not a Business Day, then a payment of the interest payable on such date
will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year,
such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on the date the
payment was originally payable. A "Business Day" shall mean any day other
than (i) a Saturday or Sunday, (ii) a day on which banking institutions in
New York City, Frankfurt am Main or Luxembourg are authorized or required
by law or executive order to remain closed or (iii) a day on which the
Corporate Trust Office of the Trustee, or, with respect to the Preferred
Securities, the principal office of the Preferred Trustee under the
Declaration hereinafter referred to for Fresenius Medical Care Capital
Trust III, is closed for business. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided
in the Indenture, be paid to the Person in whose name this Security (or
one or more Predecessor Securities, as defined in the Indenture) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the date which is the fifteenth day immediately
preceding such Interest Payment Date (whether or not a Business Day). Any
interest not so punctually paid or duly provided for shall forthwith cease
to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders not less than 10 days
prior to such Special Record Date, or be paid in any other lawful manner
not inconsistent with the requirements of any securities exchange on which
the Securities may be listed, and upon such notice as may be required by
such exchange, all as more fully provided in said Indenture.
[IF THE SECURITY IS AN INITIAL SECURITY, INSERT - Under the terms
and conditions of, and in the circumstances set forth in, the Registration
Rights Agreement, additional payments in the form of Liquidated Damages
may be payable in respect of this Security.]
Payments on this Security issued as a Global Security shall be made
in immediately available funds to the Depository. In the event that this
Security is issued in certificated form, the principal of (and premium, if
any) and interest (including Additional Sums and Additional Amounts, if
any) on the Security will be payable at the office maintained by the Note
Issuer under the Indenture; provided, that unless the Security is held by
the Trust or any permissible successor entity as provided under the
Declaration in the event of a merger, consolidation or amalgamation of the
Trust, payment of interest may be made at the option
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of the Note Issuer by check mailed to the address of the person entitled
thereto, as such address shall appear in the Register.
The indebtedness evidenced by this Security is, to the extent
provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full of all Senior Indebtedness, and this Security is
issued subject to the provisions of the Indenture with respect thereto.
Each Holder of this Security, by accepting the same, (a) agrees to and
shall be bound by such provisions, (b) authorizes and directs the Trustee
on his behalf to take such actions as may be necessary or appropriate to
effectuate the subordination so provided and (c) appoints the Trustee his
attorney-in-fact for any and all such purposes. Each Holder hereof, by his
acceptance hereof, waives all notice of the acceptance of the
subordination provisions contained herein and in the Indenture by each
holder of Senior Indebtedness, whether now outstanding or hereafter
incurred, and waives reliance by each such holder upon said provisions.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this
Security shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Note Issuer has caused this instrument to be
duly executed.
Dated: February 19, 1998
FMC TRUST FINANCE S.a.r.l.
LUXEMBOURG
By: __________________________
Name:
Title:
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SECTION 2.3. Form of Reverse of Security.
This Security is one of a duly authorized issue of securities of the
Note Issuer (herein called the "Securities"), issued under a Senior
Subordinated Indenture, dated as of February 19, 1998 (herein called the
"Indenture"), between the Note Issuer, as Issuer, and State Street Bank
and Trust Company, as Trustee (herein called the "Trustee", which term
includes any successor trustee under the Indenture), Fresenius Medical
Care AG (herein called the "Company"), as the Company and as a Guarantor,
Fresenius Medical Care Holdings, Inc. and Fresenius Medical Care
Deutschland GmbH, as Guarantors to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder
of the Trustee, the Note Issuer, the Company and the Holders of the
Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
All terms used in this Security that are defined in the Indenture
and in the Amended and Restated Declaration of Trust, dated as of February
19, 1998, (the "Declaration"), for Fresenius Medical Care Capital Trust
III, shall have the meanings assigned to them in the Indenture or the
Declaration, as the case may be.
If a Tax Event or an Investment Company Event in respect of the
Trust shall occur and be continuing, the Company shall cause the Trustees
(as defined in the Declaration) to dissolve the Trust and cause Securities
to be distributed to the holders of the Trust Securities in dissolution of
the Trust or, in the event of a Tax Event only, may cause the Securities
to be redeemed, in each case, subject to and in accordance with the
provisions of the Declaration, within 90 days following the occurrence of
such Tax Event or Investment Company Event. The Securities may be
redeemed, at the option of the Note Issuer, subject to the provisions of
Article XI of the Indenture, at any time as a whole but not in part, at
100% of the principal amount thereof, plus accrued and unpaid interest (if
any) to the date of redemption (subject to the right of Holders of record
on the relevant Regular Record Date to receive interest due on the
relevant Interest Payment Date), in the event the Note Issuer has become
or would become obligated to pay, on the next date on which any amount
would be payable with respect to the Securities, any Additional Amounts as
a result of a change in or an amendment to the laws (including any
regulations promulgated thereunder) of the United States of America,
Germany, the United Kingdom, Luxembourg, or any other Member State of the
European Union (or any political subdivision or taxing authority thereof
or therein), or any change in or amendment to any official position
regarding the application or interpretation of such laws or regulations,
which change or amendment is announced or becomes effective on or after
the date of the issuance of the Securities.
The Securities do not have the benefit of any sinking fund
obligations.
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<PAGE> 46
If an Event of Default shall occur and be continuing, the principal
of all the Securities may be declared due and payable in the manner, with
the effect and subject to the conditions provided in the Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, the obligations of the Note Issuer under the Indenture
and this Security are Guaranteed on a senior subordinated basis pursuant
to Guaranties endorsed hereon. The Indenture provides that a Guarantor
shall be released from its Guaranty upon compliance with certain
conditions.
The Indenture contains provisions for satisfaction, discharge and
defeasance at any time of the entire indebtedness of this Security upon
compliance by the Note Issuer with certain conditions set forth in the
Indenture.
The Indenture permits, with certain exceptions as therein provided,
the Note Issuer, the Guarantors and the Trustee at any time to enter into
a supplemental indenture or indentures for the purpose of modifying in any
manner the rights and obligations of the Note Issuer, the Guarantors and
of the Holders of the Securities, with the consent of the Holders of not
less than a majority in principal amount of the Outstanding Securities to
be affected by such supplemental indenture. The Indenture also contains
provisions permitting Holders of specified percentages in aggregate
outstanding principal amount of the Outstanding Securities affected
thereby, on behalf of the Holders of all the Securities, to waive
compliance by the Note Issuer or the Guarantors with certain provisions of
the Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Security
shall be conclusive and binding upon such Holder and upon all future
Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or
not notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, if an
Event of Default with respect to the Securities at the time Outstanding
occurs and is continuing, then and in every such case the Trustee or the
Holders of not less than 25% in aggregate outstanding principal amount of
the Outstanding Securities may declare the principal amount of and
interest (including Additional Sums and Additional Amounts, if any) on all
the Securities to be due and payable immediately, by a notice in writing
to the Note Issuer and the Guarantors (and to the Trustee if given by
Holders), provided, that if the Trustee or such Holders fail to do so, the
Preferred Trustee shall have such right by a notice in writing to the Note
Issuer and the Trustee; and upon any such declaration such specified
amount of and the accrued interest (including Additional Sums and
Additional Amounts, if any) on all the Securities shall become immediately
due and payable, provided, that the payment of principal and interest
(including Additional Sums and Additional Amounts, if any) on such
Securities shall remain subordinated to the extent provided in Article XII
of the Indenture.
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<PAGE> 47
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Note Issuer, which is absolute and unconditional, to pay the principal of
(and premium, if any) and interest on this Security at the times, place
and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the
Securities Register, upon surrender of this Security for registration of
transfer at the office or agency of the Note Issuer maintained under
Section 10.2 of the Indenture duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Note Issuer and
the Securities Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new
Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or
transferees. No service charge shall be made for any such registration of
transfer or exchange, but the Note Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Note Issuer, the Guarantors, the Trustee and any agent of
the Note Issuer, the Guarantors or the Trustee may treat the Person in
whose name this Security is registered as the owner hereof, for all
purposes (subject to certain limitations set forth in the Indenture),
whether or not this Security be overdue, and neither the Note Issuer, the
Guarantors, the Trustee nor any such agent shall be affected by notice to
the contrary.
The Securities are issuable only in registered form without coupons
in denominations of DM 1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set
forth, the Securities are exchangeable for a like aggregate principal
amount of Securities of a different authorized denomination, as requested
by the Holder surrendering the same.
The Note Issuer and, by its acceptance of this Security or a
beneficial interest therein, the Holder of, and any Person that acquires a
beneficial interest in, this Security agree that for German and United
States Federal, state and local tax purposes and for purposes of any tax
imposed by the jurisdiction of formation of the Note Issuer or any
political subdivision or taxing authority thereof or therein, it is
intended that this Security constitute indebtedness.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
38 EXECUTION
<PAGE> 48
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES THEREOF.
SECTION 2.4. Additional Provisions Required in Global Security and Initial
Security.
(a) Any Global Security issued hereunder shall, in addition to the
provisions contained in Sections 2.2 and 2.3, bear a legend in substantially the
following form:
"This Security is a Global Security within the meaning of the
Indenture hereinafter referred to and is registered in the name of The
Depository Trust Company (the "Depository") or a nominee of the
Depository. This Security is exchangeable for Securities registered in the
name of a Person other than the Depository or its nominee only in the
limited circumstances described in the Indenture and no transfer of this
Security (other than a transfer of this Security as a whole by the
Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository) may be
registered except in limited circumstances."
Unless this Security is presented by an authorized representative of
The Depository Trust Company (55 Water Street, New York) to FMC TRUST
FINANCE S.a.r.l. LUXEMBOURG or its agent for registration of transfer,
exchange or payment, and any Security issued is registered in the name of
Cede & Co. or such other name as requested by an authorized representative
of The Depository Trust Company and any payment hereon is made to Cede &
Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co.,
has an interest herein."
(b) Any Initial Security issued hereunder shall, in addition to the
provisions contained in Sections 2.2 and 2.3, bear a legend in substantially the
following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED, SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES
OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH
IN THE SECOND SENTENCE HEREOF. BY ITS ACQUISITION HEREOF OR OF A
BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) ("QIB") OR (B) IT IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES
ACT, (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS
39 EXECUTION
<PAGE> 49
SECURITY EXCEPT (A) TO THE ISSUER OR ANY OF ITS SUBSIDIARIES, (B) TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT,
(E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO THE NOTE ISSUER) OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON
TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERM
"OFFSHORE TRANSACTION" AND "UNITED STATES"HAVE THE MEANINGS GIVEN TO THEM
BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT.
THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT IN AGGREGATE PRINCIPAL AMOUNT
OF DM 100,000 OR MORE, EXCEPT IN OFFSHORE TRANSACTIONS IN RELIANCE ON
REGULATION S UNDER THE SECURITIES ACT."
SECTION 2.5. Form of Trustee's Certificate of Authentication.
This is one of the Securities with the Guaranties endorsed thereon
referred to in the within mentioned Indenture.
----------------------------------
as Trustee
By: ------------------------------
Authorized officer
SECTION 2.6. Form of Guaranty.
GUARANTY
For value received, each of the Guarantors hereby jointly and
severally unconditionally Guarantees, on a senior subordinated basis, to
each Holder of a Security authenticated and delivered by the Trustee, and
to the Trustee on behalf of such Holder, the
40 EXECUTION
<PAGE> 50
due and punctual payment of the principal of (and premium, if any) and
interest (including Additional Sums and Additional Amounts, if any) on
such Security when and as the same shall become due and payable, whether
at the Stated Maturity, by acceleration, call for redemption, purchase or
otherwise, in accordance with the terms of such Security and of this
Indenture. In case of the failure of the Note Issuer punctually to make
any such payment, each of the Guarantors hereby jointly and severally
agrees to cause such payment to be made punctually when and as the same
shall become due and payable, whether at the Stated Maturity or by
acceleration, call for redemption, purchase or otherwise, and as if such
payment were made by the Note Issuer. The Guarantee extends to the Note
Issuer's repurchase obligations arising from a Change of Control or an
Asset Disposition pursuant to the Indenture.
Each of the Guarantors hereby jointly and severally agrees that its
obligations hereunder shall be unconditional, irrespective of the
validity, regularity or enforceability of such Security or this Indenture,
the absence of any action to enforce the same, any exchange, release or
non-perfection of any Lien on any collateral for, or any release or
amendment or waiver of any term of any other Guarantee of, or any consent
to departure from any requirement of any other Guarantee of all or any of
the Securities, the election by the Trustee or any of the Holders in any
proceeding under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") of the application of Section 1111(b)(2) of the
Bankruptcy Code, or equivalent provision under applicable law, any
borrowing or grant of a security interest by the Note Issuer, as
debtor-in-possession, under Section 364 of the Bankruptcy Code, or
equivalent provision under applicable law, the disallowance, under Section
502 of the Bankruptcy Code, or other similar applicable law, of all or any
portion of the claims of the Trustee or any of the Holders for payment of
any of the Securities, any waiver or consent by the Holder of such
Security or by the Trustee with respect to any provisions thereof or of
the Indenture, the obtaining of any judgment against the Note Issuer or
any action to enforce the same or any other circumstances which might
otherwise constitute a legal or equitable discharge or defense of a
guarantor. Each of the Guarantors hereby waives the benefits of diligence,
presentment, demand for payment, any requirement that the Trustee or any
of the Holders protect, secure, perfect or insure any security interest in
or other Lien on any property subject thereto or exhaust any right or take
any action against the Note Issuer or any other Person or any collateral,
filing of claims with a court in the event of insolvency or bankruptcy of
the Note Issuer, any right to require a proceeding first against the Note
Issuer, protest or notice with respect to such Security or the
Indebtedness evidenced thereby and all demands whatsoever, and covenants
that this Guaranty will not be discharged in respect of such Security
except by complete performance of the obligations contained in such
Security and in this Guaranty. Each of the Guarantors hereby agrees that,
in the event of a default in payment of principal (or premium, if any) or
interest (including Additional Sums and Additional Amounts, if any) on
such Security, whether at their Stated Maturity, by acceleration, call for
redemption, purchase or otherwise, legal proceedings may be instituted by
the Trustee on behalf of, or
41 EXECUTION
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by, the Holder of such Security, subject to the terms and conditions set
forth in the Indenture, directly against each of the Guarantors to enforce
this Guaranty without first proceeding against the Note Issuer. Each
Guarantor agrees that, to the extent permitted by law, if, after the
occurrence and during the continuance of an Event of Default, the Trustee
or any of the Holders are prevented by applicable law from exercising
their respective rights to accelerate the maturity of the Securities, to
collect interest on the Securities, or to enforce or exercise any other
right or remedy with respect to the Securities, or the Trustee or the
Holders are prevented from taking any action to realize on any collateral,
such Guarantor agrees to pay to the Trustee for the account of the
Holders, upon demand therefor, the amount that would otherwise have been
due and payable had such rights and remedies been permitted to be
exercised by the Trustee or any of the Holders.
The indebtedness of each Guarantor evidenced by this Guaranty is, to
the extent provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness of such
Guarantor, and this Guaranty is issued subject to the provisions of the
Indenture with respect thereto. Each Holder of this Security, by accepting
the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such action as
may be necessary or appropriate to effectuate the subordination so
provided and (c) appoints the Trustee his attorney-in-fact for any and all
such purposes.
No reference herein to the Indenture and no provision of this
Guaranty or of the Indenture shall alter or impair the Guaranty of any
Guarantor, which is absolute and unconditional, of the due and punctual
payment of the principal (and premium, if any) and interest (including
Additional Sums and Additional Amounts, if any) on the Security upon which
this Guaranty is endorsed.
Each Guarantor shall be subrogated to all rights of the Holder of
this Security against the Note Issuer in respect of any amounts paid by
such Guarantor on account of this Security pursuant to the provisions of
its Guaranty or the Indenture; provided, however, that such Guarantor
shall not be entitled to enforce or to receive any payments arising out
of, or based upon, such right of subrogation until the principal of (and
premium, if any) and interest on this Security and all other Securities
issued under the Indenture shall have been paid in full.
This Guaranty shall remain in full force and effect and continue to
be effective should any petition be filed by or against the Note Issuer
for liquidation or reorganization, or equivalent proceeding under
applicable law, should the Note Issuer become insolvent or make an
assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of the Note Issuer's assets, or
the equivalent of any of the foregoing under applicable law, and shall, to
the fullest extent permitted by applicable law, continue to be effective
or be reinstated, as the case may be, if at any time payment and
42 EXECUTION
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performance of the Securities is, pursuant to applicable law, rescinded or
reduced in amount, or must otherwise be restored or returned by any
obligee on the Securities whether as a voidable preference, fraudulent
transfer, or as otherwise provided under similar laws affecting the rights
of creditors generally or under applicable laws of the jurisdiction of
formation of the Note Issuer, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Securities shall, to the
fullest extent permitted by applicable law, be reinstated and deemed
reduced only by such amount paid and not so rescinded, reduced, restored
or returned.
The Guarantors shall have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does not impair
the rights of the Holders under this Guaranty.
The Guarantors or any particular Guarantor shall be released from
this Guaranty upon the terms and subject to certain conditions provided in
the Indenture.
By delivery of a supplemental indenture to the Trustee in accordance
with the terms of the Indenture or the execution of a Guaranty Agreement,
each Person that becomes, or assumes the obligations of, a Guarantor after
the date of the Indenture will be deemed to have executed and delivered
this Guaranty for the benefit of the Holder of this Security with the same
effect as if such Guarantor was named below.
All terms used in this Guaranty which are defined in the Indenture
referred to in the Security upon which this Guaranty is endorsed shall
have the meanings assigned to them in such Indenture.
This Guaranty shall not be valid or obligatory for any purpose until
the certificate of authentication on the Security upon which this Guaranty
is endorsed shall have been executed by the Trustee under the Indenture by
manual signature.
Each Guaranty (other than the Company's Guaranty) will be limited in
amount to an amount not to exceed the maximum amount that can be
guaranteed by the applicable Guarantor without rendering the Guaranty, as
it relates to such Guarantor, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally or under applicable law of Germany.
In the case of Fresenius Medical Care Deutschland GmbH ("FMCD"), the
following provisions apply:
A Profit and Loss Pooling Agreement (the "Agreement")
(Ergebnisabfuhrungsvertrag) between the Company and FMCD dated as of
August 21,
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1996 was entered into the commercial register with effect from January 1,
1996. FMCD, having a stated capital of DM 80 million, had a capital
reserve account of DM 168,302,162 (the "January 1, 1996 Amount") in its
balance sheet as of January 1, 1996. Assuming that the January 1, 1996
Amount has not decreased by losses in the business of FMCD since January
1, 1996, at least such amount exceeds the Company's assets protecting its
share capital within the meaning of Section 30 of the German GmbH Law.
Since January 1, 1996, the January 1, 1996 Amount has not been decreased
by the actions of the Company (the sole shareholder of FMCD), e.g. no
distributions against the January 1, 1996 Amount have been made.
Based thereon, the guaranty obligations of FMCD hereunder and under
FMCD's guaranty of the 9% Notes, the USD Securities and any other Senior
Subordinated Indebtedness, if any, of FMCD to which Section 30 of the
German GmbH law may apply are limited to the amount of the capital
reserves of FMCD as of the date hereof less its obligations as a guarantor
from time to time under the Bank Credit Agreement (the "Minimum Guaranty
Amount"). If, in the case of a default under the Indenture, the capital
reserves are higher than such Minimum Guaranty Amount, such higher amount
(the "Higher Guaranty Amount") shall serve as limitation to the
obligations of FMCD, as Guarantor. In case FMCD, as Guarantor, has to sell
off assets to fulfill its obligations under the Indenture, after such
guaranty obligations have been drawn, and if the proceeds from the sale of
such assets exceed the amount of their book value, such excess amounts
shall be paid to the Trustee for the benefit of the Holders, subject to
the provisions of Article XIV hereof, in addition to the Minimum Guaranty
Amount or the Higher Guaranty Amount, respectively. For the determination
of the applicable book value, the book value of assets which were included
into the balance sheet per January 1, 1996 applies, and for such assets
which were not yet included but added to the business of FMCD since that
date, the book value on the day of the sale of such assets applies. Should
Section 30 of the German GmbH law however require a lower Minimum Guaranty
Amount or a lower Higher Guaranty Amount, then such lower amounts required
by law shall be applicable.
FMCD undertakes not to decrease its capital reserves, neither by
capital increase from such reserve accounts nor by other kinds of
contributions to its shareholders or affiliates without the prior written
approval of the Holders of a majority in principal amount of the
Outstanding Securities.
FMCD undertakes to maintain a profit and loss pooling agreement with
the Company during the term of the Indenture, in particular, to extend the
term of such agreement to the term of the Indenture and not to terminate,
rescind or amend such agreement without prior notice to the Trustee and
the consent of the Holders of a majority in principal amount of the
Outstanding Securities thereto. In case of a termination of such profit
and loss pooling agreement, FMCD will grant, upon the request of the
Holders of a majority in principal amount of the Outstanding Securities,
collateral to minimize the legal
44 EXECUTION
<PAGE> 54
and financial disadvantages caused by the termination of such agreement,
as far as legally available under German law. FMCD undertakes to give
notice immediately to the Trustee if it intends to give notice of
termination to such agreement or to agree to the termination of such
agreement, or if it becomes aware that the Company intends to terminate
such agreement. During the term of the profit and loss pooling agreement,
any and all allocations of profit to the Company and any and all cash
distributions to the Company as a consequence thereof upon the terms and
conditions of the profit and loss pooling agreement are permitted and
unrestricted, subject to the terms of Section 30 of the German GmbH law as
described above.
Reference is made to Article XIII and Article XIV of the Indenture
for further provisions with respect to this Guaranty.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICT OF LAWS.
IN WITNESS WHEREOF, each of the Guarantors has caused this Guaranty to be
duly executed.
FRESENIUS MEDICAL CARE AG, as Guarantor
By:____________________________________
Member of the Managing Board
By:____________________________________
Member of the Managing Board
FRESENIUS MEDICAL CARE
HOLDINGS, INC., as Guarantor
Authorized Officer
FRESENIUS MEDICAL CARE DEUTSCHLAND
GmbH, as Guarantor
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<PAGE> 55
Member of the Managing Board
Member of the Managing Board
ARTICLE III.
THE SECURITIES
SECTION 3.1. Title and Terms.
The aggregate principal amount of the Securities which may be
authenticated and delivered under this Indenture is limited to DM 300,300,000
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section 3.4,
3.5, 3.6, 9.6 or 11.6. The Note Issuer may issue Exchange Securities from time
to time pursuant to an Exchange Offer pursuant to a Board Resolution included in
an Officers' Certificate delivered to the Trustee, in authorized denominations
in exchange for a like principal amount of Initial Securities. Upon any such
exchange the Initial Securities shall be cancelled in accordance with Section
3.9 and shall no longer be deemed Outstanding for any purpose. In no event shall
the aggregate principal amount of Initial Securities and Exchange Securities
Outstanding exceed DM 300,300,000, except in accordance with Section 3.6.
The Securities shall be known and designated as the "7 3/8% Senior
Subordinated Notes due February 1, 2008" of the Note Issuer. Their Stated
Maturity shall be February 1, 2008 at which time the Securities will become due
and payable together with any accrued and unpaid interest thereon (including
Additional Sums and Additional Amounts, if any) and they shall bear interest at
the rate of 7 3/8% per annum, from the Issue Date, payable quarterly in arrears
on each Interest Payment Date, to the Persons in whose name the Securities are
registered at the close of business on the Regular Record Date.
Interest on the Securities will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from the Issue Date.
Interest in arrears for more than one quarter (and interest thereon) will accrue
interest (compounded quarterly) at the same rate.
Payments on the Securities issued as a Global Security shall be made in
immediately available funds to the Depository. In the event that Securities are
issued in certificated form, the principal of (and premium, if any) and interest
(including Additional Sums and Additional Amounts, if any) on the Securities
shall be payable at the office maintained by the Note Issuer pursuant to Section
10.2; provided, that unless the Securities are held by the Trust or any
46 EXECUTION
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permissible successor entity as provided under the Declaration in the event of a
merger, consolidation or amalgamation of the Trust, payment of interest may be
made at the option of the Note Issuer by check mailed to the address of the
persons entitled thereto, as such address shall appear in the Register.
The Securities shall be redeemable as provided in Article XI.
The Securities shall be subordinated in right of payment to Senior
Indebtedness of the Company and the Note Issuer as provided in Article XII.
The Securities shall be Guaranteed by the Guarantors as provided in
Article XIII.
The Guaranties shall be subordinated in right of payment to Senior
Indebtedness of the Guarantors as provided in Article XIV.
The Securities shall be subject to defeasance at the option of the Note
Issuer as provided in Section 4.3.
Unless the context otherwise requires, the Initial Securities and the
Exchange Securities shall constitute one series for all purposes under this
Indenture.
SECTION 3.2. Denominations.
The Securities shall be issuable only in registered form without coupons
and only in denominations of DM 1,000 and any integral multiple thereof. The
Initial Securities may only be issued and transferred in principal amounts of DM
100,000 or more, except in offshore transactions in reliance on Regulation S
under the Securities Act.
SECTION 3.3. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Note Issuer by any
officer or officers of the Note Issuer thereunder duly authorized. The signature
of any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Note Issuer shall bind the Note
Issuer, notwithstanding that such individuals or any of them have ceased to hold
such offices prior to the authentication and delivery of such Securities or did
not hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Note Issuer may deliver Securities executed by the Note Issuer
and having endorsed thereon the Guaranties executed pursuant to Section 13.2 by
the Guarantors to the Trustee for authentication,
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together with a Note Issuer Order for the authentication and delivery of such
Securities with the Guaranties of the Guarantors endorsed thereon; and the
Trustee in accordance with such Note Issuer Order shall authenticate and deliver
such Securities with the Guaranties of the Guarantors endorsed thereon as in
this Indenture provided and not otherwise.
At any time and from time to time after the execution and delivery of this
Indenture and after the effectiveness of a registration statement under the
Securities Act with respect thereto, the Note Issuer may deliver Exchange
Securities executed by the Note Issuer to the Trustee for authentication,
together with a Note Issuer Order for the authentication and delivery of such
Exchange Securities and a like principal amount of Initial Securities for
cancellation in accordance with Section 3.9, and the Trustee in accordance with
the Note Issuer Order shall authenticate and deliver such Securities. In
authenticating such Exchange Securities, and accepting the additional
responsibilities under this Indenture in relation to such Securities, the
Trustee shall be entitled to receive, and (subject to Section 6.1) shall be
fully protected in relying upon, an Opinion of Counsel substantially to the
effect that: (i) the Exchange Securities have been duly authorized and, when
executed and authenticated in accordance with the provisions of the Indenture
and delivered in exchange for the Initial Securities in accordance with the
Indenture and the Exchange Offer, will be entitled to the benefits of the
Indenture and will be legally valid and binding obligations of the Note Issuer,
enforceable in accordance with their terms subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles; and (ii) when the Exchange Securities are executed and authenticated
in accordance with the provisions of the Indenture and delivered in exchange for
the Initial Securities in accordance with the Indenture and the Exchange Offer,
the Guaranties endorsed thereon will be the legally valid and binding
obligations of the Guarantors, enforceable in accordance with their terms
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability, relating to or affecting
creditors' rights and to general equity principles.
If terms have been so established, the Trustee shall not be required to
authenticate such Exchange Securities if the issue of such Exchange Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Exchange Securities and this Indenture or otherwise in a
manner which is not reasonably acceptable to the Trustee.
Each Security shall be dated the date of its authentication.
No Security or Guaranty endorsed thereon shall be entitled to any benefit
under this Indenture or be valid or obligatory for any purpose, unless there
appears on such Security a certificate of authentication substantially in the
form provided for herein executed by the Trustee by the manual signature of one
of its authorized officers, and such certificate upon any Security shall be
conclusive evidence, and the only evidence, that such Security and the Guaranty
endorsed thereon have been duly authenticated and delivered hereunder.
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SECTION 3.4. Temporary Securities.
Pending the preparation of definitive Securities, the Note Issuer may
execute, and upon Note Issuer Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and having
endorsed thereon the Guaranties substantially of the tenor of the definitive
Guaranties in lieu of which they are issued duly executed by the Guarantors and
with such appropriate insertions, omissions, substitutions and other variations
as the officers executing such Securities and Guaranties, as the case may be,
may determine, as evidenced by their execution of such Securities and
Guaranties, as the case may be.
If temporary Securities are issued, the Note Issuer will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Note Issuer designated for that purpose without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Securities,
the Note Issuer shall execute and the Trustee shall authenticate and deliver in
exchange therefor a like principal amount of definitive Securities of authorized
denominations having the same Issue Date and Stated Maturity, having the same
terms and like tenor, and having endorsed thereon the Guaranties executed by the
Guarantors. Until so exchanged, the temporary Securities shall in all respects
be entitled to the same benefits under this Indenture as definitive Securities.
SECTION 3.5. Registration, Registration of Transfer and Exchange.
The Note Issuer shall cause to be kept at the Corporate Trust Office of
the Trustee, a register in which, subject to such reasonable regulations as it
may prescribe, the Note Issuer shall provide for the registration of Securities
and of transfers of Securities. Such register is herein sometimes referred to as
the "Securities Register." The Trustee is hereby appointed "Securities
Registrar" for the purpose of registering Securities and transfers of the
Securities as herein provided.
Upon surrender for registration of transfer of any Security at the office
or agency of the Note Issuer designated for that purpose the Note Issuer shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Securities of any
authorized denominations, of a like aggregate principal amount, of the same
Issue Date and Stated Maturity, having the same terms and like tenor, and having
endorsed thereon the Guaranties executed by the Guarantors; PROVIDED, that
Initial Securities may only be transferred in principal amounts of DM 100,000 or
more, except in offshore transactions in reliance on Regulation S under the
Securities Act.
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At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations, of a like aggregate principal
amount, of the same Issue Date and Stated Maturity and having the same terms and
like tenor, and having endorsed thereon the Guaranties executed by the
Guarantors, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Note Issuer
shall execute, the Guarantors shall execute the Guaranties endorsed on and the
Trustee shall authenticate and deliver, the Securities which the Holder making
the exchange is entitled to receive.
All Securities and the Guaranties endorsed thereon issued upon any
registration of transfer or exchange of Securities shall be the valid
obligations of the Note Issuer and the respective Guarantors, evidencing the
same debt and Guaranties, and entitled to the same benefits under this
Indenture, as the Securities and Guaranties surrendered upon such registration
of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Note Issuer or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Note Issuer and the Securities Registrar, duly executed by
the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Securities, but the Note Issuer may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities.
Notwithstanding any of the foregoing, any Global Security shall be
exchangeable pursuant to this Section 3.5 for Securities registered in the names
of Persons other than the Depositary for such Global Security or its nominee
only if (i) such Depositary notifies the Note Issuer that it is unwilling or
unable to continue as Depositary for such Global Security or if at any time such
Depositary ceases to be a clearing agency registered under the Exchange Act, as
amended, (ii) the Note Issuer executes and delivers to the Trustee a Note Issuer
Order that such Global Security shall be so exchangeable or (iii) there shall
have occurred and be continuing an Event of Default with respect to the
Securities and the Holders of a majority in aggregate principal amount of this
outstanding securities shall have so requested. Any Global Security that is
exchangeable pursuant to the preceding sentence shall be exchangeable for
Securities registered in such names as such Depositary shall direct.
Notwithstanding any other provision in this Indenture, a Global Security
may not be transferred except as a whole by the Depositary with respect to such
Global Security to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary.
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Neither the Note Issuer nor the Trustee shall be required to, pursuant to
the provisions of this Section, (a) issue, register the transfer of or exchange
any Security during a period beginning at the opening of business 15 days before
any selection for redemption of Securities pursuant to Article XI and ending at
the close of business on the earliest date on which the relevant notice of
redemption is deemed to have been given to all Holders of Securities to be so
redeemed, and (b) register the transfer of or exchange any Security so selected
for redemption, in whole or in part, except, in the case of any Security to be
redeemed in part, any portion thereof not to be redeemed.
All Initial Securities initially issued hereunder shall, upon issuance,
bear the legend specified in Section 2.4 to be applied to such a Security and
such required legend shall not be removed unless the Note Issuer shall have
delivered to the Trustee (and the Securities Registrar, if other than the
Trustee) a Note Issuer Order which states that the Security may be issued
without such legend thereon. If such legend required for an Initial Security has
been removed from a Security as provided above, no other Security issued in
exchange for all or any part of such Security shall bear such legend, unless the
Note Issuer has reasonable cause to believe that such other Security is a
"restricted security" within the meaning of Rule 144 of the Securities Act and
instructs the Trustee to cause a legend to appear thereon.
SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee together with such
security or indemnity as may be required by the Note Issuer or the Trustee to
save each of them harmless, the Note Issuer shall execute, the Guarantors shall
execute the Guaranties endorsed on and the Trustee shall authenticate and
deliver in exchange therefor, a new Security of like tenor and principal amount,
having the same Issue Date and Stated Maturity and bearing the same Interest
Rate as such mutilated Security, and bearing a number not contemporaneously
outstanding.
If there shall be delivered to the Note Issuer and to the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any
Security, and (ii) such security or indemnity as may be required by each of them
to save each of them, each Guarantor and any agent of either of them harmless,
then, in the absence of notice to the Note Issuer or the Trustee that such
Security has been acquired by a bona fide purchaser, the Note Issuer shall
execute and upon its request the Trustee shall authenticate and deliver, in lieu
of any such destroyed, lost or stolen Security, a new Security of like tenor and
principal amount, having endorsed thereon the Guaranties executed by the
Guarantors, having the same Issue Date and Stated Maturity and bearing the same
Interest Rate as such destroyed, lost or stolen Security, and bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Note Issuer in its discretion may,
instead of issuing a new Security, pay such Security.
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Upon the issuance of any new Security under this Section, the Note Issuer
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security, and the Guaranties endorsed thereon, shall
constitute an original additional contractual obligation of the Note Issuer and
the respective Guarantors, whether or not the destroyed, lost or stolen
Security, and the Guaranties endorsed thereon, shall be at any time enforceable
by anyone, and shall be entitled to all the benefits of this Indenture equally
and proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.7. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date, shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest, except that
interest payable on the Stated Maturity of a Security shall be paid to the
Person to whom principal is paid.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest"), shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Note Issuer, at its election in each case, as
provided in Clause (1) or (2) below:
(1) The Note Issuer may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Note Issuer shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be paid
on each Security and the date of the proposed payment, and at the same
time the Note Issuer shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such money
when deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as in this Clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than
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10 days prior to the date of the proposed payment and not less than 10
days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Note Issuer of such Special
Record Date and, in the name and at the expense of the Note Issuer, shall
cause notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be mailed, first-class, postage prepaid,
to each Holder at the address of such Holder as it appears in the
Securities Register not less than 10 days prior to such Special Record
Date. The Trustee may, in its discretion, in the name and at the expense
of the Note Issuer, cause a similar notice to be published at least once
in a newspaper, customarily published in the English language on each
Business Day and of general circulation in the Borough of Manhattan, The
City of New York, but such publication shall not be a condition precedent
to the establishment of such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor
having been mailed as aforesaid, such Defaulted Interest shall be paid to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on such Special Record
Date and shall no longer be payable pursuant to the following Clause (2).
(2) The Note Issuer may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, upon such
notice as may be required by such exchange (or by the Trustee if the
Securities are not listed), if, after notice given by the Note Issuer to
the Trustee of the proposed payment pursuant to this Clause, such manner
of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
Under the Registration Rights Agreement, in the event that (i) an Exchange
Offer Registration Statement or a Shelf Registration Statement is not filed on
or prior to the applicable deadline set forth in the Registration Rights
Agreement, (ii) an Exchange Offer Registration Statement or a Shelf Registration
Statement is not declared effective on or prior to the applicable deadline set
forth in the Registration Rights Agreement, or (iii) the Exchange Offer has not
been "Consummated" (as defined in the Registration Rights Agreement) or upon the
occurrence of certain other conditions, then additional payments in the form of
Liquidated Damages shall accrue on the principal amount of the Securities at the
rate per DM 1,000 liquidation amount of Preferred Securities set forth in the
Registration Rights Agreement. Upon filing or effectiveness of the Exchange
Offer Registration Statement or the Shelf Registration Statement, Consummation
of the Exchange Offer or upon cessation of any such other conditions, as the
case may be, the obligation to pay such Liquidated Damages with respect to the
event in question shall cease.
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SECTION 3.8. Persons Deemed Owners.
Prior to the presentment of a Security for registration of transfer, the
Note Issuer, the Guarantors, the Trustee and any agent of the Note Issuer, the
Guarantors or the Trustee may treat the Person in whose name such Security is
registered as the owner of such Security for the purpose of receiving payment of
principal (and premium, if any) of and (subject to Section 3.7) interest on such
Security and for all other purposes whatsoever, whether or not such Security be
overdue, and neither the Note Issuer, the Guarantors, the Trustee nor any agent
of the Note Issuer, the Guarantors or the Trustee shall be affected by notice to
the contrary.
SECTION 3.9. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee, and any such Securities surrendered directly to the
Trustee for any such purpose shall be promptly canceled by it. The Note Issuer
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Note Issuer may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly canceled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities canceled as provided in this Section,
except as expressly permitted by this Indenture. All canceled Securities shall
be destroyed by the Trustee and the Trustee shall deliver to the Note Issuer a
certificate of such destruction.
SECTION 3.10. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months and, for any partial period, on the basis of the
number of days elapsed in a 360-day year of twelve 30-day months.
SECTION 3.11. Right of Set-Off.
Notwithstanding anything to the contrary in this Indenture, the Note
Issuer shall have the right to set-off any payment it or the Company is
otherwise required to make hereunder in respect of any Security to the extent
the Note Issuer or the Company has theretofore made, or is concurrently on the
date of such payment making, a payment under the Company Guarantee relating to
such Security or under Section 5.8 of this Indenture.
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SECTION 3.12. Agreed Tax Treatment.
Each Security issued hereunder shall provide that the Note Issuer and, by
its acceptance of a Security or a beneficial interest therein, the Holder of,
and any Person that acquires a beneficial interest in, such Security agree that
for German and United States Federal, state and local tax purposes and for
purposes of any tax imposed by the jurisdiction of formation of the Note Issuer
(or any political subdivision or taxing authority thereof or therein) it is
intended that such Security constitute indebtedness.
SECTION 3.13. CUSIP Numbers.
The Note Issuer in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided, that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers.
ARTICLE IV.
SATISFACTION AND DISCHARGE
SECTION 4.1. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to (i) any
surviving rights of registration of transfer, substitution and exchange of
Securities, (ii) rights hereunder of Holders to receive payments of principal of
(and premium, if any) and interest (including Additional Sums and Additional
Amounts, if any) on the Securities and other rights, duties and obligations of
the Holders as beneficiaries hereof with respect to the amounts, if any,
deposited with the Trustee pursuant to this Article IV and (iii) the rights and
obligations of the Trustee hereunder), and the Trustee, on demand of and at the
expense of the Note Issuer, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(1) either:
(A) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 3.6 and (ii) Securities
for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Note Issuer and thereafter
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repaid to the Note Issuer or discharged from such trust, as provided in
Section 10.3) have been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within one
year of the date of deposit,
and the Note Issuer or a Guarantor, in the case of Clause (B) (i) or (B)
(ii) above, has deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose an amount in the currency or
currencies in which the Securities are payable sufficient (without
reinvestment) to pay and discharge the entire indebtedness on such
Securities not theretofore delivered to the Trustee for cancellation, for
principal (and premium, if any) and interest (including Additional Sums
and Additional Amounts, if any) to the date of such deposit (in the case
of Securities which have become due and payable) or to the Stated
Maturity;
(2) the Note Issuer or a Guarantor has paid or caused to be paid all
other sums payable hereunder by the Note Issuer and the Guarantors; and
(3) the Note Issuer has delivered to the Trustee an Opinion of
Counsel to the effect that the Holders of the Outstanding Securities will
not recognize gain or loss for German and United States Federal income tax
purposes and for purposes of any income tax imposed by the jurisdiction of
formation of the Note Issuer as a result of the application of this
Section 4.1 and will be subject to German and United States Federal income
tax and any income tax imposed by the jurisdiction of formation of the
Note Issuer, if any, on the same amount as would have been the case if
such satisfaction and discharge of the Indenture had not occurred; and
(4) the application of this Section 4.1 shall not cause the Trustee
to have a conflicting interest as defined in Section 6.8 hereof and for
purposes of the Trust Indenture Act with respect to any securities of the
Note Issuer; and
(5) the funds deposited with the Trustee pursuant to Clause (1)(B)
above shall not be deemed an "investment company" as defined in the 1940
Act, or such trust shall be qualified under the 1940 Act or exempt from
regulation thereunder; and
(6) the Note Issuer has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided in this subsection 4.1 for relating to the satisfaction
and discharge of this Indenture have been complied with.
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Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Article IV, the obligations of the Note Issuer to the Trustee under Section
6.7 and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of Clause (1) of this Section, the obligations of the Trustee
under Section 4.2 and the last paragraph of Section 10.3, shall survive.
SECTION 4.2. Application of Trust Money; Reinstatement.
Subject to the provisions of the last paragraph of Section 10.3, all money
deposited with the Trustee pursuant to Section 4.1 or money or Government
Obligations deposited with the Trustee pursuant to Section 4.3, or received by
the Trustee in respect of Government Obligations deposited with the Trustee
pursuant to Section 4.3, shall be held in trust and applied by the Trustee, in
accordance with the provisions of the Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Note Issuer
acting as its own Paying Agent) as the Trustee may determine, to the Persons
entitled thereto, of the principal (and premium, if any) and interest (including
Additional Sums and Additional Amounts, if any) for the payment of which such
money or Government Obligations have been deposited with or received by the
Trustee; provided, however, such moneys need not be segregated from other funds
held in trust except to the extent required by law. Money so held in trust shall
not be subject to the provisions of Article XII or Article XIV.
The Note Issuer shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the Government Obligations
deposited pursuant to Section 4.3 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Securities.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with Section 4.1 or 4.3 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the obligations of the Note Issuer and the Guarantors
under this Indenture, the Securities and the Guaranties shall be revived and
reinstated as though no deposit had occurred pursuant to this Article IV until
such time as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 4.1 or 4.3; provided, however, that if the Note Issuer
or any Guarantor makes any payment of principal of (and premium, if any) or
interest (including Additional Sums and Additional Amounts, if any) on any
Security following the reinstatement of its obligations, the Note Issuer or such
Guarantor shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money held by the Trustee or the Paying Agent.
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SECTION 4.3. Satisfaction, Discharge and Defeasance of Securities.
The Note Issuer shall be deemed to have paid and discharged the entire
indebtedness on all the Outstanding Securities, the Guarantors shall each be
released from their respective Guaranties, and the Trustee, at the expense of
the Note Issuer, shall execute proper instruments acknowledging satisfaction and
discharge of such indebtedness and Guaranties, when
(1) with respect to all Outstanding Securities,
(A) the Note Issuer has irrevocably deposited or caused to be
irrevocably deposited with the Trustee as trust funds in trust for such
purpose an amount sufficient to pay and discharge the entire indebtedness
on all Outstanding Securities for principal (and premium, if any) and
interest (including Additional Sums and Additional Amounts, if any) to the
Stated Maturity or any Redemption Date as contemplated by the penultimate
paragraph of this Section 4.3, as the case may be; or
(B) the Note Issuer has irrevocably deposited or caused to be
irrevocably deposited with the Trustee as obligations in trust for such
purpose an amount of Government Obligations as will, in the written
opinion of independent public accountants delivered to the Trustee,
together with predetermined and certain income to accrue thereon, without
consideration of any reinvestment thereof, be sufficient to pay and
discharge when due the entire indebtedness on all Outstanding Securities
for principal (and premium, if any) and interest (including Additional
Sums and Additional Amounts, if any) to the Stated Maturity or any
Redemption Date as contemplated by the penultimate paragraph of this
Section 4.3, as the case may be; and
(2) the Note Issuer has paid or caused to be paid all other sums
payable with respect to the Outstanding Securities; and
(3) the Note Issuer has delivered to the Trustee an Opinion of
Counsel to the effect that the Holders of the Outstanding Securities will
not recognize gain or loss for German and United States Federal income tax
purposes or for the purposes of any income tax imposed by the jurisdiction
of formation of the Note Issuer as a result of the application of this
Section 4.3 and will be subject to German and United States Federal income
tax and any income tax imposed by the jurisdiction of formation of the
Note Issuer, if any, on the same amount, in the same manner as would have
been the case if such satisfaction, discharge and defeasance of the
Securities had not occurred; and
(4) the Note Issuer has delivered to the Trustee an Officers'
Certificate to the effect that the Securities, if then listed on any
securities exchange, will not be delisted as a result of the deposit
pursuant to Clause (1) above; and
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(5) the application of this Section 4.3 shall not cause the Trustee
to have a conflicting interest as defined in Section 6.8 hereof and for
purposes of the Trust Indenture Act with respect to any securities of the
Note Issuer; and
(6) at the time of the deposit pursuant to Clause (1) above: (A) no
default in the payment of all or a portion of principal of (or premium, if
any) or interest on any Senior Indebtedness of the Note Issuer or any
Guarantor shall have occurred and be continuing, and no event of default
with respect to any such Senior Indebtedness shall have occurred and be
continuing and shall have resulted in such Senior Indebtedness becoming or
being declared due and payable prior to the date on which it would
otherwise have become due and payable and (B) no other event of default
with respect to any Senior Indebtedness of the Note Issuer or any
Guarantor shall have occurred and be continuing permitting (after notice
or the lapse of time, or both) the holders of such Senior Indebtedness (or
a representative on behalf of the holders thereof) to declare such Senior
Indebtedness due and payable prior to the date on which it would otherwise
have become due and payable, or, in the case of either Clause (A) or
Clause (B) above, each such default or event of default shall have been
cured or waived or shall have ceased to exist; and
(7) no Event of Default or event which with notice or lapse of time
or both would become an Event of Default shall have occurred and be
continuing on the date of such deposit; and
(8) the funds deposited with the Trustee pursuant to Clause (1)
above shall not be deemed an "investment company" as defined in the 1940
Act or such trust shall be qualified under the 1940 Act or exempt from
regulation thereunder; and
(9) the Note Issuer has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge
of the entire indebtedness on all Outstanding Securities have been
complied with.
Any deposits with the Trustee referred to in Section 4.3(1) above shall be
irrevocable and shall be made under the terms of an escrow trust agreement in
form and substance reasonably satisfactory to the Trustee. If any Outstanding
Securities are to be redeemed prior to their Stated Maturity, whether pursuant
to any optional or mandatory redemption provisions, the applicable escrow trust
agreement shall provide therefor and the Note Issuer shall make such
arrangements as are satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Note Issuer.
If the Securities are not to become due and payable at their Stated Maturity or
upon call for redemption within one year of the date of deposit, then the Note
Issuer shall give, not later than the date of such deposit, notice of such
deposit to the Holders.
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Upon the satisfaction of the conditions set forth in this Section 4.3
with respect to all the Outstanding Securities, the terms and conditions of the
Securities and Guaranties, including the terms and conditions with respect
thereto set forth in this Indenture, shall no longer be binding upon, or
applicable to, the Note Issuer and the Guarantors; provided, that the Note
Issuer and the Guarantors shall not be discharged from any payment obligations
in respect of Securities which are deemed not to be Outstanding under clause
(iii) of the definition thereof if such obligations continue to be valid
obligations of the Note Issuer and the Guarantors under applicable law.
ARTICLE V.
REMEDIES
SECTION 5.1. Events of Default.
"Event of Default," wherever used herein means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest upon any Security,
including any Additional Sums and Additional Amounts in respect thereof,
when it becomes due and payable, and continuance of such default for a
period of 30 days; or
(2) default in the payment of the principal of (or premium, if any,
on) any Security at its Maturity; or
(3) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Company or the Note Issuer in this
Indenture (other than a covenant or warranty a default in the performance
of which or the breach of which is elsewhere in this Section specifically
dealt with), and continuance of such default or breach for a period of 90
days after there has been given, by registered or certified mail, to the
Note Issuer by the Trustee or to the Note Issuer and the Trustee by the
Holders of at least 25% in principal amount of the Outstanding Securities
a written notice specifying such default or breach and requiring it to be
remedied; or
(4) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any Subsidiary (or the
payment of which is guaranteed by the Company or any Subsidiary), whether
such Indebtedness or Guarantee now exists or is incurred after the Issue
Date, if (A) such default results in the acceleration of such Indebtedness
prior to its express maturity or shall constitute a default in the payment
of such Indebtedness and (B) the principal amount of any such Indebtedness
that has been
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accelerated or not paid at maturity, when added to the aggregate principal
amount of all other such Indebtedness, at such time, that has been
accelerated or not paid at maturity, exceeds $25,000,000; or
(5) the dissolution, winding up or termination of the Trust, except
in connection with the distribution of Securities to the holders of
Preferred Securities in dissolution of the Trust and in connection with
such mergers, consolidations or amalgamations as are permitted by the
Declaration; or
(6) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or the Note Issuer a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or the Note Issuer under any applicable German or United
States Federal or State or other applicable foreign bankruptcy,
insolvency, reorganization or other similar law, or appointing a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
the Company or the Note Issuer or of any substantial part of its property
or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect for a
period of 60 consecutive days; or
(7) the institution by the Company or the Note Issuer of proceedings
to be adjudicated a bankrupt or insolvent, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or
relief under any applicable German or United States Federal or State or
other applicable foreign bankruptcy, insolvency, reorganization or other
similar law, or the consent by it to the filing of any such petition or to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Company or the Note Issuer or of any
substantial part of its property, or the making by it of an assignment for
the benefit for creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due and its
willingness to be adjudicated a bankrupt, or the taking of corporate
action by the Company or the Note Issuer in furtherance of any such
action; or
(8) except as permitted by the terms hereof and the Securities, the
cessation of effectiveness of any Guaranty or the finding by any judicial
proceeding that any such Guaranty is unenforceable or invalid or the
denial or disaffirmation by any Guarantor of its obligations under its
Guaranty.
A default under any other indebtedness of the Company or any of its
Subsidiaries or joint ventures or the Trust would not constitute an Event of
Default under the Securities.
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SECTION 5.2. Acceleration of Maturity; Rescission and Annulment.
As provided in and subject to the provisions of this Indenture, if an
Event of Default with respect to the Securities at the time Outstanding occurs
and is continuing, then and in every such case the Trustee or the Holders of not
less than 25% in aggregate outstanding principal amount of the Outstanding
Securities may declare the principal amount of and interest (including
Additional Sums and Additional Amounts, if any) on all the Securities to be due
and payable immediately, by a notice in writing to the Note Issuer and the
Guarantors (and to the Trustee if given by Holders), provided, that if the
Trustee or such Holders fail to do so, the Preferred Trustee shall have such
right by a notice in writing to the Note Issuer and the Trustee; and upon any
such declaration such specified amount of and the accrued interest (including
Additional Sums and Additional Amounts, if any) on all the Securities shall
become immediately due and payable, provided, that the payment of principal and
interest (including Additional Sums and Additional Amounts, if any) on such
Securities shall remain subordinated to the extent provided in Article XII of
the Indenture.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in aggregate principal amount of the Outstanding Securities, by written notice
to the Note Issuer and the Trustee, may rescind and annul such declaration and
its consequences if:
(1) the Note Issuer or any Guarantor has paid or deposited with the
Trustee a sum sufficient to pay:
(A) all overdue installments of interest (including Additional Sums
and Additional Amounts, if any) on the Securities,
(B) the principal of (and premium, if any, on) any Securities which
have become due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Securities, and
(C) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
(2) all Events of Default, other than the non-payment of the
principal of the Securities which have become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 5.13.
The Holders of a majority in aggregate outstanding principal amount of the
Securities affected thereby may, on behalf of the Holders of all the Securities,
waive any past default, except a
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default in the payment of principal, premium, if any, or interest (unless such
default has been cured and a sum sufficient to pay all matured installments of
interest, premium, if any, and principal due otherwise than by acceleration has
been deposited with the Trustee) or a default in respect of a covenant or
provision which under this Indenture cannot be modified or amended without the
consent of the Holder of each Outstanding Security and, should the Holders of
such Securities fail to annul such declaration and waive such default, the
holders of a majority in aggregate liquidation amount of the Preferred
Securities shall have such right. The Preferred Trustee, as the initial Holder
of the Securities, has agreed under the Declaration not to waive an Event of
Default with respect to the Securities without the consent of holders of a
majority in aggregate liquidation amount of the Preferred Securities then
outstanding.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Upon receipt by the Trustee of written notice declaring such an
acceleration, or rescission and annulment thereof, a record date shall be
established for determining Holders of Outstanding Securities entitled to join
in such notice, which record date shall be at the close of business on the day
the Trustee receives such notice. The Holders on such record date, or their duly
designated proxies, and only such Persons, shall be entitled to join in such
notice, whether or not such Holders remain Holders after such record date;
provided, that, unless such declaration of acceleration, or rescission and
annulment, as the case may be, shall have become effective by virtue of the
requisite percentage having joined in such notice prior to the day which is 90
days after such record date, such notice of declaration of acceleration, or
rescission and annulment, as the case may be, shall automatically and without
further action by any Holder be canceled and of no further effect. Nothing in
this paragraph shall prevent a Holder, or a proxy of a Holder, from giving,
after expiration of such 90-day period, a new written notice of declaration of
acceleration, or rescission and annulment thereof, as the case may be, that is
identical to a written notice which has been canceled pursuant to the proviso to
the preceding sentence, in which event a new record date shall be established
pursuant to the provisions of this Section 5.2.
SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Note Issuer covenants that if:
(1) default is made in the payment of any installment of interest
(including Additional Sums and Additional Amounts, if any) on any Security
when such interest becomes due and payable and such default continues for
a period of 30 days, or
(2) default is made in the payment of the principal of (and premium,
if any, on) any Security at the Maturity thereof,
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the Note Issuer will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such Securities, the whole amount then due and payable
on such Securities for principal (and premium, if any) and interest (including
Additional Sums and Additional Amounts, if any); and, in addition thereto, all
amounts owing the Trustee under Section 6.7.
If the Note Issuer fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Note Issuer, any Guarantor or any other obligor upon the Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Note Issuer, any Guarantor or any other
obligor upon the Securities, wherever situated.
Subject to Section 6.3 hereof, if an Event of Default occurs and is
continuing, the Trustee may in its discretion proceed to protect and enforce its
rights and the rights of the Holders under this Indenture by such appropriate
judicial proceedings as the Trustee shall deem most effectual to protect and
enforce any such rights, whether for the specific enforcement of any covenant or
agreement in this Indenture or in aid of the exercise of any power granted
herein, pursuant to the terms of this Indenture.
SECTION 5.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Note Issuer, any Guarantor or any other
obligor upon the Securities or the property of the Note Issuer, of any Guarantor
or of such other obligor or their creditors,
(a) the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Note Issuer for the payment of overdue principal (and premium, if any) or
interest (including Additional Sums and Additional Amounts, if any)) shall be
entitled and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest (including Additional Sums and Additional Amounts,
if any) owing and unpaid in respect to the Securities and to file such other
papers or documents as may be necessary or advisable and to take any and all
actions as are authorized under the Trust Indenture Act in order to have the
claims of the Holders and any predecessor to the Trustee under Section 6.7 and
of the Holders allowed in any such judicial proceedings; and
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(ii) and in particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same in accordance with Section 5.6; and
(b) any custodian, receiver, assignee, trustee, liquidator, sequestrator
(or other similar official) in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee for distribution in
accordance with Section 5.6, and in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due to it and any predecessor Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
SECTION 5.5. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of all the amounts owing the Trustee and any predecessor Trustee
under Section 6.7, its agents and counsel, be for the ratable benefit of the
Holders of the Securities in respect of which such judgment has been recovered.
SECTION 5.6. Application of Money Collected.
Any money or property collected or to be applied by the Trustee with
respect to the Securities pursuant to this Article, shall, subject to Articles
XII and XIV, be applied in the following order, at the date or dates fixed by
the Trustee and, in case of the distribution of such money or property on
account of principal (or premium, if any) or interest (including any Additional
Sums), upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any
predecessor Trustee under Section 6.7;
SECOND: To the extent provided in Article XII, to the holders of
Senior Indebtedness of the Note Issuer and the Company in accordance with
Article XII or if
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collected from a Guarantor, to the extent provided in Article XIV, to the
holders of Senior Indebtedness of the Guarantor in accordance with Article
XIV;
THIRD: To the payment of the amounts then due and unpaid upon such
Securities for principal (and premium, if any) and interest (including
Additional Sums and Additional Amounts, if any), in respect of which or
for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and
payable on such Securities for principal (and premium, if any) and
interest (including any Additional Sums and Additional Amounts),
respectively; and
FOURTH: The balance, if any, to the Person or Persons lawfully
entitled thereto.
SECTION 5.7. Limitation on Suits.
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture or for the
appointment of a receiver, assignee, trustee, liquidator, sequestrator (or other
similar official) or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee
of a continuing Event of Default;
(2) if the Preferred Trustee is not the Holder of the Securities,
the Holders of not less than 25% in aggregate principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in aggregate principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
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The foregoing limitations shall not apply to a suit instituted by a Holder
of a Security for enforcement of payment of the principal of and premium, it
any, or interest (including Additional Sums and Additional Amounts, if any) on
such Security on or after the respective due dates expressed in such Security.
SECTION 5.8. Unconditional Right of Holders to
Receive Principal, Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right which is absolute and unconditional to receive
payment of the principal of (and premium, if any) and (subject to Section 3.7)
interest (including Additional Sums and Additional Amounts, if any) on such
Security on the respective Stated Maturities expressed in such Security and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder. Except as set forth in the
Declaration, the holders of Preferred Securities shall have no right to exercise
directly any right or remedy available to the Holders of, or in respect of, the
Securities; provided, however, that if the Preferred Trustee or the Special
Trustee (as defined in the Declaration) do not enforce such payment obligations,
a holder of Preferred Securities will have the right to bring an action on
behalf of the Trust to enforce the Trust's rights under the Securities and the
Indenture.
SECTION 5.9. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case the Note Issuer, the Guarantors, the
Trustee and the Holders shall, subject to any determination in such proceeding,
be restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative.
Except as otherwise provided in the last paragraph of Section 3.6, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
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SECTION 5.11. Delay or Omission Not Waiver.
Except as otherwise provided in the last paragraph of Section 3.6, no
delay or omission of the Trustee or of any Holder of any Security to exercise
any right or remedy accruing upon any Event of Default shall impair any such
right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or
to the Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
SECTION 5.12. Control by Holders.
The Holders of a majority in aggregate principal amount of the Outstanding
Securities shall have the right, subject to Section 6.3 hereof, to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee, with
respect to the Securities, provided, that:
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) subject to the provisions of Section 6.1, the Trustee shall have
the right to decline to follow such direction if the Trustee in good faith
shall, by a Responsible Officer or Officers of the Trustee, determine that
the proceeding so directed would be unjustly prejudicial to the Holders
not joining in any such direction or would involve the Trustee in personal
liability.
Upon receipt by the Trustee of any written notice directing the time,
method or place of conducting any such proceeding or exercising any such trust
or power, a record date shall be established for determining Holders of
Outstanding Securities entitled to join in such notice, which record date shall
be at the close of business on the day the Trustee receives such notice. The
Holders on such record date, or their duly designated proxies, and only such
Persons, shall be entitled to join in such notice, whether or not such Holders
remain Holders after such record date; provided, that, unless the Holders of a
majority in principal amount of the Outstanding Securities shall have joined in
such notice prior to the day which is 90 days after such record date, such
notice shall automatically and without further action by any Holder be canceled
and of no further effect. Nothing in this paragraph shall prevent a Holder, or a
proxy of a Holder, from giving, after expiration of such 90-day period, a new
notice identical to a notice which has been canceled
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pursuant to the proviso to the preceding sentence, in which event a new record
date shall be established pursuant to the provisions of this Section 5.12.
SECTION 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate outstanding principal
amount of the Outstanding Securities affected thereby may on behalf of the
Holders of all the Securities waive any past default hereunder and its
consequences with respect to the Securities except a default:
(1) in the payment of the principal of (or premium, if any) or
interest (including Additional Sums and Additional Amounts, if any) on any
Security, or
(2) in respect of a covenant or provision hereof which under Article
IX cannot be modified or amended without the consent of the Holder of each
Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities,
or to any suit instituted by any Holder for the enforcement of the payment of
the principal of (or premium, if any) or interest (including Additional Sums and
Additional Amounts, if any) on any Security on or after the respective Stated
Maturities expressed in such Security.
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SECTION 5.15. Waiver of Usury, Stay or Extension Laws.
Each of the Note Issuer and the Guarantors covenants (to the extent that
it may lawfully do so) that it will not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any usury, stay
or extension law wherever enacted, now or at any time hereafter in force, which
may affect the covenants or the performance of this Indenture; and each of the
Note Issuer and the Guarantors (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
ARTICLE VI.
THE TRUSTEE
SECTION 6.1. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture; but
in the case of any such certificates or opinions which by any provisions
hereof are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct except that
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(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the
direction of Holders pursuant to Section 5.12 relating to the time, method
and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture with respect to the Securities.
(d) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if there shall be reasonable grounds for believing that repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(e) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
SECTION 6.2. Notice of Defaults.
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Securities, the Trustee shall transmit by mail to all Holders, as their names
and addresses appear in the Securities Register, notice of such default
hereunder known to the Trustee, unless such default shall have been cured or
waived; provided, however, that, except in the case of a default in the payment
of the principal of (or premium, if any) or interest (including Additional Sums
and Additional Amounts, if any) on any Security, the Trustee shall be protected
in withholding such notice if and so long as the board of directors, the
executive committee or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determines that the withholding of such
notice is in the interests of the Holders; and provided, further, that, in the
case of any default of the character specified in Section 5.1(3), no such notice
to Holders shall be given until at least 30 days after the occurrence thereof.
For the purpose of this Section, the term "default" means any event which is, or
after notice or passage of time or both would be, an Event of Default.
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SECTION 6.3. Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note,
Security or other evidence of indebtedness, or other paper or document believed
by it to be genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Note Issuer mentioned herein shall be
sufficiently evidenced by a Note Issuer Request or Note Issuer Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, Security or other evidence of indebtedness, or other paper or document,
but the Trustee in its discretion may make such further inquiry or investigation
into such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be entitled to
examine the books, records and premises of the Note Issuer or any Guarantor,
personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
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SECTION 6.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in Securities and Guaranties endorsed
thereon, except the Trustee's certificates of authentication, shall be taken as
the statements of the Note Issuer, or the Guarantors, as the case may be, and
the Trustee assumes no responsibility for their correctness. The Trustee makes
no representations as to the validity or sufficiency of this Indenture or of the
Securities, the value or condition of any Collateral or the priority or
perfection of any security interest purportedly granted herein. The Trustee
shall not be accountable for the use or application by the Note Issuer of the
Securities or the proceeds thereof.
SECTION 6.5. May Hold Securities.
The Trustee, Collateral Agent, any Paying Agent, Securities Registrar or
any other agent of the Note Issuer or any Guarantor, in its individual or any
other capacity, may become the owner or pledgee of Securities and, subject to
Sections 6.8 and 6.13, may otherwise deal with the Note Issuer or any Guarantor
with the same rights it would have if it were not Trustee, Paying Agent,
Securities Registrar or such other agent.
SECTION 6.6. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed in writing with the Note Issuer or any Guarantor, as the case may be.
SECTION 6.7. Compensation and Reimbursement.
The Company and the Note Issuer agree
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder in such amounts as the Note
Issuer, the Guarantors and the Trustee shall agree from time to time
(which compensation shall not be limited by any provision of law in regard
to the compensation of a trustee of an express trust);
(2) to reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the reasonable
compensation and the reasonable expenses and disbursements of its agents
and counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
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(3) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense (including the reasonable compensation and
the reasonable expenses and disbursements of its agents and counsel)
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of this trust or the
performance of its duties hereunder, including the costs and expenses of
defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder. This
indemnification shall survive the termination of this Agreement.
To secure the Note Issuer's payment obligations in this Section, the Note
Issuer and the Holders agree that the Trustee shall have a lien prior to the
Securities on all money or property held or collected by the Trustee. Such lien
shall survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.1(6) or (7) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any applicable German or United States Federal or State or
other applicable foreign bankruptcy, insolvency or other similar law.
SECTION 6.8. Disqualification; Conflicting Interests.
The Trustee shall be subject to the provisions of Section 310(b) of the
Trust Indenture Act. Nothing herein shall prevent the Trustee from filing with
the Commission the application referred to in the second to last paragraph of
Section 301(b) of the Trust Indenture Act.
SECTION 6.9. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
(a) a corporation organized and doing business under the laws of the
United States of America or of any State, Territory or the District of Columbia,
authorized under such laws to exercise corporate trust powers and subject to
supervision or examination by Federal, State, Territorial or District of
Columbia authority, or
(b) a corporation or other Person organized and doing business under the
laws of a foreign government that is permitted to act as Trustee pursuant to a
rule, regulation or order of the Commission, authorized under such laws to
exercise corporate trust powers, and subject to supervision or examination by
authority of such foreign government or a political subdivision thereof
substantially equivalent to supervision or examination applicable to United
States institutional trustees,
in either case having a combined capital and surplus of at least $50,000,000,
subject to supervision or examination by Federal or State authority. If such
corporation publishes reports of condition at
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least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then, for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article. Neither
the Note Issuer nor any Person directly or indirectly controlling, controlled by
or under common control with the Note Issuer shall serve as Trustee.
SECTION 6.10. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time by giving written notice thereof to
the Note Issuer. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time with respect to the Securities
by Act of the Holders of a majority in principal amount of the Outstanding
Securities, delivered to the Trustee and to the Note Issuer.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.8 after written
request therefor by the Note Issuer or by any Holder who has been a bona
fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.9 and
shall fail to resign after written request therefor by the Note Issuer or
by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Note Issuer, acting pursuant to the authority of
a Board Resolution, may remove the Trustee, or (ii) subject to Section 5.14, any
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee and the appointment of
a successor Trustee.
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(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Note
Issuer, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Note Issuer and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Note
Issuer. If no successor Trustee shall have been so appointed by the Note Issuer
or the Holders and accepted appointment in the manner hereinafter provided, any
Holder who has been a bona fide Holder of a Security for at least six months
may, subject to Section 5.14, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(f) The Note Issuer shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee by mailing written
notice of such event by first-class mail, postage prepaid, to the Holders of
Securities as their names and addresses appear in the Securities Register. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
SECTION 6.11. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee, every
such successor Trustee so appointed shall execute, acknowledge and deliver to
the Company, the Note Issuer, and the other Guarantors and to the retiring
Trustee an instrument accepting such appointment, and thereupon the resignation
or removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Trustee; but, on the
request of the Company, the Note Issuer, any other Guarantor or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder.
(b) Upon request of any such successor Trustee, the Company, the Note
Issuer and the Guarantors shall execute any and all instruments for more fully
and certainly vesting in and confirming to such successor Trustee all rights,
powers and trusts referred to in paragraph (a) of this Section.
(c) No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
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SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated, and in case any
Securities shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor Trustee or in
the name of such successor Trustee, and in all cases the certificate of
authentication shall have the full force which it is provided anywhere in the
Securities or in this Indenture that the certificate of the Trustee shall have.
SECTION 6.13. Preferential Collection of Claims Against Note Issuer.
If and when the Trustee shall be or become a creditor of the Note Issuer,
the Guarantors or any other obligor upon the Securities, the Trustee shall be
subject to the provisions of the Trust Indenture Act regarding the collection of
claims against the Note Issuer, the Guarantors or any such other obligor.
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SECTION 6.14. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents which shall be
authorized to act on behalf of the Trustee to authenticate the Securities issued
upon original issue and upon exchange, registration of transfer or partial
redemption thereof, and the Securities so authenticated shall be entitled to the
benefits of this Indenture and shall be valid and obligatory for all purposes as
if authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of the Securities by the Trustee or
the Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the Note
Issuer and shall at all times be a corporation organized and doing business
under the laws of the United States of America, any State thereof, or any
Territory or the District of Columbia, authorized under such laws to act as
Authenticating Agent, having a combined capital and surplus of not less than
$50,000,000 and subject to supervision or examination by Federal or State
authority. If such Authenticating Agent publishes reports of condition at least
annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such Authenticating Agent shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time an Authenticating Agent shall cease to be eligible in
accordance with the provisions of this Section, such Authenticating Agent shall
resign immediately in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to all or substantially all of
the corporate trust business of an Authenticating Agent shall be the successor
Authenticating Agent hereunder, provided such corporation shall be otherwise
eligible under this Section, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Note Issuer. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Note Issuer. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Note Issuer and the Guarantors and shall
give notice of such appointment in the manner provided in Section 1.6 to all
Holders of Securities. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and duties
of its predecessor hereunder, with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible under the provision of this Section.
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The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 6.7.
If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:
This is one of the Securities with the Guaranties endorsed thereon
referred to in the within mentioned Indenture.
____________________________________
____________________________________
As Trustee
By: ________________________________
As Authenticating Agent
By: ________________________________
Authorized Officer
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ARTICLE VII.
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND NOTE ISSUER
SECTION 7.1. Note Issuer to Furnish Trustee Names and Addresses of
Holders.
The Note Issuer will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not more than 15 days after each Regular Record Date, a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders as of such Regular Record Date,
(b) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Note Issuer of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Securities Registrar.
SECTION 7.2. Preservation of Information, Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Securities
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.1 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect
to their rights under this Indenture or under the Securities, and the
corresponding rights, privileges and duties of the Trustee, shall be as provided
by the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Note Issuer, the Guarantors and the Trustee that none of the Note
Issuer, the Guarantors, the Trustee and any agent of any of them shall be held
accountable by reason of any disclosure of information as to the names and
addresses of the Holders made pursuant to the Trust Indenture Act.
SECTION 7.3. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act, at the times and in the manner provided pursuant thereto.
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(b) Reports so required to be transmitted at stated intervals of not more
than 12 months shall be transmitted no later than May 15 in each calendar year,
commencing with the first May 15 after the first issuance of Securities under
this Indenture.
(c) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with the Commission, and delivered to the Note
Issuer and to the Guarantors.
SECTION 7.4. Reports by Note Issuer.
The Company, the Note Issuer and each of the Guarantors shall file with
the Trustee and with the Commission, and transmit to Holders, such information,
documents and other reports, and such summaries thereof, as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided in
the Trust Indenture Act; provided, whether or not required by the rules and
regulations of the Commission, so long as any Securities are Outstanding, the
Company shall provide the Trustee and the Holders with (i) all annual financial
information that would be required to be contained in a filing with the
Commission on Form 20-F as if the Company were required to file such Forms, and
(ii) quarterly financial statements as of end for the period from the beginning
of each year to the close of each quarterly period (other than the fourth
quarter), together with comparable information for the corresponding periods of
the preceding year, including, in each case, a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon from the Company's certified
independent public accountants. (In addition, whether or not required by the
rules and regulations of the Commission, the Company will file a copy of all
such information and reports with the Commission for public availability and
make such information and reports available to securities analysts and
prospective investors upon request.) The Company and the Note Issuer also shall
comply with the other provisions of Trust Indenture Act Section 314(a).
ARTICLE VIII.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 8.1. Note Issuer May Consolidate, etc., Only on Certain Terms.
The Note Issuer shall not consolidate or merge with or into any other
Person (whether or not the Note Issuer is the Surviving Person) or convey,
transfer, assign, sell, lease or otherwise dispose of, in one or more related
transactions, all or substantially all of its properties and assets as an
entirety to any Person, unless:
(1) the Surviving Person shall be a corporation, organized and
existing under the laws of Germany, the United Kingdom, the United States
of America or any State thereof, the District of Columbia or the
jurisdiction of formation of the Note Issuer;
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(2) the Surviving Person (if other than the Note Issuer) shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Note Issuer under the Securities and the Indenture;
(3) at the time of, and immediately after giving effect to, such
transaction, no Default or Event of Default, shall have occurred and be
continuing;
(4) the Note Issuer has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that such
consolidation, merger, conveyance, transfer, assignment, sale, lease or
disposition, and any such supplemental indenture complies with this
Article and that all conditions precedent herein provided for relating to
such transaction have been complied with; and the Trustee, subject to
Section 6.1, may rely upon such Officers' Certificate and Opinion of
Counsel as conclusive evidence that such transaction complies with this
Section 8.1; and
(5) such consolidation, merger, conveyance, transfer, assignment,
lease or disposition is permitted under the Declaration and does not give
rise to any breach or violation of the Declaration.
SECTION 8.2. Guarantors May Consolidate, etc., Only on Certain Terms.
The Company will not and will not permit any other Guarantor to
consolidate with or merge with or into, or convey, transfer, sell, assign,
lease, or otherwise dispose of, in one transaction or a series of transactions,
all or substantially all of its properties and assets to any Person unless:
(1) the Surviving Person (if not the Company or such other
Guarantor) shall be a Person organized and existing under the laws of the
jurisdiction under which such Guarantor was organized or under the laws of
Germany, the United Kingdom, the United States of America, or any State
thereof or the District of Columbia or, except in a transaction or series
of transactions involving the Company, the jurisdiction of formation of
the Note Issuer or, if the Surviving Person is a corporation organized and
existing under the laws of any other jurisdiction, the Note Issuer
delivers to the Trustee an Opinion of Counsel reasonably acceptable to the
Trustee to the effect that the rights of the Holders of the Securities
would not be affected adversely as a result of the law of the jurisdiction
of organization of the Surviving Person, insofar as such law affects the
ability of the Surviving Person to pay and perform its obligations and
undertakings in connection with its Guaranty or the ability of the
Surviving Person to obligate itself to pay and perform such obligations
and undertakings or the ability of the Holders to enforce such obligations
and undertakings;
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(2) the Surviving Person (if other than the Company or such other
Guarantor) shall expressly assume, (A) in a transaction or series of
transactions involving the Company, by a supplemental indenture in a form
satisfactory to the Trustee, all of the obligations of the Company under
this Indenture, including its Guaranty hereunder, or (B) in a transaction
or series of transactions not involving the Company, by a Guaranty
Agreement, in a form satisfactory to the Trustee, all the obligations of
such Subsidiary, if any, under its Guaranty;
(3) at the time of, and immediately after giving effect to, such
transaction or transactions on a pro forma basis (and treating any
Indebtedness which becomes an obligation of the resulting, surviving or
transferee Person as a result of such transaction as having been issued by
such Person at the time of such transaction), no Default shall have
occurred and be continuing; and
(4) in the case of a transaction or series of transactions involving
the Company, (a) the Surviving Person will have a Consolidated Net Worth
(immediately after the transaction) equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the
transaction, (b) at the time of such transaction and after giving pro
forma effect thereto, the Surviving Person would be permitted to incur at
least $1.00 of additional Indebtedness pursuant to paragraph (a) of
Section 10.8 and (c) such consolidation, merger, conveyance, transfer or
lease is permitted under the Declaration and the Company Guarantee and
does not give rise to any breach or violation of the Declaration or the
Company Guarantee; and
(5) the Note Issuer and the Company or such other Note Guarantor has
delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, conveyance,
transfer, assignment, sale, lease, or disposition and such supplemental
indenture or Guaranty Agreement, if any, complies with the Indenture.
SECTION 8.3. Successor Corporation Substituted.
Upon any consolidation or merger by the Note Issuer with or into any other
Person, or any conveyance, transfer, sale, assignment, lease or other
disposition by the Note Issuer, in one or more transactions, of substantially
all of its properties and assets as an entirety to any Person in accordance with
Section 8.1, the Surviving Person shall succeed to, and be substituted for, and
may exercise every right and power of, the Note Issuer under this Indenture with
the same effect as if such Surviving Person had been named as the Note Issuer
herein, and thereafter the Note Issuer shall be discharged from all obligations
and covenants under the Indenture and the Securities.
Such Surviving Person may cause to be signed, and may issue either in its
own name or in the name of the Note Issuer, any or all of the Securities
issuable hereunder which theretofore shall not have been signed by the Note
Issuer and delivered to the Trustee; and, upon the order of such Surviving
Person instead of the Note Issuer and subject to all the terms, conditions and
limitations
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in this Indenture prescribed, the Trustee shall authenticate and shall deliver
any Securities which previously shall have been signed and delivered by the
officers of the Note Issuer to the Trustee for authentication pursuant to such
provisions and any Securities which such Surviving Person thereafter shall cause
to be signed and delivered to the Trustee on its behalf for the purpose pursuant
to such provisions. All the Securities so issued shall in all respects have the
same legal rank and benefit under this Indenture as the Securities theretofore
or thereafter issued in accordance with the terms of this Indenture as though
all of such Securities had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, assignment, transfer,
conveyance, lease, or other disposition such changes in phraseology and form may
be made in the Securities thereafter to be issued as may be appropriate.
Upon any consolidation, or merger of a Guarantor with or into any other
Person or any transfer, conveyance, sale, lease, assignment or other disposition
of all or substantially all of the properties and assets of such Guarantor as an
entirety in accordance with Section 8.2, the Surviving Person shall succeed to,
and be substituted for, and may exercise every right and power of, such
Guarantor under this Indenture with the same effect as if such Surviving Person
had been named as a Guarantor herein, and thereafter the Guarantor shall be
relieved of all obligations and covenants under this Indenture and the
Securities.
SECTION 8.4. Successor to Note Issuer.
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The Company or a Wholly Owned Subsidiary (a "Successor"), may assume the
obligations of the Note Issuer under the Securities by executing and delivering
to the Trustee (a) a supplemental indenture which subjects such person to all of
the provisions of the Indenture as Note Issuer and (b) an Opinion of Counsel to
the effect that such supplemental indenture has been duly authorized and
executed by such Person, and constitutes the legal, valid, binding and
enforceable obligation of such Person, subject to customary exceptions;
provided, that (i) the Successor is formed under the laws of the United States
of America, or any State thereof or the District of Columbia, Germany, the
United Kingdom or any other Member State of the European Union, (ii) no
Additional Amounts would be or become payable with respect to the Securities and
the time of such assumption, or as a result of any change in the laws of the
jurisdiction of formation of such Successor that was reasonably foreseeable at
such time, (iii) the assumption of such obligations by the Successor shall not
cause the Trust to fail or cease to be classified for United States Federal
income tax purposes as a grantor trust or another entity which is not subject to
United States Federal income tax at the entity level and the assets and income
of which are treated for United States Federal income tax purposes as held and
derived directly by holders of interests in such Trust and, (iv) if a Wholly
Owned Subsidiary is the Successor, the Company will continue to unconditionally
guarantee, on a senior subordinated basis, the obligations assumed by such
Successor. The Successor will succeed to, and be substituted for, and may
exercise every right and power of, the Note Issuer under the Indenture with the
same effect as if it were the Note Issuer thereunder, and the former Note Issuer
will be discharged from all obligations and covenants under the Indenture and
the Securities.
ARTICLE IX.
SUPPLEMENTAL INDENTURES
SECTION 9.1. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Note Issuer, when authorized by a
Board Resolution of the Note Issuer, the Company, when authorized by a Board
Resolution of the Company, the Guarantors, when authorized by respective Board
Resolutions of the Guarantors, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Note Issuer
or any Guarantor, and the assumption by any such successor of the
covenants of the Note Issuer or such Guarantor herein and in the
Securities; or
(2) to convey, transfer, assign, mortgage or pledge any property to
or with the Trustee or to surrender any right or power herein conferred
upon the Note Issuer; or
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(3) to establish the form or terms of Securities and Guaranties as
permitted by Section 2.1; or
(4) to add to the covenants of the Note Issuer for the benefit of
the Holders or to surrender any right or power herein conferred upon the
Note Issuer; or
(5) to add any additional Events of Default; or
(6) to change or eliminate any of the provisions of this Indenture,
provided, that any such change or elimination shall become effective only
when there is no Security Outstanding created prior to the execution of
such supplemental indenture which is entitled to the benefit of such
provision; or
(7) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture, provided, that such action pursuant to this clause
(7) shall not materially adversely affect the interest of the Holders or,
for so long as any of the Preferred Securities shall remain outstanding,
the holders of such Preferred Securities; or
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities and to add
to or change any of the provisions of this Indenture as shall be necessary
to provide for or facilitate the administration of the trusts hereunder by
more than one Trustee, pursuant to the requirements of Section 6.11(b); or
(9) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust
Indenture Act; or
(10) to add new Guarantors pursuant to Section 13.5.
SECTION 9.2. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities affected by such supplemental indenture, by
Act of said Holders delivered to the Note Issuer, the Guarantors and the
Trustee, the Note Issuer, when authorized by a Board Resolution of the Note
Issuer, the Guarantors, when authorized by respective Board Resolutions of the
Guarantors, and the Trustee may modify the Indenture or enter into an indenture
or indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby,
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(1) extend the Stated Maturity of the principal of any Security, or
reduce the principal amount thereof, or reduce the rate or extend the time
of payment of interest thereon, or reduce any premium payable upon the
redemption thereof, or change the place of payment where, or the currency
of payment of any principal of, or any premium or interest on any
Security, or impair the right to institute suit for the enforcement of any
such payment on or with respect to a Security (or, in the case of
redemption, on or after the date fixed for redemption thereof); or
(2) reduce the percentage in principal amount of Securities, the
consent of whose Holders is required for any such modification or
supplemental indenture, or the consent of whose Holders is required for
any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture; or
(3) modify any of the provisions of this Section, Section 5.13 or
Section 10.18, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby; or
(4) modify the provisions in this Indenture relating to the
subordination of Outstanding Securities in a manner adverse to the
Holders.
provided, that, so long as any of the Preferred Securities remains outstanding,
no such amendment shall be made that adversely affects the holders of such
Preferred Securities, and no termination of this Indenture shall occur, and no
waiver of any Event of Default or compliance with any covenant under this
Indenture shall be effective, without the prior consent of the holders of at
least a majority of the aggregate liquidation preference of such Preferred
Securities then outstanding unless and until the principal (and premium, if any)
of the Securities and all accrued and, subject to Section 3.7, unpaid interest
(including Additional Sums and Additional Amounts, if any) thereon have been
paid in full; and provided further, that, so long as any of the Preferred
Securities remain outstanding, no amendment shall be made to Section 5.8 of this
Indenture without the prior consent of the holders of each Preferred Security
then outstanding unless and until the principal (and premium, if any) of the
Securities and all accrued and (subject to Section 3.7) unpaid interest
(including Additional Sums and Additional Amounts, if any) thereon have been
paid in full.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
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SECTION 9.3. Execution of Supplemental Indentures.
In executing or accepting the additional trusts created by any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 6.1) shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture, and
that all conditions precedent have been complied with. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
SECTION 9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby. No such supplemental indenture shall directly or
indirectly modify the provisions of Article XII, Article XIV, Sections 4.3(b),
5.3 or 5.6 in any manner which might terminate or impair the rights of the
Senior Indebtedness pursuant to such subordination provisions.
SECTION 9.5. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to any applicable requirements of the Trust Indenture Act as then in
effect.
SECTION 9.6. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Note Issuer, bear a notation in form approved by the Note Issuer as to any
matter provided for in such supplemental indenture. If the Note Issuer and the
Guarantors shall so determine, new Securities so modified as to conform, in the
opinion of the Note Issuer and the Guarantors, to any such supplemental
indenture may be prepared and executed by the Note Issuer and the Guaranties
endorsed thereon may be executed by the Guarantors and authenticated and
delivered by the Trustee in exchange for Outstanding Securities.
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ARTICLE X.
COVENANTS
SECTION 10.1. Payment of Principal, Premium and Interest.
The Note Issuer covenants and agrees for the benefit of each of the
Securities that it will duly and punctually pay the principal of (and premium,
if any) and interest on the Securities in accordance with the terms of such
Securities and this Indenture.
SECTION 10.2. Maintenance of Office or Agency.
The Note Issuer will maintain in the Borough of Manhattan, The City of New
York an office or agency where Securities may be presented or surrendered for
payment and an office or agency where Securities may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Note Issuer or any Guarantor in respect of the Securities, any Guaranty
endorsed thereon and this Indenture may be served. The Note Issuer and the
Guarantors initially appoint the Trustee, acting through its office or agency in
the Borough of Manhattan, The City of New York, as its agent for said purposes.
The Note Issuer and the Guarantors will give prompt written notice to the
Trustee of any change in the location of any such office or agency. If at any
time the Note Issuer or any Guarantor shall fail to maintain such office or
agency or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Note Issuer and each Guarantor
hereby appoints the Trustee as its agent to receive all such presentations,
surrenders, notices and demands.
The Note Issuer may also from time to time designate one or more other
offices or agencies in or outside the Borough of Manhattan, The City of New York
where the Securities may be presented or surrendered for any or all of such
purposes, and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Note Issuer of its obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York for such purposes. The Note Issuer will give
prompt written notice to the Trustee of any such designation or rescission and
of any change in the location of any such other office or agency.
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SECTION 10.3. Money for Security Payments to be Held in Trust.
If the Note Issuer shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of or interest on any of the
Securities, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal (and premium, if any) or interest
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided, and will promptly notify the Trustee of its
action or failure so to act.
Whenever the Note Issuer shall have one or more Paying Agents, it will,
prior to 10:00 a.m. New York City time on each due date of the principal of (and
premium, if any) or interest on any Securities, deposit with a Paying Agent a
sum sufficient to pay the principal, premium, or interest so becoming due, such
sum to be held in trust for the benefit of the Persons entitled to such
principal, premium or interest, and (unless such Paying Agent is the Trustee)
the Note Issuer will promptly notify the Trustee of its action or failure so to
act.
The Note Issuer will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of
(and premium, if any) or interest on Securities in trust for the benefit
of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Note Issuer (or
any other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest;
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent; and
(4) comply with the provisions of the Trust Indenture Act applicable
to it as a Paying Agent.
The Note Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Note Issuer Order direct any Paying Agent to pay, to the Trustee all sums
held in trust by the Note Issuer or such Paying Agent, such sums to be held by
the Trustee upon the same trusts as those upon which such sums were held by the
Note Issuer or such Paying Agent; and, upon such payment by the Note Issuer or
any Paying Agent to the Trustee, the Note Issuer or such Paying Agent shall be
released from all further liability with respect to such money.
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Any money deposited with the Trustee or any Paying Agent, or then held by
the Note Issuer, in trust for the payment of the principal of (and premium, if
any) or interest on any Security and remaining unclaimed for two years after
such principal (and premium, if any) or interest has become due and payable
shall (unless otherwise required by mandatory provision of applicable escheat or
abandoned or unclaimed property law) be paid on Note Issuer Request to the Note
Issuer, or (if then held by the Note Issuer) shall (unless otherwise required by
mandatory provision of applicable escheat or abandoned or unclaimed property
law) be discharged from such trust; and the Holder of such Security shall
thereafter, as an unsecured general creditor, look only to the Note Issuer for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Note Issuer as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Note Issuer cause to be published once, in a newspaper published
in the English language, customarily published on each Business Day and of
general circulation in The Borough of Manhattan, The City of New York, notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the Note
Issuer.
SECTION 10.4. Existence.
Subject to Article VIII and the other Sections of this Article X, the
Company will do or cause to be done all things necessary to preserve and keep in
full force and effect the existence, rights (charter and statutory) and
franchises of the Company, the Note Issuer and each other Guarantor; provided,
however, that the Company shall not be required to preserve any such right or
franchise if the Board of Directors of the Company in good faith shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and that the loss thereof is not disadvantageous in any
material respect to the Holders.
SECTION 10.5. Maintenance of Properties.
Subject to Article VIII and the other Sections of this Article X, the
Company will cause all properties used or useful in the conduct of its business
or the business of any Subsidiary of the Company to be maintained and kept in
good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, as determined by the Company in good faith, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
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SECTION 10.6. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any of its
Subsidiaries or upon the income, profits or property of the Company or any of
its Subsidiaries, and (b) all material lawful claims for labor, materials and
supplies which, if unpaid, might by law become a Lien upon the property of the
Company or any of its Subsidiaries; provided, however, that the Company shall
not be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings.
SECTION 10.7. Maintenance of Insurance.
The Company shall, and shall cause its Subsidiaries to, keep at all times
all of their properties which are of an insurable nature insured against loss or
damage with insurers believed by the Company to be responsible to the extent
that property of similar character is usually so insured by corporations
similarly situated and owning like properties in accordance with good business
practice. The Company shall, and shall cause its Subsidiaries to, use the
proceeds from any such insurance policy to repair, replace or otherwise restore
the property to which such proceeds relate, except to the extent that a
different use of such proceeds is, as determined by the Company, in good faith,
desirable in the conduct of its business or the business of any Subsidiary and
not disadvantageous in any material respect to the Holders.
SECTION 10.8. Limitation on Incurrence of Indebtedness.
(a) The Company shall not, and shall not permit any Subsidiary to, Incur,
directly or indirectly, any Indebtedness unless, on the date of such Incurrence
(and after giving effect thereto), the Consolidated Coverage Ratio exceeds 2.5
to 1.
(b) The foregoing limitations contained in paragraph (a) do not apply to
the Incurrence of any of the following Indebtedness:
(1) Indebtedness under the Credit Agreements;
(2) Indebtedness owed to and held by a Wholly Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any Capital
Stock that results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any subsequent transfer of such Indebtedness
(other than to another Wholly Owned Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the Company;
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(3) the 9% Notes, the USD Securities and the Securities;
(4) Capital Lease Obligations and Indebtedness incurred, in each
case, to provide all or a portion of the purchase price or cost of
construction of an asset or, in the case of a sale/leaseback transaction,
to finance the value of such asset owned by the Company or a Subsidiary,
in an aggregate principal amount which, together with all other such
Capital Lease Obligations and Indebtedness outstanding on the date of such
Incurrence (other than Indebtedness permitted by paragraph (a) or clause
(2) or (9) of this paragraph (b)), does not exceed $200,000,000;
(5) Indebtedness in respect of Receivables Financings in an
aggregate principal amount which, together with all other Indebtedness in
respect of Receivables Financings outstanding on the date of such
Incurrence (other than Indebtedness permitted by paragraph (a) or clause
(2) or (9) of this paragraph (b)), does not exceed $500,000,000;
(6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (3), (4) or (5) of this
paragraph (b);
(7) Hedging Obligations permitted under the Bank Credit Agreement as
in effect on the Issue Date;
(8) customer deposits and advance payments received from customers
for goods purchased in the ordinary course of business; and
(9) Indebtedness in an aggregate principal amount which, together
with all other Indebtedness of the Company and its Subsidiaries
outstanding on the date of such Incurrence (other than Indebtedness
permitted by paragraph (a) or clauses (1) through (8) of this paragraph
(b)), does not exceed $300,000,000.
(c) Notwithstanding the foregoing, the Company shall not, and shall not
permit any Subsidiary to, Incur, directly or indirectly, any Indebtedness (i)
that is subordinate or junior in ranking in right of payment to its Senior
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is
expressly subordinated in right of payment to Senior Subordinated Indebtedness,
or (ii) pursuant to paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to Refinance any Subordinate Obligations unless such
Indebtedness shall be subordinated to the Securities to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing covenant,
(i) in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness described above, the Company, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses
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and (ii) an item of Indebtedness may be divided and classified in more than one
of the types of Indebtedness described above.
SECTION 10.9. Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, make any Restricted Payment if at the time the Company
or such Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of Section 10.8; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of: (A) 50%
of the Consolidated Net Income accrued during the period (treated as one
accounting period) from January 1, 1998 to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary and other than an issuance or sale to an employee stock
ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees); and (C) the amount by
which Indebtedness of the Company is reduced on the Company's balance
sheet upon the conversion or exchange (other than by a Subsidiary),
subsequent to the Issue Date, of any Indebtedness of the Company
convertible or exchangeable for Capital Stock (other than Disqualified
Stock) of the Company (less the amount of any cash, or the fair value of
any other property, distributed by the Company upon such conversion or
exchange).
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(1) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company made by exchange for, or out of the proceeds of
the substantially concurrent sale of, Capital Stock of the Company (other
than Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary or an employee stock ownership plan or to a trust established
by the Company or any of its Subsidiaries for the benefit of their
employees); provided, however, that (A) such purchase or redemption shall
be excluded in the calculation of the amount of Restricted Payments and
(B) the Net Cash Proceeds from such sale shall be excluded from the
calculation of amounts under clause (3)(B) of paragraph (a) above;
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(2) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness of the Company which is permitted to be Incurred pursuant
to Section 10.8; provided, however, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value shall
be excluded in the calculation of the amount of Restricted Payments; or
(3) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, however, that at the time of payment of such
dividend, no other Default shall have occurred and be continuing (or
result therefrom); provided further, however, that such dividend shall be
included in the calculation of the amount of Restricted Payments.
SECTION 10.10. Limitation on Restrictions on Distributions from
Subsidiaries.
The Company shall not, and shall not permit any Subsidiary to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Subsidiary (a) to pay dividends
or make any other distributions on its Capital Stock to the Company or any other
Subsidiary or pay any Indebtedness owed to the Company or any other Subsidiary,
(b) to make any loans or advances to the Company or any other Subsidiary or (c)
transfer any of its property or assets to the Company or any other Subsidiary,
except:
(i) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Subsidiary on or prior to the date on which such Subsidiary was acquired
by the Company (other than Indebtedness Incurred as consideration in, or
to provide all or any portion of the funds or credit support utilized to
consummate the transaction or series of related transactions pursuant to
which such Subsidiary became a Subsidiary or was acquired by the Company)
and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (i) or (ii) above or this clause (iii) or contained
in any amendment to an agreement referred to in clause (i) or (ii) above
or this clause (iii); provided, however, that the encumbrances and
restrictions with respect to such Subsidiary contained in any such
refinancing agreement or amendment are no less favorable to the Holders
than encumbrances and restrictions with respect to such Subsidiary
contained in such agreements;
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(iv) any such encumbrance or restriction consisting of customary
non-assignment provisions in leases governing leasehold interests or in
licensing agreements to the extent such provisions restrict the transfer
of the lease or the property leased thereunder or the licensing agreement
or the rights licensed thereunder;
(v) in the case of clause (c) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Subsidiary to
the extent such restrictions restrict the transfer of the property subject
to such security agreements or mortgages; and
(vi) any restriction with respect to a Subsidiary imposed pursuant
to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Subsidiary pending
the closing of such sale or disposition.
SECTION 10.11. Senior Subordinated Indebtedness; Liens.
The Company shall not, and shall not permit any Subsidiary to,
Incur: (1) any Indebtedness if such Indebtedness is subordinate or junior in
ranking in any respect to any Senior Indebtedness, unless such Indebtedness is
Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness; or (2) any Secured Indebtedness
that is not Senior Indebtedness other than the 9% Notes unless (A)
contemporaneously therewith effective provision is made to secure the Securities
equally and ratably with such Secured Indebtedness for so long as such Secured
Indebtedness is secured by a Lien, (B) such Secured Indebtedness is permitted by
clause (1), (4), (5) or (7) of paragraph (b) of Section 10.8, (C) such Secured
Indebtedness is Incurred by a Subsidiary pursuant to a revolving credit
agreement as in effect on the Issue Date, or (D) such Secured Indebtedness is
Refinancing Indebtedness in respect of Secured Indebtedness Incurred by a
Subsidiary pursuant to a revolving credit agreement as in effect on the Issue
Date.
SECTION 10.12. Limitation on Affiliate Transactions.
(a) The Company shall not, and shall not permit any Subsidiary to, enter
into any transaction (including the purchase, sale, lease or exchange of any
property, employee compensation arrangements or the rendering of any service)
with any Affiliate of the Company (an "Affiliate Transaction") unless the terms
thereof:
(1) are no less favorable to the Company or such Subsidiary than
those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate;
(2) if such Affiliate Transaction involves an amount in excess of
$5,000,000, (i) are set forth in writing and (ii) have been approved by a
majority of the members of the
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Board of Directors of the Company or such Subsidiary having no personal
stake in such Affiliate Transaction; and
(3) if such Affiliate Transaction involves an amount in excess of
$15,000,000, have been determined by a nationally recognized investment
banking firm or, in appropriate circumstances, an internationally
recognized engineering firm, to be fair from a financial standpoint to the
Company and its Subsidiaries.
(b) The provisions of paragraph (a) above shall not prohibit:
(1) any Restricted Payment permitted to be paid pursuant to Section
10.9;
(2) transactions or payments pursuant to any employee arrangements
or employee or director benefit plans entered into by the Company or any
of its Subsidiaries in the ordinary course of business of the Company or
such Subsidiary; and
(3) any Affiliate Transaction between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries.
SECTION 10.13. Limitation on Sales of Assets and Subsidiary Stock.
(a) The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless:
(1) the Company or such Subsidiary receives consideration at the
time of such Asset Disposition at least equal to the fair market value
(including as to the value of all non-cash consideration), as determined
in good faith by the Board of Directors of the Company or such Subsidiary
as the case may be, of the shares and assets subject to such Asset
Disposition and at least 70% of the consideration thereof received by the
Company or such Subsidiary is in the form of cash or cash equivalents; and
(2) an amount equal to 100% of the Net Available Cash from such
Asset Disposition is applied by the Company (or such Subsidiary, as the
case may be) (A) first, to the extent the Company elects (or is required
by the terms of any Senior Indebtedness), to prepay, repay, redeem or
purchase Senior Indebtedness or Indebtedness (other than any Disqualified
Stock) of a Wholly Owned Subsidiary (in each case other than Indebtedness
owed to the Company or an Affiliate of the Company) within one year from
the later of the date of such Asset Disposition or the receipt of such Net
Available Cash; (B) second, to the extent of the balance of such Net
Available Cash after application in accordance with clause (A), to the
extent the Company elects, to acquire Additional Assets within one year
from the later of the date of such Asset Disposition or the receipt of
such Net Available Cash; (C) third, to the extent of the balance of such
Net Available Cash after application in accordance
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with clauses (A) and (B), to make an offer to the holders of the 9% Notes
to purchase the 9% Notes pursuant to and subject to the conditions
contained in the Indenture relating thereto; and (D) fourth, to the extent
of the balance of such Net Available Cash after application in accordance
with clauses (A), (B) and (C), to cause the Note Issuer to make an offer
to the Holders of the Securities and the USD Securities on a pro rata
basis (determined in accordance with the respective outstanding principal
amounts thereof at the time of such offer, as calculated by reference to
an exchange rate of 1.8237 DM per $1.00) to purchase the Securities and
the USD Securities pursuant to and subject to the conditions contained in
the Indenture (in the case of the Securities) and in the USD Indenture (in
the case of the USD Securities); provided, however, that in connection
with any prepayment, repayment or purchase of Indebtedness pursuant to
clause (A), (C) or (D) above, the Company or such Subsidiary shall retire
such Indebtedness and shall cause the related loan commitment (if any) to
be permanently reduced in an amount equal to the principal amount so
prepaid, repaid or purchased. Notwithstanding the foregoing provisions of
this paragraph, the Company and the Subsidiaries shall not be required to
apply any Net Available Cash in accordance with this paragraph except to
the extent that the aggregate Net Available Cash from all Asset
Dispositions which are not applied in accordance with this paragraph
exceeds $20,000,000. Pending application of Net Available Cash pursuant to
this covenant, such Net Available Cash shall be invested in Permitted
Investments.
For the purposes of this covenant, the following are deemed to be cash or cash
equivalents: (x) the assumption of Indebtedness of the Company or any Subsidiary
and the release of the Company or such Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition and (y) securities
received by the Company or any Subsidiary from the transferee that are promptly
converted by the Company or such Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of the
Securities pursuant to clause (a)(2)(D) above, the Note Issuer will purchase the
Securities tendered pursuant to an offer by the Note Issuer for the Securities
at a purchase price of 100% of their principal amount (without premium) plus
accrued but unpaid interest, by mailing a notice to each Holder with a copy to
the Trustee, within 30 days following the determination by or on behalf of the
holders of the 9% Notes as to the amount of the 9% Notes to be purchased
pursuant to the offer to repurchase the 9% Notes made pursuant to clause
(a)(2)(C) above, stating:
(i) that an Asset Disposition that requires the purchase of the
Securities pursuant to clause (a)(2)(D) above has occurred and that such
Holder has a right to require the Note Issuer to repurchase Securities at
a purchase price of 100% of their principal amount (without premium) plus
accrued and unpaid interest in an amount not to exceed the balance of Net
Available Cash from such Asset Disposition after application in accordance
with clauses (A), (B) and (C) of this covenant and that the amount
available for repurchase of the Securities will be increased to the extent
that the holders of the USD Securities do not
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accept the offer to repurchase the USD Securities made pursuant to clause
(D) above and the applicable provisions of the USD Indenture;
(ii) the repurchase date (which shall be no earlier than 30 days not
later than 60 days from the date such notice is mailed);
(iii) that the tendered Securities will be repurchased pro rata in
the event of oversubscription; provided that the unrepurchased portion of
the principal amount of any Security shall be in an authorized
denomination (which shall not be less than the minimum authorized
denomination) for such Security;
(iv) the instructions determined by the Note Issuer, consistent with
the covenant described hereunder, that a Holder must follow in order to
have its Securities purchased; and
(v) that each Security shall be subject to repurchase only in the
amount of DM 1,000 or integral multiples thereof.
The Note Issuer shall not make such an offer to purchase Securities
pursuant to this covenant if the Net Available Cash available therefor is less
than $20,000,000 (which lesser amount shall be carried forward for purposes of
determining whether such an offer is required with respect to any subsequent
Asset Disposition). Each Security shall be subject to repurchase only in the
amount of DM 1,000 or integral multiples thereof. Upon presentation of any
Security repurchased in part only, the Note Issuer shall execute and the Trustee
shall authenticate and deliver to the Holder thereof, at the expense of the Note
Issuer, a new Security (and the Guarantors shall execute their Guaranties to be
endorsed thereon) of authorized denominations, in aggregate principal amount
equal to the unredeemed portion of the Security so presented and having the same
Issue Date, Stated Maturity and terms. If a Global Security is so surrendered,
such new Security will also be a new Global Security.
(c) The Note Issuer shall, and the Company shall cause the Note Issuer to,
comply, to the extent applicable, with the requirements of Section 14(e) of the
Exchange Act and any other securities laws or regulations in connection with the
repurchase of Securities pursuant to this covenant. To the extent that the
provisions of any securities laws or regulations conflict with provisions of
this covenant, the Note Issuer shall, and the Company shall cause the Note
Issuer to, comply with the applicable securities laws and regulations and shall
not be deemed to have breached its obligations under this clause by virtue
thereof.
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SECTION 10.14. Intentionally Omitted.
SECTION 10.15. Change of Control.
(a) Upon the occurrence of a Change of Control Triggering Event, each
Holder shall have the right to require that the Note Issuer repurchase such
Holder's Securities at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant Regular Record Date
to receive interest due on the relevant Interest Payment Date). Each Security
shall be subject to repurchase only in the amount of DM 1,000 or integral
multiples thereof. Upon presentation of any Security repurchased in part only,
the Note Issuer shall execute and the Trustee shall authenticate and deliver to
the Holder thereof, at the expense of the Note Issuer, a new Security (and the
Guarantors shall execute their Guaranties to be endorsed thereon) of authorized
denominations, in aggregate principal amount equal to the unredeemed portion of
the Security so presented and having the same Issue Date, Stated Maturity and
terms. If a Global Security is so surrendered, such new Security will also be a
new Global Security.
(b) Within 30 days following a Change of Control Triggering Event, the
Note Issuer shall mail a notice to each Holder with a copy to the Trustee
stating: (1) that a Change of Control Triggering Event has occurred and that
such Holder has the right to require the Note Issuer to purchase such Holder's
Securities at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant Regular Record Date
to receive interest on the relevant Interest Payment Date); (2) the
circumstances and relevant facts regarding such Change of Control Triggering
Event (including information with respect to pro forma historical income, cash
flow and capitalization after giving effect to such Change of Control); (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); (4) the instructions determined by the
Note Issuer, consistent with the covenant described hereunder, that a Holder
must follow in order to have its Securities purchased and (5) that each Security
shall be subject to repurchase only in the amount of DM 1,000 or integral
multiples thereof.
(c) The Note Issuer shall, and the Company shall cause the Note Issuer to,
comply, to the extent applicable, with the requirements of Section 14(e) of the
Exchange Act and any other securities laws or regulations in connection with the
repurchase of the Securities pursuant to this covenant. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this covenant, the Note Issuer shall, and the Company shall cause the Note
Issuer, to comply with the applicable securities laws and regulations and shall
not be deemed to have breached its obligations under this covenant by virtue
thereof.
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SECTION 10.16. Statement as to Compliance and Default.
(a) The Note Issuer and the Guarantors shall deliver to the Trustee,
within 95 days after the end of each of their respective calendar years ending
after the date hereof, a certificate of the principal executive officer,
principal financial officer or principal accounting officer covering the
preceding calendar year, stating whether or not to the best knowledge of the
signers thereof the Note Issuer or the Guarantors, as the case may be, is in
default in the performance, observance or fulfillment of or compliance with any
of the terms, provisions, covenants and conditions of this Indenture and, if the
Note Issuer or the Guarantors, as the case may be, shall be in default,
specifying all such defaults and the nature and status thereof of which they may
have knowledge.
(b) The Note Issuer and each Guarantor shall deliver to the Trustee, as
soon as possible and in any event within 10 days after the Note Issuer or any
Guarantor becomes aware of the occurrence of an Event of Default or an event
which, with notice or the lapse of time or both, would constitute an Event of
Default, an Officers' Certificate setting forth the details of such Event of
Default or default, and the action which the Note Issuer or any Guarantor
proposes to take with respect thereto.
SECTION 10.17. Ownership of the Trust and the Note Issuer; Business of the
Note Issuer.
(a) The Company shall continue (i) to directly or indirectly maintain 100%
ownership of the Common Securities of the Trust; provided, however, that any
permitted successor of the Company hereunder may succeed to the Company's
ownership of such Common Securities and (ii) to use its reasonable efforts to
cause the Trust (x) to remain a statutory business trust, except in connection
with the distribution of Securities to the holders of Trust Securities in
dissolution of the Trust, the redemption of all of the Trust Securities, or
certain mergers, consolidations or amalgamations, each as permitted by the
Declaration, and (y) to otherwise continue to be classified for United States
Federal income tax purposes as a grantor trust or another entity which is not
subject to United States Federal income tax at the entity level and the assets
and income of which are treated for United States Federal income tax purposes as
held and derived directly by holders of interests in the entity.
(b) The Company shall own directly or indirectly 100% ownership of the
Capital Stock of the Note Issuer; provided, however, that any permitted
successor of the Company pursuant to Article VIII may succeed to the Company's
ownership of such Capital Stock.
(c) The Company shall cause the Note Issuer to engage only in those
activities that are necessary, convenient or incidental to (i) issuing and
selling the Securities and the USD Securities, advancing or distributing the
proceeds thereof to the Company and the Subsidiaries and exercising its rights
and performing its obligations relating to the Securities and the USD Securities
pursuant to the terms thereof and of this Indenture and the USD Indenture, (ii)
conducting or participating in the Exchange Offer and issuing the Exchange
Securities and conducting or participating in the
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Exchange Offer (as defined in the USD Indenture) and issuing the Exchange
Securities (as defined in the USD Indenture), (iii) guaranteeing the Bank Credit
Agreement and the 9% Notes, and (iv) subject to obtaining the necessary consents
and approvals, assuming the obligations of the Company under the 9% Notes.
SECTION 10.18. Waiver of Certain Covenants.
The Company or the Note Issuer, as applicable, may omit in any particular
instance to comply with any covenant or condition set forth in Section 8.1 and
Sections 10.4 to 10.17, if before or after the time for such compliance the
Holders of at least a majority in principal amount of the Outstanding Securities
shall, by Act of such Holders, either waive such compliance in such instance or
generally waive compliance with such covenant or condition, but no such waiver
shall extend to or affect such covenant or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the obligations
of the Company or the Note Issuer, as applicable, in respect of any such
covenant or condition shall remain in full force and effect.
SECTION 10.19. Additional Amounts; Additional Interest.
(a) All payments made on behalf of the Note Issuer under or with respect
to the Securities must be made free and clear of and without withholding or
deduction for or on account of any present or future tax, duty, levy, impost,
assessment or other governmental charge (including penalties, interest and other
liabilities related thereto) imposed or levied by or on behalf of the United
States, Germany, the United Kingdom or the jurisdiction of formation of the Note
Issuer, or of any territory thereof or by an authority or agency therein or
thereof having power to tax (hereinafter "Taxes"), unless the Note Issuer is
required to withhold or deduct Taxes by law or by the interpretation or
administration thereof by the relevant government authority or agency. If the
Note Issuer is so required to withhold or deduct any amount for or on account of
Taxes from any payment made under or with respect to the Securities, the Note
Issuer will be required to pay such amounts ("Additional Amounts") as may be
necessary so that the net amount (including Additional Amounts) received by each
Holder after such withholding or deduction will not be less than the amount such
Holder would have received if such Taxes had not been withheld or deducted;
provided, however, that no Additional Amounts will be payable with respect to
payments made to any Holder in respect of a beneficial owner which is subject to
such Taxes by reason of its being connected with the United States, Germany, the
United Kingdom or the jurisdiction of formation of the Note Issuer, or any
territory thereof otherwise than by the mere holding of Securities or the
receipt of payments thereunder. The Note Issuer will also make such withholding
or deduction and remit the full amount deducted or withheld to the relevant
authority as and when required in accordance with applicable law. The Note
Issuer will furnish to the Holders within 30 days after the date the payment of
any Taxes is due pursuant to applicable law, certified copies of tax receipts
evidencing such payment by the Note Issuer.
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(b) In the event that (i) the Trust is the Holder of all outstanding
Securities, (ii) the Trust would be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States of America, or any other taxing authority,
and (iii) the Note Issuer shall not have (1) redeemed the Securities pursuant to
Section 11.7 or (2) terminated the Trust pursuant to Section 9.2(f) of the
Declaration, then, in any such case, the Note Issuer shall pay to the Trust (and
its permitted successors or assigns under the Declaration) for so long as the
Trust (or its permitted successors or assigns) is the registered Holder of any
Securities, as additional interest ("Additional Interest") such amounts as shall
be necessary so that the net amounts received and retained by the Trust after
paying any such taxes, duties, assessments or governmental charges will be not
less than the amounts the Trust would have received had no such taxes, duties,
assessments or governmental charges been imposed. All references herein to
Additional Amounts shall be deemed to include Additional Interest.
(c) Whenever in this Indenture or the Securities there is a reference in
any context to the payment of principal of or interest on the Securities, such
mention shall be deemed to include mention of the payments of the Additional
Amounts provided for in this Section to the extent that, in such context,
Additional Amounts are, were or would be payable in respect thereof pursuant to
the provisions of this Section and express mention of the payment of Additional
Amounts (if applicable) in any provisions hereof shall not be construed as
excluding Additional Amounts in those provisions hereof where such express
mention is not made.
(d) The foregoing obligations shall survive any termination, defeasance or
discharge of the Indenture pursuant to Article IV.
ARTICLE XI.
REDEMPTION OF SECURITIES
SECTION 11.1. Applicability of This Article.
Redemption of Securities as permitted or required by any provision of this
Indenture shall be made in accordance with such provision and this Article.
SECTION 11.2. Election to Redeem; Notice to Trustee.
The election of the Note Issuer to redeem any Securities shall be
evidenced by or pursuant to a Board Resolution. In the case of any redemption of
Securities prior to the expiration of any restriction on such redemption
provided in the terms of such Securities, the Note Issuer shall furnish the
Trustee with an Officers' Certificate and an Opinion of Counsel evidencing
compliance with such restriction.
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SECTION 11.3. Intentionally Omitted.
SECTION 11.4. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not later than the thirtieth day, and not earlier than the sixtieth day,
prior to the date fixed for redemption, to each Holder of Securities to be
redeemed, at the address of such Holder as it appears in the Securities
Register.
With respect to the Securities to be redeemed, each notice of redemption
shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) that on the Redemption Date, the Redemption Price at which such
Securities are to be redeemed will become due and payable upon each such
Security or portion thereof, and that interest thereon, if any, shall cease to
accrue on and after said date; and
(d) the place or places where such Securities are to be surrendered for
payment of the Redemption Price at which such Securities are to be redeemed.
Notice of redemption of Securities to be redeemed at the election of the
Note Issuer shall be given by the Note Issuer or, at the Note Issuer's request,
by the Trustee in the name and at the expense of the Note Issuer and shall not
be irrevocable. The notice if mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the Holder
receives such notice. In any case, a failure to give such notice by mail or any
defect in the notice to the Holder of any Security designated for redemption as
a whole or in part shall not affect the validity of the proceedings for the
redemption of any other Security.
SECTION 11.5. Deposit of Redemption Price.
Prior to 10:00 a.m. New York City time on the Redemption Date specified in
the notice of redemption given as provided in Section 11.4, the Note Issuer will
deposit with the Trustee or with one or more Paying Agents an amount of money
sufficient to redeem on the Redemption Date all the Securities so called for
redemption at the applicable Redemption Price.
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SECTION 11.6. Payment of Securities Called for Redemption.
If any notice of redemption has been given as provided in Section 11.4,
the Securities with respect to which such notice has been given shall become due
and payable on the date and at the place or places stated in such notice at the
applicable Redemption Price. On presentation and surrender of such Securities at
a place of payment in said notice specified, the said Securities shall be paid
and redeemed by the Note Issuer at the applicable Redemption Price.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal of and premium, if any, on such Security
shall, until paid, bear interest from the Redemption Date at the rate prescribed
therefor in the Security.
SECTION 11.7. Note Issuer's Right of Redemption in Certain Circumstances.
If a Tax Event or an Investment Company Event in respect of the Trust
shall occur and be continuing, the Company shall cause the Trustees (as defined
in the Declaration) to dissolve the Trust and cause Securities to be distributed
to the holders of the Trust Securities in dissolution of the Trust or, in the
event of a Tax Event only, may cause the Securities to be redeemed, in each
case, subject to and in accordance with the provisions of the Declaration,
within 90 days following the occurrence of such Tax Event or Investment Company
Event. The Securities may be redeemed, at the option of the Note Issuer, at any
time as a whole but not in part, subject to this clause (b) and the other
provisions of Article XI, at 100% of the principal amount thereof, plus accrued
and unpaid interest (if any) to the date of redemption (subject to the right of
Holders of record on the relevant Regular Record Date to receive interest due on
the relevant Interest Payment Date), in the event the Note Issuer has become or
would become obligated to pay, on the next date on which any amount would be
payable with respect to the Securities, any Additional Amounts as a result of a
change in or an amendment to the laws (including any regulations promulgated
thereunder) of the United States of America, Germany, the United Kingdom,
Luxembourg or any other Member State of the European Union (or any political
subdivision or taxing authority thereof or therein), or any change in or
amendment to any official position regarding the application or interpretation
of such laws or regulations, which change or amendment is announced or becomes
effective on or after the date of the issuance of the Securities.
ARTICLE XII.
SUBORDINATION OF SECURITIES
SECTION 12.1. Securities Subordinate to Senior Indebtedness.
The Note Issuer covenants and agrees, and each Holder of a Security, by
its acceptance thereof, likewise covenants and agrees, that, to the extent and
in the manner hereinafter set forth in
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this Article (subject to Article IV), the payment of the principal of (and
premium, if any) and interest (including Additional Sums and Additional Amounts,
if any) on each and all of the Securities are hereby expressly made subordinate
and subject in right of payment to the prior payment in full of all amounts then
due and payable in respect of all Senior Indebtedness of the Note Issuer and the
Company.
SECTION 12.2. Payment Over of Proceeds Upon Dissolution, etc.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Note Issuer or its property (each such
event, if any, herein sometimes referred to as a "Proceeding"), the holders of
Senior Indebtedness of the Note Issuer shall be entitled to receive payment in
full of principal of (and premium, if any) and interest, if any, on such Senior
Indebtedness, or provision shall be made for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness, before the Holders of the Securities are entitled to receive or
retain any payment or distribution of any kind or character, whether in cash,
property or securities (including any payment or distribution which may be
payable or deliverable by reason of the payment of any other Indebtedness of the
Note Issuer (including the Securities) subordinated to the payment of the
Securities, such payment or distribution being hereinafter referred to as a
"Senior Subordinated Payment"), on account of principal of (or premium, if any)
or interest (including Additional Sums and Additional Amounts, if any) on the
Securities or on account of the purchase or other acquisition of Securities by
the Note Issuer or any Subsidiary, and to that end the holders of Senior
Indebtedness shall be entitled to receive, for application to the payment
thereof, any payment or distribution of any kind or character, whether in cash,
property or securities, including any Senior Subordinated Payment, which may be
payable or deliverable in respect of the Securities in any such Proceeding.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Note Issuer of any kind or character,
whether in cash, property or securities, including any Senior Subordinated
Payment, before all Senior Indebtedness of the Note Issuer and the Company is
paid in full or payment thereof is provided for in cash or cash equivalents or
otherwise in a manner satisfactory to the holders of such Senior Indebtedness,
and if such fact shall, at or prior to the time of such payment or distribution,
have been made known to the Trustee or, as the case may be, such Holder, then
and in such event such payment or distribution shall be paid over or delivered
forthwith to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other Person making payment or distribution of
assets of the Note Issuer for application to the payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
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For purposes of this Article only, the words "any payment or distribution
of any kind or character, whether in cash, property or securities" shall not be
deemed to include shares of stock of the Note Issuer as reorganized or
readjusted, or securities of the Note Issuer or any other corporation provided
for by a plan of reorganization or readjustment which securities are
subordinated in right of payment to all then outstanding Senior Indebtedness to
substantially the same extent as the Securities are so subordinated as provided
in this Article. The consolidation of the Note Issuer with, or the merger of the
Note Issuer into, another Person or the liquidation or dissolution of the Note
Issuer following the sale of all or substantially all of its properties and
assets as an entirety to another Person or the liquidation or dissolution of the
Note Issuer following the sale of all or substantially all of its properties and
assets as an entirety to another Person upon the terms and conditions set forth
in Article VIII shall not be deemed a Proceeding for the purposes of this
Section if the Person formed by such consolidation or into which the Note Issuer
is merged or the Person which acquires by sale such properties and assets as an
entirety, as the case may be, shall, as a part of such consolidation, merger, or
sale comply with the conditions set forth in Article VIII.
SECTION 12.3. Prior Payment to Senior Indebtedness Upon Acceleration of
Securities.
In the event that, upon the occurrence of an Event of Default, any
Securities are declared due and payable before their Stated Maturity, then (a)
the Company, the Note Issuer or the Trustee, at the direction of the Note
Issuer, shall promptly notify the holders of Senior Indebtedness of the Note
Issuer and the Company or the representative of such holders of the
acceleration, and (b) in such event, if any Senior Indebtedness is outstanding,
the Note Issuer may not pay the Securities until five Business Days after the
representative of all issues of Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the Securities only if payment is
otherwise permitted hereunder at that time.
In the event that, notwithstanding the foregoing, the Note Issuer shall
make any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Note Issuer.
The provisions of this Section shall not apply to any payment with respect
to which Section 12.2 would be applicable.
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SECTION 12.4. No Payment When Senior Indebtedness in Default.
(a) The Note Issuer may not pay principal of, or premium (if any) or
interest (and Additional Sum and Additional Amounts, if any) on, the Securities,
and may not repurchase, redeem or otherwise retire any Securities (collectively
"pay the Securities") if (i) any Specified Senior Indebtedness of the Company or
the Note Issuer (or any other Senior Indebtedness of the Company or the Note
Issuer having an outstanding principal amount at the time of determination in
excess of $25,000,000) is not paid when due or (ii) any other default on
Specified Senior Indebtedness of the Company or the Note Issuer occurs and the
maturity of such Specified Senior Indebtedness is accelerated in accordance with
its terms, unless, in either case, the default has been cured or waived and any
such acceleration has been rescinded or such Specified Senior Indebtedness has
been paid in full. However, the Note Issuer may pay the Securities without
regard to the foregoing if the Company, the Note Issuer and the Trustee receive
written notice approving such payment from a representative of the Specified
Senior Indebtedness with respect to which either of the events set forth in
clause (i) or (ii) of the immediately preceding sentence has occurred and is
continuing.
(b) During the continuance of any default (other than a default described
in clause (i) or (ii) of the preceding paragraph (a)) with respect to any
Specified Senior Indebtedness of the Company or the Note Issuer pursuant to
which the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace periods, the Note Issuer may not pay the
Securities to the Holders for a period (a "Payment Blockage Period") commencing
upon the receipt by the Trustee (with a copy to the Company and the Note Issuer)
of written notice (a "Blockage Notice") of such default from the representative
of the holders of such Specified Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice to the Trustee,
the Company and the Note Issuer from the representative of the holders of such
Specified Senior Indebtedness, (ii) because the default giving rise to such
Blockage Notice is no longer continuing, as certified to the Trustee by the
representative of the holders of such Specified Senior Indebtedness, or (iii)
because such Specified Senior Indebtedness has been repaid in full, as certified
to the Trustee by the representative of the holders of such Specified Senior
Indebtedness).
(c) Notwithstanding the preceding paragraph (b), unless the holders of
such Specified Senior Indebtedness or the representative of such holders have
accelerated the maturity of such Specified Senior Indebtedness, the Note Issuer
may resume payments on the Securities after the end of such Payment Blockage
Period. The Securities shall not be subject to more than one Payment Blockage
Period in any consecutive 360-day period, irrespective of the number of defaults
with respect to Specified Senior Indebtedness during such period.
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(d) In the event that, notwithstanding the foregoing, the Note Issuer
shall make any payment to the Trustee or the Holder of any Security prohibited
by the foregoing provisions of this Section, and if such fact shall, at or prior
to the time of such payment, have been made known to the Trustee or, as the case
may be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Note Issuer.
The provisions of this Section shall not apply to any payment with respect
to which Section 12.2 would be applicable.
SECTION 12.5. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture or in any
of the Securities shall prevent (a) the Note Issuer, at any time except during
the pendency of any Proceeding referred to in Section 12.2 or under the
conditions described in Sections 12.3 and 12.4, from making payments at any time
of principal of (and premium, if any) or interest on the Securities, or (b) the
application by the Trustee of any money or Government Obligations deposited with
it hereunder in accordance with the provisions of Section 4.3 to the payment of
or on account of the principal of (and premium, if any) or interest (including
Additional Sums and Additional Amounts, if any) on the Securities or the
retention of such payment by the Holders, if, at the time of such payment or
application, as the case may be, by the Note Issuer or the Trustee, as the case
may be, the Note Issuer or the Trustee, as the case may be, did not have
knowledge that such payment would have been prohibited by the provisions of this
Article.
SECTION 12.6. Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness of the Note
Issuer, or the provision for such payment in cash or cash equivalents or
otherwise in a manner satisfactory to the holders of Senior Indebtedness of the
Note Issuer, the Holders of the Securities shall be subrogated to the extent of
the payments or distributions made to the holders of such Senior Indebtedness
pursuant to the provisions of this Article (equally and ratably with the holders
of all indebtedness of the Note Issuer which by its express terms is
subordinated to Senior Indebtedness of the Note Issuer to substantially the same
extent as the Securities are subordinated to the Senior Indebtedness and is
entitled to like rights of subrogation by reason of any payments or
distributions made to holders of such Senior Indebtedness) to the rights of the
holders of such Senior Indebtedness to receive payments and distributions of
cash, property and securities applicable to the Senior Indebtedness of the Note
Issuer until the principal of (and premium, if any) and interest on the
Securities shall be paid in full. For purposes of such subrogation or
assignment, no payments or distributions to the holders of the Senior
Indebtedness of the Note Issuer of any cash, property or securities to which the
Holders of the Securities or the Trustee would be entitled except for the
provisions of this Article, and no payments over pursuant to the provisions of
this Article to the holders of Senior Indebtedness by Holders of the Securities
or the Trustee, shall, as among the Note Issuer, its
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creditors other than holders of Senior Indebtedness, and the Holders of the
Securities, be deemed to be a payment or distribution by the Note Issuer to or
on account of the Senior Indebtedness.
SECTION 12.7. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the purpose
of defining the relative rights of the Holders of the Securities on the one hand
and the holders of Senior Indebtedness on the other hand. Nothing contained in
this Article or elsewhere in this Indenture or in the Securities is intended to
or shall (a) impair, as between the Note Issuer and the Holders of the
Securities, the obligations of the Note Issuer, which are absolute and
unconditional, to pay to the Holders of the Securities the principal of (and
premium, if any) and interest (including Additional Sums and Additional Amounts,
if any) on the Securities as and when the same shall become due and payable in
accordance with their terms; or (b) affect the relative rights against the Note
Issuer of the Holders of the Securities and creditors of the Note Issuer other
than their rights in relation to the holders of Senior Indebtedness of the Note
Issuer; or (c) prevent the Trustee or the Holder of any Security from exercising
all remedies otherwise permitted by applicable law upon default under this
Indenture including, without limitation, filing and voting claims in any
Proceeding, subject to the rights, if any, under this Article of the holders of
Senior Indebtedness to receive cash, property and securities otherwise payable
or deliverable to the Trustee or such Holder.
SECTION 12.8. Trustee to Effectuate Subordination.
Each Holder of a Security by his or her acceptance thereof authorizes and
directs the Trustee on his or her behalf to take such action as may be necessary
or appropriate to acknowledge or effectuate the subordination provided in this
Article and appoints the Trustee his or her attorney-in-fact for any and all
such purposes.
SECTION 12.9. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Note
Issuer or by any act or failure to act, in good faith, by any such holder, or by
any noncompliance by the Note Issuer with the terms, provisions and covenants of
this Indenture, regardless of any knowledge thereof that any such holder may
have or be otherwise charged with.
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SECTION 12.10. Notice to Trustee.
The Note Issuer shall give prompt written notice to the Trustee of any
fact known to the Note Issuer which would prohibit the making of any payment to
or by the Trustee in respect of the Securities. Notwithstanding the provisions
of this Article or any other provision of this Indenture, the Trustee shall not
be charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until a Responsible Officer of the Trustee shall have received written
notice thereof from the Note Issuer or a holder of Senior Indebtedness or from
any trustee, agent or representative therefor (whether or not the facts
contained in such notice are true); provided, however, that if the Trustee shall
not have received the notice provided for in this Section at least two Business
Days prior to the date upon which by the terms hereof any monies may become
payable for any purpose (including, without limitation, the payment of the
principal of (and premium, if any) or interest (including Additional Sums and
Additional Amounts, if any) on any Security), then, anything herein contained to
the contrary notwithstanding, the Trustee shall have full power and authority to
receive such monies and to apply the same to the purpose for which they were
received and shall not be affected by any notice to the contrary which may be
received by it within two Business Days prior to such date.
SECTION 12.11. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets of the Note Issuer referred to
in this Article, the Trustee, subject to the provisions of Article VI, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other Person
making such payment or distribution, delivered to the Trustee or to the Holders
of Securities, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior
Indebtedness and other indebtedness of the Note Issuer, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article.
SECTION 12.12. Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee, in its capacity as trustee under this Indenture, shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness of the
Note Issuer and shall not be liable to any such holders if it shall in good
faith mistakenly pay over or distribute to Holders of Securities or to the Note
Issuer or to any other Person cash, property or securities to which any holders
of Senior Indebtedness of the Note Issuer shall be entitled by virtue of this
Article or otherwise.
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SECTION 12.13. Rights of Trustee as Holder of Senior
Indebtedness; Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article with respect to any Senior Indebtedness of the Note
Issuer which may at any time be held by it, to the same extent as any other
holder of Senior Indebtedness of the Note Issuer, and nothing in this Indenture
shall deprive the Trustee of any of its rights as such holder.
SECTION 12.14. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Note Issuer and be then acting hereunder, the term
"Trustee" as used in this Article shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article in addition to or in place of the Trustee.
SECTION 12.15. Certain Conversions or Exchanges Deemed Payment.
For the purposes of this Article only, (a) the issuance and delivery of
junior securities upon conversion or exchange of Securities shall not be deemed
to constitute a payment or distribution on account of the principal of (or
premium, if any) or interest (including Additional Sums and Additional Amounts,
if any) on Securities or on account of the purchase or other acquisition of
Securities, and (b) the payment, issuance or delivery of cash, property or
securities (other than Securities, Exchange Securities or junior securities)
upon conversion or exchange of a Security shall be deemed to constitute payment
on account of the principal of such security. For the purposes of this Section,
the term "junior securities" means (i) shares of any stock of any class of the
Note Issuer and (ii) securities of the Note Issuer which are subordinated in
right of payment to all Senior Indebtedness of the Note Issuer which may be
outstanding at the time of issuance or delivery of such securities to
substantially the same extent as, or to a greater extent than, the Securities
are so subordinated as provided in this Article.
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ARTICLE XIII.
GUARANTY
SECTION 13.1. Guaranty.
Each of the Guarantors hereby jointly and severally unconditionally
Guarantees, on a senior subordinated basis, to each Holder of a Security
authenticated and delivered by the Trustee, and to the Trustee on behalf of such
Holder, the due and punctual payment of the principal of (and premium, if any)
and interest (including Additional Sums and Additional Amounts, if any) on such
Security when and as the same shall become due and payable, whether at the
Stated Maturity, by acceleration, call for redemption, purchase or otherwise, in
accordance with the terms of such Security and of this Indenture. In case of the
failure of the Note Issuer punctually to make any such payment, each of the
Guarantors hereby jointly and severally agrees to cause such payment to be made
punctually when and as the same shall become due and payable, whether at the
Stated Maturity or by acceleration, call for redemption, purchase or otherwise,
and as if such payment were made by the Note Issuer. The Guarantee extends to
the Note Issuer's repurchase obligations arising from a Change of Control or an
Asset Disposition pursuant to Section 10.15.
Each of the Guarantors hereby jointly and severally agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of such Security or this Indenture, the absence of
any action to enforce the same, any exchange, release or non-perfection of any
Lien on any collateral for, or any release or amendment or waiver of any term of
any other Guarantee of, or any consent to departure from any requirement of any
other Guarantee of all or any of the Securities, the election by the Trustee or
any of the Holders in any proceeding under Chapter 11 of Title 11 of the United
States Code (the "Bankruptcy Code") of the application of Section 1111(b)(2) of
the Bankruptcy Code, or equivalent provision under applicable law, any borrowing
or grant of a security interest by the Note Issuer, as debtor-in-possession,
under Section 364 of the Bankruptcy Code, or equivalent provision under
applicable law, the disallowance, under Section 502 of the Bankruptcy Code, or
other similar applicable law, of all or any portion of the claims of the Trustee
or any of the Holders for payment of any of the Securities, any waiver or
consent by the Holder of such Security or by the Trustee with respect to any
provisions thereof or of this Indenture, the obtaining of any judgment against
the Note Issuer or any action to enforce the same or any other circumstances
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor. Each of the Guarantors hereby waives the benefits of diligence,
presentment, demand for payment, any requirement that the Trustee or any of the
Holders protect, secure, perfect or insure any security interest in or other
Lien on any property subject thereto or exhaust any right or take any action
against the Note Issuer or any other Person or any collateral, filing of claims
with a court in the event of insolvency or bankruptcy of the Note Issuer, any
right to require a proceeding first against the Note Issuer, protest or notice
with respect to such Security or the Indebtedness evidenced thereby and all
demands whatsoever, and covenants that this Guaranty
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will not be discharged in respect of such Security except by complete
performance of the obligations contained in such Security and in this Guaranty.
Each of the Guarantors hereby agrees that, in the event of a default in payment
of principal (or premium, if any) or interest (including Additional Sums and
Additional Amounts, if any) on such Security, whether at their Stated Maturity,
by acceleration, call for redemption, purchase or otherwise, legal proceedings
may be instituted by the Trustee on behalf of, or by, the Holder of such
Security, subject to the terms and conditions set forth in this Indenture,
directly against each of the Guarantors to enforce this Guaranty without first
proceeding against the Note Issuer. Each Guarantor agrees that, to the extent
permitted by law, if, after the occurrence and during the continuance of an
Event of Default, the Trustee or any of the Holders are prevented by applicable
law from exercising their respective rights to accelerate the maturity of the
Securities, to collect interest on the Securities, or to enforce or exercise any
other right or remedy with respect to the Securities, or the Trustee or the
Holders are prevented from taking any action to realize on any collateral, such
Guarantor agrees to pay to the Trustee for the account of the Holders, upon
demand therefor, the amount that would otherwise have been due and payable had
such rights and remedies been permitted to be exercised by the Trustee or any of
the Holders.
The indebtedness evidenced by the Guaranties is, to the extent provided in
this Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness of each Guarantor, and the Guaranties are
issued subject to the provisions of this Indenture with respect thereto. Each
Holder of such Security, by accepting the same, (a) agrees to and shall be bound
by such provisions, (b) authorizes and directs the Trustee on his behalf to take
such action as may be necessary or appropriate to effectuate the subordination
so provided and (c) appoints the Trustee his attorney-in-fact for any and all
such purposes.
Each Guarantor shall be subrogated to all rights of the Holders of the
Securities upon which its Guarantee is endorsed against the Note Issuer in
respect of any amounts paid by such Guarantor on account of such Security
pursuant to the provisions of its Guaranty or this Indenture; provided, however,
that no Guarantor shall be entitled to enforce or to receive any payments
arising out of, or based upon, such right of subrogation until the principal of
(and premium, if any) and interest (including Additional Sums and Additional
Amounts, if any) on all Securities issued hereunder shall have been paid in
full.
Each Guaranty shall remain in full force and effect and continue to be
effective should any petition be filed by or against the Note Issuer for
liquidation or reorganization or equivalent proceeding under applicable law,
should the Note Issuer become insolvent or make an assignment for the benefit of
creditors or should a receiver or trustee be appointed for all or any
significant part of the Note Issuer's assets, or the equivalent of any of the
foregoing under applicable law, and shall, to the fullest extent permitted by
law, continue to be effective or be reinstated, as the case may be, if at any
time payment and performance of the Securities, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or returned by any
obligee on the Securities, whether as a voidable preference, fraudulent
transfer, or as otherwise provided under similar laws
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affecting the rights of creditors generally or under applicable laws of the
jurisdiction of formation of the Note Issuer, all as though such payment or
performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Securities shall, to
the fullest extent permitted by law, be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored or returned.
The Guarantors shall have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does not impair the
rights of the Holders under this Guaranty.
Each Guaranty (other than the Company's Guaranty) will be limited in
amount to an amount not to exceed the maximum amount that can be guaranteed by
the applicable Guarantor without rendering the Guaranty, as it relates to such
Guarantor, voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors generally
or under applicable law of Germany.
In the case of Fresenius Medical Care Deutschland GmbH ("FMCD"), the
following provisions apply:
A Profit and Loss Pooling Agreement (the "Agreement")
(Ergebnisabfuhrungsvertrag) dated as of August 21, 1996, between the Company and
FMCD was entered into the commercial register as approved by the stockholders of
the Company and the shareholders of FMCD with effect from January 1, 1996. FMCD,
having a stated capital of DM 80 million, had a capital reserve account of DM
168,302,162 (the "January 1, 1996 Amount") in its balance sheet as of January 1,
1996. Assuming that the January 1, 1996 Amount has not decreased by losses in
the business of FMCD since January 1, 1996, at least such amount exceeds the
Company's assets protecting its share capital within the meaning of Section 30
of the German GmbH Law. Since January 1, 1996, the January 1, 1996 Amount has
not been decreased by the actions of the Company (the sole shareholder of FMCD),
e.g. no distributions against the January 1, 1996 Amount have been made.
Based thereon, the guaranty obligations of FMCD hereunder and under FMCD's
guaranty of the 9% Notes, the USD Securities and any other Senior Subordinated
Indebtedness, if any, of FMCD to which Section 30 of the German GmbH law may
apply are limited to the amount of the capital reserves of FMCD as of the date
hereof less its obligations as a guarantor from time to time under the Bank
Credit Agreement (the "Minimum Guaranty Amount"). If, in the case of a default
under this Indenture, the capital reserves are higher than such Minimum Guaranty
Amount, such higher amount (the "Higher Guaranty Amount") shall serve as
limitation to the obligations of FMCD, as Guarantor. In case FMCD, as Guarantor,
has to sell off assets to fulfill its obligations under this Indenture, after
such guaranty obligations have been drawn, and if the proceeds from the sale of
such assets exceed the amount of their book value, such excess amounts shall be
paid to the Trustee for the benefit of the Holders, subject to the provisions of
Article XIV hereof, in addition to the Minimum Guaranty Amount or the Higher
Guaranty Amount, respectively. For the determination of the applicable book
value, the book value of assets which were included into the
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balance sheet per January 1, 1996 applies, and for such assets which were not
yet included but added to the business of FMCD since that date, the book value
on the day of the sale of such assets applies. Should Section 30 of the German
GmbH law however require a lower Minimum Guaranty Amount or a lower Higher
Guaranty Amount, then such lower amounts required by law shall be applicable.
FMCD undertakes not to decrease its capital reserves, neither by capital
increase from such reserve accounts nor by other kinds of contributions to its
shareholders or affiliates without the prior written approval of the Holders of
a majority in principal amount of the Outstanding Securities.
FMCD undertakes to maintain a profit and loss pooling agreement with the
Note Issuer during the term of this Indenture, in particular, to extend the term
of such agreement to the term of this Indenture and not to terminate, rescind or
amend such agreement without prior notice to the Trustee and the consent of the
Holders of a majority in principal amount of the Outstanding Securities thereto.
In case of a termination of such profit and loss pooling agreement, FMCD will
grant, upon the request of the Holders of a majority in principal amount of the
Outstanding Securities, collateral to minimize the legal and financial
disadvantages caused by the termination of such agreement, as far as legally
available under German law. FMCD undertakes to give notice immediately to the
Trustee if it intends to give notice of termination to such agreement or to
agree to the termination of such agreement, or if it becomes aware that the Note
Issuer intends to terminate such agreement. During the term of the profit and
loss pooling agreement, any and all allocations of profit to the Note Issuer and
any and all cash distributions to the Note Issuer as a consequence thereof upon
the terms and conditions of the profit and loss pooling agreement are permitted
and unrestricted, subject to the terms of Section 30 of the German GmbH law as
described above.
SECTION 13.2. Execution and Delivery of Guaranties.
The Guaranties to be endorsed on the Securities shall include the terms of
the Guaranty set forth in Section 13.1 and any other terms that may be set forth
in the form established pursuant to Section 2.6. Each of the Guarantors hereby
agrees to execute its Guaranty, in a form established pursuant to Section 2.6,
to be endorsed on each Security authenticated and delivered by the Trustee.
The Guaranty shall be executed on behalf of each respective Guarantor by
any one of such Guarantor's Chairman of the Board of Directors or two members of
the Managing Board, as the case may be, or other person duly authorized by the
Board of Directors or Managing Board of such Guarantor. The signature of any or
all of these persons on the Guaranty may be manual or facsimile.
A Guaranty bearing the manual or facsimile signature of individuals who
were at any time the proper officers of a Guarantor shall bind such Guarantor,
notwithstanding that such individuals
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or any of them have ceased to hold such offices prior to the authentication and
delivery of the Security on which such Guaranty is endorsed or did not hold such
offices at the date of such Guaranty.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guaranty endorsed
thereon on behalf of the Guarantors. Each of the Guarantors hereby jointly and
severally agrees that its Guaranty set forth in Section 13.1 shall remain in
full force and effect notwithstanding any failure to endorse a Guaranty on any
Security.
SECTION 13.3. Guarantors May Consolidate, etc., on Certain Terms.
Except as set forth in Section 13.4 and in Articles VIII and X hereof,
nothing contained in this Indenture or in any of the Securities shall prevent
any consolidation or merger of a Guarantor with or into the Company, the Note
Issuer or another Guarantor or shall prevent any sale, transfer, assignment,
lease, conveyance or other disposition of the property of a Guarantor as an
entirety or substantially as an entirety to the Company, the Note Issuer or
another Guarantor.
SECTION 13.4. Release of Guarantors.
(a) Concurrently with any consolidation or merger of a Guarantor or any
sale, transfer, assignment, lease, conveyance or other disposition of the
property of a Guarantor as an entirety or substantially as an entirety, in each
case as permitted by Section 13.3 hereof, and upon delivery by the Company or
the Note Issuer to the Trustee of an Officers' Certificate and an Opinion of
Counsel to the effect that such consolidation, merger, sale, transfer,
assignment, conveyance or other disposition was made in accordance with Section
13.3 hereof, the Trustee shall execute any documents reasonably required in
order to acknowledge the release of such Guarantor from its obligations under
its Guaranty endorsed on the Securities and under this Indenture. Any Guarantor
not released from its obligations under its Guaranty endorsed on the Securities
and under this Indenture shall remain liable for the full amount of principal of
(premium, if any) and interest (including Additional Sums and Additional
Amounts, if any) on the Securities and for the other obligations of a Guarantor
under its Guaranty endorsed on the Securities and under this Indenture.
(b) Concurrently with the defeasance of the Securities under Section 4.3
hereof, the Guarantors shall be released from all of their obligations under
their Guaranties endorsed on the Securities and under this Indenture, without
any action on the part of the Trustee or any Holder of Securities.
(c) Upon the sale or other disposition (including by way of merger or
consolidation) of any Guarantor or the sale, conveyance, transfer, assignment,
lease or other disposition of all or substantially all the assets of a Guarantor
(in each case other than to the Company, the Note Issuer or any Affiliate of the
Note Issuer) pursuant to Section 10.13 hereof, such Guarantor shall
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automatically be released from all obligations under its Guaranties endorsed on
the Securities and under this Indenture.
SECTION 13.5. Additional Guarantors.
The Company or the Note Issuer may cause any Subsidiary to become a
Guarantor with respect to the Securities by executing and delivering to the
Trustee (a) a supplemental indenture, in form and substance satisfactory to the
Trustee, which subjects such Person to the provisions (including the
representations and warranties) of this Indenture as a Guarantor and (b) an
Opinion of Counsel to the effect that such supplemental indenture has been duly
authorized and executed by such Person and constitutes the legal, valid, binding
and enforceable obligation of such Person (subject to such customary exceptions
concerning creditors' rights and equitable principles as may be acceptable to
the Trustee in its discretion).
ARTICLE XIV.
SUBORDINATION OF GUARANTIES
SECTION 14.1. Guaranties Subordinate to Senior Indebtedness of Guarantors.
Each Guarantor covenants and agrees, and each Holder of a Security, by his
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article (subject to the provisions of
Article IV), the payment of the principal of (and premium, if any) and interest
(including Additional Sums and Additional Amounts, if any) on the Guaranty of
each Guarantor in respect of the Securities are hereby expressly made
subordinate and subject in right of payment in full of all amounts then due and
payable in respect of all Senior Indebtedness of the Note Issuer and such
Guarantor.
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SECTION 14.2. Payment Over of Proceeds Upon Dissolution, etc.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to a Guarantor or its property (each such event, if
any, herein sometimes referred to as a "Guarantor Proceeding"), the holders of
Senior Indebtedness of the Company and such Guarantor shall be entitled to
receive payment in full of principal of (and premium, if any) and interest, if
any (including Additional Sums and Additional Amounts, if any), on such Senior
Indebtedness, or provision shall be made for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness of the Company and such Guarantor, before the Holders of the
Securities are entitled to receive or retain any payment or distribution of any
kind or character, whether in cash, property or securities (including any
payment or distribution which may be payable or deliverable by reason of the
payment of any other Indebtedness of the Company or such Guarantor (including
the Securities) subordinated to the payment of the Securities, such payment or
distribution being hereinafter referred to as a "Guarantor Senior Subordinated
Payment"), on account of principal of (or premium, if any) or interest
(including Additional Sums and Additional Amounts, if any) on the Securities or
on account of the purchase or other acquisition of Securities by the Company or
any Subsidiary, and to that end the holders of Senior Indebtedness of the
Company and such Guarantor shall be entitled to receive, for application to the
payment thereof, any payment or distribution of any kind or character, whether
in cash, property or securities, including any Guarantor Senior Subordinated
Payment, which may be payable or deliverable in respect of the Securities in any
such Guarantor Proceeding.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Company or any Guarantor of any kind or
character, whether in cash, property or securities, including any Guarantor
Senior Subordinated Payment, before all Senior Indebtedness of the Company and
such Guarantor is paid in full or payment thereof is provided for in cash or
cash equivalents or otherwise in a manner satisfactory to the holders of such
Senior Indebtedness, and if such fact shall, at or prior to the time of such
payment or distribution, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment or distribution shall be
paid over or delivered forthwith to the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee, agent or other Person making payment
or distribution of assets of the Company or such Guarantor for application to
the payment of all Senior Indebtedness of the Company and such Guarantor
remaining unpaid, to the extent necessary to pay all Senior Indebtedness of the
Company and such Guarantor in full, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Indebtedness of the
Company and such Guarantor.
For purposes of this Article only, the words "any payment or distribution
of any kind or character, whether in cash, property or securities" shall not be
deemed to include shares of stock of the Company or any
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Guarantor as reorganized or readjusted, or securities of the Company or any
Guarantor or any other corporation provided for by a plan of reorganization or
readjustment which securities are subordinated in right of payment to all then
outstanding Senior Indebtedness of the Company and such Guarantor to
substantially the same extent as the Securities are so subordinated as provided
in this Article. The consolidation of the Company or any Guarantor with, or the
merger of the Company or any Guarantor into, another Person or the liquidation
or dissolution of the Company or any Guarantor following the sale of all or
substantially all of its properties and assets as an entirety to another Person
or the liquidation or dissolution of the Company or any Guarantor following the
sale of all or substantially all of its properties and assets as an entirety to
another Person upon the terms and conditions set forth in Article VIII shall not
be deemed a Guarantor Proceeding for the purposes of this Section if the Person
formed by such consolidation or into which the Company or such Guarantor is
merged or the Person which acquires by sale such properties and assets as an
entirety, as the case may be, shall, as a part of such consolidation, merger, or
sale comply with the conditions set forth in Article VIII.
SECTION 14.3. Prior Payment to Senior Indebtedness
of a Guarantor Upon Acceleration of Securities.
In the event that, upon the occurrence of an Event of Default, any
Securities are declared due and payable before their Stated Maturity, then (a) a
Guarantor shall promptly notify the holders of Senior Indebtedness of such
Guarantor or the representative of such holders of the acceleration, and (b) in
such event, if any Senior Indebtedness of the Company or such Guarantor is
outstanding, such Guarantor may not pay the Securities until five Business Days
after the representative of all issues of Senior Indebtedness of the Company and
such Guarantor receive notice of such acceleration and, thereafter, may pay the
Securities only if payment is otherwise permitted hereunder at that time.
In the event that, notwithstanding the foregoing, a Guarantor shall make
any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to such Guarantor.
The provisions of this Section shall not apply to any payment with respect
to which Section 14.2 would be applicable.
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SECTION 14.4. No Payment When Senior Indebtedness of a Guarantor in
Default.
(a) A Guarantor may not pay principal of, or premium (if any) or interest
(including Additional Sums and Additional Amounts, if any) on, the Securities,
and may not repurchase, redeem or otherwise retire any Securities (collectively
"pay the Securities") if (i) any Specified Senior Indebtedness of the Company or
such Guarantor (or any other Senior Indebtedness of the Company or such
Guarantor having an outstanding principal amount at the time of determination in
excess of $25,000,000) is not paid when due or (ii) any other default on
Specified Senior Indebtedness of the Company or such Guarantor occurs and the
maturity of such Specified Senior Indebtedness is accelerated in accordance with
its terms, unless, in either case, the default has been cured or waived and any
such acceleration has been rescinded or such Specified Senior Indebtedness has
been paid in full. However, a Guarantor may pay the Securities without regard to
the foregoing if the Company such Guarantor and the Trustee receive written
notice approving such payment from a representative of Specified Senior
Indebtedness of the Company and such Guarantor with respect to which either of
the events set forth in clause (i) or (ii) of the immediately preceding sentence
has occurred and is continuing.
(b) During the continuance of any default (other than a default described
in clause (i) or (ii) of the preceding paragraph (a) with respect to any
Specified Senior Indebtedness of the Company or any Guarantor pursuant to which
the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace periods, such Guarantor may not pay the
Securities to the Holders for a period (a "Guarantor Payment Blockage Period")
commencing upon the receipt by the Trustee (with a copy to such Guarantor) of
written notice (a "Guarantor Blockage Notice") of such default from the
representative of the holders of such Specified Senior Indebtedness specifying
an election to effect a Payment Blockage Period and ending 179 days thereafter
(or earlier if such Payment Blockage Period is terminated (i) by written notice
to the Trustee and the Guarantor from the representative of the holders of such
Specified Senior Indebtedness, (ii) because the default giving rise to such
Blockage Notice is no longer continuing, as certified to the Trustee by the
representative of the holders of such Specified Senior Indebtedness or (iii)
because such Specified Senior Indebtedness has been repaid in full, as certified
to the Trustee by the representative of the holders of such Specified Senior
Indebtedness).
(c) Notwithstanding the preceding paragraph (b), unless the holders of
such Specified Senior Indebtedness or the representative of such holders have
accelerated the maturity of such Specified Senior Indebtedness, the Guarantor
may resume payments on the Securities after the end of such Payment Blockage
Period. The Securities shall not be subject to more than one Payment Blockage
Period in any consecutive 360-day period, irrespective of the number of defaults
with respect to Specified Senior Indebtedness of the Company or such Guarantor
during such period.
121 EXECUTION
<PAGE> 131
(d) In the event that, notwithstanding the foregoing, the Guarantor shall
make any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to such Guarantor.
The provisions of this Section shall not apply to any payment with respect
to which Section 14.2 would be applicable.
SECTION 14.5. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture or in any
of the Securities shall prevent (a) any Guarantor, at any time except during the
pendency of any Proceeding referred to in Section 14.2 or under the conditions
described in Sections 14.3 and 14.4, from making payments at any time of
principal of (and premium, if any) or interest on the Securities, or (b) the
application by the Trustee of any money or Government Obligations deposited with
it hereunder in accordance with the provisions of Section 4.3 to the payment of
or on account of the principal of (and premium, if any) or interest (including
Additional Sums and Additional Amounts, if any) on the Securities or the
retention of such payment by the Holders, if, at the time of such payment or
application, as the case may be, by the Company, the Note Issuer or the Trustee,
as the case may be, the Note Issuer or the Trustee, as the case may be, did not
have knowledge that such payment would have been prohibited by the provisions of
this Article.
122 EXECUTION
<PAGE> 132
SECTION 14.6. Subrogation to Rights of Holders of Senior Indebtedness of a
Guarantor.
Subject to the payment in full of all Senior Indebtedness of a Guarantor,
or the provision for such payment in cash or cash equivalents or otherwise in a
manner satisfactory to the holders of Senior Indebtedness of a Guarantor, the
Holders of the Securities shall be subrogated to the extent of the payments or
distributions made to the holders of such Senior Indebtedness of a Guarantor
pursuant to the provisions of this Article (equally and ratably with the holders
of all indebtedness of such Guarantor which by its express terms is subordinated
to Senior Indebtedness of such Guarantor to substantially the same extent as the
Securities are subordinated to Senior Indebtedness and is entitled to like
rights of subrogation by reason of any payments or distributions made to holders
of such Senior Indebtedness) to the rights of the holders of such Senior
Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness of such Guarantor until the
principal of (and premium, if any) and interest on the Securities shall be paid
in full. For purposes of such subrogation or assignment, no payments or
distributions to the holders of the Senior Indebtedness of such Guarantor of any
cash, property or securities to which the Holders of the Securities or the
Trustee would be entitled except for the provisions of this Article, and no
payments over pursuant to the provisions of this Article to the holders of
Senior Indebtedness of such Guarantor by Holders of the Securities or the
Trustee, shall, as among the Guarantors, their creditors other than holders of
Senior Indebtedness of the Guarantors, and the Holders of the Securities, be
deemed to be a payment or distribution by a Guarantor to or on account of the
Senior Indebtedness of such Guarantor.
SECTION 14.7. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the purpose
of defining the relative rights of the Holders of the Securities on the one hand
and the holders of Senior Indebtedness of each Guarantor on the other hand.
Nothing contained in this Article or elsewhere in this Indenture or in the
Securities is intended to or shall (a) impair, as between the Guarantors and the
Holders of the Securities, the obligations of each Guarantor, which are absolute
and unconditional, to pay to the Holders of the Securities the principal of (and
premium, if any) and interest (including Additional Sums and Additional Amounts,
if any) on the Securities as and when the same shall become due and payable in
accordance with their terms; or (b) affect the relative rights against any
Guarantor of the Holders of the Securities and creditors of such Guarantor other
than their rights in relation to the holders of Senior Indebtedness of such
Guarantor; or (c) prevent the Trustee or the Holder of any Security from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture including, without limitation, filing and voting claims in any
Guarantor Proceeding, subject to the rights, if any, under this Article of the
holders of Senior Indebtedness of a Guarantor to receive cash, property and
securities otherwise payable or deliverable to the Trustee or such Holder.
123 EXECUTION
<PAGE> 133
SECTION 14.8. Trustee to Effectuate Subordination.
Each Holder of a Security by his or her acceptance thereof authorizes and
directs the Trustee on his or her behalf to take such action as may be necessary
or appropriate to acknowledge or effectuate the subordination provided in this
Article and appoints the Trustee his or her attorney-in-fact for any and all
such purposes.
SECTION 14.9. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Indebtedness of any
Guarantor to enforce subordination as herein provided shall at any time in any
way be prejudiced or impaired by any act or failure to act on the part of such
Guarantor or by any act or failure to act, in good faith, by any such holder, or
by any noncompliance by such Guarantor with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof that any such holder may
have or be otherwise charged with.
SECTION 14.10. Notice to Trustee.
Each Guarantor shall give prompt written notice to the Trustee of any fact
known to such Guarantor which would prohibit the making of any payment to or by
the Trustee in respect of the Securities. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from a
Guarantor or a holder of Senior Indebtedness of a Guarantor or from any trustee,
agent or representative therefor (whether or not the facts contained in such
notice are true); provided, however, that if the Trustee shall not have received
the notice provided for in this Section at least two Business Days prior to the
date upon which by the terms hereof any monies may become payable for any
purpose (including, without limitation, the payment of the principal of (and
premium, if any) or interest (including Additional Sums and Additional Amounts,
if any) on any Security), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive such
monies and to apply the same to the purpose for which they were received and
shall not be affected by any notice to the contrary which may be received by it
within two Business Days prior to such date.
124 EXECUTION
<PAGE> 134
SECTION 14.11. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets of the Guarantors referred to
in this Article, the Trustee, subject to the provisions of Article VI, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other Person
making such payment or distribution, delivered to the Trustee or to the Holders
of Securities, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior
Indebtedness of a Guarantor and other indebtedness of such Guarantor, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article.
SECTION 14.12. Trustee Not Fiduciary for Holders of
Senior Indebtedness of the Guarantors.
The Trustee, in its capacity as trustee under this Indenture, shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness of any
Guarantor and shall not be liable to any such holders if it shall in good faith
mistakenly pay over or distribute to Holders of Securities or to any Guarantor
or to any other Person cash, property or securities to which any holders of
Senior Indebtedness of such Guarantor shall be entitled by virtue of this
Article or otherwise.
SECTION 14.13. Rights of Trustee as Holder of Senior Indebtedness
of the Guarantors; Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article with respect to any Senior Indebtedness of any
Guarantor which may at any time be held by it, to the same extent as any other
holder of Senior Indebtedness of such Guarantor, and nothing in this Indenture
shall deprive the Trustee of any of its rights as such holder.
SECTION 14.14. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Note Issuer and be then acting hereunder, the term
"Trustee" as used in this Article shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article in addition to or in place of the Trustee.
125 EXECUTION
<PAGE> 135
SECTION 14.15. Certain Conversions or Exchanges Deemed Payment.
For the purposes of this Article only, (a) the issuance and delivery of
junior securities upon conversion or exchange of Securities shall not be deemed
to constitute a payment or distribution on account of the principal of (or
premium, if any) or interest (including Additional Sums and Additional Amounts,
if any) on Securities or on account of the purchase or other acquisition of
Securities, and (b) the payment, issuance or delivery of cash, property or
securities (other than Securities, Exchange Securities or junior securities)
upon conversion or exchange of a Security shall be deemed to constitute payment
on account of the principal of such security. For the purposes of this Section,
the term "junior securities" means (i) shares of any stock of any class of any
Guarantor and (ii) securities of any Guarantor which are subordinated in right
of payment to all Senior Indebtedness of such Guarantor which may be outstanding
at the time of issuance or delivery of such securities to substantially the same
extent as, or to a greater extent than, the Securities are so subordinated as
provided in this Article.
126 EXECUTION
<PAGE> 136
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the day and year first above written.
FMC TRUST FINANCE S.A.R.L. LUXEMBOURG
By: /s/ ANDREA STOPPER
------------------------------
Name: Dr. Andrea Stopper
Title: Manager
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By: /s/ ELIZABETH C. HAMMER
------------------------------
Name: Elizabeth C. Hammer
Title: Vice President
127 EXECUTION
<PAGE> 137
FRESENIUS MEDICAL CARE AG, as
Company and as a Guarantor
By: /s/ UDO WERLE
------------------------------
Name: Udo Werle
Title: Member of the Managing Board
By: /s/ EMANUELE GATTI
------------------------------
Name: Dr. Emanuele Gatti
Title: Member of the Managing Board
FRESENIUS MEDICAL CARE
HOLDINGS, INC., as a Guarantor
By: /s/ BEN LIPPS
------------------------------
Name: Ben Lipps
Title: President
FRESENIUS MEDICAL CARE
DEUTSCHLAND GMBH, as a Guarantor
By: /s/ UDO WERLE
------------------------------
Name: Udo Werle
Title: Member of the Managing Board
By: /s/ EMANUELE GATTI
------------------------------
Name: Dr. Emanuele Gatti
Title: Member of the Managing Board
128 EXECUTION
<PAGE> 1
EXHIBIT 10.12
AMENDMENT NO. 1
Dated as of February 27, 1998
to
TRANSFER AND ADMINISTRATION AGREEMENT
Dated as of August 28, 1997
THIS AMENDMENT NO. 1 (the "AMENDMENT") dated as of February 27, 1998 is
entered into by and among NMC FUNDING CORPORATION, a Delaware corporation, as
Transferor (in such capacity, the "TRANSFEROR"), NATIONAL MEDICAL CARE, INC., a
Delaware corporation, as the initial "COLLECTION AGENT", ENTERPRISE FUNDING
CORPORATION, a Delaware corporation (the "COMPANY"), and NATIONSBANK, N.A., a
national banking association ("NATIONSBANK"), as agent for the Company and the
Bank Investors (in such capacity, the "AGENT") and as a Bank Investor.
PRELIMINARY STATEMENT
A. The Company, the Transferor, the Collection Agent and
NationsBank, in such capacity as the Agent and as a Bank Investor, are parties
to that certain Transfer and Administration Agreement dated as of August 28,
1997 (as amended from time to time, the "TAA"). Capitalized terms used herein
and not otherwise defined shall have the meanings ascribed to them in the TAA.
B. The Company, the Transferor, the Collection Agent and
NationsBank, as Agent and as a Bank Investor, have agreed to amend the TAA on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises set forth above,
and other good and valuable consideration the receipt and sufficiency of which
is hereby acknowledged, the Company, the Transferor, the Collection Agent and
NationsBank hereby agree as follows:
SECTION 1. AMENDMENTS TO THE TAA. Subject to the satisfaction of the
conditions precedent set forth in SECTION 2 below, the TAA is amended as
follows:
1. ARTICLE I of the TAA is amended to delete the definition therein of
"FACILITY LIMIT" in its entirety
<PAGE> 2
and to substitute the following new definition therefor:
"'FACILITY LIMIT' means 331,500,000; PROVIDED that such amount may not at
any time exceed the aggregate Commitments at any time in effect."
2. ARTICLE I of the TAA is amended to delete from the definition of "LOSS
RESERVE" the minimum Loss Reserve amount "$10,000,000" set forth therein
and to substitute the following amount therefor: "$16,250,000"
3. SECTION 2.2,(a) INCREMENTAL TRANSFERS of the TAA is amended to delete
clause (i)(z) thereof in its entirety and to substitute the following
therefor:
"(z) the Net Investment would not exceed $325,000,000;"
4. SECTION 10.6, SUCCESSORS AND ASSIGNS of the TAA is amended to add the
following provision as new clause (c) thereto:
"(c) Each of the Transferor, the Collection Agent and each Bank Investor
hereby consents and agrees to the assignment by the Company from time to
time of all or any part of its rights and obligations under, interest in
and title to this Agreement and the Transferred Interest to any commercial
paper conduit administered by NationsBank and designated by NationsBank
from time to time to accept such assignment from the Company (a "CONDUIT
ASSIGNEE"). In the case of any such assignment by the Company, such
Conduit Assignee shall, to the extent of such assignment, be and become
the "Company" for all purposes of this Agreement, and enjoy all the rights
and benefits of the "Company" hereunder."
5. The signature page of the TAA is hereby amended to delete the
Commitment amount "$204,000,000" set forth thereon and to substitute the
following amount therefor: "$331,500,000"
<PAGE> 3
SECTION 2. CONDITIONS PRECEDENT. This Amendment shall become effective and
be deemed effective as of the date hereof upon the receipt by the Agent of each
of the following:
(i) counterparts of this Amendment duly executed by the Company, the
Transferor, the Collection Agent and the Bank Investor;
(ii) a reaffirmation of the Parent Agreement, substantially in the
form of Exhibit A attached hereto, duly executed by each of Fresenius Medical
Care AG and Fresenius Medical Care Holdings, Inc.; and
(iii) an opinion of Douglas G. Kott, Associate General Counsel of
FMCH, NMC and each Transferring Affiliate, as Counsel to FMC, FMCH, NMC, the
Transferor, the Seller and the Transferring Affiliates, reaffirming as of the
date of this Amendment the opinion of such Counsel issued in connection with the
original closing of the TAA, after giving effect to this Amendment;
(iv) an opinion of Arent Fox Kinter Plotkin & Kahn, special counsel
to FMC, FMCH, the Transferor and the Seller, reaffirming as of the date of this
Amendment the opinion of such counsel issued in connection with the original
closing of the TAA, after giving effect to this Amendment;
(v) an opinion of Nutter McClennen & Fish, LLP, special
Massachusetts counsel, reaffirming as of the date of this Amendment the opinion
of such counsel issued in connection with the original closing of the TAA, after
giving effect to this Amendment; and
(vi) an opinion of Rainer Runte, General Counsel of FMC, reaffirming
as of the date of this Amendment the opinion of such counsel issued in
connection with the original closing of the TAA, after giving effect to this
Amendment.
(vii) a non-refundable closing fee of $75,000.
<PAGE> 4
SECTION 3. COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE COMPANY,
THE TRANSFEROR AND THE COLLECTION AGENT.
3.1 Upon the effectiveness of this Amendment, each of the Company,
the Transferor and the Collection Agent hereby reaffirms all covenants,
representations and warranties made in the TAA and agrees that all such
covenants, representations and warranties shall be deemed to have been remade as
of the effective date of this Amendment.
3.2 Each of the Company, the Transferor and the Collection Agent
hereby represents and warrants that (i) this Amendment constitutes the legal,
valid and binding obligation of such party, enforceable against it in accordance
with its terms and (ii) upon the effectiveness of this Amendment, no Termination
Event or Potential Termination Event shall exist under the TAA.
SECTION 4. REFERENCE TO AND EFFECT ON THE TAA.
4.1 Upon the effectiveness of this Amendment, each reference in the
TAA to "this Agreement," "hereunder," "hereof," "herein," "hereby" or words of
like import shall mean and be a reference to the TAA as amended hereby, and each
reference to the TAA in any other document, instrument and agreement executed
and/or delivered in connection with the TAA shall mean and be a reference to the
TAA as amended hereby.
4.2 Except as specifically amended hereby, the TAA and all other
documents, instruments and agreements executed and/or delivered in connection
therewith shall remain in full force and effect and are hereby ratified and
confirmed.
4.3 The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of the Company, the
Bank Investor or the Agent under the TAA or any other document, instrument, or
agreement executed in connection therewith, nor constitute a waiver of any
provision contained therein.
SECTION 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS
<PAGE> 5
(AS OPPOSED TO THE CONFLICT OF LAW PROVISIONS) AND DECISIONS OF THE STATE OF NEW
YORK.
SECTION 6. EXECUTION IN COUNTERPARTS. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
SECTION 7. HEADINGS. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized as of the
date first written above.
ENTERPRISE FUNDING CORPORATION
as Company
By: /s/ Stuart Cutler
---------------------------------
Name: Stuart Cutler
Title: Authorized Officer
NMC FUNDING CORPORATION,
as Transferor
By: /s/ James V. Luther
---------------------------------
Name: James V. Luther
Title:
<PAGE> 6
NATIONAL MEDICAL CARE, INC.,
as Collection Agent
By: /s/ James V. Luther
---------------------------------
Name: James V. Luther
Title: Treasurer
NATIONSBANK, N.A, as Agent
and a Bank Investor
By: /s/ Rachelle Heath
---------------------------------
Name: Rachelle Heath
Title: Authorized Officer
<PAGE> 7
EXHIBIT A
to
AMENDMENT NO. 1
Dated as of February __, 1998
to
TRANSFER AND ADMINISTRATION AGREEMENT
Dated as of August 28, 1997
FORM OF REAFFIRMATION OF PARENT AGREEMENT
REAFFIRMATION OF PARENT AGREEMENT
February __, 1998
NMC Funding Corporation
Two Ledgemont Center
95 Hayden Avenue
Lexington, Massachusetts 02173
NationsBank, N.A.,
as Agent under the
Transfer and Administration
Agreement referred to below
NationsBank Corporate Center--10th Floor
Charlotte, North Carolina 28255
Each of the undersigned, FRESENIUS MEDICAL CARE AG and FRESENIUS
MEDICAL CARE HOLDINGS, INC. (i) acknowledges, and consents to, the execution of
that certain Amendment No. 1 dated as of February __, 1998 (the "AMENDMENT") to
the Transfer and Administration Agreement dated as of August 28, 1997 among
Enterprise Funding Corporation, NMC Funding Corporation, National Medical Care,
Inc. and NationsBank, N.A. (the "TAA"), (ii) reaffirms all of its obligations
under that certain Parent Agreement dated as of August 28, 1997 made by the
undersigned and (iii) acknowledges and agrees that, after giving effect to the
Amendment, such Parent Agreement remains in full force and effect (including,
without limitation, in respect of the increased Facility Limit and Commitment
contemplated in the Amendment) and such Parent Agreement is hereby ratified and
confirmed.
<PAGE> 8
FRESENIUS MEDICAL CARE AG
By: _____________________
Title:
FRESENIUS MEDICAL CARE
HOLDINGS, INC
By: __________________
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 19,966
<SECURITIES> 0
<RECEIVABLES> 592,554
<ALLOWANCES> 0
<INVENTORY> 153,550
<CURRENT-ASSETS> 975,587
<PP&E> 781,344
<DEPRECIATION> 142,063
<TOTAL-ASSETS> 5,010,120
<CURRENT-LIABILITIES> 592,937
<BONDS> 0
0
16,318
<COMMON> 90,000
<OTHER-SE> 1,862,661
<TOTAL-LIABILITY-AND-EQUITY> 5,010,120
<SALES> 468,036
<TOTAL-REVENUES> 2,621,300
<CGS> 340,663
<TOTAL-COSTS> 1,650,264
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 86,461
<INTEREST-EXPENSE> 185,715
<INCOME-PRETAX> 66,851
<INCOME-TAX> 45,928
<INCOME-CONTINUING> 20,923
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,923
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0
</TABLE>
