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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 17)*
HANGER ORTHOPEDIC GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, $0.01 par value
- --------------------------------------------------------------------------------
(Title of Class of Securities)
41043F-208
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(CUSIP Number)
Harvey M. Eisenberg, Esq.
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza - 41st Floor
New York, New York 10112
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
July 1, 1999
- --------------------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition that is the subject of this Schedule 13D, and is
filing this schedule because of Sections 240.13d-1(e), 240.13d-1(f) or
240.13d-1(g), check the following box. /__/
NOTE: Schedules filed in paper format shall include a signed original and
five copies of the schedule, including all exhibits. See Section
240.13d-7 for other parties to whom copies of this statement are to be
sent.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of
that section of the Act but shall be subject to all other provisions of
the Act (however, see the Notes).
POTENTIAL PERSONS WHO ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM
DISPLAYS A CURRENTLY VALID OMB CONTROL NUMBER.
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CUSIP No. 41043F-208
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1. Names of Reporting Persons. IRS Identification Nos. of above persons
(entities only).
Chase Venture Capital Associates, LP
13-337-6808
2. Check the Appropriate Box if a Member of a Group (See Instructions)
(a)
(b)
3. SEC Use Only
4. Source of Funds (See Instructions) WC
5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items
2(d) or 2(e)
6. Citizenship or Place of Organization California
Number of Shares 7. Sole Voting Power 0
Beneficially
Owned by Each 8. Shared Voting Power 0
Reporting Person
With 9. Sole Dispositive Power 0
10. Shared Dispositive Power 0
11. Aggregate Amount Beneficially Owned by Each Reporting Person 0
12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See
Instructions)
13. Percent of Class Represented by Amount in Row (11) 0%
14. Type of Reporting Person (See Instructions)
PN
Preliminary Note
- ----------------
The information set forth in Item 3 herein has been adjusted
to reflect an indirect transfer by Chase Venture Capital Associates, L.P.
("CVCA") of all of the shares of Common Stock, par value $0.01 per share (the
"Common Stock") and warrants to purchase shares of the Common Stock of Hanger
Orthopedic Group, Inc. (the "Issuer") to Chase Equity Associates, L.P. ("CEA").
Item 1. Security and Issuer.
- ----------------------------
This statement relates to the Common Stock, par value $0.01
per share, of the Issuer. The Issuer's principal executive offices are located
at 7700 Old Georgetown Road, Bethesda, Maryland 20814.
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CUSIP No. 41043F-208
Item 2. Identity and Background.
- ---------------------------------
The response to Item 2 is amended in its entirety to read as follows:
This statement is being filed by CVCA, a California limited
partnership, whose principal office is located at 380 Madison Avenue, 12th
Floor, New York, New York 10017.
CVCA is engaged in the venture capital and leveraged buyout
business. The general partner of CVCA is Chase Capital Partners, a New York
general partnership ("CCP"), which is also engaged in the venture capital and
leveraged buyout business, and whose principal office is located at the same
address as CVCA.
Set forth below are the names of each general partner of CCP
who is a natural person. Each such general partner is a U.S. citizen, whose
principal occupation is general partner of CCP and whose business address
(except for Mr. Soghikian) is c/o Chase Capital Partners, 380 Madison Avenue,
12th Floor, New York, New York 10017.
John R. Baron
Christopher C. Behrens
Mitchell J. Blutt, M.D.
Arnold L. Chavkin
I. Robert Greene
Michael R. Hannon
Donald J. Hofmann
Stephen P. Murray
John M. B. O'Connor
Brian J. Richmand
Shahan D. Soghikian
Jonas Steinman
Jeffrey C. Walker
Damion E. Wicker, M.D.
Mr. Soghikian's address is c/o Chase Capital Partners, 50 California
Street, Suite 2940, San Francisco, CA 94111.
Jeffrey C. Walker is the managing general partner of CCP. The
remaining general partners of CCP are Chase Capital Corporation, a New York
corporation ("Chase Capital"), CCP Principals, L.P., a Delaware limited
partnership ("Principals") and CCP European Principals, L.P., a Delaware limited
partnership ("European Principals"), each of whose principal office is located
at 380 Madison Avenue, 12th Floor, New York, New York 10017. Chase Capital is a
wholly owned subsidiary of The Chase Manhattan Corporation. The general partner
of each of Principals and European Principals is Chase Capital. Chase Capital,
Principals and European Principals are each engaged in the venture capital and
leveraged buyout business. Set forth in Schedule A hereto and incorporated
herein by reference are the names, business addresses and principal occupations
or employment of each executive officer and director of Chase Capital, each of
whom is a U.S. citizen.
The Chase Manhattan Corporation ("Chase") is a Delaware
corporation engaged (primarily through subsidiaries) in the commercial banking
business with its principal office located at 270 Park Avenue, New York, New
York 10017. Set forth in Schedule B hereto and incorporated herein by reference
are the names, business addresses, principal occupations and employment of each
executive officer and director of Chase, each of whom is a U.S. citizen.
To CVCA's knowledge, the response to Items 2(d) and (e) of
Schedule 13D is negative with respect to CVCA and all persons to whom
information is required hereunder by virtue of CVCA's response to Item 2.
Insofar as the requirements of Items 3-6 inclusive of this
Schedule 13D Statement require that, in addition to CVCA, the information called
for therein should be given with respect to each of the persons listed in this
Item 2, including CCP, CCP's individual general partners, Chase Capital, Chase
Capital's executive officers and directors, Principals, and Principals'
controlling partner, European Principals and European Principals' controlling
partner, Chase and Chase's executive officers and directors, the information
provided in Items 3-6 with respect to CVCA should also be
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CUSIP No. 41043F-208
considered fully responsive with respect to the aforementioned persons who have
no separate interests in the Issuer's Common Stock which is required to be
reported thereunder. Although the definition of "beneficial ownership" in Rule
13d-3 under the Securities and Exchange Act of 1934, as amended (the "Exchange
Act"), might also be deemed to constitute these persons beneficial owners of the
Issuer's Preferred Stock acquired by CVCA, neither the filing of this statement
nor any of its contents shall be deemed an admission that any of such persons is
a beneficial owner of the Issuer's Preferred Stock acquired by CVCA or a member
of a group together with CVCA either for the purpose of Schedule 13D of the
Exchange Act or for any other purpose with respect to the Issuer's Common Stock.
Item 3. Source and Amount of Funds or Other Consideration.
- -----------------------------------------------------------
The response to Item 3 is amended in its entirety to read as follows:
Transactions Involving the Issuer
- ---------------------------------
On February 28, 1989, CVCA, the Issuer, Hanger Acquisition
Corporation, a Delaware corporation ("HAC"), J.E. Hanger, Inc., a Delaware
corporation ("Hanger"), Ronald J. Manganiello ("Manganiello") and Joseph M.
Cestaro ("Cestaro") entered into a Stock Exchange Agreement (the "Exchange
Agreement"). A copy of the Exchange Agreement is filed as Exhibit 1 hereto.
Pursuant to the Exchange Agreement, the Issuer agreed to issue (at an exchange
ratio of 100:1 on a pre-split basis or 25:1 on a post-split basis) to CVCA and
Messrs. Manganiello and Cestaro (the "Exchanging Stockholders") newly issued
capital stock of Hanger owned by each of the Exchanging Stockholders. The
transactions contemplated by the Exchange Agreement were consummated as of May
15, 1989 (the "Closing"). Immediately after the Closing, Hanger became a wholly
owned subsidiary of the Issuer. Prior to the Closing, CVCA (which was entitled
pursuant to the Exchange Agreement, to become the owner of 1,690,281.25 shares
of the Issuer's Common Stock, 105,800 shares of the Issuer's Class A Preferred
Stock, par value $.01 (the "Class A Preferred Stock"), and 140,574 shares of the
Issuer's Class B Preferred Stock, $.01 par value (the "Class B Preferred Stock")
convertible at any time on a share-for-share basis into Common Stock) entered
into a Beneficial Ownership Agreement dated as of May 9, 1989 (the "Beneficial
Ownership Agreement") with Exeter Capital, L.P. ("Exeter"), whereby CVCA sold to
Exeter, at CVCA's pro rata cost basis therein, beneficial ownership of shares of
Hanger capital stock which upon the Closing of the Exchange Agreement were
exchanged for beneficial ownership of 416,822.75 shares of the Issuer's Common
Stock and 24,926 shares of Class A Preferred Stock. CVCA received $427,642.15
and $29,379.60 (inclusive of $714.70 of accrued dividends) from Exeter as full
payment for the beneficial interest in shares of Hanger capital stock. The
Beneficial Ownership Agreement is filed as Exhibit 11 hereto. On May 9, 1989,
CEA, a California Limited Partnership (whose general partner is also CCP) and
Exeter entered into a Participation Agreement (the "Participation Agreement")
whereby Exeter acquired a 36.34773% undivided participation in $5,600,000 of
Hanger's 1989 Subordinated Notes (as defined herein) purchased by CEA on
February 28, 1989 and May 9, 1989. The purchase price for such participation was
$2,035,472.88, which is equal to CEA's pro rata original cost for the 1989
Subordinated Notes.
Immediately after the Closing, pursuant to a Stock Redemption
Agreement (the "Stock Redemption Agreement") dated as of May 15, 1989 by and
between CVCA and the Issuer, CVCA sold to the Issuer 105,373 shares of Common
Stock at an aggregate purchase price equal to $108,108.15, representing CVCA's
original cost basis in such shares. The purpose of such sale was to provide the
Issuer with a reserve of Common Stock for possible future issuance upon exercise
of a warrant to purchase the Issuer's Common Stock granted as of May 15, 1989 to
CorreStates Bank, N.A., which was formerly known as Philadelphia National Bank
and First Pennsylvania Bank, N.A. (the "Bank") in connection with a Bank Credit
Agreement (the "Bank Credit Agreement") dated as of such date by and among the
Issuer, its subsidiaries and the Bank. The Stock Redemption Agreement is filed
as Exhibit 12 hereto.
Except for the beneficial interest in the capital stock of
Hanger acquired by Exeter from CVCA, all of the capital stock of Hanger
exchanged by CVCA and the other Exchanging Stockholders upon the Closing was
indirectly acquired by them pursuant to a transaction effected in the form of a
leveraged buyout. On February 28, 1989, CVCA and CEA and Messrs. Manganiello and
Cestaro (who were then principal management stockholders of Hanger (hereinafter
the "Hanger Management")), entered into a Stock and Note Purchase Agreement (the
"Hanger Investment Agreement") with HAC. The Hanger Investment Agreement is
filed as Exhibit 18 hereto. HAC was formed by CVCA to effect the acquisition of
Hanger. CVCA and the Hanger Management purchased for cash newly issued common
stock, Class A preferred stock and Class B preferred stock of HAC. The HAC
capital stock purchased by CVCA included common stock
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CUSIP No. 41043F-208
purchased for $1,734,155, Class A preferred stock for $121,670, and Class B
preferred stock for $144,223. In addition, CEA purchased for cash a $7,400,000
nonconvertible 15% Senior Demand Bridge Note (the "Senior Bridge Note") of HAC
payable on demand, and a 14% $5,400,000 nonconvertible Subordinated Note of HAC
(including the notes described in the following sentence, the "1989 Subordinated
Notes"). On May 9, 1989, pursuant to a First Amendment to the Hanger Investment
Agreement, CEA purchased an additional $200,000 of principal amount of the 1989
Subordinated Notes. On May 15, 1989 (immediately before the Closing), pursuant
to a Second 1989 Amendment to the Hanger Investment Agreement, CEA agreed to
extend the time of principal repayment to the 1989 Subordinated Notes and to
subordinate the 1989 Subordinated Notes to all obligations owing to the Bank
pursuant to the Bank Credit Agreement. The terms of such subordination are set
forth in a Subordination Agreement, dated as of May 15, 1989, between CEA and
the Bank. The Subordination Agreement, as amended, is filed hereto as Exhibit
19-19.6. The principal amount of the 1989 Subordinated Notes described above are
payable in four equal semi-annual installments on the first business day of
September 1996, March 1997, September 1997 and March 1998. CVCA's and CEA's
total cash investment in the capital stock, and the Senior Bridge Note and 1989
Subordinated Notes were $2,000,048 and $13,000,000, respectively. On May 25,
1989, in connection with the Closing of the transactions contemplated by the
Exchange Agreement, the Issuer and its subsidiaries, including Hanger, entered
into the Bank Credit Agreement with the Bank whereby certain of the proceeds of
borrowing thereunder were used to repay all of the outstanding principal amount
and accrued interest on the Senior Bridge Note.
On February 28, 1989, HAC, Hanger, the Issuer and all of the
securityholders and a warrant holder of Hanger (the "Hanger Securityholders")
entered into an Amendment (the "Amendment") to a Stock and Warrant Purchase
Agreement (as amended, the "Hanger Purchase Agreement") dated January 12, 1989
by and among the Issuer (as purchaser), Hanger and the Hanger Securityholders
(as sellers). Pursuant to the Amendment, the Issuer assigned all of its right,
title, interest and obligations in the Hanger Purchase Agreement to HAC. On
February 28, 1989, HAC consummated the acquisition of all of the outstanding
capital stock of Hanger pursuant to the terms of the Hanger Purchase Agreement.
Effective as of April 11, 1989, HAC merged with and into Hanger (the "Merger").
Pursuant to the Merger, CVCA received 67,611.25 shares of Hanger common stock
representing approximately 93.4% of the outstanding common stock, 1,058 shares
of Hanger's outstanding Class A preferred stock representing approximately 24.3%
of the outstanding Class A preferred stock, and 5,622.96 shares of Hanger Class
B preferred stock representing all of the outstanding Class B preferred stock.
Hanger, as a successor by merger to HAC, became obligated to CEA on the
$7,400,000 Senior Bridge Note and the $5,600,000 1989 Subordinated Notes.
On February 12, 1990, the Issuer, CVCA, Messrs. Manganiello
and Cestaro, Ivan R. Sabel ("Sabel") and Richard A. Stein ("Stein") (CVCA and
Messrs. Manganiello, Cestaro, Sabel and Stein are collectively referred to as
the "Purchasers") entered into a Stock Purchase Agreement (the "Stock Purchase
Agreement") whereby the Issuer issued and sold to the Purchasers an aggregate of
100 shares of the Issuer's Class D Preferred Stock, par value $.01 per share
(the "Class D Preferred Stock") and 100 shares of the Issuer's Class E Preferred
Stock, $.01 par value (the "Class E Preferred Stock") for a purchase price of
$6,173 per share and $2,922.67 per share, respectively. Pursuant to the Stock
Purchase Agreement, CVCA acquired 91.4661 shares of Class D Preferred Stock and
80.5356 shares of Class E Preferred Stock. A copy of the Stock Purchase
Agreement, including Schedule A thereto which sets forth the shares of Class D
Preferred Stock and Class E Preferred Stock acquired by each of the Purchasers,
is filed as Exhibit 15 hereto.
The purpose of the Purchasers' investment in the Class D
Preferred Stock and Class E Preferred Stock was to provide equity capital to the
Issuer for use in connection with the acquisition as of February 13, 1990 from
unaffiliated parties of all of the outstanding common stock of three companies
engaged in the same line of business as the Issuer (hereinafter the "Scott
Acquisition"). Information concerning the Scott Acquisition is reported in the
Issuer's Current Report on Form 8-K dated February 13, 1990. In connection with
these transactions and pursuant to a third amendment to the Hanger Investment
Agreement dated as of February 12, 1990, CEA loaned $500,000 to Hanger in
consideration for a nonconvertible 14% Subordinated Promissory Note of Hanger
(the "First 1990 Subordinated Note"). The first two years' interest on the First
1990 Subordinated Note will be deferred and added to the principal amount, which
is payable in four equal semi-annual installments on March 1, 1997, September 1,
1997, March 1, 1998 and September 1, 1998. Other terms and provisions of the
First 1990 Subordinated Note are substantially the same as the terms and
provisions of the 1989 Subordinated Notes as set forth in the Hanger Investment
Agreement as amended. Pursuant to a First Amendment to Subordination Agreement
dated as of February 12, 1990, the First 1990 Subordinated Note also has been
subordinated to all obligations owing to the Bank under the Bank Credit
Agreement.
CVCA and Exeter entered into a First Amended and Restated
Beneficial Ownership Agreement (the "Restated Beneficial Ownership Agreement")
dated as of March 1, 1990 in the form filed as Exhibit 11.1 hereto whereby
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CUSIP No. 41043F-208
CVCA sold to Exeter, at CVCA's pro rata cost basis therein, 20.8268 shares of
the Issuer's Class D Preferred Stock and 18.9742 shares of the Issuer's Class E
Preferred Stock. CVCA received $128,563.84 plus accrued dividends of $838.31
from February 12 - March 1, 1990 and $55,455.52 plus accrued dividends of
$361.60 from February 12 - March 1, 1990 from Exeter as full payment for the
Class D Preferred Stock and Class E Preferred Stock, respectively. CEA and
Exeter also entered into a First Amended and Restated Participation Agreement
(the "Restated Participation Agreement") as of March 1, 1990 whereby Exeter
acquired a 36.34773% undivided participation in the First 1990 Subordinated
Note. The purchase price for such participation was $181,738.65 plus $1,185.04,
which represented CEA's pro rata cost basis plus accrued interest from February
12 - March 1, 1990.
Effective June 19, 1990, the parties to the Hanger Investment
Agreement entered into a fourth amendment to such agreement. The fourth
amendment was entered into to induce the Bank to amend certain provisions of the
Bank Credit Agreement. In connection with such fourth amendment, CEA and the
Bank also entered into a Second 1989 Amendment to the Subordination Agreement
which required CEA to defer certain cash interest payments in the event certain
financial covenants set forth in the Bank Credit Agreement are not satisfied.
On November 8, 1990, the Issuer, Hanger, CVCA, CEA and Messrs.
Manganiello and Cestaro entered into a fifth amendment to the Hanger Investment
Agreement whereby CEA loaned $2,450,000 to Hanger in consideration for a seven
year non-convertible 14% Subordinated Promissory Note of Hanger (the "Second
1990 Subordinated Note" and together with the First 1990 Subordinated Note, the
"1990 Subordinated Notes"). Pursuant to such fifth amendment, interest on all of
the 1989 and 1990 Subordinated Notes accrues and compounds semi-annually, but is
not payable in cash until all amounts owing under the Bank Credit Agreement are
paid in full. The purpose of the loan was to primarily provide the Issuer with
capital for use in connection with the acquisition as of November 8, 1990 of
substantially all of the assets of Ralph Storrs, Inc. (hereinafter the "Storrs
Acquisition"). Information concerning the Storrs Acquisition is contained in the
Issuer's Current Report on Form 8K, filed on November 21, 1990 and amended
January 15, 1991.
The fifth amendment to the Hanger Investment Agreement
provided for the following with respect to the Second 1990 Subordinated Note:
(i) a placement fee which ranges from a minimum of $24,500 (in the event the
loan is repaid within 90 days) to a maximum of $294,000 (in the event the loan
is repaid after 360 days); and, (ii) the issuance by the Company to CVCA (or its
designee) of warrants to purchase shares of common stock of the Company in an
amount equal to 5% of the then outstanding shares on and after 271 days after
November 8, 1990 and warrants equal to an additional 5% of the then outstanding
shares on and after 361 days after November 8, 1990, if at either date the
Second 1990 Subordinated Note is not repaid in full. The exercise price of the
warrants (the "Contingent Warrants") will be the market price of the common
stock at the time of the grant of the Contingent Warrants; provided, however,
that in the event the Company engages in an underwritten public offering
pursuant to which the Company sells at least $5,000,000 of its common stock
within 90 days of the date of the grant of such warrants and such public
offering price is greater than the market value of the common stock on the date
of the grant of such warrants, then the exercise price of such warrants shall be
increased to such higher public offering price. The fifth amendment also
provided for (i) the relative payment priorities between the Second 1990
Subordinated Note on the one hand and the 1989 Subordinated Notes and First 1990
Subordinated Note on the other hand and (ii) the transfer of the 1989
Subordinated Notes and First 1990 Subordinated Notes from CEA to CVCA.
CVCA, CEA and the Bank also entered into a Third Amendment to
the Subordination Agreement dated as of November 8, 1990, whereby CVCA agreed,
as and when necessary to enable the Issuer and its subsidiaries to satisfy
certain net worth covenants with the Bank, to exchange that portion of the 1989
and First 1990 Subordinated Notes held by CVCA for shares of the Issuer's Class
F Preferred Stock, par value $.01 per share (the "Class F Preferred Stock"). The
terms and conditions of the Class F Preferred Stock are set forth at pages 29-35
of Exhibit 3.1 hereto and incorporated herein by reference. CVCA, CEA and Exeter
also entered into an Amendment Agreement dated as of November 8, 1990 (amending
the Amended Participation Agreement and the Amended Beneficial Ownership
Agreement) which is filed as Exhibit 11.3 hereto and incorporated herein by
reference. The Amendment Agreement provides for Exeter's acquisition of (i) a
21.73% participation in the Second 1990 Subordinated Note issued to CEA in
connection with the financing of the Storrs acquisition, (ii) 24.16% of any
placement fee received pursuant to the fifth amendment to the Hanger Investment
Agreement and (iii) 24.16% of any Contingent Warrants which may subsequently be
issued to CEA or its designee. Exeter paid CEA $532,394 (or 21.73% of the face
amount of the Second 1990 Original Subordinated Note) for its interests
described above.
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CUSIP No. 41043F-208
On March 1, 1991, the Issuer, Hanger, CVCA, CEA and Messrs.
Manganiello and Cestaro entered into a sixth amendment to the Hanger Investment
Agreement (filed as Exhibit 18.6 hereto) whereby CEA loaned $800,000 to Hanger
in consideration for a seven year non-convertible 14% Subordinated Promissory
Note of Hanger (the "First 1991 Subordinated Note" and together with the 1989
Subordinated Notes and the 1990 Subordinated Notes, the "Original Subordinated
Notes"). Interest on the First 1991 Original Subordinated Note accrues and
compounds semi-annually, but is not payable in cash until all amounts owing
under the Bank Credit Agreement are paid in full. The purpose of the loan was to
primarily provide the Issuer with capital to pay certain expenses associated
with the Issuer's proposed public offering. Information concerning the public
offering is contained in the Issuer's Final Prospectus, dated April 30, 1991
(the "Final Prospectus").
The sixth amendment to the Hanger Investment Agreement
provided for the following with respect to the First 1991 Subordinated Note: (i)
a placement fee which ranges from a minimum of $8,000 (in the event the loan is
repaid within 90 days) to a maximum of $96,000 (in the event the loan is repaid
after 360 days); and, (ii) a $10,000 closing fee. The sixth amendment also
provided for the relative payment priorities between the Second 1990 Original
Subordinated Note on the one hand and the 1989 Subordinated Notes and First 1990
Subordinated Note on the other hand.
CVCA, CEA and the Bank also entered into a Fourth Amendment to
the Subordination Agreement dated as of March 1, 1991, whereby CEA agreed to
waive certain acceleration rights with respect to the First 1991 Subordinated
Note if the Issuer and its subsidiaries failed to satisfy certain net worth
covenants with the Bank. CVCA, CEA and Exeter also entered into an Amendment
Agreement dated as of March 1, 1991 (amending the Amended Participation
Agreement and the Amended Beneficial Ownership Agreement) which is filed as
Exhibit 11.4 hereto and incorporated herein by reference. The Amendment
Agreement provides for Exeter's acquisition of (i) a 24.16% participation in the
First 1991 Subordinated Note issued to CEA and (ii) 24.16% of any placement fee
(but not closing fee) received pursuant to the sixth amendment to the Hanger
Investment Agreement. Exeter paid CEA $193,280 (or 24.16% of the face amount of
the First 1991 Subordinated Note) for its interests described above.
On March 20, 1991, the Issuer, Hanger, CVCA, CEA and Messrs.
Manganiello and Cestaro entered into a seventh amendment to the Hanger
Investment Agreement. The seventh amendment to the Hanger Investment Agreement
provided for the following with respect to the Second 1990 and First 1991
Subordinated Notes: (i) the transfer of such notes from CEA to CVCA (resulting
in CVCA holding all of the Original Subordinated Notes), (ii) amending such
notes to become convertible into Class F Preferred Stock, at the option of the
holder of such notes (provided that CVCA had previously agreed with the Issuer
to not convert any Original Subordinated Notes into Class F Preferred Stock
until May 3, 1991) and (iii) the terms upon which the placement fees associates
with such notes will be paid if such notes are partially or fully converted into
Class F Preferred Stock. The seventh amendment also provided for the relative
payment priorities among all of the Original Subordinated Notes. On May 31,
1991, CVCA and the Issuer entered into a letter agreement amending the relative
payment priorities among all of the Original Subordinated Notes. See Exhibit
18.8.
CVCA, CEA and the Bank also entered into a Fifth Amendment to
the Subordination Agreement dated as of November 8, 1990, whereby CVCA agreed,
as and when necessary to enable the Issuer and its subsidiaries to satisfy
certain net worth covenants with the Bank, to exchange that portion of the
Original Subordinated Notes held by CVCA (including the Second 1990 and First
1991 Subordinated Notes) for shares of the Issuer's Class F Preferred Stock.
CVCA, CEA and Exeter also entered into an Amendment Agreement dated as of March
20, 1991 (amending the Amended Participation Agreement and the Amended
Beneficial Ownership Agreement) which is filed as Exhibit 11.5 hereto and
incorporated herein by reference. The Amendment Agreement provides for, among
other things, Exeter's consent to the foregoing transactions.
On May 1, 1991, all of the holders of Class B Preferred Stock
and Class D Preferred Stock converted all such shares into Common Stock on the
terms set forth in the Issuer's Restated Certificate of Designations,
Preferences and Rights of Preferred Stock. CVCA received 140,574 and 419,285
shares of Common Stock upon conversion of 140,574 shares of Class B Preferred
Stock and 70.6393 shares of Class D Preferred Stock, respectively. Exeter
received beneficial ownership of 123,619 shares of Common Stock upon conversion
of 20.8268 shares of Class D Preferred Stock.
On April 30, 1991, the Issuer's Registration Statement on Form
S-2 for the sale of 2,750,000 shares of its Common Stock was declared effective.
On May 7, 1991 and pursuant to the Registration Statement and Final Prospectus,
the Issuer sold 2,750,000 shares of its Common Stock for $5.00 per share. CVCA
purchased 200,000 of such shares for
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CUSIP No. 41043F-208
$5.00 per share, through the Issuer's underwriter, PaineWebber Incorporated.
Effective June 1, 1991, CVCA sold Exeter 48,320 of such shares for $5.00 per
share. See Exhibit 11.6.
Shortly after the public offering was completed, the Issuer
repaid the Bank all amounts owing to the Bank. As a result of such prepayment,
CVCA and Exeter expected that all of the Original Subordinated Notes would pay
interest currently. A portion of the Original Subordinated Notes and related
original placement fees equaling approximately $955,000 was repaid from the
proceeds of the public offering on May 30, 1991. CVCA and Exeter waived all
prepayment penalties otherwise owing with respect to such prepayments.
Since the Second 1990 Subordinated Note was not repaid prior
to August 6, 1991 (i.e., 271 days after the date of such note), the Company
issued warrants as of that date to CVCA and Exeter entitling them to purchase a
total of 225,914 and 71,969 shares, respectively (equal to 5% of the then
outstanding shares of Common Stock and rights to acquire Common Stock at an
exercise price equal to or less than $5.20 per share). Such warrants are
exercisable by CVCA and Exeter on or before December 31, 2001 at an exercise
price initially equal to $4.16 per share. In the event the Company engages in an
underwritten public offering pursuant to which it sells at least $5 million of
its Common Stock within 90 days of the date of grant of the warrants and the
public offering price is greater than $4.16, then the exercise price of any such
warrants will be increased to such higher public offering price. These warrants
issued to CVCA and Exeter are included as Exhibits 20 and 20.1 hereto.
Since the Second 1990 Subordinated Note was not repaid prior
to November 5, 1991 (i.e., 361 days after the date of such note), the Company
became obligated to issue warrants as of that date to CVCA and Exeter entitling
them to purchase a total of 244,735 and 77,964 shares, respectively (equal to 5%
of the then outstanding shares of Common Stock and rights to acquire Common
Stock at an exercise price equal to or less than $9.56 per share). Such warrants
will be exercisable by CVCA and Exeter on or before December 31, 2001 at an
exercise price initially equal to $7.65 per share. In the event the Company
engages in an underwritten public offering pursuant to which it sells at least
$5 million of its Common Stock within 90 days of the date of grant of the
warrants and the public offering price is greater than $7.65, then the exercise
price of any such warrants will be increased to such higher public offering
price. Forms of these warrants issued to CVCA and Exeter are included as
Exhibits 21 and 21.1 hereto.
As of February 20, 1992, the Issuer, Hanger, CVCA, CEA and
Messrs. Manganiello and Cestaro entered into an eighth amendment to the Hanger
Investment Agreement (filed as Exhibit 18.7 hereto) whereby the Original
Subordinated Notes were amended to make interest payable currently and eliminate
their convertibility to Class F Preferred Stock, CVCA, CEA and the Bank also
entered into a Sixth Amendment to the Subordination Agreement, dated as of
February 20, 1992 (filed as Exhibit 19.6 hereto), whereby the Bank authorized
the transactions contemplated in the eighth amendment to the Hanger Investment
Agreement.
As of February 20, 1992, CVCA transferred of record to Exeter
all of the Issuer's securities and the portion of the Original Subordinated
Notes beneficially owned by Exeter. In connection therewith, Exeter became a
party to the Hanger Investment Agreement, the Stockholders Agreement, the
Subordination Agreement, the Amended and Restated Registration Rights Agreement
and the Manager Options and Additional Manager Options (as such terms are
defined in Section 6 hereof). The agreements which effected the foregoing
transactions were a letter agreement, dated as of February 20, 1992, between
CVCA and Exeter (which is attached hereto as Exhibit 11.7) and an Amendment to
Stock Option and Vesting Agreements and Amendment Agreement, dated as of
February 20, 1992, among CVCA, CEA, Exeter, the Issuer and Messrs. Manganiello,
Sabel and Stein (which is attached hereto as Exhibit 5.3).
On April 13, 1992, CVCA, Exeter and the Issuer entered into an
Amendment to Warrants (attached hereto as Exhibit 22) whereby the Warrants
previously issued to CVCA and Exeter in connection with the Storrs financing
were amended to permit the exercise price payable thereunder to be paid in cash,
securities of the Issuer or Original Subordinated Notes.
On May 8, 1992, the Issuer's Registration Statement on Form
S-2 for the sale of 1,850,000 shares of its Common Stock was declared effective.
On May 15, 1992, pursuant to such Registration Statement, the Issuer sold
1,850,000 shares of its Common Stock for $8.00 per share. On May 15, 1992, the
Issuer used a portion of the proceeds from such public offering to repay the
Original Subordinated Notes in full and redeem all of the outstanding Class A
Preferred Stock and Class E Preferred Stock, including such preferred shares
held by CVCA and Exeter. CVCA and Exeter waived all prepayment penalties due
upon the early prepayment of the Original Subordinated Notes.
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CUSIP No. 41043F-208
On November 1, 1996, the Issuer, Paribas Principal Inc.
("PPI") and CVCA entered into a Senior Subordinated Note Purchase Agreement
dated as of November 1, 1996 in the form filed as Exhibit 23 hereto (the "1996
Note Purchase Agreement") whereby PPI and CVCA each loaned $4,000,000 to the
Issuer in consideration for an eight year 8% Senior Subordinated Note of the
Issuer in the original principal amount of $4,000,000 (the "1996 Subordinated
Note") and 800,000 warrants to purchase 800,000 shares of the Issuer's Common
Stock (the "1996 Warrants"). Pursuant to such 1996 Note Purchase Agreement,
interest on the 1996 Subordinated Note accrues and compounds semi-annually and
is payable on each June 30 and December 31, commencing June 30, 1997, either (i)
entirely in cash in an amount equal to 8% of the unpaid principal amount of the
1996 Subordinated Note when due or (ii) at the Issuer's option, in a combination
of (x) cash in an amount at least equal to 3.2% per annum of the unpaid
principal amount of the 1996 Subordinated Note when due and (y) newly issued
senior subordinated notes (the "Subsequent 1996 Subordinated Notes"), in an
aggregate principal amount equal to the remaining amount of accrued interest on
the 1996 Subordinated Notes for such period (which includes all Subsequent 1996
Subordinated Notes which may have been issued prior to such period). The 1996
Subordinated Note and all Subsequent 1996 Subordinated Notes are subordinated to
loans in an aggregate amount of up to $88 million (the "1996 Senior Bank Debt)
made to the Issuer by Banque Paribas, as agent for a syndicate of bank's.
Pursuant to the 1996 Warrants issued to CVCA in the form filed as Exhibit 24
hereto, the 1996 Warrants are exercisable by CVCA at any time and from time to
time after November 1, 1996 provided that CVCA may not exercise any 1996 Warrant
if after giving effect to such exercise the total number of shares of Common
Stock issued upon exercise thereof would exceed the product of (x) (i) .45, if
such date of exercise is on or prior to November 1, 1997; or (ii) .50 if such
date of exercise is on or prior to May 1, 1998 but after November 1, 1997; or
(iii) 1.00 if such date is after May 1, 1998 and (y) the total number of shares
of Common Stock issuable upon exercise thereof as of November 1, 1996 (as
adjusted pursuant to Article 5 thereof). The exercise price of the 1996 Warrants
shall be $6.375 with respect to the 335,150 shares of Common Stock and $4.00865
with respect to 464,850 shares of Common Stock issuable upon exercise of the
1996 Warrants. Although the 1996 Warrants initially entitle CVCA to purchase
800,000 shares of the Issuer's Common Stock, the 1996 Warrants also provide that
in the event that the Issuer shall have repaid in full all amounts outstanding
under the 1996 Note Purchase Agreement, the number of shares of Common Stock
issuable upon exercise of the 1996 Warrants shall be reduced by that number of
shares which is equal to the product of (x) (i) .55, if such date of repayment
is on or prior to November 1, 1997 or .50, if such date of repayment is on or
prior to May 1, 1998 but after November 1, 1997; and (y) the total number of
shares of Common Stock issuable upon exercise thereof on November 1, 1996 (as
adjusted pursuant to Article 5 thereof).
The purpose of the loan was to provide the Issuer with capital
to be used solely to refinance debt outstanding under the Bank Credit Agreement,
pay related fees, commissions and expenses, finance ongoing working capital
requirements and other general corporate purposes of the Issuer and its
subsidiaries.
On July 31, 1997, the Issuer sold five million shares of
Common Stock in an underwritten public offering resulting in approximately $51
million of net proceeds to the Issuer. On August 5, 1997, the Issuer applied the
net proceeds of the public offering to the repayment of the 1996 Subordinated
Note including accrued interest thereon for a total amount of $4,180,106.67. As
a result of the Issuer's repayment of the 1996 Subordinated Note, the 1996
Warrant was amended to reflect the reduction in the aggregate number of shares
of the Issuer's Common Stock issuable upon exercise of the 1996 Warrant from
800,000 shares to 360,000 shares.
On July 30, 1998, the Issuer's Registration Statement on Form
S-2 for the sale of 3,300,000 shares of its Common Stock was declared effective.
On August 4, 1998 and pursuant to the Issuer's Registration Statement and Final
Prospectus, dated July 29, 1998 (the "1998 Registration Statement and Final
Prospectus"), CVCA sold 800,000 shares of the Issuer's Common Stock for $17.00
per share. Information concerning the public offering is contained in the 1998
Registration Statement and Final Prospectus.
On July 1, 1999, CVCA indirectly transferred all of its shares
of Common Stock and Warrants to purchase shares of Common Stock of the Issuer to
CEA. In connection with this transaction, CVCA now beneficially owns less than
5% of the outstanding voting securities of Hanger.
Source of Funds
- ---------------
The funds provided by CVCA for the purchase of HAC capital
stock, the Issuer's capital stock and the 1996 Warrants, and the funds provided
by CEA for the purchase of the Senior Bridge Note and by CVCA for the purchase
of all
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CUSIP No. 41043F-208
of the Original Subordinated Notes and the 1996 Subordinated Note were obtained
from CVCA's and CEA's respective contributed capital, which includes funds that
are held available for such purposes.
The purchase price of $17,972 paid by Mr. Stein to acquire his
shares of Class D Preferred Stock and Class E Preferred Stock from the Issuer
was borrowed from CVCA. A note and a stock pledge agreement (filed as Exhibit 16
hereto) evidence such borrowing, which has since been repaid.
Disclaimer of Group Status
- --------------------------
As noted above, Messrs. Manganiello and Cestaro together with
CVCA were Exchanging Stockholders under the Exchange Agreement. They each
received the Issuer's Common Stock and Class A Preferred Stock upon consummation
of the transactions contemplated by the Exchange Agreement, although only CVCA
received the Issuer's Class B Preferred Stock. In connection with the Exchange
Agreement and the Closing of the transactions contemplated thereby, CVCA entered
into certain agreements with the Hanger Management as well as certain members of
key management and principal stockholders of the Issuer (the "Issuer's
Management"). Exeter became a party to such agreements when it acquired record
ownership of the Hanger Securities previously held of record by CVCA but
beneficially owned by Exeter. The terms of these agreements, which are
summarized elsewhere in this statement, provided generally that the Hanger
Management and the Issuer's Management agree with CVCA and the Issuer as to
restrictions on transferability of their stockholdings, certain rights to
participate with CVCA and Exeter in certain private sales arranged by CVCA or
Exeter or registration of their stockholdings along with CVCA or Exeter for sale
pursuant to the Securities Act of 1933 as amended (the "1933 Act"), and
agreements to cooperate and rights to participate in transactions involving a
merger, consolidation or reorganization of the Issuer or a sale of all or
substantially all of the Issuer's business. In addition, Messrs. Manganiello,
Cestaro, Sabel and Stein together with CVCA, were the Purchasers of the Issuer's
Class D Preferred Stock and Class E Preferred Stock pursuant to the Stock
Purchase Agreement and Mr. Stein has pledged his shares of Common Stock and
Class E Preferred Stock to CVCA as security for CVCA's financing of the purchase
price thereof. As disclosed under Item 6(a)(ii) of this Statement, Messrs.
Manganiello, Sabel and Stein also have been granted options to currently
purchase a total of 762,015 shares of Common Stock held of record by CVCA and
Exeter.
Notwithstanding the existence of these agreements, CVCA's
decision to acquire the HAC securities, its decision to enter into the Exchange
Agreement with respect to acquisition of the Issuer's equity securities at
Closing, and CVCA's decision to purchase the Issuer's Class D Preferred Stock
and Class E Preferred Stock, are decisions made unilaterally by CVCA. The
purpose and overall effect of the foregoing agreements is to facilitate CVCA's
ability to exercise control over the Issuer and its management. In CVCA's
opinion, none of these agreements materially affect their respective rights to
vote and dispose of the Issuer's Common Stock, although certain of the
agreements may afford the other parties thereto an opportunity to elect to
participate with CVCA and Exeter in certain transactions initiated by CVCA and
Exeter, including a sale of the Issuer's business or a disposition of a majority
of CVCA's and Exeter's holdings of the Issuer's equity securities. Prior to
execution of the Exchange Agreement and the Hanger Investment Agreement on
February 28, 1989, neither CVCA nor Exeter had any contractual or other
relationship with the Hanger Management, the Issuer's Management or others with
respect to beneficial ownership of the Issuer's Common Stock. Prior to May 9,
1989, CVCA and Exeter did not have any contractual or other agreement with
respect to beneficial or record ownership of the Issuer's equity securities.
As a result of the repayment of all of the Original
Subordinated Notes and the redemption of all of the Class A and Class E
Preferred Stock on May 15, 1992, Exeter is no longer a creditor of the Issuer or
any of its subsidiaries and substantially all of CVCA's and Exeter's restrictive
covenants in the Stockholders Agreement have terminated. As a result of these
changes, and the dilution of CVCA's and Exeter's percentage ownership of the
Issuer caused by the May 8, 1992 public offering of 1,850,000 shares, CVCA and
Exeter decided that it was no longer in their best interests to act as a group.
Accordingly, effective May 15, 1992, CVCA and Exeter each disclaim that it is
acting as a group with each other. Therefore, Exeter has filed its own, separate
Schedule 13D with respect to its ownership of the Issuer's securities.
CVCA disclaims that it is member of a group with any other
persons either for purposes of this Schedule 13D or for any other purpose
related to its beneficial ownership of the Issuer's securities.
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CUSIP No. 41043F-208
Item 5. Interest in Securities of the Issuer.
- ---------------------------------------------
The response to Item 5 is amended in its entirety to read as follows:
Effective as of July 1, 1999 and in connection with an
indirect transfer of all of its shares of Common Stock and Warrants to purchase
shares of Common Stock of the Issuer to CEA, CVCA is no longer the beneficial
owner of any shares of the Issuer's Common Stock.
Based upon the cash investment made by CVCA in the respective
classes of HAC securities (and without taking into consideration the purchase of
Hanger debt securities by CEA or CVCA or the receipt or forfeiture of any shares
of Common Stock pursuant to the agreements described in Item 6(a) below), the
effective cost per share to CVCA of the Issuer's Class A Preferred Stock, Class
B Preferred Stock and Common Stock received in the Exchange may be deemed to be
approximately $1.15, $1.04, and $1.04, respectively. CEA paid $7,400,000 for the
Senior Bridge Note, which was repaid on the date of Closing, and CEA paid an
aggregate of $5,600,000 for the 1989 Subordinated Notes.
Effective as of February 12, 1990, CVCA invested an additional
$800,000 in the Issuer in connection with CVCA's purchase of 91.4661 shares of
Class D Preferred Stock at a purchase price of $6,173 per share and its purchase
of 80.5356 shares of Class E Preferred Stock at a purchase price of $2,922.68
per share. This investment is exclusive of $17,972 loaned by CVCA to Mr. Stein
for his acquisition of Class D Preferred Stock and Class E Preferred Stock
pursuant to the Stock Purchase Agreement, and CEA's purchase for $500,000 of the
First 1990 Original Subordinated Note.
On November 8, 1990, CEA purchased for $2,450,000 the Second
1990 Subordinated Note and transferred the 1989 Subordinated Notes and First
1990 Subordinated Note to CVCA. In connection with such financing, CEA and
Exeter received the Contingent Warrants, without charge, because the Second 1990
Subordinated Note was not repaid within 270 and 360 days after its issuance.
See, Item 3 above.
On March 1, 1991, CEA purchased for $800,000 the First 1991
Subordinated Note. On March 20, 1991, CEA transferred the Second 1990 and First
1991 Subordinated Notes to CVCA.
On May 7, 1991, CVCA purchased for $5.00 per share 200,000 of
the Issuer's publicly-registered Common Stock from Paine Webber Incorporated,
the Issuer's underwriter. Effective June 1, 1991, Exeter purchased from CVCA
48,320 of such shares for $5.00 per share.
On May 15, 1992, the Issuer repaid all outstanding Original
Subordinated Notes and redeemed all outstanding shares of Class A and Class E
Preferred Stock.
CVCA's aggregate cost basis in the Issuer's equity securities
described above was reduced by approximately $640,326.41 due to its sale to
Exeter of a participation in the Class A Preferred Stock, Class D Preferred
Stock, Class E Preferred Stock and Common Stock acquired in the Exchange.
During the months of September 1992 through January 18, 1993,
CVCA sold the following shares of Common Stock in Rule 144 transactions:
Date Shares Price
------------ ------------- -------------
9/30 10,000 8.750
11/18 25,000 8.500
11/19 10,000 8.500
12/3 5,000 8.630
12/3 5,000 8.750
12/3 5,000 8.880
1/7 5,000 8.500
1/8 5,000 8.500
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CUSIP No. 41043F-208
1/12 30,000 8.380
1/13 10,000 8.500
1/14 10,000 8.500
1/20 10,000 8.250
On August 7, 1996, CVCA sold 226,109 shares of Common Stock to
Mr. Manganiello upon the exercise of his New Manager Option and Additional
Manager Option (each as defined in Item 6(a) below) at an exercise price of
$3.875 per share. Mr. Manganiello paid the exercise price of such options
through the cancellation of his remaining New Manager Options and Additional
Manager Options to acquire 143,048 additional shares of Common Stock of the
Issuer owned by CVCA. On August 9, 1996, CVCA sold 33,000 shares of Common Stock
to Mr. Stein and 67,000 shares of Common Stock to Mr. Sabel upon the exercise of
a portion of their New Manager Option (as defined in Item 6(a) below) at an
exercise price of $3.875 per share. Mr. Stein paid the purchase price of his
options through the cancellation of New Manager Options to acquire 20,878
additional shares of Common Stock of the Issuer owned by CVCA and Mr. Sabel paid
the exercise price of his options through the cancellation of New Manager
Options to acquire 42,429 additional shares of Common Stock of the Issuer owned
by CVCA. As of August 7, 1996, Mr. Stein and Mr. Sabel continue to collectively
own New Manager Options to purchase 17,761 shares of Common Stock of the Issuer
owned by CVCA and Additional Manager Options to purchase 170,735 shares of
Common Stock of the Issuer owned by CVCA, in each case, having an exercise price
of $3.875 and expiring on December 31, 1997.
On January 7, 1997, CVCA sold 40,448 shares of Common Stock to
Mr. Stein and 69,429 shares of Common Stock to Mr. Sabel upon their exercise of
remaining New Manager Options and Additional Manager Options. Mr. Stein paid the
purchase price of his options through the cancellation of Additional Manager
Options to acquire 52,246 additional shares of Common Stock of the Issuer owned
by CVCA and Mr. Sabel paid the exercise price of his options through the
cancellation of Additional Manager Options to acquire 89,680 additional shares
of Common Stock of the Issuer owned by CVCA.
On November 1, 1996, CVCA purchased for $4,000,000 the 1996
Subordinated Note and the 1996 Warrants.
On August 5, 1997, the Issuer repaid the 1996 Subordinated
Note and as a result thereof, the 1996 Warrants were amended to reflect the
reduction in the aggregate number of shares of the Issuer's Common Stock
issuable upon their exercise from 800,000 shares to 360,000.
On August 4, 1998 and pursuant to the Issuer's Registration
Statement and Final Prospectus, CVCA sold 800,000 shares of the Issuer's Common
Stock for $17.00 per share. Information concerning the public offering is
contained in the 1998 Registration Statement and Final Prospectus.
Except as reported in Item 6 below and incorporated herein by
reference, there have been no transactions in the Common Stock during the past
sixty days which are required to be reported in this Statement. No person other
than CVCA has the right to receive or the power to direct the receipt of
dividends from or the proceeds from the sale of the Common Stock owned
beneficially by CVCA.
Item 6. Contracts, Arrangements, Understandings or Relationships With Respect
to Securities of the Issuer.
- --------------------------------------------------------------------------------
The response to Item 6(a)(ii) is amended in its entirety to read as follows:
(i) Issuance of Options By CVCA and Exeter
Effective as of August 13, 1990, CVCA and Exeter (the
"Optioners") granted to Messrs. Manganiello, Cestaro, Sabel and Stein (the
"Managers") options (the "Manager Options") to purchase a total of 496,250
shares of the Issuer's Common Stock owned beneficially by the Optioners at an
exercise price of $6.00 per share. Upon exercise of the Manager Options, the
Optioners will transfer 27.5% of the exercise price of each Manager Option
(approximately $1.65 per share) to the Issuer, thereby enabling the Issuer to
receive up to the same approximate maximum amount it would have been
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CUSIP No. 41043F-208
entitled to receive upon exercise of the maximum amount of options that might
have been granted and exercised under the Incentive Plan. Manager Options for
82,500 shares were canceled upon the resignation of Mr. Cestaro as President of
JEH effective March 31, 1991.
On March 14, 1991, the Optioners granted to Messrs.
Manganiello, Sabel and Stein additional options to purchase from CVCA and Exeter
a total of 348,265 shares of Common Stock owned by CVCA and Exeter, of which
options for 248,265 shares are exercisable at a price of $6.00 per share and
100,000 shares are exercisable at a price of $8.00 per share. Such additional
options are hereinafter called the "Additional Manager Options."
The Manager Options and Additional Manager Options generally
become exercisable on a cumulative basis to the extent of 33 1/3% at the end of
each of the first three years following the date of grant so long as the
optionee continues to be employed by the Issuer. The options become fully
exercisable upon an earlier sale of the Issuer or termination of the optionee's
employment by reason of optionee's death or disability. The Manager Options
expired on May 13, 1994 without being exercised.
Exeter and CVCA entered into an Amendment Agreement, dated as
of August 13, 1990 and an Amendment Agreement, dated March 20, 1991 (both
amending the Amended Participation Agreement and the Amended Beneficial
Ownership Agreement) whereby Exeter became obligated to sell 24.16% of any
shares sold to the Managers upon exercise of the Manager Options and Additional
Manager Options. On February 20, 1992, pursuant to an agreement attached hereto
as Exhibit 5.3, Exeter assumed such obligations directly.
On May 16, 1994, pursuant to the Stock Option Agreements
attached hereto as Exhibit 5.4, CVCA granted Messrs. Manganiello, Sabel and
Stein new Manager Options (the "New Manager Options") for the same number of
shares of Common Stock and at the same exercise price as the prior Manager
Options granted by CVCA (exclusive of Exeter's portion), and with an expiration
date of May 16, 1995. The New Manager Options are fully vested as of the date of
granting. The Additional Manager Options had an original expiration date of
December 14, 1994; their expiration date was later extended to December 14, 1995
pursuant to an agreement attached hereto as Exhibit 5.5, provided that such
extension had no effect on the expiration date of the exercise period relating
to the 24.16% portion of each Additional Manager Option for which Exeter is
solely responsible.
Pursuant to the Third Amendment to Stock Option and Vesting
Agreements and Amendment Agreement attached hereto as Exhibit 5.6, CVCA agreed
to (i) reduce the exercise price of the Additional Manager Options (excluding
that portion of such options for which Exeter is solely responsible) and the New
Manager Options to $3.875 per share and (ii) extend the expiration date of the
Additional Manager Options (excluding that portion of such options for which
Exeter is solely responsible) and the New Manager Options to March 22, 1996.
Pursuant to the Fourth Amendment to Stock Option and Vesting
Agreements and Amendment Agreement attached hereto as Exhibit 5.7, CVCA agreed
to (i) extend the expiration date of the New Manager Option and the Additional
Manager Option (excluding that portion of such options which Exeter is solely
responsible) of Mr. Manganiello to March 22, 1997 and (ii) provide for the
payment of the exercise price of the New Manager Option and the Additional
Manager Option (excluding that portion of such Options which Exeter is solely
responsible) of Mr. Manganiello with cash and/or the reduction in the number of
shares of common stock issuable upon the exercise of the subject option.
Pursuant to the Fifth Amendment to Stock Option and Vesting
Agreements and Amendment Agreement attached hereto as Exhibit 5.8, CVCA agreed
to (i) extend the expiration date of the New Manager Options of Messrs. Sabel
and Stein to March 22,1997 with respect to 67,000 shares underlying the New
Manager Options of Mr. Sabel and 33,000 shares underlying the New Manager
Options of Mr. Stein with the expiration date for the balance of 51,500 shares
for Mr. Sabel and 29,568 shares for Mr. Stein that underlie their respective New
Manager Options being extended to December 31, 1997; (ii) extend the expiration
date of the Additional Manager Options (excluding that portion of such options
for which Exeter is solely responsible) of Messrs. Sabel and Stein to December
31, 1997; and (iii) provide for the payment of the exercise price of each such
New Manager Option and Additional Manager Option (excluding that portion of such
options for which Exeter is solely responsible) of Messrs. Sabel and Stein with
cash and/or the reduction in the number of shares of common stock issuable upon
the exercise of the subject option.
In August 1996, (i) Mr. Manganiello exercised his New Manager
Option and Additional Manager Option to purchase 226,109 shares of Common Stock
from CVCA at an exercise price of $3.875 per share; (ii) Mr. Stein exercised a
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CUSIP No. 41043F-208
portion of his new Manager Option to purchase 33,000 shares of common stock from
CVCA at an exercise price of $3.875 per share and (iii) Mr. Sabel exercised a
portion of his New Manager Option to purchase 67,000 shares of common stock from
CVCA at an exercise price of $3.875 per share. Mr. Manganiello paid the exercise
price of such options through the cancellation of his remaining New Manager
Options and Additional Manager Options to acquire 143,048 additional shares of
Common Stock of the Issuer owned by CVCA; Mr. Stein paid the purchase price of
his options through the cancellation of New Manager Options to acquire 20,878
additional shares of Common Stock of the Issuer owned by CVCA; and Mr. Sabel
paid the exercise price of his options through the cancellation of New Manager
Options to acquire 42,429 additional shares of Common Stock of the Issuer owned
by CVCA. As of August 7, 1996, Mr. Stein and Mr. Sabel continue to collectively
own New Manager Options to purchase 17,761 shares of Common Stock of the Issuer
owned by CVCA and Additional Manager Options to purchase 170,735 shares of
Common Stock of the Issuers owned by CVCA, in each case, having an exercise
price of $3.875 and expiring on December 31, 1997.
On January 7, 1997, CVCA sold 40,448 shares of Common Stock to
Mr. Stein and 69,429 shares of Common Stock to Mr. Sabel upon their exercise of
remaining New Manager Options and Additional Manager Options. Mr. Stein paid the
purchase price of his options through the cancellation of Additional Manager
Options to acquire 52,246 additional shares of Common Stock of the Issuer owned
by CVCA and Mr. Sabel paid the exercise price of his options through the
cancellation of Additional Manager Options to acquire 89,680 additional shares
of Common Stock of the Issuer owned by CVCA.
On July 30, 1998, the Issuer's Registration Statement on Form
S-2 for the sale of its Common Stock was declared effective. On August 4, 1998
and pursuant to the 1998 Registration Statement and Final Prospectus, CVCA sold
800,000 shares of the Issuer's Common Stock for $17.00 per share. Information
concerning the public offering is contained in the 1998 Registration Statement
and Final Prospectus.
On July 1, 1999, CVCA indirectly transferred all of the shares
of Common Stock and warrants to purchase shares of Common Stock of the Issuer to
CEA. The transfer of the shares of Common Stock and warrants to purchase shares
of Common Stock was made in connection with the purchase by CEA of 50,000 shares
of the Issuer's 7% Redeemable Preferred Stock (the "Redeemable Preferred Stock")
for an aggregate purchase price of $50 million. In connection with such
purchase, the Issuer has informed CEA that it intends to seek from its
shareholders approval of an amendment to its certificate of incorporation to (a)
increase its number of authorized shares of Common Stock and (b) authorize a new
class of non-voting common stock. The Issuer has also informed CEA that it
intends to seek approval from its shareholders of the Redeemable Preferred Stock
becoming convertible into shares of non-voting common stock of the Issuer. Prior
to such approvals, the Redeemable Preferred Stock is not convertible. After
shareholder approval, the Issuer may, at its election, cause the Redeemable
Preferred Stock to become convertible into shares of non-voting common stock. In
addition, the Issuer and CEA have agreed that, simultaneously with the creation
of a class of non-voting common stock, they will amend the warrants held by CEA
to permit CEA to exercise such warrants for shares of non-voting common stock.
CEA is subject to regulation under Regulation Y of the Board
of Governors of the Federal Reserve System. Accordingly, in connection with the
transfer of the shares of Common Stock and warrants to purchase Common Stock,
CEA agreed not to exercise any warrant held by it if after giving effect to such
exercise CEA would own in excess of the maximum amount of Common Stock as is
permissible under applicable law.
As a result of the transactions and agreements described above
and applicable banking regulations, neither CVCA nor CEA beneficially own more
than 5% of any equity security that is registered under Section 12 of the
Securities Exchange Act of 1934, as amended. The terms of the 7% Redeemable
Preferred Stock are set forth in a certificate of designations, a copy of which
is filed as Exhibit 25 to this Amendment to Schedule 13D.
The agreements providing for the amendment of the warrants are
set forth in the Securities Purchase Agreement dated as of June 16, 1999, among
CEA, the Issuer and the other parties thereto, a copy of which is filed as
Exhibit 26 to this Amendment to Schedule 13D. Each of such documents is
incorporated by reference herein.
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CUSIP No. 41043F-208
Item 7. Material to be Filed as Exhibits.
- ------------------------------------------
*1. Stock Exchange Agreement dated February 28, 1989, by and among the
Issuer, HAC, Hanger, CVCA and Messrs. Manganiello and Cestaro,
including certain exhibits thereto listed separately below.
*2. Stockholders' Agreement, dated as of May 15, 1989, by and among the
Issuer, CVCA, CEA, Messrs. Manganiello and Cestaro, Gerald E. Bisbee,
Jr., Ivan R. Sabel, and Richard A. Stein.
*2.1. Amendment No. 1 to Stockholders' Agreement dated as of February 12,
1990.
*2.2 Amendment Agreement, dated as of August 13, 1990, between the Issuer,
CVCA, CEA, and Messrs. Manganiello, Sabel, Cestaro and Stein, amending
for the second time, among other things, the Stockholders' Agreement.
*2.3 Stock Forfeiture Memorandum, dated as of October 30, 1990, between the
Issuer, CVCA, Exeter, the Bank and Messrs. Manganiello and Cestaro.
*2.4 Amendment No. 3 to Stockholders' Agreement, dated as of November 8,
1990.
*3. Certificate of Designations, Preferences and Rights of the Issuer's
Preferred Stock.
*3.1 Restated Certificate of Designations, Preferences and Rights of
Issuer's Preferred Stock.
*4. Management Incentive Stock Option Plan (Terminated by Exhibit 2.2).
*5. Chemical Stock Forfeiture Agreement dated as of May 15, 1989, by and
between the Issuer and CVCA (Terminated by Exhibit 2.2).
*5.1 Form of Stock Option and Vesting Agreements, each dated as of August
13, 1990, between CVCA on the one hand and each of Messrs. Manganiello,
Sabel, Cestaro and Stein on the other hand (filed as Exhibits A-D to
Exhibit 2.2 above).
*5.2 Stock Option and Vesting Agreements, each dated as of March 14, 1991,
between CVCA on the one hand and each of Messrs. Manganiello, Sabel and
Stein on the other hand.
*5.3 Amendment to Stock Option and Vesting Agreements and Amendment
Agreement, dated as of February 20, 1992, by and among CVCA, CEA,
Exeter, the Issuer and Messrs. Manganiello, Sabel and Stein.
*5.4 Stock Option Agreements, each dated as of May 16, 1994, between CVCA on
the one hand and each of Messrs. Manganiello, Sabel and Stein on the
other hand.
*5.5 Second Amendment to Stock Option and Vesting Agreements and Amendment
Agreement, dated as of May 16, 1994, by and among CVCA, CEA, the Issuer
and Messrs. Manganiello, Sabel and Stein.
*5.6 Third Amendment to Stock Option and Vesting Agreements and Amendment
Agreement, dated as of September 22, 1994, by and among CVCA, CEA, the
Issuer and Messrs. Manganiello, Sabel and Stein.
*5.7 Fourth Amendment to Stock Option and Vesting Agreements and Amendments
and Amendment Agreement, dated as of October 27, 1995 by and among
CVCA, CEA, the Issuer and Messrs. Manganiello, Sabel and Stein.
- ----------
* Previously filed.
15
<PAGE>
CUSIP No. 41043F-208
*5.8 Fifth Amendment to Stock Option and Vesting Agreements and Amendment
Agreement, dated as of October 27, 1995 by and among CVCA, CEA, the
Issuer and Messrs. Manganiello, Sabel and Stein.
*6. Management Stock Forfeiture Agreement, dated as of May 15, 1989, by and
among CVCA and Messrs. Bisbee, Sabel, Stein, Manganiello and Cestaro
(Terminated by Exhibit 2.2).
*7. Guaranty Agreement, dated as of May 15, 1989, executed by the Issuer
and its subsidiaries in favor of CEA.
*7.1 First Amendment to Guaranty Agreement dated as of February 12, 1990.
*7.2 Second Amendment to Guaranty Agreement, dated as of November 8, 1990.
*7.3 Third Amendment to Guaranty Agreement, dated as of March 1, 1991.
*7.4 Fourth Amendment to Guaranty Agreement, dated as of March 20, 1991.
*7.5 Fifth Amendment to Guaranty Agreement, dated as of February 20, 1992.
*8. Registration Agreement dated as of May 15, 1989, by and among the
Issuer, CVCA, Bank, and Messrs. Bisbee, Sable, Stein, Manganiello and
Cestaro.
*8.1 First Amendment to Registration Agreement dated as of February 12,
1990.
*8.2 Amended and Restated Registration Rights Agreement dated as of November
8, 1990.
*9. The Issuer's Principal Stockholders' Agreement dated as of February 28,
1989, by and among Gerald E. Bisbee, Jr., Ivan R. Sabel, Miles Lerman,
Gershon A. Stern, Capital Orthopedics, Inc., Richard A. Stein, and HAC.
*10. Agreement dated as of February 28, 1989, by and among the Issuer, Miles
Lerman, and Gershon A. Stern.
*11. Beneficial Ownership Agreement dated as of May 9, 1989 by and between
CVCA and Exeter.
*11.1 First Amended and Restated Beneficial Ownership Agreement dated as of
March 1, 1990 by and between CVCA and Exeter.
*11.2 Amendment Agreement dated as of August 13, 1990, amending among other
things, the First Amended and Restated Beneficial Ownership Agreement.
*11.3 Amendment Agreement dated as of November 8, 1990, amending among other
things, the First Amended and Restated Beneficial Ownership Agreement.
*11.4 Amendment Agreement dated as of March 1, 1991, amending among other
things, the First Amended and Restated Beneficial Ownership Agreement.
*11.5 Amendment Agreement dated as of March 20, 1991, amending among other
things, the First Amended and Restated Beneficial Ownership Agreement.
*11.6 Stock Purchase Agreement, dated as of June 1, 1991, between CVCA and
Exeter.
- ----------
* Previously filed.
16
<PAGE>
CUSIP No. 41043F-208
*11.7 Letter Agreement, dated as of February 20, 1992, between CVCA and
Exeter.
*12. Stock Redemption Agreement dated as of May 15, 1989 by and between CVCA
and the Issuer.
*13. Letter, dated April 15, 1989, from CVCA to the Issuer.
*14. Agreement dated as of May 15, 1989 by and between CVCA and Exeter with
respect to filing Schedule 13D.
*15. Stock Purchase Agreement dated as of February 12, 1990 by and among the
Issuer, CVCA and Messrs. Manganiello, Cestaro, Sabel and Stein.
*16. Note and Stock Pledge Agreement dated as of February 12, 1990 between
CVCA and Mr. Stein.
*17. Warrant Agreement dated as of May 15, 1989 by and among the Issuer,
Bank and CVCA.
*18. Stock and Note Purchase Agreement, dated as of February 28, 1989, among
Hanger, CEA, CVCA and Messrs. Manganiello and Cestaro.
*18.1 First Amendment to Stock and Note Purchase Agreement dated as of May 9,
1989.
*18.2 Second Amendment to Stock and Note Purchase Agreement dated as of May
15, 1989.
*18.3 Third Amendment to Stock and Note Purchase Agreement dated as of
February 12, 1990.
*18.4 Fourth Amendment to Stock and Note Purchase Agreement dated as of June
19, 1990.
*18.5 Fifth Amendment to Stock and Note Purchase Agreement dated as of
November 8, 1990, among the previous parties to the Stock and Note
Purchase Agreement and the Issuer.
*18.6 Sixth Amendment to Stock and Note Purchase Agreement dated March 1,
1991.
*18.7 Seventh Amendment to Stock and Note Purchase Agreement dated March 20,
1991.
*18.8 Letter Agreement, dated May 31, 1991, between Hanger and CVCA.
*18.9 Eighth Amendment to Stock and Note Purchase Agreement dated as of
February 20, 1992.
*19. Subordination Agreement dated as of May 15, 1989, between the Bank and
CEA and acknowledged by the Issuer and each of the Issuer's
subsidiaries.
*19.1 First Amendment to Subordination Agreement, dated as of February 12,
1990.
*19.2 Second Amendment to Subordination Agreement, dated as of June 19, 1990.
*19.3 Third Amendment to Subordination Agreement, dated as of November 8,
1990, among the previous parties to the Subordination Agreement and
CVCA.
*19.4 Fourth Amendment to Subordination Agreement, dated as of March 1, 1991.
- ----------
* Previously filed.
17
<PAGE>
CUSIP No. 41043F-208
*19.5 Fifth Amendment to Subordination Agreement, dated as of March 20, 1991.
*19.6 Sixth Amendment to Subordination Agreement, dated as of February 20,
1992.
*20. Warrant, dated as of August 6, 1991, issued by the Company to CVCA.
*20.1 Warrant, dated as of August 6, 1991, issued by the Company to Exeter.
*21. Form of Warrant, dated as of November 5, 1991, issued by the Company to
CVCA.
*21.1 Form of Warrant dated as of November 5, 1991, issued by the Company to
Exeter.
*22. Amendment to Warrants dated as of February 20, 1992, among the Issuer,
CVCA and Exeter.
*23. Senior Subordinated Note Purchase Agreement dated as of November 1,
1996 between the Issuer, PPI and CVCA.
*24. Warrant dated November 1, 1996 issued by the Issuer to CVCA.
25. Certificate of Designations, Preferences, and Rights of the Issuer's 7%
Redeemable Preferred Stock.
26. Securities Purchase Agreement dated June 16, 1999, among CEA, the
Issuer, and other parties.
SCHEDULE A
- ----------
Item 2 information for executive officers and directors of Chase Capital
Corporation.
SCHEDULE B
- ----------
Item 2 information for executive officers and directors of The Chase Manhattan
Corporation.
SIGNATURE
- ---------
After reasonable inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
CHASE VENTURE CAPITAL ASSOCIATES, L.P.
By: Chase Capital Partners, Its General Partner
By:/s/ Mitchell J. Blutt
-----------------------------
Name: Mitchell J. Blutt
Title: Executive Partner of Chase Capital
Partners
July 8, 1999
- ------------
Date
- ----------
* Previously filed.
18
<PAGE>
CUSIP No. 41043F-208
SCHEDULE A
----------
CHASE CAPITAL CORPORATION
-------------------------
EXECUTIVE OFFICERS
------------------
Chairman & Chief Executive Officer William B. Harrison, Jr.*
President Jeffrey C. Walker**
Executive Vice President Mitchell J. Blutt, M.D.**
Vice President & Secretary Gregory Meridith*
Assistant Secretary Anthony J. Horan *
Assistant Secretary Denise G. Connors*
Assistant Secretary Robert C. Carroll*
DIRECTORS
---------
William B. Harrison, Jr.*
Jeffrey C. Walker**
- ----------
* Principal occupation is employee and/or officer of Chase. Business address
is c/o Chase Manhattan Corporation, 270 Park Avenue, New York, New York
10017.
** Principal occupation is employee of Chase and/or general partner of Chase
Capital Partners. Business address is c/o Chase Capital Partners, 380
Madison Avenue, 12th Floor, New York, NY 10017.
19
<PAGE>
CUSIP No. 41043F-208
SCHEDULE B
----------
THE CHASE MANHATTAN CORPORATION
EXECUTIVE OFFICERS*
-------------------
Walter V. Shipley, Chairman of the Board
William B. Harrison, Jr., President and Chief Executive Officer
Donald L. Boudreau, Vice Chairman of the Board
James B. Lee, Jr., Vice Chairman of the Board
Joseph G. Sponholz, Vice Chairman of the Board
Denis J. O'Leary, Executive Vice President
John J. Farrell, Director, Human Resources
Frederick W. Hill, Director Corporate Marketing and Communication
William H. McDavid, General Counsel
DIRECTORS**
-----------
- --------------------------------------------------------------------------------
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT;
BUSINESS OR RESIDENCE ADDRESS
- --------------------------------------------------------------------------------
Hans W. Becherer Chairman of the Board
Chief Executive Officer
Deere & Company
8601 John Deere Road
Moline, IL 61265
- --------------------------------------------------------------------------------
Frank A. Bennack, Jr. President and Chief Executive Officer
The Hearst Corporation
959 Eighth Avenue
New York, New York 10019
- --------------------------------------------------------------------------------
Susan V. Berresford President
The Ford Foundation
320 E. 43rd Street
New York, New York 10017
- --------------------------------------------------------------------------------
M. Anthony Burns Chairman of the Board, President and
Chief Executive Officer
Ryder System, Inc.
2800 NW 82nd Avenue
Miami, Florida 33166
- ----------
* Principal occupation is executive officer and/or employee of The Chase
Manhattan Bank. Business address is c/o The Chase Manhattan Bank, 270 Park
Avenue, New York, New York 10017. Each executive officer of Chase is a U.S.
citizen.
** Each of the persons named below is a citizen of the United States of
America
20
<PAGE>
CUSIP No. 41043F-208
- --------------------------------------------------------------------------------
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT;
BUSINESS OR RESIDENCE ADDRESS
- --------------------------------------------------------------------------------
H. Laurence Fuller Co-Chairman of the Board and
Chief Executive Officer
Amoco Corporation
200 East Randolph Drive
Chicago, Illinois 60601
- --------------------------------------------------------------------------------
William H. Gray, III President and Chief Executive Officer
The College Fund/UNCF
9860 Willow Oaks Corporate Drive
P.O. Box 10444
Fairfax, Virginia 22031
- --------------------------------------------------------------------------------
William B. Harrison, Jr. President and Chief Executive Officer
The Chase Manhattan Corporation
270 Park Avenue, 8th Floor
New York, New York 10017-2070
- --------------------------------------------------------------------------------
Harold S. Hook Retired Chairman and Chief Executive
Officer
American General Corporation
2929 Allen Parkway
Houston, Texas 77019
- --------------------------------------------------------------------------------
Helene L. Kaplan Of Counsel
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue - Room 29-72
New York, New York 10022
- --------------------------------------------------------------------------------
Thomas G. Labrecque Retired President and Chief Operating
Officer
The Chase Manhattan Corporation
270 Park Avenue
New York, New York 10017
- --------------------------------------------------------------------------------
Henry B. Schacht Director and Senior Advisor
E.M. Warburg, Pincus & Co., LLC
466 Lexington Avenue, 10th floor
New York, New York 10017
- --------------------------------------------------------------------------------
Walter V. Shipley Chairman of the Board
The Chase Manhattan Corporation
270 Park Avenue
New York, New York 10017
- --------------------------------------------------------------------------------
Andrew C. Sigler Retired Chairman of the Board and
Chief Executive Officer
Champion International Corporation
One Champion Plaza
Stamford, Connecticut 06921
21
<PAGE>
CUSIP No. 41043F-208
- --------------------------------------------------------------------------------
John R. Stafford Chairman, President and
Chief Executive Officer
American Home Products Corporation
5 Giralda Farms
Madison, New Jersey 07940
- --------------------------------------------------------------------------------
Marina v.N. Whitman Professor of Business Administration
and Public Policy
The University of Michigan
School of Public Policy
411 Lorch Hall, 611 Tappan Street
Ann Arbor, MI 48109-1220
- --------------------------------------------------------------------------------
22
<PAGE>
EXHIBIT INDEX
-------------
*1. Stock Exchange Agreement dated February 28, 1989, by and among the
Issuer, HAC, Hanger, CVCA and Messrs. Manganiello and Cestaro,
including certain exhibits thereto listed separately below.
*2. Stockholders' Agreement, dated as of May 15, 1989, by and among the
Issuer, CVCA, CEA, Messrs. Manganiello and Cestaro, Gerald E. Bisbee,
Jr., Ivan R. Sabel, and Richard A. Stein.
*2.1. Amendment No. 1 to Stockholders' Agreement dated as of February 12,
1990.
*2.2 Amendment Agreement, dated as of August 13, 1990, between the Issuer,
CVCA, CEA, and Messrs. Manganiello, Sabel, Cestaro and Stein, amending
for the second time, among other things, the Stockholders' Agreement.
*2.3 Stock Forfeiture Memorandum, dated as of October 30, 1990, between the
Issuer, CVCA, Exeter, the Bank and Messrs. Manganiello and Cestaro.
*2.4 Amendment No. 3 to Stockholders' Agreement, dated as of November 8,
1990.
*3. Certificate of Designations, Preferences and Rights of the Issuer's
Preferred Stock.
*3.1 Restated Certificate of Designations, Preferences and Rights of
Issuer's Preferred Stock.
*4. Management Incentive Stock Option Plan (Terminated by Exhibit 2.2).
*5. Chemical Stock Forfeiture Agreement dated as of May 15, 1989, by and
between the Issuer and CVCA (Terminated by Exhibit 2.2).
*5.1 Form of Stock Option and Vesting Agreements, each dated as of August
13, 1990, between CVCA on the one hand and each of Messrs. Manganiello,
Sabel, Cestaro and Stein on the other hand (filed as Exhibits A-D to
Exhibit 2.2 above).
*5.2 Stock Option and Vesting Agreements, each dated as of March 14, 1991,
between CVCA on the one hand and each of Messrs. Manganiello, Sabel and
Stein on the other hand.
*5.3 Amendment to Stock Option and Vesting Agreements and Amendment
Agreement, dated as of February 20, 1992, by and among CVCA, CEA,
Exeter, the Issuer and Messrs. Manganiello, Sabel and Stein.
*5.4 Stock Option Agreements, each dated as of May 16, 1994, between CVCA on
the one hand and each of Messrs. Manganiello, Sabel and Stein on the
other hand.
*5.5 Second Amendment to Stock Option and Vesting Agreements and Amendment
Agreement, dated as of May 16, 1994, by and among CVCA, CEA, the Issuer
and Messrs. Manganiello, Sabel and Stein.
*5.6 Third Amendment to Stock Option and Vesting Agreements and Amendment
Agreement, dated as of September 22, 1994, by and among CVCA, CEA, the
Issuer and Messrs. Manganiello, Sabel and Stein.
*5.7 Fourth Amendment to Stock Option and Vesting Agreements and Amendments
and Amendment Agreement, dated as of October 27, 1995 by and among
CVCA, CEA, the Issuer and Messrs. Manganiello, Sabel and Stein.
- ----------
* Previously filed.
23
<PAGE>
*5.8 Fifth Amendment to Stock Option and Vesting Agreements and Amendment
Agreement, dated as of October 27, 1995 by and among CVCA, CEA, the
Issuer and Messrs. Manganiello, Sabel and Stein.
*6. Management Stock Forfeiture Agreement, dated as of May 15, 1989, by and
among CVCA and Messrs. Bisbee, Sabel, Stein, Manganiello and Cestaro
(Terminated by Exhibit 2.2).
*7. Guaranty Agreement, dated as of May 15, 1989, executed by the Issuer
and its subsidiaries in favor of CEA.
*7.1 First Amendment to Guaranty Agreement dated as of February 12, 1990.
*7.2 Second Amendment to Guaranty Agreement, dated as of November 8, 1990.
*7.3 Third Amendment to Guaranty Agreement, dated as of March 1, 1991.
*7.4 Fourth Amendment to Guaranty Agreement, dated as of March 20, 1991.
*7.5 Fifth Amendment to Guaranty Agreement, dated as of February 20, 1992.
*8. Registration Agreement dated as of May 15, 1989, by and among the
Issuer, CVCA, Bank, and Messrs. Bisbee, Sable, Stein, Manganiello and
Cestaro.
*8.1 First Amendment to Registration Agreement dated as of February 12,
1990.
*8.2 Amended and Restated Registration Rights Agreement dated as of November
8, 1990.
*9. The Issuer's Principal Stockholders' Agreement dated as of February 28,
1989, by and among Gerald E. Bisbee, Jr., Ivan R. Sabel, Miles Lerman,
Gershon A. Stern, Capital Orthopedics, Inc., Richard A. Stein, and HAC.
*10. Agreement dated as of February 28, 1989, by and among the Issuer, Miles
Lerman, and Gershon A. Stern.
*11. Beneficial Ownership Agreement dated as of May 9, 1989 by and between
CVCA and Exeter.
*11.1 First Amended and Restated Beneficial Ownership Agreement dated as of
March 1, 1990 by and between CVCA and Exeter.
*11.2 Amendment Agreement dated as of August 13, 1990, amending among other
things, the First Amended and Restated Beneficial Ownership Agreement.
*11.3 Amendment Agreement dated as of November 8, 1990, amending among other
things, the First Amended and Restated Beneficial Ownership Agreement.
*11.4 Amendment Agreement dated as of March 1, 1991, amending among other
things, the First Amended and Restated Beneficial Ownership Agreement.
*11.5 Amendment Agreement dated as of March 20, 1991, amending among other
things, the First Amended and Restated Beneficial Ownership Agreement.
*11.6 Stock Purchase Agreement, dated as of June 1, 1991, between CVCA and
Exeter.
- ----------
* Previously filed.
24
<PAGE>
*11.7 Letter Agreement, dated as of February 20, 1992, between CVCA and
Exeter.
*12. Stock Redemption Agreement dated as of May 15, 1989 by and between CVCA
and the Issuer.
*13. Letter, dated April 15, 1989, from CVCA to the Issuer.
*14. Agreement dated as of May 15, 1989 by and between CVCA and Exeter with
respect to filing Schedule 13D.
*15. Stock Purchase Agreement dated as of February 12, 1990 by and among the
Issuer, CVCA and Messrs. Manganiello, Cestaro, Sabel and Stein.
*16. Note and Stock Pledge Agreement dated as of February 12, 1990 between
CVCA and Mr. Stein.
*17. Warrant Agreement dated as of May 15, 1989 by and among the Issuer,
Bank and CVCA.
*18. Stock and Note Purchase Agreement, dated as of February 28, 1989, among
Hanger, CEA, CVCA and Messrs. Manganiello and Cestaro.
*18.1 First Amendment to Stock and Note Purchase Agreement dated as of May 9,
1989.
*18.2 Second Amendment to Stock and Note Purchase Agreement dated as of May
15, 1989.
*18.3 Third Amendment to Stock and Note Purchase Agreement dated as of
February 12, 1990.
*18.4 Fourth Amendment to Stock and Note Purchase Agreement dated as of June
19, 1990.
*18.5 Fifth Amendment to Stock and Note Purchase Agreement dated as of
November 8, 1990, among the previous parties to the Stock and Note
Purchase Agreement and the Issuer.
*18.6 Sixth Amendment to Stock and Note Purchase Agreement dated March 1,
1991.
*18.7 Seventh Amendment to Stock and Note Purchase Agreement dated March 20,
1991.
*18.8 Letter Agreement, dated May 31, 1991, between Hanger and CVCA.
*18.9 Eighth Amendment to Stock and Note Purchase Agreement dated as of
February 20, 1992.
*19. Subordination Agreement dated as of May 15, 1989, between the Bank and
CEA and acknowledged by the Issuer and each of the Issuer's
subsidiaries.
*19.1 First Amendment to Subordination Agreement, dated as of February 12,
1990.
*19.2 Second Amendment to Subordination Agreement, dated as of June 19, 1990.
*19.3 Third Amendment to Subordination Agreement, dated as of November 8,
1990, among the previous parties to the Subordination Agreement and
CVCA.
*19.4 Fourth Amendment to Subordination Agreement, dated as of March 1, 1991.
- ----------
* Previously filed.
25
<PAGE>
CUSIP No. 41043F-208
*19.5 Fifth Amendment to Subordination Agreement, dated as of March 20, 1991.
*19.6 Sixth Amendment to Subordination Agreement, dated as of February 20,
1992.
*20. Warrant, dated as of August 6, 1991, issued by the Company to CVCA.
*20.1 Warrant, dated as of August 6, 1991, issued by the Company to Exeter.
*21. Form of Warrant, dated as of November 5, 1991, issued by the Company to
CVCA.
*21.1 Form of Warrant dated as of November 5, 1991, issued by the Company to
Exeter.
*22. Amendment to Warrants dated as of February 20, 1992, among the Issuer,
CVCA and Exeter.
*23. Senior Subordinated Note Purchase Agreement dated as of November 1,
1996 between the Issuer, PPI and CVCA.
*24. Warrant dated November 1, 1996 issued by the Issuer to CVCA.
25. Certificate of Designations, Preferences, and Rights of the Issuer's 7%
Redeemable Preferred Stock.
26. Securities Purchase Agreement dated June 16, 1999, among CEA, the
Issuer, and other parties.
- ----------
* Previously filed.
26
<PAGE>
CERTIFICATE OF DESIGNATIONS, POWERS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS AND QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS
OF
7% REDEEMABLE PREFERRED STOCK
OF
HANGER ORTHOPEDIC GROUP, INC.
<PAGE>
TABLE OF CONTENTS
Article I Number of Shares and Designations....................................1
Article II Definitions.........................................................1
Article III Voting Rights.....................................................10
3.1. General.............................................................10
3.2. Special Election of Directors.......................................10
3.3. Protective Provisions...............................................11
3.4. Covenants in Related Documents......................................13
Article IV Dividends and Distributions........................................13
4.1. Cumulative Dividends................................................13
4.2. Restrictions on Dividends, Etc......................................14
4.3. Participating Dividends.............................................14
Article V Liquidation.........................................................15
5.1. Redeemable Preferred Stock..........................................15
5.2. Additional Payments.................................................15
5.3. Insufficient Funds..................................................15
Article VI Redemption.........................................................15
6.1. Change of Control...................................................15
6.2. Redemption of Redeemable Preferred Stock at Corporation's Option....18
6.3. Mandatory Redemption................................................18
6.4. Redemption at Holder's Option.......................................19
6.5. Warrants............................................................20
6.6. Additional Payments.................................................21
Article VII Conversion........................................................21
7.1. Optional Conversion.................................................21
7.2. Mandatory Conversion................................................22
7.3. Adjustment of Conversion Price......................................22
7.4. Mechanics...........................................................27
7.5. Reservation of Shares...............................................28
Article VIII Certain Regulatory Matters.......................................29
<PAGE>
CERTIFICATE OF DESIGNATIONS, POWERS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS AND QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF
7% REDEEMABLE PREFERRED STOCK
--------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
--------------------------
HANGER ORTHOPEDIC GROUP, INC., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies that the following resolution was duly adopted by the Board of
Directors of the Corporation as required by Section 151 of the Delaware General
Corporation Law at a meeting duly called and held on June 23, 1999.
RESOLVED, that a series of the class of authorized preferred stock, $.01
par value per share, of the Corporation is hereby created and that the
designations, powers, preferences and relative, participating optional or other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof, are hereby fixed as follows:
Article I
Number of Shares and Designations
60,000 of the shares of the Corporation's preferred stock, $.01 par value
per share, are hereby designated 7% Redeemable Preferred Stock.
Article II
Definitions
As used herein, the following capitalized terms have the following
meanings:
"Affiliate" means, with respect to any Person, (a) a director, officer,
member or general partner of such Person or any Person identified in clause (c)
below, (b) a spouse, parent, sibling or descendant of such Person (or a spouse,
parent, sibling or descendant of any director or officer of such Person or the
general partner or managing member of such Person) and (c) any other Person that
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with such Person. For the purpose of
the above definition, the term "control" (including, with correlative meaning,
the terms "controlling," "controlled by" and "under common control with"), as
used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of Voting Securities, by contract or
otherwise.
<PAGE>
"Affiliate Transaction" has the meaning ascribed to it in Section 3.3.
"Amended Charter" means the Amended and Restated Certificate of
Incorporation, as amended by the Charter Amendment.
"Applicable Dividend Rate" means 7% per annum; provided that the Applicable
Dividend Rate shall be automatically increased to 10% per annum from and after
the occurrence of an Event of Non-Compliance until such time as such Event of
Non-Compliance shall have been cured or shall otherwise cease to exist.
"Applicable Law" means, with respect to any Person, all provisions of laws,
statutes, ordinances, rules, regulations, permits, certificates or orders of any
Governmental Authority applicable to such Person or any of its assets or
property or to which such Person or any of its assets or property is subject,
and all judgments, injunctions, orders and decrees of all courts and arbitrators
in proceedings or actions in which such Person is a party or by which it or any
of its assets or properties is or may be bound or subject.
"By-laws" means the By-laws of the Corporation, as amended and in effect
from time to time.
"Board" and "Board of Directors" means the Board of Directors of the
Corporation.
"Certificate of Designations" means a certificate of designations, powers,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions filed by the Corporation with
respect to any of its Securities.
"Change of Control" has the meaning ascribed to the term "Change of
Control" in the Indenture.
"Change of Control Offer" has the meaning ascribed to it in Section 6.1(a).
"Change of Control Purchase Price" has the meaning ascribed to it in
Section 6.1(a).
"Change of Control Payment Date" has the meaning ascribed to it in Section
6.1(b).
"Charter Amendment" means the amendment to the Corporation's certificate of
incorporation, in substantially the form attached as Exhibit B to the Securities
Purchase Agreement, together with such changes as the parties to the Securities
Purchase Agreement may agree.
"Chase" means Chase Equity Associates, L.P., a California limited
partnership.
"Common Stock" means shares of Voting Common Stock, Non-Voting Common Stock
and all other classes of capital stock of the Corporation hereafter authorized
that are not limited to a fixed sum or percentage of par or stated value in
respect to the rights of the holders thereof to participate in dividends or in
the distribution of assets upon any liquidation, dissolution or winding up of
the Corporation; provided that, the Redeemable Preferred Stock shall not be
deemed to be Common Stock.
2
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"Common Stock Equivalents" means all shares of Common Stock
outstanding, all shares of Common Stock issuable (without regard to any present
restrictions on such issuance) upon the conversion, exchange or exercise of all
Securities of the Corporation that are convertible, exchangeable or exercisable
for Common Stock and all Common Stock appreciation rights, phantom Common Stock
rights and other rights to acquire, or to receive or be paid an amount based on
the value (less any exercise, conversion or purchase price) of, the Common
Stock. With respect to the Redeemable Preferred Stock, as of any date, "Common
Stock Equivalents" means the shares of Common Stock issuable in accordance with
this Certificate of Designations upon the conversion of all of the outstanding
shares of Redeemable Preferred Stock on such date (calculated by assuming that
the Convertibility Effective Date had occurred and that such shares of
Redeemable Preferred Stock were converted into shares of Non-Voting Common Stock
which were then immediately converted into shares of Voting Common Stock).
"Common Stock Rights" means options, rights, warrants or other rights
to acquire shares of Common Stock or Securities directly or indirectly
convertible into, exercisable for or otherwise entitling any Person to receive
any shares of Common Stock.
"Conversion Price" means $15.50, subject to adjustment in accordance with
Section 7.3.
"Convertibility Effective Date" means the first date on which (a) the
Corporation shall have obtained the approval of its stockholders for the
effectiveness of the convertibility of shares of Redeemable Preferred Stock into
shares of Non-Voting Common Stock in accordance with Article VII, (b) the
Charter Amendment shall have become effective in accordance with the laws of the
State of Delaware and (c) the Corporation shall have delivered to the Holders of
the Redeemable Preferred Stock notice of its election to have the Redeemable
Preferred Stock become convertible in accordance with Article VII.
"Corporation" has the meaning ascribed to it in the first paragraph of this
Certificate of Designations.
"Corporation Redemption" has the meaning ascribed to it in Section 6.2(a).
"Corporation Redemption Notice" has the meaning ascribed to it in Section
6.2(a).
"Corporation Redemption Date" has the meaning ascribed to it in Section
6.2(a).
"Dividend Accrual Period" means, with respect to a share of Redeemable
Preferred Stock, (i) the initial period from and including the Original Issuance
Date of such share to but excluding the first Dividend Payment Date occurring
after such Original Issuance Date, (ii) a period from and including each
Dividend Payment Date to but excluding the next succeeding Dividend Payment Date
while such share remains outstanding and (iii) the final period ending on, but
excluding, the date such share ceases to be outstanding and beginning on, and
including, the Dividend Payment Date immediately preceding such date.
"Dividend Payment Date" means each March 31, June 30, September 30 and
December 31, commencing September 30, 1999.
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"Equity Incentive Plans" means any stock option, issuance, appreciation
rights or other equity incentive plan; provided, however, that the maximum
number of shares of Common Stock Equivalents issuable thereunder shall not
exceed 2,362,013 shares and equivalents (subject to pro rata adjustment in the
event of any stock dividend or distribution paid in shares of Common Stock or
any stock split or subdivision, reverse stock split or combination or other
similar pro rata recapitalization event affecting the Common Stock).
"Event of Non-Compliance" means any one of the following events,
occurrences or conditions:
(i) any failure by the Corporation, after the fifth anniversary of the
Original Issuance Date, to (A) pay on each of two consecutive Dividend
Payment Dates the full amount of cash dividends accrued on the Redeemable
Preferred Stock for the Dividend Accrual Period ending on such Dividend
Payment Date or (B) declare and set aside funds on the Preferred Record
Date for the payment of the full amount of cash dividends that will be
accrued on the Redeemable Preferred Stock for the then current Dividend
Accrual Period if the Corporation failed to pay the full amount of cash
dividends accrued on the Redeemable Preferred Stock for the Dividend
Accrual Period ending on the immediately preceding Dividend Payment Date;
(ii) any failure by the Corporation to perform or comply in any
respect with any term, provision or covenant contained in any Related
Document and, with respect to any such failure that can be remedied or
cured, ten days shall have elapsed after the time that the Corporation
becomes aware of such failure;
(iii) any representation or warranty made by the Corporation in any
Certificate of Designations or in any Related Document proves to have been
false or incorrect or misleading in any material respect at the time made;
(iv) the Corporation or any of its Significant Subsidiaries shall (A)
voluntarily commence any proceeding or file any petition seeking relief
under Title 11 of the United States Code or any other federal, state or
foreign bankruptcy, insolvency or similar law, (B) consent to the
institution of, or fail to controvert in a timely and appropriate manner,
any such proceeding or the filing of any such petition, (C) apply for or
consent to the appointment of a receiver, trustee, custodian, sequestrator
or similar official for any such Person or for any substantial part of its
property or assets, (D) file an answer admitting the material allegations
of a petition filed against it in any such proceeding, (E) make a general
assignment for the benefit of creditors, (F) fail generally to pay its
debts as they become due or (G) take any action in furtherance of any of
the foregoing;
(v) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (A)
relief in respect of the Corporation or any of its Significant
Subsidiaries, or of any substantial part of their respective property or
assets, under Title 11 of the United States Code or any other federal,
state or foreign bankruptcy, insolvency or similar law, (B) the appointment
of a receiver, trustee, custodian, sequestrator or similar official for any
such Person or for any substantial part of its property or (C) the
winding-up or liquidation of any such Person,
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and such proceeding, petition or order shall continue unstayed and in
effect for a period of 30 consecutive days;
(vi) the Corporation fails to redeem any share of Redeemable Preferred
Stock on the Corporation Redemption Date, the Mandatory Redemption Date or
any other applicable redemption date (without giving effect to Section
6.4(e)); or
(vii) a final judgment for the payment of money in an amount in excess
of $5 million shall be rendered by a court or other tribunal against the
Corporation or any of its Subsidiaries and shall remain undischarged for a
period of 30 consecutive days during which such judgment and any levy or
execution thereof shall not have been effectively stayed or vacated.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar federal law then in force.
"Fair Value" means with respect to (i) any Security that is not listed on
any domestic securities exchange or quoted in the NASDAQ System or the domestic
over-the-counter market or (ii) any property or assets other than cash or
Securities, the fair value thereof determined in good faith jointly by the
Corporation and the Requisite Senior Holders; provided, however, that, if the
parties are not able to agree within a reasonable period of time (not to exceed
thirty (30) days) what amount constitutes Fair Value, then the Fair Value will
be determined pursuant to the Valuation Procedure.
"Governmental Authority" shall mean any Federal, state, municipal or other
government, governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case whether of the United States of
America or any political subdivision thereof, or of any other country.
"Holder Redemption" has the meaning ascribed to it in Section 6.3.
"Holder Redemption Date" has the meaning ascribed to it in Section 6.3.
"Holder Redemption Price" means, at any time, for each outstanding share of
Redeemable Preferred Stock, the product of the Market Price of a share of Voting
Common Stock multiplied by the number of Common Stock Equivalents issuable upon
conversion of such share of Redeemable Preferred Stock assuming that the
Convertibility Effective Date had occurred prior to such time.
"Holders" means the holders of shares of the Redeemable Preferred Stock
and/or the Non-Voting Common Stock, as the context shall require.
"Holders Director Election Notice" has the meaning ascribed to it in
Section 3.2(d).
"Holders Director Removal Notice" has the meaning ascribed to it in Section
3.2(d).
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"Indebtedness" has the meaning ascribed to it in the Indenture; provided,
however, that Indebtedness shall not include any shares of capital stock of the
Corporation or any of its Subsidiaries.
"Indenture" means the Indenture dated as of June 16, 1999, among the
Corporation and the other signatories thereto governing the Corporation's 11 1/4
% Senior Subordinated Notes, as such Indenture is in effect on the Original
Issuance Date.
"Investor Rights Agreement" means the Investor Rights Agreement dated as of
the Original Issuance Date, among the Corporation and the other parties named
therein, as amended, modified or supplemented from time to time.
"Junior Stock" means all shares of capital stock ranking junior to the
Redeemable Preferred Stock with respect to dividends or a Liquidation.
"Lien" means, with respect to any asset, (a) any mortgage, deed of trust,
lien, pledge, encumbrance, charge or security interest of any kind whatsoever in
or on such asset (including the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction), (b) the
interest of a vendor or a lessor under any conditional sale agreement, capital
lease or title retention agreement relating to such asset and (c) in the case of
Securities, any purchase option, call, appreciation right or similar right of a
third party with respect to such Securities.
"Liquidation" means any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Corporation.
"Liquidation Amount" means with respect to each share of Redeemable
Preferred Stock, the Original Cost of such share plus an amount equal to all
accrued and unpaid dividends on such share, whether or not declared.
"Mandatory Redemption" has the meaning ascribed to it in Section 6.3.
"Mandatory Redemption Date" means the eleventh anniversary of the Original
Issuance Date.
"Market Price" means, as to any Security, the average of the closing prices
of such Security's sales on the New York Stock Exchange and on all other United
States securities exchanges on which such Security is at the time listed, or, if
there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day such Security is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M.,
New York time, on such day, or, if on any day such Security is not quoted in the
NASDAQ System, the average of the highest bid and lowest asked prices on such
day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar or successor organization, in
each such case averaged over a period of 21 days consisting of the day as of
which "Market Price" is being determined and the 20 consecutive trading days
prior to such day. With respect to any Security that is not listed on any
domestic securities exchange or
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quoted in the NASDAQ System or the domestic over-the-counter market, the "Market
Price" of such Security shall be the Fair Value thereof.
"Minimum Price Event" means, on any date after the third anniversary of the
Original Issuance Date, that the Market Price of the Voting Common Stock as of
such date is equal to or greater than 175% of the Conversion Price in effect on
such date (without giving effect to any adjustment pursuant to the second
sentence of Section 7.3(a)).
"Non-Voting Common Stock" means shares of the Corporation's Non-Voting
Common Stock, par value $.01 per share, to be authorized by the Corporation
pursuant to the Charter Amendment.
"Original Cost" means, with respect to any share of Redeemable Preferred
Stock, as of any particular date, the amount originally paid for such share when
it was originally issued. In the event of any change (by way of any
recapitalization, subdivision or recombination) in the number or kind of shares
of Redeemable Preferred Stock, the Original Cost immediately prior to such
change shall be ratably adjusted.
"Original Issuance Date" means, with respect to a share of Redeemable
Preferred Stock, the date on which such share was first issued.
"Paribas" means Paribas North America, Inc.
"Person" shall be construed broadly and shall include without limitation an
individual, a partnership, a corporation, an association, a joint stock company,
a limited liability company, a trust, a joint venture, an unincorporated
organization and a Governmental Authority.
"Preferred Record Date" has the meaning ascribed to it in Section 4.1.
"Public Offering" means an offering of shares of Voting Common Stock in an
underwritten offering registered under the Securities Act.
"Put Effective Date" has the meaning ascribed to it in Section 6.4(a).
"Put Right" has the meaning ascribed to it in Section 6.4(a).
"Redeemable Preferred Stock" means the Corporation's 7% Redeemable
Preferred Stock.
"Regulated Stockholder" means Chase, Paribas and any other Person (i) that
is subject to the provisions of Regulation Y of the Board of Governors of the
Federal Reserve System, 12 C.F.R. Part 225 (or any successor to such Regulation)
("Regulation Y"), (ii) that holds equity Securities of the Corporation and (iii)
has given written notice to the Corporation that such Person is a Regulated
Stockholder.
"Related Documents" means, collectively, the Securities Purchase Agreement,
the Investor Rights Agreement, this Certificate of Designations, the Certificate
of Incorporation of the Corporation in effect on the date hereof, the Amended
Charter and the By-laws.
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"Relinquishing Holder" means Paribas and its transferees and any other
Holder of a share of Redeemable Preferred Stock that delivers a written notice
to the Corporation to the effect that such Holder elects not to be entitled to
vote with respect to any matter referred to in Section 3.2 or Section 3.3(c).
"Requisite Senior Holders" means the Holders of a majority of the
outstanding shares of Redeemable Preferred Stock at the time in question.
"Sale of the Corporation" means (i) the sale of all or substantially all of
the Corporation's assets, (ii) the sale or transfer of the outstanding capital
stock of the Corporation or (iii) the merger or consolidation of the Corporation
with or into another Person, in each case, in one or a series of related
transactions, and in clauses (ii) and (iii) above, under circumstances in which
the holders of a majority in voting power of the outstanding capital stock of
the Corporation, immediately prior to such transaction, own less than a majority
in voting power of the outstanding capital stock of the Corporation or the
surviving or resulting corporation or acquirer, as the case may be, immediately
following such transaction. A sale (or multiple related sales) of one or more
Subsidiaries of the Corporation (whether by way of merger, consolidation,
reorganization or sale of all or substantially all assets or Securities) which
constitutes all or substantially all of the consolidated assets of the
Corporation shall be deemed a Sale of the Corporation.
"Securities" means "securities" as defined in Section 2(1) of the
Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated as of June 16, 1999, between the Corporation and the Holders named
therein, as amended from time to time.
"Significant Subsidiary" means, with respect to any Person, any Subsidiary
of such Person that satisfies the criteria for a "significant subsidiary" set
forth in Rule 1.02(w) of Regulation S-X under the Exchange Act.
"Subsidiary" of any Person means any other Person (i) whose Securities
having a majority of the general voting power in electing the board of directors
or equivalent governing body of such other Person (excluding Securities entitled
to vote only upon the failure to pay dividends thereon or the occurrence of
other contingencies) are, at the time as of which any determination is being
made, owned by such Person either directly or indirectly through one or more
other entities constituting subsidiaries or (ii) more than a 50% interest in the
profits or capital of whom is, at the time as of which any determination is
being made, owned by such Person either directly or indirectly through one or
more other entities constituting subsidiaries.
"Valuation Procedure" means the following procedure to determine the Fair
Value (the "valuation amount"). The valuation amount shall be determined by an
Appraiser selected by the Requisite Senior Holders, and set forth in a written
notice delivered to the Corporation (the "appraiser selection notice"); provided
that the Corporation may object to such Appraiser by
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delivering a written notice of such objection to each Holder of shares of
Redeemable Preferred Stock (the "appraiser objection notice"). If the
Corporation does not deliver an appraiser objection notice within 10 days after
delivery by the Requisite Senior Holders of the appraiser selection notice, then
the Appraiser set forth in the appraiser selection notice shall be the
Appraiser. If the Corporation delivers an appraiser objection notice, then the
Appraiser will be selected by an arbitrator located in the City of New York, New
York, selected by the American Arbitration Association (or if such organization
ceases to exist, the arbitrator shall be chosen by a court of competent
jurisdiction). The arbitrator shall select the Appraiser (within ten (10) days
of its appointment) from a list, jointly prepared by the Corporation and the
Requisite Senior Holders, of not more than six Appraisers of national standing
in the United States, of which no more than three may be named by the
Corporation and no more than three may be named by the Requisite Senior Holders.
The arbitrator may consider, within the ten-day period allotted, arguments from
the parties regarding which Appraiser to choose, but the selection by the
arbitrator shall be made in its sole discretion from the list of six. The
Corporation and the Requisite Senior Holders shall submit to the Appraiser their
respective calculations of the valuation amount, and any supporting arguments
and other data as they may desire, within 30 days of the appointment of the
Appraiser, and the Appraiser shall as soon as practicable thereafter make its
own calculation of the valuation amount. The final valuation amount for purposes
hereof shall be the average of the two valuation amounts closest together, as
determined by the Appraiser, from among the valuation amounts submitted by the
Corporation and the Requisite Senior Holders and the valuation amount calculated
by the Appraiser. The determination of the final valuation amount by such
Appraiser shall be final and binding upon the parties. The Corporation shall pay
the fees and expenses of the Appraiser and arbitrator (if any) used to determine
the valuation amount. If required by any such Appraiser or arbitrator, the
Corporation shall execute a retainer and engagement letter containing reasonable
terms and conditions, including, without limitation, customary provisions
concerning the rights of indemnification and contribution by the Corporation in
favor of such investment banking firm or arbitrator and its officers, directors,
partners, employees, agents and Affiliates. As used herein, "Appraiser" means
(a) with respect to a determination of the Market Price of a Security, an
investment banking firm experienced in the industry in which the Corporation
participates and (b) with respect to a determination of any other valuation
amount, a firm of the type generally considered to be qualified in making
determinations of the type required.
"Voting Common Stock" means the Corporation's Common Stock, par value $.01
per share.
"Voting Securities" 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.
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Article III
Voting Rights
3.1. General.
Except as may be required by law or as otherwise provided below, the
Holders of shares of Redeemable Preferred Stock shall not be entitled to vote on
any matter to be voted on by the stockholders of the Corporation, including any
vote to elect directors of the Corporation.
3.2. Special Election of Directors.
From and after the occurrence of an Event of Non-Compliance, the Holders of
Redeemable Preferred Stock (other than the Relinquishing Holders) shall have the
exclusive and special right, voting together as a single class, but separately
from all other classes of capital stock, to elect two directors to the Board.
One of such directors shall be entitled to serve on each committee of the Board.
The Corporation shall take all necessary and desirable actions in connection
with and in furtherance of such rights.
Without limiting the generality of the foregoing, the following procedures shall
apply:
(a) At such time as the Holders of shares of Redeemable Preferred Stock
(other than the Relinquishing Holders) have the right to elect directors as
provided in this Section 3.2, the size of the Board shall be automatically
increased by two directors.
(b) The Holders of Redeemable Preferred Stock (other than the Relinquishing
Holders) may exercise their rights pursuant to this Section 3.2 at a special
meeting of such Holders or by delivering a notice to the Corporation, at any
annual meeting of shareholders or by written consent in accordance with the laws
of the State of Delaware.
(c) At any time when the Holders of shares of Redeemable Preferred Stock
(other than the Relinquishing Holders) have the right to elect directors as
provided in this Section 3.2, upon delivery of a written request by any Holder
of Redeemable Preferred Stock (other than the Relinquishing Holders), the
President, any Vice President, the Secretary or any Assistant Secretary of the
Corporation shall call a special meeting of the Holders of shares of Redeemable
Preferred Stock for the purpose of electing directors. Such meeting shall be
held at the earliest practicable date at the principal executive office of this
Corporation or at such other location as the Holder(s) of Redeemable Preferred
Stock (other than the Relinquishing Holders) submitting a written request shall
designate. At any meeting held for the purpose of electing directors at which
the Holders of Redeemable Preferred Stock (other than the Relinquishing Holders)
shall have the right to elect two directors as provided in this Section 3.2, the
presence, in person or by proxy, of the holders of a majority of the number of
shares of Redeemable Preferred Stock at the time outstanding (excluding those
shares held by the Relinquishing Holders) shall be required to constitute a
quorum of such class for the election of any director by the Holders of the
Redeemable Preferred Stock (other than the Relinquishing Holders) as a class.
(d) During any period that the Holders of shares of Redeemable Preferred
Stock (other than the Relinquishing Holders) shall have the right to vote as a
class for directors as provided in this Section 3.2, (i) each director so
elected shall hold office until such Holders elect a successor
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director but in no event beyond the termination of the right of the Holders of
shares of Redeemable Preferred Stock (other than the Relinquishing Holders)
to vote as a class to elect directors and (ii) any vacancies in the Board so
elected by the Holders of shares of Redeemable Preferred Stock (other than the
Relinquishing Holders) shall be filled only by a vote of a majority (which
majority may consist of only a single director) of the remaining directors
thereof elected by the Holders of shares of Redeemable Preferred Stock or may be
filled by the vote of holders of a majority of the number of shares of
Redeemable Preferred Stock at the time outstanding (excluding those shares held
by the Relinquishing Holders).
(e) Upon the Corporation becoming aware of the occurrence of an Event of
Non-Compliance, it will deliver a notice to each Holder of Redeemable Preferred
Stock.
3.3. Protective Provisions.
(a) For so long as any shares of Redeemable Preferred Stock are
outstanding, without first obtaining the affirmative written consent or approval
of the Requisite Senior Holders, the Corporation shall not, and shall not permit
any Subsidiary to:
(i) in any manner authorize, create, designate, issue or sell any
shares of any class or series of capital stock of the Corporation
(including any shares of treasury stock) or rights, options, warrants or
other Securities convertible into or exercisable or exchangeable for
capital stock or any debt Security which by its terms is convertible into
or exchangeable for any equity Security or has any other equity feature or
any Security that is a combination of debt and equity, which, in each case,
as to the payment of dividends, distribution of assets or redemptions,
including, without limitation, distributions to be made upon a Liquidation,
is senior to or on a parity with the Redeemable Preferred Stock or which in
any manner adversely affects the Holders of Redeemable Preferred Stock;
(ii) in any manner alter or change the terms, designations, powers,
preferences, or the qualifications, limitations or restrictions, of the
Redeemable Preferred Stock or the relative, participating, optional or
other special rights of the Holders of the Redeemable Preferred Stock in
their capacity as such;
(iii) reclassify the shares of any class or series of capital stock of
the Corporation into shares of any other class or series of capital stock
(i) ranking, either as to payment of dividends, distributions of assets or
redemptions, including, without limitation, distributions to be made upon a
Liquidation, senior to or on a parity with the Redeemable Preferred Stock
or (ii) which in any manner adversely affects the terms, designations,
powers or preferences of the Redeemable Preferred Stock or the relative,
participating, optional or other special rights of the Holders of
Redeemable Preferred Stock in their capacity as such;
(iv) amend, alter or repeal any of the provisions of (i) this
Certificate of Designations, (ii) the Certificate of Incorporation of the
Corporation (as amended, modified or restated from time to time) or (iii)
the By-laws of the Corporation, if such amendment, alteration or repeal
would have an adverse effect on the terms, designations,
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powers, preferences of the Redeemable Preferred Stock or the relative,
participating, optional or other special rights of the Holders of the
Redeemable Preferred Stock in their capacity as such;
(v) agree to or permit to exist, or permit any Subsidiary to agree to
or permit to exist, any provision in any agreement or understanding that
would impose any restriction on the ability of the Corporation to honor the
exercise of any rights of the Holders of the Redeemable Preferred Stock,
other than limitations contained in the Indenture and the Credit Agreement
on the Corporation's ability to make payments pursuant to Section 6.4;
(vi) agree or otherwise commit to take any of the actions set forth
above.
(b) For so long as any shares of Redeemable Preferred Stock are
outstanding, the Corporation shall not take any of the actions set forth in
Section 3.3(a) in a manner that treats any Holder of a share of Redeemable
Preferred Stock different in any material respect from any other Holder without
first obtaining the prior written consent of such other Holder.
(c) For so long as any shares of Redeemable Preferred Stock are
outstanding, without first obtaining the affirmative written consent or approval
of the holders of a majority of the number of shares of Redeemable Preferred
Stock at the time outstanding (other than the Relinquishing Holders), the
Corporation shall not, and shall not permit any Subsidiary to:
(i) permit any Subsidiary to issue any capital stock to any Person
other than the Corporation or a direct or indirect wholly owned Subsidiary
of the Corporation;
(ii) enter into or permit to exist any transaction or series of
related transactions, including, without limitation, any purchase, sale,
lease or exchange of property, the rendering of any service or the payment
of any management, advisory or similar fees, with or for the benefit of any
Affiliate of the Company (an "Affiliate Transaction"), unless such
Affiliate Transaction is permitted by the terms and conditions of the
Indenture; provided that in lieu of delivering to the Trustee (as defined
in the Indenture) a favorable opinion as to the fairness to the Corporation
of any such Affiliate Transaction, the Holders of Redeemable Preferred
Stock shall have received a copy of such opinion;
(iii) directly or indirectly create, incur, assume, guarantee,
acquire, become liable, contingently or otherwise, with respect to, or
otherwise become responsible for payment of Indebtedness which is not
permitted by the terms and conditions of the Indenture;
(iv) merge, consolidate or amalgamate with any Person, except that any
wholly-owned Subsidiary of the Corporation may be merged or consolidated
with or into any Person in connection with any acquisition permitted under
Section 3.3(j);
(v) acquire or dispose of any business or assets in a single
transaction or a series of related transactions with an aggregate value in
such transaction or series of
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related transactions in excess of $100 million (including all assumed debt,
all cash payments, and the fair market value of all Securities or other
property issued as consideration);
(vi) engage in any business other than one or more of the businesses
in which the Corporation or any of its Subsidiaries are engaged in on the
Original Issuance Date or any business reasonably related thereto;
(vii) effect, approve or authorize any Liquidation or any
recapitalization or reorganization of the Company or any Subsidiary; or
(viii) agree or otherwise commit to take any of the actions set forth
above.
3.4. Covenants in Related Documents.
For so long as any shares of Redeemable Preferred Stock are outstanding,
the Corporation shall, and, if applicable, shall cause each of its Subsidiaries
to, comply with and perform its obligations under each Related Document.
Article IV
Dividends and Distributions
4.1. Cumulative Dividends.
(a) During each Dividend Accrual Period, dividends shall accrue on a daily
basis at the Applicable Dividend Rate on the Liquidation Amount as of the
beginning of the Dividend Accrual Period. Accrued dividends shall be payable in
cash, on each Dividend Payment Date, when, as, and if declared by the Board of
Directors of the Corporation, out of funds legally available for that purpose,
to the Holders of Redeemable Preferred Stock, before any dividends shall be
declared and paid or set aside for any Junior Stock. Dividends shall accrue and
compound at the Applicable Dividend Rate regardless of whether the Board of
Directors of the Corporation has declared a dividend payment or whether there
are any profits, surplus or other funds of the Corporation legally available for
dividends. Any dividends which accrue pursuant to this Section 4.1 during a
Dividend Accrual Period and which shall not have been paid shall be classified
as "accrued dividends" and shall remain "accrued and unpaid dividends" until
paid or otherwise canceled pursuant to this Certificate of Designations.
(b) Any accrued dividends that are not paid in cash on the applicable
Dividend Payment Date and all accrued dividends on such accrued but unpaid
dividends shall not be payable thereafter in cash and, instead, shall be added
to the Liquidation Amount. Dividends on each share of Redeemable Preferred Stock
shall accrue pursuant to this Section 4.1 from and including the Original
Issuance Date to, but excluding, the date such share is redeemed in full and all
accrued but unpaid dividends thereon are also paid in full or such share is
fully converted into shares of Non-Voting Common Stock pursuant to Article VII.
Upon conversion of any share of Redeemable Preferred Stock, all accrued and
unpaid dividends on such share of Redeemable Preferred Stock shall be canceled.
All payments due under this Section to any Holder shall be made to the nearest
cent. The dividends payable with respect to the Redeemable Preferred Stock
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on each Dividend Payment Date shall be paid to the Holders of shares of the
Redeemable Preferred Stock as they appear on the stock records of the
Corporation on such date (the "Preferred Record Date") as shall be fixed by the
Board of Directors, which Preferred Record Date shall be not more than 60 days
prior to the applicable Dividend Payment Date and shall not precede the date
upon which the resolution fixing such Preferred Record Date is adopted.
4.2. Restrictions on Dividends, Etc.
(a) For so long as any shares of Redeemable Preferred Stock are
outstanding, the Corporation shall not (i) pay, declare or set funds apart for
payment of, any dividend or make any other distribution or other payment on or
with respect to any Junior Stock or (ii) redeem, repurchase, retire or otherwise
acquire any Junior Stock, any Securities convertible into or exchangeable or
exercisable directly or indirectly for Junior Stock or any appreciation, phantom
or other similar rights to receive payment based on the value of the Common
Stock; except (A) repurchases and redemptions of shares of Redeemable Preferred
Stock and shares of Common Stock in accordance with the terms hereof and of the
Amended Charter, as applicable, (B) dividends payable solely in shares of the
class or series upon which such dividends are declared or paid, (C) dividends
payable in shares of Common Stock with respect to any such Junior Stock,
together with cash in lieu of fractional shares or (D) if there are no accrued
and unpaid dividends in respect of any shares of Redeemable Preferred Stock for
the then current Dividend Accrual Period, dividends or distributions to holders
of Junior Stock or redemptions or repurchases of shares of Junior Stock to the
extent that, after giving effect to prior or concurrent dividend payments with
respect to the Redeemable Preferred Stock, such dividends, distributions,
redemptions or repurchases are permitted under the Indenture.
(b) No dividend or distribution shall be paid to the Holders of Redeemable
Preferred Stock in any form of consideration other than cash unless the
Requisite Senior Holders at the time of the distribution, approve such
distribution (including the valuation of the consideration being distributed).
(c) If at any time the Corporation pays less than the total amount of
dividends then accrued with respect to the Redeemable Preferred Stock, such
payment shall be distributed ratably among the Holders of the Redeemable
Preferred Stock according to the respective amounts which would be payable with
respect to the shares held by them upon such distribution if all amounts payable
on or with respect to said shares were paid in full.
4.3. Participating Dividends.
In addition to all dividends payable pursuant to Section 4.1, whenever the
Corporation shall declare or pay any cash dividends on its Common Stock, at the
option of the Corporation, the Holders of the Redeemable Preferred Stock shall
be entitled to receive such dividends on a ratable basis based upon the Common
Stock Equivalents issuable, directly or indirectly, in respect of the Redeemable
Preferred Stock. Dividends payable pursuant to this Section 4.3 shall not reduce
any dividends payable pursuant to Section 4.1. If the Corporation shall exercise
its option not to declare or pay any dividend pursuant to the first sentence of
this Section 4.3, the amount of such dividend which should have been declared or
paid to the Holders of Redeemable
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Preferred Stock will be included in the Missed Dividend Amount (in addition to
all non-cash dividends).
Article V
Liquidation
5.1. Redeemable Preferred Stock.
(a) In the event of any Liquidation occurring prior to the Convertibility
Effective Date, before any payment shall be made to the holders of any Junior
Stock, the Holders of shares of Redeemable Preferred Stock then outstanding
shall be entitled to receive out of the assets of the Corporation legally
available for distribution to its stockholders an amount per share equal to the
greater of (i) the Liquidation Amount and (ii) the Holder Redemption Price.
(b) In the event of any Liquidation occurring after the Convertibility
Effective Date, before any payment shall be made to the holders of any Junior
Stock, the Holders of shares of Redeemable Preferred Stock then outstanding
shall be entitled to receive out of the assets of the Corporation legally
available for distribution to its stockholders an amount per share equal to the
greater of (i) the Liquidation Amount and (ii) the amount that such Holder would
have received, calculated by assuming such share was converted into shares of
Non-Voting Common Stock immediately prior to such Liquidation.
5.2. Additional Payments.
In the event of any Liquidation, before any payment shall be made to the
holders of any Junior Stock, the former Holders of shares of Redeemable
Preferred Stock that has been redeemed pursuant to Section 6.2 or Section 6.3
shall be entitled to receive the amounts payable to them pursuant to Section
6.6.
5.3. Insufficient Funds.
If, upon any Liquidation, the assets of the Corporation available for
distribution shall be insufficient to pay the Persons entitled to receive the
full amount to which such Persons are entitled to receive pursuant to Section
5.1 and Section 5.2, then such Persons shall share ratably in any distribution
of assets according to the respective amounts which would be payable to such
Persons upon such distribution with respect to the amounts payable to such
Persons pursuant to such Sections.
Article VI
Redemption
6.1. Change of Control.
(a) Upon the occurrence of a Change of Control, the Corporation shall be
obligated to make, in accordance with the procedures set forth in this Section
6.1, an offer to purchase (the "Change of Control Offer") the outstanding
Redeemable Preferred Stock on the terms and conditions set forth in this Section
6.1 for a price per share equal to 101% of the Liquidation
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Amount thereof as of the Change of Control Payment Date (the "Change of Control
Purchase Price").
(b) Within 30 days of the occurrence of a Change of Control, the
Corporation shall (i) cause a notice of the Change of Control Offer to be sent
at least once to the Dow Jones News Service or similar business news service in
the United States and (ii) send by first-class mail, postage prepaid, to each
Holder of Redeemable Preferred Stock, at the address appearing in the register
maintained by or on behalf of the Corporation, a notice stating:
(i) that the Change of Control Offer is being made pursuant to this
Section 6.1 and that all shares of Redeemable Preferred Stock validly
tendered will be accepted for payment;
(ii) the Change of Control Purchase Price and the purchase date (which
shall be a business day not earlier than 30 days nor later than 60 days
from the date such notice is mailed (the "Change of Control Payment
Date"));
(iii) that any share of Redeemable Preferred Stock not validly
tendered will continue to accrue dividends;
(iv) that, unless the Corporation defaults in the payment of the
Change of Control Purchase Price therefor, any share of Redeemable
Preferred Stock accepted for payment pursuant to the Change of Control
Offer shall cease to accrue dividends on the Change of Control Payment
Date;
(v) that Holders accepting the offer to have their Redeemable
Preferred Stock purchased pursuant to a Change of Control Offer will be
required to surrender their certificates representing shares of Redeemable
Preferred Stock to the Corporation at the address specified in the notice
prior to the close of business on the business day preceding the Change of
Control Payment Date;
(vi) that Holders will be entitled to withdraw their acceptance if the
Corporation receives, not later than the close of business on the third
business day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the number of shares of Redeemable Preferred Stock delivered for
purchase, and a statement that such Holder is withdrawing its election to
have such Redeemable Preferred Stock purchased;
(vii) that Holders whose Redeemable Preferred Stock is being purchased
only in part will be issued new certificates representing the number of
shares of Redeemable Preferred Stock equal to the unpurchased portion of
the certificates surrendered; and
(viii) any other procedures that a Holder must follow to accept a
Change of Control Offer or effect withdrawal of such acceptance.
(c) The Corporation will comply with any securities laws and regulations,
to the extent such laws and regulations are applicable to the purchase of the
Redeemable Preferred Stock in
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connection with a Change of Control Offer. Without limiting the foregoing,
in the event that a Change of Control occurs and the Holders of Redeemable
Preferred Stock exercise their right to require the Corporation to purchase
Redeemable Preferred Stock, if such purchase constitutes a "tender offer" for
purposes of Rule 14e-1 under the Exchange Act at that time, the Corporation will
comply with the requirements of Rule 14e-1 as then in effect with respect to
such purchase.
(d) On the Change of Control Payment Date, the Corporation shall, to the
extent lawful, (i) accept for payment the number of shares of Redeemable
Preferred Stock validly tendered pursuant to the Change of Control Offer and
(ii) promptly mail to each Holder of shares so accepted the Change of Control
Purchase Price therefor and execute and issue a new Redeemable Preferred Stock
certificate representing the number of shares of Redeemable Preferred Stock
equal to any unpurchased shares represented by a certificate surrendered. Unless
the Corporation defaults in the payment for the shares of Redeemable Preferred
Stock accepted for payment pursuant to the Change of Control Offer, dividends
shall cease to accrue with respect to shares of Redeemable Preferred Stock so
accepted and all rights of Holders of such tendered shares shall terminate,
except for the right to receive payment therefor, on the Change of Control
Payment Date.
(e) If any restriction or limitation contained in any agreement or
instrument evidencing or governing any Indebtedness of the Corporation or any of
its Subsidiaries would prevent the Corporation from making a Change of Control
Offer or paying the applicable Change of Control Purchase Price (including any
limitation on dividends or distributions by Subsidiaries), then, upon a Change
of Control, prior to the mailing of the notice to Holders described in Section
6.1(b) above, but in any event within 30 days following any Change of Control,
to the extent required to permit the purchase of Redeemable Preferred Stock
pursuant to this Section 6.1, the Corporation shall be required to (i) cause the
obligors thereunder to repay in full all obligations under such Indebtedness or
(ii) cause such obligors to obtain the requisite consent from the holders of
such Indebtedness to permit the purchase of the Redeemable Preferred Stock as
described above and the transactions contemplated hereunder.
(f) (i) If the Corporation has issued any outstanding Junior Stock, and the
Corporation is required to make a Change of Control Offer or to make a
distribution with respect to such Junior Stock in the event of a Change of
Control, the Corporation shall not consummate any such offer or distribution
with respect to such Junior Stock until such time as the Corporation shall have
paid the applicable Change of Control Purchase Price in full to the Holders of
Redeemable Preferred Stock that have validly accepted the Corporation's Change
of Control Offer and shall otherwise have consummated the Change of Control
Offer made to Holders of the Redeemable Preferred Stock and (ii) the Corporation
will not issue Junior Stock with change of control provisions requiring the
payment of such Junior Stock prior to the payment of the Redeemable Preferred
Stock in the event of a Change of Control under this Section 6.1.
(g) The Corporation will not be required to make a Change of Control Offer
upon a Change of Control if a third party makes such Change of Control Offer
contemporaneously with or upon a Change of Control in the manner, at the times
and otherwise in compliance with the requirements of this Section 6.1 and
purchases all Redeemable Preferred Stock validly tendered and not withdrawn
under such Change of Control Offer.
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6.2. Redemption of Redeemable Preferred Stock at Corporation's Option.
(a) At any time and from time to time, the Corporation may elect to redeem
all (but not less than all) of the outstanding shares of Redeemable Preferred
Stock (a "Corporation Redemption") at a price per share equal to the Liquidation
Amount thereof on the Corporation Redemption Date by giving notice to the
Holders thereof of such election (the "Corporation Redemption Notice"),
whereupon such Holders shall sell and transfer such shares of Redeemable
Preferred Stock to the Corporation on such business day (the "Corporation
Redemption Date") as shall be determined by the Corporation and set forth in the
Corporation Redemption Notice, but in any event not earlier than 30 days and not
later than 50 days after the date on which the Corporation Redemption Notice is
delivered to such Holders.
(b) The closing of the Corporation's redemption of the Redeemable Preferred
Stock pursuant to Section 6.2(a) shall take place at 10:00 a.m. New York City
time on the Corporation Redemption Date at the Corporation's principal executive
office or place of business. The Corporation Redemption Notice shall specify the
Corporation Redemption Date and the location of the Corporation's principal
executive office or place of business where the closing will occur. At the
closing, the Corporation shall pay to each of the Holders of the Redeemable
Preferred Stock, against the Corporation's receipt from such Holder of the
certificate or certificates representing the shares of such Redeemable Preferred
Stock then held by such Holder, an amount equal to the aggregate payment due
pursuant to this Section 6.2 for all such shares, by wire transfer of
immediately available funds, or if such Holder shall not have specified wire
transfer instructions to the Corporation prior to the closing, by certified or
official bank check made payable to the order of such Holder.
(c) Anything contained in this Section 6.2 to the contrary notwithstanding,
the outstanding shares of Redeemable Preferred Stock shall remain (i) subject to
optional or mandatory conversion pursuant to Article VII and (ii) subject to
redemption pursuant to Section 6.4, in each case, at all times on or prior to
the Corporation Redemption Date.
6.3. Mandatory Redemption.
(a) The Corporation shall redeem (the "Mandatory Redemption") all of the
shares of the Redeemable Preferred Stock then outstanding on the Mandatory
Redemption Date for an amount per share equal to the Liquidation Amount thereof
as of the Mandatory Redemption Date. If the funds of the Corporation legally
available for the redemption of shares of Redeemable Preferred Stock shall be
insufficient to permit the payment of the amounts due to such Holders on the
Mandatory Redemption Date, then the Holders of Redeemable Preferred Stock shall
share in any legally available funds ratably according to the respective amounts
which would be payable with respect to such shares if all amounts payable
thereon, including amounts payable pursuant to Section 6.4 and Section 6.6, were
paid in full. As soon as practicable after the Corporation has funds legally
available therefor, the Corporation shall make the remaining payments required
under this Section.
(b) The closing of the Corporation's redemption pursuant to Section 6.3(a)
shall take place at 10:00 a.m. New York City time on the Mandatory Redemption
Date at the Corporation's principal executive office or place of business. At
the closing, the Corporation shall pay to each
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Holder of the Redeemable Preferred Stock, against the Corporation's receipt
from such Holder of the certificate or certificates representing the shares of
such Redeemable Preferred Stock then held by such Holder, an amount equal to the
aggregate payment due pursuant to this Section 6.3 for all such shares, by wire
transfer of immediately available funds, or if such Holder shall not have
specified wire transfer instructions to the Corporation prior to the closing, by
certified or official bank check made payable to the order of such Holder.
6.4. Redemption at Holder's Option.
(a) Each holder of shares of Redeemable Preferred Stock shall have the
right (the "Put Right") to require the Corporation to redeem its shares of
Redeemable Preferred Stock in accordance with the further provisions of this
Section 6.4. The Put Right shall become exercisable, if at all, commencing on
the earliest of (the "Put Effective Date") (i) the 15-month anniversary of the
Original Issuance Date; (ii) the earliest date at which (A) the Charter
Amendment and/or (B) the approval of the effectiveness of convertibility of the
Redeemable Preferred Stock in accordance with Article VII have been submitted to
the Corporation's stockholders for a vote and the stockholders have failed to
approve either such matter; and (iii) such time as the Corporation shall be
obligated to deliver a notice of a Change of Control Offer pursuant to Section
6.1(b). Notwithstanding the foregoing, the Put Right shall cease to be
exercisable upon the occurrence of the Convertibility Effective Date. The
redemption price of each share of Redeemable Preferred Stock redeemed pursuant
to the Put Right of the Holder thereof shall be equal to the Holder Redemption
Price.
(b) Each Holder's rights under Section 6.4(a) may be exercised from time to
time after the Put Effective Date by giving notice of such election to the
Corporation (the "Holder Redemption Notice"), whereupon such Holder shall sell
and transfer such shares of Redeemable Preferred Stock on such business day (the
"Holder Redemption Date") as shall be determined by such Holder and set forth in
the Holder Redemption Notice, but in any event not earlier than 10 days and not
later than 50 days after the date on which the applicable Holder Redemption
Notice is delivered to the Corporation. Each Holder Redemption Notice shall set
forth the number of shares of the Redeemable Preferred Stock that the Holder
desires to have the Corporation redeem on such Holder Redemption Date.
(c) The closing of the Corporation's redemption of the Redeemable Preferred
Stock pursuant to Section 6.4(a) shall take place at 10:00 a.m. New York City
time on the Holder Redemption Date at the Corporation's principal executive
office or place of business. At the closing, the Corporation shall pay to the
applicable Holder, against the Corporation's receipt from such Holder of the
certificate or certificates representing the shares of Redeemable Preferred
Stock referred to in the Holder Redemption Notice, an amount equal to the
aggregate payment due pursuant to Section 6.4(a) for all shares being redeemed,
by wire transfer of immediately available funds, or if such Holder shall not
have specified wire transfer instructions to the Corporation prior to the
closing, by certified or official bank check made payable to the order of such
Holder.
(d) Each Holder shall be entitled to exercise its Put Right with respect to
a share of Redeemable Preferred Stock at any time and from time to time
following the commencement of
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a Change of Control Offer in lieu of exercising its rights to tender its shares
of Redeemable Preferred Stock to the Corporation in connection with such
Change of Control Offer.
(e) If any restriction or limitation contained in any agreement or
instrument evidencing or governing any Indebtedness of the Corporation or any of
its Subsidiaries would prevent the Corporation from paying the Holder Redemption
Price (including any limitation on dividends or distributions by Subsidiaries),
then, upon delivery of a Holder Redemption Notice to the Corporation, to the
extent required to permit the purchase of Redeemable Preferred Stock pursuant to
this Section 6.4, the Corporation shall be required to use its best efforts to
cause the obligors on such Indebtedness to obtain the requisite consent from the
holders of such Indebtedness to permit the purchase of the Redeemable Preferred
Stock as described above and the transactions contemplated hereunder. If the
Corporation is not able to obtain the requisite consents from such holders, it
shall use its best efforts to refinance its outstanding Indebtedness so as to
permit the purchase of the Redeemable Preferred Stock as described above and the
transactions contemplated hereunder. If, after using its best efforts, the
Corporation is not able to obtain the requisite consent or refinance its
outstanding Indebtedness, then, to the extent that the Corporation is restricted
from paying the Holder Redemption Price, it shall have no obligation to do so
and the applicable Holder(s) shall be entitled to revoke the exercise of their
Put Rights (which may be exercised again at any time pursuant to this Section
6.4). Such revocation may be exercised by delivering a notice to the Corporation
at any time prior to the payment in full of the Holder Redemption Price.
6.5. Warrants.
If, at any time on or after the Convertibility Effective Date, the
Corporation shall redeem the outstanding shares of Redeemable Preferred Stock
pursuant to Section 6.2, then, in addition to the cash redemption price payable
pursuant to Section 6.2 in respect of the shares of Redeemable Preferred Stock
being redeemed, the Corporation shall also issue warrants to the Holders of
Redeemable Preferred Stock unless either (i) the Corporation Redemption Notice
is delivered after the third anniversary of the Original Issuance Date and a
Minimum Price Event has occurred during the thirty days immediately preceding
the delivery of such Corporation Redemption Notice or (ii) a Corporation
Redemption Notice is given at any time after the fifth anniversary of the
Original Issuance Date.
Such warrant initially shall be exercisable for that number of shares of
Non-Voting Common Stock equal to the number of shares of Non-Voting Common Stock
issuable upon conversion of such Holder's Redeemable Preferred Stock immediately
prior to the redemption thereof. The initial exercise price per share of
Non-Voting Common Stock for such warrant shall be equal to the Conversion Price
in effect immediately prior to the redemption of the Redeemable Preferred Stock
pursuant to Section 6.2. Such warrant shall have customary cashless exercise
provisions, customary anti-dilution protections economically identical to the
anti-dilution protections applicable to the Redeemable Preferred Stock and shall
otherwise be in form and substance reasonably acceptable to the Corporation and
the Requisite Senior Holders. The warrant shall be delivered to the Holder at
the closing of the Corporation Redemption in exchange for the certificate
representing the shares of Redeemable Preferred Stock surrendered by such
Holder.
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6.6. Additional Payments.
If, at any time prior to the Convertibility Effective Date, the Corporation
shall redeem the shares of Redeemable Preferred Stock pursuant to either Section
6.2 or Section 6.3, then, in addition to the redemption price received in such
redemption, each Holder of Redeemable Preferred Stock shall have the right to
receive, at such time (the "Additional Payment Date"), on or after the date of
such redemption, as such Holder shall elect, an additional payment in respect of
such share of Redeemable Preferred Stock equal to the Additional Payment Amount.
The "Additional Payment Amount", with respect to any share of Redeemable
Preferred Stock, shall be the amount, if any, by which (a) the Holder Redemption
Price for such share, determined as of the Additional Payment Date as if such
share had not previously been redeemed, exceeds (b) the redemption price paid
for such share upon redemption pursuant to Section 6.2 or 6.3, as the case may
be. If the Convertibility Effective Date occurs following any redemption
pursuant to Section 6.2 or 6.3, then the Corporation shall be entitled to pay
the Additional Payment Amount by issuing shares of Non-Voting Common Stock
having an aggregate Market Price as of the Additional Payment Date equal to the
Additional Payment Amount. A Holder shall exercise its rights under this Section
6.6 by delivering a written notice to the Company to such effect, indicating the
name of the Holder from whom the shares of Redeemable Preferred Stock had been
redeemed and the number of shares of Redeemable Preferred Stock redeemed by the
Company from such Holder. Notwithstanding anything to the contrary set forth
herein, any election pursuant to this Section 6.6 may be revoked at any time
after the Additional Payment Date if the Corporation does not pay the Additional
Payment Amount on the Additional Payment Date.
Article VII
Conversion
7.1. Optional Conversion.
From and after the Convertibility Effective Date, shares of Redeemable
Preferred Stock shall be convertible at the option of the Holder thereof into
shares of Non-Voting Common Stock in accordance with the following.
(a) Subject to and in compliance with the applicable provisions of this
Article VII, each Holder of shares of Redeemable Preferred Stock shall have the
right, at such Holder's option, at any time and from time to time from and after
the Convertibility Effective Date, to convert each such share of Redeemable
Preferred Stock held by such Holder into that number of fully paid and
nonassessable shares of Non-Voting Common Stock equal to the quotient of (x) the
Liquidation Amount as of the date of conversion of such share of Redeemable
Preferred Stock plus the Missed Dividend Amount as of such date with respect to
such share, divided by (y) the Conversion Price, as last adjusted and then in
effect. The Corporation shall give the Holders reasonable prior notice of a Sale
of the Corporation, including the price and material terms and conditions
thereof, in order to provide the Holders reasonable opportunity to consider
whether to convert shares of the Redeemable Preferred Stock into shares of
Non-Voting Common Stock at or prior to such Sale of the Corporation. If the
price or material terms or conditions of such transaction thereafter change, the
Corporation shall promptly deliver written notice to the Holders specifying such
changes.
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(b) The term "Missed Dividend Amount" means, to the extent that a Holder
does not receive dividends or other distributions pursuant to Section 4.3
(whether in cash or otherwise), the Fair Value of all non-cash dividends or
distributions plus the amount of all cash dividends or distributions that such
Holder would have received in respect of the Common Stock Equivalents held by
such Holder in respect of each share of Redeemable Preferred Stock held by such
Holder immediately prior to the record date for such Common Stock dividend
(without giving effect to any prior application of this Section 7.1(b)).
7.2. Mandatory Conversion.
From and after the Convertibility Effective Date, shares of Redeemable
Preferred Stock shall be convertible at the option of the Corporation into
shares of Non-Voting Common Stock in accordance with the following:
(a) At any time from and after the third anniversary of the Original
Issuance Date (if the Convertibility Effect Date shall have occurred), the
Corporation may elect to have all (but not less than all) of the then
outstanding shares of Redeemable Preferred Stock converted into that number of
fully paid and nonassessable shares of Non-Voting Common Stock into which such
shares would have been convertible in the event of an optional conversion at
such time pursuant to Section 7.1; provided that during the thirty days
immediately preceding the delivery by the Corporation of a notice of conversion
in accordance with Section 7.4(b), a Minimum Price Event shall have occurred.
(b) Notwithstanding anything to the contrary set forth in this Section 7.2,
the Corporation may not exercise its rights under this Section 7.2 until such
time as a shelf registration statement with respect to the shares of Non-Voting
Common Stock or the shares of Voting Common Stock issuable upon the exercise
thereof shall have been declared effective by the Securities and Exchange
Commission in accordance with the Investor Rights Agreement.
7.3. Adjustment of Conversion Price.
The Conversion Price shall be subject to adjustment from time to time as
follows:
(a) The Conversion Price will be increased by $1.00 if the Convertibility
Effective Date is prior to September 30, 1999. The Conversion Price will be
reduced by (i) $1.00 if the Convertibility Effective Date is after December 31,
1999 and by an additional (ii) $1.00 for every 90 days after December 31, 1999
if the Convertibility Effective Date shall not have occurred prior to any such
reduction.
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(b) If the Corporation shall, at any time or from time to time after the
Original Issuance Date, issue any shares of Common Stock or Common Stock Rights
(other than pursuant to an Equity Incentive Plan) without consideration or for a
consideration per share less than (x) the Market Price of a share of Voting
Common Stock or (y) except in the case of an issuance pursuant to a Public
Offering, the Conversion Price in effect immediately prior to the issuance of
such Common Stock or Common Stock Right, then the Conversion Price in effect
immediately prior to each such issuance shall forthwith be lowered to a price
equal to the product of:
(i) the Conversion Price in effect immediately prior to such
calculation, multiplied by
(ii) a fraction, (A) the numerator of which is the sum of (I) the
total number of shares of Common Stock outstanding (including any shares of
Common Stock deemed to have been issued pursuant to Section 7.3(d)(iii)
upon the issuance of a Common Stock Right having a per share exercise
price, conversion price or exchange price equal to or lower than the Market
Price of a share of Voting Common Stock) immediately prior to such issuance
and (II) the number of additional shares of Voting Common Stock which the
aggregate offering price (determined in the manner provided in Sections
7.3(d)(i) and (ii)) of the number of shares of Common Stock so offered
(including any shares of Common Stock deemed to have been issued pursuant
to Section 7.3(d)(iii)) would purchase at the greater of the Market Price
of a share of Voting Common Stock and the Conversion Price in effect
immediately prior to such issuance, and (B) the denominator of which is the
total number of shares of Common Stock outstanding (including any shares of
Common Stock deemed to have been issued pursuant to Section 7.3(d)(iii)
upon the issuance of a Common Stock Right having a per share exercise
price, conversion price or exchange price equal to or lower than the Market
Price of a share of Voting Common Stock) immediately after the issuance of
such Common Stock.
(c) If the Corporation shall, at any time or from time to time after the
Original Issuance Date, directly or indirectly, redeem, purchase or otherwise
acquire any shares of Common Stock or any Common Stock Right for a consideration
per share greater than the Market Price of a share of Voting Common Stock (plus,
in the case of Common Stock Rights, the additional per share consideration
required to be paid to the Corporation upon exercise, conversion or exchange),
then the Conversion Price in effect immediately prior to each such issuance
shall forthwith be lowered to a price equal to the product of:
(i) the Conversion Price in effect immediately prior to such
calculation, multiplied by
(ii) a fraction, (A) the numerator of which is the quotient of (I) the
difference of (x) the product of the total number of shares of Common Stock
outstanding (including any shares of Common Stock deemed to have been
issued pursuant to Section 7.3(d)(iii) upon the issuance of a Common Stock
Right having an exercise price, conversion price or exchange price equal to
or lower than the Market Price of a share of Voting Common Stock)
immediately prior to such issuance, multiplied by the Market Price of a
share of Voting Common Stock immediately prior to such event minus (y) the
aggregate consideration paid by the Corporation in such event (plus, in the
case of Common Stock
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Rights, the aggregate additional consideration to be paid by the
Corporation upon exercise, conversion or exchange) divided by (II) the
number of shares of Common Stock outstanding (including any shares of
Common Stock deemed to have been issued pursuant to Section 7.3(d)(iii)
upon the issuance of a Common Stock Right having an exercise price,
conversion price or exchange price equal to or lower than the Market Price
of a share of Voting Common Stock) immediately after the issuance of such
Common Stock and (B) the denominator of which is the Market Price of a
share of Voting Common Stock immediately prior to such event.
(d) For the purposes of any adjustment of the Conversion Price pursuant to
Section 7.3(b) or (c) above, the following provisions shall be applicable:
(i) In the case of the issuance of Common Stock for cash in a public
offering or private placement, the consideration shall be deemed to be the
amount of cash paid therefor after deducting therefrom any discounts,
commissions or placement fees payable by the Corporation to any underwriter
or placement agent in connection with the issuance and sale thereof.
(ii) In the case of the issuance of Common Stock for a consideration
in whole or in part other than cash, the consideration other than cash
shall be deemed to be the Fair Value thereof.
(iii) In the case of the issuance of Common Stock Rights:
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the
time such options or rights were issued and for a consideration equal
to the aggregate consideration (determined in the manner provided in
Sections 7.3(d)(i) and (ii)), if any, received by the Corporation upon
the issuance of such options or rights plus the minimum aggregate
purchase price provided in such options or rights for the Common Stock
covered thereby;
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such Securities
convertible into or exchangeable for Common Stock or upon the exercise
of options to purchase or rights to subscribe for such convertible or
exchangeable Securities and subsequent conversion or exchange thereof
shall be deemed to have been issued at the time such Securities,
options, or rights were issued and for a consideration equal to the
aggregate consideration received by the Corporation for any such
Securities and related options or rights (excluding any cash received
on account of accrued interest or accrued dividends), plus the
additional aggregate consideration, if any, to be received by the
Corporation upon the conversion or exchange of such Securities or the
exercise of any related options or rights (the consideration in each
case to be determined in the manner provided in Sections
7.3(d)(i) and (ii));
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(C) on any change in the number of shares or the exercise,
conversion or exchange price of Common Stock deliverable upon exercise
of any such options or rights or conversions of or exchange for such
Securities, the Conversion Price shall forthwith be readjusted to such
Conversion Price as would have obtained had the adjustment made upon
the issuance of such options, rights or Securities not exercised or
converted prior to such change or options or rights related to such
Securities not exercised or converted prior to such change been made
upon the basis of the number of shares and price after giving effect
to such change; and
(D) on the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or
exchangeable Securities, the Conversion Price shall forthwith be
readjusted to such Conversion Price as would have obtained had the
adjustment made upon the issuance of such options, rights, Securities
or options or rights related to such Securities been made upon the
basis of the issuance of only the number of shares of Common Stock
actually issued upon the exercise of such options or rights, upon the
conversion or exchange of such Securities, or upon the exercise of the
options or rights related to such Securities and subsequent conversion
or exchange thereof; provided that no such readjustment shall be made
to the extent that such expiration or termination is in connection
with or related to any settlement, including any cash settlement, of
any such options, rights, conversion rights or exchange rights.
(e) If, at any time after the Original Issuance Date, the number of shares
of Common Stock outstanding is increased by a stock dividend payable in shares
of Common Stock or by a subdivision or split-up of shares of Common Stock, then,
following the record date for the determination of holders of Common Stock
entitled to receive such stock dividend, subdivision or split-up (or if no
record date is set, the date such stock dividend, subdivision of stock split is
consummated), then, following the record date for such event, the Conversion
Price shall be appropriately decreased so that the number of shares of
Non-Voting Common Stock issuable on conversion of each share of Redeemable
Preferred Stock, in each case, shall be increased in proportion to such increase
in outstanding shares.
(f) If, at any time after the Original Issuance Date, the number of shares
of Common Stock outstanding is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date for such combination,
the Conversion Price shall be appropriately increased so that the number of
shares of Non-Voting Common Stock issuable on conversion of each share of
Redeemable Preferred Stock, in each case, shall be decreased in proportion to
such decrease in outstanding shares.
(g) If any capital reorganization of the Corporation, any reclassification
of the stock of the Corporation (other than a change in par value or from no par
value to par value or from par value to no par value or as a result of a stock
dividend or subdivision, split-up or combination of shares), or any
consolidation or merger of the Corporation shall occur, then each share of
Redeemable Preferred Stock after such reorganization, reclassification,
consolidation, or merger shall be convertible into the kind and number of shares
of stock or other Securities or property of the Corporation or of the
corporation resulting from such consolidation or surviving such merger
25
<PAGE>
to which the holder of the number of shares of Non-Voting Common Stock
deliverable (immediately prior to the time of such reorganization,
reclassification, consolidation or merger) upon conversion of such share of
Redeemable Preferred Stock would have been entitled upon such reorganization,
reclassification, consolidation or merger. The provisions of this clause shall
similarly apply to successive reorganizations, reclassifications, consolidations
or mergers.
(h) If any event occurs of the type contemplated by the provisions of this
Section 7.3 but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom stock
rights or other rights with equity features, but excluding any issuance of
Common Stock or Common Stock Rights pursuant to an Equity Incentive Plan), then
the Corporation's Board of Directors, in the good faith exercise of its
fiduciary duties to the Holders of Redeemable Preferred Stock, shall make an
appropriate reduction in the Conversion Price so as to protect the rights of the
Holders of the Redeemable Preferred Stock.
(i) All calculations under this paragraph shall be made to the nearest one
hundredth (1/100) of a cent. In no event will the Conversion Price be reduced
below the par value of the Common Stock.
(j) In any case in which the provisions of this Section 7.3 shall require
that an adjustment shall become effective immediately after a record date of an
event, the Corporation may defer until the occurrence of such event issuing to
the Holder of any share of Redeemable Preferred Stock converted after such
record date and before the occurrence of such event the number of shares of
capital stock issuable upon such conversion by reason of the adjustment required
by such event in excess of the number of shares of capital stock issuable upon
such conversion before giving effect to such adjustments; provided, however,
that the Corporation shall deliver to such Holder an appropriate instrument
evidencing such Holder's right to receive such excess shares.
(k) Whenever the Conversion Price shall be adjusted as provided in this
Section 7.3, the Corporation shall make available for inspection during regular
business hours, at its principal executive offices or at such other place as may
be designated by the Corporation, a statement, signed by its chief executive
officer and certified by the Corporation's independent public accountants,
showing in detail the facts requiring such adjustment and the Conversion Price
that shall be in effect after such adjustment. The Corporation shall also cause
a copy of such statement to be sent by first class certified mail, return
receipt requested and postage prepaid, to each Holder of Redeemable Preferred
Stock at such Holder's address appearing on the Corporation's records. Where
appropriate, such copy may be given in advance and may be included as part of
any notice required to be mailed under the provisions of Section 7.3(k).
(l) If the Corporation shall propose to take any action of the types
described in Sections 7.3(e), (f) or (g), the Corporation shall give notice to
each Holder of shares of Redeemable Preferred Stock, in the manner set forth in
Section 7.3(k), which notice shall specify the record date, if any, with respect
to any such action and the date on which such action is to take place. Such
notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Conversion Price and the
number, kind or class of shares or other Securities or property which shall be
deliverable or purchasable upon the occurrence of such action or
26
<PAGE>
deliverable upon conversion of shares of Redeemable Preferred Stock. In the
case of any action which would require the fixing of a record date, such notice
shall be given at least 10 days prior to the date so fixed, and in case of all
other action, such notice shall be given at least 10 days prior to the taking of
such proposed action. Failure to give such notice, or any defect therein, shall
not affect the legality or validity of any such action.
(m) In the event that the Requisite Senior Holders consent in writing to
limit, or waive in its entirety, any anti-dilution adjustment to which the
Holders of the Redeemable Preferred Stock would otherwise be entitled hereunder,
the Corporation shall not be required to make any adjustment whatsoever with
respect to any Redeemable Preferred Stock in excess of such limit or at all, as
the terms of such consent may dictate.
7.4. Mechanics.
(a) Any Holder of shares of Redeemable Preferred Stock electing to convert
the shares or any portion thereof in accordance with Section 7.1 shall give
written notice to the Corporation. Such notice shall state that such Holder
elects to convert shares of Redeemable Preferred Stock, the number of such
shares that it elects to convert, the applicable Expected Conversion Date and
the name or names in which such holder wishes the certificate or certificates
for shares of Non-Voting Common Stock to be issued. A Holder may make any notice
of conversion, whether such conversion is in connection with a Sale of the
Corporation or otherwise, conditional upon the happening of any event or the
passage of time. A Holder may rescind any notice of conversion prior to the
Conversion Date.
(b) If the Corporation is entitled to have all of the shares of Redeemable
Preferred Stock converted into Non-Voting Common Stock pursuant to Section 7.2,
it may give a written notice to all Holders of Redeemable Preferred Stock. Such
notice shall state that the Corporation elects to convert all of the outstanding
shares of Redeemable Preferred Stock into Non-Voting Common Stock and the
Expected Conversion Date, which shall be not more than 30 days and not less than
10 days after delivery of such notice. If any Holder desires to have a
certificate or certificates representing the shares of Non-Voting Common Stock
issued in a name or names other than the name in which the shares being
converted are issued, then, at least two business days prior to the Conversion
Date, such Holder shall deliver a notice to such effect to the Corporation.
(c) On or prior to the date indicated in any notice of conversion delivered
pursuant to Section 7.4(a) or 7.4(b) (as applicable, the "Expected Conversion
Date"), the applicable Holder or, in the case of a notice pursuant to Section
7.4(b), all Holders of shares of Redeemable Preferred Stock shall surrender the
certificate or certificates representing such shares of Redeemable Preferred
Stock to be converted, duly endorsed, at the office of the Corporation or any
transfer agent for such shares. On the Expected Conversion Date, the Corporation
shall issue and deliver to or upon the order of such Holder, against delivery of
the certificates representing the shares of Redeemable Preferred Stock that have
been converted, a certificate or certificates for the number of shares of
Non-Voting Common Stock to which such Holder shall be entitled (in the number(s)
and denomination(s) designated by such Holder), and, the case of a partial
conversion pursuant to Section 7.1, the Corporation shall deliver to such Holder
a
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<PAGE>
certificate or certificates for the number of shares of Redeemable Preferred
Stock that such Holder has not elected to convert.
(d) The Corporation shall pay any documentary, stamp or similar issue or
transfer tax due on the issuance of Non-Voting Common Stock upon the conversion
of Redeemable Preferred Stock or due on the issuance of a new certificate or
certificates for any shares of Redeemable Preferred Stock not converted. Subject
to the prior satisfaction or waiver of any conditions set forth in any notice of
conversion (as permitted under Section 7.4(a)), the conversion right with
respect to any shares of Redeemable Preferred Stock shall be deemed to have been
exercised on the latest of (i) the date upon which the certificates representing
the shares of Non-Voting Common Stock shall have been so delivered, (ii) the
date on which all of the conditions set forth in any notice of exercise (as
permitted by Section 7.4(a)) shall have been satisfied or waived and (iii) the
Expected Conversion Date (such date, the "Actual Conversion Date") and the
person or persons entitled to receive the shares of Non-Voting Common Stock
issuable upon conversion shall be treated for all purposes as the record Holder
or Holders of such Non-Voting Common Stock on and after that date.
(e) No fractional shares of Non-Voting Common Stock or scrip shall be
issued upon conversion of shares of Redeemable Preferred Stock. The number of
full shares of Non-Voting Common Stock issuable upon conversion of Redeemable
Preferred Stock shall be computed on the basis of the aggregate number of shares
of such Redeemable Preferred Stock to be converted. Instead of any fractional
shares of Non-Voting Common Stock which would otherwise be issuable upon
conversion of any such shares, the Corporation shall pay a cash adjustment in
respect of such fractional interest in an amount equal to the product of (i) the
Market Price of a share of Voting Common Stock and (ii) such fractional
interest. The holders of fractional interests shall not be entitled to any
rights as stockholders of the Corporation in respect of such fractional
interests.
(f) Upon issuance of shares in accordance with this Section, each share of
Non-Voting Common Stock issued shall be duly authorized, validly issued, fully
paid and non-assessable, with no personal liability attaching to the ownership
thereof and free from all taxes or Liens with respect thereto due to any action
or failure to act by or on behalf of the Corporation.
(g) The Corporation shall take all such actions as may be necessary to
assure that all shares issued pursuant to this Section may be so issued without
violation of any Applicable Law or any requirements of any securities exchange
upon which such shares may be listed (except for official notice of issuance
which will be immediately transmitted by the Corporation upon issuance). The
Corporation shall not close its books against the transfer of shares in any
manner which would interfere with the timely conversion of any shares.
7.5. Reservation of Shares.
From and after the Convertibility Effective Date, the Corporation shall at
all times reserve and keep available out of its authorized but unissued shares
of each class of capital stock or its treasury shares, solely for the purpose of
issuance upon the conversion of shares of Redeemable Preferred Stock and the
exercise of the warrants which may be issued pursuant to
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Section 6.4, such number of shares of such class as are then issuable upon the
conversion of the shares of Redeemable Preferred Stock or the exercise of such
warrants.
Article VIII
Certain Regulatory Matters
The Corporation shall not redeem, purchase, acquire or take any other
action affecting outstanding shares of any capital stock entitled to general
voting rights if, after giving effect to such redemption, purchase, acquisition
or other action, a Regulated Stockholder would own (i) more than 4.99% of any
class of Voting Securities of the Corporation (other than any class of Voting
Securities that is (or is made prior to any such redemption, purchase,
acquisition or other action) convertible into a class of non-Voting Securities
that are otherwise identical to the Voting Securities and convertible into such
Voting Securities on terms reasonably acceptable to such Regulated Stockholder)
or (ii) more than 24.99% of the total equity of the Corporation or more than
24.99% of the total value of all capital stock and subordinated debt of the
Corporation (in each case determined by assuming such Regulated Stockholder (but
no other holder) has exercised, converted or exchanged all of its options,
warrants and other convertible or exchangeable Securities).
* * * *
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IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly
executed by an authorized officer of the Corporation as of the 25th day of June,
1999.
By: _____________________________
Name: Ivan R. Sabel
Title: President
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Exhibit 26
SECURITIES PURCHASE AGREEMENT
dated as of June 16, 1999
among
HANGER ORTHOPEDIC GROUP, INC.
and
THE PURCHASERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
Article I DEFINED TERMS; RULES OF CONSTRUCTION.............................1
1.1 Defined Terms....................................................1
1.2 Rules of Construction............................................5
Article II PURCHASE AND SALE OF SHARES; CLOSING............................6
2.1 Certificate of Amendment.........................................6
2.2 Authorization of Issuance of Preferred Shares....................6
2.3 Sale of Securities...............................................6
2.4 Closing..........................................................6
2.5 Closing Deliveries...............................................7
2.6 Use of Proceeds..................................................7
Article III REPRESENTATIONS AND WARRANTIES ABOUT THE COMPANY...............7
3.1 Offering Memorandum..............................................7
3.2 Capitalization...................................................8
3.3 Organization, Power and Authority and Good Standing..............9
3.4 Authorization, Execution, Enforceability and Consents............9
3.5 Reports and Financial Information...............................11
3.6 Compliance with Laws............................................11
3.7 Absence of Changes..............................................12
3.8 Taxes...........................................................12
3.9 Title to Assets.................................................12
3.10 Proceedings.....................................................12
3.11 Contracts.......................................................13
3.12 Insurance.......................................................13
3.13 ERISA...........................................................13
3.14 Accounting......................................................14
3.15 Investment Company..............................................14
3.16 Solvency........................................................14
3.17 Private Sale....................................................14
3.18 Brokers.........................................................14
3.19 Regulatory Matters..............................................15
3.20 Y2K.............................................................15
3.21 Incorporation of NovaCare Purchase Agreement....................16
3.22 Certificates of Officers........................................16
Article IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS...............16
4.1 Authorization of the Documents..................................16
4.2 Investment Representations......................................16
Article V CONDITIONS TO CLOSING...........................................17
5.1 Conditions to Purchasers' Obligations...........................17
5.2 Conditions to the Company's Obligations.........................19
<PAGE>
Article VI INDEMNIFICATION................................................19
6.1 Survival of Representations, Warranties, Agreements
and Covenants, Etc............................................19
6.2 Indemnification.................................................19
Article VII TRANSFER OF SECURITIES........................................21
7.1 Restriction on Transfer.........................................21
7.2 Restrictive Legends.............................................22
7.3 Notice of Transfer..............................................22
7.4 Transfer Pursuant to Rule 144...................................23
Article VIII ADDITIONAL AGREEMENTS OF THE COMPANY.........................23
8.1 Escrow of Proceeds of Senior Subordinated Notes.................23
8.2 Conduct Pending Closing.........................................23
8.3 Existing Warrants and Common Stock..............................24
8.4 Amendment of By-laws............................................25
Article IX MISCELLANEOUS..................................................25
9.1 Fees............................................................25
9.2 Further Assurances..............................................26
9.3 Remedies........................................................26
9.4 Successors and Assigns........................................26
9.5 Entire Agreement...............................................26
9.6 Notices.........................................................27
9.7 Amendments, Modifications and Waivers...........................28
9.8 Governing Law; Waiver of Jury Trial............................28
9.9 No Third Party Reliance.........................................28
9.10 Submission to Jurisdiction......................................29
9.11 Severability....................................................29
9.12 Independence of Agreements, Covenants, Representations
and Warranties................................................29
9.13 Counterparts; Facsimile Signatures..............................30
ii
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SCHEDULES AND EXHIBITS
SCHEDULES
Schedule I - Purchasers, Purchase Price and Fees
Schedule 3.2(d) - Options and Warrants
Schedule 3.2(e) - Preemptive Rights and Rights of First Refusal
Schedule 3.2(f) - Liens
Schedule 3.2(g) - Redemption Rights
Schedule 3.2(h) - Registration Rights
Schedule 3.6 - Orders
Schedule 3.10 - Proceedings
Schedule 3.20 - Y2K
EXHIBITS
Exhibit A - Certificate of Designations for Redeemable Preferred Stock
Exhibit B - Form of Charter Amendment
Exhibit C - Investor Rights Agreement
Exhibit D - Regulation Y Letter
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SECURITIES PURCHASE AGREEMENT
dated as of June 16, 1999 among HANGER
ORTHOPEDIC GROUP, INC., a Delaware
corporation (the "Company"), and the
Purchasers listed on Schedule I
(collectively, the "Purchasers").
The Company is in the business of developing, acquiring and operating
orthotic and prosthetic patient-care centers in the United States (the
"Business"). The Company desires to raise $60,000,000 in preferred equity
financing, and the Purchasers are willing to purchase certain shares of the
Company's preferred stock in connection therewith, all on the terms and subject
to the conditions set forth herein.
ACCORDINGLY, in consideration of the foregoing and the covenants,
agreements, representations and warranties contained in this Agreement, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the parties, the parties hereto hereby agree as follows:
ARTICLE I
DEFINED TERMS; RULES OF CONSTRUCTION
1.1 DEFINED TERMS.
-------------
Capitalized terms used and not otherwise defined in this Agreement have
the meanings given to them below or in the other locations of this Agreement
specified below (or, if not defined herein, have the meanings ascribed to them
in the Certificate of Designations):
"Agreement" shall have the meaning given to such term in Section 1.2.
"Amended Charter" means, at any time prior to the effectiveness of the
Charter Amendment, the Certificate of Incorporation of the Company as in effect
on the date hereof and, thereafter, as amended by the Charter Amendment.
"Applicable Securities" means the shares of Redeemable Preferred Stock,
the Warrants and the Reserved Common Shares.
"Board" means the Board of Directors of the Company.
"Business" has the meaning given to it in the Preamble to this
Agreement.
"Business Day" means any day other than a Saturday, Sunday or a day on
which all United States securities exchanges on which Securities issued by the
Company are listed, are authorized or required to be closed.
"Certificate of Designations" means the certificate of designations,
powers, preferences and relative, participating, optional or other special
rights and
<PAGE>
qualifications, limitations or restrictions of the Redeemable Preferred Stock,
in substantially the form set forth in Exhibit A.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Company as amended and restated and in effect from time to time prior to
the effectiveness of the Charter Amendment.
"Charter Amendment" means the amendment to the Company's Certificate of
Incorporation, in substantially the form attached as Exhibit B.
"Claim" means any claim, demand, assessment, judgment, order, decree,
action, cause of action, litigation, suit, investigation or other Proceeding.
"Closing" has the meaning given to it in Section 2.4.
"Closing Date" has the meaning given to it in Section 2.4.
"Closing Certificate" has the meaning given to it in Section 6.1.
"Code" means the Internal Revenue Code of 1986, as amended, or any
similar Federal law then in force, and the rules and regulations promulgated
thereunder, all as the same may from time to time be in effect.
"Commission" means the Securities and Exchange Commission or any
successor or replacement thereto.
"Company" has the meaning given to it in the caption to this Agreement.
"Company Indemnified Persons" has the meaning given to it in Section
6.2(b).
"Chase" shall mean Chase Equity Associates, L.P., a California limited
partnership.
"Credit Agreement" shall mean the Credit Agreement dated as of the date
hereof, among the Company, The Chase Manhattan Bank, as Administrative Agent,
Collateral Agent and Issuing Bank, Bankers Trust Company, as Syndication Agent,
Paribas (f/k/a Banque Paribas), as Documentation Agent, and the Lenders party
thereto.
"Documents" means this Agreement, the Certificate of Designations, the
Investor Rights Agreement and the Regulation Y Letters.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended, or any similar Federal law in force, and the rules and regulations
promulgated thereunder, all as the same may be amended.
"Equity Incentive Plans" has the meaning given to it in the Certificate
of Designations.
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<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar Federal Statute then in force, and the rules and regulations
promulgated thereunder, all as the same may from time to time be in effect.
"Final Memorandum" means the final offering memorandum dated June 9,
1999, to be used in connection with the sale of the Senior Subordinated Notes.
"Fundamental Documents" means the documents by which any Person (other
than an individual) establishes its legal existence or which govern its internal
affairs. The Fundamental Documents of the Company are the Certificate of
Incorporation (prior to the effectiveness under Delaware Law of the Charter
Amendment), the Amended Charter (after the effectiveness under Delaware Law of
the Charter Amendment) and the By-laws of the Company.
"GAAP" means United States generally accepted accounting principles.
"Indemnified Persons" means any of the Company Indemnified Persons or
any of the Purchaser Indemnified Persons, as the context may require.
"Indemnifying Persons" means any of the Purchasers or the Company, as
the context may require.
"Insurance Policies" has the meaning given to it in Section 3.12.
"Intellectual Property Rights" means all industrial and intellectual
property rights, including, without limitation, patents, patent applications,
patent rights, trademarks, trademark applications, trade names, service marks,
service mark applications, copyrights, copyright applications, know-how, trade
secrets, proprietary processes and formulae, confidential information,
franchises, licenses, inventions, instructions, marketing materials, trade
dress, logos and designs and all documentation and media constituting,
describing or relating to the foregoing, including manuals, memoranda and
records.
"Investor Rights Agreement" means the Investor Rights Agreement among
the Company and the Purchasers, in substantially the form set forth in Exhibit
C.
"Knowledge" has the meaning given to it in Section 1.2.
"Liability" means any liability or obligation, whether known or
unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued,
liquidated or unliquidated and whether due or to become due, regardless of when
asserted.
"Loss" means any loss (including diminution in value of Securities),
Liability, Claim, cost, damage, deficiency, Tax (including any Taxes imposed
with respect to any indemnity payments for any such Loss), penalty, fine or
expense, whether or not arising out of any Claims by or on behalf of any party
to this Agreement or any third party, including interest, penalties, reasonable
attorneys' fees and expenses and all amounts paid in investigation, defense or
settlement of any of the foregoing which any
3
<PAGE>
such party may suffer, sustain or become subject to, as a result of, in
connection with, relating or incidental to or by virtue of any indemnifiable
event or condition.
"Material Adverse Effect" means, with respect to any Person, a material
adverse effect on the business, condition (financial and otherwise), operations,
results of operations, assets (including levels of working capital and
components thereof), Liabilities, and prospects of such Person.
"Material Agreements" has the meaning given to it in Section 3.10.
"NovaCare Purchase Agreement" means the Stock Purchase Agreement dated
as of April 2, 1999 by and among NovaCare, Inc., NC Resources, Inc., the Company
and HPO Acquisition Corp., as in effect on the date hereof (after giving effect
to Amendment No. 1 dated May 19, 1999).
"Paribas" means Paribas North America, Inc.
"Permits" has the meaning given to it in Section 3.6(b)
"Person" has the meaning given to it in the Certificate of
Designations.
"Preliminary Memorandum" means the preliminary offering memorandum
dated May 21, 1999 used in connection with the offering of the Senior
Subordinated Notes.
"Proceeding" means any legal, administrative or arbitration action,
suit, complaint, charge, hearing, inquiry, investigation or proceeding.
"Purchaser" has the meaning given to it in the caption to this
Agreement and any Person succeeding to the rights of a Purchaser pursuant to the
terms hereof.
"Purchaser Indemnified Person" has the meaning given to it in Section
6.2(a).
"Redeemable Preferred Stock" means the Corporation's 7% Redeemable
Preferred Stock, par value $.01 per share.
"Regulation Y Letter" means letters from the Company to Chase and
Paribas, in substantially the form attached as Exhibit D.
"Reserved Common Shares" means shares of Common Stock that will be
reserved from and after the Convertibility Effective Date for issuance upon the
conversion of the Redeemable Preferred Stock or the exercise of the Warrants, as
the case may be.
"Securities" has the meaning given to it in the Certificate of
Designations.
4
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"Senior Subordinated Notes" means the Company's 11 1/4% Senior
Subordinated Notes due 2009 issued on the date hereof.
"Senior Subordinated Notes Purchase Agreement" means the Purchase
Agreement dated as of June 9, 1999, among the Company and the Initial Purchasers
signatory thereto.
"Subsidiary" has the meaning given to it in the Certificate of
Designations.
"Tax" means any Taxes and the term "Taxes" means, with respect to any
Person, (A) all income taxes (including any tax on or based upon net income, or
gross income, or income as specially defined, or earnings, or profits, or
selected items of income, earnings or profits) and all gross receipts, sales,
use, ad valorem, transfer, franchise, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property or windfall profits
taxes, alternative or add-on minimum taxes, customs duties or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts imposed by any taxing
authority (domestic or foreign) on such Person and (B) any Liability for the
payment of any amount of the type described in the immediately preceding clause
(A) as a result of (i) being a "transferee" (within the meaning of Section 6901
of the Code or any other Applicable Law) of another Person, (ii) being a member
of an affiliated, combined or consolidated group or (iii) a contractual
arrangement or otherwise.
"Trustee" has the meaning given to it in the Indenture.
"Warrants" means the warrants to purchase shares of Common Stock that
may be issuable upon the redemption of the Redeemable Preferred Stock in
accordance with the Certificate of Designations.
1.2 RULES OF CONSTRUCTION.
----------------------
The term this "Agreement" means this agreement together with all
schedules and exhibits hereto, as the same may from time to time be amended,
modified, supplemented or restated in accordance with the terms hereof. In this
Agreement, the term "Knowledge" of any Person means (i) actual knowledge of such
Person (including the actual knowledge of the executive officers, key employees
and directors of such Person) and (ii) that knowledge which could have been
acquired by such Person after making such due inquiry and exercising such due
diligence as a prudent businessperson would have made or exercised in the
management of his or her business affairs, including due inquiry of those key
employees and professionals of such Person who could reasonably be expected to
have actual knowledge of the matters in question. The use in this Agreement of
the term "including" means "including, without limitation." The words "herein,"
"hereof," "hereunder" and other words of similar import refer to this Agreement
as a whole, including the schedules and exhibits, as the same may from time to
time be amended, modified, supplemented or restated, and not to any particular
section, subsection, paragraph, subparagraph or clause contained in this
Agreement. All
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references to sections, schedules and exhibits mean the sections of this
Agreement and the schedules and exhibits attached to this Agreement, except
where otherwise stated. The title of and the section and paragraph headings in
this Agreement are for convenience of reference only and shall not govern or
affect the interpretation of any of the terms or provisions of this Agreement.
The use herein of the masculine, feminine or neuter forms shall also denote the
other forms, as in each case the context may require or permit. Where specific
language is used to clarify by example a general statement contained herein,
such specific language shall not be deemed to modify, limit or restrict in any
manner the construction of the general statement to which it relates. The
language used in this Agreement has been chosen by the parties to express their
mutual intent, and no rule of strict construction shall be applied against any
party. Unless expressly provided otherwise, the measure of a period of one month
or year for purposes of this Agreement shall be that date of the following month
or year corresponding to the starting date, provided that if no corresponding
date exists, the measure shall be that date of the following month or year
corresponding to the next day following the starting date. For example, one
month following February 18 is March 18, and one month following March 31 is
May 1.
ARTICLE II
PURCHASE AND SALE OF SHARES; CLOSING
2.1 CERTIFICATE OF AMENDMENT.
------------------------
Prior to the Closing, the Company shall file with the Secretary of
State of the State of Delaware the Certificate of Designations. The Certificate
of Designations designates 60,000 shares of Redeemable Preferred Stock and sets
forth the powers, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions thereof.
2.2 AUTHORIZATION OF ISSUANCE OF PREFERRED SHARES.
---------------------------------------------
The Company has authorized the issuance at the Closing of an aggregate
of 60,000 shares of Redeemable Preferred Stock.
2.3 SALE OF SECURITIES.
------------------
At the Closing, subject to the satisfaction or waiver of the conditions
set forth in Article V, the Company shall issue and sell to each Purchaser, and
each Purchaser shall severally purchase from the Company, that number of shares
of Redeemable Preferred Stock set forth opposite its name on Schedule I for the
aggregate purchase price set forth opposite its name.
2.4 CLOSING.
-------
The closing (the "Closing") hereunder with respect to the issuance and
sale of the Preferred Shares being purchased by each Purchaser at the Closing
and the consummation of the related transactions contemplated hereby shall,
subject to the satisfaction or waiver of the applicable conditions set forth in
Section 5.1, take place at
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the offices of Haythe & Curley, 237 Park Avenue, New York, New York 10017 at
10:00 a.m., local time, on the date of the closing of the transactions
contemplated by the NovaCare Purchase Agreement, or at such other time, date or
place as agreed to by the parties.
2.5 CLOSING DELIVERIES.
------------------
At the Closing, the Company shall deliver to each Purchaser purchasing
shares of Redeemable Preferred Stock a certificate, registered in such
Purchaser's name, representing the shares of Redeemable Preferred Stock
purchased by such Purchaser at the Closing, against receipt by the Company of a
wire transfer, of immediately available funds to an account or accounts
designated by the Company, of an aggregate amount equal to the purchase price
for the shares of Redeemable Preferred Stock being purchased by such Purchaser
at the Closing (such date, the "Closing Date").
2.6 USE OF PROCEEDS.
---------------
The proceeds received by the Company from the sale of all shares of
Redeemable Preferred Stock shall be used by the Company solely as set forth
under "Sources and Uses of Funds" in the Final Memorandum.
ARTICLE III
REPRESENTATIONS AND WARRANTIES ABOUT THE COMPANY
The Company represents and warrants to each Purchaser as follows:
3.1 OFFERING MEMORANDUM.
--------------------
(a) Neither the Preliminary Memorandum as of the date thereof nor the
Final Memorandum nor any amendment or supplement thereto as of the date thereof
and at all times subsequent thereto up to the Closing Date contained or contains
any untrue statement of a material fact or omitted or omits to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations and
warranties set forth in this Section 3.1 do not apply to statements or omissions
made in reliance upon and in conformity with information relating to either of
the Purchasers furnished to the Company in writing by the Purchasers expressly
for use in the Preliminary Memorandum, the Final Memorandum or any amendment or
supplement thereto.
(b) The statistical and market-related data included in the Final
Memorandum are based on or derived from sources which the Company and the
Subsidiaries believe to be reliable and accurate.
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3.2 CAPITALIZATION.
--------------
The authorized capital stock of the Company immediately after the
Closing shall consist of:
(a) 25,000,000 duly authorized shares of Common Stock, of which (i)
18,852,824 shares shall be duly and validly issued and outstanding, fully paid
and nonassessable, with no personal Liability attached to the ownership thereof,
(ii) 133,495 shares shall be held by the Company as treasury shares, (iii)
1,893,914 shares shall be duly and validly reserved for issuance pursuant to
outstanding options, (iv) 468,099 shares shall be duly and validly reserved for
issuance pursuant to options that may be granted after the date hereof to
employees of the Company pursuant to the Company's Equity Incentive Plans and
(v) 830,650 shares shall be duly and validly reserved for issuance pursuant to
outstanding warrants.
(b) 10,000,000 duly authorized shares of Preferred Stock, 60,000 of
which shall be duly and validly issued and outstanding, fully paid and
nonassessable, with no personal Liability attached to the ownership thereof, all
of which shall be held of record and beneficially by the Purchasers and in the
amounts set forth on Schedule I, free and clear of all Liens. All of the
outstanding shares of Preferred Stock shall be designated Redeemable Preferred
Stock.
(c) All Reserved Common Shares, if and when issued, will be duly and
validly issued and outstanding, fully paid and nonassessable, with no personal
Liability attached to the ownership thereof.
(d) Schedule 3.2(d) contains a list of all outstanding warrants,
options, agreements, convertible securities and other commitments pursuant to
which the Company is or may become obligated to issue, sell or otherwise
transfer any Securities of the Company, which list names all Persons entitled to
receive such Securities, indicates whether or not such Securities are entitled
to any anti-dilution or similar adjustments upon the issuance of additional
Securities of the Company or otherwise, sets forth the shares of capital stock
and other Securities required to be issued thereunder (calculated after giving
effect to all such anti-dilution and other similar adjustments resulting from
the issuance of the shares of Redeemable Preferred Stock and, if applicable, the
other Applicable Securities) and the exercise or conversion price thereof, as
applicable.
(e) Except as set forth on Schedule 3.2(e) there are no preemptive
rights, rights of first refusal or other similar rights to purchase or otherwise
acquire shares of capital stock or other Securities of the Company pursuant to
any Applicable Law, any Fundamental Document of the Company or any agreement to
which the Company is a party or may be bound.
(f) Except as set forth on Schedule 3.2(f) or as contemplated by the
Documents and the Fundamental Documents of the Company, there is no Lien (such
as a right of first refusal, right of first offer, proxy, voting trust or voting
agreement) with
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respect to the sale or voting of any Securities of the Company (whether
outstanding or issuable upon the conversion, exchange or exercise of outstanding
Securities).
(g) Except as set forth on Schedule 3.2(g), other than as required by
the Certificate of Designations, there are no obligations to redeem, repurchase
or otherwise acquire shares of capital stock or other Securities of the Company
pursuant to any Applicable Law, any Fundamental Document of the Company or any
agreement to which the Company is a party or may be bound.
(h) Except as contemplated by the Investor Rights Agreement or as set
forth on Schedule 3.2(h), no Person has any right to cause the Company to effect
the registration under the Securities Act of any shares of Common Stock or any
other Securities of the Company.
(i) Except as set forth on Schedule 2 to the Senior Subordinated Notes
Purchase Agreement, the Company does not have any Subsidiaries. Except for the
Subsidiaries or as disclosed in the Final Memorandum, the Company does not own,
directly or indirectly, any shares of capital stock or any other equity or
long-term debt Securities or have any equity interest in any Person.
(j) All Securities issued by the Company have been either issued in
transactions in accordance with or exempt from registration under the Securities
Act and the rules and regulations promulgated thereunder and all applicable
state securities or "blue sky" laws, and the Company has not violated the
Securities Act or any applicable state securities or "blue sky" laws in
connection with the issuance of any such Securities. There are no restrictions
upon the voting rights associated with, or the transfer of, any of the capital
stock of the Company, except as provided by (i) United States or state
securities laws or (ii) the terms and provisions of the Documents.
3.3 ORGANIZATION, POWER AND AUTHORITY AND GOOD STANDING.
----------------------------------------------------
(a) Each of the Company and the Subsidiaries is duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
organization and has all requisite corporate (or partnership or limited
liability company) power and authority to own its properties and conduct its
business as now conducted and as described in the Final Memorandum.
(b) Each of the Company and the Subsidiaries is duly qualified to do
business as a foreign entity in good standing in all other jurisdictions where
the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified would
not, individually or in the aggregate, have a Material Adverse Effect.
3.4 AUTHORIZATION, EXECUTION, ENFORCEABILITY AND CONSENTS.
------------------------------------------------------
(a) The Company has all requisite corporate power and authority to
execute, deliver and perform each of its obligations under this Agreement and
each other Document. This Agreement and each other Document has been duly and
validly
9
<PAGE>
authorized by the Company. This Agreement has been duly executed and delivered
by the Company and this Agreement constitutes and, when executed and delivered
by the Company (assuming the due authorization, execution and delivery by the
other parties thereto), each other Document to which it is a party, will
constitute, a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms, except that the enforcement
thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity and the discretion of the court
before which any proceeding therefor may be brought.
(b) The authorization, reservation, issuance, sale and delivery, as
applicable, of the shares of Redeemable Preferred Stock and, subject to the
effectiveness of the Charter Amendment, the other Applicable Securities, have
been duly and validly authorized by all requisite action on the part of the
Company. The shares of Redeemable Preferred Stock and the other Applicable
Securities (if issued), will be duly and validly issued and outstanding, fully
paid and nonassessable, with no personal Liability attaching to the ownership
thereof and not subject to any preemptive rights, rights of first refusal or
other similar rights of the stockholders of the Company.
(c) No consent, approval, authorization, Permit or Order of any
Governmental Authority or third party is required for the issuance and sale by
the Company of the Applicable Securities to the Purchasers or the consummation
by the Company of the other transactions contemplated hereby or by any other
Document, except in the case of the Reserved Shares, for the approval of the
shareholders of the Company. None of the Company or the Subsidiaries is (i) in
violation of its Fundamental Documents, (ii) in breach or violation of any
Applicable Law, or (iii) in breach of or default under (nor has any event
occurred which, with notice or passage of time or both, would constitute a
default under) or in violation of any of the terms or provisions of any Permit
or Material Agreement to which the Company or any of its Subsidiaries is a party
or to which any of their respective properties or assets is subject.
(d) The execution, delivery and performance by the Company of this
Agreement and each other Document, and the consummation of the transactions
contemplated hereby and thereby, including the authorization, reservation,
issuance, sale and delivery, as the case may be, of the shares of Redeemable
Preferred Stock and, subject to the effectiveness of the Charter Amendment, the
other Applicable Securities, will not (a) violate any Applicable Law or (b)
conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute (with due notice or lapse of time, or both) a
default or give rise to any right of termination, cancellation or acceleration,
or result in the creation of any Lien upon any of the properties or assets of
the Company or any of its Subsidiaries, under, any provision of the Fundamental
Documents of the Company or any of its Subsidiaries or any Material Agreement or
Permit to which the Company or any of its Subsidiaries is a party or by which
the Company or any of its Subsidiaries or their assets or properties are or may
be bound.
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3.5 REPORTS AND FINANCIAL INFORMATION.
----------------------------------
(a) The audited consolidated financial statements of the Company and
the Subsidiaries included in the Final Memorandum present fairly in all material
respects the financial position, results of operations and cash flows of the
Company and the Subsidiaries at the dates and for the periods to which they
relate and have been prepared in accordance with GAAP applied on a consistent
basis, except as otherwise stated therein. The summary and selected financial
and statistical data in the Final Memorandum present fairly in all material
respects the information shown therein and have been prepared and compiled on a
basis consistent with the audited financial statements included therein, except
as otherwise stated therein. PricewaterhouseCoopers LLP (the "Independent
Accountants") is an independent public accounting firm within the meaning of
Rule 2-01 of Regulation S-X.
(b) The pro forma financial statements (including the notes thereto)
and the other pro forma financial information included in the Final Memorandum
(i) comply as to form in all material respects with the applicable requirements
of Regulation S-X promulgated under the Exchange Act, (ii) have been prepared in
accordance with the Commission's rules and guidelines with respect to pro forma
financial statements, and (iii) have been properly computed on the bases
described therein; the assumptions used in the preparation of the pro forma
financial data and other pro forma financial information included in the Final
Memorandum are reasonable and the adjustments used therein are appropriate to
give effect to the transactions or circumstances referred to therein.
3.6 COMPLIANCE WITH LAWS.
---------------------
(a) Schedule 3.6 sets forth a list of all Orders to which the Company
or any of its Subsidiaries or any of their respective assets or properties is
bound.
(b) The Company and each of the Subsidiaries holds all material
licenses, certificates and permits from Governmental Authorities ("Permits")
which are necessary to the conduct of their businesses.
(c) To the Knowledge of the Company, there is no proposed change in any
Applicable Law which would require the Company or any of the Subsidiaries to
obtain any material Permits in order to conduct the business of the Company and
the Subsidiaries as each is presently conducted and as presently proposed to be
conducted which the Company or such Subsidiary does not currently possess.
(d) To the Company's knowledge, there is no Applicable Law which would
prohibit or restrict the Company or any of the Subsidiaries from, or otherwise
materially adversely affect the Company or any of the Subsidiaries in,
conducting each of their businesses in any jurisdiction in which each is now
conducting business or which it proposes to conduct business.
(e) Neither the Company nor any of the Subsidiaries has infringed any
Intellectual Property Rights of any Person. To the Knowledge of the Company, no
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Person has infringed any owned or licensed Intellectual Property Rights of the
Company or any of its Subsidiaries.
3.7 ABSENCE OF CHANGES.
-------------------
Since the date of the most recent financial statements appearing in the
Final Memorandum, except as described therein, (i) none of the Company or the
Subsidiaries has incurred any Liabilities or obligations, direct or contingent,
or entered into or agreed to enter into any transactions or contracts (written
or oral) not in the ordinary course of business, (ii) none of the Company or the
Subsidiaries has purchased any of its outstanding capital stock, nor declared,
paid or otherwise made any dividend or distribution of any kind on its capital
stock (other than with respect to any of such Subsidiaries, the purchase of, or
dividend or distribution on, capital stock owned by the Company) and (iii) there
has not been any material change in the capital stock or long-term indebtedness
of the Company or its Subsidiaries.
3.8 TAXES.
------
Each of the Company and the Subsidiaries has filed all necessary
federal, state and foreign income and franchise Tax returns, and has paid all
Taxes required to be paid by it prior to or as of the Closing; and other than
tax deficiencies which the Company or any Subsidiary is contesting in good faith
and for which the Company or such Subsidiary has provided adequate reserves,
there is no material Tax deficiency that has been proposed, asserted or assessed
against the Company or any of the Subsidiaries.
3.9 TITLE TO ASSETS.
----------------
(a) Each of the Company and the Subsidiaries has good and marketable
title to all real property and good title to all personal property described in
the Final Memorandum as being owned by it and good and marketable title to a
leasehold estate in the real and personal property described in the Final
Memorandum as being leased by it free and clear of all Liens or restrictions,
except as described in the Final Memorandum.
(b) All leases, contracts and agreements to which the Company or any of
the Subsidiaries is a party or by which any of them is bound are valid and
enforceable against the Company or such Subsidiary, and are valid and
enforceable against the other party or parties thereto and are in full force and
effect.
(c) The Company and the Subsidiaries own or possess adequate licenses
or other rights to use all Intellectual Property Rights necessary to conduct the
businesses now or proposed to be operated by them as described in the Final
Memorandum.
3.10 PROCEEDINGS.
------------
Except as set forth on Schedule 3.10, there is not pending or, to the
Knowledge of the Company, threatened any Proceeding to which the Company or any
of the Subsidiaries is a party, or to which the property or assets of the
Company or any of the Subsidiaries are subject, before or brought by any
Governmental Authority.
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3.11 CONTRACTS.
----------
(a) Neither the Company nor any of its Subsidiaries is a party to (a)
notes, bonds, mortgages, indentures, or material Permits or (b) other material
written or oral contracts, agreements, instruments and other understandings, (i)
involving annual amounts in excess of $10 million, (ii) that are material to the
Company or any of its Subsidiaries, (iii) that are material to the financial
condition or results of the operations of the Company and its Subsidiaries or
(iv) that would have been required to be described in a prospectus pursuant to
the Securities Act (collectively, the "Material Agreements"), except for those
Material Agreements that are described in the Final Memorandum.
(b) Each Material Agreement constitutes a valid and binding obligation
of the Company and/or Subsidiary party thereto and to the Knowledge of the
Company is enforceable against such other party in accordance with its terms.
Each of the Company and the Subsidiaries have in all material respects performed
all of the obligations required to be performed by each of them to date pursuant
to the Material Agreements, and there exists no default, or any event which upon
the giving of notice or the passage of time, or both, would give rise to a claim
of a default in the performance by the Company and the Subsidiaries or, to the
Knowledge of the Company, any other party to any of the Material Agreements,
except where such default or event, individually or in the aggregate, has not
had nor could it reasonably be expected to have a Material Adverse Effect.
3.12 INSURANCE.
----------
Each of the Company and the Subsidiaries carries insurance in such
amounts and covering such risks as is adequate for the conduct of its business
and the value of its properties. The Company has not received any notice that
(i) any of such policies has been or will be canceled or terminated or will not
be renewed on substantially the same terms as are now in effect or (ii) the
premium on any of such policies will be materially increased on the renewal
thereof.
3.13 ERISA.
------
The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
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3.14 ACCOUNTING.
-----------
The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
3.15 INVESTMENT COMPANY.
-------------------
Neither the Company nor any Subsidiary is an "investment company"
within the meaning of such term under the Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
3.16 SOLVENCY.
---------
Immediately after the consummation of the transactions contemplated by
this Agreement, the fair value and present fair saleable value of the assets of
each of the Company and the Subsidiaries (each on a consolidated basis) will
exceed the sum of its stated liabilities and identified contingent liabilities;
none of the Company or the Subsidiaries (each on a consolidated basis) is, nor
will any of the Company or the Subsidiaries (each on a consolidated basis) be,
after giving effect to the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, (i)
left with unreasonably small capital with which to carry on its business as it
is proposed to be conducted, (ii) unable to pay its debts (contingent or
otherwise) as they mature or (iii) otherwise insolvent.
3.17 PRIVATE SALE.
-------------
Assuming the accuracy of the representations of the Purchasers in
Section 4.2, the offering, sale, and issuance of the Applicable Securities, as
the case may be, will be, exempt from registration under the Securities Act and
applicable state securities laws and the rules and regulations promulgated
thereunder. Neither the Company nor any Person authorized or employed by the
Company as agent, broker, dealer or otherwise in connection with the offering,
sale or issuance of the Applicable Securities has offered the same for sale to,
or solicited any offers to buy the same from, or otherwise approached or
negotiated with respect thereto, any Person or Persons other than the
Purchasers.
3.18 BROKERS.
--------
In connection with this transaction, and the closing fee payable to the
Purchasers in an amount equal to the amount set forth on Schedule I, none of the
Company, any of the Company's Subsidiaries or any of their respective officers,
directors, stockholders or employees (or any affiliate of the foregoing) has
employed any broker or finder or incurred any actual or potential Liability or
obligation, whether direct or indirect, for any
14
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brokerage fees, commissions or finders' fees in connection with the transactions
contemplated by this Agreement.
3.19 REGULATORY MATTERS.
-------------------
Neither the Company nor any Subsidiary has engaged in any activities
which are prohibited, or are cause for civil penalties of mandatory or
permissive exclusion from Medicare or Medicaid, under Section 1320a-7, 1320a-7a,
1320a-7b, or 1395nn of Title 42 of the United States Code, the federal CHAMPUS
statute, or the regulations promulgated pursuant to such statutes or regulations
or related state or local statutes or which are prohibited by any private
accrediting organization from which the Company or any of its Subsidiaries seeks
accreditation or by generally recognized professional standards of care or
conduct. Neither the Company nor to the Knowledge of the Company any other
Person who has a direct or indirect control interest in the Company or any
Subsidiary or who is an officer, director, [agent or managing employee] of the
Company or any Subsidiary: (1) has had a civil monetary penalty assessed against
it under Section 1128A of the Social Security Act ("SSA"); (2) has been excluded
from participation under the Medicare program or a Federal Health Care Program
(as that term is defined in SSA Section 1128(B)(f)); or (3) has been convicted
(as that term is defined in 42 C.F.R. (S) 1001.2) of any of the categories of
offenses described in SSA Section 1128(a) and (b)(1), (2) and (3).
3.20 Y2K.
----
(a) Except as set forth on Schedule 3.20(a), all computer hardware and
software owned, licensed or used by the Company (collectively, the "Computer
Products") has been designed to be used prior to, during and after the calendar
year 2000 AD, and will operate during each such time period without error
relating to date data and date-dependent data, specifically including any error
relating to, or the product of, date data which represents or references
different centuries or more than one century.
(b) Without limiting the generality of the foregoing, and at no
additional cost to the Company, except as set forth on Schedule 3.20(b):
(i) each Computer Product will not abnormally end or provide
invalid or incorrect results as a result of date data, specifically
including date data which represents or references different centuries or
more than one century;
(ii) each Computer Product has been designed to ensure year 2000
compatibility, including, but not limited to, date data century
recognition, calculations which accommodate same century and multi-century
formulas and date values and date data interface values that reflect the
century; and
(iii) each Computer Product (A) manages and manipulates data
involving dates, including single century formulas and multi-century
formulas, and will not cause an abnormally ending scenario within the
application or generate incorrect values or invalid results involving such
dates, (B) provides that all date-related user interface functionalities
and data fields include the indication
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of century and (C) provides that all date-related data interface
functionalities include the indication of century.
(c) At Purchaser's request and upon reasonable notice, the Company will
provide written evidence sufficient to demonstrate adequate testing and
conversion of each Computer Product to meet the foregoing requirements.
3.21 INCORPORATION OF NOVACARE PURCHASE AGREEMENT.
---------------------------------------------
The Company hereby makes to the Purchasers each of the representations
and warranties contained in Section II of the NovaCare Purchase Agreement, and
such representations and warranties, as so made by the Company, shall be
incorporated into this Agreement by reference as if set forth in full herein.
3.22 CERTIFICATES OF OFFICERS.
-------------------------
Any certificate signed by any officer of the Company or any Subsidiary
and delivered to any Purchaser or to counsel for the Purchasers shall be deemed
a joint and several representation and warranty by the Company and each of the
Subsidiaries to each Purchaser as to the matters covered thereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser represents and warrants to the Company as to itself
severally, and not jointly as to any other Purchaser, as of the date hereof, as
follows:
4.1 AUTHORIZATION OF THE DOCUMENTS.
-------------------------------
Such Purchaser has all requisite power and authority to execute,
deliver and perform the Documents to which it is a party and the transactions
contemplated thereby, and the execution, delivery and performance by such
Purchaser of the Documents to which it is a party have been duly authorized by
all requisite action by such Purchaser. This Agreement has been duly executed
and delivered by such Purchaser and this Agreement constitutes and, when
executed and delivered by such Purchaser (assuming the due authorization,
execution and delivery by the other parties thereto), each other Document to
which such Purchaser is a party will constitute, a valid and binding obligation
of such Purchaser, enforceable against such Purchaser in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws and subject to general principles
of equity.
4.2 INVESTMENT REPRESENTATIONS.
---------------------------
Solely for establishing that the sale or issuance of the Redeemable
Preferred Stock and, if applicable, the other Applicable Securities (if any), to
such Purchaser, is exempt from the registration requirements of the Securities
Act and comparable provisions of state blue-sky laws and not in any way to
mitigate the responsibility or Liability of the Company for any breach of the
representations and warranties made by it in this
16
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Agreement, on which such Purchaser is relying in full in connection with its
decision to invest in the Company:
(a) Such Purchaser is acquiring the shares of Redeemable Preferred
Stock for its own account, for investment and not with a view to the
distribution thereof in violation of the Securities Act or applicable state
securities laws.
(b) Such Purchaser understands that (i) the Applicable Securities have
not been registered under the Securities Act or applicable state securities laws
by reason of their issuance by the Company in a transaction exempt from the
registration requirements of the Securities Act and applicable state securities
laws and (ii) the Applicable Securities must be held by such Purchaser
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act and applicable state securities laws or is exempt from such
registration.
(c) Such Purchaser further understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to such
Purchaser) promulgated under the Securities Act depends on the satisfaction of
various conditions, and that, if applicable, Rule 144 may afford the basis for
sales of Securities acquired hereunder in limited amounts.
(d) Such Purchaser has not employed any broker or finder in connection
with the transactions contemplated by this Agreement.
(e) Such Purchaser is an "accredited investor" (as defined in Rule
501(a) of Regulation D promulgated under the Securities Act). Such Purchaser has
such knowledge and experience in financial and business matters that it is
capable of evaluating the risks and merits of this investment. Such Purchaser's
representations in this subsection shall in no way limit the enforceability of
any representations made by the Company in any of the Documents to which it is a
party.
(f) Such Purchaser was not formed for the purpose of consummating the
transactions contemplated hereby.
ARTICLE V
CONDITIONS TO CLOSING
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS.
--------------------------------------
The obligation of each Purchaser to purchase and pay for the Securities
to be purchased hereunder at the Closing is subject to the satisfaction of the
following conditions precedent (unless waived by such Purchaser):
(a) The Company shall have filed the Certificate of Designations with
and such filing shall have been accepted by the Secretary of State of the State
of Delaware.
17
<PAGE>
(b) The Company shall have duly issued and delivered to each Purchaser
a certificate for the number of shares of Redeemable Preferred Stock purchased
by such Purchaser.
(c) The Company shall have duly executed and delivered to each
Purchaser the Investor Rights Agreement.
(d) The Company shall have executed and delivered to Chase and Paribas
a Regulation Y Letter.
(e) The Company shall have performed its obligations under, and shall
have complied with, all the covenants and agreements set forth in this Agreement
and all representations and warranties contained in Article III shall be true
and correct in all material respects (except those representations and
warranties that are qualified as to materiality, which shall be true and correct
in all respects) as of the date hereof and at and as of the Closing Date with
the same effect as if such representations and warranties had been made at and
as of the Closing Date, and each Purchaser shall have received a certificate to
that effect signed by an officer of the Company.
(f) Each Purchaser shall have received an opinion from Freedman, Levy,
Kroll & Simonds, counsel to the Company, in a form acceptable to the Purchasers.
(g) Each Purchaser shall have received a certificate from the Secretary
or an Assistant Secretary of the Company, dated as of the Closing Date,
certifying (i) that true and complete copies of the Fundamental Documents of the
Company as in effect on the Closing Date are attached thereto, (ii) as to the
incumbency and genuineness of the signatures of each Person executing this
Agreement and the other Documents on behalf of the Company and (iii) the
genuineness of the resolutions (attached thereto) of the board of directors or
similar governing body of the Company authorizing the execution, delivery and
performance of this Agreement and the other Documents to which the Company is a
party and the consummation of the transactions contemplated hereby and thereby.
(h) The Company shall have filed with the Secretary of State of the
State of Delaware a certificate of cancellation canceling all series of
preferred stock other than the Redeemable Preferred Stock.
(i) The Company shall have paid to each Purchaser a closing fee equal
to the amount set forth opposite such Purchaser's name on Schedule I and shall
have paid all fees and expenses of O'Sullivan Graev & Karabell, LLP, counsel to
Chase, and White & Case, counsel to Paribas.
(j) Each of the conditions to the obligations of the Company under the
NovaCare Purchase Agreement shall have been satisfied, the Company shall not
have delivered a notice of mandatory redemption to the holders of the Senior
Subordinated Notes, each of the conditions to the Lenders' obligations set forth
in the Credit Agreement shall have been satisfied or waived and each Purchaser
shall have received a certificate from an officer of the Company certifying to
the foregoing.
18
<PAGE>
5.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS.
----------------------------------------
The obligation of the Company to issue the shares of Redeemable
Preferred Stock to the Purchasers at the Closing is subject to the satisfaction
of the following conditions precedent (unless waived by the Company).
(a) Each Purchaser shall have delivered to the Company by wire
transfer, of immediately available funds to an account or accounts designated by
the Company, an aggregate amount equal to the purchase price for the shares of
Redeemable Preferred Stock being purchased by such Purchaser.
(b) Each of the conditions to the obligations of the Company under the
NovaCare Purchase Agreement shall have been satisfied, the Company shall not
have delivered a notice of mandatory redemption to the holders of the Senior
Subordinated Notes and each of the conditions to the Lenders' obligations set
forth in the Credit Agreement shall have been satisfied or waived.
ARTICLE VI
INDEMNIFICATION
6.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AGREEMENTS AND COVENANTS, ETC.
-----------------------------------------------------------------------
All statements contained in this Agreement or any other Document or any
closing certificate delivered by the Company or the Purchasers, pursuant to this
Agreement or in connection with the transactions contemplated by this Agreement
(each, a "Closing Certificate"), shall constitute representations and warranties
by the Company, or the Purchasers, as applicable, under this Agreement.
Notwithstanding any investigation made at any time by or on behalf of any party
hereto, all representations and warranties contained in this Agreement or made
in writing by or on behalf of the Company, or a Purchaser, in connection with
the transactions contemplated by this Agreement shall survive the Closing until
the third anniversary of the Closing Date, provided however, that the
representations and warranties contained in Sections 3.2, 3.3 and 3.4 shall
survive the Closing indefinitely, the representation and warranties contained in
3.8 shall survive the Closing and continue in full force and effect until the
sixtieth day after the expiration of the statute of limitations applicable to
the matters covered thereby and the representations and warranties contained in
Section 3.20 shall survive the Closing until such time as they survive under the
NovaCare Purchase Agreement.
6.2 INDEMNIFICATION.
----------------
(a) In addition to all other rights and remedies available to the
Purchasers, the Company shall indemnify, defend and hold harmless each Purchaser
and its affiliates and their respective partners, officers, directors,
employees, agents and representatives (collectively, the "Purchaser
Representatives"; and together with such Purchaser, the "Purchaser Indemnified
Persons") against all Losses (without giving effect to any qualification as to
materiality), and none of the Purchaser Indemnified Persons shall be liable to
the Company or any other stockholder of the Company for or with respect to any
and all Losses, together with all costs and expenses (including legal and
accounting fees
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<PAGE>
and expenses) related thereto or incurred in enforcing this Article VI, (i)
arising from the untruth, inaccuracy or breach of any of the representations or
warranties of the Company contained in any Document or Closing Certificate or
any facts or circumstances constituting any such untruth, inaccuracy or breach,
(ii) arising from the breach of any covenant or agreement of the Company
contained in any Document or Closing Certificate or any facts or circumstances
constituting such breach, or (iii) arising from any Claim, except for any Claim
made by the Company against such Purchaser pursuant to Section 6.2(b) (whenever
made), resulting from or caused by any transaction, status, event, condition,
occurrence or situation relating to, arising out of or in connection with (A)
the status of, or conduct of the business and affairs of, the Company or (B) the
execution, delivery and performance of this Agreement and the other Documents
and the related documents and agreements contemplated hereby and thereby.
Notwithstanding the foregoing, and subject to the following part of this
sentence, upon judicial determination, which is final and no longer appealable,
that the act or omission giving rise to the indemnification pursuant to Section
6.2(a)(iii) resulted primarily out of or was based primarily upon the
indemnified party's gross negligence, fraud or willful misconduct, (unless such
action was based upon the indemnified party's reliance in good faith upon any of
the representations, warranties, covenants or promises made by the Company
herein, or in the Documents), the Company shall not be responsible for any
Losses sought to be indemnified in connection therewith, and the Company shall
be entitled to recover from the indemnified party all amounts previously paid in
full or partial satisfaction of such indemnity, together with all costs and
expenses of the Company reasonably incurred in effecting such recovery, if any.
(b) In addition to all other rights and remedies available to the
Company, each Purchaser severally as to itself only and not as to any other
Purchaser, shall indemnify, defend and hold harmless the Company and its
officers, directors, employees, agents and representatives (collectively, the
"Company Indemnified Persons,") against all Losses, together with all reasonable
out-of-pocket costs and expenses (including legal and accounting fees and
expenses) related thereto or incurred in enforcing this Article VI, (i) arising
from the untruth, inaccuracy or breach of any of the representations or
warranties of such Purchaser contained in any Document or Closing Certificate or
any facts or circumstances constituting such untruth, inaccuracy or breach or
(ii) arising from the breach of any covenant or agreement of such Purchaser
contained in any Document or Closing Certificate or any facts or circumstances
constituting such breach.
(c) If for any reason the indemnity provided for in this Section is
unavailable to any Indemnified Person or is insufficient to hold each such
Indemnified Person harmless from all such Losses arising with respect to the
transactions contemplated by this Agreement, then the Indemnifying Persons shall
contribute to the amount paid or payable for such Losses in such proportion as
is appropriate to reflect not only the relative benefits received by the
Indemnifying Persons on the one hand and such Indemnified Person on the other
but also the relative fault of the Indemnifying Persons and the Indemnified
Person as well as any relevant equitable considerations. In addition, the
Indemnifying Persons shall reimburse any Indemnified Person upon demand for all
reasonable expenses (including reasonable fees of legal counsel) incurred by
such Indemnified Person in connection with investigating, preparing for or
defending any such
20
<PAGE>
action or claim. The indemnity, contribution and expenses reimbursement
obligations that the Indemnifying Persons have under this Article VI shall be in
addition to any Liability that the Indemnifying Persons may otherwise have. The
Indemnifying Persons further agree that the indemnification and reimbursement
commitments set forth in this Agreement shall apply whether or not the
Indemnified Person is a formal party to any such Claim.
(d) Any indemnification of an Indemnified Person by Indemnifying
Persons pursuant to this Section shall be effected by wire transfer of
immediately available funds from the Indemnifying Persons to an account
designated by the Indemnified Person within 15 days after the determination
thereof.
(e) All indemnification rights hereunder shall survive the execution
and delivery of the Documents and the consummation of the transactions
contemplated herein and therein indefinitely, regardless of any investigation,
inquiry or examination made for or on behalf of, or any knowledge of the
Purchaser and/or any of the other Indemnified Parties or the acceptance by the
Purchaser of any certificate or opinion.
(f) By executing this Agreement, the Company (i) agrees that no
Purchaser Indemnified Person shall have any Liability to the Company or its
Subsidiaries pursuant to this Agreement, the other Documents or the transactions
contemplated hereby or thereby (the "Covered Conduct") except (A) as provided in
Section 6.2(b), and (B) to the extent that a court of competent jurisdiction
shall have determined by final judgment, no longer subject to appeal, that the
losses resulting from such Covered Conduct primarily resulted from or were based
primarily upon such Purchaser Indemnified Person's willful misconduct or gross
negligence, (ii) agrees that it will not make under any circumstances, and it
will cause it Subsidiaries not to make under any circumstances, any claim
against any Purchaser Indemnified Person, with respect to a Claim or Loss with
respect to which such Person is entitled to indemnification hereunder, for any
special, indirect or consequential damages in respect of any breach or wrongful
conduct (whether the claim therefore is based on contract, tort or duty imposed
by law) in connection with, arising out of or in any way related to, the
transactions contemplated by and the relationship established by this Agreement,
the other Documents or the transactions contemplated hereby or thereby, or any
act, omission or event occurring in connection therewith, and (iii) waives,
releases and agrees not to sue upon, and it agrees to cause its Subsidiaries not
to sue upon any such Claim, for any such damages, whether or not accrued and
whether or not known or suspected to exist in any such party's favor.
ARTICLE VII
TRANSFER OF SECURITIES
7.1 RESTRICTION ON TRANSFER.
------------------------
The Applicable Securities shall not be transferable except upon the
conditions specified in this Article VII, which conditions are intended to
insure compliance with the provisions of the Securities Act in respect of the
transfer thereof.
21
<PAGE>
7.2 RESTRICTIVE LEGENDS.
--------------------
Each certificate evidencing the Applicable Securities and each
certificate for any such securities issued to subsequent transferees of any such
certificate shall (unless otherwise permitted by the provisions of Section 7.3
hereof) be stamped or otherwise imprinted with a legend in substantially the
following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT OR APPLICABLE STATE BLUE
SKY LAWS. ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS
SUBJECT TO THE CONDITIONS SPECIFIED IN THE SECURITIES PURCHASE
AGREEMENT DATED AS OF JUNE 16, 1999, AMONG THE ISSUER HEREOF
AND CERTAIN OTHER SIGNATORIES THERETO, AND NO TRANSFER OF
THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH AGREEMENT MAY
BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER
OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE ISSUER
HEREOF."
7.3 NOTICE OF TRANSFER.
-------------------
(a) The holder of any Applicable Securities, by acceptance thereof
agrees, prior to any transfer of any Applicable Securities, to give written
notice to the Company of such holder's intention to effect such transfer and to
comply in all other respects with the provisions of this Section 7.3. Each such
notice shall describe the manner and circumstances of the proposed transfer and
shall be accompanied by the written opinion, addressed to the Company, of
counsel for the holder of Applicable Securities, as to whether in the opinion of
such counsel (which opinion and counsel shall be reasonably satisfactory to the
Company) such proposed transfer involves a transaction requiring registration of
such Applicable Securities under the Securities Act; provided, however, that (i)
in the case of a holder of Applicable Securities which is a partnership, no such
opinion of counsel shall be necessary for a transfer by such holder of
Applicable Securities to a partner of such holder of Applicable Securities, or a
retired partner of such holder who retires after the date hereof, or the estate
of any such partner or retired partner, if in each case the transferee agrees in
writing to be subject to the terms of this Article VII to the same extent as if
such transferee were originally a signatory to this Agreement, (ii) in the case
of a holder of Applicable Securities which is a corporation, no such opinion of
counsel shall be necessary for a transfer by such holder of Applicable
Securities to an Affiliate, officer or director of such corporation and (iii) no
such opinion shall be required in connection with a transfer pursuant to Rule
144 (as amended from time to time) promulgated under the Securities Act (or
successor rule thereto), provided,
22
<PAGE>
that the Company, shall be provided with customary written representations
relating to such transaction.
(b) If in the opinion of such counsel (if such opinion is required
hereunder) the proposed transfer of Applicable Securities may be effected
without registration under the Securities Act, the holder of Applicable
Securities shall thereupon be entitled to transfer Applicable Securities in
accordance with the terms of the notice delivered by it to the Company.
(c) Each certificate or other instrument evidencing the securities
issued upon the transfer of any Applicable Securities (and each certificate or
other instrument evidencing any untransferred balance of such securities) shall
bear the legend set forth in Section 7.2 hereof unless (i) in the opinion of
such counsel registration of future transfer is not required by the applicable
provisions of the Securities Act or (ii) the Company shall have waived the
requirement of such legends; provided, however, that such legend shall not be
required on any certificate or other instrument evidencing the securities issued
upon such transfer in the event such transfer shall be made in compliance with
the requirements of Rule 144 (as amended from time to time) promulgated under
the Securities Act (or successor rule thereto).
7.4 TRANSFER PURSUANT TO RULE 144.
------------------------------
The Company agrees to make publicly available the current information
with respect to the Company that is required by Rule 144(c) under the Securities
Act and otherwise to take any other action or to execute any certificates
necessary to permit a transfer by any holder of Applicable Securities to qualify
for the exemption set forth in Rule 144. Without limiting the foregoing, if such
information is not publicly available, then, upon a holder's request, the
Company will provide such information to such holder or any prospective
purchaser designated by such holder.
ARTICLE VIII
ADDITIONAL AGREEMENTS OF THE COMPANY
8.1 ESCROW OF PROCEEDS OF SENIOR SUBORDINATED NOTES.
------------------------------------------------
The Company will deposit the net proceeds from the sale of the Senior
Subordinated Notes with the Trustee in a special account established under the
Indenture, pending the closing of the transactions contemplated by the NovaCare
Purchase Agreement. Upon the Closing, the Company will apply the net proceeds
from the sale of the Senior Subordinated Notes as set forth under "Sources and
Uses of Funds" in the Final Memorandum.
8.2 CONDUCT PENDING CLOSING.
------------------------
(a) From the date hereof to the Closing Date, the Company shall, and
shall cause each Subsidiary to, carry on its business in the ordinary course
consistent with past practice and use reasonable efforts to preserve intact its
current business organization, keep available the services of its current
officers and employees and preserve its
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<PAGE>
relationships with customers, suppliers, licensors, licensees and others having
significant business dealings with it. Without limiting the generality of the
foregoing, from the date hereof to the Closing Date, the Company shall not and
shall cause each Subsidiary not to (except as expressly permitted by this
Agreement or with the Purchaser's consent) (i) take any action or omit to take
any action which would or reasonably could be expected to cause any of the
representations and warranties contained in Article III to be untrue as of the
Closing Date as if made as of the Closing Date or (ii) take any action which is
not expressly permitted under Section 3.3 of the Certificate of Designations.
(b) The Company shall use its best efforts to ensure that all
conditions to the Closing set forth in Section 5.1 are satisfied on or prior to
the Closing Date, including executing and delivering all documents required to
be delivered by the Company at the Closing and taking any and all actions which
may be necessary on its part to cause each other party to the Documents to so
execute and deliver each Document.
8.3 EXISTING WARRANTS AND COMMON STOCK.
-----------------------------------
(a) The Company acknowledges and consents to any transfer by Chase
Venture Capital Associates, L.P. ("CVCA") of any and all shares of Common Stock
of the Company and/or any and all warrants to purchase shares of Common Stock of
the Company held by CVCA to Chase or any of Chase's affiliates.
(b) Simultaneously with the effectiveness of the Charter Amendment, the
Company shall amend each outstanding warrant to purchase shares of Common Stock
held by Chase or any of its affiliates to cause such warrant to be exercisable
for (i) shares of Non-Voting Common Stock or (ii) shares of Voting Common Stock
(to the extent that shares of Non-Voting Common Stock could be converted by such
holder into shares of Voting Common Stock). Each such amendment shall contain
such other terms and conditions as shall be reasonably satisfactory to Chase and
the Company.
(c) If the Convertibility Effective Date has not occurred prior to
December 31, 1999, the Company shall create a new series of non-voting preferred
stock (the "Junior Preferred Stock"). The Junior Preferred Stock shall be
substantially similar to the Non-Voting Common Stock, except that upon any
Liquidation of the Company, (i) the holders thereof shall be entitled to a
receive before any payment shall be made to the holders of any shares of Common
Stock the greater of (A) $1.00 per share and (B) the amount that such holders
would have received assuming that the Charter Amendment had been approved prior
to such Liquidation and such holders had exercised their warrants to purchase
shares of Non-Voting Common Stock) and (ii) the shares of Junior Preferred Stock
shall rank junior to the Redeemable Preferred Stock. Without limiting the
foregoing, the Junior Preferred Stock shall not be redeemable, the holders of
Junior Preferred Stock shall be entitled to receive dividends to the same extent
as the holders of shares of Voting Common Stock are entitled to receive
dividends, the holders of shares of Junior Preferred Stock shall not have any
preference over shares of Common Stock with respect to the payment of dividends
and the Junior Preferred Stock shall contain such other terms and conditions as
are reasonably satisfactory to the Purchasers and the Company. If the Charter
Amendment shall not have become effective on or prior to
24
<PAGE>
December 31, 1999, the Company shall amend each outstanding warrant to purchase
shares of Common Stock held by Chase or any of its affiliates to cause such
warrant to be exercisable from and after such date for shares of either (x)
Junior Preferred Stock or (y) shares of Voting Common Stock to the extent that
shares of Non-Voting Common Stock, if issued, could have been converted by such
holder into shares of Voting Common Stock.
(d) Prior to the Convertibility Effective Date, Chase will not exercise
any warrant held by it if after giving effect to such conversion, Chase would
own in excess of the maximum amount of Voting Common Stock as is permissible
under Applicable Law.
8.4 AMENDMENT OF BY-LAWS.
---------------------
The Company shall amend the by-laws of the Company to provide for the
rights granted to the Investors pursuant to the Certificate of Designations and
the Investor Rights Agreement. Without limiting the foregoing, the by-laws of
the Company shall provide (a) for the directors elected by the Investors
pursuant to the Certificate of Designations to be included on the Board's
committees from and after the occurrence of an Event of Non-Compliance, (b) for
the board observation rights in accordance with the terms and conditions set
forth in the Investor Rights Agreement and (c) that meetings of the Board or any
committee thereof may be held by telephone conference call.
ARTICLE IX
MISCELLANEOUS
9.1 FEES.
-----
(a) The Company will pay, and save the Purchasers harmless against all
Liability, whether or not the Closing hereunder occurs, for the payment of, (i)
all costs and other expenses incurred from time to time by the Company in
connection with the Company's performance of and compliance with all agreements
and conditions contained herein on its part to be performed or complied with
(including the reasonable costs and expenses of counsel incurred in connection
with the review and preparation of the Documents), (ii) the actual and
reasonable out-of-pocket costs and expenses incurred by the Purchasers in
connection with the transactions contemplated hereby, including reasonable fees,
expenses and charges of O'Sullivan Graev & Karabell, LLP (counsel to Chase) and
White & Case (counsel to Paribas), (iii) the reasonable costs and expenses
(including fees, expenses and charges of counsel) incurred by the Purchasers in
connection with any amendment or waiver of, or enforcement of, any Document
relating to the transactions contemplated hereby and (iv) the reasonable costs
and expenses incurred by each Purchaser in any filing with any Governmental
Authority with respect to its investment in the Company or in any other filing
with any Governmental Authority with respect to the Company that mentions such
Purchaser.
(b) The Company further agrees that it will pay, and will save the
Purchasers harmless from, any and all Liability with respect to any stamp or
similar taxes which may be determined to be payable in connection with the
execution and delivery
25
<PAGE>
and performance of the Documents or any modification, amendment or alteration of
the terms or provisions of the Documents, and that it will similarly pay and
hold the Purchasers harmless from all issue taxes in respect of the issuance of
any Applicable Securities to the Purchasers.
(c) The Company further agrees to pay to each Purchaser the fees set
forth in Schedule I opposite such Purchaser's name.
(d) Notwithstanding anything to the contrary set forth in this
Agreement, any fees, expenses, costs or charges which are payable by the Company
pursuant to this Section 9.1 may be paid by the applicable Purchaser by set-off
by reducing the consideration to be paid at the Closing in respect of the shares
of Redeemable Preferred Stock to be purchased by such Purchaser. Notwithstanding
any such set-off, such shares shall be fully paid and non-assessable.
9.2 FURTHER ASSURANCES.
-------------------
The Company shall duly execute and deliver, or cause to be duly
executed and delivered, at its own cost and expense, such further instruments
and documents and to take all such action, in each case as may be necessary or
proper in the reasonable judgment of the Purchasers to carry out the provisions
and purposes of the Agreement and the other Documents.
9.3 REMEDIES.
---------
In case any one or more of the representations, warranties, covenants
and/or agreements set forth in this Agreement shall have been breached by the
Company, the Purchasers (or any Purchaser) may proceed to protect and enforce
its or their rights either by suit in equity and/or by action at law, including
an action for damages as a result of any such breach and/or an action for
specific performance of any such covenant or agreement contained in this
Agreement.
9.4 SUCCESSORS AND ASSIGNS.
-----------------------
This Agreement shall bind and inure to the benefit of the Company and
the Purchasers and their respective successors, assigns, heirs and personal
representatives. Upon any transfer of any Applicable Securities, the transferee
shall be bound by, and entitled to the benefits of, this Agreement with respect
to such transferred Securities in the same manner as the transferring Purchaser.
9.5 ENTIRE AGREEMENT.
-----------------
This Agreement and the other writings referred to herein or delivered
pursuant hereto which form a part hereof contain the entire agreement among the
parties with respect to the subject matter hereof and thereof and supersede all
prior and contemporaneous arrangements or understandings with respect thereto.
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<PAGE>
9.6 NOTICES.
--------
All notices and other communications delivered hereunder (whether or
not required to be delivered hereunder) shall be deemed to be sufficient and
duly given if contained in a written instrument (a) personally delivered, (b)
sent by telecopier, (c) sent by nationally-recognized overnight courier
guaranteeing next Business Day delivery or (d) sent by first class registered or
certified mail, postage prepaid, return receipt requested, in each case
addressed as follows:
if to the Company, to:
Hanger Orthopedic Group, Inc.
7700 Old Georgetown Road
Bethesda, MD 20814
Telephone: (301) 986-0701
Telecopier: (301) 652-8307
Attention: Mr. Richard Stein, Secretary
with a copy to:
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, NW, Suite 825
Washington, DC 20036-5366
Telephone: (202) 457-5102
Telecopier: (202) 457-5151
Attention: Jay W. Freedman, Esq.
if to any Purchaser, to him, her or it at his, her or its address set forth on
Schedule I attached hereto;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, NY 10112
Telephone: (212) 408-2400
Telecopier: (212) 728-5950
Attention: Harvey M. Eisenberg, Esq.
or to such other address as the party to whom such notice or other communication
is to be given may have furnished to each other party in writing in accordance
herewith. Any such notice or communication shall be deemed to have been received
(i) when delivered, if personally delivered, (ii) when sent, if sent by telecopy
on a Business Day (or, if not sent on a Business Day, on the next Business Day
after the date sent by telecopy), (iii) on the next Business Day after dispatch,
if sent by nationally recognized, overnight courier guaranteeing next Business
Day delivery, and (iv) on the fifth Business Day following
27
<PAGE>
the date on which the piece of mail containing such communication is posted, if
sent by mail.
9.7 AMENDMENTS, MODIFICATIONS AND WAIVERS.
--------------------------------------
The terms and provisions of this Agreement may not be modified or
amended, nor may any of the provisions hereof be waived, temporarily or
permanently, except pursuant to a written instrument executed by the Company and
the Requisite Senior Holders; provided however that any such amendment,
modification or waiver that would adversely affect the rights hereunder of any
Purchaser, in its capacity as a Purchaser, without similarly affecting the
rights hereunder of all Purchasers, in their capacities as Purchasers, shall not
be effective as to such Purchaser without its prior written consent. No waiver
by any party shall operate or be construed as a waiver of any subsequent breach
by any other party.
9.8 GOVERNING LAW; WAIVER OF JURY TRIAL.
------------------------------------
All questions concerning the construction, interpretation and validity
of the Documents shall be governed by and construed and enforced in accordance
with the domestic laws of the State of Delaware, without giving effect to any
choice or conflict of law provision or rule (whether in the State of Delaware or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware. In furtherance of the foregoing,
the internal law of the State of Delaware will control the interpretation and
construction of the Documents, even if under such jurisdiction's choice of law
or conflict of law analysis, the substantive law of some other jurisdiction
would ordinarily or necessarily apply.
BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE LAWS TO APPLY (RATHER THAN
ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO
WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO
ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS
RELATED HERETO.
9.9 NO THIRD PARTY RELIANCE.
------------------------
Anything contained herein to the contrary notwithstanding, the
representations and warranties of the Company contained in this Agreement (a)
are being given by the Company as an inducement to the Purchasers to enter into
this Agreement and the other Documents (and the Company acknowledges that the
Purchasers have expressly relied thereon) and (b) are solely for the benefit of
the Purchasers. Accordingly, no third party (including, without limitation, any
holder of capital stock of the Company) or anyone
28
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acting on behalf of any thereof other than the Purchasers, and each of them,
shall be a third party or other beneficiary of such representations and
warranties and no such third party shall have any rights of contribution against
the Purchasers or the Company with respect to such representations or warranties
or any matter subject to or resulting in indemnification under this Agreement or
otherwise.
9.10 SUBMISSION TO JURISDICTION.
---------------------------
Any legal action or proceeding with respect to this Agreement or the
other Documents may be brought in the courts of the State of New York and the
United States of America for the Southern District of New York and, by execution
and delivery of this Agreement, the Company hereby accepts for itself and in
respect of its property, generally and unconditionally, the jurisdiction of the
aforesaid courts. The Company hereby irrevocably waives, in connection with any
such action or proceeding, any objection, including, without limitation, any
objection to the venue or based on the grounds of forum non conveniens, which it
may now or hereafter have to the bringing of any such action or proceeding in
such respective jurisdictions. The Company hereby irrevocably consents to the
service of process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to it at its address as set forth herein. Nothing herein shall
affect the right of the Purchasers to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise proceed against
the Company in any other jurisdiction.
9.11 SEVERABILITY.
-------------
It is the desire and intent of the parties that the provisions of this
Agreement be enforced to the fullest extent permissible under the law and public
policies applied in each jurisdiction in which enforcement is sought.
Accordingly, in the event that any provision of this Agreement would be held in
any jurisdiction to be invalid, prohibited or unenforceable for any reason, such
provision, as to such jurisdiction, shall be ineffective, without invalidating
the remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not be invalid,
prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
9.12 INDEPENDENCE OF AGREEMENTS, COVENANTS, REPRESENTATIONS AND WARRANTIES.
----------------------------------------------------------------------
All agreements and covenants hereunder shall be given independent
effect so that if a certain action or condition constitutes a default under a
certain agreement or covenant, the fact that such action or condition is
permitted by another agreement or covenant shall not affect the occurrence of
such default, unless expressly permitted under an exception to such initial
covenant. In addition, all representations and warranties hereunder shall be
given independent effect so that if a particular representation or warranty
proves to be incorrect or is breached, the fact that another representation or
29
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warranty concerning the same or similar subject matter is correct or is not
breached will not affect the incorrectness of or a breach of a representation
and warranty hereunder.
9.13 COUNTERPARTS; FACSIMILE SIGNATURES.
-----------------------------------
This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement. Facsimile
counterpart signatures to this Agreement shall be acceptable and binding.
* * * *
30
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IN WITNESS WHEREOF, the parties hereto have executed this
Securities Purchase Agreement as of the date first above written.
HANGER ORTHOPEDIC GROUP, INC.
By: ______________________________
Name:
Title:
PURCHASERS
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners,
its General Partner
By: ______________________________
Name:
Title:
PARIBAS NORTH AMERICA, INC.
By: ______________________________
Name:
Title:
31
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SCHEDULE I
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AGGREGATE
NAME AND ADDRESS NUMBER OF SHARES PRICE OF SHARES CLOSING FEE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CHASE EQUITY ASSOCIATES, L.P. 50,000 $50,000,000 $500,000
c/o Chase Capital Partners
380 Madison Avenue,
12th Floor
New York, NY 10017
Attention: Eric Green
Tel: (212) 622-3100
Fax: (212) 622-3101
- -------------------------------------------------------------------------------------------------------------------------
PARIBAS NORTH AMERICA, INC. 10,000 $10,000,000 $100,000
787 7th Avenue, 32nd Floor
New York, NY 10019
Attention: Donald Ercole
Tel: (212) 841-2540
Fax: (212) 841-2363
- -------------------------------------------------------------------------------------------------------------------------
TOTAL 60,000 $60,000,000 $600,000
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
