<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 31, 1993 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file No. 0-13991
HALLMARK HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 63-0817574
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
300 GALLERIA PARKWAY, SUITE 650, ATLANTA, GEORGIA 30339
(Address of Principal Executive Offices) (Zip Code)
(404) 933-5500
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares of the Registrant's Common Stock outstanding at February
4,1994:
$0.05 par value Class A common stock - 2,966,878
$0.05 par value Class B common stock - 64,102
<PAGE>
FORM 10-Q
HALLMARK HEALTHCARE CORPORATION
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at December 31, 1993 and
June 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Operations for the quarter
and six months ended December 31, 1993 and 1992 . . . . . . . 6
Condensed Consolidated Statements of Cash Flows for the six months
ended December 31, 1993 and 1992 . . . . . . . . . . . . . . . 7
Notes to Condensed Consolidated Financial Statements . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . 14
Part II - Other Information
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . 20
Item 4. Submission of Matters to a Vote of Security Holders . . . 20
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 21
Signatures
</TABLE>
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<PAGE>
HALLMARK HEALTHCARE CORPORATION
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
PART I - FINANCIAL INFORMATION
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<PAGE>
ITEM 1. FINANCIAL STATEMENTS
HALLMARK HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, 1993 June 30, 1993
----------------- -------------
(Unaudited) *
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . $ 10,574 $ 4,899
Patient accounts receivable, less allowance
for doubtful accounts of $4,537 and
$4,135 at December 31, 1993 and
June 30, 1993, respectively. . . . . . . . . . 19,271 19,767
Inventories. . . . . . . . . . . . . . . . . . . 4,194 4,103
Other current assets . . . . . . . . . . . . . . 5,150 4,513
Deferred tax asset . . . . . . . . . . . . . . . 3,252 --
----------------- -----------------
Total current assets . . . . . . . . . . . . . 42,441 33,282
----------------- -----------------
Property and equipment:
Land and improvements. . . . . . . . . . . . . . 7,540 7,277
Buildings and improvements . . . . . . . . . . . 101,360 98,887
Equipment. . . . . . . . . . . . . . . . . . . . 55,046 53,296
Construction in progress . . . . . . . . . . . . 463 2,227
----------------- -----------------
164,409 161,687
Less: accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . (57,640) (53,452)
----------------- -----------------
106,769 108,235
Other assets . . . . . . . . . . . . . . . . . . . 20,096 18,360
----------------- -----------------
$ 169,306 $ 159,877
----------------- -----------------
----------------- -----------------
<FN>
*Condensed from audited financial statements
See accompanying notes
</TABLE>
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<PAGE>
HALLMARK HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
<TABLE>
<CAPTION>
December 31, 1993 June 30, 1993
----------------- -------------
(Unaudited) *
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . $ 10,957 $ 11,819
Accrued payroll, vacation and related taxes. . . 3,706 4,056
Other accrued liabilities. . . . . . . . . . . . 11,194 10,718
Current maturities of long-term debt and
capital lease obligations. . . . . . . . . . . 585 5,306
----------------- ------------------
Total current liabilities. . . . . . . . . . . 26,442 31,899
Long-term debt and capital lease obligations . . . 87,613 75,181
Other long-term liabilities. . . . . . . . . . . . 17,658 17,648
Deferred income taxes. . . . . . . . . . . . . . . 7,818 2,060
Deferred debt restructuring credits. . . . . . . . -- 27,041
Commitments and contingencies
Redeemable preferred stock . . . . . . . . . . . . 1,120 1,095
Common stockholders' equity:
Common stock
Class A, $0.05 par value, authorized
25,000,000 shares; issued and outstanding
2,958,608 and 2,585,457 shares at
December 31, 1993 and June 30, 1993,
respectively . . . . . . . . . . . . . . . . 148 129
Class B, $0.05 par value, authorized 2,500,000
shares; issued and outstanding 64,102 and
390,298 shares at December 31, 1993 and
June 30, 1993, respectively. . . . . . . . . 3 19
Additional paid-in capital . . . . . . . . . . 53,546 52,331
Accumulated deficit. . . . . . . . . . . . . . (25,042) (47,526)
----------------- ------------------
Total common stockholders' equity. . . . . . . 28,655 4,953
----------------- ------------------
$ 169,306 $ 159,877
----------------- ------------------
----------------- ------------------
<FN>
*Condensed from audited financial statements
See accompanying notes
</TABLE>
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<PAGE>
HALLMARK HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands except per share data)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31,
------------- ----------------
1993 1992 1993 1992
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net patient service revenues . . . . . . . . $ 45,876 $ 41,891 $ 91,165 $ 82,275
Other revenues . . . . . . . . . . . . . . . 2,060 1,681 4,099 2,878
--------- ---------- --------- ----------
TOTAL REVENUES . . . . . . . . . . . . . . 47,936 43,572 95,264 85,153
Expenses:
Salaries and benefits . . . . . . . . . . . 20,999 18,122 41,297 35,965
Supplies . . . . . . . . . . . . . . . . . 6,058 5,624 11,822 11,243
Provision for bad debts . . . . . . . . . . 3,422 2,800 6,613 5,679
Other operating expenses . . . . . . . . . 12,473 12,558 25,144 24,787
Interest . . . . . . . . . . . . . . . . . 1,653 957 2,490 2,058
Depreciation and amortization . . . . . . . 2,231 2,352 4,630 4,470
--------- ---------- --------- ----------
TOTAL EXPENSES . . . . . . . . . . . . . . 46,836 42,413 91,996 84,202
--------- ---------- --------- ----------
Income from operations . . . . . . . . . . 1,100 1,159 3,268 951
Gain on sale of healthcare facility . . . . -- -- -- 752
--------- ---------- --------- ----------
Income before income taxes,
extraordinary items
and cumulative effect of
accounting change . . . . . . . . . . . . . 1,100 1,159 3,268 1,703
Provision for income taxes . . . . . . . . 462 586 1,373 919
--------- ---------- --------- ----------
INCOME BEFORE EXTRAORDINARY ITEMS
AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGE . . . . . . . . . . . . . . . . . . . 638 573 1,895 784
Extraordinary items
Gain on restructure of debt, net of
income tax effect of $2,170 for
the quarter and six months ended
December 31, 1993, and $253 for
the quarter and six months ended
December 31, 1992 . . . . . . . . . . . 19,784 490 19,784 490
Credit resulting from utilization of
net operating loss carryforwards . . . -- 646 -- 889
--------- ---------- --------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE . . . . . . . . . . . . . 20,422 1,709 21,679 2,163
Cumulative effect of accounting change . . . -- -- 805 --
--------- ---------- --------- ----------
NET INCOME . . . . . . . . . . . . . . . . . 20,422 1,709 22,484 2,163
Accretion of preferred stock
redemption requirement . . . . . . . . . . . 110 79 210 151
--------- ---------- --------- ----------
Net income applicable to common stock . . . . $ 20,312 $ 1,630 $ 22,274 $ 2,012
--------- ---------- --------- ----------
--------- ---------- --------- ----------
Weighted average common and common
equivalent shares outstanding . . . . . . . 3,760 3,346 3,759 3,343
--------- ---------- --------- ----------
--------- ---------- --------- ----------
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE
Income before extraordinary items and
cumulative effect of accounting change . . . $ 0.17 $ 0.17 $ 0.50 $ 0.24
Extraordinary items . . . . . . . . . . . . . 5.26 0.34 5.26 0.41
Cumulative effect of accounting change . . . -- -- .22 --
--------- ---------- --------- ----------
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE . . . . . . . . . . . . . . $ 5.43 $ 0.51 $ 5.98 $ 0.65
--------- ---------- --------- ----------
--------- ---------- --------- ----------
</TABLE>
See accompanying notes
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<PAGE>
HALLMARK HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------
1993 1992
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 22,484 $ 2,163
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary items:
Gain on restructure of debt, net of income tax
effect of $ 2,170 and $ 253 for the six months
ended December 31, 1993, and 1992,
respectively . . . . . . . . . . . . . . . . . . . . . (19,784) (490)
Credit resulting from utilization
of net operating loss carryforwards . . . . . . . . . . -- (889)
Cumulative effect of accounting change . . . . . . . . . . (805) --
Depreciation and amortization. . . . . . . . . . . . . . . 4,630 4,470
Gain on sale of healthcare facility. . . . . . . . . . . . -- (752)
Amortization of deferred debt
restructuring credits . . . . . . . . . . . . . . . . . (2,071) (3,138)
Change in allowance for doubtful accounts. . . . . . . . . 402 430
Change in assets and liabilities net of effects of
healthcare facilities sold:
Patient accounts receivable . . . . . . . . . . . . . . (506) (2,368)
Other assets . . . . . . . . . . . . . . . . . . . . 701 (1,703)
Accounts payable. . . . . . . . . . . . . . . . . . . . (862) 2,014
Other liabilities . . . . . . . . . . . . . . . . . . . 2,077 795
------------------ ------------------
Net cash provided by operating activities . . . . . . . 6,266 532
------------------ ------------------
Cash flows from investing activities:
Proceeds from sale of healthcare
facilities . . . . . . . . . . . . . . . . . . . . . . . -- 9,336
Purchase of property & equipment, net. . . . . . . . . . . (2,600) (2,776)
------------------ ------------------
Net cash (used in) provided by
investing activities . . . . . . . . . . . . . . . . . . (2,600) 6,560
------------------ ------------------
Cash flows from financing activities:
Proceeds from issuance of long term debt . . . . . . . . . 80,000 --
Costs of issuance of long term debt. . . . . . . . . . . . (2,400) --
Principal payments on long-term debt and
capital lease obligations . . . . . . . . . . . . . . . . (75,591) (10,484)
------------------ ------------------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . . . 2,009 (10,484)
------------------ ------------------
Increase (decrease) in cash and cash equivalents . . . . . . 5,675 (3,392)
Cash and cash equivalents at beginning of
period . . . . . . . . . . . . . . . . . . . . . . . . . . 4,899 7,749
------------------ ------------------
Cash and cash equivalents at end of period . . . . . . . . . $ 10,574 $ 4,357
------------------ ------------------
------------------ ------------------
</TABLE>
See accompanying notes
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<PAGE>
FORM 10-Q
HALLMARK HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 1993
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements presented herein, in
the opinion of management, reflect all adjustments considered necessary for a
fair presentation of the results of operations and financial position for the
interim periods covered by this report. All significant intercompany accounts
and transactions have been eliminated in consolidation.
These financial statements should be read in conjunction with the audited
consolidated financial statements of the Company for the year ended June 30,
1993, included in the Company's Annual Report on Form 10-K for the year ended
June 30, 1993.
NOTE 2 - NATURE OF BUSINESS
The Company's business is seasonal in nature and subject to general economic
conditions and other factors. Accordingly, the results of operations for the
interim periods are not necessarily indicative of the results expected for the
year.
NOTE 3 - CHANGE IN OPERATIONS
In fiscal 1993, the Company divested substantially all of the assets of two
hospital subsidiaries for approximately $9,400,000 in cash. The Company
recognized a gain of approximately $752,000 from the sale of one hospital in the
quarter ended September 30, 1992 and recognized no gain or loss on the hospital
sale in December 1992. Net proceeds of the sales approximated $8,500,000, of
which approximately $7,000,000 was used to prepay amounts under the formerly
outstanding Bank Credit Agreement and $1,500,000 was used to acquire a portion
of the Company's formerly outstanding 14.5% Subordinated Debentures. The
accompanying condensed consolidated statements of operations for the quarter and
six months ended December 31, 1993 and 1992, include net revenues and expenses
for one hospital through November 30, 1992. The facilities had no net revenues
in the quarter ended December 31, 1992, and net revenues of $97,000 for the six
months then ended. For the quarter and six months ended December 31, 1992, the
facilities had total expenses of $359,000 and $1,296,000, respectively.
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<PAGE>
NOTE 4 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consisted of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,1993 June 30,1993
---------------- ------------
<S> <C> <C>
Senior Subordinated Notes due November 15,
2003, interest at 10 5/8% per annum payable
semi-annually beginning May 15, 1994,
redeemable at the Company's option at a
redemption price of 105.3125% of principal on
or after November 15, 1998, declining to
102.6563% on November 15, 1999 and 100% on
November 15, 2000. $ 80,000 $ --
Amended and Restated Bank Credit Agreement
dated as of January 1, 1989, as amended, ("Bank
Credit Agreement"). -- 64,244
Senior Subordinated Debentures due 1999,
interest at 7%. -- 6,238
Senior Subordinated Notes due 1999, interest
at 7%. -- 1,098
Senior Subordinated Notes due 1993 through
1995, interest at 8% or 9%. -- 959
Capital lease obligations and other indebtedness,
interest at varying rates from 4% to 16% per
annum through 2018. 8,198 7,948
----------- -----------
88,198 80,487
Less current portion (585) (5,306)
----------- -----------
Long-term debt and capital lease obligations $ 87,613 $ 75,181
-------------- -------------
-------------- -------------
</TABLE>
On November 15, 1993, the Company completed a public offering of $80,000,000
principal amount of 10 5/8% Senior Subordinated Notes due 2003 (the "Notes").
The Notes are senior subordinated obligations of the Company, and, as such, are
subordinated to all existing and future senior indebtedness of the Company. The
net proceeds from the offering were approximately $77,600,000, of which
approximately $62,100,000 was used to repay in full the indebtedness outstanding
under the Bank Credit Agreement and approximately $10,700,000 was used to redeem
all of the Company's outstanding subordinated indebtedness. The remaining
proceeds of approximately $4,800,000 will be used for general corporate
purposes.
The indenture contains certain covenants which limit or restrict, among other
items, (i) additional indebtedness, including subordinated debt; (ii) liens;
(iii) issuance of preferred stock by the Company's subsidiaries; (iv)
transactions with affiliates; (v) restricted payments; (vi) investments and
loans; (vii) application of the proceeds of certain asset sales; and (viii)
mergers, consolidations and
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<PAGE>
the transfer of substantially all of the assets of the Company to another
person, all as defined in the indenture. The indenture also contains a
provision that in the event of a change of control, as defined, the Company
shall make an offer to repurchase the notes at a purchase price equal to 101% of
the principal amount thereof, plus accrued interest through the repurchase date.
During fiscal years 1990 through 1993, the Company, through a series of
transactions, underwent a restructuring of certain of its outstanding
indebtedness. The restructuring included modifications to its then outstanding
bank debt and the issuance of several series of senior subordinated notes and
debentures and payments of cash in exchange for certain of its 14 1/2% Senior
Subordinated Debentures (the "14 1/2% Debentures"). Pursuant to the provisions
of Financial Accounting Standard No. 15 "Accounting by Debtors and Creditors for
Troubled Debt Restructurings", the Company did not recognize any gain from the
modification of its bank debt or from certain transactions in the 14 1/2%
Debentures. The unrecognized gain from such transactions was deferred and
classified in the accompanying condensed consolidated balance sheets as
"Deferred debt restructuring credits" at June 30, 1993. Such credits were
amortized as a reduction of interest expense during the period that the
restructured debt remained outstanding. During the quarter and six months ended
December 31, 1993, interest expense was reduced by $690,000 and $2,071,000
respectively, as a result of amortization of the deferred credits. During the
quarter ended December 31, 1993, the Company recognized an extraordinary gain of
$19,784,000 (net of income tax effect of $2,170,000) primarily from the write-
off of the remaining balance of the deferred credits.
During the quarter ended December 31, 1993, the Company entered into a credit
agreement with a financial institution (the "New Credit Agreement") pursuant to
which the Company may borrow up to $25,000,000. The New Credit Agreement
consists of (i) a working capital facility in the principal amount of up to
$15,000,000 and (ii) an acquisition facility in the principal amount of up to
$10,000,000 (collectively, the "Facilities"). Borrowings under the working
capital facility are secured by an assignment by the Company to the lender of
its patient accounts receivable. The Company may not borrow pursuant to the
acquisition facility until it is activated by mutual agreement of the Company
and the lender, which must be no later than December 31, 1994; the acquisition
facility had not been activated as of December 31, 1993. Borrowing capacity
under the working capital facility is based on a percentage of the Company's
eligible patient accounts receivable, as defined. Certain conditions exist
prior to the Company borrowing under the Facilities, some of which have not yet
been satisfied; accordingly, there was no borrowing availability at December 31,
1993.
Interest on the Facilities is payable monthly at a variable rate selected by the
Company, which will be either a published rate for thirty day dealer-placed
commercial paper, plus 3% or reserve-adjusted one, two or three month LIBOR,
plus 3%. The working capital facility terminates on December 31, 1998, at which
time the entire unpaid balance under the facility is due. Principal on the
acquisition facility is due in twelve monthly installments commencing on
December 31, 1997. The Facilities bear an unused line fee of 1/2 of 1% of the
average daily unused availability under the Facilities. No unused line fee is
charged for the acquisition facility until such line is activated.
Under the terms of the New Credit Agreement, the Company is required to meet
certain financial covenants, including, among others, a fixed charge coverage
ratio, a minimum interest coverage ratio, a minimum net worth level, an accounts
receivable turnover ratio and a minimum EBITDA level, as defined. In addition,
the Credit Agreement contains limitations and/or restrictions on acquisitions,
investments, capital expenditures, dividends on the Company's equity securities
and incurrence of additional indebtedness.
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At December 31, 1993, the Company had two outstanding letters of credit
totalling $2,212,000 which were issued by a commercial bank and are used to
satisfy certain security requirements of the Company's workers' compensation
insurance carrier.
NOTE 5 - INCOME TAXES
At December 31, 1993, the Company had tax NOL carryforwards of approximately
$28,000,000, which expire in fiscal years 2002 through 2006. Such NOL
carryforwards may be available to offset future taxable income of the Company,
if any.
During the first fiscal quarter of 1994, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
SFAS No. 109 requires a change in accounting for income taxes to an asset and
liability approach under which deferred tax assets and liabilities are
determined based on the difference between the financial accounting and tax
accounting basis of assets and liabilities. Deferred tax assets or liabilities
at the end of each period are determined using the currently enacted tax rate
expected to apply to taxable income in the periods in which the deferred tax
asset or liability is expected to be realized. The Company recorded a credit of
$805,000 to reflect the cumulative effect of adopting such standard in the
quarter ended September 30, 1993.
During 1991, the Company issued 390,298 shares of Class B common stock in
exchange for $18,620,000 of bank debt. The Company, based on consultation with
outside tax and valuation advisors, believes that the exchange qualified under
the stock-for-debt exception to the recognition of income from discharge of
indebtedness which is available to an insolvent corporation. In the event the
Internal Revenue Service challenges the Company's position successfully, the
Company's current NOL carryforwards could be reduced by as much as $16,000,000.
The Internal Revenue Code contains provisions which limit the use of NOL
carryforwards following significant changes in ownership of a corporation's
stock. A significant change in ownership generally occurs when persons holding
5% or more of the corporation's stock ("5% shareholders") increase their
percentage ownership of such stock, in the aggregate, by more than 50% during
any three year period. The Company believes that no significant change in
ownership has occurred that would limit the Company's use of the NOL
carryforwards described above. However, use of such NOL carryforwards could be
limited in the future as a result of, among other things, future purchases of
the Company's stock by 5% shareholders or the issuance of additional stock
(including the issuance of options under the Company's employee benefit plans).
NOTE 6 - 25% REDEEMABLE PREFERRED STOCK
The Company is authorized to issue 2,500,000 shares of preferred stock (issuable
in series) of which it had outstanding at December 31, 1993 and June 30, 1993,
respectively, 33,407 and 39,569 shares of $5 par value 25% Participating
Convertible Cumulative Redeemable Preferred Stock (the "25% Preferred"). The
25% Preferred has a preference over common stockholders upon liquidation or
dissolution of the Company of $125 per share, minus certain dividends if
previously paid. Each 25% Preferred share is convertible, at any time, into
five shares of Class A common stock, subject to adjustment under certain
conditions, and is entitled to annual dividends equal to 25% of defined net
income, if any, subject to a maximum annual payment of 10% of liquidation
preference, when and if declared by the Board of Directors of the Company out of
funds legally available for such dividends. Such dividends are cumulative and
subject to certain maximums, limits and other conditions. No such dividends
have been declared by the Company's Board of Directors. To date, such
undeclared dividends have been cumulative in an amount equal to 17% of the 25%
Preferred's liquidation value (approximately $710,000 at December 31, 1993).
Dividends are cumulative
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annually to the extent of 5% of the aggregate liquidation preference on the last
day of the calendar year until all of the 25% preferred has been redeemed. The
holders of the 25% Preferred have voting rights on all matters other than the
election of Directors. The 25% Preferred is redeemable at any time prior to the
required redemption at the Company's option. Based on the current number of
shares outstanding, the terms of the 25% Preferred provide for redemption (but
only out of funds legally available for that purpose and then only to the extent
permitted by its loan agreements, indentures and Certificate of Incorporation)
at a price of $125 per share, minus certain dividends if previously paid, on
February 12, 1995 of approximately $557,000, on February 12, 1999 of
approximately $2,227,000, and on February 12, 2000 of approximately $1,392,000
(for the remaining shares). No reserve has been provided for dividends on the
25% Preferred.
The 25% Preferred was recorded at issuance at $9.35 per share and is being
accreted to a redemption price of $125 per share through the respective
redemption dates utilizing the interest method. The accretion is charged to
retained earnings, if available, or additional paid-in capital.
During the six months ended December 31, 1993, 6,162 shares of 25% Preferred
were converted into 30,810 shares of Class A common stock.
NOTE 7 - STOCKHOLDERS' EQUITY
During the quarter ended September 30, 1993, the Board of Directors amended the
Company's Long Term Cash Incentive Plan, providing for cash payments of
approximately $600,000 and the issuance of approximately 181,000 shares of the
Company's Class A common stock in August 1994. Pursuant to such amendment, an
accrual of approximately $1,187,000 for shares to be issued under the amended
plan has been recorded as additional paid-in capital in the accompanying
Condensed Consolidated Balance Sheets as of December 31, 1993.
In May 1991, the Class B common stock was issued to the holders of the Company's
bank debt in exchange for $18,620,000 principal amount of outstanding bank debt.
The Class B stock is non-voting and is convertible into Class A common stock
upon its sale or disposition. During the six months ended December 31, 1993,
326,191 shares of Class B common stock were converted into a like number of
Class A common shares.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is subject to claims and legal actions by patients and others in the
ordinary course of business. The Company believes that such claims will not
have a material adverse effect on the Company's financial position or results of
operations. The Company is self-insured against a portion of its general and
professional liability risks. The liability recorded for losses incurred and
claims made is based upon individual case estimates for losses reported and upon
estimates on the basis of past experience for incurred but not reported losses.
The Company has established and funded a trust fund to pay certain of its
general and professional liability losses. The balance of such trust fund was
$9,942,000 and $10,573,000 at December 31, 1993 and June 30, 1993, respectively.
Of such amounts, $1,272,000 and $1,300,000 at December 31, 1993 and June 30,
1993, respectively, is classified in the accompanying condensed consolidated
balance sheets under the caption "Other Current Assets" and represents the
amount of claims and loss adjustment expenses expected to be paid within the
following twelve months. The remaining balance in such trust fund is classified
under the caption"Other Assets". Such self insurance trust has been pledged as
collateral for two letters of credit issued by a commercial bank totalling
$2,212,000.
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<PAGE>
OTHER CONTINGENCIES
The Company has employment agreements with its two executive officers which
provide for certain payments and benefits in the event of a "change in control"
of the Company, as defined. Change in control is generally defined as the
acquisition of that number of shares of the outstanding stock which would allow
such acquiring entity or a concerted group of entities to elect a majority of
the Board of Directors of the Company. The employment agreements for the two
executive officers were initially approved by the Board of Directors in 1989.
Pursuant to their terms, the agreements currently are for terms which expire on
June 30, 1994. Absent notice within designated periods, such agreements
automatically renew for additional one year terms. The maximum contingent
liability under the employment agreements is approximately $3,100,000.
NOTE 9 - EARNINGS PER SHARE
The following table summarizes the number of common and common equivalent shares
used in computing net income per share at December 31, 1993 and 1992.
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31,
------------ ------------
1993 1992 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average Class A common stock
outstanding 2,957,334 2,554,894 2,952,450 2,542,880
Class B common stock (convertible to
Class A common stock) outstanding 64,102 390,298 64,102 390,298
Common stock equivalents:
Effect of the assumed conversion of 25%
Participating Convertible Cumulative
Redeemable Preferred Stock (5 shares of
common for 1 share of preferred) 167,035 207,045 167,035 207,045
Options and other 571,916 193,745 575,093 203,090
------- ------- ------- -------
Shares used in computing net income per
share 3,760,387 3,345,982 3,758,680 3,343,313
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
NOTE 10 - SUPPLEMENTAL INFORMATION TO CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
The Company paid approximately $1,152,000 and $3,126,000 in interest on various
obligations in the quarter and six months ended December 31, 1993, respectively,
and paid approximately $2,431,000 and $4,639,000 for the comparable periods a
year earlier.
The Company paid approximately $270,000 and $396,000 in state and federal income
taxes in the quarter and six months ended December 31, 1993, respectively, and
paid approximately $126,000 and $140,000 for the comparable periods a year
earlier.
-13-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
HALLMARK HEALTHCARE CORPORATION
December 31, 1993
RESULTS OF OPERATIONS
The following table summarizes, for the periods indicated, changes in selected
operating indicators. The discussion that follows should be read in conjunction
with the Company's Condensed Consolidated Financial Statements and the notes
thereto.
<TABLE>
<CAPTION>
Six Months Ended December 31,
Percentage Increase
Percentage of (Decrease) From
Total Revenues Prior Year
-------------- ----------
1993 1992
---- ----
<S> <C> <C> <C>
Total Revenues . . . . . . . . . . . . . . . 100.0% 100.0% 11.9%
Operating costs:
Salaries and benefits . . . . . . . . . . 43.4% 42.2% 14.8%
Supplies and other operating expenses 38.8% 42.3% 2.6%
Provision for bad debts . . . . . . . . . 6.9% 6.7% 16.4%
------ ------
Total operating costs. . . . . . . . . 89.1% 91.2% 9.3%
------ ------
Operating margin . . . . . . . . . . . . . . 10.9% 8.8% 38.9%
Capital costs:
Interest. . . . . . . . . . . . . . . . . 2.6% 2.4% 21.0%
Depreciation and amortization . . . . . . 4.9% 5.3% 3.6%
------ ------
Total capital costs. . . . . . . . . . 7.5% 7.7% 9.1%
Gain from sale of hospital . . . . . . . . . -- 0.9% (100.0%)
------ ------
Income before income taxes, extraordinary items and
cumulative effect of accounting change 3.4% 2.0% 91.9%
Provision for income taxes . . . . . . . . . 1.4% 1.1% 49.4%
------ ------
Income before extraordinary items and cumulative
effect of accounting change. . . . . . . 2.0% 0.9% 141.7%
------ ------
------ ------
</TABLE>
-14-
<PAGE>
The following table sets forth certain operating data for the Company on a same-
hospital basis, for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended December 31,
(Dollars in thousands)
--------------------
1993 (1) 1992 (1)
-------- --------
<S> <C> <C>
Hospitals at end of period. . . . . . . . . 17 17
Licensed beds at end of period. . . . . . . 1,405 1,428
Average beds in service . . . . . . . . . . 1,191 1,214
Net patient service revenues:
Inpatient. . . . . . . . . . . . . . . . $ 63,083 $ 54,326
Outpatient . . . . . . . . . . . . . . . 24,257 24,253
Other. . . . . . . . . . . . . . . . . . 3,825 3,322
-------- --------
Total net patient service revenues. . $ 91,165 $ 81,902
Patient days. . . . . . . . . . . . . . . . 78,677 74,310
Occupancy rate(2) . . . . . . . . . . . . . 35.9% 33.3%
Equivalent patient days(3). . . . . . . . . 113,760 108,068
<FN>
(1) Same hospital results exclude operating data for two hospitals sold in
fiscal 1993.
(2) Based on average beds in service.
(3) Represents inpatient days adjusted to reflect outpatient utilization.
</TABLE>
Net patient service revenues increased from $41,891,000 in the quarter ended
December 31, 1992 to $45,876,000 in the quarter ended December 31, 1993, an
increase of $3,985,000, or 9.5%, primarily due to a 6.1% increase in admissions
from 6,701 to 7,108 and a 4.0% increase in patient days from 37,967 to 39,503.
Net patient service revenues increased from $82,275,000 in the six months ended
December 31, 1992, to $91,165,000, in the six months ended December 31, 1993, an
increase of $8,890,000, or 10.8%, primarily due to a 5.0% increase in admissions
from 13,402 to 14,069 and a 5.9% increase in patient days from 74,310 to 78,677.
The increased admissions resulted primarily from the addition of new or expanded
services in 1993 including geriatric psychiatric and specialty Medicaid
services. Net patient revenues for the quarter and six months ended December
31, 1993 included credits of approximately $347,000 and $412,000, respectively,
from reductions in the provision for contractual allowances primarily as a
result of favorable settlements of prior year cost reports with program
intermediaries. Net patient revenues for the quarter and six months ended
December 31, 1992 included approximately $499,000 and $957,000, respectively, of
such credits.
A substantial portion of the Company's revenue is derived from the federal
Medicare program and state Medicaid programs. These programs have undergone
changes in recent years designed to reduce healthcare costs, resulting in
pressure on hospitals and other healthcare providers to reduce their costs and
limit the provision of services. These changes have had, and future changes in
such statutes and regulations may have, an adverse effect on the Company. A
number of the Company's hospitals qualify for "geographic reclassification" or
have been qualified as "disproportionate share" or "small dependent" hospitals
under the Medicare and/or Medicaid programs. These hospitals are reimbursed at
a more favorable rate than similar hospitals not receiving such designations.
On a periodic basis, federal and/or state regulatory authorities perform reviews
of participant hospitals to ensure continued compliance with program
requirements and therefore qualification for these designations. There can be
no assurance that the Company will be able to retain these favorable
designations in the future for all, or any, of these hospitals, that these
programs will continue or that any programs intended to replace such programs
will be as financially advantageous to the Company as the existing programs.
The loss of such programs without replacement could have a material adverse
effect on the Company's operations.
-15-
<PAGE>
Salaries and benefits expense for the quarter and six months ended December 31,
1993, increased $2,877,000, or 15.9% and $5,332,000 or 14.8%, over the quarter
and six months ended December 31, 1992, respectively. Excluding the effect of
the one facility sold in December 1992, salaries and benefits increased
$3,002,000, or 16.7% and $5,827,000 or 16.4%, over the quarter and six months
ended December 31, 1992, respectively, due primarily to an increase in patient
volume, a general increase in wage rates and decreased use of contract services
in the Company's hospitals.
Interest expense increased $696,000 and $432,000 in the quarter and six months
ended December 31, 1993, to $1,653,000 and $2,490,000. Such increase was
primarily due to the Company's refinancing of its bank debt and subordinated
debt in November 1993. Prior to the refinancing, interest expense on the
Company's debt was significantly reduced by amortization of deferred debt
restructuring credits. As a result of the refinancing, the deferred debt
restructuring credits were eliminated and from the date of the refinancing
forward, interest expense was fully recognized at the effective interest rates
of the Company's debt. Interest expense was reduced by amortization of deferred
debt restructuring credits of $690,000 and $2,071,000 in the quarter and six
months ended December 31, 1993, compared to $1,557,000 and $3,138,000 in the
quarter and six months ended December 31, 1992. Interest expense excluding
amortization of deferred debt restructuring credits declined to $2,343,000 in
the quarter ended December 31, 1993 compared with $2,514,000 in the comparable
period a year earlier.
The following supplemental information represents pro forma results of
operations assuming the refinancing that occurred in the second quarter of
fiscal 1994 had occured on July 1, 1992:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------- ----------------
1993 1992 1993 1992
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total Revenues $ 47,936 $ 43,572 $ 95,264 $ 85,153
Operating Expenses 42,952 39,104 84,876 77,674
Interest Expense 2,491 2,571 4,981 5,201
Depreciation Expense 2,231 2,352 4,630 4,470
-------- -------- -------- --------
Total Expenses 47,674 44,027 94,487 87,345
Income from Operations $ 262 $ (455) $ 777 $(2,192)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Provision for bad debts increased $622,000 and $934,000 for the quarter and six
months ended December 31, 1993, to $3,422,000 and $6,613,000 in the comparable
periods a year earlier primarily due to an increase in patient volume and an
increase in self-pay accounts. Provision for bad debts as a percentage of net
patient service revenues increased from 6.7% in the quarter ended December 31,
1992, to 7.5% for the quarter ended December 31, 1993. Provision for bad debts
as a percentage of net patient service revenues increased from 6.9% for the six
months ended December 31, 1992, to 7.3% for the six months ended December 31,
1993.
The Company reported net income of $20,422,000 or $5.43 per share, for the
quarter ended December 31, 1993, compared to net income of $1,709,000, or $0.51
per share, in the quarter ended December 31, 1992. Net income for the six
months ended December 31, 1993, was $22,484,000 or $5.98 per share compared to
net income of $2,163,000 or $0.65 per share for the six months ended December
31, 1992. Net income for the six months ended December 31, 1993, included a
credit of $805,000 or $0.22 per share related to the cumulative effect of
adoption of Statement of Financial Accounting Standards ("SFAS") No. 109
"Accounting for Income Taxes" and net income for the quarter and six
-16-
<PAGE>
months ended December 31, 1993 included an extraordinary gain on restructure of
debt of $19,784,000, or $5.26 per share, net of income tax effect of $2,170,000.
Net income for the quarter and six months ended December 31, 1992, included an
extraordinary gain on restructure of debt of $490,000, or $0.15 per share, net
of income tax effect of $253,000, and an extraordinary credit of $646,000 or
$0.19 per share and $889,000, or $0.26 per share, respectively resulting from
the utilization of NOL carryforwards. In addition, net income for the six
months ended December 31, 1992, included a pre-tax gain of $752,000 from the
sale of a hospital in August 1992.
TAX MATTERS
At December 31, 1993, the Company had NOL carryforwards of approximately
$28,000,000, which expire in fiscal years 2002 through 2006. Such NOL
carryforwards may be available to offset future taxable income of the Company,
if any.
During 1991, the Company issued 390,298 shares of Class B common stock in
exchange for $18,620,000 of the indebtedness under the Bank Credit Agreement.
The Company believes, based on consultation with outside tax and valuation
advisors, that the exchange qualified under the stock-for-debt exception to the
recognition of income from discharge of indebtedness which is available to
insolvent corporations. There can be no assurance, however, that the Internal
Revenue Service will not challenge the Company's position. If any such
challenge by the Internal Revenue Service were sustained, the Company's current
NOL carryforwards could be reduced by as much as $16,000,000.
The Internal Revenue Code contains provisions which limit the use of NOL
carryforwards following significant changes in ownership of a corporation's
stock. A significant change in ownership generally occurs when persons holding
5% or more of the corporation's stock ("5% shareholders") increase their
percentage ownership of such stock, in the aggregate, by more than 50% during
any three-year period. The Company believes that no significant change in
ownership has occurred that would limit the Company's use of the NOL
carryforwards described above. However, use of such NOL carryforwards could be
limited in the future as a result of, among other things, future purchases of
the Company's stock by 5% shareholders or the issuance of additional stock
(including the issuance of options under the Company's employee benefit plans).
In February 1992, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS
No. 109") requiring a change in accounting for deferred income taxes for
financial statements issued for fiscal years beginning after December 15, 1992.
In the first quarter of fiscal 1994, the Company adopted the provisions of SFAS
No. 109 and recorded a credit of $805,000 to reflect the cumulative effect of
adopting such standard.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1993, the Company had working capital of $15,999,000, which
included cash and cash equivalents of $10,574,000. During the quarter ended
December 31, 1993, the Company completed a registered offering of $80,000,000
principal amount of 10 5/8% senior subordinated notes due 2003. The net
proceeds from the offering were approximately $77,600,000, of which
approximately $62,100,000 was used to repay the Company's then outstanding bank
debt and approximately $10,700,000 to redeem all of the Company's outstanding
senior subordinated indebtedness. The remaining proceeds will be used for
general corporate purposes and to fund certain capital expenditures.
During the quarter ended December 31, 1993, the Company entered into a credit
agreement with a financial institution pursuant to which the Company may borrow
up to $15,000,000 under a
-17-
<PAGE>
working capital facility and up to $10,000,000 under an acquisition facility.
Certain conditions exist prior to funding under the credit agreement, some of
which had not been satisfied as of December 31, 1993. The Company anticipates
that it will satisfy the remaining conditions to funding under its new credit
agreement.
The Company anticipates that internally generated cash flows and the remaining
unused proceeds from the $80,000,000 senior subordinated note offering will be
sufficient to fund capital expenditures and working capital requirements through
fiscal 1994. During the six months ended December 31, 1993, the Company
expended $2,600,000 for capital expenditures. Capital expenditures during the
six months consisted primarily of completion of an outpatient surgery center at
one facility and equipment purchases at various facilities.
Payments received by the Company from the Medicare and Medicaid programs are the
Company's single largest source of cash from operations. During the six months
ended December 31, 1993, cash provided by operations increased $5,734,000,
compared to the same period a year earlier, primarily due to increased operating
income (excluding interest and depreciation) and decreased interest paid during
the period as a result of the semi-annual interest payment terms of the Notes.
-18-
<PAGE>
HALLMARK HEALTHCARE CORPORATION
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
PART II - OTHER INFORMATION
-19-
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(b) The Company has outstanding 33,407 shares of 25% Participating
Convertible Cumulative Redeemable Preferred Stock (the "25% Preferred").
Each 25% Preferred share is entitled to annual dividends equal to 25% of
defined net income, if any, subject to a maximum annual payment of 10% of
liquidation preference, when and if declared by the Board of Directors of
the Company out of funds legally available for such dividends. Such
dividends are cumulative and subject to certain maximums, limits and
other conditions. No such dividends have been declared by the Company's
Board of Directors. Such undeclared dividends are cumulative to the extent
of 17% of the 25% Preferred's liquidation value (approximately $710,000 at
December 31, 1993).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting on November 23, 1993, the stockholders of the Company
elected James E. Martin and J. Randolph Seckman as Directors of the Company for
terms expiring in 1996. With respect to the election of Dr. Martin, 2,052,388
common shares were voted in favor of his election, and the holders of 17,723
common shares withheld authority to vote for such nominee. With respect to the
election of Mr. Seckman, 2,052,331 common shares were voted in favor of his
election, and the holders of 17,780 common shares withheld authority to vote for
such nominee.
The Company's Board of Directors is divided into three classes, with one class
being elected each year to serve three-year terms. Rolland A. Maxwell and
Robert M. Thornton, Jr. are both Directors whose terms expire in 1994, while
James T. McAfee, Jr. and Kay W. Slayden are Directors whose terms expire in
1995.
The stockholders also approved the 1994 Employee Stock Purchase Plan (the
"Employee Stock Plan"), covering 200,000 shares of the Company's Class A Common
Stock. The purpose of the Employee Stock Plan is to provide employees of the
Company an opportunity to be compensated through the benefits of stock ownership
and to acquire an interest in the Company through the purchase of Class A Common
Stock. In connection with the approval, 864,974 common shares and 5,258
preferred shares were cast in favor of the approval, 15,495 common shares and
412 preferred shares in opposition, and 4,334 common shares and 114 preferred
shares abstained from voting. Broker non-votes totalled 1,185,307 common shares
and 4,992 preferred shares.
The stockholders also approved the 1993 Stock Option Plan, covering 200,000
shares of Class A Common Stock. The principal purpose of the 1993 Stock Option
Plan is to promote the interests of the Company and its stockholders by
attracting, retaining and stimulating the performance of management by providing
participants incentive opportunities tied to the Company's long-term
performance. In connection with the approval, 679,215 common shares and 4,906
preferred shares were cast in favor of the approval, 78,849 common shares and
617 preferred shares in opposition, and 4,884 common shares and 114 preferred
shares abstained from voting. Broker non-votes totalled 1,306,162 common shares
and 5,119 preferred shares.
The stockholders also approved the 1993 Long-Term Incentive Plan (the "Incentive
Plan"). The purpose of the Incentive Plan is to promote the interests of the
Company and its stockholders by attracting, retaining and stimulating the
performance of management of the Company. In connection with the approval,
675,526 common shares and 4,823 preferred shares were cast in favor of the
approval, 85,240 common shares and 556 preferred shares in opposition, and 3,182
common shares and 257 preferred shares abstained from voting. Broker non-votes
totalled 1,306,162 common shares and 5,119 preferred shares.
-20-
<PAGE>
The stockholders also approved amendments to the Company's Long-Term Cash
Incentive Plan--1990 (the "Cash Incentive Plan"). Such amendments terminated
the Cash Incentive Plan effective as of July 1, 1993, and, subject to the
provisions of the Cash Incentive Plan, awards made to eligible participants that
had not lapsed as of July 1, 1993 were deemed to be vested. Awards will be paid
in fiscal year 1995, 65% of which will be in shares of the Company's Class A
Common Stock and 35% of which will be in cash. In connection with the approval,
1,798,045 common shares and 10,054 preferred shares were cast in favor of the
approval, 63,733 common shares and 591 preferred shares in opposition, and 4,184
common shares and 111 preferred shares abstained from voting. Broker non-votes
totalled 204,149 common shares and 0 preferred shares.
The final item approved by the stockholders was to amend the Company's 1991
Directors' Stock Option Plan (the "Directors Plan") to (i) reflect the one-for-
five reverse stock split effected in November, 1992; (ii) to increase the total
number of shares on which options may be granted from 40,000 to 65,000 shares;
and (iii) to provide that on November 1, 1993 each eligible Director shall be
granted an option to purchase 6,250 shares of Class A Common Stock. In
connection with the approval, 677,941 common shares and 4,706 preferred shares
were cast in favor of the approval, 79,003 common shares and 642 preferred
shares in opposition, and 7,005 common shares and 289 preferred shares abstained
from voting. Broker non-votes totalled 1,306,162 common shares and 5,119
preferred shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
<TABLE>
<CAPTION>
Item Description Page No.
---- ----------- --------
<C> <S> <C>
1.1 Form of Underwriting Agreement
between Smith Barney Shearson, Inc.
and the Registrant with respect to
10 5/8% Senior Subordinated Notes
due 2003 of the Registrant
4.1 Form of Indenture, dated as of
November 1, 1993, relating to
10 5/8% Senior Subordinated Notes due
2003 of the Registrant
10.1 Amendment to 1991 Directors' Non-
Qualified Stock Option Plan
11 Calculation of Average Number of 23
Common and Common Equivalent Shares
(Quarters and Six Months ended
December 31, 1993 and 1992)
</TABLE>
(b) Reports on Form 8-K
None.
-21-
<PAGE>
HALLMARK HEALTHCARE CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HALLMARK HEALTHCARE CORPORATION
Date: February 14, 1994
\s\ROBERT M. THORNTON, JR.
---------------------------------
Robert M. Thornton, Jr.
President, Chief Operating
Officer, Chief Financial Officer
and Principal Accounting Officer
-22-
<PAGE>
FORM 10-Q
---------
HALLMARK HEALTHCARE CORPORATION
EXHIBIT XI
CALCULATION OF AVERAGE NUMBER OF PRIMARY AND FULLY DILUTED
COMMON AND COMMON EQUIVALENT SHARES
(in thousands)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31
------------ -----------
1993 1992 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average Class A common stock
outstanding 2,957 2,555 2,953 2,543
Class B common stock outstanding
(convertible to Class A common stock) 64 390 64 390
Common stock equivalents:
Effect of the assumed conversion of 25%
Participating Convertible Cumulative
Redeemable Preferred Stock (5 shares of
common for 1 share of preferred) 167 207 167 207
Options and other 572 194 575 203
--- --- --- ---
Average number of common and common
equivalent shares on a primary and fully
diluted basis 3,760 3,346 3,759 3,343
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
-23-
<PAGE>
EXHIBIT 1.1
CONFORMED COPY
$80,000,000
HALLMARK HEALTHCARE CORPORATION
10 5/8% SENIOR SUBORDINATED NOTES DUE 2003
UNDERWRITING AGREEMENT
----------------------
November 5, 1993
SMITH BARNEY SHEARSON INC.
MABON SECURITIES CORP.
c/o SMITH BARNEY SHEARSON INC.
1345 Avenue of the Americas
New York, New York 10105
Dear Sirs:
Hallmark Healthcare Corporation, a Delaware corporation (the "Company"),
proposes, upon the terms and conditions set forth herein, to issue and sell
$80,000,000 aggregate principal amount of its 10 5/8% Senior Subordinated Notes
due 2003 (the "Notes") to you, Smith Barney Shearson Inc. and Mabon Securities
Corp. (the "Underwriters"). The Notes will be issued pursuant to the provisions
of an Indenture to be dated as of November 1, 1993 (the "Indenture") between the
Company and First Union National Bank of North Carolina, as Trustee (the
"Trustee").
The Company wishes to confirm as follows its agreement with you in
connection with the several purchases by you of the Notes.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1 under the Act (the "registration
statement"), including a prospectus subject to completion relating to the Notes.
The term "Registration Statement" as used in this Agreement means the
registration statement (including all financial schedules and exhibits), as
amended at the time it becomes effective, or, if the registration statement
became effective prior to the execution of this Agreement, as supplemented or
amended prior to the execution of this Agreement. If it is contemplated, at the
time this Agreement is executed, that a post-effective amendment to the
registration statement will be filed and must be declared effective before the
offering of the Notes may commence, the term "Registration Statement" as used in
this Agreement means the registration statement as amended by said
post-effective amendment. The term "Prospectus" as used in this Agreement means
the prospectus in the form included in the Registration Statement, or, if the
prospectus included in the Registration Statement omits information in reliance
on Rule 430A under the Act and such information is included in a prospectus
filed with the Commission pursuant to Rule 424(b) under the Act, the term
"Prospectus" as used in this Agreement means the prospectus in the form included
in the Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant to
Rule 424(b). The term "Prepricing Prospectus" as used in this Agreement means
the prospectus subject to completion in the form included in the registration
statement
<PAGE>
at the time of the initial filing of the registration statement with the
Commission, and as such prospectus shall have been amended from time to time
prior to the date of the Prospectus.
2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees, subject
to all the terms and conditions set forth herein, to issue and sell to each
Underwriter and, upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions set forth herein, each Underwriter agrees, severally and not jointly,
to purchase from the Company, at a purchase price of 97% of the principal amount
thereof, the principal amount of Notes set forth opposite the name of such
Underwriter in Schedule I hereto (or such principal amount of Notes increased as
set forth in Section 10 hereof).
3. TERMS OF PUBLIC OFFERING. The Company has been advised by you that
the Underwriters propose to make a public offering of their respective portions
of the Notes as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Notes upon the terms set forth in the Prospectus.
4. DELIVERY OF THE NOTES AND PAYMENT THEREFOR. Delivery to the
Underwriters of and payment for the Notes shall be made at the office of Smith
Barney Shearson Inc., 1345 Avenue of the Americas, New York, NY 10105, at 10:00
A.M., New York City time, on November 15, 1993 (the "Closing Date"). The place
of closing for the Notes and the Closing Date may be varied by agreement between
you and the Company.
The Notes will be delivered to you against payment of the purchase price
therefor registered in such names and in such denominations as you shall request
prior to 1:00 P.M., New York City time, on the third business day preceding the
Closing Date. The Notes to be delivered to the Underwriters shall be made
available to you in New York City for inspection and packaging not later than
9:30 A.M., New York City time, on the business day next preceding the Closing
Date. Payment of the purchase price of the Notes shall be paid by wire transfer
of immediately available funds, wired in accordance with the written
instructions of the Company. The Company agrees to reimburse you on the Closing
Date for your reasonable costs of obtaining immediately available funds.
5. AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Notes may commence, the
Company will endeavor to cause the Registration Statement or such post-effective
amendment to become effective as soon as possible and will advise you promptly
and, if requested by you, will confirm such advice in writing, when the
Registration Statement or such post-effective amendment has become effective.
(b) The Company will advise you promptly and, if requested by you, will
confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Notes for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the Company's condition (financial or other), business,
prospects, properties, net worth or results of operations, or of the happening
of any event which makes any statement made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the making
of any additions to or changes in the Registration Statement or the Prospectus
(as then amended or supplemented) in order to state a material fact required by
the Act or the regulations
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thereunder to be stated therein or necessary in order to make the statements
therein not misleading, or of the necessity to amend or supplement the
Prospectus (as then amended or supplemented) to comply with the Act or any other
law. If at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal of such order at the earliest
possible time.
(c) The Company will furnish to you, without charge (i) one signed copy
of the registration statement as originally filed with the Commission and of
each amendment thereto, including financial statements and all exhibits to the
registration statement, (ii) such number of conformed copies of the registration
statement as originally filed and of each amendment thereto, but without
exhibits, as you may request and (iii) such number of copies of the Indenture as
you may request.
(d) The Company will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus of which you
shall not previously have been advised or to which, after you shall have
received a copy of the document proposed to be filed, you shall reasonably
object or (ii) so long as, in the opinion of counsel for the Underwriters, a
Prospectus is required to be delivered in connection with sales by any
Underwriter or dealer, file any information, documents or reports pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), without
delivering a copy of such information, documents or reports to the Underwriters
prior to such filing.
(e) Prior to the execution and delivery of this Agreement, the Company
has delivered to you, without charge, in such quantities as you have requested,
copies of each form of the Prepricing Prospectus. The Company consents to the
use, in accordance with the provisions of the Act and with the securities or
Blue Sky laws of the jurisdictions in which the Notes are offered by the several
Underwriters and by dealers, prior to the date of the Prospectus, of each
Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the Act to be delivered
in connection with sales by any Underwriter or dealer, the Company will
expeditiously deliver to each Underwriter and each dealer, without charge, as
many copies of the Prospectus (and of any amendment or supplement thereto) as
you may request. The Company consents to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the Notes
are offered by the several Underwriters and by all dealers to whom Notes may be
sold, both in connection with the offering and sale of the Notes and for such
period of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer. If during such
period of time any event shall occur that in the judgment of the Company or in
the opinion of counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Prospectus in order to comply with the Act or any other law, the
Company will forthwith prepare and, subject to the provisions of paragraph (d)
above, file with the Commission an appropriate supplement or amendment thereto,
and will expeditiously furnish to the Underwriters and dealers a reasonable
number of copies thereof. In the event that the Company and you agree that the
Prospectus should be amended or supplemented, the Company, if requested by you,
will promptly issue a press release announcing or disclosing the matters to be
covered by the proposed amendment or supplement.
(g) The Company will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the Notes
for offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may designate and will
file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided that
in no event shall the Company be obligated
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to qualify to do business in any jurisdiction where it is not now so qualified
or to take any action which would subject it to service of process in suits,
other than those arising out of the offering or sale of the Notes, in any
jurisdiction where it is not now so subject.
(h) The Company will make generally available to its security holders a
consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which consolidated earnings statement shall
satisfy the provisions of Section 11(a) of the Act. The Company shall be deemed
to have complied with this covenant if it complies with Rule 158 of the Act.
(i) During the five year period following the effective date of the
Registration Statement, the Company will furnish to you (to Smith Barney
Shearson, to the person and at the address specified in Section 13 hereof and to
Mabon Securities Corp. at One Liberty Plaza, 31st Floor, 165 Broadway, New York,
New York 10006, Attention: Manager, Corporate Finance Division) (i) copies of
any reports (financial or other) which the Company shall publish or otherwise
make available to any of its securityholders as such, (ii) as soon as they are
available, copies of any reports and financial statements furnished to or filed
with the Commission or any national securities exchange and (iii) from time to
time such other information concerning the Company as you may reasonably
request; PROVIDED, however, that the Company may withhold any information it
reasonably believes to be confidential.
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 10 hereof or by notice given by you terminating this
Agreement pursuant to Section 10 or Section 11 hereof) or if this Agreement
shall be terminated by the Underwriters because of any failure or refusal on the
part of the Company to comply with the terms or fulfill any of the conditions of
this Agreement, the Company agrees to reimburse the Underwriters for all
out-of-pocket expenses (including fees and expenses of counsel for the
Underwriters) incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale of the Notes
substantially in accordance with the description set forth in the Prospectus.
(l) If Rule 430A of the Act is employed, the Company will timely file
the Prospectus pursuant to Rule 424(b) under the Act and will advise you of the
time and manner of such filing.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the registration
statement as originally filed or as part of any amendment or supplement thereto,
or filed pursuant to Rule 424 under the Act, complied when so filed in all
material respects with the provisions of the Act. The Commission has not issued
any order preventing or suspending the use of any Prepricing Prospectus.
(b) The registration statement in the form in which it became or
becomes effective and also in such form as it may be when any post-effective
amendment thereto shall become effective and the prospectus and any supplement
or amendment thereto when filed with the Commission under Rule 424(b) under the
Act, complied or will comply in all material respects with the provisions of the
Act and will not at any such times contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, except that this representation
and warranty does not apply to statements in or omissions from the registration
statement or the prospectus made in reliance upon and in conformity with (i)
information relating to any Underwriter furnished to the Company in writing by
or on behalf of any Underwriter through you
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expressly for use therein, or (ii) the Trustee's Statement of Eligibility (Form
T-1) under the Trust Indenture Act of 1939, as amended (the "1939 Act").
(c) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement; the execution
and delivery of, and the performance by the Company of its obligations under,
this Agreement have been duly and validly authorized by the Company, and this
Agreement has been duly executed and delivered by the Company and constitutes
the valid and legally binding agreement of the Company, enforceable against the
Company in accordance with its terms, except as the enforcement hereof may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and subject to the applicability of
general principles of equity, and except as rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or principles of
public policy.
(d) The Indenture has been duly and validly authorized and, upon its
execution and delivery by the Company and assuming due execution and delivery by
the Trustee, will be a valid and binding agreement of the Company, enforceable
in accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally, and has been (or will have been) duly qualified under the 1939 Act
and conforms to the description thereof in the Registration Statement and the
Prospectus.
(e) The Notes have been duly authorized and, when executed by the
Company and authenticated by the Trustee in accordance with the Indenture and
delivered to you against payment therefor in accordance with the terms hereof,
will have been validly issued and delivered, and will constitute valid and
binding obligations of the Company entitled to the benefits of the Indenture and
enforceable in accordance with their terms, except as enforcement thereof may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally, and the Notes will conform to the
description thereof in the Registration Statement and the Prospectus.
(f) All the outstanding shares of capital stock of the Company have
been duly authorized and validly issued, are fully paid and nonassessable and
are free of any preemptive or, except as set forth in the Prospectus, similar
rights and were issued and sold in compliance with all applicable federal and
state securities laws. As of the date hereof, the authorized capital stock of
the Company consists of 25 million shares of $0.05 par value per share Class A
Common Stock; 2.5 million shares of $0.05 par value per share Class B Common
Stock; and 2.5 million shares of serial preferred stock, of which 60,000 shares
have been designated as $5.00 par value per share 25% Participating Cumulative
Convertible Redeemable Preferred Stock.
(g) The Company is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware with full corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus, and is
duly registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the conduct of
its business requires such registration or qualification, except where the
failure so to register or qualify does not have a material adverse effect on the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the Company and the Subsidiaries (as hereinafter
defined) taken as a whole.
(h) All the Company's subsidiaries (collectively, the "Subsidiaries")
are listed in an exhibit to the Registration Statement. Each Subsidiary is a
corporation duly organized, validly existing and in good standing in the
jurisdiction of its incorporation, with full corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Registration Statement and the Prospectus, and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such
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registration or qualification, except where the failure so to register or
qualify does not have a material adverse effect on the condition (financial or
other), business, prospects, properties, net worth or results of operations of
such Subsidiary; all the outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable, and are owned by the Company directly, or indirectly through one
of the other Subsidiaries, free and clear of any lien, adverse claim, security
interest, equity or other encumbrance.
(i) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened, against the Company or any of the
Subsidiaries, or to which the Company or any of the Subsidiaries, or to which
any of their respective properties is subject, that are required to be described
in the Registration Statement or the Prospectus but are not described as
required, and there are no agreements, contracts, indentures, leases or other
instruments that are required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement that
are not described or filed as required by the Act. Neither the Company nor any
Subsidiary is involved in any strike, job action or labor dispute with any group
of employees, and no such action or dispute is threatened.
(j) Neither the Company nor any of the Subsidiaries is in violation of
its certificate or articles of incorporation or by-laws, or other organizational
documents, or of any law, ordinance, administrative or governmental rule or
regulation applicable to the Company or any of the Subsidiaries or of any decree
of any court or governmental agency or body having jurisdiction over the Company
or any of the Subsidiaries, or in default in any material respect in the
performance of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any material
agreement, indenture, lease or other instrument to which the Company or any of
the Subsidiaries is a party or by which any of them or any of their respective
properties may be bound, other than with respect to defaults that have been duly
and validly waived on the date hereof.
(k) Neither the issuance and sale of the Notes, the execution, delivery
or performance of this Agreement and the Indenture by the Company, nor the
consummation by the Company of the transactions contemplated hereby and thereby
(i) requires any consent, approval, authorization or other order of or
registration or filing with, any court, regulatory body, administrative agency
or other governmental body, agency or official (except such as may be required
for the registration of the Notes under the Act and the Exchange Act,
qualification of the Indenture under the 1939 Act, and compliance with the
securities or Blue Sky laws of various jurisdictions, all of which have been or
will be effected in accordance with this Agreement) or conflicts or will
conflict with or constitutes or will constitute a breach of, or a default under,
the certificate or articles of incorporation or bylaws, or other organizational
documents, of the Company or any of the Subsidiaries or (ii) conflicts or will
conflict with or constitutes or will constitute a breach of, or a default under,
any agreement, indenture, lease or other instrument to which the Company or any
of the Subsidiaries is a party or by which any of them or any of their
respective properties may be bound, or violates or will violate any statute,
law, regulation or filing or judgment, injunction, order or decree applicable to
the Company or any of the Subsidiaries or any of their respective properties, or
will result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of the Subsidiaries pursuant
to the terms of any agreement or instrument to which any of them is a party or
by which any of them may be bound or to which any of the property or assets of
any of them is subject.
(l) The accountants, Arthur Andersen & Co., who have certified or shall
certify the financial statements included in the Registration Statement and the
Prospectus (or any amendment or supplement thereto) are independent public
accountants as required by the Act.
(m) The financial statements, together with related schedules and
notes, included in the Registration Statement and the Prospectus (and any
amendment or supplement thereto), comply with the
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requirements of the Act and present fairly the consolidated financial position,
results of operations and changes in financial position of the Company and the
Subsidiaries on the basis stated in the Registration Statement at the respective
dates or for the respective periods to which they apply; such statements and
related schedules and notes have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except as disclosed therein; and the other financial and statistical
information and data included or incorporated by reference in the Registration
Statement and the Prospectus (and any amendment or supplement thereto) are
accurately presented and prepared on a basis consistent with such financial
statements and the books and records of the Company and the Subsidiaries.
(n) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction, not in the
ordinary course of business, that is material to the Company and the
Subsidiaries taken as a whole, and there has not been any change in the capital
stock, or material increase in the short-term debt or long-term debt, of the
Company or any of the Subsidiaries, or any material adverse change, or any
development involving or which may reasonably be expected to involve, a
prospective material adverse change, in the condition (financial or other),
business, prospects, properties net worth or results of operations of the
Company and the Subsidiaries taken as a whole.
(o) Each of the Company and the Subsidiaries has good and marketable
title to all property (real and personal) described in the Prospectus as being
owned by it, free and clear of all liens, claims, security interests or other
encumbrances except such as are described in the Registration Statement and the
Prospectus or in a document filed as an exhibit to the Registration Statement
and all the property described in the Prospectus as being held under lease by
each of the Company and the Subsidiaries is held by it under valid, subsisting
and enforceable leases.
(p) The Company has not distributed and, prior to the later to occur of
(i) the Closing Date and (ii) completion of the distribution of the Notes, will
not distribute any offering material in connection with the offering and sale of
the Notes other than the Registration Statement, the Prepricing Prospectus, the
Prospectus or other materials, if any, permitted by the Act.
(q) The Company and each of the Subsidiaries, and to the best of the
Company's knowledge after reasonable inquiry, the owners of the facilities
managed by the Company or any Subsidiary, have such permits, licenses,
franchises, certificates of need and other approvals or authorizations of
governmental or regulatory authorities ("Permits") as are necessary to own their
respective properties and to conduct their respective businesses in the manner
described in the Prospectus, including, without limitation, such Permits as are
required (x) under such federal and state healthcare laws as are applicable to
the Company and the Subsidiaries and (y) with respect to those facilities owned,
leased or managed by the Company or any Subsidiary that participate in Medicare
and/or Medicaid, to receive reimbursement thereunder, subject to such
qualifications as may be set forth in the Prospectus; the Company and each of
the Subsidiaries have fulfilled and performed all their material obligations
with respect to such Permits and no event has occurred which allows, or after
notice or lapse of time would allow, revocation or termination thereof or
results in any other material impairment of the rights of the holder of any such
Permit, subject in each case to such qualifications as may be set forth in the
Prospectus; and, except as described in the Prospectus, none of such Permits
contains any restriction that is materially burdensome to the Company or any of
the Subsidiaries.
(r) The property, assets and operations of the Company and the
Subsidiaries comply in all material respects with all applicable federal, state
or local law, rule, order, decree, judgment, injunction, license, permit or
regulation relating to environmental matters (the "Environmental Laws"), except
to the
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extent that failure to comply with such Environmental Laws would not have a
material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company and the
Subsidiaries taken as a whole. To the best knowledge of the Company, none of
the property, assets or operations of the Company and the Subsidiaries is the
subject of any federal, state or local investigation evaluating whether any
remedial action is needed to respond to a release of any substance regulated by
or form the basis of liability under any Environmental Laws (a "Hazardous
Material") into the environment or is in contravention of any federal, state or
local law, order or regulation that would have a material adverse effect on the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the Company and the Subsidiaries taken as a whole.
Neither the Company nor any Subsidiary has received any notice or claim, nor are
there pending, threatened or reasonably anticipated lawsuits against them with
respect to violations of an Environmental Law or in connection with the release
of any Hazardous Material into the environment. Neither the Company nor any
Subsidiary has any material contingent liability in connection with any release
of Hazardous Material into the environment.
(s) 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 generally accepted accounting principles 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.
(t) To the Company's knowledge, neither the Company nor any of its
Subsidiaries nor any employee or agent of the Company or any Subsidiary has made
any payment of funds of the Company or any Subsidiary or received or retained
any funds in violation of any law, rule or regulation, which payment, receipt or
retention of funds is of a character required to be disclosed in the Prospectus.
(u) The Company and each of the Subsidiaries have filed all tax returns
required to be filed, which returns are complete and correct, and neither the
Company nor any Subsidiary is in default in the payment of any taxes which were
payable pursuant to said returns or any assessments with respect thereto. The
charges, accruals and reserves on the books of the Company and the Subsidiaries
in respect of any income and corporate franchise tax liability for any years not
finally determined are adequate to meet the assessments or re-assessments for
additional income or corporate franchise tax for any years not finally
determined, except to the extent any inadequacy would not have a material
adverse effect on the condition (financial or otherwise), business, prospects,
properties, net worth or results of operations of the Company and the
Subsidiaries taken as a whole.
(v) No holder of any security of the Company has any right, contractual
or otherwise, to cause the Company to sell or otherwise issue to him, or to
permit him to underwrite the sale of, the Notes or the right to have any common
stock or other securities of the Company included in the registration statement
or the right, as a result of the filing of the registration statement or
consummation of the transactions contemplated hereby, to require registration of
shares of common stock or any other security of the Company.
(w) The Company and the Subsidiaries own all patents, trademarks,
trademark registrations, service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and rights described in the
Prospectus as being owned by them or any of them or necessary for the conduct of
their respective businesses, and the Company is not aware of any claim to the
contrary or any challenge by any other person to the rights of the Company and
the Subsidiaries with respect to the foregoing.
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(x) The Company has filed in a timely manner each document or report
required to be filed by it pursuant to the Exchange Act and the rules and
regulations thereunder; each such document or report at the time it was filed
conformed to the requirements of the Exchange Act and the rules and
regulations thereunder; and none of such documents or reports contained an
untrue statement of any material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading.
(y) The Company is in compliance with all provisions of Florida
Statutes SECTION 517.075 and the regulations thereunder, relating to issuers
doing business with Cuba.
(z) Neither the Company nor any of the Subsidiaries is an "investment
company" or a person "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each of you and each person, if any, who controls
any Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages, liabilities
and expenses (including reasonable costs of investigation) arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Prepricing Prospectus or in the Registration Statement or the
Prospectus or in any amendment or supplement thereto, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information relating to such
Underwriter furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use in connection therewith; PROVIDED,
HOWEVER, that the indemnification contained in this paragraph (a) with respect
to any Prepricing Prospectus shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) on account of any
such loss, claim, damage, liability or expense arising from the sale of the
Notes by such Underwriter to any person if a copy of the Prospectus shall not
have been delivered or sent to such person within the time required by the Act
and the regulations thereunder, and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
Prepricing Prospectus was corrected in the Prospectus, PROVIDED that the Company
has delivered the Prospectus to the several Underwriters in requisite quantity
on a timely basis to permit such delivery or sending.
In addition to its other obligations under this paragraph (a), the
Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
this paragraph (a), it will reimburse the Underwriters on a monthly basis for
all reasonable legal fees or other out-of-pocket expenses reasonably incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation to reimburse the Underwriters for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Underwriters shall promptly return
it to the Company, together with interest, compounded daily, determined on the
basis of the prime rate (or other commercial lending rate for borrowers of the
highest credit standing) announced from time to time by Citibank, N.A. (the
"Prime Rate"). Any such interim reimbursement payments which are not made to
the Underwriters within 30 days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request. This indemnity
agreement shall be in addition to any liabilities which the Company may
otherwise have.
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(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the parties against whom
indemnification is being sought (the "indemnifying parties"), and such
indemnifying parties shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. Such Underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action, suit or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Underwriter or
such controlling person unless (i) the indemnifying parties have agreed in
writing to pay such fees and expenses, (ii) the indemnifying parties have failed
to assume the defense and employ counsel, or (iii) the named parties to any such
action, suit or proceeding (including any impleaded parties) include both such
Underwriter or such controlling person and the indemnifying parties and such
Underwriter or such controlling person shall have been advised by its counsel
that representation of such indemnified party and any indemnifying parties by
the same counsel would be inappropriate under applicable standards of
professional conduct (whether or not such representation by the same counsel has
been proposed) due to actual or potential differing interests between them (in
which case the indemnifying parties shall not have the right to assume the
defense of such action, suit or proceeding on behalf of such Underwriter or such
controlling person). It is understood, however, that the indemnifying parties
shall, in connection with any one such action, suit or proceeding or separate
but substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such
Underwriters and controlling persons not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by Smith Barney Shearson Inc. and that all such fees and expenses shall
be reimbursed on a monthly basis as provided in paragraph (a) hereof. The
indemnifying parties shall not be liable for any settlement of any such action,
suit or proceeding effected without their written consent, but if settled with
such written consent, or if there be a final judgment for the plaintiff in any
such action, suit or proceeding, the indemnifying parties agree to indemnify and
hold harmless any Underwriter, to the extent provided in paragraph (a) hereof,
and any such controlling person from and against any loss, claim, damage,
liability or expense by reason of such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from the Company to each Underwriter set forth
in paragraph (a) hereof, but only with respect to information relating to such
Underwriter furnished in writing by or on behalf of such Underwriter expressly
for use in the Registration Statement, the Prospectus or any Prepricing
Prospectus, or any amendment or supplement thereto. If any action, suit or
proceeding shall be brought against the Company, any of its directors, any such
officer or any such controlling person based on the Registration Statement, the
Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto,
and in respect of which indemnity may be sought against any Underwriter pursuant
to this paragraph (c), such Underwriter shall have the rights and duties given
to the Company by paragraph (b) above (except that if the Company shall have
assumed the defense thereof such Underwriter shall not be required to do so, but
may employ separate counsel therein and participate in the defense thereof, but
the fees and expenses of such counsel shall be at such Underwriter's expense),
and the Company, its directors, any such officer, and any such controlling
person, shall have the rights and duties given to the Underwriters by paragraph
(b) above.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by
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<PAGE>
the Company on the one hand and the Underwriters on the other hand from the
offering of the Notes, or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and the Underwriters on the other
in connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault of the Company on the
one hand and the Underwriters on the other hand shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or by the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
(e) The Company and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 7 were determined by a
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (d) above. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities and expenses referred to in paragraph (d) above shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating any claim or defending any such action, suit or proceeding.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price of the Notes underwritten by it and distributed to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 7 are several in proportion
to the respective principal amounts of Notes set forth opposite their names in
Schedule I hereto (or such principal amounts of Notes increased as set forth in
Section 10 hereof) and not joint.
(f) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(g) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in paragraph (a) above of this
Section 7, including the amounts of any requested reimbursement payments and the
method of determining such amounts, shall be settled by arbitration conducted
under the provisions of the Constitution and Rules of the Board of Governors of
the New York Stock Exchange, Inc. or pursuant to the Code of Arbitration
Procedure of the NASD. Any such arbitration shall be commenced by service of a
written demand for arbitration or a written notice of intention to arbitrate,
therein electing the arbitration tribunal. In the event the party demanding
arbitration shall not make such designation of an arbitration tribunal in such
demand or notice, then the party responding to said demand or notice shall be
authorized to do so. Such arbitration shall be limited to the operation of the
interim reimbursement provisions contained in paragraph (a) of this Section 7
and shall not resolve the ultimate propriety or enforceability of other
obligations created by this Section 7.
11
<PAGE>
(h) The indemnity and contribution agreements contained in this Section
7 and the representations and warranties of the Company set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers, or any
person controlling the Company, (ii) acceptance of any Notes and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter or any person controlling any Underwriter, or to the Company,
its directors or officers, or any person controlling the Company, shall be
entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 7.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of
the Underwriters to purchase the Notes hereunder are subject to the following
conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
to be declared effective before the offering of the Notes may commence, the
registration statement or such post-effective amendment shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made; no stop order suspending the effectiveness of the registration
statement shall have been issued and no proceeding for that purpose shall have
been instituted or, to the knowledge of the Company or any Underwriter,
threatened by the Commission, and any request of the Commission for additional
information (to be included in the registration statement or the prospectus or
otherwise) shall have been complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall not
have occurred (i) any change, or any development involving a prospective change,
in or affecting the condition (financial or other), business, prospects,
properties, net worth, or results of operations of the Company or the
Subsidiaries not contemplated by the Prospectus, which in your reasonable
opinion would materially, adversely affect the market for the Notes, or (ii) any
event or development relating to or involving the Company or any officer or
director of the Company which makes any statement made in the Prospectus untrue
or which, in the opinion of the Company and its counsel or the Underwriters and
their counsel, requires the making of any addition to or change in the
Prospectus in order to state a material fact required by the Act or any other
law to be stated therein or necessary in order to make the statements therein
not misleading, if amending or supplementing the Prospectus to reflect such
event or development would, in your reasonable opinion, materially and adversely
affect the market for the Notes.
(c) You shall have received on the Closing Date, an opinion of King &
Spalding, counsel for the Company, dated the Closing Date and addressed to you,
to the effect that:
(i) The Company is a corporation duly incorporated and validly
existing in good standing under the laws of the State of Delaware with the
corporate power to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus (and any
amendment or supplement thereto), and is duly registered and qualified to
conduct its business and is in good standing in each jurisdiction or place
certified to us by the Company as being the only jurisdictions or places where
the failure so to register or qualify would have a material adverse effect on
the condition (financial or other), business, properties, net worth or results
of operations of the Company and the Subsidiaries taken as a whole;
(ii) Each of the Subsidiaries is a corporation duly organized and
validly existing in good standing under the laws of the jurisdiction of its
organization, with the corporate power to own, lease, and operate its properties
and to conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto); and all the outstanding
shares of capital stock of each of the Subsidiaries have been duly authorized
and validly issued, are fully paid and nonassessable,
12
<PAGE>
and are owned by the Company directly, or indirectly through one of the other
Subsidiaries, free and clear of any lien, adverse claim, security interest,
equity or other encumbrance;
(iii) As of the date hereof, the authorized capital stock of the
Company consists of 25 million shares of $0.05 par value per share Class A
Common Stock; 2.5 million shares of $0.05 par value per share Class B Common
Stock; and 2.5 million shares of serial preferred stock, of which 60,000 shares
have been designated as $5.00 par value per share 25% Participating Cumulative
Convertible Redeemable Preferred Stock.
(iv) To the best knowledge of such counsel after reasonable
inquiry, all the outstanding shares of capital stock of the Company have been
duly authorized and validly issued, and are fully paid and nonassessable and
free of (A) preemptive rights or (B) similar rights that entitle or will entitle
any person to acquire any capital stock or other securities of the Company upon
the issuance of the Notes by the Company;
(v) The Company has the corporate power to enter into this
Agreement and to issue, sell and deliver the Notes to the Underwriters as
provided herein, and this Agreement has been duly authorized, executed and
delivered by the Company and is a valid, legal and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except as
enforcement of rights to indemnity and contribution hereunder may be limited by
federal or state securities laws or principles of public policy and subject to
the qualification that the enforceability of the Company's obligations hereunder
may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium, and other laws relating to or affecting creditors' rights generally
and by general equitable principles;
(vi) The Indenture has been duly and validly authorized, executed
and delivered by the Company and, assuming due execution and delivery by the
Trustee, is a valid and binding agreement of the Company, enforceable in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally and by general equitable principles, and has been duly qualified under
the 1939 Act and conforms to the description thereof in the Registration
Statement and the Prospectus;
(vii) The Notes have been duly and validly authorized and executed
by the Company and, assuming due authentication of the Notes by the Trustee,
upon delivery to the Underwriters against payment therefor in accordance with
the terms hereof, will have been validly issued and delivered, and will
constitute valid and binding obligations of the Company entitled to the benefits
of the Indenture, enforceable in accordance with their terms, except as
enforcement thereof may be limited by bankruptcy, insolvency or other similar
laws affecting creditors' rights generally and by general equitable principles,
and the Notes conform to the description thereof in the Registration Statement
and the Prospectus;
(viii) The Registration Statement and all post-effective
amendments, if any, have become effective under the Act and, to the best
knowledge of such counsel after reasonable inquiry, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose are pending before or contemplated by the Commission; and any
required filing of the Prospectus pursuant to Rule 424(b) has been made in
accordance with Rule 424(b);
(ix) Neither the Company nor any of the Subsidiaries is in violation
of its certificate or articles of incorporation or bylaws, or other
organizational documents, or to the best knowledge of such counsel after
reasonable inquiry, is in default in the performance of any material obligation,
agreement or condition contained in any bond, debenture, note or other evidence
of indebtedness that is an exhibit to the Registration Statement;
13
<PAGE>
(x) Neither the offer, sale or delivery of the Notes, the
execution, delivery or performance of this Agreement or the Indenture,
compliance by the Company with the provisions hereof and thereof, nor
consummation by the Company of the transactions contemplated hereby or thereby,
conflicts or will conflict with or constitutes or will constitute a breach of,
or a default under, the certificate or articles of incorporation or bylaws, or
other organizational documents, of the Company or any of the Subsidiaries or any
agreement, indenture, lease or other instrument to which the Company or any of
the Subsidiaries is a party or by which any of them or any of their respective
properties is bound that is an exhibit to the Registration Statement (each a
"Material Agreement") or, to the best knowledge of such counsel after reasonable
inquiry, will result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of the
Subsidiaries pursuant to any Material Agreement, nor will any such action result
in any violation of any existing law, regulation, ruling (assuming compliance
with all applicable state securities and Blue Sky laws), judgment, injunction,
order or decree known to such counsel after reasonable inquiry, applicable to
the Company, the Subsidiaries or any of their respective properties the
violation of which have a material adverse effect on the condition (financial or
other), business, properties, net worth or results of operations of the Company
and the Subsidiaries taken as a whole;
(xi) No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative agency
or other governmental body, agency, or official is required on the part of the
Company (except as have been obtained under the Act, the Exchange Act, the 1939
Act, and such as may be required under state securities or Blue Sky laws) for
the valid issuance and sale of the Notes to the Underwriters as contemplated by
this Agreement;
(xii) The Registration Statement and the Prospectus and any
supplements or amendments thereto (except for the financial statements and the
notes thereto and the schedules and other financial and statistical data
included therein, as to which such counsel need not express any opinion) comply
as to form in all material respects with the requirements of the Act;
(xiii) The statements in the Registration Statement and Prospectus,
insofar as they are descriptions of contracts, agreements or other legal
documents, or refer to statements of law or legal conclusions, are accurate and
present fairly the information required to be shown;
(xiv) To the best knowledge of such counsel after reasonable
inquiry (A) there are no legal or governmental proceedings pending or threatened
against the Company or any of the Subsidiaries, or to which the Company or any
of the Subsidiaries or any of their respective properties is subject, that are
required to be described in the Registration Statement or the Prospectus but are
not described as required and (B) there are no agreements, contracts,
indentures, leases or other instruments that are required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that are not described or filed as required;
(xv) To the best knowledge of such counsel after reasonable
inquiry, neither the Company nor any of the Subsidiaries is in violation, in any
material respect, of any law, rule or regulation of the federal government of
the United States of America, the State of Delaware or the State of Georgia or
of any decree of any court or governmental agency or body having jurisdiction
over the Company or any of the Subsidiaries;
(xvi) The Company and each of the Subsidiaries have full corporate
power and authority, and all necessary Permits (except where the failure to so
have any such Permits, individually or in the aggregate, would not have a
material adverse effect on the business, prospects, properties, operations or
financial condition of the Company and the Subsidiaries taken as a whole), to
own their respective properties and to conduct their respective businesses as
now being conducted, and as described in the Prospectus, including, without
limitation, such Permits as are required (x) under such federal and
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<PAGE>
state healthcare laws as are applicable to the Company and the Subsidiaries and
(y) with respect to those facilities owned, leased or managed by the Company or
any Subsidiary that participate in Medicare and/or Medicaid, to receive
reimbursement thereunder;
Neither the Company nor any of the Subsidiaries is an "investment company" or a
person "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended;
(xvii) To the best knowledge of such counsel after reasonable
inquiry, except as described in the Prospectus, there is no holder of any
security of the Company or any other person who has the right, contractual or
otherwise, to cause the Company to sell or otherwise issue to them, or to permit
them to underwrite the sale of, the Notes or the right to have any common stock
or other securities of the Company included in the registration statement or the
right, as a result of the filing of the registration statement, to require
registration under the Act of any shares of common stock or other securities of
the Company, except for any such rights as shall have effectively been waived.
In addition to the foregoing opinions, such counsel shall also state
that although they have not undertaken, except as otherwise indicated in their
opinion, to determine independently, and do not assume any responsibility for,
the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, such counsel have participated in the
preparation of the Registration Statement and the Prospectus, including review
and discussion of the contents thereof, and nothing has come to the attention of
such counsel that has caused them to believe that the Registration Statement, at
the time the Registration Statement became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus, as of its date and as of the Closing Date, as the case may
be, included or includes an untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or that any amendment or supplement to the Prospectus, as of its
respective date and as of the Closing Date, as the case may be, included or
includes an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading (it being
understood that such counsel need express no opinion with respect to the
financial statements and the notes thereto and the schedules and other financial
and statistical data included in the Registration Statement or the Prospectus).
In rendering their opinion as aforesaid, counsel may rely upon an
opinion or opinions, each dated the Closing Date, of other counsel retained by
them or the Company as to laws of any jurisdiction other than the United States
or the States of New York and Georgia or the corporation law of the State of
Delaware, provided that (1) each such local counsel is acceptable to the
Underwriters, (2) such reliance is expressly authorized by each opinion so
relied upon and a copy of each such opinion is delivered to the Underwriters and
is, in form and substance, satisfactory to them and their counsel, and (3)
counsel shall state in their opinion that they believe that they and the
Underwriters are justified in relying thereon.
(d) You shall have received on the Closing Date an opinion of Dewey
Ballantine, counsel for the Underwriters, dated the Closing Date and addressed
to you with respect to the matters referred to in clauses (v) through (viii) and
clause (xii) and the penultimate paragraph of the foregoing paragraph (c) and
such other related matters as you may request.
(e) You shall have received letters addressed to you, and dated the
date hereof and the Closing Date from Arthur Andersen & Co., independent
certified public accountants, substantially in the forms heretofore approved by
you.
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<PAGE>
(f) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been taken or, to the knowledge of the Company, shall be contemplated by the
Commission at or prior to the Closing Date; (ii) there shall not have been any
change in the capital stock of the Company nor any material increase in the
short-term or long-term debt of the Company (other than in the ordinary course
of business) from that set forth or contemplated in the Registration Statement
or the Prospectus (or any amendment or supplement thereto); (iii) there shall
not have been, since the respective dates as of which information is given in
the Registration Statement and the Prospectus (or any amendment or supplement
thereto), except as may otherwise be stated in the Registration Statement and
Prospectus (or any amendment or supplement thereto), any material adverse change
in the condition (financial or other), business, prospects, properties, net
worth or results of operations of the Company and the Subsidiaries taken as a
whole; (iv) the Company and the Subsidiaries shall not have any liabilities or
obligations, direct or contingent (whether or not in the ordinary course of
business), that are material to the Company and the Subsidiaries, taken as a
whole, other than those reflected in the Registration Statement or the
Prospectus (or any amendment or supplement thereto); and (v) all the
representations and warranties of the Company contained in this Agreement shall
be true and correct on and as of the date hereof and on and as of the Closing
Date as if made on and as of the Closing Date, and you shall have received a
certificate, dated the Closing Date and signed by the chief executive officer
and the chief financial officer of the Company (or such other officers as are
acceptable to you), to the effect set forth in this Section 8(f) and in Section
8(g) hereof.
(g) The Company shall not have failed at or prior to the Closing Date
to have performed or complied with any of its agreements herein contained and
required to be performed or complied with by it hereunder at or prior to the
Closing Date.
(h) The Company shall have paid in full all accrued interest, premium
and penalty, if any, and outstanding principal amounts of indebtedness under,
and secured the release of any and all liens and encumbrances in respect of, (i)
the Amended and Restated Credit Agreement, dated as of January 1, 1989; and (ii)
its 7% Senior Subordinated Debentures due 1999, its 7% Senior Subordinated Notes
due 1999, its 8% Senior Subordinated Notes due 1995 and its 9% Senior
Subordinated Notes due 1993.
(i) There shall not have been any announcement by any "nationally
recognized statistical rating organization", as defined for purposes of Rule
436(g) under the Act, that (i) it is downgrading its rating assigned to the
Notes, or (ii) it is reviewing its rating assigned to the Notes with a view to
possible downgrading, or with negative implications, or direction not
determined.
(j) The Company shall have furnished or caused to be furnished to you
such further certificates and documents as you shall have reasonably requested.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and your counsel.
Any certificate or document signed by any officer of the Company and
delivered to you or your counsel shall be deemed a representation and warranty
by the Company to each Underwriter as to the statements made therein.
9. EXPENSES. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing (or reproduction), and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
each amendment or supplement to any of them, this Agreement, the Indenture and
the Statement of Eligibility of the Trustee; (ii) the printing (or reproduction)
and delivery (including postage, air freight charges and charges for counting
and packaging) of such copies of the registration statement, each Prepricing
Prospectus, the
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<PAGE>
Prospectus, and all amendments or supplements to any of them, as may be
reasonably requested for use in connection with the offering and sale of the
Notes; (iii) the preparation, printing (or reproduction), execution and delivery
of the Indenture and the preparation, printing, authentication, issuance and
delivery of the Notes, including any stamp taxes in connection with the original
issuance of the Notes; (iv) the printing (or reproduction) and delivery of this
Agreement, the preliminary and supplemental Blue Sky Memoranda and all other
agreements or documents printed (or reproduced) and delivered in connection with
the offering of the Notes; (v) the registration of the Notes under the Exchange
Act; (vi) the registration or qualification of the Notes for offer and sale
under the securities or Blue Sky laws of the several states as provided in
Section 5(g) hereof (including the reasonable fees, expenses and disbursements
of counsel for the Underwriters relating to the preparation, printing (or
reproduction), and delivery of the preliminary and supplemental Blue Sky
Memoranda and such registration and qualification); (vii) the filing fees and
the fees and expenses of counsel for the Underwriters in connection with any
filings required to be made with the National Association of Securities Dealers,
Inc.; (viii) the fees and expenses of the Trustee; (ix) the fees and expenses
associated with obtaining ratings for the Notes from nationally recognized
statistical rating organizations; (x) the fees and expenses of the Company's
accountants; (xi) the fees and expenses of counsel (including local and special
counsel) for the Company; and (xii) the transportation and other expenses
incurred by or on behalf of Company representatives in connection with
presentations to prospective purchasers of the Notes.
10. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto to be
declared effective before the offering of the Notes may commence, when
notification of the effectiveness of the registration statement or such
post-effective amendment has been released by the Commission. Until such time
as this Agreement shall have become effective, it may be terminated by the
Company, by notifying each of you, or by you by notifying the Company.
If either of you shall fail or refuse to purchase Notes which you have
agreed to purchase hereunder and arrangements satisfactory to the non-defaulting
Underwriter and the Company for the purchase of such Notes are not made within
36 hours after such default, this Agreement will terminate without liability on
the part of the non-defaulting Underwriter or the Company. In any such case
which does not result in such a termination of this Agreement, either the non-
defaulting Underwriter or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. Any action taken under
this paragraph shall not relieve any defaulting Underwriter from liability in
respect of any such default under this Agreement.
Any notice under this Section 10 may be made by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
11. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company by notice to the Company, if prior to the Closing
Date (i) trading in the common stock of the Company shall be suspended or
subject to any restriction or limitation not in effect on the date of this
Agreement; (ii) trading in securities generally on the New York Stock Exchange,
the American Stock Exchange or NASDAQ shall have been suspended or materially
limited, (iii) a general moratorium on commercial banking activities in New York
shall have been declared by either federal or state authorities, or (iv) there
shall have occurred any outbreak or escalation of hostilities or other
international or domestic calamity, crisis or change in political, financial or
economic conditions, the effect of which on the financial markets of the United
States is such as to make it, in your judgment, impracticable or inadvisable to
commence or continue the offering of the Notes on the terms set forth on the
cover page of the Prospectus or to enforce contracts for the resale of the Notes
by the Underwriters.
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Notice of such termination may be given to the Company by telegram,
telecopy or telephone and shall be subsequently confirmed by letter.
12. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set
forth in the last paragraph on the cover page, the stabilization legend on the
inside cover page, and the statements in the first, second and third paragraphs
under the caption "Underwriting" in any Prepricing Prospectus and in the
Prospectus, constitute the only information furnished by or on behalf of the
Underwriters through you as such information is referred to in Sections 6(b) and
7 hereof.
13. MISCELLANEOUS. Except as otherwise provided in Sections 5, 10 and
11 hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at 300 Galleria Parkway, Suite 650, Atlanta, Georgia 30339, Attention:
Robert M. Thornton, Jr., Executive Vice President and Chief Financial Officer;
or (ii) if to you care of Smith Barney Shearson Inc., 1345 Avenue of the
Americas, New York, New York 10105, Attention: Manager, Corporate Finance
Division.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Section 7 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of this Agreement. Neither the
term "successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from any Underwriter of any of the Notes in his status
as such purchaser.
14. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
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Please confirm that the foregoing correctly sets forth the agreement
between the Company and each of you.
Very truly yours,
HALLMARK HEALTHCARE CORPORATION
By ROBERT M. THORNTON, JR.
--------------------------------------
Executive Vice President
Confirmed as of the date first
above mentioned.
SMITH BARNEY SHEARSON INC.
MABON SECURITIES CORP.
By SMITH BARNEY SHEARSON INC.
By THOMAS W. HEARNE, III
--------------------------------------
Managing Director
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SCHEDULE I
HALLMARK HEALTHCARE CORPORATION
<TABLE>
<CAPTION>
Principal Amount
Underwriter of Notes
- ----------- ----------------
<S> <C>
Smith Barney Shearson Inc. . . . . . . . . . . . . . . . . $64,000,000
Mabon Securities Corp. . . . . . . . . . . . . . . . . . . 16,000,000
-----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $80,000,000
-----------
-----------
</TABLE>
20
<PAGE>
EXHIBIT 4.1
CONFORMED COPY
- --------------------------------------------------------------------------------
HALLMARK HEALTHCARE CORPORATION,
A DELAWARE CORPORATION,
AS ISSUER
TO
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
A NATIONAL BANKING ASSOCIATION,
AS TRUSTEE
____________________
INDENTURE
DATED AS OF NOVEMBER 1, 1993
__________________
$80,000,000
10 5/8% Senior Subordinated Notes due 2003
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Definitions . . . . . . . . . . . . . . . . . . . 10
Section 1.3 Incorporation by Reference of Trust Indenture Act . . . 11
Section 1.4 Rules of Construction . . . . . . . . . . . . . . . . . 11
ARTICLE 2.
THE SECURITIES
Section 2.1 Form and Dating . . . . . . . . . . . . . . . . . . . . 11
Section 2.2 Execution and Authentication . . . . . . . . . . . . . 12
Section 2.3 Registrar and Paying Agent . . . . . . . . . . . . . . 12
Section 2.4 Paying Agent to Hold Money in Trust . . . . . . . . . . 12
Section 2.5 Registration of Transfer and Exchange . . . . . . . . . 13
Section 2.6 Replacement Securities . . . . . . . . . . . . . . . . 13
Section 2.7 Outstanding Securities . . . . . . . . . . . . . . . . 13
Section 2.8 Treasury Securities . . . . . . . . . . . . . . . . . . 14
Section 2.9 Temporary Securities . . . . . . . . . . . . . . . . . 14
Section 2.10 Cancellation . . . . . . . . . . . . . . . . . . . . . 14
Section 2.11 Defaulted Interest . . . . . . . . . . . . . . . . . . 14
ARTICLE 3.
OPTIONAL REDEMPTION AND ASSET SALE OFFER
Section 3.1 Notices to Trustee . . . . . . . . . . . . . . . . . . 14
Section 3.2 Selection of Securities to Be Redeemed or Purchased . . 15
Section 3.3 Notices to Holders . . . . . . . . . . . . . . . . . . 15
Section 3.4 Effect of Notice of Redemption . . . . . . . . . . . . 17
Section 3.5 Deposit of Redemption Price or Purchase Price . . . . . 17
Section 3.6 Securities Redeemed or Purchased in Part . . . . . . . 18
Section 3.7 Optional Redemption . . . . . . . . . . . . . . . . . . 18
Section 3.8 Asset Sale Offer . . . . . . . . . . . . . . . . . . . 18
ARTICLE 4.
COVENANTS
Section 4.1 Payment of Securities . . . . . . . . . . . . . . . . . 19
Section 4.2 Maintenance of Office or Agency . . . . . . . . . . . . 19
Section 4.3 SEC Reports . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.4 Compliance Certificate . . . . . . . . . . . . . . . . 20
Section 4.5 Corporate Existence, Taxes, etc. . . . . . . . . . . . 21
i
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Page
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Section 4.6 Stay, Extension and Usury Laws . . . . . . . . . . . . 21
Section 4.7 Limitations on Restricted Payments . . . . . . . . . . 21
Section 4.8 Limitations on Restrictions on Distributions from
Subsidiaries . . . . . . . . . . . . . . . . . . . . . 22
Section 4.9 Limitations on Additional Indebtedness . . . . . . . . 22
Section 4.10 Change of Control . . . . . . . . . . . . . . . . . . . 23
Section 4.11 Limitations on Asset Sales . . . . . . . . . . . . . . 24
Section 4.12 Limitations on Transactions with Affiliates . . . . . . 25
Section 4.13 Limitations on Liens . . . . . . . . . . . . . . . . . 25
Section 4.14 Limitations on Investments and Loans . . . . . . . . . 25
Section 4.15 Limitations on Subsidiary Preferred Stock . . . . . . . 26
Section 4.16 Limitations on Certain Other Subordinated Indebtedness 26
ARTICLE 5.
SUCCESSORS
Section 5.1 Limitations on Mergers and Consolidations . . . . . . . 26
Section 5.2 Successor Corporation Substituted . . . . . . . . . . . 27
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.1 Events of Default . . . . . . . . . . . . . . . . . . . 27
Section 6.2 Acceleration . . . . . . . . . . . . . . . . . . . . . 28
Section 6.3 Other Remedies . . . . . . . . . . . . . . . . . . . . 29
Section 6.4 Waiver of Past Defaults . . . . . . . . . . . . . . . . 29
Section 6.5 Control by Majority . . . . . . . . . . . . . . . . . . 29
Section 6.6 Limitations on Suits . . . . . . . . . . . . . . . . . 29
Section 6.7 Rights of Holders to Receive Payment . . . . . . . . . 30
Section 6.8 Collection Suit by Trustee . . . . . . . . . . . . . . 30
Section 6.9 Trustee May File Proofs of Claim . . . . . . . . . . . 30
Section 6.10 Priorities . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.11 Undertaking for Costs . . . . . . . . . . . . . . . . . 31
ARTICLE 7.
TRUSTEE
Section 7.1 Duties of Trustee . . . . . . . . . . . . . . . . . . . 31
Section 7.2 Rights of Trustee . . . . . . . . . . . . . . . . . . . 32
Section 7.3 Individual Rights of Trustee . . . . . . . . . . . . . 32
Section 7.4 Trustee's Disclaimer . . . . . . . . . . . . . . . . . 33
Section 7.5 Notice of Defaults . . . . . . . . . . . . . . . . . . 33
Section 7.6 Compensation and Indemnity . . . . . . . . . . . . . . 33
Section 7.7 Replacement of Trustee . . . . . . . . . . . . . . . . 34
Section 7.8 Successor Trustee by Merger, etc. . . . . . . . . . . . 34
Section 7.9 Eligibility; Disqualification . . . . . . . . . . . . . 34
ii
<PAGE>
Page
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ARTICLE 8.
DISCHARGE OF INDENTURE
Section 8.1 Termination of Company's Obligations . . . . . . . . . 35
Section 8.2 Application of Trust Money . . . . . . . . . . . . . . 37
Section 8.3 Repayment to the Company . . . . . . . . . . . . . . . 37
Section 8.4 Reinstatement . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 9.
AMENDMENTS
Section 9.1 Without Consent of Holders . . . . . . . . . . . . . . 38
Section 9.2 With Consent of Holders . . . . . . . . . . . . . . . . 38
Section 9.3 Compliance with Trust Indenture Act . . . . . . . . . . 39
Section 9.4 Revocation and Effect of Consents . . . . . . . . . . . 39
Section 9.5 Notation on or Exchange of Securities . . . . . . . . . 40
Section 9.6 Trustee to Sign Amendments, etc. . . . . . . . . . . . 40
ARTICLE 10.
SUBORDINATION
Section 10.1 Securities Subordinated to Senior Indebtedness . . . . 40
Section 10.2 Payment Restrictions with Respect to the Securities in
Certain Circumstances . . . . . . . . . . . . . . . . . 41
Section 10.3 Securities Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or
Reorganization of the Company . . . . . . . . . . . . . 42
Section 10.4 Subrogation to Right of Holders of Senior Indebtedness 43
Section 10.5 Obligation of the Company Unconditional . . . . . . . . 43
Section 10.6 Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice . . . . . . . . . . . . . . . . . . . 44
Section 10.7 Application by Trustee of Monies Deposited With It . . 44
Section 10.8 Subordination Rights Not Impaired by Acts or Omissions
of Company or Holders of Senior Indebtedness . . . . . 44
Section 10.9 Holders Authorize Trustee to Effectuate Subordination
of Securities . . . . . . . . . . . . . . . . . . . . . 45
Section 10.10 Right of Trustee to Hold Senior Indebtedness . . . . . 45
Section 10.11 Article Ten Not to Prevent Events of Default . . . . . 45
Section 10.12 Holders Acknowledge and Consent to Rights of Holders of
Senior Indebtedness . . . . . . . . . . . . . . . . . . 45
ARTICLE 11.
MISCELLANEOUS
Section 11.1 Trust Indenture Act Controls . . . . . . . . . . . . . 45
Section 11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.3 Certificate and Opinion as to Conditions Precedent . . 46
iii
<PAGE>
Page
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Section 11.4 Statements Required in Certificate or Opinion . . . . . 47
Section 11.5 Rules by Trustee and Agents . . . . . . . . . . . . . . 47
Section 11.6 Legal Holidays . . . . . . . . . . . . . . . . . . . . 47
Section 11.7 No Recourse Against Others . . . . . . . . . . . . . . 47
Section 11.8 Governing Law . . . . . . . . . . . . . . . . . . . . . 47
Section 11.9 No Adverse Interpretation of Other Agreements . . . . . 47
Section 11.10 Successors . . . . . . . . . . . . . . . . . . . . . . 48
Section 11.11 Severability . . . . . . . . . . . . . . . . . . . . . 48
Section 11.12 Counterpart Originals . . . . . . . . . . . . . . . . . 48
Section 11.13 Trustee as Paying Agent and Registrar . . . . . . . . . 48
Section 11.14 Table of Contents, Headings, etc. . . . . . . . . . . . 48
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
EXHIBIT A FORM OF SECURITY
iv
<PAGE>
INDENTURE dated as of November 1, 1993, between Hallmark Healthcare
Corporation, a Delaware corporation (the "Company"), and First Union National
Bank of North Carolina, a national banking association (the "Trustee").
Each party agrees as follows for the benefit of the other parties and
for the equal and ratable benefit of the Holders of the Company's 10 5/8% Senior
Subordinated Notes due 2003 (the "Securities"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.1 DEFINITIONS
"ACCOUNTS RECEIVABLE" means all of the accounts receivable of the
Company and each of its Subsidiaries which, in accordance with GAAP, would be
set opposite the caption "accounts receivable" or any like caption on a balance
sheet of the Company.
"ACQUIRED INDEBTEDNESS" means (a) with respect to any Person that
becomes a Subsidiary of the Company after the date hereof, Indebtedness of such
Person and its Subsidiaries existing at the time such Person becomes a
Subsidiary of the Company that was not incurred in connection with, or in
contemplation of, such Person becoming a Subsidiary of the Company and (b) with
respect to the Company or any of its Subsidiaries, any Indebtedness assumed by
the Company or any of its Subsidiaries in connection with the acquisition of an
asset from another Person that was not incurred by such other Person in
connection with, or in contemplation of, such acquisition.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such specified Person. For purposes of this definition, "control" when
used with respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"AGENT" means any Registrar or Paying Agent.
"ASSET SALE" for any Person means the sale, lease, conveyance or other
disposition (including, without limitation, by merger or consolidation, and
whether by operation of law or otherwise) of any of that Person's assets
(including, without limitation, the sale or other disposition of Capital Stock
of any Subsidiary of such Person, whether by such Person or by such Subsidiary),
whether owned on the date hereof or hereafter acquired, in one transaction or a
series of related transactions, in which such Person and/or its Subsidiaries
sell, lease, convey or otherwise dispose of (i) all or substantially all of the
Capital Stock of any of such Person's Subsidiaries, (ii) assets which constitute
substantially all of an operating unit or business of such Person or any of its
Subsidiaries, or (iii) any health care facility; PROVIDED, HOWEVER, that the
following shall not constitute Asset Sales: (i) a transaction or series of
related transactions that results in a Change of Control; or (ii) transactions
between the Company and any of its Wholly Owned Subsidiaries or among such
Wholly Owned Subsidiaries.
<PAGE>
"ATTRIBUTABLE INDEBTEDNESS," when used with respect to any Sale and
Leaseback Transaction or an operating lease with respect to a health care
facility, means, as at the time of determination, the present value (discounted
at a rate equivalent to the interest rate implicit in the lease compounded on a
semi-annual basis) of the total obligations of the lessee for rental payments,
after excluding all amounts required to be paid on account of maintenance and
repairs, insurance, taxes, utilities and other similar expenses payable by the
lessee pursuant to the terms of the lease, during the remaining term of the
lease included in any such Sale and Leaseback Transaction or such operating
lease or until the earliest date on which the lessee may terminate such lease
without penalty or upon payment of a penalty (in which case the rental payments
shall include such penalty); PROVIDED, that the Attributable Indebtedness with
respect to a Sale and Leaseback Transaction shall be no less than the fair
market value of the property subject to such Sale and Leaseback Transaction.
"BANK DEBT" means all obligations of the Company and its Subsidiaries,
now or hereafter existing under (i) the New Credit Agreement, whether for
principal, interest, reimbursement of amounts drawn under letters of credit
issued pursuant thereto, guarantees in respect thereof, fees, expenses,
premiums, indemnities or otherwise, and (ii) any Indebtedness incurred by the
Company to extend, refund or refinance, in whole or in part, the Bank Debt,
including any interest and premium on any such Indebtedness.
"BANKRUPTCY LAW" means title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or
any authorized committee of the Board of Directors of the Company.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL STOCK" of any Person means any and all shares, rights to
purchase, warrants or options (whether or not currently exercisable),
participation or other equivalents of or interests in (however designated) the
equity (including, without limitation, common stock, preferred stock and
partnership and joint venture interests) of such Person (excluding any debt
securities that are convertible into, or exchangeable for, such equity).
"CAPITALIZED LEASE OBLIGATIONS" of any Person means the obligations of
such Person to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such obligation shall be the capitalized amount thereof determined in
accordance with GAAP.
"CHANGE OF CONTROL" means any of the following: (i) the sale, lease,
conveyance or other disposition of all or substantially all of the Company's
assets as an entirety or substantially as an entirety to any Person or "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) (other than the
officers and members of the Board of Directors of the Company on the date of
this Indenture) in one or a series of transactions; (ii) stockholders of the
Company shall approve any plan or proposal for the liquidation or dissolution of
the Company; (iii) any transaction or series of transactions (as a result of a
tender offer, merger, consolidation or otherwise) that results in any Person,
including a "group" (within the meaning of Section 13(d)(3) of the Exchange Act)
(other than the officers and members of the Board of Directors of the Company on
the date of this Indenture) that includes such Person, acquiring "beneficial
ownership" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 50% or more of the aggregate voting power of all classes of
Common Equity of the Company; or (iv) individuals who at the beginning of any
period of two consecutive calendar years constituted the Board of Directors
(together with any new directors whose election to the Board of Directors
2
<PAGE>
or whose nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds of the members of the Board of Directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
members of the Board of Directors then in office.
"COMMON EQUITY" of any Person means all Capital Stock of such Person
that is generally entitled to (i) vote in the election of directors of such
Person or (ii) if such Person is not a corporation, vote or otherwise
participate in the selection of the governing body, partners, managers or others
that will control the management and policies of such Person.
"COMPANY" means (i) Hallmark Healthcare Corporation, a Delaware
corporation, and (ii) any successor of Hallmark Healthcare Corporation.
"CONSOLIDATED AMORTIZATION EXPENSE" of any Person for any period means
the amortization expense of such Person and its Subsidiaries for such period (to
the extent included in the computation of Consolidated Net Income of such
Person), determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED DEPRECIATION EXPENSE" of any Person for any period means
the depreciation expense of such Person and its Subsidiaries for such period (to
the extent included in the computation of Consolidated Net Income of such
Person), determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED EBITDA" of any Person means, with respect to any
determination date, Consolidated Net Income before extraordinary losses and
losses realized in connection with Asset Sales, plus (i) Consolidated Interest
Expense, plus (ii) Consolidated Income Tax Expense, plus (iii) Consolidated
Depreciation Expense, plus (iv) Consolidated Amortization Expense, plus (v) all
other non-cash items reducing Consolidated Net Income of such Person and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP, and
less all non-cash items increasing Consolidated Net Income of such Person and
its Subsidiaries, determined on a consolidated basis in accordance with GAAP, in
each case, for such Person's prior four full fiscal quarters for which financial
results have been reported immediately preceding the determination date.
"CONSOLIDATED INCOME TAX EXPENSE" of any Person for any period means
the provision for taxes based on income and profits of such Person and its
Subsidiaries to the extent such income or profits were included in computing
Consolidated Net Income of such Person for such period.
"CONSOLIDATED INTEREST EXPENSE" of any Person for any period means the
Interest Expense of such Person and its Subsidiaries for such period, determined
on a consolidated basis in accordance with GAAP, plus (to the extent not
otherwise included within the definition of Interest Expense as imputed
interest) one-third of the rental expense on Attributable Indebtedness of such
Person for such period determined on a consolidated basis.
"CONSOLIDATED NET INCOME" of any Person for any period means the net
income (or loss) of such Person and its Subsidiaries for such period determined
on a consolidated basis in accordance with GAAP, without giving effect to
dividends on any series of preferred stock of any Subsidiary of such Person,
whether or not in cash, to the extent such consolidated net income was reduced
thereby; PROVIDED that there shall be excluded from such net income (to the
extent otherwise included therein), without duplication: (i) the net income (or
loss) of any Person (other than a Subsidiary of the referent Person) in which
any Person other than the referent Person has an ownership interest, except to
the extent that any such income has actually been received by
3
<PAGE>
the referent Person or any of its Wholly Owned Subsidiaries in the form of
dividends or similar distributions during such period; (ii) except to the extent
includible in the consolidated net income of the referent Person pursuant to the
foregoing clause (i), the net income (or loss) of any Person that accrued prior
to the date that (a) such Person becomes a Subsidiary of the referent Person or
is merged into or consolidated with the referent Person or any of its
Subsidiaries or (b) the assets of such Person are acquired by the referent
Person or any of its Subsidiaries; (iii) the net income of any Subsidiary of the
referent Person (other than a Wholly Owned Subsidiary) to the extent that the
declaration or payment of dividends or similar distributions by such Subsidiary
of that income is not permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary during such period; (iv) any gain (but
not loss), together with any related provisions for taxes on any such gain,
realized during such period by the referent Person or any of its Subsidiaries
upon (a) the acquisition of any securities, or the extinguishment of any
Indebtedness, of the referent Person or any of its Subsidiaries or (b) any Asset
Sale by the referent Person or any of its Subsidiaries; (v) any extraordinary
gain (but not extraordinary loss), together with any related provision for taxes
on any such extraordinary gain, realized by the referent Person or any of its
Subsidiaries during such period; and (vi) in the case of a successor to such
Person by consolidation, merger or transfer of its assets, any earnings of the
successor prior to such merger, consolidation or transfer of assets.
"CONSOLIDATED NET WORTH" of any Person as of any date means the
stockholders' equity (including any preferred stock that is classified as equity
under GAAP, other than Disqualified Stock) of such Person and its Subsidiaries
(excluding any equity adjustment for foreign currency translation for any period
subsequent to the date of this Indenture) on a consolidated basis at such date,
as determined in accordance with GAAP, less all write-ups subsequent to the date
of this Indenture in the book value of any asset owned by such Person or any of
its Subsidiaries.
"CONSOLIDATED TANGIBLE ASSETS" of any Person as of any date means the
total assets of such Person and its Subsidiaries (excluding any assets that
would be classified as "intangible assets" under GAAP) on a consolidated basis
at such date, as determined in accordance with GAAP, less all write-ups
subsequent to the date of this Indenture in the book value of any asset owned by
such Person or any of its Subsidiaries.
"CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at either of the
addresses of the Trustee specified in Section 11.2 or such other address as the
Trustee may give notice to the Company.
"DEFAULT" means any event, act or condition that is, or after notice
or the passage of time or both would be, an Event of Default.
"DESIGNATED SENIOR INDEBTEDNESS" means (i) the Bank Debt, without
regard to the amounts outstanding thereunder, and (ii) any Senior Indebtedness
which, at the time of determination, has an aggregate principal amount
outstanding of at least $15,000,000 and is specifically designated in the
instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness" by the Company.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
final maturity date of the Securities.
4
<PAGE>
"EBITDA COVERAGE RATIO" with respect to any period means the ratio of
(i) Consolidated EBITDA of the Company to (ii) the aggregate amount of
Consolidated Interest Expense of the Company for such period; PROVIDED, HOWEVER,
that if any calculation of the Company's EBITDA Coverage Ratio requires the use
of any quarter prior to the date of the Indenture, such calculation shall be
made on a pro forma basis, giving effect to the issuance of the Securities and
the use of the net proceeds therefrom as if the same had occurred at the
beginning of the four-quarter period used to make such calculation; and PROVIDED
FURTHER that if any such calculation requires the use of any quarter prior to
the date that any Asset Sale was consummated, or that any Indebtedness was
incurred, or that any acquisition of a hospital or other healthcare facility or
any assets purchased outside the ordinary course of business was effected, by
the Company or any of its Subsidiaries, such calculation shall be made on a pro
forma basis, giving effect to each such Asset Sale, incurrence of Indebtedness
or acquisition, as the case may be, and the use of any proceeds therefrom, as if
the same had occurred at the beginning of the four-quarter period used to make
such calculation.
"ELIGIBLE INVESTMENTS" of any Person means Investments of such Person
in (i) direct obligations of the United States of America or any agency thereof,
or obligations guaranteed by the United States of America or any agency thereof,
in each case maturing within 180 days of the date of acquisition thereof; (ii)
certificates of deposit maturing within 180 days of the date of acquisition
thereof issued by a bank or trust Company which is organized under the laws of
the United States of America or any state thereof having capital, surplus and
undivided profits aggregating in excess of $150 million; (iii) commercial paper
rated at least A-1 or the equivalent thereof by Standard & Poor's Corporation or
at least P-1 or the equivalent thereof by Moody's Investors Service, Inc. and
maturing not more than 180 days from the date of the acquisition thereof; (iv)
repurchase agreements and money market accounts which are fully secured by
direct obligations of the United States of America or any agency thereof; (v) in
the case of the Company and its Subsidiaries, any receivables or loans taken by
the Company or a Subsidiary in connection with the sale of assets or capital
stock otherwise permitted by the Indenture; and (vi) investments in money market
or mutual funds registered under the Investment Company Act of 1940, as amended,
whose sole investments are comprised of securities of the types described in
clauses (i) through (iv) above.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXISTING INDEBTEDNESS" means all of the Indebtedness of the Company
and its Subsidiaries that is outstanding on the date hereof.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as in effect on the date hereof.
"HEDGING OBLIGATIONS" of any Person means the obligations of such
Person pursuant to any interest rate swap agreement, foreign currency exchange
agreement, interest rate collar agreement, option or futures contract or other
similar agreement or arrangement relating to interest rates or foreign exchange
rates.
"HOLDER" means a Person in whose name a Security is registered.
"INDEBTEDNESS" of any Person at any date means, without duplication:
(i) all Indebtedness of such Person for borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such Person or only to a
portion thereof); (ii) all obligations of such
5
<PAGE>
Person evidenced by bonds, debentures, notes or other similar instruments; (iii)
all obligations of such Person in respect of letters of credit or other similar
instruments (or reimbursement obligations with respect thereto); (iv) all
obligations of such Person with respect to Hedging Obligations (other than those
that fix the interest rate on variable rate indebtedness otherwise permitted by
this Indenture or that protect the Company and/or its Subsidiaries against
changes in foreign exchange rates); (v) all obligations of such Person to pay
the deferred and unpaid purchase price of property or services, except trade
payable and accrued expenses incurred in the ordinary course of business; (vi)
all Capitalized Lease Obligations of such Person; (vii) all Indebtedness of
others secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; (viii) all Indebtedness of others
guaranteed by such Person to the extent of such guarantee; and (ix) all
Attributable Indebtedness. The amount of Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional obligations
as described above, the maximum liability of such Person for any such contingent
obligations at such date and, in the case of clause (vii), the amount of the
Indebtedness secured.
"INDENTURE" means this Indenture as amended from time to time.
"INTEREST EXPENSE" of any Person for any period means the aggregate
amount of interest which, in accordance with GAAP, would be set opposite the
caption "interest expense" or any like caption on an income statement for such
Person (including, without limitation or duplication, imputed interest included
on Capitalized Lease Obligations, all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, the net costs associated with Hedging Obligations, amortization of
financing fees and expenses, the interest portion of any deferred payment
obligation, amortization of discount and all other non-cash interest expense)
plus the aggregate amount, if any, by which such interest expense was reduced as
a result of the amortization of deferred debt restructuring credits for such
period.
"INTEREST PAYMENT DATE" shall have the meaning assigned to such term
in the Securities.
"INVENTORY" means all of the inventory of the Company and each of its
Subsidiaries which, in accordance with GAAP, would be set opposite the caption
"inventory" or any like caption on a balance sheet of the Company.
"INVESTMENTS" of any Person means (i) all investments by such Person
in any other Person in the form of loans, advances or capital contributions
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business), (ii) all guarantees of Indebtedness or
other obligations of any other Person by such Person, (iii) all purchases (or
other acquisitions for consideration) by such Person of Indebtedness, Capital
Stock or other securities of any other Person and (iv) all other items that
would be classified as investments (including, without limitation, purchases of
assets outside the ordinary course of business) on a balance sheet of such
Person prepared in accordance with GAAP.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or other similar encumbrance of any kind in respect of
such asset, whether or not filed, recorded or otherwise perfected under
applicable law (including, without limitation, any conditional sale or other
title retention agreement, and any financing lease in the nature thereof, any
agreement to sell, and any filing of, or agreement to give, any financing
statement (other than notice filings not perfecting a security interest) under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
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"NET PROCEEDS" means with respect to any Asset Sale, (i) cash (in U.S.
dollars or freely convertible into U.S. dollars) received by the Company or any
of its Subsidiaries from such Asset Sale (including, without limitation, cash
received as consideration for the assumption or incurrence of liabilities
incurred in connection with or in anticipation of such Asset Sale) after (a)
provision for all income or other taxes measured by or resulting from such Asset
Sale or the transfer of the proceeds of such Asset Sale to the Company or any of
its Subsidiaries, (b) payment of all brokerage commissions and the underwriting
and other fees and expenses related to such Asset Sale and (c) deduction of
appropriate amounts to be provided by the Company or any of its Subsidiaries as
a reserve, in accordance with GAAP, against any liabilities associated with the
assets sold or otherwise disposed of in such Asset Sale and retained by the
Company or any of its Subsidiaries after such Asset Sale (including, without
limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters) or against any indemnification
obligations associated with the sale or other disposition of the assets sold or
otherwise disposed of in such Asset Sale and (ii) all non-cash consideration
received by the Company or any of its Subsidiaries from such Asset Sale upon the
liquidation or conversion of such consideration into cash.
"NEW CREDIT AGREEMENT" means the credit agreement, dated on or about
November 15, 1993, between the Company and the lender listed therein, together
with the related documents thereto, including, without limitation, any security
documents and all exhibits and schedules thereto and any agreement or agreements
relating to any extension, refunding, refinancing, successor or replacement
facility, whether or not with the same lender, and whether or not the principal
amount or amount of letters of credit outstanding thereunder or the interest
rate payable in respect thereof shall be thereby increased, in each case as
amended and in effect from time to time.
"OFFICER" means the Chief Executive Officer, the Chief Financial
Officer, the Treasurer, any Assistant Treasurer, Controller, Secretary or any
Vice President of the Company.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers,
one of whom must be the Company's Chief Executive Officer or Chief Financial
Officer.
"OPINION OF COUNSEL" means an opinion from legal counsel who is
acceptable to the Trustee in its sole discretion. The counsel may be an
employee of or counsel to the Company or the Trustee.
"PERMITTED LIENS" means (i) Liens for taxes, assessments or
governmental charges or claims that either (a) are not yet delinquent or (b) are
being contested in good faith by appropriate proceedings and as to which
appropriate reserves or other provisions have been made in accordance with GAAP;
(ii) statutory Liens of landlords and carriers', warehousemen's, mechanics',
suppliers', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business and with respect to amounts that either (a) are not
yet delinquent or (b) are being contested in good faith by appropriate
proceedings and as to which appropriate reserves or other provisions have been
made in accordance with GAAP; (iii) Liens (other than any Lien imposed by the
Employee Retirement Income Security Act of 1974, as amended) incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (iv)
Liens incurred or deposits made to secure the performance of tenders, bids,
leases, statutory obligations, surety and appeal bonds, progress payments,
government contracts and other obligations of like nature (exclusive of
obligations for the payment of borrowed money), in each case, incurred in the
ordinary course of business; (v) attachment or judgment Liens not giving rise to
a Default or an Event of Default; (vi) easements, rights-of-way, restrictions
and other similar charges or encumbrances not interfering with the ordinary
conduct of the business of the Company or any of its Subsidiaries;
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(vii) leases or subleases granted to others not interfering with the ordinary
conduct of the business of the Company or any of its Subsidiaries; (viii) Liens
with respect to any Acquired Indebtedness; PROVIDED that such Liens only extend
to assets that were subject to such Liens prior to the acquisition of such
assets by the Company or its Subsidiaries; (ix) Liens securing Senior
Indebtedness or Refinancing Indebtedness; PROVIDED, in the case of Refinancing
Indebtedness, that such Liens only extend to the assets securing the
Indebtedness being refinanced and such refinanced Indebtedness was previously
secured by such Assets; (x) Liens on Accounts Receivable (and guarantees by
third parties of such Accounts Receivable or collateral pledged by account
obligors or other unrelated third parties securing such Accounts Receivable) or
Inventory; (xi) purchase money mortgages (including Capitalized Lease
Obligations); (xii) Liens existing on the date hereof; (xiii) Liens on assets of
any Subsidiary of the Company securing Indebtedness of such Subsidiary; PROVIDED
that such Indebtedness is permitted to be incurred by the terms of this
Indenture; (xiv) bankers' liens with respect to the right of set-off arising in
the ordinary course of business against amounts maintained in bank accounts or
certificates of deposit in the name of the Company or any Subsidiary; and (xv)
the interest of any issuer of a letter of credit in any cash or Eligible
Investment deposited with or for the benefit of such issuer as collateral for
such letter of credit, PROVIDED that the Indebtedness so collateralized is
permitted to be incurred by the terms of this Indenture.
"PERSON" means any individual, corporation, partnership, joint
venture, incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"PREFERRED STOCK" means with respect to any Person all Capital Stock
of such Person which has a preference in liquidation or a preference with
respect to the payment of dividends.
"REFINANCING INDEBTEDNESS" means Indebtedness that refunds, refinances
or extends any Existing Indebtedness; PROVIDED that: (i) the Refinancing
Indebtedness is the obligation of the same Person, and is subordinated to the
Securities, if at all, to the same extent as the Indebtedness being refunded,
refinanced or extended; (ii) the Refinancing Indebtedness is scheduled to mature
no earlier than the Indebtedness being refunded, refinanced or extended; (iii)
the Refinancing Indebtedness has a Weighted Average Life to Maturity at the time
such Refinancing Indebtedness is incurred that is equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being refunded, refinanced
or extended; (iv) the Refinancing Indebtedness is secured only to the extent, if
at all, and by the assets, that the Indebtedness being refunded, refinanced or
extended is secured; and (v) such Refinancing Indebtedness is in an aggregate
principal amount that is equal to or less than the aggregate principal amount
then outstanding under the Indebtedness being refunded, refinanced or extended
(except for issuance costs and increases in Attributable Indebtedness due solely
to increases in the present value calculations resulting from renewals or
extensions of the terms of the underlying leases in effect on the date of this
Indenture).
"RESTRICTED PAYMENT" means with respect to any Person: (i) the
declaration of any dividend or the making of any other payment or distribution
of cash, securities or other property or assets in respect of such Person's
Capital Stock (except that a dividend payable solely in Capital Stock (other
than Disqualified Stock) of such Person shall not constitute a Restricted
Payment); (ii) any payment on account of the purchase, redemption, retirement or
other acquisition for value of such Person's Capital Stock or any other payment
or distribution made in respect thereof, either directly or indirectly; or (iii)
any payment on account of the purchase, redemption, retirement, defeasance or
other acquisition for value of Indebtedness of the Company or its Subsidiaries
which is PARI PASSU with or subordinated in right of payment to the Securities
and
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has a scheduled maturity date subsequent to the maturity of the Securities;
PROVIDED, HOWEVER, that with respect to the Company and its Subsidiaries,
Restricted Payments shall not include any payment described (a) in clause (i),
(ii) or (iii) above made (1) to the Company or any of its Wholly Owned
Subsidiaries by any of the Company's Subsidiaries or (2) by the Company to any
of its Wholly Owned Subsidiaries or (b) in clause (iii) above made with Net
Proceeds from any Asset Sale remaining after completion of the Asset Sale Offer
made in connection with such Asset Sale, all as contemplated in Section 4.11.
"SALE AND LEASEBACK TRANSACTION" means with respect to any Person an
arrangement with any bank, insurance company or other lender or investor or to
which such lender or investor is a party, providing for the leasing by such
Person or any of its Subsidiaries of any property or asset of such Person or any
of its Subsidiaries which has been or is being sold or transferred by such
Person or such Subsidiary to such lender or investor or to any Person to whom
funds have been or are to be advanced by such lender or investor on the security
of such property or asset.
"SEC" means the Securities and Exchange Commission.
"SECURITIES" means the Securities described above issued under this
Indenture.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR INDEBTEDNESS" means the principal of and premium, if any, and
interest on (such interest on Senior Indebtedness, wherever referred to in the
Indenture, being deemed to include interest accruing after the filing of a
petition initiating any proceeding pursuant to any bankruptcy law in accordance
with and at the rate (including any rate applicable upon any default or event of
default, to the extent lawful) specified in any document evidencing the Senior
Indebtedness, whether or not the claim for such interest is allowed as a claim
after such filing in any proceeding under such bankruptcy law) and other amounts
due on or in connection with any Indebtedness of the Company permitted under
Section 4.9, whether outstanding on the date of this Indenture or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Securities.
"SENIOR SUBORDINATED DEBT" means the Securities and any other
indebtedness, guarantee or obligation of the Company that specifically provides
that such indebtedness, guarantee or obligation is to rank PARI PASSU with other
Senior Subordinated Debt of the Company and is not subordinated by its terms to
any indebtedness, guarantee or obligation of the Company which is not Senior
Indebtedness.
"STATED MATURITY" means, when used with respect to any security or any
installment of interest thereon, that date specified in such security as the
fixed date on which the principal of such security or such installment of
interest is due and payable.
"SUBORDINATED OBLIGATIONS" means any principal of, premium, if any,
and interest on the Securities payable pursuant to the terms of the Securities
or upon acceleration, including any amounts received upon the exercise of rights
of rescission or other rights of action (including claims for damages) or
otherwise, to the extent relating to the purchase price of the Securities or
amounts corresponding to such principal, premium, if any, or interest on the
Securities.
"SUBSIDIARY" of any Person means (i) any corporation of which Common
Equity having ordinary voting power to elect a majority of the directors of such
corporation is owned by
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such Person directly or through one or more other Subsidiaries of such Person,
and (ii) any entity other than a corporation in which such Person, directly or
indirectly, owns at least a majority of the Common Equity of such entity.
"TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C.
SECTIONS 77aaa-77bbbb), as in effect on the date hereof (unless otherwise
specifically provided herein).
"TRUSTEE" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"TRUST OFFICER" means any officer or assistant officer of the Trustee
assigned by the Trustee to administer its corporate trust matters.
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations of the United
States of America for the payment of which the full faith and credit of the
United States of America is pledged.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness or portion thereof at any date, the number of years obtained by
dividing (i) the then outstanding principal amount of such Indebtedness or
portion thereof (if applicable) into (ii) the sum of the products obtained by
multiplying (a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including payment at
final maturity, in respect thereof, by (b) the number of years (calculated to
the nearest one-twelfth) that will elapse between such date and the making of
such payment.
"WHOLLY OWNED SUBSIDIARY" of any Person means (i) a Subsidiary, of
which 100% of the Common Equity (except for directors' qualifying shares or
certain minority interests owned by other Persons solely due to local law
requirements that there be more than one stockholder, but which interest is not
in excess of what is required for such purpose) is owned directly by such Person
or through one or more other Wholly Owned Subsidiaries of such Person and (ii)
any entity other than a corporation in which such Person, directly or
indirectly, owns all of the Common Equity of such entity.
SECTION 1.2 OTHER DEFINITIONS
Defined
Term in Section
---- ----------
"Affiliate Transaction" . . . . . . 4.12(a)
"Asset Sale Offer" . . . . . . . . 4.11(b)
"Asset Sale Offer Date" . . . . . . 4.11
"Asset Sale Offer Period" . . . . . 3.8
"Asset Sale Payment Date" . . . . . 3.8
"Custodian" . . . . . . . . . . . . 6.1
"Change of Control Offer" . . . . . 4.10
"Change of Control Payment Date" . 4.10
"Event of Default" . . . . . . . . 6.1
"incur" . . . . . . . . . . . . . . 4.9(a)
"Legal Holiday" . . . . . . . . . . 11.6
"Payment Blockage Period" . . . . . 10.2
"Paying Agent" . . . . . . . . . . 2.3
"Registrar" . . . . . . . . . . . . 2.3
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"Successor" . . . . . . . . . . . . 5.1
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
All terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule under the TIA have
the meanings so assigned to them.
SECTION 1.4 RULES OF CONSTRUCTION
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions;
(6) any amount may be negative; and
(7) "herein", "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular
Article, Section or Subdivision.
ARTICLE 2.
THE SECURITIES
SECTION 2.1 FORM AND DATING
The Securities and the Trustee's certificate of authentication shall
be substantially in the form of Exhibit A. The Securities may have notations,
legends or endorsements required by law, stock exchange rule or usage. Each
Security shall be dated the date of its authentication. The Securities shall be
in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Securities shall constitute,
and are hereby expressly made, a part of this Indenture and to the extent
applicable, the Company and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
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SECTION 2.2 EXECUTION AND AUTHENTICATION
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities
and may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated, the Security nevertheless
shall be valid.
A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Security has been authenticated under this Indenture.
The Trustee shall authenticate Securities for original issue up to the
aggregate principal amount stated in paragraph 4 of the Securities, upon a
written order of the Company signed by two Officers. The aggregate principal
amount of Securities outstanding at any time may not exceed such amount except
as provided in Section 2.6.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. An authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate.
SECTION 2.3 REGISTRAR AND PAYING AGENT
The Company shall maintain or cause to be maintained through the
Trustee or such other Person as may be appointed hereunder an office or agency
where Securities may be presented for registration of transfer or for exchange
("Registrar") and an office or agency where Securities may be presented for
payment ("Paying Agent"). The Registrar shall keep a register of the Securities
and of their transfer and exchange. The Company may appoint one or more
co-registrars and one or more additional paying agents. The term "Registrar"
includes any co-registrar and the term "Paying Agent" includes any additional
paying agent. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company shall notify the Trustee of the name and
address of any Agent not a party to this Indenture. If the Company fails to
appoint or maintain another entity as Registrar or Paying Agent, the Trustee
shall act as such. The Company or any of its Subsidiaries may act as Paying
Agent or Registrar.
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal of or interest on the Securities, and will notify the Trustee of any
default by the Company in making any such payment. While any such default
continues, the Trustee may require a Paying Agent to pay all money held by it to
the Trustee. The Company at any time may require a Paying Agent to pay all
money held by it to the Trustee. Upon payment over to the Trustee, the Paying
Agent (if other than the Company or a Subsidiary) shall have no further
liability for the money. If the Company or a Subsidiary acts as Paying Agent,
it shall segregate and hold in a separate trust fund for the benefit of the
Holders all money held by it as Paying Agent.
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SECTION 2.5 REGISTRATION OF TRANSFER AND EXCHANGE
Where Securities are presented to the Registrar with a request to
register a transfer of or to exchange the Securities for an equal principal
amount of Securities of other denominations, the Registrar shall register the
transfer or make the exchange if its requirements for such transactions are met;
PROVIDED, HOWEVER, that any Security presented or surrendered for registration
of transfer or exchange shall be duly endorsed or accompanied by a written
instruction of transfer in a form satisfactory to the Registrar and the Trustee
duly executed by the Holder thereof or the Holder's attorney duly authorized in
writing. To permit registrations of transfers and exchanges, the Company shall
issue and the Trustee shall authenticate Securities at the Registrar's request.
Without the prior written consent of the Company the Registrar shall
not be required (i) to issue, to register the transfer of or to exchange
Securities during a period beginning at the opening of business on a Business
Day 15 days before the day of any selection of Securities for redemption under
Section 3.2 and ending at the close of business on the day of selection or
(ii) to register the transfer of or to exchange any Security so selected for
redemption in whole or in part, except the unredeemed portion of any Security
being redeemed in part.
No service charge shall be made to a Holder for any registration of
transfer or exchange (except as otherwise expressly permitted herein), but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than such
transfer tax or similar governmental charge payable upon exchanges pursuant to
Section 3.6 or 9.5).
SECTION 2.6 REPLACEMENT SECURITIES
If any mutilated Security is surrendered to the Trustee, or the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, the Company shall issue and the
Trustee, upon the written order of the Company signed by two Officers, shall
authenticate a replacement Security if the Trustee's requirements are met. If
required by the Trustee or the Company, an indemnity bond must be supplied by
the Holder that is sufficient in the judgment of the Trustee and the Company to
protect the Company, the Trustee, the Agent or any authenticating agent from any
loss which any of them may suffer if a Security is replaced. The Company may
charge for its expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
SECTION 2.7 OUTSTANDING SECURITIES
The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation and those described in this Section 2.7 as not outstanding.
If a Security is replaced pursuant to Section 2.6, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the principal amount of any Security is considered paid under
Section 4.1, it ceases to be outstanding and interest on it ceases to accrue as
of the date it is deemed paid. Upon a "legal defeasance" pursuant to Section
8.1(b) or a "covenant defeasance" pursuant to Section 8.1(c), the Securities
shall be deemed to be outstanding or not outstanding as provided in the
applicable Section 8.1(b) or 8.1(c).
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Except as set forth in Section 2.8, a Security does not cease to be
outstanding because the Company or an Affiliate holds the Security.
SECTION 2.8 TREASURY SECURITIES
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company or by any Person directly or indirectly controlling or controlled
by or under direct or indirect common control with the Company shall be
considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Securities which the Trustee knows are so
owned shall be so disregarded.
SECTION 2.9 TEMPORARY SECURITIES
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities in exchange for temporary Securities.
SECTION 2.10 CANCELLATION
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration
of transfer, exchange, payment, replacement or cancellation, and, upon request
of the Company, certification of their destruction shall be delivered to the
Company unless, by a written order signed by two Officers, the Company shall
direct that canceled Securities be returned to it. The Company may not issue
new Securities to replace Securities that it has paid or that have been
delivered to the Trustee for cancellation.
SECTION 2.11 DEFAULTED INTEREST
If the Company defaults in a payment of interest on the Securities, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Securities. The Company, with the consent of the Trustee, shall fix each
such special record date and payment date. At least 15 days before the special
record date, the Company (or, upon request of the Company, the Trustee, in the
name of and at the expense of the Company) shall mail to Holders a notice that
states the special record date, the related payment date and the amount of such
interest to be paid.
ARTICLE 3.
OPTIONAL REDEMPTION AND ASSET SALE OFFER
SECTION 3.1 NOTICES TO TRUSTEE
(a) If the Company elects to redeem Securities pursuant to the
optional redemption provisions of Section 3.7, it shall furnish to the Trustee,
at least 45 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth the Section of this
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Indenture pursuant to which the redemption shall occur, the redemption date,
the principal amount of Securities to be redeemed and the redemption price.
(b) If the Company offers to purchase Securities pursuant to the
provisions of Section 3.8, it shall furnish to the Trustee, within five days
after an Asset Sale Offer Date, an Officers' Certificate setting forth the
Section of this Indenture pursuant to which the purchase shall occur, the Asset
Sale Payment Date, the principal amount of Securities the Company is offering to
purchase and the purchase price of such Securities, and further setting forth a
statement to the effect that (a) the Company has consummated an Asset Sale and
(b) the conditions set forth in the first sentence of Section 4.11 have been
satisfied.
SECTION 3.2 SELECTION OF SECURITIES TO BE REDEEMED OR PURCHASED
(a) If less than all of the Securities are to be redeemed pursuant to
Section 3.7, the Trustee shall select the Securities to be redeemed by lot. The
particular Securities to be redeemed shall be selected, unless otherwise
provided herein, prior to the date notice of redemption is required to be sent
by the Trustee from the outstanding Securities not previously called for
redemption.
The Trustee promptly shall notify the Company in writing of the
Securities selected for redemption and, in the case of any Security selected for
partial redemption, the principal amount thereof to be redeemed. Securities and
portions of them selected shall be in amounts of $1,000 or integral multiples of
$1,000; except that if all of the Securities of a Holder are to be redeemed the
entire outstanding amount of Securities held by such Holder, even if not a
multiple of $1,000, shall be redeemed or purchased. Except as provided in the
preceding sentence, provisions of this Indenture that apply to Securities called
for redemption also apply to portions of Securities called for redemption.
(b) If less than all of the Securities are to be purchased pursuant
to Section 4.11, the Trustee shall select the Securities to be purchased by lot.
The particular Securities to be purchased shall be selected, unless otherwise
provided herein, prior to the date notice of purchase is required to be sent by
the Trustee from the outstanding Securities tendered pursuant to the Asset Sale
Offer.
The Trustee promptly shall notify the Company in writing of the
Securities selected for purchase and, in the case of any Security selected for
partial purchase, the principal amount thereof to be purchased. Securities and
portions of them selected shall be in amounts of $1,000 or integral multiples of
$1,000; except that if all of the Securities of a Holder are to be purchased the
entire outstanding amount of Securities held by such Holder, even if not a
multiple of $1,000, shall be purchased. Except as provided in the preceding
sentence, provisions of this Indenture that apply to Securities called for
purchase also apply to portions of Securities called for purchase.
SECTION 3.3 NOTICES TO HOLDERS
(a) At least 30 days but not more than 60 days before a redemption
date, the Company shall mail a notice to each Holder whose Securities are to be
redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
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(3) if any Security is being redeemed in part, the portion of
the principal amount of such Security to be redeemed and
that, after the redemption date, upon surrender of such
Security, a new Security or Securities in principal amount
equal to the unredeemed portion will be issued;
(4) the name and address of the Paying Agent;
(5) that Securities called for redemption must be surrendered to
the Paying Agent at the address specified in such notice to
collect the redemption price;
(6) that interest on Securities called for redemption ceases to
accrue on and after the redemption date;
(7) the paragraph of the Securities pursuant to which the
Securities are being redeemed; and
(8) the aggregate principal amount of Securities that are being
redeemed.
(b) As provided in Section 3.8, within 15 days after an Asset Sale
Offer Date, the Company shall mail a notice to each Holder.
The Notice shall state:
(1) that an Asset Sale Offer is being made pursuant to
Section 3.8 and the length of time the Asset Sale Offer will
remain open;
(2) the purchase price and the Asset Sale Payment Date;
(3) the aggregate principal amount of Securities the Company is
offering to purchase;
(4) that any Security not tendered or accepted for payment will
continue to accrue interest;
(5) that any Security accepted for payment pursuant to the Asset
Sale Offer shall cease to accrue interest on the Asset Sale
Payment Date;
(6) that Holders electing to have a Security purchased pursuant
to any Asset Sale Offer will be required to surrender the
Security, with the form entitled "Option of Holder to Elect
Purchase" on the reverse side of the Security completed, to
the Company, a depositary, if appointed by the Company, or a
Paying Agent at the address specified in the notice prior to
termination of the Asset Sale Offer;
(7) that Holders will be entitled to withdraw their election if
the Company, depositary or Paying Agent, as the case may be,
receives, not later than the expiration of the Asset Sale
Offer Period, or such longer period as may be required by
law, a
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telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the
Security the Holder delivered for purchase and a statement
that such Holder is withdrawing his election to have the
Security purchased;
(8) that, if the aggregate principal amount of Securities
surrendered by Holders exceeds the aggregate principal
amount of Securities offered to be purchased, the Trustee
shall select the Securities to be purchased by lot (with
such adjustments as may be deemed appropriate by the Company
so that only Securities in denominations of $1,000 or
integral multiples thereof shall be purchased); and
(9) that Holders whose Securities are purchased only in part
will be issued new Securities equal in principal amount to
the unpurchased portion of the Securities surrendered.
(c) At the Company's request, the Trustee shall give the notice
required in Section 3.3(a) or 3.3(b) in the Company's name and at its expense;
PROVIDED, HOWEVER, that the Company shall deliver to the Trustee, at least 25
days prior to the redemption date or on or prior to the fifth day following an
Asset Sale Offer Date, as the case may be, an Officers' Certificate requesting
that the Trustee give such notice and setting forth the information to be stated
in such notice as provided in Section 3.3(a) or 3.3(b).
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION
Once notice of redemption under Section 3.7 is mailed, Securities
called for redemption become due and payable on the redemption date at the
redemption price. However, if a redemption date is on or before an Interest
Payment Date and on or after the related record date, any interest accrued and
unpaid to the redemption date shall be paid on such Interest Payment Date to the
person in whose name the Security is registered at the close of business on such
record date and the only remaining right of the Holders of Securities called for
redemption shall be to receive the redemption price (excluding such interest)
upon surrender of such Securities to the Paying Agent.
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE OR PURCHASE PRICE
One Business Day prior to the redemption date or the Asset Sale
Payment Date, as the case may be, the Company shall deposit with the Trustee or
with the Paying Agent money sufficient to pay the redemption price or the
purchase price of, and accrued interest on, all Securities to be redeemed or
purchased on that date. The Trustee or the Paying Agent shall return to the
Company any money not required for that purpose.
If the Company complies with the preceding paragraph, interest on the
Securities or portions thereof to be redeemed or purchased (in the case of a
redemption, whether or not such Securities are presented for payment) will cease
to accrue on the applicable redemption date or Asset Sale Payment Date, as the
case may be. If any Security called for redemption shall not be so paid upon
surrender, or if any Security to be purchased shall not be so paid on the Asset
Sale Payment Date, because of the failure of the Company to comply with the
preceding paragraph, then interest will be paid on the unpaid principal from the
redemption date or the Asset Sale Payment Date, as the case may be, until such
principal is paid and on any interest not paid on such unpaid principal, in each
case, at the rate provided in the Securities and in Section 4.1.
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SECTION 3.6 SECURITIES REDEEMED OR PURCHASED IN PART
Upon surrender of a Security that is redeemed or purchased in part,
the Company shall issue and the Trustee shall authenticate for the Holder at the
expense of the Company a new Security equal in principal amount to the
unredeemed portion or the portion not purchased of the Security surrendered.
SECTION 3.7 OPTIONAL REDEMPTION
The Company may redeem all or any of the Securities at any time on or
after November 15, 1998, at the following redemption prices (expressed as
percentages of principal amount) plus accrued and unpaid interest to the
redemption date. If redeemed during the 12-month beginning:
Optional
Year Redemption Price
---- ----------------
November 15, 1998 105.3125%
November 15, 1999 102.6563%
November 15, 2000 and thereafter 100%
Any redemption pursuant to this Section 3.7 shall be made, to the
extent applicable, in accordance with the provisions of Sections 3.1 through
3.6.
SECTION 3.8 ASSET SALE OFFER
Within 15 days after an Asset Sale Offer Date, the Company shall mail
(with notice to the Trustee) or shall cause the Trustee to mail (in the
Company's name and at its expense) notice of an Asset Sale Offer to each Holder
of Securities as set forth in Section 3.3(b). The Asset Sale Offer shall be
deemed to have commenced on the date of such mailing and shall terminate 20
Business Days after its commencement unless a longer offering period is required
by law (the "Asset Sale Offer Period"). On or prior to the fifth Business Day
following the termination of the Asset Sale Offer Period (the "Asset Sale
Payment Date"), the Company shall purchase, or cause the Trustee to purchase,
and mail or deliver payment for, as selected by lot (with such adjustments as
may be deemed appropriate by the Company so that only Securities in
denominations of $1,000 or integral multiples thereof shall be purchased), from
Holders tendering their Securities pursuant to the Asset Sale Offer, the amount
of Securities required to be purchased pursuant to Section 4.11. If the Asset
Sale Payment Date is on or after an interest payment record date and on or
before the related interest payment date, any accrued interest will be paid to
the person in whose name a Security is registered at the close of business on
such record date, and no additional interest will be payable to Holders who
tender Securities pursuant to the Asset Sale Offer. Any Asset Sale Offer shall
be conducted in compliance with applicable tender offer rules, including
Section 14(e) of the Exchange Act and Rule 14e-1 thereunder.
On or before any Asset Sale Payment Date, the Company, to the extent
lawful, shall (i) accept for payment, as selected by lot (with such adjustments
as may be deemed appropriate by the Company so that only Securities in
denominations of $1,000 or integral multiples thereof shall be purchased),
Securities or portions thereof tendered pursuant to the Asset Sale Offer, (ii)
if the Company appoints a depositary or Paying Agent, deposit with such
depositary or Paying Agent money sufficient to pay the purchase price (including
all accrued interest on the purchased Securities) of all Securities or portions
thereof so accepted, (iii) deliver or cause the depositary or Paying Agent to
deliver to the Trustee Securities so accepted and (iv)
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deliver an Officers' Certificate identifying the Securities or portions thereof
accepted for payment by the Company in accordance with the terms of this
Section 3.8. The depositary, the Paying Agent or the Company, as the case may
be, promptly shall mail or deliver to each tendering Holder an amount equal to
the purchase price (including all accrued interest on the purchased Securities)
of the Securities tendered by such Holder and accepted by the Company for
purchase, and the Trustee promptly shall authenticate and mail or deliver to
such Holders a new Security equal in principal amount to any unpurchased portion
of the Security surrendered. Any Securities not so accepted promptly shall be
mailed or delivered by the Company to the Holder thereof. The Company will
publicly announce the results of the Asset Sale Offer on the Asset Sale Payment
Date.
Other than as specifically provided in this Section 3.8, any offer to
purchase Securities pursuant to this Section 3.8 shall be made in accordance
with the other provisions of this Indenture.
ARTICLE 4.
COVENANTS
SECTION 4.1 PAYMENT OF SECURITIES
The Company shall pay the principal of and interest on the Securities
on the dates and in the manner provided in the Securities. Principal and
interest shall be considered paid on the date due if the Paying Agent, other
than the Company or a Subsidiary of the Company, holds on the date money
deposited by the Company designated for and sufficient to pay all principal and
interest then due.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to interest rate on the Securities to the extent lawful; it shall pay interest
on overdue installments of interest (without regard to any applicable grace
period) at the same rate to the extent lawful.
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY
The Company will maintain, in the Borough of Manhattan, The City of
New York, an office or agency (which may be an office of the Trustee or the
Registrar) where Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company with respect of
the Securities and this Indenture may be served. The Company will give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee.
The Company also from time to time may designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and from time to time may rescind such designations;
PROVIDED, HOWEVER, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York for such purposes. The Company will
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
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The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with
Section 2.3.
SECTION 4.3 SEC REPORTS
(a) The Company shall remain subject to the reporting requirements of
Section 13 or Section 15(d) of the Exchange Act and shall continue to file with
the SEC such annual reports and such information, documents and other reports
which are specified in Sections 13 and 15(d) of the Exchange Act.
(b) The Company shall file with the Trustee and cause to be provided
to the Holders, within 15 days after it files the same with the SEC, copies of
its annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) which the Company or any subsidiary of the Company is
required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act. The Company shall cause any annual report furnished to its stockholders
generally and any quarterly or other financial reports furnished by it to its
stockholders generally to be filed with the Trustee and mailed to the Holders at
their addresses appearing in the register of Securities maintained by the
Registrar. The Company will cause to be disclosed in an Officers' Certificate
accompanying any annual report filed with the Trustee and mailed to Holders or
comparable information as of the date of the most recent financial statements in
each such report or comparable information the amount available for payments
pursuant to Section 4.7. The Trustee shall have no obligation to furnish such
information to the Holders unless instructed to do so by the Company or
requested by a Holder.
SECTION 4.4 COMPLIANCE CERTIFICATE
(a) The Company shall deliver to Trustee, within 120 days after the
end of each fiscal year of the Company, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his knowledge the Company has kept, observed, performed and fulfilled each
covenant contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions hereof (or, if a
Default or Event of Default shall have occurred, describing all such Defaults or
Events of Default of which he may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Securities
are prohibited or, if such event has occurred, a description of the event and
what action the Company is taking or proposes to take with respect thereto.
(b) So long as (i) not contrary to the then current recommendations
of the American Institute of Certified Public Accountants or (ii) the Company's
independent public accountants do not have in effect a policy, of general
applicability with respect to their clients, that such accountants will not
prepare statements on the subjects specified below, the year-end financial
statements delivered pursuant to Section 4.3 shall be accompanied by a written
statement of the Company's independent public accountants (who shall be a firm
of established national reputation) that in making the examination necessary for
certification of such financial statements nothing has come to their attention
that would lead them to believe that the Company has violated any provisions of
Article 4 or 5 or, if any such violation has occurred, specifying the nature and
period of existence thereof, it being understood that such accountants shall not
be liable directly or indirectly to any Person for any failure to obtain
knowledge of any such violation.
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(c) The Company, so long as any of the Securities are outstanding,
will deliver to the Trustee, forthwith upon any Officer becoming aware of any
Default or Event of Default under this Indenture, an Officers' Certificate
specifying such Default or Event of Default and what action the Company is
taking or proposes to take with respect thereto.
SECTION 4.5 CORPORATE EXISTENCE, TAXES, ETC.
Subject to the provisions of Section 5.1, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect its rights (charter and statutory), licenses and franchises.
SECTION 4.6 STAY, EXTENSION AND USURY LAWS
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, plead or in any manner whatsoever claim or
take the benefit or advantage of any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the Company's
obligation to pay the Securities; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
insofar as such law applies to the Securities, and covenants that it will not,
by resort to any such law, hinder, delay or impede the execution of any power,
right or remedy herein granted to the Trustee, but will suffer and permit the
execution of every such power, right or remedy as though no such law has been
enacted.
SECTION 4.7 LIMITATIONS ON RESTRICTED PAYMENTS
The Company shall not, and shall not permit any of its Subsidiaries,
directly or indirectly, to make any Restricted Payment if at the time of such
Restricted Payment:
(i) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof;
(ii) after giving effect to the proposed Restricted Payment, the
amount of such Restricted Payment, when added to the aggregate amount of
all Restricted Payments made after the date hereof plus Investments made
after such date pursuant to Section 4.14(vi)(B), exceeds the sum of (1) 50%
of the Company's Consolidated Net Income accrued during the period (taken
as a single period) commencing with the date of this Indenture to and
including the fiscal quarter ended immediately prior to the date of such
Restricted Payment (or, if such aggregate Consolidated Net Income shall be
a deficit, minus 100% of such aggregate deficit); (2) the net cash proceeds
from the issuance and sale of the Company's Capital Stock that is not
Disqualified Stock (other than to a Subsidiary of the Company) during such
period; and (3) $3.0 million, less amounts expended in any fiscal year for
purchases of stock held by officers, directors or employees of the Company
as provided in clause (z) below; or
(iii) the Company would not be able to incur an additional $1.00
of Indebtedness under the EBITDA Coverage Ratio in Section 4.9.
Notwithstanding the foregoing, the provisions of this Section 4.7
shall not prevent (x) the payment of any dividend within 60 days after the date
of declaration thereof if the payment thereof would have complied with the
limitations of this covenant on the date of declaration; (y) the retirement of
shares of the Company's Capital Stock or the Company's or a Subsidiary of the
Company's Indebtedness out of the proceeds of a substantially concurrent sale
(other than to a Subsidiary of the Company) of other shares of its Capital Stock
(other than Disqualified Stock);
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and (z) the purchase of stock held by officers, directors or employees of the
Company whose employment or term with the Company has been terminated or who
have died or become disabled in an aggregate amount not to exceed $3.0 million
in any fiscal year.
SECTION 4.8 LIMITATIONS ON RESTRICTIONS ON DISTRIBUTIONS FROM SUBSIDIARIES
The Company shall not, and shall not permit any of its Subsidiaries
to, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction (other than encumbrances or restrictions
imposed by law or by judicial or regulatory action or by provisions in leases or
other agreements that restrict the assignability thereof) on the ability of any
Subsidiary of the Company to (i) pay dividends or make any other distributions
on its Capital Stock or any other interest or participation in, or measured by,
its profits, owned by the Company or any of its other Subsidiaries, or pay
interest on or principal of any Indebtedness owed to the Company or any of its
other Subsidiaries, (ii) make loans or advances to the Company or any of its
other Subsidiaries or (iii) transfer any of its properties or assets to the
Company or any of its other Subsidiaries, except for encumbrances or
restrictions existing under or by reason of (a) applicable law, (b) Existing
Indebtedness, (c) any restrictions under any agreement evidencing any Acquired
Indebtedness that was permitted to be incurred pursuant to Section 4.9; PROVIDED
that such restrictions and encumbrances only apply to assets that were subject
to such restrictions and encumbrances prior to the acquisition of such assets by
the Company or its Subsidiaries, (d) restrictions or encumbrances replacing
those permitted by clause (b) or (c) which, taken as a whole, are not more
restrictive, (e) this Indenture, (f) any restrictions or encumbrances arising in
connection with Refinancing Indebtedness; PROVIDED that any restrictions and
encumbrances of the type described in this Section 4.8 that arise under such
Refinancing Indebtedness are not, taken as a whole, more restrictive than those
under the agreement creating or evidencing the Indebtedness being refunded or
refinanced, (g) any restrictions with respect to a Subsidiary of the Company
imposed pursuant to an agreement that has been entered into for the sale or
other disposition of all or substantially all of the Capital Stock or assets of
such Subsidiary, (h) any agreement restricting the sale or other disposition of
property securing Indebtedness if such agreement does not expressly restrict the
ability of a Subsidiary of the Company to pay dividends or make loans or
advances, and (i) customary restrictions in purchase money debt or leases
relating to the property covered thereby.
SECTION 4.9 LIMITATIONS ON ADDITIONAL INDEBTEDNESS
(a) After the date hereof, (i) the Company shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee, extend the maturity of, or otherwise become liable with
respect to (collectively, "incur"), any Indebtedness (including, without
limitation, Acquired Indebtedness) and (ii) the Company shall not permit any of
its Subsidiaries to issue (except to the Company or any of its Wholly Owned
Subsidiaries) any Capital Stock having a preference in liquidation or with
respect to the payment of dividends, unless after giving effect thereto, the
Company's EBITDA Coverage Ratio on the date thereof would be at least:
(i) 1.75 to 1, if such date is on or prior to June 30, 1994,
(ii) 2.0 to 1, if such date is after June 30, 1994 and on or
prior to June 30, 1995, and
(iii) 2.25 to 1, if such date is after June 30, 1995,
in each case determined on a pro forma basis as if the incurrence of such
additional Indebtedness or the issuance of such Capital Stock, as the case may
be, and the application of the net proceeds
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therefrom, had occurred at the beginning of the four-quarter period used to
calculate the Company's EBITDA Coverage Ratio.
(b) Notwithstanding the foregoing: (a) the Company and its
Subsidiaries may (i) incur Indebtedness under the New Credit Agreement in an
aggregate or principal amount at any time not to exceed $25 million; (ii) incur
Indebtedness for working capital purposes including by way of sale or transfer
of receivables in an aggregate principal amount at any one time outstanding not
to exceed the sum of 85% of Accounts Receivable and 75% of Inventory;
(iii) incur Refinancing Indebtedness; (iv) incur any Indebtedness of the Company
to any Wholly Owned Subsidiary or of any Subsidiary to the Company or to any
Wholly Owned Subsidiary; (v) incur any Indebtedness evidenced by letters of
credit which are used in the ordinary course of business of the Company and its
Subsidiaries to secure workers' compensation and other insurance coverages; and
(vi) incur Capitalized Lease Obligations and Attributable Indebtedness of the
Company and its Subsidiaries in an aggregate principal amount at any one time
outstanding not to exceed 10% of Consolidated Tangible Assets; and (b) the
Company and its Subsidiaries may incur additional Indebtedness, whether secured
or unsecured, PROVIDED that the aggregate principal amount of any such
additional Indebtedness outstanding at any time does not exceed $10.0 million.
SECTION 4.10 CHANGE OF CONTROL
(a) Following the occurrence of any Change of Control, the Company
shall offer (a "Change of Control Offer") to purchase all outstanding Securities
at a purchase price equal to 101% of the aggregate principal amount of the
Securities, plus accrued and unpaid interest to the date of purchase. Prior to
the commencement of a Change of Control Offer but in any event within 20 days
following any Change of Control, the Company covenants to (i) repay in full all
Bank Debt or (ii) obtain the requisite consent under the New Credit Agreement to
permit the repurchase of the Securities as provided for in this Section 4.10.
The Company shall first comply with the covenant in the preceding sentence
before it shall be required to purchase Securities pursuant to this Section
4.10.
(b) The Change of Control Offer shall be deemed to have commenced
upon mailing of the notice described in the next succeeding paragraph and shall
terminate 20 Business Days after its commencement, unless a longer offering
period is required by law. On or prior to the fifth Business Day following the
termination of the Change of Control Offer (the "Change of Control Payment
Date"), the Company shall purchase and mail or deliver payment for all
Securities tendered in response to the Change of Control Offer. If the Change
of Control Payment Date is on or after an interest payment record date and on or
before the related interest payment date, any accrued interest will be paid to
the person in whose name a Security is registered at the close of business on
such record date, and no additional interest will be payable to Holders who
tender Securities pursuant to the Change of Control Offer.
(c) Within 30 days after any Change of Control, the Company (with
notice to the Trustee), or the Trustee at the Company's request, will mail or
cause to be mailed to all Holders on the date of the Change of Control a notice
of the occurrence of such Change of Control and of the Holders' rights arising
as a result thereof. Such notice will contain all instructions and materials
necessary to enable Holders to tender their Securities to the Company. Such
notice, which shall govern the terms of the Change of Control Offer, shall
state:
(1) that the Change of Control Offer is being made pursuant to this
Section 4.10 and the length of time the Change of Control Offer will remain
open;
(2) the purchase price and the Change of Control Payment Date;
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(3) that any Security not tendered will continue to accrue interest;
(4) that any Security accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest on the Change of Control
Payment Date;
(5) that Holders electing to have a Security purchased pursuant to
any Change of Control Offer will be required to surrender the Security,
with the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Security completed, to the Company, a depositary, if appointed by
the Company, or a Paying Agent at the address specified in the notice prior
to termination of the Change of Control Offer;
(6) that Holders will be entitled to withdraw their election if the
Company, depositary or Paying Agent, as the case may be, receives, not
later than the expiration of the Change of Control Offer, or such longer
period as may be required by law, a telegram, telex, facsimile transmission
or letter setting forth the name of the Holder, the principal amount of the
Security the Holder delivered for purchase and a statement that such Holder
is withdrawing his election to have the Security purchased; and
(7) that Holders whose Securities are purchased only in part will be
issued Securities equal in principal amount to the unpurchased portion of
the Securities surrendered.
(d) On or before a Change of Control Payment Date, the Company, to
the extent lawful, (i) if the Company appoints a depositary or Paying Agent,
will deposit with such depositary or Paying Agent money sufficient to pay the
purchase price of all Securities tendered, (ii) will deliver or cause the
depositary or Paying Agent to deliver to the Trustee Securities so tendered and
(iii) will deliver an Officers' Certificate identifying the Securities accepted
for payment by the Company in accordance with the terms of this Section 4.10.
The depositary, the Paying Agent or the Company, as the case may be, promptly
shall mail or deliver to each tendering Holder an amount equal to the purchase
price of the Securities tendered by such Holder and accepted by the Company for
purchase. The Company publicly will announce the results of the Change of
Control Offer on the Change of Control Payment Date. Any Change of Control
Offer shall be conducted in compliance with applicable tender offer rules,
including Section 14(e) of the Exchange Act and Rule 14e-1 thereunder.
SECTION 4.11 LIMITATIONS ON ASSET SALES
The Company shall not, and shall not permit any of its Subsidiaries
to, consummate any Asset Sale unless (i) the Company or its Subsidiaries receive
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets or Capital Stock included in such Asset Sale (as determined
in good faith by the Board of Directors, whose determination shall be conclusive
and evidenced by a board resolution) and (ii) not less than 50% of such
consideration is in the form of cash. The Net Proceeds of Asset Sales shall (A)
within 360 days, be reinvested in the lines of business of the Company or any of
its Subsidiaries, immediately prior to such investment; (B) be applied to the
payment of the principal of and interest on Senior Indebtedness; (C) be utilized
to make any Investment in any other Person permitted under the Indenture; or (D)
be applied to an offer (an "Asset Sale Offer") to purchase outstanding
Securities. In any such Asset Sale Offer, the Company shall offer to purchase
Securities on as selected by lot (with such adjustments as may be deemed
appropriate by the Company so that only Securities in denominations of $1,000 or
integral multiples thereof shall be purchased), at a purchase price equal to
100% of the aggregate principal amount of the Securities, plus accrued and
unpaid interest to the date of purchase, in the manner set forth herein. Any
Asset Sale Offer will be conducted in compliance with applicable tender offer
rules, including Section 14(e) of the
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Exchange Act and Rule 14e-1 thereunder. Any Net Proceeds remaining immediately
after the completion of any Asset Sale Offer may be used by the Company or its
Subsidiaries for any purpose not inconsistent with the other provisions of the
Indenture. The term "Asset Sale Offer Date" means the date that is 360 days
after the date of the consummation of any Asset Sale and on which the Net
Proceeds from such Asset Sale have not been applied to an Asset Sale Offer or as
set forth in clause (A), (B) or (C) above.
SECTION 4.12 LIMITATIONS ON TRANSACTIONS WITH AFFILIATES
Neither the Company nor any of its Subsidiaries shall make any loan,
advance, guarantee or capital contribution to, or for the benefit of, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
for the benefit of, or purchase or lease any property or assets from, or enter
into or amend any contract, agreement or understanding with, or for the benefit
of, any Affiliate of the Company or any of its Subsidiaries or any Person (or
any Affiliate of such Person) holding 10% or more of the Common Equity of the
Company or any of its Subsidiaries (each an "Affiliate Transaction") unless
(i) such Affiliate Transactions are between or among the Company and its
Subsidiaries; (ii) such Affiliate Transactions are in the ordinary course of
business and consistent with past practice or (iii) the terms of such Affiliate
Transactions are fair and reasonable to the Company or such Subsidiary, as the
case may be, and are at least as favorable as the terms which could be obtained
by the Company or such Subsidiary, as the case may be, in a comparable
transaction made on an arm's-length basis between unaffiliated parties. In the
event of any transaction or series of transactions occurring subsequent to the
date of this Indenture with an Affiliate of the Company which is not permitted
under clauses (i) or (ii) above and involves in excess of $1.0 million, the
terms of such transaction shall be in writing and a majority of the
disinterested members of the Board of Directors shall by resolution determine
that such business or transaction meets the criterion set for in clause
(iii) above.
SECTION 4.13 LIMITATIONS ON LIENS
The Company shall not create or suffer to exist any Lien, other than
Permitted Liens on any of its assets unless all payments due under this
Indenture and the Securities are secured on an equal and ratable basis with the
obligation so secured until such time as such obligation is no longer secured by
a Lien.
SECTION 4.14 LIMITATIONS ON INVESTMENTS AND LOANS
The Company shall not, and shall not permit any of its Subsidiaries
to, make any loans to, or Investments in, any other Person, except (i) capital
contributions, advances or loans to the Company by any Subsidiary or by the
Company to a Wholly Owned Subsidiary; (ii) the Company and each of its
Subsidiaries may acquire and hold receivables owing to it, if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; (iii) the Company and its Subsidiaries
may acquire and hold cash and Eligible Investments; (iv) the Company and its
Subsidiaries may make Investments in persons at least a majority of whose
revenues result from health care related businesses or facilities; (v) the
Company, directly or through a Wholly Owned Subsidiary, may make an Investment
in a Wholly Owned Subsidiary formed solely for the purpose of insuring the
health care business and facilities owned or operated by the Company or a
Subsidiary and any physician employed by or on the staff of any such business or
facility (the "Insurance Subsidiary"); PROVIDED that the amount invested in such
Insurance Subsidiary does not exceed $5.0 million; and (vi) investments not
otherwise permitted by clauses (i) through (v) above in an aggregate amount not
exceeding at any time the sum of (A) $5.0 million and (B) that amount equal to
the amount of Restricted Payments that could be made by the Company and its
Subsidiaries without violating the Indenture.
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SECTION 4.15 LIMITATIONS ON SUBSIDIARY PREFERRED STOCK
The Company shall not permit any of its Subsidiaries to issue any Preferred
Stock (other than to the Company or a Wholly Owned Subsidiary) or permit any
Person (other than the Company or a Wholly Owned Subsidiary) to own or hold any
interest in any Preferred Stock of any such Subsidiary, unless the Subsidiary
would be permitted to incur Indebtedness pursuant to the provisions of Section
4.9 in the aggregate principal amount equal to the aggregate liquidation value
of such Preferred Stock.
SECTION 4.16 LIMITATIONS ON CERTAIN OTHER SUBORDINATED INDEBTEDNESS.
The Company shall not create, incur, assume or suffer to exist any
Indebtedness that is subordinate in right of payment to any Senior Indebtedness
unless such Indebtedness by its terms or the terms of the instrument creating or
evidencing such Indebtedness is subordinate in right of payment to, or ranks
PARI PASSU with, the Securities.
ARTICLE 5.
SUCCESSORS
SECTION 5.1 LIMITATIONS ON MERGERS AND CONSOLIDATIONS
The Company shall not consolidate or merge with or into, or sell,
lease, convey or otherwise dispose of all or substantially all of its assets, or
assign any of its obligations hereunder or under the Securities, to any Person
unless:
(i) the Person formed by or surviving such consolidation or merger
(if other than the Company), or to which sale, lease, conveyance or other
disposition or assignment shall be made (collectively, the "Successor"), is
a corporation organized and existing under the laws of the United States or
any State thereof or the District of Columbia, and the Successor assumes by
supplemental indenture in a form satisfactory to the Trustee all of the
obligations of the Company hereunder and under the Securities;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction and the
use of any net proceeds therefrom on a PRO FORMA basis, the Consolidated
Net Worth of the Company or the Successor, as the case may be, would be at
least equal to the Consolidated Net Worth of the Company immediately prior
to such transaction; and
(iv) the EBITDA Coverage Ratio of the Company or the Successor, as the
case may be, immediately after giving effect to such transaction, would on
a PRO FORMA basis, be such that the Company or the Successor, as the case
may be, would be entitled to incur at least $1 of additional Indebtedness
under the EBITDA Coverage Ratio test in Section 4.9.
The Company shall deliver to the Trustee prior to the consummation of
the proposed transaction an Officers' Certificate to the foregoing effect and an
Opinion of Counsel stating that the proposed transaction and such supplemental
indenture comply with this Indenture.
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SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED
Upon any consolidation or merger, or any sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company or
any assignment of its obligations under this Indenture or the Securities in
accordance with Section 5.1, the Successor formed by such consolidation or into
or with which the Company is merged or to which such sale, lease, conveyance or
other disposition or assignment is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Indenture
with the same effect as if such Successor has been named as the Company herein
and the predecessor Company, in the case of a sale, lease, conveyance or other
disposition or assignment, shall be released from all obligations under this
Indenture and the Securities.
ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on any Security
when the same becomes due and payable and the Default continues for a
period of 30 days;
(2) the Company defaults in the payment of the principal or premium
of any Security when the same becomes due and payable whether at Stated
Maturity, upon redemption, upon acceleration or otherwise;
(3) the Company fails to comply with any of its agreements or
covenants in, or provisions of, the Securities or this Indenture and such
failure continues for the period and after the notice specified below;
(4) any acceleration of the maturity of Indebtedness of the Company
or its Subsidiaries having an outstanding principal amount of at least $3.0
million or a failure to pay such indebtedness at its stated maturity;
PROVIDED that such acceleration or failure to pay is not cured within 10
days after such acceleration or failure to pay;
(5) a final judgment or final judgments that exceeds $3.0 million
(individually or in the aggregate) for the payment of money are entered by
a court or courts of competent jurisdiction against the Company and/or any
of its Subsidiaries and such judgment or judgments shall not be discharged,
satisfied, stayed, annulled or rescinded within 60 days of being entered;
(6) the Company or any of its Subsidiaries pursuant to or within the
meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in
an involuntary case,
(c) consents to the appointment of a Custodian of it or for all
or substantially all of its property, or
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(d) makes a general assignment for the benefit of its creditors;
or
(7) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(a) is for relief against the Company or any of its Subsidiaries
as debtor in an involuntary case,
(b) appoints a Custodian of the Company or any of its
Subsidiaries or a Custodian for all or substantially all of
the property of the Company or any of its Subsidiaries, or
(c) orders the liquidation of the Company or any of its
Subsidiaries,
and the order or decree remains unstated and in effect for 60 days.
The term "Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law.
The Trustee shall not be deemed to know of a Default unless it has
actual knowledge of such Default or receives written notice of such Default with
specific reference to such Default.
A Default under clause (3) is not an Event of Default until the
Trustee notifies the Company, or the Holders of at least 25% in aggregate
principal amount of the then outstanding Securities notify the Company and the
Trustee, of the Default and the Company does not cure the Default within 60 days
after receipt of the notice. The notice must specify the Default, demand that
it be remedied and state that the notice is a "Notice of Default."
SECTION 6.2 ACCELERATION
If an Event of Default (other than an Event of Default with respect to
the Company specified in clause (6) or (7) of Section 6.1) occurs and is
continuing, the Trustee by notice to the Company, or the Holders of at least 25%
in aggregate principal amount of the then outstanding Securities by notice to
the Company and the Trustee, may declare all Securities to be due and payable
immediately. Upon such declaration the amounts due and payable on the
Securities, as determined in the next succeeding paragraph, shall be due and
payable immediately. If an Event of Default with respect to the Company
specified in clause (6) or (7) of Section 6.1 occurs, such an amount shall ipso
facto become and be immediately due and payable without any declaration, notice
or other act on the part of the Trustee or any Holder. The Holders of a
majority in aggregate principal amount of the then outstanding Securities by
written notice to the Trustee may rescind an acceleration and its consequences
if the rescission would not conflict with any judgment or decree and if all
existing Events of Default (except nonpayment of principal of or interest on the
Securities or that resulted from a failure to comply with Section 4.10) have
been cured or waived.
In the event that the maturity of the Securities is accelerated
pursuant to this Section 6.2, 100% of the principal amount thereof shall become
due and payable plus accrued interest to the date of payment plus interest on
defaulted interest to the extent provided herein.
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SECTION 6.3 OTHER REMEDIES
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal of or interest
on the Securities or to enforce the performance of any provision of the
Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. All remedies are cumulative
to the extent permitted by law.
SECTION 6.4 WAIVER OF PAST DEFAULTS
The Holders of a majority in aggregate principal amount of the then
outstanding Securities by notice to the Trustee may waive an existing Default or
Event of Default and its consequences (including waivers obtained in connection
with a tender offer or exchange offer for Securities), except a continuing
Default or Event of Default in the payment of the principal of or interest on
any Security or that resulted from a failure to comply with Section 4.10. Upon
any such waiver, such Default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
Event of Default or impair any right or remedy consequent thereon.
SECTION 6.5 CONTROL BY MAJORITY
The Holders of a majority in aggregate principal amount of the then
outstanding Securities may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any direction
that conflicts with law or this Indenture, that the Trustee determines may be
unduly prejudicial to the rights of other Holders, or that may involve the
Trustee in personal liability, in each case as determined by the Trustee.
SECTION 6.6 LIMITATIONS ON SUITS
A Holder may pursue a remedy with respect to this Indenture or the
Securities only if:
(1) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(2) the Holders of at least 25% in aggregate principal amount of the
then outstanding Securities make a written request to the Trustee to pursue
the remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee in its sole discretion against any loss,
liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority in aggregate
principal amount of the then outstanding Securities do not give the Trustee
a direction inconsistent with the request.
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A Holder may not use this Indenture to prejudice the rights of another Holder or
to obtain a preference or priority over another Holder.
SECTION 6.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Security to receive payment and interest on the Security, on or
after the respective due dates expressed in the Security, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of the Holder.
SECTION 6.8 COLLECTION SUIT BY TRUSTEE
If an Event of Default specified in Section 6.1(1) or (2) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Company for the amount of principal
and interest remaining unpaid on the Securities, determined in accordance with
Section 6.2, and interest on overdue principal and, to the extent lawful,
interest on overdue installments of interest, and such further amount as shall
be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relative to the Company, its
creditors or its property and shall be entitled and empowered to collect,
receive and distribute any money or other property payable or deliverable on any
such claims and any Custodian in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee, and in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.6. To the
extent that the payment of any such compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.6 out of the estate in any such proceeding, shall be
denied for any reason, payment of the same shall be secured by a Lien on, and
shall be paid out of, any and all distributions, dividends, money, securities
and other properties which the Holders of the Securities may be entitled to
receive in such proceeding whether in liquidation or under any plan of
reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10 PRIORITIES
If the Trustee collects any money pursuant to this Article 6, it shall
pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.6;
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Second: to Holders for amounts due and unpaid on the Securities for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Securities for
principal and interest, respectively; and
Third: to the Company.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Article.
SECTION 6.11 UNDERTAKING FOR COSTS
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.7 or a suit by Holders of more than 10% in principal
amount of the then outstanding Securities.
ARTICLE 7.
TRUSTEE
SECTION 7.1 DUTIES OF TRUSTEE
(1) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in such exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(2) Except during the continuance of an Event of Default:
(a) the Trustee need perform only those duties that are specifically
set forth in this Indenture and no others, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(b) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; however,
the Trustee shall examine the certificates and opinions to determine
whether or not, on their face, they appear to conform to the requirements
of this Indenture.
(3) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(a) this paragraph does not limit the effect of paragraph (2) of this
Section;
(b) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
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(c) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.5.
(4) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(1), (2) and (3) of this Section 7.1.
(5) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee may refuse to
perform any duty or exercise any right or power unless it receives indemnity
satisfactory to it against any loss, liability or expense.
(6) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.2 RIGHTS OF TRUSTEE
(1) Subject to Section 7.1, the Trustee may rely on any document
believed by it to be genuine and to have been signed or presented by the proper
Person, and the Trustee need not investigate any fact or matter stated in the
document.
(2) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall
not be liable for any action it takes or omits to take in good faith in reliance
on such Officers' Certificate or Opinion of Counsel. The Trustee may consult
with counsel and the written advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in reliance
thereon.
(3) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(4) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by this Indenture.
(5) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or any of
its Affiliates with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.
SECTION 7.4 TRUSTEE'S DISCLAIMER
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities or as to the Company's ability to pay the
Securities when and as due or perform its other obligations hereunder. It shall
not be accountable for the Company's use of the proceeds from the Securities or
any money paid to the Company or upon the Company's direction under any
provision hereof. It shall not be responsible for the use or application of any
money received by any Paying Agent other than the Trustee. It shall not be
responsible for any
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statement or recital herein or any statement in the Securities other than its
certificate of authentication.
SECTION 7.5 NOTICE OF DEFAULTS
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders a notice of the Default
or Event of Default within 60 days after it occurs. Except in the case of a
Default or Event of Default in payment of principal or interest on any Security
or that resulted from a failure to comply with Section 4.10, the Trustee may
withhold the notice if and so long as a committee of its Trust Officers in good
faith determines that withholding the notice is in the interests of Holders.
SECTION 7.6 COMPENSATION AND INDEMNITY
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable disbursements, advances and expenses incurred by it.
Such expenses shall include the reasonable compensation, disbursements and
expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any loss, liability or
expense incurred by it arising out of or in connection with the acceptance or
administration of its duties under this Indenture or in connection with
enforcing this indemnification provision, except as set forth in the next
paragraph. The Trustee promptly shall notify the Company of any claim for which
it may seek indemnity. The Company shall defend the claim and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel and the Company
shall pay the reasonable fees and expenses of such counsel. The Company need
not pay for any settlement made without its consent, which consent shall not be
unreasonably withheld.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through negligence or bad faith.
To secure the Company's payment obligations in this Section 7.6, the
Trustee shall have a Lien prior to the Securities on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(6) or (7) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 7.7 REPLACEMENT OF TRUSTEE
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign and be discharged from the trust hereby created
by so notifying the Company. The Holders of a majority in principal amount of
the then outstanding Securities may remove the Trustee by so notifying the
Trustee and the Company. The Company may remove the Trustee if:
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(1) the Trustee fails to comply with Section 310(b) of the TIA;
(2) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(3) a Custodian or public officer takes charge of the Trustee or its
property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the then outstanding Securities
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 310 of the TIA, any Holder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the Lien
provided for in Section 7.6. Notwithstanding replacement of the Trustee
pursuant to this Section 7.7, the Company's obligations under Section 7.6 shall
continue for the benefit of the retiring Trustee.
SECTION 7.8 SUCCESSOR TRUSTEE BY MERGER, ETC.
Subject to Section 7.9, if the Trustee consolidates, merges or
converts into, or transfers all or substantially all of its corporate trust
business to, another corporation, the successor corporation without any further
act shall be the successor Trustee.
SECTION 7.9 ELIGIBILITY; DISQUALIFICATION
There shall at all times be a Trustee hereunder which shall be a bank
or corporation organized and doing business under the laws of the United States
of America, any state thereof or the District of Columbia authorized under such
laws to exercise corporate trustee power, shall be subject to supervision or
examination by Federal or state (or the District of Columbia) authority and
shall have a combined capital and surplus of at least $50 million as set forth
in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA SECTION 310(a)(1) and 310(a)(2). The Trustee is subject to
TIA SECTION 310(b). If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect specified in Section 7.7.
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ARTICLE 8.
DISCHARGE OF INDENTURE
SECTION 8.1 TERMINATION OF COMPANY'S OBLIGATIONS
(a) This Indenture shall cease to be of further effect (except that
the Company's obligations under Section 7.6 and the Trustee's and Paying Agent's
obligations under Section 8.3 shall survive) when all outstanding Securities
theretofore authenticated and issued have been delivered (other than destroyed,
lost or stolen Securities that have been replaced or paid) to the Trustee for
cancellation and the Company has paid all sums payable hereunder. In addition,
the Company may elect to have either paragraph (b) or paragraph (c) below be
applied to the outstanding Securities upon compliance with the conditions set
forth in paragraph (d).
(b) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (b), the Company shall be deemed to have been
released and discharged from its obligations with respect to the outstanding
Securities on the date the conditions set forth below are satisfied
(hereinafter, "legal defeasance"). For this purpose, such legal defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Securities, which shall thereafter
be deemed to be "outstanding" only for the purposes of the Sections of and
matters under this Indenture referred to in (i) and (ii) below, and to have
satisfied all its other obligations under such Securities and this Indenture
insofar as such Securities are concerned (and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following which shall survive until otherwise terminated or discharged
hereunder: (i) the rights of Holders of outstanding Securities to receive
solely from the trust fund described in paragraph (d) below and as more fully
set forth in such paragraph, payments in respect of the principal of, premium,
if any, and interest on such Securities when such payments are due, (ii) the
Company's obligations with respect to such Securities under Sections 2.5, 2.6
and 4.2, and, with respect to the Trustee, under Section 7.6, (iii) the rights,
powers, trusts, duties and immunities of the Trustee hereunder and (iv) this
Section 8.1. Subject to compliance with this Section 8.1, the Company may
exercise its option under this paragraph (b) notwithstanding the prior exercise
of its option under paragraph (c) below with respect to the Securities.
(c) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (c), the Company shall be released and discharged
from its obligations under any covenant contained in Article 5 and in Section
4.3, 4.4 and 4.6 through 4.16 with respect to the outstanding Securities on and
after the date the conditions set forth below are satisfied (hereinafter,
"covenant defeasance"), and the Securities shall thereafter be deemed to be not
"outstanding" for the purpose of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the outstanding Securities, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 6.1, but, except as specified above, the remainder of this Indenture and
such Securities shall be unaffected thereby.
(d) The following shall be the conditions to the application of
either paragraph (b) or (c) above to the outstanding Securities:
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(1) the Company has irrevocably deposited in trust with the Trustee
or, at the option of the Trustee with a trustee satisfactory to the Trustee
and the Company under the terms of an irrevocable trust agreement in form
and substance satisfactory to the Trustee in its sole discretion, money or
U.S. Government Obligations sufficient to pay principal, premium, if any,
and interest on the Securities to maturity or redemption (in the opinion of
a nationally recognized accounting firm of independent Certified Public
Accountants expressed in a written certificate delivered to the Trustee)
and to pay all other sums payable by it hereunder; PROVIDED that (i) the
trustee of the irrevocable trust shall have been irrevocably instructed to
pay such money or the proceeds of such U.S. Government Obligations to the
Trustee and (ii) the Trustee shall have been irrevocably instructed to
apply such money or the proceeds of such U.S. Government Obligations to the
payment of said principal, premium, if any, and interest with respect to
the Securities;
(2) the Company has delivered to the Trustee an Officer's Certificate
stating that (A) all conditions precedent provided for relating to either
the legal defeasance under paragraph (b) above or the covenant defeasance
under paragraph (c) above, as the case may be, have been complied with and
(B) if any other Indebtedness of the Company shall then be outstanding or
committed, such legal defeasance or covenant defeasance will not violate
the provisions of the agreements or instruments evidencing such
Indebtedness;
(e) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit;
(f) such legal defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a Default or Event of Default under, this
Indenture or any other agreement or instrument to which the Company is a party
or by which it is bound;
(g) in the case of an election under paragraph (b) above, the Company
shall have delivered to the Trustee an Opinion of Counsel from nationally
recognized counsel acceptable to the Trustee stating that (x) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling, (y) there exists controlling precedent, or (z) since the date of this
Indenture, there has been a change in the applicable Federal income tax law, in
either case to the effect that the Holders of the outstanding Securities will
not recognize income, gain or loss for Federal income tax purposes as a result
of such legal defeasance and will be subject to federal income tax on the same
amount and in the same manner and at the same time as would have been the case
if such legal defeasance had not occurred; and
(h) in the case of an election under paragraph (c) above, the Company
shall have delivered to the Trustee an Opinion of Counsel from nationally
recognized counsel acceptable to the Trustee (i) to the effect that the Holders
of the outstanding Securities will not recognize income, gain or loss for
Federal loss for Federal income tax purposes as a result of such covenant
defeasance and will be subject to Federal income tax on the same amount and in
the same manner and at the same time as would have been the case if such
covenant defeasance had not occurred or (ii) that the Company has received from,
or there has been published by, the Internal Revenue Service a ruling to the
foregoing effect.
After such irrevocable deposit made pursuant to this Section 8.1 and
satisfaction of the other conditions set forth herein, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
this Indenture except for those surviving obligations specified above.
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The Company may make an irrevocable deposit pursuant to this Section
8.1 only if at such time it is not prohibited from doing so under the provisions
of Article 10 and the Company shall have delivered to the Trustee and any Paying
Agent an Officers' Certificate to that effect.
In order to have money available on a payment date to pay principal,
premium, if any, or interest on the Securities, the U.S. Government Obligations
shall be payable as to principal or interest on or before such payment date in
such amounts as will provide the necessary money to effect the applicable
defeasance. U.S. Government Obligations shall not be callable at the issuer's
option.
SECTION 8.2 APPLICATION OF TRUST MONEY
The Trustee or a trustee satisfactory to the Trustee and the Company
shall hold in trust money or U.S. Government Obligations deposited with it
pursuant to Section 8.1. It shall apply the deposited money and the money from
U.S. Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of, premium, if any, and interest on the
Securities.
SECTION 8.3 REPAYMENT TO THE COMPANY
The Trustee and the Paying Agent shall promptly pay to the Company
upon written request any excess money or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company at their
option or upon written request any money held by them for the payment of
principal, premium, if any, or interest that remains unclaimed for two years
after the date upon which such payment shall have become due; PROVIDED, HOWEVER,
that the Company shall have either caused notice of such payment to be mailed to
each Holder entitled thereto no less than 30 days prior to such repayment or
within such period shall have published such notice in a financial newspaper of
widespread circulation published in The City of New York. After payment to the
Company, Holders entitled to the money must look to the Company for payment as
general creditors unless an applicable abandoned property law designates another
Person, and all liability of the Trustee and such Paying Agent with respect to
such money shall cease.
SECTION 8.4 REINSTATEMENT
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 8.1 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's obligations under this Indenture and the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to Section 8.1 until
such time as the Trustee or Paying Agent is permitted to apply all such money or
U.S. Government Obligations in accordance with Section 8.1; PROVIDED, HOWEVER,
that if the Company has made any payment of interest on or principal of any
Securities because of the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Securities to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent.
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ARTICLE 9.
AMENDMENTS
SECTION 9.1 WITHOUT CONSENT OF HOLDERS
The Company and the Trustee may amend this Indenture or the Securities
or waive any provision hereof without the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Section 5.1;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(4) to make any change that does not adversely affect the legal
rights hereunder of any Holder; or
(5) to comply with a provision or provisions of the TIA applicable to
this Indenture.
Upon the request of the Company, accompanied by a resolution of the
Board of Directors authorizing the execution of any such supplemental indenture,
and upon receipt by the Trustee of the documents described in Section 9.6, the
Trustee shall join with the Company in the execution of any supplemental
indenture authorized or permitted by the terms of this Indenture and make any
further appropriate agreements and stipulations that may be therein contained,
but the Trustee shall not be obligated to enter into any supplemental indenture
that affects its own rights, duties or immunities under this Indenture or
otherwise. After an amendment or waiver under this Section becomes effective,
the Company shall mail to the Holders of each Security affected thereby a notice
briefly describing the amendment or waiver. Any failure of the Company to mail
such notice, or any defect therein, shall not, however, in any way impair or
affect the validity of any such supplemental indenture.
SECTION 9.2 WITH CONSENT OF HOLDERS
Except as provided in this Section 9.2, the Company and the Trustee
may amend this Indenture or the Securities with the written consent (including
consents obtained in connection with a tender offer or exchange offer for
Securities) of the Holders of at least a majority in principal amount of the
then outstanding Securities.
Upon the request of the Company, accompanied by a resolution of the
Board of Directors authorizing the execution of any such supplemental indenture,
and upon the filing with the Trustee of evidence of the consent of the Holders
as aforesaid, and upon receipt by the Trustee of the documents described in
Section 9.6, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such supplemental indenture.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment or waiver, but
it shall be sufficient if such consent approves the substance thereof.
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The Holders of a majority in principal amount of the Securities then
outstanding may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Securities (including waivers obtained in
connection with a tender offer or exchange offer for Securities). However,
without the consent of each Holder affected, an amendment or waiver under this
Section may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the rate of or change the time for payment of interest,
including deficit interest, on any Security;
(3) reduce the principal of or change the fixed maturity of any
Security or alter the provisions with respect to redemption under
Sections 3.7 and 3.8;
(4) make any Security payable in money other than that stated in the
Security;
(5) make any change in Section 6.4 or 6.7 or in this sentence of this
Section 9.2; or
(6) waive a continuing Default or Event of Default in the payment of
principal of or interest on the Securities or that resulted from
a failure to comply with Section 4.10.
The right of any Holder to participate in any consent required or
sought pursuant to any provision of this Indenture (and the obligation of the
Company to obtain any such consent otherwise required from such Holder) may be
subject to the requirement that such Holder shall have been the Holder of record
of any Securities with respect to which such consent is required or sought as of
a date identified by the Trustee in a notice furnished to Holders in accordance
with the terms of this Indenture.
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT
Every amendment to this Indenture or the Securities shall comply in
form and substance with the TIA as then in effect.
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS
Until an amendment (which includes any supplement) or waiver becomes
effective, a consent to it by a Holder of a Security is a continuing consent by
the Holder and every subsequent Holder of a Security or portion of a Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent is not made on any Security. However, any such Holder
or subsequent Holder may revoke the consent as to his or her Security or portion
of a Security if the Trustee receives written notice of revocation before the
date the amendment or waiver becomes effective. An amendment or waiver becomes
effective in accordance with its terms and thereafter binds every Holder.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment or
waiver. If the Company elects to fix a record date for such purpose, the record
date shall be fixed at (i) the later of 30 days prior to the first solicitation
of such consent or the date of the most recent list of Holders
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furnished to the Trustee prior to such solicitation, or (ii) such other date as
the Company shall designate. If a record date is fixed, then notwithstanding
the provisions of the immediately preceding paragraph, those Persons who were
Holders at such record date (or their duly designated proxies), and only those
Persons, shall be entitled to consent to such amendment or waiver or to revoke
any consent previously given, whether or not such Persons continue to be Holders
after such record date. No consent shall be valid or effective for more than 90
days after such record date unless consents from Holders of the principal amount
of Securities required hereunder for such amendment or waiver to be effective
shall have also been given and not revoked within such 90-day period.
After an amendment or waiver becomes effective it shall bind every
Holder, unless it is of the type described in any of clauses (1) through (6) of
Section 9.2. In such case, the amendment or waiver shall bind each Holder of a
Security who has consented to it and every subsequent Holder of a Security that
evidences the same debt as the consenting Holder's Security.
SECTION 9.5 NOTATION ON OR EXCHANGE OF SECURITIES
The Trustee may place an appropriate notation about an amendment or
waiver on any Security thereafter authenticated. The Company in exchange for
all Securities may issue and the Trustee shall authenticate new Securities that
reflect the amendment or waiver.
SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment or supplemental indenture
authorized pursuant to this Article 9 if the amendment does not adversely affect
the rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not, sign it. In signing or refusing to sign such
amendment or supplemental indenture, the Trustee shall be entitled to receive
and, subject to Section 7.1, shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel as conclusive evidence that such
amendment or supplemental indenture is authorized or permitted by this
Indenture, that it is not inconsistent herewith, and that it will be valid and
binding upon the Company in accordance with its terms.
ARTICLE 10.
SUBORDINATION
SECTION 10.1 SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS
The Company agrees, and each Holder of the Securities by his or her
acceptance thereof likewise agrees, that the payment by the Company of the
principal of and interest on the Securities is subordinated, to the extent and
in the manner provided in this Article, to the prior payment in full of all
Senior Indebtedness.
This Article shall constitute a continuing offer to all persons who,
in reliance upon such provisions, become holders of, or continue to hold, Senior
Indebtedness, and such provisions are made for the benefit of the holders of
Senior Indebtedness, and such holders are made obligees hereunder and they
and/or each of them may enforce such provisions.
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SECTION 10.2 PAYMENT RESTRICTIONS WITH RESPECT TO THE SECURITIES IN CERTAIN
CIRCUMSTANCES
(a) Upon the maturity of any Senior Indebtedness by lapse of time,
acceleration or otherwise, all Senior Indebtedness shall first be paid in full
in cash, or such payment duly provided for in a manner satisfactory to the
holders of such Senior Indebtedness ("Paid in Full" or "Payment in Full"),
before any payment or distribution of the assets of the Company is made (other
than payments of amounts already deposited in accordance with Article 8) on
account of Subordinated Obligations or on account of the purchase, redemption or
other acquisition of the Securities.
(b) No payment or distribution of the assets of the Company of any
kind or character (other than payments of amounts already deposited in
accordance with Article 8) shall be made on account of Subordinated Obligations
or on account of the purchase, redemption or other acquisition of the Securities
upon the occurrence of any default in the payment of the Bank Debt or any Senior
Indebtedness having an original outstanding principal balance in excess of $3.0
million beyond any applicable grace period, unless and until such default is
cured or waived or ceases to exist or such Senior Indebtedness shall be Paid in
Full.
(c) During the continuance of any non-payment event of default with
respect to any Designated Senior Indebtedness pursuant to which the maturity
thereof may be accelerated, no payment or distribution of assets of the Company
of any kind or character (other than payments of amounts already deposited in
accordance with the defeasance provisions of the Indenture) shall be made on
account of Subordinated Obligations or on account of the purchase, redemption or
other acquisition of the Securities for the period specified below (the "Payment
Blockage Period"). The Payment Blockage Period shall commence upon the receipt
of notice by the Company or the Trustee from any representative of a holder of
Designated Senior Indebtedness and shall end on the earlier of (i) 179 days
thereafter, (ii) the date on which such event is cured or waived or ceases to
exist or on which such Designated Senior Indebtedness is Paid in Full, (iii) the
date on which the maturity of any Indebtedness (other than Senior Indebtedness)
shall have been accelerated by virtue of such event, or (iv) the date on which
such Payment Blockage Period shall have been terminated by notice to the Company
or the Trustee from the representative of holders of the Designated Senior
Indebtedness initiating such Payment Blockage Period after which any and all
required payments in respect of the Securities, including any missed payments,
may resume. Only one Payment Blockage Period may be commenced during any period
of 365 consecutive days. No event of default with respect to Designated Senior
Indebtedness that existed or was continuing on the date of the commencement of
any Payment Blockage Period with respect to the Designated Senior Indebtedness
initiating such Payment Blockage Period will be, or can be, made the basis for
the commencement of a second Payment Blockage Period whether or not within a
period of 365 consecutive days, unless such event of default has been cured or
waived for a period of not less than 90 consecutive days. In no event will a
Payment Blockage Period extend beyond 179 days.
(d) In the event that notwithstanding the provisions of this
Section 10.2 any payment or distribution shall be made to, or received or
collected by, the Trustee on account of Subordinated Obligations or on account
of the purchase, redemption or other acquisition of the Securities during any
period when any payment or distribution of the assets of the Company is
prohibited by Section 10.2(a), (b) or (c), then, such payment distribution,
receipt or collection (subject to the provisions of Sections 10.6 and 10.7)
shall be held by the Trustee, in trust for the benefit of, and shall be paid
forthwith over and delivered to, the holders of Senior Indebtedness of the
Company, or their representative, or the trustee under the indenture or other
agreement (if any) pursuant to which Senior Indebtedness of the Company may have
been issued (PRO RATA as to each such holder, representative or trustee on the
basis of the respective amounts of unpaid
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Senior Indebtedness of the Company held or represented by each), as their
respective interests may appear, for application to the payment of all Senior
Indebtedness of the Company remaining unpaid to the extent necessary so that all
Senior Indebtedness of the Company shall be Paid in Full in accordance with its
terms, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Indebtedness of the Company. The Trustee shall have no
liability to the Company or to any Holder arising from or out of payment of any
amounts to the holders of Senior Indebtedness if made by the Trustee in good
faith.
(e) The Company shall give prompt written notice to the Trustee and
the Paying Agent of any default or event of default under any Senior
Indebtedness or under any agreement pursuant to which Senior Indebtedness may
have been issued that would cause a payment of principal of or interest on the
Securities to violate this Article.
SECTION 10.3 SECURITIES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR
INDEBTEDNESS ON DISSOLUTION, LIQUIDATION OR REORGANIZATION OF THE
COMPANY
Upon any distribution of assets of the Company in any dissolution,
winding up, liquidation or reorganization of the Company (whether in bankruptcy,
insolvency or receivership proceedings or upon an assignment for the benefit of
creditors or otherwise):
(a) the holders of all Senior Indebtedness of the Company shall first
be entitled to receive Payment in Full thereof before the Holders of the
Securities are entitled to receive any payment on account of Subordinated
Obligations or on account of the purchase, redemption or other acquisition of
Securities (other than payments of amounts deposited prior to the pendency of
any dissolution, winding up, liquidation or reorganization proceedings in
accordance with Article 8);
(b) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities (other than securities of
the Company as reorganized or readjusted or securities of the Company or any
other corporation provided for by a plan of reorganization or readjustment the
payment of which is subordinate, at least to the extent provided in this Article
10 with respect to the Securities, to the Payment in Full without diminution or
modification by such plan of all Senior Indebtedness), to which the Holders of
the Securities or the Trustee on behalf of the Holders of the Securities would
be entitled except for the provisions of this Article 10, shall be paid by the
liquidating trustee or agent or other Person making such payment or distribution
directly to the holders of Senior Indebtedness or their representative, or to
the trustee under any indenture or other agreement (if any) under which Senior
Indebtedness may have been issued (PRO RATA as to each such holder,
representative or trustee on the basis of the respective amounts of unpaid
Senior Indebtedness held or represented by each), as their respective interests
may appear, to the extent necessary to make Payment in Full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution or provision therefor to the holders of such Senior Indebtedness;
and
(c) in the event that notwithstanding the foregoing provisions of
this Section 10.3, any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities (other than
securities of the Company as reorganized or readjusted or securities of the
Company or any other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided in this Article 10 with respect to the Securities, to the Payment in
Full without diminution or modification by such plan of all Senior
Indebtedness), shall be received by the Trustee or the Holders of the Securities
on account of principal of or interest on the Securities before all Senior
Indebtedness is Paid in Full, or effective provision made for its payment, such
payment or distribution (subject to the provisions of Sections 10.6 and 10.7)
shall be received and held in trust for and shall be paid
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over to the holders of the Senior Indebtedness remaining unpaid or unprovided
for, or their representative, or to the trustee under the indenture or other
agreement (if any) under which such Senior Indebtedness may have been issued
(PRO RATA as provided in subsection (b) above), as their respective interests
may appear, for application to the payment of such Senior Indebtedness until all
such Senior Indebtedness shall have been Paid in Full, after giving effect to
any concurrent payment or distribution or provision therefor to the holders of
such Senior Indebtedness. The Trustee shall have no liability to the Company or
to any Holder arising from or out of payment of any amounts to the holders of
Senior Indebtedness if made by the Trustee in good faith.
The Company shall give prompt written notice to the Trustee of any
dissolution, winding up, liquidation or reorganization of the Company.
SECTION 10.4 SUBROGATION TO RIGHT OF HOLDERS OF SENIOR INDEBTEDNESS
Subject to the Payment in Full of all Senior Indebtedness, the Holders
of the Securities shall be subrogated equally and ratably to the rights of the
holders of Senior Indebtedness to receive payments or distributions of assets of
the Company applicable to the Senior Indebtedness until all amounts owing on the
Securities shall be paid in full, and for the purpose of such subrogation no
payments or distributions to the holders of the Senior Indebtedness by or on
behalf of the Company or by or on behalf of the Holders of the Securities by
virtue of this Article which otherwise would have been made to the Holders of
the Securities shall, as between the Company, its creditors other than holders
of Senior Indebtedness and the Holders of the Securities, be deemed to be
payment by the Company to or on account of the Senior Indebtedness, it being
understood that the provisions of this Article 10 are and are intended solely
for the purpose of defining the relative rights of the Holders of the
Securities, on the one hand, and the holders of the Senior Indebtedness, on the
other hand.
SECTION 10.5 OBLIGATION OF THE COMPANY UNCONDITIONAL
Nothing contained in this Article 10 or elsewhere in this Indenture or
in any Security is intended to or shall impair, as between the Company, its
creditors other than holders of Senior Indebtedness and the Holders of the Secu-
rities, the obligation of the Company, which is absolute and unconditional, to
pay to the Holders of the Securities the principal of and interest on the
Securities as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders of the Securities and creditors of the Company other than the holders of
the Senior Indebtedness, nor shall anything herein or therein prevent the
Trustee or the Holder of any Security from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article 10 of the holders of Senior Indebtedness in
respect of cash, property or securities of the Company received upon the
exercise of any such remedy. Upon any distribution of assets of the Company
referred to in this Article 10, the Trustee, subject to the provisions of
Sections 7.1 and 7.2, and the Holders of the Securities shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction in
which such dissolution, winding up, liquidation or reorganization proceedings
are pending, or a certificate of the liquidating trustee or agent or other
person making any distribution to the Trustee or the Holders of the Securities,
for the purpose of ascertaining the persons entitled to participate in such dis-
tribution, the holders of the Senior Indebtedness and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article 10.
Nothing contained in this Article 10 or elsewhere in this Indenture or
in any Security is intended to or shall affect the obligation of the Company to
make, or prevent the Company from making, at any time except during the pendency
of any dissolution, winding up,
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liquidation or reorganization proceedings, and except during the periods
specified in Section 10.2, payments at any time of the principal of or interest
on the Securities.
SECTION 10.6 TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED IN ABSENCE OF
NOTICE
The Trustee shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or by
the Trustee, unless and until the Trustee shall have received written notice
thereof from the Company or from one or more holders of Senior Indebtedness or
from any representative thereof or from any trustee therefor; and, prior to the
receipt of any such written notice, the Trustee, subject to the provisions of
Sections 7.1 and 7.2, shall be entitled to assume conclusively that no such
facts exist.
SECTION 10.7 APPLICATION BY TRUSTEE OF MONIES DEPOSITED WITH IT
Money and U.S. Government Obligations deposited in trust with the
Trustee pursuant to Section 8.2 shall be for the sole benefit of the Holders
and, to the extent allocated for the payment of Securities, shall not be subject
to the subordination provisions of this Article 10. Otherwise, any deposit of
monies by the Company with the Trustee or any Paying Agent (whether or not in
trust) for payment on account of Subordinated Obligations or on account of the
purchase, redemption or other acquisition of Securities shall be subject to the
provisions of Sections 10.1, 10.2 and 10.3 except that, if prior to the date on
which by the terms of this Indenture any such monies may become payable for any
purpose (including, without limitation, the payment of either the principal of
or the interest on any Security) the Trustee shall not have received with
respect to such monies the notice provided for in Section 10.6, then the Trustee
shall have full power and authority to receive such monies and to apply the same
to the purpose for which they were received, and shall not be affected by any
notice to the contrary which may be received by it on or after such date. This
Section shall be construed solely for the benefit of the Trustee and Paying
Agent and shall not otherwise affect the rights of holders of Senior
Indebtedness.
SECTION 10.8 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF COMPANY
OR HOLDERS OF SENIOR INDEBTEDNESS
No rights of any present or future holders of any Senior Indebtedness
to enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of any
knowledge thereof which any such holder may have or be otherwise charged with.
The holders of Senior Indebtedness may extend, renew, modify or amend
the terms of the Senior Indebtedness or any security therefor and release, sell
or exchange such security and otherwise deal freely with the Company, all
without affecting the liabilities and obligations of the parties to the
Indenture or the holders of the securities; PROVIDED, HOWEVER, that the
foregoing shall not permit the Company to incur Indebtedness under the New
Credit Agreement in an aggregate principal amount at any time exceeding $25
million. No provision in any supplemental indenture which affects the superior
position of the holders of any then existing Senior Indebtedness shall be
effective against the holders of the Senior Indebtedness who have not consented
thereto.
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SECTION 10.9 HOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION OF
SECURITIES
Each Holder of the Securities by his acceptance thereof authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article 10 and appoints the Trustee his attorney-in-fact for such purpose,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or otherwise)
tending towards liquidation of the business and assets of the Company, the
immediate filing of a claim for the unpaid balance of its or his Securities in
the form required in said proceedings and cause said claim to be approved. If
the Trustee does not file a proper claim or proof of debt in the form required
in such proceeding prior to 30 days before the expiration of the time to file
such claim or claims, then the holders of Senior Indebtedness are hereby
authorized to have the right to file and are hereby authorized to file an
appropriate claim for and on behalf of the Holders of said Securities.
SECTION 10.10 RIGHT OF TRUSTEE TO HOLD SENIOR INDEBTEDNESS
The Trustee shall be entitled to all of the rights set forth in this
Article 10 in respect of any Senior Indebtedness at any time held by it to the
same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall be construed to deprive the Trustee of any of its rights as such
holder.
SECTION 10.11 ARTICLE TEN NOT TO PREVENT EVENTS OF DEFAULT
The failure to make a payment on account of principal or interest by
reason of any provision in this Article 10 shall not be construed as preventing
the occurrence of an Event of Default under Section 6.1.
SECTION 10.12 HOLDERS ACKNOWLEDGE AND CONSENT TO RIGHTS OF HOLDERS OF SENIOR
INDEBTEDNESS
Each Holder of the Securities by his acceptance thereof consents to
and acknowledges the validity and enforceability of the guarantees as well as
the validity, priority and enforceability of the security interest granted to
the holders of the Bank Debt by the Company and its subsidiaries, and agrees not
to contest or object to the same in any proceeding.
ARTICLE 11.
MISCELLANEOUS
SECTION 11.1 TRUST INDENTURE ACT CONTROLS
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA SECTION 318(c), the imposed duties shall control.
SECTION 11.2 NOTICES
Any notice or communication by the Company or the Trustee to the other
is duly given if in writing and delivered in Person or mailed by first-class
mail (registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the other's address:
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If to the Company:
Hallmark Healthcare Corporation
300 Galleria Parkway
Suite 650
Atlanta, Georgia 30339
Attention: Robert M. Thornton, Jr., Secretary
Telecopier No.: (404) 933-1886
If to the Trustee:
First Union National Bank of North Carolina
230 South Tryon St.
8th Floor
Charlotte, NC 28288-1179
Attention: Corporate Trust Department
Telecopier No.: (704) 383-7316
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first-class
mail to the Holder's address shown on the register kept by the Registrar.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 11.3 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate (which shall include the statements set
forth in Section 11.4) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel (which shall include the statements set
forth in Section 11.4) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been complied with.
46
<PAGE>
SECTION 11.4 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA SECTION 314(a)(4)) shall include:
(1) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been complied with.
SECTION 11.5 RULES BY TRUSTEE AND AGENTS
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 11.6 LEGAL HOLIDAYS
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in The City of New York, Charlotte, NC, or at a place of payment
are authorized or obligated by law, regulation or executive order to remain
closed. If a payment date is a Legal Holiday at a place of payment, payment may
be made at that place on the next succeeding day that is not a Legal Holiday,
and no interest shall accrue for the intervening period.
SECTION 11.7 NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder of the Company or the
Trustee, as such, shall not have any liability for any obligations of the
Company under the Securities or this Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. Each Holder by
accepting a Security waives and releases all such liability.
SECTION 11.8 GOVERNING LAW
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
SECTION 11.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
47
<PAGE>
SECTION 11.10 SUCCESSORS
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
SECTION 11.11 SEVERABILITY
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.12 COUNTERPART ORIGINALS
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 11.13 TRUSTEE AS PAYING AGENT AND REGISTRAR
The Company initially appoints the Trustee as Paying Agent and
Registrar.
SECTION 11.14 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
[Signatures on Next Page]
48
<PAGE>
SIGNATURES
Dated as of November 1, 1993
(SEAL)
HALLMARK HEALTHCARE CORPORATION
By: /S/ ROBERT M. THORNTON, JR.
---------------------------------------------
Name: Robert M. Thornton, Jr.
Title: Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
Dated as of November 1, 1993
(SEAL)
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
as Trustee
By: /S/ DANIEL J. OBER
---------------------------------------------
Name: Daniel J. Ober
Title: Assistant Vice President
49
<PAGE>
EXHIBIT A
10 5/8% SENIOR SUBORDINATED NOTES DUE 2003
No. ___________ $___________
HALLMARK HEALTHCARE CORPORATION
promises to pay to
or registered assigns,
the principal sum of
Dollars on November 15, 2003
Interest Payment Dates: May 15 and November 15
Record Dates: April 30 and October 31
Authenticated: Dated: _______________, 1993
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA,
as Trustee HALLMARK HEALTHCARE CORPORATION
By: By:
------------------------------ ------------------------------
Authorized Signature
By:
------------------------------
(SEAL)
A-1
<PAGE>
10 5/8% SENIOR SUBORDINATED NOTES DUE 2003
1. INTEREST. HALLMARK HEALTHCARE CORPORATION, a Delaware
corporation (the "Company"), promises to pay interest on the principal amount of
this Security at 10 5/8% per annum from the date this Security is issued until
maturity. The Company will pay interest semiannually on May 15 and November 15
of each year, or if any such day is not a Business Day, on the next succeeding
Business Day (each an "Interest Payment Date"). Interest on the Securities will
accrue from the most recent date on which interest has been paid or, if no
interest has been paid, from the date of issuance; PROVIDED, that if there is no
existing Default in the payment of interest, and if this Security is
authenticated between a record date referred to on the face hereof and the next
succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date; PROVIDED, FURTHER, that the first Interest
Payment Date shall be May 15, 1994. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the
Securities (except defaulted interest) to the Persons who are registered Holders
of Securities at the close of business on the record date next preceding the
Interest Payment Date, even if such Securities are canceled after such record
date and on or before such Interest Payment Date. In the case of a Security
called for redemption on a redemption date on or after an interest payment
record date and prior to the next Interest Payment Date, the registered holder
of such Security as of such record date shall not be entitled to accrued but
unpaid interest, such interest instead being payable only when and as provided
in paragraphs 5, 6 and 7 below. The Holder must surrender this Security to a
Paying Agent to collect principal payments. The Company will pay the principal
of, premium, if any, and interest on the Securities in money of the United
States of America that at the time of payment is legal tender for payment of
public and private debts. The Company, however, may pay such amounts by check
payable in such money. It may mail an interest check to a Holder's registered
address.
3. PAYING AGENT AND REGISTRAR. Initially, First Union National
Bank of North Carolina, the Trustee under the Indenture, will act as Paying
Agent and Registrar. The Company may change any Paying Agent, Registrar or
co-registrar without notice to any Holder. The Company or any of its
Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Securities under an
Indenture dated as of November 1, 1993 ("Indenture") between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code SECTIONS 77aaa-77bbbb) as in effect on the date
of execution of the Indenture. The Securities are subject to all such terms,
and Holders are referred to the Indenture and such Act for a statement of such
terms. The Securities are unsecured general obligations of the Company limited
to $80,000,000 in aggregate principal amount, plus amounts, if any, sufficient
to pay interest on outstanding Securities as set forth in Paragraph 2 hereof.
5. OPTIONAL REDEMPTION. The Company may redeem all or any of the
Securities at any time on or after November 15, 1998 at the following redemption
prices (expressed as percentages of principal amount) plus accrued and unpaid
interest to the redemption date. If redeemed during the 12-month period
beginning,
A-2
<PAGE>
Optional
Year Redemption Price
---- ----------------
November 15, 1998 105.3125%
November 15, 1999 102.6563%
November 15, 2000 and thereafter 100%
6. MANDATORY OFFERS TO REPURCHASE.
(a) Following the occurrence of any Change of Control, the
Company will be required to offer (a "Change of Control Offer") to purchase all
outstanding Securities at a purchase price equal to 101% of the aggregate
principal amount of the Securities, plus accrued and unpaid interest to the date
of purchase. The Change of Control Offer shall remain open for a period of
20 Business Days after its commencement unless a longer offering period is
required by law. On or prior to the fifth Business Day following the
termination of the Change of Control Offer (the "Change of Control Payment
Date"), the Company shall purchase and mail or deliver payment for all
Securities tendered in the Change of Control Offer.
A Holder of Securities may tender or refrain from tendering all or
any portion of his Securities at his discretion by completing the form entitled
"OPTION OF HOLDER TO ELECT PURCHASE" appearing on the reverse of this Security.
Any portion of Securities tendered must be in integral multiples of $1,000.
(b) If the Company consummates any Asset Sale (as such term
is defined in the Indenture), the Company will, under certain circumstances, be
required to utilize a portion of the net proceeds received from such Asset Sale
to offer to purchase Securities at a purchase price equal to 100% of the
aggregate principal amount of the Securities plus accrued interest to the date
fixed for redemption (the "Asset Sale Offer"). Holders of Securities that are
the subject of an offer to purchase will receive an Asset Sale Offer from the
Company or the Trustee. The Asset Sale Offer shall remain open for a period of
20 Business Days after its commencement unless a longer offering period is
required by law (the "Asset Sale Offer Period"). On or prior to the fifth
Business Day following the termination of the Asset Sale Offer Period (the
"Asset Sale Payment Date"), the Company shall purchase, or cause the Trustee to
purchase, and mail or deliver payment for the amount of Securities required to
be purchased pursuant to the Asset Sale Offer or, if less than the amount of
Securities required to be purchased pursuant to the Asset Sale Offer has been
tendered, all Securities tendered in response to the Asset Sale Offer.
A Holder of Securities may tender or refrain from tendering all or
any portion of his Securities at his discretion by completing the form entitled
"OPTION OF HOLDER TO ELECT PURCHASE" appearing on the reverse of this Security.
Any portion of Securities tendered must be in integral multiples of $1,000.
7. NOTICE OF REDEMPTION. Notice of Redemption will be mailed
at least 15 days but not more than 60 days before the redemption date to each
Holder of Securities to be redeemed at his registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Securities held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on
Securities or portions thereof called for redemption.
8. SUBORDINATION. The Securities are subordinated in right of
payment to Senior Indebtedness, which is any principal of or interest on
Indebtedness of the Company except Indebtedness of the Company which by its
terms is not superior in right of
A-3
<PAGE>
payment to the Securities. Senior Indebtedness of the Company is (i) all
Indebtedness of the Company for borrowed money (whether or not the recourse of
the lender is to the whole of the assets of the Company or only to a portion
thereof); (ii) all obligations of the Company evidenced by bonds, debentures,
notes or other similar instruments; (iii) all obligations of the Company in
respect of letters of credit or other similar instruments (or reimbursement
obligations with respect thereto); (iv) all obligations of the Company with
respect to Hedging Obligations (other than those that fix the interest rate on
variable rate indebtedness otherwise permitted by the Indenture or that protect
the Company and/or its Subsidiaries against changes in foreign exchange rates);
(v) all obligations of the Company to pay the deferred and unpaid purchase price
of property or services, except trade payables and accrued expenses incurred in
the ordinary course of business; (vi) all Capitalized Lease Obligations of the
Company; (vii) all Indebtedness of others secured by a Lien on any assets of the
Company, whether or not such Indebtedness is assumed by the Company; (viii) all
Indebtedness of others guaranteed by the Company to the extent of such
guarantee; and (ix) all Attributable Indebtedness; but such Indebtedness
described in clauses (i) through (ix) shall be Senior Indebtedness only if and
to the extent such Indebtedness is permitted to be incurred by the Company and
its Subsidiaries under the Indenture. The Indenture imposes certain
restrictions on the ability of the Company and its Subsidiaries to incur
additional Indebtedness. The Indenture also restricts the ability of the
Company to incur Senior Indebtedness which is subordinated to other Senior
Indebtedness.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Registrar and the
Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not exchange or register
the transfer of any Security or portion of a Security selected for redemption.
Also, it need not exchange or register the transfer of any Securities for a
period of 15 days before a selection of Securities to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The Registered Holder of a Security
may be treated as its owner for all purposes.
11. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Indenture or the Securities may be amended or supplemented with the consent
(which may include consents obtained in connection with a tender offer or
exchange offer for Securities) of the Holders of at least a majority in
principal amount of the Securities then outstanding, and any existing default
under, or compliance with any provision of, the Indenture may be waived (other
than any continuing Default or Event of Default in the payment of interest on or
the principal of the Securities) with the consent (which may include consents
obtained in connection with a tender offer or exchange offer for Securities) of
the Holders of a majority in principal amount of the Securities then
outstanding. Without the consent of any Holder, the Company and the Trustee may
amend or supplement the Indenture or the Securities to cure any ambiguity,
defect or inconsistency; to provide for uncertificated Securities in addition to
or in place of certificated Securities; to provide for the assumption of the
Company's obligations to Holders in the case of a merger or acquisition; or to
make any change that does not adversely affect the rights of any Holder.
The right of any Holder to participate in any consent required or
sought pursuant to any provision of the Indenture (and the obligation of the
Company to obtain any such consent otherwise required from such Holder) may be
subject to the requirement that such Holder shall have been the Holder of record
of any Notes with respect to which such consent is required or
A-4
<PAGE>
sought as of a date identified by the Trustee in a notice furnished to Holders
in accordance with the terms of the Indenture.
Without the consent of each Holder affected, the Company may not
(i) extend the maturity of any Security, (ii) affect the terms of any scheduled
payment of interest on or principal of the Securities or (iii) reduce the
percentage of Holders necessary to consent to an amendment, supplement or waiver
to the Indenture.
12. DEFAULTS AND REMEDIES. Events of Default include: default in
payment of interest on the Securities for 30 days; default in payment of
principal on the Securities; failure by the Company for 60 days after notice to
it to comply with any of its other agreements in the Indenture or the
Securities; certain defaults under other Indebtedness; certain final judgments
that remain undischarged; and certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the then outstanding Securities may declare all
the Securities to be immediately due and payable for an amount equal to 100% of
the principal amount of the Securities plus accrued interest to the date of
payment, except that in the case of an Event of Default arising from certain
events of bankruptcy or insolvency, all outstanding Securities become due and
payable immediately without further action or notice. Holders may not enforce
the Indenture or the Securities except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Securities. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Securities may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders notice of any continuing default (except a default in payment of
principal or interest) if it determines that withholding notice is in their
interests. The Company must furnish an annual compliance certificate to the
Trustee.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Holder by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Securities.
15. AUTHENTICATION. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (--tenants in common), TEN
ENT (--tenants by the entireties), JT TEN (--joint tenants with right of
survivorship and not as tenants in common), CUST (--Custodian), and U/G/M/A
(--Uniform Gifts to Minors Act).
A-5
<PAGE>
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Request may be made to:
Hallmark Healthcare Corporation
300 Galleria Parkway
Suite 650
Atlanta, Georgia 30339
Attention: Chief Financial Officer
A-6
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we)
assign and transfer this Security to
________________________________________________________________
(Insert assignee's Soc. Sec. or Tax I.D. no.)
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________ to transfer
this Security on the books of the Company. The agent may substitute another to
act for him.
Date: ______________
Your Signature:______________________________
(Sign exactly as your name appears
on the face of this Security)
Signature Guarantee:____________________________
A-7
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 3.8 or 4.10 of the Indenture, check the appropriate box:
/ / Section 3.8 / / Section 4.10
If you want to elect to have only part of the Security purchased by
the Company pursuant to Section 3.8 or 4.10 of the Indenture, state the amount
you elect to have purchased: $_______________.
Date: ______________
Your Signature:_____________________________________
(Sign exactly as your name appears
on the face of this Security)
Signature Guarantee:_______________________________
A-8
<PAGE>
CROSS REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
- --------------- -----------------
310(a)(1) . . . . . . . . . . . . . . . . . . . . . 7.9
(a)(2) . . . . . . . . . . . . . . . . . . . . . 7.9
(a)(3) . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(4) . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(5) . . . . . . . . . . . . . . . . . . . . . 7.9
(b) . . . . . . . . . . . . . . . . . . . . . **
(c) . . . . . . . . . . . . . . . . . . . . . Not Applicable
311(a) . . . . . . . . . . . . . . . . . . . . . **
(b) . . . . . . . . . . . . . . . . . . . . . **
(c) . . . . . . . . . . . . . . . . . . . . . Not Applicable
312 . . . . . . . . . . . . . . . . . . . . . **
313(a) . . . . . . . . . . . . . . . . . . . . . **
(b)(1) . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b)(2) . . . . . . . . . . . . . . . . . . . . . **
(c) . . . . . . . . . . . . . . . . . . . . . **
(d) . . . . . . . . . . . . . . . . . . . . . **
314(a) . . . . . . . . . . . . . . . . . . . . . 4.3
(b) . . . . . . . . . . . . . . . . . . . . . Not Applicable
(c)(1) . . . . . . . . . . . . . . . . . . . . . 11.3
(c)(3) . . . . . . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . . . . . . . . . 11.4
(f) . . . . . . . . . . . . . . . . . . . . . Not Applicable
315(a) . . . . . . . . . . . . . . . . . . . . . 7.1(2)
(b) . . . . . . . . . . . . . . . . . . . . . 7.5,11.2
(c) . . . . . . . . . . . . . . . . . . . . . 7.1(1)
(d) . . . . . . . . . . . . . . . . . . . . . 7.1(3)
(e) . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last sentence) . . . . . . . . . . . . . . . . . . 2.8
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . 6.5
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . 6.4
(a)(2) . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . 6.7
(c) . . . . . . . . . . . . . . . . . . . . . 9.4
317(a)(1) . . . . . . . . . . . . . . . . . . . . . 6.8
(a)(2) . . . . . . . . . . . . . . . . . . . . . 6.9
(b) . . . . . . . . . . . . . . . . . . . . . 2.4
318(a) . . . . . . . . . . . . . . . . . . . . . 11.1
- -----------------------
* This Cross-Reference Table is not part of the Indenture.
** Included pursuant to Section 318(c) of the Trust Indenture Act of 1939.
<PAGE>
EXHIBIT 10.1
HALLMARK CORPORATION
1991 DIRECTORS' STOCK OPTION PLAN
(1993 Amendments Underlined)
----------------------------
1. PURPOSE. The Hallmark Healthcare Corporation Directors' Stock Option
Plan (hereinafter called the "Plan") is intended as an incentive and as a means
of encouraging stock ownership by non-employee members of the Board of Directors
of HALLMARK HEALTHCARE CORPORATION, a Delaware corporation (hereinafter called
the "Company"), in order to increase the proprietary interest of the
non-employee Directors in the Company and to provide them with an increased
incentive to work for its success.
2. ADMINISTRATION.
(a) To the extent the Plan is not self administering, the Plan shall
be administered, construed and interpreted by the Directors' Option Committee
(the "Committee"), consisting of at least two members of the Board of Directors,
who shall be appointed by the Board of Directors and shall serve at its
pleasure, provided further that each Committee Member shall be a "disinterested
person." Vacancies on the Committee, however caused, shall be filled by the
Board of Directors. No members of the Committee, while serving as such shall be
eligible to be granted an option under the Plan. The Committee may determine,
subject to and in accordance with the provisions of the Plan, the persons who
shall participate in the Plan, the extent of their participation, the price to
be paid for the shares upon the exercise of each option, the period or periods
within which each option shall be exercisable and the terms and conditions of
each individual stock option agreement related hereto (hereafter a "Stock Option
Agreement"). The terms and conditions of each individual Stock Option Agreement
shall be in accordance with the provisions of the Plan, but the Committee may
provide for such additional terms and conditions, not in conflict with the
provisions of the Plan, as it deems advisable.
(b) The interpretation and construction by the Committee of any
provision of the Plan, any option granted under it or any Stock Option Agreement
and any determination by the Committee, pursuant to any provision of the Plan,
any such option or any provisions of a Stock Option Agreement, shall be final
and conclusive. Business shall be transacted by a vote of the members of the
Committee, and any decision or determination reduced to writing and signed by
the members shall be as fully effective as if it had been made by a vote at a
meeting duly called and held.
3. ELIGIBILITY. Members of the Board of Directors who are not employees
of the Company or any subsidiary of the Company shall be eligible to be granted
options under and pursuant to the terms of the Plan; provided that a
non-employee Director may
<PAGE>
decline to be eligible under this Plan at any time prior to the grant to him of
options hereunder by furnishing written notice of such election to the Secretary
of the Company.
4. STOCK. The stock subject to the options and other provisions of the
Plan shall be authorized but unissued or reacquired shares of the $0.05 par
-
value Class A Common Stock of the Company (the "Common Stock"). Subject to
readjustment in accordance with the provisions of Section 5(h), the total amount
of the Common Stock on which options may be granted to Directors participating
under the Plan shall not exceed in the aggregate 65,000 shares.
------
In the event that any outstanding option (or portion thereof) under the
Plan for any reason expires unexercised or terminates without exercise prior to
the end of the period during which options may be granted, the shares of the
Common Stock allocable to the unexercised portion of such option again may be
subjected to an option under the Plan.
5. TERMS AND CONDITIONS OF OPTIONS. Stock options granted pursuant to
the Plan may be evidenced by Stock Option Agreements in such form as the
Committee from time to time shall approve; such agreements and the stock options
granted hereby or thereby, shall comply with and be subject to the following
terms and conditions:
(a) NUMBER OF SHARES. Each Stock Option Agreement shall state the
total number of shares of the Common Stock to which it pertains. Each
eligible Director shall be granted on the first business day following his
initial election or appointment to the Board an option to purchase 10,000
------
shares of the Common Stock of the Company [subject to adjustment under
Section 5(h)] for so long as shares are available under the Plan, except in
the case of current Directors of the Company as of December 6, 1991 who
shall be granted options to purchase 10,000 shares of the Common Stock of
------
the Company as of such date. In addition, each eligible Director shall be
--------------------------------------------
granted on November 1, 1993, an option to purchase 6,250 shares of the
----------------------------------------------------------------------
Common Stock, subject to approval by stockholders of the Company at the
-----------------------------------------------------------------------
1993 Annual Meeting of Stockholders of amendments to the Plan that increase
---------------------------------------------------------------------------
the number of shares on which options may be granted to Directors under the
---------------------------------------------------------------------------
Plan from 40,000 shares (as adjusted to reflect a one-for-five reverse
----------------------------------------------------------------------
stock split effected in November 1992) to 65,000 shares. No option shall
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be granted after December 6, 2001.
(b) OPTION PRICE. The option price per share shall be the Fair
Market Value per share of the Common Stock on the date the option is
granted.
(c) MEDIUM AND TIME OF PAYMENT. The option price shall be payable
upon the exercise of the option in an amount equal
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to the number of shares then being purchased times the per share option
price. Payment at the election of the optionee, shall be (i) in cash;
(ii) by delivery to the Company of a certificate or certificates for shares
of the Common Stock duly endorsed for transfer to the Company with
signature guaranteed, if requested by the Company, by a member firm of the
New York Stock Exchange or by a national banking association; or (iii) by a
combination of (i) and (ii). In the event of any payment by delivery of
shares of the Common Stock such shares shall be valued on the basis of
their respective Fair Market Values (as defined in Section 5(d)). If
payment is made by delivery of shares of the Common Stock the value of such
stock shall not exceed the total option price payment.
(d) FAIR MARKET VALUE. For purposes of Sections 5(b) and (c), Fair
Market Value of the Common Stock shall be determined on the date of grant
and on the date of exercise of each stock option. If the Common Stock is
registered on a national securities exchange (as such term is defined by
the Securities and Exchange Act of 1934) or is regularly traded in the
over-the-counter market on the date of determination, the Fair Market Value
per share of the Common Stock shall be determined as the price equal to the
mean between the high and low sales prices of a share of the Common Stock
on said national securities exchange on that day (or if shares of the stock
are not traded on that date but there were shares traded on dates within a
reasonable period both before and after such date, the Fair Market Value
shall be the weighted average of the means between the high and low sales
prices of the stock on the nearest date before and the nearest date after
that date on which shares of the stock are traded) or of the mean between
the high "bid" and low "asked" prices per share in said over-the-counter
market on that day, as reported by the National Association of Securities
Dealers Automated Quotation System (or a successor to such system). If the
Common Stock is traded on two national securities exchanges, the Fair
Market Value shall be determined by the weighted average Fair Market Value
on such exchanges. If the Common Stock is traded both on a national
securities exchange and in the over-the-counter market, the Fair Market
Value shall be determined by the prices on the national securities
exchange, unless transactions on such exchange and in the over-the-counter
market are jointly reported on a consolidated reporting system in which
case the Fair Market Value shall be determined by reference to such
consolidated reporting system. If the Common Stock is not listed for
trading on a national securities exchange and is not regularly traded in
the over-the-counter market, then the Fair Market Value shall be the
average bid price of the Company's Common Stock (after dropping one of the
lowest and highest quoted prices, provided there shall be at least three
quoted prices remaining to average), as quoted by the market makers in the
Company's Common Stock as identified by the
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National Quotation Bureau or by such other method as the Committee shall
determine from all relevant available facts which may include but need not
require opinions of independent experts as to value and may take into
account any recent sales and purchases of such stock to the extent they are
representative.
(e) TERMS OF OPTIONS. Date and Amount of Exercise. Terms of options
granted under the Plan shall commence on the date of grant and shall expire
on the tenth anniversary of the date of grant, subject to Section 5(g). No
option may be granted under the Plan after December 6, 2001. Each option
shall vest twenty percent (20%) per year beginning with the first year's
anniversary of the date of grant until all granted options have vested.
Options shall be exercisable immediately upon vesting.
(f) METHOD OF EXERCISE. All options granted hereunder shall be
exercised by written notice directed to the Secretary of the Company at its
principal place of business, accompanied by payment [made in accordance
with Section 5(c)], in cash or personal check (which will be accepted
subject to collection), or by certificates for shares of the Common Stock,
or by a combination of cash, personal check or certificates for shares of
the Common Stock, of the option price for the number of shares specified in
the notice of exercise and by any documents required by Section 5(j). The
Company shall make delivery of such shares within a reasonable period of
time; provided, however, that if any law or regulation requires the Company
to take any action (including but not limited to the filing of a
registration statement under the Securities Act of 1933 and causing such
registration statement to become effective) with respect to the shares
specified in such notice before the issuance thereof, then the date of
delivery of such shares shall be extended for the period necessary to take
such action.
(g) EFFECT OF TERMINATION OF SERVICE AS A DIRECTOR. In the event an
optionee during his life ceases to be a non-employee Director of the
Company for any reason, any vested option or unexercised portion thereof
granted to him shall terminate on or shall not be exercisable after the
earlier to occur of (i) the expiration date of the option, or (ii) ninety
days after termination of service as a non-employee Director. In the event
of the death of the optionee while he is a non-employee Director of the
Company, any vested option or unexercised portion thereof granted to him
may be exercised by his personal representatives, heirs or legatees at any
time prior to the expiration of six months from the date of the death of
the optionee, but in no event later than the date of expiration of the
option period. In the event an optionee ceases to be a non-employee
Director of
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the Company for any reason, any non-vested options shall terminate as of
the date such person ceases to be a non-employee Director.
(h) ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event that
the outstanding shares of the Common Stock of the Company are hereafter
increased or decreased or changed into or exchanged for a different number
or kind of shares or other securities of the Company in any such case by
reason of a recapitalization, reclassification, stock split, combination of
shares or dividend payable in shares of the Common Stock, an adjustment, as
and to the extent deemed appropriate, shall be made by the Committee in the
number and kind of shares available for the granting of options under the
Plan. In addition, the Committee shall make an adjustment, as and to the
extent deemed appropriate, in the number and kind of shares as to which
outstanding options, or portions thereof then unexercised, shall be
exercisable, to the end that the optionee's proportionate interest shall be
maintained as before the occurrence of such event; such adjustment in
outstanding options shall be made without change in the total price
applicable to the unexercised portion of the option and with a
corresponding adjustment in the option price per share. No fractional
shares shall be issued or optioned in making the foregoing adjustments. No
increase in or exchange of outstanding shares of Common Stock for fair
value approved by the Board of Directors (whether or not in connection with
a recapitalization or reclassification) will result in any adjustment in
option price per share. All adjustments made by the Committee under this
paragraph shall be conclusive.
Subject to any required action by the stockholders, if the Company
shall be a party to any reorganization involving merger, consolidation,
acquisition of the stock or acquisition of the assets of the Company, the
Committee in its discretion may declare (a) that all options granted
hereunder are to be terminated after giving at least ten days' notice to
holders of outstanding options, or (b) that any option granted hereunder
shall pertain to and apply with appropriate adjustment as determined by the
Committee to the securities of the resulting corporation to which a holder
of the number of shares of Common Stock subject to the option would have
been entitled. The adoption of a plan of dissolution or liquidation by the
Board of Directors and stockholders of the Company shall cause every option
outstanding hereunder to terminate on the fifteenth day thereafter;
provided, in the event of the adoption of a plan of dissolution or
liquidation in connection with a reorganization as provided in the
preceding sentence, options outstanding hereunder shall be governed by and
shall be subject to the provisions of the preceding sentence. If any
rights or warrants to subscribe for additional shares are given pro rata to
holders of outstanding shares of the class
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or classes of stock then set aside for this Plan, each optionee under this
Plan shall be entitled to the same rights or warrants on the same basis as
holders of the outstanding shares with respect to such portion of his
option as is exercised on or prior to the record date for determining
stockholders entitled to receive or exercise such rights or warrants.
Any issue by the Company of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to any option except as
specifically provided otherwise in this Section 5(h). The grant of an
option pursuant to the Plan shall not affect in any way the right or power
of the Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge or to consolidate
or to dissolve, liquidate or sell, or transfer all or any part of its
business or assets.
(i) WHO MAY EXERCISE; NON-TRANSFERABILITY OF STOCK OPTIONS. No
option shall be assignable or transferable by the optionee except by will
or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined in the Internal Revenue Code or Title I
of the Employee Retirement Income Security Act, or the rules thereunder;
and, during the lifetime of an optionee, the option shall be exercisable
only by the optionee.
(j) OPTIONEE'S AGREEMENT. If, in the opinion of counsel for the
Company, such action is necessary or desirable, no option shall be granted
to any optionee unless at such time such optionee truly represents and
warrants that the stock will be acquired for investment only and not for
purposes of resale or distribution and makes such further representation
and warranties as are deemed necessary or desirable by counsel to the
Company with regard to holding and resale of the stock. If at the time of
the exercise of any option, in the opinion of counsel for the Company, it
is necessary or desirable, in order to comply with any applicable laws or
regulations relating to the sale of securities, that the optionee shall
truly represent and warrant that he is purchasing the shares that are
subject to the option for investment and not with any present intention to
resell or distribute the same or make other and further representations and
warranties with regard to the holding and resale of the shares, the
optionee, upon the request of the Committee, will execute and deliver to
the Company an agreement or affidavit to such effect. All certificates
issued pursuant to the exercise of any option shall be marked with a
restrictive legend, if such marking, in the option of counsel to the
Company, is necessary or desirable.
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(k) RIGHTS AS A STOCKHOLDER. An optionee shall have no rights as a
stockholder with respect to shares covered by his option until the date of
the issuance of the shares to him and only after such shares are fully
paid. Unless specified in Section 5(h) hereof, no adjustment will be made
for dividends or other rights for which the record date is prior to the
date of such issuance.
(l) MISCELLANEOUS PROVISIONS. The Stock Option Agreements authorized
under the Plan shall contain such other provisions, including, without
limitation, restriction upon the exercise of the option as the Committee
shall deem advisable.
6. EFFECTIVE DATE AND TERMINATION OF PLAN.
(a) The Plan shall become effective upon adoption of the Plan by the
Board of Directors of the Company; PROVIDED, such effectiveness shall be
subject to the approval of the Plan by the holders of a majority of the
voting power of the outstanding shares of the Company's Voting Stock,
voting together, within twelve months of adoption by the Board of Directors
if, in the opinion of counsel to the Company, such approval is required by
Section 16 of the Securities Exchange Act of 1934 or by any other federal
or state law, securities law or rule or regulation promulgated thereunder,
and, in event stockholder approval is sought, the Effective Date of the
Plan shall be the first business day following submission of the Plan to
the shareholders eligible to vote thereon.
(b) The Plan, with respect to the granting of options, shall
terminate at midnight on December 6, 2001, but the Board of Directors may
terminate the Plan at any prior to said time and date. Such termination of
the Plan by the Board of Directors shall not alter or impair any of the
rights or obligations under any option theretofore granted under the Plan
unless the affected optionee shall so consent.
7. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of capital stock pursuant to options will be used for general corporate
purposes.
8. NO OBLIGATION TO EXERCISE OPTION. The granting of an option shall
impose no obligation upon the optionee to exercise such an option.
9. AMENDMENT. The Board of Directors by majority vote, at any time and
from, may amend the Plan in such respects as it shall deem advisable, to conform
to any change in the law or in any other respect, except that no amendment shall
be made to the Plan which shall:
(a) Increase the aggregate number of shares of Common Stock of the
Company which may be subject to options granted
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under the Plan (except by operation of the adjustment provisions of the
Plan or with the approval of the full Board of Directors or the
stockholders of the Company);
(b) Extend the term of the Plan beyond December 6, 2001, or extend
the maximum term of options granted thereunder; or
(c) Affect any unexercised option granted under the Plan, without the
consent of the optionee affected;
PROVIDED, however, no amendment to the Plan shall require approval of the
majority of the voting power of the outstanding voting stock of the Company
unless, in the opinion of counsel to the Company, such approval is required by
Section 16(b) or any other section of the Securities Exchange Act of 1934, by
any other federal or state law or any regulations or rules promulgated
thereunder, and FURTHER PROVIDED that no amendment to the Plan shall be made
more than once every six months, other than to comport with changes in the
Internal Revenue Code, the Employee Retirement Income Security Act or the rules
thereunder.
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