<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
---------------------------
Date of Report (Date of earliest event reported)
March 12, 1998
RES-CARE, INC.
(Exact Name of Registrant as Specified in its Charter)
KENTUCKY
(State or Other Jurisdiction of Incorporation)
0-20372 61-0875371
(Commission File Number) (I.R.S. Employee Identification No.)
10140 Linn Station Road, Louisville, Kentucky 40223
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(502) 394-2100
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 12, 1998, Res-Care Inc. ("the Registrant") acquired all of the
outstanding stock of Normal Life, Inc. ("Normal Life"), a Kentucky corporation,
from J. Robert Shaver, Kathryn S. Graham, and Frederic H. Davis ("Majority
Shareholders"), and from its remaining shareholders. Normal Life and its
subsidiaries provide services to persons with mental retardation and development
disabilities, including dual diagnosis, in Indiana, Kentucky, California,
Louisiana, Texas, Georgia and Florida.
The aggregate stock purchase price was $73,000,000. The purchase price
was paid with $51,000,000 cash and $22,000,000 in principal amount of the
Registrant's 5.9% Convertible Subordinated Notes due 2005. The notes are
convertible into common stock of the Registrant at a conversion price of
$38.7531, or approximately 567,697 shares, commencing one year from the closing
date of the transaction. Notes in the principal amounts of $3,453,000 are being
held in escrow. The funds for the acquisition came from the Registrant's
existing cash and revolving line of credit with PNC Bank, National Association;
National City Bank of Kentucky; SunTrust Bank, Nashville, N.A.; Bank One,
Kentucky, NA; and Wachovia Bank, NA.
The consideration for the acquisition was determined by negotiations
between the parties based primarily on: pro forma merger analysis of earnings
and cash flows; analysis of market multiples of public companies in comparable
lines of business; analysis of comparable merger and acquisition transaction
multiples; discounted cash flow analysis; review of recent convertible note
offerings; and the expected strategic benefits of the transaction, including
the geographic overlap, management strengths and service quality of the
operations to be acquired.
The Registrant entered into Employment Agreements with certain key
employees of Normal Life, signed Noncompetition, Confidentiality and
Nonsolicitation Agreements with each of the Majority Shareholders under which it
will pay an aggregate of approximately $3.4 millions over a ten year-period.
The Normal Life operations have been generating revenues at an annualized
rate of approximately $68,000,000 due to among other things: (i) acquisitions
made during 1997, (ii) increase in consumers served in the state of Georgia from
the downsizing of a state-run facility, and (iii) a management contract entered
into on December 1, 1997 to operate a Texas facility. In addition, at the time
of the acquisition, the Registrant implemented a plan to eliminate redundant
costs in the combined operations of the Registrant and Normal Life and to
leverage upon the Registrant's existing infrastucture to realize operating
efficiencies, principally by closing Normal Life's corporate office (a process
already substantially completed), which is expected to result in annual cost
savings of approximately $2,700,000, approximately one half of which represents
the elimination of salaries and benefits of Majority Shareholders and certain
other senior officers of Normal Life. Implementation of these cost saving plans
is expected to be completed during the second and third quarters of 1998. The
effect of these added revenues and anticipated cost savings has not been
reflected in the Pro Forma Combined Consolidated Statement of Income contained
elsewhere herein. The Registrant's ability to achieve further cost savings is
uncertain and there can be no assurances that Normal Life's business will be
successfully integrated with that of Registrant, or that the Registrant will be
able to fully realize operating efficiencies or eliminate all redundant costs.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
NORMAL LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE> 4
[ESKEW & GRESHAM LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
- ----------------------------
Board of Directors
Normal Life, Inc.
Louisville, Kentucky
We have audited the accompanying consolidated balance sheets of
Normal Life, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Normal
Life, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Eskew & Gresham, PSC
February 20, 1998
<PAGE> 5
NORMAL LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 257,380 $ 1,957,300
Cash - funds held in escrow 690,840 471,008
Accounts receivable - (less allowance for contractual
adjustments of $350,000 and $15,000, respectively) 8,889,007 4,166,073
Other receivables 228,861 115,438
Deferred income taxes 159,675 0
Other current assets 517,740 316,770
----------- -----------
Total current assets $10,743,503 $ 7,026,589
PROPERTY, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, NET $ 2,975,602 $ 2,593,036
GOODWILL AND OTHER ASSETS, NET $14,052,131 $ 8,965,969
----------- -----------
TOTAL ASSETS $27,771,236 $18,585,594
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 1,320,000 $ 0
Accounts payable 1,934,189 1,065,419
Accrued expenses and other liabilities 4,492,895 4,047,416
Funds held in escrow 690,840 471,008
Income taxes payable 134,784 61,455
Current portion non-compete payable 70,000 120,000
Current maturities on long-term debt 201,834 718,734
----------- -----------
Total current liabilities $ 8,844,542 $ 6,484,032
LONG-TERM DEBT, less current maturities $ 8,424,091 $ 4,913,680
NON-COMPETE PAYABLE $ 0 $ 70,000
DEFERRED INCOME TAXES $ 202,867 $ 91,303
STOCKHOLDERS' EQUITY:
Common stock:
Class A, voting, 1,250,000 shares authorized;
906,833 shares issued and outstanding $ 710,376 $ 710,376
Class B, nonvoting, 500,000 shares authorized;
no shares issued or outstanding 0 0
Retained earnings 9,589,360 6,316,203
----------- -----------
Total stockholders' equity $10,299,736 $ 7,026,579
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $27,771,236 $18,585,594
</TABLE>
See notes to consolidated financial statements.
Page 2
<PAGE> 6
NORMAL LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996
<S> <C> <C>
Service revenue $ 50,283,258 $ 38,329,901
Service costs:
Facility and waiver services $ 28,411,341 $ 23,714,047
Programmatic 10,857,721 6,783,692
Depreciation and amortization 1,384,941 1,247,095
------------ ------------
Total service costs $ 40,654,003 $ 31,744,834
Gross profit $ 9,629,255 $ 6,585,067
Administrative expenses 3,894,451 2,782,353
------------ ------------
Income from operations $ 5,734,804 $ 3,802,714
Interest expense, net $ 668,454 $ 461,478
(Gain) loss on disposal of property, equipment
and certain business operations, net (173,537) 31,336
------------ ------------
Total other expense, net $ 494,917 $ 492,814
Income before income taxes $ 5,239,887 $ 3,309,900
Income taxes 1,966,730 1,303,465
------------ ------------
NET INCOME $ 3,273,157 $ 2,006,435
</TABLE>
See notes to consolidated financial statements.
Page 3
<PAGE> 7
NORMAL LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Retained
Stock Earnings Total
<S> <C> <C> <C>
Balance, January 1, 1996 $ 691,902 $ 4,328,242 $ 5,020,144
Purchase of 2,000 shares of
Class A stock (1,526) (18,474) (20,000)
Issuance of 2,000 shares of
Class A stock 20,000 0 20,000
Net income 0 2,006,435 2,006,435
------------ ------------ ------------
Balance, December 31, 1996 $ 710,376 $ 6,316,203 $ 7,026,579
Net income 0 3,273,157 3,273,157
------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 $ 710,376 $ 9,589,360 $ 10,299,376
</TABLE>
See notes to consolidated financial statements.
Page 4
<PAGE> 8
NORMAL LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,273,157 $ 2,006,435
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,384,941 1,247,095
(Gain) loss on disposal of property, equipment
and certain business operations (173,537) 31,336
Deferred income taxes (48,111) 86,029
Changes in:
Accounts receivable - patient care (4,722,934) (974,654)
Other receivables (113,423) 17,832
Other current assets (200,970) 15,488
Accounts payable 868,770 (155,983)
Income taxes payable 73,329 (29,245)
Accrued expenses and other liabilities 445,479 1,095,629
------------ ------------
Net cash provided by operating activities $ 786,701 $ 3,339,962
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, equipment
and certain business operations $ 254,234 $ 46,301
Purchase of property and equipment (643,363) (329,564)
Payment of deferred costs (548,003) (106,607)
Purchase of certificates of need 0 (70,000)
Acquisition of business interest (5,743,000) (1,356,000)
Payment on covenants-not-to-compete (120,000) (120,000)
Sale of common stock of subsidiary 0 10,000
Proceeds from receivable of former subsidiary 0 369,404
------------ ------------
Net cash used in investing activities $ (6,800,132) $ (1,556,466)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on notes payable, net $ 1,320,000 $ (450,000)
Proceeds from long-term debt 28,263,000 10,610,000
Payments on long-term debt (25,269,489) (12,183,083)
Purchase of Class A common stock 0 (20,000)
Proceeds from issuance of Class A common stock 0 20,000
------------ ------------
Net cash provided by (used in) financing activities $ 4,313,511 $ (2,023,083)
</TABLE>
See notes to consolidated financial statements.
Page 5
<PAGE> 9
NORMAL LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996
<S> <C> <C>
Net decrease in cash $(1,699,920) $ (239,587)
Cash at beginning of year 1,957,300 2,196,887
----------- -----------
CASH AT END OF YEAR $ 257,380 $ 1,957,300
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for -
Interest $ 757,409 $ 512,076
Income taxes $ 1,941,512 $ 1,246,681
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Transfer of note payable to long-term debt $ 0 $ 243,000
Conversion of intercompany receivable in connection
with the sale of the common stock of subsidiary 0 369,404
</TABLE>
See notes to consolidated financial statements.
Page 6
<PAGE> 10
NORMAL LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
Normal Life, Inc. and its wholly-owned subsidiaries (the Company). All
intercompany accounts and transactions have been eliminated upon consolidation.
2. NATURE OF BUSINESS
The Company provides residential environments, training, and
other supports to persons with mental retardation and related developmental
disabilities. As of December 31, 1997, the Company has operations in Indiana,
Louisiana, Florida, Texas, Kentucky, Georgia and California. In 1997, the
Company began operations in Georgia and California and discontinued operations
in New Mexico.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Estimates in the Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates.
B. Revenue Recognition - Service revenues are recorded at
established per diem and per service rates as approved by state agencies
responsible for administering the Medicaid program. Per diem rates are
determined on an all-inclusive basis. Allowances for contractual adjustments are
recorded to reflect the difference between established rates and expected
reimbursement. Retroactively calculated contractual adjustments are accrued on
an estimated basis in the periods the related services are rendered and recorded
as adjustments to revenues in future periods when final settlements are
determined.
C. Property, Equipment and Leasehold Improvements - Property,
equipment and leasehold improvements are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Expenditures for maintenance and repairs
are charged to expense as incurred, whereas major improvements are capitalized.
D. Goodwill and Other Assets - Goodwill and certificates of need
acquired in connection with the acquisition of certain business interests are
amortized over twenty-five years. Covenants-not-to-compete are amortized over
their terms ranging from twelve to sixty months.
Page 7
<PAGE> 11
NORMAL LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred costs consist of expenses incurred during the period
prior to admission of the first resident to a facility or program and include
administrative salaries, training costs, insurance and other necessary costs.
These costs are amortized as required by the various states under medical
assistance programs over periods ranging from five to seven years.
E. Income Taxes - The Company and its subsidiaries file a
consolidated federal income tax return. Consolidated income tax expense is
allocated proportionately to those subsidiaries having net income.
Deferred income taxes are provided for using the liability
method. Under the liability method, deferred income taxes are based on the
change from the beginning of the year in the deferred tax liability or asset
established for the expected future tax consequences of differences in the
financial reporting and tax bases of assets and liabilities. The differences
relate principally to property, equipment, leasehold improvements, other
long-term assets and the allowance for contractual adjustments.
F. Funds Held in Escrow - The Company maintains separate bank
accounts for certain individuals served. These individuals have given the
Company the authority to act as their responsible party. The balance in the
escrow accounts is recorded as cash with an offsetting current liability.
4. BUSINESS TRANSACTIONS
In early 1998, the Company entered into an agreement to purchase
assets to be used to provide services for persons with mental retardation and
related developmental disabilities. The Company and related limited liability
company were co-purchasers under this agreement to purchase the assets for a
total purchase price of approximately $5,900,000. The amount allocated to the
Company was $4,800,000 and the remaining $1,100,000 was allocated to the related
limited liability company.
During 1997, the Company entered into several agreements to
purchase assets to be used to provide services for persons with mental
retardation and related developmental disabilities. The Company, a related
partnership and a related limited liability company were co-purchasers under
these agreements to purchase the assets for a total purchase price of
approximately $8,000,000. The amount allocated to the Company was $5,700,000,
and the remaining $2,300,000 was allocated to the related entities.
During 1997, the Company sold certain business operations for
approximately $238,000 which resulted in a gain of approximately $188,000.
Page 8
<PAGE> 12
NORMAL LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
4. BUSINESS TRANSACTIONS (CONTINUED)
During 1996, the Company entered into several agreements to
purchase assets to be used to provide services for persons with mental
retardation and related developmental disabilities. The Company and related
partnership were co-purchasers under these agreements to purchase the assets for
a total purchase price of approximately $2,000,000. The amount allocated to the
Company was $1,300,000 and the remaining $700,000 was allocated to the related
partnership.
5. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consist of the
following:
<TABLE>
<CAPTION>
December 31
1997 1996
<S> <C> <C>
Buildings $1,433,270 $1,448,201
Land and improvements 59,361 58,586
Leasehold improvements 1,009,511 922,390
Furniture and fixtures 1,454,615 1,117,394
Equipment, appliances and vehicles 1,326,815 1,013,320
----------- -----------
$5,283,572 $4,559,891
Less accumulated depreciation (2,307,970) (1,966,855)
---------- ----------
$2,975,602 $2,593,036
</TABLE>
Depreciation expense was $394,752 and $376,873 for 1997 and 1996,
respectively.
6. GOODWILL AND OTHER ASSETS
Goodwill and other assets are as follows:
<TABLE>
<CAPTION>
December 31
1997 1996
<S> <C> <C>
Goodwill $13,356,594 $ 7,825,494
Covenants-not-to-compete 1,049,001 1,049,001
Deferred costs 1,693,777 1,288,979
Certificates of need 760,000 760,000
----------- -----------
$16,859,372 $10,923,474
Less accumulated amortization (2,807,241) (1,957,505)
----------- -----------
$14,052,131 $ 8,965,969
</TABLE>
Page 9
<PAGE> 13
NORMAL LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
7. NOTES PAYABLE
On December 31, 1997 the Company has notes payable to the related
partnership for $1,320,000. The notes are unsecured with interest at 8.5% and
are due on demand.
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C>
Note payable to a bank representing borrowings against a $17.85 million
revolving/term credit ($12.2 million revolving credit at December 31,
1996), secured by substantially all assets. (A) $4,717,000 $1,000,000
Note payable to a bank representing borrowings
against a $3.5 million revolving credit, secured
by substantially all assets. (A) 2,864,000 1,250,000
Note payable to a bank, secured by substantially all assets, due in monthly
installments based on a twelve-year amortization period with the balance
due June 2004. (A) 850,000 897,917
Notes payable to certain companies, secured by real estate, owned by a related
partnership, due in annual installments of $500,000, plus interest
at 8%, paid off in 1997. 0 1,895,000
Notes payable to certain individuals, in annual
installments of $150,000, plus interest at 8%,
due January 1998. 150,000 300,000
Note payable to a shareholder with interest
at 8%, paid off in 1997. 0 243,000
</TABLE>
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<PAGE> 14
NORMAL LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
8. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Note payable to an individual, in monthly installments of $588, secured by real
estate with a net book value of approximately $83,000 at December 31, 1997,
including interest at 12%, due January 2010. 44,925 46,497
---------- ----------
$8,625,925 $5,632,414
Less current portion due within one year (201,834) (718,734)
---------- ----------
Long-term debt $8,424,091 $4,913,680
</TABLE>
(A) The Company, a related limited liability company, and a
related partnership (see Note 12) are co-borrowers under a loan agreement with a
Bank. The loan agreement, which was amended and restated in 1997, provides for
an increase in the credit facility to $30.0 million from the previous $16.7
million. The credit facility includes a $17.85 million revolving/term credit, a
$3.5 million revolving credit, a $7.8 million term loan, and a $850,000 term
loan. The total debt is the responsibility of all parties and is
cross-collateralized by substantially all the assets of the Company, related
limited liability company and the related partnership. The loan agreement
includes limits on dividends and total liabilities and covenants as to required
financial ratios, net worth, earnings and cash flow.
The $17.85 million revolving/term credit is available to all
borrowers and may be used to acquire and construct assets. The loan is initially
set up as a revolving credit, with a due date of June 2000. At any time before
June 2000, the credit can be converted to a term loan with a due date of June
2004. The $3.5 million revolving credit is only available to the Company and is
due June 2000. It may be used for working capital and general corporate
purposes. The $7.8 million term loan represents a conversion of a previous
revolving credit of the related partnership. The proceeds were previously used
to acquire assets. The $850,000 term loan represents a refinancing of a previous
term loan of the Company. The $7.8 million and $850,000 term loans are payable
based on amortization periods of ten and twelve years, respectively, with the
remaining balances due June 2004.
Page 11
<PAGE> 15
NORMAL LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
8. LONG-TERM DEBT (CONTINUED)
Interest on the total credit facility is based on the index rate
or LIBOR rate plus the applicable margin. The Company has the option of choosing
either the index or LIBOR rate. The margin is adjusted based on the level of
total debt to adjusted earnings. Interest is due for periods from one to three
months. At December 31, 1997, $5,050,000 was based on the LIBOR rate, plus
applicable margin and $3,381,000 was based on the index rate, plus applicable
margin. Applicable interest rates range from 8.47% to 8.75%.
The related partnership has entered into an interest rate swap
for an approximate $7.8 million notional amount.
Interest expense for all outstanding debt was $748,928 and
$477,609 for the years ended December 31, 1997 and 1996, respectively.
Principal payments due subsequent to December 31, 1997 are as
follows: 1998 - $201,834; 1999 - $49,024; 2000 - $7,634,433; 2001 - $58,244;
2002 - $63,489; and thereafter - $618,901.
Included in accounts payable at December 31, 1997 is $470,312,
which represents checks written in excess of the checking account balances with
the Bank that provides the Company's financing. The Company's revolving credit
line is available to fund any resulting overdraft.
9. INCOME TAXES
The provision for income taxes for the years ending December 31,
1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Currently payable - federal $1,727,342 $ 962,949
- state 287,499 254,487
Deferred (48,111) 86,029
------------- -------------
$1,966,730 $1,303,465
</TABLE>
Page 12
<PAGE> 16
NORMAL LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
9. INCOME TAXES (CONTINUED)
The Company's deferred tax assets and liabilities at December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred income tax assets $ 213,171 $ 17,850
Deferred income tax liabilities (256,363) (109,153)
--------- ---------
$ (43,192) $ (91,303)
</TABLE>
No valuation allowance for the realization of deferred income tax
assets is considered necessary.
10. PROFIT SHARING PLAN
The Company has a 401(k) savings plan which covers substantially
all employees. Employees may make contributions to the plan up to the limit
allowed by the Internal Revenue Service. The Company's contribution is at the
discretion of the Board of Directors. Contribution expense was approximately
$152,000 and $97,000 for 1997 and 1996, respectively.
11. OPERATING LEASES
The Company leases the homes and office facilities under
operating leases for amounts ranging from approximately $500 to $7,800 per
month. These leases are for terms expiring at various times through 2002.
Certain of these leases are with related parties (see Note 12).
The Company also leases automobiles and equipment for amounts
ranging from approximately $400 to $2,500 per month. These leases expire at
various times through 2001.
Page 13
<PAGE> 17
NORMAL LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
11. OPERATING LEASES (CONTINUED)
Approximate minimum future lease payments as of December 31, 1997
under these operating leases, including related party leases and leases with
less than one year remaining term, for each of the succeeding five years are as
follows:
<TABLE>
<CAPTION>
Automobiles
Real Estate and Equipment Total
<S> <C> <C> <C>
1998 $1,603,000 $ 735,000 $2,338,000
1999 888,000 460,000 1,348,000
2000 680,000 333,000 1,013,000
2001 577,000 187,000 764,000
2002 403,000 0 403,000
---------- ---------- ----------
$4,151,000 $1,715,000 $5,866,000
</TABLE>
Rent expense under the above operating leases, including related
party leases (see Note 12) for 1997 and 1996, was approximately $3,376,000 and
$2,676,000, respectively.
12. TRANSACTIONS WITH RELATED PARTIES
The Company leases the corporate office and certain other office
facilities from companies whose stockholders are also stockholders of the
Company. These operating leases require monthly payments of approximately
$32,000. The lease terms are for up to five years and expire at various dates
through 2001. Rent expense under these leases for 1997 and 1996 was
approximately $297,000 and $217,000, respectively.
The Company has entered into lease agreements with a partnership,
which includes partners who are stockholders of the Company, for approximately
58% of its home facilities. The leases, which are classified as operating
leases, are for a term of one year and provide for total monthly rental payments
of approximately $113,000 through February 1998. Rent expense under these leases
for 1997 and 1996 was approximately $1,517,000 and $1,442,000, respectively.
The Company has entered into lease agreements in 1997 with a
limited liability company, whose member is an S corporation of which the
stockholders are stockholders of the Company, for approximately 23% of its home
facilities. The leases, which are classified as operating leases, are for a term
of five years and provide for total monthly rental payments of approximately
$48,000 through October 2002. Rent expense under these leases for 1997 was
approximately $159,000.
Page 14
<PAGE> 18
NORMAL LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
12. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
The related partnership is a co-borrower under the loan agreement
described in Note 8. The Company also has notes payable to the partnership of
$1,320,000 at December 31, 1997 which are due on demand. Interest expense on
these notes was approximately $19,000 for 1997. The Company had notes receivable
from the partnership that were paid out in 1996. Interest income from these
notes was approximately $20,000 for 1996.
The related limited liability company is also a co-borrower under
the loan agreement described in Note 8. The Company had notes receivable from
the limited liability company that were paid out in 1997.
Interest income from these notes was approximately $51,000 for 1997.
The Company provides management services to the partnership and
the limited liability company at no charge.
On December 31, 1996, the Company sold the stock of a subsidiary
that leases nonresidential facilities to the Company, to certain stockholders
for book value.
13. STOCK RESTRICTION
Transfer of the Company's stock is restricted by its bylaws which
state that in the event any shareholder wishes to dispose of stock, the Company
shall have the option to acquire the stock under the same terms. If the Company
fails to exercise the option within sixty days, the shareholder may proceed with
the proposed transfer which must be completed within ninety days after the
expiration of the Company's sixty day option period.
14. CONCENTRATION OF CREDIT RISK
As of December 31, 1997, the Company operates residential
facilities in Indiana, Louisiana, Florida, Texas, Kentucky, Georgia and
California. A substantial amount of its revenue and accounts receivable are from
these states' Medicaid reimbursement programs.
15. CONTINGENT LIABILITIES
The Company is a party to legal actions arising from normal
business activities. Management believes these actions are without merit or that
the ultimate liability, if any, resulting from them will not materially affect
the Company's consolidated financial statements.
Page 15
<PAGE> 19
NORMAL LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
16. SUBSEQUENT EVENT
In February 1998, the stockholders entered into an agreement to
sell the stock of the Company to an unrelated publicly traded company. As a part
of the transaction, the acquirer agreed to enter into long-term leases for all
facilities owned by the related partnership and limited liability company. In
addition, it is anticipated that the credit facility described in Note 8 will be
refinanced.
Page 16
<PAGE> 20
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(b) Pro Forma Financial Information.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
The following unaudited pro forma financial information gives effect to the
acquisition, which was accounted for by the purchase method. The pro forma
combined balance sheet gives effect to the acquisition as if the acquisition had
occurred on December 31, 1997. The pro forma combined statement of income for
the year ended December 31, 1997 gives effect to the acquisition as if it had
occurred on January 1, 1997. In combining the financial information of the
Registrant and Normal Life to reflect the acquisition and the accounting
policies that will be used by the combined company, certain reclassifications of
historical financial data have been made. The following unaudited pro forma
financial information for the combined company does not give pro forma effect to
other acquisitions consummated by the Registrant and Normal Life during 1997.
The pro forma financial information presented does not give effect to
anticipated savings from the acquisition of Normal Life. Management of the
Company estimates that annual facilities and program expenses and corporate
general and administrative expenses will be reduced by approximately $2 million
and $3 million, respectively, as a result of various corporate and operational
synergies achieved through the acquisition.
The acquisition will be accounted for under the purchase method of
accounting. Accordingly, the cost to acquire Normal Life will be allocated to
the assets acquired and liabilities assumed according to their respective fair
values. The final allocation of such cost is dependent upon certain valuations
that have not progressed to a stage where there is sufficient information to
make a final allocation in the accompanying pro forma financial statements.
Accordingly, the cost allocation adjustments are preliminary and have been made
solely for the purpose of preparing such pro forma financial statements. Future
adjustments to the allocation are not expected to be material.
The following unaudited pro forma financial information for the combined
company should be read in conjunction with the historical consolidated financial
statements of the Registrant and Normal Life, including the respective notes
thereto.
THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION IS PRESENTED FOR
INFORMATIONAL PURPOSES ONLY AND IS NOT NECESSARILY INDICATIVE OF THE OPERATING
RESULTS OR FINANCIAL POSITION THAT WOULD HAVE OCCURRED HAD THE ACQUISITION BEEN
CONSUMMATED AT THE DATES INDICATED, NOR IS IT NECESSARILY INDICATIVE OF THE
FUTURE OPERATING RESULTS OR FINANCIAL POSITION OF THE REGISTRANT FOLLOWING THE
ACQUISITION.
<PAGE> 21
<TABLE>
<CAPTION>
RES-CARE, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
(UNAUDITED)
Res-Care, Inc. Normal Life, Inc. Adjustments
Historical Historical (A), (B), (C) Pro Forma
---------------- ------------------- ----------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $66,584 $948 ($28,776) $38,756
Accounts and notes receivable, net 57,240 9,118 --- 66,358
Inventories 634 --- --- 634
Deferred income taxes 3,483 160 --- 3,643
Prepaid expenses 2,259 518 --- 2,777
---------------- ------------------- ----------------- -----------
Total current assets 130,200 10,744 (28,776) 112,168
---------------- ------------------- ----------------- -----------
Property and equipment, net 54,403 2,976 --- 57,379
Excess of acquisition cost over net assets acquired, net 51,751 12,457 63,350 127,558
Other assets, net 18,814 1,595 3,359 23,768
---------------- ------------------- ----------------- -----------
$255,168 $27,772 $37,933 $320,873
================ =================== ================= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $--- $1,320 ($1,320) $---
Trade accounts payable 13,888 1,934 --- 15,822
Accrued expenses and other current liabilities 22,907 5,254 --- 28,161
Accrued income taxes 1,564 135 --- 1,699
Current portion of long-term debt 1,759 202 (202) 1,759
---------------- ------------------- ----------------- -----------
Total current liabilities 40,118 8,845 (1,522) 47,441
---------------- ------------------- ----------------- -----------
Long-term liabilities 1,714 --- 3,359 5,073
Long-term debt, net of unamortized discount 108,470 8,424 46,396 163,290
Deferred income taxes 38 203 --- 241
---------------- ------------------- ----------------- -----------
Total liabilities 150,340 17,472 48,233 216,045
---------------- ------------------- ----------------- -----------
Minority interest in equity of consolidated subsidiary 219 --- --- 219
Shareholders' equity:
Common stock 41,678 710 (710) 41,678
Additional paid-in capital 11,215 --- --- 11,215
Retained earnings 55,057 9,590 (9,590) 55,057
---------------- ------------------- ----------------- -----------
107,950 10,300 (10,300) 107,950
Less cost of common shares in treasury (3,341) --- --- (3,341)
---------------- ------------------- ----------------- -----------
Total shareholders' equity 104,609 10,300 (10,300) 104,609
---------------- ------------------- ----------------- -----------
$255,168 $27,772 $37,933 $320,873
================ =================== ================= ===========
See accompanying notes to pro forma financial information.
</TABLE>
<PAGE> 22
Res-Care, Inc. and Subsidiaries
Pro Forma Combined Consolidated Statement of Income
Year Ended December 31, 1997
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Res-Care, Inc. Normal Life, Inc. Pro Forma Pro Forma
Historical Historical Adjustments Combined
-------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $306,054 $50,283 --- $356,337
Operating expenses:
Facility and program expenses 265,041 39,269 304,310
Corporate general and administrative 11,222 3,894 15,116
Depreciation and amortization 6,298 1,385 2,618 (B) 10,301
----------- ------------- -------------- -----------
Total operating expenses 282,561 44,548 2,618 329,727
----------- ------------- -------------- -----------
Operating income 23,493 5,735 (2,618) 26,610
Other expenses (income):
Interest expense, net 1,733 668 4,493 (C) 6,894
Gain from sale of assets (100) (173) --- (273)
----------- ------------- -------------- -----------
Total other expenses (income), net 1,633 495 4,493 6,621
----------- ------------- -------------- -----------
Minority interest in income of consolidated subsidiary (146) --- --- (146)
Income before income taxes 21,714 5,240 (7,111) 19,843
Income tax expense 8,737 1,967 (2,809)(D) 7,895
----------- ------------- -------------- -----------
Net income $12,977 $3,273 ($4,302) $11,948
=========== ============= ============== ===========
Income per share data:
Basic earnings per share $1.12 $1.03
Diluted earnings per share $1.08 $1.02
Weighted-average number of common
shares outstanding for basic earnings
per share 11,606 11,606
Weighted-average number of common
shares outstanding plus dilutive potential
common shares outstanding for diluted
earnings per share 12,380 12,948
</TABLE>
See accompanying notes to pro forma financial information.
<PAGE> 23
RES-CARE, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL INFORMATION FOR THE COMBINED COMPANY
(UNAUDITED)
(IN THOUSANDS)
(A) Reflects reduction in cash and increase in outstanding indebtedness as
a result of the acquisition of Normal Life.
<TABLE>
<CAPTION>
<S> <C>
Purchase price and related costs payable in:
Cash
Purchase price $ 18,225
Other Transaction costs 650
--------
18,875
Long-term debt 32,775
Convertible subordinated notes 22,000
--------
$ 73,650
</TABLE>
(B) The following are the pro forma adjustments made to Normal Life's net
assets as of December 31, 1997.
<TABLE>
<CAPTION>
<S> <C>
Net assets as reported by Normal Life $ 10,300
Cost in excess of net assets of company acquired 63,350
--------
$ 73,650
</TABLE>
(C) To record paydown of Normal Life debt of $9,901.
(D) To record amortization of goodwill resulting from the excess of the
total purchase price over net assets acquired from Normal Life, Inc.
and to record amortization of covenants-not-to-compete for the year
ended December 31, 1997. The amortization periods for goodwill and
covenants-not-to-compete are 30 years and 15 years, respectively.
(E) To record interest expense from the financing of the acquisition and
to record the reduction of interest expense on Normal Life debt paid
off. Also, to record estimated reduction in Res-Care interest income
associated with invested cash applied toward the funding of the
acquisition.
(F) To record federal and state income tax effect on the pro forma
adjustments at the statutory rates in effect during 1997.
6
<PAGE> 24
(c) Exhibits required by Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
Exhibit 2.1 Stock Purchase Agreement by and among Res-Care, Inc.
and (i) Normal Life, Inc., (ii) J. Robert Shaver,
Kathryn S. Graham, and Frederic H. Davis ("Majority
Shareholders"), and (iii) minority shareholders,
dated February 4, 1998.
Exhibit 2.2 Statement of additional Terms and Conditions dated as
of March 12, 1998, relating to $22,000,000 5.9 Percent
convertible subordinated notes due 2005.
Exhibit 23.1 Consent of Eskew & Gresham, PSC
</TABLE>
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.
RES-CARE, INC.
By: /s/ Ronald G. Geary
---------------------------------
Ronald G. Geary
President and Chief Executive Officer
Dated: March 27, 1998
3
<PAGE> 25
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF DOCUMENT PAGE NUMBER
- ------- ----------------------- -------------
<S> <C> <C>
Exhibit 2.1 Stock Purchase Agreement by and among Res-Care,
Inc. and (i) Normal Life, Inc., (ii) J. Robert Shaver,
Kathryn S. Graham, and Frederic H. Davis ("Majority
Shareholders"), and (iii) minority shareholders, dated
February 4, 1998.
Exhibit 2.2 Statement of Additional Terms and Conditions, dated as of
March 12, 1998, relating to $23,000,000 5.9 Percent
convertible subordinated notes due 2005.
Exhibit 23.1 Consent of Eskew $ Gresham, PSC
</TABLE>
4
<PAGE> 1
Exhibit 2.1
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT ("Agreement") is dated February 4, 1998,
by and among (i) RES-CARE, INC., a Kentucky corporation ("Purchaser"); (ii)
NORMAL LIFE, INC., a Kentucky corporation ("Company"); (iii) (A) J. ROBERT
SHAVER ("Shaver"), (B) KATHRYN S. GRAHAM ("Graham"), and (C) FREDERIC H. DAVIS
(each a "Majority Shareholder" and collectively, the "Majority Shareholders");
and (iv) THE INDIVIDUALS LISTED ON EXHIBIT A ATTACHED HERETO (each, a "Minority
Shareholder" and collectively, the "Minority Shareholders"). The Majority
Shareholders and the Minority Shareholders are sometimes individually referred
to as a "Shareholder" and collectively as the "Shareholders").
R E C I T A L S :
-----------------
A. The Shareholders own all of the outstanding capital stock of
Company and certain of the Shareholders own a majority of the equity interests
of the Related Lessors (as defined below) which lease certain real property to
Company and its subsidiaries.
B. Company and its subsidiaries are engaged in the business of
providing services to persons with mental retardation and developmental
disabilities, including persons who are dually diagnosed ("MR/DD"), throughout
the United States.
C. The parties desire for Purchaser to acquire all of the issued and
outstanding shares of capital stock of Company, and to amend and restate the
leases between the Related Lessors and Company and its subsidiaries, on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the covenants and agreements,
representations, and warranties hereinafter set forth and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 DEFINITIONS. For purposes of this Agreement and the Exhibits and
Schedules attached hereto, and in addition to any and all definitions and
interpretations otherwise provided throughout this Agreement, the following
words and phrases shall have the meaning set forth below:
"Agencies" means all applicable governmental agencies or other entities
which govern, control or otherwise have any authority over the Purchaser and/or
the Company Operations, as the context requires.
<PAGE> 2
"Amended Facility Leases" means the leases to be executed between the
respective Target Entity, as lessee, and the respective Related Lessor, as
lessor, and Purchaser, as guarantor, as provided in Section 3.8 hereof.
"Ancillary Agreements" means the Amended Facility Leases, the
Debentures, the Debenture Statement, the Escrow Agreement, the Noncompetition
Agreements, the certificates and stock powers described in Section 2.2 and the
Mutual Releases.
"Client Trust Accounts" means all of Target Entities' right, title and
interest in and to the client trust funds held by the Target Entities on behalf
of the clients served by the Company Operations.
"Closing" and "Closing Date" shall be as defined in Section 2.4 hereof.
"Company Operations" means the provision of services by the Target
Entities to persons with MR/DD.
"Company Shares" means all of the issued and outstanding capital stock
of Company.
"Company Subsidiaries" means all of the corporations and the general
partnership described on Schedule 1.1(a) attached hereto.
"Contract" means any lease, maintenance contract, service contract,
employment agreement, supply agreement or other agreement relating to the
Company Operations (other than the Program Agreements and the Facility Leases).
"Controlling Group" means collectively the Shareholders, the respective
family members of any Shareholder, the Related Lessors and any entity
controlling, controlled by or under common control with any of such individuals
or entities.
"Conversion Price" means 1.2501 times the lower of (i) $31.00, or (ii)
the average closing sale price as reported on the NASDAQ National Market System
for the Purchaser Common Stock for all of the trading days commencing on the
date hereof and ending on the second trading day prior to the Closing Date.
"Debenture Statement" shall mean that certain Statement of Additional
Terms and Conditions delivered by Purchaser to the Shareholders in accordance
with Section 3.11 hereof at the Closing in the form attached hereto as Exhibit
B.
"Debentures" means those certain "5.90% Convertible Subordinated Notes
due 2005" of Purchaser in the aggregate principal balance of $22,000,000,
bearing interest at the rate of five and nine-tenths percent (5.9%) per annum,
with interest payable semi-annually, which shall be convertible into Purchaser
Common Stock at a price per share of Purchaser Common Stock equal
2
<PAGE> 3
to the Conversion Price, which Debentures shall have a final maturity date on
the seventh (7th) anniversary of the Closing Date, and which shall be issued in
the form attached hereto as Exhibit C.
"Effective Time" shall be as defined in Section 2.4 hereof.
"Escrow Agent" shall mean PNC Bank, N.A., Louisville, Kentucky.
"Escrow Agreement" shall mean that certain Indemnity and Escrow
Agreement executed among Purchaser, the Escrow Agent and the Shareholders in the
form attached as Exhibit D.
"Escrowed A/R Debentures" shall mean the Debentures deposited with the
Escrow Agent as described in Section 2.3(d) hereof.
"Escrowed Debentures" shall mean the Escrowed General Debentures and
the Escrowed A/R Debentures.
"Escrowed General Debentures" shall mean the Debentures deposited with
the Escrow Agent as described in Section 2.3(e) hereof.
"Facilities" means the real properties described on Schedule 1.1(b)
attached hereto, together with the buildings, fixtures and improvements located
thereon.
"Facility Leases" means each of the existing lease agreements relating
to the Facilities described on Schedule 1.1(b) attached hereto.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indefeasible Title" means good and indefeasible title, free and clear
of all leases, contracts, liens, claims and encumbrances, other than the lien of
ad valorem taxes not yet due and owing; PROVIDED, HOWEVER, that in the case of
the Facility Leases, the Amended Facility Leases, leases related to the
improvements at the Sheridan Indiana Facility or any leases of vehicles,
furniture or office equipment, Indefeasible Title shall mean a valid and
unencumbered leasehold interest.
"Knowledge" means (a) as applicable to the Target Entities or the
Shareholders, the knowledge of the Majority Shareholders and (b) as applicable
to Purchaser, the knowledge of Ronald G. Geary, E. Halsey Sandford and Paul G.
Dunn, and (c) in each case shall mean (i) the actual knowledge of the respective
individuals and (ii) such facts or circumstances the respective individuals
reasonably should have known given his or her involvement in the respective
businesses of the Target Entities and Purchaser and the information available to
such individual.
"Licenses" means all licenses, contracts, certifications,
qualifications, permits and other authorities from all Agencies, necessary for
the Target Entities to conduct the Company Operations and to receive
reimbursement therefor.
3
<PAGE> 4
"Material Adverse Effect" on a party shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a material adverse impact on the financial position, business or
results of operations of such party and its subsidiaries, taken as a whole.
"Material Breach" shall mean, for purposes of Section 8.1(g) and 8.2(e)
hereof, any breach or untrue representation or warranty of the Shareholders or
Purchaser, respectively (each a "Breaching Party"), which considered
individually or collectively with all other breached or untrue representations
or warranties of such Breaching Party, reduces the value of the transactions
contemplated herein by at least $7,300,000.
"Noncompetition Agreements" means the noncompetition, nonsolicitation
and confidentiality agreements executed by the Majority Shareholders pursuant to
Section 3.9 hereof in the forms attached hereto as Exhibits F-1 through F-3.
"Occupancy Standard" shall mean the requirement that the aggregate
number of clients receiving MR/DD services from the Target Entities shall be not
less than one thousand one hundred and two (1,102). A client shall be taken into
account for purposes of such Occupancy Standard only to the extent (x) such
client is fully qualified or capable of being fully qualified for funding by the
Agencies, (y) subject to Purchaser receiving all required Licenses and Program
Agreements and each client's right to choice in programs where right of choice
applies, the respective Target Entity will be entitled to continue to provide
such services in the same manner and on the same conditions as previously
provided by such Target Entity and (z) subject to Purchaser receiving all
required Licenses and Program Agreements and each client's right to choice in
programs where right of choice applies, the Target Entities will be entitled to
continue to receive all of such funding after the Effective Time. A client shall
not be taken into account for purposes of such Occupancy Standard if any of the
Target Entities or Purchaser shall have received notice (verbally or in writing)
that such client intends to terminate any agreement or contract for such
services, or any of the Agencies intend that any such new agreement or contract
be issued to the respective Target Entity after the consummation of the
transaction herein under materially less favorable terms and conditions as the
relevant current agreement or contract provides. Any client of the Target
Entities which elects to be served by Purchaser or any of its subsidiaries or
affiliates prior to the Closing Date shall be considered a client receiving
MR/DD services from the Target Entities for purposes of the first sentence of
this paragraph.
"Personal Property" means all personal property owned or leased by the
Target Entities or required to be so used in order to permit the respective
Company Operations to provide MR/DD services consistent with customary practice
and as required by applicable law and regulations. Personal Property shall
include, but shall not be limited to, the following items: beds, nursing
equipment, therapy equipment, vehicles, food service preparation and
distribution equipment, housekeeping equipment, vocational and educational
equipment and materials, maintenance equipment, furniture and furnishings,
activities and entertainment equipment and other equipment
4
<PAGE> 5
located in and upon any Facility or at any location where MR/DD services are
furnished by the Target Entities.
"Program Agreements" means the agreements or arrangements under which
the Target Entities provide services to persons with MR/DD, under the MR/DD
programs and provider numbers described on Schedule 1.1(b) attached hereto.
"Purchaser Common Stock" shall mean the Purchaser's common stock, of no
par value per share.
"Purchaser Financial Statements" shall mean (i) the consolidated
balance sheets (including related notes and schedules, if any) of Purchaser as
filed in Purchaser's Form 10-Q for the quarter ended September 30, 1997 and the
Registration Statement on Form S-3 (File #333-44029), and the related statements
of earnings, changes in shareholders' equity, and cash flows (including related
notes and schedules, if any) and (ii) the consolidated balance sheets of
Purchaser (including related notes and schedules, if any) and related statements
of earnings, changes in shareholders' equity, and cash flows (including related
notes and schedules, if any) included in Purchaser SEC Reports filed with
respect to periods ended subsequent to September 10, 1997.
"Purchaser SEC Reports" shall mean the reports and statements Purchaser
is required to file with the SEC, including, but not limited to, Forms 10-K,
Forms 10-Q, Forms 8-K and proxy statements.
"Related Lessors" means the entities described on Schedule 1.1(e)
attached hereto, each of which are owned or controlled by certain of the
Shareholders.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Supplies" means all of the Target Entities' right, title and interest
in and to any and all drugs, medicines, foods, linens, vocational or educational
materials and other supplies owned by any Target Entity and used in connection
with any of the Company Operations.
"Target Entities" means Company and the Company Subsidiaries.
5
<PAGE> 6
ARTICLE II
PURCHASE AND SALE OF COMPANY SHARES;
PURCHASE PRICE; CLOSING
-----------------------
2.1 SALE AND TRANSFER OF COMPANY SHARES. Subject to the terms and
conditions set forth herein, at the Closing the Shareholders shall sell to
Purchaser and Purchaser shall purchase from the Shareholders all of the Company
Shares.
2.2 DELIVERY OF CERTIFICATES. At the Closing, the Shareholders shall
deliver to Purchaser certificates in definitive form, registered in the name of
the Shareholders, evidencing all of the Company Shares, duly endorsed for
transfer or accompanied by stock transfer powers duly endorsed in blank, with
all requisite stock transfer taxes paid and stamps affixed, if any.
2.3 PURCHASE PRICE; PAYMENT.
(a) The aggregate purchase price for the Company Shares and
the other covenants of the Shareholders contained herein (the "Purchase
Price") shall be an amount equal to $73,000,000.
(b) $50,500,000 of the Purchase Price shall be paid by
Purchaser's delivery at the Closing of a wire transfer of immediately
available federal funds in such amount to an account designated by the
Shareholders.
(c) $18,547,000 of the Purchase Price shall be paid by
Purchaser's delivery to the Shareholders at the Closing of Debentures
having a principal balance of $18,547,000, apportioned among and
payable to the Shareholders in the amounts set forth on Schedule 2.3(c)
hereof.
(d) $453,000 of the Purchase Price shall be paid by
Purchaser's delivery at the Closing to the Escrow Agent of Debentures
having an aggregate principal balance of $453,000, payable to the
Escrow Agent, which Debentures shall be held pursuant to the Escrow
Agreement.
(e) $3,000,000 of the Purchase Price shall be paid by
Purchaser's delivery to the Escrow Agent at the Closing of Debentures
having an aggregate principal balance of $3,000,000, payable to the
Escrow Agent, which Debentures shall be held pursuant to the Escrow
Agreement.
(f) $500,000 of the Purchase Price shall be paid by
Purchaser's delivery to the Shareholders at the Closing of a wire
transfer of immediately available federal funds in such amount to an
account designated by Shaver, to be used for the Shareholders' closing
costs, funding of gratuities to certain employees of the Target
Entities and equalization of proceeds
6
<PAGE> 7
to Shareholders. In connection therewith, the Shareholders shall hold
Purchaser and the Target Entities harmless from any liability for
withholding of federal, state or local taxes attributable to any such
payment to such employees.
2.4 CLOSING. The Closing of the transactions contemplated by this
Agreement (the "Closing") shall take place on March 12, 1998, or such earlier
date as the parties may designate, at the offices of Reed Weitkamp Schell Cox &
Vice, at 9:00 a.m. EST, or such later date as shall be reasonably necessary to
obtain any necessary consents to the consummation of the transactions
contemplated herein (the "Closing Date"). The Closing shall be effective as of
12:01 a.m. EST on the first day of the month in which the Closing Date occurs
(the "Effective Time"), provided, however, the Effective Time shall not be
earlier than the date the parties receive approval (or early termination of the
waiting period) under the HSR Act.
ARTICLE III
ADDITIONAL AGREEMENTS RELATING TO THE ACQUIRED OPERATIONS
---------------------------------------------------------
3.1 REASONABLE BUSINESS EFFORTS. All of the Shareholders shall use
their reasonable business efforts to satisfy any conditions to transferring
Indefeasible Title to the Shares, to assist Purchaser in causing all necessary
approvals of or consents to the transactions contemplated herein to be obtained,
and to execute any documents or other instruments requested to assist Purchaser
in obtaining any such approvals or consents, in a timely manner. Purchaser shall
use its reasonable business efforts to obtain such approvals and consents
applicable to the Company Operations in a timely manner.
3.2 RESIGNATIONS; TERMINATION OF EMPLOYMENT; EMPLOYMENT AGREEMENTS. At
the Closing, the Shareholders shall cause each individual who is a director or
officer of any of the Target Entities to resign as a director and/or officer of
the Target Entities. Neither the Shareholders nor any member of their families
shall make any claim for compensation or benefits for any period after the
Closing Date or severance pay (except in connection with employment after the
Closing Date as contemplated in this Section 3.2) or unemployment compensation
relating to their employment (if any) by any Target Entity. Any employment
agreements between any of the Majority Shareholders and any of the Target
Entities shall be terminated at or prior to the Closing without any severance
payment by or liability to any of the Target Entities. At or prior to the
Closing, Purchaser shall offer each of the individuals listed on Schedule 3.2(a)
attached hereto (the "Key Employees") employment agreements containing customary
noncompetition, nonsolicitation and confidentiality covenants and other terms of
employment, including compensation and benefits, which are comparable to
employees of Purchaser with similar responsibilities, which employment
agreements would supersede the existing employment agreements between each Key
Employee and the Target Entities. If any new employment agreement is not
executed, Purchaser will cause the Target Entities either (i) to honor such
existing employment agreement, or (ii) terminate such existing employment
agreement and pay the severance obligations applicable thereto. For a period of
at least six (6) months after the Effective Time, Purchaser shall cause the
Company to continue to employ all of the
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employees listed on Schedule 3.2(b) attached hereto on the same terms and
conditions currently applicable thereto. Purchaser acknowledges that the
employment obligations of the Target Entities shall be unaffected by the
provisions of Section 2.4 hereof.
3.3 TERMINATION OF MANAGEMENT AGREEMENTS. Except as provided in
Schedule 3.3 attached hereto, at the Closing Date, any management agreements
pursuant to which any person or entity provides management services to the
Company Operations shall be terminated.
3.4 CONVEYANCE OF COLLATERAL ASSETS; CONFIDENTIALITY AND
NONCOMPETITION COVENANTS. At the Closing, each of the Shareholders shall
convey, or cause to be conveyed, all collateral assets, Licenses (to the extent
transferable) and/or rights owned or controlled by any of the Shareholders
which relate to the providing of services as a part of the Company Operations
(other than the real properties which are leased to the Target Entities by the
Related Lessors). After the Closing, without limitation as to time, each of the
Minority Shareholders agrees that it, he or she will not (and will cause its,
his or her agents, accountants, attorneys and employees not to) divulge,
furnish or make accessible to anyone any trade secrets, lists of current or
prospective clients of the Company Operations, computer programs or
confidential information of any kind with respect to the Company Operations,
including, but not limited to, the names and addresses of any current or
prospective clients of the Company Operations (collectively, hereinafter
"Confidential Information"), except as required by applicable law or unless
such information is already or becomes generally available to the public other
than as a result of a disclosure in violation of any obligation of
confidentiality, including this Section 3.4. For a period of two (2) years
after the Effective Time, each of the Minority Shareholders whose proportionate
share of the Purchase Price is $250,000 or more shall not, directly or
indirectly, (a) other than by reason of their ownership of a Debenture or any
other security issued by Purchaser, own, manage, operate, join, have an
interest in, control or participate in the ownership, management, operation or
control of, act as a consultant to, or otherwise be connected in any manner
with, or have any direct or indirect financial interest, including, without
limitation, an interest as a creditor, in any form of business of providing
services in the United States of America to persons with MR/DD or acquired or
traumatic brain injury, (b) hire or promote to others the hiring of any of the
employees of any of Purchaser or its subsidiaries or affiliates, including but
not limited to Company and the Company Subsidiaries (collectively, the
"Res-Care Companies") during and for a period of one (1) year following the
termination of the respective employees with any of the Res-Care Companies, or
(c) solicit or promote to others the solicitation of individuals with MR/DD or
acquired or traumatic brain injury provided services by any of the Res-Care
Companies. The restrictions in the preceding sentence shall not apply to (I)
the leasing of the Facilities to the Target Entities by the Related Lessors
pursuant to the Amended Facility Leases, (II) the extension of credit in
connection with sales of tangible personal property on usual and customary
terms in connection with the Minority Shareholders' regular trade or business,
or (III) the ownership, directly or indirectly, solely as an investment, of
securities of any entity engaged in the business described in clause (a) above
which securities are traded on any national securities exchange or the NASDAQ
National Market System if (i) such Minority Shareholder is not a controlling
person of, or a member of a group which controls, such entity, (ii) such
Minority Shareholder does not, directly or indirectly, own one percent (1%) or
more of (A) the voting power,
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(B) equity or (C) any class of securities of such entity, and (iii) the
Shareholders do not, directly or indirectly, collectively own more than four
percent (4%) of (A) the voting power, (B) equity or (C) any class of securities
of such entity.
3.5 CONFIDENTIALITY OBLIGATIONS OF PURCHASER. Purchaser, Company and
certain other parties have previously executed that certain Confidentiality,
Waiver and Consent Agreement dated as of October 15, 1997 (the "Confidentiality
Agreement"). Purchaser acknowledges and has advised Purchaser's Evaluation Group
(as defined in the Confidentiality Agreement) that the information and records
furnished to it in connection with its due diligence and the consummation of the
transactions contemplated herein shall be subject to their obligations in the
Confidentiality Agreement. The obligations or agreements of the parties under
the Confidentiality Agreement (other than Section 7 thereof) shall terminate
upon consummation of the transactions contemplated herein.
3.6 PUBLICITY. The Shareholders and the Company acknowledge that the
transactions contemplated herein may be material, non-public information and
accordingly, no public announcement or disclosure of this Agreement, the
transactions contemplated herein or the terms thereof shall be made without the
prior written consent of Purchaser, except that disclosure of the Agreement and
the transactions contemplated herein may be made by the Shareholders and the
Company as reasonably necessary to secure any consents or approvals to the
transactions as described herein and to communicate with the Target Entities'
employees and clients. Each party shall furnish to the other a draft of any
press release or announcement related to this transaction prior to its release.
Nothing contained herein shall prevent any party from at any time furnishing any
information required by any governmental authority or by law, or prevent
Purchaser from disclosing the terms of the transactions contemplated herein to
its principal lending institutions, regulatory authorities, securities analysts
or as required by the applicable securities laws or regulations.
3.7 ESCROW AGREEMENT. At the Closing, each of Purchaser, the Escrow
Agent and the Shareholders shall execute and deliver the Escrow Agreement.
3.8 AMENDED FACILITY LEASES; TERMINATION OF CERTAIN FACILITY LEASES.
At the Closing, each of the Facility Leases with the Related Lessors will be
terminated, and the respective Target Entities, as lessee, the respective
Related Lessors, as lessor, and Purchaser, as guarantor, will enter into and
execute the Amended Facility Leases for the Facilities (other than (i) the
Facilities described on Schedule 5.11 hereto, (ii) the Louisville, Kentucky
corporate office building, (iii) the Facilities in Greencastle and
Crawfordsville, Indiana and (iv) the Facilities leased from parties other than
the Related Lessors) in the form attached hereto as Exhibit E. The Shareholders
shall cause the Facility Lease for the Louisville, Kentucky corporate office of
the Company to be terminated effective three (3) months after the Closing Date
and shall cause each of the other Facility Leases with Related Lessors to be
terminated as of the Closing, in each case without any payment to the
respective Related Lessors (other than rental or other amounts due for the
period prior to the effective date of termination and the payment described in
this Section 3.8) or any continuing liability under such Facility Leases with
the Related Lessors. As additional consideration for the execution by the
Related Lessors of the Amended Facility Leases and the termination of the
Facility
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Leases as described in this Section 3.8, at the Closing, Purchaser shall pay to
the Related Lessors an aggregate amount of $150,000 by wire transfer of
immediately available federal funds to an account designated by the Related
Lessors.
3.9 NONCOMPETITION AGREEMENTS. At the Closing, Purchaser, on the one
hand, and each of the Majority Shareholders, on the other hand, shall execute
and deliver the noncompetition, confidentiality and nonsolicitation agreements
in the form attached hereto as Exhibit F-1 through F-3.
3.10 RELEASE OF LIABILITIES. Except for the Company guaranty of the
indebtedness of RF Holdings, LLC to Lisa Hames in the approximate amount of
$1,500,000, with respect to which Shareholders shall cause all the Related
Lessors to hold the Company harmless, at or prior to the Closing, each of the
Target Entities shall be released from any and all liability or obligation with
respect to the Facilities owned by the Related Lessors and any other property
owned by the Related Lessors and any liability as a co-maker or guarantor, other
than its respective obligations under the Amended Facility Leases, and shall be
released from any liability or obligation, whether contingent or otherwise, on
any indebtedness or obligation of any of the Controlling Group. Purchaser shall
either (i) cause the Shareholders to be released from any liability as a
co-maker or guarantor on any indebtedness of the Target Entities (other than the
liabilities or obligations described in the preceding sentence or any
liabilities or obligations under this Agreement, the Noncompetition Agreements
or the Amended Facility Leases), or (ii) indemnify the Shareholders from the
same. At the Closing, the Target Entities, on the one hand, and the Shareholders
and the Related Lessors, on the other hand, shall execute and deliver the mutual
releases in the form attached hereto as Exhibit G.
3.11 DELIVERY OF DEBENTURE STATEMENT. At the Closing, Purchaser shall
execute and deliver to the Shareholders the Statement of Additional Terms and
Conditions in the form attached hereto as Exhibit B.
3.12 NOTICE OF DEVELOPMENTS; UPDATING SCHEDULES.
(a) Each party will give prompt written notice to the other of
any development affecting the ability or obligation of the parties to
consummate the transactions contemplated by this Agreement or any of
the Ancillary Agreements. Except as provided in Section 3.12(b) hereof,
no such written notice of a development will be deemed to have amended
the Schedules attached hereto, to have qualified the representations
and warranties contained herein or to have cured any misrepresentation
or breach of warranty that otherwise might have existed hereunder by
reason of such development.
(b) The Shareholders will deliver to the Purchaser at least
three (3) business days prior to the Closing Date a written update or
supplement to the Schedules attached to this Agreement (the "Update")
reflecting events occurring and contracts and agreements entered into
in the operation of the Target Entities from the date of this Agreement
through the date of the Update which, had such events occurred or had
such contracts existed on the date
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hereof, would have been required to be disclosed on the Schedules. All
changes from the Schedules attached to this Agreement will be marked
clearly on such Update. To the extent that such Update (i) reflects
matters or events which have occurred after the date of this Agreement
in the ordinary course of the Target Entities' conduct of their
respective businesses, (ii) do not constitute a violation of any of the
Shareholders' covenants set forth in Section 7.1 hereof and (iii) do
not, alone or in the aggregate, represent a Material Breach of the
representations and warranties of such party (determined prior to any
such Update), then the Schedules shall be deemed to be amended as of
the Closing Date to include the information set forth on such Update.
If such Update reflects matters or events which do not satisfy the
requirements of the preceding sentence, then (i) the parties will
negotiate in good faith during the seven-day period immediately after
delivery of the Update to determine the consequences of such
disclosures, and (ii) the Schedules attached to this Agreement will be
amended only to the extent that the parties mutually agree as a result
of such negotiation.
ARTICLE IV
CLOSING COSTS
-------------
4.1 CLOSING COSTS. In connection with the transactions described
herein, (a) the Related Lessors and the Shareholders shall pay: (i) any fees or
costs due to any lender of any of the Related Lessors, the Target Entities, or
the Shareholders, if any, in order to secure any necessary consents or releases,
and (ii) their own attorneys' and other professionals' fees; and (b) Purchaser
shall pay: (i) any licensure or other fees due from Purchaser under applicable
law to any Agency in connection with the issuance of any approvals or consents
to the consummation of the transactions contemplated herein, (ii) the costs of
any due diligence Purchaser desires to conduct, including without limitation,
any inspections of the Company Operations which Purchaser elects to conduct
prior to the Effective Time, (iii) the filing fee under the HSR Act, and (iv)
its own attorneys' and other professionals' fees.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDERS
----------------
Each of the Shareholders, jointly and severally, represent and warrant
to Purchaser as follows:
5.1 ORGANIZATION, QUALIFICATIONS AND CORPORATE AND OTHER POWER;
SUBSIDIARIES.
(a) Company is a corporation duly incorporated and validly
existing under the laws of the Commonwealth of Kentucky. All of the
issued and outstanding Company Shares are owned by the Shareholders.
Company has the corporate power and authority, and the legal right, to
own and operate its properties and to carry on its business as
currently conducted. Other than the Company Subsidiaries, Company does
not have any subsidiaries,
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own any shares of stock or any equity interest in any corporation or
own any interest in any partnership, limited liability company or other
entity.
(b) Each of the Company Subsidiaries which are corporations
are duly incorporated and validly existing and, where applicable, in
good standing under the laws of the States as described on Schedule
1.1(a) hereto. None of the Company Subsidiaries are qualified as a
foreign corporation in any other jurisdiction and the nature of the
business transacted by them does not make such qualification necessary.
Each of the Company Subsidiaries has the corporate power and authority,
and the legal right, to own and operate its properties and to carry on
its business as currently conducted. Except for Normal Life of Central
Indiana, Inc. and Normal Life of Southern Indiana, Inc., which are the
general partners of Normal Life of Indiana, an Indiana general
partnership (the "Indiana Partnership"), none of the Company
Subsidiaries have any subsidiaries, own any shares of stock or any
equity interest in any corporation or own any interest in any
partnership, limited liability company or other entity.
(c) The Shareholders which are trusts are identified on
Exhibit A hereto. Each of the trusts are in full force and effect and
has not been terminated. The trustee executing this Agreement on behalf
of each of such trusts is the sole trustee thereof and such trustee has
not resigned or been removed. Each of such trustees is authorized by
the respective trust agreement applicable thereto to execute and
consummate the transactions contemplated in this Agreement.
(d) The Shareholders which are partnerships are duly organized
and validly existing, and, where applicable, in good standing under the
laws of the States of their organization. Each partner executing this
Agreement on behalf of each of such partnerships is authorized by the
respective partnership agreement applicable thereto to execute and
consummate the transactions contemplated in this Agreement.
5.2 AUTHORIZATION OF AGREEMENTS, ETC. Subject only to any necessary
approval by the Agencies of the transactions contemplated herein or the
expiration of the waiting period under the HSR Act (or the early termination
thereof) and the satisfaction of the Target Entities' indebtedness to Bank One,
Kentucky, NA described on Schedule 5.2 attached hereto (the "Company Credit
Facility") and the release of certain of the Shares as security thereunder, each
of the Shareholders has full legal capacity and unrestricted power, corporate,
trust or otherwise, to execute and deliver this Agreement and any Ancillary
Agreement executed hereunder to which she, he or it is a party and to perform
her, his or its obligations hereunder and thereunder. The Company has the power
and authority to execute, deliver and perform its obligations under this
Agreement and the execution, delivery and performance by the Company of this
Agreement have been duly authorized by all necessary corporate action. Except
for the Company Credit Facility, the execution, delivery and performance by the
Company and each Shareholder of this Agreement and the other instruments and
agreements to be executed by the respective Shareholder, and the consummation of
the transactions contemplated under this Agreement will not violate any
provision of law, any order of any court or
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other agency of government, the Articles or Certificate of Incorporation or
Bylaws of any of the Target Entities, any judgment, award or decree or any
provision of any indenture, agreement or other instrument, to which any
Shareholder, either any of the Target Entities or any of the Related Lessors is
a party, or by which any Shareholder, any of the Target Entities or any of the
Related Lessors, or any of her, his or its, as the case may be, properties or
assets is bound or affected, or, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement
or other instrument, or result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the properties or assets of
any of the Target Entities, or result in any suspension, revocation, impairment,
forfeiture or nonrenewal of any License other than such events which by law
occur solely by reason of a change in ownership.
5.3 VALIDITY. This Agreement has been duly executed and delivered by
the Company and each of the Shareholders, and, subject to due execution by
Purchaser, constitutes, and the Ancillary Agreements to be executed hereunder to
which she, he or it, as the case may be, when executed and delivered by the
Shareholders as contemplated hereby, subject to due execution by Purchaser, will
constitute, the legal, valid and binding obligations of the Shareholders,
enforceable against them in accordance with their respective terms, subject to
applicable reorganization, insolvency, moratorium and other laws affecting
creditors' rights generally from time to time in effect and general equitable
remedies.
5.4 TITLE TO SHARES. Except for the pledge of the Shares of Shaver and
Graham pursuant to the Company Credit Facility, the Shareholders are the lawful
owners of record of all of the Company Shares as set forth on Schedule 2.3(c)
attached hereto, in each case free and clear of any and all pledges, security
interests, liens, charges or other encumbrances of any nature whatsoever. Except
for pledges pursuant to the Company Credit Facility, Company is the lawful
holder of record and beneficial owner of the number of shares of capital stock
of the Company Subsidiaries set forth on Schedule 1.1(a) attached hereto, in
each case free and clear of any and all pledges, security interests, liens,
charges or other encumbrances of any nature whatsoever. The delivery by the
Shareholders of certificates evidencing the Company Shares, in each case duly
endorsed for transfer or accompanied by stock transfer powers duly endorsed in
blank, to Purchaser pursuant to Section 2.2 above, against payment therefor
pursuant to Section 2.3 above, will transfer valid title and beneficial
ownership to all of the Company Shares to Purchaser, free and clear of any and
all pledges, security interests, liens, charges or other encumbrances of any
nature whatsoever.
5.5 CAPITALIZATION. The authorized and issued and outstanding capital
stock of each of the Target Entities is set forth in Schedule 5.5 attached
hereto. Each of such shares of capital stock is validly issued and outstanding
and, except as disclosed on Schedule 5.5, fully paid and nonassessable. Except
as set forth on Schedule 5.5 attached hereto, none of such shares is subject to
any right of first refusal or other similar right in favor of any person or
entity. Except for the obligations of the Shareholders to Purchaser under this
Agreement, (i) no subscription, warrant, option, convertible security or other
right (contingent or other) to purchase or acquire any shares of any class of
capital stock of any of the Target Entities is authorized or outstanding, (ii)
there is not any commitment of any of the Target Entities to issue any shares,
warrants, options or other such
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rights or to distribute to holders of any class of its capital stock any
evidences of indebtedness or assets, and (iii) none of the Target Entities has
any obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any shares of the capital stock of any of the Target Entities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof.
5.6 FINANCIAL STATEMENTS. The Shareholders have previously delivered
to Purchaser (a) the consolidated balance sheet of the Target Entities as of
December 31, 1996, and the related consolidated statements of income, cash
flows and stockholders' equity for the year then ended (collectively, the
"Historical Financial Statements"), audited by Eskew & Gresham, the Target
Entities' certified public accountants ("Company CPA"); (b) the unaudited
consolidated balance sheet of the Target Entities as of December 31, 1997 (the
"Acquisition Balance Sheet") and the related unaudited consolidated statements
of income for the year-to-date period then ending, prepared by Company
(together with the Acquisition Balance Sheet, the "Closing Financial
Statements"). The Historical Financial Statements and the Closing Financial
Statements (x) were prepared from the books and records of the Target Entities
and (y) present fairly in all respects the consolidated financial position of
the Target Entities as of the date specified therein, and the consolidated
income, cash flows and stockholders' equity for the respective periods then
ended, all in conformity with generally accepted accounting principles applied
on a consistent basis ("GAAP"), except in the case of the Closing Financial
Statements, the absence of footnotes.
5.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
(i) reflected in the Acquisition Balance Sheet or (ii) incurred since December
31, 1997 in the ordinary course of business, or (iii) set forth in Schedule
5.7(a) hereto, none of the Target Entities have any liabilities or obligations
of any kind or nature in respect of which in the aggregate appropriate accruals
or reserves (as detailed on Schedule 5.7(b)) have not been maintained as
reflected on the Acquisition Balance Sheet (whether secured or unsecured,
absolute, accrued, contingent or otherwise and whether due or to become due,
including but not limited to any obligation to repay any amount previously
received for services rendered or any accrued and unused vacation pay of the
employees of any of the Target Entities (whether or not earned)), for any
period ending on or before the date thereof, which liabilities or obligations
would be required to be reflected on a consolidated balance sheet of the Target
Entities prepared in accordance with GAAP, except for the absence of footnotes.
5.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1997
except (i) as otherwise set forth in Schedule 5.8 hereto or (ii) as otherwise
expressly referred to in this Agreement, none of the Target Entities have:
(a) incurred any obligation or liability (fixed or
contingent), except normal trade or business obligations incurred in
the ordinary course of business;
(b) mortgaged, pledged or subjected to any lien, security
interest, charge or other encumbrance any of their assets or
properties;
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(c) transferred, leased or otherwise disposed of any of their
assets or properties having a value of $10,000 or more or purchased any
assets or properties having a value in the aggregate exceeding $250,000
or individually exceeding $50,000;
(d) changed or amended its Articles of Incorporations or
Bylaws;
(e) canceled or compromised any debt or claim (other than the
retirement of trade accounts payable in the ordinary course of
business);
(f) waived, released, transferred or granted any rights or
permitted any License to lapse;
(g) discharged or satisfied any lien, security interest,
charge or other encumbrance or paid any obligation or liability (fixed
or contingent), other than in the ordinary course of business;
(h) declared, set aside or paid any distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock or redeemed or otherwise acquired any of its capital
stock or split, combined or otherwise similarly changed its capital
stock or authorized the creation or issuance of or issued or sold any
capital stock or any securities or obligations convertible into or
exchangeable therefor, or granted to any person or entity any right to
acquire any capital stock or other interest from such entity, or agreed
to take any such action;
(i) made any investment of a capital nature, whether by
purchase of stock or securities, contributions to capital, property
transfers or otherwise, in any partnership, corporation, limited
liability company or other entity;
(j) other than in the ordinary course of business consistent
with past practices, made or granted any wage or salary increase
applicable to any employee, any group or classification of employees
generally, entered into any employment contract with, or made any loan
to, or entered into any transaction of any other nature with, any
officer or employee of such entity;
(k) hired or engaged any family member of the Shareholders as
an employee or independent contractor;
(l) entered into any agreement, letter of intent, or
understanding to acquire any business or the capital interests of any
third party or to dispose of any of the Company Operations or the
equity of any of the Target Entities; or
(m) suffered any material casualty loss or damage (whether or
not such loss or damage shall have been covered by insurance).
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5.9 GOVERNMENTAL APPROVALS. Except as set forth on Schedule 5.9
hereto, to the Knowledge of the Shareholders, assuming appropriate and timely
applications by Purchaser, nothing relating to the Company Operations prior to
the Closing will cause the Purchaser to not be granted all orders,
authorizations, approvals or consents from all Agencies which are required to
ensure the enforceability of this Agreement or any of such Ancillary Agreements
to which any of the Related Lessors or the Shareholders is a party, or is
necessary for the Company Operations to continue to be conducted by the Target
Entities immediately following the Closing substantially in the same manner and
providing for substantially the same reimbursement levels and requirements of
operation as heretofore conducted by such entities.
5.10 INDEFEASIBLE TITLE; CONDITION OF ASSETS. Except as provided on
Schedule 5.10 attached hereto, each of the Target Entities has Indefeasible
Title to all assets and properties used by it. At or prior to the Closing, other
than the Company Credit Facility, all of such liens, encumbrances or security
interests described on such Schedule 5.10 shall be fully released of record. All
of the Facilities and the Personal Property owned or used by the Target Entities
in conducting the Company Operations are in that condition and level of repair
necessary to utilize the respective asset in the Company Operations under the
Licenses and under any applicable standards of the Agencies. All of the Personal
Property, and all of the Supplies are in a sufficient quantity and adequate
quality to operate the Facilities or to conduct operations under the Program
Agreements lawfully and consistent with the respective Target Entity's customary
practice, in accordance with applicable rules and regulations and the provisions
of the Program Agreements. All utilities, including, without limitation, gas
(where applicable), electricity, telephone, sewer (or other approved system) and
water, have been installed to and in the Facilities and all such utilities are
currently in service and adequate for the operation of the Facilities in
accordance with the requirements of the Agencies and the Program Agreements.
Other than the Facilities described on Schedule 5.10, none of the Target
Entities has any interest of any nature in any real property.
5.11 ZONING. The Facilities described in Schedule 5.11, which are all
of the Facilities owned by the Target Entities, substantially conform with all
current applicable zoning laws and building codes, statutes, rules, regulations
and restrictions, the failure to conform with which would have an adverse effect
on the ability of the Target Entities to provide MR/DD services at such
Facilities or which would have an adverse effect on the value of such Facility.
Except as disclosed on Schedule 5.11 attached hereto and except for minor
encroachments, all buildings and improvements which comprise such Facilities are
located entirely within the boundary lines of the appropriate parcel thereof.
The provision of MR/DD services at such Facilities does not violate any federal,
state or local governmental building, zoning, health, safety or other laws,
ordinances or regulations, or any applicable and legally enforceable private
restrictions, and such use is presently a permitted use under applicable
ordinances. No notice (whether written or verbal) of the violation of any of
said laws, ordinances, regulations, codes or restrictions has been received by
any of the Target Entities or the Shareholders.
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5.12 LIST OF PROPERTIES, CONTRACTS AND OTHER DATA. Annexed hereto as
Schedule 5.12 is a list setting forth the following:
(a) a description of each lease of real property or vehicles
to which any of the Target Entities is a party, either as lessee or
lessor, including a description of the parties to each such lease, the
property to which each such lease relates, and, in the case of real
property, the rental term and monthly (or other) rents payable under
each such lease (except that the descriptions of the vehicle leases may
be provided in the Update);
(b) all employment agreements, consulting agreements,
independent contractor agreements, and employee incentive plans or
programs to which any of the Target Entities is a party which provide
for an aggregate commitment of $25,000 or are not terminable without
breach or penalty on less than sixty-one (61) days written notice;
(c) all contracts, including without limitation guarantees,
mortgages, indentures and loan agreements, to which any of the Target
Entities is a party, or to which any of the Target Entities or any of
its assets or properties is subject and which are not specifically
required to be disclosed by clauses (a) or (b) above, PROVIDED,
HOWEVER, that there need not be listed in said Schedule 5.12 pursuant
to this clause (c) any supply contracts with suppliers and other such
contracts incurred in the ordinary course of business and consistent
with past practice, other than any such contract which (i) is a
contract or group of related contracts which exceeds $25,000 in amount,
(ii) contains covenants by any of the Target Entities in excess of
those customary in its business or (iii) cannot be performed by the
respective Target Entity in the normal course within twelve (12) months
after the Closing Date without breach or penalty.
True and complete copies of all documents and adequate descriptions of all
binding oral commitments (if any) referred to in said Schedule 5.12 will be
provided to Purchaser prior to the Closing. All material provisions of the
contracts referred to in such Schedule and all of the Program Agreements are
valid and enforceable obligations of the respective Target Entity and of the
other parties thereto. Each such contract referred to in such Schedule and each
of the Program Agreements is valid and enforceable in accordance with its terms
for the periods stated therein, and there is no existing default or event of
default or event by the respective Target Entity which with notice or lapse of
time or both would constitute such a default under any such contract.
5.13 THIRD-PARTY PAYER AND CUSTOMER CONTRACTS; RESTRICTIVE COVENANTS.
None of the Target Entities have lost any Program Agreements since December 31,
1997. Except as set forth on Schedule 5.13 attached hereto, to the Knowledge of
the Shareholders, in the event of the sale and change of ownership of the Target
Entities none of the Program Agreements would be terminated or modified in any
respect nor would the respective entity lose or suffer diminution in the
contractual relationships under the Program Agreements. Except as set forth on
Schedule 5.13 attached hereto, none of the Target Entities are parties to any
covenant or agreement which prohibits, limits, restricts
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or otherwise adversely affects the right of any of such Target Entities or the
direct or indirect shareholders thereof to provide services to individuals with
MR/DD or engage in any other business.
5.14 LICENSURE/CERTIFICATION. Except as provided in Schedule 5.14
hereto, all of the Target Entities have all requisite Licenses to serve the
number of persons at the locations described on Schedule 1.1(b) attached hereto,
and the Target Entities have entered into Program Agreements to currently
provide services to such clients. The Occupancy Standard is satisfied. Each such
License is in full force and effect and no default, or event which with notice
or the passage of time could constitute a default, by any Target Entity has
occurred and is continuing thereunder. The business of each of the Target
Entities is being conducted in compliance with all applicable laws, ordinances,
rules and regulations of all Agencies relating to their respective properties or
applicable to its or their respective businesses. Except as set forth on
Schedule 5.14 hereto, there are no waivers, "grandfather" provisions, or
variances under any Licenses. After the Effective Time, assuming that the
Purchaser acquires new Licenses and Program Agreements effective at the
Effective Time, each of the Target Entities will be entitled to operate and bill
under the Licenses and Program Agreements on a prospective basis under the
identical circumstances and conditions as applicable to the respective Target
Entity on the date hereof and as reflected in the Historical Financial
Statements and the Closing Financial Statements. No later than the Closing, (i)
the Target Entities will have made available to Purchaser true and correct
copies of the most recent surveys or related reports of the Agencies applicable
to the Target Entities and the Company Operations, and (ii) true and complete
copies of any and all plans of correction submitted in response to said surveys
and related reports will have also been made available to Purchaser. All of the
costs reported by the Target Entities on the cost reports applicable to the
Company Operations are or will be fully allowable and reimbursable. Other than
as reserved for in the Acquisition Balance Sheet, Purchaser will have no
liability to any Agency with respect to any matter relating to the Company
Operations or the Target Entities' conduct thereof prior to the Effective Time.
Each of the Target Entities have dealt with and acted as a custodian for the
Client Trust Accounts in full compliance with applicable law and all applicable
standards, rules and regulations of the Agencies. There is no shortage or
shortfall in any of the Client Trust Accounts, except for inherited shortfalls
in Irving, Texas and Ventura, California, which shortfalls are adequately
provided for in the aggregate reserves on the Closing Financial Statements.
5.15 LITIGATION, ETC. Schedule 5.15 hereto sets forth a complete list
and an accurate description of all claims, actions, suits, proceedings and
investigations pending or to the Knowledge of the Shareholders, threatened, by
or against any of the Target Entities or any of its or their respective
properties, assets, rights or businesses. There is no basis for any other such
claim, action, suit, proceeding or investigation. There are no actions, suits,
proceedings or claims pending before or by any court, arbitrator, or Agency
against or affecting any of the Shareholders, the Related Lessors or any of the
Target Entities that would enjoin or prevent the consummation of the
transactions contemplated by this Agreement. All liabilities or costs of the
Target Entities with respect to such claims, actions, suits, proceedings or
investigations (including those described on Schedule 5.15) are either fully
covered by insurance or are fully reserved for in the Closing Financial
Statements.
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5.16 TAXES; TAX MATTERS. Each of the Target Entities has duly filed or
caused to be filed (or obtained valid, currently effective extensions for
filing) all federal, state, local and foreign income, provider, informational,
franchise, excise, payroll, sales and use, property, withholding and other tax
returns, reports, estimates and information and other statements or returns
(collectively "Tax Returns") required to be filed by or on behalf of it
pursuant to any applicable federal, state, local or foreign tax laws for all
years and periods for which such Tax Returns have become due (including any
consolidated or combined Tax Return). All such Tax Returns were correct in all
respects as filed and reflect in all respects the information required to be
shown thereon and the federal, state, local and foreign income, franchise,
excise, payroll, sales and use, property, withholding and other taxes, duties,
imposts and governmental charges (and charges in lieu of any thereof), together
with interest, any additions to tax and penalties (collectively "Taxes")
required to be paid or collected by (or allocable to) the Target Entities. Each
of the Target Entities has paid or caused to be paid all Taxes as shown on Tax
Returns filed by it or on any assessment received by it. Except as set forth on
Schedule 5.16 attached hereto, none of the Target Entities has received any
written notice of any audit, or any dispute or claim being threatened by any
relevant taxing authority concerning any Tax Return or liability for Taxes.
Each of the Target Entities has withheld or collected from each payment to each
of its employees (or has otherwise paid or made provision for) the amount of
all Taxes (including, but not limited to, federal income taxes, Federal
Insurance Contribution Act taxes, state and local income and wage taxes,
payroll taxes, workers' compensation and unemployment compensation taxes)
required to be withheld or collected therefrom, and each of the Target Entities
has paid (or caused to be paid) the same in respect of its employees when due.
Any and all liability or obligation for Taxes for all periods to and including
December 31, 1997 have been fully accrued on the Historical Financial
Statements and the Closing Financial Statements and/or fully reserved and
recorded as an expense on the books and records of the Target Entities.
5.17 LABOR AND EMPLOYMENT MATTERS. Except as set forth on Schedule
5.17 attached hereto, none of the employment agreements referred to in Section
3.2 hereof contain any provision obligating any of the Target Entities to make
any payment to any party as a result of the sale of the Shares or any other
transaction which would constitute a change of control of the Company. Except
as set forth on Schedule 5.17 attached hereto, no collective bargaining
agreement is applicable to any employees of any of the Target Entities, and
there are no disputes between any Target Entity and any such employees that
would reasonably be expected to adversely affect the conduct of any of the
Company Operations or any unresolved labor union grievances or unfair labor
practice or labor arbitration proceedings pending or threatened, relating to
any of the Company Operations. There are no organizational efforts presently
being made or to the Knowledge of the Shareholders, threatened, involving any
of such employees. Each of the Target Entities has complied with all laws
relating to employment applicable to the respective Target Entity, including
all provisions thereof relating to wages, hours, collective bargaining, the
payment of social security and other payroll or similar taxes, equal employment
opportunity, employment discrimination or harassment and employment safety, and
none of the Target Entities has any liability for any arrears of wages or any
taxes or penalties for failure to comply with any of the foregoing. There are
no proceedings pending or to the Knowledge of the Shareholders, threatened,
before the National Labor Relations Board with respect to any employees of any
Target Entity. Except as set forth on Schedule 5.17 attached hereto,
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<PAGE> 20
there are no discrimination or harassment charges (relating to sex, age,
religion, race, national origin, ethnicity, sexual orientation, handicap or
veteran status) pending or to the Knowledge of the Shareholders, threatened,
before any federal or state agency or authority against any Target Entity. All
liabilities or costs of the Target Entities with respect to such charges are
either fully covered by insurance or are fully reserved for in the Closing
Financial Statements. Each of the Target Entities has handled and disposed of
all medical wastes or bio-hazardous materials in compliance with all applicable
federal, state or local statutes, rules or regulations and in such a manner that
does not give rise to any claim of liability by any employee, client or
independent contractor of any Target Entity, or any other party.
5.18 INSURANCE. All policies of fire, liability, workers'
compensation, malpractice and professional liability and other forms of
insurance providing insurance coverage to or for the Target Entities are listed
in Schedule 5.18 hereto and (i) the respective Target Entity is named insured
under such policies, (ii) all premiums required to be paid with respect thereto
covering all periods up to and including the Effective Time have been paid,
(iii) all of such insurance policies have been issued on an "occurrence" basis,
(iv) except as set forth on Schedule 5.18 hereto, there has been no lapse in
insurance coverage at any time since any of the Target Entities commenced
operations, (v) there are not presently, and after the Effective Time there
will not be, any retrospective premiums due under any of such policies, and
(vi) no notice of cancellation or termination has been received with respect to
any such policy. All prepaid insurance premiums will be refundable in
accordance with the terms of the applicable policy and have been accurately
recorded as such on the Acquisition Balance Sheet and Closing Financial
Statements. Except as set forth on Schedule 5.18 of the Update, since January
1, 1997, no claims have been made on any of such policies in excess of $25,000
or which remain open as of the date hereof. There are no claims outstanding
against any of the Target Entities with respect to any period for which any
lapse in insurance coverage occurred.
5.19 ACCOUNTS RECEIVABLE. The accounts receivable reflected in the
Historical Financial Statements and the Closing Financial Statements, and all
accounts receivable arising after December 31, 1997 arose from bona fide
transactions in the ordinary course of business with unaffiliated third parties,
and the services involved have been performed to the respective clients and/or
the account obligors, and no further services are required to entitle the Target
Entities to collect the respective accounts receivable in full. Subject to the
reserve for doubtful accounts in an aggregate amount of $200,000, the aggregate
amount of all of such accounts receivable is fully collectible.
5.20 BOOKS AND RECORDS. Except as set forth on Schedule 5.20 attached
hereto, the corporate minute book of each of the Target Entities and the stock
record book of each of the Target Entities (i) are complete and correct in all
material respects and adequately reflect actions taken at all meetings of the
stockholders and Board of Directors of the respective Target Entity, and (ii)
properly and accurately record the issuance and transfer of all shares of
capital stock of the Target Entities.
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5.21 EMPLOYEE BENEFIT PLANS.
(a) Schedule 5.21 attached hereto lists each employee benefit
plan within the meaning of section 3(3) of the Employee Retirement
Income Security Act of 1974 ("ERISA") maintained by any of the Target
Entities or to which any of the Target Entities contributes or is
required to contribute or in which any employee of any of the Target
Entities participates (a "Plan"). Each of the Plans has been operated
and administered in all respects in accordance with applicable laws,
including but not limited to ERISA and the Code. There are no pending
or to the Knowledge of the Shareholders, threatened, claims by or on
behalf of any of the Plans, by any employee or beneficiary covered
under such Plan or otherwise involving any such Plan or any of its
fiduciaries (other than for routine claims for benefits).
(b) Except as set forth in Schedule 5.21 hereto, (i) each Plan
subject to section 401(a) of the Code qualifies thereunder and is
exempt from taxation pursuant to section 501(a) of the Code, (ii) each
trust subject to section 501(c) of the Code qualifies for exemption
from federal income tax thereunder, and (iii) each Plan subject to
sections 125 and 129 of the Code qualifies thereunder.
(c) None of the Target Entities has maintained, contributed to
or been required to contribute to, nor do any of its employees
participate in, a "multi-employer plan" (as defined in section 3(37) of
ERISA) or a "defined benefit plan" (as defined in section 3(35) of
ERISA).
(d) Notwithstanding anything else set forth herein, none of
the Target Entities has incurred any liability as of the Closing Date
with respect to any Plan under ERISA (including, without limitation,
Title I or Title IV of ERISA), the Code or other applicable law, which
is due and payable and which has not been satisfied in full, and no
event has occurred, and to the Knowledge of the Shareholders, there
exists no condition or set of circumstances which could result in the
imposition of any liability under ERISA (including, without limitation,
Title I or Title IV of ERISA), the Code or other applicable law with
respect to any of the Plans (other than the payment of routine claims
for benefits, insurance premiums or contributions required under the
terms of the Plans).
(e) No Plan, other than a Plan which is an employee pension
benefit plan (within the meaning of section 3(2)(A) of ERISA), provides
benefits, including without limitation, death, health or medical
benefits (whether or not insured), with respect to current or former
employees of any of the Target Entities beyond their retirement or
other termination of service with any of the Target Entities (other
than (i) coverage mandated by applicable law, (ii) deferred
compensation benefits fully accrued as liabilities on the books of any
of the Target Entities or (iii) benefits the full cost of which is
borne by the current or former employee (or his or her beneficiary)).
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(f) Except as otherwise disclosed in the Agreement, the
consummation of the transactions contemplated by this Agreement
(including but not limited to the resignation of the Shareholders and
all of the Shareholders' respective family members as employees or
directors of any of the Target Entities) will not (i) entitle any
current or former employee, officer or director of any of the Target
Entities to severance pay, unemployment compensation or any other
payment from any of the Target Entities, or (ii) except for
acceleration of vesting by reason of the termination of the Plans
described in Schedule 7.1(f) hereto, accelerate the time of payment or
vesting, or increase the amount of compensation due any such employee,
officer or director.
(g) Except as set forth in Schedule 5.21 hereto, each of the
Target Entities has provided or made available to Purchaser, its
counsel or accountants true and complete copies of the following for
each Plan as applicable: (i) the Plan; (ii) the summary plan
description of the Plan; (iii) the trust agreement, insurance policy or
other instrument relating to the funding of the Plan; (iv) the most
recent Annual Report (Form 5500 series) and accompanying schedule filed
with the Internal Revenue Service or United States Department of Labor
with respect to the Plan; (v) the most recent audited financial
statement for the Plan; (vi) the most recent actuarial report of the
Plan; and (vii) the policy of fiduciary liability insurance (and
agreements related thereto) maintained in connection with the Plan.
(h) Except as contemplated in Section 7.1(f) hereof, none of
the Target Entities has amended or terminated any Plan after providing
Purchaser with copies of the Plans referenced in Schedule 5.21 hereto.
5.22 TRANSACTIONS WITH AFFILIATES. Except as set forth on Schedule
5.22 hereto, (a) there are no contracts for the provision of goods or services
(including but not limited to management services) to or from (i) any Target
Entity and (ii) any person or entity of the Controlling Group, and (b) other
than the Facilities, there are no facilities occupied in whole or in part by
any Target Entity, and no other property, assets, franchises, licenses or
rights used by any of the Target Entities, that are owned, leased by or to, or
occupied by any member of the Controlling Group.
5.23 ENVIRONMENTAL MATTERS.
(a) For the purposes of this Section 5.23, the following terms
shall have the following meanings:
"Environmental Law" means any applicable federal, state, or
local statute, law, ordinance, rule or regulation of the United States
and any other jurisdiction within the United States now effective and
any order, to which the Target Entities are parties or are otherwise
directly bound of the United States or other jurisdiction within the
United States now effective relating to: (i) pollution or protection
of the environment, including natural resources; or (ii) exposure of
persons, including employees, to Hazardous Substances;
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"Hazardous Substances" means any substance, whether liquid,
solid or gas (i) listed, identified or designated as hazardous or toxic
under any Environmental Law, (ii) which, applying criteria specified in
any Environmental Law, is hazardous or toxic, or (iii) the use or
disposal of which is regulated under Environmental Law.
(b) Neither any Target Entity, any of the Shareholders, nor
any person or entity acting at their direction, and no other person or
entity, has discharged, released or emitted, or has threatened to
discharge, release or emit Hazardous Substances into the air, water,
surface water, ground water, land surface or subsurface strata or
transported to or from the property owned, leased or used by the Target
Entities except in compliance with Environmental Law and except for
incidental releases of Hazardous Substances in amounts or
concentrations which would not reasonably be expected to give rise to
any claims or liabilities against any of the Target Entities under
Environmental Law.
(c) Neither any Target Entity, the Related Lessors nor any of
the Shareholders has received any notification (verbally or in writing)
from a governmental agency that there is any violation of any
Environmental Law with respect to the business and properties of the
Target Entities and neither any Target Entity, any Related Lessor nor
any of the Shareholders has received any notification (verbally or in
writing) from a governmental agency pursuant to Section 104, 106 or 107
of the Comprehensive Environmental Response Compensation and Liability
Act, as amended.
(d) There are no underground storage tanks or facilities on
any portion of the real property currently or previously owned or
leased by any of the Target Entities and any underground storage tank
or facility previously located thereon has been removed in compliance
with all applicable Environmental Law.
5.24 COST REPORTS. All cost reports ("Cost Reports") required to be
filed by any Target Entity under federal or state law or any other applicable
governmental or private provider regulations have been prepared and filed in
accordance with applicable laws, rules and regulations (and copies of all of the
Cost Reports for Florida and Indiana for the calendar years 1995 and 1996 have
been provided to Purchaser), and the respective Target Entity has paid or made
provision to pay, all proposed or final adjustments received from Medicaid or
other programs. There are, however, open audit periods and/or ongoing audits on
the Cost Reports filed for Florida, Indiana and Louisiana. All liabilities or
costs of the Target Entities with respect to the Cost Reports are fully reserved
for on an aggregate basis in the Closing Financial Statements.
5.25 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither any Target Entity,
any Related Lessor, any of the Shareholders, nor any stockholder, member,
partner, officer, or director of any of such entities nor any other person or
entity acting on behalf of any of such entities, acting alone or together, has
(i) received, directly or indirectly, any rebates, payments, commissions,
promotional allowances or any other economic benefits, regardless of their
nature or type, from or on behalf of any client, governmental employee or other
person or entity with whom any of such entities have
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done business directly or indirectly, or (ii) directly or indirectly, given or
agreed to give any gift or similar benefit to any client, governmental employee
or other person or entity who is or may be in a position to help or hinder the
business of any of such entities (or assist any of such entities in connection
with any actual or proposed transaction) which, in the case of either clause (i)
or clause (ii) above, would reasonably be expected to subject any of the Target
Entities or the Related Lessors to any damage or penalty in any civil, criminal
or governmental litigation or proceeding.
5.26 FRAUD AND ABUSE. Neither any Target Entity, any Related Lessor,
any of the Shareholders, nor any of their stockholders, members, partners,
officers or directors has engaged in any activities which are prohibited under
federal Medicaid statutes or the regulations promulgated pursuant to such
statutes or related state or local statutes or regulations or which are
prohibited by rules of professional conduct.
5.27 BROKERS' OR FINDERS' FEES. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried out by each
of the Shareholders directly with Purchaser, without the intervention of any
person engaged by or on behalf of any of the Shareholders in such manner as to
give rise to any valid claim by any person against Purchaser or any of the
Target Entities for a finder's fee, brokerage commission or similar payment.
5.28 SECURITIES MATTERS; INVESTMENT INTENT. It is understood that the
Debentures to be delivered to the Shareholders pursuant to this Agreement are
not being registered, for purposes of the transactions hereunder, under the
Securities Act of 1933, or under any applicable state securities laws, and the
Debentures are being delivered without registration in reliance upon exemption
from the registration requirements of the Securities Act and such state
securities laws. The Shareholders are acquiring the Debentures hereunder only
for their own respective accounts for investment and not with any intention of
making, or with a view to, or for sale in connection with, any distribution
thereof within the meaning of the Securities Act.
In connection with the foregoing, each of the Shareholders hereby
represents and warrants that:
(a) such Shareholder has reviewed, discussed and evaluated the
information described on Schedule 5.28 (the "Purchaser Information")
and has had the opportunity to ask questions of, and receive answers
from, executive officers of the Purchaser concerning the terms and
conditions of this Agreement and to obtain any additional information
which such Shareholder considered necessary to verify the accuracy of
the Purchaser Information;
(b) such Shareholder has been advised and understands that it,
he or she must bear the economic risks of the investment in the
Debentures and any Purchaser Common Stock issuable upon conversion
thereof to be made hereunder for an indefinite period of time because
such securities have not been registered under the Securities Act and
are subject to the restrictions upon transfer contained in this
Agreement and in the form of Debentures and the Debenture Statement
and, therefore, may not be sold unless such sale is made in
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compliance with the provisions of this Agreement and such Debentures or
Purchaser Common Stock issuable upon conversion thereof subsequently is
registered under the Securities Act or an exemption from registration
is available; and
(c) such Shareholder has sufficient knowledge and experience
in financial and business matters, either alone or with the assistance
of a financial adviser (such as an attorney, accountant, or executive
officer of the Company) to enable such Shareholder to be capable of
evaluating the merits and the risks of the exchange of the Debentures
for the Company Shares contemplated by this Agreement and such
Shareholder's prospective investment in the Purchaser.
5.29 LEGENDS. It is understood and agreed that, to implement the
requirements of the Securities Act and evidence the restrictions upon transfer
contained in this Agreement, the Purchaser will cause a legend to be
conspicuously noted on the Debentures and any certificates representing the
Purchaser Common Stock hereafter delivered upon conversion of the Debentures
deliverable hereunder, and that the Purchaser will issue stop transfer
instructions to its transfer agent, to the effect that the Debentures and the
Purchaser Common Stock have not been registered under the Securities Act and
that no transfer may take place except as permitted by this Agreement and after
delivery of an opinion of counsel reasonably satisfactory to the Purchaser to
the effect that registration thereof for the purpose of transfer is not required
under the Securities Act or that the Debentures or any Purchaser Common Stock
proposed to be transferred has been effectively registered for that purpose
under the Securities Act.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Purchaser represents and warrants to the Shareholders as follows:
6.1 ORGANIZATION, POWER, ETC. Purchaser is a corporation duly
organized and validly existing under the laws of the Commonwealth of Kentucky.
Purchaser has full corporate power and authority, and, subject to the approval
of the Agencies and the expiration of the applicable waiting period under the
HSR Act (or the early termination thereof), the legal right, to execute and
deliver this Agreement and the additional agreements to be executed hereunder
to which it is a party, and to perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby.
6.2 AUTHORIZATION OF AGREEMENTS, ETC. The execution and delivery by
Purchaser of this Agreement and the Ancillary Agreements to be executed
hereunder to which it is a party, and the performance by Purchaser of its
obligations hereunder and thereunder, have been duly authorized by all requisite
corporate action and will not violate any provision of law, any order of any
court or other agency of government, the Amended and Restated Articles of
Incorporation or Bylaws of Purchaser, any judgment, award or decree or any
indenture, agreement or other instrument to which
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Purchaser is a party, or by which it or any of its properties or assets is bound
or affected, or result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument,
or result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of the properties or assets of Purchaser.
6.3 VALIDITY. This Agreement has been duly executed and delivered by
Purchaser and, subject to due execution by the other parties hereto,
constitutes, and the Ancillary Agreements to which Purchaser is a party
hereunder, when executed and delivered by Purchaser as contemplated hereby,
subject to due execution by the other parties thereto, will constitute, the
legal, valid and binding obligations of Purchaser, enforceable against Purchaser
in accordance with their respective terms, subject to applicable reorganization,
insolvency, moratorium and other laws affecting creditors' rights generally from
time to time in effect and general equitable remedies.
6.4 LITIGATION RELATING TO TRANSACTION. There are no actions, suits,
proceedings or claims pending or threatened, by or against Purchaser or any of
its properties, assets, rights or businesses which if adversely determined
would, individually or in the aggregate, have an adverse effect on the business,
properties or condition (financial or other) of Purchaser. There are no actions,
suits, proceedings or claims pending before any court, arbitrator or government
agency against or affecting Purchaser which might enjoin or prevent the
consummation of the transactions contemplated by this Agreement or the
additional agreements to which Purchaser is a party hereunder.
6.5 INVESTMENT. Purchaser is acquiring the Company Shares for its own
account, for investment and not with a view toward the distribution thereof
within the meaning of the Securities Act of 1933, as amended.
6.6 GOVERNMENTAL APPROVALS. Except as set forth on Schedule 6.6
hereto, to the Knowledge of the Purchaser, nothing relating to the operations
of Purchaser and its subsidiaries prior to the Closing will cause the Purchaser
not to be granted all orders, authorizations, approvals or consents from all
Agencies which are required to ensure the enforceability of this Agreement or
any of such Ancillary Agreements to which the Purchaser is a party, or is
necessary for the Company Operations to continue to be conducted by the Target
Entities immediately following the Closing substantially in the same manner and
providing for substantially the same reimbursement levels and requirements of
operation as heretofore conducted by such entities.
6.7 BROKERS' OR FINDERS' FEES. Other than J.C. Bradford & Co., all
negotiations relative to this Agreement and the transactions contemplated
hereby have been carried out by Purchaser directly with the Shareholders,
without the intervention of any person on behalf of Purchaser in such manner as
to give rise to any valid claim by any person against any of the Shareholders
for a finder's fee, brokerage commission or similar payment. The Shareholders
shall have no liability to J.C. Bradford & Co. in connection with Purchaser's
engagement of the same.
6.8 CAPITAL STOCK AND CONVERTIBLE SECURITIES. The authorized capital
stock of Purchaser consists of (i) 40,000,000 shares of Purchaser Common Stock,
of which 12,365,682
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shares were issued and outstanding as of December 31, 1997, and (ii) 1,000,000
shares of preferred stock, no par value per share, none of which are issued and
outstanding as of the date hereof. All of the shares of Purchaser Common Stock
that may be issued upon the conversion of Debentures in accordance with the
terms of the Debentures and the Debenture Statement will be duly and validly
issued and outstanding and fully paid and nonassessable under the Kentucky
Business Corporation Act. None of the outstanding shares of Purchaser capital
stock has been, and none of the shares of Purchaser Common Stock that may be
issued upon the conversion of the Debentures in accordance with the terms of the
Debentures and the Debenture Statement will be, issued in violation of any
preemptive or other rights of the current or past shareholders of Purchaser.
6.9 PURCHASER FINANCIAL STATEMENTS. Each of the Purchaser Financial
Statements (including, in each case, any related notes), including any Purchaser
SEC Reports filed after the date of this Agreement until the Effective Time,
complied as to form in all material respects with the applicable published rules
and regulations of the SEC with respect thereto, was prepared in accordance with
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements or, in the case of
unaudited interim statements, as permitted by the SEC), and fairly presented in
all material respects the consolidated financial position of Purchaser and its
subsidiaries as of the respective dates and the consolidated results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments that were not or are not expected to be material in amount
or effect.
6.10 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
(i) as disclosed in any of the Purchaser Information or (ii) incurred since
September 30, 1997 in the ordinary course of business, neither Purchaser nor any
of its subsidiaries has any liabilities or obligations of any nature that are
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Purchaser, except such liabilities or obligations that are accrued or
reserved against in the consolidated balance sheets of Purchaser as of September
30, 1997, included in the Purchaser Financial Statements made available prior to
the date of this Agreement or reflected in the notes thereto.
6.11 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30, 1997,
except as disclosed in the Purchaser SEC Reports made available prior to the
date of this Agreement, there have been no events, changes or occurrences that
have had, or are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Purchaser.
6.12 REPORTS. Since January 1, 1997, Purchaser has filed all Purchaser
SEC Reports, except failures to file that are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Purchaser. As of
its respective date (or, if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing), each of such Purchaser SEC
Reports, including the financial statements, exhibits and schedules thereto
complied in all material respects with all applicable laws. As of its respective
date, each such Purchaser SEC Report did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
27
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ARTICLE VII
COVENANTS
---------
7.1 CERTAIN COVENANTS OF THE SHAREHOLDERS.
(a) During the period from the date of this Agreement to the
Closing Date, each of the Target Entities will (and each of the
Shareholders will cause it to) conduct its business and operations
according to its ordinary course of business and use its reasonable
business efforts (i) to preserve its relationships with its employees
and clients and with the Agencies, (ii) to maintain its Licenses and
its contracts with third party payers and clients in full force and
effect in accordance with their terms and (iii) to continue to provide
its services to such third party payers and clients. Without limiting
the generality of the foregoing, except as otherwise expressly
contemplated by this Agreement, prior to the Closing Date, without the
prior written consent of Purchaser, which consent shall not be
unreasonably withheld, none of the Target Entities will do any of the
things listed in paragraphs (a) through (l) of Section 5.8 hereof.
(b) Between the date hereof and the Closing Date, each of the
Target Entities shall (and each of the Shareholders will cause it to)
provide, upon reasonable advance notice during normal business hours,
access by representatives of Purchaser to the financial, accounting and
legal records of all of the Target Entities, and to key employees of
each of the Target Entities designated by Purchaser and, in connection
therewith, shall permit representatives of Purchaser, upon reasonable
advance notice during normal business hours, to visit and inspect the
Facilities. Such activities shall be performed, so far as is reasonably
possible, in such a manner as to avoid disruption of normal operations.
(c) Between the date hereof and the Closing Date, except in
the ordinary course of business, consistent with past practices,
neither any of the Target Entities, any of the Related Lessors nor any
of the Shareholders nor any affiliate thereof shall enter into any
transaction, make any agreement or commitment, or take any action,
which would result in the representations, warranties or covenants of
the Shareholders contained in this Agreement not being true and correct
in all Material Respects.
(d) Between the date hereof and the Closing Date, each of the
Target Entities and the Shareholders shall cooperate in good faith with
Purchaser, including the filing and submission of all necessary and
appropriate applications and documents, in order to obtain all
applicable governmental, regulatory and third party authorizations,
consents, waivers and approvals required or necessary in order to
consummate the transactions contemplated by this Agreement (including
but not limited to any approval required under the HSR Act). The
Shareholders will use their reasonable business efforts to cause the
Company to make any necessary filing on or before February 13, 1998 to
secure approval (or early termination of the waiting period) under the
HSR Act.
(e) Between the date hereof and the Closing Date, none of the
Shareholders shall permit any of the Target Entities, except as
required by GAAP and subject to appropriate
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year-end adjustments, (i) to utilize accounting principles different
from those used in the preparation of the Historical Financial
Statements and the Closing Financial Statements, (ii) change in any
manner its method of maintaining its books of account and records from
such methods as reflected in the Historical Financial Statements and
the Closing Financial Statements, or (iii) accelerate booking of
revenues or the deferral of expenses.
(f) At the election of Purchaser, Purchaser may cause the
Target Entities to terminate the Plans described on Schedule 7.1(f)
hereto or merge any of such Plans with comparable plans of Purchaser.
No family member of any Shareholder, nor any other officer or director
of the Target Entities shall make any claim for unemployment
compensation relating to their employment (if any) by the Target
Entities.
(g) Prior to the Effective Time, the Shareholders shall cause
each of the Target Entities to maintain the Supplies at levels which
are consistent with the conduct of the respective Company Operations
conducted by such Target Entity in the ordinary course of business
(which in all cases shall be in compliance with applicable federal,
state and local law and as required for the provision of services in
accordance with applicable rules of the Agencies) and shall not sell or
remove any Personal Property, modify or terminate any Facility Lease,
Program Agreement or Contract (except as expressly provided herein),
move or discharge any client, or terminate the provision of services to
any client after the date hereof except in the ordinary course of
business consistent with past practices.
(h) The Shareholders shall cause each of the Target Entities
to continue the Company Operations between the date hereof and the
Effective Time in accordance with the same standards of care and
diligence historically applied thereto (which in all events shall be in
compliance with the standards under the Program Agreements and in
material compliance with all applicable federal, state and local law
and the rules and regulations of the Agencies) and maintain the
Facilities and the Personal Property in the same condition and repair
(reasonable wear and tear excepted).
(i) Until (i) April 15, 1998, or (ii) for any time period for
which the Closing is extended, or (iii) for such shorter period if this
Agreement is mutually terminated, neither the Company, any Shareholder
nor any director, officer or affiliate thereof shall directly or
indirectly solicit, encourage or authorize any person or entity to
solicit, directly or indirectly, any inquiries or proposals from any
other person or entity relating to the sale, lease or sublease of, or
management of, any of the Company Operations, any sale of, or other
business combination relating to, the capital stock, business or assets
of any Target Entity or the relinquishment or transfer of the Licenses,
and neither the Company, any Shareholder nor any director or officer of
the Company shall engage in discussions or negotiations of any nature
with any party other than Purchaser regarding any of such matters.
(j) Prior to the Closing, the Shareholders shall cause to be
delivered to Purchaser the consolidated audited financial statements of
the Target Entities for the year ended December 31, 1997, prepared by
the Company CPA, which audited financial statements shall not reflect
any accruals, reserves or liabilities which are in excess of the
amounts reflected in the Closing Financial Statements and which shall
reflect a consolidated tangible net worth
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of not materially less than the consolidated tangible net worth
reflected in the Closing Financial Statements.
7.2 CERTAIN COVENANTS OF PURCHASER.
(a) Between the date hereof and the Closing Date, Purchaser
shall use its reasonable business efforts, in cooperation with the
Target Entities, in order to obtain all governmental, regulatory and
third party authorizations, consents, waivers and approvals necessary
or desirable in order to consummate the transactions contemplated by
this Agreement (including but not limited to any approval required
under the HSR Act). The Purchaser shall use its reasonable business
efforts to make any necessary filing on or before February 13, 1998 to
secure approval (or early termination of the waiting period) under the
HSR Act.
(b) Purchaser shall use its reasonable business efforts to
coordinate with the Target Entities all inquiries to and contacts with
the Agencies regarding the transactions contemplated herein and shall
not contact any employees of any Target Entity without the prior
consent of the Target Entity employing such person.
(c) Purchaser agrees to cause all of the shares of Purchaser
Common Stock that may be issued upon the conversion of Debentures in
accordance with the terms of the Debentures and the Debenture Statement
to be listed on each securities exchange and quotation system on which
the common stock is listed at the time of such conversion.
7.3 BOOKS AND RECORDS. At or before the Closing, the Shareholders
shall deliver custody and control to Company of all books, records, files,
documents, papers, agreements, books of account and other records pertaining to
the business of the Target Entities or relating to or used in the Company
Operations to the extent the Shareholders have custody or control of the same.
After the Closing, Purchaser shall provide the Shareholders with reasonable
access to and permit the copying of such books and records (at the cost of the
Shareholders) to permit the Shareholders to comply with any covenants and/or
obligations under this Agreement and for any other valid business purpose.
7.4 PRE-CLOSING TAX RETURNS. As promptly as possible after the Closing
(and in any event within the time required by applicable law), the Shareholders
shall, at the cost and expense of the Company, cause the Company CPA to prepare
all Tax Returns applicable to the Target Entities for all periods to and
including December 31, 1997 (including but not limited to any consolidated or
combined Tax Return of which one or more of the Target Entities are a part).
All such Tax Returns shall be prepared in compliance with the rules and
regulations applicable thereto. All of the Taxes shown to be due thereon for
all periods to and including December 31, 1997 shall have been fully provided
for in the Closing Financial Statements.
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ARTICLE VIII
CONDITIONS PRECEDENT
--------------------
8.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER. Subject to
Section 10.1(d) hereof, the obligation of Purchaser to consummate the
transactions contemplated by this Agreement is subject to the satisfaction at or
prior to the Closing Date of each of the conditions set forth in this Section
8.1.
(a) OCCUPANCY STANDARD. The Occupancy Standard applicable to
the Target Entities shall be satisfied.
(b) OPINION OF COUNSEL FOR THE SHAREHOLDERS. Purchaser shall
have received the opinion of Brown, Todd & Heyburn, PLLC, counsel for
the Shareholders, addressed to Purchaser and dated the Closing Date
substantially to the effect set forth in Annex I hereto.
(c) CONSENTS AND APPROVALS. All authorizations, consents,
waivers and approvals required in connection with the execution,
delivery and performance of this Agreement, including but not limited
to the approval of all Agencies, shall have been duly obtained and
shall be in form and substance reasonably satisfactory to counsel for
Purchaser. The waiting period under the HSR Act shall have expired (or
the parties have been granted early termination thereof).
(d) LEGAL ACTIONS OR PROCEEDINGS. No legal action or
proceeding shall have been instituted by any third party or threatened
by any governmental department, agency or authority, in either case
seeking to restrain, prohibit or invalidate the consummation of the
transactions contemplated hereby or which would, if adversely decided,
result in a Material Adverse Effect on the Company Operations after the
Effective Time.
(e) ANCILLARY AGREEMENTS. Each of the Ancillary Agreements to
be executed and delivered hereunder shall have been duly executed and
delivered by all parties thereto other than Purchaser or other parties
controlled by Purchaser.
(f) SUPPORTING DOCUMENTS. On or prior to the Closing Date,
Purchaser and its counsel shall have received copies of the following
supporting documents with respect to all of the Target Entities (other
than the Indiana Partnership), all of which shall be reasonably
satisfactory in form and substance to Purchaser and its counsel: the
Articles or Certificate of Incorporation of each of the Target
Entities, certified as of a recent date by the Secretary of State of
the respective state of its incorporation; and certificates of the
Secretary of State of each of the respective states shown on Schedule
5.1(b) hereof as to the due formation or incorporation, as applicable,
and, where applicable, good standing of each of such entities.
(g) REPRESENTATIONS, WARRANTIES AND COVENANTS. There shall
not have been any Material Breach of the representations and
warranties made by any of the Shareholders in this Agreement or in any
other written statement delivered by any of them hereunder, or
delivered pursuant hereto, whether as of the date hereof or at the
Closing (as though made
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at that time). Each of the Shareholders shall have performed, satisfied
and complied in all material respects (which materiality standard shall
not be applicable to Section 8.1(a) hereof or any covenant, agreement
or condition which is already qualified by a materiality standard) with
all covenants, agreements and conditions required by this Agreement to
be performed, satisfied or complied with by any of them at or before
the Closing.
8.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SHAREHOLDERS.
Subject to Section 10.1(d) hereof, the obligations of the Shareholders under
this Agreement are subject to the satisfaction at or prior to the Closing Date
of each of the conditions set forth in this Section 8.2.
(a) LEGAL ACTIONS OR PROCEEDINGS. No legal action or
proceeding shall have been instituted by any third party or threatened
by any governmental department, agency or authority, in either case
seeking to restrain, prohibit or invalidate the consummation of the
transactions contemplated hereby.
(b) ANCILLARY AGREEMENTS. Each of the Ancillary Agreements to
be executed and delivered by Purchaser or any entity controlled by
Purchaser shall have been duly executed and delivered by Purchaser or
such entity controlled by Purchaser.
(c) OPINION OF COUNSEL FOR PURCHASER. The Shareholders shall
have received the opinion of Reed Weitkamp Schell Cox & Vice, counsel
for Purchaser, addressed to the Shareholders and dated the Closing Date
substantially to the effect set forth in Annex II hereto.
(d) SUPPORTING DOCUMENTS. On or prior to the Closing Date, the
Shareholders and their counsel shall have received a Certificate of the
Secretary or an Assistant Secretary of Purchaser, dated the Closing
Date and certifying (i) that attached thereto is a true and complete
copy of the resolutions adopted by the Board of Directors of Purchaser,
authorizing the execution, delivery and performance of this Agreement
and the additional agreements to be executed hereunder to which
Purchaser is a party, and that all such resolutions are still in force
and effect and are all the resolutions adopted in connection with the
transactions contemplated by this Agreement and (ii) as to the
incumbency and specimen signature of each officer of Purchaser
executing this Agreement and the additional agreements to be executed
hereunder to which they are a party, and any certificate or instrument
furnished pursuant hereto and thereto.
(e) REPRESENTATIONS, WARRANTIES AND COVENANTS. There shall not
have been any Material Breach of the representations and warranties
made by Purchaser in this Agreement or in any other written statement
delivered by it hereunder, or delivered pursuant hereto, whether as of
the date hereof or at the Closing (as though made at that time).
Purchaser shall have performed, satisfied and complied with in all
material respects (which materiality standard shall not be applicable
to any covenant, agreement or condition which is already qualified by a
materiality standard) all covenants, agreements and conditions required
by this Agreement to be performed, satisfied or complied with by it at
or before the Closing.
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ARTICLE IX
INDEMNIFICATION
---------------
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations, warranties and covenants made by any party hereto in this
Agreement or pursuant hereto shall survive the Closing Date until April 30,
2000.
9.2 INDEMNITY.
(a) Subject to the other terms and conditions of this Article
IX, each of the Shareholders agrees to and will, jointly and severally,
indemnify, defend and hold Purchaser, and the Target Entities
(collectively, the "Purchaser Indemnified Parties") harmless from and
against all demands, claims, actions or causes of action, assessments,
losses, damages, liabilities, costs and expenses, including without
limitation interest, penalties and reasonable attorneys' fees and
expenses (hereinafter collectively called "Damages"), asserted against,
resulting to, imposed upon or incurred by the Purchaser Indemnified
Parties by reason of, resulting from or arising out of a breach of any
representation, warranty, covenant or agreement of any of the
Shareholders contained in or made pursuant to this Agreement, or any
facts or circumstances constituting such a breach (individually, a
"Shareholder Breach" and collectively, the "Shareholder Breaches").
(b) Subject to the terms and conditions of this Article IX,
Purchaser agrees to and will indemnify, defend and hold the
Shareholders harmless from and against all Damages asserted against,
resulting to, imposed upon or incurred by them by reason of or
resulting from or arising out of a breach of any representation,
warranty, covenant or agreement of Purchaser contained in or made
pursuant to this Agreement, or any facts or circumstances constituting
such a breach.
(c) The provisions for a notice of claim for indemnification
under this Agreement ("Notice of Claim") by Purchaser to the
Shareholders and the Escrow Agent are set forth in Section 6 of the
Escrow Agreement.
9.3 SATISFACTION AND LIMITATION OF INDEMNIFICATION OBLIGATIONS OF
SHAREHOLDERS.
(a) Except for the indemnification of the Purchaser
Indemnified Parties for any withholding obligation attributable to the
payments described in Section 2.3(f) hereof, the indemnification
obligations of the Shareholders and the rights of the Purchaser
Indemnified Parties under this Article IX after the Effective Time
shall be paid from and limited in all events other than fraud to the
Escrowed Debentures as provided in paragraphs (b) and (c) of this
Section 9.3.
(b) The Escrowed A/R Debentures shall be held by the Escrow
Agent pursuant to the Escrow Agreement to satisfy the indemnification
obligations of the Shareholders with respect to any Damages
attributable to the breach or untruth of the representations and
warranties of Shareholders in Section 5.19 hereof or the failure of the
Target Entities to
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collect all of the accounts receivable described therein (subject to
the reserve for doubtful accounts in the aggregate amount of $200,000)
(hereinafter, the "Receivables Matter"). Notwithstanding any other
provision of this Agreement, in no event shall the Purchaser
Indemnified Parties be entitled to seek any relief or exercise any
rights against any of the Shareholders pursuant to the terms of this
Article IX for the indemnification obligations of the Shareholders
attributable to the Receivables Matter in excess of the principal
balance of Escrowed A/R Debentures.
(c) The Escrowed General Debentures shall be held by the
Escrow Agent pursuant to the Escrow Agreement to satisfy the
indemnification obligations of the Shareholders other than those
described in the first sentence of paragraph (b) of this Section 9.3
(hereinafter, the "General Matters"). Notwithstanding any other
provision of this Agreement, in no event shall the Purchaser
Indemnified Parties be entitled to seek any relief or exercise any
rights against any of the Shareholders pursuant to the terms of this
Article IX for the indemnification obligations of the Shareholders
under this Article IX attributable to the General Matters until and
solely to the extent that Damages to be indemnified hereunder exceed an
aggregate amount of $500,000 (the "General Basket Amount"). No
individual Shareholder Breach relating to a General Matter shall be
taken into account in determining whether the General Basket Amount is
exceeded unless the Damages attributable to such individual Shareholder
Breach equal or exceed $25,000, in which case all of such Damages
attributable to such individual Shareholder Breach shall be so taken
into account. In determining the Damages of the Purchaser Indemnified
Parties which are subject to indemnification under this Section 9.3(c),
such Damages shall be reduced to the extent of (i) any insurance
proceeds received by the Purchaser Indemnified Parties with respect to
the event giving rise to such Damages, and (ii) for the aggregate
reserves established on the Acquisition Balance Sheet (excluding the
reserve for doubtful accounts described in paragraph (b) of this
Section 9.3); provided, however, that the amount of any such reserves
may not be utilized to reduce any Damages more than once and all
Damages attributable to the General Matters shall reduce such reserves
on a dollar-for-dollar basis.
(d) Neither party hereto will be liable to the other hereunder
for any punitive or exemplary damages of any nature relating to any
claim for which either such party may be entitled to recover under this
Agreement.
9.4 SHAREHOLDERS' REPRESENTATIVE. Each of the Shareholders hereby
irrevocably appoints Shaver (the "Shareholders' Representative") as his or her
attorney-in-fact under this Agreement and to act on behalf of such Shareholder
wherever it is contemplated that the Shareholders may act, or the Shareholders'
Representative may act on behalf of the Shareholders, under this Agreement and
the Escrow Agreement. The Shareholders' Representative is hereby authorized to
act on behalf of the Shareholders in disputing or refraining from disputing any
claim made by the Purchaser Indemnified Parties under this Article IX, including
negotiating and compromising any such claim, engaging attorneys, accountants and
other agents and advisers, and to take such other action or refrain from taking
such other action as the Shareholders' Representative shall deem, in his sole
discretion, necessary or appropriate to further the interests of the
Shareholders under this Agreement and the Escrow Agreement. Each of the
Shareholders agrees that the Purchaser Indemnified Parties shall be entitled to
rely on any and all action taken by the
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Shareholders' Representative evidenced by a document signed by the Shareholders'
Representative without any liability to, or obligation to inquire of, any
Shareholder. A notice validly delivered to the Shareholders' Representative
shall constitute sufficient notice to all Shareholders. The authority of the
Shareholders' Representative shall continue until the release of all Debentures
and amounts held by the Escrow Agent under the Escrow Agreement.
ARTICLE X
TERMINATION AND ABANDONMENT
---------------------------
10.1 TERMINATION. This Agreement may be terminated at any time prior
to the closing on the Closing Date:
(a) by the mutual consent of the Shareholders'
Representative, on the one hand, and Purchaser, on the other hand;
(b) by Purchaser, on the one hand, or the Shareholders'
Representative, on the other hand, if the Closing shall not have
occurred on or before April 15, 1998, or such later date as may be
agreed upon by the parties hereto; PROVIDED, HOWEVER, that the right to
terminate this Agreement under this clause (b) shall not be available
to any party (a "Defaulting Party") whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in
the failure of the Closing to occur on or before such date; or
(c) if the Closing shall not have occurred, or this Agreement
shall not have been terminated in accordance with this Section 10.1, by
June 30, 1998, this Agreement shall automatically terminate on said
date; PROVIDED, HOWEVER, that such termination shall not affect the
liability hereunder of any Defaulting Party.
(d) In each case the party desiring to terminate this
Agreement (the "Terminating Party") shall give the other party written
notice of its intention to terminate the same, which notice shall set
forth in reasonable detail the conditions precedent which have not been
satisfied and the other party shall have thirty (30) days to cure by
satisfying such conditions precedent, in which case, provided the
conditions precedent applicable to the Terminating Party have been
satisfied, the parties shall proceed to consummate the transactions
contemplated herein.
10.2 SPECIFIC PERFORMANCE. At any time prior to the termination of
this Agreement pursuant to Section 10.1 hereof, either Purchaser, on the one
hand, or the Shareholders, on the other hand (provided the party seeking
remedies under this Section 10.2 is not a Defaulting Party and has fulfilled
all of its conditions precedent to Closing), may, if the other party fails or
refuses to consummate the transactions contemplated herein, elect to require
specific performance of the rights and obligations of the parties hereto. Upon
such election and in any legal proceeding to enforce the same, the other party
shall waive any and all claim that specific performance is not warranted,
including but not limited to the claim that the other party has an adequate
remedy at law.
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10.3 PROCEDURE AND EFFECT OF TERMINATION. Upon termination of this
Agreement pursuant to Section 10.1 above, written notice thereof shall forthwith
be given to the other parties to this Agreement (other than in the event of an
automatic termination as provided in such Section) and this Agreement shall
terminate and the transactions contemplated hereby shall be abandoned, without
further action by any of the parties hereto. If this Agreement is terminated by
reason of the failure of any of the conditions precedent described in paragraphs
(e) or (g) of Section 8.1 hereof, the Company and the Shareholders shall, within
five (5) days after the effective date of such termination, pay to Purchaser
$10,000,000 by wire transfer of immediately available federal funds to an
account designated by Purchaser. If this Agreement is terminated by reason of
the failure of the conditions precedent described in paragraphs (b) or (e) of
Section 8.2 hereof, Purchaser shall, within five (5) days after the effective
date of such termination, pay to the Company and the Shareholders an aggregate
amount of $10,000,000 by wire transfer of immediately available federal funds to
an account designated by the Company. The parties have provided for liquidated
damages in the above circumstances, recognizing that the termination and
calculation of damages to the parties as a result of such termination is
imprecise. If this Agreement is terminated as provided herein, no party shall
have any further liability or obligation to any other party to this Agreement
pursuant to this Agreement except as provided in this Article X and except for
the covenants set forth in Sections 3.5, 3.6 and 4.1 hereof, which shall survive
such termination.
ARTICLE XI
MISCELLANEOUS
-------------
11.1 EXECUTION IN COUNTERPARTS. For the convenience of the parties,
this Agreement may be executed in one or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
11.2 NOTICES. All notices which are required or may be given pursuant
to the terms of this Agreement shall be in writing and shall be sufficient in
all respects if (i) delivered personally, (ii) mailed by registered or certified
mail, return receipt requested and postage prepaid, (iii) sent via a nationally
recognized overnight courier service or (iv) sent via facsimile confirmed in
writing to the recipient, in each case as follows:
IF TO THE SHAREHOLDERS J. Robert Shaver
OR THE SHAREHOLDERS' 1520 Hawkshead Lane
REPRESENTATIVE: Louisville, Kentucky 40220
Telephone: (502) 491-7275
Facsimile: (502) 491-7275
WITH COPIES TO: Jay Middleton Tannon, Esq.
Brown, Todd & Heyburn, PLLC
3200 Aegon Center
Louisville, Kentucky 40202
Telephone: (502) 589-5400
Facsimile: (502) 581-1087
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IF TO PURCHASER: Ronald G. Geary
President and Chief Executive Officer
Res-Care, Inc.
10140 Linn Station Road
Louisville, Kentucky 40223
Telephone: (502) 394-2271
Facsimile: (502) 394-2206
WITH COPIES TO: Gary R. Weitkamp, Esq.
Reed Weitkamp Schell Cox & Vice
2400 Citizens Plaza
Louisville, Kentucky 40202
Telephone: (502) 589-1000
Facsimile: (502) 562-2200
or such other address or addresses as the Shareholders' Representative, on the
one hand, or Purchaser, on the other hand, shall have designated by notice in
writing to the other.
11.3 WAIVERS. Either the Shareholders' Representative, on the one
hand, or Purchaser, on the other hand, may, by written notice to the other, (i)
extend the time for the performance of any of the obligations or other actions
of the other under this Agreement, (ii) waive any inaccuracies in the
representations or warranties of the other contained in this Agreement or in
any document delivered pursuant to this Agreement, (iii) waive compliance with
any of the conditions or covenants of the other contained in this Agreement, or
(iv) waive performance of any of the obligations of the other under this
Agreement. Except as provided in the preceding sentence or as otherwise
expressly provided elsewhere in this Agreement, no action taken pursuant to
this Agreement, including without limitation any investigation by or on behalf
of any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as
a waiver of any subsequent breach.
11.4 AMENDMENTS, SUPPLEMENTS, ETC. At any time this Agreement may be
amended or supplemented by such additional agreements, articles or certificates,
as may be determined by the parties hereto to be necessary, desirable or
expedient to further the purposes of this Agreement, or to clarify the intention
of the parties hereto, or to add to or modify the covenants, terms or conditions
hereof or to effect or facilitate any governmental approval or acceptance of
this Agreement or to effect or facilitate the filing or recording of this
Agreement or the consummation of any of the transactions contemplated hereby.
Any such instrument must be in writing and signed by all parties hereto.
11.5 ENTIRE AGREEMENT. This Agreement, its Exhibits, Schedules and
Annexes, and the documents executed on the Closing Date in connection herewith,
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral and written, between the parties hereto with respect to the subject matter
hereof.
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11.6 APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Kentucky, exclusive of the
conflicts of laws provisions thereof.
11.7 BINDING EFFECT; BENEFITS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, successors and permitted assigns. Notwithstanding anything contained
in this Agreement to the contrary, nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto or
their respective heirs, executors, successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
11.8 ASSIGNABILITY. Neither this Agreement nor any of the parties'
rights hereunder shall be assignable by any party hereto without the prior
written consent of the other parties hereto, except that prior to the Closing,
one or more of the Shareholders may gift all or a portion of their Shares to one
or more members of their family or one or more charitable trusts, provided that
the representations and warranties in Section 5.28 shall remain true and correct
in all respects and each such donee shall agree in writing to assume the
obligations of such Shareholder under this Agreement and such Shareholder shall
remain primarily liable therefor.
11.9 EXECUTION OF AGREEMENT; RESTRUCTURING OF TRANSACTION. Provided
Shareholders owning in the aggregate at least fifty-one percent (51%) of the
Company Shares execute and deliver this Agreement, such Shareholders executing
this Agreement, the Company and Purchaser each agree that this Agreement shall
be considered duly executed and delivered by them and enforceable against them
notwithstanding the failure or refusal of other Shareholders to execute and
deliver the same. If the first sentence of this Section 11.9 shall be
applicable, the parties which have executed this Agreement shall cooperate to
restructure the acquisition of the Company Shares as a merger of the Company and
a wholly-owned subsidiary of Purchaser in a manner which would (a) cause
Purchaser to be the sole shareholder of the surviving entity, and (b) the
Purchase Price paid to be no more and no less than and having the same amounts
of cash and Debentures as set forth in Section 2.3 hereof.
38
<PAGE> 39
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties hereto as of the day and year first above written.
RES-CARE, INC., a Kentucky corporation
By: /s/ Ronald G. Geary
-------------------------------------------
Ronald G. Geary
President and Chief Executive Officer
("Purchaser")
NORMAL LIFE, INC., a Kentucky corporation
By: /s/ J. Robert Shaver
-------------------------------------------
J. Robert Shaver
President
("Company")
/s/ J. Robert Shaver
-----------------------------------------------
J. Robert Shaver
/s/ Kathryn S. Graham
-----------------------------------------------
Kathryn S. Graham
/s/ Frederic H. Davis
-----------------------------------------------
Frederic H. Davis
("Majority Shareholders")
BOHNE PARTNERS, LTD.
By: /s/ Stuart J. Bohne
-------------------------------------------
Its: General Partner
-------------------------------------------
39
<PAGE> 40
/s/ Martha F. Clark
-----------------------------------------------
Martha F. Clark
/s/ Patricia B. Furgason Wheeler
-----------------------------------------------
Patricia B. Furgason Wheeler
/s/ R. Darrel Gentry
-----------------------------------------------
R. Darrel Gentry
/s/ Matthew J. Gilles
-----------------------------------------------
Matthew J. Gilles
/s/ Paul D. Gilles
-----------------------------------------------
Paul D. Gilles
/s/ Lana Nichole Ginsburg
-----------------------------------------------
Lana Nichole Ginsburg
GIVENS FAMILY PARTNERSHIP, LTD.
By: /s/ Gary D. Givens
-------------------------------------------
Its: General Partner
-------------------------------------------
GARY D. GIVENS, IRA, F.B.O.
By: /s Eric Broder
-------------------------------------------
Its: Trust Officer
-------------------------------------------
/s Eric D. Givens
-----------------------------------------------
Eric D. Givens
40
<PAGE> 41
/s/ Chad D. Givens
-----------------------------------------------
Chad D. Givens
/s/ Kathryn S. Graham
-----------------------------------------------
Kathryn S. Graham, as Custodian
/s/ F. Lee Green
-----------------------------------------------
F. Lee Green
/s/ Judith B. Green
-----------------------------------------------
Judith B. Green
/s/ Ann Hale Greenwood
-----------------------------------------------
Ann H. Greenwood
/s/ Jane A. Greenwood
-----------------------------------------------
Jane A. Greenwood
/s/ William B. Greenwood
-----------------------------------------------
William B. Greenwood, as Custodian
/s/ Helen V. Greenwood
-----------------------------------------------
Helen V. Greenwood
/s/ Diane H. Jessee
-----------------------------------------------
Diane H. Jessee
/s/ John T. Kirkpatrick
-----------------------------------------------
John T. Kirkpatrick
/s/ Allen G. Marchetti
-----------------------------------------------
Allen G. Marchetti
/s/ Charles H. Shaver
-----------------------------------------------
Charles H. Shaver
41
<PAGE> 42
/s/ Charles W. Shaver
-----------------------------------------------
Charles W. Shaver
/s/ J. Robert Shaver
-----------------------------------------------
J. Robert Shaver, as Custodian
ROBERT G. SHAVER LIVING TRUST
By: /s/ Robert G. Shaver
-------------------------------------------
Its: Trustee
-------------------------------------------
/s/ Carol L. Shaver
-----------------------------------------------
Carol L. Shaver
/s/ Martha S. Shaver
-----------------------------------------------
Martha S. Shaver
/s/ Joseph C. Shaver
-----------------------------------------------
Joseph C. Shaver
/s/ John W. Shaver
-----------------------------------------------
John W. Shaver
/s/ Susie B. Shaver
-----------------------------------------------
Susie B. Shaver
PAUL E. TODD LIVING TRUST
By: /s/ Paul E. Todd, Trustee
-------------------------------------------
Its: Todd Living Trust
-------------------------------------------
42
<PAGE> 43
/s/ Carolyn L. Todd
-----------------------------------------------
Carolyn L. Todd
/s/ David A. Todd
-----------------------------------------------
David A. Todd
/s/ Leanna M. Todd
-----------------------------------------------
Leanna M. Todd
/s/ Mary E. Walker
-----------------------------------------------
Mary E. Walker
/s/ Larry W. Weishaar
-----------------------------------------------
Larry E. Weishaar
("Minority Shareholders")
43
<PAGE> 44
<TABLE>
<CAPTION>
LIST OF EXHIBITS, SCHEDULES AND ANNEXES
EXHIBITS:
<S> <C>
A Minority Shareholders
B Debenture Statement
C Debenture
D Escrow Agreement
E Amended Facility Leases
F-1-F-3 Majority Noncompetition Agreements
G Mutual Releases
SCHEDULES:
1.1(a) Company Subsidiaries
1.1(b) Facilities
1.1(c) intentionally omitted
1.1(d) intentionally omitted
1.1(e) Related Lessors
2.3(c) Apportionment of Debentures
3.2(a) Employees to be offered employment agreements
3.2(b) Employees to continue to be employed on same terms
3.3 Exceptions to management agreements to be terminated
5.2 Description of Target Entities' indebtedness to Bank One
5.5 Outstanding stock of Target Entities
5.7(a) Liabilities or obligations
5.7(b) Accruals or reserves for liabilities
5.8 Changes or events since December 31, 1997 (new obligations,
mortgages, transfers, purchases, compromised debts, waivers or
releases of any rights or permitted lapse in Licenses, salary
increases, losses)
5.9 Exceptions to no approvals, authorizations, consents required
5.10 Exceptions to Indefeasible Title
5.11 Descriptions of all Facilities owned by Target Entities
5.12 List of all properties, employment agreements, Contracts
5.13 Exceptions to none of Target Entities party to covenant or agreement that prohibits
or restricts providing services
5.14 Exceptions to Target Entities having all requisite Licenses; exceptions to no waivers,
grandfather provisions or variances under Licenses
5.15 List of claims, actions, suits, investigations, etc.
5.16 Exceptions to no written notice received of any audit, dispute or claim concerning
any Tax Return or liability for Taxes
5.17 Labor and employment matters
5.18 Description of all insurance policies
5.20 Exceptions to minute books and stock record books being complete
5.21 List of employee benefit plans
5.22 Exceptions to no contracts for goods or services to or from any Target Entity or
member of Controlling Group and no Facilities owned, leased or occupied by any
member of the Controlling Group
</TABLE>
44
<PAGE> 45
<TABLE>
<S> <C>
5.28 Purchaser Information
6.6 Exceptions to no approval, authorizations, consents required on behalf of Purchaser
7.1(f) Plans to be terminated
ANNEXES:
I Opinion of Shareholders' counsel
II Opinion of Purchaser's counsel
</TABLE>
45
<PAGE> 46
SCHEDULE 5.7(a)
---------------
None
<PAGE> 47
SCHEDULE 5.9
------------
EXCEPTIONS TO NO APPROVALS, AUTHORIZATIONS, CONSENTS REQUIRED
None
<PAGE> 48
SCHEDULE 5.10
-------------
See attached title insurance policies:
#120-171947
#10207-051501
#207-034912
<PAGE> 49
SCHEDULE 5.20
-------------
See Schedule 5.5
To be updated at or prior to Closing
<PAGE> 50
SCHEDULE 5.22
-------------
1. Management services to Related Lessors
2. Management services to subsidiaries
3. Management services for the California operations
4. Shaver family member cleans office under contract
5. Management services for the Irving operations
6. Management services for the Valdosta operations
7. Management services for the Purchase of Service Agreement with Seven
Counties Services
<PAGE> 51
SCHEDULE 6.6
------------
None
<PAGE> 1
Exhibit 2.2
RES-CARE, INC.
STATEMENT OF ADDITIONAL TERMS AND CONDITIONS
DATED AS OF MARCH 15, 1998
RELATING TO
$22,000,000
5.90% CONVERTIBLE SUBORDINATED NOTES DUE 2005
<PAGE> 2
STATEMENT OF ADDITIONAL TERMS AND CONDITIONS, dated as of March 15,
1998 by Res-Care, Inc., a corporation duly organized and existing under the laws
of the Commonwealth of Kentucky (herein called the "Company"), having its
principal executive offices at 10140 Linn Station Road, Louisville, Kentucky
40223 for the benefit of the initial holders of its 5.90% Convertible
Subordinated Notes due 2005 and any subsequent holders who have acquired the
Securities in accordance with the terms hereof and applicable securities laws.
RECITALS
The Company has duly authorized the creation of an issue of its 5.90%
Convertible Subordinated Notes due 2005 (herein called the "Securities") of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Statement of Additional Terms and Conditions.
NOW, THEREFORE, THIS STATEMENT OF ADDITIONAL TERMS AND CONDITIONS
WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Statement of Terms, except as otherwise
expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act of 1939, as amended, either directly or by reference therein, have
the meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles,
and, except as otherwise herein expressly provided, the term "generally accepted
accounting principles" with respect to any computation required and permitted
hereunder shall mean such accounting principles as are generally accepted and
adopted by the Company at the date of this Statement of Terms; and
(4) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Statement of Terms as a whole and not to any
particular Article, Section or other subdivision.
Certain terms used in Articles Twelve and Thirteen are defined in such
Articles.
<PAGE> 3
"Act" when used with respect to any Holder, has the meaning specified
in Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the 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.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification and filed in the Company's permanent records.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York, New York
and Louisville, Kentucky are authorized or obligated to close by law or
executive order.
"Change in Control" has the meaning specified in Section 1406.
"Commission" means the Securities and Exchange Commission as from time
to time constituted, created under the Exchange Act, or, if at any time after
the execution of this instrument such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Stock" includes any stock of any class of the Company which has
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the Company
and which is not subject to redemption by the Company. However, subject to the
provisions of Section 1311, shares issuable on conversion of Securities shall
include only shares of the class designated as Common Stock of the Company as of
March 12, 1998 or shares of any class or classes resulting from any
reclassification or reclassifications thereof and which have no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company and which are
not subject to redemption by the Company; provided, that if at any time there
shall be more than one such resulting class, the shares of each such class then
so issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Statement of Terms, and thereafter
"Company" shall mean such successor Person.
2
<PAGE> 4
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its President or
a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or
an Assistant Secretary, and filed in the Company's permanent corporate records.
"Current Market Price" has the meaning specified in Section 1304.
"Defaulted Interest" has the meaning specified in Section 307.
"Designated Senior Indebtedness" means the principal of, premium if
any, and interest, fees, indemnification amounts, reimbursements, damages and
other liabilities payable under the documentation governing indebtedness (a)
under any debt facility with banks or other lenders which provides for revolving
credit loans, term loans, receivables financing (including through the sale of
receivables) or letters of credit to the Company or any of its subsidiaries, and
(b) any other Senior Indebtedness the principal amount of which is $5.0 million
or more and that has been designated by the Company as "Designated Senior
Indebtedness."
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" means a Person in whose name a Security is registered in the
Security Register maintained by the Company.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Maturity" when used with respect to any Security, means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity thereof or by declaration of
acceleration, redemption or otherwise.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, the Chief Executive Officer, the President or a Vice President, and
by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company, and filed in the Company's permanent corporate
records. One of the officers signing an Officers' Certificate given pursuant to
Section 1004 shall be the principal executive, financial or accounting officer
of the Company.
"Opinion of Counsel" means a written opinion of counsel who shall be
reasonably acceptable to the Company.
"Outstanding," when used with respect to Securities, means, as of the
date of determination, all Securities theretofore issued by the Company in
conformity with this Statement of Terms and not theretofore purchased by the
Company or an affiliate thereof for redemption, cancellation, or conversion.
3
<PAGE> 5
"Outstanding Convertible Securities," means, as of the date of
determination, all Securities theretofore issued by the Company in conformity
with this Statement of Terms and not theretofore purchased by the Company or an
affiliate thereof for redemption, cancellation, or conversion, all of the
Company's 6% Convertible Subordinated Notes due 2004 issued by the Company (of
which the original principal amount thereof was $109,360,000,) and all other
securities theretofore issued by the Company which by their terms rank pari
passu in right of payment with the Securities and such 6% Convertible
Subordinated Notes and as of the date of determination outstanding for purposes
of the Statement of Terms or indenture pursuant to which such notes or other
securities were issued.
"Paying Agent" means any Person authorized by the Company to pay the
principal of and premium, if any, and interest on any Securities on behalf of
the Company.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Record Date" means either a Regular Record Date or a Special Record
Date, as applicable.
"Redemption Date" when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Statement of Terms.
"Redemption Price" when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Statement of Terms on the applicable Redemption Date.
"Regular Record Date" for the interest payable on any Interest Payment
Date means March 1 or September 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"Repurchase Date" has the meaning specified in Section 1401.
"Repurchase Event" has the meaning specified in Section 1406.
"Repurchase Price" has the meaning specified in Section 1401.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Senior Indebtedness" means the principal of and premium, if any, and
interest on (a) all indebtedness of the Company for money borrowed under the
Company's credit facilities and any predecessor or successor credit facilities
thereto, whether outstanding on the date of execution of the Statement of Terms
(such as the Company's bank credit agreement, any increase in the maximum
4
<PAGE> 6
principal amount thereof and any predecessor or successor facilities thereto) or
thereafter created, incurred or assumed, (b) all indebtedness of the Company for
money borrowed, whether outstanding on the date of execution of the Statement of
Terms or thereafter created, incurred or assumed, except any such other
indebtedness that by the terms of the instrument or instruments by which such
indebtedness was created or incurred expressly provides that it (i) is junior in
right of payment to the Securities or (ii) ranks pari passu in right of payment
with the Securities, and (c) any amendments, renewals, extensions,
modifications, refinancings and refundings of the foregoing For these purposes,
the Company's 6% Convertible Subordinated Notes due 2004 shall rank pari passu
in right of payment with the Securities and shall not constitute Senior
Indebtedness. For the purposes of this definition, "indebtedness for money
borrowed" when used with respect to the Company means (i) any obligation of, or
any obligation guaranteed by, the Company for the repayment of borrowed money
(including without limitation fees, penalties or other obligations in respect
thereof), whether or not evidenced by bonds, debentures, notes or other written
instruments, (ii) any deferred payment obligation of, or any such obligation
guaranteed by, the Company for the payment of the purchase price of property or
assets evidenced by a note or similar instrument, and (iii) any obligation of,
or any such obligation guaranteed by, the Company for the payment of rent or
other amounts under a lease of property or assets which obligation is required
to be classified and accounted for as a capitalized lease on the balance sheet
of the Company under generally accepted accounting principles.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Company pursuant to Section 307.
"Stated Maturity" when used with respect to any Security or any
installment of interest thereon, means the 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.
"Statement of Terms" means this Statement of Additional Terms and
Conditions relating to the Securities, as from time to time amended in
accordance with the terms thereof.
"Subsidiary" means a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries or by the Company and one or more other Subsidiaries.
For the purposes of this definition, "voting stock" means stock which ordinarily
has voting power for the election of directors, whether at all times or only so
long as no senior class of stock has such voting power by reason of any
contingency.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force
at the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939, as so amended.
"Vice President" when used with respect to the Company means any duly
appointed vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
SECTION 102. INTENTIONALLY OMITTED.
5
<PAGE> 7
SECTION 103. INTENTIONALLY OMITTED.
SECTION 104. ACTS OF HOLDERS; RECORD DATES.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Statement of Terms to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Company. Such instrument or instruments (and the action embodied therein
and evidenced thereby) are herein sometimes referred to as the "Act" of the
Holders signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Statement of Terms and conclusive in favor of the Company, if
made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority.
(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining the
Holders entitled to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action, or to vote on any action, authorized or
permitted to be given or taken by Holders. If not set by the Company prior to
the first solicitation of a Holder made by any Person in respect of any such
action, or, in the case of any such vote, prior to such vote, the record date
for any such action or vote shall be the 30th day (or, if later, the date of the
most recent list of Holders required to be provided pursuant to Section 701)
prior to such first solicitation or vote, as the case may be. With regard to any
record date, only the Holders on such date (or their duly designated proxies)
shall be entitled to give or take, or vote on, the relevant action.
Notwithstanding the foregoing, the Company shall not set a record date for, and
the provisions of this paragraph shall not apply with respect to, any Act by the
Holders pursuant to Section 501, 502 or 512.
(d) The ownership of Securities shall be proved by the Security
Register.
(e) Any Act of the Holder of any Security shall bind every future
Holder of the same Security and the Holder of every Security issued upon the
registration of transfer therefor or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
(f) Without limiting the foregoing, a Holder entitled hereunder to give
or take any action hereunder with regard to any particular Security may do so
with regard to all or any part of the principal amount of such Security or by
one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any different part of such principal amount.
6
<PAGE> 8
SECTION 105. NOTICES, ETC. TO COMPANY.
Any Act of Holders or other documents provided or permitted by this
Statement of Terms to be made upon, given or furnished to, or filed with the
Company by any Holder shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to the Company, addressed to it at the address of its principal
executive offices or at any other address previously furnished in writing.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; two Business Days
after being deposited in the mail, registered or certified with 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 nationally recognized overnight air courier guaranteeing next day
delivery.
SECTION 106. NOTICE TO HOLDERS; WAIVER.
Where this Statement of Terms provides for notice to Holders of any
event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if made, given, mailed or otherwise furnished or filed in
writing to each Holder affected by such event, at his address as it appears in
the Security Register, not later than the latest date (if any), and not earlier
than the earliest date (if any), prescribed for the giving of such notice. Where
this Statement of Terms provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders shall be filed with the Company, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver. All such notices and communications shall be deemed
to have been duly given: at the time delivered by hand, if personally delivered;
two Business Days after being deposited in the mail, registered or certified
with 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 nationally recognized overnight air courier guaranteeing
next day delivery.
SECTION 107. INTENTIONALLY OMITTED.
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Statement of Terms by the Company
shall bind each of their respective successors and assigns, whether so expressed
or not.
SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Statement of Terms or in the Securities
shall be invalid, illegal or
7
<PAGE> 9
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 111. BENEFITS OF THE STATEMENT OF TERMS.
Nothing in this Statement of Terms or in the Securities, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, the Holders of Securities and, with respect to Article
Twelve, the holders of Senior Indebtedness, any benefit or any legal or
equitable right, remedy or claim under this Statement of Terms.
SECTION 112. GOVERNING LAW.
This Statement of Terms and, except as may otherwise be required by
mandatory provisions of law, the Securities shall be governed by and construed
in accordance with the laws of the Common wealth of Kentucky, but without regard
to the principles of conflicts of laws thereof.
SECTION 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security or the last date on which a Holder has the right to
convert his Securities shall not be a Business Day, then (notwithstanding any
other provision of this Statement of Terms or of the Securities) payment of
interest or principal and premium, if any, or conversion of the Securities need
not be made on such date, but may be made on the next succeeding Business Day
with the same force and effect as if made on the Interest Payment Date or
Redemption Date, or at the Stated Maturity, or on such last day for conversion;
provided, that no interest shall accrue for the period from and after such
Interest Payment Date, Redemption Date or Stated Maturity, as the case may be,
to the next succeeding Business Day.
SECTION 114. NO SECURITY INTEREST CREATED.
Nothing in this Statement of Terms or in the Securities, express or
implied, shall be construed to constitute a security interest under the Uniform
Commercial Code or similar legislation, as now or hereafter enacted and in
effect in any jurisdiction where property of the Company or its Subsidiaries is
or may be located.
SECTION 115. LIMITATION ON INDIVIDUAL LIABILITY.
No recourse under or upon any obligation, covenant or agreement
contained in this Statement of Terms or in any Security, or for any claim based
thereon or otherwise in respect thereof, shall be had against any incorporator,
shareholder, officer or director, as such, past, present or future, of the
Company or any successor corporation, either directly or through the Company,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that this Statement of Terms and the obligations issued hereunder are
solely corporate obligations, and that no such personal liability whatever shall
attach to, or is or shall be incurred by, the incorporators, shareholders,
officers or directors, as such, of the Company or any successor Person, or any
of them, because of the creation of the indebtedness hereby authorized, or under
or by reason of the obligations, covenants or agreements contained in this
Statement of Terms
8
<PAGE> 10
or in any Security or implied therefrom; and that any and all such personal
liability of every name and nature, either at common law or in equity or by
constitution or statute, of, and any and all such rights and claims against,
every such incorporator, shareholder, officer or director, as such, because of
the creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Statement of Terms or in
any Security or implied therefrom, are hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Statement of
Terms and the issuance of such Security.
ARTICLE TWO
SECURITY FORMS
SECTION 201. FORM OF SECURITY.
The Securities shall be issued in definitive form only in
substantially the form set forth in Exhibit A hereto.
ARTICLE THREE
THE SECURITIES
SECTION 301. TITLE AND TERMS.
The aggregate principal amount of Securities which may shall be issued
pursuant to this Statement of Terms is limited to $22,000,000, except for
Securities authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities pursuant to Section 305, 306,
1108, or 1302.
The Securities shall be known and designated as the "5.90% Convertible
Subordinated Notes due 2005" of the Company. Their Stated Maturity shall be
March 1, 2005 and they shall bear interest at the rate of 5.90% per annum, from
the date of original issuance of Securities pursuant to this Statement of Terms
or from the most recent Interest Payment Date to which interest has been paid or
duly provided for, as the case may be, payable semi-annually on March 15 and
September 15 commencing September 15, 1998, until the principal thereof is paid
or made available for payment.
The principal of and premium, if any, and interest on the Securities
shall be payable in respect of Securities held of record by Holders in same day
funds at the office or agency of the Company maintained for such purpose
pursuant to Section 1002; provided, however, that at the option of the Company
payment of interest to Holders of record may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register.
The Securities shall rank pari passu in right of payment with the
Company's 6% Convertible Subordinated Notes due 2004.
The Securities shall be subject to the transfer restrictions set forth
in Section 305.
The Securities shall be redeemable as provided in Article Eleven.
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The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Twelve.
The Securities shall be convertible as provided in Article Thirteen
The Securities shall be subject to repurchase at the option of the
Holder as provided in Article Fourteen.
SECTION 302. DENOMINATIONS.
The Securities shall be issuable only in fully registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. EXECUTION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its Chief Executive Officer, its President or one of its
Vice Presidents, under its corporate seal or a facsimile thereof reproduced
thereon attested by its Secretary or one of its Assistant Secretaries. The
signature of any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
Each Security shall be dated the date of its execution and delivery by
the Company.
SECTION 304. INTENTIONALLY OMITTED.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
(a) The Company shall cause to be kept at its principal executive
offices a register (the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Security Register
shall be in written form or in any form capable of being converted into written
form within a reasonably prompt period of time. At all reasonable times the
Security Register shall be open for inspection by the Company.
(b) When Securities are presented to the Company with the request (x)
to register the transfer of the Securities or (y) to exchange such Securities
for an equal principal amount of Securities of other authorized denominations,
the Company shall register the transfer or make the exchange as requested if its
requirements for such transactions are met; provided, however, that the
Securities presented or surrendered for register of transfer or exchange:
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(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Company (or the Securities
Registrar, if one has been appointed) duly executed by the Holder thereof or by
its attorney, duly authorized in writing; and
(ii) shall be accompanied by the following additional
information and documents, as applicable: a certification of the Holder
reasonably acceptable to the Company and an Opinion of Counsel reasonably
acceptable to the Company to the effect that such transfer is in compliance with
the Securities Act.
(c) Except as otherwise required by the Company, the Securities shall
bear a legend in substantially the following form:
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, NEITHER THIS SECURITY, THE
SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY NOR
ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, REGISTRATION. A HOLDER OF THIS SECURITY WILL
NOT BE ABLE TO EXERCISE THE CONVERSION RIGHT PRIOR TO 367 DAYS AFTER
THE DATE OF ORIGINAL ISSUANCE OF THIS NOTE AND THEN ONLY IF THE RESALE
OF THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF IS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933.
THE HOLDER OF THIS SECURITY, BY ITS ACQUISITION HEREOF, AGREES
THAT IT WILL NOT, PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER
OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE
COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY
(OR ANY PREDECESSOR OF SUCH SECURITY), RESELL OR OTHERWISE TRANSFER THE
NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF
SUCH NOTE EXCEPT (A) TO THE COMPANY, OR ANY SUBSIDIARY THEREOF, (B)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE), (C) PURSUANT TO ANOTHER APPLICABLE
EXEMPTION FROM REGISTRATION IF THE REQUEST FOR TRANSFER IS ACCOMPANIED
BY AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, OR (D) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH
CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); AND AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED
HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY,
OR THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF, WITHIN
TWO YEARS AFTER THE ORIGINAL ISSUANCE OF SUCH NOTE, THE
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<PAGE> 13
HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF
RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO
THE COMPANY. THIS LEGEND WILL BE REMOVED UPON ANY TRANSFER OF THE NOTE
EVIDENCED HEREBY, OR THE SHARES OF COMMON STOCK ISSUED UPON CONVERSION
THEREOF, AFTER THE EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE
OF THE NOTE EVIDENCED HEREBY.
(d) The Company shall not be required to issue, register the transfer
of or exchange any Security during a period beginning at the opening of business
15 days before the day of the mailing of a notice of redemption of Securities
selected for redemption under Section 1104 and ending at the close of business
on the day of such mailing.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Company, the Company
shall execute and deliver in exchange therefor a new Security of like tenor and
principal amount and bearing a number not contemporaneously outstanding.
In every case the applicant for a substituted Security shall furnish to
the Company, (i) evidence to their satisfaction of the destruction, loss or
theft of any Security and (ii) such security or indemnity as may be required by
them to save each of them and any agent of either of them harmless, then, in the
absence of notice to the Company that such Security has been acquired by a bona
fide purchaser, the Company shall execute and deliver, in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable or is about to be converted into
Common Stock, the Company in its discretion may, instead of issuing a new
Security, pay such Security or convert or authorize the conversion of the same
if the applicant for such payment or conversion shall furnish to the Company
such security or indemnity as set forth above.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Statement of Terms equally and
proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
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SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest. Payment
of interest will be made in same day funds at the executive office of the
Company in Louisville, Kentucky or at such other office or agency of the Company
as it shall maintain for that purpose pursuant to Section 1002, provided,
however, that, at the option of the Company, interest on any Security may be
paid by mailing checks to the addresses of the Holders thereof as such addresses
appear in the Securities Register.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest which shall be fixed in
the following manner. The Company shall notify the Holders in writing of the
amount of Defaulted Interest proposed to be paid on each Security and the date
of the proposed payment, and, upon depositing sufficient sums in trust for the
Holders, shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days prior to
the date of the proposed payment and not less than 10 days after the
determination is made. Thereupon, the Company shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor to be
mailed, first-class postage prepaid, to each Holder at his address as it appears
in the Security Register, not less than 10 days prior to such Special Record
Date. Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so mailed, such Defaulted Interest shall be
paid to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on such Special
Record Date and shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any securities
exchange or automated quotation system on which the Securities may be listed or
designated for listing, and upon such notice as may be required by such exchange
or authorized quotation system.
Subject to the foregoing provisions of this Section, each Security
delivered under this Statement of Terms upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security. In
the case of any Security which is converted after any Regular Record Date and on
or prior to the business day next preceding next succeeding Interest Payment
Date (other than any Security whose Maturity is prior to such Interest Payment
Date), interest whose Stated Maturity is on such Interest Payment Date shall be
payable on such Interest Payment Date notwithstanding such conversion, and such
interest (whether or not punctually paid or duly provided for) shall be paid to
the Person in whose
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<PAGE> 15
name that Security (or one or more Predecessor Securities) is registered at the
close of business on such Regular Record Date provided, however, that Securities
so surrendered for conversion shall (except in the case of Securities or
portions thereof called for redemption which is addressed in Article 11 and in
Section 1302 below) be accompanied by payment in funds acceptable to the Company
of an amount equal to the interest payable on such Interest Payment Date on the
principal amount being surrendered for conversion. Except as otherwise expressly
provided above in this subsection (2), in Article 11 and in Section 1302, in the
case of any Security which is converted, interest whose Stated Maturity is after
the date of conversion of such Security shall not be payable.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer,
the Company and any agent of the Company may treat the Person in whose name such
Security is registered as the owner of such Security for the purpose of
receiving payment of principal of and premium, if any, and (subject to Section
307) interest on such Security and for all other purposes whatsoever, whether or
not such Security be overdue, and neither the Company nor any agent of the
Company shall be affected by notice to the contrary.
SECTION 309. CANCELLATION.
All Securities surrendered for payment, redemption, registration of
transfer, exchange or conversion shall, if surrendered to any Person, be
delivered to the Company and shall be promptly canceled by it. No Securities
shall be authenticated in lieu of or in exchange for any Securities canceled as
provided in this Section, except as expressly permitted by this Statement of
Terms. All Securities acquired or held by the Company shall be deemed to have
been automatically canceled by operation of law, unless the Company shall, by
Board Resolution, determine that such Securities shall continue to be
Outstanding.
SECTION 310. COMPUTATION OF INTEREST.
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
ARTICLE FOUR -- INTENTIONALLY OMITTED
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article Twelve or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body);
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(1) default in the payment of the principal of, or premium, if
any on any Security at its Maturity, whether or not such payment is prohibited
by the provisions of Article Twelve; or
(2) default in the payment of any interest upon any Security
when it becomes due and payable, whether or not such payment is prohibited by
the provisions of Article Twelve, and continuance of such default for a period
of 30 days; or
(3) failure to provide timely notice of a Repurchase Event as
required in accordance with the provisions of Article Fourteen; or
(4) default in the payment of the Repurchase Price in respect
of any Security on the Repurchase Date therefor in accordance with the
provisions of Article Fourteen, whether or not such payment is prohibited by the
provisions of Article Twelve; or
(5) default in the performance, or breach, of any covenant or
warranty of the Company in this Statement of Terms (or with respect to the
Company's 6% Convertible Subordinated Notes due 2004 in the Indenture providing
for the issuance thereof) (other than a covenant or warranty a default in whose
performance or whose breach is elsewhere in this Section specifically dealt
with), and continuance of such default or breach for a period of 60 days after
there has been given, by registered or certified mail, to the Company by the
holders of at least 21% in principal amount of the Outstanding Convertible
Securities a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default" hereunder
or under such Indenture; or
(6) default under one or more bonds, debentures, notes or
other evidences of indebtedness for money borrowed by the Company or any
Subsidiary or under one or more mortgages, indentures or instruments under which
there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company or any Subsidiary, whether such
indebtedness now exists or shall hereafter be created, which default
individually or in the aggregate shall constitute a failure to pay the principal
of indebtedness in excess of $10,000,000 when due and payable after the
expiration of any applicable grace period with respect thereto or shall have
resulted in indebtedness in excess of $10,000,000 becoming or being declared due
and payable prior to the date on which it would otherwise have become due and
payable, without such indebtedness having been discharged, or such acceleration
having been rescinded or annulled, within a period of 30 days after there shall
have been given, by registered or certified mail, to the Company by the holders
of at least 21% in principal amount of the Outstanding Convertible Securities a
written notice specifying such default and requiring the Company to cause such
indebtedness to be discharged or cause such acceleration to be rescinded or
annulled and stating that such notice is a "Notice of Default" hereunder or
under such Indenture; or
(7) the entry by a court having jurisdiction in the premises
of (A) a decree or order for relief in respect of the Company or any Subsidiary
in an involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or (B) a decree or
order adjudging the Company or any Subsidiary as bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company or any Subsidiary
under any applicable Federal or State law, or appointing a custodian,
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<PAGE> 17
receiver, liquidator, assignee, trustee, sequestrator or other similar official
of the Company or any Subsidiary or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance of
any such decree or order for relief or any such other decree or order unstayed
and in effect for a period of 90 consecutive days; or
(8) the commencement by the Company or any Subsidiary of a
voluntary case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated as bankrupt or insolvent, or the consent by it to
the entry of a decree or order for relief in respect of the Company or any
Subsidiary in an involuntary case or proceeding under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it, or
the filing by it of a petition or answer or consent seeking reorganization or
relief under any applicable Federal or State law, or the consent by it to the
filing of such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Subsidiary or of any substantial part of
its property, or the making by it of a general assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its debts
generally as they become due, or the taking of corporate action by the Company
or any Subsidiary in furtherance of any such action.
Upon receipt by the Company of any Notice of Default pursuant to this
Section 501, a record date shall automatically and without any other action by
any Person be set for the purpose of determining the Holders of Outstanding
Securities entitled to join in such Notice of Default, which record date shall
be the close of business on the day the Company receives such Notice of Default.
The Holders of Outstanding Securities on such record date (or their duly
appointed agents), and only such Persons, shall be entitled hereunder to join in
such Notice of Default, whether or not such Holders remain Holders after such
record date: provided, that unless such Notice of Default shall have become
effective by virtue of the Holders of the requisite principal amount of
Outstanding Convertible Securities on such record date (or their duly appointed
agents) having joined therein on or prior to the 90th day after such record
date, such Notice of Default shall automatically and without any action by any
Person be canceled and of no further force or effect.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than as specified in subparagraph (7) or
(8) of Section 501) occurs and is continuing, then and in every such case the
holders of not less than 25% in principal amount of the Outstanding Securities
(in a case specified in subparagraph (1) and (2) of Section 501) or the holders
of not less than 21% in principal amount of the Outstanding Convertible
Securities (in a case specified in subparagraph (5) or (6) of Section 501) may
declare the principal and premium, if any, of all the Securities to be due and
payable immediately, by a notice in writing to the Company, and upon any such
declaration such principal plus any interest accrued on the securities to the
date of declaration shall become immediately due and payable. If an Event of
Default specified in subparagraph (7) or (8) of Section 501 occurs and is
continuing, then the principal of, premium, if any, and accrued and unpaid
interest, if any, on all of the Securities shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
any Holder of Securities.
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<PAGE> 18
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained as
hereinafter in this Article provided, the Holders of a majority in principal
amount of the Outstanding Securities, by written notice to the Company, may
rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited in trust for the benefit
of the Holders of the Outstanding Securities a sum sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of and premium, if any, on any
Securities which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Securities,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by the Securities, and
(D) all sums paid or advanced by the Holders of the
Outstanding Securities, their respective agents and counsel hereunder; and
(2) all Events of Default, other than the nonpayment of the
principal of, and premium, if any, and interest on the Securities that has
become due solely by such declaration of acceleration, have been cured or waived
as provided in Section 513. No such rescission and waiver shall affect any
subsequent default or impair any right consequent thereon.
Upon receipt by the Company of any declaration of acceleration, or any
rescission and annulment of any such declaration, pursuant to this Section 502,
a record date shall automatically and without any other action by any Person be
set for the purpose of determining the Holders of Outstanding Securities
entitled to join in such declaration, or rescission and annulment, as the case
may be, which record date shall be the close of business on the day the Company
receives such declaration, or rescission and annulment, as the case may be. The
Holders of Outstanding Securities on such record date (or their duly appointed
agents), and only such Persons, shall be entitled to join in such declaration,
or rescission and annulment, as the case may be, whether or not such Holders
remain Holders after such record date; provided, that unless such declaration,
or rescission and annulment, as the case may be, shall have become effective by
virtue of Holders of the requisite principal amount of Outstanding Securities on
such record date (or their duly appointed agents) having joined therein on or
prior to the 90th day after such record date, such declaration, or rescission
and annulment, as the case may be, shall automatically and without any action by
any Person be canceled and of no further force or effect.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT.
The Company covenants that if
(1) default is made in the payment of any interest on any Security when
such interest becomes due and payable and such default continues for a period of
30 days, or
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(2) default is made in the payment of the principal or premium, if any,
on any Security at the Maturity thereof, the Company will pay to the Holders of
such Securities, the whole amount then due and payable on such Securities for
principal of, and premium, if any, and interest, and, to the extent that payment
of such interest shall be legally enforceable, interest, on any overdue
principal and premium and any overdue interest, at the rate borne by the
Securities, and, in addition thereto, such further amount as shall be sufficient
to cover the costs and expenses of collection.
If the Company fails to pay such amounts forthwith upon such demand,
the Holders of not less than 25% in principal amount of the Outstanding
Securities may institute a judicial proceeding for the collection of the sums so
due and unpaid and may prosecute any such proceeding to judgment or final
decree, and may enforce the same against the Company (or any other obligor upon
the Securities) and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company (or any other obligor
upon the Securities), wherever situated.
If an Event of Default occurs and is continuing, the Holders of not
less than 25% in principal amount of the Outstanding Securities may proceed to
protect and enforce the rights of the Holders by such appropriate judicial
proceedings as such Holders shall deem most effectual to protect and enforce any
such rights, whether for the specific enforcement of any covenant or agreement
in this Statement of Terms or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy.
SECTION 504. PROOFS OF CLAIM.
In case of any judicial proceeding relative to the Company (or any
other obligor upon the Securities), its property or its creditors, the Holders
of not less than 25% in principal amount of the Outstanding Securities shall be
entitled and empowered, by intervention in such proceeding or otherwise, to take
any and all actions authorized under the Trust Indenture Act in order to have
the claims of the Holders allowed in any such proceeding. In particular, such
Holders shall be authorized to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same; and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Holders.
No provision of this Statement of Terms shall be deemed to authorize
the Holders 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 any
Holder to vote in respect of the claim of any other Holder in any such
proceeding.
SECTION 505. INTENTIONALLY OMITTED.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Any money collected pursuant to this Article shall be applied in the
following order, in case of the distribution of such money on account of
principal or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
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FIRST: Subject to Article Twelve, to the holders of Senior Indebtedness
and to payment of any amounts due to any trustees for any other classes of
Outstanding Convertible Securities;
SECOND: To the payment of the amounts then due and unpaid for principal
of and premium, if any, on and interest on the Outstanding Convertible
Securities in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal and premium, if any,
and interest, respectively; and
THIRD: The balance, if any, to the Company or any other Person or
Persons determined to be entitled thereto upon provision of an Officer's
Certificate or other evidence reasonably satisfactory to the Holders by the
Company or such other person verifying such entitlement.
SECTION 507. LIMITATION ON SUITS.
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Statement of Terms, or
for the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(1) such Holder has previously given written notice to the Company of a
continuing Event of Default;
(2) the Holders of not less than 21% in principal amount of the
Outstanding Convertible Securities shall have made written request to the
Company to institute proceedings in respect of such Event of Default;
(3) the trustee for any other series of Outstanding Convertible
Securities for 60 days after its receipt of such notice, request and offer of
indemnity has failed to institute any such proceeding; and
(4) no direction inconsistent with such written request has been given
during such 60-day period by the Holders of a majority in principal amount of
the Outstanding Securities; it being understood and intended that no one or more
holders shall have any right in any manner whatever by virtue of, or by availing
of, any provision of this Statement of Terms to affect, disturb or prejudice the
rights of any other Holders, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Statement
of Terms, except in the manner herein provided and for the equal and ratable
benefit of all the Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, AND INTEREST
AND TO CONVERT.
Notwithstanding any other provision contained herein, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of and premium, if any, and (subject to Section 307)
interest on such Security on the respective Stated Maturities expressed in such
Security (or, in the case of redemption, on the Redemption Date or, in the case
of a repurchase pursuant to Article Fourteen, on the Repurchase Date) and to
convert such Security in accordance with
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Article Thirteen and to institute suit for the enforcement of any such payment
and right to convert, and such rights shall not be impaired without the consent
of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If any Holder has instituted any proceeding to enforce any right or
remedy under this Statement of Terms and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to such Holder,
then and in every such case, subject to any determination in such proceeding,
the Company and, the Holders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Holders shall continue as though no such proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities in Section 306, no right or
remedy herein conferred upon or reserved to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of any Holder of any Security to exercise any
right or remedy accruing upon any Event of Default shall impair any such right
or remedy or constitute a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Article or by law or to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Holders, as the case may be.
SECTION 512. CONTROL BY HOLDERS.
The Holders of a majority in principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Holders or exercising
any power conferred on the Holders; provided, that such direction shall not be
in conflict with any rule of law or with this Statement of Terms.
Upon the request of 25% in principal amount of the Outstanding
Securities (or such other percentage as shall be specifically provided elsewhere
herein), a record date shall automatically and without any other action by any
Person be set for the purpose of determining the Holders of Outstanding
Securities entitled to join in such direction, which record date shall be the
close of business on the day the Company receives such request. The Holders of
Outstanding Securities on such record date (or their duly appointed agents), and
only such Persons, shall be entitled to join in such direction, whether or not
such Holders remain Holders after such record date; provided, that unless such
direction shall have become effective by virtue of Holders of the requisite
principal amount of Outstanding Securities on
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such record date (or their duly appointed agents) having joined therein on or
prior to the 90th day after such record date, such direction shall automatically
and without any action by any Person be canceled and of no further force or
effect.
SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except:
(1) a default in the payment of the principal of or premium,
if any, or interest on any Security,
(2) the right of a Holder to redeem or convert the Security,
or
(3) a default with respect to a covenant or provision hereof
which under Article Nine cannot be modified or amended without the consent of
the Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Statement of Terms; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
SECTION 514. UNDERTAKING FOR COSTS. - INTENTIONALLY OMITTED.
ARTICLE SIX -- INTENTIONALLY OMITTED.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY COMPANY
SECTION 701. COMPANY TO FURNISH THE NAMES AND ADDRESSES OF HOLDERS.
The Company will compile a list of the names and addresses of the
Holders as of each regular Record Date, and (b) at such other times as the
Holders of a majority in principal amount of the Outstanding Securities may
request in writing, within 30 days after the receipt by the Company of any such
request, a list of similar form and content as of a date not more than 15 days
prior to the time such list is furnished.
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATION TO HOLDERS.
(a) The Company shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Company as provided in Section 701.
(b) Holders shall have the right to communicate with other Holders with
respect to their rights under this Statement of Terms or under the Securities.
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(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company that neither the Company nor any agent shall be held
accountable by reason of any disclosure of information as to names and addresses
of Holders made in accordance with the terms of the Trust Indenture Act or
otherwise in accordance with this Statement of Terms.
SECTION 703. INTENTIONALLY OMITTED.
SECTION 704. REPORTS BY COMPANY.
The Company shall transmit to Holders such information, documents and
other reports as shall be transmitted to Holders of other Outstanding
Convertible Securities pursuant to the Trust Indenture Act at the time and in
the manner provided pursuant to the Act.
SECTION 705. INTENTIONALLY OMITTED.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC. ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge into any other Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, and the Company shall not permit any Person to
consolidate with or merge into the Company, unless:
(1) in case the Company shall consolidate with or merge into
another Person or convey, transfer or lease all or substantially all of its
properties and assets to any Person, the Person formed by such consolidation or
into which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, all or substantially all of the properties and assets
of the Company shall be a corporation, partnership, limited liability company,
or trust, shall be organized and validly existing under the laws of the United
States of America, any State thereof or the District of Columbia and shall
expressly assume, by an instrument supplemental hereto, in form and content
substantially similar to a supplemental indenture, the due and punctual payment
of the principal of and premium, if any, and interest on all the Securities and
the performance or observance of every covenant of this Statement of Terms on
the part of the Company to be performed or observed and shall have provided for
conversion rights in accordance with Section 1311;
(2) immediately after giving effect to such transaction, no
Event of Default, and no event which, after notice or lapse of time or both,
would become an Event of Default, shall have happened and be continuing;
(3) such consolidation, merger, conveyance, transfer or lease
does not adversely affect the validity or enforceability of the Securities; and
(4) the Company or the successor Person has filed in the
Company's principal executive offices an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, conveyance, transfer or
lease and, if a supplement to the Statement of Terms is
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required in connection with such transaction, such supplemental instrument
comply with this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with.
SECTION 802. SUCCESSOR SUBSTITUTED.
Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any conveyance, transfer or lease of all or
substantially all of the properties and assets of the Company in accordance with
Section 801, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer or lease is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Statement of Terms with the same effect as if such
successor Person had been named as the Company herein, and thereafter, except in
the case of a transfer by lease, the predecessor Person shall be relieved of all
obligations and covenants under this Statement of Terms and the Securities.
ARTICLE NINE
SUPPLEMENTS TO THE STATEMENT OF TERMS
SECTION 901. SUPPLEMENTS TO STATEMENT OF TERMS WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution and the provisions hereunder, at any time and from time to
time, may enter into one or more supplements to this Statement of Terms, in form
satisfactory to Company counsel, for any of the following purposes:
(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of the Company
herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of
the Holders or an additional Event of Default, or to surrender any right or
power conferred herein or in the Securities upon the Company; or
(3) to secure the Securities; or
(4) to make provision with respect to the conversion rights of
Holders pursuant to the requirements of Section 1311; or
(5) to cure any ambiguity, to correct or supplement any
provision herein or in the Securities which may be defective or inconsistent
with any other provision herein or in the Securities, or to make any other
provisions with respect to matters or questions arising under this Statement of
Terms which shall not be inconsistent with the provisions of this Statement of
Terms; provided, that such action pursuant to this Clause (5) shall not
adversely affect the interests of the Holders in any material respect; or
(6) subject to the proviso contained in Section 902 of this
Statement of Terms, to make any amendment to this Statement of Terms necessary
to conform any common provisions to any amendment to the Indenture providing for
the issuance of the 6% Convertible Subordinated Notes due
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2004; provided such amendment has been approved by the holders of the requisite
percentage of the outstanding 6% Convertible Subordinated Notes required under
the Indenture providing for the issuance of such Notes.
SECTION 902. SUPPLEMENTS TO STATEMENT OF TERMS WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company, the Company, when authorized by a Board Resolution, may enter
into an instrument hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Statement of
Terms or of modifying in any manner the rights of the Holders under this
Statement of Terms; provided, however, that no such supplemental instrument
shall, without the consent of the Holder of each Outstanding Security affected
thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal amount thereof
or the rate of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the coin or currency in which,
any Security or any premium or interest thereon is payable, or impair the right
to institute suit for the enforcement of any such payment on or after the Stated
Maturity thereof (or, in the case of redemption, on or after the Redemption
Date), or adversely affect the right to convert any Security as provided in
Article Thirteen (except as permitted by Section 901(5)), or the provisions of
this Statement of Terms with respect to the subordination of the Securities, in
a manner adverse to the Holders, or
(2) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for any such
supplemental instrument, or the consent of whose Holders is required for any
waiver of compliance with certain provisions of this Statement of Terms or
certain defaults hereunder and their consequences provided for in this Statement
of Terms, or
(3) modify any of the provisions of this Section, Section 513
or Section 1006, except to increase any such percentage or to provide that
certain other provisions of this Statement of Terms cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected thereby;
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental instrument, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. INTENTIONALLY OMITTED.
SECTION 904. EFFECT OF SUPPLEMENTS TO STATEMENT OF TERMS.
Upon the execution of any supplemental instrument under this Article,
this Statement of Terms shall be modified in accordance therewith, and such
supplemental instrument shall form a part of this Statement of Terms for all
purposes; and every Holder of Securities theretofore or thereafter authenticated
and delivered hereunder shall be bound thereby.
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SECTION 905. INTENTIONALLY OMITTED.
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTS TO STATEMENT OF TERMS.
Securities authenticated and delivered after the execution of any
supplement to this Statement of Terms pursuant to this Article may, and shall if
required by the Company, bear a notation in form approved by the Company as to
any matter provided for in such supplement. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Company, to any
such supplement may be prepared, executed, and delivered by the Company in
exchange for Outstanding Securities upon surrender of such Outstanding
Securities.
SECTION 907. NOTICE OF SUPPLEMENTS.
Promptly after the execution by the Company of any supplemental
instrument pursuant to Section 902, the Company shall transmit to the Holders a
notice setting forth the substance of such supplemental instrument.
ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL AND INTEREST.
The Company will duly and punctually pay the principal of and premium,
if any, and interest on the Securities in accordance with the terms of the
Securities and this Statement of Terms.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in Louisville, Kentucky an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer, where Securities may be
surrendered for exchange or conversion and where notices and demands to or upon
the Company in respect of the Securities and this Statement of Terms may be
served. The Company will give prompt written notice to the Holders of the
location, and any change in the location, of any such office or agency.
SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.
Because the Company shall act as its own Paying Agent, it will, on or
before each due date of the principal of and premium, if any, and interest on
any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal and premium, if
any, and interest so becoming due until such sums shall be paid to such Persons
or otherwise disposed of as herein provided.
Whenever the Company shall have one or more Paying Agents, it will, on
or prior to 11:00 a.m. (Louisville time) on each due date of the principal of,
and premium, if any, and interest on any Securities, deposit with a Paying Agent
a sum in same day funds sufficient to pay the principal and any premium and
interest so becoming due, such sum to be held as provided by the Trust Indenture
Act.
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Any money then placed by the Company in trust for the payment of the
principal of and premium, if any, and interest on any Security and remaining
unclaimed for two years after such principal and premium, if any, and interest
has become due and payable shall be paid to the Company on Company Request, or
shall be discharged from such trust; and the Holder of such Security shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Company as trustee thereof, shall
thereupon cease.
SECTION 1004. STATEMENT BY OFFICERS AS TO DEFAULT.
The Company will file with its permanent corporate records, within 120
days after the end of each fiscal year of the Company ending after the date
hereof, an Officers' Certificate stating whether or not to the best knowledge of
the signers thereof the Company is in default in the performance and observance
of any of the terms, provisions and conditions of this Statement of Terms
(without regard to any period of grace or requirement of notice provided
hereunder) and, if the Company shall be in default, specifying all such defaults
and the nature and status thereof of which they may have knowledge.
SECTION 1005. EXISTENCE.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises and the existence, rights (charter
and statutory) and franchises of each Subsidiary; provided, however, that the
Company shall not be required to preserve any such right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1006. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Section 1005, if before the time for such
compliance the Holders of at least a majority in principal amount of the
Outstanding Securities shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company in respect of any such covenant
or condition shall remain in full force and effect.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. RIGHT OF REDEMPTION.
The Securities may be redeemed at the election of the Company, in whole
or from time to time in part, at any time on or after March 15, 2001, at the
Redemption Price specified in the form of Security hereinbefore set forth,
together with accrued and unpaid interest up to but not including the Redemption
Date.
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SECTION 1102. APPLICABILITY OF ARTICLE.
Redemption of Securities at the election of the Company as permitted by
any provision of this Statement of Terms shall be made in accordance with such
provision and this Article.
SECTION 1103. ELECTION TO REDEEM; NOTICE.
The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any redemption
at the election of the Company of less than all the Securities, the Company
shall, at least 60 days prior to the Redemption Date fixed by the Company,
notify the Holders in writing of such Redemption Date and of the principal
amount of Securities to be redeemed. In case of any redemption at the election
of the Company of all of the Securities, the Company shall, at least 45 days
prior to the Redemption Date fixed by the Company, notify the Holders in writing
of such Redemption Date.
SECTION 1104. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 45 days prior to the
Redemption Date by the Company, from the Outstanding Securities not previously
called for redemption, by lot.
If any Security selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security shall be deemed (so
far as may be) to be the portion selected for redemption. Securities which have
been converted during a selection of Securities to be redeemed shall be treated
by the Company as Outstanding for the purpose of such selection. In any case
where more than one Security is registered in the same name, the Company in its
discretion may treat the aggregate principal amount so registered as if it were
represented by one Security.
For all purposes of this Statement of Terms, unless the context
otherwise requires, all provisions relating to the redemption of Securities
shall relate, in the case of any Securities redeemed or to be redeemed only in
part, to the portion of the principal amount of such Securities which has been
or is to be redeemed.
SECTION 1105. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed, at his address appearing in
the Security Register.
All notices of redemption shall state:
(a) the Redemption Date,
(b) the Redemption Price,
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(c) if less than all the Outstanding Securities are to be redeemed, the
identification (and, in the case of partial redemption of any Securities, the
principal amounts) of the particular Securities to be redeemed,
(d) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security to be redeemed and that (unless the Company
shall default in payment of the Redemption Price) interest thereon will cease to
accrue on and after said date,
(e) the conversion price, the date on which the right to convert the
Securities to be redeemed will terminate (which right shall extend at least
until two business days prior to the Redemption Date) and the place or places
where such Securities may be surrendered for conversion,
(f) the place or places where such Securities are to be surrendered for
payment of the Redemption Price, and
(g) that, unless the Company defaults in making the redemption payment,
the only remaining right of the Holders shall be to receive payment of the
Redemption Price upon presentation and surrender of the Securities.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company at least 30 days prior to the
Redemption Date in the name and at the expense of the Company.
SECTION 1106. DEPOSIT OF REDEMPTION PRICE.
At or prior to 9:00 a.m. (Louisville time) on any Redemption Date, the
Company shall segregate and hold in trust as provided in Section 1003 an amount
of money in same day funds sufficient to pay the Redemption Price of, and
(except if the Redemption Date shall be an Interest Payment Date) accrued
interest on, all the Securities or portions thereof which are to be redeemed on
that date other than any Securities or portions thereof called for redemption on
that date which have been delivered to the Company for cancellation or converted
prior to the date of such deposit.
If any Security called for redemption is converted, any money so
segregated and held in trust for the redemption of such Security shall (subject
to any right of the Holder of such Security or any Predecessor Security to
receive interest as provided in the last paragraph of Section 307) be paid to
the Company upon Company Request or, if then held by the Company, shall be
discharged from such trust.
SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; provided, however, that installments of interest whose
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Securities,
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or one or more Predecessor Securities, registered as such at the close of
business on the relevant Record Dates according to their terms and the
provisions of Section 307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal until paid, bear interest from
the Redemption Date at the rate borne by the Security.
SECTION 1108. SECURITIES REDEEMED IN PART.
Any Security which is to be redeemed only in part shall be surrendered
at an office or agency of the Company maintained for that purpose pursuant to
Section 1002 (with, if the Company so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company duly executed by, the
Holder thereof or his attorney duly authorized in writing), and the Company
shall execute and deliver to the Holder of such Security without service charge,
a new Security or Securities, of any authorized denomination as requested by
such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
SECTION 1109. CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION.
In connection with any redemption of Securities, the Company may
arrange for the purchase and conversion of any Securities by an agreement with
one or more investment bankers or other purchasers to purchase such Securities
by paying segregating in trust for the benefit of the Holders, on or before the
date fixed for redemption, an amount not less than the applicable Redemption
Price, together with interest accrued to (but excluding) that date fixed for
redemption, of such Securities which have not been surrendered for conversion.
Notwithstanding anything to the contrary contained in this Article Eleven, the
obligation of the Company to pay the Redemption Price of such Securities,
together with interest accrued to (but excluding) the date fixed for redemption,
shall be deemed to be satisfied and discharged to the extent such amount is so
paid by such purchasers. If such an agreement is entered into, any Securities
not duly surrendered for conversion by the Holders thereof may, at the option of
the Company, be deemed, to the fullest extent permitted by law, acquired by such
purchasers from such Holders and surrendered by such purchasers for conversions,
all as of immediately prior to the close of business on the date fixed for
redemption (and the right to convert any such Securities shall be extended
through such time), subject to payment of the above amount as aforesaid. The
Company shall hold and dispose of any such amount paid to it in the same manner
as it would monies deposited with it by the Company for the redemption of
Securities.
ARTICLE TWELVE
SUBORDINATION OF SECURITIES
SECTION 1201. SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS.
The Company covenants and agrees, and each Holder of a Security, by his
acceptance thereof, likewise covenants and agrees, that, at all times and in all
respects, the indebtedness represented by the Securities and the payment of the
principal of and premium, if any, and interest on each and all of the Securities
are hereby expressly made subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness.
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SECTION 1202. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
In the event of (a) any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or other similar case or
proceeding, relative to the Company or to its creditors, as such, or to a
substantial part of its assets, or (b) any proceeding for the liquidation,
dissolution or other winding up of the Company, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any general
assignment for the benefits of creditors or any other marshaling of assets and
liabilities of the Company, then and in any such event the holders of Senior
Indebtedness shall be entitled to receive payment in full of all amounts due or
to become due on or in respect of all Senior Indebtedness; or provision shall be
made for such payment in money or money's worth, before the Holders of the
Securities are entitled to receive any payment or distribution of any kind or
character, whether in cash, property or securities, on account of principal of
and premium, if any, or interest on the Securities, and to that end the holders
of Senior Indebtedness shall be entitled to receive, for application to the
payment thereof, any payment or distribution of any kind or character, whether
in cash, property or securities, including any such payment or distribution
which may be payable or deliverable by reason of the payment of any other
indebtedness of the Company being subordinated to the payment of the Securities,
which may be payable or deliverable in respect of the Securities in any such
case, proceeding, dissolution, liquidation or other winding up or event.
In the event that, notwithstanding the foregoing provisions of this
Section, the Holder of any Security shall have received any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, including any such payment or distribution which may be
payable or deliverable by reason of the payment of any other indebtedness of the
Company being subordinated to the payment of the Securities, before all Senior
Indebtedness is paid in full or payment thereof provided for, and if such fact
shall, at or prior to the time of such payment or distribution, have been made
known to such Holder, as the case may be, then and in such event such payment or
distribution shall be paid over or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other
Person making payment or distribution of assets of the Company for application
to the payment of all Senior Indebtedness remaining unpaid, to the extent
necessary to pay all Senior Indebtedness in full, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Indebtedness.
For purposes of this Article only, the words "cash, property or
securities" shall not be deemed to include 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, which are subordinated
in right of payment to all Senior Indebtedness which may at the time be
outstanding to substantially the same extent as, or to a greater extent than,
the Securities are so subordinated as provided in this Article. The
consolidation of the Company with, or the merger of the Company into, another
Person or the liquidation or dissolution of the Company following the conveyance
or transfer of its properties and assets substantially as an entirety to another
Person upon the terms and conditions set forth in Article Eight shall not be
deemed a dissolution, winding up, liquidation, reorganization, general
assignment for the benefit of creditors or marshaling of assets and liabilities
of the Company for the purposes of this Section if the Person formed by such
consolidation or into which the Company is merged or which acquires by
conveyance or transfer such properties and assets substantially as an entirety,
as the case may be, shall, as a part of such consolidation, merger, conveyance
or transfer, comply with the conditions set forth in Article Eight.
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SECTION 1203. PRIOR PAYMENT TO SENIOR INDEBTEDNESS UPON ACCELERATION OF
SECURITIES.
In the event that any Securities are declared due and payable before
their Stated Maturity, then and in such event the holders of Senior Indebtedness
outstanding at the time such Securities so become due and payable shall be
entitled to receive payment in full of all amounts due on or in respect of such
Senior Indebtedness, or provision shall be made for such payment in money or
money's worth, before the Holders of the Securities are entitled to receive any
payment (including any payment which may be payable by reason of the payment of
any other indebtedness of the Company being subordinated to the payment of the
Securities) by the Company on account of the principal of or premium, if any, or
interest on the Securities or on account of the purchase or other acquisition of
Securities.
In the event that, notwithstanding the foregoing, the Company shall
make any payment to the Holder of any Security prohibited by the foregoing
provisions of this Section, and if such fact shall, at or prior to the time of
such payment, have been made known to such Holder, as the case may be, then and
in such event such payment shall be paid over the delivered forthwith to the
Company.
The provisions of this Section shall not apply to any payment with
respect to which Section 1202 would be applicable.
SECTION 1204. PAYMENT WHEN DESIGNATED SENIOR INDEBTEDNESS IN DEFAULT.
No payment shall be made with respect to the principal of, or premium,
if any, or interest on any Security (including, but not limited to, the
redemption price with respect to the Security to be called for redemption in
accordance with Article 11 or submitted for repurchase in accordance with
Article 14, as the case may be, as provided in this Statement of Terms), if:
(a) a default in the payment of principal, premium, interest, rent or
other obligations due on any Designated Senior Indebtedness occurs and is
continuing (or, in the case of Senior Indebtedness occurs and is continuing (or,
in the case of Designated Senior Indebtedness for which there is a period of
grace, in the event of such a default that continues beyond the period of grace,
if any, specified in the instrument or lease evidencing such Designated Senior
Indebtedness), unless and until such default shall have been cured or waived or
shall have ceased to exist (a "Payment Default"); or
(b) a default, other than a Payment Default, on any Designated Senior
Indebtedness occurs and is continuing that then permits holders of such
Designated Senior Indebtedness to accelerate its maturity (a "Non Payment
Default") and the Company receives a notice of default (a "Payment Blockage
Notice") from a Holder.
If the Company receives any Payment Blockage Notice pursuant to clause
(b) above, no subsequent Payment Blockage Notice shall be effective for purposes
of this Section unless and until (1) at least 365 days shall have elapsed since
the effectiveness of the immediately prior Payment Blockage Notice, and (2) all
scheduled payments of principal, premium, and interest on the Securities that
have come due have been paid in full in cash. No nonpayment default that existed
or was continuing on the date of delivery of any Payment Blockage Notice to the
Company shall be, or be made, the basis for a subsequent Payment Blockage
Notice.
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The Company may and shall resume payments on and distributions in
respect of the Securities upon the earlier of:
(x) the date upon which the default is cured or waived;
(y) in the case of a default referred to in clause (b)
above, the date the applicable Payment Blockage Notice
is retracted by written notice to the Company from a
representative of the holders of the Designated Senior
Indebtedness which have given the Payment Blockage
Notice; or
(z) in the case of a default referred to in clause (b)
above, 179 days pass after notice is received by the
Company if the maturity of such Designated Senior
Indebted ness has not been accelerated, unless this
Article 12 otherwise prohibits the payment or
distribution at the time of such payment or
distribution.
In the event that, notwithstanding the foregoing, the Company shall
make any payment to the Holder of any Security prohibited by the foregoing
provisions of this Section, and if such fact shall, at or prior to the time of
such payment, have been made known to such Holder, as the case may be, then and
in such event such payment shall be paid over and delivered forthwith to the
Holders.
The provisions of this Section shall not apply to any payment with
respect to which Section 1202 would be applicable.
SECTION 1205. PAYMENT PERMITTED IF NO DEFAULT.
Nothing contained in this Article or elsewhere in this Statement of
Terms or in any of the Securities shall prevent (a) the Company, at any time
except during the pendency of any case, proceeding, dissolution, liquidation or
other winding up, general assignment for the benefit of creditors or other
marshaling of assets and liabilities of the Company referred to in Section 1202
or under the conditions described in Section 1203 or 1204, from making payments
at any time of principal of and premium, if any, and interest on the Securities,
or (b) the application by the Company of any money deposited with it hereunder
to the payment of or on account of the principal of and premium, if any, or
interest on the Securities or the retention of such payment by the Holders, if,
at the time of such application by the Company, it did not have knowledge that
such payment would have been prohibited by the provisions of this Article.
SECTION 1206. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS.
Subject to the payment in full of all amounts due on or in respect of
Senior Indebtedness, the Holders of the Securities shall be subrogated to the
extent of the payments or distributions made to the holders of such Senior
Indebtedness pursuant to the provisions of this Article (equally and ratably
with the holders of all indebtedness of the Company which by its express terms
is subordinated to other indebtedness of the Company to substantially the same
extent as the Securities are subordinated and is entitled to like rights of
subrogation) to the rights of the holders of such Senior Indebtedness to receive
payments and distributions of cash, property and securities applicable to the
Senior Indebtedness until the principal of and premium, if any, and Interest on
the Securities shall be paid in full. For purposes
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of such subrogation, no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the Holders of the
Securities would otherwise be entitled except for the provisions of this
Article, and no payments over pursuant to the provisions of this Article to the
holders of Senior Indebtedness by Holders of the Securities, shall, as among the
Company, its creditors other than holders of Senior Indebtedness and the Holders
of the Securities, be deemed to be a payment or distribution by the Company to
or on account of the Senior Indebtedness.
SECTION 1207. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article or elsewhere in this Statement of Terms or in the
Securities is intended to or shall (a) impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Securities the principal of and premium, if any,
and interest on the Securities as and when the same shall become due and payable
in accordance with their terms; or (b) affect the relative rights against the
Company of the Holders of the Securities and creditors of the Company other than
the holders of Senior Indebtedness; or (c) prevent the Holder of any Security
from exercising all remedies otherwise permitted by applicable law upon default
under this Statement of Terms, subject to the rights, if any, under this Article
of the holders of Senior Indebtedness to receive cash, property and securities
otherwise payable or deliverable to the such Holder.
SECTION 1208. COMPANY TO EFFECTUATE SUBORDINATION.
Each holder of a Security by his acceptance thereof authorizes and
directs the Company on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Company his attorney-in-fact for any and all such purposes.
SECTION 1209. NO WAIVER OF SUBORDINATION PROVISIONS.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the 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, provisions and covenants of this
Statement of Terms, regardless of any knowledge thereof any such holder may have
or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Holders of the Securities, without
incurring responsibility to the Holders of the Securities and without impairing
or releasing the subordination provided in this Article or the obligations
hereunder of the Holders of the Securities to the holders of Senior
Indebtedness, do any one or more of the following: (i) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior
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Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.
SECTION 1210. INTENTIONALLY OMITTED.
SECTION 1211. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT.
Upon any payment or distribution of assets of the Company referred to
in this Article, the Holders of the Securities shall be entitled to rely upon
any order or decree entered by any court of competent jurisdiction in which such
insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution,
winding up or similar case or proceeding is pending, or a certificate of the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for
the benefit of creditors, agent or other person making such payment or
distribution, delivered to the Holders of Securities, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Indebtedness and other indebtedness of
the 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.
SECTION 1212. INTENTIONALLY OMITTED.
SECTION 1213. INTENTIONALLY OMITTED.
SECTION 1214. INTENTIONALLY OMITTED.
SECTION 1215. CERTAIN CONVERSIONS DEEMED PAYMENT.
For the purposes of this Article only, (1) the issuance and delivery of
junior securities upon conversion of Securities in accordance with Article
Thirteen shall not be deemed to constitute a payment or distribution on account
of the principal of or premium or interest on Securities or on account of the
purchase or other acquisition of Securities, and (2) the payment, issuance or
delivery of cash, property or securities (other than junior securities) upon
conversion of a Security shall be deemed to constitute payment on account of the
principal of such Security. For the purposes of this Section, the term "junior
securities" means (a) shares of any class of capital stock of the Company and
(b) securities of the Company which are subordinated in right of payment to all
Senior Indebtedness which may be outstanding at the time of issuance or delivery
of such securities to substantially the same extent as, or to a greater extent
than, the Securities are so subordinated as provided in this Article. Nothing
contained in this Article or elsewhere in this Statement of Terms or in the
Securities is intended to or shall impair, as among the Company, its creditors
other than holders of Senior Indebtedness and the Holders of the Securities, the
right, which is absolute and unconditional, of the Holder of any Security to
convert such Security in accordance with Article Thirteen.
SECTION 1216. NO SUSPENSION OF REMEDIES.
Nothing contained in this Article shall limit the right of the Holders
of the Securities to take any action to accelerate the maturity of the
Securities pursuant to the provisions described under Article Five and as set
forth in this Statement of Terms or to pursue any rights or remedies hereunder
or under applicable law, subject to the rights, if any, under this Article of
the holders, from time to time, of
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Senior Indebtedness to receive the cash, property or securities receivable upon
the exercise of such rights or remedies.
ARTICLE THIRTEEN
CONVERSION OF SECURITIES
SECTION 1301. CONVERSION PRIVILEGE AND CONVERSION PRICE.
Subject to and upon compliance with the provisions of this Article, at
the option of the Holder thereof, any Security or any portion of the principal
amount thereof which equals $1,000 or any integral multiple thereof may be
converted at any time beginning on the date 367 days after the date of issuance
of such Security and prior to redemption or final maturity of Securities under
this Statement of Terms at the principal amount thereof, or of such portion
thereof, into fully paid and nonassessable shares (calculated as to each
conversion to the nearest 1/100 of a share) of Common Stock, at the conversion
price, determined as hereinafter provided, in effect at the time of conversion.
Such conversion right shall expire at the close of business on March 15, 2005.
In case a Security or portion thereof is called for redemption, such conversion
right in respect of the Security or portion so called shall expire at the close
of business on the second business day next preceding the applicable Redemption
Date, unless the Company defaults in making the payment due upon redemption.
The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "conversion price") shall be initially $38.7531
per share of Common Stock. The conversion price shall be adjusted in certain
instances as provided in paragraphs (a), (b), (c), (d), (e), (f), (g) and (i) of
Section 1304.
SECTION 1302. EXERCISE OF CONVERSION PRIVILEGE.
In order to exercise the conversion privilege, the Holder of any
Security shall surrender such Security, duly endorsed or assigned to the Company
or in blank, at any office or agency of the Company maintained pursuant to
Section 1002, accompanied by written notice to the Company in the form provided
in the Security (or such other notice as is acceptable to the Company) at such
office or agency that the Holder elects to convert such Security or, if less
than the entire principal amount thereof is to be converted, the portion thereof
to be converted.
Securities surrendered for conversion during the period after any
Regular Record Date next preceding any Interest Payment Date to the close of
business on the business day next preceding such Interest Payment Date shall
(unless such Security or portion thereof being converted shall have been called
for redemption during the period from the close of business on such Regular
Record Date to the close of business on the second business day next succeeding
the following Interest Payment Date, as described in the succeeding sentence) be
accompanied by payment in funds acceptable to the Company of an amount equal to
the interest payable on such Interest Payment Date on the principal amount being
surrendered for conversion; provided, however, that no such payment need be made
if there shall exist at the time of conversion a default in the payment of
interest on the Security. If such Security or portion thereof being converted
shall have been called for redemption during the period from the close of
business on the Regular Record Date to the close of business on the second
business day next succeeding the following Interest Payment Date, then such
Security or portion thereof shall be
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accompanied by payment in funds acceptable to the Company of an amount equal to
the difference between (i) the interest on the principal amount of such Security
or portion thereof payable on such Interest Payment Date and (ii) the amount of
accrued interest on the principal amount of such Security or portion thereof to
but not including the date of Conversion Date. Except as provided above in this
Section 1302 and subject to the fourth paragraph of Section 307, no payment or
adjustment shall be made upon any conversion on account of any interest accrued
on the Securities surrendered for conversion or on account of any dividends on
the Common Stock issued upon conversion.
Securities shall be deemed to have been converted immediately prior to
the close of business on the day of surrender of such Securities for conversion
in accordance with the foregoing provisions, and at such time the rights of the
Holders of such Securities as Holders shall cease, and the Person or Persons
entitled to receive the Common Stock issuable upon conversion shall be treated
for all purposes of the record holder or holders of such Common Stock as and
after such time. As promptly as practicable on or after the conversion date, the
Company shall issue and shall deliver at such office or agency a certificate or
certificates for the number of full shares of Common Stock issuable upon
conversion, together with payment in lieu of any fraction of a share, as
provided in Section 1303.
In the case of any Security which is converted in part only, upon such
conversion the Company shall execute and deliver to the Holder thereof, at the
expense of the Company, a new Security or Securities of authorized denominations
in aggregate principal amount equal to the unconverted portion of the principal
amount of such Security.
SECTION 1303. FRACTIONS OF SHARES.
No fractional share of Common Stock shall be issued upon conversion of
Securities. If more than one Security shall be surrendered for conversion at one
time by the same Holder, the number of full shares which shall be issuable upon
conversion thereof shall be computed on the basis of the aggregate principal
amount of the Securities (or specified portions thereof) so surrendered. Instead
of any fractional share of Common Stock which would otherwise be issuable upon
conversion of any Security or Securities (or specified portions thereof), the
Company shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction of the Closing Price (as hereinafter defined) at the
close of business on the day of conversion (or, if such day is not a Trading Day
(as hereafter defined), on the Trading Day immediately preceding such day).
SECTION 1304. ADJUSTMENT OF CONVERSION PRICE.
(a) In case the Company shall pay or make a dividend or other
distribution on the Common Stock exclusively in Common Stock or shall pay or
make a dividend or other distribution on any other class of capital stock of the
Company which dividend or distribution includes Common Stock, the conversion
price in effect at the opening of business on the day following the date fixed
for the determination of shareholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such conversion price by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution, such reduction to
become effective immediately after the opening of business on the day following
the date fixed for such determination. For the purpose of this paragraph
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(a), the number of shares of Common Stock at any time outstanding shall not
include shares held in the treasury of the Company. The Company shall not pay
any dividend or make any distribution on shares of Common Stock held in the
treasury of the Company.
(b) Subject to paragraph (h) of this Section, in case the Company shall
pay or make a dividend or other distribution on the Common Stock consisting
exclusively of, or shall otherwise issue to all holders of the Common Stock,
rights or warrants entitling the holders thereof to subscribe for or purchase
shares of Common Stock at a price per share less than the Current Market Price
(determined as provided in paragraph (i) of this Section) on the date fixed for
the determination of shareholders entitled to receive such rights or warrants,
the conversion price in effect at the opening of business on the day following
the date fixed for such determination shall be reduced by multiplying such
conversion price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares of Common Stock which the
aggregate of the offering price of the total number of shares of Common Stock so
offered for subscription or purchase would purchase at such Current Market Price
and the denominator shall be the number of shares of Common Stock outstanding at
the close of business on the date fixed for such determination plus the number
of shares of Common Stock so offered for subscription or purchase, such
reduction to become effective immediately after the opening of business on the
day following the date fixed for such determination. For the purposes of this
paragraph (b), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Company. The Company shall
not issue any rights or warrants in respect of shares of Common Stock held in
the treasury of the Company. In determining whether any rights or warrants
entitle the holders to subscribe for or purchase shares of Common Stock at less
than such Current Market Price, and in determining the aggregate offering price
of such shares of Common Stock, there shall be taken into account any
consideration received by the Company for such rights or warrants, the value of
such consideration, if other than cash, to be determined by the Board of
Directors.
(c) In case outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock, the conversion price in effect at
the opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately reduced, and, conversely, in case
outstanding shares of Common Stock shall be combined into a smaller number of
shares of Common Stock, the conversion price in effect at the opening of
business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which subdivision or combination becomes
effective.
(d) Subject to the last sentence of this paragraph (d) and to paragraph
(h) of this Section, in case the Company shall, by dividend or otherwise,
distribute to all holders of the Common Stock evidences of its indebtedness,
shares of any class of its capital stock, cash or other assets (including
securities, but excluding any rights or warrants referred to in paragraph (b) of
this Section, excluding any dividend or distribution paid exclusively in cash
and excluding any dividend or distribution referred to in paragraph (a) of this
Section), the conversion price shall be reduced by multiplying the conversion
price in effect immediately prior to the close of business on the date fixed for
the determination of shareholders entitled to such distribution by a fraction of
which the numerator shall be the Current Market Price (determined as provided in
paragraph (i) of this Section) on such date less the fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described
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in a Board Resolution) on such date of the portion of the evidences of
indebtedness, shares of capital stock, cash and other assets to be distributed
applicable to one share of Common Stock and the denominator shall be such
Current Market Price, such reduction to become effective immediately prior to
the opening of business on the day following such date. If the Board of
Directors determines the fair market value of any distribution for purposes of
this paragraph (d) by reference to the actual or when- issued trading market for
any securities comprising part or all of such distribution, it must in doing so
consider the prices in such market over the same period used in computing the
Current Market Price pursuant to paragraph (i) of this Section, to the extent
possible. For purposes of this paragraph (d), any dividend or distribution that
includes shares of Common Stock, rights or warrants to subscribe for or purchase
shares of Common Stock or securities convertible into or exchangeable for shares
of Common Stock shall be deemed to be (x) a dividend or distribution of the
evidences of indebtedness, cash, assets or shares of capital stock other than
such shares of Common Stock, such rights or warrants or such convertible or
exchangeable securities (making any conversion price reduction required by this
paragraph (d)) immediately followed by (y) in the case of such shares of Common
Stock or such rights or warrants, a dividend or distribution thereof (making any
further conversion price reduction required by paragraph (a) and (b) of this
Section, except any shares of Common Stock included in such dividend or
distribution shall not be deemed "outstanding at the close of business on the
date fixed for such determination" within the meaning of paragraph (a) of this
Section), or (z) in the case of such convertible or exchangeable securities, a
dividend or distribution of the number of shares of Common Stock as would then
be issuable upon the conversion or exchange thereof, whether or not the
conversion or exchange of such securities is subject to any conditions (making
any further conversion price reduction required by paragraph (a) of this
Section, except the shares deemed to constitute such dividend or distribution
shall not be deemed "outstanding at the close of business on the date fixed for
such determination" within the meaning of paragraph (a) of this Section).
(e) In case the Company shall, by dividend or otherwise, at any time
distribute to all holders of the Common Stock cash (excluding any cash that is
distributed as part of a distribution referred to in paragraph (d) of this
Section or in connection with a transaction to which Section 1311 applies) in an
aggregate amount that, together with (A) the aggregate amount of any other
distributions to all holders of the Common Stock made exclusively in cash within
the 12 months preceding the date fixed for the determination of shareholders
entitled to such distribution and in respect of which no conversion price
adjustment pursuant to this paragraph (e) has been made previously and (B) the
aggregate of any cash plus the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution) as of such date of determination of consideration payable in respect
of any tender offer by the Company or a Subsidiary for all or any portion of the
Common Stock consummated within the 12 months preceding such date of
determination and in respect of which no conversion price adjustment pursuant to
paragraph (f) of this Section has been made previously, exceeds the greater of
(I) 10.0% of the product of the Current Market Price (determined as provided in
paragraph (i) of this Section) on such date of determination times the number of
shares of Common Stock outstanding on such date or (II) the Company's retained
earnings on the date fixed for determining the stockholders entitled to such
distribution, the conversion price shall be reduced by multiplying the
conversion price in effect immediately prior to the close of business on such
date of determination by a fraction of which the numerator shall be the Current
Market Price (determined as provided in paragraph (i) of this Section) on such
date less the amount of cash to be distributed at such time applicable to one
share of Common Stock and the denominator shall be such Current Market Price,
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such reduction to become effective immediately prior to the opening of business
on the day after such date.
(f) In case a tender offer made by the Company or any Subsidiary for
all or any portion of the Common Stock shall be consummated and such tender
offer shall involve an aggregate consideration having a fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a Board Resolution) as of the last time that tenders may be
made pursuant to such tender offer (as it shall have been amended) (the
"Expiration Time") that, together with (A) the aggregate of the cash plus the
fair market value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a Board Resolution) as of the Expiration
Time of the other consideration paid in respect of any other tender offer by the
Company or a Subsidiary for all or any portion of the Common Stock consummated
within the 12 months preceding the Expiration Time and in respect of which no
conversion price adjustment pursuant to this paragraph (f) has been made
previously and (B) the aggregate amount of any distributions to all holders of
the Common Stock made exclusively in cash within the 12 months preceding the
Expiration Time and in respect of which no conversion price adjustment pursuant
to paragraph (e) of this Section has been made previously, exceeds the greater
of (I) 10.0% of the product of the Current Market Price (determined as provided
in paragraph (i) of this Section) immediately prior to the Expiration Time times
the number of shares of Common Stock outstanding (including any tendered shares)
at the Expiration Time or (II) the Company's retained earnings as of the
Expiration Time, the conversion price shall be reduced by multiplying the
conversion price in effect immediately prior to the Expiration Time by a
fraction of which the numerator shall be (x) the product of the Current Market
Price (determined as provided in paragraph (i) of this Section) immediately
prior to the Expiration Time times the number of shares of Common Stock
outstanding (including any tendered shares at the Expiration Time minus (y) the
fair market value (determined as aforesaid) of the aggregate consideration
payable to shareholders upon consummation of such tender offer and the
denominator shall be the product of (A) such Current Market Price times (B) such
number of outstanding shares at the Expiration Time minus the number of shares
accepted for payment in such tender offer (the "Purchased Shares"), such
reduction to become effective immediately prior to the opening of business on
the day following the Expiration Time; provided, that if the number of Purchased
Shares or the aggregate consideration payable therefor have not been finally
determined by such opening of business, the adjustment required by this
paragraph (f) shall, pending such final determination, be made based upon the
preliminarily announced results of such tender offer, and, after such final
determination shall have been made, the adjustment required by this paragraph
(f) shall be made based upon the number of Purchased Shares and the aggregate
consideration payable therefor as so finally determined.
(g) In case a tender offer or exchange offer made by a Person other
than the Company or any Subsidiary, which offer is not recommended for rejection
by the Company's Board of Directors, shall be consummated with respect to such
number of shares of Common Stock which, as of the closing date of such tender
offer or exchange offer, as amended, increases the acquiring Person's ownership
of Common Stock to more than 25% of the total shares of Common Stock outstanding
and if the cash and fair market value (as determined by the Board of Directors,
whose determination shall be conclusive and described in a Board Resolution) of
any other consideration included in such payment per share of Common Stock
exceeds the current market price per share of Common Stock on the Business Day
next succeeding the last date on which tenders or exchanges may be made pursuant
to such tender offer or exchange offer, the conversion price shall be reduced by
multiplying the conversion price in effect
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immediately prior to the closing of such offer by a fraction of which the
numerator shall be (x) the product of the current market price (determined as
described above in this paragraph (g)) times the number of shares of Common
Stock outstanding (including any tendered or exchanged shares at the closing)
minus (y) the fair market value (determined as aforesaid) of the aggregate
consideration payable to shareholders upon the consummation of such offer and
the denominator shall be the product of (A) the current market price (as
determined above) times (B) such number of outstanding shares at the closing
minus the number of shares accepted for payment in such tender offer or exchange
offer, such reduction to become effective immediately prior to the opening of
business on the day following the closing; provided, that if the number of
shares tendered or exchanged or the aggregate consideration payable therefor has
not been finally determined by such opening of business, the adjustment required
by this paragraph shall, pending such final determination, be made based upon
the preliminarily announced results of such tender or exchange offer, and, after
such final determination shall have been made, the adjustment required by this
paragraph shall be made based upon the number of shares tendered or exchanged
and the aggregate consideration payable therefor as so finally determined. The
adjustment referred to in the paragraph will generally not be made, however, if,
as of the closing of such tender offer or exchange offer, the offering documents
with respect to such offer disclose a plan or an intention to cause the Company
to engage in a consolidation or merger of the Company, or a sale of all or
substantially all of the Company's assets.
(h) The reclassification of Common Stock into securities which include
securities other than Common Stock (other than any reclassification upon a
consolidation or merger to which Section 1311 applies) shall be deemed to
involve (i) a distribution of such securities other than Common Stock to all
holders of Common Stock (and the effective date of such reclassification shall
be deemed to be "the date fixed for the determination of shareholders entitled
to such distribution" within the meaning of paragraph (d) of this Section), and
(ii) a subdivision or combination, as the case may be, of the number of shares
of Common Stock outstanding immediately prior to such reclassification into the
number of shares of Common Stock outstanding immediately thereafter (and the
effective date of such reclassification shall be deemed to be "the day upon
which such subdivision becomes effective" or "the day upon which such
combination becomes effective," as the case may be, and "the day upon which such
subdivision or combination becomes effective" within the meaning of paragraph
(c) of this Section).
Rights or warrants issued by the Company to all holders of the Common
Stock entitling the holders thereof to subscribe for or purchase shares of
Common Stock (either initially or under certain circumstances), which rights or
warrants (i) are deemed to be transferred with such shares of Common Stock, (ii)
are not exercisable and (iii) are also issued in respect of future issuances of
Common Stock, in each case in clauses (i) through (iii) until the occurrence of
a specified event or events ("Trigger Event"), shall for purposes of this
Section 1304 not be deemed issued or distributed until the occurrence of the
earliest Trigger Event, whereupon such rights and warrants shall be deemed to
have been distributed and an appropriate adjustment (if any is required) to the
Conversion Price shall be made under this Section 1304. If any such rights or
warrants, including any such existing rights or warrants distributed prior to
the date of this Statement of Terms are subject to subsequent events, upon the
occurrence of each of which such rights or warrants shall become exercisable to
purchase different securities, evidences of indebtedness or other assets, then
the occurrence of each such event shall be deemed to be such date of issuance
and record date with respect to new rights or warrants (and a termination or
expiration of the existing rights or warrants without exercise by the holder
thereof). In
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addition, in the event of any distribution (or deemed distribution) of rights or
warrants, or any Trigger Event with respect thereto, that was counted for
purposes of calculating a distribution amount for which an adjustment to the
Conversion Price under this Section 1304 was made, (1) in the case of any such
rights or warrant which shall all have been redeemed or repurchased without
exercise by any holders thereof, the Conversion Price shall be readjusted upon
such final redemption or repurchase to give effect to such distribution or
Trigger Event, as the case may be, as though it were a cash distribution, equal
to the per share redemption or repurchase price received by a holder or holders
of Common Stock with respect to such rights or warrants (assuming such holder
had retained such rights or warrants), made to all holders of Common Stock as of
the date of such redemption or repurchase, and (2) in the case of such rights or
warrants which shall have expired or been terminated without exercise by any
holders thereof, the Conversion Price shall be readjusted as if such rights and
warrants had not been issued.
Notwithstanding any other provision of this Section 1304 to the
contrary, rights, warrants, evidences of indebtedness, other securities, cash or
other assets (including, without limitation, any rights distributed pursuant to
any stockholder rights plan) shall be deemed not to have been distributed for
purposes of this Section 1304 if the Company makes proper provision so that each
holder of Securities who converts a Security (or any portion thereof) after the
date fixed for determination of stockholders entitled to receive such
distribution shall be entitled to receive upon such conversion, in addition to
the shares of Common Stock issuable upon such conversions, the amount and kind
of such distributions that such holder would have been entitled to receive if
such holder had, immediately prior to such determination date, converted such
Security into Common Stock.
(i) For the purpose of any computation under this paragraph and
paragraphs (b), (d) and (e) of this Section, the current market price per share
of Common Stock (the "Current Market Price") on any date shall be deemed to be
the average of the daily Closing Prices for the 10 consecutive Trading Days
immediately prior to the date in question; provided, however, that (i) if the
"ex" date for any event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the conversion price pursuant to
paragraph (a), (b), (c), (d), (e) or (f) above occurs during such 10 consecutive
Trading Days, the Closing Price for each Trading Day prior to the "ex" date for
such other event shall be adjusted by multiplying such Closing Price by the same
fraction by which the conversion price is so required to be adjusted as a result
of such other event, (ii) if the "ex" date for any event (other than the
issuance or distribution requiring such computation) that requires an adjustment
to the conversion price pursuant to paragraph (a), (b), (c), (d), (e) or (f)
above occurs on or after the "ex" date for the issuance or distribution
requiring such computation and on or prior to the date in question, the Closing
Price for each Trading Day on and after the "ex" date for such other event shall
be adjusted by multiplying such Closing Price by the reciprocal of the fraction
by which the conversion price is so required to be adjusted as a result of such
other event, and (iii) if the "ex" date for the issuance or distribution
requiring such computation is on or prior to the date in question, after taking
into account any adjustment required pursuant to clause (ii) of this proviso,
the Closing Price for each Trading Day on or after such "ex" date shall be
adjusted by adding thereto the amount of any cash and the fair market value on
the date in question (as determined by the Board of Directors in a manner
consistent with any determination of such value for purposes of paragraph (d) or
(e) of this Section, whose determination shall be conclusive and described in a
Board Resolution) of the evidences of indebtedness, shares of capital stock or
assets being distributed applicable to one share of Common Stock as of the close
of business on the day before such "ex" date. For the purpose of any computation
under paragraph (f) of this Section, the Current Market Price on any date shall
be deemed to be the average of the daily
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<PAGE> 43
Closing Prices for such day and the next two succeeding Trading Days; provided,
however, that if the "ex" date for any event (other than the tender offer
requiring such computation) that requires an adjustment to the conversion price
pursuant to paragraph (a), (b), (c), (d), (e) or (f) above occurs on or after
the Commencement Date and prior to the Expiration Time for the tender offer
requiring such computation, the Closing Price for each Trading Day prior to the
"ex" date for such other event shall be adjusted by multiplying such Closing
Price by the same fraction by which the conversion price is so required to be
adjusted as a result of such other event. The closing price for any Trading Day
(the "Closing Price") shall be the last reported sales price regular way or, in
case no such reported sale takes place on such day, the average of the reported
closing bid and asked prices regular way, in either case on the New York Stock
Exchange or, if the Common Stock is not listed or admitted to trading on such
exchange, on the principal national securities exchange on which the Common
Stock is listed or admitted to trading or, if not listed or admitted to trading
on any national securities exchange, on the Nasdaq Stock Market's National
Market or, if the Common Stock is not listed or admitted to trading on any
national securities exchange or quoted on such National Market, the average of
the closing bid and asked prices in the over-the-counter market as furnished by
any New York Stock Exchange member firm selected from time to time by the
Company for that purpose. For purposes of this paragraph, the term "Trading Day"
means each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day
on which securities are generally not traded on the applicable securities
exchange or in the applicable securities market and the term "'ex' date," (i)
when used with respect to any issuance or distribution, means the first date on
which the Common Stock trades regular way on the relevant exchange or in the
relevant market from which the Closing Prices were obtained without the right to
receive such issuance or distribution, (ii) when used with respect to any
subdivision or combination of shares of Common Stock, means the first date on
which the Common Stock trades regular way on such exchange or in such market
after the time at which such subdivision or combination becomes effective, and
(iii) when used with respect to any tender offer means the first date on which
the Common Stock trades regular way on such exchange or in such market after the
Expiration Time.
(j) The Company may make such reductions in the conversion price, in
addition to those required by paragraphs (a), (b), (c), (d), (e), (f) and (g) of
this Section, as it considers to be advisable (as evidenced by a Board
Resolution) in order that any event treated for federal income tax purposes as a
dividend of stock or stock rights shall not be taxable to the recipients or, if
that is not possible, to diminish any income taxes that are otherwise payable
because of such event.
(k) No adjustment in the conversion price shall be required unless such
adjustment (plus any other adjustments not previously made by reason of this
paragraph (k)) would require an increase or decrease of at least 1% in the
conversion price; provided, however, that any adjustments which by reason of
this paragraph (k) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
(l) Notwithstanding any other provision of this Section 1304, no
adjustment to the conversion price shall reduce the conversion price below the
then par value per share of the Common Stock, and any such purported adjustment
shall instead reduce the conversion price to such par value. The Company hereby
covenants not to take any action to increase the par value per share of the
Common Stock.
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SECTION 1305. NOTICE OF ADJUSTMENTS OF CONVERSION PRICE.
Whenever the conversion price is adjusted as herein provided:
(a) the Company shall compute the adjusted conversion price in
accordance with Section 1304 and shall prepare an Officers' Certificate signed
by the Treasurer of the Company setting forth the adjusted conversion price and
showing in reasonable detail the facts upon which such adjustment is based, and
such certificate shall forthwith be filed at each office or agency maintained
for the purpose of conversion of Securities pursuant to Section 1002; and
(b) a notice stating that the conversion price has been adjusted and
setting forth the adjusted conversion price shall forthwith be prepared, and as
soon as practicable after it is prepared, such notice shall be mailed by the
Company to all Holders at their last addresses as they shall appear in the
Security Register.
SECTION 1306. NOTICE OF CERTAIN CORPORATE ACTION.
In case:
(a) the Company shall declare a dividend (or any other distribution) on
its Common Stock payable (i) otherwise than exclusively in cash or (ii)
exclusively in cash in an amount that would require a conversion price
adjustment pursuant to paragraph (e) of Section 1304; or
(b) the Company shall authorize the granting to the holders of its
Common Stock of rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any other rights (excluding shares of capital
stock or option for capital stock issued pursuant to a benefit plan for
employees, officers or directors of the Company); or
(c) of any reclassification of the Common Stock (other than a
subdivision or combination of the outstanding shares of Common Stock), or of any
consolidation, merger or share exchange to which the Company is a party and for
which approval of any stockholders of the Company is required, or of the sale or
transfer of all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or winding
up of the Company;
(e) the Company or any Subsidiary shall commence a tender offer for all
or a portion of the outstanding shares of Common Stock (or shall amend any such
tender offer to change the maximum number of shares being sought or the amount
or type of consideration being offered therefor); or
(f) the Company shall receive notice of a tender offer or exchange
offer with respect to 25% or more of its outstanding Common Stock;
then the Company shall cause to be filed at each office or agency maintained
pursuant to Section 1002, and shall cause to be mailed to all Holders at their
last addresses as they shall appear in the Security Register, at least 21 days
(or 11 days in any case specified in clause (a), (b), (e), or (f) above) prior
to the applicable record, effective or expiration date hereinafter specified, a
notice stating (x) the date on
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<PAGE> 45
which a record is to be taken for the purpose of such dividend, distribution or
granting of rights or warrants, or, if a record is not to be taken, the date as
of which the holders of Common Stock of record who will be entitled to such
dividend, distribution, rights or warrants are to be determined, (y) the date on
which such reclassification, consolidation, merger, share exchange, sale,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, share exchange, sale, transfer, dissolution, liquidation
or winding up, or (z) the date on which such tender offer or exchange offer
commenced, the date on which such tender offer is scheduled to expire unless
extended, the consideration offered and the other material terms thereof or
exchange offer (or the material terms of any amendment thereto). Neither the
failure to give any such notice nor any defect therein shall affect the legality
or validity of any action described in clauses (a) through (e) of this Section
1306.
SECTION 1307. COMPANY TO RESERVE COMMON STOCK.
The Company shall at all times reserve and keep available, free from
preemptive rights, out of the authorized but unissued Common Stock or out of the
shares of Common Stock held in treasury, for the purpose of effecting the
conversion of Securities, the full number of shares of Common Stock then
issuable upon the conversion of all outstanding Securities. Shares of Common
Stock issuable upon conversion of outstanding Securities shall be issued out of
the Common Stock held in Treasury to the extent available.
SECTION 1308. TAXES ON CONVERSIONS.
The Company will pay any and all taxes that may be payable in respect
of the issue or delivery of shares of Common Stock on conversion of Securities
pursuant hereto. The Company shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that of the Holder of
the Security or Securities to be converted, and no such issue or delivery shall
be made unless and until the Person requesting such issue has paid to the
Company the amount of any such tax, or has established to the satisfaction of
the Company that such tax has been paid.
SECTION 1309. COVENANT AS TO COMMON STOCK.
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Securities will upon issue be fully paid and
nonassessable and, except as provided in Section 1308, the Company will pay all
taxes, liens and charges with respect to the issue thereof.
SECTION 1310. CANCELLATION OF CONVERTED SECURITIES.
All Securities delivered for conversion shall be canceled by the
Company, which shall dispose of the same as provided in Section 309.
44
<PAGE> 46
SECTION 1311. PROVISIONS OF CONSOLIDATION, MERGER OR SALE OF ASSETS.
In case of any consolidation of the Company with, or merger of the
Company into, any other Person, any merger of another Person into the Company
(other than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock) or any sale or
transfer of all or substantially all of the assets of the Company, the Person
formed by such consolidation or resulting from such merger or which acquires
such assets, as the case may be, shall execute and deliver a supplemental
instrument providing that the Holder of each Security then Outstanding shall
have the right thereafter, during the period such Security shall be convertible
as specified in Section 1301, to convert such Security only into the kind and
amount of securities, cash and other property, if any, receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock into which such Security might have been converted immediately
prior to such consolidation, merger, sale or transfer, assuming such holder of
Common Stock (i) is not a Person with which the Company consolidated or into
which the Company merged or which merged into the Company or to which such sale
or transfer was made, as the case may be (a "Constituent Person"), or an
Affiliate of a Constituent Person and (ii) failed to exercise his rights of
election, if any, as to the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer (provided
that if the kind or amount of securities, cash and other property receivable
upon such consolidation, merger, sale or transfer is not the same for each share
of Common Stock held immediately prior to such consolidation, merger, sale or
transfer by other than a Constituent Person or an Affiliate thereof and in
respect of which such rights of election shall not have been exercised
("nonelecting share"), then for the purpose of this Section the kind and amount
of securities, cash and other property receivable upon such consolidation,
merger, sale or transfer by each nonelecting share shall be deemed to be the
kind and amount so receivable per share by a plurality of the nonelecting
shares). Such supplemental instrument shall provide for adjustments which, for
events subsequent to the effective date of such supplemental instrument, shall
be as nearly equivalent as may be practicable to the adjustments provided for in
this Article. The above provisions of this Section shall similarly apply to
successive consolidations, mergers, sales or transfers.
SECTION 1312. INTENTIONALLY OMITTED.
ARTICLE FOURTEEN
RIGHT TO REQUIRE REPURCHASE
SECTION 1401. RIGHT TO REQUIRE REPURCHASE.
In the event that there shall occur a Repurchase Event (as defined in
Section 1406), then each Holder shall have the right, at such Holder's option,
to require the Company to purchase, and upon the exercise of such right, the
Company shall, subject to the provisions of Section 1203, purchase, all or any
part of such Holder's Securities on the date (the "Repurchase Date") that is 30
days after the date the Company gives notice of the Repurchase Event as
contemplated in Section 1402(a) at a price (the "Repurchase Price") equal to
100% of the principal amount thereof, together with accrued and unpaid interest,
but excluding, to the Repurchase Date.
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<PAGE> 47
SECTION 1402. NOTICE; METHOD OF EXERCISING REPURCHASE RIGHT.
(a) On or before the 15th day after the occurrence of a Repurchase
Event, the Company shall give notice of the occurrence of the Repurchase Event
and of the repurchase right set forth herein arising as a result thereof by
first-class mail, postage prepaid, to each Holder of the Securities at such
Holder's address appearing in the Security Register.
Each notice of a repurchase right shall state:
(1) the event constituting the Repurchase Event and the date
thereof,
(2) the Repurchase Date,
(3) the date by which the repurchase right must be exercised,
(4) the Repurchase Price, and
(5) the instructions a Holder must follow to exercise a
repurchase right.
No failure of the Company to give the foregoing notice shall limit any
Holder's right to exercise a repurchase right.
(b) To exercise a repurchase right, a Holder shall deliver to the
Company (or an agent designated by the Company for such purpose in the notice
referred to in (a) above) on or before the close of business on the Repurchase
Date (i) written notice of the Holder's exercise of such right, which notice
shall set forth the name of the Holder, the principal amount of the Security or
Securities (or portion of a Security) to be repurchased, and a statement that an
election to exercise the repurchased right is being made thereby, and (ii) the
Security or Securities with respect to which the repurchase right is being
exercised, duly endorsed for transfer to the Company. Such written notice shall
be irrevocable. If the Repurchase Date falls between any Regular Record Date and
the next succeeding Interest Payment Date, Securities to be repurchased must be
accompanied by payment from the Holder of an amount equal to the interest
thereon which the registered Holder thereof is to receive on such Interest
Payment Date.
In the event a repurchase right shall be exercised in accordance with
the terms hereof, the Company shall on the Repurchase Date pay or cause to be
paid in cash to the Holder thereof the Repurchase Price of the Security or
Securities as to which the repurchase right had been exercised. In the event
that a repurchase right is exercised with respect to less than the entire
principal amount of a surrendered Security, the Company shall execute and
deliver for issuance in the name of the Holder a new Security or Securities,
containing identical terms and conditions, in the aggregate principal amount of
the unrepurchased portion of such surrendered security.
SECTION 1403. DEPOSIT OF REPURCHASE PRICE.
On or prior to the Repurchase Date, the Company shall deposit with a
Paying Agent (or, if the Company is acting as its own Paying Agent, segregate
and hold in trust as provided in Section 1003)
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<PAGE> 48
an amount of money in same day funds sufficient to pay the Repurchase Price of
the Securities which are to be repaid on the Repurchase Date.
SECTION 1404. SECURITIES NOT REPURCHASED ON REPURCHASE DATE.
If any Security surrendered for repurchase shall not be so paid on the
Repurchase Date, the principal shall, until paid, bear interest to the extent
permitted by applicable law from the Repurchase Date at the rate per annum borne
by such Security.
SECTION 1405. SECURITIES REPURCHASED IN PART.
Any Security which is to be repurchased only in part shall be
surrendered at any office or agency of the Company designated for that purpose
pursuant to Section 1002 (with, if the Company so requires, due endorsement by,
or written instrument of transfer in form satisfactory to the Company duly
executed by, the Holder thereof or his attorney duly authorized in writing), and
the Company shall execute and deliver to the Holder of such Security without
service charge, a new Security or Securities, containing identical terms and
conditions, of any authorized denomination as requested by such Holder, in
aggregate principal amount equal to and in exchange for the unrepurchased
portion of the principal of the Security so surrendered.
SECTION 1406. CERTAIN DEFINITIONS.
For purposes of this Article:
(a) A "Repurchase Event" shall have occurred upon the occurrence of a
Change in Control or Termination of Trading after the date of this Statement of
Terms and on or prior to March 15, 2005.
(b) A "Change in Control" shall occur when:
(i) all or substantially all of the Company's assets are sold
as an entirety to any person or related group of persons;
(ii) there shall be consummated any consolidation or merger of
the Company (A) in which the Company is not the continuing or surviving
corporation (other than a consolidation or merger with a wholly owned subsidiary
of the Company in which all shares of Common Stock outstanding immediately prior
to the effectiveness thereof are changed into or exchanged for the same consider
ation) or (B) pursuant to which the Common Stock would be converted into cash,
securities or other property, in each case, other than a consolidation or merger
of the Company in which the holders of the Common Stock immediately prior to the
consolidation or merger have, directly or indirectly, at least a majority of the
total voting power of all classes of capital stock entitled to vote generally in
the election of directors of the continuing or surviving corporation immediately
after such consolidation or merger in substantially the same proportion as their
ownership of Common Stock immediately before such transaction;
(iii) any person, or any persons acting together which would
constitute a "group" for purposes of Section 13(d) of the Exchange Act (a
"Group"), together with any Affiliates thereof, shall
47
<PAGE> 49
beneficially own (as defined in Rule 13d-3 under the Exchange Act) at least 50%
of the total voting power of all classes of capital stock of the Company
entitled to vote generally in the election of directors of the Company; or
(iv) at any time during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by such
Board of Directors or whose nomination for election by the stockholders of the
Company was approved by a vote of 66-2/3% of the directors then still in office
who were either 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 Board of Directors of the Company then in office;
or
(v) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution.
(c) A "Termination of Trading" shall occur if the Common Stock (or
other common stock into which the Securities are then convertible) is neither
listed for trading on a U.S. national securities exchange nor approved for
trading on an established automated over-the-counter trading market in the
United States.
This instrument may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Statement of
Additional Terms and Conditions to be duly executed, and their respective
corporate seals to be hereunto affixed and attested, all as of the day and year
first above written.
RES-CARE, INC.
By: ___________________________
Name: ___________________________
Title: ___________________________
Attest: ________________________________
Name: ________________________________
Title: ________________________________
48
<PAGE> 50
EXHIBIT A
FORM OF FACE OF 5.90% CONVERTIBLE SUBORDINATED NOTE DUE 2005:
THIS SECURITY IS SUBJECT TO SUBSTANTIAL RESTRICTIONS ON
TRANSFER, AS SET FORTH IN THE RESTRICTIVE TRANSFER LEGENDS
CONTAINED ON PAGE R-11 ON THE REVERSE HEREOF.
RES-CARE, INC.
5.90% CONVERTIBLE SUBORDINATED NOTES DUE 2005
NO. K-________
Res-Care, Inc., a corporation duly organized and existing under the laws of
the Commonwealth of Kentucky (herein called the "Company," which term includes
any successor Person under the Statement of Terms hereinafter referred to), for
value received, hereby promises to pay to the order of _______________________,
or its registered assigns, the principal sum of __________ Dollars ($_________)
on March 15, 2005 upon surrender hereof to the Company or any agent which may
hereafter be designated, and to pay interest thereon from the date of original
issuance of the Securities or from and including the most recent Interest
Payment Date to which interest has been paid or duly provided for, semi-annually
on March 15 and September 15 in each year, commencing September 15, 1998 at the
rate of 5.90% per annum, until the principal hereof is paid or made available
for payment. The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest, which shall be the March
1 or September 1 (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for will forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Company or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities may be listed and upon such notice as may be required by such
exchange, all as more fully provided in said Statement of Terms. Notice of a
Special Record Date shall be given to Holders of Securities not less than 10
days prior to such Special Record Date. Payment of the principal of and premium,
if any, and interest on this Security will be made in same day funds at the
office or agency of the Company maintained for that purpose in Louisville,
Kentucky in such coin or currency of the United States of America as of the time
of payment is legal tender for payment of public and private debts; provided,
however, that at the option of the Company payment of interest in respect of
Securities may be made by check mailed to the address of the Holders thereof as
such addresses shall appear in the Security Register.
<PAGE> 51
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: March 12, 1998 RES-CARE, INC.
By: _______________________________________
Authorized Officer
Attest:
___________________________________
- 2 -
<PAGE> 52
FORM OF REVERSE OF 5.90% CONVERTIBLE SUBORDINATED NOTE DUE 2005:
RES-CARE, INC.
5.90% CONVERTIBLE SUBORDINATED NOTES DUE 2005
REVERSE OF SECURITY
This Security is one of a duly authorized issue of Securities of the
Company designated as its 5.90% Convertible Subordinated Notes due 2005 (herein
called the "Securities"), limited in aggregate principal amount to $22,000,000
issued and to be issued under a Stock Purchase Agreement dated as of February
4,1998 among Res-Care, Inc., Normal Life, Inc., and J. Robert Shaver, Kathryn S.
Graham, Frederic H. Davis, and certain individuals listed on Schedule A to the
Stock Purchase Agreement (the "Agreement") and pursuant to the Statement of
Additional Terms and Conditions relating to the Securities included as an
exhibit to the Company's Current Report on Form 8-K filed with the Securities
and Exchange Commission in March, 1998 to reflection completion of the
transactions contemplated the foregoing agreement (herein called the "Statement
of Terms"), to which Statement of Terms reference is hereby made for a statement
of the respective rights, limitations of rights, duties and immunities
thereunder of the Company, the holders of Senior Indebtedness and the Holders of
the Securities and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
Subject to and upon compliance with the provisions of the Statement of
Terms, the Holder of this Security is entitled, at his or her option, at any
time on or after 367 days after the date of original issuance of this Security
and on or before the close of business on March 15, 2005, or in case this
Security or a portion hereof is called for redemption, then in respect of this
Security or such portion hereof until and including, but (unless the Company
defaults in making the payment due upon redemption) not after, the close of
business on the second business day preceding the Redemption Date, to convert
this Security (or any portion of the principal amount hereof which is $1,000 or
an integral multiple thereof), at the principal amount hereof, or of such
portion, into fully paid and non-assessable shares (calculated as to each
conversion to the nearest 1/100th of a share) of Common Stock at a conversion
price equal to $38.7531 principal amount for each share of Common Stock (or at
the current adjusted conversion price if an adjustment has been made as provided
in the Statement of Terms) by surrender of this Security, duly endorsed or
assigned to the Company or in blank, to the Company at its principal executive
office in Louisville, Kentucky or at such agency maintained for that purpose as
the Company shall designate from time to time, accompanied by written notice to
the Company in the form provided in this Security (or such other notice as is
acceptable to the Company) that the Holder hereof elects to convert this
Security, or if less than the entire principal amount hereof is to be converted,
the portion hereof to be converted, and, in case such surrender shall be made
during the period from the opening of business on any Regular Record Date next
preceding any Interest Payment Date to the close of business on such Interest
Payment Date (unless this Security or the portion thereof being converted has
been called for redemption), also accompanied by payment in funds acceptable to
the Company of an amount equal to the interest payable on such Interest Payment
Date on the principal amount of this Security then being converted. Subject to
the aforesaid requirement for payment and, in the case of a conversion after the
Regular Record Date next preceding any Interest Payment Date and
R - 1
<PAGE> 53
on or before such Interest Payment Date, to the right of the Holder of this
Security (or any Predecessor Security) of record at such Regular Record Date to
receive an installment of interest (with certain exceptions provided in the
Statement of Terms), no payment or adjustment is to be made upon conversion on
account of any interest accrued hereon or on account of any dividends on the
Common Stock issued upon conversion. No fractional shares or scrip representing
fractions of shares will be issued on conversion, but instead of any fractional
share the Company shall pay a cash adjustment as provided in the Statement of
Terms. The conversion price is subject to adjustment as provided in the
Statement of Terms. In addition, the Statement of Terms provides that in case of
certain consolidations or mergers to which the Company is a party or the sale or
transfer of all or substantially all of the assets of the Company, the Statement
of Terms shall be amended, without the consent of any Holders of Securities, so
that this Security, if then outstanding, will be convertible thereafter, during
the period this Security shall be convertible as specified above, only into the
kind and amount of securities, cash and other property receivable upon the
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock into which this Security might have been converted immediately
prior to such consolidation, merger, sale or transfer (assuming such holder of
Common Stock failed to exercise any rights of election and received per share
the kind and amount received per share by a plurality of non-electing shares).
The Securities are subject to redemption upon not less than 30 and not
more than 60 days' notice by mail, at any time on or after March 15, 2001 and
prior to Maturity, as a whole or in part, at the election of the Company, at the
Redemption Prices set forth below, expressed as percentages of the principal
amount thereof, plus accrued and unpaid interest to the Redemption Date (subject
to the right of Holders of record on the relevant Regular Record Date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date).
If redeemed during the period beginning March 15 in the year indicated,
and ending on the succeeding February 14, the redemption price shall be:
REDEMPTION YEAR REDEMPTION PRICE
--------------- ----------------
2001 103.37%
2002 102.53%
2003 101.68%
2004 100.85%
2005 100.00%
in each case together with accrued and unpaid interest, if any, up to but not
including the date of redemption.
In certain circumstances involving the occurrence of a Repurchase Event
(as defined in the Statement of Terms), the Holder hereof shall have the right
to require the Company to repurchase all or any part of this Security at 100% of
the principal amount hereof, together with accrued and unpaid interest, if any,
to the Repurchase Date, but interest installments whose Stated Maturity is on or
prior to such Repurchase Date will be payable to the Holders of such Securities,
or one or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Statement of Terms.
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<PAGE> 54
In the event of redemption or conversion of this Security in part only,
a new Security or Securities for the unredeemed or unconverted portion hereof
will be issued in the name of the Holder hereof upon the cancellation hereof.
The Securities shall rank pari passu in right of payment with the
Company's 6% Convertible Subordinated Notes due 2004.
The indebtedness evidenced by this Security is, in all respects,
subordinate and subject in right of payment to the prior payment in full of all
Senior Indebtedness of the Company, and this Security is issued subject to the
provisions of the Statement of Terms with respect thereto. Each Holder of this
Security, by accepting the same, (a) agrees to and shall be bound by the
provisions of the Statement of Terms, (b) authorizes the Company to take such
action as may be necessary or appropriate to effectuate the subordination so
provided, and (c) appoints the Company his attorney-in-fact for any and all such
purposes.
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable in the manner and with the
effect provided in the Statement of Terms.
The Statement of Terms permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities
subject to the Statement of Terms at any time by the Company with the consent of
the Holders of not less than a majority in aggregate principal amount of the
Securities at the time Outstanding, and, under certain limited circumstances, by
the Company, without the consent of the Holders. The Statement of Terms also
contains provisions permitting the Holders of specified percentages in aggregate
principal amount of the Securities at the time Outstanding, on behalf of the
Holders of all the Securities, to waive compliance by the Company with certain
provisions governing the Notes and to waive certain past defaults and Events of
Default under the Statement of Terms and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange here for or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.
No provision of this Security or of the Statement of Terms shall alter
or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of and premium, if any, and interest on this Security at the
times, place and rate, and in the coin or currency, herein prescribed or to
convert this Security as provided in the Statement of Terms.
Subject to certain limitations set forth in the Statement of Terms, the
transfer of this Security is registrable in the Security Register, upon
surrender of this Security for registration of transfer at the office or agency
of the Company in any place where the principal of, and premium, if any, and
interest on this Security are payable, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company (and, if one
has been appointed, the Security Registrar) duly executed by, the Holder hereof
or his attorney duly authorized in writing, and thereupon one or more new
Securities, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.
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<PAGE> 55
The Securities are issuable only in fully registered form without
coupons in minimum denominations of $1,000 and any integral multiple thereof.
Securities are exchangeable for a like aggregate principal amount of Securities
of a different authorized denomination, as requested by the Holder surrendering
the same.
No service charge shall be made for any such registration of transfer
or exchange except as provided in the Statement of Terms, and the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company and any agent of the Company may treat the Person in whose name this
Security is registered as the owner hereof for all purposes, except as provided
in this Security, whether or not this Security be overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Statement of
Terms shall have the meanings assigned to them in the Statement of Terms. The
Company will furnish to any Holder upon written request and without charge a
copy of the Statement of Terms, which shall also be available for inspection at
the Company's executive offices and shall be on file with the Securities and
Exchange Commission so long as the Company has securities registered thereunder.
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<PAGE> 56
[FORM OF CONVERSION NOTICE]
TO RES-CARE, INC.
The undersigned registered owner of this Security hereby irrevocably
exercises the option to convert this Security, or the portion hereof (which is
$1,000 or a multiple thereof) designated below, into shares of Common Stock of
Res-Care, Inc. in accordance with the terms of the Statement of Terms referred
to in this Security, and directs that the shares issuable and deliverable upon
the conversion, together with any check in payment for a fractional share and
any Security representing any unconverted principal amount hereof, be issued and
delivered to the registered Holder hereof unless a different name has been
provided below. If this Notice is being delivered on a date after the close of
business on a Regular Record Date and prior to the close of business on the
related Interest Payment Date, this Notice is accompanied by payment in funds
acceptable to the Company, of an amount equal to the interest payable on such
Interest Payment Date on the principal of this Security to be converted (unless
this Security has been called for redemption). If shares or any portion of this
Security not converted are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto. Any amount required to be paid by the undersigned on account of
interest accompanies this Security.
Dated: __________________________ ___________________________________
Signature(s)
Signature(s) must be guaranteed by an eligible guarantor institution (banks,
stockbrokers, savings and loan associations and credit unions with membership in
an approved signature guarantee medallion program) pursuant to S.E.C. Rule
17Ad-15, if shares of Common Stock are to be delivered, or Securities to be
issued, other than to and in the name of the registered Holder.
____________________________________
Signature Guarantee
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<PAGE> 57
Fill in for registration of shares of Common Stock if they are to be delivered,
or Securities if they are to be issued, other than to and in the name of the
registered Holder:
(Name)
(Street Address)
(City, State and zip code)
(Please print name and address)
Register: _____ Common Stock
_____ Securities
(Check appropriate line(s)).
Principal amount to be converted (if less than all): $__________,000
_______________________________________
Social Security or other Taxpayer Iden-
tification Number of owner
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<PAGE> 58
ASSIGNMENT FORM
If you the holder want to assign this Security, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Security to:
_______________________________________________________________________________
_______________________________________________________________________________
(Insert assignee's social security or tax ID number) __________________________
(Print or type assignee's name, address and zip code) and irrevocably appoint:
_______________________________________________________________________________
_______________________________________________________________________________
Agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
_______________________________________________________________________________
Date:___________________ Your signature: _________________________________
(Sign exactly as your name appears
on the face of this Security)
Signature Guarantee: __________________________________
The signature to this assignment should be guaranteed by an eligible
guarantor institution (banks, stockbrokers, savings and loan associations and
credit unions with membership in an approved signature guarantee medallion
program) pursuant to S.E.C. Rule 17Ad-15.
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<PAGE> 59
[FORM OF CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
REGISTRATION OF TRANSFER OF SECURITIES]
CERTIFICATE FOR EXCHANGE OR TRANSFER
Re: 5.90% Convertible Subordinated Notes due 2005
This Certificate relates to $_________ principal amount of Securities
held in **____________ book-entry or **____________ definitive form by _________
(the "Transferor").
The Transferor **:
In connection with such request and in respect of each such security,
the Transferor does hereby certify to the Company that Transferor is familiar
with the Statement of Terms relating to the above captioned Notes and, as
provided in Section 305 of such Statement of Terms, the transfer of this
Security does not require registration under the Securities Act (as defined
below) because **:
O Such Security is being transferred in accordance with Rule 144 under the
Securities Act, or pursuant to an effective registration statement under the
Securities Act (in satisfaction of Section 305(b)(ii)(B), Section 305(f)(i)(B)
or Section 305(k)(ii) of the Statement of Terms). If such Security is being
transferred in accordance with Rule 144 under the Securities Act, an opinion of
counsel to the effect that such transfer does not require registration under the
Securities Act accompanies this Certificate (in satisfaction of Section
305(b)(ii)(B), Section 305(f)(i)(B) or Section 305(k)(ii) of the Statement of
Terms).
O Such Security is being transferred in reliance on and in compliance with an
exemption from the registration requirements of the Securities Act, other than
Rule 144A, 144 or Regulation S under the Securities Act. An opinion of counsel
to the effect that such transfer does not require registration under the
Securities Act accompanies this Certificate (in satisfaction of Section
305(b)(ii)(C) or Section 305(f)(i)(C) of the Statement of Terms).
You are entitled to rely upon this certificate and you are irrevocably
authorized to produce this certificate or a copy hereof to any interested party
in any administrative or legal proceeding or official inquiry with respect to
the matters covered hereby.
Date: ______________________ By: _____________________________
[INSERT NAME OF TRANSFEROR]
- ------------------------
** Check applicable box.
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<PAGE> 60
[OPTION OF HOLDER TO ELECT PURCHASE]
IF YOU WISH TO HAVE THIS SECURITY PURCHASED BY THE COMPANY PURSUANT TO
SECTION 1401 OF THE STATEMENT OF TERMS, CHECK THE BOX: O
If you wish to have a portion of this Security (which is $1,000 or an
integral multiple thereof) purchased by the Company pursuant to Section 1401 of
the Statement of Terms, state the amount you wish to have purchased:
$ ______________________
Date: ___________________ Your Signature(s): ________________________
Tax Identification No.: ___________________
(SIGN EXACTLY AS YOUR NAME APPEARS ON THE FACE OF THIS SECURITY)
Signature Guarantee: __________________________________________________________
The signature to this option of holder to elect purchase should be
guaranteed by an eligible guarantor institution (banks, stockbrokers, savings
and loan associations and credit unions with membership in an approved signature
guarantee medallion program) pursuant to S.E.C. Rule 17Ad-15.
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<PAGE> 61
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS, AND, ACCORDINGLY, NEITHER THIS SECURITY, THE SHARES OF COMMON
STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN OR THEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. A
HOLDER OF THIS SECURITY WILL NOT BE ABLE TO EXERCISE THE CONVERSION RIGHT PRIOR
TO 367 DAYS AFTER THE DATE OF ORIGINAL ISSUANCE OF THIS NOTE AND THEN ONLY IF
THE RESALE OF THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF IS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933.
THE HOLDER OF THIS SECURITY, BY ITS ACQUISITION HEREOF, AGREES THAT IT
WILL NOT, PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL
ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY),
RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK
ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO THE COMPANY, OR ANY
SUBSIDIARY THEREOF, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (C) PURSUANT TO ANOTHER
APPLICABLE EXEMPTION FROM REGISTRATION IF THE REQUEST FOR TRANSFER IS
ACCOMPANIED BY AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, OR (D) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE
EFFECTIVE AT THE TIME OF SUCH TRANSFER); AND AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF
THE NOTE EVIDENCED HEREBY, OR THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION THEREOF, WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF SUCH NOTE,
THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF
RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE
COMPANY. THIS LEGEND WILL BE REMOVED UPON ANY TRANSFER OF THE NOTE EVIDENCED
HEREBY, OR THE SHARES OF COMMON STOCK ISSUED UPON CONVERSION THEREOF, AFTER THE
EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY.
R - 10
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in this Report on Form
8-K of Res-Care, Inc. to our report, dated February 20, 1998, on the
consolidated financial statements of Normal Life, Inc. and Subsidiaries for the
years ended December 31, 1997 and 1996. We also consent to the references to us
under the heading "Experts" in the Report.
ESKEW & GRESHAM, PSC
/s/ Eskew & Gresham, PSC
March 27, 1998
